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Chapter 15: 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
-Sometimes referred to as value chains
The sequence of the supply chain begins with basic suppliers and extends all the way to the final customer
-Processing centers
-Distribution centers
-Retail outlets
Supply chain functions and activities
-Inventory management
-Information management
-Quality assurance
-Production and delivery
-Customer service
Supply Chain Management (SCM)
The strategic coordination of business functions within a business organization and throughout its supply chain for the purpose of integrating supply and demand management
SCM Managers
-People at various levels of the organization who are responsible for managing supply and demand both within and across business organizations.
-Involved with planning and coordinating activities
–Sourcing and procurement of materials and services
–Transformation activities
The goal of SCM
is to match supply to demand as effectively and efficiently as possible
Key SCM Issues
-Determining appropriate levels of outsourcing
-Managing procurement
-Managing suppliers
-Managing customer relationships
-Being able to quickly identify problems and respond to them
-Managing risk
Trends in SCM: Trends affecting supply chain design and management:
-Measuring supply chain ROI
-“Greening” the supply chain
-Re-evaluating outsourcing
-Integrating IT
-Managing risks
-Adopting lean principles
Global supply chains
-Product design often uses inputs from around the world
-Some manufacturing and service activities are outsourced to countries where labor and/or materials costs are lower
-Products are sold globally
Global Supply Chains: Complexities
-Language and cultural differences
-Currency fluctuations
-Political instability
-Increasing transportation costs and lead times
-Increased need for trust amongst supply chain partners
Aspects of management responsibility: Legal
-Being knowledgeable about laws and regulations of the countries where supply chains exist
-Obeying laws and operating to conform to regulations
Aspects of management responsibility: Economic
Supplying products and services to meet demand as efficiently as possible
Aspects of management responsibility: Ethical
Conducing business in ways that are consistent with the moral standards of society
Management Responsibility: Strategic
Certain strategic responsibilities have a major impact on the success of both supply chain management and the business itself:
Management Responsibility: Tactical
-Operations Planning
-Managing inventory
-Transportation planning
Management Responsibility: Operational
-Order fulfilling
-Managing inventory
-Information sharing
The purchasing department is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service.
The goal of procurement
Develop and implement purchasing plans for products and services that support operations strategies
Duties of purchasing
-Identifying sources of supply
-Negotiating contracts
-Maintaining a database of suppliers
-Obtaining goods and services
-Managing supplies
The Purchasing Cycle: Main steps
1. Purchasing receives the requisition
2. Purchasing selects a supplier
3. Purchasing places the order with a vendor
4. Monitoring orders
5. Receiving orders
-The use of electronic technology to facilitate business transactions
-Applications include
–Internet buying and selling
–Order and shipment tracking
–Electronic data interchange
–Product and service promotion
–Provide information about products and services
Advantages of E-Business
-Companies can:
–Have a global presence
–Improve competitiveness and quality of service
–Analyze customer interests
–Collect detailed information about clients’ preferences
–Shorten supply chain response times
–Reduce or eliminate the role of ‘traditional’ retailers and/or intermediaries
–Realize substantial cost savings
-Also allows the:
–Creation of virtual companies
–Leveling of the playing field for small companies
Customer expectations
Order quickly Quick delivery
Demand variability creates
order fulfillment problems
Sometimes Internet demand
exceeds an organization’s ability to fulfill orders
-Outsourcing order fulfillment
–Loss of control
-Build large warehouses
–Internal holding costs
Supplier Management
-Choosing suppliers
-Supplier audits
-Supplier certification
-Supplier relationship management
-Supplier partnerships
–CPFR (collaborative planning, forecasting, and replenishment)
–Strategic partnering
Vendor analysis
Evaluating the sources of supply in terms of price, quality, reputation, and service
Supplier audit
A means of keeping current on suppliers’ production (or service) capabilities, quality and delivery problems and resolutions, and performance on other criteria
Supplier certification
-Involves a detailed examination of a supplier’s policies and capabilities
