2. B8-2
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
3. B8-3
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
6. B8-6
SUPPLY CHAIN DRIVERS
• The four primary drivers of supply chain
management
1. Facilities
2. Inventory
3. Transportation
4. Information
• Organizations use these four drivers to
support either a supply chain strategy focusing
on efficiency or a supply chain strategy
focusing on effectiveness
8. B8-8
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
9. B8-9
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
10. B8-10
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
11. B8-11
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
13. B8-13
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
14. B8-14
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
15. B8-15
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
17. B8-17
TRANSPORTATION DRIVER
• Transportation – moves inventories
between the different stages in the
supply chain
• Two primary inventory components
1. Method of transportation
2. Transportation route
18. B8-18
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
19. B8-19
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
21. B8-21
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
22. B8-22
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
23. B8-23
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
28. B8-28
Increased outsourcing
Large global supply networks
Increased competition
Consumer driven
Today’s Supply Chain Reality
•Lack of visibility reduces suppliers’ ability to handle variability
•Suppliers use inventory buffers to compensate increasing costs
•Errors in manual replenishment (filling) processes can cause stock-outs
•All of these issues can increase costs, lower customer service and reduce
revenue
29. B8-29
1. Share data and information to create visibility
2. Interact to match expectations
3. Synchronize resources and processes to perform as one
Collaboration is Key for Adaptiveness
My Company CustomersSuppliers
Outsourcing
Partner
Notas do Editor
Key point – modern supply chains can actually increase costs if they are not managed properly
Why is this?
Everyone wants better ROA (Return On Assets) so everyone is focusing on core competencies
So, non-core competencies are outsourced
This leads to more partners
Everyone is going global to find cheaper sources of supply – this leads to a distributed supply network
More partners leads to more forecast errors because every link in the supply chain generates forecast errors – the bull-whip effect
More errors leads to more inventory buffers; the buffer gets bigger as you go back in the chain
Inventory buffers add cost to the final product and make your supply chain less competitive
Need a story here
Furthermore, competitive pressures are forcing everyone to try to improve customer choice and customer service
This leads to shorter product lifecycles
Side-effect of the bull-whip effect is it forces earlier configuration decisions (no postponement)
More customisation and delayed configuration
Need a story here