Week 2 BUSN 6110 Fall 2013 Behind

Week 2 BUSN 6110 Fall 2013

“Behind every great leader there was an even greater logistician. ” Supply Chain Management

Finance Acct’g Marketing Business Admin Supply Chain Management /Ops Management Info Systems Business Mgmt Sales Intl Business

Supply Chain Management • First appearance – Financial Times • Importance → Inventory ~ 14% of GDP → GDP ~ $12 trillion → Warehousing/Trans ~ 9% of GDP → Rule of Thumb - $12 increase in sales to = $1 savings in Supply Chain • 1982 Peter Drucker – last frontier • Supply Chain problems can cause ≤ 11% drop in stock price • Customer perception of company

SCOR Reference: www. supply-chain. org

End-to-End Supply Chain Plan Deliver Sourc Return e Suppliers’ Supplier Make Deliver Return Supplier Source Return Your Company Internal or External Make Deliver Return Plan Sourc e Return Make Deliver Sourc Return e Return Customer Internal or External Customers’ Customer SCOR reference model • Whether from Cow to Cone or from Rock to Ring SCOR is not limited by organizational boundaries Copyright © Supply Chain Council, 2008. All rights reserved 6 6

SCOR Model • Capturing the configuration of a supply chain A supply chain configuration is driven by: – Plan levels of aggregation and information sources – Source locations and products – Make production sites and methods – Deliver channels, inventory deployment and products – Return locations and methods

SCOR Metrics • Measuring the performance of the supply chain and comparing against internal and external industry goals Supply chain performance is focused on: – Reliability - achievement of customer demand fulfilment on-time, complete, without damage etc. – Responsiveness - the time it takes to react to and fulfill customer demand – Agility - the ability of supply chain to increase/decrease demand within a given planned period – Cost - objective assessment of all components of supply chain cost – Assets - the assessment of all resources used to fulfill customer demand

Supply Chain “The global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash. ” APICS Dictionary, 13 th Edition Supply Chain Management is simple, but not easy.

Supply Chain Uncertainty ü Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability ü Inventory is a form of insurance ü Distorted information is one of the main causes of uncertainty Bullwhip effect

Information in the Supply Chain ü Centralized coordination of information flows ü Integration of transportation, distribution, ordering, and production ü Direct access to domestic and global transportation and distribution channels ü Locating and tracking the movement of every item in the supply chain - RFID

Bar Codes ü Computer readable codes attached to items flowing through the supply chain ü Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and deliver plans 1234 5678

IT Issues ü Increased benefits and sophistication come with increased costs ü Efficient web sites do not necessarily mean the rest of the supply chain will be as efficient ü Security problems are very real – camera phones, cell phones, thumb drives ü Collaboration and trust are important elements that may be new to business relationships

Suppliers ü Purchased materials account for about half of manufacturing costs ü Materials, parts, and service must be delivered on time, of high quality, and low cost ü Suppliers should be integrated into their customers’ supply chains ü Partnerships should be established ü On-demand delivery (JIT) is a frequent requirement - what is JIT and does it work?

Sourcing ü Relationship between customers and suppliers focuses on collaboration and cooperation ü Outsourcing has become a long-term strategic decision ü Organizations focus on core competencies ü Single-sourcing is increasingly a part How does of supplier relations single source ü Barriers differ from sole source?

Sourcing and Suppliers • • Supplier Selection Evaluation Supplier Certification Sourcing and Ethics

Distribution ü The actual movement of products and materials between locations ü Handling of materials and products at receiving docks, storing products, packaging, and shipping ü Often called logistics ü Driving force today is speed

Distribution Centers and Warehousing ü DCs are some of the largest business facilities in the United States ü Trend is for more frequent orders in smaller quantities ü Flow-through facilities and automated material handling ü Final assembly and product configuration (postponement) may be done at the DC

Transportation

Railroads ü 95, 000 - 150, 000 miles in US ü Low cost, high-volume ü Improving flexibility ü intermodal service ü double stacking Complaints: slow, inflexible, large loads Advantages: large/bulky loads, intermodal

Trucking ü Most used mode in US -75% of total freight (volume not total weight) ü Flexible, small loads ü Consolidation, Internet load match sites ü Truck load (TL) vs. Less Than Truck Load (LTL)

Air ü Lightweight, small items ü Quick, reliable, expensive (relatively expensive depending on costs of not getting item there) ü Major airlines and US Postal Service, UPS, Fed. Ex

Package Carriers ü UPS, US Postal Service, Fed. Ex Ground ü Significant growth driven by e-businesses and the move to smaller shipments and consumer desire to have it NOW ü Use several modes of transportation ü Innovative use of technologies in some cases ü Online tracking – some better than others

Intermodal ü Combination of several modes of transportation ü Most common are truck/rail/truck and truck/water/rail/truck ü Enabled by the use of containers – the development of the 20 and 40 foot containers significantly changed the face of shipping

Water ü One of oldest means of transport ü Low-cost, high-volume, slow (relative) ü Security - sheer volume - millions of containers annually ü Bulky, heavy and/or large items ü Standardized shipping containers improve service ü The most common form of international shipping

Pipelines ü Primarily for oil & refined oil products ü Slurry lines carry coal or kaolin ü High initial capital investment ü Low operating costs ü Can cross difficult terrain

Global Supply Chain ü Free trade & global opportunities ü Nations form trading groups ü No tariffs or duties ü Freely transport goods across borders ü Security!!

