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12-1

McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Supply Chain
Management
12-2
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Supply Chain Management
Supply Chain: the sequence of
organizations - their facilities,
functions, and activities - that are
involved in producing and delivering
a product or service.
12-3
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Warehouses
Factories
Processing centers
Distribution centers
Retail outlets
Offices

Facilities
12-4
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Typical Supply Chains
Purchasing
Receiving Storage Operations Storage
Production Distribution
12-5
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Typical Supply Chain for a Manufacturer
Supplier
Supplier
Supplier
Storage
}
Mfg. Dist. Retailer Customer Storage
12-6
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Supplier
Supplier
Storage
}
Service
Customer
Typical Supply Chain for a Service
12-7
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Customers are Suppliers
Initial
Supplier
Customer

Supplier
Customer

Supplier
Customer

Supplier
Final
Customer
12-8
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Improve operations
Increasing levels of outsourcing
Increasing transportation costs
Competitive pressures
Increasing globalization
Increasing importance of e-commerce
Complexity of supply chains
Manage inventories
Need for Supply Chain Management
12-9
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Benefits if Supply Chain Management
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
12-10
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Elements of Supply Chain Management
Deciding how to best move and store materials Logistics
Determining location of facilities Location
Monitoring supplier quality, delivery, and relations
Suppliers
Evaluating suppliers and supporting operations Purchasing
Meeting demand while managing inventory costs Inventory
Controlling quality, scheduling work Processing
Incorporating customer wants, mfg., and time Design
Predicting quantity and timing of demand Forecasting
Determining what customers want Customers
Typical Issues Element
12-11
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Increasing outsourcing
Increasing conversion to lean
production
Increasing globalization

Purchasing in Supply Chain Management
12-12
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Internal Supply Chain
External
Supply Chain
Internal
Supply Chain
Key:
Suppliers Distribution Customers Processing
12-13
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Supply Chain Issues
Quality control
Production planning and
control
Inventory policies
Purchasing policies
Production policies
Transportation policies
Quality policies
Design of the supply
chain, partnering
Operating Issues Tactical Issues
Strategic Issues
12-14
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
SCOR Metrics
Perspective Metrics
Reliability On-time delivery
Order fulfillment lead time
Fill rate (fraction of demand met from stock)
Perfect order fulfillment
Flexibility Supply chain response time
Upside production flexibility
Expenses Supply chain management costs
Warranty cost as a percent of revenue
Value added per employee
Assets/utilization Total inventory days of supply
Cash-to-cash cycle time
Net asset turns
12-15
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Logistics
Refers to the movement of materials and
information within a facility and to incoming
and out going shipments of goods and
materials
Logistics
12-16
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Logistics
Movement within the facility
Incoming and outgoing shipments
Bar coding
EDI
Distribution
JIT Deliveries
0
214800 232087768
12-17
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Materials Movement
Figure 12-5
R
E
C
E
I
V
I
N
G

Storage
Work
center
Work center
Work center
Storage
Work
center
Storage
Shipping
12-18
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
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
Electronic Data Interchange
12-19
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Efficient consumer response (ECR) is a
supply chain management initiative
specific to the food industry
Reflects companies efforts to achieve
quick response using EDI and bar codes
Efficient Consumer Response
12-20
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Distribution requirements planning
(DRP) is a system for inventory
management and distribution planning
Extends the concepts of MRPII
Distribution Requirements Planning
12-21
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Management uses DRP to plan and
coordinate:
Transportation
Warehousing
Workers
Equipment
Financial flows

Uses of DRP
12-22
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
E-Commerce: the use of electronic
technology to facilitate business
transactions
Applications include
Internet buying and selling
E-mail
Order and shipment tracking
Electronic data iterchange
E-Commerce
12-23
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
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
Advantages E-Commerce
12-24
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
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
Disadvantages of E-Commerce
12-25
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Buyer exchange
MRO-catalog hub
Supplier exchange
BPO
Neutral exchange
B2B Market Places
12-26
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Develop strategic objectives and tactics
Integrate and coordinate activities in the
internal supply chain
Coordinate suppliers with customers
Coordinate planning and execution
Form strategic partnerships
Creating an Effective Supply Chain
12-27
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Quality
Cost
Flexibility
Velocity
Customer service
Supply Chain Performance Drivers
12-28
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Barriers to integration of organizations
Getting top management on board
Dealing with trade-offs
Small businesses
Variability and uncertainty
Long lead times

Challenges
12-29
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Lot-size-inventory
Bullwhip effect
Inventory-transportation costs
Lead time-transportation costs
Product variety-inventory
Cost-customer service
Trade-offs
12-30
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Bullwhip Effect
Tier 2
Suppliers
Tier 1
Suppliers
Producer Distributor Customers
Ordering
Amount of
inventory
=
12-31
McGraw-Hill/Irwin
Operations Management, Seventh Edition, by William J. Stevenson
Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.
Supply Chain Management
Supply Chain Benefits and Drawbacks
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