Supply Chain Management Section 1

Strategic Stock

For major disruptive event in supply, major business opportunity for sales.

Pipeline Inventory

Inventory in transit, inventory held by wholesalers, distributors, and customers.

Ethics and Sustainability

Recognizing suppliers' impact on reputation and carbon footprint.

Logistics

Refers to activities that occur within the purview of a single organization.

Supply Elements

Supply Management (Supplier Evaluation, Supplier Certification), Strategic Partnerships, Ethics and Sustainability.

Transportation Management

Trade off decisions between cost & timing of delivery / customer service via trucks, rail, water & air.

Logistics Trends

Transportation Management, Customer Relationship Management, Network Design.

Old paradigm

A company gained synergy as a vertically integrated firm encompassing the ownership and coordination of several supply chain activities. Organizational cultures emphasized short-term, company focused performance.

New paradigm

A company in a supply chain focuses activities in its area of specialization and enters into voluntary and trust-based relationships with supplier and customer firms. "Outsourcing non-core competencies"

Supply Management

(Purchasing/Sourcing) - Supply base rationalization, supplier relationship management, partnerships and alliances, ethics and sustainability.

Supply Chain Management Challenge

Balancing demand (working capital/capital investment) and supply (cost of goods sold/operating expenses).

Safety Stock

Buffer demand variability, buffer supply variability, ensures desired customer service level.

2000's and Beyond

Companies will focus on relationships, sustainability, and social responsibility. Companies will focus on improving supply chain capabilities with initiatives such as: Third-party service providers (3PLs), Integrating logistics, Using transportation to facilitate rapid response.

Importance of Supply Chain Management

Cost savings and better coordination of resources are two main reasons to employ Supply Chain Management.

Network Design

Creating distribution networks based on trade off decisions between cost & sophistication of distribution system.

Supply Chain Performance Measurement

Crucial for firms to know if procedures are working.

Sustainability and "Greening" the Supply Chain

Customers increasingly prefer products that are made and sourced in 'the right way'; minimizing business' social, economic and environmental impact on society and enhancing positive effects. Large majority (75%) of U.S. consumers influenced by a firm's environmental friendliness reputation.

Operations Trends

Demand Management, linking buyers and suppliers, Lean Systems.

Supplier Evaluation

Determining supplier capabilities.

First Tier

Direct suppliers and direct customers.

Basic Supply Chain Capabilities Models

Efficient and Responsive

Integration

Enabling systems, risk and security management, performance measurement.

Globalization

Expanding the Supply Chain. International, mature and emerging markets have become a part of the overall business growth strategy for many companies.

Flexibility & Responsiveness

Firms will increasingly need to be more flexible and responsive to customer needs adapting to unexpected changes and circumstances. Necessitating closer integration and collaboration.

Who benefits from Supply Chain Management?

Firms with: large inventories, large number of suppliers, complex products, customers with large purchasing budgets.

Traditional Logistics

Focuses on activities such as: Procurement / Purchasing, Sourcing, Inventory Management, Warehousing, Distribution (order fulfillment, pick / pack & ship)

Anticipatory Business Model (Push Model)

Forecast --> Buy Components --> Manufacture --> Warehouse --> Sell --> Deliver

Operations Management

Forecasting, demand management, material and operations planning, lean systems, Six Sigma quality systems.

Supply Chain Breadth

Foreign manufacturing, office & retail sites, foreign suppliers & customers.

Current Trends in SCM

Globalization, Flexibility and Responsiveness, Cost Reduction and Continuous Improvement, Sustainability and "Greening" the Supply Chain.

Lean Systems

Improve the flow of materials to reduce inventory levels.

Second Tier

Indirect suppliers (i.e., supplier's suppliers) and indirect customers (i.e., customer's customers).

1980's & 1990's

Intense global competition led U.S. manufacturers to adopt: Supply Chain Management (SCM), Just-In-Time (JIT), Total Quality Management (TQM), Business Process Reengineering (BPR).

