Supply Chain Management &

E-Commerce

Chapter 5
 MGMT 326
Capacity,
Foundations Products & Quality Facilities, Planning
of Operations Processes Assurance & Work & Control
Design
Managing
Introduction
Projects

Strategy Product
Design

Process
Design

Supply
Chains
 Supply Chains
 A supply chain is the network of activities that deliver a
product/service to the customer
 Sourcing (purchasing) of raw materials, parts, goods for

sale, or service inventories

 Order entry

 Operations planning

 Transformation process (manufacturing or services)

 Quality management

 Logistics:

 Transportation (traffic)

 Distribution (delivering the product to customers)

Dairy Products Supply Chain
Figure 4-2, page 100
A company has
more control over
Tier 1 suppliers
than over Tier 2
& Tier 3 suppliers
 Lessons from the
Dairy Products Supply Chain
Figure 4-2, page 103

 Companies often have several tiers of

suppliers.
 Your company's Tier 1 suppliers are the firms
that your company buys from.
 A company has more control over Tier 1
suppliers than over Tier 2 & Tier 3 suppliers
 Supply Chain Management (SCM)
 Supply Chain Management is the business function
that coordinates the movement of materials and
information through the supply chain
 Objectives of
Supply Chain Management
 Minimize the cost of materials and material movement
 Minimize inventory investment
 Ensure timely delivery of materials at every level of the
supply chain and to customers (to ensure product
availability and delivery speed)
 Ensure quality of materials used in manufacturing or
services
 If needed, get product design help or other services
from suppliers.
Supply Chain for Furniture
Figure 4.1, page 99
 Information Sharing in the Supply Chain
 The objective of information sharing is to match
demand and supply. (What will be available when,
and from whom?)
 Demand: actual sales, sales forecasts, booked orders, custom
orders
 Product availability: current inventory, production plans,
shipping schedules, shipments
 Quality: suppliers' data on quality
 E-commerce
 The use of the Internet and World Wide
Web to conduct business
 Business-to-business (B2B)
 Business-to-consumer (B2C)
 Also called e-business
 Technologies for B2B E-commerce
 Electronic data interchange (EDI): electronic
exchange of business-related information
between companies, using data files in
standard formats
 Originally, the data files were designed to be
processed by computer systems
 In Web-based EDI, the supplier or business
customer can access the information through the
Web
 Types of Web Sites for
B2B E-commerce
 Electronic storefronts: Allow buyers to consult
an online catalog, place an order, pay or make
payment arrangements, and track shipments
 Similar to B2C electronic storefronts
 Net marketplaces: Allow buyers and sellers in the
same industry to negotiate contracts, place orders,
track shipments, pay or make payment arrangements,
and work together on product design
 Benefits of B2B E-commerce
 Lower administrative costs for purchasing
 Low-cost access to global suppliers
 Lower inventory investment due to intense price
competition and faster shipping
 Better product quality because of increased
cooperation between buyers and sellers, especially
during the product design and development
 Operations Issues in
Business-to-consumer E-commerce
 More competitive markets
 Inventory management: information
sharing in the supply chain helps to
reduce inventory costs.
 Packing orders for shipment
 Delivery
 Customer returns
 Operations Issues in Online Sales
Packing Orders for Shipment
 Items are identified by bar codes or radio frequency
ID (RFID)
 Warehouse workers put ordered items in crates
 Sorter sends each item to the correct, bar-coded box
for the customer who ordered it
 Packing slip is printed
 Boxes are packed, taped, weighed
 Boxes are put on trucks for shipment to customers
 Operations Issues in Online Sales
Delivery
 Objective: Deliver when promised, while minimizing
delivery costs
 Brick-and-mortar stores (like Sears) can ship items to
stores for customer pickup.
 Other online merchants ship via a package delivery
service (like UPS) or U.S. postal service
 Online merchants use package delivery services for
most shipments to other countries.
 Customers usually pay a standard shipping cost –
different for U. S. and other countries
 Operations Issues in Online Sales
Customer Returns
 Objective: minimize the cost of customer
returns and reduce "hassles" for customers
 25% of Internet orders result in a customer return
 Problems in returning goods are the 2nd biggest
reason that consumers don't buy online
 Customer usually pays for return shipping
 Variety of approaches used to return goods:
postal service, contract package delivery
service, brick-and-mortar store
 Operations Issues in Online Sales
Customer Returns (2)
 Online retailer must ship a replacement item
or issue credit to customer
 Online retailer must process returned items
 Return defective items to supplier for a

credit
 Good items can often be repackaged,

priced, and resold.

 This process can be out-sourced.
 Operations Issues
in Global Supply Chains
 Inventory levels tend to be higher.
 Safety stock: inventory kept to protect a customer
against late deliveries from a supplier
 Pipeline inventory: inventory that has left a
supplier plant but has not yet reached the
customer
 Both safety stock and pipeline inventory tend to
be higher in global supply chains.
 Operations Issues
in Global Supply Chains (2)
 Shipping times are usually longer.
 Transportation in developing countries is less
efficient than in developed countries.
 Port congestion causes delays.
 Customs and security inspections cause delays.
 In ocean shipping, goods arrive in large
quantities. The shipment must be broken into
smaller quantities (break bulk operations) for
shipment to retailers and distributors.
 Operations Issues
in Global Supply Chains (3)
 Health and safety of consumers
 Infringement of patents and copyrights
 Both GM and BMW have accused Chinese
firms of patent infringement
 Product proliferation: the need to develop
different product variations for different
countries
 Sourcing Decisions
 Sourcing: deciding which goods or services to make
in-house, and which ones to buy
 Vertical integration – a measure of how much of the
supply chain is owned by the manufacturer
 Backward integration – owning or controlling

sources of raw material and component parts

 Forward integration – owning or controlling the

channels of distribution

© 2007 Wiley 22
 Make or Buy Decisions
 Is product/service technology critical to firm’s
success?
 Is product/service a core competency?
 Is it something your company must do to
survive?
 If any of the above are true, it is usually wise
to make, rather than buy.

© 2007 Wiley 23
 Make or Buy Decisions (2)
 Who can do a better job: you or a supplier?
 Costs – breakeven analysis is used to compare
costs.
 Quality
 On-time delivery
 Product or part designs
 Is there a supplier who can meet your
firm's requirements in the above areas?