SlideShare a Scribd company logo

Supply Chain Management module 1

Download as PPT, PDF
R
Ravishankar ulle

This document provides an introduction to supply chain management. It discusses key concepts like the objective of a supply chain being to maximize overall value, and defines a supply chain as all stages involved in fulfilling a customer request. It also covers different views of supply chains, including the cycle view which looks at processes between successive stages, and the push/pull view which categorizes processes as either push (anticipatory) or pull (reactive to customer orders). Achieving strategic fit between the supply chain strategy and competitive strategy is also discussed.

Business
1 of 94
Downloaded 302 times
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
26
27
28
29
30
31
32
33
34
35
36
37
38
39
40
41
42
Most read
43
44
45
46
47
48
49
50
51
52
53
54
55
56
57
58
59
60
61
62
63
64
65
66
67
68
69
Most read
70
71
72
73
Most read
74
75
76
77
78
79
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
SUPPLY CHAIN MANAGEMENT
MODULE 1 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT
SUPPLY CHAIN MANAGEMENT: THE MAGNITUDE IN THE TRADITIONAL VIEW • Estimated that the grocery industry could save INR 30Crs. (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 • Laura Ashley turns its inventory 10 times a year, five times faster than 3 years ago February 16, 2015 1-3
SUPPLY CHAIN MANAGEMENT: THE TRUE MAGNITUDE Compaq estimates it lost $0.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed 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 February 16, 2015 1-4
February 16, 2015 1-5
February 16, 2015 1-6
February 16, 2015 1-7
February 16, 2015 1-8
SUPPLY CHAIN MANAGEMENT: HISTORICAL PERSPECTIVE February 16, 2015 • The three principle streams are: • Sourcing, procurement, and supply management • Set of activities, functions, and processes concerned with economic procurement and efficient control of funds flow. • Materials management • Forecasting, inventory management, store management, warehousing, stock keeping, scheduling, production planning and production control and order processing. (integrated materials management) • Logistics and distribution • Purchasing, inventory management, production control, inbound traffic, warehousing, store keeping and quality control. 1-9
WHAT IS A SUPPLY CHAIN? • Introduction • The objective of a supply chain February 16, 2015 1-10
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. Detergent supply chain (Wal-Mart), Dell February 16, 2015 1-11
February 16, 2015 Fig: 1-12
WHAT IS A SUPPLY CHAIN? • Customer is an integral part of the supply chain • Includes movement of products from suppliers to manufacturers to distributors, but also includes movement of information, funds, and products 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) February 16, 2015 1-13
February 16, 2015 Supplier Manufacturer Distributor Retailer Customer Supplier Manufacturer Distributor Retailer Customer Supply Chain Stages 1-14
WHAT IS A SUPPLY CHAIN? Customer wants detergent and goes to Jewel Customer wants detergent and goes to Jewel Jewel Supermarket Jewel Supermarket Jewel or third party DC Jewel or third party DC P&G or other manufacturer P&G or other manufacturer Plastic Producer Plastic Producer Chemical manufacturer (e.g. Oil Company) Chemical manufacturer (e.g. Oil Company) Tenneco Packaging Tenneco Packaging Paper Manufacturer Paper Manufacturer Timber Industry Timber Industry Chemical manufacturer (e.g. Oil Company) Chemical manufacturer (e.g. Oil Company) February 16, 2015 1-15
February 16, 2015 1-16
FLOWS IN A SUPPLY CHAIN Customers Information Products Funds February 16, 2015 1-17
HP SUPPLY CHAIN INITIATIVE February 16, 2015 Hewlett Packard was one of the first firms to recognize the intersection of the development and supply chains. A case in point is the inkjet printer introduction, where decisions about product architecture were made by taking into account not only labor and material cost, but also total supply chain cost throughout the product life cycle. More recently, HP has focused on making decisions such as what design activities to outsource and the corresponding organizational structures needed to manage the outsource design process by considering the characteristics of both the development and the supply chains. 1-18
THE OBJECTIVE OF A SUPPLY CHAIN • 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) February 16, 2015 1-19
WHAT IS SUPPLY CHAIN MANAGEMENT? • Managing supply chain flows and assets, to maximize supply chain surplus • What is supply chain surplus? • Supply chain surplus=Customer Value-Supply chain cost February 16, 2015 1-20
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.) • Difference between $2000 and the sum of all of these costs is the supply chain profit • 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 February 16, 2015 1-21
THE OBJECTIVE OF A SUPPLY CHAIN • 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 (information, products, funds) between and among supply chain stages to maximize total supply chain profitability February 16, 2015 1-22
DECISION PHASES OF A SUPPLY CHAIN • Supply chain strategy or design • Supply chain planning • Supply chain operation February 16, 2015 1-23
SUPPLY CHAIN STRATEGY OR DESIGN • Decisions about the structure of the supply chain and what processes each stage will perform • Strategic supply chain decisions • Locations and capacities of facilities • Products to be made or stored at various locations • Modes of transportation • Information systems • Supply chain design must support strategic objectives • Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty February 16, 2015 1-24
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 February 16, 2015 1-25
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 demand uncertainty, exchange rates, competition over the time horizon February 16, 2015 1-26
SUPPLY CHAIN OPERATION • Time horizon is weekly or daily • 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 • 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) February 16, 2015 1-27
PROCESS VIEW OF 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) February 16, 2015 1-28
CYCLE VIEW OF SUPPLY CHAINS Customer Order Cycle Replenishment Cycle Manufacturing Cycle Procurement Cycle Customer Retailer Distributor Manufacturer Supplier February 16, 2015 1-29
SUB PROCESS IN EACH SUPPLY CHAIN PROCESS February 16, 2015 1-30
CYCLE VIEW OF A SUPPLY CHAIN • Each cycle occurs at the interface between two successive 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 the owners of each process. Specifies the roles and responsibilities of each member and the desired outcome of each process. February 16, 2015 1-31
PUSH/PULL VIEW OF SUPPLY CHAINS Procurement, Manufacturing andReplenishment cycles Customer Order Cycle Customer Order Arrives PUSH PROCESSES PULL PROCESSES February 16, 2015 1-32
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) • Push: execution is initiated in anticipation of customer orders (speculative) • Push/pull boundary separates push processes from pull processes February 16, 2015 1-33
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 • Dell • The relative proportion of push and pull processes can have an impact on supply chain performance February 16, 2015 1-34
February 16, 2015 1-35
SUPPLY CHAIN MACRO PROCESSES IN A FIRM • Supply chain processes discussed in the two views can be classified into : • Customer Relationship Management (CRM) • Internal Supply Chain Management (ISCM) • Supplier Relationship Management (SRM) • Integration among the above three macro processes is critical for effective and successful supply chain management February 16, 2015 1-36
