MBALN-670 Operations ManagementTitle of the topic Supply Chain Management Topic’s learning objectives 1. Identify and critique the strategic frameworks of operations and quality management within a global business environment. 2. Comprehensive knowledge of the main concept and methods related to designing and managing operations and supply chains. 3. Systematic application of a range of fundamental operational improvement concepts. 4. Critically evaluate the role of operations within different business models / functions.. Introduction A supply chain is the network of activities that delivers a finished product or service to the customer. These include sourcing raw materials and parts, manufacturing and assembling the products, warehousing, order entry and tracking, distribution through the channels, and delivery to the customer. This section looks at how supply chain activities tie in with the rest of the organisation, what impact it has and how is it managed. At the beginning of the chain are the external suppliers who supply and transport raw materials and components to the manufacturers. Manufacturers transform these materials into finished products that are shipped either to the manufacturer's own distribution centres or to wholesalers. Next, the product is shipped to retailers who sell the product to the customer. Goods flow from the beginning of the chain through the manufacturing process to the customer. Relevant information flows back and forth among members of the supply chain. Supply chain management is the vital business function that coordinates and manages all the activities of the supply chain linking suppliers, transporters, internal departments, third-party companies, and information systems. Supply chain management for manufacturers entails • Coordinating the movement of goods through the supply chain from suppliers to manufacturers to distributors to the final customers • Sharing relevant information such as sales forecasts, sales data, and promotional campaigns among members of the chain A prime example of operations management (OM). Dell does not order components at its Austin. such as quick response time. Texas. and Dell is billed for items only after they are shipped. Most of the components Dell uses are warehoused within 15 minutes travel time to an assembly plant. supply chain management provides the company with a sustainable. or operational flexibility. . The result is better value for the customer. This quick response allows Dell to reduce its inventory level to approximately 13 days of supply compared to Compaq's 25 days of supply. A customized Dell computer can be en route to the customer within 36 hours. Quick delivery of customized computers at prices 10–15 percent lower than the industry standard is Dell's competitive advantage. Dell Computer Corporation is a good example of a company using its supply chain to achieve a sustainable competitive advantage. state-of-the-art quality design. This case study can be found in the VLE. low cost. instead. Dell achieves this in part through its warehousing plan. Case Study Warburtons Supply Chain. competitive advantage. facility. suppliers restock warehouses as needed. RFID. packaging the dairy products. internal functions of the company. plastic container manufacturer. where the products are sold to the customer. distributing the packaged dairy products to retail grocers. intranet. and extranets Purchasing is responsible for sourcing materials Operations use timely demand information to more effectively plan production schedules Components of a Supply Chain for a Manufacturer A company's supply chain structure has three components: external suppliers. chemical processing plant. The external distributors transport finished products from the manufacturer to retail grocers. EDI. External suppliers include the dairy farmer. paper mill. the Internet. and chemical extraction plant. producing the consumer dairy products. cardboard container manufacturer. Internal functions include the processing of the raw milk into consumer dairy products and packaging and labelling dairy products for distribution to retail grocery outlets. lumber company. . Accounting shares SCM benefits due to inventory level decreases Marketing benefits by improved customer service levels Information systems are critical for information sharing through PSO data. The supply chain includes every activity from collecting the raw milk. to selling the finished dairy products to the customer.Learning Material A Traditional Supply Chain Information Flow Supply Chain Management (SCM) across the Organisation SCM changes the way companies do business. label company. and external distributors. and develops and maintains good supplier relationships. for example. supply chains come in all shapes and sizes. Now consider the supply chain for a retail grocer: the tier one suppliers are providers of packaged consumer products. Note that any supplier that provides materials directly to the processing facility is designated as a tier one supplier (in this case. the chemical plant is now a tier one supplier and the chemical extraction