overheads 4554
TRANSCRIPT
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 1/67
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 2/67
Agenda
Basics of SCM
Drivers of SCM
Elements of SCM E-Commerce Impact on SCM
Performance Measurement
Collaboration in SCM Purchasing
How to Choose and Evaluate Suppliers
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 3/67
Basic Concepts ofSupply Chain Management
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 4/67
Supply Chain Management
Supply Chain:
The sequence of organizations - their
facilities, functions, and activities - that areinvolved in producing and delivering a product
or service.
Sometimes referred to as value chains
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 5/67
The Value Chain internal to a
company
PurchasingReceiving Storage Operations Storage
Production Distribution
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 6/67
Typical Supply Chain
activities for a Manufacturer
Supplier
Supplier
Supplier
Storage} Mfg. Storage Dist. Retailer Customer
supply
chain
demandchain
internal
value
chain
supply chain management (SCM) concerns supplier activities,internal value chain activities, and demand chain activities
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 7/67
Supplier
Supplier}Storage Service Customer
Typical Supply Chain for a
Service
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 8/67
Goal of SCM
Goal of SCM
To link all components of the supply chain so
that market demand will be met as efficiently
as possible across the entire chain
Match supply to demand at each stage of the
supply chain
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 9/67
Supply network encompasses a
number of facilities
Warehouses
Factories
Processing centers Distribution centers
Retail outlets
Offices
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 10/67
Supply network performs various
functions and activities
Forecasting
Purchasing
Inventory management Information management
Quality assurance
Scheduling
Production and delivery
Customer service
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 11/67
Supply Chain Management
Issues
Quality control
Production planning and
control
Inventory policies
Purchasing policies
Production policiesTransportation
policies
Quality policies
Design of the
supply chain,
partnering
Operating Issues Tactical Issues StrategicIssues
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 12/67
Drivers of Supply ChainManagement
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 13/67
History of SCM
Why attempt to manage supply chains?
In the not too distant past (i.e. pre-1990s),
many companies didn’t manage their supplychains
Some advanced companies realized that
huge inefficiency resulted from no/poor SCM
In particular, identified the “Bullwhip Effect”
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 14/67
Bullwhip Effect
Tier 2
Suppliers
Tier 1
SuppliersProducer Distributor Retailer
Final
Customer
Amount of
inventory=
“I’ll buy 2” “I’ll order 2 more.”
“Hmm. Last period they
ordered 1.
Maybe demand
is up. I had
better order 8.”
“Wow! 8! I better
build 30!”
“@%*$! We are
really
behind.
Build 100!”
“The sky
is falling!
Build 250!”
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 15/67
Bullwhip Effect
Tier 2
Suppliers
Tier 1
SuppliersProducer Distributor Retailer
Final
Customer
Amount of
inventory=
“I’ll buy 0” “I’ll order 0 more. I
have 2
in stock.”
“0?. But I’ve got 6 left.
Don’t buyany more.”
“0? But I’ve
got 22 in
stock! Stop
the line.”
“0? @%*$! What are
we gonna
do with the
70 we have?”
“0? But we’ve got 150 in stock!”
