OPSM 305 Supply Chain Management

Class 1:

Introduction: What is Supply Chain Management?

Koç University

Zeynep Aksinzaksin@ku.edu.tr

VendorsIntermediate

ProductPlants

FinishedProductPlants

DistributionCenters

Warehouses

Customer

Zones

Supply Chain

Supply Chain of a TypicalOriginal Equipment Manufacturer

Supply

Sources:plantsvendorsports

RegionalWarehouses:stocking points

Field Warehouses:stockingpoints

Customers,demandcenterssinks

Production/purchase costs

Inventory &warehousing costs

Transportation costs Inventory &

warehousing costs

Transportation costs

Example: Köşebaşı Restaurant [1]

1995: first restaurant opened in Levent: hosting Chelsea Clinton, Donna Karan, Warren Beatty, Annette Bening, and the international gourmet Tom Zagat .

1999: Köşebaşı is voted one of the 50 restaurants in the world by Conde Nast Traveler magazine. Second rest. In Fenerbahce.

2000: Köşebaşı received the 26th International Tourism, Lodging and Catering Association's award in Madrid.

2001: Köşebaşı Express concept 2002 Time: "Meat lovers can rejoice at Köşebaşı. Don't bother with

a mess, sit back and let your waiter make the choices”. New restaurants: Nişantaşı (2002), Ataşehir Köşebaşı Express

(2003), and Ankara (2004). Also in the summer, Köşebaşı serves in Reina and in Bodrum.

[1] www.kosebasi.com.tr

Köşebaşı Restaurant SC in the summer

Definition:

Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements.

Notice:– Who is involved– Cost and Service Level– It is all about integration

Supply Chain Management

Supply Chain Management: the challenge

Global optimization– Conflicting Objectives– Complex network of facilities– System Variations over time

Managing uncertainty– Matching Supply and Demand– Demand is not the only source of uncertainty

Conflicting Objectives in the Supply Chain

1. Purchasing• Stable volume requirements • Flexible delivery time• Little variation in mix• Large quantities

2. Manufacturing• Long run production• High quality• High productivity• Low production cost

Conflicting Objectives in the Supply Chain

3. Warehousing• Low inventory • Reduced transportation costs• Quick replenishment capability

4. Customers• Short order lead time• High in stock• Enormous variety of products• Low prices

Supply Chain: The Magnitude

In 1998, American companies spent $898 billion in supply-related activities (or 10.6% of Gross Domestic Product).– Transportation 58%

– Inventory 38%

– Management 4%

Third party logistics services grew in 1998 by 15% to nearly $40 billion

Supply Chain challenges: complexity

It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies.– A typical box of cereal spends 104 days getting

from factory to supermarket.

– A typical new car spends 15 days traveling from the factory to the dealership.

Supply Chain challenges: inventory

Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them.

Boeing Aircraft, one of America’s leading capital goods producers, was forced to announce writedowns of $2.6 billion in October 1997.The reason? “Raw material shortages, internal and supplier parts shortages…”. (Wall Street Journal, Oct. 23, 1997)

Supply Chain challenges: collaboration

Procter & Gamble estimates that it saved retail customers $65 million through logistics gains over the past 18 months.

“According to P&G, the essence of its approach lies in manufacturers and suppliers working closely together …. jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain”. (Journal of Business Strategy, Oct./Nov. 1997)

Supply Chain challenges: structure

Dell Computer has outperformed the competition in terms of shareholder value growth over the eight years period, 1988-1996, by over 3,000% (see Anderson and Lee, 1999) using

- Direct business model

- Build-to-order strategy.

Supply Chain challenges: efficiency

In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer.

What is a Supply Chain?

meat

packaging

spices

.

.

.

MaretDuzey

PazarlamaBakkalim

Customerdemandsucuk

Suppliers

Stages?Players?What generates revenue?What generates costs?What are the flows?

Flows in a Supply Chain

Customer

Information

Product

Funds

Supply Chain Decisions

Design-long term strategic decisions– Supply chain structure– Location, capacities, transportation,..– Example: Dell

Planning-medium term tactical decisions– Forecasting, inventories, network,…– Example: Unilever

Operational-short term operational decisions– Order, production, inventory matching– Determining truck routes– Example: Vestel

Dell’s supply chain

Powerful upstream: Microsoft, IntelPowerful competition: IBM, HP, Compaq,…Extremely successful: stock price, profitability, sales,..What accounts for this success?

Rawmaterials

Subassemblies

Finished goodsassembled toorder in the channel

Standard PC industry SC

Rawmaterials Subassemblies

Finishedgoods

Shipped tochannel

Finaldemand

Finished goodsassembled to orderin channel

Shippeddirectly

The Dell advantage

No finished goods inventory No distributors/retailers-no inventory Direct sales via web, phone Almost no materials inventory

– Sells whatever is purchased– Sales organization incentivized on profit margins– Buys in volume-discounts– Opt for longest shelf life components

Targets high-end users

Example: restructuring the SC at UL

UL

Sup. WH

WH

Sub. WH

KA Ind. Markets

Groceries Markets

.

.

.

Sana KA: 64 daysGroceries:132 daysShelf life: 120 days!

76 days collection time

Sales cost: 4%Trade rebate: 12%Logistics: complex

1997: 35000/76000 tons Sana and Aymar collected

Consumer centric-efficient SC

UL

Distributors

Groceries Market KA

Consumer

Sana KA: 2 weeks

36 days collection time

Warehouse stock level12% - 8%

Sales cost: 6%Trade rebate: 5.2%Logistics: simple

120000-140000/180000 outlets

Make-to-order

Example SCM issues

Outsourcing Inventory Information sharing Logistics-transportation Channel selection: bricks versus clicks Integration and partnerships