Ir.

Haery Sihombing/IP
Sihombing/IP

5
Pensyarah Fakulti Kejuruteraan Pembuatan
Universiti Teknologi Malaysia Melaka
Lecture Outline
„ Supply Chain Management
„ Information Technology: A Supply Chain Enabler
„ Supply Chain Integration
„ Suppliers
„ E-Procurement
„ Distribution
„ Supply Chain Management Software
„ Measuring Supply Chain Performance
„ Global Supply Chain
Supply Chain Management

Supply Chain

ƒ 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
ƒ An integrated group of processes to
“source,”
source,” “make,”
make,” and “deliver”
deliver” products

Supply Chain Illustration

Supply Supply
Chain Chain
for for
Denim Denim
Jeans Jeans
(cont.)

Supply Chain Processes Supply Chain for Service Providers

„ 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 Supply Chain Management (SCM)
„ Value chain „ Managing flow of information through supply
„ every step from raw materials to the chain in order to attain the level of
eventual end user synchronization that will make it more
„ ultimate goal is delivery of maximum value responsive to customer needs while lowering
to the end user costs
„ Supply chain „ Keys to effective SCM
„ activities that get raw materials and ¾ information
subassemblies into manufacturing operation ¾ communication
¾ cooperation
„ Terms are used interchangeably ¾ trust

Supply Chain Uncertainty Bullwhip Effect

„ 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
Occurs when slight demand variability is
„ Factors that contribute magnified as information moves back upstream
to uncertainty
„ inaccurate demand
forecasting
„ long variable lead times
„ late deliveries
„ incomplete shipments
„ product changes batch
ordering
„ price fluctuations and
discounts
„ inflated orders
 Information Technology:
E-business and Supply Chain
A Supply Chain Enabler
„ Information links all „ Bar code and point-of-sale „ Cost savings and price reductions
aspects of supply chain „ data creates an „ Reduction or elimination of the role of
„ E-business instantaneous computer
intermediaries
„ replacement of physical record of a sale
business processes with „ Radio frequency „ Shortening supply chain response and
electronic ones identification (RFID) transaction times
„ Electronic data „ technology can send „ Gaining a wider presence and increased
interchange (EDI) product data from an item visibility for companies
„ a computer-to-computer to a reader via radio
exchange of business waves „ Greater choices and more information for
documents „ Internet customers
„ allows companies to
communicate with
suppliers, customers,
shippers and other
businesses around the
world, instantaneously

E-business and Supply Chain Supply Chain Evolution at Nabisco

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

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

RFID Capabilities RFID Capabilities (cont.)

 Build-
Build-to-
to-order cars over E-automotive Supply Chain
the Internet
Supply Chain Automotive
E-Automotive
Processes Past
„ Customer sales „ Push—sell from „ Pull—build-to-order
inventory stock
„ Production „ Goal of even and „ Focus on customer
stable production demand, respond with
supply chain flexibility
„ Fast, reliable, and
„ Distribution „ Mass approach customized to get cars
to specific customer
location
„ Customer „ Shared by dealers and
relationship „ Dealer-owned manufacturers

E-automotive Supply Chain (cont.) Supply Chain Integration

Supply „ Information sharing among supply chain
Automotive
Chain E-Automotive members
Past
Processes „ Reduced bullwhip effect
„ Managing „ Large car „ Small inventories with „ Early problem detection
uncertainty inventory at shared information and „ Faster response
dealers strategically placed parts „ Builds trust and confidence
Procurement „ Batch-oriented; inventories
„
dealers order „ Orders made in real time
„ Collaborative planning, forecasting,
based on based on available-to- replenishment, and design
allocations promise information „ Reduced bullwhip effect
„ Complex „ Simplified products based on „ Lower Costs (material, logistics, operating, etc.)
„ Product products don’t better information about „ Higher capacity utilization
design match customer what customers want „ Improved customer service levels
needs
 Supply Chain Integration (cont.) Collaborative Planning,
Forecasting, and Replenishment
„ Coordinated workflow, production and „ Process for two or more companies in a supply
operations, procurement chain to synchronize their demand forecasts
„ Production efficiencies into a single plan to meet customer demand
„ Fast response
„ Improved service „ Parties electronically exchange
„ Quicker to market „ past sales trends
„ point-
point-of-
of-sale data
„ Adopt new business models and
„ on-
on-hand inventory
technologies
„ scheduled promotions
„ Penetration of new markets
„ forecasts
„ Creation of new products
„ Improved efficiency
„ Mass customization