1960's & 1970's

Introduction of new computer technology lead to development of Materials Requirements Planning (MRP) and Manufacturing Resource Planning (MRPII) to coordinate inventory management and improve internal communication.

Cycle Stock

Inventory to satisfy demand in the immediate time period. Sales/Demand & replenishment driven. Based on EOQ/MOQ (balance of inventory and order/production costs).

How do companies benefit from Supply Chain Management?

Lower purchasing and inventory costs, improved quality, higher levels of customer service.

Demand Management

Match demand to available capacity.

Typical Supply Chain

Material Supplier (Tier 2) --> Intermediate Supplier (Tier 1) --> Manufacturer (Finished Product) --> Wholesaler & Distributor (Tier 1) --> Retail Customer (Tier 2) --> End Consumers

Maintenance, Repair and operating (MRO) Inventory

Not directly related to product creation.

Basic Supply Chain Model

Plan --> Source --> Make --> Deliver <--> Return

Pull/Make-to-Order

Producing stock in response to actual demand. Used by 5% if businesses.

Push/Make-to-Stock

Producing stock on the basis of anticipated demand. Demand forecasting can be done via a variety of sophisticated techniques. Used by 95% of businesses.

Innovative Products

Rapidly changing, Very short life-cycle products, Great variety, Very unpredictable demand.

Cost Reduction and Continuous Improvement

Reducing purchasing costs, waste, excess inventory, non-value added activities. Improving demand planning. Increased outsourcing of non-core competencies.

Supply Chain Management

Refers to networks of independent companies that work together and coordinate their actions to deliver a product(s) or service(s) to market for the benefit of all companies in the network (i.e., collaboration and coordination).

Responsive Business Model (Pull Model)

Sell --> Buy Components and Materials --> Manufacture --> Deliver

Bullwhip Effect

Slight demand variability is magnified as information moves back upstream. It refers to a trend of larger and larger swings in inventory in response to changes in demand, as one looks at companies further back in the supply chain of a product.

Functional Products

Staples that people buy everywhere. Don't change much over time. Stable predictable demand.

Customer Relationship Management

Strategies to ensure deliveries, resolve complaints, improve communications, & determine service requirements.

Strategic Partnerships

Successful and trusting relationships with top-performing suppliers.

Integration Trends

Supply Chain Process Integration, Supply Chain Performance Measurement.

Efficient Model

Supply Chain and processes are designed to minimize cost. Characteristics: For predictable supply and low cost, low cost production and highly utilized capacity, high inventory turns, ideal for functional products.

Responsive Model

Supply Chain designed to respond quickly to market demand. Characteristics: Fast response, minimal stock outs, need flexible capacity (volume), inventory of parts, minimize lead time, need to have a variety of products available for customers when they want to buy, ideal for innovative products.

The Foundations of Supply Chain Management

Supply Management, Operations Management, Logistics & Transportation, Integration

Supplier Certification

Third party or internal certification to assure product quality and service requirements.

Goal of Supply Chain Management

To increase Customer Service while simultaneously reducing both Inventory Investment and Operating Expenses.

1950's & 1960's

U.S. manufacturers focused on mass production techniques as their principal cost reduction and productivity improvement strategies.

Steps for building an Efficient Model

Understand the requirements of your customers. Define core competencies and the roles your company will play to serve your customers. Develop supply chain capabilities to support the roles your company has chosen.

Logistics & Transportation

Warehousing, transportation management, customer relationship management, network design, international trade, sustainability, service response logistics.

Supply Chain Process Integration

When supply chain participants work for common goals. Requires intrafirm functional integration. Based on efforts to change attitudes & adversarial relationships.

Collaborative Planning, Forecasting, and Replenishment (CPFR)

activities reduce the Bullwhip Effect and lead to better customer service, lower inventory costs, improved quality, reduced cycle time, better production methods, and other benefits.

Supply Chain Management delivers value by

managing the processes of all of those otherwise independent trading partners so that they collaborate with one another in an efficient, effective and cost conscious way.