Introduction to Supply Chain Management exam 1

Supply chain

The network of suppliers, manufacturers, and customers involved in producing and delivering a product or service. Any organization offering a product or service has one.

Where do supply chains exist? (3 pairs)

Large or small orgs; public or private companies; for-profit or not-for-profit (e.g., multinational vs. mom & pop shop, publicly traded vs. privately held, business vs. Red Cross/government).

What are products and services created from?

Materials, equipment, labor, time, money, and other resources.

Basic flow of materials/products in a supply chain

From SUPPLIERS to MANUFACTURERS to CUSTOMERS. Each of these is a 'link' in the supply chain.

Three types of external suppliers

Raw material suppliers, intermediate suppliers, and finished material or service suppliers (external sources of supply).

Insourced vs. outsourced manufacturing

Insourced = the manufacturer makes it with its own internal operations. Outsourced = the manufacturer uses external third-party operations.

Distribution channels (typical path to the consumer)

Manufacturer to wholesaler/distributor to retailer to consumer. Manufacturers can also sell direct to retailers or consumers, or use a mix of channels (even different channels for different products).

Link (in a supply chain)

An individual company in the chain: a supplier, manufacturer, or customer.

Every link in the supply chain is both a ____ and a ____

A customer of its suppliers AND a supplier to its customers.

Procurement vs. distribution (link relationships)

Procurement = how a company issues orders to its suppliers (acting as the customer). Distribution = how a company moves products to its customers (acting as the supplier).

Supplier's suppliers / customer's customers

The far ends of an 'end-to-end' supply chain.

Logistics (role in the supply chain)

Facilitates the flow of materials and products: managing inventory, warehousing, and transportation.

Five modes of transportation

Truck, rail, air, water, pipeline.

Inbound vs. outbound transportation

Inbound = moving materials in from suppliers. Outbound = moving finished products out to customers.

Four flows in a supply chain

1) Product & service flow (forward), 2) Information flow (both directions), 3) Payment flow (reverse direction), 4) Returns flow.

Information flow (examples)

Requirements, orders, confirmations, shipping notices, invoices, etc. It moves in BOTH directions.

Payment flow direction

Reverse direction of the product flow: customers pay back up the chain to their suppliers.

Returns flow (a.k.a. reverse logistics)

Products moving from the destination back toward the point of origin (e.g., dissatisfied customer or excess product returned to supplier).

Candy bar disruption: what happens if cocoa beans run short? (sequence)

Can't get chocolate/cocoa butter; production stops; inventory of the other materials builds up; you cancel orders with ALL suppliers; customers sell out of remaining candy bars, causing a TOTAL MARKET STOCKOUT.

Total market stockout

What happens when a disruption stops production and customers sell through all remaining inventory (candy bar example).

Key lesson of the candy bar disruption example

All supply chain links are interconnected, so a disruption at one link will likely impact ALL suppliers and ALL customers. A supply chain is only as strong as its weakest link.

Where are cocoa beans mainly produced?

A narrow band near the equator, mainly West Africa (from lecture notes).

Supply Chain Management (SCM)

The coordination of the network of otherwise independent trading partners who create a desired product or service and move it through the supply chain to customers when and where the customer wants it.

SCM is 'the way business gets done'

SCM is the execution process of any business.

Two ideas SCM is based on

1) Every product reaching an end user is the cumulative effort of multiple organizations (the supply chain). 2) Most orgs only focused inside their own 'four walls,' so chains were disjointed; SCM actively manages activities to maximize customer value and build sustainable competitive advantage.

'Four walls' thinking

When an organization only focuses on what happens within its own operations instead of managing the whole chain, producing disjointed, ineffective supply chains.

The value of SCM

It creates value by managing the processes of independent trading partners so they collaborate in an efficient, effective, and cost-conscious way.

Goals of SCM

Increase customer service (satisfaction) while simultaneously reducing inventory and operating expenses (costs).

Goal 1 of SCM: increase customer service means...

Getting the products and services customers want to them, when and where they want them, at the lowest possible cost.

Goal 2 of SCM: reduce inventory and operating expenses means...

Achieving the customer service goal while keeping inventory and costs as low as possible.

Two main reasons companies implement SCM

1) Achieve cost savings. 2) Better coordinate resources.

Service firms and supply chains

Services have supply chains too. Service firms offer intangible products (cannot be physically touched); customers pay for the provider's labor and intellectual property.

Service supply chain focus

More about managing the relationships between trading partners than managing the flow of physical goods.

Customer involvement in services

Customers are much more directly involved in delivery; services often involve work on a tangible item the customer supplies (car for repair, clothes for dry cleaning, financial data for tax prep).

Can services be inventoried?

Generally NO. Services are typically produced and consumed simultaneously, and can't start until the customer arrives and participates.

Facilitating goods

Tangible elements used along with a service (must be purchased, transported, received, warehoused, so each has a supply chain).

