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Supply Chain Management 2

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					Supply Chain Management
Rolls Royce Business Managers Program November 2002 Washington, DC
Doug Blocher

Operations and Decision Technologies Department

Supply Chain Management:

Why all the fuss
Supply Chain Management

• Distribution Costs are Significant
– Lots of Inventory in the Supply Chain – Lots of Transportation Costs – Lots of Transaction Costs

Internal
Lean Flow ERP

• Component Parts are a Major Cost

Labor

Outsource

• Available Technology (ERP/Web) • Supply Chains “evolve” – pace is more rapid • Most of the balance sheet assets and the people
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Supply Chain Management
Supply Chain Management

• Supply Chain Management is:
– the management of flows between and among processes to fill a customer’s order – the focus of the supply chain is filling the customer order in an efficient and effective manner

• Supply Chain Managers should:
– have a “global” view of the value chain – understand all the links as a virtual “order filler” – global means the extended enterprise, or planning across company boundaries – integrate for seamless fulfillment

Is more than “logistics”

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Efficient or Responsive
Supply Chain Management
Efficient
Primary Purpose Manufacturing Inventory
Lead times

Responsive
Respond quickly with high variety & high availability Flexible Capacity Higher customer buffers, more variety
Invest to aggressively reduce, LTL transport

Supply at lowest cost High Utilization Minimize costs with acceptable availability
Shorten as long as it reduces cost

Product Design

Commodity Products Standardize, minimize costs, low prices
Cost focused

Innovative Products Postpone differentiation, high variety, higher prices
Responsive
Fisher, Harvard Business Review, March-April 1997

Suppliers

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Supply Chain Management

Typical Quantified Benefits from Integrating the Supply Chain
Delivery Performance Inventory Reduction Fulfillment Cycle Time
Forecast Accuracy Overall Productivity Lower Supply-Chain Costs

16% – 28% Improvement 25% – 60% Improvement 30% – 50% Improvement
25% – 80% Improvement 10% – 16% Improvement 25% – 50% Improvement

Fill Rates Improved Capacity Realization

20% – 30% Improvement 10% – 20% Improvement

Source: 1997 PRTM ISC Benchmark Study

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Perceived Benefit of SCM Investments
Demand Forecasting

Manufacturing

6 4

Marketing

Purchasing

2

Sales

Inventory Management Transportation

Product Development

Warehousing

Supply Chain Perspectives “Models”?
Supply Chain Management

• Physical Flow of Goods in the Value Chain
– Source / Make / Deliver (SCOR model)

• Decision Making Time Frame
– Execution (short – day?): How do we fulfill what the customer ordered today – Planning (medium – month?): What needs to happen to fulfill aggregate customer orders in an efficient and effective manner – Design (long – year?): What should our products, processes and facilities look like and what technologies will we employ?

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Overview Supply Chain Processes
Strategic Focus:
Responsive or Efficient
Plan

Deliver

Source

Make

Deliver

Source

Make Your Company

Deliver

Source

Make

Deliver

Source

Suppliers’ Supplier

Supplier
Internal or External

Customer
Internal or External

Customer’s Customer

Drivers of SC Performance:
• Inventory • Transportation • Product Design • Processes / Network • Information

Levels of SCM:
• Design • Planning • Execution

Planning – Trends in SCM
Supply Chain Management

• Eliminating the “Bullwhip Effect” • Information Sharing • Collaborative Planning and Forecasting (CPFR) • Connected Plans based on common data (ERP and supply chain “bolt ons”) • Vendor Managed Inventory

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The “Bullwhip Effect”
Retail Demand
200 150
Quantity

Retail Orders to Distributor
200 150
Quantity

Supply Chain Management

100 50 0 1 Period 6 11 16 21 26 31

100 50 0 1 Period 6 11 16 21 26 31

Distributor Orders to Wholesaler
200 150
Quantity

Wholesaler Orders to Factory
200 150
Quantity

100 50 0

100 50 0

1 Period 6 07 November 2002

11

16

21

26

31

1 Period

6

11

16

21

2610

31

Supply – Trends in SCM
Supply Chain Management

• Supply-Base Rationalization
– Single Sourcing – Tiered Suppliers

• Outsourcing
– 3PL and 4PL Suppliers

• Reverse Auctions • B2B Exchanges • Partnerships
– Vendor-Managed Inventory – Pre-sourcing (design)

