omsan lojİstİk global logistics and international operations 4. summary, trends and challenges...

OMSAN LOJİSTİK

Global Logistics and International Operations

4. Summary, Trends and Challenges

Strategic Logistics Management Leadership Program

Summary, Trends and Challenges …

4

Logistics Systems

Important IssuesImportant Issues::

• Complex relationships between agents at different levels

{Cooperation• A variety of mechanisms for: Coordination

Control

• Many Products and Many Locations

• Uncertainty in Demand (Over Time and Space)

Segmentation…

A B C Item Class

A B C

A

B

C

Family of Suppliers Family of Customers

SuppliersIntegrationPolicies

CustomersServicePolicies

5

6

Sources of Uncertainty

Vendor LT CustomersChange Due Dates

Yield Forecast

Time

Quantity

Supply Demand

7

Mini Case

• In 1968, Switzerland had a 65% market share of the worldwide watch market. Their market share had increased steadily for 60 years. They had done this partly by continuously improving their watches. In 1968, what market share would you have forecast for 1978?

8

Suppliers Consumers

Two Strategic Questions:

1. Who Controls the Supply Chain?

2. Who Should Manage Which Part?

Crafting Your Supply Chain Strategy

Managing the Linkages and the Network

9

MustManage &Own

Must Manage(But Need Not Own)

CanOutsource

Can SubcontractComponents

Proprietary & Complex

Standard

Strategic Importance of Production & Logistics

Pro

cess

Tec

hn

olo

gy

Low High

If you are a manufacturer, when Own, Manage, or Outsource?

10

Manage & Own

[Vertical Integration]

Outsource Completely

[Arms-length Relationship]

Share Data, New Designs, etc.

[Work Closely with Suppliers]

Manage & But Don’t Own

[Manage “Dispersed Mfg.”]

YOU OTHERS

Separate Ownership from ManagementOf The Supply Chain

Supply chain management

11

WHEN? Push, or Wait for Pull?

HOW MUCH? “Economic” Batch Size or Amount Required?

WHO DECIDES? “Supplier” or “Receiver”?

Fundamental Question in Managing the Flow in Any Process

12

When?

PULLPUSH

Produce forAnticipated Demand

Produce forImmediate Demand

PUSH or WAIT FOR PULL?

13

When “capacity” is expensive,Pull System becomes more difficult as:

Seasonality of Demand

Uncertainly of Demand

Variability of Supply

When?

14

Therefore, if “capacity” is set, to move closer to Pull System we must Reduce Variability and Uncertainty

Manage Demand

• Seasonality of Orders• Unpredictability of Orders

When?

15

• Unreliability of Operations• Unbalanced Batch Sizes• Varying Lead Times• Bottlenecks

Manage Supply

MUST GO AFTER THEIR ROOT CAUSES

Manage Demand

• Seasonality of Orders• Unpredictability of Orders

Therefore, if “capacity” is set, to move closer to Pull System we must Reduce Variability and Uncertainty

When?

16

“Economic Batch” or Amount Required (or Ordered)

“Economics” of ProductionProcurement or Logistics


Required Amount(Customer Orders)


How Much?

17

Find optimum trade-off among:• Setup Costs• Ordering Costs• Holding Costs• Quantity Discounts• Etc.


“EOQ” “ELS” “POQ” ….

How Much?

18

Plan and Communicate Requirements, considering:

• Lead Times• Bill Of Materials• Production and Logistics Routing• Capacities•Etc.


“MRP-1” “MRP-II” “ERP” ….

How Much?

19

Focus on Flexible & Rapid Response

Just -in-Time (JIT)Mass Customized Production

Focus on Exchange of Information

Materials Requirement Planning (MRP)…Enterprise Resource Planning (ERP)

Evolution of Managerial Focus

Focus on Cost Optimization

Economic Order Quantity (EOQ)Economic Shipment Load (TL,…)

How Much?

20

Focus on Flexible & Rapid ResponseJust -in-Time (JIT)Mass Customized Production



Requires changing

To fit closer to

How Much?

21

Making the supply chains more responsive

CONSUMERSCONSUMERS

• Multiple Parties

• Lagged & Distorted Information Flows

• Variability and Unpredictability

• Imbalance

is not easy

22

Coordinate the Supply Chain


Redesign theSupply Chain


Manage the Demand

Manage the Demand

What can we do?

