1 Chapter 8 Supply Chain Management. Chapter 8:Supply Chain Management2 Example: Procter & Gamble 4...

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Chapter 8

Supply Chain Management

Chapter 8:Supply Chain Management

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Example: Procter & Gamble

Developed its continuous replenishment program (CRP) to provide customers with quicker and more accurate stock replenishment

Elimination of nonvalue-adding costs Reduced cycle times


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Benefits of P&G’s CRP Program

Reduced inventories in customer warehouses from 19 to 6 days.

Increased inventory turnover from 19 to 60. Reduced administrative costs by eliminating

paperwork. Increased service levels from 96.4 percent

to 99.2 percent.


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How CRP Works

Orders originating from retail stores are transmitted via EDI and collected at customer distribution centers (CDC).

Orders received at CDC are compared to on-hand inventory levels and sent on to customer’s headquarters where optimum order quantities are established.

Orders sent to both CDC and PG headquarters.


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How CRP Works continued

P&G headquarters forwards orders to appropriate manufacturing plants.

Once produced, product shipped to CDC and then on to retail store.


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Dell Computer

Direct Model Use of Information Technology

– provides suppliers with access to Dell’s inventories

Minimum Inventory Levels


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Supply Chain Management Crusade Focus is on entire value chain Includes

– lean production– JIT– TQM– purchasing– product/service design


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Defining Supply Chain Management Coordination and integration of all supply

chain activities into seamless process. Enables organizations to plan and

collaborate across supply chain. Goal is to deliver right product to right

place at right time in order to maximize profit.


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Strategic Advantages of Supply Chain Supply chain management includes the

supply, storage, and movement of materials, information, personnel, equipment, and finished goods within the organization and between its environment.

Goal of supply chain management is to integrate the entire process of satisfying the customer’s needs all along the supply chain.


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Strategic Advantages of Supply Chain Management continued Supply chain costs often represent 50% or more of

total operating costs Firms that have implemented supply chain

management– Have 45% supply chain cost advantage– 50% lower inventory– 17% faster delivery of final product– Larger market shares and higher customer

loyalty

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The Supply Chain


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Outsourcing

Outsourcing often major element of SCM– Example: textile industry

Contract Manufactures


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Purchasing

Activities to reliably obtain materials by the time they are needed in the product supply process.

Important considerations include price, quality, lead times, and reliability.

Manufacturing organizations spend an average of 55 percent of revenue for outside materials and services.

These same organizations spend only 6 percent on labor and 3 percent on overhead.


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JIT and Purchasing

Widespread use of JIT has increased importance of purchasing and procurement since delays in the receipt of materials will

stop a JIT program dead in its tracks.


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Potential for Lowering Cost and Increasing Profits

Total sales = $10,000,000

Purchased materials = 7,000,000

Labor and salaries = 2,000,000

Overhead = 500,000

Profit = 500,000

Operations Costs Breakdown:


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To Double Profits ...

Increase sales by 100 percent Increase selling price by 5 percent Decrease labor and salaries by 25 percent Decrease overhead by 100 percent Decrease purchase cost by 7.1 percent


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Purchasing Versus Procurement

Purchasing implies a monetary transaction.

Procurement is simply the responsibility for acquiring the goods and services the organization needs.


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Differences Between Purchasing by Individuals and Organizations Organizations purchase larger volumes and dollar

amounts. Organization may be larger than its suppliers. Very few suppliers exist for certain organizational

goods, whereas many typically exist for consumer goods.

Certain discounts may be available to organizations.

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Selecting a Supplier


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Characteristics of Good Suppliers

Deliveries made on time and are of quality and in the quantity specified.

Fair prices. Able to respond to unforeseen changes. Continually improves products and

services.


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Four Major Areas in Evaluating Sources of Supply Technical and Engineering Capability Manufacturing Strengths Financial Strengths Management Capability


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Cost-Price Analysis

Objective is to reduce total cost. Price is only one component of total cost. Many organizations have found the best way to

lower total cost is to work with and help key suppliers lower their costs.

Costs should come down in accordance with the learning curve.

A low price is meaningless if quality is insufficient or delivered late disrupting schedules.


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Key Elements of Effective Purchasing They leverage their buying power. They commit to a small number of

dependable suppliers. They work with and help their suppliers

reduce total cost.

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Logistics


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Logistics

Planning and controlling efficient, effective flows of goods, services, and information from one point to another.


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The Bullwhip Effect

Each segment further down the whip goes faster than the one above it.

Same effect often observed in supply chains.


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Trade-offs Between Transportation and Location Processing Natural

Resources– Large loss in size or

weight during processing

– High economies of scale exist

– Raw material is perishable

Immobile Outputs


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The Problem of Location with a Single Source and Multiple Recipients

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The Multifacility Problem


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The Multifacility Distribution Situation Multiple facilitates Multiple stages Unspecified sites Unknown quantities Multiple outputs


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Distribution Requirements Planning (DRP)

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Transportation


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Modes of Transportation and Routing Water Rail Truck Air

Which one is the cheapest?


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Factors to Consider in Transportation Decisions Cost per unit shipped Ability to fill the

transporting vehicle Total shipment cost Safety of contents Shipping time Availability of

insurance Perishability

Difficulty of arranging shipment

Delivery accommodations

Seasonal considerations

Consolidation possibilities

Size of product


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Production

Lean production Channel assembly

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The Role of Information Technology in Supply Chain Management


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E-Commerce Traditional means of communication was paper Electronic commerce is a term used to describe a variety of

approaches for conducting business in a paperless environment– Electronic Data Interchange (EDI)– Bar Coding and Scanning– Databases– Email– Electronic funds transfer– Internet– Point of sale terminals– ERP systems


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Categorizing B2B Online Marketplaces


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The Beer Game Board and Initial Conditions

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1 Chapter 8 Supply Chain Management. Chapter 8:Supply Chain Management2 Example: Procter & Gamble 4...

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