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Chapter 10 Supply Chain Management
Chapter 10
Supply Chain Management

Operations Management - 5 th Edition

Roberta Russell & Bernard W. Taylor, III
Roberta Russell & Bernard W. Taylor, III
t h Edition Roberta Russell & Bernard W. Taylor, III Copyright 2006 John Wiley & Sons,

Copyright 2006 John Wiley & Sons, Inc.

Beni Asllani University of Tennessee at Chattanooga

Lecture Outline  Supply Chain Management  Information Technology: A Supply Chain Enabler  Supply
Lecture Outline  Supply Chain Management  Information Technology: A Supply Chain Enabler  Supply
Lecture Outline
Lecture Outline
Lecture Outline  Supply Chain Management  Information Technology: A Supply Chain Enabler  Supply Chain
Lecture Outline  Supply Chain Management  Information Technology: A Supply Chain Enabler  Supply Chain
Lecture Outline  Supply Chain Management  Information Technology: A Supply Chain Enabler  Supply Chain
Lecture Outline  Supply Chain Management  Information Technology: A Supply Chain Enabler  Supply Chain
Lecture Outline  Supply Chain Management  Information Technology: A Supply Chain Enabler  Supply Chain
Lecture Outline  Supply Chain Management  Information Technology: A Supply Chain Enabler  Supply Chain

Supply Chain Management

Information Technology: A Supply Chain Enabler

Supply Chain Integration

Suppliers

Lecture Outline (cont.)  E-Procurement  Distribution  Supply Chain Management Software  Measuring Supply
Lecture Outline (cont.)  E-Procurement  Distribution  Supply Chain Management Software  Measuring Supply
Lecture Outline (cont.)
Lecture Outline (cont.)
Lecture Outline (cont.)  E-Procurement  Distribution  Supply Chain Management Software  Measuring Supply
Lecture Outline (cont.)  E-Procurement  Distribution  Supply Chain Management Software  Measuring Supply
Lecture Outline (cont.)  E-Procurement  Distribution  Supply Chain Management Software  Measuring Supply
Lecture Outline (cont.)  E-Procurement  Distribution  Supply Chain Management Software  Measuring Supply
Lecture Outline (cont.)  E-Procurement  Distribution  Supply Chain Management Software  Measuring Supply
Lecture Outline (cont.)  E-Procurement  Distribution  Supply Chain Management Software  Measuring Supply

E-Procurement

Distribution

Supply Chain Management Software

Measuring Supply Chain Performance

Global Supply Chain

Supply Chain
Supply Chain
Supply Chain   All facilities, functions, activities, associated with flow and transformation of goods and
Supply Chain   All facilities, functions, activities, associated with flow and transformation of goods and
Supply Chain   All facilities, functions, activities, associated with flow and transformation of goods and
Supply Chain   All facilities, functions, activities, associated with flow and transformation of goods and
Supply Chain   All facilities, functions, activities, associated with flow and transformation of goods and
Supply Chain   All facilities, functions, activities, associated with flow and transformation of goods and
 

All facilities, functions, activities, associated with flow and transformation of goods and services from raw materials to customer, as well as the associated information flows An integrated group of processes to “source,” “make,” and “deliver” products

of processes to “source,” “make,” and “deliver” products Copyright 2006 John Wiley & Sons, Inc. 10-4
Supply Chain Illustration
Supply Chain Illustration
Supply Chain Illustration Copyright 2006 John Wiley & Sons, Inc. 10-5

Copyright 2006 John Wiley & Sons, Inc.

10-5

Supply Chain for Denim Jeans
Supply
Chain
for
Denim
Jeans
Supply Chain for Denim Jeans (cont.) Copyright 2006 John Wiley & Sons, Inc. 10-7
Supply Chain for Denim Jeans (cont.) Copyright 2006 John Wiley & Sons, Inc. 10-7
Supply Chain for Denim Jeans (cont.) Copyright 2006 John Wiley & Sons, Inc. 10-7

Supply

Chain for Denim Jeans (cont.)
Chain
for
Denim
Jeans
(cont.)
Supply Chain Processes
Supply Chain Processes
Supply Chain Processes Copyright 2006 John Wiley & Sons, Inc. 10-8
Supply Chain Processes Copyright 2006 John Wiley & Sons, Inc. 10-8
Supply Chain Processes Copyright 2006 John Wiley & Sons, Inc. 10-8
Supply Chain for Service Providers
Supply Chain for Service
Providers
 More difficult than manufacturing  Does not focus on the flow of physical goods
 More difficult than manufacturing
 Does not focus on the flow of physical goods
 Focuses on human resources and support
services
 More compact and less extended
Value vs. Supply Chain
Value vs. Supply Chain
Value vs. Supply Chain  Value chain  every step from raw materials to the eventual
Value vs. Supply Chain  Value chain  every step from raw materials to the eventual
Value vs. Supply Chain  Value chain  every step from raw materials to the eventual
Value vs. Supply Chain  Value chain  every step from raw materials to the eventual
Value vs. Supply Chain  Value chain  every step from raw materials to the eventual
Value vs. Supply Chain  Value chain  every step from raw materials to the eventual

Value chain

every step from raw materials to the eventual end user

ultimate goal is delivery of maximum value to the end user

Supply chain

activities that get raw materials and subassemblies into manufacturing operation

raw materials and subassemblies into manufacturing operation  Terms are used interchangeably Copyright 2006 John Wiley

