A Strategic Framework for Supply Chain Design, Planning, and Operation

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A Strategic Framework for Supply Chain Design,
Planning, and Operation
Syllabus
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Outline

• What is supply chain management?
• A supply chain strategy framework
• Seven Eleven Japan

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Traditional View Logistics in the Economy (1990,
1996)

• Freight Transportation 352, 455 Billion
• Inventory Expense 221, 311 Billion
• Administrative Expense 27, 31 Billion
• Logistics related activity 11, 10.5 of GNP.

Source Cass Logistics
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Traditional View Logistics in the Manufacturing
Firm

• Profit 4
• Logistics Cost 21
• Marketing Cost 27
• Manufacturing Cost 48

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Supply Chain Management The Magnitude in the
Traditional View

• Estimated that the grocery industry could save
  30 billion (10 of operating cost by using
  effective logistics and supply chain strategies
• A typical box of cereal spends 104 days from
  factory to sale
• A typical car spends 15 days from factory to
  dealership
• Laura Ashley turns its inventory 10 times a year,
  five times faster than 3 years ago

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Supply Chain Management The True Magnitude

• Compaq estimates it lost 0.5 billion to 1
  billion in sales in 1995 because laptops were not
  available when and where needed
• When the 1 gig processor was introduced by AMD,
  the price of the 800 meg processor dropped by 30
• PG estimates it saved retail customers 65
  million by collaboration resulting in a better
  match of supply and demand

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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
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Flows in a Supply Chain
Information
Product
Customer
Funds
Supply Chain
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Cycle View of Supply Chains
Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
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Push/Pull View of Supply Chains
Procurement,
Customer Order
Manufacturing and
Cycle
Replenishment cycles
PUSH PROCESSES
PULL PROCESSES
Customer
Order Arrives
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Examples of Supply Chains

• Dell / Compaq
• Toyota / GM / Ford
• McMaster Carr / W.W. Grainger
• Amazon / Borders / Barnes and Noble
• Webvan / Peapod / Jewel
• What are some key issues in these supply chains?

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What is Supply Chain Management?

• Managing supply chain flows and assets, to
  maximize supply chain surplus.
• What is supply chain surplus?

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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
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Achieving Strategic Fit

• Understanding the Customer
• Lot size
• Response time
• Service level
• Product variety
• Price
• Innovation

Implied Demand Uncertainty
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Levels of Implied Demand Uncertainty
Detergent Long lead time steel
High Fashion Emergency steel
Customer Need
Price
Responsiveness
Low
High
Implied Demand Uncertainty
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Understanding the Supply Chain
Cost-Responsiveness Efficient Frontier
Responsiveness
High
Low
Cost
High
Low
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Achieving Strategic Fit
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Strategic Scope
Manufacturer
Distributor
Retailer
Customer
Suppliers
Competitive Strategy
Product Dev. Strategy
Supply Chain Strategy
Marketing Strategy
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Drivers of Supply Chain Performance
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Considerations for Supply Chain Drivers
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Supply Chain Decisions Structuring Drivers
Syllabus
Strategy (Design)
Planning
Operation
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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
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Dealing with Multiple Owners / Local Optimization

• Information Coordination
• Contractual Coordination

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Dealing with Product Variety Mass Customization
Long
Lead Time
Short
Mass Customization
High
Low
Cost
Customization
Low
High
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Fragmentation of Markets and Product Variety

• Are the requirements of all market segments
  served identical?
• Are the characteristics of all products
  identical?
• Can a single supply chain structure be used for
  all products / customers? No! A single supply
  chain will fail different customers on efficiency
  or responsiveness or both.

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Tailored Logistics

• Each Logistically Distinct Business (LDB) will
  have distinct requirements in terms of
• Inventory
• Transportation
• Facility
• Information
• Key How to gain efficiencies while tailoring
  logistics?

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Applying the Framework to e-commerce What is
e-commerce?

• Commerce transacted over the Internet
• Is product information displayed on the Internet?
• Is negotiation over the Internet?
• Is the order placed over the Internet?
• Is the order tracked over the Internet?
• Is the order fulfilled over the Internet?
• Is payment transacted over the Internet?

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Existing Channels for Commerce

• Product information
• Physical stores, EDI, catalogs, face to face,
• Negotiation
• Face to face, phone, fax, sealed bids,
• Order placement
• Physical store, EDI, phone, fax, face to face,
• Order tracking
• EDI, phone, fax,
• Order fulfillment
• Customer pick up, physical delivery

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Revenue Impact of E-Commerce

• Length of supply chain
• Product information
• Time to market
• Negotiating prices and contract terms
• Order placement and tracking
• Order fulfillment
• Payment

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Cost Impact of E-Commerce

• Facility costs
• Site and processing cost
• Inventory costs
• Cycle, Safety, Seasonal inventory
• Transportation costs
• Inbound and outbound costs
• Information sharing
• Coordination

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Seven Eleven Japan
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Seven Eleven - Number of Stores
1999 8,027
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Seven Eleven - Net Sales
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Seven Eleven - Pre tax Profit
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Seven Eleven - Inventory (days)
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Japanese Images of Seven Eleven

• Convenient
• Cheerful and lively stores
• Many ready made dinner items I buy
• Famous for its great boxed lunch and dinner
• On weekends, when I was single, I went to buy
  lunch and dinner

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Key Product Categories

• Processed Foods 50
• Fresh Foods 30
• Non Foods 20

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Store Description

• Average size 100 sq. m. 1,000 sq. ft. (about
  1/3 of typical US store)
• Average sales 700,000 Yen (about twice average
  US store)
• SKUs offered in store Over 3,000 (change by
  time of day, day of week, season)
• Virtually no storage space

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Supply chain Objective

• Micro matching of supply and demand (by location,
  time of day, day of week, season)

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Facilities Strategy

• Have many outlets, at convenient locations, close
  to where customers can walk
• When they locate in a place they blanket the area
  with stores stores open in clusters with
  corresponding DCs
• 844 stores in the Tokyo region Seven Eleven has
  5,523 stores in 21 prefectures

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Information Strategy

• Quick access to up to date information (as
  contrasts with data)
• High speed data network linking stores,
  headquarters, DCs and suppliers
• Store hardware
• Store computer
• POS registers linked to store computer
• Graphic Order Terminals
• Scanner terminals for receiving

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Information Analysis of POS Data

• Sales analysis of product categories over time
• SKU analysis
• Analysis of waste or disposal
• Ten day (week) sales trend by SKU
• Sales trends for new product
• Sales trend by time and day
• List of slow moving items
• Contribution of product to sections in store
  display

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Distribution Strategy

• Delivery arrives from over 200 plants
• Delivery is cross docked at DC (over 80 DCs for
  food)
• Food DCs store no inventory
• Combined delivery system frozen foods, chilled
  foods, room temperature and hot foods
• 11 truck visits per store per day (compared to 70
  in 1974)
• No supplier (not even coke!) delivers direct

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The Future

• 7-eleven growing rapidly in the US
• 7-eleven aims to be a web depot in both the US
  and Japan. Does this make sense from a supply
  chain perspective?

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Summary

• Two views of a supply chain
• A strategic framework Achieving fit
  -Efficiency/Responsiveness and Supply chain
  drivers
• Tailored logistics
• E-commerce framework
• 7-eleven