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Chapter 13: Supply Chain Management

Terms in this set (57)

Supply Chain
The connected chain of all the business entities, both internal and external to the company, that perform or support the logistics function
Supply Chain Management
A management system that coordinates and integrates all the activities performed by supply chain members into a seamless process, from the source to the point of consumption, resulting in enhanced customer and economic value

Customer-driven management philosophy
Supply Chain Agility
An operational strategy focused on inducing inventory velocity (the speed at which the inventory is cycled) and operational flexibility simultaneously in the supply chain

Agile companies synchronize activities through sharing of supply and demand info, spend more time than competitors on activities that create direct customer beenfits, partner closely with suppliers and service providers to reduce customer wait times for products and constantly seek to reduce supply chain complexity through evaluation and reduction of nonperforming stock-keeping units (SKUs) Allows for reduced supply chain costs and better service

Benefits:
-key means of differentiation for a firm and critical component in marketing and corporate strategy
-lowers inventory, transportation, warehousing and packaging costs, greater supply chain flexibility, improved customer service, high revenues
- relationship between supply chain performance and profitability and provide better value to customer with only marginal incremental expenditure on company assets
Supply Chain Integration
When multiple firms or business functions in a supply chain coordinate their activities and processes so that they are seamlessly linked to one another in an effort to satisfy the customer

Key principle of supply chain management is that multiple firms and their functional areas work together to perform tasks as a single, unified system rather than as several individual companies or business units acting in isolation

Companies in world class supply chain combine resources, capabilities and innovations across multiple business functions such that they are used for best interest of entire supply chain as a whole
Demand-Supply Integration (DSI)
A supply chain operational philosophy focused on integrating the supply management and demand-generating function of an organization - internal

Functional area in company charged with creating customer demand (marketing, sales, or R&D) communicate and are synchronized with other parts of business charged with fulfilling created demand (purchasing, manufacturing, logistics, etc. )

Different companies act as if single mission and leadership connect them
5 Types of external integration sought by firms interested in providing top level service
External 1) Relationship Integration
-ability of two or more companies to develop social connections that serve to guide their interactions when working together

2) Measurement Integration
-reflects the idea that performance assessments should be transparent and measurable across borders of different firms and assesses the performance of supply chain as a whole while holding each individual firm or business unit accountable for meeting its own goals

3) Technology and Planning Integration
-creation & maintenance of info tech systems that connects managers across supply chain firms, requires info hardware and software systems that can exchange info

4) Material and Service Supplier Integration
-requires firms to link seamlessly to those outsiders that provide goods and services to them so they can streamline work processes and provide smooth, high quality customer experiences. Both sides need to have common vision of total value creation process and be wiling to share the responsibility for satisfying customer requirements to make supplier integration successful

5) Customer Integration
-enables firms to offer long lasting, distinctive, value added offerings to those customers who represent the greatest value to the firm of supply chains

HIGHLY ORGANIZED CHAINS DO BETTER
Business Processes
Bundles of interconnected activities that stretch across firms in the supply chain. Represent key areas that some or all involved firms are constantly working to reduce costs or generate revenues for everyone throughout the supply chain management

There are 8 of them
8 critical business processes on which supply chain managers must focus
1) Customer Relationship Management
2) Customer Service Management
3) Order fulfillment
4) Manufacturing flow management
5) Supplier relationship management
6) Product development and commercialization
7) Returns management
Customer Relationship Management (CRM) Process
Allows companies to prioritize their marketing focus on different customer groups according to each group's long-term value to the company or supply chain

-firms should focus on providing better service to high value customers

-process includes customer segmentation by value and generation of customer loyalty for most attractive segments
Customer Service Management Process
Presents a multi-company, unified response system to the customer whenever complaints, concerns, questions or comments are voiced

-positive impact on revenue, positive response to neg customer feedback additional sales bc of customer contact

-customers expect service from buying moment until product is disposed of

-customer care software enhances customer service management pro`cess - processes client info to match with correct person or dispatch center
Demand Management Process
Seeks to align supply and demand throughout the supply chain by anticipating customer requirements at each level and creating demand-related plans of action prior to actual customer purchasing behavior

-seeks to minimize costs of serving multiple types of customers who have variable wants and needs. Allows companies in supply chain to satisfy customers in most efficient and effective ways

-Collecting customer data, forecasting future demand, developing activities that serve to smooth out demand and bring inventory in alignment with customer wants

-Demand managers can ease pressure on production process and allow greater customer satisfaction with greater flexibility in manufacturing, marketing and sales programs. Uncertainty mitigated through collaborative planning, forecasting, replenishment (CFR) activities with customers and suppliers

-Speed of assembly line match customer demand
Order-Fulfillment Process
A highly integrated process, often requiring persons from multiple companies and multiple functions to come together and coordinate to create customer satisfaction at a given place and time. One of the most fundamental processes in supply chain management

