Supply Chain and Supply Management - Chapter 10 PDF

OM CHAPTER 10: Supply Chain and Supply Management **INTRODUCTION** In 2001, Cisco faced a major supply chain problem, resulting in a \$2.5 billion inventory write-off due to overestimated market demand. This issue, partly driven by supplier incentives that encouraged overproduction, caused a 6% d...

OM CHAPTER 10: Supply Chain and Supply Management **INTRODUCTION** In 2001, Cisco faced a major supply chain problem, resulting in a \$2.5 billion inventory write-off due to overestimated market demand. This issue, partly driven by supplier incentives that encouraged overproduction, caused a 6% drop in Cisco's stock value. The situation underscores the importance of efficient supply chain management (SCM), which focuses on minimizing inventory, maintaining operational flexibility, using metrics to ensure efficiency, and fostering low-emission operations. Effective SCM involves a systems-thinking approach to align internal and supplier processes, enhancing organizational resilience and strengthening partnerships across the supply chain to better respond to demand. **What is Supply Chain?** The supply chain is the entire network involved in producing and delivering a product to the final consumer. It includes all parties (e.g., suppliers, manufacturers, warehouses, distribution centers, and retailers) and all processes that turn raw materials into finished goods and get them to the customer. **What is Supply Management? (SCM)** SCM focuses on integrating these supply chain activities to streamline operations, reduce costs, and enhance customer service. It emphasizes the coordination of each stage, whether within a single company or across multiple organizations, to achieve operational goals and respond effectively to market demands. **Capacity and Scheduling (Physical Supply and Physical Distribution)** Upstream (Left Side) - Physical Supply - The flow starts with the suppliers to the left of entity Z. - Second-Tier Suppliers (farthest left): These are suppliers providing raw materials or components to the next level of suppliers, known as first-tier suppliers. - First-Tier Suppliers: These suppliers receive materials from the second-tier suppliers and may further process or assemble the components. They then supply these processed materials or parts to entity Z. Entity Z (Center): Entity Z is at the center of this supply chain. It represents a manufacturer, processing plant, or another organization responsible for converting the incoming supplies into finished products or intermediates for further distribution. Downstream (Right Side) - Physical Distribution - After processing by entity Z, products are moved through Distribution Centers and Warehouses, where they are stored and prepared for distribution. - From these centers, the products go to Retailers, who finally make them available to end consumers. Flow of Materials and Information - The arrows represent the flow of both physical goods and information, with information moving in both directions (upstream and downstream) while physical goods generally flow from suppliers to the consumer end. - This structure shows the interconnected nature of supply chains, where multiple suppliers and distribution points contribute to the movement of goods from raw materials to the final product. **Apple IPODS** The iPod is a portable digital audio player developed by Apple Inc. As an example of a complex and multi-tiered supply chain, it is possible to consider the different stages and participants associated with the supply chain through which the iPod is made and how such processes reflect the principles of Supply Chain Management (SCM). In Supply Chain Management (SCM), Apple \"Pods\" refer to the specialized, modular teams or groups of suppliers that work together closely to meet Apple's demand for parts and products. Apple has a unique approach in SCM, where it forms these \"pods\" to manage and optimize specific product lines or production needs, leading to more efficient and adaptable manufacturing. Apple Pods are part of SCM because they allow for efficient organization, streamlined supplier management, flexible resource allocation, and tight cost and quality control, all of which are central to successful supply chain operations. **SCOR MODEL (Supply Chain Operation Reference)** The SCOR, or \"Supply Chain Operations Reference, model represents a cross-industry process framework and standard for defining what SCM enteils. In this respect, it seeks to play the same role that ISO 9000 or the Baldrige Award plays with respect to total quality management. SCOR was introduced in November 1996 by the Supply-Chain Council The SCM to encompass management of five distinct processes Plan, Source, Make, Deliver, and Return. 1. The Plan process refers to the development of a course of action (i.e., strategy) for balancing demand and supply while meeting the requirements of sourcing, production, and delivery. 2. The Source process refers to the set of activities involved in procuring materials and services to meet demand. 3. The Make process refers to the set of activities for transforming materials into finished form for meeting demand. 4. The Deliver process refers to the set of activities involved in order entry, materials handling, and transporting of goods and services to meet demand. 