Supply Chain Management

Amity Business School
Supply Chain Management
Introduction
Materials - any commodities used directly or indirectly in producing a product or service.
Raw materials, component parts, assemblies, finished goods, and supplies
Supply chain - the way materials flow through different organizations from the raw material supplier to the finished goods consumer.
Supply Chain for Steel in an Automobile Door

MINING COMPANY
Mines iron ore
Iron ore
Sheet metal
STEEL MILL
Forms steel ingot
Steel ingots
STEEL COMPANY
Forms sheet metal
AUTOMOTIVE SUPPLIER Makes door
Car door
AUTOMOBILE
MANUFACTURER
Car Prepared car
CAR DEALERSHIP Does preparation
Makes automobile
FINAL CONSUMER Drives automobile
Supply Chain Management

Refers to all the management functions related to the flow of materials from the companys direct suppliers to its direct customers. Includes purchasing, traffic, production control, inventory control, warehousing, and shipping. Two alternative names:
Materials management Logistics management
Supply Chain Management in a Manufacturing Plant

Receiving and Inspection Raw Materials, Parts, and In-process WareHousing Production
Finished Goods Warehousing
Inspection, Packaging, And Shipping
Materials Management Purchasing Production Control Warehousing and Shipping Inventory Control and Traffic
Physical materials flow Information flow
Customers
Suppliers
Purchasing
Factors increasing the importance of purchasing today: Tremendous impact of material costs on profit (60-70% of each sales dollar is paid to material suppliers) Popularity of just-in-time manufacturing (supply deliveries must be exact in timing, quantity, and quality) Increasing global competition (growing competition for scarce resources, and a geographically stretched-out supply chain)
Mission of Purchasing
Develop purchasing plans for each major product or service that are consistent with operations strategies:
Low production costs Fast and on-time deliveries High quality products and services Flexibility
Purchasing Management
Maintain data base of available, qualified suppliers Select suppliers to supply each material Negotiate contracts with suppliers Act as interface between company and suppliers Provide training to suppliers on latest technologies
Advantages of Centralized Purchasing

Buying in large quantities - better prices More clout with suppliers - greater supply continuity Larger purchasing department - buyer specialization Combining small orders - less order cost duplication Combining shipments - lower transportation costs Better overall control
Purchasing Process
Material Requisition Request for Quotations Select Best Supplier Purchase Order
From any department, to purchasing From purchasing, to potential suppliers Based on quality, price, lead time, dependability
From purchasing, to selected supplier

From supplier, to receiving, quality control, warehouse
Receive and Inspect Goods
Buyers Duties
Know the market for their commodities Understand the laws.... tax, contract, patent.. Process purchase requisitions and quotation requests Make supplier selections Negotiate prices and conditions of sale Place and follow-up on purchase orders Maintain ethical behavior
Make-or-Buy Analysis
Considerations in make-or-buy decisions: Lower cost - purchasing or production? Better quality - supplier or in-house? More-reliable deliveries - supplier or in-house? What degree of vertical integration is desirable? Should distinctive competencies be outsourced?
Logistics
Logistics usually refers to management of:
the movement of materials within the factory the shipment of incoming materials from suppliers the shipment of outgoing products to customers
Movement of Materials within Factories

The typical locations from/to which material is moved:
Incoming Vehicles Receiving Dock Quality Control Warehouse
Work Center
Other Work Centers
Packaging
Finished Goods
Shipping
Shipping Dock
Outgoing Vehicles
Shipments To and From Factories

Traffic
Traffic departments routinely examine shipping schedules and select:
shipping methods time tables ways of expediting deliveries
Traffic management is a specialized field requiring technical training in Department of Transportation (DOT) and Interstate Commerce Commission (ICC) regulations and rates.

Distribution
Distribution, or physical distribution, is the shipment of finished goods through the distribution system to customers. A distribution system is the network of shipping and receiving points starting with the factory and ending with the customers.

Distribution Requirements Planning
DRP is the planning for the replenishment of regional warehouse inventories. DRP uses MRP-type logic to translate regional warehouse requirements into central distributioncenter requirements, which are then translated into gross requirements in the MPS at the factory.
Distribution Resource Planning Distribution resource planning extends DRP so that the key resources of warehouse space, workers, cash, and vehicles are provided in the correct quantities at the correct times.
Analyzing Shipping Decisions

The Transportation Problem
Problem involves shipping a product from several sources (ex. factories) with limited supply to several destinations (ex. warehouses) with demand to be satisfied Per-unit cost of shipping from each source to each destination is specified Optimal solution minimizes total shipping cost and specifies the quantity of product to be shipped from each source to each destination
Innovations in Logistics
New developments affecting logistics include:
All-freight airports Inter-modal shipping In-transit rates Consolidated shipments Air-freight and trucking deregulation Advanced logistics software
Warehousing
Warehousing is the management of materials while they are in storage. Warehousing activities include:
Storing Dispersing Ordering Accounting
Warehousing
Record keeping within warehousing requires a stock record for each item that is carried in inventories. The individual item is called a stock-keeping unit (SKU). Stock records are running accounts that show:
On-hand balance Receipts and expected receipts Disbursements, promises, and allocations
Measuring the Performance Materials Managers

Level and value of in-house inventories Percentage of orders delivered on time Number of stockouts Annual cost of materials Annual cost of transportation Annual cost of warehouse Number of customer complaints Other factors
Wrap-Up: World-Class Practice

See materials management as key element in capturing global market share Form partnerships with suppliers Use computers extensively to manage logistics

Supply Chain Management

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Amity Business School