-Reduce time between order and customer receipt
-Involves understanding both internal capabilities and external customer needs, matching these together so supply chain maximizes profits while minimizing costs and waste
Manufacturing Flow Management Process
Concerned with ensuring that firms in the supply chain have the needed resources to manufacture with flexibility and to move products through a multi-stage production process

-flexible manufacturing = creating of wide variety of goods/services with minimized cost in changing production techniques

-flexible agreements with suppliers and shippers so demand bursts can be accommodated

-goals centered on leveraging capabilities with improving overall output in terms of quality, delivery speed, flexibility
-can choose between lean or agile support strategy
Lean Supply Chain
Products built before demand occurs. First occurred with Toyota Production Systems (TPS) in 50s
Agile Strategy
Emphasize responsiveness as opposed to waste reduction. Wait for demand to occur instead of trying to forecast it
Supplier Relationship Management Process
Supports manufacturing flow by identifying and maintaining relationships with highly valued suppliers

-closely related to manufacturing flow and CRM
-needs supplier relationships for flexibility
-provides support for developing and maintaining relationships with suppliers
-effective relationships most crucial in tough situations or crisis
4 steps for rebuilding supplier relationships after crisis
1) Acknowledge past mistakes
2) Find the real source of the problem
3) Identify and implement corrective actions
4) Monitor and maintain the relationship
Product Development and Commercialization Process
Includes the group of activities that facilitates the joint development and marketing of new offerings among a group of supply chain partner firms

-new products and services are the product of multi-company collaboration w multiple firms and business units playing unique roles
-new product development is key for competitive success and should involve many supply chain partners
-new products designed with help of suppliers and customers can introduce features and cost cutting measures into products
-customers say what they want and suppliers help design for quality and manufacturability
Returns Management Process
Enables firms to manage volumes of returned product efficiently while minimizing returns-related costs and maximizing the value of the returned assets to the firms in the supply chain

-final step in process
-returns have potential to affect firm's financial position in major and negative ways if mishandled
-in some industries, returns can account for up to 40% of sales volume
-returns management creates additional marketing and customer service touch points that can be leveraged for added customer value beyond normal sales and promotion driven encounters
-handling returns gives company chance to please customer, customer to have positive experiences with returns management process, increased willingness to reorder
-mobile phone industry uses returns management to its advantage
Supply Chain Team
An entire group of individuals who orchestrate the movement of goods, services, and information from the source to the consumer

All parities who move product to market including external participants like suppliers, transport carriers, third party logistics suppliers, etc.

3 groups make up supply chain function (source, make, deliver)

Link between manufacturer and supplier one of most important
Inventory Control System
A method of developing and maintaining an adequate assortment of materials or products to meet a manufacturer's or customer's demand

too many products = increased cost and risk

too few = angry customers, shortages, lost sales

keep inventory low while maintaining enough to meet demand
Stockouts
Situation where customer demand for an item goes unfulfilled because the requested item is unavailable at the needed time or place
Cycle stocks
Inventory held temporarily for the purpose of fulfilling predicted demand in a period
Safety stocks (or buffer stocks)
Extra inventory held in addition to cycle stock as insurance against unexpected demand increases
In-transit Inventory
inventory that is currently moving within a transportation network to or from the company's facilities (plant, warehouse, or sales location)
Work in process inventory
Materials inventory that is currently in the process of being converted into finished goods
Seasonal inventory
An extra inventory buffer that is held in response to predictable demand increases that occur annually
Materials requirement planning (MRP)
An inventory control system that manages the replenishment of raw materials, supplies and components from the supplier to the manufacturers. Also called materials management
Distribution resource planning (DRP)
An inventory control system that manages the replenishment of goods from the manufacturer to the final consumer

Both systems (DRP AND MRP) use inputs like sales forecast, available inventory, outstanding orders lead times, mode of transport, etc. to determine what needs to be done to replenish goods at all points of supply chain
Automatic replenishment programs
A real-time inventory system that trigger shipments only when good is sold to the end use
Order Processing System
A system whereby orders are entered into supply chain and filled

-As order enters system, management monitors 2 flows
-flow of goods
-flow of info
Electronic data interchance (EDI)
Information technology that replaces the paper documents that usually accompany business transactions, such as purchase orders and invoices, with electronic transmission of the needed info to reduce inventory levels, improve cash flow, streamline operations, and increase the speed and accuracy of the information transmission
SmartRFID (radio frequency identification)
An inventory handling and tracking system that employs radio-frequency electromagnetic fields to transfer and read product data via an electronic tag. reduces shoplifting risk, increases efficiency
Built to Stock
A production method whereby products are made in advance of demand based on forecasts and are stored until customer orders arrive