Terms are used interchangeably

Supply Chain Management (SCM)
Supply Chain Management (SCM)
Supply Chain Management (SCM)
Supply Chain Management (SCM)
Supply Chain Management (SCM)
Supply Chain Management (SCM)
Supply Chain Management (SCM)

Supply Chain

Management (SCM)

Supply Chain Management (SCM)  Managing flow of information through supply chain in order to attain
Supply Chain Management (SCM)  Managing flow of information through supply chain in order to attain
Supply Chain Management (SCM)  Managing flow of information through supply chain in order to attain
Supply Chain Management (SCM)  Managing flow of information through supply chain in order to attain
Supply Chain Management (SCM)  Managing flow of information through supply chain in order to attain
Supply Chain Management (SCM)  Managing flow of information through supply chain in order to attain

Managing flow of information through supply

chain in order to attain the level of

synchronization that will make it more responsive to customer needs while lowering costs

Keys to effective SCM

information

communication

cooperation

trust

SCM  information  communication  cooperation  trust Copyright 2006 John Wiley & Sons, Inc.
Supply Chain Uncertainty
Supply Chain Uncertainty
Supply Chain Uncertainty  One goal in SCM:  respond to uncertainty in customer demand without
Supply Chain Uncertainty  One goal in SCM:  respond to uncertainty in customer demand without
Supply Chain Uncertainty  One goal in SCM:  respond to uncertainty in customer demand without
Supply Chain Uncertainty  One goal in SCM:  respond to uncertainty in customer demand without
Supply Chain Uncertainty  One goal in SCM:  respond to uncertainty in customer demand without
Supply Chain Uncertainty  One goal in SCM:  respond to uncertainty in customer demand without

One goal in SCM:

respond to uncertainty in customer demand without creating costly

excess inventory

Negative effects of uncertainty

lateness

incomplete orders

Inventory

insurance against supply chain uncertainty

Inventory  insurance against supply chain uncertainty  Factors that contribute to uncertainty  inaccurate

Factors that contribute to

uncertainty

inaccurate demand forecasting

long variable lead times

late deliveries

incomplete shipments

product changes batch ordering

price fluctuations and discounts

inflated orders

ordering  price fluctuations and discounts  inflated orders Copyright 2006 John Wiley & Sons, Inc.
Bullwhip Effect
Bullwhip Effect
Bullwhip Effect Occurs when slight demand variability is magnified as information moves back upstream Copyright 2006
Bullwhip Effect Occurs when slight demand variability is magnified as information moves back upstream Copyright 2006
Bullwhip Effect Occurs when slight demand variability is magnified as information moves back upstream Copyright 2006
Bullwhip Effect Occurs when slight demand variability is magnified as information moves back upstream Copyright 2006
Bullwhip Effect Occurs when slight demand variability is magnified as information moves back upstream Copyright 2006
Bullwhip Effect Occurs when slight demand variability is magnified as information moves back upstream Copyright 2006

Occurs when slight demand variability is magnified as information

moves back upstream
moves back upstream
demand variability is magnified as information moves back upstream Copyright 2006 John Wiley & Sons, Inc.
Chain Enabler
Chain Enabler
Chain Enabler
Chain Enabler

Chain Enabler

Information Technology: A Supply

Chain Enabler Information Technology: A Supply  Information links all aspects of supply chain  E-business
Chain Enabler Information Technology: A Supply  Information links all aspects of supply chain  E-business
Chain Enabler Information Technology: A Supply  Information links all aspects of supply chain  E-business
Chain Enabler Information Technology: A Supply  Information links all aspects of supply chain  E-business
Chain Enabler Information Technology: A Supply  Information links all aspects of supply chain  E-business
Chain Enabler Information Technology: A Supply  Information links all aspects of supply chain  E-business

Information links all aspects

of supply chain

E-business

replacement of physical business processes with electronic ones

Electronic data interchange

(EDI)

a computer-to-computer exchange of business documents

Bar code and point-of-sale

data creates an

instantaneous computer record of a sale

Radio frequency identification (RFID)

technology can send product

data from an item to a reader

technology can send product data from an item to a reader via radio waves  Internet

via radio waves

Internet

allows companies to communicate with suppliers, customers, shippers and

to communicate with suppliers, customers, shippers and other businesses around the world, instantaneously Copyright

other businesses around the

world, instantaneously

E-business and Supply Chain  Cost savings and price reductions  Reduction or elimination of
E-business and Supply Chain  Cost savings and price reductions  Reduction or elimination of
E-business and Supply Chain  Cost savings and price reductions  Reduction or elimination of
E-business and Supply Chain  Cost savings and price reductions  Reduction or elimination of
E-business and Supply Chain  Cost savings and price reductions  Reduction or elimination of

E-business and Supply Chain

E-business and Supply Chain  Cost savings and price reductions  Reduction or elimination of the
E-business and Supply Chain  Cost savings and price reductions  Reduction or elimination of the
E-business and Supply Chain  Cost savings and price reductions  Reduction or elimination of the
E-business and Supply Chain  Cost savings and price reductions  Reduction or elimination of the
E-business and Supply Chain  Cost savings and price reductions  Reduction or elimination of the
E-business and Supply Chain  Cost savings and price reductions  Reduction or elimination of the

Cost savings and price reductions

Reduction or elimination of the role of

intermediaries

Shortening supply chain response and transaction times

Gaining a wider presence and increased visibility for companies

Greater choices and more information for

customers

(cont.)
(cont.)
(cont.)
(cont.)

(cont.)

