11

Supply Chain Management and

Logistics

McGraw-Hill/Irwin Copyright © 2005 by The McGraw-Hill Companies, Inc. All rights reserved.

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Agenda

Supply Chain Management (SCM)

Supply Chain Logistics

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Supply chain management: An integrated philosophy to manage the multidirectional flow of materials and information through an entire channel, from the first raw material supplier to the ultimate user of the finished product.

Supply Chain Management

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Objectives of SCMObjectives of SCM

Optimizing coordination in operations and Optimizing coordination in operations and requirementsrequirements

Minimizing duplication and non-value-Minimizing duplication and non-value-adding activitiesadding activities

Reducing costs while maintaining superior Reducing costs while maintaining superior quality and customer servicequality and customer service

Reducing inventoryReducing inventory Reducing cycle timesReducing cycle times

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New Key Terms in SCM

Value Proposition: a clear concise set of factual statements describing the real value (benefits) customers can expect to receive from a firm’s products and services. A good value proposition quantitatively differentiates the firm’s offerings from those of competitors, (e.g., 40-50% material savings).

Value Chain: an analysis process that disaggregates the channel system into each channel member’s activities and specifically considers how each activity creates value for the channel’s ultimate customers.

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New Key Terms in SCM

Value Added: traditionally referred to how much margin a particular product could earn for a firm. High value added products were preferred over low value added products. Recently the phrase is also used to refer to how much value a channel member brings to a particular product’s supply chain.

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Supply Chain LogisticsSupply Chain Logistics

Traditionally the management of material flow inbound, through, and outbound from a particular firm. The sum of the channel members supply chain logistics are coordinated on a channel wide scale by Supply Chain Management.

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Logistics Management

Logistics involves more than physical distribution. In the science of logistics, the flow of materials is efficiently managed inbound-through and outbound of an organization.

Two primary product flows:

• Materials management (physical supply): Flows that provide raw materials, components, and supplies to the production process.

• Physical distribution management: Flows that deliver the completed product to customers and channel intermediaries.

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The Materials Management The Materials Management ConceptConcept

Usually one manager responsible for Usually one manager responsible for planning, organizing, motivating, and planning, organizing, motivating, and controlling all the activities principally controlling all the activities principally concerned with the flow of materials into concerned with the flow of materials into an organization.an organization.

View material flow as a View material flow as a system.system.

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The Materials Management The Materials Management ConceptConcept

Approaches to Materials ManagementApproaches to Materials Management• Traditional ApproachTraditional Approach• Just-in-Time (JIT) ApproachJust-in-Time (JIT) Approach• Integrated Supply StrategiesIntegrated Supply Strategies

Reasons for Adopting the Materials Reasons for Adopting the Materials Management ConceptManagement Concept• Improved communication and coordination Improved communication and coordination

between departmentsbetween departments Can balance conflicting interestsCan balance conflicting interests Faster, smoother material flowFaster, smoother material flow Lower inventory and logistics costsLower inventory and logistics costs

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Just-In-Time SystemsJust-In-Time Systems JIT JIT == Just-In-TimeJust-In-Time

Adopted and implemented by many original Adopted and implemented by many original equipment manufacturers (OEMs) and equipment manufacturers (OEMs) and suppliers of component parts and materials. suppliers of component parts and materials.

An operational philosophy thought to epitomize An operational philosophy thought to epitomize the relationship marketing model.the relationship marketing model.

Uses a “pull” approach; much more than Uses a “pull” approach; much more than material arriving just in time. material arriving just in time.

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JIT FeaturesJIT Features Zero defects—Strict quality controlZero defects—Strict quality control Frequent, reliable delivery of quantities as neededFrequent, reliable delivery of quantities as needed Close locationClose location Advanced telecommunications, EDI.Advanced telecommunications, EDI. Single sourcing—CustomerSingle sourcing—Customer-s-supplier upplier

partnerships/alliancespartnerships/alliances Value analysisValue analysis Early supplier involvementEarly supplier involvement Evergreen contractsEvergreen contracts Customer access to financial and process Customer access to financial and process

informationinformation

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JIT SystemJIT System Pre-1985 U.S. Mfg.Pre-1985 U.S. Mfg.

Integrated JIT versus Integrated JIT versus U.S. ManufacturingU.S. Manufacturing (pre-1985(pre-1985))

What it isWhat it is An integratedAn integrated The way it has The way it has philosophy of philosophy of always been donealways been doneoperating a operating a businessbusiness

Raw material and Raw material and A liability to be A liability to be Protection againstProtection againstin-process inventoryin-process inventory eliminatedeliminated problems, necessary problems, necessary to to maximize maximize machine utilizationmachine utilization

Order sizeOrder size Immediate needs Immediate needs Based on EOQ andBased on EOQ andonly only efficient long efficient long

production runs.production runs.

