Productions and Operations Management

Supply Chain Management

(Chapter 4)

Production & Operations Management

INFO 335-71

Week 5

2

Learning Objectives

⚫ Describe the structure of supply chains

• Describe the bullwhip effect ⚫ Describe the major issues that affect supply chain

management

• Internet and e-Commerce (B2B and B2C); Customer Expectations/Competition; Globalization; Regulations; Green SCM; Infrastructure

⚫ Purchasing in supply chain management

⚫ Distribution

⚫ Describe trends in supply chain management

3

Supply Chains & SCM Defined

A supply chain is the network of all the activities involved in delivering a finished product/service to the customer

• Sourcing of: raw materials, manufacturing & assembly, warehousing, order entry & tracking, distribution, delivery

Supply Chain Management is the vital business function that coordinates and manages all the activities of the supply chain.

• Coordinates movement of goods through supply chain from suppliers to manufacturers to distributors

• Promotes information sharing along chain like forecasts, sales data, & promotions

4

Supply Chain Structure

5

A Traditional Supply Chain

Information Flow

The Bullwhip Effect - defined

the inaccurate or distorted demand information

created in the supply chain

⚫ Causes generated by

• demand forecasting updating,

• order batching, • price fluctuations, • rationing and • gaming

⚫ Results in

• Excessive inventory investment

• Poor customer service levels

• Ineffective transportation use

• Misused manufacturing capacity

• Lost revenues 6

7

Major Issues Affecting SCM

⚫ Information Technology

⚫ Customer/Competition

• Green Supply Chains ⚫ Globalization

• Infrastructure • Product Proliferation (Visibility)

⚫ Regulations

⚫ Risk

8

Purchasing/Sourcing Issues

Consider which products to produce in-house and which are provided by other supply chain members

⚫ Vertical integration – a measure of how much of the supply chain is owned or operated by the manufacturer • Backward integration – owning or controlling of

sources of raw material and components

• Forward integration – owning or controlling the channels of distribution

⚫ Partnerships

9

Make or Buy Analysis

Analysis will look at the expected sales levels

and cost of internal operations vs. cost of

purchasing the product or service

( )

( )

( ) ( )QVCFCQVCFC

QVCFCTC

QVCFCTC

MakeMakeBuyBuy

MakeMakeMake

BuyBuyBuy

+=+

+=

+=

:PointceIndifferen

:InsourcingofCostTotal

:gOutsourcinofCostTotal

10

Make or Buy Example

Mary and Sue decide to open a bagel shop. Their first

decision is whether they should make the bagels on-

site or buy the bagels from a local bakery. If they buy

from the local bakery they will need airtight

containers at a fixed cost of $1000 annually. They

can buy the bagels for $0.40 each. If they make the

bagels in-house they will need a small kitchen at a

fixed cost of $15,000 annually. It will cost them $0.15

per bagel to make. They believe they will sell 60,000

bagels.

11

Make or Buy Computation

Mary and Sue wants to know if they should make or buy

the bagels?

⚫ FCBuy + (VCBuy x Q) = FCMake + (VCMake x Q)

⚫ $1,000 + ($0.40 x Q) = $15,000 + ($0.15 x Q)

Q = 56,000 bagels

Distribution

⚫ Cross Docking

⚫ Load Consolidation (TL vs. LTL)

⚫ Postponement

⚫ Product Mixing

Warehouse Technology

⚫ RFID/RFDC

⚫ Bar Coding

12

Supply Chain Performance

Metrics

Measuring SC performance

⚫ Traditional measures:

• Return on investment

• Profitability • Market share • Revenue growth

⚫ Additional measures:

• Customer service levels

• Inventory turns • Weeks of supply • Inventory

obsolescence

13

14

Supply Chain Performance

Metrics - cont'd

⚫ Customer demands for better-quality requires company’s to develop ways to measure improvements

⚫ Some measurements include: • Warranty costs • Products returned • Cost reductions allowed because of product defects • Company response times • Transaction costs

15

Current Trends in SCM

Increased use of electronic marketplace

⚫ Analytics

⚫ E-distributors

• Independently owned net marketplaces having catalogs representing thousands of suppliers and

designed for spot purchases

⚫ E-purchasing

• Companies that connect on-line MRO suppliers to business who pay fees to join the market, usually for

long-term contractual purchasing

• Value chain management – automation of a firm’s purchasing or selling processes

16

Current Trends in SCM - cont'd

⚫ Exchanges

• Marketplace that focuses on spot requirements of large firms in a single industry

⚫ Industry consortia

• Industry-owned markets that enable buyers to purchase direct inputs from a limited set of invited suppliers

⚫ Decreased supply chain velocity due to greater distances with greater uncertainty and generally less efficient.

⚫ Trends in SC design: • Globalization, growth, flexibility and competency, quality and

safety, secure investments, environmental sustainability, integration.