Business operating management summary

Yuzhi Zhao

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Supply Chain Management and Logistics

COLLIER/EVANS

Operations + Supply Chain Management

LEARNING OUTCOMES, Part 1

Explain the basic concepts of supply chain management

Describe the activities associated with logistics

Describe the types of risks supply chains face and ways to mitigate them

Describe how e-commerce has changed the role of supply chains

OM6 | CH7

LEARNING OUTCOMES, Part 2

List and describe the important metrics used to measure supply chain performance, and be able to evaluate total supply chain costs and cash-to-cash conversion cycles

Describe how organizations are incorporating sustainability issues in managing their supply chains, and explain how manufactured goods recovery and reverse logistics work

OM6 | CH7

Supply Chain Management (SCM), Part 1

LO 12-1

Management of all activities that facilitate the fulfillment of a customer order for a manufactured good

To achieve customer satisfaction at reasonable cost

Requires several operational activities

Working closely with suppliers

Purchasing

Transportation

OM6 | CH12

Supply Chain Management (SCM), Part 2

LO 12-1

Inventory management

Managing risks that may disrupt the supply chain

Measuring supply chain performance

Ensuring sustainability

OM6 | CH12

Logistics

LO 12-1

Component of supply chain management

Management of the flow of materials and transportation activities

To ensure adequate customer service at reasonable cost

Vital to satisfy customers' needs and expectations

Leads to efficiency in supply chain performance

OM6 | CH12

Functions of Logistics

LO 12-1

Selecting transportation carriers

Managing company-owned fleets of vehicles, distribution centers, and warehouses

Controlling efficient interplant movement of materials and goods within supply chains

Ensuring that goods are delivered to customers

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The Supply Chain Operations Reference (SCOR) Model, Part 1

LO 12-1

Framework for understanding the scope of SCM based on functions involved in managing a supply chain

Plan

Source

Make

Deliver

Return

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The Supply Chain Operations Reference (SCOR) Model, Part 2

LO 12-1

Requires a clear understanding of the interactions among all parts of a system

Helps managers identify important performance metrics to manage and monitor their processes

OM6 | CH12

Sourcing, Part 1

LO 12-1

Key activity in manufacturing

Obtaining raw materials, manufactured components, and subassemblies

Sourcing options for services

Employment agencies

Equipment maintenance and repair companies

Information systems providers

Third-party logistic firms

OM6 | CH12

Sourcing, Part 2

LO 12-1

Engineering services

Health services

Retirement providers

Global sourcing - Seeks to balance various economic factors with delivery performance and quantity requirements

OM6 | CH12

Purchasing (Procurement)

LO 12-1

Responsible for acquiring raw materials, component parts, tools, services, and other items required from external suppliers

Acts as an interface between suppliers and the production function in goods-producing firms

Buys the goods necessary to perform services in service firms

OM6 | CH12

Goals of Purchasing

LO 12-1

Supporting key internal customers

Ensuring quality, delivery performance, low cost, and technical support

Seeking new suppliers and products continually

Being able to evaluate the strategic, market, and the economic potential of new suppliers and products to the company

OM6 | CH12

Responsibilities of Purchasing Department, Part 1

LO 12-1

Learning the material needs of the organization

Aggregating orders

Selecting qualified suppliers and negotiating price and contracts

Selecting transportation modes and mix

OM6 | CH12

Responsibilities of Purchasing Department, Part 2

LO 12-1

Ensuring delivery, expediting, and authorizing payments

Monitoring cost, quality, and delivery performance by supplier worldwide

Maintaining good relationships with:

Internal departments

External suppliers

Third-party logistic providers

Transportation services

OM6 | CH12

Principles for Working with Suppliers

LO 12-1

Recognizing suppliers' strategic importance in accomplishing business objectives

Developing a win-win relationship through long-term partnership rather than as adversaries

Establishing trust through openness and honesty, thus leading to mutual advantages

OM6 | CH12

Supply and Value Chain Integration

LO 12-1

Supply chain integration: Coordinating the physical flow of materials

Ensures that the right parts are available at various stages of the supply chain

Value chain integration: Managing information, physical goods, and services

Ensures their availability at the right place, time, cost, and quantity and with the highest attention to quality

OM6 | CH12

Primary Responsibilities of Logistics Managers

LO 12-1

OM6 | CH12

Purchase of Transportation Services

LO 12-2

Involves:

