Ch 15 Supply Chain Mgmt Supply chain sequence of organizations their facilities functions activites that are involved in producing delivering a product service value chains value is added as goods services progress through the chain Typical Supply Chains Supplier 3 Storage Mfg Storage Dist Retailer Customer or Supplier 2 Storage Service Customer Supply Chain Mgmt SCM strategic coordination of business functions within a business org throughout its supply chain for the purpose of integrating supply demand mgmt Supply from the beg of the chain to the internal operations of the organization Demand From the organization s output delivery to its immediate customer to the final customer in the chain Why so much interest in SCM Companies look for ways to reduce costs as manufacturing becomes more efficient several significant success stories WalMart Web based models for supply chains online retailers B2B business models Key SCM issues Match supply demand Key Issues Determining appropriate levels of outsourcing managing procurement managing suppliers managing customer relationships being able to quickly identify problems respond to them managing risk Outsourcing transfer or contracting non productive internal activities process to outside vendors IT acct legal logistics Utilize efficiency that comes with specialization make or buy analysis Supplier Relationship Mgmt Type of relationship is often governed by the duration of the trading relationship Short term contracts often involves competitive bidding minimal interaction medium term contracts often involves an ongoing relationship LT contracts often involves greater cooperation that evolves into a partnership Choosing Suppliers Quality quality assurance procedures for quality assurance control Flexibility For changes in delivery schedules quantity product service changes Location Nearby Price Competitiveness willing to negotiate cooperate to reduce price Reputation Financial Stability Supplier reputation its financial stability Lead times on time delivery Procedures to assure on time delivery problem correction Other accounts Dependence on other customers their priority Supplier Partnerships More organizations are seeking to establish partnerships with others in their supply chain Fewer suppliers LT relationships sharing of info forecasts sales data problem alerts cooperation in planning Benefits improved operations higher quality increased delivery speed reliability lower inventories lower costs higher profits Higher supplier flexibility in accepting change delivery schedules quality quantity suppliers can help in identifying problems offer suggestions Supply Chain Mgmt Supply Chain Strategy alignment aligning supply distribution strategies with organizational strategy deciding on the degree to which outsourcing will be employed Network configuration determining the location of suppliers warehouses production operations facilities distribution centers IT integrating systems sharing info forecasts inventory status shipments etc throughout the SC Strategic partnerships Choice of partners level of partnership Distribution strategy centralized decentralized distribution In house distribution 3rd party logistics Uncertainty risk reduction identifying potential risks deciding on acceptable risk level Capacity planning Assessing LT capacity needs degree of flexibility Products services New products services selection design Logistics part of the SC involved with the forward reverse flow of goods services cash info Logistics Mgmt inbound outbound transportation material handling warehousing inventory order fulfillment distribution 3rd party logistics reverse logistics return from customer Inv Mgmt Inventory issues in SCM 1 Inv location centralized inventories lower overall inventory lower cost lower stock out risk decentralized inventories faster delivery lower shipping cost Inventory velocity speed at which goods move through a supply chain greater the velocity the lower the holding cost the faster orders are fulfilled goods are turned into cash Bullwhip effect Inv oscillations that become increasingly larger looking backward through the supply chain Transportation Problem Finding the lowest cost plan for distributing stocks from multiple origins supply points to multiple destinations Model Info Req Info req 1 List of the origins their supply quantity per period 2 A list of the destinations their demand per period 3 Unit cost of shipping items from each origin to each destination Model Assumptions Transportation model assumptions 1 Items to be shipped are homogeneous 2 Shipping cost per unit is the same regardless of the of units shipped 3 There is only one route or mode of transportation being used between each origin destination Minimum Cell Cost greedy Heuristic 1 Search for the minimum unit cost 2 Place min demand supply 3 Erase row column corresponding to min demand supply 4 Subtract min demand supply from paired row column 5 Stop when all columns rows are saturated Transportation Model Applications Numerous applications Location decisions production planning capacity planning transshipment Shipping Alternatives Options Train Truck Planes Ships Considerations Cost Coordination of shipments with other SC activities Flexibility Time Speed Availability Regulations Environmental issues Bullwhip Effect First noticed by P G executives examining the order patterns for Pampers disposable diapers Although the customer demand is pretty steady they noticed that order variation increased dramatically as one moved from retailers to distributors to the factory Problems High demand fluctuations variation in demand along with the supply chain requires Shipment capacity Production capacity Inventory capacity most of the time this capacity will be idle there s significant cost investments attached low service level backorders high cost in the end high overall cost in the supply chain Causes 1 Info lack of game simulates SC with low levels of trust where little info is shared among the parties only order amounts are perpetuated up the supply chain info about customer demand is lost upstream without actual customer demand is lost upstream without actual customer demand data all forecasts rely solely on the incoming orders at each stage of the SC 2 SC structure The longer the lead time the stronger the bullwhip effect the reorder point is calculated by multiplying the forecasted demand by the lead time plus the safety stock 3 Local optimization Local