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 16/67
Result of the Bullwhip Effect
Inventory
Backorder At each stage of the supply chain, a pattern like the above
develops, of huge inventory buildups (and costs), followed
by periods of huge stockouts and backordering (and mad
customers + backordering costs)
Time
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 17/67
Benefits of Supply Chain
Management
Counteract the Bullwhip Effect
Lower inventories
Higher productivity Greater agility
Shorter lead times
Higher profits
Greater customer loyalty
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 18/67
Today, many other problems can also
drive Supply Chain Management
1. Improve operations
2. Increasing levels of outsourcing
3. Increasing transportation costs4. Competitive pressures
5. Increasing globalization
6. Increasing importance of e-commerce
7. Complexity of supply chains
8. Manage inventories
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 19/67
Supply Chain Benefits and
Drawbacks
Operational
Problem
Potential
Improvement
Benefits Possible
Drawbacks
Large
inventories
Smaller, more
frequent deliveries
Reduced holding
costs
Traffic congestion
Increased costs
Long lead
times
Delayed
differentiation
Disintermediation
Quick response May not be
feasible
May need absorb
functions
Large number
of parts
Modular Fewer parts
Simpler ordering
Less variety
Cost
Quality
Outsourcing Reduced cost,
higher quality
Loss of control
Variability Shorter lead times,
better forecasts
Able to match
supply and
demand
Less variety
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 20/67
Examples of SCM Benefits at
Various Companies
Organization Benefit
Campbell Soup Doubled inventory turnover rate
Hewlett-Packard Cut supply costs 75%
Sport Obermeyer Doubled profits and increased sales 60%
National Bicycle Increased market share from 5% to 29%
Wal-Mart Largest and most profitable retailer in the world
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 21/67
As a result of competitors working on
SCM, SCM has become strategic
Strategic importance
Cost
Quality Agility
Customer service
Competitive advantage
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 22/67
But, SCM projects can be very
risky to undertake
Technology management drives SCM Adoption/Success/Failure
Benefits SCM packages, when adopted well, can transform
an organization’s operations
Risks Poorly planned for/implemented SCM packages
can wreck a company’s operations Very expensive to install these pages – many
millions of dollars
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 23/67
Elements of SCM
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 24/67
SCM involves coordinating
activities across supply chain
Deciding how to best move and store materialsLogistics
Determining location of facilitiesLocation
Monitoring supplier quality, delivery, and relationsSuppliers
Evaluating suppliers and supporting operationsPurchasing
Meeting demand while managing inventory costsInventory
Controlling quality, scheduling workProcessing
Incorporating customer wants, mfg., and timeDesignPredicting quantity and timing of demandForecasting
Determining what customers wantCustomers
Typical IssuesElement
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 25/67
Logistics
Logistics
Refers to the movement of materials and
information within a facility and to incoming
and outgoing shipments of goods and
materials in a supply chain
Raw materials
Work in process Finished goods
Support items – fuel, equipment, parts, tools, etc.
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 26/67
Logistics
• Movement within the facility
• Traffic planning for incoming and
outgoing shipments
• Bar coding
• EDI• Distribution
• JIT Deliveries
0
214800 232087768
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 27/67
Materials Movement
R E C E I V I N G
Storage
Work
center
Work centerWork center
Storage
Work
center
Storage
Shipping
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 28/67
Distribution Requirements
Planning (DRP)
Distribution requirements planning (DRP)
is a system for inventory management and
distribution planning
Extends the concepts of MRPII to
multiechelon warehouse inventories
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 29/67
Uses of DRP
Management uses DRP to plan and
coordinate:
Transportation Warehousing
Workers
Equipment
Financial flows
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 30/67
Electronic Data Interchange
(EDI)
EDI
The direct transmission of inter-organizational
transactions, computer-to-computer, including
purchase orders, shipping notices, and debit
or credit memos.
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 31/67
Electronic Data Interchange
Increased productivity
Reduction of paperwork
Lead time and inventory reduction Facilitation of just-in-time systems
Electronic transfer of funds
Improved control of operations
Reduction in clerical labor
Increased accuracy
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 32/67
Third Party Logistics (3PL)
3PL
The outsourcing of logistics management
Companies turn over their warehouse anddistribution to companies that specialize in
these areas
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 33/67
E-Commerce Impact on SCM
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 34/67
E-Commerce
E-Commerce: The use of electronic technology (e.g., WWW, Web
Services, mobile devices) to facilitate businesstransactions
Applications include Internet buying and selling
Order and shipment tracking
Electronic data interchange
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 35/67
SCM Benefits of E-Commerce
Companies can:
Have a global presence
Improve competitiveness and quality
Analyze customer interests
Collect detailed information
Shorten supply chain response times
Realize substantial cost savings Create virtual companies
Level the playing field for small companies
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 36/67
SCM Challenges of E-Commerce
Customer expectations
Order quickly -> fast delivery
Order fulfillment
Order rate often exceeds ability to fulfill it
Inventory holding
Outsourcing loss of control
Internal holding costs
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 37/67
How to Measure SCM
Performance?
