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Adeyl Khan, Faculty, BBA, NSU
C11- Supply ChainManagement
Adeyl Khan, Faculty, BBA, NSU
Supply Chain Management
Supply Chain: the sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service.
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Sometimes referred to as value chains
PurchasingReceiving Storage Operations Storage
Production Distribution
Typical Supply Chains
Adeyl Khan, Faculty, BBA, NSU
• Warehouses• Factories• Processing
centers• Distribution
centers• Retail outlets• Offices
Facilities
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• Forecasting• Purchasing• Inventory management• Information management• Quality assurance• Scheduling• Production and delivery• Customer service
Functions and Activities
Adeyl Khan, Faculty, BBA, NSU
Typical Supply Chain for a Manufacturer
Typical Supply Chain for a Service
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Supplier
Supplier
Supplier
Storage} Mfg. Storage Dist. Retailer Customer
Supplier
Supplier
} Storage Service Customer
Adeyl Khan, Faculty, BBA, NSU
Need for Supply Chain Management
Improve operationsIncreasing levels of outsourcingIncreasing transportation costsCompetitive pressuresIncreasing globalizationIncreasing importance of e-commerceComplexity of supply chainsManage inventories
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Adeyl Khan, Faculty, BBA, NSU
Bullwhip Effect
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Final CustomerInitialSupplier
Demand
Inventory oscillations become progressivelylarger looking backward through the supply chain
Adeyl Khan, Faculty, BBA, NSU
Benefits of Supply Chain Management
Lower inventoriesHigher productivityGreater agilityShorter lead timesHigher profitsGreater customer loyaltyIntegrates separate organizations into a cohesive operating system
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Adeyl Khan, Faculty, BBA, NSU
Benefits from SCMOrganization Benefit
Campbell Soup Doubled inventory turnover rate
Hewlett-Packard Cut supply costs 75%
Sport Obermeyer Doubled profits and increased sales 60%
National Bicycle Increased market share from 5% to 29%
Wal-Mart Largest and most profitable retailer in the world
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Adeyl Khan, Faculty, BBA, NSU
Global Supply Chains
Increasing more complex Language Culture Currency fluctuations Political Transportation costs Local capabilities Finance and economics Environmental
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Adeyl Khan, Faculty, BBA, NSU
Elements of Supply Chain Management
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Deciding how to best move and store materialsLogistics
Determining location of facilitiesLocation
Monitoring supplier quality, delivery, and relationsSuppliers
Evaluating suppliers and supporting operationsPurchasing
Meeting demand while managing inventory costsInventory
Controlling quality, scheduling workProcessing
Incorporating customer wants, mfg., and timeDesign
Predicting quantity and timing of demandForecasting
Determining what customers wantCustomers
Typical IssuesElement
Adeyl Khan, Faculty, BBA, NSU
Strategic or Operational
Two types of decisions in supply chain management Strategic – design and policy Operational – day-today activities
Major decisions areas Location Production Inventory Distribution
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Adeyl Khan, Faculty, BBA, NSU
LogisticsRefers to the
movement of materials and information within a facility and to incoming and outgoing shipments of goods and materials in a supply chain
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Movement within the facility
Incoming and outgoing shipments
Bar coding
EDI
Distribution
JIT Deliveries0
214800 232087768
Adeyl Khan, Faculty, BBA, NSU
Materials Movement
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RE
CE
IVIN
G
Storage
Workcenter
Work centerWork center
Storage
Workcenter
Storage
Shipping
Adeyl Khan, Faculty, BBA, NSU
Distribution Requirements PlanningDistribution
requirements planning (DRP) is a system for inventory management and distribution planning
Extends the concepts of MRPII
Used to plan and coordinate various operations
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• Transportation
• Warehousing• Workers• Equipment• Financial flows
Uses of DRP
Adeyl Khan, Faculty, BBA, NSU
E-Business
E-Business: the use of electronic technology to facilitate business transactionsApplications include
Internet buying and selling E-mail Order and shipment tracking Electronic data interchange
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Adeyl Khan, Faculty, BBA, NSU
Advantages E-Business
• Have a global presence• Improve
competitiveness and quality
• Analyze customer interests
• Collect detailed information
• Shorten supply chain response times
• Realize substantial cost savings
• Create virtual companies
• Level the playing field for small companies
Advantages
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• Customer expectations• Order quickly -> fast
delivery• Order fulfillment
• Order rate often exceeds ability to fulfill it
• Inventory holding• Outsourcing loss of
control• Internal holding
costs
Disadvantages
Adeyl Khan, Faculty, BBA, NSU
Reverse Logistics
Reverse logistics – the backward flow of goods returned to the supply chainProcessing returned goods
Sorting, examining/testing, restocking, repairing Reconditioning, recycling, disposing
Gatekeeping – screening goods to prevent incorrect acceptance of goodsAvoidance – finding ways to minimize the number of items that are returned
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Adeyl Khan, Faculty, BBA, NSU
Effective Supply Chain Requires linking the market, distribution channels processes, and suppliers
