introduction to supply chain lecture wednesday

8/8/2019 Introduction to Supply Chain Lecture Wednesday

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Introduction to SupplyChain Management


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Demand forecasting

Purchasing

Requirements planning

Production planning

Manufacturing inventory

Warehousing

Material handling

Packaging

Finished goods inventory

Distribution planning

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/sales

Finance

Supply Chain

Management

Supply Chain

Management

Logistics

Purchasing/

Materials

Management

Physical

Distribution

Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+

Demand forecasting

Purchasing

Requirements planning

Production planning

Manufacturing inventory

Warehousing

Material handling

Packaging

Finished goods inventory

Distribution planning

Order processing

Transportation

Customer service

Strategic planning

Information services

Marketing/sales

Finance

Supply Chain

Management

Supply Chain

Management

Logistics

Purchasing/

Materials

Management

Physical

Distribution

Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+

Evolution of Supply Chain Management


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(Excerpt of the Interview of Victor Fung of Li & Fung inHBR, Sept-Oct 1998.)

Say we get an order from a European retailer to produce10,000 garments. For this customer we might decideto buy yarn from a Korean producer but have it woven

and dyed in Taiwan. So we pick the yarn and ship it toTaiwan. The Japanese have the best zippers so wego to YKK, a big Japanese zipper manufacturer, and weorder the right zippers from their Chinese plants.the best place to make the garments is Thailand. So

we ship everything there. the customer needs quickdelivery, we may divide the order across five factoriesin Thailand. Effectively, we are customizing the valuechain to best meet the customers needs.


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What is a Supply Chain? Customer is an integral part of the supply

chain Includes movement of products from

suppliers to manufacturers to distributors,but also includes movement of information,funds, and products in both directions

Probably more accurate to use the term

supply network or supply web Typical supply chain stages: customers,

retailers, distributors, manufacturers,suppliers


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Supply

Sources:plantsvendorsports

RegionalWarehouses:stockingpoints

FieldWarehouses:stocking

points

Customers,demandcenterssinks

Production/purchasecosts

Inventory &warehousingcosts

Transportationcosts

Inventory &warehousing

costs

Transportationcosts


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SCM has gained considerable importance in recent

years in both the service and the mfg. sector.

SCM seeks to meet the needs of the ultimate end

customer through the integration of supply chainactivities for the mutual benefit of all parties involved,

namely - the focal organization, its suppliers, their

suppliers, your customers and their customers

all working together to achieve a sustainable

competitive advantage.


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Contd

According to Slack et al (1998), SCM is about

meeting three objectives:

Focusing on satisfying end customers

Formulating and implementing strategies that

win and retain customer business;

Taking an holistic approach to managing theentire supply chain effectively and efficiently.


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Mother Dairy-

Networking the milk producing cooperatives

Upkeep of the processing plant, maintenance and

modernization

Efficient network design

Requirement planning, logistics and transportation

planning


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Why is SCM so important?

To gain efficiencies from procurement,

distribution and logistics

To make outsourcing more efficient

To reduce transportation costs of inventories

To meet competitive pressures from shorterdevelopment times, more new products, and

demand for more customization


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Contd

To meet the challenge of globalization and

longer supply chains

To meet the new challenges from e-commerce

To manage the complexities of supply chains

To manage the inventories needed across the

supply chain


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Supply Chain Features Functions: Logistics, Purchasing, Marketing,

Operations, . . .

Institutions: Manufacturers, Retailers, Logistics

Service Providers, . . .

Behaviors

Power/Dependence

Conflict Competition

Cooperation, e.g. sharing information


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Physical Promotional Financial

Logistics MarketingFinance andAccounting

Service Sales Stimulate Sales Pay Bills

Transportation

Warehousing

InventoryManagement

Advertising

Personnel Selling

Sales Promotion

Customer Service

Invoicing

Payment

Supply Chain Flows


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SCM: management of 8 key businessprocesses:

1. Customer relationship management2. Customer service management3. Demand management4. Order fulfillment

5. Manufacturing flow management6. Procurement7. Product development & commercialization8. Returns

Stock & Lambert (2001)


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e.g.

Wal Mart, considered by many to be the worldslargest retailer, manages its low price strategy byexpediting greater efficiency from its supply chain. Itsemergence as a dominant player was largely built oninventory management and control, direct-to-shelf

delivery and on-line data access. Such best practicetechniques have been adopted by many of Wal Martscompetitors.

Procter and Gamble formed partnerships with their keycustomers, most notably, Wal Mart, to cover themerchandising, logistics and IT aspects of their supplychain. The company showed it could achieveprofitable growth from pleasing customers toimpressive effect ( Anderson et al, 1997).


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Process View of a Supply Chain

1. Cycle view: processes in a supply chain aredivided into a series of cycles, eachperformed at the interfaces between two

successive supply chain stages2. Push/pull view: processes in a supply chain

are divided into two categories depending

on whether they are executed in response toa customer order (pull) or in anticipation ofa customer order (push).


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Cycle View of Supply Chains

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement Cycle

Customer

Retailer

Distributor

Manufacturer

Supplier


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Cycle View of a Supply Chain

Each cycle occurs at the interface between twosuccessive stages

Customer order cycle (customer-retailer)

Replenishment cycle (retailer-distributor)

Manufacturing cycle (distributor-manufacturer)

Procurement cycle (manufacturer-supplier)

Cycle view clearly defines processes involved andthe owners of each process. Specifies the rolesand responsibilities of each member and thedesired outcome of each process.


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Push/Pull View of Supply Chains

Procurement,Manufacturing andReplenishment cycles

Customer OrderCycle

CustomerOrder Arrives

PUSHPROCESSES PULLPROCESSES


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Push/Pull View of Supply Chain

Processes

Supply chain processes fall into one of two

categories depending on the timing of their

execution relative to customer demand

Pull: execution is initiated in response to a

customer order (reactive)

Push: execution is initiated in anticipation

of customer orders (speculative)

Push/pull boundary separates push

processes from pull processes


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The Value Chain: Linking SupplyChain and Business Strategy

New

ProductDevelopment

Marketing

andSales Operations Distribution Service

Finance, Accounting, Information Technology, Human Resources

Business Strategy

New Product

Strategy MarketingStrategySupply Chain Strategy


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Achieving Strategic Fit

Understanding the Customer Lot size

Response time Service level

Product variety

Price

Innovation

ImpliedDemand

Uncertainty


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Achieving StrategicUncertainty/Responsiveness Map

Implied

uncertainty

spectrum

Responsive

supply chain

Efficient

supply chain

Certain

demand

Uncertain

demand

Responsiven

ess spectrum


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Other Issues Affecting StrategicFitMultiple products and customersegments

Product life cycle

Competitive changes over time


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Prerequisites for Supply ChainManagement

Top management understanding &commitment

Quest for excellenceEffective and efficient communication

Relationship instead of exchangeCross-functional teamsReality of team, partnerships & alliances(based on harmony & trust)


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B2B Networks and Private Exchanges

B2B Online Marketplaces

Private Exchanges

HP

Ace Hardware

IBM


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B2B Online Internet Marketplaces

When the Internet revolution began, a numberof organizations rushed to establish B2Bonline marketplaces for entire industries

including steel, automobile manufacturing,and electronics.

More recently, however, a number of firmsincluding HP, IBM, and Wal-Mart created their

ownprivate exchanges (also called corporatemarketplaces).


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continued

These links allow the parties tocollaborate and manage the supply chainin real time.

Ace Hardware provides another example.

Ace's motivation for the development ofits system was the desire to manage its

inventory more efficiently and be able tocollaborate with suppliers in real time.


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continued

Ace used its supply chain managementsoftware to link the computer systemslocated in its 14 distribution centers with

nine suppliers. IBM's system provides links to over20,000

of its suppliers.

IBM further estimates that it realized

almost $400 million in savings that yeardue to the increased efficiency of its Web-based procurement system.


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Dell Computer

Direct Model

Use of Information Technology

provides suppliers with access to Dellsinventories

Minimum Inventory Levels


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Dell Computer

Classic case in supply chain management.

Established in 1984, Dell experienced supplyproblems in 1993 and thereupon completely

redesigned its supply chain process along thelines of what its founder, Michael Dell, calledthe direct model.

Between 1993 and 1998, Dell's earningssubsequently grew at 65 percent per year.


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Dell Computer continued

Dell's supply chain redesign was based on thefollowing elements.

First, Dell sells directly to customers, eliminatingthe wholesaler and retailer.

Second, Dell also takes advantage of newinformation technologies in theircommunications with suppliers who can accessDell's component inventories, production plans,and forecasts in real time and thus keep their

production precisely matched to Dell's needs. Third, Dell deliberately maintains absoluteminimum inventory levels at every stage ofproduction, averaging 4 days overall


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Supply Chain Performance indicators some basic

issues

Objective customer satisfaction at low costs ensuring long-termcompetitive capability

To refine a competitive business strategy

Indicators should be easy to define, simple to apply and easy tocomprehend, so that managers can react quickly and suitably

Performance both for reflecting outcome of operating procedures

externally and financial potentials as internal performance

Focus on defined corporate objectives and strategies


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Business Process Methodology

1st generation: Six Sigma etc, A business process treated as a unique one.

