question

A supply chain flows from

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Raw materials Component (intermediate) manufacturers Final Product Manufacturers Wholesalers and Distributors Retailers and Consumers

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What is the Supply Chain

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All activities associated with the movement and transformation of goods from starting raw materials through to the ultimate final customer.

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The Supply Chain is Connected by

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Transportation and Storage Activities

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The Supply Chain is Integrated through

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Information and Planning

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What kind of Firms benefit most from the Supply Chain?

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Large inventories Large number of suppliers Complex products Customers with large purchasing budgets

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How do Firms benefit from the Supply Chain?

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Lower purchasing and inventory costs Improved quality Higher levels of customer service

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Reasons to Employ Supply Chain Management

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Cost Savings Better Coordination of Resources

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Reduced Bullwhip Effect

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The magnified reduction of safety stock costs based on coordinated planning and sharing of information

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What reduces the Bullwhip Effect?

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Collaborative planning Forecasting Replenishment

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How does Reducing the Bullwhip Effect Benefit Companies?

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Better customer service lower inventory costs improved quality reduced cycle time better production methods

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Inventory Buffers are Called

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Safety Stock

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Bullwhip Effect in Rising Demand

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down-stream participants increase orders

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Bullwhip Effect in Falling Demand

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orders decrease or stop, and inventory accumulates.

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Bullwhip Effect

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That variations are amplified as one moves upstream in the supply chain (further back from the customer).

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What practices did the US adopt in the 80's - 90's

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Supply Chain Management (SCM) Just-In-Time (JIT) Total Quality Management (TQM) Business Process Reengineering (BPR)

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What practices did the US adopt in the 00's and beyond?

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Focus on relationships, sustainability, and social responsibility with Third-party service providers (3PLs) Integrating logistics Using transportation to facilitate rapid response

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Supply (Purchasing and Sourcing)

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Supply base rationalization, supplier alliances, SRM, global sourcing, ethics and sustainability

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Operations

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Demand management, CPFR, MRP, ERP, inventory visibility, lean systems, Six Sigma quality systems

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Logistics

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Logistics management, customer relationship management, network design, RFID, global supply chains, sustainability, service response logistics

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Integration

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Risk and security management, performance measurement, green supply chains

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Supplier Management

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Improvement of supplier performance through Supplier evaluation Supplier Certification

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Supplier Evaluation

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Determining supplier capabilities

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Supplier Certification

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

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Strategic partnerships

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successful and trusting relationships with top-performing suppliers

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Ethics and sustainability

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recognizing suppliers' impact on reputation and carbon footprint

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Demand management

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match demand to available capacity

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How are buyers and suppliers linked?

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MRP and ERP systems

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What improves the flow of materials to reduce inventory levels?

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Lean Systems

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What improves quality compliance among suppliers?

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Six Sigma

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Transportation management

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

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Customer relationship management

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

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Network design

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creating distribution networks based on tradeoff decisions between cost & sophistication of distribution system

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Supply Chain Process Integration

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

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Supply Chain Performance Measurement

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Crucial for firms to know if procedures are working

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Benchmarking

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Comparing one's supply chain with industry standards

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The GREENING of Supply Chains

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Supply chains will work harder to reduce environmental degradation Large majority (75%) of U.S. consumers influenced by a firm's environmental friendliness reputation Recycling and conservation are a growing alternative in response to high cost of natural resources

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Supply Chain Management Overview

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Starts with understanding the flow. Business is conducted through defined tasks. All partners and services within the end-to-end extended supply chain are integrated. S.C.M. delivers results to the consumer.

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What is a Forecast?

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An estimate of future demand & provides the basis for all planning decisions

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What is the goal of a forecast?

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To minimize forecast error

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What does good forecasting provide?

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Reduced inventories Reduced Costs Improved production plans Improved customer service

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Forecasting

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Forecasting - Process of predicting future events (Drives all other business decisions)

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Planning

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The process of selecting actions in anticipation of the forecast (requires organizing resources in anticipation of the forecast

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Planning Involves which decisions?

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Scheduling existing resource Determining future resource needs Acquiring new resources

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Marketing needs forecasting for

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Estimating demand, future trends

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Finance needs forecasting for

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Setting budgets, determining cash-flow, projecting revenue

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Operations need forecasting for

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Planning and scheduling, capacity planning, inventory levels

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Souring needs forecasting for

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Making purchasing decisions, selecting suppliers

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What would independent forecasting among the supply chain cause?

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Mismatch between supply and demand The bullwhip effect

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Qualitative Forecasting

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Forecasting is based on opinion & intuition.

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Quantitative Forecasting

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Forecasting uses mathematical models & historical data to make forecasts.

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Time Series Models (Quantitative)

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Most frequently used among all the forecasting models. Based on the assumption that the future is an extension of the past. Historical data is used to predict future demand (Becomes less effective when time passes)

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Qualitative Forecasting Methods (Ext.)

