OMIS 340

Supply chain

• Network of orgs and activities

• Produces and delivers products or services

• Also called the value chain

Supply chain management (SCM)

• Strategic coordination across the supply chain

• Integrates supply and demand decisions

• Focuses on end to end performance

Logistics 

• Manages forward and reverse flows

• Goods, services, information, and cash

Typical Service Supply Chain

Goal of SCM

• Match supply and demand efficiently and effectively 

Key SCM Focus Areas

• Outsourcing decisions

• Procurement & supplier management

• Customer relationship management

• Rapid problem identification & response

Supply chain flows

• Product & service flow -> goods, services, returns

• Information flow -> forecasts, orders, tracking

• Financial flow -> payments, credit terms, ownership

Benefits of Outsourcing 

• Lower labor operating costs

• Docs on core competencies

• Convert fixed costs to variable costs

• Accessible supplier expertise 

• Free up capital 

• Support global expansion

• Share selected risks with suppliers

Risks of outsourcing 

• Longer lead times and reduced flexibility

• Higher transportation costs

• Loss of control and business knowledge

• Quality and productivity issues

• Cultural and communication barriers

• Intellectual property concerns 

• Increased coordination effort 

Operations

That part of a business organization that is responsible for producing goods and/or services.

Operations management

The management of systems or processes that create goods and/or provide services.

Supply chain

 A sequence of organizations—their facilities, functions, and activities—that are involved in producing and delivering a product or service.

Supply chain steps image

Types of analytics 

1. Descriptive analytics - Analytics that involves summarizing data.

2. Diagnostic analytics - Analytics that relates to answering the question of why something happened.

3. Predictive analytics- Analytics that focuses on what will happen.

4. Prescriptive analytics - Analytics that involves analyzing data to determine how to influence a desired change.

Key issues in business operations today: 

1. Economic conditions

2. Innovating

3. Quality problems

4. Risk management

5. Cybersecurity

6. Competing in a global economy

Common Supply Chain Risks (DIRQ?!)

• Disruptions

• Information risks

• Risk management

• Quality failures

Resiliency

ability of a business to recover form an event that negatively impacts the supply chain 

Disruptions

• Natural disasters

• supplier failures

Quality failures

• Recalls, liability, reputational damage

Information risks

• Loss of sensitive or proprietary data

Risk management

• Identify and assess risks

• Evaluate likelihood and impact

• Develop response strategies

  • Risk avoidance

  • Risk reduction

  • Risk sharing

Keys to effective risk management

• Know your suppliers

• Improve supply chain visibility 

• Develop rapid response capability

What makes a supply chain global? 

• Design, sourcing, and production span multiple countries. 

• Manufacturing and services often outsourced for cost advantages

• Products sold in global markets

Key complexities 

• Cultural and language differences

• Currency fluctuations 

• Political and economic instability 

• Longer lead times and higher transportation costs 

• Greater need for trust and coordination among partners

How do natural disasters (such as hurricane helene) impact supply chains? (QUIZ QUESTION)

• transportation difficulties

• can’t access facilities/ they are damaged

• relied heavily on a single critical source with few readily available alternatives

What could be done during a goods shortage? (ex: IV bags) (QUIZ QUESTION)

• outsource from other facilities (diversify sourcing)

• don’t rely heavily on a single critical source with few readily available alternatives

• restore the main facility via:

  • gov support

  • increased production from other manufacturers

  • reducing demand through conservation

  • reduced hoarding

  • sharing across facilities

What could be done for quartz shortage (good that was inaccessible due to the mines being clogged from the hurricane and could not have been prevented) (QUIZ QUESTION)

• no immediate replacement supply

• Short term: focus on restarting operations quickly

• Long term: substitute materials, alternative sources.

