Finally, the company needs to integrate Six Sigmaand lean manufacturing across the entire supply chain by including supply chainmanagement in its strategic planning process.. The remaind
Trang 1at a rapidly increasing pace Some of the changes they face are fiercely competitivemarkets, shorter and shorter product life cycles, heightened customer expectations,and a diminished ability to raise prices even on high-demand products.
With these changes come enormous business pressures Pressure to find moreeffective ways to shorten the concept-to-delivery cycle Pressure to drive out ineffi-ciencies in all their processes Pressure to develop and execute a strategic plan thatwill anticipate and address these changes Only by aggressively seeking processimprovements and enhancements to cost, quality, productivity, and customer satis-faction can companies hope to survive these changes
As manufacturers seek the mechanisms for survival, they turn their attention tothe supply chain, seeking to capture improved efficiency Currently, considerableactivity in manufacturing is focused on eliminating inefficiencies through supplychain management Abramson (1999) reports that inventory being held across theretail supply chain at any one time amounts to $1 trillion Of those inventories, 15
to 20% ($150 to 200 billion worldwide; $40 to 50 billion in the United States) could
be eliminated through improved supply chain management in the form of planning,forecasting, and replenishment Anderson, Britt, and Donavon (1997) report thatcompanies now recognize the importance of meeting customer needs By usingsupply chain management, companies can tailor products and services to specificcustomers and win customer loyalty This loyalty translates into profits Xerox hasfound satisfied customers six times as likely to buy additional Xerox products over
a period of 18 months than dissatisfied customers Other benefits that can be gainedthrough supply chain management are improved cash utilization (how soon afterdelivery do you get paid?), flexible schedules, shortened schedules, delivery ofproduct or services at the time of need, and price advantages
How can a business gain all those advantages through supply chain management?
It is first necessary to have an extremely effective Six Sigma process to protect againstlosing customers due to product nonperformance Next, a mature and effective leanSL3003Ch16Frame Page 345 Tuesday, November 6, 2001 6:02 PM
Trang 2manufacturing program must be in place to ensure the maintenance of minimuminventory levels while the manufacturing processes are still consistently deliveringproduct to the customer on time Finally, the company needs to integrate Six Sigmaand lean manufacturing across the entire supply chain by including supply chainmanagement in its strategic planning process Strategic planning, lean manufactur-ing, and Six Sigma are covered in separate sections of this book The remainder ofthis chapter focuses on contemporary issues that exist in supply chain management,the more traditional topics of inventory management and control, and the importance
of synchronizing supply to demand
16.2 DEFINING THE MANUFACTURING SUPPLY CHAIN
There are probably as many definitions of a supply chain as there are practitioners ofsupply chain management (SCM) Poirier and Reiter (1996) define the supply chain as
a system of organizations that delivers products and services to its customers Thissupply chain model can be illustrated as a network of linked organizations that has acommon purpose of delivering product and services through the best possible means.Another supply chain definition, developed by Kearney (1994), shows linked groups
of enterprises that work synchronously to acquire, convert, and distribute goods andservices to the customer Kearney also captures the need to distribute new designsthrough the network, ensuring a rapid response to the dynamic requirements of themarket
Though Copacino (1997) never presents a concise definition of the supply chain,
he alludes to it as all the players and activities necessary to convert raw materialsinto product and deliver them to consumers on time and at the right location in themost efficient manner In this supply chain model, the major business processes of
a manufacturing company are composed of suppliers, manufacturing, distributionretailing, and consumers He extends this model by showing the demand-and-supplychain as integrating functions to the major business processes
Walker and Alber (1999) define the manufacturing supply chain as the globalnetwork used to deliver products and services from raw materials to end customersthrough an engineered flow of information, physical distribution, and cash.Mohrman (1999) defines the supply chain as the business, capital, material, andinformation associated with the flow of goods The total supply-and-demand chainextends from natural resources through a network of value-added steps and transportlinks until it reaches the ultimate consumer
Different practitioners developed these definitions for different reasons Although
it would seem that they are completely different, closer examination of these definitionsreveals common key themes that can be used to develop our own definition Thisdefinition will be generic enough to be applicable to any manufacturing supply chain.One key concept is that the supply chain is a network of linked companies andorganizations This network has a broad span that starts with obtaining naturalresources and ends when the product or service reaches the ultimate customer.Finally, the dynamics of a supply chain involve the conversion of natural resourcesinto a product or service that is delivered to a customer With this, we can developour definition of a generic manufacturing supply chain:
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A supply chain is a dynamic network of interlinked organizations that converts natural resources into products or services that are delivered to the consumer at the right place and at the right time.