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Generally used when data are limited, unavailable, or not currently relevant. Forecast depends on skill & experience of forecaster(s) & available information

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Four Qualitative Models are

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1. Jury of executive opinion 2. Delphi method (done separately so people are not influenced by others) 3. Sales force composite 4. Consumer survey

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Cause & Effect Forecasting

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assumes that one or more factors (independent variables) predict future demand (i.e. seasonality in retail markets)

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Time Series Components

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Trend Variations Cyclical Variations Seasonal Variations Random Variations

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Trend Variations

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increasing or decreasing (laptops, cell phones, fashion products, toys)

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Cyclical variations

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wavelike movements that are longer than a year (e.g., business cycle, China growth, GDP, Bull or Bear markets)

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Seasonal variations

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show peaks & valleys that repeat over a consistent interval such as hours, days, weeks, months, seasons, or years

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Random Variations

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Due to unexpected or unpredictable events

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Simple Moving Average Forecast

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uses historical data to generate a forecast. Works well when demand is stable over time. You specify the time period and then calculate the average over that time frame. Very consistent demand over a long time frame this technique smooth's out the minor variations or changing demand blips

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Purchasing

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Obtaining merchandise, capital equipment; raw materials, services, or maintenance, repair, and operating (MRO) supplies in exchange for money, or its equivalent.

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Merchants

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Wholesalers and retailers who purchase for resale.

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Industrial Buyers

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Purchase raw materials for conversion, services, capital equipment, & MRO supplies

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Contracting

answer

term often used for the acquisition of services

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Supply Management

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a newer term that encompasses all acquisition activities

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The primary goals of purchasing are

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Ensure uninterrupted flows of materials at the lowest total cost Improve quality of the finished goods produced Optimize customer satisfaction.

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Purchasing contributes to its objectives by

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Actively seeking better materials and reliable suppliers Work with the expertise of strategic suppliers to improve quality and materials Involving suppliers and purchasing personnel in new product design and development efforts.

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Profit-Leverage Effect

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A decrease in purchasing expenditures directly increases profits before taxes

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Return on Assets (ROA) Effect

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A high ROA indicates managerial prowess in generating profits with lower spending

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Inventory Turnover Effect

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Increased inventory turnovers indicate optimal utilization of space and inventory levels, increased sales, avoidance of inventory obsolesce.

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The Financial Significance of Purchasing

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Profit-Leverage Effect Return on Assets (ROA) Effect Inventory Turnover Effect

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Four Steps in e-Procurement

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Step 1 - Requester submits a materials requisition Step 2 - Materials requisition goes to the Buyer Step 3 - Buyer assigns qualified suppliers to bid Step 4 - Buyer reviews closed bids & selects a supplier

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Advantages of E- Procurement System

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Time savings Cost savings Accuracy Real time Mobility Trackability Management Benefits to the suppliers

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How to minimize processing costs for small value purchases

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Credit Card/Corporate Purchasing Card (P-card) Blanket or Open-End Purchase Orders Blank Check Purchase Orders Stockless Buying or System Contracting Petty Cash Standardization & Simplification of Materials & Components Accumulating Small Orders to Create a Large Order Using a Fixed Order Interval

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Outsourcing

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Buying materials and components from suppliers instead of making them in-house.

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Backward vertical integration

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Refers to acquiring sources of supply

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Forward vertical integration

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acquiring customer's operations.

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Reasons for Buying or Outsourcing

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Cost Advantage Insufficient Capacity Lack of Expertise Quality

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Reasons for Making

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Protect proprietary technology No competent supplier Better quality control Use existing idle capacity Control of lead-time, transportation, and warehousing costs Overall lower cost

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Supply Base

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A list of Suppliers Firms usually want long term suppliers alliances to consolidate volume. This results in few suppliers and thus, a smaller supply base.

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Preferred suppliers provide

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Product and process technology, and expertise. Product development and value analysis. Information on latest trends in materials, processes, or designs. Capacity for meeting unexpected demand. Cost efficiency due to economies of scale.

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How many suppliers to use

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Single source is risky.

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Reasons For a Single Supplier

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To establish a good relationship Less quality variability Lower cost Transportation economies Proprietary product or process Volume too small to split

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Reasons For Multiple Suppliers

answer

Need capacity Spread risk of supply interruption Create competition Information Dealing with special kinds of business

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Sourcing

answer

all of the firm's activities used to manage external resources.

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Strategic sourcing

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managing the firm's external resources specifically to support firm's long term goals.

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Drivers of Strategic Sourcing

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Reduce costs & delivery cycle times Improve quality & long-term financial performance Optimize the number of global suppliers Increase customer focus Reduce high costs of materials Deliver more innovative products, more frequently, less expensively than competitors

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Business Ethics

answer

is the application of ethical principles to business Utilitarianism Rights and duties

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Corporate Social Responsibility

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Is the practice of business ethics

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Ethical Sourcing

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is that which attempts to take into account the public consequences of organizational buying or bring about positive social change through organizational buying behavior

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Ethical policies should include

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Determining where all purchased goods originated and the manner in which they were made Knowledge of the suppliers' workplace principles Inclusion of ethics as a performance rating Independent verification of vendor compliance Report of supplier compliance to stakeholders Provision of detailed ethical sourcing expectations to suppliers

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Green Purchasing

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is aimed at ensuring products or materials meet environmental objectives e.g. waste reduction, reuse and recycling

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Sustainability

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is the ability to meet current needs of the supply chain without hindering the ability to meet future needs in terms of economic, environmental, and social challenges (considers worker safety, wages, working conditions, and human rights)

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Sustainable Sourcing should seek to

answer

Grow Revenues Reduce Costs Manage Risk Build Intangible Assets

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Successful Sourcing Strategies

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Different for functional products versus innovative products.

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Functional Products

answer

MRO items & other commonly low profit margin items with relatively stable demands & high levels of competition (i.e. Washing Machines, Cars)

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Innovative Products

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characterized by short product life cycles, volatile demand, high profit margins, & relatively less competition (i.e. technology products)

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Supply base rationalization

answer

Supply Chain Optimization is often the initial supply chain management effort

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Supply Base Rationalization Results

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Reduced purchase prices Fewer supplier management problems Closer & more frequent interaction between buyer & supplier Greater levels of quality & delivery reliability

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Use of Supplier Certification Programs

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To identify strategic supplier alliance candidates

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Methods for certification

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ISO 9000/ ISO 14000, In-house certification

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Supplier Monitorization

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Specify the type of acceptance sampling Statistical process control

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Outsourcing allows firms to

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Concentrate on core capabilities Reduce staffing levels Accelerate reengineering efforts Reduce management problems Improve manufacturing flexibility.

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Risks of Outsourcing

answer

Loss of control Production decisions & intellectual property Increased reliance on suppliers Increased need for supplier management

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In-sourcing

answer

Reverting to in-house production when quality, delivery, and services do not meet expectations

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Co-sourcing (selective sourcing)

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The sharing of a process or function between internal staff and an external provider & provides flexibility to decide what areas to outsource, when, and for how long.

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Co-managed inventories

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Suppliers work from customers' storage areas or at the point of assembly or sale Bar codes and scanners update computer counts

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Electronic data interchange (EDI)

answer

Allows a supplier to profile demand & determine accurate forecasts EDI also provides reorder point data to permit timely deliveries

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Supplier co-location or JIT II

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Supplier's employee is embedded in buyer's purchasing department to forecast demand, monitor inventory & place orders with access to sensitive files & records

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Early supplier involvement

answer

highly effective supply chain integrative techniques Key suppliers become more involved in the internal operations of the firm, particularly with respect to new product & process design, concurrent engineering & design for manufacturability techniques

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Value engineering

answer

activities help the firm to reduce cost, improve quality & reduce new product development time

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Source Benchmarking

answer

Measuring what other businesses do best and matching their performance is an effective approach to improving your supply chain. Bench-marking data regarding sourcing practices can be obtained in any number of ways, both formal & informal.

question

Resources for learning about & implementing sourcing practices

answer

The Center for Advanced Purchasing Studies. Council of Supply Chain Management Professionals (CSCMP) Institute of Supply Management (ISM)

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Importance of Purchasing

answer

The purchasing function is one of the most value-enhancing functions in any organization It is preferable to periodically monitor the purchasing function's performance against set standards, goals, and/or industry benchmarks. Surveys or audits can be administered as self-assessments among purchasing staff as part of the annual evaluation process.

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Building Trust

answer

With trust, partners are more willing to work together, find compromise solutions to problems, work toward achieving long-term benefits for both parties, and go the extra mile.

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Shared Vision & Objectives

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Both partners must share the same vision & have objectives that are not only clear but mutually agreeable. The focus must move beyond tactical issues & toward a more strategic path to corporate success.