CONSUMERSCONSUMERS

Avoid the “Bullwhip” Effect

23

Amplification of Orders Placed on Suppliers

ActualConsumerConsumption

ConsumerOrders onRetailer

RetailerOrders onDistributor

DistributorOrders onBarilla DC

Barilla DCOrders onBarilla Plant

RetailerDistributorBarilla DC

Barilla Plant

Consumer

24

The “Bullwhip” Effects in Supply Chains

The ordering patterns share a common recurring theme:

– The variabilities of an upstream site are always greater than those of the downstream site.

Small Perturbation

Bullwhip Handle

Large Swingsat Tip

25

CONSUMER

Order variability tends to increasesas we move up the supply chainlike a “bull whip”

26Time

100

200

300

400

Ord

er Q

uan

tity

Factory

Distributor Retailer

Consumer sales

Information Distortion: The Bullwhip Effect

CONSUMER

27

Drivers of Variation in Distribution Systems

Transportation Discounts Volume Discounts Promotional Activity No Minimum or Maximum Order Quantities Product Proliferation Long Order Fulfillment Lead Times Poor Customer Service Sales Compensation System Poor Communication

28

Coordinate the supply chain

POS Data Forecasts (share and do jointly) Schedules (share and do collaboratively)

POS Data Forecasts (share and do jointly) Schedules (share and do collaboratively)

1. Share More Information

29

Vendor Managed Inventory Supplier

Consignment Stocks Supplier

“Sell-through” Supplier

2. Change Controls in the Channel

Coordinate the supply chain

30

CONSUMERSCONSUMERS

These areInter-firm (or Inter-plant) Initiatives

POS Data Forecasts (share and do jointly) Schedules (share and do collaboratively) VMI Consignment Stocks “Sell-through”

POS Data Forecasts (share and do jointly) Schedules (share and do collaboratively) VMI Consignment Stocks “Sell-through”

There are also Intra-operation InitiativesThere are also Intra-operation Initiatives

31

Intra-Operation Initiatives

Invest in postponement

Increase modularity

Share platforms / Common components

Reduce changeover costs (and batch sizes)

Reduce weight of capacity utilization as KPI

Invest in postponement

Increase modularity

Share platforms / Common components

Reduce changeover costs (and batch sizes)

Reduce weight of capacity utilization as KPI

CONSUMERSCONSUMERS

3. Create More Operational Flexibility

32



Redesign theSupply Chain Redesign theSupply Chain

Manage the Demand

Manage the Demand

What can we do?

CONSUMERSCONSUMERS

Fit the supply chain to product’s “clock speed”

33

Product Characteristics

• Functional:

– Long life cycle (2 years), low contribution margin (5-20%), low product variety (10-20 per category), low forecast error (10%), low stock-out rate (1-2%), no forced markdowns (0%), long make-to-order lead time (6+ months).

• Innovative:

– short life cycle (3 months - 1 year), high contribution margin (20%-60%), high product variety (often millions per category), high forecast error (40-100%), high stockout rate (10-40%), many markdowns (10-25% of full price), short make-to-order lead time (1 day to 2 weeks).

34

“Functional” vs. “Innovative” productsDifferent “Clock Speeds”

GasolinePencilsCereals

“Functional”

PrintersDigital camerasFashion apparel

“Innovative”

35

Soup vs. Sunglasses

Cost of lost sale

Risk of obsolescence

Forecast accuracy

Product variety

Product life cycle

36

Physically EfficientSupply Chain

Market ResponsiveSupply Chain

Functional Products Innovative Products

Source: “What is the right supply chain for your product?” Marshal Fisher, HBR, March-April 1997

Fit the Supply Chain to Product’s “Clockspeed”

match

match

mismatch

mismatch

37

Brooks Brothers Manages Fashion and Staple

Inventories• Demand for fashion items is more difficult to predict than for staple items

• Managing inventories is the key to avoiding clearance sales

• Dual response

– Staple items manufactured in Asia

– Fashion items produced in NYC to react faster to market signals

38

Postponment: a New Process for Benetton

• Traditionally wool sweaters required yarn to be dyed before the knitting

• Now: All sweaters are knitted in white, then dyed to match popular colors

– Best for fashionable items, staple products produced the traditional way

– Requires special garment treatment to stabilize the wool before dyeing

39

Classic Postponement Example: Hewlett Packard

• Redesigned products so localization happens in Europe

• This allows HP to customize the products as late as possible– Serving the diverse

needs of European customers

40

Tailored Bicycle Customization : National Bicycles In Japan

FACTORY COMPUTER SYSTEM

CUSTOMER

POS RETAILER

BAR CODE TRACKING

DISTRIBUTOR

MANUFACTURING

• Mass customization allows for 8 Million options

• Dealer Selection

• 2 week delivery to customer

• 150 minutes per bike• Name engraved

•Barcode•CAD System generates blueprint

41





Manage the Demand Manage the Demand

What can we do?