Supply chain should enable members to: Share forecasts Determine the status of
orders in real time Access inventory data of
partners
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• Trust among trading partners
• Effective communications• Supply chain visibility• Event-management
capability• The ability to detect and
respond to unplanned events
• Performance metrics
Successful Supply Chain
Adeyl Khan, Faculty, BBA, NSU
SCOR MetricsPerspective Metrics
Reliability On-time deliveryOrder fulfillment lead timeFill rate (fraction of demand met from stock)Perfect order fulfillment
Flexibility Supply chain response timeUpside production flexibility
Expenses Supply chain management costsWarranty cost as a percent of revenueValue added per employee
Assets/utilization Total inventory days of supplyCash-to-cash cycle timeNet asset turns
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Adeyl Khan, Faculty, BBA, NSU11-20
Attribute Performance Attribute Definition Level 1 Metric
Supply Chain Reliability
The performance of the supply chain in delivering: the correct product, to the correct place and customer, at the correct time, in the correct condition and packaging, and with the correct quantity and documentation
Delivery Performance
Fill Rates
Perfect Order Fulfillment
Supply Chain Responsiveness
The velocity at which a supply chain provides products to the customer.
Order Fulfillment Lead Times
Supply Chain Flexibility
The agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage.
Supply Chain Response Time
Production Flexibility
Supply Chain CostsThe costs associated with operating the supply chain.
Cost of Goods Sold
Total Supply Chain Management Costs
Value-Added Productivity
Warranty / Returns Processing Costs
Supply Chain Asset Management Efficiency
The effectiveness of an organization in managing assets to support demand satisfaction. This includes the management of all assets: fixed and working capital.
Cash-to-Cash Cycle Time
Inventory Days of Supply
Asset Turn
Adeyl Khan, Faculty, BBA, NSU
RFID Technology
Used to track goods in supply chainRFID tag attached to objectSimilar to bar codes but uses radio frequency to transmit product information to receiverRFID eliminates need for manual counting and bar code scanning
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Adeyl Khan, Faculty, BBA, NSU
CPFR- Collaborative Planning, Forecasting, and ReplenishmentFocuses on information
sharing among trading partners
Forecasts can be frozen and then converted into a shipping plan
Eliminates typical order processing
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• 1. Develop Front End Agreement
• 2. Create the Joint Business Plan
• 3. Create the Sales Forecast• 4. Identify Exceptions for
Sales Forecast• 5. Resolve/Collaborate on
Exception Items• 6. Create Order Forecast 7.
Identify Exceptions for Order Forecast
• 8. Resolve/Collaborate on Exception Items
• 9. Order Generation
CPFR Process
Adeyl Khan, Faculty, BBA, NSU
CPFR Results
Nabisco and Wegmans 50% increase in category sales
Wal-mart and Sara Lee 14% reduction in store-level inventory 32% increase in sales
Kimberly-Clark and Kmart Increased category sales that exceeded market growth
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Adeyl Khan, Faculty, BBA, NSU
Creating an Effective Supply ChainDevelop strategic objectives and tacticsIntegrate and coordinate activities in the
internal supply chainCoordinate activities with suppliers with
customersCoordinate planning and execution across
the supply chainForm strategic partnerships
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• Quality• Cost• Flexibility• Velocity• Customer service
SC Performance Drivers
Inventory velocityThe rate at which inventory(material) goes through the supply chainInformation velocityThe rate at which information is communicated in a supply chain
Adeyl Khan, Faculty, BBA, NSU
Supply chain optimization
• Barriers to integration of organizations
• Getting top management on board
• Dealing with trade-offs• Small businesses• Variability and uncertainty• Long lead times
Challenges
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Adeyl Khan, Faculty, BBA, NSU
Trade-offsBullwhip effect
Inventories are progressively larger moving backward through the supply chain
Cross-docking Goods arriving at a
warehouse from a supplier are unloaded from the supplier’s truck and loaded onto outbound trucks
Avoids warehouse storage
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Delayed differentiation Production of standard
components and subassemblies, which are held until late in the process to add differentiating features
Disintermediation Reducing one or more
steps in a supply chain by cutting out one or more intermediaries
Adeyl Khan, Faculty, BBA, NSU
Supply Chain Issues
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Quality controlProduction planning and control
Inventory policiesPurchasing policiesProduction policiesTransportation policiesQuality policies
Design of the supply chain, partnering
Operating IssuesTactical IssuesStrategic Issues
Adeyl Khan, Faculty, BBA, NSU
Supply Chain Situational ComparisonProble
mPotential
Improvement
Benefits PossibleDrawback
sLarge inventories
Smaller, more frequent deliveries
Reduced holding costs
Traffic congestionIncreased costs
Long lead times
Delayed differentiationDisintermediation
Quick response
May not be feasibleMay need absorb functions
Large number of parts
Modular Fewer partsSimpler ordering
Less variety
CostQuality
Outsourcing Reduced cost, higher quality
Loss of control
Variability Shorter lead times, better forecasts
Able to match supply and demand
Less variety11-28
Adeyl Khan, Faculty, BBA, NSU
PurchasingPurchasing is
responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.
