Slides used in class may be different from slides in student pack 1 Supply Chain Definition Benefits...

Slides used in class may be different from slides in student pack 1

• Supply Chain Definition

• Benefits and Need for Supply Chain Management

• Outsourcing

• Bullwhip Effect

• Measuring Performance

• Purchasing, Logistics, and EDI

• Creating an Effective Supply Chain

Chapter 10

Supply Chain Strategy & 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.

Supply-chain management is a total systems approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer


• Warehouses, Factories, Processing centers, Distribution centers, Retail outlets, Offices

• Material and credit flow

• Information flow

• Money flow

Facilities and Flows


Supply Chain

Cash

Consumer

Retailer

Mfg.

Mat'l Flow

VISA®

VISA®

Credit Flow

Supplier

Supplier Wholesaler

Retailer

FlowOrderFlowSchedules


Typical Supply Chains

Purchasing

ReceivingStorage

OperationsStorage

Production Distribution


Supplier

Supplier

Storage} Service Customer

Typical Supply Chain for a Service


Supply Chain Model

Wholesaler

Suppliers Plants Retail DC StorePlant DC

Organizations areboth suppliers and customers


Benefits of 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


• Improve operations -

• Increasing levels of outsourcing -

• Increasing transportation costs -

• Competitive pressures -

Need for Supply Chain Management


Need for Supply Chain Management

• Increasing globalization -

• Increasing importance of e-commerce -

• Complexity of supply chains -

• Manage inventories -


What is Outsourcing?

Outsourcing: moving a firm’s internal

activities and decision responsibility to

outside providers.


Reasons to Outsource

• Organizationally-driven -

• Improvement-driven -

• Financially-driven -

• Revenue-driven -

• Cost-driven -

• Employee-driven -


Bullwhip Effect

The magnification of variability in orders in the supply-chain.

•

•


The Bullwhip Effect – Cont’d


Causes of the Bullwhip Effect

– Price fluctuations– Periodic order policies at the wholesaler and

manufacturer levels– Rational/shortage gaming .... trade deals offered

by manufacturers to wholesalers– Production schedules based on forecasts of

wholesaler demand versus consumer demand

Slides used in class may be different from slides in student pack

Inventory Formulas for Measuring Supply-Chain Performance

Weeks)(52Sold Goods ofCost

ValueInventory Average Supply of Weeks

valueinventoryAverage

soldgoodsofCostTurnover Inventory


Inventory Measurement Example

• Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million. This company is used to having any inventory turn ratio of 10.

• What is this year’s Inventory Turnover ratio? What does it mean? How many weeks of supply does the company have?


Inventory Measurement Example (Cont’d)Inventory Turnover

= =

=

Weeks of Supply

=


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

From the Supply Chain Council’s Supply Chain Operations Reference Model


• Purchasing is the link between an organization and its suppliers

• Material costs are greater than labor costs

• Companies implementing JIT require small lot deliveries just as they need them

• Products are purchased in the global market

Purchasing in Supply Chain Management


• The movement of materials and information within a facility and to the incoming and out going shipments of goods and materials

•

Logistics


Materials MovementR

EC

EIV

ING

Storage

Workcenter

Work centerWork center

Storage

Workcenter

Storage

Shipping


Value Density

• Value density

• It is used as an important measure when deciding where items should be stocked geographically and how they should be shipped


Information Flow

• Electronic Data interchange (EDI) - computer to computer transmission of transactions between companies

–


• 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

Benefits of Electronic Data Interchange


• 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

Issues in Effective Supply Chain Design


Hau Lee’s Concepts of Supply Chain Design/Management

• Hau Lee’s approach to supply chain (SC) is one of aligning SC’s with the uncertainties revolving around the supply process side of the SC

• A stable supply process has mature technologies and an evolving supply process has rapidly changing technologies

• Types of SC’s– – – –


Hau Lee’s SC Uncertainty Framework

Demand Uncertainty

Low (Functional products)

High (Innovative products)

Efficient SC

Ex.:

Responsive SC

Ex.:

Risk-Hedging SC

Ex.:

Agile SC

Ex.:

Low(Stable Process)

High(Evolving Process)

Supply

Uncertainty


Balancing Supply Chain Capability with Customer Demands

Information

Supply Chain Capability

Customer Requirements

Increased CostsOvertimeExpeditingIncreased Inventory

Increased Demand:

Marketing programs

Promotions

Supply Chain Capability

Customer Requirements

Information

Market Demand,New

Products, Promotions

Suppliers, Manufacturers,

Distributors, Carriers


Other Challenges

•

•

•

•


Mass Customization

• Mass customization is a term used to describe the ability of a company to deliver highly customized products and services to different customers

• The key to mass customization is


Supply Chain Problems, Potential Improvements, 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 to absorb functions performed by intermediary

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

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