Essentials of Sarbanes-Oxley by Sanjay Anand. Essentials of Supply Chain Management 3rd Edition by Michael Hugos. Essentials of Technical Analysis for . Essentials of Capacity Management, by Reginald Tomas Yu-Lee Michael Hugos high skill levels in all areas of supply chain management so companies. Essentials of Supply Chain Management, Third Edition. Author(s). Michael Hugos. First published March Print ISBN |Online.
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Essentials of Supply Chain Management, Third Edition (PDF). Download. Michael H. Hugos (Author). The latest thinking, strategies and technologies to stay. The latest thinking, strategies, developments, and technologies to stay current in supply chain managementPresenting the core concepts and techniques of. Editorial Reviews. Review. " an excellent introduction into supply chain management a book Essentials of Supply Chain Management - Kindle edition by Michael H. Hugos. "Michael Hugos presents the core concepts and techniques of supply chain management in a clear, concise, and easily readable style for those.
This definition will provide insight into the relative importance of vendor capabilities. When you talk of the supply chain, these companies think of suppliers and procurement. This brings on programs such as sourcing initiatives, supplier reduction programs, and vendor-managed inventory VMI. Often, especially when the downloader dominates the seller, partnership talk centers on price reductions. Usually this shifts profits from one party to another in the chain without fundamental improvement.
This is where the specific items, prices, lead times, minimum order quantities, and service levels are worked out. Also performance targets must be specified and penalties and other fees defined when performance targets are not met. Because companies are narrowing down their base of suppliers, their performance of each supplier that is chosen becomes more important.
A particular supplier may be the only source of a whole category of products that a company needs and if it is not meeting its contractual obligations, the activities that depend on those products will surely suffer. Specifically under production execution activities like manufacturing, testing, packaging, holding and releasing of product are undertaken here. Walsh, Ken Production scheduling allocates available capacity equipment, labor, and facilities to the work that needs to be done.
The goal is to use available capacity in the most efficient and profitable manner.
The production scheduling operation is a process of finding the right balance between high utilization rates, low inventory levels, and high level of customer service.
A product design that does a good job of coordinating three perspectives — design, procurement, and manufacturing — will result in a product that can be supported by an effective supply chain. This will give a product a fast time to market and a competitive cost. This is a calculation much like the EOQ economic order quantity calculation used in the inventory control process.
The calculation of economic lot size involves balancing the production set up costs for a product with the cost of carrying that product in inventory. The run out time is the number of days or weeks it would take to deplete the product inventory on hand given its expected demand. As reality rarely happens as planned, production schedules need to be constantly monitored and adjusted when necessary. Under order management activities like maintaining and entering orders, generating quotations, configuring product are undertaken.
Further create and maintain customer database, maintain product and price database, managing receivables and credit management also fall under this domain.
Walsh, Ken Physical movement of products along stages in the supply chain is an important part of most national economies. In place of the supply chain term, these companies may turn to an alternative, the demand chain.
This reflects attention paid to the outbound, rather than the inbound side, or supply side, of the business. Typical activities include modeling warehouse, distribution center, and transportation networks to reduce cost.
Transporting and delivering goods is expensive so capabilities in this area are closely aligned with the actual needs of the market that the supply chain serves. This results in many small shipments of products. Less responsive supply chains can aggregate orders over a period of time and make fewerand larger shipments. This results in economies of scale and lower transport costs.
To get the performance desired from supply chains requires a company to monitor and control its operations on a daily basis. It is used to describe, measure and evaluate supply chain configurations by defining standard metrics and benchmarking of best supply chain performance, and therefore it supports continuous improvement and strategic planning.
The SCOR model suggests the kind of data that should be collected. In the plan operation, useful measures are the cost of planning activities, inventory financing costs, inventory days of supply on hand, and forecast accuracy.
In the sourcing operation, it is useful to have data on material acquisition costs, sourcing cycle times, and raw material days of supply.
Also some practice measurement are supplier delivery performance, payment period, and percentage of items downloadd by their associated lead time.
Suggested delivery operation measures are fill rates, order management costs, order lead times, and item return rates. These categories are customer service, internal efficiency, demand flexibility and product development.