CONSUMERSCONSUMERS

Employ dynamic pricing, and highly coordinated marketing promotions

Employ dynamic pricing, and highly coordinated marketing promotions

42





Manage the Demand

Manage the Demand

Summary

CONSUMERSCONSUMERS

Avoid the “Bullwhip” Effect

Watch the“Clockspeed”

Manage the“Yield”

43

Logistics Strategies and the Brand/Formulation/Packaging Mix

Brand: pan-European

Formula: Common to All Markets

Packaging: Common to All Markets

Examples Possible Logistics Responses

Potential Benefits

Total

Product Standard. Strategy

Partial Product

Standard. Strategy

Different. Product Strategy

YES YES YES Gillette Sensor Blades

Centralized Operations – Fully Centralized P&O

EOS in

P& D

YES NO YES Bundled Mfg. – Design product to allow cust. at latest stages of production

Rationaliz. of compon. simplifies Inbound Log. and improves Q

YES NO NO Necasfe Coffee Deferred Finish. – Final configrtn. at mkt.

Similar

YES YES NO Fuji Color Film Deferred Packing – Labeling and packing at mkt. warehouse

EOS in Prod., less Invent. and high Service

NO YES NO Aquafresh and Odol Toothpaste

Deferred Packing –

Similar

NO NO NO Odol Mouthwash

Limited – Little opport. for logist. Reconfiguration

Limited

44

Inter-Firm Integration

EFFICIENT CONSUMER RESPONSE:

Program searching for a close Coordination and Cooperation among participants of the Supply Chain

The final Objective is the satisfaction of the CONSUMER

Cooperation is obtained through:

* Optimization of flows (e.g., sharing data, transport, packaging)

* Effective coordination of promotions and negotiations * Effective selection of existing products

* Effective introduction of new products

45

There is a shift There is a shift toward Centralization of toward Centralization of the Logistics Functionthe Logistics FunctionCompanies are building a strong core-logistics competency at headquarters.

TechnologyTechnology is driving the speed and is driving the speed and efficiency of information exchanges.efficiency of information exchanges.e.g., Collaborative Planning, Forecasting and Replenishment (CPFR) has helped one of Warner-Lambert products (Listerine) to increase sales by more than $8.5 million in one year and to increase shelf availability from 85% to 98%.

Logistics Software Companies are growing very rapidly (SAP,

BaaN, i2 Technologies, People Soft, Oracle, etc.)

Logistics Trends and Challenges

46

Return LogisticsReturn Logistics and the Environment and the Environmente.g., Eastman Kodak returned and re-used 1.5 billion rolls of film since 1992. More than 45 million disposable cameras were recycled in 1999.

At Estee Lauder ($4 Billion in sales), returns, excess, obsolescence and destruction amounts to $190 Million on an annual basis. In the consumer electronics industry, product returns cost more than $15 Billion a year.

There is a trend towards There is a trend towards Strategic Strategic Logistics CooperativesLogistics Cooperatives

Companies are moving away from managing transactions into managing relationships. These relationships help by providing risk management opportunities. Implementation involves information systems management, performance measurement and quality programs.

e.g., Chrysler claims they have saved over $1.2 Billion since 1997 in cost savings ideas from suppliers. Hewlett-Packard and Solectron Corporation report cost efficiencies of 15% to 25%.

Logistics Trends and Challenges Cont.

47

0

6

12

18

%

U.S. Industry U.S. Alliances European/AsianAlliances

Average Return on Investment

0

6

12

18

25 CompaniesMost Active in

Alliances

Fortune 500Average

25 CompaniesLeast Active in

Alliances

Alliance Intensity Effect on Return on Equity

The Creation of The Creation of Global Supply Chain Global Supply Chain AlliancesAlliances

In the past two years, more than 20,000 alliances have been formed worldwide. More than half of these have been between competitors, i.e., co-opetition. Alliance capability is becoming a competitive differentiator.