• Market • Price • Sell • Call Center • Order Management • Source • Negotiate • Buy • Design Collaboration • Supply Collaboration SUPPLY CHAIN MACRO PROCESSES February 16, 2015 SRM ISCM CRM • Strategic Planning • Demand Planning • Supply Planning • Fulfillment • Field Service Supplier Firm Customer 1-37
EXAMPLES OF SUPPLY CHAINS • Gopaljee: Transforming Traditional Supply Chains • Jaipur rugs company • Gateway • McMaster Carr / W.W. Grainger • Toyota • Amazon / Borders / Barnes and Noble What are some key issues in these supply chains? February 16, 2015 1-38
COMPETITIVE AND SUPPLY CHAIN STRATEGIES • Competitive strategy: defines the set of customer needs a firm seeks to satisfy through its products and services • 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 • Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important February 16, 2015 1-39
THE VALUE CHAIN: LINKING SUPPLY CHAIN AND BUSINESS STRATEGY February 16, 2015 1-40
EXAMPLES - February 16, 2015 1. Cisco’s decision to use contract manufacturers define the broad structure of their supply chain and a part of their supply chain strategy. 2. Amazon’s decision to build warehouses to stock some products and to continue using distributors as a source of other products are parts of its supply chain strategy. 3. Toyota’s decision to have production facilities in each of its major markets is part of its supply chain strategy. 1-41
ACHIEVING STRATEGIC FIT • Introduction • How is strategic fit achieved? • Other issues affecting strategic fit February 16, 2015 1-42
ACHIEVING STRATEGIC FIT • Strategic fit: • Consistency between customer priorities of competitive strategy and supply chain capabilities specified by the supply chain strategy • Competitive and supply chain strategies have the same goals • A company may fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy February 16, 2015 1-43
HOW IS STRATEGIC FIT ACHIEVED? • Step 1: Understanding the customer and supply chain uncertainty • Step 2: Understanding the supply chain • Step 3: Achieving strategic fit February 16, 2015 1-44
STEP 1: UNDERSTANDING THE CUSTOMER AND SUPPLY CHAIN UNCERTAINTY • Identify the needs of the customer segment being served • Quantity of product needed in each lot • Response time customers will tolerate • Variety of products needed • Service level required • Price of the product • Desired rate of innovation in the product February 16, 2015 1-45
STEP 1: UNDERSTANDING THE CUSTOMER AND SUPPLY CHAIN UNCERTAINTY • Overall attribute of customer demand • 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 must handle and attributes the customer desires February 16, 2015 1-46
STEP 1: UNDERSTANDING THE CUSTOMER AND SUPPLY CHAIN UNCERTAINTY • Implied demand uncertainty also related to customer needs and product attributes • First step to strategic fit is to understand customers by mapping their demand on the implied uncertainty spectrum February 16, 2015 1-47
ACHIEVING STRATEGIC FIT • Understanding the Customer • Lot size • Response time • Service level • Product variety • Price • Innovation Implied Demand Uncertainty February 16, 2015 1-48
IMPACT OF CUSTOMER NEEDS ON IMPLIED DEMAND UNCERTAINTY Customer Need Causes implied demand uncertainty to increase because … Range of quantity increases Wider range of quantity implies greater variance in demand Lead time decreases Less time to react to orders Variety of products required increases Demand per product becomes more disaggregated Number of channels increases Total customer demand is now disaggregated over more channels Rate of innovation increases New products tend to have more uncertain demand Required service level increases Firm now has to handle unusual surges in demand February 16, 2015 1-49
LEVELS OF IMPLIED DEMAND UNCERTAINTY February 16, 2015 1-50
CORRELATION BETWEEN IMPLIED DEMAND UNCERTAINTY AND OTHER ATTRIBUTES Attribute Low Implied Uncertainty High Implied Uncertainty Product margin Low High Avg. forecast error 10% 40%-100% Avg. stockout rate 1%-2% 10%-40% Avg. forced season-end markdown 0% 10%-25% February 16, 2015 1-51
STEP 2: UNDERSTANDING THE SUPPLY CHAIN • How does the firm best meet demand? • Dimension describing the supply chain is supply chain responsiveness • Supply chain responsiveness -- ability to • respond to wide ranges of quantities demanded • meet short lead times • handle a large variety of products • build highly innovative products • meet a very high service level February 16, 2015 1-52
STEP 2: UNDERSTANDING THE SUPPLY CHAIN • There is a cost to achieving responsiveness • Supply chain efficiency: cost of making and delivering the product to the customer • Increasing responsiveness results in higher costs that lower efficiency • cost-responsiveness efficient frontier • supply chain responsiveness spectrum • Second step to achieving strategic fit is to map the supply chain on the responsiveness spectrum February 16, 2015 1-53
UNDERSTANDING THE SUPPLY CHAIN: COST-RESPONSIVENESS EFFICIENT FRONTIER High Low Low High Responsiveness Cost February 16, 2015 1-54
STEP 3: ACHIEVING STRATEGIC FIT • Step is to ensure that what the supply chain does well is consistent with target customer’s needs • Uncertainty/Responsiveness map • Zone of strategic fit • Examples: Dell, Barilla February 16, 2015 1-55
RESPONSIVENESS SPECTRUM Integrated steel mill Dell Highly efficient Highly responsive Somewhat efficient Somewhat responsive Hanes apparel Most automotive production February 16, 2015 1-56
ACHIEVING STRATEGIC FIT SHOWN ON THE UNCERTAINTY/RESPONSIVENESS MAP Implied uncertainty spectrum Responsive supply chain Efficient supply chain Certain demand Uncertain demand Responsiveness spectrum Zone of Strategic Fit February 16, 2015 1-57
STEP 3: ACHIEVING STRATEGIC FIT • All functions in the value chain must support the competitive strategy to achieve strategic fit • Two extremes: Efficient supply chains (Barilla) and responsive supply chains (Dell) • Two key points • there is no right supply chain strategy independent of competitive strategy • there is a right supply chain strategy for a given competitive strategy February 16, 2015 1-58
Efficient Responsive Primary goal Lowest cost Quick response Product design strategy Min product cost Modularity to allow postponement Pricing strategy Lower margins Higher margins Mfg strategy High utilization Capacity flexibility Inventory strategy Minimize inventory Buffer inventory Lead time strategy Reduce but not at expense of greater cost Aggressively reduce even if costs are significant Supplier selection strategy Cost and low quality Speed, flexibility, quality Transportation strategy Greater reliance on low cost modes Greater reliance on responsive (fast) modes COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY CHAINS February 16, 2015 1-59
OTHER ISSUES AFFECTING STRATEGIC FIT • Multiple products and customer segments • Product life cycle • Competitive changes over time February 16, 2015 1-60
MULTIPLE PRODUCTS AND CUSTOMER SEGMENTS • 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 February 16, 2015 1-61
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 February 16, 2015 1-62
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 February 16, 2015 1-63
COMPETITIVE CHANGES OVER TIME • 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 February 16, 2015 1-64
EXPANDING STRATEGIC SCOPE • Scope of strategic fit • The functions and stages within a supply chain that devise an integrated strategy with a shared objective • One extreme: each function at each stage develops its own strategy • Other extreme: all functions in all stages devise a strategy jointly • Five categories: • Intracompany intraoperation scope • Intracompany intrafunctional scope • Intracompany interfunctional scope • Intercompany interfunctional scope • Flexible interfunctional scope February 16, 2015 1-65
