Supply Chain
INeal
Ch1.pptxWhat is Supply Chain?^
A Function, A set of Processes, A multitude of activities
A Department, A Group of people, A group of Interconnected Organizations
Multiple Related Names (taxonomies) and Meanings :
Logistics, Purchasing, Procurement, SC, SCM, Value Chain, Distribution Chain, Supply Network (web)
Complex: Activities, Relations, Context
What do we mean, what are we thinking of when we say SC?
! Logistics – part of SC dealing with the flow and storage of materials, parts, goods and services from suppliers up to the consumer
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Value Chain
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Supply Chain
Marketing and
Distribution
Supply Chain
Value Chain: - A set of interconnected organizations that add value to goods and services from the most basic raw materials to the end customer/user.
- Porter 1980 – primary and support activities that lead to competitive advantage
Supply Chain – part of Value Chain
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Raw Materials
Suppliers
Organization
Distributors Retailers
Consumers
Brief History
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5 M’s
Materials,
Manpower,
Machine,
Management,
Money
SC Evolution
From Clerical to Strategic
Transactional vs. Collaborations and Alliances Relations
Short term vs. Long term perspective
The 5M’s production factors are important : Materials, Manpower, Machine, Management, Money.
– understand and remember the signification, and the shift in their $ amount and % significance to organizations economics
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The Evolution of the Supply Function^
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Pre 1939
1940-49
1950-69
1970-89
1990-1999
Clerical
Supply
assurance
Managerial emphasis
Purchasing strategy
Integration into corporate strategy
Integrated supply networks and information technology
Sustainability, security, globalization, risk management
2000-2010
2010-Future
1800 – 1900: Acknowledge of the need of a person responsible for purchasing – “materials man”. Pennsylvania Railroad – departmental function 1866
1900 – 1939: Journal Articles, Principles, WWW I some recognition but no recognition for having a major role in companies
1940 – 1946: Increase in number of colleges offering courses
1947 – 1960: Gains stature, some viewed as a cost of doing business
1960 – 1970: Oil Crises, Competitive biding
1970 – 1999: Global Competition, Technology, Growth
2000 – Today: Supplier Integration, Globalization => Growing Importance of SC
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The 5 R’s of Purchasing^
Right Item and/or Service
Right Quality
Right Quantity
Right Price
Right Time (some include Place and extend it to the right Delivery)
Some sources include the Right Source (see the 5 Steps)
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Must Know this! Reflect about this vs. Marketing 4P’s
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What steps are involved in the process (5 Steps)^
Identify the need (generate the specifications)
Identify the source – supplier (the pool and select the best source(s))
Establish a price
Generate an enforceable contract
Manage the relationship (including but not limited to delivery and payment)
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Need to Know! Little twisted from the manual.
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Purchase Order (PO), Purchase Requisition, Receiving Report, Invoice, Payment^
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Supplier
Purchasing
Internal department
Accounting
Receiving
Purchased
Goods
(4)
Purchase Requisition (1)
P.O. (3)
Acknowledgement
P.O. (2)
Receiving
Reports
(4’)
Purchased
Goods
(4’)
P.O. A.
(3’)
P.O. A.
(3’)
Invoice (4)
Payment (5)
P.O. A.
(3’)
Receiving
Report
(4’)
An “ ‘ “ shows an internal “follow up” in that specific purchasing step
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Other Supply Chain and Operations Responsibilities
In/out-bound transportation
Receiving
Inspection
Material handling
Warehousing
Inventory control
Disposal/ Recycle
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SC Importance and Impact
Is function of organization’s dollar spent on materials/ parts/ components
Has Operational and Strategic importance
On Profit – Profit Leverage Effect
On ROA/ROI
On Risk; Image
Direct (bottom-line)
Indirect (others’ performance)
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Financial Impact
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Those are just the core components.
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Costs
Materials
Labor
Revenues
Volume
Price
Create/Increase Shareholders Value
S.C. Impact on Revenue/Sales (Marketing function impact)
Pricing Flexibility (more flexibility for marketing depart.)
Improved Quality (75% of quality problems could be traced back to defects in purchased materials)
Reduce Time to Market, Shorter Cycle times and Lead Times (relevant for Time-Based Competition)
Customer Satisfaction and Customer Fulfillment Flexibility
Assist in becoming a Supplier of Choice (higher value offer)
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Profit-Leverage Effect
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Before Spend Decrease
Revenue $100M $100M
Less Purchases -60M -54M (60 x 0.90)
Less Other Costs -32M -32M
Profit 8M 14M (8 x 1.75)
in other words: 10% cost reduction => in 75% profit increase
After 10% Spend Decrease
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S.C. Cost Impact
Product Design (70-80% of total cost of ownership is set during the product design process)
Acquisition costs (both items and services)
Processing, Quality, Conversion costs
Non-Value-Added (activities) costs
Downtime and Cycle Time costs^
Supply Chain Costs (managing SC relations)
Post Ownership Costs (waste, service, warranty)
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Cycle time is the total time from the beginning to the end of your process
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ROA (ROI) (Fig. 1.1 pg.7)
Sales – Total Costs (CGS + Other Costs) Total Assets (Current Assets + Fixed Assets)
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SC and Organization’s Nature
Ownership (figure 1-3)
Public (Gov. – local, state, federal)
Focus on the mission of the organization
Supports the efficiency and effectiveness of the org.
Transparency & Fairness of the supply process
Social aims
Minority support
National security considerations
(mostly services)
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SC and Organization’s Nature
NGO – non profit
Similar issues
More flexibility
Could operate globally
Private (fig 1-4)
Identic to Public 1. & 2. (mission and efficiency & effectiveness)
Lower restrictions on supply process – Commerce Law (mainly)
A tool for obtaining and securing competitive advantage
Commitment to shareholders
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Important
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SC and Organization’s Nature
What is delivered: Goods and/ or services
$ spent on parts, components, materials; $ spent on services and enabling process
Size: Large vs. Small
Enables and/or requires specialization
Location, number of sites
Financial
Ability to obtain “good deals”, discounts
Reputation
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Recap
A historical perspective of SC (including the 5 M’s)
Competition between Chains
Purchasing function, a process at the core of Supply Chain
The 5 R’s and the 5 Stages of procurement
The importance and the impact (direct and indirect) of supply function
SC and the organization’s nature
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Supply Chain
Marketing and
Distribution
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Raw Materials
Suppliers
Organization
Distributors Retailers
Consumers
