16-1 Supply Chain Management

Operations Management

William J. Stevenson

8th edition
16-2 Supply Chain Management

CHAPTER
16

Supply Chain Management

Operations Management, Eighth Edition, by William J. Stevenson

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.
16-3 Supply Chain Management

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

16-4 Supply Chain Management

Facilities

 Warehouses
 Factories

 Processing centers

 Distribution centers

 Retail outlets

 Offices
16-5 Supply Chain Management

Functions and Activities

 Forecasting
 Purchasing

 Inventory management

 Information management

 Quality assurance

 Scheduling

 Production and delivery

 Customer service
16-6 Supply Chain Management

Typical Supply Chains

Production Distribution
Purchasing
Receiving Storage Operations Storage
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Typical Supply Chain for a Manufacturer

Figure 16.1a

Supplier

Supplier

Supplier
} Storage Mfg. Storage Dist. Retailer Customer
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Typical Supply Chain for a Service

Figure 16.1b

Supplier

Supplier
} Storage Service Customer
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Need for Supply Chain Management

1. Improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs
4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-commerce
7. Complexity of supply chains
8. Manage inventories
16-10 Supply Chain Management

Benefits of Supply Chain Management

Organization Benefit

Campbell Soup Doubled inventory turnover rate

Hewlett-Packard Cut supply costs 75%

Sport Obermeyer Doubled profits and increased sales 60%

National Bicycle Increased market share from 5% to 29%

Wal-Mart Largest and most profitable retailer in the world

16-11 Supply Chain Management

Benefits of Supply Chain Management

 Lower inventories
 Higher productivity

 Greater agility

 Shorter lead times

 Higher profits

 Greater customer loyalty

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Elements of Supply Chain Management

Table 16.1

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
16-13 Supply Chain Management

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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Supply Chain Benefits and Drawbacks

Table 16.5
Problem Potential Benefits Possible
Improvement Drawbacks
Large Smaller, more frequent Reduced holding Traffic congestion
inventories deliveries costs Increased costs

Long lead Delayed differentiation Quick response May not be feasible

times Disintermediation May need absorb
functions
Large number Modular Fewer parts Less variety
of parts Simpler ordering

Cost Outsourcing Reduced cost, Loss of control

Quality higher quality

Variability Shorter lead times, Able to match Less variety

better forecasts supply and demand
16-15 Supply Chain Management

Purchasing

 Purchasing is responsible for obtaining the

materials, parts, and supplies and services
needed to produce a product or provide a
service.
16-16 Supply Chain Management

Goal of Purchasing

 Develop and implement purchasing plans for

products and services that support operations
strategies
16-17 Supply Chain Management

Duties of Purchasing

 Identifying sources of supply

 Negotiating contracts
 Maintaining a database of suppliers
 Obtaining goods and services
 Managing supplies
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Purchasing Interfaces
Figure 16.5

Legal

Operations Accounting

Data
Purchasing
processing

Design

Receiving
Suppliers
16-19 Supply Chain Management

Purchasing Cycle
Legal
1. Requisition received
Operations
Accounting

2. Supplier selected
3. Order is placed Purchasing
Data
process-
ing

4. Monitor orders
5. Receive orders Design

Receiving
Suppliers
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Value Analysis vs. Outsourcing

 Value analysis
 Examination of the function of purchased
parts and materials in an effort to reduce cost
and/or improve performance
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Centralized vs Decentralized Purchasing

 Centralized purchasing
 Purchasing is handled by one special
department
 Decentralized purchasing
 Individual departments or separate locations
handle their own purchasing requirements
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Suppliers

 Choosing suppliers
 Evaluating sources of supply
 Supplier audits
 Supplier certification
 Supplier relationships
 Supplier partnerships
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Factors in Choosing a Supplier

 Quality and quality assurance

 Flexibility

 Location

 Price
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Factors in Choosing a Supplier (cont’d)

 Product or service changes

 Reputation and financial stability

 Lead times and on-time delivery

 Other accounts
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Evaluating Sources of Supply

 Vendor analysis: Evaluating the sources of

supply in terms of price, quality, reputation,
and service
16-26 Supply Chain Management

Evaluating Sources of Supply

 Vendor analysis - evaluating the sources of

supply in terms of
 Price
 Quality
 Services
 Location
 Inventory policy
 Flexibility
16-27 Supply Chain Management

Supplier as a Partner
Table 16.9

Aspect Adversary Partner

Number of suppliers Many One or a few
Length of relationship May be brief Long-term
Low price Major consideration Moderately important
Reliability May not be high High
Openness Low High
Quality May be unreliable; At the source; vendor
buyer inspects certified
Volume of business May be low High
Flexibility Relatively low Relatively high
Location Widely dispersed Nearness is important
16-28 Supply Chain Management

Supplier Partnerships
 Ideas from suppliers could lead to improved
competitiveness
1. Reduce cost of making the purchase
2. Reduce transportation costs
3. Reduce production costs
4. Improve product quality
5. Improve product design
6. Reduce time to market
7. Improve customer satisfaction
8. Reduce inventory costs
9. Introduce new products or services
16-29 Supply Chain Management

Critical Issues

 Strategic importance
 Cost
 Quality
 Agility
 Customer service
 Competitive advantage

 Technology management
 Benefits
 Risks
16-30 Supply Chain Management

Critical Issues

 Purchasing function
 Increased outsourcing
 Increased conversion to lean production

 Just-in-time deliveries

 Globalization