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Supply Chain Management

BA 339Mellie Pullman

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• SCM is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time.

• Goal:– minimize total system cost subject to satisfying service

requirements.• Notice:

– Everyone is involved– Systems approach to reducing costs– Integration is the key

Major Components of Supply Chain Management

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Supplier Manufacturing plant Distribution center Retailer

Rawmaterials

Work inprocess

Finishedgoods

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Supply Chain Supply Chain ConfigurationConfiguration

Supplier of materialsSupplier of services

Tier 1

Tier 3

Tier 2

Legend

Customer Customer Customer Customer

Distribution center

Distribution center

Manufacturer

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Supply Chain: The Magnitude

• American companies spend a Trillion $ in supply-related activities (or 11% of Gross Domestic Product).– Transportation 58%

– Inventory 38%

– Management 4%

• Third party logistics services growing by 15% per year

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Supply Chain: The Magnitude

• It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies.– A typical box of cereal spends more than three

months getting from factory to supermarket.

– A typical new car spends 15 days traveling from the factory to the dealership, although actual travel time is 5 days.

• Cost of this “pipeline inventory”?

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Supply Chain: The Magnitude

• Compaq computer estimates it lost $500 million to $1 billion in sales in one year because its laptops and desktops were not available when and where customers were ready to buy them.

• In one year, IBM lost a major fraction of its potential sales of desktop computers because it could not purchase enough chips that control the computer displays.

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Supply Chain: The Potential

• In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer.

• Laura Ashley turns its inventory 10 times a year, five times faster than three years ago. This is achieved by using

- New Information System

- Centralized Warehouse

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ISSUES: Purchasing

• Centralized Vs. Decentralized

• Number of suppliers:Single sourcing Vs. Multiple sourcing

• Supply contracts

• Company values such as sustainability or corporate social responsibility

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LogisticsStoring & Moving Strategies

• Warehousing types• Transportation (planes, trains, ships, etc.)• Direct Shipping

– No Distribution Center needed– Lead times reduced– “smaller trucks”

• Examples: Cuneo Cellars & Amazon

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Matching Product & Environment to Supply Chain Design

• Functional ProductsFunctional Products– Staples that people

buy everywhere from 7-11 to Wal-Mart

– Don’t change much over time

– Stable predictable demand

• Innovative ProductsInnovative Products– Rapidly changing– Very short life-cycle

products– Great variety– Very unpredictable

demand

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Supply Chain Types

• Efficient– Whole Supply Chain

and processes are designed to minimize cost

• Responsive– Respond Quickly to

Market Demand– Minimize lead time– Need to have a

variety of products available for customers when they want to buy

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Match Supply Chain to Product type

• Functional– Objective:

predictable supply and low cost

– Low cost production and highly utilized capacity

– High inventory turns– Supply Chain Type?

• Innovative– Objective: Fast

response– Minimal stock outs– Need flexible

capacity (volume)– Inventory of parts– Supply Chain type?

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Supply Chain Strategies

• Gap or Columbia Sportswear– From design to

customer’s hand

• Diapers or Paper Towels

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Consolidation -best place to locate?

Warehouse

Small shipments in ...

Large economical shipments out ...

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Cross-Docking

Warehouse

Small shipments out ...

Large economical shipments in ...

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Characteristics of Cross-Docking:

• Goods spend at most 48 hours in the warehouse,

• Avoids inventory and handling costs,• Wal-Mart delivers about 85% of its goods

through its warehouse system, compared to about 50% for Kmart,

• Stores trigger orders for products.

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System Characteristics:

• Need a fast and responsive transportation system:

• Wal-Mart has a dedicated fleet of 2000 truck that serve their 19 warehouses

• This allows them to – ship goods from warehouses to stores in

less than 48 hours– replenish stores twice a week on average.

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Services

• SCM for Hospitals or Restaurants– Implications for Cross docking versus

Consolidation that affect delivery to customer (customer’s perspective)

• Issues with early e-business models– Clothing & products

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Discussion

-Outline the main process steps for internet grocery delivery?

What doe the customer want?

What are the challenges for the operator?

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