Key lessons manufacturers and retailers learned about the supply chain disruption from pandemic (QUIZ QUESTION)

• companies become more flexible diversifying suppliers

• diversify their routes to manage delays

• moving away from cheapest only sourcing (quality)

• relaxing overly lean inventory policy

• increasing lead times and order quantity

• ordering earlier

• using alternative ports when needed

What are the benefits of regionalization, nearshoring, and reshoring? (QUIZ QUESTION)

• prevent delays

• save costs

• reduce external disruptions

• reduce transportation/ shipping costs for longer travel

• keeps issues localized (not global)

• reduces the impact of pandemic related disruptions

• reduces pandemic related disruptions

What are the negatives of regionalization, nearshoring, and reshoring? (QUIZ QUESTION)

• it can be more expensive

• is typically cheaper to outsource

• unrealistic for smaller businesses to participate in bc its too expensive

• can take months to yrs to reorganize supply chain operations

• must weigh benefits between higher costs and different risks against original benefits

• significant investment to restructure supply chains

underlying causes of the drug shortages? (QUIZ QUESTION)

• not meeting FDA requirements

• not enough manufacturers producing each generic drug

• need for lowest price = limited transparency

• poor quality can halt production

• difficulty obtaining ingredients

• seasonal demand

• disease spread

• drug life cycles

• healthcare trends

How can reshoring help with drug shortages (QUIZ QUESTION)

• helps reinstall reliability into the supply chain

• no more issues w/ international distributors, financial strains, manufacturer shutdowns

• increased quality

• better transparency for parties involved

3 SCM decisions 

1. Strategic - (Long term, direction setting)

2. Tactical - (Midterm, planning focused) 

3. Operational - (short term, execution focused)

Strategic planning 

• (Long term, direction setting)

• Supply chain strategy alignment

• Network configuration

• IT

• Product And service design

• Capacity planning

• Strategic partnerships

• Distribution strategy

• Risk and uncertainty management

Tactical planning 

• (Midterm, planning focused) 

• Forecasting

• Sourcing

• Operations planning

• Inventory planning

• Transportation planning

• Collaboration

Operational planning 

• (short term, execution focused)

• Scheduling

• Receiving and transforming

• Order fulfillment

• Inventory control

• Shipping 

• Information sharing

• Day to day control

Procurement - 

• Responsible for obtaining materials, parts, and services

• Supports production and service delivery

Goals of procurement

• ensure right quality

• Ensure right timing

• Align purchasing with operation technology

The purchasing cycle

receive requisition

• Select supplier

• Place order

• Monitor order

• Receive goods/ services

Centralized purchasing 

uses one main team for all buying, focusing on cost savings, standardization, and control

• Lower price through volume consolidation

• Better supplier service

• Better handling of specialized items

Decentralized purchasing 

empowers individual departments, branches, or teams to manage their own procurement needs directly, rather than relying on a central, corporate purchasing office

• Departments understand needs better

• fast er response time

• Flexibility with local suppliers

Supplier management includes: 

1. Selecting suppliers

2. Vendor analysis

3. Supplier audits

4. Supplier certification

5. Supplier relationship management

Key supplier evaluation tools 

• Vendor analysis 

  • Price, quality, reputation, service 

• Supplier audits 

  • production/ service capability 

  • Quality and delivery performance

• Supplier certification 

  • Verifies supplier meets buyer requirements

  • Reduces need for incoming inspection 

Types of supplier relationships 

1. Short term 

   1. Competitive bidding 

   2. Minimal interaction

2. Medium term 

   1. Ongoing relationship 

3. Long term 

   1. Highly cooperative

   2. Often evolves into partnerships

Strategic partnering 

• long term collaboration for mutual benefit 

  • ex:

    • Supplier holds inventory

    • Customer commits long term 

    • Lower inventory costs and stable demand

Collaboration approaches CPFR 

• Collaborative planning, forecasting, and replenishment 

Inventory velocity

 speed at which inventory moves through the supply chain

Bullwhip effect

small changes in customer demand

• Lead to larger demand swings upstream

• Causes increasing inventory fluctuations across the supply chain

Main causes of the bullwhip effect

• Forecast inaccuracies

• Overreaction to stockouts

• Order batching 

• Sales incentives and promotions

• Quantity discounts

• Product and service mix changes

Ways to reduce bullwhip effect

• Strategic inventory buffering

• Information sharing across the supply chain

• Replenishment based on actual demand

Vendor managed inventory (VMI) 

