Supply Chain Management

							Supply Chain Management




     Chapter 8—Supply Chain Management   0
            Learning Objectives

 Be Able To Apply Concepts Listed In
  Learning Goals
 Be Able To Use Formulas Listed In
  Equation Summary of Chapter

                      Avg Aggregate Inventory Value
    Weeks of Supply =
                          Weekly Sales (at Cost)
                             Annual Sales (at Cost)
    Inventory Turnover =
                         Avg Aggregate Inventory Value

                 Chapter 8—Supply Chain Management       1
                   Introduction


   Materials Are Any Commodities Used
    Directly or Indirectly in Producing a
    Product or Service.
       Raw Materials, Component Parts, Assemblies,
        & Supplies
   A Supply Chain Is the Way Materials Flow
    Through Different Organizations From
    Raw Material Supplier to Finished Goods
    Consumer.


                Chapter 8—Supply Chain Management     2
        Supply Chain Management


   Supply Chain Management Includes All
    Management Functions Related to Flow of
    Materials From Company’s Direct Suppliers to Its
    Direct Customers.
       Includes Purchasing, Traffic, Production Control,
        Inventory Control, Warehousing, & Shipping.
   Materials Management & Logistics
    Management Includes All Decisions About
    Purchasing Materials and Services, Inventories,
    Production Levels, Staffing Patterns, Schedules,
    and Distribution.

                  Chapter 8—Supply Chain Management         3
Chapter 8—Supply Chain Management   4
Inventory at Different Stocking Points




 Raw                   Work in   Finished
 materials             process   goods


Supplier         Manufacturing plant             Distribution center   Retailer


Figure 8.1


             Chapter 8—Supply Chain Management                            5
                 Supply Chain Management
                  in a Manufacturing Plant
                             Raw
                           Materials,
                                                         Finished     Inspection,




                                                                                    Customers
            Receiving     Parts, and
Suppliers




                                                          Goods       Packaging,
               and        In-process       Production
                                                          Ware-          And
            Inspection      Ware-
                                                         housing       Shipping
                           Housing



                                   Materials Management
                              Production          Warehousing and      Shipping
            Purchasing
                               Control            Inventory Control   and Traffic

               Physical materials flow
               Information flow

                              Chapter 8—Supply Chain Management                             6
 Four Important Activities in SCM

 Purchasing
 Logistics
 Warehousing
 Expediting




          Chapter 8—Supply Chain Management   7
                Purchasing
Factors Increasing Importance of
  Purchasing Today:
 Tremendous Impact of Material Costs on
  Profit -- 60-70% of Sales Dollar Paid to
  Material Suppliers
 Popularity of JIT Manufacturing --
  Supply Deliveries Must Be Exact in
  Timing, Quantity, & Quality
 Increasing Global Competition -- More
  Competition for Scarce Resources, &
  Geographically Stretched-out Supply
  Chain
            Chapter 8—Supply Chain Management   8
            Mission of Purchasing

   Develop Purchasing Plans for Each Major
    Product or Service Consistent With
    Operations Strategies:
       Low Production Costs
       Fast and On-Time Deliveries
       High Quality Products & Services
       Flexibility




                Chapter 8—Supply Chain Management   9
      Purchasing Management

 Maintain Database of Available, Qualified
  Suppliers
 Select Suppliers to Supply Each Material
 Negotiate Contracts With Suppliers
 Act As Interface Between Company &
  Suppliers
 Provide Training to Suppliers on Latest
  Technologies



            Chapter 8—Supply Chain Management   10
 Managing the Customer Interface

 Order Placement Process—Involves
  Activities Required to Register Need for
  Product or Service & to Confirm
  Acceptance of Order
 Order Fulfillment Process—Involves
  Activities Required to Deliver Product or
  Service to Customer
       Inventory Pooling
       Forward Placement
       Vendor-Managed Inventories
       Continuous Replenishment

                Chapter 8—Supply Chain Management   11
    Managing the Supplier Interface
   E-Purchasing
       EDI—Enables Transmission of Routine
        Business Documents with Standard Format
        over Telephone or Direct Lines
       I-ERP—Allowing Portal to ERP System
        Between Customer and Supplier
   Supplier Selection & Certification
       Selection—Price, Quality, Deliver, Green
       Certification—Verification Supplier Can Deliver
        Goods Customer Requires
 Supplier Relations
 Outsourcing

                 Chapter 8—Supply Chain Management   12
     Advantages of Centralized
           Purchasing
 Buy in Large Quantities --> Better Prices
 More Clout With Suppliers --> Greater
  Supply Continuity
 Larger Purchasing Department --> Buyer
  Specialization
 Combine Small Orders --> Less Order
  Cost Duplication
 Combine Shipments --> Lower
  Transportation Costs
 Better Overall Control

            Chapter 8—Supply Chain Management   13
         Purchasing Process
                                     From Any Department,
  Material Requisition
                                     To Purchasing

                                     From Purchasing,
Request for Quotations
                                     To Potential Suppliers

                                     Based on Quality, Price,
 Select Best Supplier                Lead Time, Dependability

                                     From Purchasing,
    Purchase Order                   To Selected Supplier

                                     From Supplier, to Receiving,
Receive & Inspect Goods              Quality Control, Warehouse




             Chapter 8—Supply Chain Management                14
        Make-or-Buy Analysis

Considerations in Make-or-Buy Decisions:
 Lower Cost - Purchasing or Production?
 Better Quality - Supplier or In-House?
 More Reliable Deliveries - Supplier or In-
  House?
 What Degree of Vertical Integration Is
  Desirable?
 Should Distinctive Competencies Be
  Outsourced?


