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Introduction to Supply Chain Management

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Produces chips in six different locations: four in the US, one in Britain and one in Israel ... chain does well is consistent with target customer's needs ... – PowerPoint PPT presentation

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Title: Introduction to Supply Chain Management


1
Introduction to Supply Chain Management
2
Customers, demand centers sinks
Field Warehouses stocking points
Sources plants vendors ports
Regional Warehouses stocking points
Supply
Inventory warehousing costs
Production/ purchase costs
Transportation costs
Transportation costs
Inventory warehousing costs
3
What is a Supply Chain?
Customer wants detergent and goes to Jewel
Jewel Supermarket
Jewel or third party DC
PG or other manufacturer
Plastic Producer
Tenneco Packaging
Chemical manufacturer (e.g. Oil Company)
Chemical manufacturer (e.g. Oil Company)
Paper Manufacturer
Timber Industry
4
What Is A Supply Chain?
  • The system of suppliers, manufacturers,
    transportation, distributors, and vendors that
    exists to transform raw materials to final
    products and supply those products to customers.
  • That portion of the supply chain which comes
    after the manufacturing process is sometimes
    known as the distribution network.

5
What Is the Goal of Supply Chain Management?
  • Supply chain management is concerned with the
    efficient integration of suppliers, factories,
    warehouses and stores so that merchandise is
    produced and distributed
  • In the right quantities
  • To the right locations
  • At the right time
  • In order to
  • Minimize total system cost
  • Satisfy customer service requirements

6
Strategies for SCM
  • All of the advanced strategies, techniques,
  • and approaches for Supply Chain
  • Management focus on
  • Global Optimization
  • Managing Uncertainty

7
Tools and Strategies for Optimization
  • Decision Support Systems
  • Inventory Control
  • Network Design
  • Design for Logistics
  • Cross Docking

8
Global Optimization
  • What is it?
  • Why is it different/better than local
    optimization?
  • What are conflicting supply chain objectives?
  • What tools and approaches help with global
    optimization?

9
Sequential Optimization vs. Global Optimization
10
Why is Global Optimization Hard?
  • The supply chain is complex
  • Different facilities have conflicting objectives
  • The supply chain is a dynamic system
  • The power structure changes
  • The system varies over time

11
Conflicting Objectives in the Supply Chain
  • 1. Purchasing
  • Stable volume requirements
  • Flexible delivery time
  • Little variation in mix
  • Large quantities
  • 2. Manufacturing
  • Long run production
  • High quality
  • High productivity
  • Low production cost

12
Conflicting Objectives in the Supply Chain
  • 3. Warehousing
  • Low inventory
  • Reduced transportation costs
  • Quick replenishment capability
  • 4. Customers
  • Short order lead time
  • High in stock
  • Enormous variety of products
  • Low prices

13
Uncertainty
  • What is variation?
  • What is randomness?
  • What tools and approaches help us to deal with
    these issues?

14
Cant Forecasting Help?
  • Forecasting is always wrong
  • The longer the forecast horizon the worse the
    forecast
  • End item forecasts are even more wrong

15
Why Is Uncertainty Hard to Deal With?
  • Matching supply and demand is difficult.
  • Forecasting doesnt solve the problem.
  • Inventory and back-order levels typically
    fluctuate widely across the supply chain.
  • Demand is not the only source of uncertainty
  • Lead times
  • Yields
  • Transportation times
  • Natural Disasters
  • Component Availability

16
Supply Chain Variability
Volumes
Time
Source Tom Mc Guffry, Electronic Commerce and
Value Chain Management, 1998
17
What Management Gets...
Volumes
Time
Source Tom Mc Guffry, Electronic Commerce and
Value Chain Management, 1998
18
What Management Wants
Volumes
Time
Source Tom Mc Guffry, Electronic Commerce and
Value Chain Management, 1998
19
Dealing with Uncertainty
  • Pull Systems
  • Risk Pooling
  • Centralization
  • Postponement
  • Strategic Alliances
  • Collaborative Forecasting

20
Logistics in the Manufacturing Firm
  • Profit 4
  • Logistics Cost 21
  • Marketing Cost 27
  • Manufacturing Cost 48

Profit
Logistics Cost
Marketing Cost
Manufacturing Cost
21
Supply Chain The Magnitude
  • Compaq computer estimates it lost 500 million to
    1 billion in sales in 1995 because its laptops
    and desktops were not available when and where
    customers were ready to buy them.
  • Boeing aircraft, one of America's leading capital
    goods producers, was forced to announce write
    downs of 2.6 billion in October 1997, due to
    Raw material shortages, internal and supplier
    parts shortages.