• Supplier monitors inventory levels

• Supplier replenishes inventory when levels are low 

• Reduces demand distortion and improves coordination

Bullwhip effect is fundamentally

an information problem not a demand problem

Order fulfillment

processes used to respond to customers

Order fulfillment strategies 

• Engineer to order (ETO) - product designed after order is received

• Make to order (MTO)- production starts after order

• Assemble to order (ATO) - final assembly after order

• Make to stock (MTS) - products produced in advance and stocked 

Remember

• ETO -> MTO -> ATO -> MTS moves from high customization to high efficiency

Logistics manages the movement of:

• Materials

• Services

• Cash 

• Information

Logistics activities 

• Movement within facilities

• Incoming and outgoing shipments

Objectives of logistics activities

Getting goods to the right place at the right time 

Movement within a facility 

• Flow of materials between: 

  • Receiving

  • Storage

  • Work centers

  • Shipping

Incoming & outgoing shipments (traffic management)

• Oversees shipment scheduling and routing

• Considers:

  • Transportation costs

  • Government regulations

  • Organizational needs

  • Shipping delays or disruptions

Tracking goods with

RFID 

• Uses radio waves to identify and track items 

• Compared to barcodes 

  • More information

  • No line of sight required

  • Multiple items read at once

Benefits of RFID 

• Greater supply chain visibility 

• Improved inventory management

• Better quality control

• Strong supplier and customer relationships

3rd Party Logistics (3PL)

• Outsourcing logistics activities 

• Common services

  • Warehousing 

  • Distribution

Benefits of 3PL 

• Logistics expertise

• Advanced information systems 

• Lower shipping costs

Logistics is about

flow, visibility, and coordination. Technology and outsourcing exist to improve all three 

Key considerations 

• Cost

• Speed (delivery time)

• Availability of shipping modes

• Type of material shipped

• Flexibility 

• Environmental impact

Common shipping modes: 

• Truck

• Rail

• Air

• Water

Time-cost trade off

• Faster shipping -> higher cost

• Slower shipping -> lower cost

• Choice depends on:

  • Business strategy (low cost vs. responsive)

  • Urgency of the shipment 

• Managerial insight

  • When urgency is low, firms compare: 

    • Shipping cost savings vs. additional inventory holding cost

Incremental holding cost equation

 (H * d)/ 365

• H = annual holding (earning) cost of the item

• d= difference in delivery time(days)

Decision rule - 

• Choose slower shipping if

  • Shipping cost savings> incremental holding cost

• Choose faster shipping otherwise

Creative an effective supply chain 

• Foundations of an effective supply chain - begins with strategic sourcing 

  • Focuses on: 

    • Reducing waste and non-value added activities

    • Lowering costs and risks

    • Improving supplier performance

Key enablers for creating an effective supply chain 

• trust

• Effective communication

• Fast information flow

• Supply chain visibility 

• Event management capability 

• Performance metrics

SCOR framework

A standard model for designing and managing supply chains. 

Parts of framework: 

• Plan

• Source

• Make 

• Deliver

• Return

Managing returns (reverse logistics)

managing the flow of returned products

Elements of return management: 

Gatekeeping - screen returns to prevent incorrect acceptance 

Avoidance - reduce the number of returns

Closed loop supply chain

firm manages both forward and reverse logistics

Key challenges in creating effective supply chains 

• Organizational integration barriers

• Gaining top management support 

• Managing trade offs (cost, speed, flexibility, service)

• Resource constraints for small businesses

• Variability and uncertainty in demand and supply

• Meeting required response times.