facility is a tier two supplier. whereas tier two suppliers (paper mill and chemical processing plant) directly supply tier one suppliers. the plastic container manufacturer still has its own unique supply chain. A company is typically involved in a number of supply chains and often in different roles. label company. a dairy products supply chain are as follows: • Processing. ensures that suppliers perform up to expectations. Remember that tier one suppliers (the cardboard container manufacturer. Internal Functions Internal functions in. • Purchasing. which selects appropriate suppliers. and the grocer has no external distributors because the customers buy directly from the store. and plastics container manufacturer) directly supply the consumer product manufacturer (packaged dairy products). External Suppliers Dairy products manufacturing involves several companies. which converts raw milk into dairy products and packages these products for distribution to retail grocery outlets. administers contracts.Let's look at each component of the supply chain in detail. To summarize: supply chains are a series of linked suppliers and customers in which each customer is a supplier to another part of the chain until the product is delivered to the final customer. the label company. as is the chemical extraction plant that supplies raw materials to the chemical processing plant. Even though the plastics container manufacturer was a tier one supplier to the milk processing facility. Companies put substantial effort into developing the external supplier portion of the supply chain because the cost of materials might represent 50–60 percent or even more of the cost of goods sold. In the supply chain for the plastics container manufacturer. and the plastic container manufacturer). the dairy farm. dairy farm. The dairy products are packaged either in cardboard or plastic containers made by tier one suppliers. The paper mill and the chemical processing plant are tier two suppliers because they directly supply tier one suppliers but do not directly supply the packaging operation. As you can see. The lumber company that provides wood to the paper mill is a tier three supplier. . the cardboard container manufacturer. and follow the product demand information flow from the final seller back to the manufacturer of the product: 1. and how they send inaccurate or distorted information down the supply chain. poor customer service levels. Each RDC periodically places orders based on demand at the RDC by ordering from the manufacturer of the . monthly orders in varying amounts—are determined by the final seller. as this is called. misused manufacturing capacity. shipping companies. The local distributor has many customers (final sellers) placing replenishment orders. The timing and quantity can be fixed or variable. Logistics includes traffic management and distribution management. which schedules the processing of raw milk into dairy products. 2. External Distributors External distributors transport finished products to the appropriate locations for eventual sale to customers. warehouses. Next. which selects external carriers and/or a private fleet to transport the product from the manufacturing facility to its destination. The final seller periodically places replenishment orders with the next level of the supply chain. First. Based on these replenishment orders. railroads. Each final seller uses it own product demand estimates and quantity rules. The bullwhip effect. • Shipping. storing. and retail outlets. inaccurate or distorted information can travel through the chain like a bullwhip uncoiling. and handling of products at receiving docks. however. Traffic management is the selection and monitoring of external carriers (trucking companies. the customers (the local distributors) determine the timing and quantity of orders placed with the RDC. which oversees the quality of the dairy products. Logistics managers are responsible for managing the movement of products between locations. • Production planning and control. We will discuss the causes of the bullwhip effect. which could be a regional distribution center (RDC). ineffective transportation use. and lost revenues. we will look at a common challenge to supply chain managers called the bullwhip effect. The timing and order quantity— for example. 3. causes erratic replenishment orders placed on different levels in the supply chain that have no apparent link to final product demand. which could be a local distributor. and couriers) or internal fleets of carriers. let's look at the traditional supply chain. Distribution management is the packaging. the local distributor places replenishment orders with its supplier. The results are excessive inventory investment. However. airlines. As before. The Bullwhip Effect Sharing product demand information between members of a supply chain is critical. • Quality assurance. 