In the following paragraphs I will also discuss about some performance metrics that can be used in each of these performance categories. Depending on the type of market being served, the customers in that market will have different expectations for customer service. Customers in other markets will accept longer waits for products and will download in large quantities. Whatever the market being served, the supply chain must meet the customer service expectations of the people in the market.
The reason that any supply chain exists is to serve the market it is attached to. These measures indicate how well a company serves its customers and how well a supply chain supports its market.
There are two sets of customer service metrics depending on whether the company or supply chain is in a build-to-stock BTS or build-to-order BTO situation. Customers expect to get these products right away any time they need them. Supply chains for these products must meet this demand by stocking them in inventory so they are always available. This is any situation where a product is built based on a specific customer order and is configured to meet a unique set of requirements defined by the customer.
As with customer service, market conditions vary and what is an appropriate level of profit varies from one market to another. In a mature market where there is little uncertainty or risk, profit margins can be somewhat lower. These markets offer the opportunity to do large volumes of business and to make up in gross profit what is given up in gross margin.
Assets include anything of tangible value such as plant, equipment, inventory, and cash. Some popular measures of efficiency are: inventory value; inventory turns; return on sales; and cash-to-ash cycle. Supply chains and the companies that make them up are always looking for ways to reduce inventory while still delivering high levels of customer service. This means trying to match inventory availability supply with sales demand and not have excess inventory left over.
It shows how much of an increase over current levels of demand can be handled by a company or a supply chain. It also includes the ability to respond to uncertainty in the range of products that may be demanded.
This ability is often needed in mature markets. A company or a supply chain needs capabilities in this area in order to cope with uncertainty in the markets they serve. Some measures of flexibility are: activity cycle time, upside flexibility, and outside flexibility.
It can be measured as the percentage increase over the expected demand for a product that can be accommodated. There is an opportunity to acquire new customers and sell more to existing customers when outside flexibility is managed skillfully. It measures the ability to develop and deliver new products in a timely manner. This ability is necessary when serving developing markets that are changing constantly. A supply chain must keep pace with the market it serves or it will be replaced.
New applications, plus new ways of moving information around, make this an active area. Electronic Data Interchange EDI is an early example of ways to improve communications among companies. One barrier has been the lack of integrated software both inside and outside the company.
Different information systems have different combinations of capabilities in these functional areas, and the specific combination of capabilities is dependent on the demands of the job that a system is designed to perform. It is this technology that can overcome the lag times and lack of big picture information.
Also Electronic Data Interchange EDI , a technology that was developed to transmit common types of data between companies that do business with each other.
For those who think that his greatness was only due to his ability to dream up bold moves and cut a dashing figure in the saddle, think again. Alexander was a master of supply chain management and he could not have succeeded otherwise. The authors from Greek and Roman times who recorded his deeds had little to say about something so apparently unglamorous as how he secured supplies for his army.
Yet, from these same sources, many small details can be pieced together to show the overall supply chain picture and how Alexander managed it. University of California Press. The only way to transport large amounts of material over long distances was by oceangoing ships or by barges on rivers and canals.
Once away from rivers and seacoasts, an army had to be able to live off the land over which it traveled. Diminishing returns set in quickly when using pack animals and carts to haul supplies, because the animals themselves had to eat and would soon consume all the food and water they were hauling unless they could graze along the way. The army had a logistics structure that was fundamentally different from other armies of the time.
In other armies the number of support people and camp followers was often as large as the number of actual fighting soldiers, because armies traveled with huge numbers of carts and pack animals to carry their equipment and provisions, as well as the people needed to tend them. In the Macedonian army the use of carts was severely restricted. Soldiers were trained to carry their own equipment and provisions.
Other contemporary armies did not require their soldiers to carry such heavy burdens but they paid for this because the resulting baggage trains reduced their speed and mobility. It was capable of making lightning strikes against an opponent, often before they were even aware of what was happening. Because the army was able to move quickly and suddenly, Alexander could use this capability to devise strategies and employ tactics that allowed him to surprise and overwhelm enemies that were numerically much larger.
The picture that emerges of how Alexander managed his supply chain is an interesting one. For instance, time and again the historical sources mention that before he entered a new territory, he would receive the surrender of its ruler and arrange in advance with local officials for the supplies his army would need.
