Chapter4 Supply Chain Management Supply Chain-is a network of all activities involved in delivering a finished product or service to customer.

*External suppliers-Manufacturers-Retailers-Customer Supply Chain Management-vital function that coordinates and manages all the activities of the supply chain linking suppliers, transporters, internal departments, third party companies and information system. -provides the co. w/ sustainable, competitive advantage, such as quick response time, low cost, state-of the art quality design or operational flexibility. Structures of SCM 1. External suppliers2. Internal Functions 3. External distributor Tier one supplier- supplies materials or services directly to the processing facility Tier two supplier- Directly supplies materials or service to tier 1 suppliers Tier three supplier- directly supplies materials or services to a tier two supplier in the supply chain. Companies put external effort in developing the external supplier portion of the suppchain because cost of materials might represent 50-60 percent or even more of the CGS. Logistics- activities involved in obtaining, producing and distributing materials and products in the proper place and in proper quantities. (it includes the following:) Traffic Management- responsible for arranging the method of shipment for both incoming and out going products or materials Distribution Management- responsible for movement of material from manufacturer to customer. Bullwhip effect-inaccurate or distorted demand information created in the supply chain. Causes erratic replenishment orders on different levels in the supply chain that have no apparent link to final demand Traditional supply chain (manufacturer-regional distlocal dist-retailer-customer) Causes of the Bullwhip Effect 1. Demand forecasting update- may not reflect actual demand at retail level. 2. Order batching- instead of placing an order right after each unit sold, it waits some period of time, sums up the number of units sold and then places an order. Order batching policies amplifies variability in order and timing. 3. Price Fluctuations- cause companies to buy products befor they need them. It creates more demand variability w/in supply chain. 4. Rationing and shortage gaming- result when demand exceeds supply and products are rationed to members of the supply chain Counteracting the Bullwhip effect 1. Make information from the final seller available to all levels of supply chain. Use POS 2. Eliminate order batching- Supply chain partners can eliminate ordering cost by using EDI. Lowering ordering cost eliminate the need for order batching. 3. Stabilize prices- creating uniform wholesale price policy. 4. Eliminate gaming- manufacturers can allocate products in proportion to past sales record.

Internal operation for travel agency- Travel enablement(qualifying potential supplier of travel svces) and travel billing(having database of service providers Major issues affecting SCM Information Technology E-commerce - using web and internet to transact business. B2B e commerce-businesses selling and buying from other businesses. Automated order entry system- a method of using telephone models to send digital orders to suppliers. Changed in 1980s to personal computers *seller side solutions *primary benefit to the customer is reduced inventory replenishment cost and supplier paid system cost. Electronic Data Interchange-a form of computer to computer communications that enables sharing business documents. It generally serve specific industry Electronic storefonts- online catalogs of products made available to the general public by a single supplier. Net Marketplace- suppliers and buyers conduct trade in a single internet based environment. Ex is covisint * can also facilitate online auctions. Two type of auctions are forward auctions (suppliers auction excess inventory and receve the market price for their surplus goods) and reverse auctions (buyers post electronic request for quotes eRFQs) Virtual private network- a private internet based communicationsenvironment that is used by the company, its suppliers, and its customers for day to day activities Benefits of B2B ecommerce Low procurement administrative cost, low cost access to global suppliers, low inventory investment, better product quality. B2C- online businesses sell to individual consumer. Advertising revenue model- provides users with information on services and products and provides an opportunity for suppliers to advertise Subscription revenue model-a website that charges a subscription fee for access to its content and services. Transaction fee model-a company receives a fee for executing a transaction. Ex. E trade Sales revenue model-a means of selling goods, information, or services directly to customers. Ex amazon Affiliate revenue model- companies receive a referral fee for directing business to an affiliate. Intranets- networks that are internal to an organization Extranets- inranets that are linked to the internet so that suppliers and customers can be included in the system. The main difference is who has the access 100 million people and over 80% of all individuals with internet access had purchased something online. Categories of Service org. 1. Transaction brokering- a company providing financial services that has stockbrokers interacting as intermediaries b/w buyers and sellers of stock.

