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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
Slides used in class may be different from slides in student pack 2
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
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• Warehouses, Factories, Processing centers, Distribution centers, Retail outlets, Offices
• Material and credit flow
• Information flow
• Money flow
Facilities and Flows
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Supply Chain
Cash
Consumer
Retailer
Mfg.
Mat'l Flow
VISA®
VISA®
Credit Flow
Supplier
Supplier Wholesaler
Retailer
FlowOrderFlowSchedules
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Typical Supply Chains
Purchasing
ReceivingStorage
OperationsStorage
Production Distribution
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Supplier
Supplier
Storage} Service Customer
Typical Supply Chain for a Service
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Supply Chain Model
Wholesaler
Suppliers Plants Retail DC StorePlant DC
Organizations areboth suppliers and customers
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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
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• Improve operations -
• Increasing levels of outsourcing -
• Increasing transportation costs -
• Competitive pressures -
Need for Supply Chain Management
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Need for Supply Chain Management
• Increasing globalization -
• Increasing importance of e-commerce -
• Complexity of supply chains -
• Manage inventories -
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What is Outsourcing?
Outsourcing: moving a firm’s internal
activities and decision responsibility to
outside providers.
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Reasons to Outsource
• Organizationally-driven -
• Improvement-driven -
• Financially-driven -
• Revenue-driven -
• Cost-driven -
• Employee-driven -
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Bullwhip Effect
The magnification of variability in orders in the supply-chain.
•
•
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The Bullwhip Effect – Cont’d
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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
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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?
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Inventory Measurement Example (Cont’d)Inventory Turnover
= =
=
Weeks of Supply
=
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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
Slides used in class may be different from slides in student pack 20
• 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
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• The movement of materials and information within a facility and to the incoming and out going shipments of goods and materials
•
Logistics
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Materials MovementR
EC
EIV
ING
Storage
Workcenter
Work centerWork center
Storage
Workcenter
Storage
Shipping
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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
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Information Flow
• Electronic Data interchange (EDI) - computer to computer transmission of transactions between companies
–
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• 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
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• 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
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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– – – –
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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
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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
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Other Challenges
•
•
•
•
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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
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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