Supply Chain Management Exam 1 Review Supply Chain Management managing every business activity across all business disciplines from supplier to customer in a way that causes no corporate difficulties saves money and keeps customers happy Logistics management of the flow of goods or materials from point of origin to point of consumption while conforming to customer requirements promotes economic development and specialization to increase the variety of goods 10 of GDP Seven R s o Right Product o Right time o Right Cost o Right Place o Right Quantity o Right Customer o Right Condition Service Benefits Cost Minimization o Availability operational performance service reliability o Solid logistics can create large profit increases o Cost center o Profit Leverage a dollar saved is a dollar increase in profit Logistics Supply Chain Timeline WWI demonstrated importance Post War 60 s Multiple departments covering wide ranges of materials and distribution functions forecasting packaging customer service transportation 1970 s 80 s Increase in merging functions into inbound and outbound categories physical distribution and materials management o Rates increase o Higher valued products o Transportation Deregulation o Global Competition o Foreign Sources of Supple 1990 s present focus on tracking of inventory and field activities cost savings customer service depth of integration partnerships with suppliers extensive planning o Info systems o Demand for logistics Inbound Logistics Inbound Outbound Logistics aka materials management or physical distribution convenient way to model supply chain Both sides share common activities o Transportation warehousing inventory control Inbound Logistics revolves around materials management Primary objectives low costs quality support of other enterprise functions low tied up capital high level of service Materials used in inbound logistics take up over 50 of total costs more than Reducing inbound costs by 10 increasing sales by 68 reducing labor wages and benefits costs by 36 Purchasing procurement o Build deep partnerships with vendors Receiving and Quality Assurance o Receiving physical receipt of the purchased materials when arrive at facility Just in time inventory JIT o Started during WWII o W Edwards Deming and Taiichi Ohno Toyota corporation o Deming developed Toyota Production System TPS with JIT o Materials are used until a pre arranged order point is reached kanban o Requirement is communicated back to procurement which places a short lead time order andon o Frequent small shipments arrive just in time to fill the depleted materials keeping inventory stock low o Benefits productivity improvements decreased inventories reduced manufacturing cycle times lower costs o Difficulties production scheduling supplier capabilities networks demand forecasting errors lead to costly plant shutdowns o Materials Requirements Planning MRP to reduce JIT risk Outbound Logistics Linked to customer service and marketing Form of non price competition Four key dimensions o Time o Dependability o Convenience o Communications Focus on o Customer Satisfaction individual customer expectations and perceptions o Customer Success Channels of Distribution o Wholesalers selling and storing goods extending credit assembling sorting make break bulk o Distributor markets or sells merchandise to retailers rather than directly to consumer usually in large quantities o Retailer purchase products for the purpose of re selling them to final consumers from shops or stores Quick Response QR manufacturer supplier commits to meet specific performance criteria usually time and place and in return retailer commits to solid demand data and preferential treatment o Minimizes stockouts for retailers and boosts sales for vendors Efficient Consumer Response ECR more detailed version of QR that is highly consumer driven and heavily dependant on information systems to transmit demand data especially from point of sales POS Distribution Requirements Planning DRP determining product demand and using that information throughout the supply chain Outbound version of MRP Marketing Requirements Planning Issues with outbound logistics o Can product flow be uninterrupted o Outbound strategies are risky and complicated o Knowing and categorizing stock units Inventory Concepts and Management Inventory raw materials work in progress and finished goods that are being held by the company o Can be up to 50 of a company s assets Types of Inventory o Cycle Stock stock depleted during a normal order cycle o In Process Stock incomplete or in transit inventory o Safety Stock buffer for changes customer service o Seasonal Stock held in advance of seasonal demand spikes o Speculative Stock held as hedge against price fluctuations o Dead Stock stock with no apparent value o Promotional Stock covers demand stock associated with marketing Benefits temptations in carrying inventory o Purchase Economics receiving lots in larger sizes to reduce overall o Transportation Savings large loads are cheaper o Speculative purchasing buying now to prevent against possible upward material costs price fluctuations o Seasonal Supply Demand esp with agriculture o Maintenance of Supply Sources keep a level flow of materials o Customer service goods for resale inventory can provide order and demand change flexibility o Production Savings long production runs when inventory is built up o Stable Employment inventory can be used to provide short term labor o Safety Contingency Coverage covers defects emergencies or stability miscalculations Inventory Costs o Carrying Costs Capital Investment Costs often the largest cost associated with having capital invested in inventory Storage Cost heating electric staffing Service Cost insurance and taxes Risk Cost risk of economic change spoilage etc o Order Setup Costs Order Costs Set Up Costs o Expected Stockout Costs o In Transit Carrying Costs ACB Basic Inventory Analysis Rooted in Pareto s Law 80 20 Rule trivial many from vital few In business 80 of the potential value can come from just 20 of the effort and that one can spend the remaining 80 of the effort for relatively little return o A 20 of items 80 of sales o B 50 of items 15 of sales o C 30 of items 5 of sales Two primary questions o HOW MUCH o WHEN Driven by two factors o Carrying costs increases with increases in inventory o Order costs decreases with increases in inventory Inventory Control Model Economic Order Quantity EOQ HOW MUCH o
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