Supply Chain Supply Chain ManagementManagement

OPIM 310-Lecture #6

Instructor: Jose Cruz

Supply ChainSupply Chain All activities associated with the flow All activities associated with the flow

and transformation of goods and and transformation of goods and services from raw materials to the end services from raw materials to the end user, the customeruser, the customer

A sequence of business activities A sequence of business activities from suppliers through customers from suppliers through customers that provide the products, services, that provide the products, services, and information to achieve customer and information to achieve customer satisfactionsatisfaction

The Supply ChainThe Supply ChainInformation

Cash

Products and Services

Products and Services

Products and Services

CustomersCustomers

Total satisfaction with quality, price, delivery, and service

DistributorsDistributors

Package and delivery

Inventory

ProducersProducers

Finished goods, end products and services

Inventory

SuppliersSuppliers

Inventory

Materials, parts, sub-assemblies, and services

Figure 7.1Figure 7.1

Supply Chain ManagementSupply Chain Management

Synchronization of activities Synchronization of activities required to achieve maximum required to achieve maximum competitive benefitscompetitive benefits

Coordination, cooperation, and Coordination, cooperation, and communicationcommunication

Rapid flow of informationRapid flow of informationVertical integrationVertical integration

Supply Chain UncertaintySupply Chain Uncertainty

Forecasting, lead times, batch Forecasting, lead times, batch ordering, price fluctuations, and ordering, price fluctuations, and inflated orders contribute to inflated orders contribute to variabilityvariability

Inventory is a form of insuranceInventory is a form of insuranceDistorted information is one of Distorted information is one of

the main causes of uncertaintythe main causes of uncertainty

Information in the Information in the Supply ChainSupply Chain

Centralized coordination of Centralized coordination of information flowsinformation flows

Integration of transportation, Integration of transportation, distribution, ordering, and productiondistribution, ordering, and production

Direct access to domestic and global Direct access to domestic and global transportation and distribution transportation and distribution channelschannels

Locating and tracking the movement Locating and tracking the movement of every item in the supply chainof every item in the supply chain

Information in the Information in the Supply ChainSupply Chain

Consolidation of purchasing from all Consolidation of purchasing from all supplierssuppliers

Intercompany and intracompany Intercompany and intracompany information accessinformation access

Data interchangeData interchange Data acquisition at the point of origin Data acquisition at the point of origin

and point of saleand point of sale Instantaneous updating of inventory Instantaneous updating of inventory

levelslevels

Electronic BusinessElectronic Business Replacement of physical processes Replacement of physical processes

with electronic oneswith electronic ones Cost and price reductionsCost and price reductions Reduction or elimination of Reduction or elimination of

intermediariesintermediaries Shortening transaction times for Shortening transaction times for

ordering and deliveryordering and delivery Wider presence and increased visibilityWider presence and increased visibility

Electronic BusinessElectronic Business Greater choices and more information for Greater choices and more information for

customerscustomers Improved serviceImproved service Collection and analysis of customer data Collection and analysis of customer data

and preferencesand preferences Virtual companies with lower pricesVirtual companies with lower prices Leveling the playing field for smaller Leveling the playing field for smaller

companiescompanies Gain global access to markets & customersGain global access to markets & customers

Electronic Data InterchangeElectronic Data Interchange

Computer-to-computer exchange of Computer-to-computer exchange of business documents in a standard business documents in a standard formatformat

Quick access, better customer service, Quick access, better customer service, less paperwork, better communication, less paperwork, better communication, increased productivity, improved increased productivity, improved tracing and expediting, improves billing tracing and expediting, improves billing and cost efficiencyand cost efficiency

Bar CodesBar Codes

Computer readable codes attached to Computer readable codes attached to items flowing through the supply chainitems flowing through the supply chain

Generates point-of-sale data which is Generates point-of-sale data which is useful for determining sales trends, useful for determining sales trends, ordering, production scheduling, and ordering, production scheduling, and deliver plansdeliver plans

1234 5678

The InternetThe Internet Instant global access to organizations, Instant global access to organizations,

individuals, and information sourcesindividuals, and information sources Fundamentally changes the way Fundamentally changes the way

organizations do businessorganizations do business Removed geographic Removed geographic

barriersbarriers Adds speed and accessibility Adds speed and accessibility

to the supply chainto the supply chain

Figure 7.2 Build-to-Order Cars over the Internet

The E-Automotive Supply ChainThe E-Automotive Supply ChainSUPPLY CHAIN PROCESSSUPPLY CHAIN PROCESS AUTOMOTIVE PASTAUTOMOTIVE PAST E-AUTOMOTIVEE-AUTOMOTIVE

