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Operations

Management
Supply Chain Management
(SCM)
Chapter 11
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2004 by Prentice Hall,

What is SCM ?

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Supply-Chain Management, definisi?


Planning, organizing, directing, & controlling flows
of materials/products, information and funds

Begins with procurement of raw materials


Continues through internal operations
Ends with distribution of finished goods

Involves everyone in supply-chain

Example: Your suppliers supplier

Objective: Maximize customer satisfaction while


minimize total cost
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SCM Configuration ?

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Supply Chain

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The Supply-Chain
VISA

Material Flow

Supplier

Credit Flow

Manufacturing

Supplier
Schedules

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Order
Flow

11-6

Retailer

Consumer

Wholesaler

Retailer
Cash
Flow

2004 by Prentice Hall,

The Supply Chain


Market research data
Scheduling information
Engineering and design data
Order flow and cash flow

Supplier
Inventory

Supplier

Customer

Ideas and design to


satisfy end customer
Material flow
Credit flow

Customer

Manufacturer
Inventory

Supplier

Inventory

Distributor

Customer

Inventory

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Source: U of Maryland

Inventory

Transportation

2004 by Prentice Hall,


Transparency MastersOptimization

Flows in a Supply Chain


Information

Supplier

Product

Customer

Funds

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Why SCM ?

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Manufacturing in the past business


paradigm
Competition is between manufacturing companies
Integration is between internal functions of any
manufacturing organization

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Manufacturing in the past business paradigm

Supplier

Operation

marketing

financial

Consumer

financial

Consumer

Company A

Supplier

Operation

marketing

Company B

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11-12

2004 by Prentice Hall,

Manufacturing in the new business paradigm


(supply chain)

Supplier

Operation

marketing

financial

Consumer

Supply Chain A

Supplier

Operation

marketing

financial

Consumer

Supply Chain B

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Volkswagen
Company profile

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Volkswagen
Brazilian plant employs 1000 workers

200 work for VW

800 work for other contractors:

Rockwell International, Cummins Engines, Deluge Automotiva, MWM,


Remon and VDO, etc.

VW responsible for overall quality, marketing,


research and design
VW looks to innovative supply-chain to improve
quality and drive down costs
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Volkswagen
Unusual elements:

VW is buying not only materials, but also the labor and


related services
Suppliers are integrated tightly into VWs own network,
right down to assembly work in the plant

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Theoretical Background

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The Spectrum of Supplier Integration

(The Global Procurement and Supply Chain Benchmarking


Initiative (GPSCBI), Michigan State University )

None: The supplier is not involved in design. Materials and


subassemblies are supplied according to customer
specifications and design.
White Box: This level of integration is informal. The buyer
consults with the supplier informally when designing
products and specifications, but there is no formal
collaboration

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2004 by Prentice Hall,

The Spectrum of Supplier Integration

(The Global Procurement and Supply Chain Benchmarking Initiative,


Michigan State University ) continue

Grey Box: This represents formal supplier integration.


Collaborative teams are formed between the buyers and
suppliers engineers, and joint development occurs.
Black Box: The buyer gives the supplier a set of interface
requirements and the supplier independently designs and
develops the required component.

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Keys to Effective Supplier Integration


(Strategic Planning Process - GPSCBI)

Determine internal core competencies


Determine current and future new product
development
Identify external development and manufacturing
needs.
Select suppliers and build relationships with them.
Align objectives with selected suppliers.

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2004 by Prentice Hall,

A Bookshelf of Technologies and Suppliers


as a dramatic example of the power of
supplier integration
The concepts monitor the development of relevant new
technologies, and following the suppliers that have
demonstrated expertise in these technologies.
When appropriate, a buyer firm can quickly introduce
these technologies into new products by integrating the
supplier design team with its own.

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Product Properties?

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Properties of the products


Usual industrial products (non perishable
products) ?
Perishable products ?

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BASIC Agri-based SUPPLY CHAIN


MANAGEMENT MODEL

FARMER
(supplier)

delivering

RETAILER

consumer

flowering

harvesting

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Total loss of agricultural fresh products: 20%-60% of the total amount


of harvested products in any country.

What is the major cause ?

Mismatch between harvesting and delivering


processes in timing and quantity

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Medan
Airport
Medan
Port
Surabaya
Airport
Surabaya
Farmland

Surabaya
Port

Medan
Market

Padang
Airport
Padang
Port

Padang
Market

,
Palembang
Airport

Palembang
Market

Palembang
Port

Harvesting Process and Delivery Network


2004 by Prentice Hall,
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Supply Chain for Service Sector ?