2. Hands-on service- legal service that interacts

directly w/ the consumer to create legal document. In general, most service organization are knowledge and information intense Globalization/Govt Regulation and Ecommerce Green Supply Chain Management-focuses on the role of supply chain w/ regard to its impact on the present natural environment. *intent is to be able to meet present needs w/o compromising the ability of future generations to meet their own needs. Supply chain Carbon footprint analysis- used by many organization Infrastructure issues * inadequate transportation networks increase distribution lead time. *poor telephone service- can restrict timely availability of supply and demand information *lack of specific worker skill- can limit a technology a firm uses. *lack of available local materials and competent suppliers ca force a firm to redesign its process, or even its product, to minimize or eliminate the use of scarce materials. Purchasing- typically responsible for selecting suppliers negotiating and administering long term contracts, monitoring supplier performance and etc. Requisition request- is simply a form used to inform purchasing that an item or material needs to be purchased. *the level of authority depends on the dollar amount of requisition. The higher the amount the higher the level of authority needed to ok the purchase. Price and Availability- the current price of the item and whether the quantity is available when needed. Study figure 4-6 page 110 Purchase order-a legal document committing the company to buy the goods and providing details of the purchase Incoming inspection- verifies the quality of incoming goods E purchasing- use of information and communications technology through electronic means to enhance external and internal purchasing and supply management process. Sourcing strategy- a plan indicationg suppliers to be used when making purchases. Study table 4-2 page 112 Vertical Integration-a measure of how much the supply chain is actually owned and operated by the manufacturing company Insource-prodcucts or activities completed in-house Outsource- processes or activities that are completed by suppliers. 35% or more than 1000 large cos. Increased their outsourcing. 86% outsourced at least some materials or service. Backward integration- owning and controlling sources of raw materials and components. Forward integration- owning and controlling channels of distribution *greater the vertical integration the lower the level of outsourcing. In source vs. Outsource decisions. FCbuy+(VCbuyxQ)= FCmake+(VCmakexQ)

Solving these tells us the indifference point-total units needed to produce when TC are equal. Top three criteria for selecting suppliers are: 1. Price 2. Quality 3. On-time delivery Make to order-deal with single supplier. Flexibility of Volume- splitting of volumes into different suppliers # of suppliers depend on your supply chain structure. *if you want to integrate sc then partnering or using single supplier makes sense. Partnering-a process of developing a long term relationship based on mutual trust shared vision shared info and shared risks.win-win 2 kinds of Partnership 1. Basic partnership- is built on mutual respect honesty, trust open and frequent communications, and shared understanding of each partners role in helping the SC achieve its objectiveness. 2. Expanded partnership- reserved for few key suppliers. LT relationships built on mutual strategic goals. Helping each other succeed. Critical Factors in Successful Partnering 1. Impact- attaining levels of productivity and competetiveness that are not possible through normal supplier relationship. *3 sources of impact a. reduce duplication and waste-activities both done y mftrs and suppliers. And eliminating activities that do not add value b. Leveraging competence- sharing knowledge. Shared expertise. c. Creating new opportunities- partners are working together producing something that could never be achieved alone. 2. Intimacy- means the working relstionship between partners. Eliminating surprises. It is a result of Sharing information 3. Vision- means the mission or objective of partnership. Shared vision provides the structure for the partnership and the ole each partner plays in achieving success for supply chain Manufacturers benefits Reduce costs, reduce duplication of effort, improve quality, reduce lead time, implement cost reduction program, involve supplier earlier, reduce time to market, reduce inventory Suppliers benefit Increas sales volume and customer loyalty, reduce costs, improve demand data and profitability, reduce inventory Characteristics of Partnership relation 1. Have a long term orientation 2. Are strategic in nature 3. Share information 4. Share risk and opportunities 5. Share a common vision 6. Share short term and long term plans 7. Are driven by end customer expectation Benefits of Partnering Early Supplier involvement (ESI)- is a natural result of partnering relationship and is one way

