Supply Chain Management - PowerPoint Presentation

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Supply Chain Management

Chapter 15

MIS 373: Basic Operations ManagementSlide2

Learning Objectives

After this lecture, students will be able to

Explain the terms supply chain and logistics

Discuss the importance of supply chain management

Describe what bullwhip effect is

Explain the causes and remedies for the bullwhip effect

MIS 373: Basic Operations Management

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Starbucks Global Supply Chain

[YouTube]

A Behind the Scenes Look at Starbucks Global Supply ChainSlide4

Supply Chain

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

serviceSometimes referred to as value chains

Value is added as goods and services progress through the chain.

Logistics:

the part of a supply chain involved with the forward and reverse flow of goods, services, cash, and information.MIS 373: Basic Operations Management

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Typical Supply Chains

MIS 373: Basic Operations Management

Supplier

Supplier

Supplier

Storage

Manufacturing

Storage

Distributor

Customer

Retailer

Supplier

Supplier

Supplier

Storage

Service

Customer

Every business organization is part of at least one supply chain, and many are part of multiple supply chains

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Supply Chain Management

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

Supply:

From the beginning of the chain to the internal operations of the organizationDemand:From the organization's output delivery to its immediate customer to the final customer in the chainMIS 373: Basic Operations Management

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Supply Chain Management

Supply chain strategy alignment

Aligning supply and distribution strategies with organizational strategy. Deciding on the degree to which outsourcing will be employed.Network configuration

Determining the number and location of suppliers, warehouses, production/operations facilities, distribution centers.

MIS 373: Basic Operations Management

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Why so much interest in

SCM?As manufacturing becomes more efficient (or is outsourced), companies look for ways to reduce costs

Several significant success stories. Efficient SCM gives Walmart & others an important edgeWeb-based models for supply chains:

Online retailers

B2B business models.

MIS 373: Basic Operations Management8Slide9

Key SCM Issues

The goal of SCM is to match supply to demand as effectively and efficiently as possible

Key issues:Determining appropriate levels of outsourcingManaging procurement

Managing

suppliers

Managing customer relationshipsBeing able to quickly identify problems and respond to themManaging riskMIS 373: Basic Operations Management

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Flow Management

Three types of flow managementProduct and service flowInvolves movement of goods and services from suppliers to customers as well as handling customer service needs and product returns

Information flowInvolves sharing forecasts and sales data, transmitting orders, tracking shipments, and updating order status

Financial flow

involves credit terms, payments, and consignment and title ownership arrangements

MIS 373: Basic Operations Management10Slide11

Outsourcing

Transfer or contracting (non productive) internal activities (process) to outside vendorse.g.: IT, accounting, legal, logistics

Utilize the efficiency that comes with specializationMake-or-Buy analysis

MIS 373: Basic Operations Management

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Benefits & Risks of Outsourcing

Benefits:Lower prices may result from lower labor costsThe ability of the organization to focus on its core strengths

Permits the conversion of some fixed costs to variable costsIt can free up capital to address other needsSome risks can be shifted to the supplier

The ability to take advantage of a supplier’s expertise

Makes it easier to expand outside of the home country

RisksInflexibility due to longer lead timesIncreased transportation costsLanguage and cultural differencesLoss of jobsLoss of controlLower productivityLoss of business knowledgeKnowledge transfer and intellectual property concernsIncreased effort required to manage the supply chain

MIS 373: Basic Operations Management

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Supply Chain Risks

Supply Chain RisksSupply chain disruptionNatural disasters

Supplier problemsQuality issuesAnother form of disruption that may disrupt supplies and lead to product recalls, liability claims, and negative publicity

Loss of control of sensitive information

If suppliers divulge sensitive information to competitors, it can weaken a firm’s competitive position

MIS 373: Basic Operations Management13Slide14

Risk Management

Risk managementInvolves identifying risks, assessing their likelihood of occurring and their potential impact and then developing strategies for addressing those risks.