E-business and Supply Chain

(cont.) E-business and Supply Chain  Improved service as a result of instant accessibility to services
(cont.) E-business and Supply Chain  Improved service as a result of instant accessibility to services
(cont.) E-business and Supply Chain  Improved service as a result of instant accessibility to services
(cont.) E-business and Supply Chain  Improved service as a result of instant accessibility to services
(cont.) E-business and Supply Chain  Improved service as a result of instant accessibility to services
(cont.) E-business and Supply Chain  Improved service as a result of instant accessibility to services

Improved service as a result of instant accessibility to services

Collection and analysis of voluminous amounts of customer data and preferences

Creation of virtual companies

Leveling playing field for small companies

Gaining global access to markets, suppliers, and distribution channels

Gaining global access to markets, suppliers, and distribution channels Copyright 2006 John Wiley & Sons, Inc.
Supply Chain Evolution at Nabisco Source: F. Keenan, “Logistics Gets a Little Respect,” Business Week
Supply Chain Evolution at Nabisco
Supply Chain Evolution at
Nabisco

Source: F. Keenan, “Logistics Gets a Little Respect,” Business Week (November 20, 2000), pp. 112 115.

Respect,” Business Week (November 20, 2000), pp. 112 – 115. Copyright 2006 John Wiley & Sons,
Respect,” Business Week (November 20, 2000), pp. 112 – 115. Copyright 2006 John Wiley & Sons,
Respect,” Business Week (November 20, 2000), pp. 112 – 115. Copyright 2006 John Wiley & Sons,
Supply Chain Evolution at Nabisco (cont.)
Supply Chain Evolution at
Nabisco (cont.)

Source: F. Keenan, “Logistics Gets a Little Respect,” Business Week (November 20, 2000), pp. 112 115.

Respect,” Business Week (November 20, 2000), pp. 112 – 115. Copyright 2006 John Wiley & Sons,
Respect,” Business Week (November 20, 2000), pp. 112 – 115. Copyright 2006 John Wiley & Sons,
Supply Chain Evolution at Nabisco (cont.) Source: F. Keenan, “Logistics Gets a Little Respect,” Business
Supply Chain Evolution at Nabisco (cont.)
Supply Chain Evolution at
Nabisco (cont.)

Source: F. Keenan, “Logistics Gets a Little Respect,” Business Week (November 20, 2000), pp. 112 115.

Respect,” Business Week (November 20, 2000), pp. 112 – 115. Copyright 2006 John Wiley & Sons,
Respect,” Business Week (November 20, 2000), pp. 112 – 115. Copyright 2006 John Wiley & Sons,
Respect,” Business Week (November 20, 2000), pp. 112 – 115. Copyright 2006 John Wiley & Sons,
RFID Capabilities
RFID Capabilities
RFID Capabilities Copyright 2006 John Wiley & Sons, Inc. 10-20
RFID Capabilities Copyright 2006 John Wiley & Sons, Inc. 10-20
RFID Capabilities Copyright 2006 John Wiley & Sons, Inc. 10-20
RFID Capabilities (cont.)
RFID Capabilities (cont.)
RFID Capabilities (cont.) Copyright 2006 John Wiley & Sons, Inc. 10-21
RFID Capabilities (cont.) Copyright 2006 John Wiley & Sons, Inc. 10-21
RFID Capabilities (cont.) Copyright 2006 John Wiley & Sons, Inc. 10-21
Build-to-order cars over the Internet Copyright 2006 John Wiley & Sons, Inc. 10-22
Build-to-order cars over the Internet
Build-to-order cars over
the Internet
Build-to-order cars over the Internet Copyright 2006 John Wiley & Sons, Inc. 10-22
Build-to-order cars over the Internet Copyright 2006 John Wiley & Sons, Inc. 10-22
E-automotive Supply Chain Supply Chain Processes Automotive E-Automotive Past  Pull — build-to-order 
E-automotive Supply Chain
E-automotive Supply Chain

Supply Chain Processes

Automotive

E-Automotive

Supply Chain Processes Automotive E-Automotive Past
Supply Chain Processes Automotive E-Automotive Past

Past

Pullbuild-to-order

Focus on customer demand, respond with

supply chain flexibility

Fast, reliable, and customized to get cars to specific customer location

Shared by dealers and manufacturers

customer location  Shared by dealers and manufacturers  Customer sales  Production  Distribution

Customer sales

Production

Distribution

Customer

relationship

Pushsell from inventory stock

Goal of even and stable production

Mass approach

Dealer-owned

E-automotive Supply Chain (cont.) Supply Chain Processes Automotive Past E-Automotive  Managing
E-automotive Supply Chain (cont.) Supply Chain Processes Automotive Past E-Automotive  Managing
E-automotive Supply Chain (cont.)
E-automotive Supply Chain (cont.)

Supply

Chain

Processes

Automotive

Past

E-Automotive

Chain Processes Automotive Past E-Automotive  Managing uncertainty  Procurement 
Chain Processes Automotive Past E-Automotive  Managing uncertainty  Procurement 

Managing

uncertainty

Procurement

Product

design

Large car inventory at dealers

Batch-oriented; dealers order based on allocations

Complex

products don’t

match customer needs

Small inventories with shared information and strategically placed parts inventories

Orders made in real time

based on available-to- promise information

Simplified products based on

better information about

what customers want

Supply Chain Integration
Supply Chain Integration
Supply Chain Integration  Information sharing among supply chain members  Reduced bullwhip effect  Early
Supply Chain Integration  Information sharing among supply chain members  Reduced bullwhip effect  Early
Supply Chain Integration  Information sharing among supply chain members  Reduced bullwhip effect  Early
Supply Chain Integration  Information sharing among supply chain members  Reduced bullwhip effect  Early
Supply Chain Integration  Information sharing among supply chain members  Reduced bullwhip effect  Early
Supply Chain Integration  Information sharing among supply chain members  Reduced bullwhip effect  Early

Information sharing among supply chain

members

Reduced bullwhip effect

Early problem detection

Faster response

Builds trust and confidence

Collaborative planning, forecasting,

replenishment, and design

Reduced bullwhip effect

Lower Costs (material, logistics, operating, etc.)

Higher capacity utilization

Improved customer service levels

 Higher capacity utilization  Improved customer service levels Copyright 2006 John Wiley & Sons, Inc.
Supply Chain Integration (cont.)
Supply Chain Integration (cont.)
Supply Chain Integration (cont.)  Coordinated workflow, production and operations, procurement  Production
Supply Chain Integration (cont.)  Coordinated workflow, production and operations, procurement  Production
Supply Chain Integration (cont.)  Coordinated workflow, production and operations, procurement  Production
Supply Chain Integration (cont.)  Coordinated workflow, production and operations, procurement  Production
Supply Chain Integration (cont.)  Coordinated workflow, production and operations, procurement  Production
Supply Chain Integration (cont.)  Coordinated workflow, production and operations, procurement  Production

Coordinated workflow, production and

operations, procurement

Production efficiencies

Fast response

Improved service

Quicker to market

Adopt new business models and

technologies

Penetration of new markets

Creation of new products

Improved efficiency

 Creation of new products  Improved efficiency  Mass customization Copyright 2006 John Wiley &

Mass customization

Collaborative Planning, Forecasting, and Replenishment
Collaborative Planning,
Forecasting, and Replenishment

Process for two or more companies in a supply chain to synchronize their demand forecasts into a single plan to meet customer demand

Parties electronically exchange

past sales trends

point-of-sale data

on-hand inventory

scheduled promotions

forecasts

data  on-hand inventory  scheduled promotions  forecasts Copyright 2006 John Wiley & Sons, Inc.
Suppliers
Suppliers
Suppliers  Procurement  purchase of goods and services from suppliers  On-demand (direct response) delivery
Suppliers  Procurement  purchase of goods and services from suppliers  On-demand (direct response) delivery
Suppliers  Procurement  purchase of goods and services from suppliers  On-demand (direct response) delivery
Suppliers  Procurement  purchase of goods and services from suppliers  On-demand (direct response) delivery
Suppliers  Procurement  purchase of goods and services from suppliers  On-demand (direct response) delivery
Suppliers  Procurement  purchase of goods and services from suppliers  On-demand (direct response) delivery

Procurement

purchase of goods and services from suppliers

On-demand (direct response) delivery

requires supplier to deliver goods when demanded by customer

Continuous replenishment

supplying orders in a short period of time according to a predetermined schedule

Cross-enterprise teams coordinate

processes between company and supplier

teams coordinate processes between company and supplier Copyright 2006 John Wiley & Sons, Inc. 10-28
Outsourcing
Outsourcing

Sourcing

selection of suppliers

Outsourcing

purchase of goods and services from an outside supplier

Core competencies

what a company does best

Single sourcing

a company purchases goods and services from only a few (or one) suppliers

company purchases goods and services from only a few (or one) suppliers Copyright 2006 John Wiley
Original Equipment Manufacturer Maintenance Repair and Corporate (OEM) Operation (MPO) Services Copyright

Original Equipment Manufacturer

Maintenance

Repair and

Corporate

Original Equipment Manufacturer Maintenance Repair and Corporate

(OEM)

Operation (MPO)

Services

Repair and Corporate (OEM) Operation (MPO) Services Copyright 2006 John Wiley & Sons, Inc. 10-30
Repair and Corporate (OEM) Operation (MPO) Services Copyright 2006 John Wiley & Sons, Inc. 10-30
Repair and Corporate (OEM) Operation (MPO) Services Copyright 2006 John Wiley & Sons, Inc. 10-30
E-Procurement
E-Procurement
E-Procurement  Direct purchase from suppliers over the Internet  Direct products go directly into production
E-Procurement  Direct purchase from suppliers over the Internet  Direct products go directly into production
E-Procurement  Direct purchase from suppliers over the Internet  Direct products go directly into production
E-Procurement  Direct purchase from suppliers over the Internet  Direct products go directly into production
E-Procurement  Direct purchase from suppliers over the Internet  Direct products go directly into production
E-Procurement  Direct purchase from suppliers over the Internet  Direct products go directly into production

Direct purchase from suppliers over the

Internet

Direct products go directly into production process a product, indirect products not

E-marketplaces

web sites where companies and suppliers conduct business-to-business activities

Reverse auction

a company posts orders on the Internet for suppliers to bid on

 a company posts orders on the Internet for suppliers to bid on Copyright 2006 John
Process
Process
Process
Process

Process

Online Sourcing/ Procurement

Process Online Sourcing/ Procurement Copyright 2006 John Wiley & Sons, Inc. 10-32
Process Online Sourcing/ Procurement Copyright 2006 John Wiley & Sons, Inc. 10-32
Process Online Sourcing/ Procurement Copyright 2006 John Wiley & Sons, Inc. 10-32
Process (cont.)
Process (cont.)
Process (cont.)
Process (cont.)

Process (cont.)

