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Introduction to Supply - Chain Management

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					  Supply Chain Management
• Definition:
  Supply Chain Management is primarily 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 and at the right time, and so as to
  minimize total system cost subject to satisfying
  customer service requirements.
• Notice:
   – Who is involved
   – Cost and Service Level
   – It is all about integration
            What is Supply Chain
                   Management?

Managing supply chain flows and

 assets, to maximize supply chain

 surplus.

• What is supply chain surplus?
                                                       Customers,
                                     Field             demand
         Sources:      Regional      Warehouses:       centers
         plants        Warehouses:   stocking          sinks
         vendors       stocking      points
         ports         points




Supply




                       Inventory &
                       warehousing
                       costs
         Production/
         purchase      Transportation              Transportation
         costs         costs                       costs
                                    Inventory &
                                    warehousing
                                    costs
                     What is a supply chain?
                                                       Customer wants
   P&G or other      Jewel or third      Jewel
                                                      detergent and goes
   manufacturer        party DC       Supermarket
                                                           to Jewel



                                                     Chemical
      Plastic           Tenneco
                                                  manufacturer
     Producer          Packaging
                                               (e.g. Oil Company)


      Chemical
                       Paper               Timber
   manufacturer
                     Manufacturer         Industry
(e.g. Oil Company)
Decision Phases in Supply Chain
• Supply Chain
                      Strategy & Design
  Strategy & Design
• Supply Chain
  Planning                Planning

• Supply Chain
  Operations             Operations
 Supply Chain Strategy & Design
• Location & capacity of production and
  warehouses
• Products to manufactured and in which
  locations
• Mode of transportation
• Types of information systems to be
  used
• Strategic sourcing decisions
                Supply Chain Planning
• Markets to be supplied & from which location
• Planned build-up of inventory
• Subcontracting of manufacturing
• Timing and size of market promotion
• Handling uncertainty in demand, foreign
  exchange fluctuations
• Establishing production plan under fixed
  strategic parameters
           Supply Chain Operations
• Decisions over individual customer
  orders (daily, weekly)
• Less uncertainty about demand
  information
• Exploit reduction of uncertainty to
  optimize performance
• Establish deliver dates
• Establish order fill rate
Cycle View of Supply Chains
                            Customer
    Customer Order Cycle

                            Retailer
      Replenishment Cycle

                            Distributor

    Manufacturing Cycle

                            Manufacturer
     Procurement Cycle
                            Supplier
                                         Strategic Scope
               Suppliers   Manufacturer Distributor   Retailer   Customer

Competitive
 Strategy

Product Dev.
  Strategy

Supply Chain
  Strategy

Marketing
 Strategy
                          Strategic Scope
• Intracompany Intraoperation Scope
  – Minimize local cost view
• Intracompany Intrafunctional Scope
  – Minimize functional cost view
• Intracompany Interfunctional Scope
  – Minimize company profit view
• Intercompany Interfunctional Scope
  – Maximize supply chain surplus view
           Supply Chain Challenges
• Achieving Global Optimization
  – Conflicting Objectives
  – Complex network of facilities
  – System Variations over time
           Supply Chain Challenges
• Achieving Global Optimization
  – Conflicting Objectives
  – Complex network of facilities
  – System Variations over time
• Managing Uncertainty
  – Matching Supply and Demand
  – Demand is not the only source of
    uncertainty
       Key Issues in Supply Chain
                     Management
• Distribution Network Configuration
• Inventory Control
• Supply contract
• Distribution Strategies
• Supply Chain Integration & Strategic
  Partnering
• Outsourcing & Procurement Strategies
          Key Issues of SCM (cont)
• Product Design
• Information Technology & Decision
  Support System
• Customer Value
Relationships between key SCM Issues
         and the business environment

                          Global         Managing
                          Optimization   Uncertainty
       Dist. Conf.              X
       Inv. Control                            X
       Sup. Contract            X
       Dist. Strategies         X              X
       St. partnership          X              X
       Outsourcing                             X
       Pr. Design                              X
       IT & DSS                 X              X
       Cust. Value              X              X
    Prerequisites for Supply Chain
                      Management
• Top management understanding &
  commitment
• Quest for excellence
• Effective and efficient communication
• Relationship instead of exchange
• Cross-functional teams
• Reality of team, partnerships & alliances
  (based on harmony & trust)
   Supply Chain: The Magnitude
• In 1998, American companies spent $898
  billion in supply-related activities (or 10.6% of
  Gross Domestic Product).
   – Transportation 58%
   – Inventory 38%
   – Management 4%
• Third party logistics services grew in 1998 by
  15% to nearly $40 billion
     Supply Chain: The Magnitude
                                             (continued)


• It is estimated that the grocery industry could
  save $30 billion (10% of operating cost) by
  using effective logistics strategies.
  – A typical box of cereal spends 104 days getting
    from factory to supermarket.
  – A typical new car spends 15 days traveling from
    the factory to the dealership.
        Supply Chain: The Magnitude
                                                 (continued)


• 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 writedowns of $2.6
  billion in October 1997.
  The reason? “Raw material shortages, internal and
  supplier parts shortages…”. (Wall Street Journal, Oct.
  23, 1997)
      Supply Chain: The Potential

• Procter & Gamble estimates that it saved retail
  customers $65 million through logistics gains over the
  past 18 months.

  “According to P&G, 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)
    Supply Chain: The Potential

• 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.
    Supply Chain: The 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.
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.
 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
 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%
• P&G estimates it saved retail customers $65
  million by collaboration resulting in a better
  match of supply and demand
                    Drivers of Supply Chain
                               Performance
       Efficiency                       Responsiveness

                    Supply chain structure



Inventory     Transportation       Facilities     Information


                            Drivers
  Considerations for Supply Chain
                          Drivers
Driver           Efficiency         Responsiveness

Inventory        Cost of holding    Availability

Transportation   Consolidation      Speed

Facilities       Consolidation /   Proximity /
                 Dedicated         Flexibility
Information      What information is best suited for
                 each objective
                Achieving Strategic Fit
• Understanding the Customer
  – Lot size
  – Response time
  – Service level               Implied
  – Product variety             Demand
  – Price                      Uncertainty
  – Innovation
    The Value Chain: Linking Supply
       Chain and Business Strategy
                Business Strategy

 New Product Marketing
 Strategy    Strategy
                              Supply Chain Strategy


   New           Marketing
  Product         and      Operations Distribution    Service
Development      Sales

Finance, Accounting, Information Technology, Human Resources
  Flows in a Supply Chain
Information

    Product
               Customer
    Funds
               Sequential Optimization vs.
                     Global Optimization
  Sequential Optimization


         Procurement      Manufacturing        Distribution        Demand
           Planning         Planning            Planning           Planning
   Global Optimization

              Supply Contracts/Collaboration/Information Systems and DSS




          Procurement       Manufacturing        Distribution
                                                                    Demand
            Planning          Planning            Planning
                                                                    Planning

Source: Duncan McFarlane
               The Dynamics of the Supply Chain
Order Size




                                                                                    Customer
                                                                                    Demand

                                                            Retailer Orders
                                  Distributor Orders


                                                            Production Plan



                                                                                    Time
             Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
               The Dynamics of the Supply Chain
Order Size




                                                                                    Customer
                                                                                    Demand




                                                            Production Plan



                                                                                    Time
             Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

				
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