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- 1. 11 - 1 Delivered By Dalia Gheit
- 2. 11 - 2 SUPPLY CHAIN MANAGEMENTSUPPLY CHAIN MANAGEMENT …is the integration of key business processes from end user through original suppliers, that provides products, services, and information that add value for customers and other stakeholders. Source: Martha C. Cooper, Douglas M. Lambert, and Janus D. Pagh, “Supply Chain Management: More Than a New Name for Logistics,” The International Journal of Logistics Management, Vol. 8, No. 1, 1997, p. 2 2
- 3. 11 - 3 WHAT IS A SUPPLY CHAIN?WHAT IS A SUPPLY CHAIN? A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. Supply chain includes manufacturer and suppliers, plus transporters, warehouses, vendors, and customers themselves. Each organization’s supply chain includes all functions involved in receiving and filling a customer request. These functions include new product development, marketing, operations, distribution, finance, and customer service.Chopra, Sunil and Peter Meindl. Supply Chain Management. 2 ed. Upper Saddle River: Pearson Prentice Hall, 2004.
- 4. 11 - 4© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain Strategy
- 5. 11 - 5© 2011 Pearson Education, Inc. publishing as Prentice Hall The Supply Chain’s StrategicThe Supply Chain’s Strategic ImportanceImportance Supply chain management is the integration of the activities that procure materials and services, transform them into intermediate goods and final products, and deliver them through a distribution system Competition is no longer betweenCompetition is no longer between companies; it is between supply chainscompanies; it is between supply chains
- 6. 11 - 6© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain Component
- 7. 11 - 7 SUPPLY CHAIN COMPETENCIESSUPPLY CHAIN COMPETENCIES
- 8. 11 - 8© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain ManagementSupply Chain Management 1. Transportation vendors 2. Credit and cash transfers 3. Suppliers 4. Distributors 5. Accounts payable and receivable 6. Warehousing and inventory 7. Order fulfillment 8. Sharing customer, forecasting, and production information Important activities include determiningImportant activities include determining
- 9. 11 - 9 TOP TEN SUPPLY CHAIN TRENDSTOP TEN SUPPLY CHAIN TRENDS 1. Service chains will become more important than product chains 2. Companies will have to fully report on corporate externalities 3. Supply chains must be designed to serve the “base of the pyramid” 4. Knowledge work and workers will become global in nature 5. SCM will have a standard certification process .
- 10. 11 - 10 TOP TEN SUPPLY CHAIN TRENDSTOP TEN SUPPLY CHAIN TRENDS 6. Product clock speeds will determine the number and nature of supply chains 7. Micro segmentation will be key to success 8. Technology to support SCM will be primarily “on tap” 9. Leaders will control social media in a closed circle feedback process 10. Artificial intelligence will be useless in mainstream supply chain 11. activities Source: Supply Chain Management Review – July/August 2013, Sumantra Sengupta p.34
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- 12. 11 - 12© 2011 Pearson Education, Inc. publishing as Prentice Hall
- 13. 11 - 13© 2011 Pearson Education, Inc. publishing as Prentice Hall A Supply Chain CycleA Supply Chain Cycle Figure 11.1
- 14. 11 - 14© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain RiskSupply Chain Risk More dependence on supply chains means more risk Fewer suppliers increase dependence Compounded by globalization and logistical complexity Vendor reliability and quality risks Political and currency risks
- 15. 11 - 15© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain RiskSupply Chain Risk moderate and react to disruptions in 1. Processes 2. Controls 3. Environment
- 16. 11 - 16© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain RiskSupply Chain Risk Reducing risk in supply chains Process risk at McDonald’s Process risk at Ford Controls at Darden Restaurants Control risk at Boeing Environmental risk at Hard Rock Café Environmental risk at Toyota
- 17. 11 - 17© 2011 Pearson Education, Inc. publishing as Prentice Hall Ethics and SustainabilityEthics and Sustainability Personal ethics Institute for Supply Management Principles and Standards Ethics within the supply chain Ethical behavior regarding the environment