Online Sourcing/ Procurement

Process (cont.) Online Sourcing/ Procurement Copyright 2006 John Wiley & Sons, Inc. 10-33
Process (cont.) Online Sourcing/ Procurement Copyright 2006 John Wiley & Sons, Inc. 10-33
Process (cont.) Online Sourcing/ Procurement Copyright 2006 John Wiley & Sons, Inc. 10-33
Process (cont.)
Process (cont.)
Process (cont.)
Process (cont.)

Process (cont.)

Online Sourcing/ Procurement

Process (cont.) Online Sourcing/ Procurement Copyright 2006 John Wiley & Sons, Inc. 10-34
Process (cont.) Online Sourcing/ Procurement Copyright 2006 John Wiley & Sons, Inc. 10-34
Process (cont.) Online Sourcing/ Procurement Copyright 2006 John Wiley & Sons, Inc. 10-34

Relationship between Facilities and

Functions

along the Wal-Mart Supply Chain

Facilities and Functions along the Wal-Mart Supply Chain Source: Adapted from Garrison Wieland for “Wal -

Source: Adapted from Garrison Wieland for “Wal-Mart’s Supply Chain,” Harvard Business Review 70(2; MarchApril 1992), pp. 6071.

Harvard Business Review 70(2; March – April 1992), pp. 60 – 71. Copyright 2006 John Wiley
Harvard Business Review 70(2; March – April 1992), pp. 60 – 71. Copyright 2006 John Wiley
Harvard Business Review 70(2; March – April 1992), pp. 60 – 71. Copyright 2006 John Wiley
Harvard Business Review 70(2; March – April 1992), pp. 60 – 71. Copyright 2006 John Wiley
Distribution  Encompasses all channels, processes, and functions, including warehousing and transportation, that a
Distribution
 Encompasses all channels, processes, and
functions, including warehousing and
transportation, that a product passes on its
way to final customer
 Often called logistics
 Logistics
 transportation and distribution of goods
and services
Driving force today is speed
Particularly important for Internet dot-coms
Amazon.com
Amazon.com
Amazon.com
Amazon.com Copyright 2006 John Wiley & Sons, Inc. 10-37
Distribution Centers (DC) and Warehousing  DCs are some of the largest business facilities in

Distribution Centers (DC) and Warehousing

Distribution Centers (DC) and Warehousing  DCs are some of the largest business facilities in the
 DCs are some of the largest business facilities in the United States  Trend
 DCs are some of the largest business
facilities in the United States
 Trend is for more frequent orders in
smaller quantities
 Flow-through facilities and automated
material handling
 Postponement
 final assembly and product configuration
may be done at the DC
Warehouse Management Systems 
Warehouse Management
Systems

Highly automated system that runs day-to-day operations of a DC

 Controls item putaway, picking, packing, and shipping  Features 
 Controls item putaway, picking, packing, and
shipping
Features
transportation management  order management  yard management  labor management  warehouse optimization
transportation management
 order management
 yard management
 labor management
warehouse optimization
A WMS
A WMS
A WMS
A WMS Copyright 2006 John Wiley & Sons, Inc. 10-40
Vendor-Managed Inventory
Vendor-Managed Inventory
 Manufacturers generate orders, not distributors or retailers  Stocking information is accessed using EDI
 Manufacturers generate orders, not distributors or
retailers
 Stocking information is accessed using EDI
 A first step towards supply chain collaboration
 Increased speed, reduced errors, and improved
service
Collaborative Logistics and Distribution Outsourcing
Collaborative Logistics and
Distribution Outsourcing
 Collaborative planning, forecasting, and replenishment create greater economies of scale  Internet-based
 Collaborative planning, forecasting, and
replenishment create greater economies of
scale
 Internet-based exchange of data and
information
 Significant decrease in inventory levels and
more efficient logistics
 Companies focus on core competencies
Transportation
Transportation
Transportation  Rail  low-value, high-density, bulk products, raw materials, intermodal containers  not as
Transportation  Rail  low-value, high-density, bulk products, raw materials, intermodal containers  not as
Transportation  Rail  low-value, high-density, bulk products, raw materials, intermodal containers  not as
Transportation  Rail  low-value, high-density, bulk products, raw materials, intermodal containers  not as
Transportation  Rail  low-value, high-density, bulk products, raw materials, intermodal containers  not as
Transportation  Rail  low-value, high-density, bulk products, raw materials, intermodal containers  not as

Rail

low-value, high-density, bulk

products, raw materials, intermodal containers

not as economical for small loads, slower, less flexible than trucking

Trucking

main mode of freight transport in U.S.

small loads, point-to-point service, flexible

More reliable, less damage

than rails; more expensive

 More reliable, less damage than rails; more expensive than rails for long distance Copyright 2006

than rails for long distance

less damage than rails; more expensive than rails for long distance Copyright 2006 John Wiley &
less damage than rails; more expensive than rails for long distance Copyright 2006 John Wiley &
Transportation (cont.)
Transportation (cont.)
Transportation (cont.)  Air  most expensive and fastest, mode of freight transport  lightweight, small
Transportation (cont.)  Air  most expensive and fastest, mode of freight transport  lightweight, small
Transportation (cont.)  Air  most expensive and fastest, mode of freight transport  lightweight, small
Transportation (cont.)  Air  most expensive and fastest, mode of freight transport  lightweight, small
Transportation (cont.)  Air  most expensive and fastest, mode of freight transport  lightweight, small
Transportation (cont.)  Air  most expensive and fastest, mode of freight transport  lightweight, small

