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• The objective of supply chain management is structuring the supply chain to maximize competitive advantage and benefits to the consumer.
• Supply Chain Management is covered in Chapter 11.
• Red Lobster's supply chain is profiled.
• Strategy is impacted by supply chain decisions.

Red Lobster's Supply Chain

• Largest seafood restaurant company.
• Annually, it serves 140 million meals from over 700 restaurants.
• Sources food from five continents through thousands of suppliers.
• Winning operation strategy requires a winning supply chain.
• Committed to seafood sustainability.
• The supply chains incorporate supplier qualification, product tracking, independent audits and just-in-time delivery.

The Supply Chain's Strategic Importance

• Includes the coordination of all supply chains, starting with raw materials and ending with a satisfied consumer.
• Includes suppliers, manufacturers, service providers, distributors, wholesalers, retailers, and final customers.
• Strategic importance stems from the large portion of sales dollars that are spent on purchases.
• Managing supplier relationships has added emphasis because supplier relationships are increasingly integrated and long term.
• Improves innovation, speed design, and reduces costs.

Supply Chain Costs

• Supply chain costs vary from industry to industry.
• Petroleum has the highest percentage of purchase with 79%.
• Restaurants have the lowest percentage of purchase with 35%.

Supply Chain vs. Sales Strategy at Ashley Furniture

• 60% of sales are in the supply chain.
• Current gross profit = $10,000.
• Profits increased to $15,000 (50%).

Sourcing Issues

• Make-or-buy decisions involve choosing between obtaining products/services externally versus producing them internally.
• Outsourcing transfers traditional internal activities/resources to outside vendors and allows a focus on core competencies.
• Efficiency is found in specialization.

Six Sourcing Strategies

• Many suppliers
• Few suppliers
• Vertical integration
• Joint ventures
• Keiretsu networks
• Virtual companies that use suppliers on an as-needed basis

Many Suppliers

• Used for commodity products.
• Purchasing typically based on price.
• Suppliers compete with one another.
• The supplier is responsible for: technology, expertise, forecasting, cost, quality, and delivery.

Few Suppliers

• The buyer forms long-term relationships with fewer suppliers
• Value is created through economies of scale and learning curve improvements.
• Suppliers are more willing to participate in JIT programs and contribute design/technological expertise.
• The cost of changing suppliers is huge
• Secrets and other alliances may be at risk.

Vertical Integration

• Developing the ability to produce goods or services previously purchased.
• Integration can be forward (towards the customer) or backward (towards the suppliers).
• Can improve cost, quality, delivery, and inventory, however it often requires capital, managerial skills and demand.
• Risky in industries with rapid technological change.

Joint Ventures

• Formal collaboration involves the enhancement of skills and securing supply in order to reduce costs.
• The challenge is to cooperate without diluting brand or conceding competitive advantage.

Keiretsu Networks

• Developed in Japan, they represent a middle ground between few suppliers and vertical integration.
• The supplier becomes part of the company coalition
• Financial support is provided through ownership or loans.
• Members expect long-term relationships and to provide technical expertise and stable deliveries
• This method may extend through several levels of the supply chain.

Virtual Companies

• Rely on a variety of supplier relationships to provide services on demand.
• Fluid organizational boundaries allow unique enterprises to meet market demands.
• Relationships may be short or long-term.
• Results in exceptionally lean performance, low capital investment, flexibility, and speed.

Supply Chain Risk

• More reliance on supply chains means there is more risk.
• Fewer suppliers increase dependence.
• This is compounded by globalization and logistical complexity.
• Includes vendor reliability and quality risks.
• Includes political and currency risks.

Risk and Mitigation Tactics

• Research and assess possible risks
• Innovative planning
• Reduce potential disruptions
• Prepare responses to negative events
• Flexible, secure supply chains
• Diversified supplier base
• There are more mitigation tactics that can be applied in any of the 6 risk-tactic tables.
• Supply chain risks and tactics include the following: supplier failures, supplier quality, outsourcing, logistics delays or damage, distribution, information loss/distortion, political, economic, natural catastrophes, theft/vandalism/terrorism.

Security and Just-In-Time (JIT)

• Shipments get misrouted, stolen, damaged, or excessively delayed.
• Technological innovations are improving security and inventory management: location/motion sensors, broken seals, temperature, radioactivity.
• Tracking can help expedite shipments.

Managing the Integrated Supply Chain

• Local optimization can magnify fluctuations
• Incentives push merchandise into the supply chain for sales that haven't occurred.
• Large lots reduce shipping/production costs, but increase inventory holding and do not reflect actual sales.
• The Bullwhip effect occurs then orders are relayed through the supply chain with fluctuations increasing at each step.

Opportunities within the Integrated Supply Chain

• Accurate "Pull" data via shared information.
• Lot size reduction, shipping, discounts, reduces ordering costs.
• Single stage control of replenishment, where one supply chain member is responsible for ordering.
• Vendor managed inventory (VMI).
• Collaborative Planning, forecasting, and replenishment (CPFR) throughout the supply chain.
• Blanket orders where actual orders are released against.
• Standardization.
• Postponement, which withholds modification as long as possible.
• Blockchain aids tracking and verification.
• Electronic ordering + funds transfer speeds transactions, reduces paper.
• Omnichannel strategy provides integrated channels of communication and shipping.
• Drop shipping + packaging bypass the seller and reduces cost.
• Digitalization and Internet-of-Things (IoT) provides improved visibility, enabling managers to make decisions in real time.

Tracing Food Via Blockchain

• Every change made to the digital database makes the information tamper proof.

• A producer has a livestock farm in France that is free of GMOs and antibiotics.

