Supply Chain

1

Supply Chain

2

Creation and delivery of Products and Services

Operations is about the creation of a product or service which adds value to the consumer. (Chapter 1)

Creation of value extends beyond our facility to include suppliers and distributors.

Supply Chain is the set of entities and relationship that cumulatively define material and information flows both up stream (towards suppliers) and downstream (towards customer).

Inputs Product/SrvcSuppliers Distribution

Returns, Recycles, demand Returns, Recycles, demand

Supply Chain

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Customer’sCustomerSuppliers’

Supplier

SCOR is structured around five distinct management processes

Plan

Supplier Customer

Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliver

Internal or External

Internal or External

Your Company

Source

SCOR Model SCOR Model

Return Return ReturnReturn Return Return Return Return

Supply Transformation Distribution

Supply Chain

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Def: The design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer. *

Objectives:Supply chain integration seeks optimization within the

supply chain by minimizing the total cost at all levels.• Production quantities, product availability, service

levels, lead times, production quantities, and technical and product support.

Multiple companies to function efficiently as a single

company with full information visibility and accountability.

Focus: Reduce uncertainty across the entire supply chain

Supply Chain Management

Who does supply chain management?

Supply Chain

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Supply Chain Functions

Supply chain transforms a group of ad hoc and often fragmented processes into a cohesive system capable of delivering value to the customer.

Functions include:•Forecasting

•Purchasing•Inventory management

•Information management•Quality assurance•Scheduling

•Production•Distribution

•Delivery•Customer Service

* ISM

Supply Chain

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Vision of the Virtual Corporation

Supplier Distribution

Logistics Production

Supplier

Wholesaler

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Vertically Integrated Corporation

Supply Chain Integrator Business Community Integration/Virtual Corporation

Distribution

Marketing

Logistics

Production

Engineering

MIS/ Finance

Marketing

Engineering

MIS/Finance

Customer

Source: Gartner Group 02/1998

Distribution

Marketing

Logistics

Production

Engineering

MIS/ Finance

Processes crossing boundariesbetween legal entities(not equal virtual enterprise)to be integrated by e-enablers

implies a switch from vertical integration to increased partnerships in purchasing/production/trading communities... (Plan, Source, Make, Deliver,Return)

Supply Chain

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Supply Chain Decisions

The development of a successful supply chain integrates and balances

Purchasing, Operations, Logistics

SCM Example

Supply Chain

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Purchasing Elements

Traditional buyer relationship vs

Supply Chain Management relationship

Supplier Management• Supplier evaluation

• Initial v Ongoing• Supplier certification

Strategic Partnerships• Supplier involvement

Make or Buy• Outsourcing• Build in-house

Sourcing strategy• Global• Local

Supply Chain

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Operations Elements

Demand management• matching demand to available capacity• what products/features• distribution• promotion

Inventory Control - placement & amount depends on product

JIT/Lean Mfg - focus on cost and flexibility

Total Quality Management - focus on quality

Focus is on Operations throughout supply chain

Supply Chain

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Logistics Elements

Transportation Management• Modes of transportation is a trade off between cost and delivery timing • Logistics (LTL, Overnight, 2 –day)

Successful service delivery depends on service location, service capacity and service capability.

Third Party Logistics (3PL)• warehousing• shipping

Location & Storage• Direct/distributor• inventory• Bull Whip Effect• Warehouse location

Packaging & Material Handling• Packaging to prevent damage, plus marketing• Handling for shelf life and minimize damage

Supply Chain

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Mapping Material Flow

Latin AmericanLatin AmericanSuppliersSuppliers

(D1)

WarehouseWarehouse

Other SuppliersOther Suppliers

(D1)

ManufacturingManufacturing

European SupplierEuropean Supplier(S1)

(SR1,SR3)

C ustom er

C ustom er

C ustom er

C ustom er

(S1, D1)(SR1,DR1,DR3)

(S1, S2, M1, D1)(SR1,SR3,DR3)

(D2)(DR1)

WarehouseWarehouse

WarehouseWarehouse

WarehouseWarehouse

(S1, D1)(SR1,DR1,DR3)

(S1, D1)(SR1,DR1,DR3)

(S1, D1)(SR1,DR1,DR3)

(S1)(SR1,SR3)

(S1)(SR1,SR3)

(S1)(SR1,SR3)

Supply Chain

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Measuring Supply Chain Performance

Delivery: On time; Fill rate; Lead Time

Quality: Performance; Conformance; Satisfaction

Flexibility: Volume; Mix

Time: Throughput; Cash-to-Cash cycle time

Cost: Unit Cost; Distribution; Carrying Cost; Accounts Receivable.

Supply Chain

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Improving Supply Chains

Structural Improvement• Engaging in forward and backward integration• Pursuing major process simplification• Changing configuration of factories, warehouses or retail locations.• Pursue major product redesign• Working with third party logistics

Infrastructure Improvement• Cross-functional teams

• Partnerships

• Setup time reduction

• Information systems

• Cross-docking

Supply Chain

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Coordination of material, information and financial flows between and among all the participating enterprises in a business transaction.

E- Procurement

Order Placement (B2B, B2C)

Order Fulfillment

Payment methods

Reverse Auctions

Demand Management

Access to supplier production schedules for anticipated delivery dates

Access to retailer’s inventory to determine quantity and time needs

Technology and Supply Chain

Supply Chain

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Need For Supply Chain

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 (Virtual Corporation)

8. Need to manage Inventories

Supply Chain

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Supply Chain

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Dealing with Trade-Offs in Creating Supply Chains

1. Lot Size to Inventory• Bullwhip effect: progressively larger

inventories as you move back through the supply chain

2. Inventory to Transportation Cost• Cross docking

3. Lead Time to Transportation Cost

4. Product Variety to Inventory• Delayed differentiation (Postponement)

5. Cost to Customer Service• Disintermediation: reducing one or more

steps out of the supply chain.6. Certainty to Uncertainty of data in decision

making

7. Control to Potential lower unit cost

Supply Chain

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End custom

erE

nd customer

Raw

materials

Raw

materials

Source: SC Faculty Michigan State University

Relationship managementMaterials/service, cash, information and knowledge

flows

Core competences, skills, capacities

Working capital and human resources

Supplier network

Distribution network

Sourc-ing

Supply/logistics

Production/operation

Own Integrated corporation

Planning

Information Flow

Supply Chain

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Competitive Advantage & Supply Chain Strategy

The Supply Chain Strategy should support the competitive advantage of the product or service.

Types of products: Imitators & Innovators

Strategy Imitators Innovators

Objective Low cost Quick response to demand

Manufacturing Hi volume Inventory & quick throughput

Inventory Low, hi turnover Inventory throughout

Suppliers Cost & quality Speed, flex, quality