• TCO (Total Cost of Ownership)
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P rocte r & Gamble Supplier Re lationship Matrix
R elationship Characteristic Purely Competitive Relationship
Short Easy Very low Specifications and Performance Needs Little data shared Not very open Depends on market Yes

CompetitivelyBased Incumb ent R elationship
Medium Relatively easy, but usually data-based Wary Specifications and Performance Needs Quality Data Not real open

Partn ership

Strat egic Business Alliance

Duration Ease of Entry and Exit Level of Trust Information Sharing - Type - Depth - Openness

Longer term Difficult to develop or to end High level of trust Specifications and Performance Needs Quality Data, Process Strategies, R&D Focus Very Open May be higher than normal Preferably no

Very long term Difficult to develop or to end Very high level of trust Specifications and Performance Needs Quality Data, Process Strategies , R&D Focus Very Open May be higher than normal No

Supplier Profitability OK if Supplier Sells to P&G’s competition? Is the Supplier a P&G Competitor? Number of P&G Sources per Commodity Degree of Ris k Sharing Shared Goals

Depends on market Yes

Could be Any number

Preferably not Any number

No Few to one

No Few to one

Low to none None, driven by short term selfinterest Low to none

Low Some, driven by medium term selfinterest Some

Can be high Extens ive, driven by long term mutual interest Likely to be high

Very high E xtensive, driven by long term mutual interest Very likely to be high Verification/Certific ation Total System Value

Role/Importance of Research & Development Total Quality Focus Competitive Focus

Low to none Price through inquiry or negotiation

Reduction of variation Price through inquiry or negotiation

Verification/Certific ation Total System Costs

Courtesy David J. Schroeder, Procter and Gamble, 1997

Make – Trends in SCM
Supply Chain Management

• Lean / JIT / TQM / Six Ω
– – – – Throughput Time Inventory Reduction Quality Improvement Process Improvement

• Cells / Focused Plants (PWP) • Supplier Involvement • Product Design for Assembly / Manufacture

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Distribute – Trends in SCM
Supply Chain Management

• Postponement • Cross-Docking • Retailer-Supplier Partnerships
– – – – Quick Response Accurate Response Efficient Consumer Response Continuous Replenishment

• Available-to-Promise (ATP) • Design for Logistics

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Supply Chain Perspectives “Models”?
Supply Chain Management

• Physical Flow of Goods in the Value Chain
– Source / Make / Deliver (see next slide of SCOR model)

• Decision Making Time Frame
– Execution (short – day?): How do we fulfill what the customer ordered today – Planning (medium – month?): What needs to happen to fulfill aggregate customer orders in an efficient and effective manner – Design (long – year?): What should our products, processes and facilities look like and what technologies will we employ?

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Supply Chain Execution
Supply Chain Management

• Order entry
– visibility throughout supply chain

• Operations responsiveness

• Systems support for decisions to commit • Transportation to customer • Payment collection

Its a lot about Process!
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Supply Chain Planning
Supply Chain Management

• Total Cost Approach
– understand how various plans interact

• Level vs Chase Production • Inventory
– Where to hold – Form in which to hold – Quantity to hold

• Preferred transport method (air, sea, TL, LTL)
– Tied to the inventory decision

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Supply Chain Design
Supply Chain Management

• What variety of products are needed and how will new models be introduced?
• What are the economics of the value chain

from “earth materials” to “using customer”? • What is our role in this chain?
– what will we “outsource” – what is the structure of the relationship

• How should the nodes and links of the supply chain be configured?
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Direct Store Delivery System
An efficient DSD system is the key to successfully operating a fresh bakery franchise.
Produce Distribute

Sell

Return

Recover

Retail

Thrift
Store

Bakery Depots Routes

Kroger

Routes
Stop & Shop
Store

Safeway

Store

18
Bakeries

450
Depots

4,800
Routes

60,000
Retail

200
Thrift

Supply Chain Design (cont)
Supply Chain Management

• Suppliers “CoEngineering”
– Some “Black Box” development also

• Rationalize Product Offerings
– and standardize components

• Postpone Product Differentiation
– modular design helps

• Design for Logistics (DFL)
– Design for Manufacturing / Assembly (DFM/A) – Inexpensive, easy shipment – Retail sales space

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Supply Chain Management
Supply Chain Management

• The Focus of the Supply Chain
The Customer Order

• The Supply Chain should support the market objectives of the firm
Efficient or Responsive

• Integration of Internal Departments and External “Partners” should be focused on the Supply Chain as a Process
Share Information and Coordinate activites

• Think Lean – applied throughout the chain
Remove inventory and Time

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