Strategies for addressing risk include:Risk avoidanceRisk reductionRisk sharing

Key elements of successful risk management include:

Know your suppliers

Provide supply chain visibilityDevelop event-response capabilityMIS 373: Basic Operations Management14Slide15

Global Supply Chains

Global supply chainsProduct design often uses inputs from around the worldSome manufacturing and service activities are outsourced to countries where labor and/or materials costs are lower

Products are sold globallyComplexitiesLanguage and cultural differencesCurrency fluctuations

Political instability

Increasing transportation costs and lead times

Increased need for trust amongst supply chain partnersMIS 373: Basic Operations Management15Slide16

Management Responsibility:Tactical and Operational

Tactical

ForecastingSourcingOperations PlanningManaging inventory

Transportation planning

Collaborating

OperationalSchedulingReceivingTransformingOrder fulfillingManaging inventoryShipping

Information sharingControlling

MIS 373: Basic Operations Management

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Supplier Management

Vendor analysisEvaluating the sources of supply in terms of price, quality, reputation, and serviceSupplier audit

A means of keeping current on suppliers’ production (or service) capabilities, quality and delivery problems and resolutions, and performance on other criteriaSupplier certificationInvolves a detailed examination of a supplier’s policies and capabilities

The process verifies the supplier meets or exceeds the requirements of a buyer

MIS 373: Basic Operations Management

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Supplier Relationship Management

Type of relationship is often governed by the duration of the trading relationshipShort-termOftentimes involves competitive bidding

Minimal interactionMedium-termOften involves an ongoing relationship

Long-term

Often involves greater cooperation that evolves into a partnership

MIS 373: Basic Operations Management18Slide19

Choosing Suppliers

Quality and quality assurance

Procedures for quality assurance and quality controlFlexibilityFor changes in delivery schedules, quantity, product or service changesLocationNearby?

Price

Competitiveness, willingness to negotiate, cooperate to reduce prices

Reputation and Financial StabilitySupplier reputation, its financial stabilityLead times and on-time deliveryProcedures to assure on-time delivery and problem correctionOther accountsDependence on other customers and their priorityMIS 373: Basic Operations Management

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Supplier Partnerships

More organizations are seeking to establish

partnerships with others in their supply chain:Fewer suppliers, long term relationships, sharing of information (forecasts, sales data, problem alerts), cooperation in planningBenefits:

improved operations

: higher quality, increased delivery speed and reliability, lower inventories, lower costs, higher profits. Higher supplier flexibility in accepting changes (delivery schedules, quality, quantity), suppliers can help in identifying problems and offer suggestions

MIS 373: Basic Operations Management

Aspect

Adversary

Partner

Number of suppliersMany; play one against the othersOne or a few

Length of relationship

May be brief

Long-term

Low price

Major consideration

Moderately important

Reliability

May

not be high

High

Openness

Low

High

Quality

May be unreliable; buyer inspects

At the source; vendor certified

Volume of business

May be low due

to many suppliers

High

Flexibility

Relatively low

Relatively high

Location

Widely dispersed

Nearness is important for short lead time and quick service

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Strategic SCM

Information technology

Integrating systems and sharing information (forecasts, inventory status, shipments etc.) throughout the SC.Strategic partnershipsChoice of partners, level of partnership.

Distribution strategy

Centralized or decentralized distribution. In-house distribution or third-party logistics.

Uncertainty and risk reductionIdentifying potential risks and deciding on acceptable risk level.Capacity planningAssessing long term capacity needs and the degree of flexibilityProducts and servicesNew products and services selection and design.

