Chapter 4 – Supply Chain Management

Chapter 4 – Supply Chain Management 1 What is a Supply Chain? The network of external suppliers, internal processes, and external distributors, and the links connecting them, that deliver a finished product or service to the customer. 2 A Basic Supply Chain 3 Supply Chain Management Supply Chain Management entails:    Making decisions regarding the structure of the supply chain Coordinating the movement of goods and delivery of services Sharing information between members of the supply chain. 4 SCM Factors  SCM must consider the following trends, improved capabilities, & realities:      Consumer Expectations and Competition – power has shifted to the consumer Globalization – capitalize on emerging markets Information Technology – e-commerce, Internet, EDI, scanning data, intranets Government Regulations - like trade barriers Environment Issues – e.g. waste minimization 5 Components of a Typical Supply Chain External Suppliers Internal Functions External Distributors INFORMATION 6 External Suppliers    External suppliers provide the necessary raw materials, services, and component parts. Purchased materials & services frequently represent 50% (or more) of the costs of goods sold. Suppliers are frequently members of several supply chains – often in different roles. 7 External Suppliers  Tier one suppliers:   Tier two suppliers:   Directly supplies materials or services to the firm that does business with the final customer Provides materials or services to tier one suppliers Tier three suppliers:  Providers materials or services to tier two suppliers 8 Internal Functions  Vary by industry & firm, but might include:      Processing Purchasing Production Planning & Control Quality Assurance Shipping 9 Logistics & Distribution  Logistics: getting the right material to the right place at the right time in the right quantity:  Traffic Management:   The selection, scheduling & control of carriers (e.g.: trucks & rail) for both incoming & outgoing materials & products Distribution Management:  The packaging, storing & handling of products in transit to the end-user. 10 Dairy Products Supply Chain 11 Vertical Integration  A measure of how much of the supply chain is controlled by the manufacturer.  Backward integration:   Acquiring control of raw material suppliers. Forward integration:  Acquiring control of distribution channels. 12 Outsourcing   Entails paying third-party suppliers to provide raw materials and services, rather than making them in-house. Outsourcing is increasing as many firms try to focus their internal operations on what they do best. 13 Insourcing vs. Outsourcing  What questions need to be asked before sourcing decisions are made?      Is product/service technology critical to firm’s success? Is operation a core competency? Do you have the capital to provide capacity & keep the process current? Will outsourcing extend lead times and limit flexibility? Can others do it for less cost and better quality? 14 Purchasing’s Role in SCM  Purchasing role has attained increased importance since material costs represent 50-60% of cost of goods sold      Ethics considerations Developing supplier relationships Determining how many suppliers Developing partnerships Industry trend is to a much smaller supplier base. Why? 15 Partnering with Suppliers  Involves developing a long-term, mutually-beneficial relationship:    Requires trust to share information, risk, opportunities, & investing in compatible technology Work together to reduce waste and inefficiency & develop new products Agree to share the gains 16 Supplier Relationships and JIT  Use single-source suppliers when possible  Build long-term relationships  Work together to certify processes  Co-locate facilities to reduce transport if possible  Stabilize delivery schedules  Share cost & other information  Early involvement during new product designs 17 The Role of Warehouses  General Warehouses:   Used for long-term storage of goods Distribution Warehouses:  Transportation consolidation:   Product mixing & blending:   Consolidate LTL into TL deliveries Group multiple items from various suppliers Improve service:   Reduced response time Allow for last-minute customization 18 Information Flow in Supply Chains 19 Information Sharing   Supply chain partners can benefit by sharing information on sales, demand forecasts, inventory levels & marketing campaigns Inaccurate or distorted information leads to the Bullwhip Effect 20 The Bullwhip Effect   If information isn’t shared, everyone has to guess what is going on downstream. Guessing wrong leads to too much or too little inventory:   If too much, firms hold off buying more until inventories fall (leading suppliers to think demand has fallen). If too little, firms demand a rush order & order more than usual to avoid being caught short in the future (leading suppliers to think demand has risen). 21 Short-Circuit the Bullwhip  Make information transparent:    Use Electronic Data Interchange (EDI) to support Just-In-Time supplier replenishment Use bar codes & electronic scanning to capture & share point-of-sale data Eliminate wholesale price promotions & quantity discounts 22 Electronic Data Interchange   The most common method of using computer-to-computer links to exchange data between supply chain partners in a standardized format. Benefits include:    Quick transfer of information Reduced paperwork & administration Improved data accuracy & tracking capability 23 Integrated SCM  Implementing integrated SCM requires:     Analyzing the whole supply chain Starting by integrating internal functions first Integrating external suppliers through partnerships Possible Supply Chain Objectives      Reduce costs, improve quality Reduce lead time and inventory Reduce time to market Increase sales Improve demand data/forecasting 24