chapter 11: supply chain management Flashcards
A supply chain
the sequence of organizations that are involved in producing and delivering a product
the lifeblood of any organization
two kinds of movements in a supply chain
the physical movement of material
the exchange of information and money
value chαins
another name for supply chains
value is added as goods progress through the chain
Supply chain management
collaboration of supply chain companies
coordination of their activities so that market demand is met as efficiently and effectively as possible
the process of planning, implementing, and controlling supply chain operations
key purchasing criteria in supply chain management
price
timeliness
quality
variety
The goal of supply chain management
to match supply to demand as effectively and efficiently as possible
Key aspects of supply chain management
- Determining the appropriate level of outsourcing
- Managing procurement
- Managing suppliers
- Managing customer relationships
- Being able to quickly identify problems and respond to them
The three types of flow that need to be managed in flow management
goods and services flow (product flow)
information flow
financial flow
goods and services flow (product flow)
involves the movement of goods and services from suppliers to customers
handling customer service needs and product returns
information flow
sharing forecast and sales data
transmitting orders
tracking shipments
updating order status
financial flow
credit terms
payments
consignment and title ownership arrangements
major factors that have made it desirable for organizations to actively manage their supply chain
Increasing competition
Increasing outsourcing
increasing globalization
Increasing e-commerce
The need to mαnαge orders αnd inventories across the supply chain
The bullwhip effect or demand/order amplification
the phenomenon in which the demand/
order variability gets progressively larger the further up in the supply chain the company is
While the demand at a retail store for a particular product is usually fairly stable, the orders of the retailer from wholesaler/distributor are more variable
causes inefficiencies at the wholesaler/distributor and manufacturer
cause of the bullwhip effect
slow and/or erratic reaction to a change in demand/ order
caused by:
lack of end-of-line demand visibility
long lead times
inexperience
lack of understanding of the impact of one’s action on the supplier
manufacturer price discounts that lead to surges in demand,
gaming by retailers when there is a shortage by inflating their orders in anticipation of receiving only a portion of them
Supply Chain Management Activities
Strategic (Design) Activities
Tactical (Planning)/Operational Activities
Inventory in a Supply Chain
Warehousing/Transportation in a Supply Chain
Strategic (Design) Activities
Strategic decisions have long-term impacts on a supply chain
- goals and competitive characteristics should be agreed upon by the members of the supply chain
- products are designed/redesigned with these competitive characteristics in mind
- supply chains are designed/redesigned for these products, goals, and competitive characteristics
Tactical (Planning)/Operational Activities
relate to production planning and control
include forecasting, purchasing/ordering, transportation of material, inventory control/warehousing, scheduling of production and distribution deliveries, and customer service
Questions such as, “Should a product be manufactured at this plant, today or later, or shipped from another location, today or later?” should be answered
Inventory in a Supply Chain
where in a supply chain the inventory should be held
Two general rule to find where in a supply chain should the inventory be held
- The value of inventory increases as materials move down the supply chain toward the consumers, but the response (or lead) time to consumer demand decreases
–> Management must strike a
balance between additional carrying cost (due to increased value) and better customer service (shorter lead time) to determine the location of inventory in the supply chain
- The nature of inventory becomes more specific (thus it loses flexibility of use) as inventory moves down the supply chain
–> reduces risk pooling
risk pooling
holding (safety) stocks in one central location rather than in multiple regional locations closer to customers
can provide better availability to customers, because the variations in demands in various regional locations typically cancel each other out for the centrallocation
delayed differentiation/postponement
possible to achieve risk pooling and hold inventory closer to customers with this
waiting until late in the process to add differentiating features to standard components and products
when does a facility in the supply chain not have to hold any inventory?