MIS 373: Basic Operations Management

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Logistics

Logistics

The part of the SC involved with the forward and reverse flow of goods, services, cash, and information.Logistics ManagementManagement of :

inbound and outbound transportation

material handling

WarehousingInventoryorder fulfillment and distributionthird party logisticsreverse logistics (return from customers)MIS 373: Basic Operations Management

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Inventory Management

Inventory issues in SCM

Inventory locationCentralized inventoriesLower overall inventory, lower cost, lower stock-out riskDecentralized inventories

Faster delivery, lower shipping cost

Inventory velocity

The speed at which goods move through a supply chainThe greater the velocity the lower the holding cost and the faster orders are fulfilled and goods are turned into cash.The bullwhip effectInventory oscillations that become increasingly larger looking backward through the supply chainMIS 373: Basic Operations Management

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Creating an Effective Supply Chain

It begins with strategic sourcingAnalyzing the procurement process to lower costs by reducing waste and non-value-added activities, increase profits, reduce risks, and improve supplier performance

There must beTrustEffective communicationInformation velocity

Supply chain visibility

Event management capability

Performance metricsMIS 373: Basic Operations Management24Slide25

Trade-Offs

Lot-size-inventory trade-offLarge 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

suppliersInventory-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

Cross-docking

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 MIS 373: Basic Operations Management

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Trade-Offs

Lead time-transportation costs trade-offSuppliers like to ship in full loads, but waiting for sufficient orders and/or production to achieve a full load may increase lead

timeProduct 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 featuresMIS 373: Basic Operations Management26Slide27

Trade-Offs

Cost-customer service trade-offProducing and shipping in large lots reduces costs, but increases lead time

DisintermediationReducing one or more steps in a supply chain by cutting out one or more intermediaries

MIS 373: Basic Operations Management

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The Bullwhip Effect

First noticed by P&G executives examining the order patterns for Pampers disposable diapers.

Although the customer demand is pretty steady, they noticed that order variation increased dramatically as one moved from retailers to distributors to the factory. Slide29

Bullwhip Effect - Problems

MIS 373: Basic Operations Management

High demand fluctuations. Variation in demand along the supply chain requires:Shipment capacityProduction capacity to cope with peaks.

Inventory capacity

Most of the time this capacity will be idle.There’s significant cost and investments attached!Low service level (backorders)High costIn the end: high overall cost in the supply chain

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Bullwhip Effect - Causes

Information (lack of)Game simulates SC with low levels of trust, where little information is shared among the parties

Only order amounts are perpetuated up the supply chain; information about customer demand is lost upstream. Without actual customer demand data, all forecasts rely solely on the incoming orders at each stage of the SC.

SC structure

The longer the lead time the stronger the bullwhip effect (the reorder point is calculated by multiplying the forecasted demand by the lead time plus the safety stock)

Local optimizationLocal individual cost optimization, and a lack of cooperationOrdering involves fix cost. There is an incentive for individual players to hold back and only place aggregate/batch orders. This aggravates the problem of demand forecasting as little information about actual demand is conveyed.

MIS 373: Basic Operations Management

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Mitigating the Bullwhip Effect

Good supply chain management can overcome the bullwhip effect:

Information sharingReplenishment based on needVendor-managed inventoryVendors monitor goods and replenish retail inventories when supplies are low

Lower ordering costs

Short lead times

CooperationCompetition is now supply chain against supply chain and Network against networkMIS 373: Basic Operations Management

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Order fulfillment

Order fulfillment refers to the processes involved in responding to customer orders

.Engineer-to-Order

(ETO

)

Products are designed and built according to customer specifications. This approach is frequently used for large-scale construction projects, custom homebuilding, home remodeling, and for products made in job shops. Make-to-Order (MTO)A standard product design is used, but production of the final product is linked to the final customer's specifications. This approach is used by aircraft manufacturers such as Boeing. Fulfillment time is generally less than with ETO fulfillment, but still fairly long

.Assemble-to-Order (ATO)

Products

are assembled to customer specifications from a stock of standard and modular components. Computer manufacturers such as Dell operate using this approach. Fulfillment times are fairly short, often a week or less

.Make-to-Stock (MTS)Production is based on a forecast, and products are sold to the customer from finished goods stock. This approach is used in department stores and supermarkets. The order fulfillment time is immediate. MIS 373: Basic Operations Management32Slide33

SMALL BUSINESSES

Small businesses do not always give adequate attention to their supply chains.