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Movie clip

Service Sector Supply Chain Management


Strategies?
Financial services
Hotels
Restaurant
etc.
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Supply-Chain Support for Overall


Strategy
Low Cost
Appropriate Response
Differentiation

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Supply-Chain Support for Overall


Strategy
Low Cost

Response

Suppliers
goal

Supply demand
at lowest
possible cost

Respond
quickly to
changing
requirements
and demand to
minimize
stockouts

Share market
research; jointly
develop
products and
options

Primary
Selection
Criteria

Select
primarily for
cost

Select
primarily for
capacity,
speed, and
flexibility

Select primarily
for product
development
skills

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Differentiation

2004 by Prentice Hall,

Supply-Chain Support for Overall


Strategy - continued
Low Cost

Response

Differentiation

Process
Characteristics

Maintain high
average
utilization

Invest in
excess
capacity and
flexible
processes

Modular
processes that
lend themselves
to mass
customization

Inventory
Characteristics

Minimize
inventory
throughout the
chain to hold
down costs

Develop
responsive
system, with
buffer stocks
positioned to
ensure supply

Minimize
inventory in the
chain to avoid
obsolescence

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2004 by Prentice Hall,

Supply-Chain Support for Overall


Strategy - continued
Low Cost

Response

Differentiation

Lead-time
Characteristics

Shorten leadtime as long as it


does not
increase costs

Invest
aggressively to
reduce
production
lead-time

Invest
aggressively to
reduce
development
lead-time

Product-design
Characteristics

Maximize
performance
and minimize
cost

Use product
designs that
lead to low setup time and
rapid production
ramp-up

Use modular
design to
postpone
product
differentiation for
as long as
possible

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Sourcing Function
Perform in-house (Making/ In-sourcing)
or
Outsourcing (Purchasing)

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Make/Buy Considerations
Reasons for Making
1. Maintain core competencies
and protect personnel from
layoff
2. Lower production cost
3. Unsuitable suppliers
4. Assure adequate supply
5. Utilize surplus labor and
make a marginal
contribution
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Reasons for Buying


1. Frees management to deal
with its primary business
2. Lower acquisition cost
3. Preserve supplier
commitment
4. Obtain technical or
management ability
5. Inadequate capacity

11-34

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Make/Buy Considerations Continued


Reasons for Making
6. Obtain desired quantity
7. Remove supplier collusion
8. Obtain a unique item that
would entail a prohibitive
commitment from the
supplier
9. Protect proprietary design or
quality
10. Increase or maintain size of
company
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Reasons for Buying


6. Reduce inventory costs
7. Ensure flexibility and
alternate source of supply
8. Inadequate managerial or
technical resources
9. Reciprocity (timbal-balik)
10. Item is protected by patent
or trade secret

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Supply-Chain Strategies
Strategic options

Many suppliers
Few suppliers
Keiretsu network
Vertical integration
Plan

1995 Corel Corp.

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2004 by Prentice Hall,

Supply-Chain Strategies
Negotiate with many suppliers; play one supplier against
another
Develop long-term partnering arrangements with a few
suppliers who will work with you to satisfy the end
customer
Vertically integrate; buy the actual supplier
Keiretsu - have your suppliers become part of a company
coalition

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2004 by Prentice Hall,

Many Suppliers Strategy

Many sources per item


Short-term
Little openness
Negotiated
High prices
Infrequent
1995 Corel Corp.

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Few Suppliers Strategy

1 or few sources per item


Partnership (JIT)
Long-term, stable
Exclusive contracts
Low prices (large orders)
Frequent, small lots

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11-39

1995
Corel
Corp.

2004 by Prentice Hall,

Vertical Integration Strategy


Ability to produce goods
previously purchased

Setup operations
Buy supplier

Raw Material
(Suppliers)
Backward
Integration
Current
Transformation
Forward
Integration
Finished Goods
(Customers)

Transparency Masters

11-40

2004 by Prentice Hall,

Forms of Vertical Integration


Iron Ore

Silicon

Steel

Automobiles

Farming

Raw Material
(Suppliers)

Flour Milling

Backward
Integration
Current
Transformation

Integrated
Circuits

Forward
Integration

Distribution
Circuit Boards
System
Dealers

Computers
Watches
Calculators

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Baked Goods

11-41

Finished Goods
(Customers)

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Keiretsu Network Strategy


Japanese word for affiliated chain
System of mutual alliances and
cross-ownership

Company stock is held by allied firms

Links manufacturers, suppliers, distributors, &


lenders

Partnerships extend across entire supply chain

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11-42

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Successful Supply-Chain
Management Requires:
A mutual agreement on goals
Trust
Compatible Inter-organizational cultures

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11-43

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The Application and Current Issues of


Supply Chain Management ?

