Supply Chain Management

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Supply Chain Management
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Outline

• Supply-Chain Management
• Measuring Supply-Chain Performance
• Bullwhip Effect
• Outsourcing
• Value Density
• Mass Customization
• E-commerce and E-Ops

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What is a Supply-Chain?

• Supply-chain is a term that describes how
  organizations (suppliers, manufacturers,
  distributors, and customers) are linked together

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What is Supply-Chain Management?

• Supply-chain management is a total system
  approach to managing the entire flow of
  information, materials, and services from
  raw-material suppliers through factories and
  warehouses to the end customer

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Measures of Supply-Chain Performance

• One of the most commonly used measures in all of
  operations management is Inventory Turnover
• In situations where distribution inventory is
  dominant, Weeks of Supply is preferred and
  measures how many weeks worth of inventory is in
  the system at a particular time

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Example Supply-Chain Performance Measurement

• Suppose a companys new annual report claims
  their costs of goods sold for the year is 160
  million and their total average inventory
  (production materials work-in-process) is worth
  35 million. This company normally has an
  inventory turn ratio of 10.
• What is this years Inventory Turnover ratio?
• What does it mean?

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Since the companys normal inventory turnover
ratio is 10, a drop to 4.57 means that the
inventory is not turning over as quickly as it
had in the past. In other words, they now have
more inventory relative to their cost of goods
sold than before. What else would you want to
know about this situation?
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Supply Chain Strategy

• Marshall Fisher
• Adverse effects of price promotions
• Functional vs. Innovative products

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Hau Lees Supply Chain Concepts

• Hau Lees approach to supply chains centers on
  aligning the supply chain with process side
  uncertainties (focus on the supply side)
• A stable supply process has mature technologies
  and an evolving supply process has rapidly
  changing technologies
• Types of Supply Chains
• Efficient
• Risk-Hedging
• Responsive
• Agile

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Hau Lees Uncertainty Framework
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What is Outsourcing?

• Outsourcing is defined as the act of moving a
  firms internal activities and decision
  responsibility to outside providers

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Reasons to Outsource

• Organizationally-driven
• Improvement-driven
• Financially-driven
• Revenue-driven
• Cost-driven
• Employee-driven

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Value Density

• Value density is defined as the value of an item
  per pound of weight
• An important measure when deciding where items
  should be stocked geographically and how they
  should be shipped

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Mass Customization

• Mass customization is a term used to describe the
  ability of a company to deliver highly customized
  products and services to different customers
• The key to mass customization is effectively
  postponing the tasks of differentiating a product
  for a specific customer until the latest possible
  point in the supply-chain network

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Mass Customization

• Principle 1 A product should be designed so it
  consists of independent modules that can be
  assembled into different forms of the product
  easily and inexpensively.
• Principle 2 Manufacturing and service processes
  should be designed so that they consist of
  independent modules that can be moved or
  rearranged easily to support different
  distribution network strategies.

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Mass Customization

• Principle 3 The supply network the positioning
  of the inventory and the location, number, and
  structure of service, manufacturing, and
  distribution facilities should be designed to
  provide two capabilities. First, it must be able
  to supply the basic product to the facilities
  performing the customization in a cost-effective
  manner. Second, it must have the flexibility and
  the responsiveness to take individual customers
  orders and deliver the finished, customized good
  quickly.

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Electronic Commerce and E-Ops

• Electronic commerce is defined as the use of
  computer applications communicated over networks
  to allow buyers and sellers to complete a
  transaction or part of a transaction
• E-Ops is a term that refers to the application of
  the Internet and its attendant technologies to
  the field of operations management

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The Context of E-Ops
Exhibit MB9.1
Business Model How we make our money?
Operations How do we manage production of
the product or service?
Information System Architecture
The set of tools used to support processes.
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Business Web Models
B-Web Model
Example
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A Make-to-Order Fulfillment Process
Step I Retailer
System provides information
Step II Build Plan
Factory updates customer
Product Company
Customers
Factory
Develop Products
Step III Logistics
Exhibit MB9.3
Suppliers
Order fulfillment flows
Customer/Product info. flows
Orders sent
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Other E-Ops Applications

• Order Fulfillment in Aggregator Businesses
• Project Management
• Product and Process Design
• Purchasing
• Manufacturing Processes

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Other E-Ops Applications (Continued)

• Inventory Management
• Services
• Quality Management
• Forecasting
• Operations Scheduling
• Reengineering and Consulting

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• Beer Game debrief

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The Bullwhip Effect
The magnification of variability in orders in the
supply-chain
Retailers Orders
Wholesalers Orders
Manufacturers Orders
Order Quantity
Order Quantity
Order Quantity
Time
Time
Time
A lot of retailers each with little variability
in their orders.
can lead to greater variability for a fewer
number of wholesalers, and
can lead to even greater variability for a
single manufacturer.
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Summary

• Supply-Chain Management
• Measuring Supply-Chain Performance
• Bullwhip Effect
• Outsourcing
• Value Density
• Mass Customization
• E-commerce and E-Ops