Facilitating goods: Banks / Hospitals / Restaurants

Banks: cash & coins, office supplies, computers, records. Hospitals: pharmaceuticals, medical supplies, medical equipment, office furniture. Restaurants: food, kitchen equipment, tables & chairs, cutlery.

SCOR Model

Supply Chain Operations Research model: describes end-to-end supply chain integration. Each trading partner must PLAN, SOURCE, MAKE, and DELIVER (RETURN) its part of the chain, supported by ENABLE.

SCOR stages in order

Plan, Source, Make, Deliver, (Return), with Enable spread across all of them.

SCOR: PLAN

Establishes the parameters within which the supply chain operates; a strategy for managing all resources to create/deliver the product. Includes marketing and distribution channels, promotions, quantities, timing, inventory and replenishment policies, and production policies.

SCOR: SOURCE

Identifying the suppliers that provide the materials and services needed; building solid supplier relationships; developing pricing, shipping, delivery, and payment processes; creating metrics to monitor supplier performance.

SCOR: MAKE

The series of operations that convert materials into finished products (manufactured, tested, packaged, scheduled for delivery). Quality management is essential. The MOST metric-intensive portion (quality, output, worker productivity).

SCOR: DELIVER

Also called the LOGISTICS phase. Oversees the forward flow of goods and information to meet customer requirements: receiving customer orders, filling them, selecting carriers, invoicing to get paid.

SCOR: RETURN

Also called REVERSE LOGISTICS. Planning and controlling the movement of goods from the point of consumption back to the point of origin for repair, reclamation, remanufacture, recycling, or disposal. Needs a responsive, flexible network.

SCOR: ENABLE

Processes that facilitate a company's ability to manage the supply chain; spread throughout EVERY stage (not a sequential stage that happens after the others).

SCOR Enable: examples of enabling processes

Supply chain systems/network ops, systems configuration control, interfaces, gateways, database administration, EDI, telecommunications, performance measurement, contract management, business rules, standards, training and education.

SCM evolution: 1950s & 1960s

Discipline limited to Materials Management and Logistics. Internally focused; big material inventories; goal was lowest cost as fast as possible via mass production; virtually no external collaboration.

SCM evolution: 1970s & 1980s

New computer technology led to better planning (MRP, MRP II). Companies embraced external collaboration. Intense global competition led U.S. manufacturers to adopt SCM. Term 'Supply Chain Management' coined in early 1980s (per slides: Dr. Wolfgang Partsch and team at Booz, Allen & Hamilton).

Material Requirements Planning (MRP) [Chapter 1 definition]

A time-phased method of determining what materials are needed and when to support the production plan.

Manufacturing Resource Planning (MRP II)

A method for the effective planning of ALL resources of a manufacturing company.

SCM evolution: 1990s & 2000s

New concepts to enhance planning and control: CPFR, S&OP, JIT, and TQM.

CPFR (Collaborative Planning, Forecasting, and Replenishment)

A process that helps trading partners jointly plan key supply chain activities.

S&OP (Sales and Operations Planning) [Chapter 1 definition]

A process that integrates customer-focused marketing plans with the management of the supply chain.

Just-in-Time (JIT)

A philosophy of manufacturing based on the elimination of waste and continuous improvement.

Total Quality Management (TQM)

A management approach where all members of an organization take ownership of quality.

SCM evolution: 2010s and beyond

Focus on core competencies and outsourcing non-core work to trading partners' expertise; voluntary, trust-based relationships; boundaries extend end-to-end (suppliers' suppliers to customers' customers).

Old vs. new paradigm (2010s+)

OLD: synergy through vertical integration (owning/coordinating all activities), short-term company-focused performance. NEW: focus on specialization, outsource non-core competencies, voluntary trust-based relationships; all participants benefit.

Continuing focus areas (2010s+)

Strategic partnerships, corporate social responsibility (CSR), sustainability, risk and opportunity management, e-commerce-driven pace of change, improving capabilities, becoming technology-centric, more 3PL use, new transportation methods for rapid response.

3PL

Third-party logistics service provider.

Logistics vs. Supply Chain Management

Logistics = moving products/materials efficiently to the right place and time; one vital aspect of SCM, within a SINGLE organization's scope. SCM = extends beyond the company to include external trading partners on supply and demand sides; includes ALL of logistics plus more.

Four foundations of SCM

1) Operations Management, 2) Supply Management, 3) Logistics Management, 4) Integration.

Operations Management (foundation)

Managing internal resources related to planning and production. Elements: forecasting & demand planning, planning systems, inventory management, process management.

Supply Management (foundation)

Managing all the supplies and suppliers needed to run the business. Elements: purchasing management, strategic sourcing, supplier relationship management.

Logistics Management (foundation)

Managing all storage and movement of materials and products, forward or reverse. Elements: warehousing, transportation, distribution, international trade mgmt, CRM, service response logistics.

