CHAPTER 1:INTRODUCTION TO SUPPLY CHAIN MANAGEMENT
Marco BijvankSession 11 April 2014
WHAT IS SCM?
“Supply chain management encompasses the planning and management of all activities involved in
sourcing and procurement, conversion, and all logistics management activities. Importantly, it also
includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence,
supply chain management integrates supply and demand management within and across companies.”
Source: 2012 CSCMP’s definition of Supply Chain Management
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WHAT IS SCM?
Material flowsMonetary flowsInformation flows
Possible questionsto ask ourselvesrelated to SCM?
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SUPPLY CHAIN NETWORK STRUCTURE
first tier suppliers
4
first tier customer
second tier customer
SUPPLY CHAIN NETWORK STRUCTURE
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WHAT IS SCM?
1. Introduction to SCM2. Inventory Management and Risk Pooling 3. Network Planning 4. Supply Contracts 5. The Value of Information 6. Supply Chain Integration 7. Distribution Strategies8. Strategic Alliances9. Procurement and Outsourcing Strategies 10. Global Logistics and Risk Management
What about objectives?
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OBJECTIVES
Source: McKinsey 2011, respondents are 639 executives
What
do we
observe?
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COMPETITIVE ADVANTAGE
Can superior SCM lead to competitive advantage?
product leadership
customer intimacy
operational excellence
(best product) (best service)
(best performance)
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9
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HEINEKEN - EXPORT• Early ‘90-s: export less than 20% of total volume• 450 wholesale customers in US• Produce and distribute by order
– can, bottle and keg transported in one shipment• Demand increased
– lead time up to 60 days– high inventory level
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HEINEKEN - EXPORT
Seattle
Oakland
Long Beach
HoustonMiami
Charleston
Norfork
Boston
New YorkBaltimore
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HEINEKEN - EXPORT• STAR Chain in 2002:
• End 2006: more than 60% of volume is exported• Forecast for US 7 stock locations close to port
– lead time: 2-3 days– 1 container = 1 SKU 20% less containers– 20-25% cost savings
supplier
supplier
supplier
Planning
Produc-tion
Distri-bution
USA
Export
Netherlands
Retail
Retail
Retail
DC (non Heineken)
Catering
wholesale
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MAGNITUDE OF SUPPLY CHAINS
• Cost-breakdown of a product– profit 10%– supply chain cost 20%– marketing cost 25%– manufacturing cost 45%
• U.S. companies spend more than $1 trillion in supply-related activities (10-15% of GDP)– transportation 58%– inventory 38%– management 4%
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SUPPLY CHAIN: THE POTENTIAL
• The grocery industry could save 10% of operating cost ($30 billion) 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 (travel time is 5 days)
• Compaq estimates it lost $0.5 billion to $1 billion in sales because laptops were not available when and where needed
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SUPPLY CHAIN DISRUPTIONS AND CORPORATE PERFORMANCE
591 announcements of supply chain disruptions (production or shipment delays) from Wall Street Journal and Dow Jones News during 1989-2000• Sun Microsystems delays shipments of workstations and
servers, Dow Jones News Service, December, 14, 2000.• Sony Sees Shortage of Playstation 2 for Holiday Season,
The Wall Street Journal, September 28, 2000.• Boeing pushing for record production, finds parts
shortages, delivery delays, Wall Street Journal, June 26, 1997.
• Hershey will miss earnings estimate by as much as 10% because of problems in delivering order, Wall Street Journal, September 14, 1999.
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RESPONSIBILITY FOR DISRUPTIONS
intern
al
custo
mer
supp
lier
natur
e and
gove
rnmen
t
other
combin
ation
s
none
prov
ided
0
5
10
15
20
25
30
35
40 37%
19%17%
5% 6%
16%
% o
f firm
s
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REASONS FOR DISRUPTIONS
part
short
ages
ramp/r
oll-ou
t prob
lems
order
chan
ges b
y cus
tomers
produ
ction
prob
lems
deve
lopmen
t prob
lems
quali
ty pro
blems
none
prov
ided
0
5
10
15
20
25 23%
9%
13%10%
4%7%
16%
% o
f firm
s
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STOCK MARKET REACTION TO CORPORATE EVENTS
Operational eventsIncrease in R&D expenditure
1.4%Effective TQM implementation
0.6%Internal corporate restructuring 1.0%Plant closing
-0.7%Supply chain disruption
-10.2%
Marketing eventsChange in firm name
0.7%Brand leveraging
0.3%Celebrity endorsement
0.2%New product introduction
0.3%Delay introduction of new
-5.3% products
Financial eventsStock splits
3.3%Open market share repurchase
3.5%Increasing financial leverage
7.6%Decreasing financial leverage
-5.3%Seasoned equity offerings
-3.0%
IT eventsIT Investments
1.0%IT problems
-1.8%E-commerce
7.5%
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ARE SUPPLY CHAINS MORE PRONE TO DISRUPTIONS TODAY?
• Globalization of supply chains• Increased reliance on outsourcing and partnerships• Single sourcing• Over-concentration of operations• Little slack in the supply chain – focus on efficiency• Competition
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SUMMARY – KEY ISSUES IN SCM
• Strategic decisions• Tactical decisions• Operational decisions
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Has a huge potential when the objectives are aligned between all parties in the supply chain!
Can result in huge risk when not correctly performed