A simple graphical model of this supply chain is shown in Figure 16.1 Fromthis illustration, we see that the supply chain starts when a supplier (or suppliers)converts natural resources into usable materials for the manufacturing company.Usable materials can be raw material, such as steel bar stock, if the manufacturingcompany is a machine shop or subassemblies if the manufacturing company is apersonal computer-manufacturing firm After all the necessary resources are supplied
to the manufacturing firm, they are converted into the end product for which thecustomer ultimately pays A logistics organization, not depicted in Figure 16.1, isnecessary to ensure the proper delivery of the end product to the consumer
To better illustrate this supply chain model, let’s look at it in the context of theaerospace industry In the aerospace industry, a jet engine manufacturing supplychain can be a very complicated group of companies Suppliers would start bypurchasing raw aluminum and steel stock and converting it into castings and forgings.Other suppliers may take those castings and forgings and machine them, addinggears, splines, shafts, and motors to create mechanical subassemblies These sub-assemblies are then delivered to the engine-manufacturing firm where they areassembled into complete and functional jet engines These engines are tested, pack-aged, and shipped to the consumer through the logistics network
Inventory of all types can be found at all stages of the supply chain As illustrated,raw material inventories are typically accumulated at the beginning Work-in-processinventory in the form of subassemblies and partially assembled jet engines willaccumulate at the manufacturing stage Finished goods inventory in the form ofcompleted jet engines can accumulate in the logistics network, at the distributioncenters, and at the customer’s site
Another interesting aspect of the manufacturing supply chain is that informationflows in the opposite direction of the product Products and services typically flowfrom suppliers to the manufacturing firm From there the products and services aretransported to the customer through a logistics network Conversely, informationabout consumption patterns, points of sales, and demand forecasts flows from thecustomer to the manufacturing firm From there the manufacturing firm disseminatesthe information and flows it down to the appropriate suppliers
From this we can conclude that a supply chain is a very complex group ofsuppliers, manufacturing firms, and logistics organizations that must work together
FIGURE 16.1 Generic manufacturing supply chain model.
Raw Material Inventory
Work-In-Process Inventory Finished Goods Inventory
Supply Resources
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Trang 4to accomplish a common goal The manufacturing supply chain also needs anefficient information technology organization that can quickly and accurately moveinformation down the supply chain Finally, it is apparent that the only way to dealwith the complexity of the supply chain is to have an effective supply chain man-agement philosophy Without a common management philosophy among the ele-ments of the supply chain, it is very difficult to define and accomplish the supplychain goal(s) In the next section we define supply chain management and how itshould be used to synchronize all the elements of the supply chain.