when can replenish its own inventory and produce within the agreed-upon lead time
Warehousing/Transportation in a Supply Chain
storage of goods
consolidating (combining) shipments of customers’ order,
deconsolidating (breaking bulk) shipments of suppliers’ products
cross-docking
consolidating (combining) shipments
collecting the incoming shipments from various geographic areas headed toward another geographic area and combining them into a larger shipment in order to take advantage of economies of scale in transportation
deconsolidating (breaking bulk) shipments
splitting a large incoming shipment into smaller shipments that are headed to different customers
cross-docking
goods arriving at a warehouse/Distribution Centers from a supplier are directly loaded onto outbound trucks, thereby avoiding warehouse/Distribution Centers
Efficient Replenishment Methods
Quick response (QR)
Efficient consumer response (ECR)
Vendor-managed inventory (VMI)
Quick response (QR)
involves making sales information available to vendors
The purpose is to create a JIT replenishment system that is automated and keyed to consumer buying patterns, as opposed to periodic orders by retailers
results in frequent small-lot shipments
Efficient consumer response (ECR)
an expanded version of quick response, used in the grocery industry
In addition to continuous product replenishment, ECR includes further collaboration on forecasting, planning of store assortments, promotions, and product introductions
continued by collaborative planning, forecasting, and replenishment (CPFR)
Who Initiated Efficient consumer response (ECR)
Procter & Gamble
Vendor-managed inventory (VMI)
not necessarily fast
replenishment method where the vendor’s sales/account manager periodically visits the buyer’s premises, counts the inventories of her company on the buyer’s shelves, and has them replenished to the previously agreed-upon levels
has been used by soft drink companies supplying convenience stores, electrical distributors supplying small maintenance warehouses, etc
Distribution requirements planning (DRP)
a system for synchronizing replenishment schedules across the supply chain
especially useful in multi-echelon distribution networks
Starting with forecast demand at the end of the distribution network (retail stores), DRP works backward through the network to obtain time-phased replenishment schedules for moving goods from the factory through each level of the distribution network
a push system
produces and ships based on demand forecasts and plans
a pull system
produces and ships based on actual demand
DRP is a push or a pull system?
a push system
quick response is a push or pull system?
pull system
how can size be a competitive advantage for small businesses
because they often are more agile than larger companies, enabling them to make decisions and changes more quickly when the need arises
Three aspects of supply chain management that are often of concern to small businesses
Inventory management
Reducing risks
International trade
Important steps in reducing risks by managing suppliers
Use only reliable suppliers.
Determine which suppliers are critical; get to know them, and any challenges they have.
Measure supplier performance (e.g., quality, reliability, flexibility).
Recognize warning signs of supplier issues (e.g., late deliveries, incomplete orders, quality problems).
Have plans in place to manage supply chain problems.
how can information replace inventory?
an organization can reduce the inventory it carries if it has relevant, accurate, and timely information
how to make an IS cost effective?
should be based on an open systems concept
use the Internet (for communication)
Relevant accurate data should be collected and data should be synchronized
when is data and information used
used in supply chains for transaction processing (execution)
Information technology (IT)
comprises tools that are used to gather, access, analyze, and share information
enables supply chain processes/activities to be performed cheaper, faster, and more accurately
automates flow of information
how can supply chain planning software be classified?
strategic
tactical
operational
Supply chain execution software
order taking
purchasing/replenishment/order fulfillment
warehouse management system
enterprise resource planning (ERP) or enterprise software
A more general type of software
was originally focused on managing and coordinating all the resources and functions of an organization from a shared database
software as a service (SaaS)
A recent trend in software purchase option
involves using the Internet to access the computer of an application service provider that maintains the customer’s data
it requires no initial investment and the service can usually be terminated with a month’s notic
data standardization
One technical difficulty in supply chain information systems
allows easier interconnectivity and economies of scale
Electronic data interchange (EDI)
direct, computer-to-computer transmission of inter-organizational transactions and information
–> includes purchase orders,
sales data, advance shipping notices, invoices, engineering drawings, and more
Why Do Companies Use Electronic data interchange (EDI)
Reduction in clerical labour (no need for receiving and entering data manually).
Reduction of paperwork.
Increased accuracy (avoids re-entry of data, thus reducing errors).
Increased speed.
