16-1supply chain management william j. stevenson operations management 8 th edition

16-1 Supply Chain Management

William J. Stevenson

Operations Management

8th edition

16-2 Supply Chain Management

CHAPTER16

Supply Chain Management

McGraw-Hill/IrwinOperations Management, Eighth Edition, by William J. StevensonCopyright © 2005 by The McGraw-Hill Companies, Inc. All rights

reserved.

16-3 Supply Chain Management

Supply Chain ManagementSupply Chain Management

Supply Chain: the sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service.

Sometimes referred to as Sometimes referred to as value chainsvalue chains

16-4 Supply Chain Management

Functions and ActivitiesFunctions and Activities

Forecasting Purchasing Inventory management Information management Quality assurance Scheduling Production and delivery Customer service

16-5 Supply Chain Management

Typical Supply ChainsTypical Supply Chains

Purchasing Receiving Storage Operations Storage

Production Distribution

16-6 Supply Chain Management

Typical Supply Chain for a ManufacturerTypical Supply Chain for a Manufacturer

Supplier

Supplier

Supplier

Storage} Mfg. Storage Dist. Retailer Customer

Figure 16.1a

16-7 Supply Chain Management

Supplier

Supplier

} Storage Service Customer

Typical Supply Chain for a ServiceTypical Supply Chain for a ServiceFigure 16.1b

16-8 Supply Chain Management

1. Improve operations

2. Increasing levels of outsourcing

3. Increasing transportation costs

4. Competitive pressures

5. Increasing globalization

6. Increasing importance of e-commerce

7. Complexity of supply chains

8. Manage inventories

Need for Supply Chain ManagementNeed for Supply Chain Management

16-9 Supply Chain Management

Bullwhip EffectBullwhip Effect

Tier 2Suppliers

Tier 1Suppliers

Producer Distributor Retailer FinalFinalCustomerCustomer

Amount ofAmount ofinventoryinventory=

Figure 16.3

16-10 Supply Chain Management

Benefits of Supply Chain ManagementBenefits 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

16-11 Supply Chain Management

Benefits of Supply Chain ManagementBenefits of Supply Chain Management

Lower inventories Higher productivity Greater agility Shorter lead times Higher profits Greater customer loyalty

16-12 Supply Chain Management

Elements of Supply Chain ManagementElements 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

Table 16.1

16-13 Supply Chain Management

Logistics Refers to the movement of materials and

information within a facility and to incoming and outgoing shipments of goods and materials in a supply chain

LogisticsLogistics

16-14 Supply Chain Management

LogisticsLogistics

• Movement within the facility

• Incoming and outgoing shipments

• Bar coding

• EDI

• Distribution

• JIT Deliveries

0

214800 232087768

16-15 Supply Chain Management

Materials MovementMaterials MovementFigure 16.4

RE

CE

IVIN

G

Storage

Workcenter

Work centerWork center

Storage

Workcenter

Storage

Shipping

16-16 Supply Chain Management

Distribution requirements planning (DRP) is a system for inventory management and distribution planning

Extends the concepts of MRPII

Distribution Requirements PlanningDistribution Requirements Planning

16-17 Supply Chain Management

Management uses DRP to plan and coordinate: Transportation Warehousing Workers Equipment Financial flows

Uses of DRPUses of DRP

16-18 Supply Chain Management

Electronic Data InterchangeElectronic Data Interchange

EDI – the direct transmission of interorganizational transactions, computer-to-computer, including purchase orders, shipping notices, and debit or credit memos.

16-19 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 InterchangeElectronic Data Interchange

16-20 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 ResponseEfficient Consumer Response

16-21 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 interchange

E-CommerceE-Commerce

16-22 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-CommerceAdvantages E-Commerce

16-23 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-CommerceDisadvantages of E-Commerce

16-24 Supply Chain Management

Successful Supply ChainSuccessful Supply Chain

Trust among trading partners

Effective communications

Supply chain visibility

Event-management capability

The ability to detect and respond to unplanned events

Performance metrics

16-25 Supply Chain Management

SCOR MetricsSCOR 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

Table 16.4

16-26 Supply Chain Management

1. Develop strategic objectives and tactics

2. Integrate and coordinate activities in the internal supply chain

3. Coordinate activities with suppliers with customers

4. Coordinate planning and execution across the supply chain

5. Form strategic partnerships

Creating an Effective Supply ChainCreating an Effective Supply Chain

16-27 Supply Chain Management

Supply Chain Performance DriversSupply Chain Performance Drivers

1. Quality

2. Cost

3. Flexibility

4. Velocity

5. Customer service

16-28 Supply Chain Management

VelocityVelocity

Inventory velocity

The rate at which inventory(material) goes through the supply chain

Information velocity

The rate at which information is communicated in a supply chain

16-29 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

ChallengesChallenges

16-30 Supply Chain Management

1. Lot-size-inventory Bullwhip effect

2. Inventory-transportation costs Cross-docking

3. Lead time-transportation costs

4. Product variety-inventory Delayed differentiation

5. Cost-customer service Disintermediation

Trade-offsTrade-offs

16-31 Supply Chain Management

Supply Chain Benefits and DrawbacksSupply 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

Table 16.5