-The process verifies the supplier meets or exceeds the requirements of a buyer
-Oftentimes involves competitive bidding
-Minimal interaction
-Often involves an ongoing relationship
-Often involves greater cooperation that evolves into a partnership
Strategic Partnering
Two or more business organizations that have complementary products or services join so that each may realize a strategic benefit
Inventory issues in SCM
-Inventory location
–Centralized inventories
–Decentralized inventories
Inventory velocity
The speed at which goods move through a supply chain
The bullwhip effect
Inventory oscillations that become increasingly larger looking backward through the supply chain
The Bullwhip Effect: Inventory fluctuation can be magnified by
-Periodic ordering
-Reactions to shortages
-Forecast inaccuracies
-Order batching
-Sales incentives and promotions
-Liberal product return policies
The Bullwhip Effect: Results in
-Higher costs
-Lower customer satisfaction
Strategic buffering
-e.g., holding inventory at a distribution center rather than at retail outlets
-Replenishment based on need
Vendor-managed inventory
Vendors monitor goods and replenish retail inventories when supplies are low
Order fulfillment
-The process involved in responding to customer orders
-Often a function of the degree of customization required
–Common approaches
–Engineer-to-Order (ETO)
–Make-to-Order (MTO)
–Assemble-to-Order (ATO)
–Make-to-Stock (MTS)
-Refers to the movement of materials, services, cash, and information in a supply chain
–Movements within a facility
–Incoming shipments
–Outgoing shipments
Traffic management
-Overseeing the shipment of incoming and outgoing goods
–Handles schedules and decisions on shipping method and times, taking into account:
—Costs of shipping alternatives
—Government regulations
—Needs of the organization
—Shipping delays or disruptions
Radio frequency identification (RFID)
-A technology that uses radio waves to identify objects, such as goods in supply chains
Similar to barcodes but
–Are able to convey much more information
–Do not require line-of-sight for reading
–Do not need to be read one at a time
Radio frequency identification (RFID): Has the ability to:
-Increase supply chain visibility
-Improve inventory management
-Improve quality control
-Enhance relationships with suppliers and customers
Third-party logistics (3-PL)
-The outsourcing of logistics management
–Warehousing and distribution
3-PL: Potential benefits include taking advantage of:
-The specialists’ knowledge
-Their well-developed information system
-Their ability to obtain more favorable shipping rates
Creating an Effective Supply Chain: Begins with
strategic sourcing
Creating an Effective Supply Chain: There must be
-Effective communication
-Information velocity
-Supply chain visibility
-Event management capability
-Performance metrics
Reverse Logistics
–The process of transporting returned items
-Products are returned to companies or third party handlers for a variety of reasons and in a variety of conditions
Screening returned goods to prevent incorrect acceptance of goods
Finding ways to minimize the number of items that are returned
Challenges of Logistics
-Barriers to integration of organizations
-Getting top management on board
-Dealing with trade-offs
-Small businesses
-Variability and uncertainty
-Response time
Lot-size-inventory trade-off
Large lot sizes yield benefits in terms of quantity discounts and lower annual setup costs, but it increases the amount of safety stock (and inventory carrying costs) carried by suppli
Inventory-transportation cost trade-off
Suppliers prefer to ship full truckloads instead of partial loads to spread shipping costs over as many units as possible. This leads to greater holding costs for customers
A technique whereby goods arriving at a warehouse from a supplier are unloaded from the suppliers truck and loaded onto outbound truck, thereby avoiding warehouse storage
Lead time-transportation costs trade-off
Suppliers like to ship in full loads, but waiting for sufficient orders and/or production to achieve a full load may increase lead time
Product variety-inventory trade-off
Greater product variety usually means smaller lot sizes and higher setup costs, as well as higher transportation and inventory management costs
Delayed differentiation
Production of standard components and subassemblies which are held until late in the process to add differentiating features
Cost-customer service trade-off
Producing and shipping in large lots reduces costs, but increases lead time
Reducing one or more steps in a supply chain by cutting out one or more intermediaries
Operations Strategy: Effective supply chains are necessary
for organizational success

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