5. The Return process refers to the set of activities for handling returns of goods. A major advantage of the SCOR model is that it provides a common framework and lexicon for in reorganizational communication and efforts aimed at improving performance of the entire supply chain. PURCHASING AND LOGISTICS Purchasing refers to the process of acquiring goods and services that a company needs to produce its products or operate its business. The main tasks within purchasing include: - Identifying Needs - Supplier Selection - Negotiation - Contract Management Logistics refers to the management of the movement and storage of goods and services within the supply chain. It covers the entire process from the point of origin to the final customer. Key aspects of logistics include: - Transportation - Warehousing and Storage - Packaging - Reverse Logistics Relationship Between Purchasing and Logistics: Purchasing and logistics are closely intertwined. Purchasing teams are responsible for acquiring the necessary goods, while logistics teams handle the transportation and storage. For example, purchasing may source goods from a supplier, but logistics ensures those goods arrive on time and are stored properly before being sent to customers. Both functions must coordinate to optimize the supply chain, reduce costs, and maintain high levels of service. UNPACKAGED: THE ECO-FRIENDLY LONDON GROCERY STORES - Unpackaged is a zero-waste grocery store in London. - Founded in 2006 by Catherine Conway. - Purpose: To reduce packaging waste and promote sustainable shopping. STORE PHILOSOPHY AND SUSTAINABILITY the philosophy of unpackaged is "reduce, reuse, recycle" meaning to reduce waste, reuse items, and recycle when possible. customers are encouraged to bring their own containers to avoid unnecessary packaging waste. they focus on local and fair-trade products to reduce emissions from transportation. ENVIRONMENTAL IMPACT Minimal packaging reduces waste and lowers emissions. Local and Fair-Trade sourcing reduces carbon footprint. Compared to conventional stores, significant greenhouse gas savings. ENVIRONMENTAL IMPACT COMPARISON This infographic provides a comparison of the environmental impact of a traditional grocery store versus an eco-friendly store, highlighting differences in waste produced and greenhouse gas emissions. Traditional Grocery High waste and emissions due to single-use packaging and long-distance shipping. Uses plastic bags, disposable containers, and air-shipped products, contributing to high environmental impact. Eco-Friendly Grocery Low waste and emissions by promoting reusable containers and local sourcing. Reduces impact through minimal packaging, bulk bins, and eco-conscious supply chain choices. Customer Engagement Customers at eco-friendly stores bring their own jars, bags, and containers, allowing them to purchase items stored in bulk bins, which significantly reduces packaging. This practice promotes conscious consumption and helps minimize waste. MEASURING SUPPLY CHAIN PERFORMANCE Measuring supply chain performance requires considering each company within the supply chain individually, as their performance metrics are influenced by their partners. Each company can develop its own performance measures, but these are interconnected. Examples of specific measures of performance include the following: 1. Delivery 2. Quality 3. Flexibility 4. Time 5. Cost Delivery - ON-TIME - Fill Rate - Lead Time Quality can be measured by product performance, adherence to specifications, and customer satisfaction Flexibility is harder to measure but often includes volume flexibility (time to change output levels) and mix flexibility (time to change product types) THROUGHPUT TIME and CASH-TO-CASH CYCLE TIME (Time) Cost refers to the total cost of production and distribution, influenced heavily by suppliers. Each entity in the supply chain adds to the total cost. SUPPLY CHAIN DYNAMICS- THE BULLWHIP EFFECT 10.4 SUPPLY CHAIN DYNAMICS-THE BULLWHIP EFFECT The entities in a supply chain are interrelated by the very fact that they send materials and information up and down the supply chain. The decisions they make and the actions they take can have a substantial impact on each other. These interrelationships define the dynamics that we often observe in any supply chain, with one specific manifestation of supply chain dynamics being the bullwhip effect, or what economists call the accelerator effect. The bullwhip effect describes the increasing variability in orders that are received by entities upstream in a supply chain, which in turn affects the amount of inventory that those entities hold. The bullwhip effect has been observed in numerous industries ranging from consumer products to pharmaceuticals to electronics. Retailer First-tier Supplier 2^nd^ tier Supplier 3r d tier Supplier Why is the bullwhip effect so common across industries? One reason is that supply chain entities farther upstream may not have or be granted access to actual market demand. Instead, they use forecasts to guide their initial decisions and actions and use actual orders received to make adjustments to those decisions and actions. When forecasts are inaccurate, the initial decisions and actions do not match actual market demand, creating situations of feast or famine. Another reason is the replenishment lead time (i.e., the time between when an order is placed and when an order is received) that each entity faces. When a supply chain entity faces substantial replenishment lead time, it may have no choice but to hold safety stock as a buffer against unexpected large orders. A third reason is the delay in sharing information up and down the supply chain. IMPROVING SUPPLY CHAIN PERFORMANCE To reduce the bullwhip effect and improve supply chain performance, strong coordination is needed both within and between firms. Most companies are divided into functional silos, with departments like marketing, purchasing, and production each handling different parts of the supply chain. When these departments are not well-coordinated, it disrupts the supply chain both inside and outside the firm. Without synchronization across the entire supply chain, the bullwhip effect is hard to control. Coordination within and between firms can be improved by adjusting the structure or infrastructure of supply chains. - Structural changes involve product offerings, facility types and locations, process