16.3 DEFINING SUPPLY CHAIN MANAGEMENT
Have you ever tried to define supply chain management (SCM) to someone? Aboutthe time you compare SCM to logistics management or materials management, younotice that your audience has lost interest It is readily apparent that SCM is noteasy to define The fact is, there are many practitioners’ definitions of SCM Let’slook at some of them to see if we can come up with one of our own
One practitioner defines SCM as the driving force that oversees the relationshipsacross the entire supply chain In this definition, SCM is responsible for obtainingthe necessary information to run the business, to get product delivered through thebusiness, and to get the revenue that generates profits for the business This definitionalso mentions the need for SCM to consider the entire supply chain
Another SCM practitioner provides a much broader definition He or she seesSCM as coordinating, scheduling, and controlling procurement, production, inven-tories, and deliveries of products and services to customers It includes the everydayadministration, operations, logistics departments, and processing information fromcustomers to suppliers
Yet another definition positions SCM as the organization responsible for making,selling, and delivering products to the customer This definition goes further byrequiring collaboration among all members of the supply chain to manage sensitivestrategic planning as well as the flow of information
A more detailed definition of SCM starts by calling SCM a set of approachesthat must be utilized to efficiently integrate suppliers, manufacturers, warehouses,and stores This is necessary to ensure that product is manufactured and distributed
at the right quantities, to the right location, and at the right time The results can bemeasured in minimized systemwide costs and satisfied customers
A manufacturing-specific definition goes as follows: SCM is the driving force
in ensuring that the manufacturer and its suppliers work together to make a product
or service available to the marketplace for which the customer will pay This volution of companies, functioning as one extended enterprise, makes optimum use
con-of shared resources to achieve operating productivity The result is a product orservice that is high quality and low cost, and is delivered on time to the marketplace.Our last definition is probably the simplest and most concise SCM is the mechanismthat links all the players and activities involved in converting raw materials into products.These players and activities are responsible for delivering those products to customers
at the right time, at the right place, and in the most efficient way
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By looking at all these definitions, we can develop some common themes First,
we see that each definition emphasizes management across the entire supply chain
In other words, SCM should be pervasive from suppliers to customers Second, thedefinitions use words such as coordinate, link, oversee, collaborate, and integrate.This implies that management across the supply chain must be used to synchronizeeach of the individual elements of the supply chain Finally, each element of thesupply chain must have a common goal What is the goal? In every definition, theconcept of manufacturing a high-quality, low-cost product or service and delivering
it on time to the right customer is mentioned Additionally, each definition has thecustomer central to SCM, so customer satisfaction should be a goal Now, puttingall these elements together we develop the following definition of SCM:
SCM is the mechanism that synchronizes all the individual elements of the supply chain SCM must ensure that the supply, production, and delivery of a product or service always meets the customer’s requirements for cost, quality, and performance This means that the product must be low cost and high quality, and be delivered to the right customer at the right time.
From this definition, we see that there are some important topics that requiremore discussion, such as supply chain synchronization, inventory management,logistics network configuration, strategic partnering, and information technology’srole in SCM These topics are all central to our definition of SCM, and we discussthem in the sections that follow
16.4 CRITICAL ISSUES IN SUPPLY CHAIN MANAGEMENT
Recent developments in SCM have spawned numerous books, articles, and academicpublications addressing the current issues facing SCM One issue that appears inalmost every publication on the topic of SCM is the need to integrate the entiresupply chain Many managers recognize that integrating the supply chain canimprove both cost and customer satisfaction Supply chain integration is necessarysimply because it allows a firm to match the supply of a product to the product’sconsumption pattern Synchronization of supply to demand has many cost benefits
We discuss the details of synchronizing supply to demand in a later section but first,the issues of supply chain integration are discussed
Integration of every link in the supply chain has proven to be very difficult formany reasons One reason is that the supply chain system for any firm is in a state
of constant change and evolution Another difficulty with integration is related tothe complexity of the supply chain There are so many organizations and facilities
in a supply chain that there will always be conflicting objectives and a lack ofcommunication Two common approaches for addressing integration issues exist.The first is for a firm to take advantage of information technology, which helps tosimplify the supply chain and improve communication The second approach is forfirms to form strategic alliances among all partners in the supply chain
