B2B Chapter 11: Supply Chain Management

Effective supply chain management includes:
1. Integrated computer systems that provide the production schedule and demand forecasts to all supply chain members.
2. Collaborative program management tools that allow
manufacturers and suppliers to synchronize activities to respond to events (threats and opportunities) in real time
Supply Chain Management (SCM)’s pervasive nature affects every aspect of business from:
1. Costs
2. Customer service
3. Asset productivity (inventory turns)
4. Revenue generation
Supply Chain includes getting:
1. Raw material suppliers
2. raw material producers (make products)
3. wholesalers
4. retailers
5. ultimate consumers
Supply also includes
necessary participants to move product such as warehousing, transportation, information processing and materials handling
SCM critical processes include
1. customer relations management
2. supplier relations management
3. customer service management
4. demand management
5. order fulfillment
6. manufacturing flow
7. product development and commercialization
8. returns management
Successful SCM programs…
Can improve overall company performance by:
1. revenue enhancement
2. cost reduction
Focuses on integrating the aformentioned critical processes across all organizational borders for purposes of:
1. Enhancing flow
2. Lowering costs
3. Increasing profits
Leading supply-chain-oriented firms focus on:
1. Monitoring actual user demand rather than forcing products into the market that may not sell quickly
2. The result is to minimize the flow of raw material, finished products and packaging material, thus minimizing inventory throughout the entire supply chain
Traditional approach to (SCM)
for each member in the supply system to operate their business in such as way to individually manage their own part
Negatives of traditional approach
1. inefficient and costly
2. material is often moved around too much resulting in higher transportation cost
3. communication between sales and other departments is excessive and time consuming
Successful SCM programs
Require firms to share sensitive and proprietary information about…
1. customers
2. actual demand
3. point-of-sales transactions
4. corporate strategy
Successful SCM demands…
1. joint planning and communication
2. set up teams from their supply chain members that cut across functional and company boundaries to manage the movement of goods through the supply chain
An efficient SCM program needs
1. need to create an “overlap” among participants in the supply chain.
2. There needs to be a long-term commitment and interwoven relationships
Includes sharing information about everything
SCM (competitive advantage)
Many companies have integrated SCM into all phases of their operation to include:
1. Design
2. sourcing
3. manufacturing
4. distribution
This has resulted in enhanced market position and added value for customers
How SCM affects cost and revenues
SCM reduced costs through efficiencies, and it speeds up cash cycle, increasing revenue
Waste reduction
minimizing duplication of efforts, harmonizing operations and systems, and enhancing quality
Time compression
Compressing order-to-delivery cycle time
Flexible response
meeting customer’s unique requirements in cost-effective manner
Unit cost reduction
reducing cost per unit to end users by determining performance levels that customers desire
More is needed
to stay ahead companies need to have agile, aligned, and adaptable SC systems.
1. adapt to changing customer needs and competitive challenges, and respond accordingly
2. another key is for the organizations to constantly assess their alignment with the interest of all firms to their own within the SC
Benefits of good SC
benefits ultimate consumer and customers within the supply chain
NOTE: each member is a customer of the prior member until the product reaches the ultimate consumer
Innovative supply chains
The coupling of inventory movement with financial movement can:
1. open doors to greater end-to-end cost savings
2. have better balance sheets
3. lower total costs
4. have higher margins
5. have more stable supply chain
Financial benefits of efficient SCs
1. lower costs
2. higher profits
3. enhanced cash flow
4. revenue growth
5. higher rates of return on assets
What makes SCM efficient and effective
1. powerful information systems
2. internet technology
3. supply chain software
SCM and functional products
1. have predictable demand
2. goal is to design efficient distribution system that minimizes logistics and lowers inventory cost
Innovative products
Usually high tech products
1. have less predictable demand
2. have short life cycles
3. focus is to have enough inventory to meet demand and maximize profits.
The strategy is to get customer info so they can respond to demand sooner
Cooperation (SCM)
1. supply chains cant be adversarial relationships
2. participants need to work in a partnering way
3. Most effective = integrated operations across participants, share info and add value for the customer
Supply Chain Partners
1. need to clearly define strategic objectives
2. understand where their objectives diverge
3. work together to resolve any differences
Logistics – Inbound (physical supply)
flows that provide raw materials, components, and supplies to the production processes
Logistics – outbound (physical distribution)
flows that deliver completed products to customers and channel intermediaries
SCM and Logistics has risen in importance due to:
1. time-based competition
2. improved communications & software technology
3. expanding globalization
4. more attention to quality
5. the changing face of inter-firm relationships
Strategic Role of logistics
viewed as a critical strategic weapon against competition for delivering products to the market in as efficient and effective way that offers customers value. This results in loyal customers and more profitability
Just in Time (JIT) systems
objective is to get the right part to the right place at the right time in perfect condition.
One consequence has been to reduce suppliers to preferred supplier status
Preferred suppliers have seen their business grow tremendously
Performance Variables
Measurements that need to be considered:
1. total distribution costs
2. level of logistical services provided to customers
Total Cost/Trade-Off approach
1. considers the effect of costs vs. efficiency at all levels within the logistical system
2. the assumption is that a change at one stage will affect another
Activity-Based Costing (ABC)
A technique used to measure costs of performing specific activities and trace those costs to:
1. products
2. customers
3. channels that consumed the activity
this method traces costs to customer demanding certain services
Total Cost of Ownership (TCO)
determines the total cost of acquiring and using an item from a particular supplier.
This identifies hidden costs
By using this you can tell if suppliers have efficient logistic systems
Impact of logistics on SCMs
1. results in higher inventory carrying costs to distributors
2. implementation can result in inventory shortages which can lead to customer dissatisfaction
1. allows distributors to compete effectively since it allows them to be more valuable to their (mutual) customers
Three major areas are logistically intertwined, they are:
1.logistical facilities
2. transportation
3. inventory considerations
The best approach is to take the total cost view for these activities
Logistical Facilities
1. properly located they can reduce costs, and/or increase delivery service.
2. warehousing is good because you can store locally
3. Maintenance, Repair & Operating (MRO) products are directly affected by this issue
The best decision as to which mode results from balancing of:
1. Service
2. Variable Costs
3. Investment required
4. Speed of ordinary vs. expedited (rush) orders
Inventory Management
Needed Because:
1. Production and demand not perfectly matched. Production usually occurs in anticipation of demand.
2. Operating deficiencies in logistical system often result in product unavailability
3. Business customers cannot predict their product needs with certainty
Inventory Levels
Depend on:
1. customer requirements
2. cost
3. investment
4. service required
5. anticipated revenue
Inventory in rapidly changing markets
Hi-tech = obsolescence is reality, must keep close attention to inventory is an absolute must.
4 factors (inventory driven costs) that can reduce profits:
1. obsolescence
2. devaluation
3. price protection
4. return costs
Third Party Logistics
Most companies now outsource transportation, warehousing, and information processing.
Specialization of labor
Results of Third Party Logistics specialization
1. lower costs
2. better service
3. improved asset utilization
4. increased flexibility
5. access to leading technologies