Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–1

Chapter ObjectivesChapter ObjectivesChapter ObjectivesChapter Objectives

• Introduce the concept of a firm’s supply chain and show how it has evolved over time to its present status.

• Identify current trends that are affecting the characteristics of a supply chain.

• Present the requirements necessary for a successful supply chain.

• Discuss the impact of technology on a firm’s supply chain.

• Define in-transit inventory costs and show how they impact the purchasing decision.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–2

Managerial IssuesManagerial IssuesManagerial IssuesManagerial Issues

• Concentration of resources on the firm’s core competencies such as supply chain management.

• Increasing proportion of purchased goods and services as inputs into products.

• Increased pressure to reduce inventories.• Applying advances in information technology

to strategically manage supplier relationships and the supply chain itself.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–3

Definition of Supply Chain Definition of Supply Chain ManagementManagement

Definition of Supply Chain Definition of Supply Chain ManagementManagement

• Supply Chain–The steps and the firms that perform these steps

in the transformation of raw inputs into finished products bought by customers.

• Inbound Logistics–The delivery of goods and services that are

purchased from suppliers and/or their distributors.

• Outbound Logistics–The delivery of goods and services that are sold

to a firm’s customers and/or distributors.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–4

A Company’s Supply ChainA Company’s Supply ChainA Company’s Supply ChainA Company’s Supply Chain

Exhibit 13.1Exhibit 13.1

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–5

The Evolution of Supply Chain The Evolution of Supply Chain ManagementManagement

The Evolution of Supply Chain The Evolution of Supply Chain ManagementManagement

Exhibit 13.2aExhibit 13.2a

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–6

The Evolution of Supply Chain The Evolution of Supply Chain ManagementManagement

The Evolution of Supply Chain The Evolution of Supply Chain ManagementManagement

Exhibit 13.2bExhibit 13.2b

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–7

The Trend Toward Reducing The Trend Toward Reducing the Number of Suppliersthe Number of Suppliers

The Trend Toward Reducing The Trend Toward Reducing the Number of Suppliersthe Number of Suppliers

Exhibit 13.3Exhibit 13.3

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–8

Key TermsKey TermsKey TermsKey Terms

• Supplier-Managed Inventories–Inventories in a firm’s facility that are the

responsibility of the supplier to maintain and to replenish as necessary.

• Consignment Inventories–Inventories that are physically present in a

firm’s facility but that are still owned by the supplier.

• EDI (electronic data exchange)–Direct link between a manufacturer’s database

and that of the vendor.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–9

Key Terms (cont’d)Key Terms (cont’d)Key Terms (cont’d)Key Terms (cont’d)

• Quick Response (QR) Programs–Just-in-time replenishment system using bar-

code scanning and EDI.

• Efficient Customer Response (ECR)–Strategy for bringing distributors, suppliers, and

grocers together using bar-code scanning and EDI.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–10

Factors Impacting the Supply ChainFactors Impacting the Supply ChainFactors Impacting the Supply ChainFactors Impacting the Supply Chain

ReducedNumber ofSuppliers

ShorterProductLife Cycles

IncreasedCompetition

SupplyChain

Supplier-ManagedInventories

Advances InTechnology

ContingentInventories

Shared orReduced

Risk

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–11

Requirements for Successful Supply ChainRequirements for Successful Supply ChainRequirements for Successful Supply ChainRequirements for Successful Supply Chain

SuccessfulSuccessfulSupply ChainSupply ChainManagementManagement

SuccessfulSuccessfulSupply ChainSupply ChainManagementManagement

TrustTrustTrustTrust Long-TermLong-TermRelationshipsRelationships

Long-TermLong-TermRelationshipsRelationships

InformationInformationSharingSharing

InformationInformationSharingSharingIndividual StrengthsIndividual StrengthsIndividual StrengthsIndividual Strengths

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–12

The Role of Logistics in The Supply The Role of Logistics in The Supply ChainChain

The Role of Logistics in The Supply The Role of Logistics in The Supply ChainChain

• Partnering–Establishing a strategic alliance or partnership

with a firm that specializes in transportation or logistics.

–Using a logistics partner to store finished goods at the logistics partner’s hub or distribution center.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–13

The Role of Logistics in The Supply The Role of Logistics in The Supply ChainChain

The Role of Logistics in The Supply The Role of Logistics in The Supply ChainChain

• In-Transit Inventory Costs–Combination of transportation and carrying

costs associated with delivery of raw materials and components that are inbound to the plant.

Total annual (inbound) costs =Transportation costs + In-transit inventory carrying costs + Purchase costs

TC = DM + (X/365)iDC + DCD = Annual demandM = Transportation cost per unitX = Transportation time in daysi = Annual cost of capital

C = Unit cost per item

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–14

The Trade-Off between Transportation The Trade-Off between Transportation CostsCosts

and the Cost of Capital with Respect and the Cost of Capital with Respect to the Shipment of Productsto the Shipment of Products

The Trade-Off between Transportation The Trade-Off between Transportation CostsCosts

and the Cost of Capital with Respect and the Cost of Capital with Respect to the Shipment of Productsto the Shipment of Products

Exhibit 13.4Exhibit 13.4

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–15

DisintermediationDisintermediationDisintermediationDisintermediation

• Disintermediation–The trend to reduce many of the steps in the

supply chain by reducing the number of intermediaries in the chain.• Cross-docking

• Direct-to-store shipments

–JIT II®: vendor and customer work closely together, eliminating many of the intermediate steps that now exist.• Vendor representative located at facility

• Direct database linkage with vendor’s manufacturing facility.

Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–16

Major SCM Software PackagesMajor SCM Software PackagesMajor SCM Software PackagesMajor SCM Software Packages

Exhibit 13.5Exhibit 13.5