DIFFERENT SCOPES OF STRATEGIC FIT ACROSS A SUPPLY CHAIN February 16, 2015 1-66
OBSTACLES TO ACHIEVING STRATEGIC FIT • Increasing variety of products • Decreasing product life cycles • Increasingly demanding customers • Fragmentation of supply chain ownership • Globalization • Difficulty executing new strategies February 16, 2015 1-67
THE DELL STRATEGY February 16, 2015 Dell Computers outperformed the competition by over 3,000 percent in terms of shareholder growth over the eight-year period from 1988 to 1996. Dell’s success over this period can be attributed to its virtual integration, a strategy that blurs the traditional boundaries between suppliers, manufacturers, and end users. Dell’s decision to sell computers built from components produced by other manufacturers relieved the firm of the burdens of owning assets, doing research and development, and managing a large workforce. At the same time, the Dell model of direct sales to consumers and production to order virtually eliminated finished goods inventory. These business decisions allowed Dell to grow much faster than its com- petition and maintain only eight days of inventory. 1-68
DRIVERS OF SUPPLY CHAIN PERFORMANCE  Facilities  places where inventory is stored, assembled, or fabricated  production sites and storage sites  Inventory  raw materials, WIP, finished goods within a supply chain  inventory policies  Transportation  moving inventory from point to point in a supply chain  combinations of transportation modes and routes  Information  data and analysis regarding inventory, transportation, facilities throughout the supply chain  potentially the biggest driver of supply chain performance  Sourcing  functions a firm performs and functions that are outsourced  Pricing  Price associated with goods and services provided by a firm to the supply chain February 16, 2015 1-69
A FRAMEWORK FOR STRUCTURING DRIVERS February 16, 2015 1-70
FACILITIES • Role in the supply chain • the “where” of the supply chain • manufacturing or storage (warehouses) • Role in the competitive strategy • economies of scale (efficiency priority) • larger number of smaller facilities (responsiveness priority) • Example :Toyota and Honda • Components of facilities decisions February 16, 2015 1-71
COMPONENTS OF FACILITIES DECISIONS • Location • centralization (efficiency) vs. decentralization (responsiveness) • other factors to consider (e.g., proximity to customers) • Capacity (flexibility versus efficiency) • Manufacturing methodology (product focused versus process focused) • Warehousing methodology (SKU storage, job lot storage, cross-docking) • Overall trade-off: Responsiveness versus efficiency February 16, 2015 1-72
INVENTORY • Role in the supply chain • Role in the competitive strategy • Components of inventory decisions February 16, 2015 1-73
INVENTORY: ROLE IN THE SUPPLY CHAIN • Inventory exists because of a mismatch between supply and demand • Source of cost and influence on responsiveness • Impact on • material flow time: time elapsed between when material enters the supply chain to when it exits the supply chain • throughput • rate at which sales to end consumers occur • I = RT (Little’s Law) • I = inventory; R = throughput; T = flow time • Example • Inventory and throughput are “synonymous” in a supply chain February 16, 2015 1-74
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 • Trade-off • Example – Nordstrom February 16, 2015 1-75
COMPONENTS OF INVENTORY DECISIONS • Cycle inventory • Average amount of inventory used to satisfy demand between shipments • Depends on lot size • Safety inventory • inventory held in case demand exceeds expectations • costs of carrying too much inventory versus cost of losing sales • Seasonal inventory • inventory built up to counter predictable variability in demand • cost of carrying additional inventory versus cost of flexible production • Overall trade-off: Responsiveness versus efficiency • more inventory: greater responsiveness but greater cost • less inventory: lower cost but lower responsiveness February 16, 2015 1-76
TRANSPORTATION • Role in the supply chain • Role in the competitive strategy • Components of transportation decisions February 16, 2015 1-77
TRANSPORTATION: ROLE IN THE SUPPLY CHAIN • Moves the product between stages in the supply chain • Impact on responsiveness and efficiency • Faster transportation allows greater responsiveness but lower efficiency • Also affects inventory and facilities February 16, 2015 1-78
TRANSPORTATION: ROLE IN THE COMPETITIVE STRATEGY • 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 • Example: Laura Ashley February 16, 2015 1-79
COMPONENTS OF TRANSPORTATION DECISIONS • Mode of transportation: • air, truck, rail, ship, pipeline, electronic transportation • vary in cost, speed, size of shipment, flexibility • Route and network selection • route: path along which a product is shipped • network: collection of locations and routes • In-house or outsource • Overall trade-off: Responsiveness versus efficiency February 16, 2015 1-80
INFORMATION • Role in the supply chain • Role in the competitive strategy • Components of information decisions February 16, 2015 1-81
INFORMATION: ROLE IN THE SUPPLY CHAIN • 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 February 16, 2015 1-82
INFORMATION: ROLE IN THE COMPETITIVE STRATEGY • Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off) • Information technology • What information is most valuable? • Example: Dell February 16, 2015 1-83
COMPONENTS OF INFORMATION DECISIONS • Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain) • Coordination and information sharing • Forecasting and aggregate planning • Enabling technologies • EDI • Internet • ERP systems • Supply Chain Management software • Overall trade-off: Responsiveness versus efficiency February 16, 2015 1-84
SOURCING • Role in the supply chain • Role in the competitive strategy • Components of sourcing decisions February 16, 2015 1-85
SOURCING: ROLE IN THE SUPPLY CHAIN • Set of business processes required to purchase goods and services in a supply chain • Supplier selection, single vs. multiple suppliers, contract negotiation February 16, 2015 1-86
COMPONENTS OF SOURCING DECISIONS • In-house versus outsource decisions • Supplier evaluation and selection • Procurement process • Overall trade-off: Increase the supply chain profits February 16, 2015 1-87
SOURCING: ROLE IN THE COMPETITIVE STRATEGY • Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain • In-house vs. outsource decisions- improving efficiency and responsiveness • Example : Cisco February 16, 2015 1-88
SOURCING: ROLE IN THE COMPETITIVE STRATEGY • Firms can utilize optimal pricing strategies to improve efficiency and responsiveness • Low price and low product availability; vary prices by response times • Example: Amazon February 16, 2015 1-89
PRICING • Role in the supply chain • Role in the competitive strategy • Components of pricing decisions February 16, 2015 1-90
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 February 16, 2015 1-91
COMPONENTS OF PRICING DECISIONS • Pricing and economies of scale • Everyday low pricing versus high-low pricing • Fixed price versus menu pricing • Overall trade-off: Increase the firm profits February 16, 2015 1-92
ASSIGNMENT… February 16, 2015 • Why is achieving strategic fit critical to a company’s overall success? • How does a company achieve strategic fit between its supply chain strategy and its competitive strategy? • What is the importance of expanding the scope of strategic fit across the supply chain? • What advantages does selling books via the Internet provide? Are there disadvantages? • For what products does the e-commerce channel offer the greatest benefits? What characterizes these products? 1-93
END OF MODULE 1

