11

Supply Chain
Management

McGraw-Hill/Irwin Copyright © 2007 by The McGraw-Hill Companies, Inc. All rights reserved.
 Learning Objectives
 Explain what a supply chain is.
 Explain the need to manage a supply chain and
the potential benefits of doing so.
 Explain the increasing importance of outsourcing.
 State the objective of supply chain management.
 List the elements of supply chain management.
 Identify the strategic, tactical, and operations
issues in supply chain management.
 Describe the bullwhip effect and the reasons why
it occurs.

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 Learning Objectives
 Explain the value of strategic partnering.
 Discuss the critical importance of information
exchange across a supply chain.
 Outline the key steps, and potential challenges, in
creating an effective supply chain.
 Explain the importance of the purchasing function
in business organizations.
 Describe the responsibilities of purchasing.
 Explain the term value analysis.
 Identify several guidelines for ethical behavior in
purchasing.
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 Supply Chain Management

 Supply Chain: the sequence of

organizations - their facilities,
functions, and activities - that are
involved in producing and delivering
a product or service.

Sometimes referred to as value chains

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 Facilities

 Warehouses
 Factories
 Processing centers
 Distribution centers
 Retail outlets
 Offices

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 Functions and Activities
 Forecasting
 Purchasing
 Inventory management
 Information management
 Quality assurance
 Scheduling
 Production and delivery
 Customer service

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 Three kinds of movement in these systems
 Physical movement of material(in the direction of
end of the chain)
 Flow of cash backward through the chain
 Exchange of information which moves in both
directions along the chain

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 Typical Supply Chains

Production Distribution
Purchasing Receiving Storage Operations Storage

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 Typical Supply Chain for a
Figure 11.1a Manufacturer

Supplier

Supplier

Supplier
}
Storage Mfg. Storage Dist. Retailer Customer

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 Typical Supply Chain for a
Figure 11.1b Service

Supplier

Supplier
} Storage Service Customer

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 1.1 What Is Supply Chain
Management?
 Supply chain management is a set of
approaches utilized to efficiently integrate
suppliers, manufacturers, warehouses, and
stores, so that merchandise is produced and
distributed at the right quantities, to the right
locations, and at the right time, in order to
minimize system wide costs while satisfying
service level requirements.
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 Need for Supply Chain
Management
1.Improve operations
2.Increasing levels of outsourcing
3.Decrease transportation costs
4.Competitive pressures
5.Increasing globalization
6.Increasing importance of e-commerce
7.Complexity of supply chains
8.Manage inventories

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 Managing contractual obligations to assure
a continuous supply
 Strengthening supplier relations with
suppliers and different lines of business

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 Elements of Supply Chain
Table 11.1 Management
Element Typical Issues
Customers Determining what customers want
Forecasting Predicting quantity and timing of demand
Design Incorporating customer wants, mfg., and time
Processing Controlling quality, scheduling work
Inventory Meeting demand while managing inventory costs
Purchasing Evaluating suppliers and supporting operations
Suppliers Monitoring supplier quality, delivery, and relations
Location Determining location of facilities
Logistics Deciding how to best move and store materials

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 Logistics

 Logistics
 Refers to the movement of materials and
information within a facility and to incoming
and outgoing shipments of goods and
materials in a supply chain

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 Material: Raw material , work in progress,
support items(Fuels, Equipments,tools)

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 Logistics
• Movement within the facility
• Incoming and outgoing shipments
• Bar coding

0
• Distribution
• JIT Deliveries 214800 232087768

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 Effective Supply Chain
 Requires linking the market, distribution
channels processes, and suppliers
 Supply chain should enable members to:
 Share forecasts
 Determine the status of orders in real time
 Access inventory data of partners

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 Successful Supply Chain
 Trust among trading partners
 Effective communications
 Supply chain visibility
 Event-management capability
 The ability to detect and respond to
unplanned events
 Performance metrics

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Supply Chain Performance Drivers
1.Quality
2.Cost
3.Flexibility
4.Velocity
5.Customer service

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 Velocity
 Inventory velocity
 The rate at which inventory(material) goes
through the supply chain
 Information velocity
 The rate at which information is
communicated in a supply chain

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 Supply Chain Benefits and
Table 11.5 Drawbacks
Problem Potential Benefits Possible
Improvement Drawbacks
Large Smaller, more Reduced holding Traffic congestion
inventories frequent deliveries costs Increased costs

Long lead Delayed Quick response May not be

times differentiation feasible
Disintermediation May need absorb
functions
Large Modular Fewer parts Less variety
number of Simpler ordering
parts
Cost Outsourcing Reduced cost, Loss of control
Quality higher quality

Variability Shorter lead times, Able to match Less variety

better forecasts supply and
demand
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