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INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

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Title: INTRODUCTION TO SUPPLY CHAIN MANAGEMENT


1
INTRODUCTION TO SUPPLY CHAIN MANAGEMENT
2
Flows in a Supply Chain
Information
Product
Customer
Funds
Supply Chain
3
What is Knowledge?
  • A collection of data is not information.
  • A collection of information is not knowledge.
  • A collection of knowledge is not wisdom.
  • A collection of wisdom is not truth.

4
In the first half of the twentieth century
industry replaced agriculture, in the second half
of the twentieth century service has replaced
manufacturing -and right now, the knowledge
industry is beginning to replace the others.
--George Kotzmetzk
5
Chapter Outline
  • Introduction
  • What is Supply Chain Management?
  • Why is Supply Chain Management important?
  • The origins of Supply Chain Management
  • Important Elements of Supply Chain Management
  • - Purchasing
  • - Operations
  • - Distribution
  • - Integration
  • Strategies for Supply Chain Management
  • Future Trends in Supply Chain Management
  • The Beer Game

6
What is a Supply Chain?
  • A supply chain consists of the flow of products
    and services from/to
  • --Raw materials manufacturers SEE FIGURE 1.1
  • --Intermediate products manufacturers
  • --End product manufacturers
  • --Wholesalers and distributors
  • --Retailers and,
  • --End customers
  • Connected by agents, transportation and storage
    activities, and
  • Integrated through sharing of information,
    planning, and processing activities\
  • Examples???

7
Customers, demand centers sinks
Sources plants vendors ports
Field Warehouses stocking points
Regional Warehouses stocking points
Supply
Inventory warehousing costs
Production/ purchase costs
Transportation costs
Transportation costs
Inventory warehousing costs
8
(No Transcript)
9
Typical Supply Chains
10
Typical Supply Chain for a Manufacturer
11
Typical Supply Chain for a Service
12
What is Supply Chain Management?
  • Here are two definitions
  • The design and management of seamless,
    value-added process across organizational
    boundaries to meet the real needs of the end
    customer
  • -- Institute for Supply Management
  • Managing supply and demand, sourcing raw
    materials and parts, manufacturing and assembly,
    warehousing and inventory tracking, order entry
    and order management, distribution across all
    channels, and delivery to the customer
  • -- The Supply Chain Council

13
What Is the Goal of Supply Chain Management?.
  • Supply chain management is concerned with the
    efficient integration of suppliers, factories,
    warehouses and stores so that merchandise is
    produced and distributed
  • In the right quantities
  • To the right locations
  • At the right time
  • In order to
  • Minimize total system cost
  • Satisfy customer service requirements

14
Importance of Supply Chain Management
  • Firms have discovered value-enhancing and long
    term benefits
  • Who benefits most? Firms with
  • - Large inventories
  • - Large number of suppliers
  • - Complex products
  • - Customers with large purchasing budgets
  • Benefits
  • - Lower purchasing/inventory costs, higher
    quality/customer service

15
Importance of Supply Chain Mgt. Cont.
  • Firms practicing Supply Chain Management
  • 1. Start with key suppliers
  • 2. Move on to other suppliers, customers, and
    shippers
  • 3. Integrate second tier suppliers and customers
    (second tier refers to the customers customers
    and the suppliers suppliers)

16
Importance of Supply Chain Mgt. Cont.
  • Cost savings and better coordination of
    resources are reasons to employ Supply Chain
    Management
  • -- Bullwhip Effect- the magnification of safety
    stocks and costs based on separate forecasts and
    uncoordinated planning and sharing of information
    along the supply chain (Ex. 1.1)
  • Reducing the bullwhip effect occurs through
  • -- Process integration- Interdependent activities
    can lead to improved quality, reduced cycle time,
    better production methods, better forecasts, less
    safety stock, etc.

17
Important Elements of SCM
  • Purchasing- Supplier alliances, supplier
    management, strategic sourcing
  • Operations- Demand management, MRP, ERP, JIT,
    TQM
  • Distribution- Transportation management,
    customer relationship management, network design,
    service response logistics
  • Integration- Coordination/Integration
    activities, global integration problems,
    performance measurement

18
Important Elements of SCM-Cont.
  • Purchasing
  • Long term relationships
  • Supplier management- improved performance
    through-
  • -- Supplier evaluation (determining supplier
    capabilities and performance)
  • -- Supplier certification (third party or
    internal certification to assure product quality
    and service compliance)
  • Strategic partnerships- successful and trusting,
    long-term relationships with top-performing
    suppliers

19
Important Elements of Supply Chain
Management-Cont.
  • Operations
  • -- Demand management- match demand to available
    capacity
  • -- Linking buyers suppliers via MRP and ERP
    systems
  • -- Use JIT to improve the pull of materials to
    reduce inventory levels
  • -- Employ TQM to improve quality compliance among
    buyers and suppliers