Customer salesCustomer sales Push—sell from inventoryPush—sell from inventory Pull—Build-to-orderPull—Build-to-order

ProductionProduction Goal of even and stable Goal of even and stable productionproduction

Focus on customer demand, Focus on customer demand, respond with supply chain respond with supply chain flexibilityflexibility

DistributionDistribution Mass approachMass approach Fast, reliable, and customized Fast, reliable, and customized to get cars to specific customer to get cars to specific customer locationlocation

Customer relationshipsCustomer relationships Dealer-ownedDealer-owned Shared by dealers and Shared by dealers and manufacturersmanufacturers

Managing uncertaintyManaging uncertainty Large car inventory at dealersLarge car inventory at dealers Small inventories with shared Small inventories with shared information and strategically information and strategically placed parts inventoriesplaced parts inventories

ProcurementProcurement Batch-oriented; dealers order Batch-oriented; dealers order based on allocationsbased on allocations

Orders made in real time based Orders made in real time based on available-to-promise on available-to-promise informationinformation

Product designProduct design Complex products don’t match Complex products don’t match customer needscustomer needs

Simplified products based on Simplified products based on better information about what better information about what customers wantcustomers want

Table 7.2Table 7.2

Intranets and ExtranetsIntranets and Extranets

Intranets are internet-like networks that Intranets are internet-like networks that operate within a single organizationoperate within a single organization

Extranets are intranets that can be Extranets are intranets that can be connected to the global internetconnected to the global internet

Difference is in who has access to the Difference is in who has access to the systemsystem

IT IssuesIT Issues Increased benefits and sophistication Increased benefits and sophistication

come with increased costscome with increased costs Efficient web sites do not necessarily Efficient web sites do not necessarily

mean the rest of the supply chain will mean the rest of the supply chain will be as efficientbe as efficient

Security problems are very realSecurity problems are very real Partnership and trust are important Partnership and trust are important

elements that may be new to business elements that may be new to business relationshipsrelationships

SuppliersSuppliers Purchased materials account for about Purchased materials account for about

half of manufacturing costshalf of manufacturing costs Materials, parts, and service must be Materials, parts, and service must be

delivered on time, of high quality, and delivered on time, of high quality, and low costlow cost

Suppliers should be integrated into Suppliers should be integrated into their customers’ supply chainstheir customers’ supply chains

Partnerships should be establishedPartnerships should be established On-demand delivery (JIT) is a frequent On-demand delivery (JIT) is a frequent

requirementrequirement

SourcingSourcing Relationship between customers and Relationship between customers and

suppliers focuses on collaboration and suppliers focuses on collaboration and cooperationcooperation

Outsourcing has become a long-term Outsourcing has become a long-term strategic decisionstrategic decision

Organizations focus on core Organizations focus on core competenciescompetencies

Single-sourcing is Single-sourcing is increasingly a part increasingly a part of supplier relationsof supplier relations

E-ProcurementE-Procurement Business-to-business commerce Business-to-business commerce

conducted on the Internetconducted on the Internet Benefits include lower transaction costs, Benefits include lower transaction costs,

lower prices, reduce clerical labor costs, lower prices, reduce clerical labor costs, and faster ordering and delivery timesand faster ordering and delivery times

Currently used more for indirect goodsCurrently used more for indirect goods E-Marketplaces service industry-specific E-Marketplaces service industry-specific

companies and supplierscompanies and suppliers

Figure 7.3 The Wal-Mart Supply Chain

Figure 7.4 Centralized Supply at Honda America

DistributionDistribution The actual movement of products and The actual movement of products and

materials between locationsmaterials between locations Handling of materials and products at Handling of materials and products at

receiving docks, storing products, receiving docks, storing products, packaging, and shippingpackaging, and shipping

Often called logisticsOften called logistics Driving force today Driving force today

is speedis speed Particularly important Particularly important

for Internet dot-comsfor Internet dot-coms

Figure 7.5 Order Fulfillment at Amazon.com

Distribution Centers Distribution Centers and Warehousingand Warehousing

DCs are some of the largest business DCs are some of the largest business facilities in the United Statesfacilities in the United States

