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Supply Chain Management Introduction

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Presentation on theme: "Supply Chain Management Introduction"— Presentation transcript:

1 Supply Chain Management Introduction
Outline What is supply chain management? Significance of supply chain management. Push vs. Pull processes Notes:

2 A Generic Supply Chain Sources: plants vendors ports Regional
Warehouses: stocking points Field Warehouses: stocking points Customers, demand centers sinks Supply A 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. Inventory Purchase Inventory Transportation

3 Traditional View: Cost breakdown of a manufactured good
Profit 10% Supply Chain Cost 20% Marketing Cost 25% Manufacturing Cost 45% Profit Supply Chain Cost Marketing Manufacturing Notes: 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 managers Supply Chains in US Economy in 2007 Logistics related activity 11%, 10.5%, 10.1% of GDP in 1990, , Inventory Carrying Costs – 2,026 B inventory B Interest B Taxes, Obsolescence, Depreciation, Insurance B Warehousing B Transportation Costs B Truck – Intercity B Truck – Local B Railroads B Water (International 33 + Domestic 5) B Oil pipelines B Air (International 16 + Domestic 25) B Forwarders B Shipper Related Costs B Logistics Administration B Total B Notes: 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 Report Tier 1 Supplier Manufacturer Distributor Retailer Customer Inefficient logistics High stockouts Ineffective promotions Frequent Supply shortages High landed costs to the shelf High inventories through the chain Low order fill rates Glitch-Wrong Material, Machine is Down – effect snowballs Eliminating 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 strategies A typical box of cereal spends 104 days from factory to sale A typical car spends 15 days from factory to dealership Faster 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 ago inventory 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 Chains AMR 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 level customer satisfaction/quality/on time delivery, etc. This is how SCM contributes to the bottom line SCM 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 of Supplier Manufacturer Distributor Retailer Customer Upstream Downstream SUPPLY SIDE DEMAND SIDE - aims to Match Supply and Demand, profitably for products and services - achieves The right Product Higher Profits Time Customer Quantity Store Price = +

10 An example: Detergent supply chain
P&G or other manufacturer Third party DC Albertson’s Supermarket Customer wants detergent Plastic cup Producer Tenneco Packaging Chemical manufacturer (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. Chemical manufacturer (e.g. Oil Company) Paper Manufacturer Timber Industry

11 Cycle View of Supply Chains
Customer Order Cycle Replenishment Cycle Manufacturing Cycle Procurement Cycle Customer Retailer Distributor Manufacturer Supplier Any cycle 0. Customer arrival 1. Customer triggers an order 2. Supplier fulfils the order 3. Customer receives the order 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.

12 Flows in a Supply Chain Supplier Customer Material Information Funds
The flows resemble a chain reaction.

13 Push vs Pull System What instigates the movement of the work in the system? In Push systems, work release is based on downstream demand forecasts Keeps inventory to meet actual demand Acts proactively e.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 customers May cause long delivery lead times Acts reactively e.g. Making a specific resume for a company after talking to the recruiter

14 Push/Pull View of Supply Chains
Typically, Procurement, Typically, Customer Order Cycle Manufacturing and Replenishment cycles PUSH PROCESSES PULL PROCESSES 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 Customer Order Arrives Push-Pull boundary

15 Examples of Supply Chains
Dell / Compaq, computer (assembly) industry Dell 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, bookstores Amazon is strictly an online store. Amazon uses more pull processes. Zara / Benetton, apparel (=clothing) industry Zara 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 manufacturers Toyota 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:

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