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OM6-1 Supply Chain Management
Chapter 12
Supply Chain Management
OM6-2 Supply Chain Management
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.
OM6-3 Supply Chain Management
• Warehouses
• Factories
• Processing centers
• Distribution centers
• Retail outlets
• Offices
Facilities
OM6-4 Supply Chain Management
Typical Supply Chains
Purchasing ReceivingStorageOperationsStorage
Production Distribution
OM6-5 Supply Chain Management
Typical Supply Chain for a Manufacturer
Supplier
Supplier
Supplier
Storage} Mfg. Dist. Retailer CustomerStorage
OM6-6 Supply Chain Management
Supplier
Supplier
Storage} Service Customer
Typical Supply Chain for a Service
OM6-7 Supply Chain Management
Customers are Suppliers
InitialSupplier
Customer
Supplier
Customer
Supplier
Customer
Supplier
FinalCustomer
OM6-8 Supply Chain Management
• Improve operations• Increasing levels of outsourcing• Increasing transportation costs• Competitive pressures• Increasing globalization• Increasing importance of e-commerce• Complexity of supply chains• Manage inventories
Need for Supply Chain Management
OM6-9 Supply Chain Management
Benefits if Supply Chain Management
Organization 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
OM6-10 Supply Chain Management
Elements of Supply Chain Management
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
OM6-11 Supply Chain Management
• Increasing outsourcing
• Increasing conversion to lean production
• Increasing globalization
Purchasing in Supply Chain Management
OM6-12 Supply Chain Management
Internal Supply Chain
ExternalSupply Chain
InternalSupply Chain
Key:
Suppliers Distribution CustomersProcessing
OM6-13 Supply Chain Management
Supply Chain Issues
Quality controlProduction planning and control
Inventory policiesPurchasing policiesProduction policiesTransportation policiesQuality policies
Design of the supply chain, partnering
Operating IssuesTactical IssuesStrategic Issues
OM6-14 Supply Chain Management
SCOR Metrics
Perspective 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
OM6-15 Supply Chain Management
• Logistics– Refers to the movement of materials and
information within a facility and to incoming and out going shipments of goods and materials
Logistics
OM6-16 Supply Chain Management
Logistics
• Movement within the facility
• Incoming and outgoing shipments
• Bar coding
• EDI
• Distribution
• JIT Deliveries
0
214800 232087768
OM6-17 Supply Chain Management
Materials MovementFigure 12-5
RE
CE
IVIN
G
Storage
Workcenter
Work centerWork center
Storage
Workcenter
Storage
Shipping
OM6-18 Supply Chain Management
• Increased productivity• Reduction of paperwork• Lead time and inventory reduction• Facilitation of just-in-time systems• Electronic transfer of funds• Improved control of operations• Reduction in clerical labor• Increased accuracy
Electronic Data Interchange
OM6-19 Supply Chain Management
• Efficient consumer response (ECR) is a supply chain management initiative specific to the food industry– Reflects companies’ efforts to achieve
quick response using EDI and bar codes
Efficient Consumer Response
OM6-20 Supply Chain Management
• Distribution requirements planning (DRP) is a system for inventory management and distribution planning
• Extends the concepts of MRPII
Distribution Requirements Planning
OM6-21 Supply Chain Management
• Management uses DRP to plan and coordinate: – Transportation– Warehousing– Workers– Equipment– Financial flows
Uses of DRP
OM6-22 Supply Chain Management
• E-Commerce: the use of electronic technology to facilitate business transactions
• Applications include– Internet buying and selling– E-mail– Order and shipment tracking– Electronic data iterchange
E-Commerce
OM6-23 Supply Chain Management
• Companies can:– 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 E-Commerce
OM6-24 Supply Chain Management
• 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 of E-Commerce
OM6-25 Supply Chain Management
• Buyer exchange
• MRO-catalog hub
• Supplier exchange
• BPO
• Neutral exchange
B2B Market Places
OM6-26 Supply Chain Management
• Develop strategic objectives and tactics
• Integrate and coordinate activities in the internal supply chain
• Coordinate suppliers with customers
• Coordinate planning and execution
• Form strategic partnerships
Creating an Effective Supply Chain
OM6-27 Supply Chain Management
• Quality
• Cost
• Flexibility
• Velocity
• Customer service
Supply Chain Performance Drivers
OM6-28 Supply Chain Management
• Barriers to integration of organizations
• Getting top management on board
• Dealing with trade-offs
• Small businesses
• Variability and uncertainty
• Long lead times
Challenges
OM6-29 Supply Chain Management
• Lot-size-inventory– Bullwhip effect
• Inventory-transportation costs
• Lead time-transportation costs
• Product variety-inventory
• Cost-customer service
Trade-offs
OM6-30 Supply Chain Management
Bullwhip Effect
Tier 2Suppliers
Tier 1Suppliers
Producer Distributor Customers
Ordering
Amount ofinventory=
OM6-31 Supply Chain Management
Supply Chain Benefits and Drawbacks
Problem PotentialImprovement
Benefits PossibleDrawbacks
Large 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 variety