BUSINESS B3

Supply Chain Management

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Learning Outcomes

• Describe supply chain planning and supply chain execution

• List and describe the four drivers of supply chain management

• Explain supply chain management strategies focused on efficiency

• Explain supply chain management strategies focused on effectiveness

• Summarize the future of supply chain management

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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

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Supply Chain Strategies

Supply chain planning (SCP) software – uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain while reducing inventory

Supply chain execution (SCE) software – automates the different steps and stages of the supply chain

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Supply Chain Drivers

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Efficiency IT metrics - measure the performance of the IT system including:

Throughput – amount of information that can travel through a system at any point in time

Speed – amount of time to perform a transaction Availability – number of hours a system is available Accuracy – extent to which a system generates

correct results Web traffic – includes number of pageviews, number

of unique visitors, and time spent on a Web page Response time – time to respond to user

interactions

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Effectiveness IT metrics – measure the impact IT has on business processes and activities including:

Usability – the ease with which people perform transactions and/or find information

Customer satisfaction – such as the percentage of existing customers retained

Conversion rates – number of customers an organization “touches” for the first time and convinces to purchase products or services

Financial – such as return on investment, cost-benefit analysis, etc.

SCM strategies focusing on effectiveness are most concerned with using the supply chainto increase customer satisfaction

SCM strategies focusing on efficiency are most concerned with using the supply chainto drive down costs

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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: Location Capacity Operational design

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Facilities: Location

Location efficiency – centralize the location to gain economies of scale, which increases efficiency

Information will not stop itself from sending spam, viruses, or highly-sensitive information

Information cannot delete or preserve itself

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Facilities: 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

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Facilities: 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

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Facility Driver

Inventory – offsets discrepancies between supply and demand

Two primary inventory components: Cycle inventory Safety inventory

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Cycle Inventory

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 Cycle inventory – the average amount of

inventory held to satisfy customer demands between inventory deliveries

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Safety Inventory

Safety inventory efficiency – holding small amounts of safety inventory

Safety inventory effectiveness – holding large amounts of safety inventory Safety inventory – extra inventory held in the

event demand exceeds supply

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Transportation Driver

Transportation – moves inventories between the different stages in the supply chain

Two inventory components: Method of

transportation Transportation

route

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Method of Transportation

Method of transportation efficiency– choosing an inexpensive method of transportation increases efficiency, but also typically increases delivery time

Method of transportation effectiveness – choosing an expensive method of transportation to ensure speedy delivery increases effectiveness

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Transportation Route

Transportation route efficiency– a company can save money by shipping its products to a distributor that ships the products to its customers

Transportation route effectiveness – a company can ship its products directly to its customers

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Information Driver

Information – an organization must decide how and what information it wants to share with its supply chain partners

Two information components: Information

sharing Push vs. pull

strategy

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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

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Push vs. Pull Information Strategy

Pull information strategy (efficiency) – supply chain partners are responsible for pulling all relevant information

Push information strategy effectiveness – organization takes on the responsibility to push (send) information out to its supply chain partners

Wal-Mart’s supply chain management drivers

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Future Trends:Fastest growing SCM components

Supply chain event management (SCEM) – enables an organization to react quickly to resolve supply chain issues

Selling chain management – applies technology to the activities in the order life cycle from inquiry to sale

Collaborative engineering – allows an organization to reduce the costs required during the design process of a product

Collaborative demand planning – helps organizations reduce their investment in inventory, while improving customer satisfaction through product availability

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Closing Case One Questions

1. Summarize SCM and describe Warner-Lambert’s supply chain strategy

2. Detail Warner-Lambert’s facilities strategy

3. Detail Warner-Lambert’s inventory strategy

4. Detail Warner-Lambert’s transportation strategy

5. Detail Warner-Lambert’s information strategy

6. Describe what would happen to Warner-Lambert’s business if a natural disaster in Saudi Arabia depletes its natural gas resources