Chapter 10 : Extending the Organization – Supply Chain Management

SUPPLY CHAIN MANAGEMENT

•          The average company spends nearly half of every dollar that it earns on production

•          In the past, companies focused primarily on manufacturing and quality improvements to influence their supply chains

•          The supply chain has three main links:

1.       Materials flow from suppliers and their “upstream” suppliers at all levels

2.       Transformation of materials into semifinished and finished products through the organization’s own production process

3.       Distribution of products to customers and their “downstream” customers at all levels

•          Organizations must embrace technologies that can effectively manage supply chains

•          Supply chain management improves ways for companies to find the raw components they need to make a product or service, manufacture that product or service, and deliver it to customers

Plan – This is the strategic portion of supply chain management. A company must have a plan for managing all the resources that go toward meeting customer demand for products or services. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less, and delivers high quality and value to customers.

Source – Companies must carefully choose reliable suppliers that will deliver goods and services required for making products. Companies must also develop a set of pricing, delivery, and payment processes with suppliers and create metrics for monitoring and improving the relationships.

Make – This is the step where companies manufacture their products or services. This can include scheduling the activities necessary for production, testing, packaging, and preparing for delivery. This is by far the most metric-intensive portion of the supply chain, measuring quality levels, production output, and worker productivity.

Deliver – This step is commonly referred to as logistics. Logistics is the set of processes that plans for and controls the efficient and effective transportation and storage of supplies from suppliers to customers. During this step, companies must be able to receive orders from customers, fulfill the orders via a network of warehouses, pick transportation companies to deliver the products, and implement a billing and invoicing system to facilitate payments.

Return – This is typically the most problematic step in the supply chain. Companies must create a network for receiving defective and excess products and support customers who have problems with delivered products.

Information 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 firm

Factors Driving SCM

1. Visibility

•          more visible models of different ways to do things in the supply chain have emerged.  High visibility in the supply chain is changing industries, as Wal-Mart demonstrated

•          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 chain

•          Supply chain visibility allows organizations to eliminate the bullwhip effect

•          To explain the bullwhip effect to your students discuss a product that demand does not change, such as diapers.  The need for diapers is constant, it does not increase at Christmas or in the summer, diapers are in demand all year long.  The number of newborn babies determines diaper demand, and that number is constant.

•          Retailers order diapers from distributors when their inventory level falls below a certain level, they might order a few extra just to be safe

•          Distributors order diapers from manufacturers when their inventory level falls below a certain level, they might order a few extra just to be safe

•          Manufacturers order diapers from suppliers when their inventory level falls below a certain level, they might order a few extra just to be safe

•          Eventually the one or two extra boxes ordered from a few retailers becomes several thousand boxes for the manufacturer.  This is the bullwhip effect, a small ripple at one end makes a large wave at the other end of the whip.

2. Consumer behavior

•         companies must respond to demanding customers through supply chain enhancements

•          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 techniques

3. Competition

•          increased competition makes any organization that is ignoring its supply chain at risk of becoming obsolete

•          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 chain

4. Speed

as the pace of business increases through electronic media, an organization's supply chain must respond efficiently, accurately, and quickly

•          Three factors fostering speed

Supply Chain Management Success Factors

•          SCM industry best practices include:

1.       Make the sale to suppliers

2.       Wean employees off traditional business practices

3.       Ensure the SCM system supports the organizational goals

4.       Deploy in incremental phases and measure and communicate success

5.       Be future oriented