Chapter 8—Supply Chain Management0 Supply Chain Management.

1Chapter 8—Supply Chain Management

Supply Chain ManagementSupply Chain Management


Learning ObjectivesLearning Objectives

Be Able To Apply Concepts Listed In Learning Goals

Be Able To Use Formulas Listed In Equation Summary of Chapter

Avg Aggregate Inventory ValueWeeks of Supply =

Weekly Sales (at Cost)

Annual Sales (at Cost)Inventory Turnover =

Avg Aggregate Inventory Value


IntroductionIntroduction

Materials Are Any Commodities Used Directly or Indirectly in Producing a Product or Service. Raw Materials, Component Parts, Assemblies,

& Supplies

A Supply Chain Is the Way Materials Flow Through Different Organizations From Raw Material Supplier to Finished Goods Consumer.


Supply Chain ManagementSupply Chain Management

Supply Chain Management Includes All Management Functions Related to Flow of Materials From Company’s Direct Suppliers to Its Direct Customers. Includes Purchasing, Traffic, Production Control,

Inventory Control, Warehousing, & Shipping.

Materials Management & Logistics Management Includes All Decisions About Purchasing Materials and Services, Inventories, Production Levels, Staffing Patterns, Schedules, and Distribution.



Inventory at Different Stocking PointsInventory at Different Stocking Points

Supplier Manufacturing plant Distribution centerRetailer

Figure 8.1

Rawmaterials

Work inprocess

Finishedgoods


Supply Chain ManagementSupply Chain Managementin a Manufacturing Plantin a Manufacturing Plant

ReceivingReceivingandand

InspectionInspection

RawRawMaterials,Materials,Parts, andParts, andIn-processIn-process

Ware-Ware-HousingHousing

ProductionProduction

FinishedFinishedGoodsGoodsWare-Ware-

housinghousing

Inspection,Inspection,Packaging,Packaging,

AndAndShippingShippingSu

pplie

rs

Cust

omer

s

Materials Management

Purchasing ProductionControl

Warehousing andInventory Control

Shippingand Traffic

Physical materials flowPhysical materials flowInformation flowInformation flow


Four Important Activities in SCMFour Important Activities in SCM

Purchasing Logistics Warehousing Expediting


PurchasingPurchasing

Factors Increasing Importance of Purchasing Today:

Tremendous Impact of Material Costs on Profit -- 60-70% of Sales Dollar Paid to Material Suppliers

Popularity of JIT Manufacturing -- Supply Deliveries Must Be Exact in Timing, Quantity, & Quality

Increasing Global Competition -- More Competition for Scarce Resources, & Geographically Stretched-out Supply Chain


Mission of PurchasingMission of Purchasing

Develop Purchasing Plans for Each Major Product or Service Consistent With Operations Strategies: Low Production Costs Fast and On-Time Deliveries High Quality Products & Services Flexibility


Purchasing ManagementPurchasing Management

Maintain Database of Available, Qualified Suppliers

Select Suppliers to Supply Each Material Negotiate Contracts With Suppliers Act As Interface Between Company &

Suppliers Provide Training to Suppliers on Latest

Technologies


Managing the Customer InterfaceManaging the Customer Interface

Order Placement Process—Involves Activities Required to Register Need for Product or Service & to Confirm Acceptance of Order

Order Fulfillment Process—Involves Activities Required to Deliver Product or Service to Customer Inventory Pooling Forward Placement Vendor-Managed Inventories Continuous Replenishment


Managing the Supplier InterfaceManaging the Supplier Interface

E-Purchasing EDI—Enables Transmission of Routine

Business Documents with Standard Format over Telephone or Direct Lines

I-ERP—Allowing Portal to ERP System Between Customer and Supplier

Supplier Selection & Certification Selection—Price, Quality, Deliver, Green Certification—Verification Supplier Can Deliver

Goods Customer Requires Supplier Relations Outsourcing


Advantages of Centralized Advantages of Centralized PurchasingPurchasing

Buy in Large Quantities --> Better Prices More Clout With Suppliers --> Greater

Supply Continuity Larger Purchasing Department --> Buyer

Specialization Combine Small Orders --> Less Order Cost

Duplication Combine Shipments --> Lower

Transportation Costs Better Overall Control


Purchasing ProcessPurchasing Process

Material RequisitionMaterial Requisition

Request for QuotationsRequest for Quotations

Select Best SupplierSelect Best Supplier

Purchase OrderPurchase Order

Receive & Inspect GoodsReceive & Inspect Goods

From Purchasing, From Purchasing, To Potential SuppliersTo Potential Suppliers

From Any Department,From Any Department,To PurchasingTo Purchasing

Based on Quality, Price, Based on Quality, Price, Lead Time, DependabilityLead Time, Dependability

From Purchasing, From Purchasing, To Selected SupplierTo Selected Supplier

From Supplier, to Receiving,From Supplier, to Receiving,Quality Control, WarehouseQuality Control, Warehouse


Make-or-Buy AnalysisMake-or-Buy Analysis

Considerations in Make-or-Buy Decisions: Lower Cost - Purchasing or Production? Better Quality - Supplier or In-House? More Reliable Deliveries - Supplier or In-

House? What Degree of Vertical Integration Is

Desirable? Should Distinctive Competencies Be

Outsourced?


