Supply Chain Management

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Chapter 7

• Supply Chain Management

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Supply Chain

• All activities associated with the flow and
  transformation of goods and services from raw
  materials to the end user, the customer
• A sequence of business activities from suppliers
  through customers that provide the products,
  services, and information to achieve customer
  satisfaction

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The Supply Chain
Figure 7.1
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Supply Chain Management

• Synchronization of activities required to achieve
  maximum competitive benefits
• Coordination, cooperation, and communication
• Rapid flow of information
• Vertical integration

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Supply Chain Uncertainty

• Forecasting, lead times, batch ordering, price
  fluctuations, and inflated orders contribute to
  variability
• Inventory is a form of insurance
• Distorted information is one of the main causes
  of uncertainty

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Information in the Supply Chain

• Centralized coordination of information flows
• Integration of transportation, distribution,
  ordering, and production
• Direct access to domestic and global
  transportation and distribution channels
• Locating and tracking the movement of every item
  in the supply chain

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Information in the Supply Chain

• Consolidation of purchasing from all suppliers
• Intercompany and intracompany information access
• Data interchange
• Data acquisition at the point of origin and point
  of sale
• Instantaneous updating of inventory levels

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Electronic Business

• Replacement of physical processes with electronic
  ones
• Cost and price reductions
• Reduction or elimination of intermediaries
• Shortening transaction times for ordering and
  delivery
• Wider presence and increased visibility

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Electronic Business

• Greater choices and more information for
  customers
• Improved service
• Collection and analysis of customer data and
  preferences
• Virtual companies with lower prices
• Leveling the playing field for smaller companies
• Gain global access to markets customers

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Table 7.1Supply Chain Evolution at Nabisco
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Electronic Data Interchange

• Computer-to-computer exchange of business
  documents in a standard format
• Quick access, better customer service, less
  paperwork, better communication, increased
  productivity, improved tracing and expediting,
  improves billing and cost efficiency

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Bar Codes

• Computer readable codes attached to items flowing
  through the supply chain
• Generates point-of-sale data which is useful for
  determining sales trends, ordering, production
  scheduling, and deliver plans

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The Internet

• Instant global access to organizations,
  individuals, and information sources
• Fundamentally changes the way organizations do
  business
• Removed geographic barriers
• Adds speed and accessibility to the supply chain

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Figure 7.2 Build-to-Order Cars over the Internet
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The E-Automotive Supply Chain
SUPPLY CHAIN PROCESS AUTOMOTIVE PAST E-AUTOMOTIVE
Table 7.2
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Intranets and Extranets

• Intranets are internet-like networks that operate
  within a single organization
• Extranets are intranets that can be connected to
  the global internet
• Difference is in who has access to the system

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IT Issues

• Increased benefits and sophistication come with
  increased costs
• Efficient web sites do not necessarily mean the
  rest of the supply chain will be as efficient
• Security problems are very real
• Partnership and trust are important elements that
  may be new to business relationships

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Suppliers

• Purchased materials account for about half of
  manufacturing costs
• Materials, parts, and service must be delivered
  on time, of high quality, and low cost
• Suppliers should be integrated into their
  customers supply chains
• Partnerships should be established
• On-demand delivery (JIT) is a frequent requirement

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Sourcing

• Relationship between customers and suppliers
  focuses on collaboration and cooperation
• Outsourcing has become a long-term strategic
  decision
• Organizations focus on core competencies
• Single-sourcing is increasingly a part of
  supplier relations

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E-Procurement

• Business-to-business commerce conducted on the
  Internet
• Benefits include lower transaction costs, lower
  prices, reduce clerical labor costs, and faster
  ordering and delivery times
• Currently used more for indirect goods
• E-Marketplaces service industry-specific
  companies and suppliers

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Figure 7.3 The Wal-Mart Supply Chain
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Figure 7.4 Centralized Supply at Honda America
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Distribution

• The actual movement of products and materials
  between locations
• Handling of materials and products at receiving
  docks, storing products, packaging, and shipping
• Often called logistics
• Driving force today is speed
• Particularly important for Internet dot-coms

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Figure 7.5 Order Fulfillment at Amazon.com
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Distribution Centers and Warehousing

• DCs are some of the largest business facilities
  in the United States
• Trend is for more frequent orders in smaller
  quantities
• Flow-through facilities and automated material
  handling
• Final assembly and product configuration may be
  done at the DC

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Warehouse Management Systems

• Highly automated systems
• Controls item putaway, picking, packing, and
  shipping
• Transportation management, order management, yard
  management, labor management, warehouse
  optimization

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Figure 7.6 A WMS
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Vendor-Managed Inventory

• Manufacturers generate orders, not distributors
• Stocking information is accessed using EDI
• A first step towards supply chain collaboration
• Increased speed, reduced errors, and improved
  service

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Collaborative Distribution and Outsourcing

• Collaborative planning, forecasting, and
  replenishment (CPFR)
• Internet-based exchange of data and information
• Significant decrease in inventory levels and more
  efficient logistics
• Companies focus on core competencies

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Transportation

• Important element, often overlooked
• Common methods are railroads, trucking, water,
  air, intermodal, package carriers, and pipelines

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Railroads

• 150,000 miles in US
• Low cost, high-volume
• Improving flexibility
• intermodal service
• double stacking

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Trucking

• Most used mode in US
• Flexible, small loads
• Consolidation, Internet load match sites
• Part of TQM supplier-customer relationship
• Single sourcing reduces number of trucking firms
  serving a company

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Air

• Rapidly growing segment of transportation
  industry
• Lightweight, small items
• Quick, reliable, expensive
• Major airlines and US Postal Service, UPS,
  FedEx, DHL

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Package Carriers

• FedEx, UPS, US Postal Service, DHL
• Significant growth driven by e-businesses
• Use several modes of transportation
• Expensive
• Fast and reliable
• Innovative use of technologies

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Intermodal

• Combination of several modes of transportation
• Most common are truck/rail/truck and
  truck/water/rail/truck
• Enabled by the use of containers

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Water

• One of oldest means of transport
• Low-cost, high-volume, slow
• Bulky, heavy and/or large items
• Standardized shipping containers improve service
• The most common form of international shipping

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Pipelines

• Primarily for oil refined oil products
• Slurry lines carry coal or kaolin
• High capital investment
• Low operating costs
• Can cross difficult terrain

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Internet Transportation Exchanges

• Bring together shippers and carriers
• Initial contact, negotiations, auctions
• Typically only one form of transportation,
  intermodal exchanges have been difficult to
  develop

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Global Supply Chain

• Free trade global opportunities
• Nations form trading groups
• No tariffs or duties
• Freely transport goods across borders

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Global Supply Chain Problems

• National and regional differences
• Customs, business practices, and regulations
• Foreign markets are not homogeneous
• Quality can be a major issue

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Duties and Tariffs

• Proliferation of trade agreements
• Group members charge uniform tariffs
• Member nations have a competitive advantage
  within the group

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Duties and Tariffs
Figure 7.9
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Landed Cost and Internet-Based ITL Systems

• Knowing landed cost is critical in international
  trade
• Common components are transportation charges,
  tariffs, duties, and taxes
• ITL systems convert language and currency between
  trading partners

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Infrastructure Obstacles to Global Trade

• Some emerging markets lack suitable distribution
  systems, i.e. roads, rail systems
• Existing roads and ports may be inadequate
• Market instability, political instability
• Vertical integration is a common solution