Chapter 10Extending the Organization – Supply Chain Management

(SCM)

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Learning Outcomes

1. List and describe the components of a typical supply chain

2. Describe the four factors driving supply chains

3. Summarize the best practices for implementing successful supply chain management system

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What Is a Supply Chain?

• Network of organizations and facilities– Transforms raw materials into products delivered to

customers– Works with companies and consumers up and down

the chain• Customers order from retailers• Retailers order from distributors• Distributors order from manufacturers• Manufacturers get raw materials from suppliers• Transportation companies, warehouses, and

inventories also involved

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Basics of Supply Chain

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Supply Chain Relationships

Figure CE12-1

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Case: Nike’s Supply Chain

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Sample Supply Chain: REI

Customer is the only source of revenue

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Supply Chain Management

• Traditional SCM thinking involved “I buy from my suppliers, I sell to my customers.”

• Today, organizations gain value from having visibility throughout their supply chain

• Best Buy checks inventory levels at each of its 750 stores across North America as often as every half-hour

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1. Share data and information to create visibility

2. Interact to match expectations

3. Synchronize resources and processes to perform as one

Supply chain management

My Company CustomersSuppliers

Outsourcing Partner

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Basics of Supply Chain

• The supply chain has three main links:

1. Materials flow from suppliers and their “upstream” suppliers at all levels

2. Transformation of materials into semi-finished and finished products through the organization’s own production process

3. Distribution of products to customers and their “downstream” customers at all levels

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5 SCM Components

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• Plan – This is the strategic portion of supply chain management. A company must have a plan for managing all the resources that go toward meeting customer demand for products or services. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less, and delivers high quality and value to customers.

• Source – Companies must carefully choose reliable suppliers that will deliver goods and services required for making products. Companies must also develop a set of pricing, delivery, and payment processes with suppliers and create metrics for monitoring and improving the relationships.

• Make – This is the step where companies manufacture their products or services. This can include scheduling the activities necessary for production, testing, packaging, and preparing for delivery. This is by far the most metric-intensive portion of the supply chain, measuring quality levels, production output, and worker productivity.

• Deliver – This step is commonly referred to as logistics. Logistics is the set of processes that plans for and controls the efficient and effective transportation and storage of supplies from suppliers to customers. During this step, companies must be able to receive orders from customers, fulfill the orders via a network of warehouses, pick transportation companies to deliver the products, and implement a billing and invoicing system to facilitate payments.

• Return – This is typically the most problematic step in the supply chain. Companies must create a network for receiving defective and excess products and support customers who have problems with delivered products.

Basics of Supply Chain

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Information Technology’s Role in the Supply Chain

Factors Driving SCM

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Visibility

• Supply chain visibility – the ability to view all areas up and down the supply chain in real time

• Bullwhip effect – occurs when distorted product demand information passes from one entity to the next throughout the supply chain- More appears at the end of this presentation

• Supply chain visibility allows organizations to eliminate the bullwhip effect

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Consumer Behavior

• Companies can respond faster and more effectively to consumer demands through supply chain enhances

• Demand planning software – generates demand forecasts using statistical tools and forecasting techniques

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Competition

• Supply chain planning (SCP) software– uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain while reducing inventory.

• Supply chain execution (SCE) software – automates the different steps and stages of the supply chain

• SCP and SCE both increase a company’s ability to compete

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Speed

• Why is information speed critical in a supply chain?– If the information arrives three days late,

chances are high that managers have already made decisions based on current information that might have been inaccurate

– Information timeliness is critical– IT is an enabler of information timeliness

• Digital dashboards

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Increased outsourcingLarge global supply networksIncreased competitionConsumer driven

Today’s Supply Chain Reality

•Lack of visibility reduces suppliers’ ability to handle variability

•Errors in manual filling processes can cause stock-outs

•All of these issues can increase costs, lower customer service and reduce revenue

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Case Study: Dell’s SCM

Dell sells its computer systems directly to end customers, bypassing distributors and retailers (resellers). Dell's supply chain consists of only three stages— the suppliers, the manufacturer (Dell), and end users.

Dell’s direct contact with customers allows it to:

•properly identify market segments,

•analyze the requirements and profitability of each segment, and

•develop more accurate demand forecasts.

Another Dell’s advantage is that it is able to get the customers requirements regarding software to be loaded

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SCM Success Stories

• Top reasons why more and more executives are turning to SCM to manage their extended enterprises

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SCM Success Stories

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The Bullwhip Effect

• The bullwhip effect occurs when distorted product demand information passes from one entity to the next throughout the supply chain.

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The Bullwhip Effect

• The bullwhip effect is the magnification of demand fluctuations, not the magnification of demand. The bullwhip effect is evident in a supply chain when demand increases and decreases. The effect is that these increases and decreases are exaggerated up the supply chain.

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Example: Diapers

• Babies use diapers at a very predictable rate, and retail sales resemble this fact. Information is readily available concerning the number of babies in all stages of diaper wearing. It is observed that this product with uniform demand created a wave of changes up the supply chain due to very minor changes in demand.

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The Bullwhip Effect

• Example: Diaper order from retailer:

– Retailer waits until the inventory falls below ceratin level and then reorder + a few more

– The same process applied to distributors and also to the manufacturer

– Small change in demand is amplified at each stage of SC and becomes quite large at the end of the chain creating a ripple effect.

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The Bullwhip Effect

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The Bullwhip Effect

It can be seen that the Distributor orders to the factory experience demand fluctuate far more drastically than the retail demand.

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The Bullwhip Effect

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Some reasons for the effect

Over-reacting to the backlog orders. Little or no communication between supply chain

partners. Delay times between order processing, demand, and

receipt of products. Limitations on order size (i.e. retailers can order

products in cases of 10 from wholesaler; however, distributors receive orders in cases of 1,000)

Inaccurate demand forecasts.

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Solution to Bullwhip Effect

– Implement an effective SCM for greater visibility across the supply chain

– Eliminate effect by giving participants access to consumer-demand information

– Interorganizational information systems share data

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RFID tag & SCM

• Radio Frequency Identification

• Tiny tags that carry large amount of data tracking

• Supply Chain around the globe are being revamped with RFID tags.

• Walmart (US) has been using this for several years [cost 40 cents per tag]

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RFID IBM COMMERCIAL

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Demo

Bullwhip Fun Demo

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SCM Demos

• Supply Chain Management For A Better World

• Information Technology in Wal-Mart

• Xbox supply chain (4 min)

• Supply Chain Case Study ( 9 Min)

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SAP- SCM Demo

• SAP SCM Demo

• RFID Supply Chain Simulation Movie