SUPPLY CHAIN MANAGEMENT:Supply Chain Benefits and Drawbacks

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Production and Operations Management MGT613

Lesson 40

SUPPLY CHAIN MANAGEMENT

Learning Objective

In this lecture we will focus on certain important parameters of Supply Chain Management. We will

discuss the Supply Chain Operational Reference Metrics and Collaborative Planning Forecasting

and Replenishment Process, which would help us analyze the Supply chains. This would also help

us an operation manager to design effective supply chains. We will try to understand the concepts of

Velocity and Bullwhip effect and how they pose a serious challenge to the effectiveness of the

Supply Chain.

Supply Chain Operational Reference (SCOR) Metrics

Perspective

Metrics

Reliability

On-time delivery

Order fulfillment lead time

Fill rate (fraction of demand met from

stock)

Perfect order fulfillment

Flexibility

Supply chain response time

Upside production flexibility

Agility to obtain competitiveness

Expenses

Supply chain management costs

Warranty cost as a percent of revenue

Value added per employee

Assets/utilization

Total inventory days of supply

Cash-to-cash cycle time

Net asset turns

Supply chain response time often makes or breaks a supply chain.

CPFR

CPFR is an acronym derived from the first letters of the following phrase: Collaborative Planning,

Forecasting and Replenishment.

1. Focuses on information sharing among trading partners.

2. Forecasts can be frozen and then converted into a shipping plan.

3. Eliminates typical order processing.

CPFR Process consists of the following steps.

Step 1 Front-end agreement

Step 2 Joint business plan

Steps 3-5 Sales forecast

Steps 6-8 Order forecast collaboration

Step 9 Order generation/delivery execution

Creating an Effective Supply Chain

Develop strategic objectives and tactics.

Integrate and coordinate activities in the internal supply chain.

Coordinate activities with suppliers with customers.

Coordinate planning and execution across the supply chain.

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Production and Operations Management MGT613

5. Form strategic partnerships.

Supply Chain Performance Drivers

1. Quality

2. Cost

3. Flexibility

4. Velocity

5. Customer service

Velocity

1. Inventory velocity: The rate at which inventory (material) goes through the supply chain.

2. Information velocity: The rate at which information is communicated in a supply chain.

Challenges to an Effective Supply Chain Management

1. Barriers to integration of organizations

2. Getting top management on board

3. Dealing with trade-offs

4. Small businesses

5. Variability and uncertainty

6. Long lead times

Trade-offs

1. Cost-customer service

a. Disintermediation

2. Lot-size-inventory

a. Bullwhip effect

3. Inventory-transportation costs

a. Cross-docking

4. Lead time-transportation costs

5. Product variety-inventory

a. Delayed differentiation

Bullwhip effect represents the real life time situation that Inventories are progressively

larger moving backward through the supply chain.

Cross-docking represents the fact that the goods arriving at a warehouse from a supplier are

unloaded from the supplier's truck and loaded onto outbound trucks. Avoids warehouse

storage.

Delayed differentiation relates to the Production of standard components and

subassemblies, which are held until late in the process to add differentiating features.

Disintermediation is reducing one or more steps in a supply chain by cutting out one or

more intermediaries.

Supply Chain Issues

Strategic Issues

Tactical Issues

Operating Issues

Design of the

Inventory policies

Quality control

supply chain,

Purchasing policies

Production planning and

partnering

Production policies

control

Transportation

policies

Quality policies

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Production and Operations Management MGT613

Supply Chain Benefits and Drawbacks

Problem

Potential

Benefits

Possible

Improvement

Drawbacks

Large

Smaller, more

Reduced holding

Traffic congestion

inventories

frequent deliveries

costs

Increased costs

Long lead times

Delayed

Quick response

May not be feasible.

differentiation

May need absorb

Disintermediation

functions

Large number

Modular

Fewer parts

Less variety

of parts

Simpler ordering

Cost

Outsourcing

Reduced cost, higher

Loss of control

Quality

quality

Variability

Shorter lead times,

Able to match supply

Less variety

better forecasts

and demand

Supplier Partnerships

Ideas from suppliers could lead to improved competitiveness

1. Reduce cost of making the purchase

2. Increase Revenues

3. Enhance Performance

Critical Issues

1. Technology management

a. Benefits

b. Risks

2. Strategic importance

a. Quality

b. Cost

c. Agility

d. Customer service

e. Competitive advantage

Operations Strategy

1. SCM creates value through changes in time, location and quantity.

2. SCM creates competitive advantage by integrating and streamlining the diverse range of

activities that involve purchasing, internal inventory, transfers and physical distribution.

Summary

Supply Chain Management dynamics allow an Operations Manager to evolve an effective strategy that

creates value. Logistics and purchasing alone can allow an operations manager to effectively control the

flow of information and materials with in and to and fro from the organization. Organizations aiming for

SCM implementation often fail because of lack of training of their employees as well as top

managements commitment.

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