If a region did not surrender to him in advance, Alexander would not commit his entire army to a campaign in that land. He would not risk putting his army in a situation where it could be crippled or destroyed by a lack of provisions. Instead, he would gather intelligence about the routes, the resources, and the climate of the region and then set off with a small, light force to surprise his opponent.
The main army would remain behind at a well-stocked base until Alexander secured adequate supplies for it to follow. Whenever the army set up a new base it looked for an area that provided easy access to a navigable river or a seaport. The army always stayed in its winter camp until the first spring harvest of the new year so that food supplies would be available.
Alexander had a deep understanding of the capabilities and limitations of his supply chain. He learned well how to formulate strategies and use tactics that built upon the unique strengths that his logistics and supply chain capabilities gave him, and he wisely took measures to compensate for the limitations of his supply chain.
His opponents often outnumbered him and were usually fighting on their own home territory. Depending on the market being served, sales or throughput occur for different reasons. In some markets, customers value and will pay for high levels of service. In other markets customers seek simply the lowest price for an item. As we saw in the previous section, there are five areas where companies can make decisions that will define their supply chain capabilities: Chopra and Meindl define these areas as performance drivers that can be managed to produce the capabilities needed for a given supply chain.
Effective supply chain management calls first for an understanding of each driver and how it operates. Each driver has the ability to directly affect the supply chain and enable certain capabilities.
The next step is to develop an appreciation for the results that can be obtained by mixing different combinations of these drivers. Production Production refers to the capacity of a supply chain to make and store products. The facilities of production are factories and warehouses.
The fundamental decision that managers face when making production decisions is how to resolve the trade-off between responsiveness and efficiency.
If factories and warehouses are built with a lot of excess capacity, they can be very flexible and respond quickly to wide swings in product demand.
Facilities where all or almost all capacity is being used are not capable of responding easily to fluctuations in demand. So the more excess capacity that exists, the less efficient the operation becomes. Factories can be built to accommodate one of two approaches to manufacturing: Product Focus—A factory that takes a product focus performs the range of different operations required to make a given product line from fabrication of different product parts to assembly of these parts.
Functional Focus—A functional approach concentrates on performing just a few operations such as only making a select group of parts or only doing assembly. These functions can be applied to making many different kinds of products. A product approach tends to result in developing expertise about a given set of products at the expense of expertise about any particular function.
A functional approach results in expertise about particular functions instead of expertise in a given product. Companies need to decide which approach or what mix of these two approaches will give them the capability and expertise they need to best respond to customer demands. As with factories, warehouses too can be built to accommodate different approaches.
There are three main approaches to use in warehousing: This is an efficient and easy to understand way to store products. Job Lot Storage—In this approach, all the different products related to the needs of a certain type of customer or related to the needs of a particular job are stored together.
This allows for an efficient picking and packing operation but usually requires more storage space than the traditional SKU storage approach. Crossdocking—An approach that was pioneered by Walmart in its drive to increase efficiencies in its supply chain. In this approach, product is not actually warehoused in the facility.
Instead the facility is used to house a process where trucks from suppliers arrive and unload large quantities of different products. These large lots are then broken down into smaller lots. Smaller lots of different products are recombined according to the needs of the day and quickly loaded onto outbound trucks that deliver the products to their final destinations.
Again, managers must decide where they want to position themselves in the trade-off between responsiveness and efficiency. Holding large amounts of inventory allows a company or an entire supply chain to be very responsive to fluctuations in customer demand. However, the creation and storage of inventory is a cost and to achieve high levels of efficiency, the cost of inventory should be kept as low as possible.
There are three basic decisions to make regarding the creation and holding of inventory: Cycle Inventory—This is the amount of inventory needed to satisfy demand for the product in the period between downloads of the product. Companies tend to produce and to download in large lots in order to gain the advantages that economies of scale can bring. However, with large lots also come increased carrying costs. Carrying costs come from the cost to store, handle, and insure the inventory.
Managers face the tradeoff between the reduced cost of ordering and better prices offered by downloading product in large lots and the increased carrying cost of the cycle inventory that comes with downloading in large lots. Safety Inventory—Inventory that is held as a buffer against uncertainty.
If demand forecasting could be done with perfect accuracy, then the only inventory that would be needed would be cycle inventory. But since every forecast has some degree of uncertainty in it, we cover that uncertainty to a greater or lesser degree by holding additional inventory in case demand is suddenly greater than anticipated.