4. beginning with the retailers. and rationing and gaming. When prices are lower. The manufacturer does not know what the demand is for the finished good by the final customer but knows only what the RDCs order. coupons. Order batching policies amplify variability in order timing and size. order quantities decrease. Orders placed with the manufacturer end up replenishing each level in the supply chain rather than being directly linked to end-customer demand. finished good. This changes constant product demand to lumpy demand— a situation where certain levels in the supply chain experience periods of no demand. Price fluctuations create more demand variability within the supply chain. updating their demand forecasts based on demand from the wholesalers. Causes of the Bullwhip Effect The causes of the bullwhip effect are demand forecast updating. Price fluctuations follow special promotions like price discounts. members of the supply chain tend to buy in larger quantities. quantity discounts. Based on actual demand. The retailers review their current inventory level and. Price fluctuations cause companies to buy products before they need them. A company does order batching when. Rationing and shortage gaming result when demand exceeds supply and products are rationed to members of the supply chain. The distributors repeat the process. order batching. does demand forecast updating with every inventory review. based on their inventory policies. Let's look at each of these causes. Each of these price fluctuations affects the replenishment orders placed in the supply system. Note that the demand is from the retailers' inventory replenishments and may not reflect actual customer demand at the retail level. The wholesalers update their demand forecast and place appropriate replenishment orders with the distribution centers. the manufacturer develops plans and schedules production orders based on orders from the RDCs. sums up the number of units sold. The greater the number of levels in the supply chain. The distributors review their inventory levels and place the appropriate orders with the manufacturer. suppliers stockpile inventory. Since suppliers in the chain do not know what customer demand is or when a replenishment order might arrive. instead of placing replenishment orders right after each unit is sold. Each member in the supply chain. and then places the order. the further away the manufacturer is from final customer demand. The wholesalers repeat the process. and rebates. determine whether a replenishment order is needed. In turn. the retailers update their demand forecast. price fluctuation. Knowing that the manufacturer will . When prices increase. These orders are determined by the inventory policies at the distributors. it waits some period of time. Instead of filling an order based on a set percentage. Counteracting the Bullwhip Effect Here are four ways of counteracting the bullwhip effect: 1. 3. 4. For example. and point-of-sales demand information E-commerce and e-business – uses internet and web to transact business Business-to-business (B2B) E-commerce – businesses selling to and buying from other businesses Business-to-Business (B2B) Evolution: Automated order entry systems started in 1970’s Electronic Data Interchange (EDI) started in the 1970’s Electronic Storefronts emerged in the 1990’s Net Marketplaces emerged in the late 1990’s . Stabilize prices. Eliminate gaming. you order 200 so you are sure to get what you need. Such game-playing distorts true demand information in the system. If you really need 100 pieces. bar code scanners. you double the order size. customers within the supply chain often exaggerate their needs.ration items. Eliminate order batching. Supply chain partners can reduce ordering costs by using electronic data interchange (EDI) to transmit information. Companies typically use large order batches because of the relatively high cost of placing an order. if you know the company is supplying only 50 percent of the order quantity. Customers then have no incentive to order a larger quantity to get the quantity they need. EDI. major manufacturers use an everyday low-price policy or a value- pricing strategy to discourage forward buying. a function available on most cash registers. intranets and extranets. Change the way suppliers forecast product demand by making this information from the final-seller level available to all levels of the supply chain. This allows all levels to use the same product demand information when making replenishment decisions. In the grocery industry. Manufacturers can eliminate incentives for retail forward buying by creating a uniform wholesale pricing policy. manufacturers can allocate products in proportion to past sales records. Companies can do this by collecting point-of-sale (POS) information. Lower ordering costs eliminate the need for batch orders. Major Issues Affecting SQM Information technology – enablers include the Internet. for example. Web. 2. lack of skilled labor. or service directly to customers o Affiliate Revenue Model – Companies receive a referral fee for directing business to an affiliate o Intranets – An organization’s internal networks o Extranets – Intranets linked to the Internet for suppliers and customers to interact within their system. provides opportunity for suppliers