More Related Content

PPT
James hall ch 2
David Julian
 
PDF
| Managerial Accounting | Chapter 8 | Master Budgeting | Introduction to Mana...
Ahmad Hassan
 
PDF
Agribusiness, management and planning as well
MDHumayunKobir2
 
PPT
Branding & Brand Positioning
Samer Meqdad
 
PDF
Internal rate of return
Nadia Sahar
 
PDF
Internet of Things - module 1
Syed Mustafa
 
PPTX
Smart Factory
plvragav
 
PPTX
Supply Chain Management module 2
Ravishankar ulle
 
James hall ch 2
David Julian
 
| Managerial Accounting | Chapter 8 | Master Budgeting | Introduction to Mana...
Ahmad Hassan
 
Agribusiness, management and planning as well
MDHumayunKobir2
 
Branding & Brand Positioning
Samer Meqdad
 
Internal rate of return
Nadia Sahar
 
Internet of Things - module 1
Syed Mustafa
 
Smart Factory
plvragav
 
Supply Chain Management module 2
Ravishankar ulle
 

What's hot (20)

PPTX
INTEGRATED LOGISTICS
MAX GALARZA HERNANDEZ
 
PPTX
Objectives of supply chain management
DENNY OTTARACKAL
 
PPTX
Supply chain management
UPENDRA '
 
PPT
Network design
Hammaduddin
 
PPT
Introduction to Supply Chain Management
Qamar Farooq
 
PPT
Role of information Technology in Supply Chain Manageent
Anand Jha
 
PDF
SUPPLY CHAIN STRATEGIES
Acharya Institute of Graduate Studies
 
PPTX
Introduction to Supply Chain Management
vishnuvsvn
 
PPT
Supplier evaluation & selection
Ankit
 
PPT
Value added service in logistics
Armaan Salik
 
PPTX
Supply Chain Management, Basics
Rajendran Ananda Krishnan
 
PPTX
global supply chain managment
sai prakash
 
PPTX
Supply chain management
Bhabesh Gautam
 
PPTX
Supply Chain Management
Shubham Bhutada
 
PPT
Chapter 1. understanding the supply chain
Sachin Modgil
 
PPT
Supply Chain Management
Nurhazman Abdul Aziz
 
PPTX
Supply Chain Strategy Or Design
Tanuj Poddar
 
PPTX
Supply Chain Management chap 2
Umair Arain
 
PDF
Supply Chain Management And Logistics PowerPoint Presentation Slides
SlideTeam
 
PPTX
Supply Chain Management
Arpit Doshi
 
INTEGRATED LOGISTICS
MAX GALARZA HERNANDEZ
 
Objectives of supply chain management
DENNY OTTARACKAL
 
Supply chain management
UPENDRA '
 
Network design
Hammaduddin
 
Introduction to Supply Chain Management
Qamar Farooq
 
Role of information Technology in Supply Chain Manageent
Anand Jha
 
SUPPLY CHAIN STRATEGIES
Acharya Institute of Graduate Studies
 
Introduction to Supply Chain Management
vishnuvsvn
 
Supplier evaluation & selection
Ankit
 
Value added service in logistics
Armaan Salik
 
Supply Chain Management, Basics
Rajendran Ananda Krishnan
 
global supply chain managment
sai prakash
 
Supply chain management
Bhabesh Gautam
 
Supply Chain Management
Shubham Bhutada
 
Chapter 1. understanding the supply chain
Sachin Modgil
 
Supply Chain Management
Nurhazman Abdul Aziz
 
Supply Chain Strategy Or Design
Tanuj Poddar
 
Supply Chain Management chap 2
Umair Arain
 
Supply Chain Management And Logistics PowerPoint Presentation Slides
SlideTeam
 
Supply Chain Management
Arpit Doshi
 
Ad

Viewers also liked (19)

PPT
Supply chain management ch02 chopra
Jamil Ahmed AKASH
 
PPTX
Supply Chain Management module 4
Ravishankar ulle
 
PPT
Just In Time
shashank_3
 
PPTX
Supply Chain Management module 6
Ravishankar ulle
 
PPTX
Reordering point
saurav rawat
 
PPT
Supply chain management ch03 chopra
Jamil Ahmed AKASH
 
PPT
Achieving Strategic Fit and Scope
Shipra Chaudhary
 
PPT
Economic Order Quality Eoq
sikander kushwaha
 
PPT
Supply chain management
Sagar Gadekar
 
PPTX
Supply Chain Management, Designing the Supply Chain Network
Rajendran Ananda Krishnan
 
PPTX
PPT ON Just in time technique (JIT)
ANKIT SAXENA Asst. Prof. @ Dr. Akhilesh Das Gupta Institute of Technology and Management, New Delhi
 
PPTX
Types of purchasing system
Avish Shah
 
PPTX
Supply Chain Management - An Introduction
Naveen Dandge
 
DOCX
Supply chain mgmt.
chokolado
 
PPTX
Just In Time production system
Mohamed EL-Sayed
 
DOCX
Strategic supply chain management
Bhavi Bhatia
 
PPT
1
deju123456
 
PPTX
Dr. Raed Hussein - the production and supply chain management of kuwait
kuwaitsupplychain
 
PPTX
Introduction to supply chain management
Pradeep Biradar
 
Supply chain management ch02 chopra
Jamil Ahmed AKASH
 
Supply Chain Management module 4
Ravishankar ulle
 
Just In Time
shashank_3
 
Supply Chain Management module 6
Ravishankar ulle
 
Reordering point
saurav rawat
 
Supply chain management ch03 chopra
Jamil Ahmed AKASH
 
Achieving Strategic Fit and Scope
Shipra Chaudhary
 
Economic Order Quality Eoq
sikander kushwaha
 
Supply chain management
Sagar Gadekar
 
Supply Chain Management, Designing the Supply Chain Network
Rajendran Ananda Krishnan
 
PPT ON Just in time technique (JIT)
ANKIT SAXENA Asst. Prof. @ Dr. Akhilesh Das Gupta Institute of Technology and Management, New Delhi
 
Types of purchasing system
Avish Shah
 
Supply Chain Management - An Introduction
Naveen Dandge
 
Supply chain mgmt.
chokolado
 
Just In Time production system
Mohamed EL-Sayed
 
Strategic supply chain management
Bhavi Bhatia
 
1
deju123456
 
Dr. Raed Hussein - the production and supply chain management of kuwait
kuwaitsupplychain
 
Introduction to supply chain management
Pradeep Biradar
 
Ad

Similar to Supply Chain Management module 1 (20)