- 18. 11 - 18© 2011 Pearson Education, Inc. publishing as Prentice Hall Principles and Standards for EthicalPrinciples and Standards for Ethical Supply Management ConductSupply Management Conduct LOYALTY TO YOUR ORGANIZATIONLOYALTY TO YOUR ORGANIZATION JUSTICE TO THOSE WITH WHOMJUSTICE TO THOSE WITH WHOM YOU DEALYOU DEAL FAITH IN YOUR PROFESSIONFAITH IN YOUR PROFESSION Table 11.2
- 19. 11 - 19© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain EconomicsSupply Chain Economics Supply Chain Costs as a Percent of SalesSupply Chain Costs as a Percent of Sales Table 11.3 Industry % Purchased All industry 52 Automobile 67 Food 60 Heavy industry 61 Paper 55 Petroleum 79 Transportation 62
- 20. 11 - 20© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain EconomicsSupply Chain Economics Dollars of additional sales needed to equal $1Dollars of additional sales needed to equal $1 saved through the supply chainsaved through the supply chain Percent of Sales Spent in the Supply Chain Percent Net Profit of Firm 30% 40% 50% 60% 70% 80% 90% 2 $2.78 $3.23 $3.85 $4.76 $6.25 $9.09 $16.67 4 $2.70 $3.13 $3.70 $4.55 $5.88 $8.33 $14.29 6 $2.63 $3.03 $3.57 $4.35 $5.56 $7.69 $12.50 8 $2.56 $2.94 $3.45 $4.17 $5.26 $7.14 $11.11 10 $2.50 $2.86 $3.33 $4.00 $5.00 $6.67 $10.00 Table 11.4
- 21. 11 - 21© 2011 Pearson Education, Inc. publishing as Prentice Hall Make-or-Buy DecisionsMake-or-Buy Decisions Choice between internal production and external sources
- 22. 11 - 22© 2011 Pearson Education, Inc. publishing as Prentice Hall OutsourcingOutsourcing Transfers traditional internal activities and resources of a firm to outside vendors Utilizes the efficiency that comes with specialization Firms outsource information technology, accounting, legal, logistics, and production
- 23. 11 - 23© 2011 Pearson Education, Inc. publishing as Prentice Hall Supply Chain StrategiesSupply Chain Strategies Negotiating with many suppliers Long-term partnering with few suppliers Vertical integration Joint ventures effective companies that use suppliers on an as needed basis
- 24. 11 - 24© 2011 Pearson Education, Inc. publishing as Prentice Hall Many SuppliersMany Suppliers Commonly used for commodity products Purchasing is typically based on price Suppliers compete with one another Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery
- 25. 11 - 25© 2011 Pearson Education, Inc. publishing as Prentice Hall Few SuppliersFew Suppliers Buyer forms longer term relationships with fewer suppliers Create value through economies of scale and learning curve improvements Suppliers more willing to participate in JIT programs and contribute design and technological expertise Cost of changing suppliers is huge
- 26. 11 - 26© 2011 Pearson Education, Inc. publishing as Prentice Hall Vertical IntegrationVertical Integration Figure 11.2 Raw material (suppliers) Iron ore Silicon Farming Backward integration Steel Current transformation Automobiles Integrated circuits Flour milling Forward integration Distribution systems Circuit boards Finished goods (customers) Dealers Computers Watches Calculators Baked goods Vertical Integration Examples of Vertical Integration
- 27. 11 - 27© 2011 Pearson Education, Inc. publishing as Prentice Hall Vertical IntegrationVertical Integration Developing the ability to produce goods or service previously purchased Integration may be forward, towards the customer, or backward, towards suppliers Can improve cost, quality, and inventory but requires capital, managerial skills, and demand Risky in industries with rapid technological change
- 28. 11 - 28© 2011 Pearson Education, Inc. publishing as Prentice Hall Joint VenturesJoint Ventures Formal collaboration Enhance skills Secure supply Reduce costs Cooperation without diluting brand or conceding competitive advantage
- 29. 11 - 30© 2011 Pearson Education, Inc. publishing as Prentice Hall Virtual CompaniesVirtual Companies Rely on a variety of supplier relationships to provide services on demand Fluid organizational boundaries that allow the creation of unique enterprises to meet changing market demands Exceptionally lean performance, low capital investment, flexibility, and speed
- 30. 11 - 31 PRINCIPLE 1 OF SCMPRINCIPLE 1 OF SCM Segment customers based on the service needs of distinct groups and adapt the supply chain to serve these segments profitably.
