supply chain management - session 16

7/30/2019 Supply Chain Management - Session 16

1/29


2/29

Suppliers Manufacturers Warehouses &Distribution Centers

Customers

Material Costs

TransportationCosts

TransportationCosts Transportation

CostsInventory CostsManufacturing Costs


3/29

The Supply Chain Another View

Suppliers Manufacturers Warehouses &Distribution Centers

Customers

Material Costs

TransportationCosts

TransportationCosts Transportation

CostsInventory CostsManufacturing Costs

Plan Source Make Deliver Buy


4/29

What Is Supply Chain Management (SCM)?

A set of approaches used to efficiently integrate

Suppliers

Manufacturers

Warehouses

Distribution centers

So that the product is produced and distributed

In the right quantities

To the right locations

And at the right time

System-wide costs are minimized and

Service level requirements are satisfied



5/29

Why Is SCM Difficult?

Uncertainty is inherent to every supply chain

Travel times

Breakdowns of machines and vehicles

Weather, natural catastrophe, war

Local politics, labor conditions, border issues

The complexity of the problem to globally optimize a supply

chain is significant

Minimize internal costs

Minimize uncertainty

Deal with remaining uncertainty



6/29

The Objective of a Supply Chain

Maximize overall value created

Supply chain value: difference between whatthe final product is worth to the customer and

the effort the supply chain expends in fillingthe customers request

Value is correlated to supply chain profitability

(difference between revenue generated fromthe customer and the overall cost across thesupply chain)


7/29


Supply chain incurs costs (information,

storage, transportation, components,

assembly, etc.)

Supply chain profitability is total profit to be

shared across all stages of the supply chain

Supply chain success should be measured by

total supply chain profitability, not profits at

an individual stage


8/29


Sources of supply chain revenue: the

customer

Sources of supply chain cost: flows ofinformation, products, or funds betweenstages of the supply chain

Supply chain management is the

management of flows between and amongsupply chain stages to maximize total supplychain profitability


9/29

Decision Phases of a Supply Chain

Supply chain strategy or design

Supply chain planning

Supply chain operation


10/29


11/29

Supply Chain Planning

Definition of a set of policies that govern

short-term operations

Fixed by the supply configuration from

previous phase

Starts with a forecast of demand in the

coming year


12/29

Supply Chain Planning

Planning decisions:

Which markets will be supplied from which locations

Planned buildup of inventories

Subcontracting, backup locations

Inventory policies

Timing and size of market promotions

Must consider in planning decisions demanduncertainty, exchange rates, competition over the

time horizon


13/29

Supply Chain Operation

Time horizon is weekly or daily

Decisions regarding individual customer orders

Supply chain configuration is fixed and operatingpolicies are determined

Goal is to implement the operating policies aseffectively as possible

Allocate orders to inventory or production, set orderdue dates, generate pick lists at a warehouse, allocatean order to a particular shipment, set deliveryschedules, place replenishment orders

Much less uncertainty (short time horizon)


14/29

Process View of a Supply Chain

Cycle view: processes in a supply chain aredivided into a series of cycles, each performedat the interfaces between two successive

supply chain stages Push/pull view: processes in a supply chain

are divided into two categories depending onwhether they are executed in response to acustomer order (pull) or in anticipation of acustomer order (push)


15/29

Cycle View of Supply Chains

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement Cycle

Customer

Retailer

Distributor

Manufacturer

Supplier


16/29

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 and theowners of each process. Specifies the roles and

responsibilities of each member and the desired

outcome of each process.


17/29

Customer Order Cycle

Involves all processes directly involved in

receiving and filling the customers order

Customer arrival

Customer order entry

Customer order fulfillment

Customer order receiving


18/29

Replenishment Cycle

All processes involved in replenishing retailer

inventories (retailer is now the customer)

Retail order trigger

Retail order entry

Retail order fulfillment

Retail order receiving


19/29

Manufacturing Cycle

All processes involved in replenishing

distributor (or retailer) inventory

Order arrival from the distributor, retailer, or

customer

Production scheduling

Manufacturing and shipping

Receiving at the distributor, retailer, or

customer


20/29

Procurement Cycle

All processes necessary to ensure that materials areavailable for manufacturing to occur according toschedule

Manufacturer orders components from suppliers toreplenish component inventories

However, component orders can be determinedprecisely from production schedules (different fromretailer/distributor orders that are based on uncertain

customer demand)

Important that suppliers be linked to the manufacturers

production schedule


21/29

Push/Pull View of Supply Chains

Procurement,Manufacturing andReplenishment cycles

Customer Order

Cycle

Customer

Order Arrives

PUSH PROCESSES PULL PROCESSES


22/29

Push/Pull View of

Supply Chain Processes

Supply chain processes fall into one of twocategories depending on the timing of theirexecution relative to customer demand

Pull: execution is initiated in response to acustomer order (reactive)

Push: execution is initiated in anticipation of

customer orders (speculative) Push/pull boundary separates push processes

from pull processes


23/29

Push/Pull View of

Supply Chain Processes

Useful in considering strategic decisions relating to

supply chain design more global view of how

supply chain processes relate to customer orders

Can combine the push/pull and cycle views L.L. Bean (Figure 1.6)

Dell (Figure 1.7)

The relative proportion of push and pull processescan have an impact on supply chain performance


24/29

Summary of Learning Objectives

What are the cycle and push/pull views of asupply chain?

How can supply chain macro processes be

classified? What are the three key supply chain decision

phases and what is the significance of each?

What is the goal of a supply chain and what isthe impact of supply chain decisions on thesuccess of the firm?


25/29

Element Traditional management Supply chain management

(1)Inventory management Independent efforts Joint reduction of channel approachinventories

(2)Total cost approach Minimize firm costs Channel-wide cost efficiencies(3)Time horizon Short term Long term

(4)Amount of information Limited to needs of current As required for planning and

sharing and monitoring transaction monitoring processes

(5)Amount of coordination Single contact for the transaction Multiple contacts between levels in

of multiple levels in the between channel pairs firms and levels of channel

channel

(6)Joint planning Transaction-based Ongoing(7)Compatibility of Not relevant Compatibility at least for key

corporate philosophies relationships

(8)Breadth of supplier base Large to increase competition Small to increase coordination

and spread risks

(9)Channel leadership Not needed Needed for coordination focus

(10)Amount of sharing risks Each on its own Risks and rewards shared over rewards

the long term(11)Speed of operations, Warehouse orientation Distribution center orientation

information and (storage, safety stock) (inventory velocity) interconnecting

inventory levels interrupted by barriers to flows; flows; JIT, quick response acrosslocalized to channel pairs the channel


26/29

Achieving a strategic fit

Strategic fit means that both the competitive

and supply chain strategy must fit together.

i.e. both the competitive and supply chain

strategies have aligned goals.

It refers to consistency between the customer

priorities that the competitive strategy hopes

of satisfy and the supply chain capabilities

that the supply chain aims to build


27/29

How strategic fit is achieved

Understanding the customer and supply chainuncertainty The quantity of the product needed in each lot

The response time that customers are willing to

tolerate The variety of products needed

The service level required

The price of the product

Understanding the supply chain capabilities

Achieving strategic fit


28/29

Drivers of Supply Chain

Facilities

Inventory

Transportation Information

Sourcing

Pricing


29/29

Decision areas of SCM

There are four major decision areas in

1) location,

2) production,3) inventory, and

4) transportation (distribution), and

There are both strategic and operationalelements in each of these decision areas

supply chain management - session 16

Documents