16-1

McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Chapter 11
Supply Chain
Management
16-2
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
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.
16-3
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Warehouses
Factories
Processing centers
Distribution centers
Retail outlets
Offices

Facilities
16-4
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Functions and Activities
Forecasting
Purchasing
Inventory management
Information management
Quality assurance
Scheduling
Production and delivery
Customer service

16-5
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Typical Supply Chain for a Manufacturer
Supplier
Supplier
Supplier
Storage
}
Mfg. Dist. Retailer Customer Storage
16-6
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Supplier
Supplier
Storage
}
Service
Customer
Typical Supply Chain for a Service
16-7
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Supply ChainFlows
16-8
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Improve operations
Increasing levels of outsourcing
Increasing transportation costs
Competitive pressures
Increasing globalization
Increasing importance of e-business
Complexity of supply chains
Manage inventories
Need for Supply Chain Management
16-9
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Bullwhip Effect
Figure 16.3
Final Customer
Initial
Supplier
Demand
Inventory oscillations become progressively
larger looking backward through the supply chain
16-10
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Benefits of Supply Chain Management
Organization Benefit
Campbell Soup Doubled inventory turnover rate
Hewlett-Packard Cut supply costs 75%
Sport Obermeyer Doubled profits and increased sales 60%
National Bicycle Increased market share from 5% to 29%
Wal-Mart Largest and most profitable retailer in the world
16-11
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Benefits of Supply Chain Management
Lower inventories across chain
Higher productivity
Greater agility
Shorter lead times
Higher profits
Greater customer loyalty
Integrates separate organizations into a
cohesive operating system
16-12
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Global Supply Chains
Increasingly more complex
Language
Culture
Currency fluctuations
Politics
Transportation costs

16-13
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Elements of Supply Chain Management
Deciding how to best move and store materials Logistics
Determining location of facilities Location
Monitoring supplier quality, delivery, and relations
Suppliers
Evaluating suppliers and supporting operations Purchasing
Meeting demand while managing inventory costs Inventory
Controlling quality, scheduling work Processing
Incorporating customer wants, mfg., and time Design
Predicting quantity and timing of demand Forecasting
Determining what customers want Customers
Typical Issues Element
16-14
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Supply Chain Issues
Quality control
Production planning and
control
Inventory policies
Purchasing policies
Production policies
Transportation policies
Quality policies
Design of the supply
chain, partnering
Operating Issues Tactical Issues
Strategic Issues
16-15
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Strategic or Operational
Two types of decisions in supply chain
management
Strategic design and policy
Operational day-today activities
Major decision areas
Location
Production
Inventory
Distribution
16-16
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Supply-Chain Strategies
Many suppliers; play one against
another
Long-term partnering with few
suppliers
Vertically integrate; buy supplier or
distributor
Keiretsu - suppliers are part of company
coalition
Virtual company - uses suppliers on as-
needed basis.
16-17
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Managing the Supply-Chain
Options:
Postponement
Channel assembly
Drop shipping
VMI - Vendor Managed Inventory
Electronic ordering/invoicing/funds transfer
Stockless purchasing
Standardization
Internet purchasing (e-procurement)
Coordinating production and shipping
schedules
16-18
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Logistics
Movement of materials within a
facility
Incoming and outgoing shipments
Traffic management
Cross-docking
Distribution/DRP
3-PL (Third-party Logistics)
16-19
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Reverse Logistics
Reverse logistics backward flow of
goods returned to 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
16-20
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
E-Business: the use of electronic
technology to facilitate business
transactions
Internet buying and selling
Order and shipment tracking
Electronic data interchange
E-Business
16-21
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
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
Advantages of E-Business
16-22
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Customer expectations
Order quickly -> fast delivery
Order fulfillment
Order rate often exceeds ability to fulfill it
Disadvantages of E-Commerce
16-23
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Exchanges (Buyer, Supplier, Neutral)
MRO-catalog hub
Auctions
Reverse pricing
B2B Market Places
16-24
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
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
16-25
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
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

16-26
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
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
Eliminates need for manual counting
and bar code scanning

16-27
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
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
16-28
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Develop strategic objectives and tactics
Integrate and coordinate activities in the
internal supply chain
Coordinate suppliers with customers
Coordinate planning and execution
Form strategic partnerships
Creating an Effective Supply Chain
16-29
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Quality
Cost
Flexibility
Velocity
Customer service
Supply Chain Performance Drivers
16-30
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
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
16-31
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Barriers to integration of organizations
Getting top management on board
Dealing with trade-offs
Small businesses
Variability and uncertainty
Long lead times

Challenges
16-32
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
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

Trade-offs
16-33
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Supply Chain Benefits and Drawbacks
Problem Potential
Improvement
Benefits Possible
Drawbacks
Large
inventories
Smaller, more frequent
deliveries
Reduced holding
costs
Traffic congestion
Increased costs
Long lead times Delayed differentiation
Disintermediation
Quick response

May not be feasible
May need absorb
functions
Large number of
parts
Modular Fewer parts
Simpler ordering
Less variety

Cost
Quality
Outsourcing Reduced cost, higher
quality
Loss of control
Variability Shorter lead times, better
forecasts
Able to match supply
and demand
Less variety
16-34
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Purchasing is responsible for obtaining
the materials, parts, and supplies and
services needed to produce a product
or provide a service.
Purchasing
16-35
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Identifying sources of supply
Negotiating contracts
Maintaining a database of suppliers
Obtaining goods and services
Managing supplies
Duties of Purchasing
16-36
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Purchasing Interfaces
Purchasing
Legal
Accounting
Operations
Data
processing
Design
Receiving
Suppliers
16-37
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Increasing outsourcing
Increasing conversion to lean
production
Increasing globalization

Purchasing in Supply Chain Management