- 31. 11 - 32 PRINCIPLE 2 OF SCMPRINCIPLE 2 OF SCM Customize the logistics network to the service requirements and profitability of customer segments.
- 32. 11 - 33 PRINCIPLE 3 OF SCMPRINCIPLE 3 OF SCM Listen to market signals and align demand planning accordingly across the supply chain, ensuring consistent forecasts and optimal resource allocation.
- 33. 11 - 34 PRINCIPLE 4 OF SCMPRINCIPLE 4 OF SCM Differentiate product closer to the customer and speed conversion across the supply chain.
- 34. 11 - 35 PRINCIPLE 5 OF SCMPRINCIPLE 5 OF SCM Manage sources of supply strategically to reduce the total cost of owning materials and services.
- 35. 11 - 36 PRINCIPLE 6 OF SCMPRINCIPLE 6 OF SCM Develop a supply chain-wide technology strategy that supports multiple levels of decision making and gives a clear view of the flow of products, services, and information.
- 36. 11 - 37 PRINCIPLE 7 OF SCMPRINCIPLE 7 OF SCM Adopt channel- spanning performance measures to gauge collective success in reaching the end- user effectively and efficiently.
- 37. 11 - 38© 2011 Pearson Education, Inc. publishing as Prentice Hall Managing the Supply ChainManaging the Supply Chain Mutual agreement on goals Trust Similar organizational cultures There are significant management issues in controlling a supply chain involving many independent organizations
- 38. 11 - 39 INTRODUCTION OF INTERNETINTRODUCTION OF INTERNET Source: Altimeter Group, the Collaborative Economy Report, 2013
- 39. 11 - 40 SOCIAL MEDIASOCIAL MEDIA Source: Altimeter Group, the Collaborative Economy Report, 2013 Sharing knowledge
- 40. 11 - 41 SOCIAL MEDIASOCIAL MEDIA Source: Altimeter Group, the Collaborative Economy Report, 2013 Sharing products
- 41. 11 - 42© 2011 Pearson Education, Inc. publishing as Prentice Hall E-ProcurementE-Procurement Uses the internet to facilitate purchasing Electronic ordering and funds transfer Electronic data interchange (EDI) Advanced shipping notice
- 42. 11 - 43© 2011 Pearson Education, Inc. publishing as Prentice Hall E-ProcurementE-Procurement Online catalogs 1. Catalogs provided by vendors 2. Catalogs published by intermediaries 3. Exchanges provided by buyers
- 43. 11 - 44© 2011 Pearson Education, Inc. publishing as Prentice Hall Internet Trading ExchangesInternet Trading Exchanges Health care products – ghx.com Retail goods – gnx.com Defense and aerospace products – exostar.com Food, beverage, consumer products – transora.com Steel and metal products – metalsite.com Hotels – avendra.com
- 44. 11 - 45© 2011 Pearson Education, Inc. publishing as Prentice Hall E-ProcurementE-Procurement Auctions Maintained by buyers, sellers, or intermediaries Low barriers to entry Increase in the potential number of buyers
- 45. 11 - 46© 2011 Pearson Education, Inc. publishing as Prentice Hall Vendor SelectionVendor Selection Vendor evaluation Critical decision Find potential vendors Determine the likelihood of them becoming good suppliers Vendor Development Training Engineering and production help Establish policies and procedures
- 46. 11 - 47© 2011 Pearson Education, Inc. publishing as Prentice Hall Vendor EvaluationVendor Evaluation Criteria Weights Scores (1-5) Weight x Score Engineering/research/innovation skills .20 5 1.0 Production process capability (flexibility/technical assistance) .15 4 .6 Distribution/delivery capability .05 4 .2 Quality systems and performance .10 2 .2 Facilities/location .05 2 .1 Financial and managerial strength (stability and cost structure) .15 4 .6 Information systems capability (e- procurement, ERP) .10 2 .2 Integrity (environmental compliance/ ethics) .20 5 1.0 Total 1.00 3.9
- 47. 11 - 48© 2011 Pearson Education, Inc. publishing as Prentice Hall Vendor SelectionVendor Selection Negotiations Cost-Based Price ModelCost-Based Price Model - supplier opens books to purchaser Market-Based Price ModelMarket-Based Price Model - price based on published, auction, or indexed price Competitive requestCompetitive request - used for infrequent purchases but may make establishing long-term relationships difficult