to create impact. Involvement of suppliers in new product design. Institute of Supply Management (ISM)- provides principles and standards of ethical management conduct Warehouses-includes plant regional and local warehouses General warehouse- used for storing goods for long periods w/ minimal handling. Distribution warehouse- used for moving and mixing goods. Receive large volume lots and broken into small individual orders Roles of warehouses 1. Transportation consolidation- occurs when warehouses consolidate less than trucloadquantities into truckload quantities. Inbound-LTL to warehouse and TL manufacturers Outbound- TL to warehouses and LTL to market 2. Peoduct Mixing(blending)-value added service for cutomers. Customer places order to warehouse for variety of products. Enables quick response and transportation cost. 3. Service- offered by warehouses that can improve customer service by moving goods closer to the customer and thus reducing replenishment time Postponement- a strategy that shifts production differentiation closer to the consumer by postponing final configuration. Almost finished product is delivered to warehouse and then finishes according to customer specs after receiving an order. Crossdocking- eliminates storage and order picking functions of a distribution warehouse. 2 major advantages of crossdocking 1. Reduces inventory holding costs by replacing inventory with information and coordination 2. Crossdocking can consolidate shipments to achieve truckload quantities and significantly reduce a companys inbound transportation cost Types of crossdocking 1. Manufacturing Crossdocking- is the receiving and consolidating of inbound supplies to support just-in-time manufacturing. 2. Distributor crossdocking- is the receiving and consolidating of inbound products from different vendors into multi stock keeping unit pallet 3. Transportation crossdocking- Consolidation of LTL shipment to gain economies of scale 4. Retail crossdocking- sorting products from multiple vendors onto outbound trucks headed for specific stores RFID-uses radio frequency waves to transfer data between a reader and an RFID tag RFID tag- contains encoded info that identifies items at the case, pallet or container levels *59 percent of companies in the automotive industry would deploy RFID technology Product design includes 1. Quality function deployment (QFD) 2. Ease of manufacturing 3. Design for the environment (DFE) 4. Ease of distribution throughout the supply chain

External dimension- part of the supply chain that the company does not control Customer dimension- where your company may have some influence but does not have total control. Eliminating waste in the supply chain1. Overproduction- build first then wait for orders 2. Delay b/w the end of the one activity and the start of the next 3. Unnecessary transport or conveyance of product 4. Unnecessary movement by people, such as walking stretching and reaching 5. any inventory that result in more inventory than needed 6. any suboptimal use of space 7. any errors that causes more work Financial metric- measured ROI. Total cost of containment vs operating budget Contracting metric- looked at the number of new preffered discount contracts Supply Chain Operations Reference (SCOR) model- is an effort to standardize the measurement of supply chain performance. It measures 4 operational perspective: 1. reliability-measured on on-time delivery, order fulfilment lead time and fill rate (fraction of demand met from stock) 2. flexibility-measures supply chain response time and production flexibility 3. expenses- supply cahin management cost, warranty cost and percentage of revenue and value added per employee are examined 4. assets/utilization- total inventory days of supply , cash-cash cyle time . net assets turns can be measured E-distributor- most common form of net market place having catalogs representing thousands of suppliers and designed for spot purchases. 40%n of cos. Purchases are made on spot basis. Have fixed price but dont offer discount Benefits- lower product search cost, lower transaction cost, wide selection of suppliers rapid delivery, low prices E-purchasing-companies connect online maintenance, repair and operating supplies (MRO) to businesses that pay fees to join the market. E-procurement companies- are typically used for contractual purchasing and offer value chain management services to both buyers and sellers Value chain management(VCM)- automation of a firms buying or selling processes. Exchanges-connects hundreds of suppliers to unlimited buyers. A marketplace that focuses on spot requirements of large firm in a single industry Industry consortia- industry owned markets that enables buyers to purchase direct inputs from a limited set of invited suppliers. Objective is the unification of supply chains w/in entire industries to common network and computing platform. Ex are covisont, avendra, forestecpress Supply chain velocity-a speed at w/c a product moves through a pipeline form manufacturer to the customer. Chapter 5 Defining Quality

1. Conformance to specification- measures how well

a product meets the targets and tolerances determined by its designer. 2. Fitness for use- focuses on how well a product performs its intended function or use 3. Value for price paid- product or service usefulness for the price paid. The only definition that combines economics w/ consumer criteria 4. Support services- support provided after the product or service is purchased 5. Psychological Criteria- judgmental evaluation of what constitute s product or service excellence Dimensions of quality for Mftg. And Service org Manufacturing Service Conformance to Intangible factors specification Performance Consistency Reliability Responsiveness to cust. needs Features Courtesy/friendliness Durability Timeliness/promptness Serviceability Atmosphere *most common quality definition is conformance(degree to w/c a product meets its preset standards. *performance-such as acceleration of vehicle *reliability- product will function as expected w/ no failure *features- extras included beyond basic *serviceability- how readily a product can be repaired. *consistency- degree to w/c a service is the same each time. 2 QUALITY COSTS CATEGORIES 1. Quality control-cost necessary to achieve high quality a. Prevention cost-cost incurred in the process of preventing poor quality from occurring . cost of preparing and implementing quality plan b. Appraisal cost- are incurred in the process of uncovering defects. Cost of testing, evaluating and inspecting quality 2. Quality Failure Cost- cost consequence of poor quality a. Internal failure cost-are associated w/ discovering product quality before it reaches the customers. a type is rework-cost of correcting defective item. Scrap-cost of all resources used. b. External failure cost- cost associated w/ quality problems that occur at teh customer site. External failure cost tend to be high for service organization. Old concept of quality is reactive, designed to correct problems after it has occurred. New concept is proactive, designed to build quality into the product and process design Quality Gurus 1. Walter a Shewart-studied randomness and recognized that variability existed in all manufacturing process. He developed quality control charts. Grandfather of quality control 2. W. Edwards Deming-father of quality control, assisted the Japanese . American adopted 30 years after.