Suppliers Outsourcing

„ Procurement „ Sourcing
„ purchase of goods and services from suppliers „ selection of suppliers

„ On-demand (direct response) delivery „ Outsourcing

„ 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
„ 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
 E-Procurement
Original Equipment Maintenance
Manufacturer Repair and Corporate
(OEM) Operation (MPO) Services „ 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

Online Sourcing/ Procurement Process

Online Sourcing/ Procurement Process
(cont.)
Online Sourcing/ Procurement Process Relationship between Facilities and Functions
along the Wal-Mart Supply Chain
(cont.)

Source: Adapted from Garrison Wieland for “Wal-Mart’s

Supply Chain,” Harvard Business Review 70(2; March–April
1992), pp. 60–71.

Amazon.com
Distribution
ƒ Encompasses all channels, processes, and
functions, including warehousing and
transportation, that a product passes on its
way to final customer
ƒ Often called logistics
ƒ Logistics
ƒ transportation and distribution of goods and services
ƒ Driving force today is speed
ƒ Particularly important for Internet dot-
dot-coms
 Distribution Centers (DC)
Warehouse Management Systems
and Warehousing
ƒ DCs are some of the largest business facilities in
the United States
ƒ Highly automated system that runs day-
day-to-
to-day
ƒ Trend is for more frequent orders in smaller operations of a DC
quantities ƒ Controls item putaway, picking, packing, and
ƒ Flow-
Flow-through facilities and automated material shipping
handling ƒ Features
ƒ Postponement ƒ transportation management
ƒ order management
ƒ final assembly and product configuration may
ƒ yard management
be done at the DC ƒ labor management
ƒ warehouse optimization

Vendor-Managed Inventory

ƒ Manufacturers generate orders, not

distributors or retailers
ƒ Stocking information is accessed using EDI
ƒ A first step towards supply chain
collaboration
ƒ Increased speed, reduced errors, and
improved service

A WMS
 Collaborative Logistics and
Distribution Outsourcing Transportation

ƒ Collaborative planning, forecasting, and „ Rail

replenishment create greater economies of
scale
ƒ Internet-
Internet-based exchange of data and
information
ƒ Significant decrease in inventory levels and
more efficient logistics
ƒ Companies focus on core competencies
„ 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
than rails for long distance

Transportation (cont.) Transportation (cont.)

„Air „Water
„ low-cost shipping mode
„ most expensive and fastest, mode of
freight transport „ primary means of international
„ lightweight, small packages <500 lbs
shipping
„ U.S. waterways
„ high-value, perishable and critical
goods „ slowest shipping mode
„ less theft „Intermodal
„Package Delivery „ combines several modes of
shipping-truck, water and rail
„ small packages
„ key component is containers
„ fast and reliable
„ increased with e-Business „Pipeline
„ primary shipping mode for Internet „ transport oil and products in liquid
companies form
„ high capital cost, economical use
„ long life and low operating cost
 Internet Transportation
SCM Software
Exchanges
„ Enterprise Resource Planning (ERP)
ƒ Bring together shippers and carriers „ software that integrates components of a
ƒ Initial contact, negotiations, auctions company by sharing and organizing information
ƒ Examples and data
ƒwww.nte.com „ SAP was first ERP software
ƒwww.freightquote.com „ mySAP.com
„ web enabled modules that allow collaboration
between companies along the supply chain

Measuring Supply Chain Performance

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

Linking Supply Chain with SAP

 Key Performance Indicators Key Performance Indicators:
Example
1. Cost of goods sold: $425 million
2. Production materials and parts: $4,629,000
Cost of goods sold
Inventory turns = 3. Work-in-process: $17,465,000
Average aggregate value of inventory
4. Finished goods: $12,322,000
5. Total average aggregate value of inventory (2+3+4): $34,416,000
Average aggregate value of inventory =
$425, 000, 000
=((average inventory for item i) X (unit value item i) Inventory turns = = 12.3
$34,416,000

Average aggregate value of inventory

Days of supply = $34,416,000
(Costs of goods sold)/(365 days) Days of supply = = 29.6
($425,000,000)/(365)

