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© 2004 Prentice-Hall, Inc. MIS 584 Supply Chain Management Chapter 1 Understanding the Supply Chain
© 2004 Prentice-Hall, Inc. 1-2 Traditional View: Logistics in the Economy (1990, 1996) u Freight Transportation$352, $455 Billion u Inventory Expense$221, $311 Billion u Administrative Expense$27, $31 Billion u Logistics Related Activity 11%, 10.5% of GNP Source: Cass Logistics
© 2004 Prentice-Hall, Inc. 1-3 Traditional View: Logistics in the Manufacturing Firm u Profit4% u Logistics Cost21% u Marketing Cost27% u Manufacturing Cost48% Profit Logistics Cost Marketing Cost Manufacturing Cost
© 2004 Prentice-Hall, Inc. 1-4 Supply Chain Management: The Magnitude in the Traditional View u Estimated that the grocery industry could save $30 billion (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 u Laura Ashley turns its inventory 10 times a year, five times faster than 3 years ago
© 2004 Prentice-Hall, Inc. 1-5 Supply Chain Management: The True Magnitude u Compaq estimates it lost $.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed u When the 1 gig processor was introduced by AMD, the price of the 800 mb processor dropped by 30% u P&G estimates it saved retail customers $65 million by collaboration resulting in a better match of supply and demand
© 2004 Prentice-Hall, Inc. 1-6 Critical Operations Management Decisions u Goods & Service Design u Quality Management u Process & Capacity Design u Location Selection u Layout Design u Human Resource Management u Supply Chain Management u Inventory Management u Scheduling u Maintenance
© 2004 Prentice-Hall, Inc. 1-7 Gaining Competitive Advantage Strategies involve: u Better Product Differentiation u Faster Response u Lower Cost
© 2004 Prentice-Hall, Inc. 1-8 Outline u What is a Supply Chain? u Decision Phases in a Supply Chain u Process View of a Supply Chain u The Importance of Supply Chain Flows u Examples of Supply Chains
© 2004 Prentice-Hall, Inc. 1-9 What is a Supply Chain? u All stages involved, directly or indirectly, in fulfilling a customer request –Suppliers, –manufacturers, –wholesalers/distributers, –retailers, –Customers as well as transporters. u Examples: Wal-Mart, Dell
© 2004 Prentice-Hall, Inc Supply Chain Supplier Manufacturer Wholesaler/ Distributer RetailerCustomer Information Product Funds
© 2004 Prentice-Hall, Inc What is a Supply Chain? u Customer is an integral part of the supply chain u Includes movement of information, funds, and products in both directions u Probably more accurate to use the term “supply network” or “supply web” u All stages may not be present in all supply chains (e.g., no retailer or distributor for Dell)
© 2004 Prentice-Hall, Inc What is a Supply Chain? Customer wants detergent and goes to Wall Mart Wall Mart Supermarket Wall Mart or Third party DC P&G or other manufacturer Plastic Producer Chemical manufacturer (e.g. Oil Company) Tenneco Packaging Paper Manufacturer Timber Industry Chemical manufacturer (e.g. Oil Company)
© 2004 Prentice-Hall, Inc The Objective of a Supply Chain u Maximize overall value created by the SC. u Supply chain value= worth of the final product to the customer - supply chain costs of in filling the customer’s request u Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain)
© 2004 Prentice-Hall, Inc The Objective of a Supply Chain u Example: Dell receives $2000 from a customer for a computer (revenue) u Supply chain incurs costs (information, storage, transportation, components, assembly, etc.) u Difference between $2000 and the sum of all of these costs is the supply chain profit. u Supply chain profitability is total profit to be shared across all stages of the supply chain u Supply chain success should be measured by total supply chain profitability, not profits at an individual stage!
© 2004 Prentice-Hall, Inc The Objective of a Supply Chain u Sources of supply chain revenue: the customer u Sources of supply chain cost: flows of information, products, or funds between stages of the supply chain u Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability
© 2004 Prentice-Hall, Inc Decision Phases of a Supply Chain u Supply chain strategy or design u Supply chain planning u Supply chain operation
© 2004 Prentice-Hall, Inc Supply Chain Strategy or Design u Decisions about the structure of the supply chain and what processes each stage will perform over the next several “years”. u Strategic supply chain decisions –Locations and capacities of facilities –Products to be made or stored at various locations –Modes of transportation –Information systems u Supply chain design must support strategic objectives u Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty
© 2004 Prentice-Hall, Inc Supply Chain Planning u Definition of a set of policies that govern short-term operations u Fixed by the supply configuration from previous phase u Starts with a forecast of demand in the coming year u Usually time horizon is the “quarter of a year”.
