Presentation on theme: "Supply Chain Management Introduction"— Presentation transcript:
1 Supply Chain Management Introduction OutlineWhat is supply chain management?Significance of supply chain management.Push vs. Pull processesNotes:
2 A Generic Supply Chain Sources: plants vendors ports Regional Warehouses:stockingpointsFieldWarehouses:stockingpointsCustomers,demandcenterssinksSupplyA customer is a supplier for some other company. A supplier is a customer for some other company. Not all pieces of a supply chain belongs to the same company.InventoryPurchaseInventoryTransportation
3 Traditional View: Cost breakdown of a manufactured good Profit 10%Supply Chain Cost 20%Marketing Cost 25%Manufacturing Cost 45%ProfitSupply ChainCostMarketingManufacturingNotes: Key message here is that logistics costs are a significant fraction of the total value of a product. The problem here is that this a purely cost based view of the supply chain and drives a firm to simply reducing logistics costs. This is an incomplete picture.Effort spent for supply chain activities are invisible to the customers.
4 Supply Chains in US Economy in 2007 Transportation and inventory managersSupply Chains in US Economy in 2007Logistics related activity 11%, 10.5%, 10.1%of GDP in 1990, ,Inventory Carrying Costs – 2,026 B inventory BInterest BTaxes, Obsolescence, Depreciation, Insurance BWarehousing BTransportation Costs BTruck – Intercity BTruck – Local BRailroads BWater (International 33 + Domestic 5) BOil pipelines BAir (International 16 + Domestic 25) BForwarders BShipper Related Costs BLogistics Administration BTotal BNotes: Traditionally logistics and supply chain management have been measured in terms of transportation and inventory costs and the administration required to manage both. Traditionally firms would have an inventory manager and a transportation manager. This view is very narrow and causes significant problems in the proper functioning of the supply chain.
5 Importance of Supply Chain Management In 2000, the US companies spent $1 trillion (10% of GNP) on supply-related activities (movement, storage, and control of products across supply chains). Source: State of Logistics ReportTier 1 SupplierManufacturerDistributorRetailerCustomerInefficient logisticsHigh stockoutsIneffective promotionsFrequent Supply shortagesHigh landed costs to the shelfHigh inventories through the chainLow order fill ratesGlitch-Wrong Material, Machine is Down – effect snowballsEliminating inefficiencies in supply chains can save millions of $.
6 What can Supply Chain Management do? P&G (Proctor&Gamble) estimates it saved retail customers $65 M (in 18 months) by collaboration with retailers resulting in a better match of supply and demand.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 dealershipFaster turnaround of the goods is better?Laura Ashley (retailer of women and children clothes) turns its inventory 10 times a year five times faster than 3 years agoinventory is emptied 10 times a year, or an item spends about 12/10 months in the inventory.To be responsive, it relocated its main warehouse next to FedEx hub in Memphis, TE.National Semiconductor used air transportation and closed 6 warehouses, 34% increase in sales and 47% decrease in delivery lead time.
7 Top 25 Supply ChainsAMR research publishes reports on supply chains and other issues.The Top 25 supply chains report comes out in Novembers.The table on the right-hand side is from The Second Annual Supply Chain Top 25 prepared by Kevin Riley and Released in November 2005.
8 SCM Generated Value Minimizing supply chain costs while keeping a reasonable service levelcustomer satisfaction/quality/on time delivery, etc.This is how SCM contributes to the bottom lineSCM is not strictly a cost reduction paradigm!
9 A picture is better than 1000 words A picture is better than 1000 words! How many words would be better than 3 pictures?- A supply chain consists ofSupplierManufacturerDistributorRetailerCustomerUpstreamDownstreamSUPPLY SIDEDEMAND SIDE- aims to Match Supply and Demand, profitably for products and services- achievesThe rightProductHigherProfitsTimeCustomerQuantityStorePrice=+
10 An example: Detergent supply chain P&G or othermanufacturerThirdparty DCAlbertson’sSupermarketCustomer wantsdetergentPlastic cupProducerTennecoPackagingChemicalmanufacturer(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
11 Cycle View of Supply Chains Customer Order CycleReplenishment CycleManufacturing CycleProcurement CycleCustomerRetailerDistributorManufacturerSupplierAny cycle0. Customer arrival1. Customer triggers an order2. Supplier fulfils the order3. Customer receives the orderThe 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.
12 Flows in a Supply Chain Supplier Customer Material Information Funds The flows resemble a chain reaction.
13 Push vs Pull SystemWhat instigates the movement of the work in the system?In Push systems, work release is based on downstream demand forecastsKeeps inventory to meet actual demandActs proactivelye.g. Making generic job application resumes today (e.g.: exempli gratia)In Pull systems, work release is based on actual demand or the actual status of the downstream customersMay cause long delivery lead timesActs reactivelye.g. Making a specific resume for a company after talking to the recruiter
14 Push/Pull View of Supply Chains Typically, Procurement,Typically, CustomerOrder CycleManufacturing andReplenishment cyclesPUSH PROCESSESPULL PROCESSESIn 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 viewsCustomerOrder ArrivesPush-Pull boundary
15 Examples of Supply Chains Dell / Compaq, computer (assembly) industryDell buys some components for a product from its suppliers after that product is purchased by a customer. Extreme case of a pull process.Amazon / Barnes and Noble, bookstoresAmazon is strictly an online store. Amazon uses more pull processes.Zara / Benetton, apparel (=clothing) industryZara is a Spanish company selling apparel with a short design-to-sale cycle to avoid markdowns. Zara uses relatively more pull.Toyota / GM / Volkswagen, car manufacturersToyota provides reasonable quality at reasonable cost. Car manufacturing is mostly done as push process.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?
16 Summary Components of supply chains. Significance of supply chain management.Push vs. Pull processes.Notes: