F-Supply Chain Management

Supply Chain Management (Ch. 6) B2B S&M; F-Supply Chain Management 1 SCM is not Logistics • Let’s start off by understanding what supply chain management is not; it is not logistics. • However, logistics is at the core of supply chain management. • One cannot be an effective B2B marketer today without also be well versed in logistics concepts, strategies, and tactics as well as how these issues fit into the larger problem of supply chain management B2B S&M; F-Supply Chain Management 2 Supply Chain Management “Supply chain management (SCM) is the integration of business processes from end user through original suppliers that provides products, services, and information that add value for customers.” (H&S, p.141) B2B S&M; F-Supply Chain Management 3 Orchestration is the Hard Part Functions to be performed: planning and forecasting inventory management sourcing/procurement materials handling product design warehousing order processing transportation (in-, outbound) production scheduling customer service manufacturing flow of cash, information, products At first glance, these appear as traditional business functions. SCM is about coordinating all of the activities across all firms in a supply chain. Hard: interfunctional coordination Harder: inter-firm ……and all firms is what SCM is about B2B S&M; F-Supply Chain Management 4 A Systems Perspective SCM thinking is an outgrowth of a systems view of supply chains. The objective is to reduce the costs (increase efficiency) and improve the service levels (increase effectiveness) required to manufacture and deliver goods to ultimate end-users. Optimization of a single firm’s efficiency and effectiveness often sub-optimizes the supply chain just as optimization of individual functions sub-optimizes a single organization B2B S&M; F-Supply Chain Management 5 A Supply “Chain?” Raw Material Supplier Raw Material Supplier Raw Material Supplier Truck Carrier Air Carrier Manufacturer Manufacturer Manufacturer Truck Carrier Technical Advisor Market Research Firm Manufacturers Rep Firm Consumer 6 Manufacturer Distributor Warehouse Retailer Warehouse Warehouse Retailer Retailer Consumer Distributor Air Carrier Manufacturer Truck Carrier Rail Carrier Financial Institution Ship Carrier Rail Carrier Truck Carrier B2B S&M; F-Supply Chain Management The Transportation Piece Alone Transplace.com is a firm that was borne from the logistics service aspects of six large truck carriers in the U.S. Finding someone who can handle the transportation aspects of SCM is a large piece of the SCM puzzle. Let’s look at them a little more closely. (switch to Transplac.com Presentation) B2B S&M; F-Supply Chain Management 7 What a Mess! Who would want to try to coordinate all of the relationships in a supply web (transportation, supply, marketing,….) Who could coordinate all of them? (Who usually does in reality) How in the world would you do it? What are the marketing implications? B2B S&M; F-Supply Chain Management 8 What are the roles of... • Actual demand information (i.e. point of purchase data)? – How does using this information change a supply chain away from a “push” marketing approach? • Partnerships? – Partner selection – Relationship management? – Information management? (what information needs to be shared?) B2B S&M; F-Supply Chain Management 9 A Few Fine Examples • • • • • • • • Dell Hewlett-Packard Grainger Nucor Inc. (steel mini-mills) 10-30% higher on-time delivery performance one-two month advantage in cash-to-cash cycle time 50-80% less standing inventory (3-6% of revenue) can improve earnings through cost reductions 10 B2B S&M; F-Supply Chain Management SCM Goals • Waste reduction – reduction of duplication – enhancing quality – harmonizing operations • Cycle Time Compression – production – logistics • Flexible Response • Unite Cost Reduction All of which ought to ultimately benefit customers in the SC 11 B2B S&M; F-Supply Chain Management SCM Improvements Firms must continuously learn and improve to maintain competitive advantage • improve the value delivered to customers by redesigning products • collaborate more among firms in the supply chain (the players change in that messy supply web also) • improve supply chain information flows • proactively monitor the external environment 12 B2B S&M; F-Supply Chain Management Information Systems Supply Chain Software • In the past, software focused on each functional area • Today, software focused on integrating functions in the firm • Can transform better management processes into competitive advantage Software Application Areas Enterprise Resource Planning (ERP) Advanced Planning and Scheduling Demand Planning Demand Content Inventory Planning Manufacturing Execution Product Data Management B2B S&M; F-Supply Chain Management Warehouse Management Transportation Planning Transportation Content Transportation Execution