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Personal Relationship

answer

It is people who communicate & make things happen

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Mutual Benefits & Needs

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Partnership should result in a win-win situation, which can only be achieved if both companies have compatible needs. An alliance is much like a marriage, if only one party is happy, the marriage is not likely to last

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Commitment & Top Management Support

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Commitment must start at the highest management level. Partnerships tend to be successful when top executives are actively supporting the partnership

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Change Management

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Companies must be prepared to manage change that comes with the formation of new partnerships

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Capabilities

answer

Key suppliers must have the right technology & capabilities to meet cost, quality, & delivery requirements in a timely manner

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Information Sharing & Lines of Communication

answer

Both formal & informal lines of communication should be set up to facilitate free flow of information. Confidentiality of sensitive information must be maintained

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Performance Metrics

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You can't improve what you can't / don't measure Measures related to quality, cost, delivery, & flexibility are used to evaluate suppliers. Metrics should be:1) understandable, 2) easy to measure, and 3) focused on real value-added results A multi-criteria approach is best

question

Total cost of ownership

answer

made up of all costs associated with the acquisition, use, and maintenance of a goods or service

question

Continuous Improvement

answer

Making a series of small improvements over time results in the elimination of waste in a system Buyers & suppliers must be willing to continuously improve their capabilities in meeting customer requirements of cost, quality, delivery, & technology

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ISO 9000

answer

A family of management & quality standards in design, development, production, installation, and service. Companies wanting to sell in the global market seek ISO 9000 certification.

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ISO 14000

answer

A family of standards for environmental management. The benefits include reduced energy consumption, environmental liability, reduced waste & pollution, & improved community goodwill

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Resource Planning

answer

The process and techniques used to determine the production capacity necessary to meet demand.

question

Operations planning categories

answer

Long Range Intermediate Short Range

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Long Range

answer

Involves the construction of facilities & major equipment purchase Executive level - Ford wants to grow market by 3% (> 1 year)

question

Intermediate

answer

Shows the quantity & timing of end items. Mid-level management - Ford wants to make 1,000 F-150 pick up trucks/day for the next 6-18 months.

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Short-Range

answer

Detailed planning process for components & parts to support the master production schedule Planner, factory supervisor - 6,000 engines, 6,000 transmissions, seats, windows, etc. over the next 1-4 weeks.

question

Closed-loop MRP

answer

incorporates the aggregate production plan, the master production schedule, material requirements plan, & the capacity requirements plan.

question

Manufacturing Resource Planning (MRP II)

answer

incorporates the business & sales plans with the closed-loop MRP system.

question

Enterprise Requirements Planning

answer

is an extension of MRP-II

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Distribution Requirement Planning (DRP)

answer

describes the time-phased net requirements from warehouses & distribution centers customer demand minus any on hand in-transit inventories.

question

Aggregate Production Plan

answer

Hierarchical planning process that translates annual business & marketing plans & demand forecasts into a production plan for a product family (products that share similar characteristics) in a plant or facility.

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Master Production Schedule

answer

A detailed disaggregation of the aggregate production plan, listing the exact end items to be produced by a specific period. More detailed than APP & easier to plan under stable demand. Planning horizon is shorter than APP, but longer than the lead time to produce the item.

question

Bill of Materials (BOM)

answer

Document that shows an inclusive listing of all component parts & assemblies making up the final product

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Independent Demand

answer

demand for final products affected by trends, seasonal patterns, & general market conditions

question

Dependent Demand

answer

the internal demand for parts based on the demand of the final product in which the parts are used (e.g., subassemblies)

question

Multilevel Bill of Materials

answer

shows the parent-component relationships & the specific units of components known as the planning factor. Often presented as an indented bill of materials

question

Super Bill of Materials

answer

(AKA planning BOM, pseudo BOM, phantom BOM, or family BOM) Enables the firm to forecast the total demand end products

question

Material Requirements Planning (MRP)

answer

A computer-based materials management system that calculates the exact quantities, need dates, & planned order releases for sub assemblies & materials required to manufacture a final product.

question

MRP Requirements

answer

The independent demand information Parent-component relationships from the BOM Inventory status of final product & components. Planned order releases (the output of the MRP system)

question

Advantage of MRP

answer

provides planning information

question

Disadvantage of MRP

answer

loss of visibility, especially acute for products with a deep BOM, & ignores capacity & shop floor conditions.

question

Enterprise Resource Planning (ERP) Systems

answer

information system connecting all functional areas & operations of an organization &, in some cases, suppliers and customers via common software infrastructure and database

question

Implementation ERP Systems

answer

Best of Breed Single Integrator Solution

question

Best of Breed

answer

pick the best application for each individual function. Disadvantage - software may not integrate well but this may not be a major issue in future

question

Single integrator solution

answer

pick all the desired applications from a single vendor

question

Problems of Implementation

answer

Lack of top management commitment Lack of adequate resources Lack of proper training Lack of communication Incompatible system environment

question

Advatages of ERP Systems

answer

Added visibility leads to reduced supply chain inventories Helps to standardize manufacturing processes Measure performance & communicate via a standardized method

question

Disadvanteges of ERP Systems

answer

Substantial time & capital investment Complexity Firms adapt processes to meet ERP system

question

Major ERP Applications

answer

Accounting and Finance Customer Relationship Management Human Resource Management Manufacturing Supplier Relationship Management Supply Chain Management

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