4.2 Supply Chain Management

4.
2 Supply Chain Management
1
Definitions
2
What Is the Supply Chain?
• Also referred to as the logistics network

• Suppliers, manufacturers, warehouses, distribution
centers and retail outlets – “facilities”
Suppliers Manufacturers Warehouses & Customers
Distribution Centers
and the
• Raw materials
• Work-in-process (WIP) inventory Transportation Transportation
Costs Costs
• Finished products
Material Costs Transportation
Manufacturing Costs Inventory Costs
Costs
that flow between the facilities
3
The Supply Chain
Suppliers Manufacturers Warehouses & Customers
Distribution Centers
Transportation Transportation
Costs Costs
Material Costs Transportation
Manufacturing Costs Inventory Costs Costs
4
What Is Supply Chain Management (SCM)?
Plan Source Make Deliver Buy
• A set of approaches used to efficiently integrate

– Suppliers
– Manufacturers
– Warehouses
– Distribution centers
• So that the product is produced and distributed
– In the right quantities
– To the right locations
– And at the right time
• System-wide costs are minimized and
• Service level requirements are satisfied
5
History of Supply Chain Management
• 1960’s - Inventory Management Focus, Cost Control

• 1970’s - MRP & BOM - Operations Planning
• 1980’s - MRPII, JIT - Materials Management,
Logistics
• 1990’s - SCM - ERP - “Integrated” Purchasing,
Financials, Manufacturing, Order Entry
• 2000’s - Optimized “Value Network” with Real-Time
Decision Support; Synchronized & Collaborative
Extended Network
6
The Importance of Supply Chain Management
• Dealing with uncertain environments – matching

supply and demand
– U.S Surgical Corporation announced a $22 million loss in
1993 due to “larger than anticipated inventories on the
shelves of hospitals”
– IBM sold out its supply of its new Aptiva PC in 1994
costing it millions in potential revenue
– Hewlett-Packard and Dell found it difficult to obtain
important components for its PC’s from Taiwanese
suppliers in 1999 due to a massive earthquake
• U.S. firms spent $898 billion (10% of GDP) on
supply-chain related activities in 1998
7
The Importance of Supply Chain Management
• Shorter product life cycles of high-technology products

– Less opportunity to accumulate historical data on customer
demand
– Wide choice of competing products makes it difficult to predict
demand
• The growth of technologies such as the Internet enable greater
collaboration between supply chain trading partners
– If you don’t do it, your competitor will
– Major buyers such as Wal-Mart demand a level of “supply chain
maturity” of its suppliers
• Availability of SCM technologies on the market
– Firms have access to multiple products (e.g., SAP, Baan, Oracle,
JD Edwards) with which to integrate internal processes
8
Supply Chain Management – Key Issues
ISSUE CONSIDERATIONS
Network Planning • Warehouse locations and capacities
• Plant locations and production levels
• Transportation flows between facilities to minimize cost and time
Inventory Control • How should inventory be managed?

• Why does inventory fluctuate and what strategies minimize this?
Supply Contracts • Impact of volume discount and revenue sharing

• Pricing strategies to reduce order-shipment variability
Distribution Strategies • Selection of distribution strategies (e.g., direct ship vs. cross-docking)
• How many cross-dock points are needed?
• Cost/Benefits of different strategies
Integration and Strategic • How can integration with partners be achieved?

Partnering • What level of integration is best?
• What information and processes can be shared?
• What partnerships should be implemented and in which situations?
Outsourcing & Procurement • What are our core supply chain capabilities and which are not?
Strategies • Does our product design mandate different outsourcing approaches?
• Risk management
Product Design • How are inventory holding and transportation costs affected by product
design?
• How does product design enable mass customization?
Source: Simchi-Levi 9
Supply Chain Management – Benefits
• A 1997 PRTM Integrated Supply Chain Benchmarking Survey

of 331 firms found significant benefits to integrating the supply
chain
Delivery Performance 16%-28% Improvement

Inventory Reduction 25%-60% Improvement
Fulfillment Cycle Time 30%-50% Improvement
Forecast Accuracy 25%-80% Improvement
Overall Productivity 10%-16% Improvement
Lower Supply-Chain Costs 25%-50% Improvement
Fill Rates 20%-30% Improvement
Improved Capacity Realization 10%-20% Improvement
10

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4.

2 Supply Chain Management

• Also referred to as the logistics network

that flow between the facilities

Plan Source Make Deliver Buy

• A set of approaches used to efficiently integrate

• 1960’s - Inventory Management Focus, Cost Control

• Dealing with uncertain environments – matching

• Shorter product life cycles of high-technology products

Inventory Control • How should inventory be managed?

Supply Contracts • Impact of volume discount and revenue sharing

Integration and Strategic • How can integration with partners be achieved?

• A 1997 PRTM Integrated Supply Chain Benchmarking Survey

Delivery Performance 16%-28% Improvement

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