basis of supply chain mgmt

Chopra, 2nd Edition, Chapter 1Introductions – Names, prior work experience including summer, what do students hope to get from class?
Mention some prototypical supply chains we will use repeatedly in class – Wal-Mart, 7-Eleven, Dell and Compaq, Amazon and Borders, Supermarket and e-grocer, W.W. Grainger and McMaster Carr - our goal is to identify factors that drive supply chain success and make a comparison between different supply chains.
Administration of course - We will discuss concepts and methodologies for supply chain management. The context within which both will be learnt and discussed is provided by cases. Discuss role of case packet readings, cases and book.
5 cases due - 10% for each case
25% for final project
20% for final exam
5% for electronic posting
Discuss key dates for submitting project. Three groups will be selected to present.
Show course web page and its organization
© 2007 Pearson Education
Profit 4%
Profit
Logistics
Cost
Marketing
Cost
Manufacturing
Cost
Notes: Key message here is that logistics costs are a significant fraction of the total value of a product. The problem here is that this a purely cost based view of the supply chain and drives a firm to simply reducing logistics costs. This is an incomplete picture.
Fulfilment Cycle Time 30%-50% Improvement
Forecast Accuracy 25%-80% Improvement
Overall Productivity 10%-16% Improvement
Lower Supply-Chain Costs 25%-50% Improvement
Fill Rates 20%-30% Improvement
Improved Capacity Realization 10%-20% Improvement
Source: Cohen & Roussel
A 1997 PRTM Integrated Supply Chain Benchmarking Survey of 331 firms found significant benefits to integrating the supply chain
Supply Chain Management: The Magnitude in the Traditional View
Estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics and supply chain strategies
A typical box of cereal spends 104 days from factory to sale
A typical car spends 15 days from factory to dealership
Compaq estimates it lost $.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed
Supply Chain Management:
The True Magnitude
When the 1 gig processor was introduced by AMD, the price of the 800 mb processor dropped by 30%
P&G estimates it saved retail customers $65 million by collaboration resulting in a better match of supply and demand
Laura Ashley turns its inventory 10 times a year, five times faster than 3 years ago
"Pretty much, Apple and Dell are the only ones in this industry making money. They make it by being Wal-Mart. We make it by innovation". - Steve Jobs, Apple
PCM Needs Innovation
What is a Supply Chain?
All stages involved, directly or indirectly, in fulfilling a customer request
Includes manufacturers, suppliers, transporters, warehouses, retailers, and customers
Within each company, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service)
Examples: Fig. 1.1 Detergent supply chain (Wal-Mart), Dell
Customer wants
Notes:
Supply chain involves everybody, from the customer all the way to the last supplier.
Key flows in the supply chain are - information, product, and cash. It is through these flows that a supply chain fills a customer order. The management of these flows is key to the success or failure of a firm. Give Dell & Compaq example, Amazon & Borders example to bring out the fact that all supply chain interaction is through these flows.
Customer is an integral part of the supply chain
Supply chain is dynamic &involves constant flow of products, information, & funds, in both directions
Probably more accurate to use the term “supply network” or “supply web”
Typical supply chain stages: customers, retailers, distributors, manufacturers, suppliers
All stages may not be present in all supply chains
(e.g., no retailer or distributor for Dell)
Maximize overall value created
Supply chain value: difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request
Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain)
The Objective of a Supply Chain
Example: Dell receives $2000 from a customer for a computer (revenue)
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
Sources of supply chain revenue: the customer
Sources of supply chain cost: flows of information, products, or funds between stages of the supply chain
Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability
Decision Phases of a Supply Chain
Supply chain management requires many decision relating to the flow of information, product & funds.
These decision fall into 3 categories
Supply chain strategy or design
Supply chain planning
Supply chain operation
Structuring the supply chain (after marketing & pricing plan)
Decisions about the configuration of the supply chain, how resource will be allocated and what processes each stage will perform
Strategic supply chain decisions
Products to be made or stored at various locations
Modes of transportation
Supply chain design must support strategic objectives
Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty
Supply Chain Planning
Definition of a set of policies that govern short-term operations(quarter to a year)
The goal of planning is to maximize the supply chain surplus in the planning stage given the constraints established during the strategic or design phase.