Three aspects of supply chain management that are often of concern to small businesses are:Inventory management

Reducing

risks

International tradeWhy the three are of concern to small businesses?How to mitigate the concerns?MIS 373: Basic Operations Management

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Supply Chain Performance Measures

FinancialReturn on assetsCost

Cash flowProfits SuppliersQualityOn-time delivery

Cooperation

Flexibility

OperationsProductivityQuality InventoryAverage valueTurnoverWeeks of supplyOrder fulfillmentOrder accuracy

Time to fill orders% of orders delivered on timeCustomers

Customer satisfaction

% of customer complaints

MIS 373: Basic Operations Management34Slide35

Managing Returns

Products are returned to companies or third-party handlers for a variety of reasons, and in a variety of conditions. Among them are the following:

Defective productsRecalled products

Obsolete

products

Unsold products returned from retailersParts replaced in the fieldItems for recyclingWasteIn the US, the annual value of returns is estimated to be in the neighborhood of $100 billion

MIS 373: Basic Operations Management

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Managing Returns

Reverse logistics

is the process of physically transporting returned items. This

involves either retrieving items from the field or moving items from the point of return to a facility where they will be inspected and sorted and then transporting to their final destination

.

Two key elements of managing returnsGatekeeping oversees the acceptance of returned goods with the intent of reducing the cost of returns by screening returns at the point of entry into the system and refusing to accept goods that should not be returned or goods that are returned to the wrong destination

.Avoidance

refers to finding ways to minimize the number of items that are returned.

MIS 373: Basic Operations Management36Slide37

Trends in SCM

Trends affecting supply chain design and management:

Measuring supply chain performanceIncorporating economic metrics into decisions (e.g., inventory velocity, inventory turnover)

“Greening” the supply chain

Redesigning products and services to reduce pollution from transportation, choosing “green” suppliers, managing returns, end-of-life programs (e.g., appliances)

Re-evaluating outsourcingReconsidering outsourcing due to long lead time, increased transportation costs, language, culture, job loss, control loss, lower productivity, loss of ability to perform work internally, loss of business knowledge, management efforts.

MIS 373: Basic Operations Management

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Trends in SCM

Trends affecting supply chain design and management:Integrating IT

Real time data to enhance strategic planning, control costs, measure quality and productivity, respond quickly to problems, improve SC operationsManaging risks

Identifying risks, assessing likelihood of occurrence, potential impacts, prioritizing, developing management strategies (avoidance, reduction, transference).

Adopting lean principles

Eliminating non value-added processes, using “pull” systems to improve product flow, using fewer suppliers, continuous improvement.MIS 373: Basic Operations Management

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Operations Strategy

Effective supply chains are necessary for organizational success

Requires integration of all aspects of the chainSupplier relationships are a critical component of supply chain strategy

Lean operations

to improve supply chain success

Future Supply ChainsMIS 373: Basic Operations Management39Slide40

Exercise: Concept Map

Work with a partner or two and develop a concept map based on the following two articles about

supply chain:

Don't

Let Your Supply Chain Control Your

Business

Don't Tweak your Supply Chain--Rethink It End to End

Concept Map ExamplesSlide41

Key Points

Supply chains are a vital part of every business organization and need to be managed effectively to achieve a balance of supply and demand.There are a number of trade-offs to be made by supply chain managers.

Effective supply chains involve trust, communication, a rapid, two-way flow of information, visibility, and event-response capability.Among important trends in supply chain management are measuring ROI, “greening” the supply chain, reevaluating outsourcing, integrating IT, managing risks, and adopting lean principles.

MIS 373: Basic Operations Management

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