12-1

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

Chapter 12

Supply Chain Management

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain 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.

• Each organization is typically both a supplier and a customer in the chain

12-3

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

• Warehouses

• Factories

• Processing centers

• Distribution centers

• Retail outlets

• Offices

Facilities

12-4

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

Typical Supply Chains

Purchasing ReceivingStorageOperationsStorage

Production Distribution

12-5

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

Supplier

Supplier

Storage} Service Customer

Typical Supply Chain for a Service

12-6

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

The Goal

• The goal of supply chain management is to link all components of the chain in order to meet market demand as efficiently as possible

12-7

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

• Improve operations and profitability• Increasing levels of outsourcing• Increasing transportation costs• Competitive pressures• Increasing globalization• Increasing importance of e-commerce• Complexity of supply chains• Manage inventories

Need for Supply Chain Management

12-8

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

Benefits of Supply Chain Management

• Lower inventories• Lower costs• Higher productivity• Improved ability to respond to fluctuations in

demand• Shorter lead times• Higher profits• Greater customer loyalty

12-9

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

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

12-10

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

Elements 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

12-11

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

Characteristics of an Effective Supply Chain

• An effective supply chain should allow each member of the chain to:– Share forecasts– Determine the status of orders in real time– Access inventory data of partners

• The flow of information is just as important as the flow of goods and supplies

12-12

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

• Increasing outsourcing

• Increasing conversion to lean production

• Increasing globalization

Purchasing in Supply Chain Management

12-13

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

Internal Supply Chain

ExternalSupply Chain

InternalSupply Chain

Key:

Suppliers Distribution CustomersProcessing

12-14

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

• Logistics– Refers to the movement of materials and

information within a facility and to incoming and out going shipments of goods and materials

Logistics

12-15

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

Logistics

• Movement within the facility

• Incoming and outgoing shipments

• Bar coding

• EDI

• Distribution

• JIT Deliveries

0

214800 232087768

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

Materials MovementFigure 12-5

RE

CE

IVIN

G

Storage

Workcenter

Work centerWork center

Storage

Workcenter

Storage

Shipping

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

• EDI--direct transmission of interorganizational transactions such as purchase orders and payments through computerized communications

• Benefits:– 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 Interchange

12-18

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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-Commerce

12-19

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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-Commerce

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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-Commerce

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McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

• 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

Creating an Effective Supply Chain

12-22

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

• Quality

• Cost

• Flexibility

• Velocity– Inventory velocity– Information velocity

• Customer service

Supply Chain Performance Drivers

12-23

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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

Challenges

12-24

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

• Lot-size-inventory– Bullwhip effect

• Inventory-transportation costs

• Lead time-transportation costs

• Product variety-inventory

• Cost-customer service

Trade-offs

12-25

McGraw-Hill/IrwinOperations Management, Seventh Edition, by William J. StevensonCopyright © 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

Supply Chain Management

Bullwhip Effect

Tier 2Suppliers

Tier 1Suppliers

Producer Distributor Customers

Ordering

Amount ofinventory=