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Trang 6The use of information technology is always identified as the enabling force foraccomplishing supply-to-demand synchronization With the proper information, allthe links in the supply chain can maintain minimum costs and still meet customerdemand With this information, a firm can also develop accurate forecasts, whichare imperative when matching the demand for a product with the supply of materials
in the overall supply chain
Another SCM issue that is related to supply chain integration is the need for acompany to develop strategic partners throughout the supply chain If a firm has suc-cessfully established a product demand-to-supply synchronization through its supplychain, then there must be some level of coordination and partnering within each com-ponent of the supply chain Later in this chapter we present some of the most commonstrategic partnering approaches used by modern manufacturing firms
Finally, the more commonly discussed issue of SCM is configuring the logisticsnetwork Let’s assume that a typical manufacturing firm produces a product fromseveral plants and distributes the product to a set of geographically dispersed cus-tomers through a network of warehouses The issue here is that the firm needs todetermine the optimal number and location of warehouses Optimization in this areameans determining the appropriate number, size, location, and inventory of eachwarehouse This, of course, assumes the manufacturing plants and customers remaingeographically fixed An analytical approach to address network configuration andinventory management are presented later in this chapter The remainder of thischapter is dedicated to summarizing what critical issues face SCM and what hasbeen proposed to address those issues
16.4.1 S UPPLY C HAIN I NTEGRATION
Integration of the supply chain is difficult because of its dynamic nature and flicting objectives, but not impossible, as major companies in the semiconductor,consumer retail, and chemicals industries have demonstrated How do companiessuccessfully integrate their supply chains? Research on hundreds of manufacturingcompanies shows that the most common approach is to first establish lines ofcommunication across the entire supply chain, then to establish strategic partner-ships among all partners in the supply chain A firm’s information technology (IT)department is the key functional area for providing the ability to communicateacross the supply chain Strategic partnering has been a common practice for manyyears; however, it is typically only practiced in the procurement department andused in isolation Later in this chapter we summarize some of the common types
con-of partnerships and how partnerships should be formed across the entire supplychain
Before a supply chain can be integrated, there must be open sharing of mation for coordinated operational planning The sheer magnitude of data andinformation that can be shared is enough to clog the flow of products through asupply chain So, what are the roles of IT in SCM? One role is to provide access
infor-to information through a seamless link from the beginning infor-to the end of the supplychain Another is to provide a centralized hub of all available information
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16.4.1.1 Information Technology
Effective use of information to integrate the supply chain has been recognized as
an important focus of SCM since the early 1990s (Copacino, 1997) Much of thecurrent interest in information technology is motivated by the ability to applysophisticated analytical methods to supply chain data to glean savings Also, muchinterest is developing from opportunities provided by electronic commerce, espe-cially through the Internet
Information linkages among all partners in a supply chain must be developedand implemented Supply chain managers also need analytic capabilities for logisticsnetwork modeling, routing and scheduling, production scheduling, and logisticssimulations Information systems must be multifunctional so they can handle thecomplexity of the supply chain Speed and accuracy of transaction handling are alsoimportant All functional areas such as manufacturing, warehousing, transportation,and logistics must use real-time systems and accurate data-capture technologies.Decision support systems are also needed to make strategic, tactical, and operationaldecisions Considering these needs, information technology is the most importantenabling function for developing an integrated supply chain Because the supplychain spans the entire network from supplier to customer, our discussion of infor-mation technology will encompass systems internal to an individual company aswell as external systems that transfer information between companies
16.4.1.2 Information Access
One goal of information technology in any supply chain is to provide access toinformation through a seamless link from suppliers of raw materials through man-ufacturing and ultimately to the customer Figure 16.2 illustrates the flow of infor-mation through the supply chain Note that the flow of information is opposite tothe flow of products through the supply chain
This link provides access to information concerning the location or status of aproduct anywhere in the supply chain With this link a firm can plan, track, andaccurately estimate lead times based on actual data Of course, this necessitatesaccess to data that reside in systems physically located at different companies as
FIGURE 16.2 Information and product flow through the supply chain.