JIT PurchasingJIT PurchasingKey Elements of JIT Purchasing Are: Cooperative, Not Adversarial Relationships Longer-Term Relationships, Fewer Suppliers Delivery & Quality Enters Into Selecting a

Supplier JIT in Supplier’s Operation Suppliers Nearby Shipments Delivered Directly to Production

Line Deliveries in Small, Standard-Size,

Returnable Containers Minimum of Paperwork


LogisticsLogistics

Logistics Usually Refers to Management of: Movement of Materials Within Factory Shipment of Incoming Materials From

Suppliers Shipment of Outgoing Products to Customers


Movement of Materials within Movement of Materials within FactoriesFactories

Incoming Incoming VehiclesVehicles

Incoming Incoming VehiclesVehicles

ReceivingReceivingDockDock

ReceivingReceivingDockDock

QualityQualityControlControlQualityQualityControlControl WarehouseWarehouseWarehouseWarehouse

Work Work CenterCenterWork Work CenterCenter

Other Work Other Work CentersCenters

Other Work Other Work CentersCenters PackagingPackagingPackagingPackaging FinishedFinished

GoodsGoodsFinishedFinishedGoodsGoods

ShippingShippingShippingShipping ShippingShippingDockDock

ShippingShippingDockDock

OutgoingOutgoingVehiclesVehiclesOutgoingOutgoingVehiclesVehicles

Typical Locations From/To Which Material Is Moved:Typical Locations From/To Which Material Is Moved:


Shipments To and From FactoriesShipments To and From Factories

Traffic Departments Routinely Examine Shipping Schedules & Select: Shipping Methods Time Tables Ways of Expediting Deliveries

Traffic Management Is Specialized Field Requiring Technical Training in DOT and ICC Regulations & Rates.



Distribution, or Physical Distribution, Is Shipment of Finished Goods Through Distribution System to Customers.

A Distribution System Is Network of Shipping & Receiving Points Starting With Factory & Ending With Customers.



Distribution Requirements Planning DRP Is Planning for Replenishment of

Regional Warehouse Inventories. DRP Uses MRP-type Logic to Translate

Regional Warehouse Requirements Into Central Distribution-Center Requirements, Which Are Then Translated Into Gross Requirements in MPS at Factory.



Distribution Requirements Planning Scheduled Receipts Are Previously-placed

Orders That Are Expected to Arrive in a Given Week

Planned Receipt of Shipments Are Orders Planned, but Not Yet Placed, for the Future

Projected Ending Inventory Is Computed As: Previous Week’s Projected Ending Inventory + Planned Receipt of Shipments in Current Week + Scheduled Receipt of Shipments in Current Week -- Forecasted Demand in Current Week



DRP Time-Phased Order Point Record

Forecasted demand (units)Forecasted demand (units)

Scheduled receiptsScheduled receipts

Projected ending inventoryProjected ending inventory

Planned receipt of shipmentsPlanned receipt of shipments

Planned orders for shipmentsPlanned orders for shipments

Region. Warehouse #1Region. Warehouse #1 LT = 1 LT = 1Std. Quantity = 50 SS = 10Std. Quantity = 50 SS = 10

6060

-1-1

8080

5050

3030

4040

404011 22 33

3030

50505050

50505050

303020201010

404055444040

WeekWeek


Shipments To and From FactoriesShipments To and From FactoriesShipments To and From FactoriesShipments To and From Factories

Distribution Resource Planning Distribution Resource Planning Extends DRP

So That Key Resources of Warehouse Space, Workers, Cash, & Vehicles Are Provided in Correct Quantities at Correct Times.


Innovations in LogisticsInnovations in Logistics

New Developments Affecting Logistics Include: All-Freight Airports Inter-Modal Shipping In-Transit Rates Consolidated Shipments Air-Freight & Trucking Deregulation Advanced Logistics Software


WarehousingWarehousing

Warehousing Is Management of Materials While They Are in Storage.

Warehousing Activities Include: Storing Dispersing Ordering Accounting

Periodic Inventory Perpetual Inventory


WarehousingWarehousing

Record Keeping Within Warehousing Requires Stock Record for Each Item That Is Carried in Inventories.

The Individual Item Is Called a Stock-Keeping Unit (SKU).

Stock Records Are Running Accounts That Show: On-Hand Balance Receipts & Expected Receipts Disbursements, Promises, & Allocations


Inventory AccountingInventory Accounting

In Past, Inventory Accounting Based On: Periodic Inventory Accounting Systems --

Periodic (End-of-Day) Updating of Inventory Records

Physical Inventory Counts -- Periodic (End-of-Year) Physical Counting of All SKUs at One Time

Today, More and More Firms Are Using: Perpetual Inventory Accounting Systems -- Real-

Time Updating of Records As Transactions Occur Cycle Counting -- Ongoing (Daily or Weekly)

Physical Counting of Different SKUs


Measuring the PerformanceMeasuring the PerformanceMaterials ManagersMaterials Managers

Level and Value of In-House Inventories Percentage of Orders Delivered on Time Number of Stockouts Annual Cost of Materials Annual Cost of Transportation Annual Cost of Warehouse Number of Customer Complaints Other Factors


Inventory MeasuresInventory Measures

Avg Aggregate Inventory ValueWeeks of Supply =

Weekly Sales (at Cost)

Annual Sales (at Cost)Inventory Turnover =

Avg Aggregate Inventory Value

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