Trend is for more frequent orders in Trend is for more frequent orders in smaller quantitiessmaller quantities

Flow-through facilities and automated Flow-through facilities and automated material handlingmaterial handling

Final assembly and product Final assembly and product configuration may be done at the DCconfiguration may be done at the DC

Warehouse Management Warehouse Management SystemsSystems

Highly automated systemsHighly automated systemsControls item putaway, picking, Controls item putaway, picking,

packing, and shippingpacking, and shippingTransportation management, Transportation management,

order management, yard order management, yard management, labor management, management, labor management, warehouse optimizationwarehouse optimization

Figure 7.6 A WMS

Vendor-Managed InventoryVendor-Managed Inventory

Manufacturers generate orders, not Manufacturers generate orders, not distributorsdistributors

Stocking information is accessed Stocking information is accessed using EDIusing EDI

A first step towards supply chain A first step towards supply chain collaborationcollaboration

Increased speed, reduced errors, and Increased speed, reduced errors, and improved serviceimproved service

Collaborative Distribution Collaborative Distribution and Outsourcingand Outsourcing

Collaborative planning, forecasting, and Collaborative planning, forecasting, and replenishment (CPFR)replenishment (CPFR)

Internet-based exchange of data and Internet-based exchange of data and informationinformation

Significant decrease in inventory levels Significant decrease in inventory levels and more efficient logisticsand more efficient logistics

Companies focus on core competenciesCompanies focus on core competencies

TransportationTransportation

Important element, often Important element, often overlookedoverlooked

Common methods are railroads, Common methods are railroads, trucking, water, air, intermodal, trucking, water, air, intermodal, package carriers, and pipelinespackage carriers, and pipelines

RailroadsRailroads

150,000 miles in US150,000 miles in USLow cost, high-volumeLow cost, high-volume Improving flexibilityImproving flexibility

intermodal serviceintermodal service double stackingdouble stacking

Most used mode in USMost used mode in USFlexible, small loadsFlexible, small loadsConsolidation, Consolidation,

Internet load match sitesInternet load match sitesPart of TQM supplier-customer Part of TQM supplier-customer

relationshiprelationshipSingle sourcing reduces number of Single sourcing reduces number of

trucking firms serving a companytrucking firms serving a company

TruckingTrucking

AirAirRapidly growing segment of Rapidly growing segment of

transportation industrytransportation industryLightweight, small itemsLightweight, small itemsQuick, reliable, Quick, reliable,

expensiveexpensiveMajor airlines Major airlines

and US Postal Service, and US Postal Service, UPS, FedEx, DHLUPS, FedEx, DHL

Package CarriersPackage CarriersFedEx, UPS, US Postal Service, DHLFedEx, UPS, US Postal Service, DHLSignificant growth driven by Significant growth driven by

e-businessese-businessesUse several modes Use several modes

of transportationof transportationExpensiveExpensiveFast and reliableFast and reliable Innovative use of Innovative use of

technologiestechnologies

IntermodalIntermodalCombination of several modes of Combination of several modes of

transportationtransportationMost common are truck/rail/truck Most common are truck/rail/truck

and truck/water/rail/truckand truck/water/rail/truckEnabled by the Enabled by the

use of containersuse of containers

WaterWaterOne of oldest means of transportOne of oldest means of transportLow-cost, high-volume, slowLow-cost, high-volume, slowBulky, heavy and/or large itemsBulky, heavy and/or large itemsStandardized shipping containers Standardized shipping containers

improve serviceimprove serviceThe most common The most common

form of international form of international shippingshipping

PipelinesPipelinesPrimarily for oil & refined oil Primarily for oil & refined oil

productsproductsSlurry lines carry coal or kaolinSlurry lines carry coal or kaolinHigh capital investmentHigh capital investmentLow operating costsLow operating costsCan cross difficult terrainCan cross difficult terrain

Internet Transportation Internet Transportation ExchangesExchanges

Bring together shippers and Bring together shippers and carrierscarriers

Initial contact, negotiations, Initial contact, negotiations, auctionsauctions

Typically only one Typically only one form of transportation, form of transportation, intermodal exchanges intermodal exchanges have been difficult to develophave been difficult to develop