Chapter 6 Supply Chain Management

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Chapter 6Supply Chain Management
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What is Supply Chain Management?

• Supply Chain management deals with the control of
  materials, information, and financial flows in a
  network consisting of suppliers, manufacturers,
  distributors, and customers (Stanford Supply
  Chain Forum Website.)

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Another definition (from Fortune magazine article
in 1994)

• Call it distribution or logistics or supply chain
  management... In industry after industry . . .
  executives have plucked this once dismal
  discipline off the loading dock and placed it
  near the top of the corporate agenda.
  Hard-pressed to knock out competitors on quality
  or price, companies are trying to gain an edge
  through their ability to deliver the right stuff
  in the right amount of time.

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Why so much interest in Supply Chain Management
recently?

• As manufacturing becomes more efficient (or is
  outsourced), companies look for ways to reduce
  costs
• Several significant success stories. Efficient
  SCM gives Walmart, HP, others, an important edge
• Considers the broad, integrated, view of
  materials management from purchasing through
  distribution
• The huge growth of interest in the web has
  spawned web-based models for supply chains from
  dot com retailers to B 2 B business models. (I2
  technologies and Agile Software are two
  successful providers.)

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Analytical Methods to Support SCM implementation

• The transportation problem and more general
  network formulations for describing flow of goods
  in a complex system
• Inventory management and demand forecasting
  models such as those discussed in this course
• Analytical methods for determining delivery
  routes for product distribution.

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Designing For Supply Chain Efficiency 1 -
Postponement in Supply Chains

• Several companies have been able to cut costs and
  improve service by postponing the final
  configuration of the product until the latest
  possible point in the supply chain. Examples
• Bennetton producing grey stock
• Hewlett Packard printer configuration
• Postponement of final programming of
  semiconductor devices
• Assemble to order rather than assemble to stock
  (Dell Computer)

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Designing for Supply Chain Efficiency 2 Design
for Logistics

• Many firms now consider SCM issues in the design
  phase of product development. (This has been
  referred to DFL or Design for Logistics). One
  example is IKEA whose furniture comes in simple
  to assemble kits that allows them to store the
  furniture in the same warehouse-like locations
  where they are displayed and sold.

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Efficient Design of the Supplier Base

• Part of streamlining the supply chain is reducing
  the number and variety of suppliers. The Japanese
  have been very successful in this arena. Another
  example In the mid 1980s Xerox trimmed its
  number of suppliers from 5,000 to 400. Overseas
  suppliers were chosen based on cost, and local
  suppliers were chosen based on delivery speed.

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Dell Designs the Ultimate Supply Chain

• Dell Computer has been one of the most successful
  PC retailers. Why? To solve the problem of
  inventory becoming obsolete, Dells solution
• Dont keep any inventory! - All PCs are made to
  order and parts shipped directly from
  manufacturers when possible. Compare to the
  experience of Compaq Corporation. (initial
  success selling through low cost retail
  warehouses, but did not garner web-based sales.)

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Information Transfer in Supply Chains Vendor
Managed Inventory

• Barilla SpA. Italian pasta producer. Pioneered
  the use of VMI (Vendor Managed Inventory). They
  obtained sales data directly from distributors
  and decide on delivery sizes based on that
  information (as opposed to allowing distributors
  to independently decide on order sizes).

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Information Transfer in Supply Chains The
Bullwhip Effect

• First noticed by PG executives examining the
  order patterns for Pampers disposable diapers.
  They noticed that order variation increased
  dramatically as one moved from retailers to
  distributors to the factory. (See next slide.)
  The causes are not completely understood but have
  to do with batching of orders and building in
  safety stock at each level. Problem increases
  the difficulty of planning at the factory level.
• The effect is illustrated by the Beer Game.

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Example of the Bullwhip Effect in Supply Chains
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The Explosive Growth of E-tailing.

• E-tailing Direct to customer sales on the web.
  Perhaps best known e-tailer is Amazon.com,
  originally a web-based discount book seller.
  Today, sells wide range of products. The so
  called dot com stocks fueled large gains in the
  NASDAQ in 1999 to be followed by a major decline
  since April, 2000. Today, many traditional
  bricks and mortar retailers also offer sales
  over the web, often at lower prices.

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B2B Supply Chain Management

• B2B (business to business) supply chain
  management. While not as visible and sexy as
  E-tailing, it appears that B2B supply chain
  management is the true growth industry. A search
  on Yahoo yielded over 80 matches for supply chain
  software providers. Some of the major players in
  this market segment include
• Agile Software based in Silicon Valley.
• i2 Technologies based in Dallas.
• Ariba based in Silicon Valley

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Other Technologies

• EDI Electronic Data Interchange. Transmisson of
  documents electronically in a predetermined
  format from company to company. (Not web based.)
  The formats are complex and expensive. It appears
  to be on the decline as web-based systems grow.

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Global Concerns in SCM

• Moving manufacturing offshore to save direct
  costs complicates and adds expense to supply
  chain operations, due to
• increased inventory in the pipeline
• Infrastructure problems
• Political problems
• Dealing with fluctuating exchange rates
• Obtaining skilled labor

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Trends in Supply Chain Management

• Outsourcing of the logistics function (example
  Saturn outsourced their logistics to Ryder
  Trucks. Outsourcing of manufacturing is a major
  trend these days.)
• Moving towards more web based transactions
  systems
• Improving the information flows along the entire
  chain.