PPTX
Supply chain management
Dicky Cahanaya
 
PPT
Supply chain management Understanding the Supply Chain
Osama Yousaf
 
PPT
Supply Chain Management
Oni Sharma
 
PPT
overview of supply chain process and systematise
GoharSaeed6
 
PPTX
Supply chain management introduction based on BBA curriculam
KiranMittal7
 
PPTX
introductiontoscm-160121051219.ppt.....x
charmieannomalay1
 
PPT
Scm 01 structure and decisions in a supply chain
shivaniradhu
 
PPT
Understanding The Supply Chain Management SCM pptx
BrianStanley53
 
PPTX
SCM Module 1.pptx
gururaj101143
 
PPT
EIS SUPPLY CHAIN MGT.ppt
jingning2929
 
PPTX
introduction to Supply Chain M 1 & 2.pptx
GoharSaeed6
 
PPT
Basics of sSpply Chain Management
masilamani ramasamy
 
PPTX
Supply Chain Management module 7
Ravishankar ulle
 
PPTX
SCM Unit 1.pptx
Raghu Jaihind
 
PPTX
Module 1.pptx
SyedAdnanadishah
 
PPTX
Introductiontosupplychainmanagement
Suneel Sankala
 
PPT
supply chain management
Manish Kaushik
 
PPT
Understanding the supply chain
Waleed Mir .
 
PPTX
Supply Chain Management.pptx
Kamal114381
 
PPT
Scm
cknguptha
 
Supply chain management
Dicky Cahanaya
 
Supply chain management Understanding the Supply Chain
Osama Yousaf
 
Supply Chain Management
Oni Sharma
 
overview of supply chain process and systematise
GoharSaeed6
 
Supply chain management introduction based on BBA curriculam
KiranMittal7
 
introductiontoscm-160121051219.ppt.....x
charmieannomalay1
 
Scm 01 structure and decisions in a supply chain
shivaniradhu
 
Understanding The Supply Chain Management SCM pptx
BrianStanley53
 
SCM Module 1.pptx
gururaj101143
 
EIS SUPPLY CHAIN MGT.ppt
jingning2929
 
introduction to Supply Chain M 1 & 2.pptx
GoharSaeed6
 
Basics of sSpply Chain Management
masilamani ramasamy
 
Supply Chain Management module 7
Ravishankar ulle
 
SCM Unit 1.pptx
Raghu Jaihind
 
Module 1.pptx
SyedAdnanadishah
 
Introductiontosupplychainmanagement
Suneel Sankala
 
supply chain management
Manish Kaushik
 
Understanding the supply chain
Waleed Mir .
 
Supply Chain Management.pptx
Kamal114381
 
Scm
cknguptha
 

Recently uploaded (20)

PPTX
Presentation model for business presentations
benhareez1
 
PPTX
Amazon (Business Studies) management studies
AbhirupVerma
 
PDF
Traveri Digital Marketing Seminar 2025 by Corey and Jessica Perlman
Corey Perlman, Social Media Speaker and Consultant
 
PPTX
Untitled presentation (2).quiz presention
husnafaisal055
 
DOCX
unit 1 COST ACCOUNTING AND COST SHEET
MANJU N
 
PDF
Lecture 3 - Risk Management and Compliance.pdf
Quan Risk
 
PDF
The Digital Culture Challenge; Bridging the Employee-Leadership Disconnect
Brian Solis
 
PDF
The FMS General Management Prep-Book 2025.pdf
psbhandkar4148
 
PDF
20250805_A. Stotz All Weather Strategy - Performance review July 2025.pdf
FINNOMENAMarketing
 
PDF
Power and position in leadershipDOC-20250808-WA0011..pdf
meghavinikumar2006
 
PPTX
The Marketing Journey - Tracey Phillips - Marketing Matters 7-2025.pptx
shannonzipoy2
 
PPT
Chapter four Project-Preparation material
argachewbochena1
 
PDF
Reconciliation AND MEMORANDUM RECONCILATION
MANJU N
 
PDF
DOC-20250806-WA0002._20250806_112011_0000.pdf
dhanusriss08
 
PDF
A Brief Introduction About Julia Allison
Julia Allison
 
PPTX
HR Introduction Slide (1).pptx on hr intro
suhanidwivedi227
 
PPTX
AI-assistance in Knowledge Collection and Curation supporting Safe and Sustai...
Barry Hardy
 
DOCX
Euro SEO Services 1st 3 General Updates.docx
AmirNazir49
 
PPTX
Mastering Odoo ERP Implementation: Key Strategies for Business Success
noreplyerp
 
PPTX
Belch_12e_PPT_Ch18_Accessible_university.pptx
Haitham327103
 
Presentation model for business presentations
benhareez1
 
Amazon (Business Studies) management studies
AbhirupVerma
 
Traveri Digital Marketing Seminar 2025 by Corey and Jessica Perlman
Corey Perlman, Social Media Speaker and Consultant
 
Untitled presentation (2).quiz presention
husnafaisal055
 
unit 1 COST ACCOUNTING AND COST SHEET
MANJU N
 
Lecture 3 - Risk Management and Compliance.pdf
Quan Risk
 
The Digital Culture Challenge; Bridging the Employee-Leadership Disconnect
Brian Solis
 
The FMS General Management Prep-Book 2025.pdf
psbhandkar4148
 
20250805_A. Stotz All Weather Strategy - Performance review July 2025.pdf
FINNOMENAMarketing
 
Power and position in leadershipDOC-20250808-WA0011..pdf
meghavinikumar2006
 
The Marketing Journey - Tracey Phillips - Marketing Matters 7-2025.pptx
shannonzipoy2
 
Chapter four Project-Preparation material
argachewbochena1
 
Reconciliation AND MEMORANDUM RECONCILATION
MANJU N
 
DOC-20250806-WA0002._20250806_112011_0000.pdf
dhanusriss08
 
A Brief Introduction About Julia Allison
Julia Allison
 
HR Introduction Slide (1).pptx on hr intro
suhanidwivedi227
 
AI-assistance in Knowledge Collection and Curation supporting Safe and Sustai...
Barry Hardy
 
Euro SEO Services 1st 3 General Updates.docx
AmirNazir49
 
Mastering Odoo ERP Implementation: Key Strategies for Business Success
noreplyerp
 
