Chapter 11: Supply Chain Management

Percentage Invested in Inventor

(Average inventory investment/Total assets) x 100

Weeks of Supply

Average inventory investment/ (Annual cost of goods sold/52 weeks)

Joint Ventures

Because vertical integration is so dangerous, firms may opt for some form of formal collaboration. As we noted in Chapter 5, firms may engage in collaboration to enhance their new product prowess or technological skills. But firms also engage in collaboration to secure supply or reduce costs

Reverse Logistics

Involves the processes for sending returned products back up the supply chain for resale, repair, reuse, remanufacture, recycling, or disposal. The operations manager's goal should be to limit burning or burying of returned products and instead strive for reuse.

Collaborative planning, forecasting, and replenishment (CPFR)

Is another effort to manage inventory in the supply chain. members of the supply chain share planning, demand, forecasting, and inventory information. Partners in a effort begin with collaboration on product definition and a joint marketing plan. Promotion, advertising, forecasts, joint order commitments, and timing of shipments are all included in the plan in a concerted effort to drive down inventory and related costs. CPFR can help to significantly reduce the bullwhip effect.

Logistics Management

Is to obtain efficiency of operations through the integration of all material acquisition, movement, and storage activities. When transportation and inventory costs are substantial on both the input and output sides of the production process, an emphasis on logistics may be appropriate. Many firms opt for outsourcing the logistics function, as logistics specialists can often bring expertise not available in-house. For instance, logistics companies often have tracking technology that reduces transportation losses and supports delivery schedules that adhere to precise delivery windows. The potential for competitive advantage is found via both reduced costs and improved customer service.

Bullwhip Effect

Occurs as orders are relayed from retailers, to distributors, to wholesalers, to manufacturers, with fluctuations increasing at each step in the sequence. Fluctuations in the supply chain increase the costs associated with inventory, transportation, shipping, and receiving, while decreasing customer service and profitability. A number of specific opportunities exist for reducing the bullwhip effect and improving supply chain performance.

Closed-loop supply chain

Refers more to the proactive design of a supply chain that tries to optimize all forward and reverse flows. Prepares for returns prior to product introduction.

Keiretsu

These manufacturers are often financial supporters of suppliers through ownership or loans. The supplier becomes part of a company coalition. Are assured long-term relationships and are therefore expected to collaborate as partners, providing technical expertise and stable quality production to the manufacturer. Members of the keiretsu can also have second- and even third-tier suppliers as part of the coalition.

Many Suppliers

a supplier responds to the demands and specifications of a "request for quotation," with the order usually going to the low bidder. This is a common strategy when products are commodities. This strategy plays one supplier against another and places the burden of meeting the buyer's demands on the supplier. Suppliers aggressively compete with one another. This approach holds the supplier responsible for maintaining the necessary technology, expertise, and forecasting abilities, as well as cost, quality, and delivery competencies. Long-term "partnering" relationships are not the goal.

Pull Data

are generated by sharing (1) point-of-sales (POS) information so that each member of the chain can schedule effectively and (2) computer-assisted ordering (CAO). This implies using POS systems that collect sales data and then adjusting that data for market factors, inventory on hand, and outstanding orders. Then a net order is sent directly to the supplier, who is responsible for maintaining the finished-goods inventory.

Make-or-Buy Decision

choosing products and services that can be advantageously obtained externally as opposed to produced internally is known

Inventory Turnover

cost of goods sold/average inventory investment

Supply Chain Management

describes the coordination of all supply chain activities, starting with raw materials and ending with a satisfied customer. Thus, a supply chain includes suppliers; manufacturers and/or service providers; and distributors, wholesalers, and/or retailers who deliver the product and/or service to the final customer.

Few Suppliers

implies that rather than looking for short-term attributes, such as low cost, a buyer is better off forming a long-term relationship with a few dedicated suppliers. Long-term suppliers are more likely to understand the broad objectives of the procuring firm and the end customer. Using few suppliers can create value by allowing suppliers to have economies of scale and a learning curve that yields both lower transaction costs and lower production costs. This strategy also encourages those suppliers to provide design innovations and technological expertise. Video 11.2

Blanket Order

is a contract to purchase certain items from a vendor. It is not an authorization to ship anything. Shipment is made only on receipt of an agreed-on document, perhaps a shipping requisition or shipment release.

