ce 13 - interorganizational processes: supply chain management

Chapter Extension 13

Interorganizational Processes:

Supply Chain Management

Q1: What are typical interorganizational processes?

Q2: What is a supply chain?

Q3: What factors affect supply chain performance?

Q4: How does supply chain profitability differ from organizational profitability?

Q5: What is the bullwhip effect?

Q6: How do information systems affect supply chain performance?

Study Questions

Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall CE13-2

• Interorganizational process– One in which process activities occur in two or more independent

organizations

– Cooperation is governed by negotiation and contract, and conflict resolution is done by negotiation, arbitration, and litigation

– Varies in scope and complexity• Simple—retailer processes credit card transaction. Retailer,

customer, and credit card company, possibly bank part of payment process

• Complex—Boeing, General Electric, and other companies for supplying engines and parts for 787 aircraft

• Purpose of chapter extension: To understand principles of

generic supply chain management

Q1: What Are Typical Interorganizational Processes?


• Network of organizations and facilities that:– Transforms raw materials into products delivered to

customers– Works with companies and consumers up and

down the chain• Customers order from retailers• Retailers order from distributors• Distributors order from manufacturers• Manufacturers get raw materials from suppliers• Transportation companies, warehouses, and inventories

also involved

Q2: What Is a Supply Chain? (video)


• Figure CE13-1

Supply Chain Relationships


• Figure CE13-2

Supply Chain Example: REI


1. Facilities• Location, size, and operations methodology (places

where products are fabricated, assembled, or stored)

2. Inventory• Size, inventory management• Raw materials, in-process work, and finished goods• Balance between availability and cost• Frequency and size of orders

3. Transportation• Movement of materials• Transportation mode and routing decisions influence

speed and costs

Q3: What Factors Affect Supply Chain Performance?


4. Information • Requests, responses, and communications

between organizations • Purpose of the information

– Transactional, such as orders and order returns– Informational, such as the sharing of inventory and

customer order data.

• Availability – Ways in which organizations share their information and

when

• Means – Methods by which information is transmitted

Q3: What Factors Affect Supply Chain Performance? (cont’d)


• Figure CE13-3

Drivers of Supply Chain Performance


• Supply Chain Profitability – Difference between sum of revenue generated and sum of

costs incurred

• Maximum profit from chain– Cannot be achieved if each organization maximizes its profits

in isolation– Profitability increases when one or more operate at less than

its own maximum profitability

• Why? – When one supplier loses sale due to out-of-stock, others in

supply chain lose revenue

Q4: How Does Supply Chain Profitability Differ from Organizational Profitability?


• Variability in the size and timing of orders increases at each stage up the supply chain, from customer to supplier

• Natural dynamic of multistage nature of supply chain– Unrelated to erratic customer demand– Large fluctuations force distributors, manufacturers, and

suppliers to carry larger inventories– Reduces overall profitability of supply chain

• Eliminate bullwhip by giving participants access to consumer-demand information– Interorganizational information systems needed to share data

Q5: What Is the Bullwhip Effect?


• Figure CE13-4

The Bullwhip Effect


1. Reduce cost of buying and selling• Sourcing, buying, and selling all faster, easier, more effective

2. Increase supply chain speed• Dollar value of goods exchanged in given period of time

3. Enable suppliers and customers to reduce inventory size and costs

4. Fix bullwhip effect problem

5. Improve delivery scheduling• Enable just-in-time inventory• Allow manufacturers to reduce raw materials inventory size

6. Do not optimize supply chain profitability

Q6: How Do Information Systems Affect Supply Chain Performance?


• Distributor has developed information system that reads data up and down supply chain

A. Store inventories of all retailers are low. You know retailers will be sending rush orders. You have overstocked on supply. You query manufacturers’ database and find finished goods are low. You increase your price claiming extra transportation costs, but increase was to increase your profit instead.

B. Competitor has large supply as well, and does not increase price, so you sell no product. You want to track competitor’s inventories, which can be estimated by watching on manufacturer side and comparing to decrease sales on retail side. You know what was made, sold, and left competitor’s inventory.

Ethics Guide: The Ethics of Supply Chain Information Sharing


C. Your agreement with customers permits you to query their inventory levels, but only for orders they have with you. You are not to query orders they have with your competitors. A system has a flaw and allows you to query all orders.

D. Assume same agreement as situation C. One of your developers writes a program allowing you to exploit a hole in retailer’s security system. This gives you access to all of retailer’s sales, inventory, and order data.

• Legal? Ethical? Smart? What’s the risk to you and your business?

• How do you protect your systems and data in a supply chain?

Ethics Guide (cont’d)


Q1: What are typical interorganizational processes?

Q2: What is a supply chain?

Q3: What factors affect supply chain performance?

Q4: How does supply chain profitability differ from organizational profitability?

Q5: What is the bullwhip effect?

Q6: How do information systems affect supply chain performance?

Active Review


CE13-17

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Copyright © 2010 Pearson Education, Inc. Publishing as Prentice Hall

ce 13 - interorganizational processes: supply chain management

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