Logistics L5 Flashcards
Supply chain management
Strategic coordination of business functions within a business organization & throughout its supply chain for the purpose of integrating supply and demand management
Supply:
• From the beginning of the chain to the internal operations of the organization
Demand:
• From the organization’s output delivery to its immediate customer to the final customer
Supply chain strategy alignment
● Aligning supply and distribution strategies with organizational strategy
● Deciding on the degree to which outsourcing will be employed
Network configuration
Determining the number and location of suppliers, warehouses, production/operations facilities,
distribution centers
Why so much interest in SCM?
As manufacturing becomes more efficient (or is
outsourced), companies look for ways to reduce costs
Several significant success stories.
Web-based models for supply chains:
• Online retailers
• B2B business models
Key Supply-Chain Management Issues:
The goal of SCM is to match supply to demand as
effectively and efficiently as possible
- Determining appropriate levels of outsourcing
- Managing procurement
- Managing suppliers
- Managing customer relationships
- Being able to quickly identify problems and respond to them
- Managing risk
Three types of flow management
product and service flow
information flow
financial flow
- Product and service flow
Involves movement of goods and services from suppliers to customers as well as handling customer service needs and product returns - Information flow
Involves sharing forecasts and sales data, transmitting orders, tracking shipments, and updating order status - Financial flow
involves credit terms, payments, and consignment and title ownership arrangements
product and service flow
movement of goods from suppliers to customers
handling customer service needs / product returns
information flow
share forecasts and sales data, transmit orders, track shipments and update order status
financial flow
involves credit terms, payment, consignment ownership arrangement
Outsourcing
Transfer or contracting non productive internal activities to outside vendors.
- Paying for recycling, using market research companies
- Hiring a law firm, Buying software etc.
In-sourcing
your own employees do the work (‘functions in-house’)
Make-or-buy decision
➔ The act of choosing between manufacturing a product or purchasing it from a supplier.
● Factors to consider
○ Part of quantitative analysis
○ Associated costs of production
○ Capacity to produce at required levels
Make versus buy
● outsourcing has become a competitive weapon
● It is no easy task for management to decide
● The decision to outsource has led to a need for strategic partnerships
Benefits of outsourcing
- Lower prices may result from lower labor costs
- The ability of the organization to focus on its core strengths
- Permits the conversion of some fixed costs to variable costs
- It can free up capital to address other needs
- Some risks can be shifted to the supplier
- The ability to take advantage of a supplier’s expertise
- Makes it easier to expand outside of the home country
Risks of outsourcing
● Inflexibility due to longer lead times
● Increased transportation costs
● Language and cultural differences
● Loss of jobs
● Loss of control
● Lower productivity
● Loss of business knowledge
● Knowledge transfer and intellectual property concerns
● Increased effort required to manage the supply chain
Cost to make?
total cost of production
fixed cost + (variable cost x quantity)
Cost to buy?
price x quantity
Supply Chain Risks
- Supply chain disruption
- Quality issues
- Loss of control of sensitive information
- Supply chain disruption (Natural disasters, Supplier problems)
- Quality issues (disrupt supplies and lead to product recalls, liability claims, and negative publicity)
- Loss of control of sensitive information (if suppliers divulge sensitive information to competitors, it can weaken a firm’s competitive position)
Risk management
identifying risks
assessing likelihood of occurring/ potential impact
developing strategies for addressing those risks.
