Supply Chain ManagementSupply Chain Management

Kusdhianto Setiawan, SE, Siv.ØkKusdhianto Setiawan, SE, Siv.Øk

Gadjah Mada UniversityGadjah Mada University

Strategic IssuesStrategic Issues A A supply chainsupply chain is made up of the interrelated organizations, is made up of the interrelated organizations,

resources, and processes that create and deliver products and resources, and processes that create and deliver products and services to end customers.services to end customers.

A supply chain encompasses all the facilities, functions, and A supply chain encompasses all the facilities, functions, and activities involved in producing and delivering a product or service, activities involved in producing and delivering a product or service, from suppliers (and their suppliers) to customers (and their from suppliers (and their suppliers) to customers (and their customers). customers).

Activities:Activities: planning and managing supply and demand; planning and managing supply and demand; acquiring materials; acquiring materials; producing and scheduling the product or service; producing and scheduling the product or service; warehousing, warehousing, inventory controlinventory control distributiondistribution delivery and customer service delivery and customer service

Strategic IssuesStrategic Issues Facilities: Facilities:

plantsplants warehouseswarehouses distribution centersdistribution centers service centersservice centers retail operations. retail operations.

Distribution Mode:Distribution Mode: rail,rail, trucktruck waterwater airair pipelinepipeline computercomputer mailmail telephonetelephone personperson

Processes: Processes: forecasting of product or service forecasting of product or service

demanddemand selecting suppliers (sourcing) selecting suppliers (sourcing) ordering materials (procurement), ordering materials (procurement), inventory controlinventory control scheduling production, scheduling production, shipping and delivery, shipping and delivery, information management, information management, quality management, and quality management, and customer service. customer service.

Other Issues:Other Issues: Vertical IntegrationVertical Integration Supply Chain & TQM share similar a Supply Chain & TQM share similar a

set of goalsset of goals Benchmarking – Competitive Benchmarking – Competitive

AdvantageAdvantage OutsourcingOutsourcing

Supply Chain Management in Practice: Supply Chain Management in Practice: Wal Mart Cross-Docking SystemWal Mart Cross-Docking System

cross-docking system: products are delivered to Wal-Mart's cross-docking system: products are delivered to Wal-Mart's warehouses on a continual basis where they are sorted, warehouses on a continual basis where they are sorted, repackaged, and distributed to stores without sitting in inventory. repackaged, and distributed to stores without sitting in inventory.

Goods "cross" from one loading dock to another in forty-eight hours Goods "cross" from one loading dock to another in forty-eight hours or less. or less.

This system allows Wal-Mart to purchase full truckloads of goods This system allows Wal-Mart to purchase full truckloads of goods while avoiding the inventory and handling costs, in the process while avoiding the inventory and handling costs, in the process reducing its costs of sales to 2 to 3 percent less than the industry reducing its costs of sales to 2 to 3 percent less than the industry average. average.

Wal-Mart then passes these cost savings on to its customers as Wal-Mart then passes these cost savings on to its customers as lower prices. Low prices enable them to forego frequent discount lower prices. Low prices enable them to forego frequent discount promotions which stabilizes prices, which in turn make sales more promotions which stabilizes prices, which in turn make sales more predictable, thus reducing stockouts and the need for excess predictable, thus reducing stockouts and the need for excess inventory. inventory.

Retailers do not all use cross-docking because it is difficult to Retailers do not all use cross-docking because it is difficult to coordinate and manage. To make it work Wal-Mart has invested coordinate and manage. To make it work Wal-Mart has invested heavily in an integrated support system that provides continuous heavily in an integrated support system that provides continuous contact between all of Wal-Mart's suppliers, distribution centers, and contact between all of Wal-Mart's suppliers, distribution centers, and every every point-of-salepoint-of-sale in every store via its own satellite communication in every store via its own satellite communication system. system.

This information system sends out point-of-sale (bar code) data This information system sends out point-of-sale (bar code) data directly to Wal-Mart's 4,000 suppliers. directly to Wal-Mart's 4,000 suppliers.

