BUSINESS PLUG-IN
B8
Supply Chain
Management
McGraw-Hill/Irwin
© The McGraw-Hill Companies, All Rights Reserved
LEARNING OUTCOMES
1. List and describe the four drivers of supply
chain management
2. Explain supply chain management strategies
focused on efficiency
3. Explain supply chain management strategies
focused on effectiveness
4. Summarize the future of supply chain
management
B8-2
INTRODUCTION
• Supply chain – consists of all parties
involved, directly or indirectly, in the
procurement of a product or raw material
• Supply chain management (SCM) –
involves the management of information
flows between and among stages in a
supply chain to maximize total supply
chain effectiveness and profitability
B8-3
SUPPLY CHAIN DRIVERS
•
The four primary drivers of supply chain
management
1.
2.
3.
4.
•
Facilities
Inventory
Transportation
Information
Organizations use these four drivers to
support either a supply chain strategy focusing
on efficiency or a supply chain strategy
focusing on effectiveness
B8-4
SUPPLY CHAIN DRIVERS
B8-5
FACILITIES DRIVER
•
Facility – processes or transforms
inventory into another product, or it
stores the inventory before shipping it to
the next facility
•
Three primary facilities components
1. Location
2. Capacity
3. Operational design
B8-6
FACILITIES 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
effectiveness
B8-7
FACILITIES 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 demand
B8-8
FACILITIES 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 effectiveness
B8-9
FACILITIES DRIVER
B8-10
INVENTORY 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 components
1. Cycle inventory
2. Safety inventory
B8-11
INVENTORY 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 month
B8-12
INVENTORY 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 inventory
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INVENTORY DRIVER
B8-14
TRANSPORTATION DRIVER
•
Transportation – moves inventories
between the different stages in the
supply chain
•
Two primary inventory components
1. Method of transportation
2. Transportation route
B8-15
TRANSPORTATION 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 effectiveness
B8-16
TRANSPORTATION 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 customer
–
–
Transportation route efficiency
Transportation route effectiveness
B8-17
TRANSPORTATION DRIVER
B8-18
INFORMATION DRIVER
•
Information – an organization must
decide how and what information it
wants to share with its supply chain
partners
•
Two primary information components
1. Information sharing
2. Push verses pull strategy
B8-19
INFORMATION 1:
Information Sharing
•
Information sharing efficiency – freely share
lots of information to increase the speed and
decrease the costs of supply chain processing
•
Information sharing effectiveness – share
only selected information with certain
individuals, which will decrease the speed and
increase the costs of supply chain processing
B8-20
INFORMATION 2:
Push vs. Pull Information Strategy
•
Pull information strategy (efficiency) –
supply chain partners are responsible for
pulling all relevant information
–
•
Pull technology – pulls information
Push information strategy effectiveness –
organization takes on the responsibility to
push information out to its supply chain
partners
–
Push technology – sends information
B8-21
INFORMATION DRIVER
B8-22
APPLYING A SUPPLY CHAIN
DESIGN
•
Wal-Mart’s supply chain management
strategy emphasizes efficiency, but also
maintains adequate levels of
effectiveness
–
–
–
–
Facilities focus – Efficiency
Inventory focus – Efficiency
Transportation focus – Effectiveness
Information focus - Efficiency
B8-23
APPLYING A SUPPLY CHAIN
DESIGN
B8-24
Future Trends
•
Fastest growing SCM components
–
–
–
–
Supply chain event management (SCEM)
Selling chain management
Collaborative engineering
Collaborative demand planning
B8-25
Radio Frequency Identification (RFID)
• Radio frequency identification (RFID) - use
active or passive tags in the form of chips or
smart labels that can store unique identifiers
and relay this information to electronic readers
• RFID tag - contains a microchip and an
antenna, and typically work by transmitting a
serial number via radio waves to an electronic
reader, which confirms the identity of a person
or object bearing the tag
B8-26
Radio Frequency Identification (RFID)
B8-27
RFID
B8-28
CLOSING CASE ONE
Listerine’s Journey
•
When you use Listerine antiseptic mouthwash,
you are experiencing the last step in a
complex supply chain spanning several
continents and requiring months of
coordination by countless businesses and
individuals
•
As raw material is transformed to finished
product, what will be Listerine travels around
the globe and through multiple supply chains
and information systems
B8-29
CLOSING CASE ONE QUESTIONS
1. Summarize SCM and describe WarnerLambert’s supply chain strategy
2. Detail Warner-Lambert’s facilities
strategy
3. Detail Warner-Lambert’s inventory
strategy
B8-30
CLOSING CASE ONE QUESTIONS
4. Detail Warner-Lambert’s transportation
strategy
5. Detail Warner-Lambert’s information strategy
6. What would happen to Warner-Lambert’s
business if a natural disaster in Saudi Arabia
depletes its natural gas resources?
B8-31
CLOSING CASE TWO
Katrina Shakes Supply Chains
•
How do corporations cope with the realities of
risk, uncertainty, and crisis?
•
Many businesses prepared well for Hurricane
Katrina, responded quickly, and did so because
Katrina was exactly the kind of event for which
well-run corporations ready themselves
•
Corporations donated more than $500 million for
relief for the hurricane that hit New Orleans in
2005 and were the first to provide help to
Katrina victims
B8-32
CLOSING CASE TWO QUESTIONS
1. How did Home Depot manage its supply chain
to be one of the first stores to reopen after
Katrina?
2. How could Wal-Mart have revamped its
transportation driver to handle Katrina more
efficiently?
3. Why is it critical to FedEx’s success to be able
to handle all types of global disasters?
Highlight FedEx’s use of the information driver
B8-33
CLOSING CASE TWO QUESTIONS
4. How can the government learn from big
business in dealing with disasters such
as Katrina?
5. What can companies do in terms of
facilities, inventory, transportation, and
information to prepare themselves for
disasters such as Katrina?
B8-34