Air

most expensive and fastest, mode of freight transport

lightweight, small packages <500 lbs

high-value, perishable and critical goods

less theft

Package Delivery

small packages

fast and reliable

increased with e-Business

primary shipping mode for Internet companies

with e-Business  primary shipping mode for Internet companies Copyright 2006 John Wiley & Sons, Inc.
with e-Business  primary shipping mode for Internet companies Copyright 2006 John Wiley & Sons, Inc.
Transportation (cont.)
Transportation (cont.)
Transportation (cont.)  Water  low-cost shipping mode  primary means of international shipping  U.S.
Transportation (cont.)  Water  low-cost shipping mode  primary means of international shipping  U.S.
Transportation (cont.)  Water  low-cost shipping mode  primary means of international shipping  U.S.
Transportation (cont.)  Water  low-cost shipping mode  primary means of international shipping  U.S.
Transportation (cont.)  Water  low-cost shipping mode  primary means of international shipping  U.S.
Transportation (cont.)  Water  low-cost shipping mode  primary means of international shipping  U.S.
Transportation (cont.)  Water  low-cost shipping mode  primary means of international shipping  U.S.
Transportation (cont.)  Water  low-cost shipping mode  primary means of international shipping  U.S.
Transportation (cont.)  Water  low-cost shipping mode  primary means of international shipping  U.S.

Water

low-cost shipping mode

primary means of international shipping

U.S. waterways

slowest shipping mode

Intermodal

combines several modes of shipping- truck, water and rail

key component is containers

Pipeline

transport oil and products in liquid form

high capital cost, economical use

long life and low operating cost

Internet Transportation Exchanges  Bring together shippers and carriers  Initial contact, negotiations,
Internet Transportation
Exchanges
 Bring together shippers and
carriers
 Initial contact, negotiations,
auctions
 Examples
www.nte.com
www.freightquote.com
SCM Software
SCM Software
SCM Software  Enterprise Resource Planning (ERP)  software that integrates components of a company by
SCM Software  Enterprise Resource Planning (ERP)  software that integrates components of a company by
SCM Software  Enterprise Resource Planning (ERP)  software that integrates components of a company by
SCM Software  Enterprise Resource Planning (ERP)  software that integrates components of a company by
SCM Software  Enterprise Resource Planning (ERP)  software that integrates components of a company by
SCM Software  Enterprise Resource Planning (ERP)  software that integrates components of a company by

Enterprise Resource Planning (ERP)

software that integrates components of a company by sharing and organizing information and data SAP was first ERP software

mySAP.com

web enabled modules that allow collaboration between companies along the supply chain

that allow collaboration between companies along the supply chain Copyright 2006 John Wiley & Sons, Inc.

Copyright 2006 John Wiley & Sons, Inc.

10-47

Linking Supply Chain with SAP Copyright 2006 John Wiley & Sons, Inc. 10-48
Linking Supply Chain with SAP Copyright 2006 John Wiley & Sons, Inc. 10-48
Linking Supply Chain with SAP Copyright 2006 John Wiley & Sons, Inc. 10-48
Linking Supply Chain with SAP Copyright 2006 John Wiley & Sons, Inc. 10-48

Linking Supply Chain with SAP

Performance
Performance
Performance
Performance

Performance

Measuring Supply Chain

Performance Measuring Supply Chain  Key performance indicators  inventory turnover  cost of annual sales
Performance Measuring Supply Chain  Key performance indicators  inventory turnover  cost of annual sales
Performance Measuring Supply Chain  Key performance indicators  inventory turnover  cost of annual sales
Performance Measuring Supply Chain  Key performance indicators  inventory turnover  cost of annual sales
Performance Measuring Supply Chain  Key performance indicators  inventory turnover  cost of annual sales
Performance Measuring Supply Chain  Key performance indicators  inventory turnover  cost of annual sales

Key performance indicators

inventory turnover

cost of annual sales per inventory unit

inventory days of supply

total value of all items being held in inventory

fill rate

fraction of orders filled by a distribution center within a specific time period

of orders filled by a distribution center within a specific time period Copyright 2006 John Wiley
Key Performance Indicators Cost of goods sold Inventory turns = Average aggregate value of inventory
Key Performance Indicators Cost of goods sold Inventory turns = Average aggregate value of inventory
Key Performance Indicators Cost of goods sold Inventory turns = Average aggregate value of inventory
Key Performance Indicators Cost of goods sold Inventory turns = Average aggregate value of inventory
Key Performance Indicators Cost of goods sold Inventory turns = Average aggregate value of inventory

Key Performance Indicators

Cost of goods sold Inventory turns = Average aggregate value of inventory
Cost of goods sold
Inventory turns = Average aggregate value of inventory
Average aggregate value of inventory =
Average aggregate value of inventory =
Average aggregate value of inventory = =  ( a v e r a g e

=(average inventory for item i) X (unit value item i)

= =  ( a v e r a g e inventory for item i )
) X ( u n i t v a l u e i t e m
Average aggregate value of inventory
Average aggregate value of inventory
Average aggregate value of inventory D a y s o f s u p p l
Average aggregate value of inventory D a y s o f s u p p l

Days of supply = (Costs of goods sold)/(365 days)

   

Key Performance Indicators:

Example

1.

Cost of goods sold:

 

$425 million

2.

Production materials and parts: $4,629,000

 

3.

Work-in-process: $17,465,000

4.

Finished goods: $12,322,000

5.

