Supply Chain Management
Mid-Semester Review
Review
Definition of supply chain Decision phases of supply chain
Strategic, planning & operational Customer order cycle, replenishment cycle, manufacturing cycle, and procurement cycle Impact on customer, retailer, distributor, manufacturing, and suppliers Cycle view varies from company to company
Supply chain cycle times
Weeks in Review
Strategic scope
Intracompany/intraoperational Intracompany/intrafunctional Intracompany/interfunctional Intercompany/interfunctional
Supply Chain Challenges
Achieving global optimization Managing uncertainty
Weeks in Review
Prerequisites to effective supply chain management
Top management support and commitment Quest for excellence Effective/efficient communication Relationship vs. exchange Team. Partnerships & alliances
Examples
Weeks in Review Drivers of Supply Chain Performance
Efficiency Responsiveness
Supply chain structure
Inventory
Transportation
Facilities
Information
Drivers
Weeks in Review
Driver Inventory Transportation Facilities Information
Considerations for Supply Chain Drivers
Efficiency Cost of holding Consolidation Responsiveness Availability Speed
Consolidation / Proximity / Dedicated Flexibility What information is best suited for each objective
Flows in a Supply Chain
Product
Information
Customer
Funds
Supply Chain Enablers
Organizational Infrastructure Information Technology Strategic Alliance Human Resource Management
Supply Chain Enablers
4 3.5
Ranking (4 is Highest Importance)
2.5
1.5
0.5
0 Organizational Infrastructure Technology Supply Chain Enablers Stategic Alliance Human Resource Management
Organizational Infrastructure
Coherent business strategy that aligns business units towards same goals 32% Formal process-flow methodologies to enable the SCM improvements 15% People committed to and responsible for cross-functional processes 14% Right process metrics identified to guide operating units performance toward strategic organizational SCM objective - 13%
Weeks in Review Functional vs. Innovative Products:
Functional (Predictable)
Product life cycle Contribution margin Product variety Forecast accuracy (margin of error) Average stockout rate Average forced markdown Delivery Lead time More than 2 years 5% to 20% Low (10 to 20 variants per category) 10% 1% to 2% 0% 6 months to 1 year
Innovative (unpredictable)
3 months to 1 years 20% to 60% High (often millions of variants per category 40% to 100% 10% to 40% 10% to 25% 1 day to 2 week
Weeks in Review Physically Efficient vs. Market-Responsive
Physically Efficient Process Primary purpose Market-Responsive Process Supply predictable Respond quickly to demand efficiently at the unpredictable demand to lowest possible cost minimize stockouts, forced markdowns, and obsolete inventory Maintain high average utilization rate Generate high turns & lower inventory cost Shorten lead time at low cost Select primarily for cost and quality Deploy excess buffer capacity for flexibility Deploy significant buffer stock of all stock items Invest in ways to reduce lead time Select primarily for speed, flexibility, and quality
Manufacturing focus Inventory strategy Lead-time focus Approach to choosing suppliers Product-design strategy
Maximize performance at Use modular design to minimum product cost postpone product differentiation
Efficiency-Responsiveness Framework of Supply Chain
Functional Product Efficient Supply Chain Innovative Products
Match
Mismatch
Responsive Supply Chain
Mismatch
Match
Zone of strategic fit in supply chain
Responsive Supply Chain
Responsiveness Spectrum
Zone of Strategic Fit
Efficient Supply Chain
Certain Demand Implied Uncertainty Spectrum Uncertain Demand
Supply Chain Strategies
Push-Based Supply Chain Pull-Based Supply Chain Push-Pull Supply Chain
Push-Pull Supply Chains
The Supply Chain Time Line
Suppliers
Customers
PUSH STRATEGY
Low Uncertainty
PULL STRATEGY
High Uncertainty Push-Pull Boundary
Locating the Push-Pull Boundary
What is the Best Strategy?
Demand uncertainty (C.V.)