Raw Material
Inventory
Work-In-Process Inventory Finished Goods Inventory
Order Information, Point of Sales Information, Forecast data, Revenue
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Trang 8well as at geographically separated systems within the same company Another keyaspect of this link is to assure the availability of information so rational, timelydecisions can be made Information systems also need to be proactive For example,
if the delivery of an order is delayed, a mechanism must be in place that willautomatically notify interested parties so they can adjust schedules or seek alternativesources of the product
Companies in the personal computer manufacturing industry have made the mostadvances in developing this information access link Take a look at the IT infrastruc-ture within any major personal computer manufacturer today and you will find anorder-tracking system that provides real-time information on the whereabouts of anorder This information is available to all internal organizations, all external suppliers,and to the customer It is this type of information access that every manufacturingcompany must strive to obtain
16.4.1.3 Centralized Information
Another information technology goal of SCM is to provide a centralized hub of allavailable information In most companies, each information system is isolated fromother information systems within that company Manufacturing, logistics, and customerservice work with a shop-floor control system, accounting works with another system,quality has a separate system, sales and marketing use yet another system, and customerservice has their own system Figure 16.3 illustrates a typical IT systems configuration.Occasionally, some crucial bits of information will cross the lines between systems, but
it usually takes a lot of effort and it is rarely accomplished in a timely manner
In an ideal world, all information requested by anyone in the supply chain would
be accessible at one location with a robust mode of access (e.g., fax, phone, orInternet) There hasn’t been a single manufacturing company researched that hasachieved this goal Some industries, such as banking, are close (Bramel and Simchi-Levi, 1997) but none of them has a centralized hub for information access
FIGURE 16.3 Typical IT systems configuration.
Shop Floor Control System
Manufacturing Logistics
Finance Computer System
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16.4.1.4 IT Development and Strategic Planning
Now that we know the importance of IT in integrating the supply chain, how can acompany access its current stage of development and plan for the future? The verycomplexity of the supply chain implies that there is no simple and inexpensiveanswer to this question Most companies do not introduce IT innovations because
it is not obvious if there will be a return on the investment This is truly shortsighted.Every company should take two simple steps in IT relative to SCM: assess its currentlevel of IT development, then create a corporate-wide vision to get to the next level
of development and beyond This chapter provides a simple way to assess yourcompany’s current level of development, and you can use the strategic planningtopics in this book to develop and achieve your corporate-wide vision
16.4.2 S TRATEGIC P ARTNERING
It may not always be effective for one firm to perform all key business functionsinternally Even if a firm has the resources available to perform a particular manufac-turing task, another firm in the supply chain may be better suited to perform that task.Sometimes a combination of physical location in the supply chain, resources, and corecompetency determines the most appropriate firm in the supply chain to perform amanufacturing function Once the appropriate firm to perform a task has been identified,steps must be taken to ensure that the function is actually performed by that firm.From our research, firms typically rely on one, or a combination, of three basicapproaches to ensure that a manufacturing-related function is completed:
• Committing internal resources If a company does not have the resources
or core competency internally, then it must acquire a firm that does Ineither case, this gives the manufacturing concern total control over allaspects of the way that particular business function is performed On theother hand, acquisitions can be very difficult, lengthy, and expensive
• Developing short-term external arrangements Most business transactionsare accomplished through this type of arrangement If a firm needs aspecific part, resource, or service, it will either purchase or lease it This
is typically the most effective arrangement for all parties involved ever, this kind of arrangement is only short term and it rarely, if ever,leads to long-term strategic advantages
How-• Developing strategic partners This approach, if done properly, results inlong-term partnerships between two companies In most cases, the prob-lems of committing internal resources or acquiring those resources can
be avoided by developing strategic partners Additionally, developingstrategic partners can lead to the commitment of more resources than can
be freed up with short-term external arrangements Ultimately, thisapproach allows risks and rewards to be shared by all partners, along withthe benefits of a stronger, healthier business
For the remainder of this section, we focus on two of the most common strategicpartnering agreements used in SCM