Radio frequency identification (RFID)
a technology that uses radio waves to identify objects such as goods in a supply chain
–> done through the use of an RFID tag that is attached to an object
two kinds of RFID tags
(1) Active tags
(2) passive tags
Active RFID tags
have a battery and emit radio waves by themselves
they have a longer range but are more expensive
Passive RFID tags
do not have a battery
work by responding to electromagnetic waves emitted by the RFID reader
they have a shorter range
RFID tags
provide unique identification, enabling businesses to identify, track, monitor, or locate practically any object in the supply chain that is within the range of a tag reader
similar to bar codes
advantages of RFID tags over bar codes
conveying much more information
they do not require the line-of-sight reading that bar codes require
multiple RFID tags can be read simultaneously and automatically
provide more precise information than a bar code
elirninates the need for manual counting
the downside of RFIDs
the radio waves are affected by the nature of some objects
Creating an Effective Supply Chain
what do we ned?
Forming Close Relationships
Effective Communication and Coordination of Activities
Supply Chain Visibility and Information Sharing
Event Management Capability
Performance Metrics
Supply chain visibility
means that a member can connect to any part of the supply chain to access data in real time
sharing data on end-customer sales on a real time basis so that each organization in the supply chain can develop plans that contribute to synchronization across the supply chain
Event management
the ability to detect and respond to unplanned events
Risk management
identifying risks
assessing their likelihood of occurring and their potential impact
developing strategies for addressing those risk
Risk avoidance
avoiding suppliers in a certain area
risk reduction
includes replacing unreliable suppliers
risk sharing
includes contractual arrangements with supply chain partners that spread the risk
Resiliency
s the ability of a business to recover from an event that negatively impacts the supply chain
how can organizations reduce, but not eliminate, the need for resiliency?
by managing risks
The first step in risk management
to identify potential risks
Steps in Creating an Effective Supply Chain
- Develop strategic objectives
- Integrate and coordinate activities inside the organization
- Coordinate activities with suppliers and with customers
- Coordinate planning and execution across the supply chain
- Consider the possibility of forming strategic supplier/customer partnerships
strategic supplier/customer partnership
occurs when a buyer and a supplier agree to collaborate so that each may realize a strategic benefit
Collaborative planning, forecasting, and replenishment (CPFR)
the latest effort to increase the effectiveness and efficiency of supply chains
establishes a process for communicating and agreeing on forecasts and orders between the manufacturer and the customer
–>
the latest effort to increase the effectiveness and efficiency of supply chains
Collaborative planning, forecasting, and replenishment (CPFR)
attributes/metrics commonly used to measure performance of a supply chain
- Cost (unit cost, inventory turnover, logistics costs).
- Variety/flexibility (speed of production and product changes).
- Delivery (lead time, percentage of on-time delivery).
- Customer service (item fill rate).
Inventory turnover
the rate at which inventory (material) goes through the supply chain
Faster is better
The quicker that materials pass through the supply chain, the lower inventory costs will be, and the quicker that products will be delivered to the customer
Item fill rate
percentage of demand for an item filled from stocks on hand
who is responsible for buying the raw materials, manufacturing parts, supplies and spare parts, machines and equipment, and services needed to produce a good or provide a service?
The purchasing department
The basic goal of purchasing
to develop and implement purchasing plans for goods and services that support the business plan
risks of outsourcing
reduction in control and expertise
when should a company produce their own shit?
when they are or should be their core competencies (long-term organizational capabilities that help the organization to compete)
The purchasing cycle
a series of steps that begins with a purchase requisition from within the organization and ends with paying the supplier
The main steps in the purchasing cycle
- Purchasing receives a purchase requisition
- Purchasing selects a product/supplier
- Purchasing decides how the good or service is purchased
- Monitoring orders (αnd expediting)
- Receiving shipments
- Paying the supplier
what does a a purchase requisition include
(a) a general description of the item desired
(b) the quantity and quality necessary
(c) the desired delivery date.
Value analysis
the examination of the function and design of a product in an effort to reduce its cost
who works on value analysis?
a team formed with representatives from design engineering, manufacturing, and cost accounting
one of three ways prices can be determined
published price list
competitive bidding
negotiation
which items are purchased at a published price list?
Standard items that are bought infrequently and/or in small quantities
which items can be purchased with competitive bidding?