Pull
I
Computer
II
IV
III
Delivery cost Unit price
Push
L L H
Economies of Scale
Pull
Push
E-Fulfillment Requires a New Logistics Infrastructure
Traditional Supply Chain Supply Chain Strategy Shipment Type Inventory Flow Reverse Logistics Destination Lead Times Push Bulk Unidirectional Simple Small Number of Stores Depends e-Supply Chain Push-Pull Parcel Bi-directional Highly Complex Highly Dispersed Customers Short
Distribution Strategies
Strategy Attribute Risk Pooling Transportation Costs Holding Costs Demand Variability No Warehouse Costs Reduced Inbound Costs No Holding Costs Delayed Allocation Delayed Allocation Direct Shipment Cross Docking Inventory at Warehouses Take Advantage Reduced Inbound Costs
E-business Opportunities:
Reduce Facility Costs
Eliminate retail/distributor sites
Reduce Inventory Costs
Apply the risk-pooling concept
Centralized stocking Postponement of product differentiation
Use Dynamic Pricing Strategies to Improve Supply Chain Performance
E-business Opportunities:
Supply Chain Visibility
Reduction in the Bullwhip Effect
Reduction in Inventory Improved service level Better utilization of Resources Provide key performance measures Identify and alert when violations occur Allow planning based on global supply chain data
Improve supply chain performance
Logistics Design Decisions
Determine the appropriate number of warehouses Determine the location of each warehouse Determine the size of each warehouse Allocate space for products in each warehouse Determine which products customers will receive from each warehouse
Logistics Design Decisions
Determine the appropriate number of warehouses Determine the location of each warehouse Determine the size of each warehouse Allocate space for products in each warehouse Determine which products customers will receive from each warehouse
Decision Classifications
Strategic Planning: Decisions that typically involve major capital investments and have a long term effect
1. Determination of the number, location and size of new plants, distribution centers and warehouses 2. Acquisition of new production equipment and the design of working centers within each plant
3. Design of transportation facilities, communications equipment, data processing means, etc.
Decision Classifications
Tactical Planning: Effective allocation of manufacturing and distribution resources over a period of several months
1. Work-force size 2. Inventory policies 3. Definition of the distribution channels 4. Selection of transportation and trans-shipment alternatives
Decision Classifications
Operational Control: Includes day-to-day operational decisions
1. The assignment of customer orders to individual machines
2. Dispatching, expediting and processing orders 3. Vehicle scheduling
Performance Measures
What you measure is what you get Performance measures strongly affect the behavior of managers and employees Tailor your performance measures to fit companys mission and strategy Over-reliance of a single measure might be detrimental to companys long-term survivability
The Balanced Scorecard Framework
Financial Perspective GOALS MEASURES
How do we look to shareholders ?
Internal Business Perspective GOALS MEASURES
What must we excel at?
Customer Perspective GOALS MEASURES
How do customers see us?
Innovation & Learning Perspective GOALS MEASURES
Can we continue to improve and create value?
Framework for Supply Chain Performance Metrics
Business Strategy
Supply Chain Strategy
Supply Chain Objectives
Operational Metrics
Customer Service Metrics
Financial metrics
Supply Chain Performance Framework Customer Service
Metrics Goals Measures
Operational Metrics Goals Measures
Financial Metrics Goals Measures
Efficiency Frontier of a Single Product Line
10
Weeks of Supply
Company B 0 Company A 80% 100%
Fill Rate
Critical Factors in SC Performance Metrics
Establish performance objectives with customers in mind Consider using order windows as the basis for order fulfillment metrics Reflect reliability issues in the metrics they choose Implement metrics consistently throughout the supply chain Aggregate results as they move up the chain
Critical Factors in SC Performance Metrics (contd)
Apply process control techniques to the business process Avoid pitting players in the systems against one another Collect only data you really intend to use Communicate the actions and rational to everyone
Bullwhip Effect
Increasing propagation of variability upstream through the supply chain
Increasing Variability Upstream the Supply Chain Bullwhip Effect
Impact of the Bullwhip Effect
Performance Measure Impact on Performance Manufacturing Cost Inventories Lead Time Transport Cost Shipping & Receiving Cost Customer Service Level Profitability
What are the Causes.
Demand forecasting
Min-max inventory level Order-up-to level orders increase more than forecasts Long lead times magnify this effect Impact on safety stock Product life cycle Volume & transportation discount
Long cycle times
Batch ordering
What are the Causes.
Price fluctuation
Promotional sales Forward buying Orders placed increase during shortage periods IBM Aptiva orders increased by 2-3 times when retailers thought that IBM would be out of stock over Christmas
Inflated orders
Ways to Cope with the Bullwhip Effect
Reducing uncertainty
Centralizing demand information Bullwhip inherent in use of various forecasting techniques Use of EDLP strategy (Payless)
Reducing variability
Ways to Cope with the Bullwhip Effect (contd)
Lead time reduction
Order lead time (time to produce and ship) Information lead time (time to process order) Efficient network distribution design Vendor managed inventory (VMI) Sharing of customer information Collaborative forecasting
Strategic partnership
Presentations/Case Studies/Game
Accenture 3G Wireless communication Army Logistics Operations Payless ShoeSource Supply Chain Seven Eleven Japan Li & Fung Internet Beer Game