Starts with a forecast of demand in the different market in the coming year
Supply Chain Planning
Planned buildup of inventories
Must consider in planning decisions demand uncertainty, exchange rates, competition over the time horizon
During this stage companies incorporate flexibility to exploit opportunity to optimize performance
Supply Chain Operation
Decisions regarding individual customer orders
Supply chain configuration is fixed and operating policies are determined
Goal is to implement the operating policies as effectively as possible. I.e. To handle customer order in the best possible manner.
Allocate orders to inventory or production, set order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders
Much less uncertainty (short time horizon)
Process View of a Supply Chain
2 different ways to view the processes performed in a supply chain
Cycle view: processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages
Push/pull view: processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push)
Customer Order Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier
The supply chain is a concatenation of cycles with each cycle at the interface of two successive stages in the supply chain. Each cycle involves the customer stage placing an order and receiving it after it has been supplied by the supplier stage.
One difference is in size of order. Second difference is in predictability of orders - orders in the procurement cycle are predictable once manufacturing planning has been done.
This is the predominant view for ERP systems. It is a transaction level view and clearly defines each process and its owner.
Each cycle occurs at the interface between two successive stages
Customer order cycle (customer-retailer)
Supplier stage markets product
Buyer stage receives supply
Supplier stage supplies order
Supplier stage receives orde
Buyer stage places order
Cycle View of a Supply Chain
Even though each cycle has the same sub processes, there are few imp diff
In customer order cycle, demand is external & thus uncertain where as in all other cycle, order placement is uncertain but can be projected based on policies followed by the particular supply chain
Scale of order increases as we down the order in supply chain
Cycle view clearly defines processes involved and the owners of each process. Specifies the roles and responsibilities of each member and the desired outcome of each process.
Very useful when considering operational decisions
Procurement,
Order Arrives
PUSH PROCESSES
PULL PROCESSES
In this view processes are divided based on their timing relative to the timing of a customer order. Define push and pull processes.
They key difference is the uncertainty during the two phases.
Give examples at Amazon and Borders to illustrate the two views
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 processes)
Push: execution is initiated in anticipation of customer orders (speculative processes)
Push/pull boundary separates push processes from pull processes
Push operates in an uncertain environment & pull operates in certain environment but still constrained by inventory & capacity decisions that were made in push phase.
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
The relative proportion of push and pull processes can have an impact on supply chain performance
Supply Chain Macro Processes in a Firm
Supply chain processes discussed in the two views can be classified into 3 macro processes
Customer Relationship Management (CRM)
All processes that focus on the interface between the firm & its customer
Internal Supply Chain Management (ISCM)
All processes that are internal to the firm
Supplier Relationship Management (SRM)
All processes that focus on the interface between the firm & its suppliers
The 3 macro processes manage the flow of information, product & funds required to generate, receive & fulfill a customer request
Supply Chain Macro Processes in a Firm
Integration among the above three macro processes is critical for effective and successful supply chain management
The organizational structure of the firm has a strong influence on the integration
FIRM
Chain Strategies
Competitive strategy: defines the set of customer needs a firm seeks to satisfy through its products and services
Competitive strategy is defined based on customer priorities in one or more target segments.
To see the relationship b/w competitive & supply chain strategies , we start with the value chain for a organization.
Competitive and Supply
Chain Strategies
Product development strategy: specifies the portfolio of new products that the company will try to develop
Marketing and sales strategy: specifies how the market will be segmented and product positioned, priced, and promoted
Supply chain strategy:
determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product
It also should specify role played by each supply chain entity
Value chain emphasizes the close relationship between these functional strategies within a company
Support & strategic fit between supply chain strategy, competitive strategy, and other functional strategies is important
Achieving Strategic Fit
Consistency between customer priorities that competitive strategy hopes to satisfy and supply chain capabilities specified by the supply chain strategy
Competitive and supply chain strategies have the same goals
If strategic fit is not achieved conflicts arise between different functional goals of different supply chain stages, targeting different customer priorities.