Large orders of standard items
when is price negotiation used?
used for customized goods or services or when only a few potential sources exist
Centralized purchasing
purchasing is handled by a central purchasing department
Decentralized purchasing
individual departments or separate locations handle their own purchasing requirements
how can centralized purchasing be more cost effective than decentralized purchasing?
if the higher volume created by combining orders enables the company to take advantage of quantity
discounts offered on large orders
could also be able to obtain better service and closer attention from suppliers
enables companies to assign certain categories of items to specialist buyers who tend to become more efficient and skilled
advantages of decentralized purchasing
awareness of differing “local” needs
–> being better able to respond to those need
Where locations are widely scattered, decentralized purchasing may be able to save on transportation costs by buying locally
why do organizations fail to collect accurate and useful purchasing data?
how can we prevent these?
(1) different codes may be used to describe the same supplier or item in different plant
(2) there may not be an easy way to relate and aggregate similar items using their stock codes and description (no product classes or types are defined)
(3) relationships between suppliers may have been missed
we can prevent these with the spend analysis
spend analysis
collecting, cleansing, classifying, and analyzing expenditure data
purpose is to reduce procurement costs, improve efficiency, and monitor compliance with purchasing policies
can provide answers to questions such as, “What was bought? From which suppliers? What is the total expenditure on a part? How much is the total expenditure with a supplier?”
maverick buying
users buying from non-approved suppliers
how much have companies reduced in their total expenditure by performing spend analysis?
up to 5%
Ecommerce
the use of computers and the Internet to conduct buying and selling
involves business-to-business (B2B) and business-to-consumer (B2C) commerce
two essential features of ecommerce businesses
the website, and order fulfillment
Order fulfillment
order processing
scheduling
inventory management
warehousing
packaging
billing
delivery
make to stock
items made ahead and kept in stock
make-to-order
the order has to be scheduled for production frrst
assemble-to-order items
components have already been made and only full assembly has to be scheduled
engineer to order items
item needs to be designed frrst according to the customer’s specifications
supplier analysis
Evaluating a supplier in terms of factors such as price, quality, delivery, and service.
eαrly supplier involvement
suppliers involved in the design of new products
professor D.M. lambert’s partnership model
- After the number of suppliers is reduced, those that
provide key materials/services and with whom a company does a lot of business are approached for partnership discussion - Top executives and managers from functional areas from each company are invited to a retreat, facilitated by a third-party consultant
- During 1.5 days, each company’s managers first determine the key reasons they should get into partnership, rovide a metric and target for each reason, and then share these with the other company’s managers
- if both sides agree that partnership willlikely meet their expectations, they proceed to identify the so-called facilitator
- if coordination appears to be reasonably easy, based on the level of expectation of benefits of partnership
- based on the type of intended partnership, both sides have to identify the extent of cooperation in planning, control, communication, and risklreward sharing, and implement activities to achieve this
possible levels of partnerships
Type 1 (low benefits)
Type 2 (moderate benefits)
Type 3 (high benefits)
Supplier certification
a detailed examination of the policies and capabilities of a supplier
how are certified suppliers referred as?
referred to as world class suppliers
advantage of using certified suppliers
the buyer can eliminate much or all of the inspection and testing of delivered goods
although problems with supplier goods or services might not be totally eliminated, there is much less risk than with non-certified suppliers
Logistics
the transport and warehousing of incoming materials/parts and outgoing distribution of products
includes the use of information to control the activities
Traffic management
involved in transport planning and overseeing transport execution and control (the delivery of incoming and outgoing goods)
handles schedules and decisions on delivery methods and times
Third-Party Logistics (3PL
a logistics service management company
a third-party logistics company can employ a transport company (the second party)
Modes of transportation used for delivery
pipelines
ships
trains
trucks
airplane
least costly to most costly
slowest to fastest
The most common delivery method inland
trucking
factors affecting the rate for LTL
Density
Stowability
Difficulty of handling
Liability
Reverse logistics
the backward flow of goods returned by consumers or retailers
Two key elements of reverse logistics
gate keeping and avoidance
gate keeping in reverse logistics
oversees the acceptance of returned goods with the intent of reducing the cost of returns by screening returns at the point of entry into the system and refusing to accept goods that should not be returned or goods that are returned to the wrong destination
avoidance in reverse logistics
preventing returns by dealing with their causes