Purchasing cycle: Series of steps that begin with a request for purchase and end with notification of shipment received in satisfactory condition.
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• Develop and implement purchasing plans for products and services that support operations strategies
Goal of Purchasing
• Identifying sources of supply
• Negotiating contracts• Maintaining a database
of suppliers• Obtaining goods and
services• Managing supplies
Duties of Purchasing
Adeyl Khan, Faculty, BBA, NSU
Purchasing Interfaces
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Purchasing
Legal
AccountingOperations
Dataprocessing
Design
ReceivingSuppliers
Adeyl Khan, Faculty, BBA, NSU11-31
• Requisition received
• Supplier selected• Order is placed• Monitor orders• Receive orders
Purchasing Cycle
Purchasing
Legal
AccountingOperations
Dataprocess-ing
Design
Receiving
Suppliers
Adeyl Khan, Faculty, BBA, NSU
Centralized purchasing Purchasing is handled by one special department
Decentralized purchasing Individual departments or separate locations handle their own purchasing requirements
Value analysis Examination of the function of purchased parts and materials in an effort to reduce cost and/or improve performance
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Adeyl Khan, Faculty, BBA, NSU
Supplier selectionChoosing suppliersEvaluating sources of
supplySupplier auditsSupplier certificationSupplier relationshipsSupplier partnerships
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• Quality and quality assurance• Flexibility• Location• Price• Product or service changes• Reputation and financial stability• Lead times and on-time delivery• Other accounts
Factors in Choosing a Supplier
• Vendor analysis: Evaluating the sources of supply in terms of• Price• Quality• Services• Location• Inventory policy• Flexibility
Evaluating Sources of Supply
Adeyl Khan, Faculty, BBA, NSU
Supplier as a PartnerAspect Adversary PartnerNumber of suppliers
Many One or a few
Length of relationship
May be brief Long-term
Low price Major consideration
Moderately important
Reliability May not be high High
Openness Low High
Quality May be unreliable; buyer inspects
At the source; vendor certified
Volume of business
May be low High
Flexibility Relatively low Relatively high
Location Widely dispersed Nearness is important
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Adeyl Khan, Faculty, BBA, NSU
Supplier Partnerships- Ideas could improve competitiveness
Reduce cost of making the purchase Reduce transportation costs Reduce production costs Improve product quality Improve product design Reduce time to market Improve customer satisfaction Reduce inventory costs Introduce new products or services
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Adeyl Khan, Faculty, BBA, NSU
Critical Issues
• Cost• Quality• Agility• Customer service• Competitive advantage
Strategic importance
• Benefits• Risks
Technology management
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• Increased outsourcing
• Increased conversion to lean production
• Just-in-time deliveries
• Globalization
Purchasing function
Adeyl Khan, Faculty, BBA, NSU37
Adeyl Khan, Faculty, BBA, NSU
Learning Objectives
Explain what a supply chain is. Explain the need to manage a supply chain and the potential benefits of doing so. Explain the increasing importance of outsourcing. State the objective of supply chain management. List the elements of supply chain management. Identify the strategic, tactical, and operations issues in supply chain management. Describe the bullwhip effect and the reasons why it occurs.
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Adeyl Khan, Faculty, BBA, NSU
Learning Objectives
Explain the value of strategic partnering. Discuss the critical importance of information exchange across a supply chain. Outline the key steps, and potential challenges, in creating an effective supply chain. Explain the importance of the purchasing function in business organizations. Describe the responsibilities of purchasing. Explain the term value analysis. Identify several guidelines for ethical behavior in purchasing.
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