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11-44

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Bullwhip Effect
Design for Logistics
(postponement)

Radio Frequency Identification Devices


(RFID)
Humanitarian Logistics
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11-45

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Design for Logistics


Three components for addressing the issue of inventory
or transportation costs and service levels in
complementary ways:
1. Economic packaging and transportation
2. Concurrent and parallel processing
3. Postponement/delayed differentiation

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Economic Packaging and Transportation


(suppliers perspective)
The most obvious involves designing products so that they
can be efficiently packed and stored.
If the space taken up by a product and not its weight
constrains how much can fit in a delivery vehicle, products
that can be stored more compactly can be transported less
expensively.
Ex: furniture, ?

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Economic Packaging and Transportation


(retailers perspective)
Many major retailers favor products that take up
less storage space and stack easily.
Efficient storage reduces certain components of
inventory cost because handling costs typically
decrease, space per product (thus rent per
product) decreases, and revenue per square foot
can inrease.

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2004 by Prentice Hall,

Economic Packaging and Transportation


(continue)
In some cases, final packaging can even delayed
until the goods are actually sold.
Ex: many grocery stores now sell flour, cereal and
many other goods in bulk, allowing consumers to
package as much as they want.

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2004 by Prentice Hall,

Economic Packaging and Transportation


(continue)
Cross-docking: involves moving goods from one
truck to another set of trucks.
In some cases, boxes or pallets are taken off an
incoming truck and moved directly to an outgoing
one. However it is often necessary to repackage
some of the products.

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Economic Packaging and Transportation


(continue)
Packaging and products that are designed to
facilitate this type of cross-docking operation by
making repacking easier will clearly help to lower
logistics costs.

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2004 by Prentice Hall,

Concurrent and Parallel Processing

Focus on modifying the manufacturing process


which may also require modification of the product
design
Involves modifying the manufacturing process so
that steps that were previously performed in a
sequence can be completed at the same time.

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Concurrent and Parallel Processing


(continue)
Results:
Reduce manufacturing lead time
Lower inventory costs
Reduce safety stock requirements

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Concurrent and Parallel Processing


(continue)
Requirement:
Implementation the concept of modularity or
decoupling.
If many of the components of the products can be
decoupled, or physically separated during
manufacturing, it is possible that these
components can be manufactured in parallel.

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2004 by Prentice Hall,

Concurrent and Parallel Processing (an


example)
Board

Printer

Europe

Asia

Board
Europe

Printer
Europe

Customers
(Europe)

Customers
(Europe)

Housing
Asia

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2004 by Prentice Hall,

Postponement/ delayed differentiation


Used to design the product and manufacturing
process so that decisions about which specific
product is being manufactured can be delayed.
The manufacturing process starts by making a
generic or family product which is later
differentiated into a specific end product.

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Re-sequencing
Modifying the order of product manufacturing
steps so that those operations that result in the
differentiation of specific items or products are
postponed as much as possible.
Ex:Benetton Corporation

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Re-sequencing (Benetton example)


After

Before
Acquiring yarn

Acquiring yarn

Dyeing

Manufacturing
garment parts

Manufacturing
garment parts

Sweater completely
assembled

Sweater completely
assembled

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Dyeing

11-58

2004 by Prentice Hall,

How It Works
Readers communicate via 802.11b to access point and onto network.
or

Tag data is received by RFID reader.


Tag ID and location information is
interpreted.

Tag ID and other


data is sent to
RFID/ Savant
Manager.

Tagged assets /
items read at
designated
frequency

Data sent to
business
applications

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11-59

2004 by Prentice Hall,

An n-tier Supply
Chain
Manufacturing

Stock

Ship

Data capture touch


points

Manufacturers
DC

Wholesale DC

Retail DC

Get video
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Retailer
2004 by Prentice
Hall,

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Thank you

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Council Logistics of Management


(CLM) Definition of SCM
SCM encompasses the planning and management
of all activities involved in sourcing and
procurement, conversion, and all logistics
management activities. It also includes
coordination and collaboration with channel
partners, which can be suppliers, intermediaries,
third-party service providers, and customers.
SCM integrates supply and demand management
within and across companies.
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11-67

2004 by Prentice Hall,

SCM Boundaries & Relationships


SCM is an integrating function with primary
responsibility for linking major business functions
and business processes within and across
companies into a cohesive and high-performing
business model.

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11-68

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CLM Definition of Logistics


Management
Logistics Management is that part of SCM that plans,
implements, and controls the efficient, effective
forward and reverse flow and storage of goods,
services and related information between the point
of origin and the point of consumption in order to
meet customers requirements.

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11-69

2004 by Prentice Hall,

Logistics Management Boundaries


& Relationships
Logistics Management activities typically include
inbound and outbound transportation
management, fleet management, warehousing,
material handling, order fulfillment, logistics ,
network design, inventory management,
supply/demand planning and management of third
party logistics service providers.

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11-70

2004 by Prentice Hall,

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