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 38/67
Successful SCM has certain
characteristics
Trust among trading partners
Effective communications
Supply chain visibility
Access to real-time data on inventory levels, shipping
status, related information
Requires data sharing between trading partners
Event-management capability The ability to detect and respond to unplanned events
Performance metrics
Measure the system to make sure you are doing well
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 39/67
Overall Objectives for Supply
Chain Performance
Cost
Quality
Flexibility
Velocity
Customer service
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 40/67
Velocity
Inventory velocity
The rate at which inventory (material) goes
through the supply chain
Information velocity
The rate at which information is
communicated in a supply chain
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 41/67
Trade-offs Between Performance
Measures
Lot-size vs. inventory
Ordering economies vs. inventory held
Risks the Bullwhip effect
Inventory vs. transportation costs
Shippers prefer to ship full truckloads, which increases inventorycarrying costs
Solutions: combine orders, smaller trucks, cross-docking
Lead time vs. transportation costs
Waiting for a full truck increases production lead times
Product variety vs. inventory Higher variety leads to smaller lot sizes, more setups, other costs
Solution: Delayed differentiation
Cost vs. customer service
Large volumes reduce cost, but can hurt customer service
Solution: Disintermediation
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 42/67
Cross-Docking
Cross-docking
Goods arriving at a warehouse from a supplier are
unloaded from the supplier’s truck and loaded onto
outbound trucks
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 43/67
Delayed Differentiation
Delayed differentiation
Production of standard components and
subassemblies, which are held until late in the
process to add differentiating features
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 44/67
Disintermediation
Disintermediation
Reducing one or more steps in a supply chain
by cutting out one or more intermediaries
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 45/67
SCM Performance Measures
SCOR (Supply Chain Operations
Reference) Model
Plan, Source, Make Deliver, Return
SCOR addresses …
Product from supplier’s to customer’s
SCOR does not address …
Sales, Marketing, R&D, Support
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 46/67
SCOR Metrics provide a
standard way to measure SCM
Perspective Metrics
Reliability On-time delivery
Order fulfillment lead time
Fill rate (fraction of demand met from stock)
Perfect order fulfillmentFlexibility Supply chain response time
Upside production flexibility
Expenses Supply chain management costs
Warranty cost as a percent of revenueValue added per employee
Assets/utilization Total inventory days of supply
Cash-to-cash cycle time
Net asset turns
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 47/67
SCOR’s SCM PerformanceMetrics
Reliability – delivery performance, fill rate,
perfect fulfillment
Responsiveness – order fill lead time
Flexibility – SC response time, ops flexibility
Cost – warranty cost, productivity, CGS, SCM
cost
Assets – turns, inventory days, cash cycle
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 48/67
Collaborative Approaches to
SCM
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 49/67
Creating an Effective Supply
Chain Involves Partnerships
Develop strategic objectives and tactics
Integrate and coordinate activities in the
internal supply chain Coordinate activities with suppliers with
customers
Coordinate planning and execution acrossthe supply chain
Form strategic partnerships
C
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 50/67
Collaboration Assumes Your
Supplier can be a Partner
Aspect Adversary PartnerNumber of suppliers Many One or a few
Length of relationship May be brief Long-term
Low price Major consideration Moderately important
Reliability May not be high High
Openness Low High
Quality May be unreliable;buyer inspects At the source; vendorcertified
Volume of business May be low High
Flexibility Relatively low Relatively high
Location Widely dispersed Nearness is important
P hi i h li
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 51/67
Partnerships with suppliers can
improve your own operations
Ideas from suppliers could lead to improved
competitiveness
Reduce cost of making the purchase
Reduce transportation costs
Reduce production costs
