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Title: SUPPLY CHAIN MANAGEMENT:


1
SUPPLY CHAIN MANAGEMENT Making the Vision a
Reality
Dr. Chris Moberg Chair Marketing, Robert H.
Freeman Professor of Logistics Management Ohio
University Presented to 2008 Brazil Executive
Seminar Series
2
AGENDA
  • Current State of Logistics in U.S.
  • 2. Logistics Performance and Tradeoffs
  • 3. The Promise and Challenges of Supply Chain
    Management
  • 4. Making the SCM Vision a Reality
  • State of Logistics/SCM in Brazil

3
Why Is SCM Relevant for You?
  • Three Core Business Processes that Generate Value
    for Customers SCM, Customer Relationship
    Management, and Product Development Management
    (Srivastava et al 1999).
  • These three processes are interrelated.

4
Why Is SCM Relevant for You?
  • The key to competitive success in the future will
    not be decided by competitive differences between
    firms but by the battles fought between supply
    chains.

5
U.S. Logistics Expenditures1980-2007
  • Expenditures of U.S. GDP
  • 466 Billion 17.2
  • 1996 801 Billion 10.2
  • 2003 947 Billion 8.6
  • 2004 1,027 Trillion 8.8
  • 1,183 Trillion 9.5
  • 1,305 Trillion 9.9
  • 1,397 Trillion 10.1
  • Two Questions
  • How did we become more efficient between 1980 and
    2003?
  • 2. Why has the of U.S. GDP increased in
    2004-07?
  • Source CSCMP 2008 State of Logistics Report.

6
Breakdown of U.S. Logistics Expenditures
  • 2007 Expenditures 1.397 Trillion
  • Transportation 61 (78 Trucking)
  • (856 billion- 671b on trucking alone)
  • Inventory 27
  • Warehousing 8
  • Admin/Overhead 4

7
Why Did We Get Better at Logistics from
1980-2003?
  1. Transportation Deregulation 1980s
  2. Technology Faster Information
  3. Preoccupation with Inventory
  4. Interest Rate Declines
  5. Impact of Big Firms
  6. Increased Logistics Visibility/Focus

8
Why Have Logistics Expenditures as a Percent of
GDP Increased in 2004-07?
  • 1. Inv. CC rose 13.5 in 2006 and 8.7 2007
  • 2. Transportation Costs Increased 15.2 in
  • 2005, 9.4 2006, and 5.9 in 2007.
  • 3. Increasing Fuel Costs
  • 4. Aging Transportation Infrastructure
  • 5. Transportation Capacity Issues
  • 6. Rising Interest Rates
  • 7. Total Business Inventories Have Increased
  • 8. Supply Chain Disruptions/Security

9
Logistics Performance
  • Major Components
  • Costs
  • Transportation
  • Inventory
  • Warehousing/Handling
  • Admin., Tech., Overhead
  • 2. Customer Service
  • Fill rates, Order Cycle Time (OCT), On-time
    deliveries, damage, responsiveness
  • 3. Financial
  • ROI/ROA

10
Logistics Tradeoffs
  • Supply chains operate in complex business
    environments. Actions taken in a supply chain
    system do not occur in a vacuum and can have an
    impact within a firm and across the supply chain.
    An action can have a positive in one area and a
    negative one in another.

11
Logistics Tradeoffs
  • Four Broad Categories of Tradeoffs
  • 1. Logistics Cost to Logistics Cost
  • 2. Logistics Cost to Logistics Customer Service
  • 3. Logistics to other Firm Functions
  • 4. Firm to Firm

12
Supply Chain Management Defined
  • Supply Chain Management encompasses the planning
    and management of all activities involved in
    sourcing and procurement, conversion, and all
    Logistics Management activities. Importantly, it
    also includes coordination and collaboration with
    channel partners, which can be suppliers,
    intermediaries, third-party service providers,
    and customers. In essence, Supply Chain
    Management integrates supply and demand
    management within and across companies.
  • Source Council of Supply Chain Management
    Professionals, cscmp.org