Belch_12e_PPT_Ch18_Accessible_university.pptx
Haitham327103
 

Supply Chain Management module 1

  • 3. SUPPLY CHAIN MANAGEMENT: THE MAGNITUDE IN THE TRADITIONAL VIEW • Estimated that the grocery industry could save INR 30Crs. (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 • Laura Ashley turns its inventory 10 times a year, five times faster than 3 years ago February 16, 2015 1-3
  • 4. SUPPLY CHAIN MANAGEMENT: THE TRUE MAGNITUDE Compaq estimates it lost $0.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed 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 February 16, 2015 1-4
  • 9. SUPPLY CHAIN MANAGEMENT: HISTORICAL PERSPECTIVE February 16, 2015 • The three principle streams are: • Sourcing, procurement, and supply management • Set of activities, functions, and processes concerned with economic procurement and efficient control of funds flow. • Materials management • Forecasting, inventory management, store management, warehousing, stock keeping, scheduling, production planning and production control and order processing. (integrated materials management) • Logistics and distribution • Purchasing, inventory management, production control, inbound traffic, warehousing, store keeping and quality control. 1-9
  • 10. WHAT IS A SUPPLY CHAIN? • Introduction • The objective of a supply chain February 16, 2015 1-10
  • 11. 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. Detergent supply chain (Wal-Mart), Dell February 16, 2015 1-11
  • 13. WHAT IS A SUPPLY CHAIN? • Customer is an integral part of the supply chain • Includes movement of products from suppliers to manufacturers to distributors, but also includes movement of information, funds, and products 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) February 16, 2015 1-13
  • 14. February 16, 2015 Supplier Manufacturer Distributor Retailer Customer Supplier Manufacturer Distributor Retailer Customer Supply Chain Stages 1-14
  • 15. WHAT IS A SUPPLY CHAIN? Customer wants detergent and goes to Jewel Customer wants detergent and goes to Jewel Jewel Supermarket Jewel Supermarket Jewel or third party DC Jewel or third party DC P&G or other manufacturer P&G or other manufacturer Plastic Producer Plastic Producer Chemical manufacturer (e.g. Oil Company) Chemical manufacturer (e.g. Oil Company) Tenneco Packaging Tenneco Packaging Paper Manufacturer Paper Manufacturer Timber Industry Timber Industry Chemical manufacturer (e.g. Oil Company) Chemical manufacturer (e.g. Oil Company) February 16, 2015 1-15
  • 17. FLOWS IN A SUPPLY CHAIN Customers Information Products Funds February 16, 2015 1-17
  • 18. HP SUPPLY CHAIN INITIATIVE February 16, 2015 Hewlett Packard was one of the first firms to recognize the intersection of the development and supply chains. A case in point is the inkjet printer introduction, where decisions about product architecture were made by taking into account not only labor and material cost, but also total supply chain cost throughout the product life cycle. More recently, HP has focused on making decisions such as what design activities to outsource and the corresponding organizational structures needed to manage the outsource design process by considering the characteristics of both the development and the supply chains. 1-18
  • 19. THE OBJECTIVE OF A SUPPLY CHAIN • 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) February 16, 2015 1-19
  • 20. WHAT IS SUPPLY CHAIN MANAGEMENT? • Managing supply chain flows and assets, to maximize supply chain surplus • What is supply chain surplus? • Supply chain surplus=Customer Value-Supply chain cost February 16, 2015 1-20
  • 21. 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.) • Difference between $2000 and the sum of all of these costs is the supply chain profit • 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 February 16, 2015 1-21
  • 22. THE OBJECTIVE OF A SUPPLY CHAIN • 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 (information, products, funds) between and among supply chain stages to maximize total supply chain profitability February 16, 2015 1-22
  • 23. DECISION PHASES OF A SUPPLY CHAIN • Supply chain strategy or design • Supply chain planning • Supply chain operation February 16, 2015 1-23
  • 24. SUPPLY CHAIN STRATEGY OR DESIGN • Decisions about the structure of the supply chain and what processes each stage will perform • Strategic supply chain decisions • Locations and capacities of facilities • Products to be made or stored at various locations • Modes of transportation • Information systems • Supply chain design must support strategic objectives • Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty February 16, 2015 1-24
  • 25. 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 February 16, 2015 1-25
  • 26. 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 demand uncertainty, exchange rates, competition over the time horizon February 16, 2015 1-26
  • 27. SUPPLY CHAIN OPERATION • Time horizon is weekly or daily • 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 • 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) February 16, 2015 1-27
  • 28. PROCESS VIEW OF 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) February 16, 2015 1-28
  • 29. CYCLE VIEW OF SUPPLY CHAINS Customer Order Cycle Replenishment Cycle Manufacturing Cycle Procurement Cycle Customer Retailer Distributor Manufacturer Supplier February 16, 2015 1-29
  • 30. SUB PROCESS IN EACH SUPPLY CHAIN PROCESS February 16, 2015 1-30
  • 31. CYCLE VIEW OF A SUPPLY CHAIN • Each cycle occurs at the interface between two successive 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 the owners of each process. Specifies the roles and responsibilities of each member and the desired outcome of each process. February 16, 2015 1-31
  • 32. PUSH/PULL VIEW OF SUPPLY CHAINS Procurement, Manufacturing andReplenishment cycles Customer Order Cycle Customer Order Arrives PUSH PROCESSES PULL PROCESSES February 16, 2015 1-32
  • 33. 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) • Push: execution is initiated in anticipation of customer orders (speculative) • Push/pull boundary separates push processes from pull processes February 16, 2015 1-33
  • 34. 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 • Dell • The relative proportion of push and pull processes can have an impact on supply chain performance February 16, 2015 1-34
  • 36. SUPPLY CHAIN MACRO PROCESSES IN A FIRM • Supply chain processes discussed in the two views can be classified into : • Customer Relationship Management (CRM) • Internal Supply Chain Management (ISCM) • Supplier Relationship Management (SRM) • Integration among the above three macro processes is critical for effective and successful supply chain management February 16, 2015 1-36
  • 37. • Market • Price • Sell • Call Center • Order Management • Source • Negotiate • Buy • Design Collaboration • Supply Collaboration SUPPLY CHAIN MACRO PROCESSES February 16, 2015 SRM ISCM CRM • Strategic Planning • Demand Planning • Supply Planning • Fulfillment • Field Service Supplier Firm Customer 1-37
  • 38. EXAMPLES OF SUPPLY CHAINS • Gopaljee: Transforming Traditional Supply Chains • Jaipur rugs company • Gateway • McMaster Carr / W.W. Grainger • Toyota • Amazon / Borders / Barnes and Noble What are some key issues in these supply chains? February 16, 2015 1-38
  • 39. COMPETITIVE AND SUPPLY CHAIN STRATEGIES • Competitive strategy: defines the set of customer needs a firm seeks to satisfy through its products and services • 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 • Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important February 16, 2015 1-39
  • 40. THE VALUE CHAIN: LINKING SUPPLY CHAIN AND BUSINESS STRATEGY February 16, 2015 1-40