A company may fail because its processes and resources do not provide the capabilities to execute the desired strategy
The competitive strategy & all functional strategies must fit together to form a coordinated overall strategy
3 basic steps to achieve this strategic fit
Step 1: Understanding the customer and supply chain uncertainty
Step 2: Understanding the supply chain
Step 3: Achieving strategic fit
Step 1: Understanding the Customer and Supply Chain Uncertainty
Identify the needs of the customer segment being served & uncertainty the supply chain faces in satisfying these needs.
In general, customer demand from different segments varies along several attributes as follows
Quantity of product needed in each lot
Response time customers will tolerate
Variety of products needed
Desired rate of innovation in the product
Although there are so many attributes one single measure that helps to define how well the supply chain is performed is Implied demand uncertainty
Demand uncertainty: uncertainty of customer demand for a product
Implied demand uncertainty: resulting uncertainty for the supply chain given the portion of the demand the supply chain plans to satisfy and the attributes the customer desires
Implied demand uncertainty also related to customer needs and product attributes
Impact of Customer Needs on Implied Demand Uncertainty (Table 2.1)
Customer Need
Range of quantity increases
Lead time decreases
Variety of products required increases
Demand per product becomes more disaggregated
Number of channels increases
Rate of innovation increases
Required service level increases
Correlation Between Implied Demand Uncertainty and Other Attributes (Table 2.2)
Attribute
Along with demand uncertainty, it is important to consider uncertainty resulting from the capability of the supply chain
Supply uncertainty is also strongly affected by the life cycle position of the product
Impact of supply source capability on supply uncertainty
Supply Source Capability
Create an implied uncertainty spectrum by combining the demand &
supply uncertainty
Supply Chain
How does the firm best meet demand in that uncertain environment?
Supply chain can be categorized on 2 dimension i.e. responsiveness & efficiency
These dimensions are influenced by following supply chain characters
respond to wide ranges of quantities demanded
meet short lead times
build highly innovative products
meet a very high service level
The more of these abilities a supply chain has the more responsive it is, but it comes at a cost
Supply Chain
Supply chain efficiency: is the inverse of cost of making and delivering the product to the customer
Increasing responsiveness results in higher costs that lower efficiency
The trade off b/w responsiveness & efficiency can be understood through cost-responsiveness efficient frontier
Develop supply chain responsiveness spectrum
High
Low
Low
High
Responsiveness
Cost
This spectrum show different categories of supply chain the company
can develop based on supply chain responsiveness & efficiency
Step 3: Achieving Strategic Fit
Final step is to ensure that the degree of supply chain responsiveness is consistent with the implied uncertainty
i.e. high responsiveness for supply chain facing high implied uncertainty & efficiency for a supply chain facing low implied uncertainty
The relation ship b/w step1 & step2 is represented by “Zone of strategic fit”
For high level of performance, companies should move their competitive strategy & supply chain strategy toward the zone of strategic fit
Achieving Strategic Fit Shown on the Uncertainty/Responsiveness Map (Fig. 2.5)
Implied uncertainty spectrum
Responsive supply chain
Efficient supply chain
Product life cycle
Multiple Products and
Firms sell different products to different customer segments (with different implied demand uncertainty)
The supply chain has to be able to balance efficiency and responsiveness given its portfolio of products and customer segments
Two approaches:
Different supply chains
Tailor supply chain to best meet the needs of each product’s demand
Product Life Cycle
The demand characteristics of a product and the needs of a customer segment change as a product goes through its life cycle
Supply chain strategy must evolve throughout the life cycle
Early: uncertain demand, high margins (time is important), product availability is most important, cost is secondary
Late: predictable demand, lower margins, price is important
Product Life Cycle
Examples: pharmaceutical firms, Intel
As the product goes through the life cycle, the supply chain changes from one emphasizing responsiveness to one emphasizing efficiency
Competitive pressures can change over time
More competitors may result in an increased emphasis on variety at a reasonable price
The Internet makes it easier to offer a wide variety of products
The supply chain must change to meet these changing competitive conditions
Facilities