Quality Management Quality is a measure of goodness that is inherent to a product or service. Bottom line: perspective has to be from the Customer – fitness for use

What Is Quality? ü “The degree of excellence of a thing” (Webster’s Dictionary) ü “The totality of features and characteristics that satisfy needs” (ASQ) ü Fitness for use ü Quality of design

Quality • Quality Management – not owned by any functional area – cross functional • Measure of goodness that is inherent to a product or service

Fed. Ex and Quality • Digitally Assisted Dispatch System – communicate with 30 K couriers • 1 -10 -100 rule – if caught and fixed as soon as it occurs, it 1 costs a certain amount of time and money to fix – if caught later in different department or 10 location = as much as 10 X cost – if mistake is caught by the customer = as 100 much as 100 X to fix

Product Quality Dimensions • Product Based – found in the product attributes • User Based – if customer satisfied • Manufacturing Based – conform to specs • Value Based – perceived as providing good value for the price

Dimensions of Quality (Garvin) 1. Performance ü Basic operating characteristics 2. Features ü “Extra” items added to basic features 3. Reliability ü Probability product will operate over time

Dimensions of Quality (Garvin) 4. Conformance ü Meeting pre-established standards 5. Durability ü Life span before replacement 6. Serviceability ü Ease of getting repairs, speed & competence of repairs

Dimensions of Quality (Garvin) 7. Aesthetics ü Look, feel, sound, smell or taste 8. Safety ü Freedom from injury or harm 9. Other perceptions ü Subjective perceptions based on brand name, advertising, etc

Service Quality 1. Time & Timeliness ü Customer waiting time, completed on time 2. Completeness ü Customer gets all they asked for 3. Courtesy ü Treatment by employees

Service Quality 4. Consistency ü Same level of service for all customers 5. Accessibility & Convenience ü Ease of obtaining service 6. Accuracy ü Performed right every time 7. Responsiveness ü Reactions to unusual situations

Quality of Conformance ü Ensuring product or service produced according to design ü Depends on ü ü Design of production process Performance of machinery Materials Training

Quality Philosophers ü Walter Shewhart – Statistical Process Control ü W. Edwards Deming ü Joseph Juran – strategic and planning based ü Armand Fiegenbaum – total quality control “entire business must be involved in quality improvement”

Deming’s 14 Points 1. 2. 3. 4. 5. Create constancy of purpose Adopt philosophy of prevention Cease mass inspection Select a few suppliers based on quality Constantly improve system and workers 6. Institute worker training

Deming’s 14 Points 7. Instill leadership among supervisors 8. Eliminate fear among employees 9. Eliminate barriers between departments 10. Eliminate slogans 11. Remove numerical quotas

Deming’s 14 Points 12. Enhance worker pride 13. Institute vigorous training and education programs 14. Develop a commitment from top management to implement these 13 points

The Deming Wheel (or PDCA Cycle) 4. Act Institutionalize improvement; continue the cycle. 3. Study/Check Assess the plan; is it working? Also known as the Shewart Cycle 1. Plan Identify the problem and develop the plan for improvement. 2. Do Implement the plan on a test basis.

Six Sigma • Quality management program that measures and improves the operational performance of a company by identifying and correcting defects in the company’s processes and products

Six Sigma Started By Motorola • • • Define Measure Analyze Improve Control Made Famous by General Electric 40% of GE executives’ bonuses tied to 6 sigma implementation

Malcolm Baldrige National Quality Award • Category 3 – determine requirements, expectations, preferences of customers and markets • Category 4 – what is important to the customer and the company; how does company improve

Total Quality Management 1. 2. 3. 4. 5. 6. 7. 8. Customer defined quality Top management leadership Quality as a strategic issue All employees responsible for quality Continuous improvement Shared problem solving Statistical quality control Training & education for all employees

Cost of Quality ü Cost of achieving good quality üPrevention ü Planning, Product design, Process, Training, Information üAppraisal ü Inspection and testing, Test equipment, Operator

Cost of Quality ü Cost of poor quality üInternal failure costs ü Scrap, Rework, Process failure, Process downtime, Pricedowngrading üExternal failure costs ü Customer complaints, Product return, Warranty, Product liability, Lost sales

Cause-and-Effect Diagram Measurement Faulty testing equipment Poor supervision Incorrect specifications Lack of concentration Improper methods Inaccurate temperature control Human Environment Out of adjustment Tooling problems Old / worn Inadequate training Quality Problem Defective from vendor Not to specifications Dust and Dirt Machines Materialhandling problems Materials Also known as Ishikawa Diagram or Fish Bone Poor process design Ineffective quality management Deficiencies in product design Process

Hot House Quality Lots of Hoopla and no follow through

ISO 9000: 2008 • • Customer focus Leadership Involvement of the people Process approach Systems approach to management Continual process improvement – GAO Factual approach to decision making Mutually beneficial supplier relationships

Implications Of ISO 9000 ü Truly international in scope ü Certification required by many foreign firms ü U. S. firms export more than $150 billion annually to Europe ü Adopted by U. S. Navy, Du. Pont, 3 M, AT&T, and others

ISO Accreditation ü European registration ü 3 rd party registrar assesses quality program ü European Conformity (CE) mark authorized ü United States 3 rd party registrars ü American National Standards Institute (ANSI) ü American Society for Quality (ASQ) ü Registrar Accreditation Board (RAB)

Next week • Supply chain case study