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Learning Objectives
Explain what a supply chain is.
Explain the need to manage a supply chain and
the potential benefits of doing so.
Explain the increasing importance of outsourcing.
State the objective of supply chain management.
List the elements of supply chain management.
Identify the strategic, tactical, and operations
issues in supply chain management.
Describe the bullwhip effect and the reasons why
it occurs.
11-2
Learning Objectives
Explain the value of strategic partnering.
Discuss the critical importance of information
exchange across a supply chain.
Outline the key steps, and potential challenges, in
creating an effective supply chain.
Explain the importance of the purchasing function
in business organizations.
Describe the responsibilities of purchasing.
Explain the term value analysis.
Identify several guidelines for ethical behavior in
purchasing.
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Supply Chain Management
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Facilities
Warehouses
Factories
Processing centers
Distribution centers
Retail outlets
Offices
11-5
Functions and Activities
Forecasting
Purchasing
Inventory management
Information management
Quality assurance
Scheduling
Production and delivery
Customer service
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Typical Supply Chains
Production Distribution
Purchasing Receiving Storage Operations Storage
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Typical Supply Chain for a
Manufacturer
Supplier
Supplier
Supplier
}
Storage Mfg. Storage Dist. Retailer Customer
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Typical Supply Chain for a
Service
Supplier
Supplier
} Storage Service Customer
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Need for Supply Chain
Management
1.Improve operations
2.Increasing levels of outsourcing
3.Increasing transportation costs
4.Competitive pressures
5.Increasing globalization
6.Increasing importance of e-commerce
7.Complexity of supply chains
8.Manage inventories
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Bullwhip Effect
Demand
Initial
Final Customer
Supplier
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Benefits of Supply Chain
Management
Organization Benefit
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Benefits of Supply Chain Management
Lower inventories
Higher productivity
Greater agility
Shorter lead times
Higher profits
Greater customer loyalty
Integrates separate organizations into a
cohesive operating system
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Global Supply Chains
Increasing more complex
Language
Culture
Currency fluctuations
Political
Transportation costs
Local capabilities
Finance and economics
Environmental
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Elements of Supply Chain
Management
Element Typical Issues
Customers Determining what customers want
Forecasting Predicting quantity and timing of demand
Design Incorporating customer wants, mfg., and time
Processing Controlling quality, scheduling work
Inventory Meeting demand while managing inventory costs
Purchasing Evaluating suppliers and supporting operations
Suppliers Monitoring supplier quality, delivery, and relations
Location Determining location of facilities
Logistics Deciding how to best move and store materials
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Strategic or Operational
Two types of decisions in supply chain
management
Strategic – design and policy
Operational – day-today activities
Major decisions areas
Location
Production
Inventory
Distribution
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Logistics
Logistics
Refers to the movement of materials and
information within a facility and to incoming
and outgoing shipments of goods and
materials in a supply chain
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Logistics
• Movement within the facility
• Incoming and outgoing shipments
• Bar coding
• EDI
0
• Distribution
• JIT Deliveries 214800 232087768
11-18
Materials Movement
Work center
Work center Work
center
Work Storage
center
Storage
Storage
RECEIVING
Shipping
11-19
Distribution Requirements
Planning
Distribution requirements planning
(DRP) is a system for inventory
management and distribution planning
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Uses of DRP
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E-Business
E-Business: the use of electronic
technology to facilitate business
transactions
Applications include
Internet buying and selling
E-mail
Order and shipment tracking
Electronic data interchange
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Advantages E-Business
Companies can:
Have a global presence
Improve competitiveness and quality
Analyze customer interests
Collect detailed information
Shorten supply chain response times
Realize substantial cost savings
Create virtual companies
Level the playing field for small companies
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Disadvantages of E-Business
Customer expectations
Order quickly -> fast delivery
Order fulfillment
Order rate often exceeds ability to fulfill it
Inventory holding
Outsourcing loss of control
Internal holding costs
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Reverse Logistics
Reverse logistics – the backward flow of
goods returned to the supply chain
Processing returned goods
Sorting, examining/testing, restocking, repairing