to advertise o Subscription Revenue Model – Web site charges a subscription fee for access to the site o Transaction Fee Model – Company receives a fee for executing a transaction o Sales Revenue Model – A means of selling goods.on-line businesses sell to individual consumers: Types of E Commerce o Advertising Revenue Model – Provides users w/information on services & products. & scarce local material supplies Role of purchasing The purchasing dept plays important role in SCM and is responsible for: Selecting suppliers Negotiating and administering long-term contracts Monitoring supplier performance Placing orders to suppliers . improved capabilities. information. SCM must consider the following trends. communication. especially during the product design and development Business-to-Consumer (B2C) E-Commerce . Benefits of B2B E-Commerce Lower procurement administrative costs. and waste minimization Managing extensive global supply chains introduces many complications Infrastructure issues like transportation. Low-cost access to global suppliers Lower inventory investment due to price transparency/reduced response time Better product quality because of increased cooperation between buyers and sellers. & realities: Consumer Expectations and Competition – power has shifted to the consumer Globalization – capitalize on emerging markets Government Regulations and E-Commerce – issues of Internet government regulations Green Supply Chain Management – recycling. sustainable eco- efficiency. com/us/itunes-u/supply-chain-management-video/id471495701 Supply chain and logistics management by Cranfield University http://itunes. Video 4 – Discusses with you what Agile is and how this can improve your supply chain.youtube.youtube.edu/supply-chain-management-degrees/videos http://www.com/watch?v=Mi1QBxVjZAw Keep an eye out for any videos. This website also have further videos that might be of interest.com/watch?v=OJflDE6OaSc If you have itunes http://itunes.com/us/itunes-u/supply-chain-logistics- management/id447339850?mt=10 .This Video gives a clear definition of supply chain management.asu.apple. Very interesting and easy to watch. http://wpcarey. He specialises in Supply Chain Management.apple. http://www. Developing a responsible supplier base Videos Video 3 . articles or podcasts by Professor Richard Wilding of Cranfield University. To Read the rest of this article from http://www. These platforms. Their magazine is online and has some free content. As soon as you finish thinking and writing.ism. and GT Nexus. enable partners to establish a set of rules that allow certain constituents to see information relevant to them. www. logistics providers. This is the concept behind a set of supply-chain solutions being offered by companies such as E2open Inc.operationsmanager. Identify the challenges posed by e-commerce on operations management Further Reading The Institute of Supply Management has a great website with a vast amount of information.com/headline/cloud-supply-chain/ accessed 20/09/2012 Article from Institute of Supply Management http://www.cfm?ItemNumber=21660 Discussion Question Describe the impact of e-commerce on operations management. How do supply chains for service organizations differ from supply chains for manufacturing organizations? Cloud Supply Chain – New Innovation. and even governmental and regulatory agencies.Think Theory 2 (Take a pen and write down your answer. check at the end of the topic overview for feedback) 1. hosted on the cloud. the universe of collaborators can be opened to include financial institutions.ws/content.ism.ws . Unlike a typical closed system. Material Sources 1. intranets.nummi. the tier one supplier is a company that produces the final packaged product. the more distortion that is possible. Green SCM focuses on the environment and the processes in the SC that affect the environment. Reid R. Supply chains for service organizations can have external suppliers. Global supply chains increase geographic distances between members. The Internet. Manufacturers have external suppliers in the different tiers.ws www. Net marketplaces bring together thousands or suppliers and customers.com 3. internal processes and external distributors.org IBM. Supply chains include all the processes needed to make a finished product. 4th Edition..ISM. Manufacturing supply chains typically include a greater variety of links in the chain in terms of the types of companies. Additional Web Resources for this chapter Nummi (New United Motor Manufacturing. Topic’s summary Every organization is part of a supply chain. Purchasing has a major role in SCM. and POS data are SCM enablers. The bullwhip effect distorts product demand information passed between levels of the supply chain. extranets. the WEB. Operations Management. www.ibm. Purchasing is involved in sourcing decisions and developing strategic long-term partnerships. Many issues affect supply chain management. causing greater uncertainty in delivery times. 