13
SUPPLY CHAIN MANAGEMENT Is the
integration of business processes from original
suppliers through end-users that provides
products, services and information that add
value for customers
14
Suppliers Supplier To Customers Customer
FIRM
Customer
Tier 3
Tier 2
Tier 1
Wholesaler
Retailer
15
Supply chain management is not business as usual!
It is business practiced in partnership with
all players in the job of moving product to
customers from source to point of consumption.
16
SCM The GOALS 1. WASTE ELIMINATION 2. TIME
COMPRESSION 3. FLEXIBLE RESPONSE 4. UNIT COST
REDUCTION 5. CUSTOMER SATISFACTION
REVENUE GROWTH
17
SUCCESS STORIES
Wal-Mart
Johnson Johnson Rite Aid
Dell Computer
Move
Sell
Buy
Make
18
SOME SOBERING THOUGHTS
19
  • An Accenture Consulting Company
  • Partner
  • There are really no companies
  • in the world today that have
  • developed this totally seamless
  • supply chain between vendors and
  • their ultimate customers.

20
Most theorists have argued that successful
supply chain integration depends on building
long-term, harmonious partnership agreements.
Our experience, though, suggests that this ideal
is hard to establish and even tougher to
maintain. Traditional suspicion is not easily
overcome, and many companies shy away from
building closer relationships. A.T.
Kearney study of 250 UK firms
21
A major study completed in 2000 showed
that Truly integrated supply chains are
extremely rare. None of the firms managed in a
serious way beyond the first tier backward or
forward
The Firm
Supplier -2
Supplier -1
Customer -1
Customer -2

22
Sadly, after nearly a decade of SC initiatives,
the Consumer Products industry still carries, on
average, 14 weeks of inventory, which represents
almost 300 billion of goods trapped in the
supply chain!
23
  • In a Deloitte study of firms
  • that claim to embrace SCM,
  • only 2 were able to achieve
  • supply chain success

24
Another UK study 55 of all strategic
partnerships fall apart within three
years NAMA study 53 say their partnerships
are poor only 37 say they are good.
25
Supply Chain success stories are usually focused
on two large firms, e.g. PG and
Wal-mart Supply chain efforts usually do not
extend beyond dyads in the supply chain
26
Relationships sometimes dont live up to our
expectations
  • A major 3PL supplier in a supply chain
    relationship won supplier of the year awards and
    lost money on every unit shipped!
  • In one study 25 of the respondents saw a
    partnership as a way to gouge more from
    suppliers

27
SCMR MARCH 2004Fawcett, Magnan, and Williams
  • One customer invited several suppliers to a
    hotels conference center for negotiations. Each
    supplier was assigned to a room where
    negotiations would take place. The customers
    staff then went room to room sharing details of
    the concessions extracted from other suppliers
    until they met their target cost.

28
SCMR MARCH 2004Fawcett, Magnan, and Williams
  • One manager talked about his companys
    enlightened approach to supplier management. But
    when asked what happens when a supplier runs into
    a problem or cannot meet cost targets, he snapped
    his fingers and said, Theyre gone, just like
    that.

29
SCMR MARCH 2004Fawcett, Magnan, and Williams
  • One supplier showed a form letter it just
    received, which included a note of thanks for
    their dedication and a notice of the buyers need
    to reduce costs. The second paragraph noted that
    the buyer expected the price of its purchased
    parts to drop to levels offered by Asian
    suppliers retroactive to the first of the year.
    The attached price list revealed that the buyer
    was seeking an across-the-board price cut of 10
    percent.

30
SCMR MARCH 2004Fawcett, Magnan, and Williams
  • One manager proudly related the experience of
    being selected as the Supplier of the Year by a
    major Japanese company. He told about the
    wonderful evening at a downtown hotel with a
    banquet to honor the suppliers performance. He
    then said, That was a year ago. About a month
    ago we received a letter informing us that we are
    no longer an approved supplier because someone
    else beat our price by two cents per part.

