609 Assignment 4 & Discussion 4

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Supply Chain Management

What is a Supply Chain?

The network of external suppliers, internal processes, and external distributors, and the links connecting them, that deliver a finished product or service to the customer.

A Basic Supply Chain

Supply Chain Management

Supply Chain Management entails:

Making decisions regarding the structure of the supply chain
Coordinating the movement of goods and delivery of services
Sharing information between members of the supply chain.

SCM Factors

SCM must consider the following trends, improved capabilities, & realities:
Consumer Expectations and Competition – power has shifted to the consumer
Globalization – capitalize on emerging markets
Information Technology – e-commerce, Internet, EDI, scanning data, intranets
Government Regulations - like trade barriers
Environment Issues – e.g. waste minimization

Components of a
Typical Supply Chain

External

Suppliers

Internal

Functions

External

Distributors

INFORMATION

External Suppliers

External suppliers provide the necessary raw materials, services, and component parts.
Purchased materials & services frequently represent 50% (or more) of the costs of goods sold.
Suppliers are frequently members of several supply chains – often in different roles.

External Suppliers

Tier one suppliers:
Directly supplies materials or services to the firm that does business with the final customer
Tier two suppliers:
Provides materials or services to tier one suppliers
Tier three suppliers:
Providers materials or services to tier two suppliers

Internal Functions

Vary by industry & firm, but might include:
Processing
Purchasing
Production Planning & Control
Quality Assurance
Shipping

Logistics & Distribution

Logistics: getting the right material to the right place at the right time in the right quantity:
Traffic Management:
The selection, scheduling & control of carriers (e.g.: trucks & rail) for both incoming & outgoing materials & products
Distribution Management:
The packaging, storing & handling of products in transit to the end-user.

Dairy Products Supply Chain

Vertical Integration

A measure of how much of the supply chain is controlled by the manufacturer.
Backward integration:
Acquiring control of raw material suppliers.
Forward integration:
Acquiring control of distribution channels.

Outsourcing

Entails paying third-party suppliers to provide raw materials and services, rather than making them in-house.
Outsourcing is increasing as many firms try to focus their internal operations on what they do best.

Insourcing vs. Outsourcing

What questions need to be asked before sourcing decisions are made?
Is product/service technology critical to firm’s success?
Is operation a core competency?
Do you have the capital to provide capacity & keep the process current?
Will outsourcing extend lead times and limit flexibility?
Can others do it for less cost and better quality?

Purchasing’s Role in SCM

Purchasing role has attained increased importance since material costs represent 50-60% of cost of goods sold
Ethics considerations
Developing supplier relationships
Determining how many suppliers
Developing partnerships
Industry trend is to a much smaller supplier base. Why?

Partnering with Suppliers

Involves developing a long-term, mutually-beneficial relationship:
Requires trust to share information, risk, opportunities, & investing in compatible technology
Work together to reduce waste and inefficiency & develop new products
Agree to share the gains

Supplier Relationships and JIT

Use single-source suppliers when possible
Build long-term relationships
Work together to certify processes
Co-locate facilities to reduce transport if possible
Stabilize delivery schedules
Share cost & other information
Early involvement during new product designs

The Role of Warehouses

General Warehouses:
Used for long-term storage of goods
Distribution Warehouses:
Transportation consolidation:
Consolidate LTL into TL deliveries
Product mixing & blending:
Group multiple items from various suppliers
Improve service:
Reduced response time
Allow for last-minute customization

Information Flow in Supply Chains

Information Sharing

Supply chain partners can benefit by sharing information on sales, demand forecasts, inventory levels & marketing campaigns
Inaccurate or distorted information leads to the Bullwhip Effect

The Bullwhip Effect

If information isn’t shared, everyone has to guess what is going on downstream.
Guessing wrong leads to too much or too little inventory:
If too much, firms hold off buying more until inventories fall (leading suppliers to think demand has fallen).
If too little, firms demand a rush order & order more than usual to avoid being caught short in the future (leading suppliers to think demand has risen).

Short-Circuit the Bullwhip

Make information transparent:
Use Electronic Data Interchange (EDI) to support Just-In-Time supplier replenishment
Use bar codes & electronic scanning to capture & share point-of-sale data
Eliminate wholesale price promotions & quantity discounts

Electronic Data Interchange

The most common method of using computer-to-computer links to exchange data between supply chain partners in a standardized format.
Benefits include:
Quick transfer of information
Reduced paperwork & administration
Improved data accuracy & tracking capability

Integrated SCM

Implementing integrated SCM requires:
Analyzing the whole supply chain
Starting by integrating internal functions first
Integrating external suppliers through partnerships

Possible Supply Chain Objectives
Reduce costs, improve quality
Reduce lead time and inventory
Reduce time to market
Increase sales
Improve demand data/forecasting