Supply Chain Strategy

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Supply-Chain Management

Supply-chain management consists of developing a strategy to organize, control, and motivate the resources involved in the flow of services and materials within the supply chain. A supply chain strategy, an essential aspect of supply chain management, seeks to design a firm’s supply chain to meet the competitive priorities of the firm’s operations strategy.

1 Supply Chain Strategy Across the Organization

Supply chains must be managed to coordinate the inputs with the outputs in a firm to achieve the appropriate competitive priorities of the firm’s enterprise processes. The Internet offers firms an alternative to traditional methods for managing supply chains. A supply chain strategy is essential for service as well as manufacturing firms.

2 Supply Chain for Services and Manufacturing

Every firm or organization is a member of some supply chain.

1 Services

Supply chain design for a service provider is driven by the need to provide support for the essential elements of the various service packages it delivers. Elements of its service package include:

➢ Supporting facilities

➢ Facilitating goods

➢ Explicit services

➢ Implicit services

2 Manufacturing

A fundamental purpose of supply chain design for manufacturers is to control inventory by managing the flow of materials. Inventory is a stock of materials used to satisfy customer demand or to support the production of services or goods.

Inventory exists in three aggregate categories, which are useful for accounting purposes. Raw Materials (RM) are inventories needed for the production of services or goods. They are considered to be inputs to the transformation processes of the firm. Work-in-process (WIP) consists of items such as components or assemblies, needed to produce a final product in manufacturing. WIP is also present in some service operations, such as repair shops, restaurants, check-processing centers, and package delivery services. Finished goods (FG) in manufacturing plants, warehouses, and retail outlets are the items sold to the firm’s customers. The finished goods of one firm may actually be the raw materials for another.

Suppliers are often identified by their position in the supply chain. Here, tier 1 suppliers provide materials or services that are used directly by the firms, tier 2 suppliers supply tier 1 suppliers, and so on.

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Supply Chain for a Manufacturing Firm

3 Supply Chain Dynamics

Bullwhip effect is the phenomenon in supply chains whereby ordering patterns experience increasing variance as you proceed upstream in the chain. Upstream members (toward the lowest tier in the supply chain) must react to the demands placed on them by downstream members of the chain. The slightest change in customer demand can ripple through the entire chain, each member receiving more variability in demands from the member immediately downstream.

1 External causes

➢ Volume changes

➢ Service and product mix changes

➢ Late deliveries

➢ Underfilled shipments

2 Internal causes

➢ Internally generated shortages

➢ Engineering changes

➢ New service or product introductions

➢ Service or product promotions

← Forward buying: The practice of buying in excess of immediate needs to take advantage of price discounts. ← Strategic pricing: That offers customers financial incentives for ordering more efficiently by engaging in electronic ordering, accepting direct plant deliveries or picking up orders themselves, and buying full truck loads and pallets of the product. ➢ Information errors: Demand forecast errors causing firms to order too many, or too few, services and materials.

3 Integrated supply chains

A starting point for minimizing supply chain disruptions is to develop a supply chain with a high degree of functional and organizational integration....
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