Supply Chain Management

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Supply Chain Management

• Principles of Operations Management
• Chapter 7

2
Professional Tip 5

• When you are late for something, apologize and
  move on.
• Xenelasia Expel any stranger at any time without
  cause.

3
Supply Chains

• Supply chain - a network that describes the flow
  of materials from suppliers through plants and
  finally to distribution centers.
• Supply chain management (SCM) an integrated
  approach to procuring, producing, and delivering
  products and services to customers, including the
  management of materials, information, and flow of
  funds.

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Typical Supply Chain Network
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SCOR Model

• Plan develop a strategy that balances aggregate
  supply and demand
• Source procure goods and services to meet
  demand
• Make transform goods and services to finished
  state to meet demand
• Deliver manage orders, transportation, and
  distribution

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Goals of SCM

• Reduce costs
• Provide better customer service and value
• Increase revenue
• Create competitive advantage

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Demand Chain

• Viewing a supply chain from the customers
  perspective, focusing on a demand-driven pull
  model of operation.
• Demand chains exploit information technology for
  merchandising decisions, promotion plans, and new
  product development decisions.

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Inventory

• Inventory any asset held for future use.
• Reasons for carrying inventory
• Economies of scale
• Production and capacity smoothing
• Protection against supply disruptions and demand
  surges
• Profit from price changes

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Types of Inventories

• Lot size inventory purchased materials and
  components
• Work-in-process (WIP) inventory buffers between
  work centers
• Finished goods inventory ability to meet demand
• Fluctuation inventory (safety stock) protection
  against demand surges
• Anticipation inventory inventory built up
  during periods of low demand

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Reasons to Minimize Inventory

• Reduce response time to changes in market demand
• Facilitate changing to new products
• Easier detection of quality problems
• Creating a systems perspective in process flow
• Encouraging teamwork

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Principal Inventory Decisions

• How to monitor inventory
• How much to order
• When to order
• Each decision affects cost and customer service

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Monitoring Inventory System Performance

• Classify inventory into one of five categories
• Operating, surplus, excess, obsolete, and new
  product inventory
• Evaluate proportions and ratios to uncover
  potential financial and process issues.

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Inventory System Costs

• Ordering costs (setup costs)
• Holding (carrying) costs
• Backorder/lost sales cost

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Supply Chain Metrics

• Perfect order fulfillment
• Customer satisfaction
• Order fulfillment lead-time
• Total supply chain costs
• Cash-to-cash cycle time
• Inventory turnover ratio
• Supply chain response time

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Lead-Time Reduction
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Supply Chain Strategy and Structure

• The structure of the supply chain should support
  the firms business strategy.
• Efficient supply chain focus on high
  productivity in material flow and minimizing
  costs of distribution
• Responsive supply chain focus on customer
  availability and responsive service.

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Supply Chain Design Issues

• Amount of centralization or decentralization in
  the location of facilities
• Type of planning system to use

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Centralized and Decentralized Distribution
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Pull versus Push Distribution
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Bullwhip Effect

• Lags in information flow and material flow cause
  a mismatch between customer demand and the supply
  chains ability to meet that demand.
• Oscillations in inventory levels in the network
  amplify as one moves further up the supply chain
  away from the customer.

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Illustration of the Bullwhip Effect
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Causes of the Bullwhip Effect

• Demand forecast updating
• Use the same demand data from the furthest point
  downstream
• Order batching
• Order more frequently
• Price fluctuations
• Stabilize prices
• Rationing and shortage gaming
• Allocate production base on past usage, not
  present orders

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Managing Supply Chains

• Purchasing and supplier relationships
• Order management
• Warehouse and inventory management
• Transportation and distribution
• Inventory management

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Focusing Purchasing Strategy
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Roles of Suppliers

• Providing access to technology
• Providing early design advice
• Providing increased capacity
• Lowering costs
• Increasing time to market
• Improving quality

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Supplier Management

• Treat as a key business process
• Segment suppliers by importance
• Measure performance
• Provide recognition
• Give and receive feedback
• Supplier certification processes

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Information Needs

• Customer demand
• Supplier data
• Manufacturing data and status
• Distribution data
• Business intelligence systems provide technology
  to consolidate and query data needed for SCM

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Evolving Trends in SCM

• Push vs. pull strategies
• Cross-docking
• Strategic alliances
• Manufacturing postponement
• Design for Logistics
• New information technologies
• Business intelligence and decision support
  systems
• Vendor-managed inventory