Selecting appropriate modes of shipment and mix of specific carriers

Contracting with suppliers for domestic and global transportation services

Negotiating transportation rates and shipping, insurance, and liability contracts

Managing international trade agreements, custom laws, and import/export fees

Using business analytics to evaluate different shipping options

OM6 | CH12

Modes of Shipment

LO 12-2

OM6 | CH12

Management of Transportation of Materials and Goods through Supply Chain

LO 12-2

Tracing shipments in transit and expedite them when necessary

Coordinating shipments with airports, rail yards, and seaport docks

Issuing and auditing freight bills

OM6 | CH12

Inventory Management

LO 12-2

Managing the flow of goods through warehouses and shipping directly to retail stores and customers

Filing claims for damaged goods

OM6 | CH12

Vendor-Managed Inventory (VMI)

LO 12-2

Vendor monitors and manages inventory for the customer

Advantages

Optimization of production operations

Better control on inventory and capacity

Reduction in total supply chain costs

Disadvantage

Substitutable products from competing manufacturers are not accounted for, resulting in higher than necessary customer inventories

OM6 | CH12

Bullwhip Effect

LO 12-2

Inventories exhibit wild swings up and down

Results from order amplification in a supply chain

Order amplification: Occurs when each member of a supply chain orders up to buffer its own inventory

OM6 | CH12

Steps to Counteract Bullwhip Effect

LO 12-2

Modify the supply chain infrastructure and operational processes

Use smaller order sizes

Stabilize price fluctuations

Share information on sales, capacity, and inventory data among the members of the supply chain

OM6 | CH12

Risk Management

LO 12-3

OM6 | CH12

Exhibit 12.3

Tactical Supply Chain Risks and Possible Management Actions

LO 12-3

Exhibit 12.3 Tactical Supply Chain Risks and Possible Management Actions

Tactical Risks	Ways to Mitigate Tactical Risks
Inventory Risks Inventory and warehouse stockouts Inventory backorders Imbalances between work centers	Add safety stock Change order quantities Reduce lead times Carry extra capacity Add more inventory buffers between stages (work-in-progress)
Capacity Risks Equipment shortage Production capacity shortage Overproduction Equipment breakdowns Employee shortages, strikes, and layoffs	Lease or share extra equipment Schedule overtime Multiple suppliers Schedule under time Frequent preventive maintenance Add temporary and backup (float pool) workers
Logistics and Scheduling Risks Supplier quality problems Supplier delivery problems Long lead times for order cycles Poor transportation infrastructure by country	Add safety stock Change order quantities Increase lead times Extra local warehouse space Increase quality control inspections Hire new and or multiple contract manufacturers and suppliers Partnerships with local transportation firms Emergency and or backup plans to ship by air, truck, ship, or rail by alternative shippers

OM6 | CH1

Exhibit 12.4

Strategic Supply Chain Risks and Possible Management Actions

LO 12-3

Exhibit 12.4 Strategic Supply Chain Risks and Possible Management Actions

Strategic Risks	Ways to Mitigate Strategic Risks
Global Economic Risks Population and wealth forecasts by country Monetary exchange rates and market size Regulations, taxes, and tariff laws by country Natural disasters such as earthquakes, tsunamis, volcanoes, hurricanes, and droughts Workforce skills, pay, and availability	Franchise and company owned store mix Virtual versus direct sales channel mix Facility locations (headquarters, Research and Development, factory, warehouse, service centers, distribution hubs, call centers, and so on) Disaster and emergency plans and pre-deployment of resources Multicountry sourcing of suppliers Championing social sustainability in host country
Government Risks Intellectual or patent rights and protection Man-made disasters such as wars, chemical spills, transportation accidents, political revolutions, government instability, and terrorist attacks	Global legal team to defend infringement Facility locations (headquarters, Research and Development, factory, warehouse, service centers, distribution hubs, call centers, and so on)
Product Risks Product modifications due to cultural differences Major forecasting errors by product by country Chronic inventory and or capacity shortages Goods and service (product) obsolescence	Better strategic planning and demand forecasting capability (for instance, hire experts, upgrade software and hardware data mining technology including social networks) Cooperative plans to share resources Hire more contract manufacturers and suppliers (outsourcing) Hedging inventory
Security Risks E-commerce system downtime Cybersecurity Theft, fraud, and payoff practices by country	Technology upgrades and backup systems and sites Sourcing (hiring) criteria for workforce Corporate value and mission statements

