Supply Chain Definition

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Chapter 10 Supply Chain Strategy Management

• Supply Chain Definition
• Benefits and Need for Supply Chain Management
• Outsourcing
• Bullwhip Effect
• Measuring Performance
• Purchasing, Logistics, and EDI
• Creating an Effective Supply Chain

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Supply Chain Management

• Supply Chain the sequence of organizations -
  their facilities, functions, and activities -
  that are involved in producing and delivering a
  product or service.

Supply-chain management is a total systems
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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Facilities and Flows

• Warehouses, Factories, Processing centers,
  Distribution centers, Retail outlets, Offices
• Material and credit flow
• Information flow
• Money flow

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Supply Chain
Mat'l Flow
Credit Flow
Consumer
Supplier
Retailer
Mfg.
Supplier
Wholesaler
Retailer
Cash
Order
Schedules
Flow
Flow
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Typical Supply Chains
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Typical Supply Chain for a Service
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Supply Chain Model
Organizations are both suppliers and customers
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Benefits of Supply Chain Management
Organization Benefit
Campbell Soup Doubled inventory turnover rate
Hewlett-Packard Cut supply costs 75
Sport Obermeyer Doubled profits and increased sales 60
National Bicycle Increased market share from 5 to 29
Wal-Mart Largest and most profitable retailer in the world
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Need for Supply Chain Management

• Improve operations -
• Increasing levels of outsourcing -
• Increasing transportation costs -
• Competitive pressures -

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Need for Supply Chain Management

• Increasing globalization -
• Increasing importance of e-commerce -
• Complexity of supply chains -
• Manage inventories -

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What is Outsourcing?

• Outsourcing 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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Bullwhip Effect
The magnification of variability in orders in the
supply-chain.

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The Bullwhip Effect Contd
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Causes of the Bullwhip Effect

• Price fluctuations
• Periodic order policies at the wholesaler and
  manufacturer levels
• Rational/shortage gaming .... trade deals offered
  by manufacturers to wholesalers
• Production schedules based on forecasts of
  wholesaler demand versus consumer demand

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Inventory Formulas for Measuring Supply-Chain
Performance
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Inventory Measurement Example

• 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 is used to having any
  inventory turn ratio of 10.
• What is this years Inventory Turnover ratio?
  What does it mean? How many weeks of supply does
  the company have?

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Inventory Measurement Example (Contd)

• Inventory Turnover
• Weeks of Supply

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SCOR Metrics
Perspective Metrics
Reliability On-time delivery Order fulfillment lead time Fill rate (fraction of demand met from stock) Perfect order fulfillment
Flexibility Supply chain response time Upside production flexibility
Expenses Supply chain management costs Warranty cost as a percent of revenue Value added per employee
Assets/utilization Total inventory days of supply Cash-to-cash cycle time Net asset turns
From the Supply Chain Councils Supply Chain
Operations Reference Model
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Purchasing in Supply Chain Management

• Purchasing is the link between an organization
  and its suppliers
• Material costs are greater than labor costs
• Companies implementing JIT require small lot
  deliveries just as they need them
• Products are purchased in the global market

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Logistics

• The movement of materials and information within
  a facility and to the incoming and out going
  shipments of goods and materials

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Materials Movement
Work center
Work center
Storage
Storage
RECEIVING
Shipping
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Value Density

• Value density
• It is used as an important measure when deciding
  where items should be stocked geographically and
  how they should be shipped

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Information Flow

• Electronic Data interchange (EDI) - computer to
  computer transmission of transactions between
  companies

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Benefits of Electronic Data Interchange

• Increased productivity
• Reduction of paperwork
• Lead time and inventory reduction
• Facilitation of just-in-time systems
• Electronic transfer of funds
• Improved control of operations
• Reduction in clerical labor
• Increased accuracy

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Issues in Effective Supply Chain Design

• Develop strategic objectives and tactics
• Integrate and coordinate activities in the
  internal supply chain
• Coordinate suppliers with customers
• Coordinate planning and execution
• Form strategic partnerships

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Hau Lees Concepts of Supply Chain
Design/Management

• Hau Lees approach to supply chain (SC) is one of
  aligning SCs with the uncertainties revolving
  around the supply process side of the SC
• A stable supply process has mature technologies
  and an evolving supply process has rapidly
  changing technologies
• Types of SCs

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Hau Lees SC Uncertainty Framework
Efficient SC Ex.
Responsive SC Ex.
Risk-Hedging SC Ex.
Agile SC Ex.
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Balancing Supply Chain Capability with Customer
Demands
Supply Chain Capability
Customer Requirements
Suppliers, Manufacturers, Distributors, Carriers
Market Demand,New Products, Promotions
Information
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Other Challenges

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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

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Supply Chain Problems, Potential Improvements,
Benefits, and Drawbacks
Problem Potential Improvement Benefits Possible Drawbacks
Large inventories Smaller, more frequent deliveries Reduced holding costs Traffic congestion Increased costs
Long lead times Delayed differentiation Disintermediation Quick response May not be feasible May need to absorb functions performed by intermediary
Large number of parts Modular Fewer parts Simpler ordering Less variety
Cost Quality Outsourcing Reduced cost, higher quality Loss of control
Variability Shorter lead times, better forecasts Able to match supply and demand Less variety