Toothpaste, deodorant, detergent all manufactured on past sales and demand then sent to retailers to resell

production scheduling base don forecasts and push selling

Disadvantages:
-companies risk making products that may become obsolete or that customers don't want in first place
Mass customization
A production method whereby products are not made until an order is placed by the customer; products are made according to customer specifications (built to order) gives compeititve edge
Postponement
A hybrid production method whereby basic units of a finished good are manufactured in advance of actual demand and held in strategic form or location until demand occurs, when final customization takes place

allows companies to maximize customer satisfaction and control costs

parallel operational philosophies known as lean, agile and leagile
Lean systems
Emphasize reduction of waste and maximization of efficiency in a built-to-stock system
Agile systems
Employs more expensive but more efficient wait and see approach using flexible production and quick reaction to customer demand changes
Hybrid Leagile Systems
Allows for use of build to order strategies for high volume, stable demand products, and built to order strategies for everything else
Distribution
How you deliver a product
Storage
Helps manage supply and demand for production and consumption

Final user may not want goods at time manufacturer produces and sells them

Disadvantages:
-cost of insurance on stored product
-taxes
-obsolescence or spoilage
-theft
-warehouse operating costs
-opportunity cost (money tied up in stored product)
Materials Handling System
A method of moving inventory into, within and out of a warehouse

Manually, products can be handled dozens of time increasing risk of damage, destruction, stresses to packaging, etc.

Automated systems use scanners so they don't have to be handled
Transportation
Accounts for 5-10% of price of goods, sometimes up to 17% with increasing fuel costs

Must decide between
railroads
motor carriers
pipelines
water transport
airways

Criteria for decisions:
o Relative cost
o Transit time
o Reliability
o Capability
o Accessibility
o Traceability
Logistics information system
The link that connects all the logistics functions of the supply chain

• Include software for materials acquisition and handling, warehouse-management and enterprise-wide solutions, data storage and integration in data warehouses, mobile communications, EDI, RFDI chips, and internet
• Components work together to enable successful supply chain management
• Computer technology boosts efficiency of logistics with auto ID systems and bar coding, radio frequency technology, communications technology, and supply chain software systems for synchronizing flow of info
Sustainable supply chain management
A supply chain management philosophy that embraces the need for optimizing social and environmental costs in addition to financial costs

• Responds to need to reduce cost and act as leaders in protecting environment
• Environmentally friendly sourcing of materials, design of products with consideration given to social and environmental impact, end of life product management for easy recycling or disposal, etc.
• Cost saving and protect natural resources
• Also balancing economic success with social sustainability practices like human rights, labor rights, employee diversity initiatives, quality of life concerns
• Misconception that both environmental and social suitability increase supply chain costs
• Strong case for supporting them
Trends
• Outsourcing logistics, maintaining secure supply chain and minimizing supply chain risk, maintaining sustainable supply chain
• Electronic distribution used to help supply chain management more integrated and easier to track
Outsourcing
Contract logistics. A manufacturer's or supplier's use of an independent third party to manage an entire function of the logistics system, such as transportation, warehousing, or order processing. Rapidly growing.

Enables companies to cut inventories, locate stock at fewer plants and distribution centers, still provide same level of service
Third party logistics company (3PL)
A firm that provides functional logistics services to others

Sell logistical solutions instead of physical products like warehouse space, transport solutions, info sharing, manufacturing postponement, enhances tech innovations
Fourth party logistics companies (4PLs)
Logistics integrators. A consulting based organization that assess another's entire logistical service needs and provides integrated solutions, often drawing on multiple 3PLs for actual service

develop and train employees to be empowered to respond to customers' needs
Offshoring
The outsourcing of a business process from one country to another for the purpose of gaining economic advantages

-Outsource to companies with low labor costs like China and India
-Rising fuel costs and security issue = more outsourced operations relocating closer to home
Nearshoring
The transfer of an offshored activity from a distant to a nearby country

o Locations such as Mexico or Caribbean nations ensure low costs and reduced supply chain risk
o Can manufacture more products closer to major demand centers
Supply Chain Risk
• any potential disruption that threatens the supply chain's efficient and effective operations
o Crisis, weather events, system failures, , etc.
o Leads to inefficiencies
• Outsourcing = more vulnerable to theft, piracy, or contamination
• Shortened product life cycles and rapid tech advances increase likelihood of obsolescence
• Costly to address
Supply Chain Security
Efforts made by companies to protect their in-transit inventory or value-transforming assets from external or internal threats
Supply Chain resiliency
The ability of supply chain to return to its ideal operational state after being disrupted
Electronic Distribution
A distribution technique that includes any kind of product or service that can be distributed electronically, whether over traditional forms like fiber-optic cable or through satellite transmission of electronic signals (like movies.com)
Three Dimensional Printing (3DP)
The creation of 3D objects via an additive manufacturing (printing) technology that layers raw materials into desired shapes (autoparts, biomed, fast food)
Globalizing Supply Chains - advantages and disadvantages
Advantages:
o Allure of foreign market bc increasing demand for imported products worldwide
o Cheap labor advantages
o Trade barriers/tariffs

Downsides:
o Risks associated with geopolitical conflict, foreign nationalization of assets, knowledge diffusion
o Foreign suppliers less reliable
o Longer supply chain
o Variability in transport services can lead to service failures


Makes sense to procure goods and services from offshore suppliers (lower labor rates, gov. subsidies, low material costs, but can lose intellectual property)

Transportation issues
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