2011. www. either as a customer or as a supplier. as well as processing operations.manufacturingiscool. In addition. Allowing for efficient sourcing and lower transaction costs.). http://www. Wiley Publishers 2. B2B and B2C electronic commerce enable supply chain management. SCM is the integration and coordination of these efforts. EDI. Inc.operationsmanager.com/us Institute for Supply Management. Government regulation affects SCM on several levels. bar-code scanners. www. . The more levels that exist.com/headline/cloud-supply-chain/ accessed 20/09/2012 Think Theory 2 Ideas How do supply chains for service organizations differ from supply chains for manufacturing organizations? Service supply chains typically do not include external suppliers. The warehouses provide transportation. Familiarise yourself with Cruise International Inc (CII) Your assignment for this week is to attempt chapter 4 questions on Supply Chain Management. Supply chain distribution requires effective warehousing operations. Impact. product mixing. Inc. Companies make insourcing and outsourcing decisions. Assignment 1: All of the following questions are to be attempted. customer service levels. The emergence of net marketplaces has significantly affected SCM. Partnerships require sharing information. intimacy. These make-or-buy decisions are based on financial and strategic criteria. risks. it is imperative that buyers avoid any appearance of unethical behavior or conflict of interest. technologies. A company needs to evaluate the performance of its supply chain. etc. responsive supplier base. Ethics in supply management is an ongoing concern. consolidation. Your . As supply chains become longer. and service. The last step is integrating the external distributors. the company tries to integrate the external suppliers.2. Implementing SCM usually begins with the manufacturer integrating internal processes first. The company competes in the cruise industry in the small-ship. medium-ship.3 Supply Chain Management at Cruise International. (CII). and large-ship markets. market share. profitability. Sourcing is critical in establishing a solid. it is likely that supply chain velocity will decrease. and vision are critical to successful partnering. It is possible that a more strategic and integrated approach is needed to advance SCM to the next level. Since buyers are in a position to influence or award business. The. and opportunities. Maximum word count: 2000 words Type of assignment: Essay Start: Week 2 Finish: Week 2 Learning Outcome Assessed: 1. You will be an intern for Cruise International. Inc. Regular performance metrics (ROI.) and other measures that reflect the objectives of the SC are used. and a conclusion Weight – 40% . Guidelines for assignment This is an individual assignment Ground your answer in relevant theory Plagiarism and reproduction of someone else’s work as your own will be penalized Make use of references. where appropriate – Use Harvard or APA referencing method. "Leila Jensen liked your write-up on the CII service package and delivery system. assured supply of a variety of mechanical equipment." 1. Provide a comprehensive explanation of the essential concepts of SCM and explain to what extent SCM is applicable to a service operation such as CII. just called to tell you that he was impressed with your progress thus far in familiarizing yourself with operations at CII- both the strategic details pertaining to its mission. Inc. Meghan Willoughby wants you to prepare a similar report addressing SCM issues relevant to CII. with all the buzz about supply chain management (SCM) that you hear these days. main body. But for now. Critique the potential conflicts of interest or ethical issues facing the purchasing function. Bob Bristol. Late submission implies a deduction of 10 marks per day Structural elements should include an introduction. Chief Purser aboard the Friendly Seas I. He tells you that. Meghan Willoughby. retail merchandise. Bob Bristol. food products. Maintaining an adequate. I look forward to receiving your report.internship begins in a few weeks. CII is actively interested in exploring how different SCM concepts and techniques could be used in their operations. Meghan would like a concise research report for the top management team addressing SCM issues relevant to CII. and the specific details concerning its services and processes. a major function in SCM. your immediate boss. has a couple of specific assignments that you will work on later. Prepare a concise report addressing the specific questions that Meghan has put together for you. etc. your boss at Cruise International. competitive priorities. and supplies for maintaining the ship is critical to CII. is critical in the cruise line industry.. Evaluate how partnering with some of the suppliers could benefit CII. industry and its competitive environment. 2. which I am sure will provide insight for SC applications at CII. What issues should CII consider when developing partnerships? Purchasing. Senior Administrators at CII are actively involved in exploring how SCM concepts and techniques could be adopted in their operations. entertainment equipment. has asked you to become familiar with the cruise industry and its basic markets.