Strategies for addressing risk
- Risk avoidance
- Risk reduction
- Risk sharing
Key elements of successful risk management
- Know your suppliers
- Provide supply chain visibility
- Develop event-response capability
Global supply chains
- Product design uses inputs from around the world
- outsourced to countries where labor and/or materials costs are lower
- Products are sold globally
Complexities in global supply chains
- Language and cultural differences
- Currency fluctuations
- Political instability
- Increasing transportation costs and lead times
- Increased need for trust among supply chain partners
Management Responsibility
Tactical
- Forecasting
- Sourcing
- Operations Planning
- Managing inventory
- Transportation planning
- Collaborating
Management Responsibility
Operational
- Scheduling
- Receiving
- Transforming
- Order fulfilling
- Managing inventory
- Shipping
- Information sharing
- Controlling
Supplier Management
Vendor analysis
Supplier audit
Supplier certification
Vendor analysis
• Evaluating the sources of supply in terms of price, quality, reputation, and service
supplier audit
• A means of keeping current on suppliers’ production capabilities, quality and delivery problems and resolutions, and performance on other criteria
supplier certification
- Involves a detailed examination of a supplier’s policies and capabilities
- The process verifies the supplier meets or exceeds the requirements of a buyer
Supplier Relationship Management
Short-term
• involves competitive bidding
• Minimal interaction
Medium-term
• involves an ongoing relationship
Long-term
• involves greater cooperation that evolves into a
partnership
Choosing Suppliers
Quality and quality assurance Flexibility (for changes) Location Price Reputation and Financial Stability Lead times and on-time delivery Other accounts (Dependence on other customers and their priority)
inventory issues in SCM
Inventory location
Inventory velocity
The bullwhip effect
Inventory location
Centralized inventories
• Lower overall inventory, lower cost, lower stock-out risk
Decentralized inventories
• Faster delivery, lower shipping cost
inventory velocity
- The speed at which goods move through a supply chain
- The greater the velocity the lower the holding cost and the faster orders are fulfilled and goods are turned into cash.
The bullwhip effect
Inventory oscillations that become increasingly larger looking backward through the supply chain
effective supply chain
begins with strategic sourcing: analyzing the procurement process
There must be : • Trust • Effective communication • Information velocity • Supply chain visibility • Event management capability • Performance metrics
inventory trade-offs
- Lot-size-inventory trade-off
- Inventory-transportation cost trade-off
- Lead time-transportation costs trade-off
- Product variety-inventory trade-off
- Cost-customer service trade-off
lot-size inventory trade-off
Large lot sizes have benefits of quantity discounts and lower annual setup costs, but increases the amount of safety stock (and inventory carrying costs) carried by suppliers
inventory-transportation cost trade-off
Suppliers prefer to ship full truckloads instead of partial loads to spread shipping costs. This leads to greater holding costs for customers
Cross-docking
• A technique whereby goods arriving at a warehouse are unloaded from suppliers truck onto outbound truck, thereby avoiding warehouse storage
lead time transportation cost trade-off
Suppliers like to ship in full loads, but waiting for sufficient orders and/or production to achieve a full load may increase lead time
product variety inventory trade off
Greater product variety means smaller lot sizes and higher setup costs, higher transportation and inventory management costs
Delayed differentiation
Production of standard components and sub assemblies, which are held until late in the process to add differentiating features
cost customer service trade off
• Producing and shipping in large lots reduces costs, but increases lead time
• Disinter mediation
Reducing one or more steps in a supply chain by cutting out one or more intermediaries
Good supply chain management can overcome the bullwhip effect
1. Information sharing • Replenishment based on need Vendor-managed inventory Vendors monitor goods and replenish retail inventories when supplies are low • Lower ordering costs
- Short lead times
- Cooperation
problems of the bullwhip effect
High demand fluctuations.
Variation in demand along the supply chain requires Shipment, Production and Inventory capacity to cope with peaks. Most of the time this capacity will be idle.
There’s significant cost and investments attached!
Low service level (back orders)
High cost
In the end: high overall cost in the supply chain
Order fulfillment
• Engineer-to-Order (ETO)
Products are designed and built according to customer specifications.
• Make-to-Order (MTO)
A standard product design is used, but production of the final product is linked to the final customer’s specifications. Fulfillment time is less than with ETO fulfillment, but still fairly long.
• Assemble-to-Order (ATO)
Products are assembled to customer specifications from a stock of standard and modular components. Fulfillment times are fairly short, often a week or less.
• Make-to-Stock (MTS)
Production is based on a forecast, and products are sold to the customer from finished goods stock. The order fulfillment time is immediate
Small businesses do not always give adequate attention to their supply chains
Three aspects of supply chain management that are often of concern to small businesses are:
- Inventory management
- Reducing risks
- International trade
Products are returned to companies or third-party handlers
for a variety of reasons, and in a variety of conditions.
Among them are the following:
- Defective products
- Recalled products
- Obsolete products
- Unsold products returned from retailers
- Parts replaced in the field
- Items for recycling
- Waste
Reverse logistics
is the process of physically transporting returned items
Two key elements of managing returns
• Gate keeping 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 refers to finding ways to minimize the number of items that are returned.
Trends affecting supply chain design & management
Measuring supply chain performance “Greening” the supply chain Re-evaluating outsourcing Integrating IT Managing risks Adopting lean principles