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JIT SystemJIT System Pre-1985 U.S. Mfg.Pre-1985 U.S. Mfg.Production setup timeProduction setup time Fast at insignificant Fast at insignificant Low-priority concernLow-priority concern

cost; flexible cost; flexible (Ex: same die change(Ex: same die changemanufacturing manufacturing =5 hours) =5 hours)

(Ex: stamping die (Ex: stamping die change =5 minutes)change =5 minutes)

SuppliersSuppliers Part of the team-Part of the team- Adversary-multiple Adversary-multiple

single source single source sourcesource

DeliveryDelivery Must arrive within Must arrive within Arrives on due date Arrives on due date small small time window, time window, plus or minus, plus or minus,

go right to the line, go right to the line, packaged for packaged for packaged for packaged for warehouse storage warehouse storage

assembly efficiency assembly efficiency

Integrated JIT vs. Integrated JIT vs. U.S. Manufacturing U.S. Manufacturing (pre-1985)(pre-1985)

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JIT SystemJIT System Pre-1985 U.S. Mfg.Pre-1985 U.S. Mfg.PurchasingPurchasing Involve supplier in Involve supplier in Design in secret, Design in secret,

design; long-term design; long-term competitive competitive bidding; bidding; contracts at fixed contracts at fixed contract for currentcontract for current

pricesprices requirement; recognize requirement; recognize need for price increasesneed for price increases

Efficiency Efficiency Workers see as Workers see as Workers see as threat Workers see as threat improvements improvements strengtheningstrengthening

companycompany

Production control andProduction control and Demand “pull”—Demand “pull”— Forecast “push”— Forecast “push”— scheduling scheduling Kanban to minimize Kanban to minimize maximize machinemaximize machine

in-process inventoryin-process inventory utilizationutilization

Integrated JIT vs. Integrated JIT vs. U.S. Manufacturing U.S. Manufacturing (pre-1985)(pre-1985)

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MRP SystemsMRP Systems MRP MRP = Materials Requirement Planning= Materials Requirement Planning

MRP systems:MRP systems: Large computer systems used to plan Large computer systems used to plan and schedule operations using a “push” approach.and schedule operations using a “push” approach.

Starting from the order due dates and forecast, MRP Starting from the order due dates and forecast, MRP considers every required raw material, operating considers every required raw material, operating supply, and component part, their order of use, and supply, and component part, their order of use, and what equipment they will occupy.what equipment they will occupy.

Backs into a schedule of what will have to be done Backs into a schedule of what will have to be done when, including what will have to be ordered when and when, including what will have to be ordered when and received when.received when.

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Physical Distribution (outbound material flow)

Physical distribution: The process of planning, implementing, and controlling efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer's requirements.

Why is it important to learn about physical distribution?

Physical distribution cost can represent 20% or more of the selling price of a product.

It is an integrated part of the entire company system—problems in other areas impact distribution and vice versa.

From customer’s perspective, the supplier’s physical distribution function gets the right products to them, at the right place, at the right time. These are basic customer rights (along with right price and right condition).

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Supplier Manufacturer Customer

Materials management

Physical distributionmanagement

Logistics Management

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Supply chain management

(a series of connected logistics flows)

Logistics management

Materials management Physical distribution

Incoming transportation Traffic managementReceiving ShippingPurchasing Customer serviceIncoming warehousing Finished goodsInventory control

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Functions of Traffic Management

Mode and carrier selection Routing Claims processing Operation of private (company-owned)

transportation

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Many of the imported goods you purchase were shipped in 20-foot or 40-foot

steel containers

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Large cranes loaded the containers on a ship.

(Image courtesy of the Port of Charleston))

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Larger container ships can hold 4,000 to 6,000 containers.

(Image courtesy of Maersk Sealand)

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After unloading from the ship, the containers can be loaded onto a flatbed rail car for additional

intermodal shipping.

(Image courtesy of CSX Corp.)

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Alternatively, a container can be attached to a set of wheels for motor transport

(as an 18-wheeler trailer).

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Intermodal container motor carrier

(Image courtesy of Maersk Sealand)

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Rail freight carrier Barge/river freight carrier

(Image courtesy of CSX Corp.)

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PipelineAir freight carrier

Container stack train Jumbo jet air freight

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Major Advantages by Transportation Mode

Motor• Speed of

delivery• Diversity of

equipment• Flexibility• Frequency of

movement• Transfer of

goods to other carriers

• Convenient to both shipper and receiver

Rail• Mass movement of

goods• Low unit cost of

movement• Dependability• Long-haul moving• Wide coverage to major

markets and suppliers• Many auxiliary services

(i.e., switching) • Transfer of goods to

other carriers• Specialized equipment

Water• Very low unit

cost of movement

• Movement of low-unit-value commodities

• Long-haul movement

• Mass movement of bulk commodities

(continued)

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Pipeline•Lowest unit cost of movement•Mass movement of liquid or gas products•Long-haul moving•Large capacity•Most dependable mode

Air•Frequent service to major markets•Large capability•Overnight service•Most rapid speed of any carrier

Intermodal•Cost savings•Lower loss and damage claims due to containerization•Service extended to more shippers and receivers•Reduced handling and storage costs

Major Advantages by Transportation Mode

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Controllable Elements in a Logistics System

Customer service Logistics communications Warehousing Packaging Production planning Order processing Transportation Inventory control Materials Handling Plant and warehouse location

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Major Categories of Service Complaints Traffic and transportation

• Damaged merchandise• Carrier did not meet

standard transit time• Merchandise delivered

prior to date promised• Carrier failed to follow

customer routing• Carrier did not comply

with specific instructions• Errors present on bill of

lading• Condition or type of transport

equipment not satisfactory

Warehousing and packaging• Merchandise delivered late• Problem with containers in

packaging plants• Special promotion merchandise

not specified in delivery• Errors in warehouse release

forms• Incorrect types and quantities of

merchandise shipped• Papers not mailed promptly to

headquarters• Field warehouse delivered

damaged merchandise

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Inventory control• Stockouts• Contaminated

products received• Product

identification errors• Poor merchandise

shipped

Sales order service• Delayed shipments• Invoice, sales coding,

or brokerage errors• Special instructions

ignored• No notification of

late shipments

Major Categories of Service Complaints

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