DRIVERS OF SUPPLY CHAIN PERFORMANCE Prepared By: Group 2
May 06, 2015
DRIVERS OF SUPPLY CHAIN PERFORMANCE
Prepared By: Group 2
Supply Chain
A system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer.
Supply Chain Drivers
Logistical1. Inventory2. Transportation3. Facilities
Cross functional1. Information2. Sourcing3. Pricing
Framework for structuring drivers
a• Company strategy
b• Supply chain strategy
c• Drivers
Supply chain strategy & Drivers
Responsiveness Efficiency
INVENTORY
INVENTORY
WHAT -Raw materials, work in process, finished goods, and supplies required for creation of a company's goods and services. The number of units and/or value of the stock of goods held by a company.
WHY- Exists because of mismatch in demand and supply and to support a firm’s competitive strategy.
IMPACT – On material flow time.
Inventory : Role in Supply Chain
Trade off ??? Responsiveness Vs Efficiency as a
strategic competitive priority. inventory responsiveness cost
inventory cost
responsiveness
Role in competitive strategy If responsiveness is a strategic
competitive priority –locate larger amount of inventory closer to customers.
If cost is more important , inventory can be reduced to gain efficiency .
Inventory in different DomainsManufacturing : From Financial
perspective: The largest asset
often seen on manufacturer’s sheet. Management
emphasis – Keep inventories down so that cost is not much consumed.
Wholesale : Accurate records are
needed to evaluate product
popularity
Retail : Keep the track of
“turns”.
Components of inventory Decisions
Transit Stock / Pipeline inventory Cycle stock Safety Stock Anticipation Inventory Hedge inventory Seasonal Inventory
Inventory Drivers
Why Do we need Drivers for Inventory ??? Inventory drivers are consequences of
certain supply & demand characteristics like :
Product desirability Responsiveness Supplying complete & accurate information Customer collaboration Getting visibility as much as we can from
our customers Defining drivers brings to light
optimism to improve processes and offer savings potential.
Drivers…
Demand Variation/ forecast accuracy/demand planning
Supply Planning Demand & Supply synchronization Service levels capacity Lot sizes/order sizes Lead times Speculation Customer service level segmentation Network Design Data Accuracy
Inventory Related Metrics Average inventory Products with more than a specified no
of days of inventory Average replenishment batch size Average safety inventory Seasonal inventory Fill rate Fraction of time out of stock
TRANSPORTATION
TRANSPORTATION
Transportation moves the product between different locations in a supply chain
Transportation is prominent in a company's competitive strategy
Faster transportation makes supply chain more responsive
Role in the competitive strategy If company targets a customer who demands
a very high level of responsiveness and that customer is willing to pay for this responsiveness, then company can make transportation as one driver to make supply chain more responsive.
Opposite holds true as well. If the customers are concerned only with money not responsiveness then company can lower the cost of product. Both depend on company’s competitive strategy.
Components of transport decisions
Design of transportation network Choice of mode of transportation Load Factor
Metrics
Average inbound transportation cost: cost of bringing product into a facility as percentage of sales or cost of goods sold.
Average incoming shipment size: average number of units or dollars in each incoming shipment at a facility.
Average inbound transportation cost per shipment: average transportation cost of each incoming delivery.
Average outbound transportation cost: average number of units or dollars in each outbound shipment at a facility.
Fraction transported by mode: measures fraction of transportation using each mode of transportation. This enables analysis on which all modes are overused and underused.
Leveraging Transport Costs Load Factor Fuel Equipment Drivers Distributed Systems and Network
Responsiveness v/s Efficiency
The fundamental trade-off for transportation is cost (efficiency) versus speed (responsiveness). A transportation cost analysis must consider the effects of speed on inventory required.
Use of fast modes of transport raises responsiveness and transportation cost but lowers inventory holding cost.
FACILITIES
FACILITIES
Facilities include all locations in the supply chain to store, assemble, or fabricate inventory.
Two major types of Facilities are:
Manufacture/Repair SitesStorage (warehouse, distribution) Sites
Role in Supply Chain
If we think of inventory as what is being passed along the supply chain and transportation is how it is passed along, then facilities are the where of the supply chain.
Facilities include all locations in the supply chain to store, assemble, or fabricate inventory.
Role in Competitive Strategy Facilities are a key driver of supply
chain performance.
Factors such as location, capacity, manufacture/repair methodology, and warehousing methodology also affect supply chain performance by way of the facilities component.
Components of facilities decisions Decisions regarding facilities are crucial
part of supply chain.. The components that the companies
must analyze are:RoleLocationCapacity
Facility Related Metrics
Following are some facility related metrics: Capacity Utilization Theoretical flow/cycle time of production Actual average flow/cycle time Flow time efficiency Product Variety Volume Contribution of top 20% SKU’s and
customers Processing/setup/down/idle time Average production batch size Production service level
Responsiveness vs. Efficiency
The fundamental trade off that managers face when making facilities decisions is between the cost of the number, location and type of facility & the level of responsiveness they provide to the company’s customers.
Facilities Driver
INFORMATION
INFORMATION
It consists of data and analysis concerning facilities, inventory and transportation.
