CHAPTER 8Chapter Eight OverviewSECTION 8.1BASICS OF SUPPLY CHAINSlide 5INFORMATION TECHNOLOGY’S ROLE IN THE SUPPLY CHAINSlide 7VisibilityConsumer BehaviorCompetitionSlide 11SpeedSUPPLY CHAIN MANAGEMENT SUCCESS FACTORSSlide 14SCM SUCCESS STORIESSlide 16USING IT TO DRIVE THE SUPPLY CHAINSlide 18FACILITIES DRIVERFACILITIES 1: LocationFACILITIES 2: CapacityFACILITIES 3: Operational DesignSlide 23INVENTORY DRIVERINVENTORY 1: Cycle InventoryINVENTORY 2: Safety InventorySlide 27TRANSPORTATION DRIVERTRANSPORTATION 1: Method of TransportationTRANSPORTATION 2: Transportation RouteSlide 31INFORMATION DRIVERINFORMATION 1: Information SharingINFORMATION 2: Push vs. Pull Information StrategySlide 35APPLYING A SUPPLY CHAIN DESIGNSlide 37FUTURE SUPPLY CHAIN TRENDSMcGraw-Hill/Irwin©2008 The McGraw-Hill Companies, All Rights ReservedCHAPTER 8CHAPTER 8SUPPLY CHAIN MANAGEMENTSUPPLY CHAIN MANAGEMENT8-2Chapter Eight Overview•SECTION 8.1 – SUPPLY CHAIN FUNDAMENTALS–Basics of Supply Chain–Information Technology’s Role in the Supply Chain–Supply Chain Management Success Factors–SCM Success Stories•SECTION 8.2 – APPLYING A SUPPLY CHAIN DESIGN–Using Information Technology to Drive the Supply Chain–Facilities Driver–Inventory Driver–Transportation Driver–Information Driver–Applying a Supply Chain Design–Future Supply Chain TrendsMcGraw-Hill/Irwin©2008 The McGraw-Hill Companies, All Rights ReservedSECTION 8.1SECTION 8.1SUPPLY CHAIN FUNDAMENTALS SUPPLY CHAIN FUNDAMENTALS8-4BASICS OF SUPPLY CHAIN•Organizations must embrace technologies that can effectively manage supply chains8-5BASICS OF SUPPLY CHAIN8-6INFORMATION TECHNOLOGY’S ROLE IN THE SUPPLY CHAIN•IT’s primary role is to create integrations or tight process and information linkages between functions within a firm8-7INFORMATION TECHNOLOGY’S ROLE IN THE SUPPLY CHAINFactors Driving SCM8-8Visibility•Supply chain visibility – the ability to view all areas up and down the supply chain•Bullwhip effect – occurs when distorted product demand information passes from one entity to the next throughout the supply chain8-9Consumer 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 techniques8-10Competition•Supply chain planning (SCP) software– uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain•Supply chain execution (SCE) software – automates the different steps and stages of the supply chain8-11Competition•SCP and SCE in the supply chain8-12Speed8-13SUPPLY CHAIN MANAGEMENT SUCCESS FACTORS8-14SUPPLY CHAIN MANAGEMENT SUCCESS FACTORS•SCM industry best practices include:1. Make the sale to suppliers2. Wean employees off traditional business practices3. Ensure the SCM system supports the organizational goals4. Deploy in incremental phases and measure and communicate success5. Be future oriented8-15SCM SUCCESS STORIES•Top reasons why more and more executives are turning to SCM to manage their extended enterprises8-16SCM SUCCESS STORIES8-17USING IT TO DRIVE THE SUPPLY CHAIN•The four primary drivers of supply chain management1. Facilities2. Inventory3. Transportation4. Information•Organizations use these four drivers to support either a supply chain strategy focusing on efficiency or a supply chain strategy focusing on effectiveness8-18USING IT TO DRIVE THE SUPPLY CHAIN8-19FACILITIES DRIVER•Facility – processes or transforms inventory into another product, or it stores the inventory before shipping it to the next facility•Three primary facilities components1. Location2. Capacity3. Operational design8-20FACILITIES 1: Location•Location efficiency – centralize the location to gain economies of scale, which increases efficiency •Location effectiveness – decentralize the locations to be closer to the customers, which increases effectiveness8-21FACILITIES 2: Capacity•Capacity efficiency – minimal excess capacity with the ability to produce only what is required•Capacity effectiveness – large amounts of excess capacity which can handle wide swings in demand8-22FACILITIES 3: Operational Design•Operational design efficiency – product focus design allows the facility to become highly efficient at producing one single product, increasing efficiency•Operational design effectiveness – functional focus design allows the facility to perform a specific function on many different types of products, increasing effectiveness8-23FACILITIES DRIVER8-24INVENTORY DRIVER•Inventory – offsets discrepancies between supply and demand•Inventory management and control software – provides control and visibility to the status of individual items maintained in inventory•Two primary inventory components1. Cycle inventory2. Safety inventory8-25INVENTORY 1: Cycle Inventory•Cycle inventory – the average amount of inventory held to satisfy customer demands between inventory deliveries–Cycle inventory efficiency – holding small amounts of inventory and receiving orders weekly or even daily–Cycle inventory effectiveness – holding large amounts of inventory and receiving inventory deliveries only once a month8-26INVENTORY 2: Safety Inventory•Safety inventory – extra inventory held in the event demand exceeds supply–Safety inventory efficiency – holding small amounts of safety inventory –Safety inventory effectiveness – holding large amounts of safety inventory8-27INVENTORY DRIVER8-28TRANSPORTATION DRIVER•Transportation – moves inventories between the different stages in the supply chain•Two primary inventory components1. Method of transportation2. Transportation route8-29TRANSPORTATION 1: Method of Transportation•Global inventory management system – provides the ability to locate, track, and predict the movement of every component or material anywhere upstream or downstream in the supply chain–Method of transportation efficiency–Method of transportation effectiveness8-30TRANSPORTATION 2: Transportation Route•Transportation planning software – tracks and analyzes the movement of materials and products to ensure the delivery of materials and finished goods at the right time, the right place, and the lowest cost•Distribution management software – coordinates the process of transporting materials from a manufacturer to distribution centers to the final