technology, and vertical integration. - Infrastructure changes focus on employee roles, supplier management, and systems for information, production, inventory, and quality control. Whether improving supply chain structure or infrastructure, the goal is to enhance coordination to reduce uncertainty, replenishment lead time, and total supply costs. Reducing demand or supply uncertainty lessens the need for inventory. For instance, if demand is predictable and resupply is reliable, only in-transit inventory is needed. Materials can be scheduled to arrive just as the customer needs them. Reducing lead times in the supply chain also allows faster, more flexible responses to demand changes, lowering the need for inventory investment. SUPPLY CHAIN STRUCTURAL IMPROVEMENTS Changes in supply chain structure involve big, sometimes dramatic shifts that can reshape how things are made, stored, and delivered. Changing and Improving Supply Chain Forward and Backward Integration This means a company takes control of parts of the supply chain by either moving closer to the customer (forward) or closer to the supplier (backward). Simplifying Processes means making a company\'s operations easier, faster, or more efficient by removing unnecessary steps or improving how tasks are done. This is often done to save time, reduce costs, and improve the quality of the final product or service. Changing Location means moving certain parts of the supply chain like factories, warehouses, or suppliers to new places. This is often done to save money, improve efficiency, or adapt to new markets. Pursuing Major Product Redesign This refers to efforts to significantly alter a product's design to enhance efficiency, reduce costs, or improve performance within the supply chain. It could involve changes in the manufacturing process, sourcing of materials, or even altering the product to fit better with supply chain capabilities. Working with Third-Party Providers means partnering with external companies to help with different parts of the supply chain. These providers are not part of your company but are hired to manage specific tasks. BOEING 787 DREAMLINER The Boeing 787 Dreamliner consists of three models, with the 787-3 being the largest, capable of carrying up to 330 passengers over long distances. Notably, 50% of the aircraft is made from composite materials, significantly more than its predecessor, the 777\. Additionally, the text touches on the trend of offshore outsourcing in U.S. manufacturing, emphasizing that while labor costs are a factor, they are not the sole reason for outsourcing. It also mentions the importance of product redesign and modularity in improving supply chains, citing Hewlett-Packard\'s strategy of using swappable power supply modules in laser printers to adapt to different market requirements efficiently. SUPPLY CHAIN INFRASTRUCTURAL IMPROVEMENTS Supply chain infrastructure improvements are often made within a specific structure or configuration of the supply chain, aiming to remove sources of uncertainty, time, and cost. These improvements can be dramatic and just as important as those affecting structural change. Five key initiatives to improve supply chain infrastructure include cross-functional teams, partnerships, setup time reduction, information systems, and cross-docking. Cross-functional teams provide coordination across various departments and functions, such as planning and controlling the master schedule for manufacturing. Partnerships with suppliers and customers provide coordination across businesses, establishing long-term relationships and trust. For example, a team of engineers from an appliance company and its key customer\'s site developed a new product, demonstrating the importance of integrating teams to work on important improvement projects. In the grocery industry, demand at the retailer level varies by two to four times, highlighting the need for effective supply chain infrastructure improvements. EFFICIENT CONSUMER RESPONSE EUROPE In 1994, a joint trade and industry body ECR Europe (www.ecrnet.org), was launched within the grocery industry in Europe. The formation of this organizing body was driven inlarge part by the changing business environment at that time. Sophisticated information technology, increasing giobal competition, and cut-throat margins, along with an increasing consumer focus on wider choices, shopping convenience, superior service, and increased product quality and freshness, led to the realization that the traditional separation of manufacturer and retailer and the absence of real coordination and cooperation between those entities could not work. Headquartered in Brussels, Belgium, ECR Europe has influenced the formation of similar bodies within European countries, in other geographicgions (e.g., ECR Asia and ECR Australasia), and in countries outside Europe (e.g.. ECR Brazil). Today, ECR Europe works closely with those national and international bodies to promote, facilitate support projects aimed at exploring new collaborative initiatives that allow consumer wishes to be fulfilled \"better, faster and at less cost\" Project results are shared wide through publications, at annual conferences of ECR Europe, and through the International Commerce institute (http/ww.ecr-institute.org), the know edge arm of ECR Europe. In supply chain improvement it is often necessary to deploy lean tenants and techniques to pursue setup time reduction across entities within the supply chain. A 2009 McKinsey report in fact identified lean as one of six key management practices that differentiate firms with good supply chain performance from those with poor supply chain performance. Setup time reduction can take many days out of the supply chain, reducing the total replenishment lead time and the total supply chain throughput time. In addition, reduced setup times allow