Total average aggregate value of inventory (2+3+4): $34,416,000

$425, 000, 000 Inventory turns = = 12.3 $34,416,000
$425, 000, 000
Inventory turns =
= 12.3
$34,416,000
$34,416,000
$34,416,000

Days of supply = ($425,000,000)/(365)

$34,416,000 D a y s o f s u p p l y = ($425,000,000)/(365) =
= 29.6
= 29.6
$34,416,000 D a y s o f s u p p l y = ($425,000,000)/(365) =
Other Measures of Supply Chain Performance
Other Measures of Supply Chain
Performance
 Process Control  used to monitor and control any process in supply chain 
 Process Control
 used to monitor and control any process in
supply chain
 Supply Chain Operations Reference
(SCOR)
 establish targets to achieve “best in class”
performance
SCOR Model Processes
SCOR Model Processes
SCOR Model Processes Make Transform product to a finished state to meet planned or actual demand
SCOR Model Processes Make Transform product to a finished state to meet planned or actual demand
SCOR Model Processes Make Transform product to a finished state to meet planned or actual demand
SCOR Model Processes Make Transform product to a finished state to meet planned or actual demand
SCOR Model Processes Make Transform product to a finished state to meet planned or actual demand
SCOR Model Processes Make Transform product to a finished state to meet planned or actual demand

Make Transform product to a

finished state to

meet planned or actual demand

product to a finished state to meet planned or actual demand Deliver Provide products to meet

Deliver Provide products to meet demand,

including order

management, transportation and distribution

including order management, transportation and distribution Return Return products, post-delivery customer Plan Develop

Return

Return

products,

post-delivery

customer

Plan Develop a course of action that best meets sourcing, production and delivery requirements

best meets sourcing, production and delivery requirements Source Procure goods and services to meet planned or

Source Procure goods and services to meet planned or actual demand

Procure goods and services to meet planned or actual demand support Copyright 2006 John Wiley &
Procure goods and services to meet planned or actual demand support Copyright 2006 John Wiley &

support

SCOR: Customer Facing
SCOR: Customer Facing
SCOR: Customer Facing Performance Attribute Performance Metric Definition Supply Chain Delivery Reliability

Performance

Attribute

Performance

Metric

Definition

Supply Chain

Delivery

Reliability

Delivery

performance

Percentage of orders delivered on time

and in full to the customer

Fill rate

Percentage of orders shipped within24

hours of order receipt

Perfect order fulfillment

Percentage of orders delivered on time and in full, perfectly matched with order with no errors

Supply Chain

Responsivenes

s

Order fulfillment

lead time

Number of days from order receipt to

customer delivery

Supply Chain

Flexibility

Supply chain

response time

Number of days for supply chain to respond to an unplanned significant

change in demand without a cost penalty

Production

flexibility

Number of days to achieve an unplanned 20% change in orders without a cost penalty

to achieve an unplanned 20% change in orders without a cost penalty Copyright 2006 John Wiley
to achieve an unplanned 20% change in orders without a cost penalty Copyright 2006 John Wiley
SCOR: Internal Facing
SCOR: Internal Facing
SCOR: Internal Facing Performance Attribute Performance Metric Definition Supply Chain Cost Supply chain

Performance

Attribute

Performance

Metric

Definition

Supply Chain Cost

Supply chain

management cost

Direct and indirect cost to plan, source and deliver

products and services

Cost of goods sold

Direct cost of material and labor to produce a product or service

Value-added

productivity

Direct material cost subtracted from revenue and divided by the number of employees, similar to

sales per employee

Warranty/returns processing cost

Direct and indirect costs associated with returns including defective, planned maintenance and excess inventory

Supply Chain

Asset

Management

Efficiency

Cash-to-cash

cycle time

Number of days that cash is tied up as working

capital

Inventory days of supply

Number of days that cash is tied up as inventory

Asset turns

Revenue divided by total assets including working

capital and fixed assets

divided by total assets including working capital and fixed assets Copyright 2006 John Wiley & Sons,
divided by total assets including working capital and fixed assets Copyright 2006 John Wiley & Sons,
Global Supply Chain
Global Supply Chain
Global Supply Chain  To compete globally requires an effective supply chain  Information technology is
Global Supply Chain  To compete globally requires an effective supply chain  Information technology is
Global Supply Chain  To compete globally requires an effective supply chain  Information technology is
Global Supply Chain  To compete globally requires an effective supply chain  Information technology is
Global Supply Chain  To compete globally requires an effective supply chain  Information technology is
Global Supply Chain  To compete globally requires an effective supply chain  Information technology is
 To compete globally requires an effective supply chain  Information technology is an
 To compete globally requires an
effective supply chain
 Information technology is an

“enabler” of global trade Nations form trading groups No tariffs or duties

 
global trade Nations form trading groups No tariffs or duties   Copyright 2006 John Wiley
global trade Nations form trading groups No tariffs or duties   Copyright 2006 John Wiley
Obstacles to Global Chain Transactions
Obstacles to Global Chain
Transactions

Increased documentation for invoices, cargo

insurance, letters of credit, ocean bills of lading

or air waybills, and inspections

Ever changing regulations that vary from country to country that govern the import and

export of goods

Trade groups, tariffs, duties, and landing costs

Limited shipping modes

Differences in communication technology and availability

modes  Differences in communication technology and availability Copyright 2006 John Wiley & Sons, Inc. 10-57
Obstacles to Global Chain Transactions (cont.)  Different business practices as well as language barriers
Obstacles to Global Chain Transactions (cont.)  Different business practices as well as language barriers
Obstacles to Global Chain Transactions (cont.)
Obstacles to Global Chain
Transactions (cont.)