Wal-Mart owns 2,000 trucks to service its 19 distribution centers; Wal-Mart owns 2,000 trucks to service its 19 distribution centers; this allows the company to ship goods from warehouses to stores this allows the company to ship goods from warehouses to stores within forty-eight hours and restock store shelves an average of within forty-eight hours and restock store shelves an average of twice a week, compared to the industry average of once every two twice a week, compared to the industry average of once every two weeks. weeks.

Cross-docking also requires close management cooperation at all Cross-docking also requires close management cooperation at all levels. levels.

Store managers are connected to each other and to corporate Store managers are connected to each other and to corporate headquarters via a video link that allows for frequent information headquarters via a video link that allows for frequent information exchanges about products, pricing, sales, and promotionsexchanges about products, pricing, sales, and promotions

See Figure 9.1See Figure 9.1

Supply Chain Management in Practice: Supply Chain Management in Practice: Wal Mart Cross-Docking SystemWal Mart Cross-Docking System

Supply Chain LinkagesSupply Chain Linkages 3 primary elements 3 primary elements

structuresstructures processesprocesses the linkages between these structures and processesthe linkages between these structures and processes

Structure include the organizational units that interact within the include the organizational units that interact within the supply chain such as the company, its suppliers, its customers, supply chain such as the company, its suppliers, its customers, distribution channels, design and engineering centers, and distribution channels, design and engineering centers, and manufacturing and service centers. manufacturing and service centers.

Processes include demand planning and supply planning, include demand planning and supply planning, forecasting, sourcing and purchasing, manufacturing and service forecasting, sourcing and purchasing, manufacturing and service operations, logistics (shipping), order entry, materials management, operations, logistics (shipping), order entry, materials management, and new product and service development. and new product and service development.

The key elements in the overall management of a supply chain are The key elements in the overall management of a supply chain are the the linkages between structures and processes. These linkages are between structures and processes. These linkages are usually in the form of shared information and continuous usually in the form of shared information and continuous communication. communication.

Supply Chain LinkagesSupply Chain Linkages cross-functional teams--for example, a team consisting of members --for example, a team consisting of members

from human resources, purchasing and manufacturing who work from human resources, purchasing and manufacturing who work together to coordinate the interaction among these functions. together to coordinate the interaction among these functions.

Cross-enterprise teams coordinate processes between different coordinate processes between different organizations in the supply chain--for example, purchasing, organizations in the supply chain--for example, purchasing, suppliers and distributors. suppliers and distributors.

common measures of performance by which the effectiveness and economy of the supply chain as a whole can be judged. For . For example, if inventory level is an important company measure of example, if inventory level is an important company measure of supply chain performance and marketing has no responsibility for supply chain performance and marketing has no responsibility for inventory, it will seek to maximize inventory in order not to lose any inventory, it will seek to maximize inventory in order not to lose any sales. sales.

Sometimes linkages are created by establishing co-locations--for Sometimes linkages are created by establishing co-locations--for example, joining a warehouse and a manufacturing facility or example, joining a warehouse and a manufacturing facility or combining a supplier and manufacturing facility at one location. combining a supplier and manufacturing facility at one location.

Enterprise Resource Planning (ERP)Enterprise Resource Planning (ERP)

Enterprise resource planning (ERPEnterprise resource planning (ERP) systems are a relatively new type ) systems are a relatively new type of software that gives companies extensive control over (and of software that gives companies extensive control over (and provides information about) their business processes, including most provides information about) their business processes, including most of the supply chain functions. of the supply chain functions.

This type of software generally includes separate integrated modules This type of software generally includes separate integrated modules for controlling and coordinating business processes like forecasting, for controlling and coordinating business processes like forecasting, inventory, manufacturing, purchasing, logistics, human resources, inventory, manufacturing, purchasing, logistics, human resources, and sales. and sales.

These software modules These software modules provide the linkages for most of the supply chain functions in a company. .