Logistics Trends and Challenges Cont.

48

0%

5%

10%

15%

20%

25%

30%

35%

Ene

rgy

Tran

spor

tatio

n

Fina

ncia

l

Ele

ctro

nics

Ser

vice

s

Indu

stri

alC

onsu

mer

/Ret

ail

Com

mun

icat

ions

Bio

tech

/Med

ical

Com

pute

r/S

oftw

are

North America

Latin America

Europe

Japan

Asia/Pacific

Other

Alliances by Region and Industry

49

Logistics Trends and Challenges Cont. Terrorism Terrorism is changing the rules of the gameis changing the rules of the game

Through C-TPAT (Customs-Trade Partnership Against Terrorism ) Customs is establishing close cooperation with the trade community to heighten security efforts of the global supply chain, specifically commercial shipments imported into the U.S. against terrorist infiltration. Although currently a volunteer program, C-TPAT has grown rapidly to more than 1600 participants who recognize the value and benefits of

becoming a C-TPAT member. Currently, applications to become a C-TPAT member are being accepted from the following groups:

* Importers * Carriers (air, sea and land) * Customs Brokers * Air Freight Consolidators * NVOCCs (Non-Vessel Operating Common Carriers) * Ocean Transportation Intermediaries * Highway Carriers

Wal-Mart recently announced that it wants its top 100 suppliers, by 2005, to begin fitting their cases and pallets with radio-frequency-identification tags (RFID).

50

Logistics is assuming a New Strategic Role

rationalizingrationalizingthe existing the existing supply chainsupply chain

MANAGING MANAGING THETHEPHYSICAL PHYSICAL FLOWFLOW

MANAGING THE INFORMATION FLOWMANAGING THE INFORMATION FLOW

LOGISTICSLOGISTICSBY-PASSBY-PASS

LOGISTICSLOGISTICSALLIANCEALLIANCE

LOGISTICSLOGISTICSOUTSOURCINGOUTSOURCING

51

Scalability & Outsourcing

DemandManagementcapabilities

Supply Chain & Operations excellence

Information Management flexibility & efficiency

GlobalPresence

The right productAt the right timeAt the right placeAt the right cost

Material & InventoryManagementexpertise

Global Logistics Principles

52

Domestic versus Global Logistics

* InventoryInventory is Higher- Higher in-transit inventories

- Pipelines are longer and slower- Higher Safety Stock levels

- Longer lead times- Political uncertainty- Production uncertainties

- More SKUs

* Facilities Network More Difficult to ControlControl- Several languages and cultures- Labor norms - Customs- Infrastructure

* TransportationTransportation is More Difficult and Costly

- Freight rates- Intra-country transport- Different modes- Complex documentation and intermediaries- Consolidation

* ServiceService is Slower and More Costly

- Lead times are longer- Pipelines are longer- Uncertainty about availability- Order processing is more difficult- Stockouts are more frequent

53

Action Plan

Understand the Logistics Function and the Role you might play

Manufacturing Excellence is Fundamental(i.e., is LogisticsLogistics in your Core Competence Core Competence?)

De-emphasize the Short Term Cost Advantage

Emphasize the Long Term Service, Quality and ReliabilityAdvantages

Emphasize your willingness to adjust to the dynamics of market fluctuations

54

Factors Affecting Your Logistics Role

Economic Factors:Economic Factors:a) Type of Product

* Product Life Cycle and Perishability * Strategic classification

b) Nature of Demand

c) Proliferation of Products

Environmental FactorsEnvironmental Factorsa) Level of Customer Service required in the

Market

b) Routing Requirements

c) Host Governments Regulations and Actions

Organizational FactorsOrganizational Factorsa) Marketing-Manufacturing Interface

b) Intra-Subsidiary Traffic and Accounting

c) Strategic priorities (C,Q,S,F) and Metrics

55

Check 1: What are the nature of the uncertainties

of your products?

Su

pp

lyU

nce

rtai

nty

Low

(Functional Products)

High

(Innovative Products)Low

(Stable Process)

High

(Evolving Process)

Demand Uncertainty

56

Check 2: Do you have the right strategies that

match the needs?