OM6 | CH1

Supply Chains in E-Commerce

LO 12-4

Government value chains use e-commerce to provide better service for citizens, control waste and fraud, and minimize costs

Electronic tax filing and direct-deposit of monthly Social Security checks

Food stamps in the form of electronic credit cards

Electronically filed student loan applications

OM6 | CH12

Exhibit 12.5

E-Commerce View of the Supply Chain

LO 12-4

OM6 | CH1

Exhibit 12.6

Common Metrics Used to Measure Supply Chain Performance

LO 12-4

Exhibit 12.6 Common Metrics Used to Measure Supply Chain Performance

Metric Category	Metric	Definition
Delivery reliability	Perfect order fulfillment	The number of perfect orders divided by the total number of orders
Responsiveness	Order fulfillment lead time	The time to fill a customer’s order
Responsiveness	Perfect delivery fulfillment	The proportion of deliveries that were not just complete but also on time
Customer-related	Customer satisfaction	Customer perception of whether customers receive what they need when they need it, as well as such intangibles as convenient time of delivery, product and service quality, helpful manuals, and after-sales support
Supply chain efficiency	Average inventory value	The total average value of all items and materials held in inventory
Supply chain efficiency	Inventory turnover	How quickly goods are moving through the supply chain
Supply chain efficiency	Inventory days’ supply	How many days of inventory are in the supply chain or part of the supply chain?
Sustainability	Carbon dioxide emissions	The tons of carbon dioxide emissions generated per manufactured good or service process
Sustainability	Energy reduction	How many kilowatt hour are needed before or after the change to the product, facility, equipment, process, or value chain
Financial	Total supply chain costs	Total costs of order fulfillment, purchasing, maintaining inventory, distribution, technical support, and production
Financial	Warranty or returns processing costs	The cost associated with repairs or restocking goods that have been returned
Blank	Cash-to-cash conversion cycle	The average time to convert a dollar spent to acquire raw materials into a dollar collected for a finished good

OM6 | CH1

Calculating Total Supply Chain Cost (TSCC)

OM6 | CH12

Calculating Cash-to-Cash Conversion Cycle

LO 12-5

Inventory days' supply (IDS) = Average total inventory/cost of goods sold per day

Cost of goods sold per day (CGS/D) = Cost of goods sold value/operating days per year

ARDS = Accounts receivable value/revenue per day

APDS = Accounts payable value/revenue per day

Revenue per day (R/D) = Total revenue/operating days per year

OM6 | CH12

Supplier Certification

LO 12-5

Certified supplier: Supplies material of such quality that routine testing on each lot received is unnecessary

Provides recognition for high-quality suppliers, which motivates them to improve continuously and attract more business

Driven by performance measurement and rating processes

OM6 | CH12

Green Sustainable Supply Chain

LO 12-6

Uses environmentally friendly inputs and transforms these inputs through change agents

Byproducts can improve or be recycled within the existing environment

Resulting outputs can be reclaimed and reused at the end of their life-cycle

OM6 | CH12

Manufactured Good Recovery

LO 12-6

Recovering manufactured goods that will be discarded or unusable

Reuse or resell an equipment

Repair and refurbish a manufactured good

Remanufacture a good

Cannibalize parts

Recycle goods

Incineration or landfill disposal of goods

OM6 | CH12

Reverse Logistics

LO 12-6

Manages the flow of finished goods, materials, or components that are unusable or discarded

Uses supply chain from customers toward either suppliers, distributors, or manufacturers

Purpose - Reuse, resale, or disposal

Activities - Logistics, marketing/sales, accounting/finance, call center service, and legal/regulatory compliance

OM6 | CH12

KEY TERMS

Supply chain management (SCM)

Logistics

The supply chain operations reference (SCOR) model

Purchasing (procurement)

Supply chain integration

Value chain integration

Vendor-managed inventory (VMI)

Order amplification

Risk management

Intermediary

Return facilitators

Pipeline inventory

Certified supplier

Green sustainable supply chain

Reverse logistics

OM6 | CH7

SUMMARY, PART 1

Managing supply chains requires numerous operational decisions

Logistics manages the flow of materials and transportation activities

Firms face several risks in managing supply chains

E-commerce has greatly influenced the design and management of supply chains

OM6 | CH7

SUMMARY, PART 2

Supply chain metrics balance customer requirements and internal supply chain efficiencies

Sustainable supply chains use environment-friendly inputs

OM6 | CH7

4LTR Press

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