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Information Systems and Technology Use in Supply Management

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					Supply Chain Management
    St. Louis NCMA Chapter
         April 19, 2005
       Steve Georgevitch
How Important is Supply Chain
Management?
• $936B in 2003 (inventory-carrying costs,
  transportation costs, and administrative
  costs)
• 8.5% of the $11 trillion U.S. economy
• $76.9 billion spent on logistics outsourcing
Agenda – Questions to Answer
• What is Supply Chain Management and Why is it
    important?
•   Is this something new? What is the history?
•   What are the basic elements of Supply Chain
    Management?
•   What are the forces driving Supply Chain
    Management today?
•   What are the risks/issues that affect my job as a
    Contracts Manager?
•   What about Supply Chain Security?
Definition of Supply Chain
Management
A supply chain is the stream of processes of
  moving goods from
  –   customer order
  –   through the raw materials stage
  –   Supply
  –   Production
  –   and distribution of products to the customer

  Material and information flow Up and Down the Supply
   Chain
                                Generalized Supply Chain Model
                                      Relationship Management
                       Information, product, service, financial and knowledge flows

                                                                        Material Flow
             Supplier Network                                           Information Flow

                                           Integrated Enterprise

                                                                         Distribution Network




                                                                                                End Consumers
                                                         Market
Materials




                                       Procurement
                                                     Distribution



                                             Manufacturing




            Capacity, information, core competencies, capital, and human resource constraints
History of Supply Chain
Management – 1970s
• The Markets
   – Focus on Customer Loyalty
   – Quality is king
   – Product engineering is competitive advantage

• The Supply Chain
   –   Vertically integrated enterprises
   –   Primarily domestic
   –   Highly regulated
   –   Not managed beyond the extended enterprise
   –   Rigid, stable, slow but predictable
   –   Managed by function

   The essence of SCM understood. This first phase is characterized as an inventory
      'push' era that focused primarily on physical distribution of finished goods.
History of Supply Chain
Management – 1980s
• The Markets
   – Market demands variety
   – Cost is king – technology drives manufacturing efficiencies
   – Global markets developing


• The Supply Chain
   –   Deregulation
   –   Learning to manage global supply and demand
   –   Beginning of horizontal management craze
   –   Managed through functional collaboration (ERP hysteria)
   –   Fragmented and unpredictable

   Realization that productivity could be increased significantly by managing
     relationships, information and material flow across enterprise borders.
History of Supply Chain
Management – 1990s - Now
• The Markets
   –   Throw away consumerism – product life measured at blink speed
   –   Cost is still king, but manufacturing has nothing left to give
   –   Global competition
   –   Global markets

• The Supply Chain
   –   Technologically enabled
   –   Services explosion
   –   The network is the enterprise
   –   Dynamic, agile and reconfigurable
   –   Supply Chain as a strategic imperative

   Computers change the way business is done, Internet revolutionized the
     information pathway and the distribution system of the business, e-
     commerce has changed the definition of business itself.
6 key elements to a supply chain

• Production
• Supply
• Inventory
• Location
• Transportation

• Information
Production Element of Supply Chain

Focus on what customer & market demand
• Resource Management
  – Internal sourcing (what and which plants)
  – Outsourcing to capable suppliers
• Capacity Management
  – Workload schedules
  – Equipment plans (acquisition/maintenance)
• Order Management
• Quality control
Supply Element of Supply Chain

Partners in the Supply Chain
• Assessing core/strategic competencies
• Identifying capable suppliers
• Making sourcing decisions
• Relationship management
• General Procurement
Inventory Element of Supply Chain

How Much Inventory and Where to Store It
• Analysis of fluctuations in demand
• Identification of optimal storage locations
  in support of customer demand
• Identification of optimal stock levels by
  location
• Establishing inventory ordering policies
Location Element of Supply Chain

Strategic placement of production plants,
  distribution and stocking facilities
• Understand customer markets
• Perform Locating decisions for production
  and stocking facilities
  – Lightweight/market driven near the end-user
  – Heavy industries near raw material source
• Evaluation of tax and tariff issues and
 transportation accessibility
Transportation Element of Supply
Chain
Supporting inventory decisions and customer
  demand requirements (transportation is up to
  30% of Product Cost!)
• Identify customer service levels
• Identify modal forms
  –   Air
  –   Ship
  –   Rail
  –   Ground
• Establish strategic transportation partnerships
Information Element of Supply
Chain
Obtaining, linking and leveraging
  information across the Supply Chain
• organization of information
• Linking computers through networks and
  the internet
• Streamlining information flow
• Consolidating information
• Information warehousing
• Decision support tools
Key Attributes of a “Chain”

• Cannot exceed the capacity of its weakest
  link
• A break in the chain makes the chain non-
  functional
• All links must move in synchronization
• All links have an interdependency
Supply Chain Driving Factors

• Information Revolution
• Customer Demand
• Adaptive forms of Relationship
 Management
Driving Change – Information
Technology
• Inter-Enterprise Technology
              Relational Information Sharing