22
Supply Chain The Potential
  • Procter Gamble estimates that it saved retail
    customers 65 million through logistics gains
    over the past 18 months.According to PG, the
    essence of its approach lies in manufacturers and
    suppliers working closely together . jointly
    creating business plans to eliminate the source
    of wasteful practices across the entire supply
    chain. (Journal of business strategy, Oct./Nov.
    1997)

23
Supply Chainthe Potential
  • In 10 years, Wal-Mart transformed itself by
    changing its logistics system. It has the highest
    sales per square foot, inventory turnover and
    operating profit of any discount retailer.
  • Dell Computer has outperformed the competition in
    terms of shareholder value growth over the eight
    years period, 1988-1996, by over 3,000 (see
    Anderson and Lee, 1999) using
  • Direct business model
  • Build-to-order strategy.

24
Supply Chain The Complexity
  • National Semiconductors
  • Production
  • Produces chips in six different locations four
    in the US, one in Britain and one in Israel
  • Chips are shipped to seven assembly locations in
    Southeast Asia.
  • Distribution
  • The final product is shipped to hundreds of
    facilities all over the world
  • 20,000 different routes
  • 12 different airlines are involved
  • 95 of the products are delivered within 45 days
  • 5 are delivered within 90 days.

25
Whats New?
  • Global competition
  • Shorter product life cycle
  • New, low-cost distribution channels
  • More powerful well-informed customers
  • Internet and E-Business strategies

26
New Concepts
  • Push-Pull strategies
  • Direct-to-Consumer
  • Strategic alliances
  • Manufacturing postponement
  • Dynamic Pricing
  • E-Procurement

27
Process View of a Supply Chain
  • Cycle view processes in a supply chain are
    divided into a series of cycles, each performed
    at the interfaces between two successive supply
    chain stages
  • Push/pull view processes in a supply chain are
    divided into two categories depending on whether
    they are executed in response to a customer order
    (pull) or in anticipation of a customer order
    (push)

28
Cycle View of Supply Chains
Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
29
Cycle View of a Supply Chain
  • Each cycle occurs at the interface between two
    successive stages
  • Customer order cycle (customer-retailer)
  • Replenishment cycle (retailer-distributor)
  • Manufacturing cycle (distributor-manufacturer)
  • Procurement cycle (manufacturer-supplier)
  • Cycle view clearly defines processes involved and
    the owners of each process. Specifies the roles
    and responsibilities of each member and the
    desired outcome of each process.

30
Push/Pull View of Supply Chains
Procurement,
Customer Order
Manufacturing and
Cycle
Replenishment cycles
PUSH PROCESSES
PULL PROCESSES
Customer
Order Arrives
31
Push/Pull View of Supply Chain Processes
  • Supply chain processes fall into one of two
    categories depending on the timing of their
    execution relative to customer demand
  • Pull execution is initiated in response to a
    customer order (reactive)
  • Push execution is initiated in anticipation of
    customer orders (speculative)
  • Push/pull boundary separates push processes from
    pull processes

32
Supply Chain Performance Achieving
Strategic Fit and Scope
33
The Value Chain Linking Supply Chain and
Business Strategy
Business Strategy
New Product Strategy
Marketing Strategy
Supply Chain Strategy
New Product Development
Marketing and Sales
Operations
Distribution
Service
Finance, Accounting, Information Technology,
Human Resources
34
Understanding the Supply Chain
Cost-Responsiveness Efficient Frontier
Responsiveness
High
Low
Cost
High
Low
35
Demand Characteristics
  • Functional Innovative
  • Low demand variability High
  • Easy forecasting Difficult
  • Long life cycle Short
  • Low inventory cost High
  • Low margins High
  • Low product variety High
  • Low stockout cost High
  • Low obsolescence High

