Chapter 6 Supply Chain Management

1
Chapter 6 Supply Chain Management
2
Objectives

1. Understand the concepts of supply chain supply
   chain management
2. Understand supply chain management goals
3. Appreciate the role of logistics and the
   difference between logistics and supply chain
   management
4. Understand basic concepts of logistics

3
1. The Concept of Supply Chain Supply Chain
Management (SCM)

• A supply chain is a set of three or more firms
  directly linked by one or more of the upstream
  and downstream flows of products, services,
  finances, and information from a source to a
  customer.
• Basic supply chain
• Extended supply chain
• Ultimate supply chain

Objective 1
4
Basic Supply Chain
SUPPLIER
FIRM
CUSTOMER
Sewing shops in Hong Kong
Tommy Hilfiger in Hong Kong
May Department Stores in St. Louis
Objective 1
5
Extended Supply Chain
SUPPLIERS SUPPLIER
. . .
Yarn suppliers in Korea
SUPPLIER
FIRM
Sewing shops in Hong Kong
CUSTOMER
Tommy Hilfiger in Hong Kong
May Department Stores in St. Louis
. . .
CUSTOMERS CUSTOMER
Lord Taylor in New York
Objective 1
6
Ultimate Supply Chain
ULTIMATE SUPPLIER
Cotton Farmers in Egypt
. . .
Hong Kong Shanghai Bank
FINANCIAL PROVIDER
SUPPLIER
Sewing shops in Hong Kong
M/A/R/C
FIRM
MARKET RESEARCH FIRM
Tommy Hilfiger
CUSTOMER
THIRD PARTY LOGISTICS SUPPLIER
. . .
May Department Stores
ULTIMATE CUSTOMER
DHL
Consumers
Objective 1
7
Supply Chain Management (SCM)

• Supply Chain Management is an integrating
  function with primary responsibility for linking
  major business functions and business processes
  within and across companies into a cohesive and
  high-performing business model.
• - Council of
  Logistics Management
• Supply Chain Management integrates supply and
  demand management within and across companies.

Objective 1
8
Supply Chain Management (SCM)
Objective 1
9
The Supply Chain Model
Note the key elements of supply chain management
and the important integration that must take
place among a variety of business functions
across different organizations in the supply
chain.
Objective 1
10
2. Supply Chain Goals

• Supply chain goals
• Waste reduction, minimize duplication,
  harmonizing operations and systems and enhancing
  quality.
• Time compression, compression of order to
  delivery cycle time.
• Flexible response, the meeting of customers
  unique requirements in a cost effective manner.
• Unit cost reduction, reduce cost per unit to the
  end user by first determining the level of
  performance desired by the customer.

Objective 2
11
Information Technology's role in SCM

• Supply chain software/technology
• ERP
• CPFR
• RFID
• Internet

Objective 2
12
3. Logistics Role in SCM

• Logistics definition
• Logistics is that part of that supply chain
  process that plans, implements, and controls the
  efficient flow and storage of goods, services,
  and related information from the point of origin
  to the point of consumption in order to meet
  customers requirements.
• -- Council of Logistics Management 1998

Objective 3
13
Distinguish Logistics and SCM

• SCM is focused on the integration of all business
  processes
• Logistics is focused on moving and storing
  activities

Objective 3
14
Strategic Role of Logistics

• Historically viewed as a cost center
• Logistics is now regarded as a critical strategic
  weapon
• Drivers of the increasing strategic role of
  logistics
• Business process integration
• Implementation of JIT
• Total cost approach

Objective 3
15
Business Processes Integration

• Sales-Marketing-Logistics integration
• Logistics as a strategic marketing weapon
• Logistics as a critical part of customer service
• Logistics should be an integral part of
  marketing/corporate strategy

Objective 3
16
Just-In-Time Systems

• Originated from Japanese automobile industry
• Goals of JIT
• Minimize inventory costs
• Improve product quality
• Maximize production efficiency
• Provide optimal levels of customer service

Objective 3
17
Just-In-Time Systems

• Principle
• requiring the delivery of the specified product
  at the precise time, and in the exact quantity
  needed
• JIT relationship
• Less suppliers
• Longer relationship/partnership

Objective 3
18
Total-Cost Approach

• Calculating logistics costs
• Activity-based costing (ABC)
• Measure costs associated with specific activities
• Total cost of ownership (TCO)
• More than acquisition costs
• Also include costs of subsequent use

Objective 3
19
4. Understanding LogisticsLogistics Management
in a Firms Generic Value Chain
Source Michael E. Porter (1985), Competitive
Advantage, p. 46
Objective 4
20
Basic Logistics Functions

• ___________
• Public vs. contract vs. private
• ___________
• Speed
• Consistency
• ____________
• Buffer against uncertainties
• Objective eliminate inventories
• Use 80/20 Rule
• Anticipatory vs. responsive forecasting

Objective 4
21
Understanding Logistics -Common Elements of
Logistics Service
Objective 4
22
An Important Consideration in Logistics

• Two important variables in logistics
• Total logistics costs
• The level of customer service
• There is a tradeoff between these two
• Example making deliveries by air
• The key is to find the balance
• Find what customer needs
• Use 80/20 Rule
• Meet customer needs at lowest possible costs

Objective 4
23
Third-Party Logistics (3PL)

• 3PL definition outsourcing all or many of a
  firms logistics operations to a specialized
  company.
• - Council of Logistics
  Management
• Perform a wide range of logistics functions
• Ex. Ryder, Caterpillar Logistics. Etc
• 4PLs manage 3PLs

Objective 4
24
Third-Party Logistics (3PL)

• Reasons to use 3PL
• Cost reduction
• Focus on core competencies
• Improve customer service
• Flexibility
• Reduced capital investment
• Access to new market

Objective 4