ERP systems software has become extremely popular. In 1997 ERP systems software has become extremely popular. In 1997 corporations paid more than $10 billion to ERP companies for corporations paid more than $10 billion to ERP companies for applications software, installation, training, and maintenance. The applications software, installation, training, and maintenance. The leading ERP software firms are SAP, Oracle, J. D. Edwards, leading ERP software firms are SAP, Oracle, J. D. Edwards, PeopleSoft and Bann. Of these firms SAP is by far the largest, so PeopleSoft and Bann. Of these firms SAP is by far the largest, so much so that it has become synonymous with ERP applications much so that it has become synonymous with ERP applications software. software.

See Figure 9.2See Figure 9.2

Current IssuesCurrent Issues The Impact of InternetThe Impact of Internet The Global Supply ChainThe Global Supply Chain

Free Trade and Global Opportunities (Figure 9.3)Free Trade and Global Opportunities (Figure 9.3) Global Supply Chain Problems and SolutionsGlobal Supply Chain Problems and Solutions

avoiding duties or tarrifs – avoiding duties or tarrifs – duty specialistduty specialist trade specialiststrade specialists to help manage transportation and distribution operations in to help manage transportation and distribution operations in

foreign countries. foreign countries. international freight forwardersinternational freight forwarders handle the details of air and ship freight shipments handle the details of air and ship freight shipments

and obtain the legal documents necessary for goods to cross foreign borders. This and obtain the legal documents necessary for goods to cross foreign borders. This includes booking space on carriers, preparing export declarations, obtaining includes booking space on carriers, preparing export declarations, obtaining consular documents (which give permission for goods to enter a country and are consular documents (which give permission for goods to enter a country and are used to determine duties), arranging for insurance, and preparing shipping notices used to determine duties), arranging for insurance, and preparing shipping notices that coordinate the physical movement of goods with their payment. that coordinate the physical movement of goods with their payment.

Customs house brokersCustoms house brokers manage the movement of imported goods through a manage the movement of imported goods through a country's customs procedures. country's customs procedures.

Export packersExport packers perform customized packaging and labeling. perform customized packaging and labeling. Export management companiesExport management companies handle overseas sales for companies and help handle overseas sales for companies and help

them identify foreign companies that can be licensed to manufacture their them identify foreign companies that can be licensed to manufacture their products. products.

Export trading companiesExport trading companies combine all the services of international trade in one combine all the services of international trade in one firm, handling transportation, documentation, and sales. firm, handling transportation, documentation, and sales.

Purchasing & SuppliersPurchasing & Suppliers Single-SourcingSingle-Sourcing

a company purchases a part or material from very few suppliers, a company purchases a part or material from very few suppliers, sometimes only one. sometimes only one.

a company has more direct influence and control over the quality a company has more direct influence and control over the quality and delivery performance of a supplier if the company has a and delivery performance of a supplier if the company has a major portion of that supplier's volume of business. major portion of that supplier's volume of business.

The company and supplier enter into a partnership, referred to The company and supplier enter into a partnership, referred to as as partnering,partnering, in which the supplier agrees to meet the quality in which the supplier agrees to meet the quality standards of the customer in terms of parts, materials, service, standards of the customer in terms of parts, materials, service, and delivery. Suppliers become part of the supply chain of the and delivery. Suppliers become part of the supply chain of the customer. In return, the company enters into a long-term customer. In return, the company enters into a long-term purchasing agreement with the supplier that includes a stable purchasing agreement with the supplier that includes a stable order and delivery schedule. order and delivery schedule.

Purchasing & SuppliersPurchasing & Suppliers The Supplier-Customer RelationshipThe Supplier-Customer Relationship

Reliable Supplier: in terms of quantity, timeliness, and qualityReliable Supplier: in terms of quantity, timeliness, and quality The impact of the supplier-customer relationship on location is The impact of the supplier-customer relationship on location is

pronounced for those companies that require pronounced for those companies that require on-demandon-demand (also (also known as known as direct-responsedirect-response) shipments or use the just-in-time ) shipments or use the just-in-time (JIT) inventory system. For the supplier, JIT means contracting (JIT) inventory system. For the supplier, JIT means contracting to deliver small quantities of items to their customers "just in to deliver small quantities of items to their customers "just in time" for production. time" for production.