Reconditioning, recycling, disposing
Gatekeeping – screening goods to prevent
incorrect acceptance of goods
Avoidance – finding ways to minimize the
number of items that are returned
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Effective Supply Chain
Requires linking the market, distribution
channels processes, and suppliers
Supply chain should enable members to:
Share forecasts
Determine the status of orders in real time
Access inventory data of partners
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Successful Supply Chain
Trust among trading partners
Effective communications
Supply chain visibility
Event-management capability
The ability to detect and respond to
unplanned events
Performance metrics
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RFID Technology
Used to track goods in supply chain
RFID tag attached to object
Similar to bar codes but uses radio
frequency to transmit product information to
receiver
RFID eliminates need for manual counting
and bar code scanning
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CPFR
Collaborative Planning, Forecasting, and
Replenishment
Focuses on information sharing among
trading partners
Forecasts can be frozen and then
converted into a shipping plan
Eliminates typical order processing
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CPFR Process
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CPFR Results
Nabisco and Wegmans
50% increase in category sales
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Velocity
Inventory velocity
The rate at which inventory(material) goes
through the supply chain
Information velocity
The rate at which information is
communicated in a supply chain
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Challenges
Barriers to integration of organizations
Getting top management on board
Dealing with trade-offs
Small businesses
Variability and uncertainty
Long lead times
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Trade-offs
1. Lot-size-inventory
Bullwhip effect
2. Inventory-transportation costs
Cross-docking
3. Lead time-transportation costs
4. Product variety-inventory
Delayed differentiation
5. Cost-customer service
Disintermediation
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Trade-offs
Bullwhip effect
Inventories are progressively larger moving
backward through the supply chain
Cross-docking
Goods arriving at a warehouse from a
supplier are unloaded from the supplier’s
truck and loaded onto outbound trucks
Avoids warehouse storage
11-37
Trade-offs
Delayed differentiation
Production of standard components and
subassemblies, which are held until late in
the process to add differentiating features
Disintermediation
Reducing one or more steps in a supply
chain by cutting out one or more
intermediaries
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Supply Chain Issues
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Supply Chain Benefits and
Drawbacks
Proble Potential Benefits Possible
m Improvemen Drawbacks
Large t
Smaller, more Reduced holding Traffic congestion
inventories frequent deliveries costs Increased costs
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Purchasing
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Goal of Purchasing
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Duties of Purchasing
Identifying sources of supply
Negotiating contracts
Maintaining a database of suppliers
Obtaining goods and services
Managing supplies
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Purchasing Interfaces
Legal
Operations Accounting
Data
Purchasing
processing
Design
Receiving
Suppliers
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Purchasing Cycle
Legal
2.Supplier selected
Data
3.Order is placed Purchasing process-
ing
4.Monitor orders
Design
5.Receive orders
Receiving
Suppliers
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Value Analysis vs. Outsourcing
Value analysis
Examination of the function of purchased
parts and materials in an effort to reduce
cost and/or improve performance
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Centralized vs Decentralized
Purchasing
Centralized purchasing
Purchasing is handled by one special
department
Decentralized purchasing
Individual departments or separate
locations handle their own purchasing
requirements
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Suppliers
Choosing suppliers
Evaluating sources of supply
Supplier audits
Supplier certification
Supplier relationships
Supplier partnerships
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Factors in Choosing a Supplier
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Factors in Choosing a Supplier
(cont’d)
Product or service changes
Reputation and financial stability
Lead times and on-time delivery
Other accounts
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Evaluating Sources of Supply
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Evaluating Sources of Supply
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Supplier as a Partner
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Critical Issues
Strategic importance
Cost
Quality
Agility
Customer service
Competitive advantage
Technology management
Benefits
Risks
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Critical Issues
Purchasing function
Increased outsourcing
Increased conversion to lean production
Just-in-time deliveries
Globalization
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