            Chapter 8—Supply Chain Management   15
            JIT Purchasing
Key Elements of JIT Purchasing Are:
 Cooperative, Not Adversarial Relationships
 Longer-Term Relationships, Fewer Suppliers
 Delivery & Quality Enters Into Selecting a
  Supplier
 JIT in Supplier’s Operation
 Suppliers Nearby
 Shipments Delivered Directly to Production
  Line
 Deliveries in Small, Standard-Size,
  Returnable Containers
 Minimum of Paperwork

            Chapter 8—Supply Chain Management   16
                       Logistics


   Logistics Usually Refers to Management
    of:
       Movement of Materials Within Factory
       Shipment of Incoming Materials From
        Suppliers
       Shipment of Outgoing Products to Customers




                Chapter 8—Supply Chain Management    17
     Movement of Materials within
            Factories

Typical Locations From/To Which Material Is Moved:

 Incoming       Receiving              Quality
                                                  Warehouse
  Vehicles        Dock                 Control




  Work       Other Work                            Finished
                                      Packaging
  Center       Centers                              Goods




                Shipping               Outgoing
  Shipping
                 Dock                  Vehicles
              Chapter 8—Supply Chain Management          18
Shipments To and From Factories

   Traffic Departments Routinely Examine
    Shipping Schedules & Select:
       Shipping Methods
       Time Tables
       Ways of Expediting Deliveries


   Traffic Management Is Specialized Field
    Requiring Technical Training in DOT and
    ICC Regulations & Rates.



                 Chapter 8—Supply Chain Management   19
Shipments To and From Factories

   Distribution, or Physical Distribution, Is
    Shipment of Finished Goods Through
    Distribution System to Customers.

   A Distribution System Is Network of
    Shipping & Receiving Points Starting With
    Factory & Ending With Customers.




               Chapter 8—Supply Chain Management   20
Shipments To and From Factories

   Distribution Requirements Planning
       DRP Is Planning for Replenishment of
        Regional Warehouse Inventories.
       DRP Uses MRP-type Logic to Translate
        Regional Warehouse Requirements Into
        Central Distribution-Center Requirements,
        Which Are Then Translated Into Gross
        Requirements in MPS at Factory.




                 Chapter 8—Supply Chain Management   21
    Shipments To and From Factories

   Distribution Requirements Planning
       Scheduled Receipts Are Previously-placed
        Orders That Are Expected to Arrive in a Given
        Week
       Planned Receipt of Shipments Are Orders
        Planned, but Not Yet Placed, for the Future
       Projected Ending Inventory Is Computed As:
            Previous Week’s Projected Ending Inventory
            + Planned Receipt of Shipments in Current Week
            + Scheduled Receipt of Shipments in Current Week
            -- Forecasted Demand in Current Week




                      Chapter 8—Supply Chain Management         22
   Shipments To and From Factories

     DRP Time-Phased Order Point Record

Region. Warehouse #1 LT = 1                              Week
Std. Quantity = 50   SS = 10               -1     1     2    3    4         5
Forecasted demand (units)                         30    40   30   40    40
Scheduled receipts                                50
Projected ending inventory                 60     80    40   10   20    30
Planned receipt of shipments                                      50    50
Planned orders for shipments                                 50   50




                    Chapter 8—Supply Chain Management                  23
Shipments To and From Factories

   Distribution Resource Planning
       Distribution Resource Planning Extends DRP
        So That Key Resources of Warehouse Space,
        Workers, Cash, & Vehicles Are Provided in
        Correct Quantities at Correct Times.




                 Chapter 8—Supply Chain Management   24
          Innovations in Logistics

   New Developments Affecting Logistics
    Include:
       All-Freight Airports
       Inter-Modal Shipping
       In-Transit Rates
       Consolidated Shipments
       Air-Freight & Trucking Deregulation
       Advanced Logistics Software




                 Chapter 8—Supply Chain Management   25
                      Warehousing

 Warehousing Is Management of Materials
  While They Are in Storage.
 Warehousing Activities Include:
       Storing
       Dispersing
       Ordering
       Accounting
            Periodic Inventory
            Perpetual Inventory




                    Chapter 8—Supply Chain Management   26
                  Warehousing

 Record Keeping Within Warehousing
  Requires Stock Record for Each Item That
  Is Carried in Inventories.
 The Individual Item Is Called a Stock-
  Keeping Unit (SKU).
 Stock Records Are Running Accounts
  That Show:
       On-Hand Balance
       Receipts & Expected Receipts
       Disbursements, Promises, & Allocations


                Chapter 8—Supply Chain Management   27
             Inventory Accounting

   In Past, Inventory Accounting Based On:
       Periodic Inventory Accounting Systems --
        Periodic (End-of-Day) Updating of Inventory
        Records
       Physical Inventory Counts -- Periodic (End-of-
        Year) Physical Counting of All SKUs at One Time
   Today, More and More Firms Are Using:
       Perpetual Inventory Accounting Systems -- Real-
        Time Updating of Records As Transactions Occur
       Cycle Counting -- Ongoing (Daily or Weekly)
        Physical Counting of Different SKUs


                 Chapter 8—Supply Chain Management   28
    Measuring the Performance
       Materials Managers
 Level and Value of In-House Inventories
 Percentage of Orders Delivered on Time
 Number of Stockouts
 Annual Cost of Materials
 Annual Cost of Transportation
 Annual Cost of Warehouse
 Number of Customer Complaints
 Other Factors




            Chapter 8—Supply Chain Management   29
            Inventory Measures


                  Avg Aggregate Inventory Value
Weeks of Supply =
                      Weekly Sales (at Cost)
                         Annual Sales (at Cost)
Inventory Turnover =
                     Avg Aggregate Inventory Value




               Chapter 8—Supply Chain Management     30