Other Measures of Supply

Chain Performance SCOR Model Processes
„ Process Control
Make Deliver
„ used to monitor and control any process in Plan Source
Transform Provide products
Develop a course Procure goods
supply chain of action that best
meets sourcing,
and services to
product to a
finished state to
to meet demand,
including order
meet planned
production and meet planned management,
„ Supply Chain Operations Reference delivery or actual
demand
or actual transportation
requirements
(SCOR) demand and distribution
Return

„ establish
targets to achieve “best in class”
class” Return
products,
performance post-delivery
customer
support
 SCOR: Customer Facing SCOR: Internal Facing
Performance Performance Definition Performance Performance Definition
Attribute Metric Attribute Metric
Supply Chain Delivery Percentage of orders delivered on time Supply Chain Supply chain Direct and indirect cost to plan, source and deliver
Delivery performance and in full to the customer management cost products and services
Cost
Reliability Fill rate Percentage of orders shipped within24 Cost of goods Direct cost of material and labor to produce a
hours of order receipt sold product or service

Perfect order Percentage of orders delivered on time Value-added Direct material cost subtracted from revenue and
productivity divided by the number of employees, similar to
fulfillment and in full, perfectly matched with order
sales per employee
with no errors
Warranty/returns Direct and indirect costs associated with returns
Supply Chain Order fulfillment Number of days from order receipt to processing cost including defective, planned maintenance and
Responsivenes lead time customer delivery excess inventory
s Cash-to-cash Number of days that cash is tied up as working
Supply Chain
Supply Chain Supply chain Number of days for supply chain to Asset cycle time capital
Flexibility response time respond to an unplanned significant Inventory days of Number of days that cash is tied up as inventory
Management
change in demand without a cost penalty supply
Efficiency
Production Number of days to achieve an unplanned Asset turns Revenue divided by total assets including working
flexibility 20% change in orders without a cost capital and fixed assets
penalty

Obstacles to Global Chain

Global Supply Chain
Transactions
„ Increased documentation for invoices,
ƒ To compete globally requires an effective cargo insurance, letters of credit, ocean
supply chain bills of lading or air waybills, and
inspections
ƒ Information technology is an “enabler”
enabler” of „ Ever changing regulations that vary from
global trade country to country that govern the
import and export of goods
ƒ Nations form trading groups „ Trade groups, tariffs, duties, and landing
ƒ No tariffs or duties costs
„ Limited shipping modes
„ Differences in communication
technology and availability
 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
ƒ Proliferation of trade agreements
ƒ Group members charge uniform tariffs
ƒ Member nations have a competitive
advantage within the group
ƒ Trade specialists
ƒinclude freight forwarders, customs house
brokers, export packers, and export management
and trading companies

Duties and Tariffs (cont.) Landed Cost

Total cost of producing, storing, and
transporting a product to the site of
consumption or another port
APEC „ Value added tax (VAT)
NAFTA
TAFTA „ an indirect tax assessed on the increase in value of a
FTAA
ASEAN good at any stage of production process from raw
material to final product
CALM
„ Clicker shock
„ Occurs when an ordered is placed with a company that
ATPA does not have the capability to calculate landed cost
MERCOSUR ANZCERTA
 Web-based International Recent Trends in Globalization for U.S.
Trade Logistic Systems Companies
International trade logistics web-
web-based „ Two significant changes
software systems reduce obstacles to global „ passage of NAFTA
trade „ admission of China in WTO
„ convert language and currency
„ provide information on tariffs, duties, and customs
„ Electronic Industry
processes „ 70% of cost is in components
„ attach appropriate weights, measurements, and unit „ major supply chains have moved to China
prices to individual products ordered over the Web
„ incorporate transportation costs and conversion rates
„ Proliferation of counterfeit parts
„ calculate shipping costs online while a company enters an
order
„ track global shipments

Effects of 9/11 on Global Chains

„ Increase security measures
„ added time to supply chain schedules
„ Increased supply chain costs
„ 24 hours rules for “risk screening”
screening” THE END
„ extended documentation
„ extend time by 3-
3-4 days
„ Inventory levels have increased 5%
„ Other costs include:
„ new people, technologies, equipment, surveillance,
communication, and security systems, and
training necessary for screening at airports and
seaports around the world