Integration (foundation)

Managing all enabling systems needed to integrate operations, supply, and logistics. Elements: enabling systems, supply chain risk & security mgmt, performance measurement, project management.

Forecasting & Demand Planning (operations element)

Forecasting demand for a product/service so it can be produced and delivered more efficiently and satisfy customer needs.

Planning Systems (operations element)

The process and tools used to manage a company's resources to achieve its goals.

Inventory Management (operations element)

Activities and techniques used to plan and control desired levels of items needed to support production.

Process Management (operations element)

Using LEAN Manufacturing to improve flow of materials and eliminate waste, and Six Sigma to improve quality compliance across all suppliers.

Purchasing Management (supply element)

Responsibility for acquiring the materials, supplies, and services the company needs.

Strategic Sourcing (supply element)

A comprehensive approach for locating and sourcing key material and service suppliers, with a focus on developing long-term relationships.

Supplier Relationship Management (SRM)

A comprehensive approach to managing a company's long-term interactions with the key organizations that supply its materials and services.

Warehousing (logistics element)

Activities related to receiving, storing, and shipping materials to and from production or distribution locations.

Transportation (logistics element)

Planning, scheduling, and controlling activities related to mode, carrier, and movement of inventories into and out of a company.

Distribution (logistics element)

Activities associated with moving finished goods from the manufacturer to the customer.

International Trade Management (logistics element)

Exchanging goods and services across international borders or territories.

Customer Relationship Management (CRM) [logistics element]

Strategies to ensure deliveries, resolve complaints, improve communications, and determine service requirements.

Service Response Logistics (logistics element)

Management and coordination of the company's activities WHILE the service is being performed.

Enabling Systems (integration element)

All the systems, processes, and tools that support a company's ability to manage the supply chain.

Supply Chain Risk and Security Management (integration element)

Strategies/activities for continuously monitoring risks and enhancing supply chain security to reduce vulnerabilities and ensure business continuity.

Performance Measurement (integration element)

The system for collecting, measuring, and comparing a measure to a standard for a specific criterion.

Project Management (integration element)

Using skills and knowledge to coordinate, organize, plan, schedule, direct, control, monitor, and evaluate activities so a project's objectives are achieved.

Two basic supply chain capability models

Efficient model and Responsive model.

Efficient supply chain model

Configured to maximize output with minimum input at the lowest possible cost. Predictable supply, high capacity utilization, low cost, reduces hours/effort/resources. Suppliers like to stay connected to companies that master it.

Responsive supply chain model

Configured to be fast and flexible to respond quickly to dynamic demand and new product launches. Flexible, adapts to expected and unexpected change, minimizes lead time; higher cost, lower utilization; holds inventory in raw/unfinished state rather than finished goods.

Push business model (Make-to-Stock)

Producing finished products based on anticipated demand (forecast) BEFORE a customer order is received. Used for about 95% of products.

Push model: steps

Create forecast, create supply plan, buy materials, manufacture products (and hold), sell products to customers, receive customer orders, deliver products.

Push model: advantages

Product immediately available from inventory; better resource utilization planning; economies of scale and lower costs.

Push model: disadvantages

High inventories (money tied up); heavily dependent on accurate forecasting; forecast errors cause shortages, excesses, obsolescence, extra costs.

Pull business model (Make-to-Order)

Producing finished products in response to actual demand, ONLY after a customer order is received. Used for only about 5% of products.

Pull model: advantages

High customer service and customization; reduced dependence on forecasting; very low inventories.

Pull model: disadvantages

Every customer order is a rush order; manufacturing/resource problems immediately hit throughput and satisfaction; reduced economies of scale; only works if customers will wait.

Functional products (characteristics)

Standard products sold everywhere (office supplies, cleaning supplies): predictable demand, few design changes, low variety, price stability, long lead times, LOW profit margin.

Innovative products (characteristics)

New or improved products (cell phones, laptops): unpredictable demand, many changes, high variety, price markdowns over life cycle, short lead times, HIGH profit margin.

Which supply chain model matches functional products?

Efficient model (Push / Make-to-Stock): low cost, high utilization, deployed inventory, low-cost suppliers.

Which supply chain model matches innovative products?

Responsive model (Pull / Make-to-Order): higher cost, lower utilization, minimum inventory, flexible suppliers.

Mismatch (matching model to product)

Using an efficient model for innovative products, or a responsive model for functional products, is a mismatch.

Core SCM challenge

Maintaining the balance between DEMAND and SUPPLY while keeping inventory investment (working capital) and operating expenses (cost of goods sold) low. Too much OR too little of either is bad.

Inventory and flexibility as 'shock absorbers'

Inventory (and flexibility) absorb the mismatch between demand and supply; they act as shock absorbers between the two.

Inventory investment = ? Operating expenses = ?

Inventory investment = working capital. Operating expenses = cost of goods sold.