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Chapter 11

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Maryam Hafezi

BU395 Chapter 11 – Supply Chain Management Week 1/2 Introduction -Supply chain – sequence of organizations – their facilities and activities – that are involved in producing and delivering a product -The sequence may begin with suppliers of raw materials and extends all the way to the final customer -Facilities include factories, warehouse centres, retail outlets, and offices -Activities may include product design, forecasting, quality assurance, etc. -There are two kinds of movement: the physical movement of material, and the exchange of information and money -Supply chains are sometimes referred to as value chains, a term that reflects the concept that value is added as goods progress through the chain -Supply chain management – collaboration and coordination of all components of the supply chain so that market demand is met as efficiently and effectively as possible The Need for Supply Chain Management 1. The need to improve operations 2. Increasing level of outsourcing -Outsourcing – buying goods or services instead of producing or providing them in-house 3. Increasing globalization 4. Increasing e-commerce 5. The need to manage inventories across the supply chain -Bullwhip effect- demand variably is progressively larger moving backward through a supply chain -Causes of the bullwhip effect range from using large order quantities downstream to slow reactions to changes in demand upstream -The slow reactions can be part of the demand forecasting/production control system Supply Chain Activities Strategic (Design) Activities -Strategic decisions have long-term impacts on a supply chain -Goals and competitive characteristics such as quality, cost, variety, timeliness, customer service, and fill rate should be determined by the members of the supply chain -Then products may be designed/redesigned for these products, goals, and competitive characteristics Tactical (Planning)/Operational Activities -Relates to production planning and control, including forecasting, purchasing, transportation of material, inventory control, and scheduling of production -Two general rules apply: 1. Value of inventory increases as materials move down the supply chain toward the consumers 2. The nature of inventory becomes more specific as inventory moves down the supply chain -Risk pooling – holding safety stocks in one central location rather than in multiple locations -Delayed differentiation/postponement – waiting until late in the process to add differentiating features to standard components and products Logistics -Logistics – the movement and warehousing of materials/products and information, both within the production facility and outside -Logistics costs can be separated into three categories: internal (within a company), logistics costs, and the cost of outsourcing to logistics service providers, and inventory carrying or BU395 Chapter 11 – Supply Chain Management Week 1/2 holding cost -The logistics costs of a company in Canada usually range between 3 and 8 percent of its sales Movement within a Facility -Movement of goods within a manufacturing facility is part of production control -Common equipment is used to move it – Ex. Forklifts Incoming and Outgoing Deliveries -Traffic management – overseeing the delivery of incoming and outgoing goods -Modes of transportation – the equipment used for delivery, including ships trains, trucks, and airplanes -In terms of delivery reliability, the order from most to least reliable is air cargo, trucking, railway, and ocean freight Selecting a Transportation Mode -An important assumption is that the buyer takes ownership at the supplier’s location and pays for delivery, which is the case in most business purchases In-transit holding cost = H(d) 365 H = annual holding cost of items being transported d = duration of transport (in days) Total delivery cost = transportation (freight) cost + in-transit holding cost = transportation (freight) cost + H(d) 365 Warehousing -Besides storage of goods, warehouses are used for consolidating shipments, deconsolidating shipments, and cross docking -Consolidating shipments means collecting the incoming shipments from various geographic areas headed toward another geographic area -Cross-docking – loading goods arriving at a warehouse from a supplier directly onto outbound trucks, thereby avoiding warehouse storage Fast Delivery Methods -Just-In-Time (JIT) was changed to ‘quick response’ -JIT requires frequent deliveries of small shipments -There is a fixed cost per delivery and it comes to be very expensive to use JIT – the benefits need to be weighed against the costs -Quick response (QR) – just-in-time replenishment system used in retailing where orders are based on actual sales, not periodic orders by retailers -Efficient consumer response (ECR) – an expanded version of quick response, used in the grocery industry, which includes further collaboration -Vendor-managed inventory – an agreement in which the supplier has access to the customer’s inventor and is responsible for maintaining the inventory level required by the customer Distribution Requirements Planning -Distribution requirements planning (DRP) – DRP is a distribution planning system that starts with the forecast demand at the end of the distribution network (retail stores), and works backward through the network to obtain time-phased replenishment schedules for moving goods from the factory through each level of the distribution network Third Party Logistics BU395 Chapter 11 – Supply Chain Management Week 1/2 -Some companies are outsourcing their logistics requirements, turning over warehousing and deliveries to companies that specialize in these areas such as Purolator, UPS, FedEx -This gives businesses the opportunity to focus on the core business Reverse Logistics -Reverse logistics – backward flow of goods returned to the supply chain from their final destination -Goods may be returned because they are defective, because they are unsold, or because consumers change their minds -The goal of reverse logistics management is to recapture or create value in returned goods or to properly dispose of goods that cannot be resold -Gate keeping – screening returned goods at the point of entry into the system to prevent incorrect acceptance of goods -Avoidance – preventing returns by dealing with their causes Some Supply Chain Technologies Electronic Data Interchange (EDI) -EDI – the direct transmission of inter-organizational transactions and information, computer-to- computer, including purchase orders, sales data, advance shipping notices, invoices, and engineering data -Reduction in clerical labour, and paperwork -Increased accuracy and speed Radio Frequency Identification (RFID) -RFID – a technology that uses radio waves to identify objects such as goods in a supply chain -Done through the use of an RFID tag attached to an object -Two types of RFID tags: active tags have a battery and emit radio waves by themselves, and passive tags do not have a battery but work by responding to electromagnet
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