36
Responsiveness Spectrum
Highly efficient
Highly responsive
Somewhat efficient
Somewhat responsive
Integrated steel mill
Dell
Hanes apparel
Most automotive production
37
Achieving Strategic Fit Shown on the
Uncertainty/Responsiveness Map
38
Comparison of Efficient and Responsive Supply
Chains
39
Supply Chain Drivers and Obstacles
40
Drivers of Supply Chain Performance
  • Facilities
  • places where inventory is stored, assembled, or
    fabricated
  • production sites and storage sites
  • Inventory
  • raw materials, WIP, finished goods within a
    supply chain
  • inventory policies
  • Transportation
  • moving inventory from point to point in a supply
    chain
  • combinations of transportation modes and routes
  • Information
  • data and analysis regarding inventory,
    transportation, facilities throughout the supply
    chain
  • potentially the biggest driver of supply chain
    performance

41
A Framework for Structuring Drivers
42
Information Role inthe Supply Chain
  • The connection between the various stages in the
    supply chain allows coordination between stages
  • Crucial to daily operation of each stage in a
    supply chain e.g., production scheduling,
    inventory levels

43
Components of Information Decisions
  • Push (MRP) versus pull (demand information
    transmitted quickly throughout the supply chain)
  • Coordination and information sharing
  • Forecasting and aggregate planning
  • Enabling technologies
  • EDI
  • Internet
  • ERP systems
  • Supply Chain Management software
  • Overall trade-off Responsiveness versus
    efficiency

44
Considerations forSupply Chain Drivers
45
Obstacles to Achieving Strategic Fit
  • Increasing variety of products
  • Decreasing product life cycles
  • Increasingly demanding customers
  • Fragmentation of supply chain ownership
  • Globalization
  • Difficulty executing new strategies

46
Major Obstacles to Achieving Fit
  • Multiple owners / incentives in a supply chain
  • Increasing product variety / shrinking life
    cycles / customer fragmentation

Local optimization and lack of global fit
Increasing implied uncertainty
47
Summary
  • What are the major drivers of supply chain
    performance?
  • What is the role of each driver in creating
    strategic fit between supply chain strategy and
    competitive strategy (or between implied demand
    uncertainty and supply chain responsiveness)?
  • What are the major obstacles to achieving
    strategic fit?
  • In the remainder of the course, we will learn how
    to make decisions with respect to these drivers
    in order to achieve strategic fit and surmount
    these obstacles

48
Step 1 Understanding the Customer and Supply
Chain Uncertainty
  • Identify the needs of the customer segment being
    served
  • Quantity of product needed in each lot
  • Response time customers will tolerate
  • Variety of products needed
  • Service level required
  • Price of the product
  • Desired rate of innovation in the product

49
Step 1 Understanding the Customer and Supply
Chain Uncertainty
  • Overall attribute of customer demand
  • Demand uncertainty uncertainty of customer
    demand for a product
  • Implied demand uncertainty resulting uncertainty
    for the supply chain given the portion of the
    demand the supply chain must handle and
    attributes the customer desires

50
Step 1 Understanding the Customer and Supply
Chain Uncertainty
  • Implied demand uncertainty also related to
    customer needs and product attributes
  • First step to strategic fit is to understand
    customers by mapping their demand on the implied
    uncertainty spectrum

51
Impact of Customer Needs on Implied Demand
Uncertainty
52
Correlation Between Implied Demand Uncertainty
and Other Attributes
53
Step 2 Understanding the Supply Chain
  • How does the firm best meet demand?
  • Dimension describing the supply chain is supply
    chain responsiveness
  • Supply chain responsiveness -- ability to
  • respond to wide ranges of quantities demanded
  • meet short lead times
  • handle a large variety of products
  • build highly innovative products
  • meet a very high service level

54
Step 2 Understanding the Supply Chain
  • There is a cost to achieving responsiveness
  • Supply chain efficiency cost of making and
    delivering the product to the customer
  • Increasing responsiveness results in higher costs
    that lower efficiency
  • strategic fit is to map the supply chain on the
    responsiveness spectrum

55
Step 3 Achieving Strategic Fit
  • Step is to ensure that what the supply chain does
    well is consistent with target customers needs
  • Examples Dell, Barilla
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