smaller lots of materials and the product to be produced and transferred across the supply chain economically. Once lot sizes are reduced, inventory in the supply chain would also be reduced; the inventory would turn over more quickly, more closely meeting the market need. Reducing setup time requires imagination and can done for any piece of production equipment simply by getting ready for the changeover before the machine is stopped and then making changes quickly once the machine no longer is running so that it can be put back into production as soon as possible. Changes to information systems are important in supply chains. One changes occurring in industry is obtaining sales data from the final customer and feeding that information back through the supply chain. Suppliers no longer just get orders from their customers; they know the sales and inventory positions of the customers as well. This gives the supplier a basis for better (i.e., more ace and more timely) forecasting of future orders and planning capacity. Sharing this kind of intormation is easy once partnerships across the supply chain have to established. However, capturing and sharing the downstream demand information across the supply chain will require improved information systems and decision rules for capacity planning. These elements can be integrated into a revised information system. Cross-docking is an innovation in transportation that has been attributed to Walmart. The basic idea is that a supplier\'s shipments are taken from various docks at the warehouse when they arrive and transferred directly to a Walmart truck at another dock. The items do not spend time in the warehouse\'s inventory, they simply are moved from one dock to another. This provides the benefit of full truckload shipments (i.e., economies of scale) while drastically reducing ware-house inventory. Cross-docking is being used wherever there is sufficient volume to make it possible. Cross-docking is an innovation in transportation that has been attributed to Walmart. The basic idea is that a supplier\'s shipments are taken from various docks at the warehouse when they arrive and transferred directly to a Walmart truck at another dock. The items do not spend time in the warehouse\'s inventory, they simply are moved from one dock to another. This provides the benefit of full truckload shipments (i.e., economies of scale) while drastically reducing ware-house inventory. Cross-docking is being used wherever there is sufficient volume to make it possible. TECHNOLOGY AND SUPPLY CHAIN MANAGEMENT Advancements in technology have significantly transformed supply chain management, improving efficiency, reducing costs, and mitigating uncertainties. A key driver of these improvements is the integration of the Internet and the World Wide Web, which have revolutionized not just business transactions but also the entire supply chain process. As businesses and consumers become increasingly connected, supply chains are becoming more streamlined, responsive, and data-driven. B2B (business-to-business) connections in forms such as e-procurement, order en-try, and Internet auctions are facilitating interfirm exchanges of goods and ser-vices. B2C (business-to-consumer) connections are allowing traditional brick-and-mortar firms to create an alternative distribution channel to offer merchandise and services for sale. Additionally, new business types have emerged to connect traditional brick-and-mortar companies to the digital world. Companies like eBay and Expedia offer platforms for diverse transactions in areas like travel and retail. The Internet allows for greater coordination and information exchange across the supply chain, improving responsiveness and efficiency. Firms can now streamline operations, cut costs, and manage their supply chains more effectively. The \"Cisco Story\" in the Operations Leader box is cited as an example of how Cisco uses the Internet to improve its supply chain. THE CISCO STORY Operations Leader The Cisco Story Cisco Systems, Inc., is the worldwide leader in networking for the Internet. Cisco\'s Internet Protocol-based (IP) networking solutions are the foundation of the Internet and most corporate, education, and government networks around the world; Cisco employs 57,000 people worldwide. CISCO SYSTEMS Cisco\'s CEO, John Chambers, says, \"Cisco\'s success and our increased productivity gains are due largely to the implementation of Internet applications to run our business. The ability to harness the power of the Internet to create a New World business model is driving survival and competition in today\'s fast- paced economy.\" In all supply chains, two fundamental processes are being affected dramatically by the Internet 1\. Order Placement: Customers can now place orders in real time with high accuracy, personalized recommendations, and integration with customer systems for automated reordering. This reduces errors and improves service. 2\. Order Fulfillment: Internet-driven tools like automated warehousing, real-time inventory tracking, and advanced shipping updates streamline fulfillment. Technologies like IoT, robotics, and last-mile innovations improve speed and accuracy in delivering orders. IDM AND E-PROCUREMENT IBM (International Business Machines Corporation) is a multinational technology company that provides hardware, software, and services to businesses and organizations. E-Procurement, on the other hand, refers to the electronic or digital process of purchasing goods and services. It involves using digital platforms, tools, and systems to manage procurement activities, such as: BENEFITS OF IBM E-PROCUREMENT: 1\. Improved efficiency and automation 2\. Enhanced transparency and visibility 3\. Better supplier management and collaboration 4\. Increased cost savings and reduced maverick spending. 5\. Improved compliance and risk management