Su

pp

lyU

nce

rtai

nty

Low

(Functional Products)

High

(Innovative Products)Low

(Stable Process)

High

(Evolving Process)

Demand Uncertainty

Efficiency, information integration, auto-replenishment, VMI

Buffer inv, shared resources, multi-sourcing, info sharing

Build to order, flexible mfg, accurate response, forecast collaboration

Postponement, design collaboration, inventory pooling

57

Check 3: What are the dynamic characteristics faced

in your industry?Cycles

Market

Product Life

Technology

Demand Uncertainties

Supply Uncertainties

Demand Base

Supply Base

Cost Economics

Technology Adoption

• • •

58

Check 4: Are your Supply Chain Strategies

Dynamically Adapting?Market Conditions and Cycles

Product Life Cycles Technology Cycles

Supply Chain Strategies

59

Dynamic Supply Chain Design

Market Dynamics

Technology lead, concentrated supply/demand

Technology ramp, regionally distributed supply/demand

Technology maturity, globally distributed supply/demand

Supply Chain

Cost efficiency

Responsiveness

Agility

60

Step 5: How is your supply chain evolving

in response to technology advances?

Focus ImplementationSubstitution

Effect

Scale Effect

Structural Effect

61

Dynamic Technology Strategy

Technology Life Cycle

Introduction phase, simple usage, early adopters

Ramp up phase, increasing usage, widespread users

Mature phase, new forms of usage and applications

Impacts

Substitution

Scale

Structural

62

Evolution of Technology Innovations

Time

Substitution

Scale

Structural

63

Evolution of Technological Innovations

Substitution Effect

Scale Effect

Structural Effect

Motor Engine

Vehicles in placeof horses/boats

More frequent & extensive travels

Highways, suburbs, malls

Trades

Traders in place of barter markets

Frequent & extensivetrades

Financial markets, insurance industries

64

IT Opportunities

Opportunity

Internet-based transactions

Auctions and secondary markets

Intelligent supply chain integration

Values

Overhead and time efficiency

Lower costs, supply & demand matching

Super-efficiency across the chain, higher revenues

Substitution Effect

Scale Effect

Structural Effect

65

Step 6: Are you able to integrate your supply

chain?InnovationsScope Expansion

Vertical supply chain coordination

Horizontal supply chain coordination

From one function to another

66

Integration Innovations

Innovations

Visibility and coordinated planning

Intelligent dual sourcing & responses

Linking with design & demand management

Scope Expansion

Vertical supply chain coordination

Horizontal supply chain coordination

From one function to another

67

Three Steps forSupply and Demand

IntegrationStages

Visibility

Coordination

Optimization

Elements

Marketing plans, inventory, capacity, sales

Demand instruments, supply chain plans coordinated

Demand and supply chain integration

68

Dimensions of Supply Chain Integration

Extended communication and performance measures, incentive realignment

Accountability, risks/costs/gain

Organizational relationship linkage

Decision delegation, work realignment, outsourcing

Decisions, work

Coordination and resource sharing

Information Sharing, collaborative planning, forecasting, and replenishment

Information, knowledge

Information Integration

HowExchangesDimension

69

Major Supply Chain Collaboration Opportunities

Manufacturers

Retailers

Distributors/Wholesalers

SynchronizedProductionScheduling

Collaborative ProductDevelopment

CollaborativeDemandPlanning

Multi-tierSupplier

Collaborative Logistics Planning•Transportation Services•Distribution Center Services

Source: AMR research

70

Summary

• One-size-fit-all strategy very risky: use right supply chain strategy for the right product, market, and time.

• Efficiency for Functional• Responsiveness for Innovative

• Evolving supply chains to adapt to evolving global business environments, product life cycles, and technology dynamics.

• Dynamic supply chain strategies can create great competitive advantages.

71

Basis for Successful Supply Chain Integration

• Transparency of goals, scope, incentives, responsibilities. Organizational integration:• Communication

• Sharing and coordination

• Extended performance measures

• Incentive alignment

• Understanding of expected outcomes.

• Ongoing monitoring of performance measures.

72

Summary

• Matching Global Supply Chain integration is the “competitive battlefield for the next century”

• Significant value creation from:• Vertical supply chain integration• Horizontal coordination through dual response• Supply and design collaboration• Supply and demand management integration

• The stakes for not moving forward are huge.

73

The Book!

Global Operations and Logistics: Text and Cases

Edited by John Wiley and Sons

[email protected]

omsan lojİstİk global logistics and international operations 4. summary, trends and challenges...

Documents