Cost savings strategy: Cost savings strategy: continuous replenishment, continuous replenishment, continuous continuous updating of data shared between suppliers and customers such updating of data shared between suppliers and customers such that replenishment, as managed by the supplier, may occur daily that replenishment, as managed by the supplier, may occur daily or even more frequently. or even more frequently.

Type of FacilityType of Facility Heavy-manufacturing facilitiesHeavy-manufacturing facilities are plants that are large, require a lot are plants that are large, require a lot

of space, and are expensive to construct, such as automobile of space, and are expensive to construct, such as automobile plants, steel mills, and oil refineries. plants, steel mills, and oil refineries.

Light-industry facilitiesLight-industry facilities are perceived as cleaner plants that produce are perceived as cleaner plants that produce electronic equipment and components, computer products, or electronic equipment and components, computer products, or assembled products like TVs; breweries; or pharmaceutical firms. assembled products like TVs; breweries; or pharmaceutical firms.

WarehousesWarehouses are an intermediate point in the supply chain where are an intermediate point in the supply chain where products are held for distribution. Normally a warehouse is a products are held for distribution. Normally a warehouse is a building that is used to receive, handle, store, and then ship building that is used to receive, handle, store, and then ship products; however, some of the largest business facilities in the products; however, some of the largest business facilities in the United States are warehouse/distribution centers. United States are warehouse/distribution centers.

Retail and service operations usually require the smallest and least Retail and service operations usually require the smallest and least costly facilities. Examples include retail facilities like groceries and costly facilities. Examples include retail facilities like groceries and department stores, among many others, and such service facilities department stores, among many others, and such service facilities as restaurants, banks, hotels, cleaners, clinics, and law offices. as restaurants, banks, hotels, cleaners, clinics, and law offices. However, there are always exceptions, and some service facilities However, there are always exceptions, and some service facilities like a hospital, a company headquarters, a resort hotel, or a like a hospital, a company headquarters, a resort hotel, or a university academic building can be large and expensive. university academic building can be large and expensive.

Site Selection: Where to LocateSite Selection: Where to Locate Global Location FactorsGlobal Location Factors

Government stability Government stability Government regulations Government regulations Political and economic systems Political and economic systems Economic stability and growth Economic stability and growth Exchange rates Exchange rates Culture Culture Climate Climate Export and import regulations, duties, and tariffs Export and import regulations, duties, and tariffs Raw material availability Raw material availability Number and proximity of suppliers Number and proximity of suppliers Transportation and distribution systems Transportation and distribution systems Labor force cost and education Labor force cost and education Available technology Available technology Commercial travel Commercial travel Technical expertise Technical expertise Cross-border trade regulations Cross-border trade regulations Group trade agreements Group trade agreements

Regional & Community Location Regional & Community Location FactorsFactors Labor (availability, education, Labor (availability, education,

cost, and unions) cost, and unions) Proximity of customers Proximity of customers Number of customers Number of customers Construction/leasing costs Construction/leasing costs Land cost Land cost Modes and quality of Modes and quality of

transportation transportation Transportation costs Transportation costs Community government Community government Local business regulations Local business regulations Government services (e.g., Government services (e.g.,

Chamber of Commerce) Chamber of Commerce) Business climate Business climate Community services Community services

Incentive packages Incentive packages Government regulations Government regulations Environmental regulations Environmental regulations Raw material availability Raw material availability Commercial travel Commercial travel Climate Climate Infrastructure (e.g., roads, water, Infrastructure (e.g., roads, water,

sewers) sewers) Quality of life Quality of life Taxes Taxes Availability of sites Availability of sites Financial services Financial services Community inducements Community inducements Proximity of suppliers Proximity of suppliers Education system Education system

Site Selection: Where to LocateSite Selection: Where to Locate

Location IncentivesLocation Incentives

Tax creditTax creditRelaxed Government RegulationRelaxed Government RegulationJob TrainingJob Training Infrastructures improvementInfrastructures improvementmoneymoney

Location Analysis TechniqueLocation Analysis Technique

Location Factor RatingLocation Factor RatingCenter-of-gravity techniqueCenter-of-gravity techniqueLoad-distance techniqueLoad-distance techniqueComputerized Solutions: POM, Excell OMComputerized Solutions: POM, Excell OM