  • 41. EXAMPLES - February 16, 2015 1. Cisco’s decision to use contract manufacturers define the broad structure of their supply chain and a part of their supply chain strategy. 2. Amazon’s decision to build warehouses to stock some products and to continue using distributors as a source of other products are parts of its supply chain strategy. 3. Toyota’s decision to have production facilities in each of its major markets is part of its supply chain strategy. 1-41
  • 42. ACHIEVING STRATEGIC FIT • Introduction • How is strategic fit achieved? • Other issues affecting strategic fit February 16, 2015 1-42
  • 43. ACHIEVING STRATEGIC FIT • Strategic fit: • Consistency between customer priorities of competitive strategy and supply chain capabilities specified by the supply chain strategy • Competitive and supply chain strategies have the same goals • A company may fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy February 16, 2015 1-43
  • 44. HOW IS STRATEGIC FIT ACHIEVED? • Step 1: Understanding the customer and supply chain uncertainty • Step 2: Understanding the supply chain • Step 3: Achieving strategic fit February 16, 2015 1-44
  • 45. STEP 1: UNDERSTANDING THE CUSTOMER AND SUPPLY CHAIN UNCERTAINTY • Identify the needs of the customer segment being served • Quantity of product needed in each lot • Response time customers will tolerate • Variety of products needed • Service level required • Price of the product • Desired rate of innovation in the product February 16, 2015 1-45
  • 46. STEP 1: UNDERSTANDING THE CUSTOMER AND SUPPLY CHAIN UNCERTAINTY • Overall attribute of customer demand • 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 must handle and attributes the customer desires February 16, 2015 1-46
  • 47. STEP 1: UNDERSTANDING THE CUSTOMER AND SUPPLY CHAIN UNCERTAINTY • Implied demand uncertainty also related to customer needs and product attributes • First step to strategic fit is to understand customers by mapping their demand on the implied uncertainty spectrum February 16, 2015 1-47
  • 48. ACHIEVING STRATEGIC FIT • Understanding the Customer • Lot size • Response time • Service level • Product variety • Price • Innovation Implied Demand Uncertainty February 16, 2015 1-48
  • 49. IMPACT OF CUSTOMER NEEDS ON IMPLIED DEMAND UNCERTAINTY Customer Need Causes implied demand uncertainty to increase because … Range of quantity increases Wider range of quantity implies greater variance in demand Lead time decreases Less time to react to orders Variety of products required increases Demand per product becomes more disaggregated Number of channels increases Total customer demand is now disaggregated over more channels Rate of innovation increases New products tend to have more uncertain demand Required service level increases Firm now has to handle unusual surges in demand February 16, 2015 1-49
  • 50. LEVELS OF IMPLIED DEMAND UNCERTAINTY February 16, 2015 1-50
  • 51. CORRELATION BETWEEN IMPLIED DEMAND UNCERTAINTY AND OTHER ATTRIBUTES Attribute Low Implied Uncertainty High Implied Uncertainty Product margin Low High Avg. forecast error 10% 40%-100% Avg. stockout rate 1%-2% 10%-40% Avg. forced season-end markdown 0% 10%-25% February 16, 2015 1-51
  • 52. STEP 2: UNDERSTANDING THE SUPPLY CHAIN • How does the firm best meet demand? • Dimension describing the supply chain is supply chain responsiveness • Supply chain responsiveness -- ability to • respond to wide ranges of quantities demanded • meet short lead times • handle a large variety of products • build highly innovative products • meet a very high service level February 16, 2015 1-52
  • 53. STEP 2: UNDERSTANDING THE SUPPLY CHAIN • There is a cost to achieving responsiveness • Supply chain efficiency: cost of making and delivering the product to the customer • Increasing responsiveness results in higher costs that lower efficiency • cost-responsiveness efficient frontier • supply chain responsiveness spectrum • Second step to achieving strategic fit is to map the supply chain on the responsiveness spectrum February 16, 2015 1-53
  • 54. UNDERSTANDING THE SUPPLY CHAIN: COST-RESPONSIVENESS EFFICIENT FRONTIER High Low Low High Responsiveness Cost February 16, 2015 1-54
  • 55. STEP 3: ACHIEVING STRATEGIC FIT • Step is to ensure that what the supply chain does well is consistent with target customer’s needs • Uncertainty/Responsiveness map • Zone of strategic fit • Examples: Dell, Barilla February 16, 2015 1-55
  • 57. ACHIEVING STRATEGIC FIT SHOWN ON THE UNCERTAINTY/RESPONSIVENESS MAP Implied uncertainty spectrum Responsive supply chain Efficient supply chain Certain demand Uncertain demand Responsiveness spectrum Zone of Strategic Fit February 16, 2015 1-57
  • 58. STEP 3: ACHIEVING STRATEGIC FIT • All functions in the value chain must support the competitive strategy to achieve strategic fit • Two extremes: Efficient supply chains (Barilla) and responsive supply chains (Dell) • Two key points • there is no right supply chain strategy independent of competitive strategy • there is a right supply chain strategy for a given competitive strategy February 16, 2015 1-58
  • 59. Efficient Responsive Primary goal Lowest cost Quick response Product design strategy Min product cost Modularity to allow postponement Pricing strategy Lower margins Higher margins Mfg strategy High utilization Capacity flexibility Inventory strategy Minimize inventory Buffer inventory Lead time strategy Reduce but not at expense of greater cost Aggressively reduce even if costs are significant Supplier selection strategy Cost and low quality Speed, flexibility, quality Transportation strategy Greater reliance on low cost modes Greater reliance on responsive (fast) modes COMPARISON OF EFFICIENT AND RESPONSIVE SUPPLY CHAINS February 16, 2015 1-59
  • 60. OTHER ISSUES AFFECTING STRATEGIC FIT • Multiple products and customer segments • Product life cycle • Competitive changes over time February 16, 2015 1-60
  • 61. MULTIPLE PRODUCTS AND CUSTOMER SEGMENTS • 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 February 16, 2015 1-61
  • 62. 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 February 16, 2015 1-62
  • 63. 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 February 16, 2015 1-63
  • 64. COMPETITIVE CHANGES OVER TIME • 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 February 16, 2015 1-64
  • 65. EXPANDING STRATEGIC SCOPE • Scope of strategic fit • The functions and stages within a supply chain that devise an integrated strategy with a shared objective • One extreme: each function at each stage develops its own strategy • Other extreme: all functions in all stages devise a strategy jointly • Five categories: • Intracompany intraoperation scope • Intracompany intrafunctional scope • Intracompany interfunctional scope • Intercompany interfunctional scope • Flexible interfunctional scope February 16, 2015 1-65
  • 66. DIFFERENT SCOPES OF STRATEGIC FIT ACROSS A SUPPLY CHAIN February 16, 2015 1-66
  • 67. OBSTACLES TO ACHIEVING STRATEGIC FIT • Increasing variety of products • Decreasing product life cycles • Increasingly demanding customers • Fragmentation of supply chain ownership • Globalization • Difficulty executing new strategies February 16, 2015 1-67
  • 68. THE DELL STRATEGY February 16, 2015 Dell Computers outperformed the competition by over 3,000 percent in terms of shareholder growth over the eight-year period from 1988 to 1996. Dell’s success over this period can be attributed to its virtual integration, a strategy that blurs the traditional boundaries between suppliers, manufacturers, and end users. Dell’s decision to sell computers built from components produced by other manufacturers relieved the firm of the burdens of owning assets, doing research and development, and managing a large workforce. At the same time, the Dell model of direct sales to consumers and production to order virtually eliminated finished goods inventory. These business decisions allowed Dell to grow much faster than its com- petition and maintain only eight days of inventory. 1-68