The tradeoff here is to weigh the costs of carrying extra inventory against the costs of losing sales due to insufficient inventory. Seasonal Inventory—This is inventory that is built up in anticipation of predictable increases in demand that occur at certain times of the year. For example, it is predictable that demand for antifreeze will increase in the winter. If a company that makes antifreeze has a fixed production rate that is expensive to change, then it will try to manufacture product at a steady rate all year long and build up inventory during periods of low demand to cover for periods of high demand that will exceed its production rate.
The alternative to building up seasonal inventory is to invest in flexible manufacturing facilities that can quickly change their rates of production of different products to respond to increases in demand. In this case, the tradeoff is between the cost of carrying seasonal inventory and the cost of having more flexible production capabilities. Location Location refers to the geographical site of supply chain facilities.
It also includes the decisions related to which activities should be performed in each facility. The responsiveness versus efficiency tradeoff here is the decision whether to centralize activities in fewer locations to gain economies of scale and efficiency, or to decentralize activities in many locations close to customers and suppliers in order for operations to be more responsive.
When making location decisions, managers need to consider a range of factors that relate to a given location including the cost of facilities, the cost of labor, skills available in the workforce, infrastructure conditions, taxes and tariffs, and proximity to suppliers and customers.
Location decisions tend to be very strategic decisions because they commit large amounts of money to long-term plans. Location decisions have strong impacts on the cost and performance characteristics of a supply chain. Once the size, number, and location of facilities are determined, that also defines the number of possible paths through which products can flow on the way to the final customer. Transportation This refers to the movement of everything from raw material to finished goods between different facilities in a supply chain.
In transportation the tradeoff between responsiveness and efficiency is manifested in the choice of transport mode. Fast modes of transport such as airplanes are very responsive but also more costly.
Slower modes such as ship and rail are very cost efficient but not as responsive. Since transportation costs can be as much as a third of the operating cost of a supply chain, decisions made here are very important. There are six basic modes of transport that a company can choose from: Ship—which is very cost efficient but also the slowest mode of transport. It is limited to use between locations that are situated next to navigable waterways and facilities such as harbors and canals.
Rail—which is also very cost efficient but can be slow. This mode is also restricted to use between locations that are served by rail lines. Pipelines—which can be very efficient but are restricted to commodities that are liquids or gases such as water, oil, and natural gas.
Trucks—which are a relatively quick and very flexible mode of transport. Trucks can go almost anywhere. Airplanes—which are a very fast mode of transport and are very responsive. This is also the most expensive mode, and it is somewhat limited by the availability of appropriate airport facilities. Electronic Transport—which is the fastest mode of transport and is very flexible and cost efficient.
However, it can only be used for movement of certain types of products such as electric energy, data, and products composed of data such as music, pictures, and text. A route is the path through which products move, and networks are composed of the collection of the paths and facilities connected by those paths.
As a general rule, the higher the value of a product such as electronic components or pharmaceuticals , the more its transport network should emphasize responsiveness, and the lower the value of a product such as bulk commodities like grain or lumber , the more its network should emphasize efficiency.
Information Information is the basis upon which to make decisions regarding the other four supply chain drivers. It is the connection between all of the activities and operations in a supply chain. To the extent that this connection is a strong one i. This will also tend to maximize the profitability of the supply chain as a whole. That is the way that stock markets or other free markets work and supply chains have many of the same dynamics as markets.
Information is used for two purposes in any supply chain: Coordinating daily activities related to the functioning of the other four supply chain drivers: The companies in a supply chain use available data on product supply and demand to decide on weekly production schedules, inventory levels, transportation routes, and stocking locations.
Forecasting and planning to anticipate and meet future demands. Available information is used to make tactical forecasts to guide the setting of monthly and quarterly production schedules and timetables. Information is also used for strategic forecasts to guide decisions about whether to build new facilities, enter a new market, or exit an existing market.
The supply chains that serve different markets need to respond effectively to these needs. Some markets demand and will pay for high levels of responsiveness.
Other markets require their supply chains to focus more on efficiency. Within an individual company the tradeoff between responsiveness and efficiency involves weighing the benefits that good information can provide against the cost of acquiring that information. Abundant, accurate information can enable very efficient operating decisions and better forecasts but the cost of building and installing systems to deliver this information can be very high.
