BUSINESS PLUG-IN

B8
Supply Chain
Management

McGraw-Hill/Irwin

The McGraw-Hill Companies, All Rights Reserved

LEARNING OUTCOMES
1. List and describe the four drivers of supply
chain management
2. Explain supply chain management strategies
focused on efficiency
3. Explain supply chain management strategies
focused on effectiveness
4. Summarize the future of supply chain
management
B8-2

INTRODUCTION
Supply chain consists of all parties
involved, directly or indirectly, in the
procurement of a product or raw material
Supply chain management (SCM)
involves the management of information
flows between and among stages in a
supply chain to maximize total supply chain
effectiveness and profitability
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SUPPLY CHAIN DRIVERS

The four primary drivers of supply chain

management
1.
2.
3.
4.

Facilities
Inventory
Transportation
Information

Organizations use these four drivers to support

either a supply chain strategy focusing on efficiency
or a supply chain strategy focusing on effectiveness
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SUPPLY CHAIN DRIVERS

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FACILITIES DRIVER

Facility processes or transforms

inventory into another product, or it stores
the inventory before shipping it to the next
facility

Three primary facilities components

1. Location
2. Capacity
3. Operational design
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FACILITIES 1:
Location

Location efficiency centralize the

location to gain economies of scale,
which increases efficiency

Location effectiveness decentralize

the locations to be closer to the
customers, which increases
effectiveness
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FACILITIES 2:
Capacity

Capacity efficiency minimal excess

capacity with the ability to produce only
what is required

Capacity effectiveness large

amounts of excess capacity which can
handle wide swings in demand

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FACILITIES 3:
Operational Design

Operational design efficiency product

focus design allows the facility to become
highly efficient at producing one single
product, increasing efficiency

Operational design effectiveness

functional focus design allows the facility
to perform a specific function on many
different types of products, increasing
effectiveness

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FACILITIES DRIVER

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INVENTORY DRIVER

Inventory offsets discrepancies between

supply and demand

Inventory management and control

software provides control and visibility to
the status of individual items maintained in
inventory

Two primary inventory components

1. Cycle inventory
2. Safety inventory
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INVENTORY 1:
Cycle Inventory

Cycle inventory the average amount

of inventory held to satisfy customer
demands between inventory deliveries
Cycle inventory efficiency holding small
amounts of inventory and receiving orders
weekly or even daily
Cycle inventory effectiveness holding
large amounts of inventory and receiving
inventory deliveries only once a month
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INVENTORY 2:
Safety Inventory

Safety inventory extra inventory held

in the event demand exceeds supply
Safety inventory efficiency holding small
amounts of safety inventory
Safety inventory effectiveness holding
large amounts of safety inventory

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INVENTORY DRIVER

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TRANSPORTATION DRIVER

Transportation moves inventories

between the different stages in the
supply chain

Two primary inventory components

1. Method of transportation
2. Transportation route

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TRANSPORTATION 1:
Method of Transportation

Global inventory management system

provides the ability to locate, track, and
predict the movement of every component
or material anywhere upstream or
downstream in the supply chain
Method of transportation efficiency
Method of transportation effectiveness

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TRANSPORTATION 2: Transportation
Route

Transportation planning software tracks

and analyzes the movement of materials and
products to ensure the delivery of materials and
finished goods at the right time, the right place,
and the lowest cost

Distribution management software

coordinates the process of transporting
materials from a manufacturer to distribution
centers to the final customer

Transportation route efficiency

Transportation route effectiveness

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TRANSPORTATION DRIVER

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INFORMATION DRIVER

Information an organization must

decide how and what information it
wants to share with its supply chain
partners

Two primary information components

1. Information sharing
2. Push verses pull strategy
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INFORMATION 1:
Information Sharing

Information sharing efficiency freely share

lots of information to increase the speed and
decrease the costs of supply chain processing

Information sharing effectiveness share

only selected information with certain
individuals, which will decrease the speed and
increase the costs of supply chain processing

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INFORMATION 2:
Push vs. Pull Information Strategy

Pull information strategy (efficiency)

supply chain partners are responsible for
pulling all relevant information

Pull technology pulls information

Push information strategy effectiveness

organization takes on the responsibility to
push information out to its supply chain
partners

Push technology sends information

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INFORMATION DRIVER

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APPLYING A SUPPLY CHAIN DESIGN

Wal-Marts supply chain management

strategy emphasizes efficiency, but also
maintains adequate levels of
effectiveness

Facilities focus Efficiency

Inventory focus Efficiency
Transportation focus Effectiveness
Information focus - Efficiency
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APPLYING A SUPPLY CHAIN DESIGN

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Future Trends

Fastest growing SCM components

Supply chain event management (SCEM)

Selling chain management
Collaborative engineering
Collaborative demand planning

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Radio Frequency Identification (RFID)

Radio frequency identification (RFID) - use
active or passive tags in the form of chips or
smart labels that can store unique identifiers
and relay this information to electronic readers
RFID tag - contains a microchip and an
antenna, and typically work by transmitting a
serial number via radio waves to an electronic
reader, which confirms the identity of a person
or object bearing the tag
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Radio Frequency Identification (RFID)

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RFID

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CLOSING CASE ONE

Listerines Journey

When you use Listerine antiseptic mouthwash,

you are experiencing the last step in a complex
supply chain spanning several continents and
requiring months of coordination by countless
businesses and individuals

As raw material is transformed to finished

product, what will be Listerine travels around
the globe and through multiple supply chains
and information systems
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CLOSING CASE ONE QUESTIONS

1. Summarize SCM and describe WarnerLamberts supply chain strategy
2. Detail Warner-Lamberts facilities
strategy
3. Detail Warner-Lamberts inventory
strategy
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CLOSING CASE ONE QUESTIONS

4. Detail Warner-Lamberts transportation
strategy
5. Detail Warner-Lamberts information strategy
6. What would happen to Warner-Lamberts
business if a natural disaster in Saudi Arabia
depletes its natural gas resources?

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CLOSING CASE TWO

Katrina Shakes Supply Chains

How do corporations cope with the realities of

risk, uncertainty, and crisis?

Many businesses prepared well for Hurricane

Katrina, responded quickly, and did so because
Katrina was exactly the kind of event for which
well-run corporations ready themselves

Corporations donated more than $500 million for

relief for the hurricane that hit New Orleans in
2005 and were the first to provide help to
Katrina victims
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CLOSING CASE TWO QUESTIONS

1. How did Home Depot manage its supply chain
to be one of the first stores to reopen after
Katrina?
2. How could Wal-Mart have revamped its
transportation driver to handle Katrina more
efficiently?
3. Why is it critical to FedExs success to be able
to handle all types of global disasters?
Highlight FedExs use of the information driver
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CLOSING CASE TWO QUESTIONS

4. How can the government learn from big
business in dealing with disasters such
as Katrina?
5. What can companies do in terms of
facilities, inventory, transportation, and
information to prepare themselves for
disasters such as Katrina?
B8-34