© 2008 The McGraw-Hill Companies, All Rights ReservedMcGraw-Hill/Irwin

Business Plug-In B8Business Plug-In B8

Supply Chain Supply Chain ManagementManagement

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LEARNING OUTCOMES

1. List and describe the four drivers of supply chain management

2. Explain supply chain management strategies focused on efficiency

3. Explain supply chain management strategies focused on effectiveness

4. Summarize the future of supply chain management

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INTRODUCTION

• Supply chain – consists of all parties involved, directly or indirectly, in the procurement of a product or raw material

• Supply chain management (SCM) – involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability

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SUPPLY CHAIN DRIVERS

• The four primary drivers of supply chain management

1. Facilities

2. Inventory

3. Transportation

4. Information

• Organizations use these four drivers to support either a supply chain strategy focusing on efficiency or a supply chain strategy focusing on effectiveness

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SUPPLY CHAIN DRIVERS

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FACILITIES DRIVER

• Facility – processes or transforms inventory into another product, or it stores the inventory before shipping it to the next facility

• Three primary facilities components1. Location

2. Capacity

3. Operational design

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FACILITIES 1: Location

• Location efficiency – centralize the location to gain economies of scale, which increases efficiency

• Location effectiveness – decentralize the locations to be closer to the customers, which increases effectiveness

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FACILITIES 2: Capacity

• Capacity efficiency – minimal excess capacity with the ability to produce only what is required

• Capacity effectiveness – large amounts of excess capacity which can handle wide swings in demand

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FACILITIES 3: Operational Design

• Operational design efficiency – product focus design allows the facility to become highly efficient at producing one single product, increasing efficiency

• Operational design effectiveness – functional focus design allows the facility to perform a specific function on many different types of products, increasing effectiveness

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FACILITIES DRIVER

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INVENTORY DRIVER

• Inventory – offsets discrepancies between supply and demand

• Inventory management and control software – provides control and visibility to the status of individual items maintained in inventory

• Two primary inventory components1. Cycle inventory2. Safety inventory

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INVENTORY 1: Cycle Inventory

• Cycle inventory – the average amount of inventory held to satisfy customer demands between inventory deliveries

– Cycle inventory efficiency – holding small amounts of inventory and receiving orders weekly or even daily

– Cycle inventory effectiveness – holding large amounts of inventory and receiving inventory deliveries only once a month

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INVENTORY 2: Safety Inventory

• Safety inventory – extra inventory held in the event demand exceeds supply

– Safety inventory efficiency – holding small amounts of safety inventory

– Safety inventory effectiveness – holding large amounts of safety inventory

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INVENTORY DRIVER

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TRANSPORTATION DRIVER

• Transportation – moves inventories between the different stages in the supply chain

• Two primary inventory components1. Method of transportation

2. Transportation route

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TRANSPORTATION 1: Method of Transportation

• Global inventory management system – provides the ability to locate, track, and predict the movement of every component or material anywhere upstream or downstream in the supply chain

– Method of transportation efficiency– Method of transportation effectiveness

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TRANSPORTATION 2: Transportation Route

• Transportation planning software – tracks and analyzes the movement of materials and products to ensure the delivery of materials and finished goods at the right time, the right place, and the lowest cost

• Distribution management software – coordinates the process of transporting materials from a manufacturer to distribution centers to the final customer

– Transportation route efficiency– Transportation route effectiveness

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TRANSPORTATION DRIVER

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INFORMATION DRIVER

• Information – an organization must decide how and what information it wants to share with its supply chain partners

• Two primary information components1. Information sharing

2. Push verses pull strategy

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INFORMATION 1: Information Sharing

• Information sharing efficiency – freely share lots of information to increase the speed and decrease the costs of supply chain processing

• Information sharing effectiveness – share only selected information with certain individuals, which will decrease the speed and increase the costs of supply chain processing

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INFORMATION 2: Push vs. Pull Information Strategy

• Pull information strategy (efficiency) – supply chain partners are responsible for pulling all relevant information

– Pull technology – pulls information

• Push information strategy effectiveness – organization takes on the responsibility to push information out to its supply chain partners

– Push technology – sends information

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INFORMATION DRIVER

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APPLYING A SUPPLY CHAIN DESIGN

• Wal-Mart’s supply chain management strategy emphasizes efficiency, but also maintains adequate levels of effectiveness

– Facilities focus – Efficiency– Inventory focus – Efficiency– Transportation focus – Effectiveness– Information focus – Efficiency

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APPLYING A SUPPLY CHAIN DESIGN

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Future Trends

• Fastest growing SCM components– Supply chain event management (SCEM)– Selling chain management – Collaborative engineering– Collaborative demand planning

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Closing Case OneListerine’s Journey

• When you use Listerine antiseptic mouthwash, you are experiencing the last step in a complex supply chain spanning several continents and requiring months of coordination by countless businesses and individuals

• As raw material is transformed to finished product, what will be Listerine travels around the globe and through multiple supply chains and information systems

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Closing Case One Questions

1. Summarize SCM and describe Warner-Lambert’s supply chain strategy

2. Detail Warner-Lambert’s facilities strategy

3. Detail Warner-Lambert’s inventory strategy

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Closing Case One Questions

4. Detail Warner-Lambert’s transportation strategy

5. Detail Warner-Lambert’s information strategy

6. What would happen to Warner-Lambert’s business if a natural disaster in Saudi Arabia depletes its natural gas resources?

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Closing Case TwoKatrina Shakes Supply Chains

• How do corporations cope with the realities of risk, uncertainty, and crisis?

• Many businesses prepared well for Hurricane Katrina, responded quickly, and did so because Katrina was exactly the kind of event for which well-run corporations ready themselves

• Corporations donated more than $500 million for relief for the hurricane that hit New Orleans in 2005 and were the first to provide help to Katrina victims

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Closing Case Two Questions

1. How did Home Depot manage its supply chain to be one of the first stores to reopen after Katrina?

2. How could Wal-Mart have revamped its transportation driver to handle Katrina more efficiently?

3. Why is it critical to FedEx’s success to be able to handle all types of global disasters? Highlight FedEx’s use of the information driver

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Closing Case Two Questions

4. How can the government learn from big business in dealing with disasters such as Katrina?

5. What can companies do in terms of facilities, inventory, transportation, and information to prepare themselves for disasters such as Katrina?