Order Management Component/Supplier Management Customer Asset Management 13 Efficiency v.s. Effectiveness Match supply chain design to product type (Efficiency/Effectiveness) • functional products have predictable demand and firms should design supply chains that minimize inventory, logistics, and manufacturing costs • Innovative products have less predictable demand and supply chains should place inventory at the most appropriate places in the channel to respond to customer demands B2B S&M; F-Supply Chain Management 14 7 Habits of Highly Effective Supply Chains 1. Supply chain quality depends on changing business practices within and outside the company 2. Eliminate activities that do not contribute value to the end product or service, or that duplicate effort 3. Integrate demand planning across all activities 4. Pool risks among supply chain partners 5. Distinguish between desirable product variety and costly duplication 6. Improve asset utilization by working with supply chain partners to assure goods are produced at nearly the same rate they are consumed 7. Recognize how and where customer value is added in the supply chain and align revenue-generation and incentives accordingly 15 B2B S&M; F-Supply Chain Management Logistics at its Core • Logistics is made up of two primary product flows: – physical supply – physical distribution • Where SCM is about all business processes, logistics is about moving and storage • Logistics has become a primary way business marketers have found to develop a competitive advantage • Sales, marketing, and logistics departments are naturally linked and need to work with each other to reduce costs and increase customer service B2B S&M; F-Supply Chain Management 16 • JIT processes are more common now and increase the importance of sound logistics processes to satisfy JIT requirements • Typical controllable elements of a logistical system – – – – – – – – – – customer service (i.e., time and place utility) order processing logistics communication transportation warehousing inventory control packaging materials handling production planning plant and warehouse location 17 B2B S&M; F-Supply Chain Management 9 Components of Logistics Service Quality (This is a bot different from the text - Table 6.2, p.161) Information Quality Personnel Contact Quality Ordering Procedures Availability Order Accuracy Order Condition Order Quantity Timeliness Order Discrepancy Handling B2B S&M; F-Supply Chain Management 18 Basically... Logistics is… …having the right product at the right place in the right condition at the right time in the right quantity at the right price B2B S&M; F-Supply Chain Management 19 B2B Logistical management Facilities – Warehouses reduce transportation costs and improve customer service – Warehousing decisions should be made based on operating costs, customer service levels and investment requirements – Outsourcing warehousing • allows firms that specialize in warehousing to perform the function • increased flexibility and reduced assets • third party warehouses can provide many added services Transportation – usually the largest logistical expense – look for transportation mode that offers best combination of low cost and strong customer service (modes: truck, rail, ship, air) – cost, speed, and consistency of service are key B2B S&M; F-Supply Chain Management 20 B2B Logistical Management cont. Inventory Management – Inventories are the buffer in the system • production and demand are not evenly matched • operating deficiencies often cause product shortages • demand cannot be perfectly predicted – Inventory levels should be based on costs, investment, service required, and anticipated revenue – Newer information technologies have improved the accuracy and speed of information exchange, leading to lower inventories – 80/20 rule: treat the fast moving items differently – Companies should use selective industry strategies B2B S&M; F-Supply Chain Management 21 3PLs Third party logistics firms (3PLs) specialize in specific logistics functions and services and have increased in popularity over the years – enable marketers to focus on core products – lower costs, better service, and improved asset utilization – some companies do not like the reduced control and less contact with customers B2B S&M; F-Supply Chain Management 22 In Summary If marketing is about understanding, creating, and delivering value to customers (immediate and down-stream), and value is about better service, faster service, more consistent service, and higher quality service and products, at lower costs (e.g., price, down-time, interrupted production,..) and logistics helps create this value then marketers must be good at uncovering customers’ logistical needs, helping to create/improve logistics services, and promoting the benefits created by these services to customers. B2B S&M; F-Supply Chain Management 23