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Trang 1016.4.2.1 Supplier Partnerships
Supplier partnerships are the most common form of strategic partnerships used bytoday’s manufacturing companies This type of partnership is formed between thesuppliers of resources and the manufacturing firm The simplest type of supplierpartnership is one in which the manufacturing firm shares customer demand infor-mation to assist the supplier in production planning The most complicated partner-ship is one wherein the supplier has complete ownership and management respon-sibility of the inventory until it is sold to the customer
In a basic supplier partnership, the supplier receives customer demand data fromthe manufacturing firm The supplier uses these data to synchronize its productionrates and inventory levels to the customer’s requirements In this partnership, themanufacturer is responsible for individual customer orders However, the customerdemand information is used by the supplier to improve forecasting and scheduling
In a more advanced partnership, the supplier receives customer demand data toprepare shipments at previously agreed-upon intervals to maintain specific levels ofinventory As this partnership matures, suppliers gradually decrease inventory levels
at the manufacturing firm, resulting in predictable inventory reductions
Finally, in the most advanced partnership, the supplier decides on the appropriateinventory levels and inventory policies to maintain those levels In the early stages,the manufacturer approves supplier decisions, but eventually this form of oversightshould be eliminated This type of partnership has been used successfully in retail,department store, and discount department store industries
Clearly, a supplier–manufacturer partnership requires a certain level of trust;without this trust the affiliation will fail In some cases, the partnering supplier must
be trusted to manage a large segment of the supply chain In other cases, the suppliermust be trusted to manage the manufacturer’s inventory as well as its own Finally,
in every partnership, confidential information, which could serve competing facturers or suppliers, must pass between all firms safely
func-is usually a major, complicated business decfunc-ision Many considerations are critical
in deciding whether a company should enter into a logistics partnership The twomost important considerations are knowledge of its own costs and ownership ofassets
The most basic issue in selecting a logistics provider is to know your own costs
so they can be compared with the cost of using an external provider In many cases
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it is necessary to use modern cost-accounting methods that will track both directand indirect costs back to specific products and services
There are advantages and disadvantages to consider when using asset-owning
vs non-asset-owning logistics providers Asset-owning logistics providers are ically large, have access to an extensive customer base, and can provide economies
typ-of scope and scale Some typ-of the disadvantages to consider when using asset-owninglogistics providers are that they are typically bureaucratic, they will favor their owncompany’s organizations when awarding work, and it may take a long time for them
to make a decision
Non-asset-owning logistics providers are usually capable of being more flexible
in many areas that the manufacturing firm cannot One area that a non-asset-owningpartner can be flexible is in the technology it uses to provide services Anotherflexibility is in the area of geographic location Flexibility in the services provided canalso be obtained by entering a partnership with a non-asset-owning logistics provider.All these flexibilities allow freedom to mix and match providers This type of providerwill also typically have low fixed costs and specialized expertise Loss of control is themost commonly cited disadvantage of using this type of strategic partner
Other types of partnerships can be developed However, for manufacturing firms,logistics and supplier partnerships are the most commonly used choices to managethe supply chain more efficiently and effectively
16.4.3 L OGISTICS C ONFIGURATION
Issues typically discussed on the topic of logistics configuration, without exception,focus on strategic decisions concerning the warehousing and distribution aspect ofSCM Specifically, the strategic decisions every manufacturing firm must address are
• Proper customer access from each warehouse
• Proper product allocation in each warehouse
• Proper mode of transporting product from each warehouse
• Appropriate number and location of each warehouse
• Appropriate size of each warehouse
Making proper decisions about these issues is necessary to minimize costs acrossthe entire supply chain To address these issues, a manufacturing firm must followthese steps:
1 Gather data
2 Estimate cost
3 Develop a warehouse network model
4 Optimize the model
The data are gathered and costs are estimated and used as inputs to a networkmodel Once the network model is developed, it can be used to analyze and optimizethe current warehouse configuration Ultimately, the analysis will help the supplychain manager make the strategic decisions presented at the beginning of this section.SL3003Ch16Frame Page 355 Tuesday, November 6, 2001 6:02 PM