Supply Chain Management

1
Chapter 11

• Supply Chain Management
• and E-Business

2
Materials Management System in Manufacturing
3
Inventory Items in Annual-Dollar-Volume Order
Universal Motor Supply Company
Stock Number Annual Demand Unit Cost Annual Dollar Volume Percent
407 40,000 35.50 1,420,000 59.53
210 1,000 700.00 700,000 29.35
021 2,000 55.00 110,000 4.61
388 20,000 4.00 80,000 3.35
413 4,400 10.00 44,000 1.84
195 500 36.00 18,000 0.76
330 40 214.00 8,560 0.36
114 100 43.00 4,300 0.18
274 280 1.00 280 0.01
359 600 0.25 150 0.00
Totals 2,385,290 100.0
4
ABC Classification Universal Motor Supply
Company
5
ABC Analysis Example
Item Unit Cost Annual Demand Annual Cost
A 1.35 6,200
B 53.00 900
C 5.20 50
D 92.00 120
E 800.00 2
F .25 5,000
G 9,000.00 5
H 15.00 18,000
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Annual Cost Class Annual Value








7

• How ABC Analysis is Used

Decisions A B C
Purchasing Executive Department Head Buyer
Physical Inv. Counting Daily Monthly Annually
Forecasting Several Models 1 Simple Model Guess
Safety Stock None 1 Week 1 Month
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Cycle Counting

• 250 working days per year
• On average, a full time worker can count 22 part
  types per day.
• How many part types per day should be counted?
• How many cycle counting workers are needed?

part types Counted counts per year part type counts/year
A 100 weekly
B 500 monthly
C 3000 quarterly
9
Supply Chain Management

• Vendors vendor
• Your vendor
• Your company
• Your customer
• Customers customer

Material flow
Information flow
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What Information Should be Shared?

• Forecasts and sales data
• Vendor ? You ? Customer
• Capacity and output changes
• Vendor ? You ? Customer
• Sales promotion plans
• Vendor ? You ? Customer
• Current inventory levels
• Vendor ?? You ?? Customer
• Ideas for improvement
• Vendor ?? You ?? Customer

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Risk of Sharing Information

• ? Vendors or customers might share your
  information with your competitors

Try to Avoid Risk

• Establish long-term contracts with vendors and
  customers that requires confidentiality
• Relationships based on mutual trust

12
Examples of Supply Chain ManagementPartners and
Innovations

• Wal-Mart
• Requires that all vendors communicate with them
  electronically (EDI)
• Shares forecasts and sales data with large
  vendors, such as Proctor Gamble
• Results shorter lead times and lower inventory
  costs

13
Examples of Supply Chain ManagementPartners and
Innovations

• Ryder (trucking)
• Distributes vendor parts to Ford Motor Co.
• Installed Global Positioning Systems and computer
  chips on all their trucks
• Now they know exactly where trucks are
• Faster customer status response
• Early diagnosis of engine problems reduced
  maintenance costs

14
Examples of Supply Chain ManagementPartners and
Innovations

• UPS and Fedex
• Deliver antibiotics from Europe manufacturers to
  U.S. farmers
• Mfgs. postponed packaging of drugs and let UPS or
  Fedex package it on plane
• Faster lead time