Discussion 7 - 327

Chapter 10:

Supply Chain Management

Operations Management in the

Supply Chain: Decisions and Cases,

6th edition

Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/Irwin

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Chapter 10 Outline

• Supply Chain & Supply Chain Management

• Purchasing and Logistics

• Measuring Supply Chain Performance

• Supply Chain Dynamics—the Bullwhip Effect

• Improving Supply Chain Performance

• Supply Chain Structural Improvements

• Supply Chain Infrastructural Improvements

• Technology and Supply Chain Management

• Supply Chain Resilience

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A SUPPLY CHAIN is the set of entities and relationships that cumulatively define materials and information flows both downstream toward the customer and upstream toward the very first supplier.

“Supply chain management is the design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer.”

--Institute for Supply Management

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Typical Supply Chain (Figure 10.1)

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Supply Chain from Manufacturer’s Perspective

Manufacturer

1st-tier

suppliers

2nd-tier

suppliers

3rd-tier

suppliers

Distribution

centers &

warehouses

Retailers

Physical Supply Physical Distribution

Downstream or Forward Materials and Information Flow

Upstream or Backward Materials and Information Flow

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Suppliers’

Supplier Supplier

Plan

Customer Customer’s

Customer

Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliver

Internal or External Internal or External

Your Company

Source

SCOR Model

Return Return Return Return Return Return

Return Return

Building Block Approach

SCOR = Supply Chain Operations Reference model

SCOR is founded on five distinct management processes

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Purchasing and Logistics

• The purchasing function: Sources inputs into the transformation process from other organizations.

• Challenges and benefits of global sourcing

• The logistics function: Responsible for the movement and storage of goods across organizations in a supply chain.

• Challenges of reverse logistics (returns/recycling)

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The Purchasing Cycle (Figure 10.3)

Competitive bidding

or negotiation

Clarification of

specifications

Relationship

management

Make-or-buy

decisions

Supplier

selection

User

requirements

Buy

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Measuring Supply Chain Performance (1 of 3) • Delivery

• On time delivery

• Fill rate

• Lead time

• Quality

• Product or service performance

• Conformance to specifications

• Customer satisfaction

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Measuring Supply Chain Performance (2 of 3)

• Flexibility

• Time to change volume of output by a fixed amount

• Time to change the mix of products or services

• Time

• Total supply chain throughput time

• Cash-to-cash cycle time = Days in inventory

+ days in accounts receivable

- days in accounts payable

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Measuring Supply Chain Performance (3 of 3)

• Cost

• Unit cost = materials + labor + overhead / # units

• Distribution, inventory carrying, accounts receivable

• Total supply chain cost =

• Suppliers (materials and components) +

• Producer (fabrication and assembly) +

• Logistics (shipping and WIP between firms)

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Dynamics: Bullwhip Effect

• Supply chain is highly interactive system. Decisions in each part of the chain affect the other entities.

• There is an accelerator (bullwhip) effect: Increased variability in upstream orders, resulting in more inventory upstream.

• Even with perfect information, replenishment lead times lead to an accelerator effect.

• Improve supply chain by reducing total replenishment time, share real demand information with all levels.

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Improving Supply Chain Performance

Greater coordination within/across organizations:

• Change structure

• Product/service, types/location of facilities, process technology

and layout, vertical integration

• Change infrastructure

• People’s roles/responsibilities, information systems, production

and inventory control, quality control systems

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Supply Chain Structural Improvements

• Forward and backward integration

• Major process simplification

• Change configuration of factories, warehouses, or retail

locations

• Outsource, off-shoring, total cost of ownership

• Major product redesign

• Postponement, component swapping modularity

• Working with third-party logistics providers

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Supply Chain Infrastructure Improvements

• Cross-functional teams

• Partnerships with suppliers and customers

• Setup time reduction to reduce lot sizes

• Integrated information systems

• Cross-docking – move goods from factory truck directly

to store truck; no warehouse storage

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Technology and SCM • Growth of e-commerce

• B2B (business-to-business)

• B2C (business-to-consumer)

• Fundamental processes in supply chains:

• Order placement process

• Information before order (Is product available in stock?)

• Actual order entry

• Order fulfillment process

• Direct link to internal operations & suppliers

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Processes for e-Procurement (Figure 10.6)

Requirement Selection Requisition Approval

REQUEST

Requisition Source Negotiate Contract

BUY

Confirm Process

Order Ship Invoice

SUPPLY

Receive Deliver Match Pay

PAYMENT

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Types of e-procurement

• On-line catalogs - listing products, prices, specifications,

delivery terms, etc.

• Third-part auctions - reverse auctions

• Private exchanges to connect suppliers

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Problems with e-procurement • Too much focus on technology; not enough on systems

(coordination)

• Insufficient concern about joint value propositions so that

both partners benefit

• Fragmented efforts within and across companies

• Record accuracy and data issues

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Supply Chain Resilience

• Ability to quickly respond to unexpected disruptions in

supply or demand, either natural or manmade.

• Examples: strike, recession, price change, natural disaster,

manufacturing failure, unexpected demand.

• Risk mitigation*:

• Stage 1: Proactive plan

• Stage 2: Minimize damage during disruption

• Stage 3: Post-disruption recovery

* Each stage requires strategic and operational planning.

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Chapter 10 Summary

• Supply Chain & Supply Chain Management

• Purchasing and Logistics

• Measuring Supply Chain Performance

• Supply Chain Dynamics—the Bullwhip Effect

• Improving Supply Chain Performance

• Supply Chain Structural Improvements

• Supply Chain Infrastructural Improvements

• Technology and Supply Chain Management

• Supply Chain Resilience