Supply Chain Management

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• Supply Chain Management
• And E-Business

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Introduction

• Materials - any commodities used directly or
  indirectly in producing a product or service.
• Raw materials, component parts, assemblies,
  finished goods, and supplies
• Supply chain - the way materials flow through
  different organizations from the raw material
  supplier to the finished goods consumer.

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Supply Chainfor Steel in an Automobile Door
MINING COMPANY Mines iron ore
STEEL MILL Forms steel ingot
STEEL COMPANY Forms sheet metal
Iron ore
Steel ingots
Sheet metal
AUTOMOTIVE SUPPLIER Makes door
AUTOMOBILE MANUFACTURER Makes automobile
CAR DEALERSHIP Does preparation
Car door
Car
Prepared car
FINAL CONSUMER Drives automobile
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Supply Chain Management

• Refers to all the management functions related to
  the flow of materials from the companys direct
  suppliers to its direct customers.
• Includes purchasing, traffic, production control,
  inventory control, warehousing, and shipping.
• Two alternative names
• Materials management
• Logistics management

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Supply Chain Managementin a Manufacturing Plant
Receiving and Inspection
Raw Materials, Parts, and In-process Ware- Housing

Production
Finished Goods Ware- housing
Inspection, Packaging, And Shipping
Customers
Suppliers
Materials Management
Purchasing
Production Control
Warehousing and Inventory Control
Shipping and Traffic
Physical materials flow Information flow
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Purchasing

• Factors increasing the importance of purchasing
  today
• Tremendous impact of material costs on profit
  (60-70 of each sales dollar is paid to material
  suppliers)
• Popularity of just-in-time manufacturing (supply
  deliveries must be exact in timing, quantity, and
  quality)
• Increasing global competition (growing
  competition for scarce resources, and a
  geographically stretched-out supply chain)

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Mission of Purchasing

• Develop purchasing plans for each major product
  or service that are consistent with operations
  strategies
• Low production costs
• Fast and on-time deliveries
• High quality products and services
• Flexibility

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Purchasing Management

• Maintain data base of available, qualified
  suppliers
• Select suppliers to supply each material
• Negotiate contracts with suppliers
• Act as interface between company and suppliers
• Provide training to suppliers on latest
  technologies

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Advantages of Centralized Purchasing

• Buying in large quantities - better prices
• More clout with suppliers - greater supply
  continuity
• Larger purchasing department - buyer
  specialization
• Combining small orders - less order cost
  duplication
• Combining shipments - lower transportation costs
• Better overall control

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Purchasing Process
From any department, to purchasing
Material Requisition
From purchasing, to potential suppliers
Request for Quotations
Based on quality, price, lead time, dependability
Select Best Supplier
From purchasing, to selected supplier
Purchase Order
From supplier, to receiving, quality control,
warehouse
Receive and Inspect Goods
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Buyers Duties

• Know the market for their commodities
• Understand the laws.... tax, contract, patent..
• Process purchase requisitions and quotation
  requests
• Make supplier selections
• Negotiate prices and conditions of sale
• Place and follow-up on purchase orders
• Maintain ethical behavior

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Make-or-Buy Analysis

• Considerations in make-or-buy decisions
• Lower cost - purchasing or production?
• Better quality - supplier or in-house?
• More-reliable deliveries - supplier or in-house?
• What degree of vertical integration is desirable?
• Should distinctive competencies be outsourced?

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Logistics

• Logistics usually refers to management of
• the movement of materials within the factory
• the shipment of incoming materials from suppliers
• the shipment of outgoing products to customers

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Movement of Materials within Factories
The typical locations from/to which material is
moved
Incoming Vehicles
Receiving Dock
Quality Control
Warehouse
Work Center
Other Work Centers
Packaging
Finished Goods
Shipping
Shipping Dock
Outgoing Vehicles
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Shipments To and From Factories

• Traffic
• Traffic departments routinely examine shipping
  schedules and select
• shipping methods
• time tables
• ways of expediting deliveries
• Traffic management is a specialized field
  requiring technical training in Department of
  Transportation (DOT) and Interstate Commerce
  Commission (ICC) regulations and rates.

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Shipments To and From Factories

• Distribution
• Distribution, or physical distribution, is the
  shipment of finished goods through the
  distribution system to customers.
• A distribution system is the network of shipping
  and receiving points starting with the factory
  and ending with the customers.

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Shipments To and From Factories

• Distribution Requirements Planning
• DRP is the planning for the replenishment of
  regional warehouse inventories.
• DRP uses MRP-type logic to translate regional
  warehouse requirements into central
  distribution-center requirements, which are then
  translated into gross requirements in the MPS at
  the factory.

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Shipments To and From Factories

• Distribution Requirements Planning
• Scheduled receipts are previously-placed orders
  that are expected to arrive in a given week
• Planned receipt of shipments are orders planned,
  but not yet placed, for the future
• Projected ending inventory is computed as
• Previous weeks projected ending inventory
• Planned receipt of shipments in current week
• Scheduled receipt of shipments in current week
• -- Forecasted demand in current week

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Shipments To and From Factories

• Distribution Resource Planning
• Distribution resource planning extends DRP so
  that the key resources of warehouse space,
  workers, cash, and vehicles are provided in the
  correct quantities at the correct times.

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Analyzing Shipping Decisions

• The Transportation Problem
• Problem involves shipping a product from several
  sources (ex. factories) with limited supply to
  several destinations (ex. warehouses) with demand
  to be satisfied
• Per-unit cost of shipping from each source to
  each destination is specified
• Optimal solution minimizes total shipping cost
  and specifies the quantity of product to be
  shipped from each source to each destination

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Innovations in Logistics

• New developments affecting logistics include
• All-freight airports
• Inter-modal shipping
• In-transit rates
• Consolidated shipments
• Air-freight and trucking deregulation
• Advanced logistics software

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Warehousing

• Warehousing is the management of materials while
  they are in storage.
• Warehousing activities include
• Storing
• Dispersing
• Ordering
• Accounting

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Warehousing

• Record keeping within warehousing requires a
  stock record for each item that is carried in
  inventories.
• The individual item is called a stock-keeping
  unit (SKU).
• Stock records are running accounts that show
• On-hand balance
• Receipts and expected receipts
• Disbursements, promises, and allocations

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Inventory Accounting

• In the past, inventory accounting was based on
• periodic inventory accounting systems -- periodic
  (end-of-day) updating of inventory records
• physical inventory counts -- periodic
  (end-of-year) physical counting of all SKUs at
  one time
• Today, more and more firms are using
• perpetual inventory accounting systems --
  real-time updating of records as transactions
  occur
• cycle counting -- ongoing (daily or weekly)
  physical counting of different SKUs

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Measuring the Performance Materials Managers

• Level and value of in-house inventories
• Percentage of orders delivered on time
• Number of stockouts
• Annual cost of materials
• Annual cost of transportation
• Annual cost of warehouse
• Number of customer complaints
• Other factors