• Consumers scan Quick Response (QR) codes in order to see the data from each step.

Building the Supply Base

• Involves supplier evaluation to find credible potential suppliers.
• Determine the likelihood of potential suppliers to becoming good suppliers through supplier certification.
• Supplier certification involves: qualification, education, and certification.
• Integrates supplier into the system. This involves communicating quality requirements, product specifications, schedules and delivery, procurement policies, training, engineering & production help, and information transfer procedures.
• Involves negotiations for purchasing.
• There are highly valued skills when negotiating, which can contribute to the cost-based price model and the market-based price model.
• Competitive bidding is a common policy for many purchases.
• Sharing risks and benefits to create incentives.

Centralized Purchasing

• Leverage volume
• Develop specialized staff.
• Maintain professional control
• Develop supplier relationships
• Devote resources to selection and negotiation
• Reduce duplication of tasks
• Promote standardization
• The process includes contracting and electronic-procurement

Electronic-Procurement

• Speeds purchasing, reduces costs, and integrates supply chain.
• It includes online catalogs and exchanges that involve standard items or industry-specific websites. - Auctions are also done online, leading to low barriers of entry, reverse auctions for buyers, and where price is not always the most important factor.

Logistics Management

• Obtains efficient operations through the integration of all material acquisition, movement, And storage activities.
• Candidate for outsourcing.
• Gain competitive advantage through reduced costs and improved customer service

Shipping Systems

• Trucking is most vulnerable to accidents, as it is dependent upon safe highway transport system.
• Trucking moves the vast majority of manufactured goods, where the chief advantage lies in its flexibility.
• Railroads are capable of carrying large loads. Containers and piggybacking have helped improve flexibility of railroads.
• Airfreight is fast and flexible to carry light loads, but it can be expensive.
• Waterways, typically used for bulky and low-value cargo, is used when shipping cost is more important than speed
• Pipelines are specifically used for transporting oil, gas and other chemical products
• Multimodal combines the individual shipping methods and is common in international shipments, it is aided by standardized containers.

Four Critical points in logistics process

• Point of origin
• Warehousing
• Transit
• Destination
• Sensors, forming part of a digital network, can alert managers to problems

The speed and cost of shipments is relevant

• Faster shipping is expensive.
• Faster methods involve smaller shipment sizes, which can increase cost and make it less economical, while slower methods involve very large shipment size with lower associated cost.

Warehousing

• Warehousing may be expensive, but alternatives may not be more so
• Fundamental purpose is to store goods, may provide other functions of consolidation, break-bulk, cross-docking, postponement
• In warehouses, channel assembly implements: postponement; ship components or modules; distributors become manufacturing partners; finished goods inventory reduced; better market response with less investment.
• Third-party logistics (3PL) can reduce inventory, reduce costs, and improve delivery reliability and speed.

Distribution Management

• the outbound flow of products, which can improve: rapid response, product choice, and service.
• If this is increased across many facilities this would increase response time and customer satisfaction.
• Total costs such as inventory, transportation and facility costs are important, contributing to total logistics costs.
• Downstream managements very vital as Upstream management.

Ethics and Sustainable Supply Chain Management

• Critical and particularly susceptible to long-term success of an organization, within the environment and supply chain.

Institute for Supply Management Principles and Standards

• Promote and uphold responsibilities to one's employer
• Support positive supplier/customer relationships
• Help sustainability AND social responsibility
• Promote protection of confidential and proprietary info
• Abide by all applicable laws, regulations and trade agreements
• Develop professional competence while avoiding conflicts of interest + improper behaviors and reciprocal agreements

Establishing Sustainability in Supply Chains

• Involves return or reverse logistics sending returned products back up to the supply chain for resale, repair, reuse, remanufacture, recycling or disposal.
• A closed-loop supply chain proactively designs to optimize all forward and reverse flows & prepare returns prior to product introduction.

Management Challenges of Reverse Logistics in comparison with Forward Logistics

• Forecasting: Reverse logistics has more uncertainty, with differences in product quality and packaging that can cause damage. Dependent in the number of factors.
• Speed, often very important in forward logistics, is not prioritized. In return, logistics also provides less visible distribution costs and creates inconsistent inventory management unlike in forward logistics.

Measuring Supply-Chain Performance

• Assets committed to inventory
• Percentage invested in inventory = (Average inventory investment / total assets) x 100
• Inventory Turnover is the cost of goods sold divided by the average inventory investment. Weeks of supply. (Average inventory investment annual cost of goods sold / 52 weeks)
• Example: Home Depot had $12.5b of inventory, total assets of $42.9b. Therefore, percentage invested in inventory equals 29.1%.

From PepsiCo, Inc. Annual Report

• Net revenue: $63.5
• Cost of goods sold: $28.7
• Raw material inventory: $1.32
• Works in process: $0.15
• Finished goods: $1.26
• Total Inventory Investment: $2.73
• Inventory Turnover = 10.5

Benchmarking the Supply Chain

• Benchmarking is most useful with consumer packaged goods.
• Benchmarking is a comparison with benchmark firms, including metrics like order rate, fulfillment lead time, etc.
• Audits may be necessary for communication, understanding, trust, performance, corporate strategy.
• It helps foster a mutual belief to stick together, and may not be adequate.
• A key element is also the SCOR model, which is a framework to assess and improve the organization's supply chain.
• SCOR model measures supply chain processes, metrics, and best practices
• It measures performance, and benchmarks against the set industry standards.
• It is also made of five categories, including Attributes, Sample Metric, and Calculation.
• Attributes are Reliability, Responsiveness, Agility, Costs, and Asset Management