Friday, 11 September 2015

Supply Chain Management Chapter 10

Extending the Organization: Supply Chain Management

Supply Chain Management
The average company spends nearly half of every dollar that it earns on production

In the past, companies focused primarily on manufacturing and quality improvements to influence their supply chains

Basics of Supply Chain
The supply chain has three main links:

  • Materials flow from suppliers and their “upstream” suppliers at all levels
  • Transformation of materials into semifinished and finished products through the organization’s own production process
  • Distribution of products to customers and their “downstream” customers at all levels

Basics of Supply Chain Management

A company must have a plan for managing all the resources that go toward meeting customer demand for products or services.

Companies must carefully choose reliable suppliers that will deliver goods and services required for making products. 

This is the step where companies manufacture their products or services. This can include scheduling the activities necessary for production, testing, packaging, and preparing for delivery. 

Deliver (Logistic)
Companies must be able to receive orders from customers, fulfill the orders via a network of warehouses, pick transportation companies to deliver the products, and implement a billing and invoicing system to facilitate payments.

This is typically the most problematic step in the supply chain. Companies must create a network for receiving defective and excess products and support customers who have problems with delivered products.


Visibility – more visible models of different ways to do things in the supply chain have emerged.  High visibility in the supply chain is changing industries, as Wal-Mart demonstrated

Supply chain visibility – the ability to view all areas up and down the supply chain

Bullwhip effect – occurs when distorted product demand information passes from one entity to the next throughout the supply chain

Supply chain visibility allows organizations to eliminate the bullwhip effect
To explain the bullwhip effect to your students discuss a product that demand does not change, such as diapers.  

The need for diapers is constant, it does not increase at Christmas or in the summer, diapers are in demand all year long.  

The number of newborn babies determines diaper demand, and that number is constant.
Retailers order diapers from distributors when their inventory level falls below a certain level, they might order a few extra just to be safe

Distributors order diapers from manufacturers when their inventory level falls below a certain levelthey might order a few extra just to be safe

Manufacturers order diapers from suppliers when their inventory level falls below a certain level, they might order a few extra just to be safe

Eventually the one or two extra boxes ordered from a few retailers becomes several thousand boxes for the manufacturer. 
 This is the bullwhip effect, a small ripple at one end makes a large wave at the other end of the whip.

Consumer Behavior

Companies can respond faster and more effectively to consumer demands through supply chain enhances 
Once an organization understands customer demand and its effect on the supply chain it can begin to estimate the impact that its supply chain will have on its customers and ultimately the organizations performance
Demand planning software – generates demand forecasts using statistical tools and forecasting techniques


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

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

SCP and SCE both increase a company’s ability to compete

SCP depends entirely on information for its accuracy

SCE can be as simple as electronically routing orders from a manufacturer to a supplier

SCM industry best practices include:
  1. Make the sale to suppliers
  2. Wean employees off traditional business practices
  3. Ensure the SCM system supports the organizational goals
  4. Deploy in incremental phases and measure and communicate success
  5. Be future oriented

Numerous decision support systems (DSSs) are being built to assist decision makers in the design and operation of integrated supply chains

DSSs allow managers to examine performance and relationships over the supply chain and among:
  1. Suppliers
  2. Manufacturers
  3. Distributors
  4. Other factors that optimize supply chain performance

The End :)

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