Different business practices as well as language

barriers

Government codes and reporting requirements that vary from country to country

Numerous players, including forwarding agents,

custom house brokers, financial institutions, insurance

providers, multiple transportation carriers, and government agencies

Since 9/11, numerous security regulations and

requirements

Duties and Tariffs
Duties and Tariffs
Duties and Tariffs  Proliferation of trade agreements  Group members charge uniform tariffs  Member
Duties and Tariffs  Proliferation of trade agreements  Group members charge uniform tariffs  Member
Duties and Tariffs  Proliferation of trade agreements  Group members charge uniform tariffs  Member
Duties and Tariffs  Proliferation of trade agreements  Group members charge uniform tariffs  Member
Duties and Tariffs  Proliferation of trade agreements  Group members charge uniform tariffs  Member
Duties and Tariffs  Proliferation of trade agreements  Group members charge uniform tariffs  Member
 Proliferation of trade agreements  Group members charge uniform tariffs  Member nations have
 Proliferation of trade agreements
 Group members charge uniform tariffs
 Member nations have a competitive
advantage within the group

Trade specialists

include freight forwarders, customs

house brokers, export packers, and

export management and trading companies

brokers, export packers, and export management and trading companies Copyright 2006 John Wiley & Sons, Inc.
Duties and Tariffs (cont.) APEC NAFTA TAFTA FTAA ASEAN CALM ATPA MERCOSUR ANZCERTA Copyright 2006
Duties and Tariffs (cont.) APEC NAFTA TAFTA FTAA ASEAN CALM ATPA MERCOSUR ANZCERTA Copyright 2006
Duties and Tariffs (cont.)
Duties and Tariffs (cont.)
APEC NAFTA TAFTA FTAA ASEAN CALM ATPA MERCOSUR ANZCERTA
APEC NAFTA TAFTA FTAA ASEAN CALM ATPA MERCOSUR ANZCERTA
APEC
NAFTA
TAFTA
FTAA
ASEAN
CALM
ATPA
MERCOSUR
ANZCERTA
Landed Cost  Total cost of producing, storing, and transporting a product to the site
Landed Cost
Total cost of producing, storing, and
transporting a product to the site of
consumption or another port
Value added tax (VAT)

an indirect tax assessed on the increase in value of

a good at any stage of production process from

raw material to final product

Clicker shock

Occurs when an ordered is placed with a company

that does not have the capability to calculate landed

cost

with a company that does not have the capability to calculate landed cost Copyright 2006 John

Copyright 2006 John Wiley & Sons, Inc.

10-61

Web-based International Trade Logistic Systems
Web-based International Trade
Logistic Systems

International trade logistics web-based software systems reduce obstacles to global trade

convert language and currency

provide information on tariffs, duties, and customs processes

attach appropriate weights, measurements, and unit prices to

individual products ordered over the Web

incorporate transportation costs and conversion rates

calculate shipping costs online while a company enters an order

track global shipments

online while a company enters an order  track global shipments Copyright 2006 John Wiley &
Recent Trends in Globalization for U.S. Companies
Recent Trends in Globalization for
U.S. Companies

Recent Trends in Globalization for U.S. Companies   Two significant changes passage of NAFTA admission

Two significant changes

for U.S. Companies   Two significant changes passage of NAFTA admission of China in WTO

passage of NAFTA admission of China in WTO

changes passage of NAFTA admission of China in WTO    Electronic Industry 70% of
 
changes passage of NAFTA admission of China in WTO    Electronic Industry 70% of

Electronic Industry

admission of China in WTO    Electronic Industry 70% of cost is in components

70% of cost is in components major supply chains have moved to China

is in components major supply chains have moved to China   Proliferation of counterfeit parts

is in components major supply chains have moved to China   Proliferation of counterfeit parts

Proliferation of counterfeit parts

Effects of 9/11 on Global Chains
Effects of 9/11 on Global Chains
Effects of 9/11 on Global Chains  Increase security measures added time to supply chain schedules
Effects of 9/11 on Global Chains  Increase security measures added time to supply chain schedules
Effects of 9/11 on Global Chains  Increase security measures added time to supply chain schedules
Effects of 9/11 on Global Chains  Increase security measures added time to supply chain schedules
Effects of 9/11 on Global Chains  Increase security measures added time to supply chain schedules
Effects of 9/11 on Global Chains  Increase security measures added time to supply chain schedules
 Increase security measures added time to supply chain schedules  Increased supply chain costs
Increase security measures
added time to supply chain schedules
Increased supply chain costs
24 hours rules for “risk screening”
  extended documentation  extend time by 3-4 days 
extended documentation
extend time by 3-4 days
 

 extend time by 3-4 days     Inventory levels have increased 5% Other

Inventory levels have increased 5% Other costs include:

new people, technologies, equipment, surveillance,

communication, and security systems, and training necessary

communication, and security systems, and training necessary for screening at airports and seaports around the world

for screening at airports and seaports around the world

Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this
Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this
Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this
Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this
Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this
Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this
Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this
Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this
Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this
Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this
Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this
Copyright 2006 John Wiley & Sons, Inc. All rights reserved. Reproduction or translation of this
Copyright 2006 John Wiley & Sons, Inc.
All rights reserved. Reproduction or translation of this
work beyond that permitted in section 117 of the 1976
United States Copyright Act without express permission
of the copyright owner is unlawful. Request for further
information should be addressed to the Permission
Department, John Wiley & Sons, Inc. The purchaser
may make back-up copies for his/her own use only and
not for distribution or resale. The Publisher assumes no
responsibility for errors, omissions, or damages caused
by the use of these programs or from the use of the

information herein.

Copyright 2006 John Wiley & Sons, Inc.

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