Presentation on theme: "Supply Chain Management"— Presentation transcript:
1 Supply Chain Management Definition:Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying customer service requirements.Notice:Who is involvedCost and Service LevelIt is all about integration
2 What is Supply Chain Management? Managing supply chain flows and assets, to maximize supply chain surplus.What is supply chain surplus?Notes:Supply chain surplus refers to what the customer has paid - total cost expended by supply chain in filling order.Supply chain surplus could be viewed as customer value (company’s contrinutions, tangibles & intangible to its customers?
4 What is a supply chain? P&G or other manufacturer Jewel or third party DCJewelSupermarketCustomer wantsdetergent and goesto JewelPlasticProducerTennecoPackagingChemicalmanufacturer(e.g. Oil Company)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.Chemicalmanufacturer(e.g. Oil Company)PaperManufacturerTimberIndustry
6 Supply Chain Strategy & Design Location & capacity of production and warehousesProducts to manufactured and in which locationsMode of transportationTypes of information systems to be usedStrategic sourcing decisions
7 Supply Chain Planning Markets to be supplied & from which location Planned build-up of inventorySubcontracting of manufacturingTiming and size of market promotionHandling uncertainty in demand, foreign exchange fluctuationsEstablishing production plan under fixed strategic parameters
8 Supply Chain Operations Decisions over individual customer orders (daily, weekly)Less uncertainty about demand informationExploit reduction of uncertainty to optimize performanceEstablish deliver datesEstablish order fill rate
9 Cycle View of Supply Chains CustomerCustomer Order CycleRetailerReplenishment CycleDistributorThe 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.Manufacturing CycleManufacturerProcurement CycleSupplier
10 Strategic Scope Suppliers Manufacturer Distributor Retailer Customer Competitive StrategyProduct Dev. StrategySupply Chain StrategyStrategic scope must cover all boxes, at least at the supply chain end. Each stage must have fit across its vertical boxes and supply chain strategy spanning all players. This fit allows the countering of multiple owners and helps avoid local optimization.Marketing Strategy
12 Supply Chain Challenges Achieving Global OptimizationConflicting ObjectivesComplex network of facilitiesSystem Variations over time
13 Supply Chain Challenges Achieving Global OptimizationConflicting ObjectivesComplex network of facilitiesSystem Variations over timeManaging UncertaintyMatching Supply and DemandDemand is not the only source of uncertainty
14 Key Issues in Supply Chain Management Distribution Network ConfigurationInventory ControlSupply contractDistribution StrategiesSupply Chain Integration & Strategic PartneringOutsourcing & Procurement StrategiesIn distribution network, major issues are warehouse location & capacities, production levels, transportation flows, etc.In inventory, we need to know how much to order and when to order to increase the inventory turns and minimize stock-outsSupply contract details the relationship between the suplier and the buyer in terms of pricing, volume discounts, delivery lead time returns, etc.In distribution strategy we need to decide whether we use cross-docking, warehousing strategy or direct shipping.Information sharing and operational planing are key to scm integrationWhat are the firm’s core competencies? Is the company willing to assume the risk with outsourcing?Is it possible to leverage product design to compensate for uncertainties in customer demand?IT is a critical enabler to effective SCM. What is the quality and usefulness of the data?Customer value is a moving target since expectations are always increasing. Value may supersede quality and cost
15 Key Issues of SCM (cont) Product DesignInformation Technology & Decision Support SystemCustomer Value
16 Relationships between key SCM Issues and the business environment Global OptimizationManaging UncertaintyDist. Conf.XInv. ControlSup. ContractDist. StrategiesSt. partnershipOutsourcingPr. DesignIT & DSSCust. Value
17 Prerequisites for Supply Chain Management Top management understanding & commitmentQuest for excellenceEffective and efficient communicationRelationship instead of exchangeCross-functional teamsReality of team, partnerships & alliances (based on harmony & trust)
18 Supply Chain: The Magnitude In 1998, American companies spent $898 billion in supply-related activities (or 10.6% of Gross Domestic Product).Transportation 58%Inventory 38%Management 4%Third party logistics services grew in 1998 by 15% to nearly $40 billion
19 Supply Chain: The Magnitude (continued) It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies.A typical box of cereal spends 104 days getting from factory to supermarket.A typical new car spends 15 days traveling from the factory to the dealership.
20 Supply Chain: The Magnitude (continued) Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them.Boeing Aircraft, one of America’s leading capital goods producers, was forced to announce writedowns of $2.6 billion in October The reason? “Raw material shortages, internal and supplier parts shortages…”. (Wall Street Journal, Oct. 23, 1997)
21 Supply Chain: The Potential Procter & Gamble estimates that it saved retail customers $65 million through logistics gains over the past 18 months. “According to P&G, the essence of its approach lies in manufacturers and suppliers working closely together …. jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain”. (Journal of Business Strategy, Oct./Nov. 1997)
22 Supply Chain: The Potential Dell Computer has outperformed the competition in terms of shareholder value growth over the eight years period, , by over 3,000% (see Anderson and Lee, 1999) using- Direct business model- Build-to-order strategy.
23 Supply Chain: The Potential In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer.
24 Supply Chain: The Complexity National Semiconductors:Production:Produces chips in six different locations: four in the US, one in Britain and one in IsraelChips are shipped to seven assembly locations in Southeast Asia.DistributionThe final product is shipped to hundreds of facilities all over the world20,000 different routes12 different airlines are involved95% of the products are delivered within 45 days5% are delivered within 90 days.
25 Supply Chain Management: The Magnitude in the Traditional View Estimated that the grocery industry could save $30 billion (10% of operating cost by using effective logistics and supply chain strategiesA typical box of cereal spends 104 days from factory to saleA typical car spends 15 days from factory to dealershipLaura Ashley turns its inventory 10 times a year, five times faster than 3 years ago
26 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 neededWhen the 1 gig processor was introduced by AMD, the price of the 800 meg processor dropped by 30%P&G estimates it saved retail customers $65 million by collaboration resulting in a better match of supply and demand
27 Drivers of Supply Chain Performance EfficiencyResponsivenessInventoryTransportationFacilitiesInformationSupply chain structureDriversHow does a supply chain make the efficiency / responsiveness tradeoff and position at the appropriate point - using Inventory, Transportation, Facilities, and Information decisions.
29 Achieving Strategic Fit Understanding the CustomerLot sizeResponse timeService levelProduct varietyPriceInnovationImpliedDemandUncertainty
30 The Value Chain: Linking Supply Chain and Business Strategy New ProductStrategyMarketingStrategySupply Chain StrategyNewProductDevelopmentMarketingandSalesOperationsDistributionServiceFinance, Accounting, Information Technology, Human Resources
31 Flows in a Supply Chain Supply Chain Customer Information Product FundsSupply Chain
32 Sequential Optimization vs. Global Optimization ProcurementPlanningManufacturingDistributionDemandSequential OptimizationSupply Contracts/Collaboration/Information Systems and DSSProcurementPlanningManufacturingDistributionDemandGlobal OptimizationSource: Duncan McFarlane
33 The Dynamics of the Supply Chain Production PlanDistributor OrdersRetailer OrdersOrder SizeCustomerDemandWhat is shown here is how divergent these various forecasts are in relation to real demand.Why?? Because they are developed independently from each other and are dated, and unconnected to each other and the daily fluctuations in the marketTimeSource: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
34 The Dynamics of the Supply Chain Production PlanOrder SizeCustomerDemandWhat is shown here is how divergent these various forecasts are in relation to real demand.Why?? Because they are developed independently from each other and are dated, and unconnected to each other and the daily fluctuations in the marketTimeSource: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998