© 2004 Prentice-Hall, Inc Supply Chain Planning u 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 u Must consider in planning decisions demand uncertainty, exchange rates, competition over the time horizon
© 2004 Prentice-Hall, Inc Supply Chain Operation u Time horizon is “weekly or daily”. u Decisions regarding individual customer orders –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 u Supply chain configuration is fixed and operating policies are determined u Goal is to implement the operating policies as effectively as possible u Much less uncertainty (short time horizon)
© 2004 Prentice-Hall, Inc Process View of a Supply Chain u 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 u 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)
© 2004 Prentice-Hall, Inc Cycle View of Supply Chains Customer Order Cycle Replenishment Cycle Manufacturing Cycle Procurement Cycle Customer Retailer Distributor Manufacturer Supplier
© 2004 Prentice-Hall, Inc Cycle View of a Supply Chain u 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) u 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.
© 2004 Prentice-Hall, Inc Customer Order Cycle Involves all processes directly involved in receiving and filling the customer’s order u Customer arrival u Customer order entry u Customer order fulfillment u Customer order receiving
© 2004 Prentice-Hall, Inc Replenishment Cycle All processes involved in replenishing retailer inventories (retailer is now the customer) u Retail order trigger u Retail order entry u Retail order fulfillment u Retail order receiving
© 2004 Prentice-Hall, Inc Manufacturing Cycle All processes involved in replenishing distributor (or retailer) inventory u Order arrival from the distributor, retailer, or customer u Production scheduling u Manufacturing and shipping u Receiving at the distributor, retailer, or customer
© 2004 Prentice-Hall, Inc Procurement Cycle u All processes necessary to ensure that materials are available for manufacturing to occur according to schedule u Manufacturer orders components from suppliers to replenish component inventories u However, component orders can be determined precisely from production schedules (different from retailer/distributor orders that are based on uncertain customer demand) u Important that suppliers be linked to the manufacturer’s production schedule
© 2004 Prentice-Hall, Inc Push/Pull View of Supply Chains Procurement, Manufacturing and Replenishment cycles Customer Order Cycle Customer Order Arrives PUSH PROCESSESPULL PROCESSES
© 2004 Prentice-Hall, Inc Push/Pull View of Supply Chain Processes u Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand u Pull: execution is initiated in response to a customer order (reactive). Also called make-to-order u Push: execution is initiated in anticipation of customer orders (speculative). Also called make-to-stock u Push/pull boundary separates push processes from pull processes
© 2004 Prentice-Hall, Inc Push/Pull View of Supply Chain Processes u Useful in considering strategic decisions relating to supply chain design – more global view of how supply chain processes relate to customer orders u Can combine the push/pull and cycle views –L.L. Bean –Dell u The relative proportion of push and pull processes can have an impact on supply chain performance
© 2004 Prentice-Hall, Inc Ex: L.L. Bean, a mail order company Customer Order Cycle Replenishment and Manufacturing Cycle Procurement Cycle Customer L.L.Bean Manufacturer Supplier Customer order arrives PULL PROCESSES PUSH PROCESSES
© 2004 Prentice-Hall, Inc Ex: Dell Computers Customer Order and Manufacturing Cycle Procurement Cycle Customer Manufacturer Supplier Customer order arrives PULL PROCESSES PUSH PROCESSES
© 2004 Prentice-Hall, Inc Supply Chain Macro Processes u All SC processes can be classified into three categories. SRM Supplier Relationship Management ISCM Internal Supply Chain Management CRM Customer Relationship Management Supplier Firm Customer u Source u Negotiate u Buy u Design Collaboration u Supply Collaboration u Strategic Planning u Demand Planning u Supply Planning u Fulfillment u Field Service u Market u Sell u Call Center u Order Management
© 2004 Prentice-Hall, Inc The Importance of Supply Chain Flows u Supply chain decisions can play a significant role in the success or failure of a firm u Close connection between design and management of supply chain flows (product, information and cash) and supply chain success u Ex: –Dell invested in managing the flows effieiciently: success –Quaker Oats purchased Snapple: failure
© 2004 Prentice-Hall, Inc Examples of Supply Chains: 7-Eleven Japan u What factors influence decisions of opening and closing stores? Location of stores? u Why has 7-Eleven chosen off-site preparation of fresh food? u Why does 7-Eleven discourage direct store delivery from vendors? u Where are distribution centers located and how many stores does each center serve? How are stores assigned to distribution centers? u Why does 7-Eleven combine fresh food shipments by temperature? u What point of sale data does 7-Eleven gather and what information is made available to store managers? How should information systems be structured?
© 2004 Prentice-Hall, Inc Summary of Learning Objectives u What are the cycle and push/pull views of a supply chain? u How can supply chain macro processes be classified? u What are the three key supply chain decision phases and what is the significance of each? u What is the goal of a supply chain and what is the impact of supply chain decisions on the success of the firm?
© 2004 Prentice-Hall, Inc Amazon.com u Why is Amazon building more warehouses as it grows? How many warehouses should it have and where should they be located? u What advantages does selling books via the Internet provide? Are there disadvantages? u Why does Amazon stock bestsellers while buying other titles from distributors? u Does an Internet channel provide greater value to a bookseller like Borders or to an Internet-only company like Amazon? u Should traditional booksellers like Borders integrate e-commerce into their current supply? u For what products does the e-commerce channel offer the greatest benefits? What characterizes these products?
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