Improve product quality
Improve product design
Reduce time to market
Improve customer satisfaction
Reduce inventory costs
Introduce new products or services
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 52/67
Efficient Consumer Response
Efficient Consumer Response (ECR)
A supply chain management initiative specific
to the food industry
Reflects companies’ efforts to achievequick response using EDI and bar codes
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 53/67
CPFR
Collaborative Planning, Forecasting, and
Replenishment (CPFR)
Focuses on information sharing among
trading partners
Forecasts can be frozen and then converted
into a shipping plan
Eliminates typical order processing
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 54/67
CPFR Process
Step 1 – Front-end agreement on structureof CPFR collaboration
Step 2 – Develop joint business plan for
collaborators
Steps 3-5 – Sales forecast collaboration
Steps 6-8 – Order forecast collaboration
Step 9 – Order generation/deliveryexecution
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 55/67
CPFR Results
Nabisco and Wegmans
50% increase in category sales
Wal-mart and Sara Lee 14% reduction in store-level inventory
32% increase in sales
Kimberly-Clark and Kmart Increased category sales that exceeded
market growth
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 56/67
Challenges to Collaboration
Barriers to integration of organizations
Getting top management on board
Dealing with trade-offs
Small businesses – no money to invest, no time,no slack resources, insufficient technology
Actions that create more variability anduncertainty
Long lead times hinder the ability of a supplychain to respond to changing customerdemands
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 57/67
Purchasing
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 58/67
Purchasing
Purchasing is responsible for obtaining the
materials, parts, and supplies and services
needed to produce a product or provide a
service.
Goal of Purchasing
Develop and implement purchasing plans for productsand services that support operations strategies
Quality of materials purchased is sufficient for operations
Timing of deliveries supports operations
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 59/67
Fun Facts About Purchasing
Institute for Supply
Management
> 60% cost of finished
manufactured goods is
purchased
>90% cost of retail &
wholesale goods ispurchased
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 60/67
Duties of Purchasing
Identifying sources of supply
Negotiating contracts
Maintaining a database of suppliers
Obtaining goods and services
Managing supplies
P h i i t f ith th
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 61/67
Purchasing interfaces with other
functions and with external suppliers
Purchasing
Legal
AccountingOperations
Data
processing
Design &
Engineering
ReceivingSuppliers
Uses
materials
Negotiates contracts
Pays for
materials
Specifies quality of
materials
Inspects incoming shipments
Purchasing follows a cycle of
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 62/67
Purchasing follows a cycle of
activities
1. Requisition received
2. Supplier selected3. Order is placed with supplier
4. Monitor orders
5. Receive orders
Purchasing
Legal
AccountingOperations
Data
process-
ing
Design
Receiving
Suppliers
Centralized vs Decentralized
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 63/67
Centralized vs. Decentralized
Purchasing
Centralized purchasing
Purchasing is handled by one special
department
Decentralized purchasing
Individual departments or separate locations
handle their own purchasing requirements
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 64/67
How to Choose and Evaluate
Suppliers?
Management of Supplier Network
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 65/67
Management of Supplier Network
Involves Several Activities
Choosing suppliers
Evaluating sources of supply
Supplier audits Supplier certification
Supplier relationships
Supplier partnerships
Factors in Choosing a
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 66/67
Factors in Choosing a
Supplier
Quality and quality assurance
Flexibility
Location
Price
Product or service changes
Reputation and financial stability
Lead times and on-time delivery
Other accounts
8/11/2019 Overheads 4554
http://slidepdf.com/reader/full/overheads-4554 67/67
Evaluating Sources of Supply
Vendor Analysis - evaluating the sources
of supply in terms of …
Price
Quality
Services
Location
Inventory policy
Flexibility