Supply Chain Management

Supply chain

• network of facilities, functions, and activities involved in producing and delivering products or services from suppliers to customers

Supply chain management

• coordination of the movement of goods through the supply chain

• control of information such as sales data, sales forecasts, promotions, and inventory levels

Traditional View of Supply Chain Goods Flow

• Suppliers

• Manufacturers

• Wholesalers/Distributors

• Retailers

• Customers

Traditional View of Supply Chain Revenue Flow

• Customers

• Retailers

• Wholesalers/Distributors

• Manufacturers

• Suppliers

Tier 1 Suppliers

Direct Suppliers

Tier 2 Suppliers

• suppliers who supply to tier 1 suppliers

e-Supply chain goods flow

• Suppliers 

• Contract manufacturers

• Logistics providers

• Customers

Supply Chain Main Subjects

• Logistics

• Purchasing

• Sourcing

• Bullwhip effect

• Sustainability

Other subjects of Supply chain

• Information management

• Globalization

• e-Commerce

• Radio Frequency Identification

Information management

• accuracy

• timing

Globalization

• foreign business practices and regulations

Shipping and delivery (Logistics)

• transportation cost, mode, lead time, traffic management

Types of Shipping and Delivery (Logistics)

• Highway - flexibility 

• Rail or water - high volume at low cost 

• Pipeline - high volume at low cost 

• Air - fast

Distribution Management (Logistics)

• Facility location (where/how many facilities)

• Positioning of inventory (where/how many to hold?)

Facility location key factors (Logistics)

• proximity to customers 

• business climate

• quality of labour

• infrastructure

Third-party logistics (3PL) (Logistics)

• Outsourcing freight consolidation and distribution activities

Ordering and receiving materials (Purchasing)

• materials of correct quality, in correct quantity, at good price, and on time

Develop a supplier base (Purchasing)

• select, evaluate, and maintain

• linked to Sourcing

Purchasing interface (Purchasing)

• Interface with accounting, engineering and legal teams

Purchasing cycle

1. Purchasing receives the requisition 

2. Purchasing selects a supplier 

3. Purchasing places the order with the vendor 

4. Monitoring orders

5. Receiving orders

Factors when Selecting a Supplier (Sourcing)

• price

• quality

• services

• location

• inventory policy

• flexibility

Types of Supplier selection strategies

• Single Sourcing

• Multiple Suppliers

Pros of Single Sourcing

• Quantity discount 

• More responsive 

• Frequent deliveries 

• High quality 

• better relations

• support just-in-time

Cons of Single Sourcing

• Not enough capacity

• Government regulations

Pros of Multiple Suppliers

• Competitive pricing

• Spreading risks 

• Low dependence 

• Volume flexibility 

• Easier to test new supplier

Cons of Multiple Suppliers

• Order is too small

• High ordering costs

Bullwhip effect

• increasing distortion of information along the supply chain

  • Customer demand gets distorted as information reaches suppliers

Contributing factors of the bullwhip effect

• batch ordering, high ordering cost, free return policy 

• Promotions, pricing that leads to forward buy

• No visibility of end demand, inaccurate forecast

• Long lead time, localized reaction

• Mistrust, conflict of interest

Order of consequences for the bullwhip effect

• Manufacturers

• Distributor

• Retailer

Manufacturer Implications of the Bullwhip effect 

• Raw material expediting

• Schedule changes 

• Supplier schedule variability

• Poor demand planning

Raw material Expediting (ManuBW)

• Loss of volume breaks 

• Higher freight costs 

• Higher raw material inventory

Schedule Changes (ManuBW)

• Productivity loss 

• Higher WIP inventory

Distributor Implications of the Bullwhip effect

• Supplier schedule variability 

• Poor demand planning

• customer switching

• Stockouts and late orders

Customer Switching (DistBW)

• lower revenues

Stockouts and late orders (DistBW)

• Poor service and longer lead time

Retailer Implications of the Bullwhip effect

• Customer switching

• Stockouts and late orders

• Increased safety stock

• Small shipments and shipping b/w warehouses

• Small shipments and shipping b/w warehouses (RetBW)

• Higher shipping costs

Increased Safety stock (RetBW)

• higher finished goods inventory and warehousing costs

Traditional solution to the bullwhip effect

• increase inventory

Modern solution to the bullwhip effect

• Examine contributing factors

• improve supply chain metrics 

• understand the supply chain relationships

  • interdependent, systemic, and goal sharing

Outcome of the modern solution to the BW

• improves coordination, communication, and collaboration

Physical proximity (Supply Chain Strategy)

• 75% of Honda suppliers located within 150 miles of Maryville Plant in Ohio

Plant-direct shipping (Supply Chain Strategy)

• from the manufacturer to the retailer

• Pampers to Wal-Mart

Cross docking (Supply Chain Strategy)

• goods move from one loading dock to another without being stored as inventory 

• Walmart distribution centres

Storage Supply Chain Strategy Timeline

• receiving → put away → replenish → picking → staging → shipping

Cross dock supply chain timeline

• receiving → staging → shipping

Direct ship supply chain timeline

• receiving → shipping

Postponement (Supply Chain Strategy)

• customize products as late as possible 

• distributor centers perform assembly, packaging

Vendor-managed inventory (Supply Chain Strategy)

• let the vendor manage ordering, warehousing, shipping, and placing products 

• IKEA

Virtual integration (Supply Chain Strategy)

• allow suppliers to access critical information in real time

  • Retail Link at Walmart - Point of Sales data shared with suppliers

Vertical integration (Supply Chain Strategy)

• control the most or all of a supply chain

• McDonalds in Russia

CPFR meaning

Collaborative Planning, Forecasting, and Replenishment

What is CPFR

• process where trading partners share and discuss PFR information in order to work in partner from from a single forecast

• Builds collaborative and strategic relationships

How is information shared in CPFR

• Share forecast through the CPFR process 

• Share replenishment data through the supplier schedule

Guidelines for information sharing for CPFR

• Operating agreement 

• Voluntary Inter-Industry Commerce Standards

Business Relationship Process

Open market environment → Cooperative → Collaborative → Future

Characteristics of the open market environment

• multiple suppliers

• short term decisions

• price based decisions

• adversarial

Characteristics of Cooperative Business Relationship

• fewer suppliers

• longer term contracts 

• move away from price-based purchase criteria 

• win-win relationship

Characteristics of Collaborative Business Relationship

• Joint planning

• Technology sharing

• open exchange of information 

• strategic relationship

Future Goal of business relationships

• mass collaboration at the industry level

Sustainability

Reduced use of resources, and harm to the environment, so that the future is not threatened

Supply chain sustainability

• company efforts to consider the environmental and human impact of their products journey through the supply chain

Sustainable Supply Chain Management

• focus on the speed, cost, and reliability of operations with the added goal of upholding environmental and societal values 

What global issues does Sustainable Supply Chain Management focus on

• climate change 

• water security

• deforestation

• human rights

• fair labour practices 

• corruption

Benefits from Supply Chain Improvement

• Lower inventory

• Shorter cycle time 

• Lower total cost 

• Higher service levels

• Stronger relationship with supply chain members