production sites and storage sites
Inventory
inventory policies
moving inventory from point to point in a supply chain
combinations of transportation modes and routes
Information
Sourcing
Pricing
Price associated with goods and services provided by a firm to the supply chain
the “where” of the supply chain
manufacturing or storage (warehouses)
economies of scale through centralization(efficiency priority)
larger number of smaller facilities through decentralization (responsiveness priority)
Example 3.1: Toyota and Honda
Warehouse & DC should be based on cross docking or storage
Location
other factors to consider (e.g., proximity to customers,)
Capacity
Actual average flow/cycle time
Flow time efficiency flow
Processing/setup/down/idle time
Inventory exists because of a mismatch between supply and demand
Imp role that inventory plays is
Increases the amount of demand that can be met
Reduce cost by exploiting economies of scale
It is a major source of cost & has huge impact of responsiveness
Inventory: Role in Competitive Strategy
If responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory closer to customers
If cost is more important, inventory can be reduced to make the firm more efficient
Average amount of inventory used to satisfy demand between shipments
Depends on lot size
inventory held in case demand exceeds expectations
costs of carrying too much inventory versus cost of losing sales
Seasonal inventory
cost of carrying additional inventory versus cost of flexible production
level of product availability
costs of carrying too much inventory versus cost of losing sales
Inventory related metrics
Avg. inventory
Products with more than a specified number of days of inventory
Avg. replenishment batch size
*
Impact on responsiveness and efficiency
Faster transportation allows greater responsiveness but lower efficiency & vice versa
Type of transportation also affects inventory and facilities locations
If responsiveness is a strategic competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it
Can also use slower transportation modes for customers whose priority is price (cost)
Can also consider both inventory and transportation to find the right balance b/w responsiveness & efficiency
vary in cost, speed, size of shipment, flexibility
Design of transportation network
route: path along which a product is shipped
Transportation related metric
Avg. outbound transportation cost
Avg. outbound shipment size
Fraction transported by mode
Most important driver, affects every part of the supply chain
Serves as the connection between the various stages in the supply chain – allows coordination between stages
Crucial to daily operation of each stage in a supply chain – e.g., production scheduling, inventory levels
Role in the Competitive Strategy
Allows supply chain to become more efficient and more responsive at the same time
The key decision is what information is most valuable? & this vary depending on supply chain structure as well as the target market.
Push versus Pull
Different types of system requires different types of information. Push system requires elaborate information & pull system requires real time information.
Coordination and information sharing
Forecasting and aggregate planning
*
Sourcing: Role in
the Supply Chain
Set of business processes required to purchase goods and services in a supply chain
Decide which tasks will be outsourced &those performed within the firm.
Supplier selection, single vs. multiple suppliers, evaluation criteria, contract negotiation & procurement.
Role in the Competitive Strategy
Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain
In some instance, firms outsource to improve responsiveness or to improve efficiency through economics of scale.
Decision on impact it has on the supply chain profits
improving efficiency and responsiveness
Supplier evaluation and selection
Sourcing related metrics
Days payable outstanding
Average purchase price
Pricing: Role in
the Supply Chain
Pricing determines the amount to charge customers in a supply chain
Pricing strategies can be used to match demand and supply
Affects the customer’s expectations
Significant attribute through which firm executes its competitive strategy.
Firms can utilize optimal pricing strategies to improve efficiency and responsiveness
Low price and low product availability; vary prices by response times
Everyday low pricing versus high-low pricing
Fixed price versus menu pricing
Overall trade-off: Increase the firm profits
Price related metrics
Decreasing product life cycles
Increasingly demanding customers
Fragmentation of supply chain ownership
Chain broken into many owners
Globalization
Adds stress to chain as facilities are farther apart, making coordination difficult
Difficulty executing new strategies
Predictable
Spectrum
predictable demand or somewhat
uncertain supply and demand

basis of supply chain mgmt

Documents