                      Operating Procurement
   – Dynamic TraditionalMarketing Systems
                                Information Sharing
        • Relational data stores
      Desktop Tools
   – Engineering Finance Marketing Procurement Manufacturing Manufacturing
                         Finance


   – COTS Revolution (ERP, S&OP, CPFR)
                                 Engineering   Manufacturing
Driving Change – Information
Technology
• Intra-Enterprise Technology
  – The Internet
               World Wide Estimate of Active Internet Users
                                 2000   2001    2002    2003    2004
      North Amaerica             97.6   114.4   130.8   147.7   160.6
      Europe                     70.1   107.8   152.7   206.5   254.9
      Asia/Pacific               48.7    63.8    85.4   118.8   173.0
      Latin America               9.9    15.3    22.1    31.0    40.8
      Africa and Mideast          3.5     5.3     7.2     90     10.9
      Total World Wide          229.8   306.6   398.1   513.0   640.2

  – E-Commerce
     • 2004 estimated at $69.2B, +23.5% from 2003
     • 1.9% of total sales
  – Universal Information Distribution (Java, XML)
Driving Change – Customer
Demand
• Knowledge Enabled Consumerism
   – 27% of new-car buyers say they use online quote tools
• Demand for Variety
   – Cell phone life cycle is 9 months, Nokia has 68 active marketed
     versions, customizable to estimated over 1,200 configurations
• Cost Driven
                     CPI for Durable Goods
Driving Change – Relationship
Management
• Relationship Assessments
• Alliance evaluation mechanisms
  – Assessing key variables of Reliability, Competence,
    Affect Based Trust (Goodwill), Vulnerability (risk
    sharing) and Loyalty
• Conflict Resolution
  – Aversion to legal disputes
  – Arbitration as a business decision
     • Minitrial
     • Rent-a-judge
• Information as a Common Thread
Challenges in Supply Chain
Management Today
• Strategic imperative of supply chain
• Deliberate redesign of supply chain networks
• Offshore outsourcing (lead-times/customer service
    impact)
•   Supply chain design to customer requirements
•   Cash-to-cash cycle
•   Supply chain visibility technology
•   Strategies for inventory positioning near
    customers
•   Warehouse Management challenges
•   Collaboration with supply chain partners
Implications to Contract
Management
• Risks - Protiviti
   – Regulatory, compliance, financial, business
     continuation, and other service risks
   – Supplier security and confidentiality controls
   – Transfer of nonpublic personal customer information
     to a third-party
   – Monitoring of service performance and billing
   – Changes in market forces or contract/service scope
   – Addressing noncompliance and poor service levels
Implications to Contract
Management
• Risks (Continued) - Protiviti
  – Contract management personnel changes
  – Unauthorized or uncontrolled use by the
    supplier of other third parties or assignment
    of contract to others
  – Billing issues and exceptions – Level of
    Service disputes
  – Poor financial health of service provider
  – Deteriorating relationship with the service
    provider
Supply Chain Issues Challenging
Contract Managers
• Effective management, measurement, and
 control of suppliers, contracts, and overall
 expenditures by category/commodity
    • Lack of timely, complete, and accurate information
    • lack of tools and methodologies to analyze data
    • integrity of the raw data (coding standards, etc.)
    • variety and diversity of systems from which the
     data must be extracted
Supply Chain Issues Challenging
Contract Managers
• Challenges in non-inventory postaward contract
    management and control
•   Leveraged sourcing (less than 60% of all contracts)
•   Strategic sourcing and contracts management tools
•   Applying Strategic sourcing methodologies
•   Reinvigorating formal risk management
•   Understanding the market, risk, and spend analysis
•   Information and tools required to support job functions
•   3rd Party Logistics Providers
Supply Chain Security

Customs & Border Patrol (CBP) – 2004 Statistics
•   26.1 million trade entries
•   collected $24.7 billion in import duties
•   seized 2.2 million pounds of narcotics
•   412.8 million pedestrians and passengers
•   132.2 million conveyances

Customs – Trade Partnership Against Terrorism (C-TPAT)
• support of CBP’s priority Homeland Security mission
• voluntary partnership with members of the trade community
• collaborate to better secure the international supply chain to the United
    States
Supply
Chain
Security
Benefits of C-TPAT Membership
• C-TPAT supply chain specialist as a CBP liaison Access to the C-TPAT
    members network.
•   Self-policing and self-monitoring of security activities.
•   Reduced selection rate for Compliance Measurement Examinations and
    exclusion from certain trade-related local and national criteria.
•   Targeting benefits by receiving a “credit” via the CBP targeting system.
•   Eligibility for access to the FAST lanes on the Canadian and Mexican
    borders.
•   Eligibility for the Office of Strategic Trade’s (OST) Importer Self-Assessment
    Program (ISA) and priority access to participate in the Automated
    Commercial Environment (ACE).
•   Highway carriers, on the Canadian and Mexican borders eligible for access
    to the expedited cargo processing at designated FAST lanes.
     – Eligible to receive more favorable mitigation relief from monetary penalties.
• Mexican manufacturers receive access to expedited cargo processing at
  designated FAST lanes.
• Companies eligible to attend CBP sponsored C-TPAT supply chain security
  training seminars.
Questions?

				
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