- 48. 11 - 49© 2011 Pearson Education, Inc. publishing as Prentice Hall Logistics ManagementLogistics Management Objective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities Is a frequent candidate for outsourcing Allows competitive advantage to be gained through reduced costs and improved customer service
- 49. 11 - 50© 2011 Pearson Education, Inc. publishing as Prentice Hall Distribution SystemsDistribution Systems TruckingTrucking Moves the vast majority ofMoves the vast majority of manufactured goodsmanufactured goods Chief advantage is flexibilityChief advantage is flexibility RailroadRailroad Capable of carrying large loadsCapable of carrying large loads Little flexibility thoughLittle flexibility though containers and piggybackingcontainers and piggybacking have helped with thishave helped with this
- 50. 11 - 51© 2011 Pearson Education, Inc. publishing as Prentice Hall Distribution SystemsDistribution Systems Air freight Fast and flexible for light loads May be expensive
- 51. 11 - 52© 2011 Pearson Education, Inc. publishing as Prentice Hall Distribution SystemsDistribution Systems Waterways Typically used for bulky, low- value cargo Used when shipping cost is more important than speed
- 52. 11 - 53© 2011 Pearson Education, Inc. publishing as Prentice Hall Distribution SystemsDistribution Systems Pipelines Used for transporting oil, gas, and other chemical products
- 53. 11 - 54© 2011 Pearson Education, Inc. publishing as Prentice Hall Third-Party LogisticsThird-Party Logistics Outsourcing logistics can reduce costs and improve delivery reliability and speed Coordinate supplier inventory with delivery services May provide warehousing, assembly, testing, shipping, customs
- 54. 11 - 55© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Table 11.6 Typical Firms Benchmark Firms Lead time (weeks) 15 8 Time spent placing an order 42 minutes 15 minutes Percentage of late deliveries 33% 2% Percentage of rejected material 1.5% .0001% Number of shortages per year 400 4
- 55. 11 - 56© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Assets committed to inventory Percent invested in inventory = x 100 Total inventory investment Total assets Investment in inventory = $11.4 billion Total assets = $44.4 billion Percent invested in inventory = (11.4/44.4) x 100 = 25.7%
- 56. 11 - 57© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Table 11.7 Inventory as a % of Total Assets (with exceptional performance) Manufacturing 15% (Toyota 5%) Wholesale 34% (Coca-Cola 2.9%) Restaurants 2.9% (McDonald’s .05%) Retail 27% (Home Depot 25.7%)
- 57. 11 - 58© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Inventory turnover Inventory turnover = Cost of goods sold Inventory investment
- 58. 11 - 59© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Table 11.8 Examples of Annual Inventory Turnover Food, Beverage, Retail Manufacturing Anheuser Busch 15 Dell Computer 90 Coca-Cola 14 Johnson Controls 22 Home Depot 5 Toyota (overall) 13 McDonald’s 112 Nissan (assembly) 150
- 59. 11 - 60© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Inventory turnover Net revenue $32.5 Cost of goods sold $14.2 Inventory: Raw material inventory $.74 Work-in-process inventory $.11 Finished goods inventory $.84 Total inventory investment $1.69
- 60. 11 - 61© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Inventory turnover Net revenue $32.5 Cost of goods sold $14.2 Inventory: Raw material inventory $.74 Work-in-process inventory $.11 Finished goods inventory $.84 Total inventory investment $1.69 Inventory turnover = Cost of goods sold Inventory investment = 14.2 / 1.69 = 8.4
- 61. 11 - 62© 2011 Pearson Education, Inc. publishing as Prentice Hall Measuring Supply-ChainMeasuring Supply-Chain PerformancePerformance Inventory turnover Net revenue $32.5 Cost of goods sold $14.2 Inventory: Raw material inventory $.74 Work-in-process inventory $.11 Finished goods inventory $.84 Total inventory investment $1.69 Inventory turnover = Cost of goods sold Inventory investment = 14.2 / 1.69 = 8.4 Weeks of supply = Inventory investment Average weekly cost of goods sold = 1.69 / .273 = 6.19 weeks Average weekly cost of goods sold = $14.2 / 52 = $.273