20
Important Elements of Supply Chain
Management-Cont.
  • Distribution
  • -- Transportation management- tradeoff decisions
    between cost timing of delivery/customer
    service via trucks, rail, water air
  • -- Customer relationship management- strategies
    to ensure deliveries, resolve complaints, improve
    communications, determine service requirements
  • -- Network design- creating distribution networks
    based on tradeoff decisions between cost
    sophistication of distribution system

21
Important Elements of Supply Chain
Management-Cont.
  • Integration
  • -- Supply Chain Integration- when supply chain
    participants work for common goals. Requires
    intrafirm functional integration. Based on
    efforts to change attitudes adversarial
    relationships
  • -- Global Supply Chains- advantages that accrue
    from sourcing from larger global market e.g.,
    lower cost higher quality suppliers. May
    involve operating exposure, which is risk found
    in foreign settings
  • -- Supply Chain Performance Measurement- Crucial
    for firms to know if procedures are working

22
Strategies for SCM
  • All of the advanced strategies, techniques,
  • and approaches for Supply Chain
  • Management focus on
  • Global Optimization
  • Managing Uncertainty

23
Optimization
  • What is it?
  • Why is it important?
  • What tools and approaches help?

24
Tools and Strategies for Optimization
  • Decision Support Systems
  • Inventory Control
  • Network Design
  • Design for Logistics
  • Cross Docking

25
Global Optimization
  • What is it?
  • Why is it different/better than local
    optimization?
  • What are conflicting supply chain objectives?
  • What tools and approaches help with global
    optimization?

26
Sequential Optimization vs. Global Optimization
Source Duncan McFarlane
27
Why is Global Optimization Hard?
  • The supply chain is complex
  • Different facilities have conflicting objectives
  • The supply chain is a dynamic system
  • The power structure changes
  • The system varies over time

28
Uncertainty
  • What is variation?
  • What is randomness?
  • What tools and approaches help us to deal with
    these issues?

29
Cant Forecasting Help?
  • Forecasting is always wrong
  • The longer the forecast horizon the worse the
    forecast
  • End item forecasts are even more wrong

30
Why Is Uncertainty Hard to Deal With?
  • Matching supply and demand is difficult.
  • Forecasting doesnt solve the problem.
  • Inventory and back-order levels typically
    fluctuate widely across the supply chain.
  • Demand is not the only source of uncertainty
  • Lead times
  • Yields
  • Transportation times
  • Natural Disasters
  • Component Availability

31
Supply Chain Variability
Volumes
Time
Source Tom Mc Guffry, Electronic Commerce and
Value Chain Management, 1998
32
What Management Gets...
Volumes
Time
Source Tom Mc Guffry, Electronic Commerce and
Value Chain Management, 1998
33
What Management Wants
Volumes
Time
Source Tom Mc Guffry, Electronic Commerce and
Value Chain Management, 1998
34
Dealing with Uncertainty
  • Pull Systems
  • Risk Pooling
  • Centralization
  • Postponement
  • Strategic Alliances
  • Collaborative Forecasting

35
Supply Chainthe Magnitude
  • In 1998, American companies spent 898 billion in
    supply-related activities (or 10.6 of gross
    domestic product).
  • Transportation 58
  • Inventory 38
  • Management 4
  • Third party logistics services grew in 1998 by
    15 to nearly 40 billion

36
Supply Chainthe Magnitude
  • It is estimated that the grocery industry could
    save 30 billion (10 of operating cost) by using
    effective logistics strategies.
  • A typical box of cereal spends more than three
    months getting from factory to supermarket.
  • A typical new car spends 15 days traveling from
    the factory to the dealership, although actual
    travel time is 5 days.

37
Supply Chain The Magnitude
  • Compaq computer estimates it lost 500 million
    to 1 billion in sales in 1995 because its
    laptops and desktops were not available when and
    where customers were ready to buy them.
  • Boeing aircraft, one of America's leading
    capital goods producers, was forced to announce
    write downs of 2.6 billion in October 1997, due
    to Raw material shortages, internal and
    supplier parts shortages.

38
Supply Chain The Potential
  • Procter Gamble estimates that it saved retail
    customers 65 million through logistics gains
    over the past 18 months. According to PG, the
    essence of its approach lies in manufacturers and
    suppliers working closely together . jointly
    creating business plans to eliminate the source
    of wasteful practices across the entire supply
    chain. (Journal of business strategy, Oct./Nov.
    1997)

39
Supply Chainthe Potential
  • In 10 years, Wal-Mart transformed itself by
    changing its logistics system. It has the
    highest sales per square foot, inventory
    turnover and operating profit of any discount
    retailer.
  • Dell Computer has outperformed the competition
    in terms of shareholder value growth over the
    eight years period, 1988-1996, by over 3,000
    (see Anderson and Lee, 1999) using
  • Direct business model
  • Build-to-order strategy.

40
Whats New?
  • Global competition
  • Shorter product life cycle
  • New, low-cost distribution channels
  • More powerful well-informed customers
  • Internet and E-Business strategies

41
HB Wood Bats Process
ERP5 OverviewSupply System at Hillerich Bradsby
42
Technology/Logistics
LO2 American President Line
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