  • 69. DRIVERS OF SUPPLY CHAIN PERFORMANCE  Facilities  places where inventory is stored, assembled, or fabricated  production sites and storage sites  Inventory  raw materials, WIP, finished goods within a supply chain  inventory policies  Transportation  moving inventory from point to point in a supply chain  combinations of transportation modes and routes  Information  data and analysis regarding inventory, transportation, facilities throughout the supply chain  potentially the biggest driver of supply chain performance  Sourcing  functions a firm performs and functions that are outsourced  Pricing  Price associated with goods and services provided by a firm to the supply chain February 16, 2015 1-69
  • 70. A FRAMEWORK FOR STRUCTURING DRIVERS February 16, 2015 1-70
  • 71. FACILITIES • Role in the supply chain • the “where” of the supply chain • manufacturing or storage (warehouses) • Role in the competitive strategy • economies of scale (efficiency priority) • larger number of smaller facilities (responsiveness priority) • Example :Toyota and Honda • Components of facilities decisions February 16, 2015 1-71
  • 72. COMPONENTS OF FACILITIES DECISIONS • Location • centralization (efficiency) vs. decentralization (responsiveness) • other factors to consider (e.g., proximity to customers) • Capacity (flexibility versus efficiency) • Manufacturing methodology (product focused versus process focused) • Warehousing methodology (SKU storage, job lot storage, cross-docking) • Overall trade-off: Responsiveness versus efficiency February 16, 2015 1-72
  • 73. INVENTORY • Role in the supply chain • Role in the competitive strategy • Components of inventory decisions February 16, 2015 1-73
  • 74. INVENTORY: ROLE IN THE SUPPLY CHAIN • Inventory exists because of a mismatch between supply and demand • Source of cost and influence on responsiveness • Impact on • material flow time: time elapsed between when material enters the supply chain to when it exits the supply chain • throughput • rate at which sales to end consumers occur • I = RT (Little’s Law) • I = inventory; R = throughput; T = flow time • Example • Inventory and throughput are “synonymous” in a supply chain February 16, 2015 1-74
  • 75. 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 • Trade-off • Example – Nordstrom February 16, 2015 1-75
  • 76. COMPONENTS OF INVENTORY DECISIONS • Cycle inventory • Average amount of inventory used to satisfy demand between shipments • Depends on lot size • Safety inventory • inventory held in case demand exceeds expectations • costs of carrying too much inventory versus cost of losing sales • Seasonal inventory • inventory built up to counter predictable variability in demand • cost of carrying additional inventory versus cost of flexible production • Overall trade-off: Responsiveness versus efficiency • more inventory: greater responsiveness but greater cost • less inventory: lower cost but lower responsiveness February 16, 2015 1-76
  • 77. TRANSPORTATION • Role in the supply chain • Role in the competitive strategy • Components of transportation decisions February 16, 2015 1-77
  • 78. TRANSPORTATION: ROLE IN THE SUPPLY CHAIN • Moves the product between stages in the supply chain • Impact on responsiveness and efficiency • Faster transportation allows greater responsiveness but lower efficiency • Also affects inventory and facilities February 16, 2015 1-78
  • 79. TRANSPORTATION: ROLE IN THE COMPETITIVE STRATEGY • 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 • Example: Laura Ashley February 16, 2015 1-79
  • 80. COMPONENTS OF TRANSPORTATION DECISIONS • Mode of transportation: • air, truck, rail, ship, pipeline, electronic transportation • vary in cost, speed, size of shipment, flexibility • Route and network selection • route: path along which a product is shipped • network: collection of locations and routes • In-house or outsource • Overall trade-off: Responsiveness versus efficiency February 16, 2015 1-80
  • 81. INFORMATION • Role in the supply chain • Role in the competitive strategy • Components of information decisions February 16, 2015 1-81
  • 82. INFORMATION: ROLE IN THE SUPPLY CHAIN • 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 February 16, 2015 1-82
  • 83. INFORMATION: ROLE IN THE COMPETITIVE STRATEGY • Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off) • Information technology • What information is most valuable? • Example: Dell February 16, 2015 1-83
  • 84. COMPONENTS OF INFORMATION DECISIONS • Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain) • Coordination and information sharing • Forecasting and aggregate planning • Enabling technologies • EDI • Internet • ERP systems • Supply Chain Management software • Overall trade-off: Responsiveness versus efficiency February 16, 2015 1-84
  • 85. SOURCING • Role in the supply chain • Role in the competitive strategy • Components of sourcing decisions February 16, 2015 1-85
  • 86. SOURCING: ROLE IN THE SUPPLY CHAIN • Set of business processes required to purchase goods and services in a supply chain • Supplier selection, single vs. multiple suppliers, contract negotiation February 16, 2015 1-86
  • 87. COMPONENTS OF SOURCING DECISIONS • In-house versus outsource decisions • Supplier evaluation and selection • Procurement process • Overall trade-off: Increase the supply chain profits February 16, 2015 1-87
  • 88. SOURCING: ROLE IN THE COMPETITIVE STRATEGY • Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain • In-house vs. outsource decisions- improving efficiency and responsiveness • Example : Cisco February 16, 2015 1-88
  • 89. SOURCING: ROLE IN THE COMPETITIVE STRATEGY • Firms can utilize optimal pricing strategies to improve efficiency and responsiveness • Low price and low product availability; vary prices by response times • Example: Amazon February 16, 2015 1-89
  • 90. PRICING • Role in the supply chain • Role in the competitive strategy • Components of pricing decisions February 16, 2015 1-90
  • 91. 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 February 16, 2015 1-91
  • 92. COMPONENTS OF PRICING DECISIONS • Pricing and economies of scale • Everyday low pricing versus high-low pricing • Fixed price versus menu pricing • Overall trade-off: Increase the firm profits February 16, 2015 1-92
  • 93. ASSIGNMENT… February 16, 2015 • Why is achieving strategic fit critical to a company’s overall success? • How does a company achieve strategic fit between its supply chain strategy and its competitive strategy? • What is the importance of expanding the scope of strategic fit across the supply chain? • What advantages does selling books via the Internet provide? Are there disadvantages? • For what products does the e-commerce channel offer the greatest benefits? What characterizes these products? 1-93

Editor's Notes

  • #16: 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.
  • #21: Notes: Supply chain surplus refers to what the customer has paid - total cost expended by supply chain in filling order.
  • #30: 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.
  • #33: 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
  • #39: Dell has three production sites worldwide and builds to order. Compaq does both. Consider some decisions involved - where to locate facilities? How to size them? Where is the push/pull boundary? What modes of transport to use? How much inventory to carry? In what form? Where to source from?