31
"We have met the enemy and it is us." Walt
Kelly, "Pogo comic strip
32
Supply Chain Management
  • Requirements and Barriers
  • Information Exchange
  • Information Technology
  • Strong Relationships
  • Trust and Commitment
  • Long-Term Perspective
  • Sacrifice Firm Goals
  • New Performance Measures

33
Making the Vision a Reality
  • SCM has Tremendous Promise
  • Significant Barriers Lie in the Way
  • Overcoming Barriers Requires Radical Changes
  • Small Success Stories will Continue but True
    Supply Chain Systems not Likely

34
Overview of Brazil
  • Population 190,000,000
  • Nominal GDP (2007) 1,313 trillion U.S.
  • GDP Growth Rate (2007) 4-5
  • Unemployment 9-10
  • Imports/Exports - 2006 (91.4b/137.5b US)
  • Logistics expenditure as GDP approx. 18-20

35
Overview of Brazil
  • Economic/Logistics Overview
  • Real Strengthening Against US Dollar
  • Lower Labor Rates
  • 4 of Worlds Top 50 Ports (Tubarao, Itaqui,
    Santo, Sepetiba)
  • Sao Paolo - 1 Air Cargo Hub in Latin America
  • Advantage in Flight and Shipping Times
  • (Source Inbound Logistics, June 2007)

36
Special Logistics ChallengesFacing Brazil
  • 1. Leveraging Abundance of Natural Resources into
    Strong Sustained Economic Growth while Balancing
    Interest of the Public and Environment

37
Special Logistics Challenges Facing Brazil
  • 2. High Raw Materials Inventories
  • Twice the U.S. Level
  • Financing Costs of Current Levels 9.4 of
    GDP
  • Becoming more efficient could save
    approximately 4 of GDP
  • Largely Caused By Infrastructure Quality and
    Capacity Constraints

38
Special Logistics ChallengesFacing Brazil
  • 3. More Investment in Infrastructure to Support
    Logistics
  • There is increasing empirical evidence that both
    the quantity and quality of infrastructure,
    including transport, energy and water-sanitation,
    have substantial impacts on economic growth and
    income inequality.
  • Source World Bank-Calderon and Serven, 2004

39
Special Logistics ChallengesFacing Brazil
  • 3. More Infrastructure (cont.)
  • In 2004, Brazils total investment in
    infrastructure was 1.5 of GDP, compared to
    Chinas investment of 100 billion, or
    approximately 6 of GDP. India is also 5-6.
  • Only 25 of Brazils Roads are Rated as Good
  • Inadequate Roads, Waterways, and Ports Lead to
    Expensive Transportation Costs Competitive
    Disadvantage

40
Special Logistics ChallengesFacing Brazil
  • 3. Infrastructure Challenges
  • Good News 4-Yr Plan Approved in 2007 to spend
    300 Billion on Roads, Power Plants, and Ports.
  • Represents an Infrastructure Investment around 6
    of GDP instead of 1.5 in 2004.
  • (China now at 12 of GDP and India 9)
  • (Source The Economist, June 5, 2008)

41
Special Logistics ChallengesFacing Brazil
  • An Illustration Soybeans (US/Bushel)
  • Brazil U.S.
  • Production Cost 3.89 5.11
  • Transport to Port 1.34 .43
  • Freight to Rotterdam .57 .38
  • Final Cost in Rotterdam 5.80 5.92
  • Source Economic Research Service, USDA

42
Strengths/Opportunities
  • Infrastructure privatization and economic
    stabilization
  • Strong Export Trade Growth
  • Diversified Economy
  • Mercosur and ALADI

43
Logistics Opportunities - Brazil
  • Expand Quality and Capacity of Infrastructure
    (Limited/Strong in south 4 year Plan a Strong
    Start)
  • Logistics Outsourcing is Increasing, but there is
    still not enough 3PL Supply for the Demand 3PL
    Industry still fragmented
  • Continued application of SCM Best Practices
    (Retailers/automotive /outside competition)
  • Inventory centralization development of modern
    distribution centers
  • Conclusion Real opportunities to increase
    service and decrease costs tremendous impact on
    the economy. With location, labor, currency, and
    natural resource advantages, investing in
    infrastructure, growing 3PL service industry and
    adopting SCM Best Practices should lead to strong
    growth in the economy.
  • SourceCSCMP Perspectives - Brazil
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