-only 15 percent of quality problems are due to workers remaining 85 is poor management and process famous in his 14 points 3. Joseph M. Juran- published quality control handbook. Focused on the definition of quality and cost of quality. Quality trilogy-quality planning, control, improvement 4. Armand V. Feigenbaum- introduced the concept of total quality control. Quality principles in 40 steps. Japanese adopted and termed company-wide qc. 5. Philip B. Crosby- do it right the first time, zero defects. Wrote Quality is free 6. Kaoru Ishikawa- developed quality control tools called cause and effect diagrams, also called fishbone or ishikawa diagrams. First guru to emphasize the importance of internal customers. Proposed quality circle-are small teams of employees who volunteer to solve quality problems. 7. Genichi Taguchi- known in product design. 80% of product defects are caused by poor product design. Applied the concept of design of experiment based on robust design- a design that results in a product that can perform over wide range of conditions Taguchi Loss Function- cost of quality increase as quadratic function as conformance values move away from the target 1. Customer focus- identify and meet customer needs 2. Continuous improvement-a philosophy of never ending improvement. Kaizen- a Japanese term that describes the notion of company continually striving to be better through learning and problem solving PDSA- plan do study act, a diagram that describes the activities that need to be performed to incorporate continuous improvement into the operation. Benchmarking- studying business of other companies for purposes of comparison 3. Employee empowerment- employees are expected to seek out, identify and correct quality problems. External customer-customers Internal-employees Team approach- 2 heads are better than 1 4. Use of Quality tools- ongoing quality service in the use of quality tools a. Cause and effect diagrams- a chart that identifies potential causes of particular quality problems. Head=quality problems Spines=issues b. Flowchart- a schematic of the sequence of steps involved in an operation process c. Checklist- a list of common defects and the number of observed occurrences of these defects. d. Control charts- charts used to evaluate whether a process is operating w/in set expectations e. Scatter diagrams-graph that shows how two variables are related to each other. f. Pareto analysis- a technique used to identify quality problems based on the

degree of importance. Was named after wilfredo pareto. 80-20 rule g. Histogram-a chart that shows the frequency distributionof observed values of a variable 5. Product design- products need to be designed to meet customer expectation a. QFD (quality Function Deployment)- a tool used to translate the preference of the customer into specific technical requirements. Resulting matrix is house of quality b. Reliability- an important dimension of product design is the probability that the product will perform as expected. Reliability of product=R1xR2 *one way to increase product reliability is build redundancy R=R1={[R2]x[1-R1]} 6. Process Management- quality should be built into the process; sources of quality problems should be identified and corrected a. Quality at source- the belief that it is best to uncover the source of quality problems and eliminate it. It exemplifies the difference b/w the old and new concepts. 7. Managing Supplier Quality- quality concepts must extend to companys supplier Malcolm Baldridge National Quality Award- an award given annually to companies that demonstrate quality excellence and establish best practice standards in industry. Named after secretary of commerce Categories: leadership, strategic planning, customer and market focus, information and analysis human resource focus process management and business results. 1000pts Deming Prize- a Japanese award given to companies to recognize efforts in quality improvement ISO 9000- set of international quality standards and a certification demonstrating that companies have met all the standards specified. Companies have to be recertified every 3 years. Can take 18-24 mos. Today 0000 cos. Are certified ISO 14000-a set of international standards and certification focusing on a companies environmental responsibility SPC statistical process control- a necessary tool for identifying quality problems Common causes of TQM failures 1. Lack of genuine quality culture 2. Lack of top management support and commitment 3. Over and under reliance on statistical process control methods