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

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8/25/00 S.Chopra/Logistics Strategy. 1. A Strategic Framework for Supply Chain ... Webvan / Peapod / Jewel. What are some key issues in these supply chains? ... – PowerPoint PPT presentation

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


1
A Strategic Framework for Supply Chain Design,
Planning, and Operation
Syllabus
2
Outline
  • What is supply chain management?
  • A supply chain strategy framework
  • Seven Eleven Japan

3
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
4
Traditional View Logistics in the Manufacturing
Firm
  • Profit 4
  • Logistics Cost 21
  • Marketing Cost 27
  • Manufacturing Cost 48

5
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

6
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

7
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
8
Flows in a Supply Chain
Information
Product
Customer
Funds
Supply Chain
9
Cycle View of Supply Chains
Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
10
Push/Pull View of Supply Chains
Procurement,
Customer Order
Manufacturing and
Cycle
Replenishment cycles
PUSH PROCESSES
PULL PROCESSES
Customer
Order Arrives
11
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?

12
What is Supply Chain Management?
  • Managing supply chain flows and assets, to
    maximize supply chain surplus.
  • What is supply chain surplus?

13
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
14
Achieving Strategic Fit
  • Understanding the Customer
  • Lot size
  • Response time
  • Service level
  • Product variety
  • Price
  • Innovation

Implied Demand Uncertainty
15
Levels of Implied Demand Uncertainty
Detergent Long lead time steel
High Fashion Emergency steel
Customer Need
Price
Responsiveness
Low
High
Implied Demand Uncertainty
16
Understanding the Supply Chain
Cost-Responsiveness Efficient Frontier
Responsiveness
High
Low
Cost
High
Low
17
Achieving Strategic Fit
18
Strategic Scope
Manufacturer
Distributor
Retailer
Customer
Suppliers
Competitive Strategy
Product Dev. Strategy
Supply Chain Strategy
Marketing Strategy
19
Drivers of Supply Chain Performance
20
Considerations for Supply Chain Drivers
21
Supply Chain Decisions Structuring Drivers
Syllabus
Strategy (Design)
Planning
Operation
22
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
23
Dealing with Multiple Owners / Local Optimization
  • Information Coordination
  • Contractual Coordination

24
Dealing with Product Variety Mass Customization
Long
Lead Time
Short
Mass Customization
High
Low
Cost
Customization
Low
High
25
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.

26
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?

27
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?

28
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

29
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

30
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

31
Seven Eleven Japan
32
Seven Eleven - Number of Stores
1999 8,027
33
Seven Eleven - Net Sales
34
Seven Eleven - Pre tax Profit
35
Seven Eleven - Inventory (days)
36
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

37
Key Product Categories
  • Processed Foods 50
  • Fresh Foods 30
  • Non Foods 20

38
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

39
Supply chain Objective
  • Micro matching of supply and demand (by location,
    time of day, day of week, season)

40
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

41
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

42
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43
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

44
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

45
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?

46
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
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