Intro Supply Chain Management Chapter 1: Introduction to Supply Chain Management

Supplier Evaluation & Supplier Certification

*Determining the current capabilities of suppliers.* Certification programs can either be company designed and administered, or they can be internationally recognized and standardized programs. Allows buyers to assume the supplier will meet certain product quality and service requirements.

Demand Management

*Strategies and systems aimed to minimize inventory costs, with the objective of matching demand to available capacity*, either by improving production scheduling, curtailing demand, using a back-order system or increasing capacity.

Supplier Management

*The encouraging or helping the firm's suppliers to perform in some desired fashion.* This involve assessing suppliers' current capabilities and then deciding if and how they need to improve them.

Transportation Management

*Tradeoff decisions between cost and timing of delivery / customer service via trucks, rail, water, air.* Trucks are more expensive than rail carriers but are faster and more flexible. Planes are more expensive but the fastest. Boats are the slowest and least expensive.

Supply Chain consists of flow of products and services from ...

1. RAW MATERIALS MANUFACTURERS -- Firms extract raw materials from the ground. (i.e: iron, oil, wood, food) and sell them to raw material suppliers. 2. These firms, responding to purchase orders from component manufacturers, turn the raw materials into usable materials by customers. 3. COMPONENT & INTERMEDIATE MANUFACTURERS -- responding to orders and specifications from their customers (the final products manufacturers) make and sell intermediate components. 4. FINAL PRODUCT MANUFACTURERS -- assemble finished products and sell them to wholesalers or distributors, who then resell these products to retailers as their product order are received. 5. RETAILERS -- in turn sell these products to us, the end-product consumers.

Foundations of Supply Chain Management & Elements/Important Issues

1. Supply - supply base reduction, supplier alliances, SRM, global sourcing, ethical and sustainable sourcing 2. Operations - demand management, CPFR, inventory mgmt, MRP, ERP, lean systems, Six Sigma Quality 3. Logistics - logistics mgmt, network design, RFID, global supply chains, sustainability, service response logistics 4. Integration - barriers to integration, risk and security mgmt, performance measurement, green supply chains

Firms using SCM.....

1. start with key suppliers 2. move on to other suppliers, customers and shippers 3. integrate second-tier suppliers and customers (second-tier refers to the customer's customers and the supplier's suppliers)

Origins of Supply Chain Management

50-60's => manufacturers focused on MASS PRODUCTION techniques as principal cost reduction and productivity improvement strategies 60-70's => new computer technology lead to development of MRP (materials requirements planning) to coordinate inventory management and improve internal communication 80-90's => global competition led US to adopt: SCM, JIT, TQM and BPR 2000+ => companies focus on relationships, sustainability and social responsibility. focus on improving supply chain capabilities with 3PL's (third-party service providers), integrating logistics, transportation to facilitate rapid response.

Purchase of Products

Based on *cost*, *quality*, *availability*, *maintainability* and *reputation* factors.

End-Product Manufacturer or Focal Firm

Companies like General Motors or Coca-Cola that component manufacturers consider customers. They are in the middle of the supply chain. Companies closer to the focal firm are considered 1st Tier Suppliers and Customers.

Buyer Supplier Alliances

Companies realized in the 1990s that giving most of their business to their best suppliers would yield more sale through improvements in delivery, quality and product design and to generate cost savings through their closer attention to processes, materials and components uses in the manufacturing process.

SCM Main Idea

Coordination or integration of a number of goods and services related activities among supply chain participants to *improve operating efficiencies, quality and customers service among the collaborating organizations.* Free market supply chains are dynamic and fluent, which can cause complete optimization but also problems in effectively managing them.

Network Design

Creating *distribution* networks based on tradeoff decisions between cost & sophistication of distribution.

Who benefits most from Supply Chain Management and how they benefit...

