1. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-1 BUSINESS DRIVEN TECHNOLOGY Business Plug-In B3 Supply Chain Management

2. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-2 LEARNING OUTCOMES 1.Describe supply chain planning and supply chain execution 2.List and describe the four drivers of supply chain management 3.Explain supply chain management strategies focused on efficiency

3. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-3 LEARNING OUTCOMES 4.Explain supply chain management strategies focused on effectiveness 5.Summarize the future of supply chain management

4. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-4 INTRODUCTION Supply chain – consists of all parties involved, directly or indirectly, in the procurement of a product or raw material Supply chain management (SCM) – involves the management of information flows between and among stages in a supply chain to maximize total supply chain effectiveness and profitability

5. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-5 Supply Chain Strategies There are two primary types of supply chain management software: 1. Supply chain planning (SCP) software –uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain while reducing inventory 2. Supply chain execution (SCE) software – automates the different steps and stages of the supply chain

6. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-6 Supply Chain Strategies SCP and SCE software correlation to the supply chain

7. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-7 SUPPLY CHAIN DRIVERS The four primary drivers of supply chain management: 1.Facilities 2.Inventory 3.Transportation 4.Information Organizations use these four drivers to support either a supply chain strategy focusing on efficiency or a supply chain strategy focusing on effectiveness

8. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-8 SUPPLY CHAIN DRIVERS

9. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-9 FACILITIES DRIVER Facility – processes or transforms inventory into another product, or it stores the inventory before shipping it to the next facility Three primary facilities components: 1.Location 2.Capacity 3.Operational design

10. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-10 FACILITIES 1: Location Location efficiency – centralize the location to gain economies of scale, which increases efficiency Location effectiveness – decentralize the locations to be closer to the customers, which increases effectiveness

11. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-11 FACILITIES 2: Capacity Capacity efficiency – minimal excess capacity with the ability to produce only what is required Capacity effectiveness – large amounts of excess capacity which can handle wide swings in demand

12. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-12 FACILITIES 3: Operational Design Operational design efficiency – product focus design allows the facility to become highly efficient at producing one single product, increasing efficiency Operational design effectiveness – functional focus design allows the facility to perform a specific function on many different types of products, increasing effectiveness

13. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-13 FACILITIES DRIVER

14. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-14 INVENTORY DRIVER Inventory – offsets discrepancies between supply and demand Two primary inventory components: 1.Cycle inventory 2.Safety inventory

15. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-15 INVENTORY 1: Cycle Inventory Cycle inventory efficiency – holding small amounts of inventory and receiving orders weekly or even daily Cycle inventory effectiveness – holding large amounts of inventory and receiving inventory deliveries only once a month – Cycle inventory – the average amount of inventory held to satisfy customer demands between inventory deliveries

16. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-16 INVENTORY 2: Safety Inventory Safety inventory efficiency – holding small amounts of safety inventory Safety inventory effectiveness – holding large amounts of safety inventory – Safety inventory – extra inventory held in the event demand exceeds supply

17. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-17 INVENTORY DRIVER

18. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-18 TRANSPORTATION DRIVER Transportation – moves inventories between the different stages in the supply chain Two primary inventory components: 1.Method of transportation 2.Transportation route

19. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-19 TRANSPORTATION 1: Method of Transportation Method of transportation efficiency – choosing an inexpensive method of transportation increases efficiency, but also typically increases delivery time Method of transportation effectiveness – choosing an expensive method of transportation to ensure speedy delivery increases effectiveness

20. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-20 TRANSPORTATION 2: Transportation Route Transportation route efficiency – a company can save money by shipping its products to a distributor that ships the products to its customers Transportation route effectiveness – a company can ship its products directly to its customers

21. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-21 TRANSPORTATION DRIVER

22. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-22 INFORMATION DRIVER Information – an organization must decide how and what information it wants to share with its supply chain partners Two primary information components: 1.Information sharing 2.Push vs. pull strategy

23. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-23 INFORMATION 1: Information Sharing Information sharing efficiency – freely share lots of information to increase the speed and decrease the costs of supply chain processing Information sharing effectiveness – share only selected information with certain individuals, which will decrease the speed and increase the costs of supply chain processing

24. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-24 INFORMATION 2: Push vs. Pull Information Strategy Pull information strategy (efficiency) – supply chain partners are responsible for pulling all relevant information – Pull technology environment – pulls information Push information strategy effectiveness – organization takes on the responsibility to push information out to its supply chain partners – Push technology environment – sends information

25. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-25 INFORMATION DRIVER

26. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-26 APPLYING A SUPPLY CHAIN DESIGN Wal-Mart’s supply chain management strategy emphasizes efficiency, but also maintains adequate levels of effectiveness – Facilities focus – Efficiency – Inventory focus – Efficiency – Transportation focus – Effectiveness – Information focus - Efficiency

27. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-27 APPLYING A SUPPLY CHAIN DESIGN

28. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-28 Future Trends Fastest growing SCM components: – Supply chain event management (SCEM) – enables an organization to react quickly to resolve supply chain issues – Selling chain management – applies technology to the activities in the order life cycle from inquiry to sale – Collaborative engineering – allows an organization to reduce the costs required during the design process of a product – Collaborative demand planning – helps organizations reduce their investment in inventory, while improving customer satisfaction through product availability

29. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-29 Closing Case One Listerine’s Journey When you use Listerine antiseptic mouthwash, you are experiencing the last step in a complex supply chain spanning several continents and requiring months of coordination by countless businesses and individuals As raw material is transformed to finished product, what will be Listerine travels around the globe and through multiple supply chains and information systems

30. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-30 Closing Case One Questions 1.Summarize SCM and describe Warner-Lambert’s supply chain strategy 2.Detail Warner-Lambert’s facilities strategy 3.Detail Warner-Lambert’s inventory strategy

31. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-31 Closing Case One Questions 4.Detail Warner-Lambert’s transportation strategy 5.Detail Warner-Lambert’s information strategy 6.Describe what would happen to Warner- Lambert’s business if a natural disaster in Saudi Arabia depletes its natural gas resources

32. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-32 Closing Case Two Crafting an SCM Strategy for Michaels A retailer’s transportation systems must use the most efficient routes, optimize loads, and employ economical and reliable carrier to get the right products to the right place at the right time Michaels choose to implement a transportation system from i2 to increase planning and processing efficiencies and gain visibility into transportation planning

33. McGraw-Hill/Irwin © 2006 The McGraw-Hill Companies, Inc. All rights reserved. 3-33 Closing Case Two Questions 1.Describe Michaels’s transportation strategy in terms of methods and routes 2.Define the correlation between the information and transportation drivers. How can Michaels use the information driver to affect its transportation driver in terms of efficiency and effectiveness? 3.Explain how the new systems’ ability to use “what-if” scenarios to validate new distribution network strategies will benefit Michaels