Ch. 9 - Supply Chain Management

Supply Chain

Network of companies that work together to coordinate activities to deliver a product or service to the market; includes manufacturers, distributors, shippers, and retailers.

Purchase-to-Pay Process

1. Create Purchase Requisition.

2. Issue Purchase Order (PO).

3. Supplier sends Purchase Order Acknowledgement.

4. Receive Goods or Services.

5. Post Goods Receipt to General Ledger.

6. Settle Accounts Payable (EFT if applicable).

Manufacturing Process

1. Create Purchasing Plan to buy needed materials.

2. Create Purchase Orders for materials.

3. Create Production Plan for finished goods.

4. Issue Production Orders.

5. Complete manufacturing.

6. Increase inventory with finished goods.

7. Track production costs in Management Accounting (COGM).

Preventive Maintenance Process

1. Create maintenance plan.

2. Schedule maintenance activities.

3. Execute preventive maintenance tasks.

4. Record maintenance completion and feedback.

Supply Chain Management (SCM)

The art and science of ensuring the right product or service gets into the right customer’s hands, in the right quantity, at the right time.

Logistics

Operational activities of fulfilling an order that transpire within the four walls of a company.

Purchasing Module

Supports the purchase-to-pay process by helping order goods/services when needed, receive them properly, and pay for only what is ordered and received.

Purchase-to-Pay Process

Internal request for goods (Purchase Requisition) → Issue Purchase Order (PO) → Supplier sends PO Acknowledgement → Goods/Services Receipt → Settle Accounts Payable.

Purchase Requisition

Internal request generated by an employee or department for goods or services.

Purchase Order (PO)

Binding contract between buyer and seller that sets quantities, prices, and discounts.

Purchase Order Acknowledgement

Confirmation from supplier to buyer; communicates commitment, highlights PO errors, and flags fulfillment issues.

Goods/Services Receipt

Increases an asset or expense in the General Ledger (GL) upon receipt of ordered goods/services.

Accounts Payable Settlement

Payment process to supplier if purchase was made on credit.

Electronic Funds Transfer (EFT)

Method used to settle Accounts Payable electronically.

Three-Way Match

Matching the purchase order, goods/services receipt, and supplier invoice to verify accuracy before payment.

Tolerance Limits

Allow slight differences between PO, goods receipt, and supplier invoice during three-way match.

Electronic Data Interchange (EDI)

Technology that automates the sending and receiving of commercial documents between businesses.

Trading Partners

Companies that conduct EDI transactions with each other.

EDI Translation Software

Software that converts a company's ERP data format to standard EDI format and vice versa.

Benefits of EDI

Eliminates manual intervention, reduces human error, increases processing speed, improves security, reduces inventory and carrying costs, promotes greener environment.

Supplier Relationship Management (SRM)

Process and software used by buyers to nurture healthy relationships with suppliers.

Warehouse Management (WM)

ERP module that supports day-to-day warehouse operations, including picking and placement strategies.

Bin

Unique address of physical inventory locations in the warehouse.

Storage Type

Designated storage area such as high rack or pallet storage.

Picking Strategy in WM

Example: "Next Expiring Batch" used in companies with batch management.

Physical Inventory Count

Annual wall-to-wall inventory count; compares physical to logical inventory.

Logical Inventory

System-recorded inventory that may require adjustment based on physical inventory counts.

Cycle Counting

Counting a small subset of inventory on specified days; part of physical inventory management.

Pick-to-Light

Warehouse technology using colored lights/LEDs to show workers how many items to pick.

Voice Picking

Warehouse technology using headset and microphone to send and receive picking instructions.

Automated Storage and Retrieval Systems (ASRS)

Computerized shuttles, cranes, and carousels used for putaway and picking loads.

Drones in Warehouse Management

Used to count inventory stored in high rack locations where access is difficult.

Radio Frequency Identification (RFID)

Wireless non-contact technology that uses radio waves to transmit data about inventory items.

RFID Tags

Microchips embedded in inventory that allow RFID readers to capture data.

Active RFID Tags

Have an internal battery; transmit data constantly up to a few hundred feet.

Passive RFID Tags

No battery; transmit data only when activated by a nearby reader.

Advantages of RFID

Associate tag numbers with shipments, reduce labor costs and errors, speed up handling.

Disadvantages of RFID

Expensive and time-consuming to implement; requires special readers.

Vendor Managed Inventory (VMI)

Process where the buyer sends customer demand data to the supplier, who then determines replenishment.

Objective of VMI

Streamline supply chain operations for both supplier and buyer.

Transportation Management (TM)

Manages and optimizes inbound, outbound, and internal transportation of goods.

Functions of TM

Combining shipments, optimizing routing and stops, selecting best external carriers, monitoring delivery performance.

Third-Party Logistics (3PL)

Independent experts that manage end-to-end logistics for companies without their own distribution facilities.

Examples of 3PL Companies

J.B. Hunt and UPS Supply Chain Solutions.

Key Considerations for 3PL

Need for warehouse vs direct delivery, order warnings, triggers for picking, handling defective returns.

Manufacturing Module

Enables production of finished goods at the right quality, quantity, and time to meet customer demand.

Key Manufacturing Questions

What are we making? What does it take to make it? When are we making it? What materials are needed?

Independent Demand

Demand originating outside the company (customer orders); determines "what we are making."

Dependent Demand

Demand for components or raw materials based on production needs; determines "what it takes to make it."

Lead Times

Time required to manufacture a product or receive materials; determines "when we are making it."

Material Requirements Planning (MRP)

Determines materials needed to execute production plans.

Objectives of MRP

Ensure materials are available, maintain low inventory levels, plan manufacturing orders, plan raw material purchases, verify finished goods availability.

Manufacturing Process

Purchasing Plan → Purchase Orders → Production Plan → Production Orders → Increase in Inventory → Cost Tracking (COGM) in Management Accounting.

Manufacturing Master Data

Data records necessary for production planning and execution.

Inventory Master Data

Details of inventory items that are procured, produced, or sold.

Routing Master Data

Series of sequential operations at work centers to create finished products.

Work Center Master Data

Information about labor/machine capacities at specific work centers.

Quality Management (QM)

Ensures products purchased, made, and sold meet regulatory standards and company specifications.

Three Components of QA

Planning, Notifications, Inspections.

Restricted Stock

Stock under inspection; cannot be sold or used until cleared.

Unrestricted Stock

Stock that can be used immediately in production, sold, or accepted from a supplier.

Blocked Stock

Stock that fails inspection and cannot be sold or used; not valued on the balance sheet.

Plant Maintenance

Activities to keep fixed assets in good operating condition.

Preventive Maintenance

Routine, scheduled service to prevent equipment breakdowns.

Corrective Maintenance

Unscheduled maintenance done after a breakdown to fix equipment.

Predictive Maintenance

Uses historical data to predict when maintenance should be performed.