Within the supply chain as a whole, the responsiveness versus efficiency tradeoff that companies make is one of deciding how much information to share with the other companies and how much information to keep private. The more information about product supply, customer demand, market forecasts, and production schedules that companies share with each other, the more responsive everyone can be.
Balancing this openness however, are the concerns that each company has about revealing information that could be used against it by a competitor. The potential costs associated with increased competition can hurt the profitability of a company. Executive Insight Walmart is a company shaped by its supply chain and the efficiency of its supply chain has made it a leader in the markets it serves.
Sam Walton decided to build a company that would serve a mass market and compete on the basis of price. The structure and operations of this company have been defined by the need to lower its costs and increase its productivity so that it could pass these savings on to its customers in the form of lower prices. The techniques that Walmart pioneered are now being widely adopted by its competitors and by other companies serving entirely different markets.
Walmart introduced concepts that are now industry standards. Many of these concepts come directly from the way the company builds and operates its supply chain. The strategy of expanding around distribution centers DCs 2. Using electronic data interchange EDI with suppliers 3. The company looks for areas that can support a group of new stores, not just a single new store.
It then builds a new DC at a central location in the area and opens its first store at the same time. The DC is the supply chain bridgehead into the new territory. Those savings are passed along to the customers.
The use of EDI with suppliers provides the company two substantial benefits. First of all this cuts the transaction costs associated with the ordering of products and the paying of invoices. Ordering products and paying invoices are, for the most part, well-defined and routine processes that can be made very productive and efficient through EDI. The second benefit is that these electronic links with suppliers allow Walmart a high degree of control and coordination in the scheduling and receiving of product deliveries.
This helps to ensure a steady flow of the right products at the right time, delivered to the right DCs, by all Walmart suppliers. The big box is big enough to hold large amounts of inventory like a warehouse. And since this inventory is being held at the same location where the customer downloads it, there is no delay or cost that would otherwise be associated with moving products from warehouse to store.
Again, these savings are passed along to the customer. The first thing is to tell its price-conscious customers that they will always get the best price. They need not look elsewhere or wait for special sales. The effect of this message to customers helps Walmart do the second thing, which is to accurately forecast product sales.
By eliminating special sales and assuring customers of low prices, it smoothes out demand swings, making demand more steady and predictable. This way stores are more likely to have what customers want when they want it.
Taken individually, these four concepts are each useful but their real power comes from being used in connection with each other. They combine to form a supply chain that drives a self-reinforcing business process.
Each concept builds on the strengths of the others to create a powerful business model for a company that has grown to become a dominant player in its markets.
There seem to be some similarities between Walmart and Alexander the Great. Both developed very effective supply chains that were central to their success. The Evolving Structure of Supply Chains The participants in a supply chain are continuously making decisions that affect how they manage the five supply chain drivers.
In the fast-moving markets of our present economy, a company usually will focus on what it considers to be its core competencies in supply chain management and outsource the rest. This was not always the case though. In the slower-moving mass markets of the industrial age it was common for successful companies to attempt to own much of their supply chain. That was known as vertical integration.
The aim of vertical integration was to gain maximum efficiency through economies of scale see Exhibit 1. In the first half of the s, Ford Motor Company owned much of what it needed to feed its car factories.
It owned and operated iron mines that extracted iron ore, steel mills that turned the ore into steel products, plants that made component car parts, and assembly plants that turned out finished cars.
Henry Ford in his autobiography, Today and Tomorrow, boasted that his company could take in iron ore from the mine and put out a car 81 hours later Ford, Henry, , Today and Tomorrow, Portland, Oregon: Productivity Press, Inc. This was a profitable way of doing business in the more predictable, one- size-fits-all industrial economy that existed in the early s.
Ford and other businesses churned out mass amounts of basic products. But as the markets grew and customers became more particular about the kind of products they wanted, this model began to break down.
It could not be responsive enough or produce the variety of products that were being demanded. Focusing on efficiency at the expense of being responsive to customer desires was no longer a successful business model.
Globalization, highly competitive markets, and the rapid pace of technological change are now driving the development of supply chains where multiple companies work together, each company focusing on the activities that it does best. Mining companies focus on mining, timber companies focus on logging and making lumber, and manufacturing companies focus on different types of manufacturing from making component parts to doing final assembly. This way people in each company can keep up with rapid rates of change and keep learning the new skills needed to compete in their particular businesses.