Single-Stage Control of Replenishment

means designating a member in the chain as responsible for monitoring and managing inventory in the supply chain based on the "pull" from the end user. This approach removes distorted information and multiple forecasts that create the bullwhip effect. Control may be in the hands of: A sophisticated retailer who understands demand patterns. Walmart does this for some of its inventory with radio frequency ID (RFID) tags. A distributor who manages the inventory for a particular distribution area. Distributors who handle grocery items, beer, and soft drinks may do this. Anheuser-Busch manages beer inventory and delivery for many of its customers. A manufacturer who has a well-managed forecasting, manufacturing, and distribution system. Hong Kong's TAL Apparel Ltd. does this for JCPenney.

Drop Shipping

means the supplier will ship directly to the end consumer, rather than to the seller, saving both time and reshipping costs. Other cost-saving measures include the use of special packaging, labels, and optimal placement of labels and bar codes on containers. The final location down to the department and number of units in each shipping container can also be indicated. Substantial savings can be obtained through management techniques such as these. Some of these techniques can be of particular benefit to wholesalers and retailers by reducing shrinkage (lost, damaged, or stolen merchandise) and handling cost.

Vender Managed Inventory

means the use of a local supplier (usually a distributor) to maintain inventory for the manufacturer or retailer. The supplier delivers directly to the purchaser's using department rather than to a receiving dock or stockroom. If the supplier can maintain the stock of inventory for a variety of customers who use the same product or whose differences are very minor (say, at the packaging stage), then there should be a net savings. These systems work without the immediate direction of the purchaser.

Virtual Companies

rely on a variety of good, stable supplier relationships to provide services on demand. Suppliers may provide a variety of services that include doing the payroll, hiring personnel, designing products, providing consulting services, manufacturing components, conducting tests, or distributing products. The relationships may be short- or long-term and may include true partners, collaborators, or simply able suppliers and subcontractors. Whatever the formal relationship, the result can be exceptionally lean performance. The advantages of virtual companies include specialized management expertise, low capital investment, flexibility, and speed. The result is efficiency.

Cross-sourcing

represents a hybrid technique where two suppliers each provide a different component, but they have the capability of producing each other's component—that is, each acting as a backup source. Another option is to create excess capacity that can be used in response to problems in the supply chain. Such contingency plans can reduce risk.

Blockchain

seems poised to play a significant role in logistics, where it could change how supply chains work. Allow participants to add "blocks" of information after each firm validates transactions as they progress along the production, shipping, and delivery phases of a supply chain. The blocks are time-stamped and added to the chain at each transaction.

Channel Assembly

sends individual components and modules, rather than finished products, to the distributor. The distributor then assembles, tests, and ships. Treats distributors more as manufacturing partners than as distributors. This technique has proven successful in industries where products are undergoing rapid change, such as PCs. With this strategy, finished-goods inventory is reduced because units are built to a shorter, more accurate forecast. Consequently, market response is better, with lower investment—a nice combination.

E-Procurement

speeds purchasing, reduces costs, and integrates the supply chain. It reduces the traditional barrage of paperwork and, at the same time, provides purchasing personnel with an extensive database of supplier, delivery, and quality data.

Supply Chain Operations Reference (SCOR) model

the six parts are Plan (planning activities for supply and demand), Source (purchasing activities), Make (production activities), Deliver (distribution activities), Return (closed-loop supply chain activities), and Enable (support for value-added activities beyond the supply chain). Defines processes, metrics, and best practices. The best practices describe the techniques used by benchmark firms that have scored very well on the metrics. SCOR combines these metrics with "Performance Attributes"

Outsourcing

transfers some of what are traditional internal activities and resources of a firm to outside vendors, making it slightly different from the traditional make-or-buy decision.

Vertical Integration

we mean developing the ability to produce goods or services previously purchased or to actually buy a supplier or a distributor. can offer a strategic opportunity for the operations manager. For firms with the capital, managerial talent, and required demand, vertical integration may provide substantial opportunities for cost reduction, higher quality, timely delivery, and inventory reduction. Vertical integration appears to work best when the organization has a large market share and the management talent to operate an acquired vendor successfully.

Postponement

withholds any modification or customization to the product (keeping it generic) as long as possible. The concept is to minimize internal variety while maximizing external variety.