Firms with: --large inventories --large number of suppliers --complex products --customers with large purchasing budgets How do they benefit: --lower purchasing and inventory costs --improved quality --higher levels of customer service

First-tier suppliers, first-tier customers, Second-Tier Suppliers and Customers

First-tier are direct suppliers and direct customers to focal firm (end product manufacturer); Second-tier are suppliers and customers that are 2nd to focal firm; suppliers and customers to First-tier suppliers.

Business Process Reengineering (BPR)

Introduced in the 1990s, *BPR is the radical rethinking and redesigning of business processes to reduce waste and increase performance* that came as the result of growing interest in cost reduction and long term competitive advantage.

Lean Production System

JIT (just in time) inventory management. This type of system usually results in faster delivery times, lower inventory levels and better quality.

Just-in-Time (JIT) & Total Quality Management (TQM)

JIT - to rapidly increase delivery time of goods; TQM to improve quality, manufacturing efficiency and deliver times; both offer lower inventory and better quality. Emphasizes the benefits and importance of strategic and cooperative supplier-buyer-customer relationships. Little inventory to cushion scheduling or production problems. Emerged in the 1980s driven by competitive markets.

Strategic Partnerships

One of the most important aspect of SCM. Creation of closer working relationships with customers in terms of long-term, higher-volume sales.

Benchmarking

Progress report on certain suppliers, and services that provide insight and statistical data into whether a company is optimizing.

Ethical & Sustainable Sourcing

Purchasing from suppliers that are governed by environmental sustainability and social and ethical practices, yet also provide competitive advantage.

Supply Chain Responsiveness

Require firms to reevaluate their supply chain relationships, utilize business process reengineering, reposition and automate warehouses, design new products and services, reduce new product design cycles, standardize process and products, empower and train workers in multiple skills, build customer feedback into daily operations, and link together all of the supply chain participants information and communication systems using the latest technologies.

Service Providers

Responsible for the delivery of end products to customers and prevalent in most supply chains. For example, trucking, airfreight shipping companies, information system providers, public warehousing firms, freight forwarders, agents and consultants. They allow firms to serve their customers at the lowest possible cost.

Third-party Logistics Providers (3PLs)

Shipping, warehousing, and logistics services that provide transportation, storage, documentation and customs clearing services to firms.

Material Requirements Planning (MRP)

Software system for managing inventory.

Materials Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII)

Software systems to manage their inventory; allowing companies to see the importance of effective materials management. They could now recognize and quantify the impact of high levels of inventories on manufacturing, storage, and transportation costs. This was made possible through increased computer technology in the 60's and 70's.

Customer Relationship Management

Strategies regarding how to meet delivery due dates, how to successfully resolve customer complaints, how to communicate with customers and how to determine the logistics services required.

Greening of Supply Chains

Sustainable supply chain initiatives; more companies are demanding green production, recycled products, etc.

Enterprise Resource Planning (ERP)

System providing real time sales data, inventory and production information to all business units and to key supply chain participants.

Right Shoring

The combination of onshore, near-shore, and far-shore operations into a single, flexible, low cost approach to SCM. Essentially bringing in second and third tier suppliers & customers.

Inventory Visibility

The transparency of inventory requirements created through communication between the MRP system and other firms in the supply chain through a bar code system for example.

Six Sigma Quality

Total quality management strategy in place to ensure continued quality compliance among suppliers and with internal production facilities.

Supply Chain Performance Measurement

Utilized along supply chains to help firms keep track of their supply chain management efforts.

Reverse Logistics Activities

When intermediate or end customers may need to return products, obtain warranty repairs or just throw products away or recycle them.

Supply Chain Process Integration

When members of the supply chain work together to make purchasing, inventory, production, quality and logistics decisions that impact the overall profits of the supply chain.

Vertically Integrated Firm

a firm whose business boundaries include former suppliers and /or customers.

Supply Chain Management (SCM)

the integration of key business processes regarding the flow of materials from raw material suppliers to final customers.

Reduced Bullwhip Effect

the magnified reduction of safety stock costs based on coordinated planning and sharing of information. cost savings and better coordination of resources