Where companies once routinely ran their own warehouses or operated their own fleets of trucks, they now have to consider whether those operations are really a core competency or whether it is more cost effective to outsource those operations to other companies that make logistics the center of their business. To achieve high levels of operating efficiency and to keep up with continuing changes in technology, companies need to focus on their core competencies.
It requires this kind of focus to stay competitive. How a company defines its core competencies and how it positions itself in the supply chains it serves is one of the most important decisions it can make.
Participants in the Supply Chain In its simplest form, a supply chain is composed of a company and the suppliers and customers of that company. This is the basic group of participants who create a simple supply chain. Extended supply chains contain three additional types of participants.
Finally there is a whole category of companies who are service providers to other companies in the supply chain. These are companies who supply services in logistics, finance, marketing, and information technology. In any given supply chain there is some combination of companies who perform different functions.
There are companies who are producers, distributors or wholesalers, retailers, and companies or individuals who are the customers, the final consumers of a product. Supporting these companies there will be other companies that are service providers that provide a range of needed services.
Producers Producers or manufacturers are organizations that make a product. This includes companies that are producers of raw materials and companies that are producers of finished goods. Producers of raw materials are organizations that mine for minerals, drill for oil and gas, and cut timber. It also includes organizations that farm the land, raise animals, or catch seafood. Producers of finished goods use the raw materials and sub-assemblies made by other producers to create their products.
Producers can create products that are intangible items such as music, entertainment, software, or designs. A product can also be a service such as mowing a lawn, cleaning an office, performing surgery, or teaching a skill. In many instances the producers of tangible, industrial products are moving to areas of the world where labor is less costly. Producers in the developed world of North America, Europe, and parts of Asia are increasingly producers of intangible items and services. Distributors Distributors are companies that take inventory in bulk from producers and deliver a bundle of related product lines to customers.
Distributors are also known as wholesalers. They typically sell to other businesses and they sell products in larger quantities than an individual consumer would usually download. A distributor is typically an organization that takes ownership of significant inventories of products that they download from producers and sell to consumers.
In addition to product promotion and sales, other functions the distributor performs are inventory management, warehouse operations, and product transportation, as well as customer support and post-sales service. A distributor can also be an organization that only brokers a product between the producer and the customer, and never takes ownership of that product.
This kind of distributor performs mainly the functions of product promotion and sales. In both of these cases, as the needs of customers evolve and the range of available products changes, the distributor is the agent that continually tracks customer needs and matches them with products available. Retailers Retailers stock inventory and sell in smaller quantities to the general public.
This organization also closely tracks the preferences and demands of the customers that it sells to. It advertises to its customers and often uses some combination of price, product selection, service, and convenience as the primary draw to attract customers for the products it sells. Discount department stores attract customers using price and wide product selection. Upscale specialty stores offer a unique line of products and high levels of service.
Fast food restaurants use convenience and low prices as their draw. Customers Customers or consumers are any organization that downloads and uses a product. A customer organization may download a product in order to incorporate it into another product that they in turn sell to other customers.
Or a customer may be the final end user of a product who downloads the product in order to consume it. Service Providers These are organizations that provide services to producers, distributors, retailers, and customers.
Service providers have developed special expertise and skills that focus on a particular activity needed by a supply chain. Because of this, they are able to perform these services more effectively and at a better price than producers, distributors, retailers, or consumers could do on their own.
Some common service providers in any supply chain are providers of transportation services and warehousing services. These are trucking companies and public warehouse companies and they are known as logistics providers. Financial service providers deliver services such as making loans, doing credit analysis, and collecting on past due invoices.
These are banks, credit rating companies, and collection agencies. Some service providers deliver market research and advertising, while others provide product design, engineering services, legal services, and management advice.
Still other service providers offer information technology and data collection services. All of these service providers are integrated to a greater or lesser degree into the ongoing operations of the producers, distributors, retailers, and consumers in the supply chain.
Supply chains are composed of repeating sets of participants that fall into one or more of these categories. Over time the needs of the supply chain as a whole remain fairly stable.
What changes is the mix of participants in the supply chain and the roles that each participant plays.