Sub-processes and the measurement metrics forassessing the performance vary from process to

process or business to business.2nd generation:

More efficient analysis (by providing a commonvocabulary)

More effective improvement plan by using a set of

standard measurement units.SCOR model: A second Generation Business Process

Methodology, a process focusedand framework basedapproach.


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SCOR methodology concepts

Business Process Reengineering analysis ofexisting process and redesign for improvement (or process improvement).

Benchmarking measurement, comparison with bestpractices and improvement.

Process Reference Model use of a general andstandardized framework for process analysis.


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Supply Chain Operations

Reference-model (SCOR)

The SCC is a global not for- profit trade

association promoting the latest SCM systems

and practices.

Council (SCC) led to the development of a

process reference model, which is recognized

as the cross-industry standard diagnostic tool

for SCM.


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Best Practice Supply Chain Operations

Reference (SCOR) links yourSupply Chains:

SCOR links the supply chain to business

processes, presenting a simple and powerful

process view to the best methods in supply

chain management.

SCOR allows you to streamline your supply,

inventory, and shipping processes, including

return, payment and invoicing.


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Contd..

SCOR has been developed by the Supply

Chain Council and is widely accepted as the

industry standard supply chain management

tool.

It includes all of the processes that describe

the supply chain from the suppliers supplier to

the customers customer.


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Contd..

SCOR describes operations on the top-processlevel, activities and low level processes are leftto be filled in by your company.

This provides an unprecedented level ofsophistication and flexibility in aligningoperations with the SCOR process structure.The SCOR model contains over 150 key

performance indicators (KPIs), giving yourcompany the ability to measure performance ofsupply chain operations and increase output.


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Contd..

To evaluate both supply chain performance and the

effectiveness of supply chain reengineering

Testing and planning for future process

improvements-

(Handfield and Nichols, 1999;Cohen, 1997; and

Harrington, 1999).


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Contd..

The model has cross-industry application and enables

benchmarking using a standard set of metrics to

measure supply chain performance. The model focuses on five key processes: Plan,

Source, Make, Deliver and Return.


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Performance

Attribute

Customer Facing Internal Facing

Reliability Responsiveness Flexibility Cost Assets

Delivery

performance

1

Fill Rate 1

Perfect Order

Fulfilment

1

Order Fulfilment

lead time

1

Supply chain

response time

1

Production

Flexibility

1

Supply Chain

management cost

1

Cost of Goods Sold 1

Value added

productivity

1

Warranty Cost 1

Cash-to cash cycle 1

Inventory days ofSupply 1


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Contd..

Promoting the latest applications of the SCOR-model, Wondergem15 (2001) claims that thetool is currently being used to:

Identify and implement supply chain

improvements; Select and manage consulting and system

integration services; Promote and manage change within

organizations; and Provide a basis for education and training in

the area of supply chain management.


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Supply Chain Management Crusade

Focus is on entire value chain

Includes

lean production JIT

purchasing

product/service design


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Other Factors Driving Need to Better

Manage Supply Chain

Increasing global competition

Outsourcing

E-commerce

Shorter product-life cycles

Greater supply chain complexity


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Successful Supply Chain Management

The basic requirements for successful

supply chain management are trustworthy

partners, good communication,

appropriate performance measures, and

competent managers with vision.


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Examples of Visionary SCM Innovations

Dells direct model and Palms strategic sourcing.

y Wal-Marts cross-docking technique of off-loading

goods from incoming trucks at a warehouse directly

into outbound distribution trucks instead of beingplaced into inventory.

y delayed differentiation where final modules are

either inventoried for last-minute assembly to

customer order, or differentiating features are added

to the final product upon receipt of the customers

order.


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Examples of Visionary SCM Innovationscontinued

Sport Obermeyers and Hewlett-Packards postponement approach to

delayed differentiation where varietyand customization is delayed until aslate in the production process aspossible, sometimes even arranging

with the carrier to perform the finalcustomization (called channelassembly).


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IMPACT OF E-BUSINESS ON

RESPONSIVENESS

Offering direct sales to consumers 24-hour access from any location

Wider product portfolio and information aggregation

Personalization/customization

Faster time to market Flexible pricing, product portfolio, and promotions

Price and service discrimination

Efficient funds transfer

Lower stock out levels

Convenience/automated processes

Potential revenue disadvantage of e-business (forcustomers who require a short response time)


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What is a Supply Chain?

A supply chain consists of allparties involved, directly or

indirectly, in fulfilling a customerrequest. Within eachorganization, the supply chainincludes all functions involved inreceiving and filling a customerrequest. (Chopra and Meindl2004)

introduction to supply chain lecture wednesday

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