It is the biggest driver of performance. Presents management with the
opportunity to make supply chain more responsive and efficient.
Role in the supply chain
Deeply affects every part of supply chain.
Serves as a connection between different stages of supply chain.
Also crucial to daily operations of each stage in a supply chain.
Role in competitive strategy
Impact of IT in Supply Chain Management.
Helps in taking key decisions which help in reducing cost and improving responsiveness.
Components of Information Decisions
Push versus Pull
Coordination and Information Sharing
Forecast and aggregate planning
Information related metrics Forecast horizon Frequency of update Forecast Error Seasonal factors Variance from plan Ratio of demand variability to order
availability
Trade Off: Responsiveness VS
efficiency Improves Responsiveness and
efficiency. Improves performance of other
drivers. Accurate information can help a firm
improve efficiency by decreasing inventory and transportation costs.
Improves responsiveness by matching supply and demand.
Impact on E-commerce
Cost Efficiency Changes in the distribution system Customer orientation Shipment Tracking Shipping Notice Shipping Documentation and labeling Online Shipping inquiry
CASE STUDY
"People think we got big by putting big stores in small towns. Really, we got big by replacing inventory with information."
Sam Walton, Founder of Wal-Mart
BACKGROUNDSam Walton founded the company in 1962
• First store opened in Rogers, Arkansas
Walmart is the largest grocery retailer in U.S.• It is headquartered in Bentonville,
Arkansas(U.S.)In 2009, it generated 51% of its US$258 billion sales in the U.S. from grocery business.• The company employs 2.2 million
associates worldwide and serves 200 million customers each week at more than 10,000 stores in 27 countries.
Traditional Supply Chain Model
Walmart’s simplified Supply Chain
Key Factors• Pricing• Logistics
• Inventory• Transportation• Facilities• Cross Docking
• Information
Pricing
Walmart practices every day low pricing (EDLP) for its products.
Customer demand stays steady and does not fluctuate with price variations.
Inventory
Walmart set up its own satellite communication system in 1983.
Allows the management to monitor each and every activity at any point of day.
Allows stores to manage their own stock. The order management and store
replenishment of goods are entirely executed with the help of computers through the Point-of-Sales (POS) system.
Transportation
Involves fast and responsive transportation system.
More than 7000 company owned trucks services the distribution centers.
Shipping of goods to stores within 2 days.
Use idea of Back-Hauling
Facilities
There are 140 Walmart distribution centres within US.
Walmart’s distribution centers by Facility type:
Regional General Merchandise Distribution Centers
Import/Redistribution Centers Fashion Distribution Centers Full line Grocery and perishables Food
Distribution Centers Speciality Distribution Centers Sam’s Club Distribution Centers
Cross Docking
Finished goods are directly picked up from the manufacturing site of supplier, sorted out and directly supplied to the customers.
Reduces handling and storage of finished goods
System shifted from “supply chain” to “demand chain”
Information
Use of bar codes and RFID to label different products, shelves and bins in the center.
Use of handheld computer (Magic Wand)
Use of computers to track movement of goods and stock levels.
Order management and store replenishment of goods is entirely executed with the help of computers through Point of Sale (POS) system.
Use of centralized Inventory database
Case Study: Tata Nano
Tata Nano
Tata Nano
Tata Nano
Tata Nano
The secret of designing the Tata Nano is a concept called Target Pricing or Target Costing.
Once the features and functions are finalized target costs are assigned to each and every component/system – transmission system, instruments, engine, body, interiors, electrical systems. The sub-teams then design the components/systems within the target cost. They look at every bolt and nut and keep driving cost out of the components/ system.
Tata Nano
Cost and waste is driven out of supply chains by reducing inventory, eliminating waiting times and delays, increasing utilization of warehouse and trucks, optimizing location of warehouses and plants, drawing up the optimum transportation network, utilizing backhauls etc.
Reducing inventory reduces the working capital cost , reduces warehousing costs and obsolescence costs. To reduce inventory, demand fluctuation will have to be reduced, reliability of inventory replenishment will have to increased, Inventory Record Accuracy will have to be above ~95% and supply chain length will have to be reduced.
Reducing supply chain times reduces inventory and increases responsiveness. To eliminate waiting times and delays the complete supply chain process will have to be mapped. For this a lead time map is used. Delays like waiting for loading or unloading and waiting for documents can be minimized. Transit times can be reduced [ not by fast and rash driving ] but by using AC cabins and double-drivers. Also, backhauls are a way to reduce costs.
Tata Nano
Truck utilization can be improved by using truck optimization softwares. Similarly, warehouse space can be utilized more efficiently by increasing storage height- by increasing the rack heights or having a mezzanine.
On a strategic level, Supply Chain Network Design - locating plants, contract manufacturers, Distribution Centres and warehouses- is important because 70% of the cost of a supply chain is fixed at the design stage.
So while Tata Nano has created a breakthrough in car manufacture by reducing the cost of a car significantly, it has led me to think about doing a Tata Nano with my supply chain.
Conclusion
Lower product costs Reduced inventory carrying costs Improved in-store variety and selection Highly competitive pricing for the
consumer
THANK YOU