© 2004 Prentice-Hall, Inc. 1-1 OVERVIEW OF SUPPLY CHAIN PLANNING ISSUES

© 2004 Prentice-Hall, Inc. 1-2 Helpful References (Print) 1. Chopra, S. and Meindl, P., “Supply Chain Management: Strategy, Planning and Operation,” Prentice Hall, Chase, Aquilano and Jacobs, “Operations Management for Competitive Advantage,” 9 th Edition, McGraw Hill, Handfield, R.B. and Nichols, E.L., “Introduction to Supply Chain Management,” Prentice Hall, 1999

© 2004 Prentice-Hall, Inc. 1-3 Helpful References (Internet)

© 2004 Prentice-Hall, Inc. 1-4 u OM: Design, operation & improvement of the production systems u OM: Concerned with conversion of inputs to outputs Operations Management (OM)

© 2004 Prentice-Hall, Inc. 1-5 INPUTS  People  Plants  Parts  Processes  Planning & control systems TRANSFORMATION  Assembly  Blending  Storing OUTPUTS  Tangible vs. Intangible  Direct vs. Indirect OM Framework

© 2004 Prentice-Hall, Inc. 1-6 u Transformations can be: – Physical –Location –Physiological –Informational OM: Transformation Types

© 2004 Prentice-Hall, Inc. 1-7 Characteristics of Manufacturing Environment u Increased product diversity u Reduced product life cycles u Increased awareness of the environment –impact of products & manufacturing systems u Difficulties of estimating the costs and benefits u Changing social expectations

© 2004 Prentice-Hall, Inc. 1-8 u Closed System –Manufacturing is seen as an internal function buffered from suppliers, customers, and other functions u Open Systems –Manufacturing is seen as closely linked to suppliers, customers and other functions Manufacturing System Views

© 2004 Prentice-Hall, Inc. 1-9 A Closed System View R&DMarketing Finance Manufacturing Customer Service PurchasingPersonnel Distribution & Logistics Suppliers Customers

© 2004 Prentice-Hall, Inc An Open System View Suppliers Manufacturing External Customers Other Functions

© 2004 Prentice-Hall, Inc Evolution From OM to Supply Chain OM ViewSupply Chain View u Closed System u Open System u Manufacturer Orientation u Customer Orientation u Local Optimization u Global Optimization Technology (hardware, software, multimedia, etc.) u Local System Capabilities u Enterprise System Capabilities

© 2004 Prentice-Hall, Inc Basis of Competition Yesterday Manufacturing company versus Manufacturing company Today Manufacturing company and it’s supply chain versus Manufacturing company and it’s supply chain Changing Basis of Competition

© 2004 Prentice-Hall, Inc u Consumers –Pay for your company’s final product u External customers –Receiving outputs from your company u Internal customers –Receiving outputs from you to others within the company Customers

© 2004 Prentice-Hall, Inc Supply Chain: Definition u Supply chain is a network of interconnected organizations or organizational entities developed with the goal of getting the right product to the right place at the right time

© 2004 Prentice-Hall, Inc Supply Chain: Scope u Supply chain encompasses every effort involved in producing and delivering a final product, from the supplier’s supplier to the customer’s customer –Efforts include managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing, information management, distribution and delivery to customers

© 2004 Prentice-Hall, Inc Supply Chain: Flows (1) u The following flows have to be managed in a supply chain: –Materials –Information –Cash

© 2004 Prentice-Hall, Inc Supply Chain: Flows (2) SuppliersManufacturersDistributorsCustomers After-sales support, Recycling, Order information, Payments Material, Information, Invoicing

© 2004 Prentice-Hall, Inc Supply Chain: Elements u Supply chain consists of elements internal and external to the company u These elements range from material producers to the customers u All supply chain elements must be appropriately integrated for a company to be able to effectively compete in chosen markets

© 2004 Prentice-Hall, Inc What is a Supply Chain? u All stages involved, directly or indirectly, in fulfilling a customer request u Includes manufacturers, suppliers, transporters, warehouses, retailers, customers u Within each company, the supply chain includes all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service) u Examples: Fig. 1.1 (Wal-Mart), Dell

© 2004 Prentice-Hall, Inc What is a Supply Chain? u Customer is an integral part of the supply chain u Includes movement of products from suppliers to manufacturers to distributors, but also includes movement of information, funds, and products in both directions Typical supply chain stages: customers, retailers, distributors, manufacturers, suppliers (Fig. 1.2) 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 Jewel Jewel Supermarket Jewel 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 u Supply chain value: difference between what the final product is worth to the customer and the effort the supply chain expends 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 Supply chain incurs costs (information, storage, transportation, components, assembly, etc.) 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 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

© 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 u Supply chain configuration is fixed and operating policies are determined u Goal is to implement the operating policies as effectively as possible u 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 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 u Customer order cycle (customer-retailer) u Replenishment cycle (retailer-distributor) u Manufacturing cycle (distributor-manufacturer) u Procurement cycle (manufacturer-supplier) u Figure (see previous power point) 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 u 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 u 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 u 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) u Push: execution is initiated in anticipation of customer orders (speculative) 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 (Figure 1.8) –Dell (Figures 1.9 and 1.10) u The relative proportion of push and pull processes can have an impact on supply chain performance

© 2004 Prentice-Hall, Inc Examples of Supply Chains  Micron Electronics Inc. (A direct sales Manufacturer) –Why has assembly of certain PCs been outsourced? What characterizes PCs or orders that have been outsourced? –Why does Micron have only one manufacturing site? –Why are individual orders shipped using FedEx and large corporate orders shipped using LTL? –Why are individual orders merged in transit rather than at the assembly site itself? –How much inventor of components and finished products is maintained?

© 2004 Prentice-Hall, Inc Examples of Supply Chains  7-Eleven ( A Convenience Store) (Japan) –One of the company’s objectives is to micro-match supply and demand by location, season, and time of day. –Fresh food and distribution center.  Toyota (A Global Auto Manufacturer) –Global production and distribution network.

© 2004 Prentice-Hall, Inc Examples of Supply Chains  Amazon.com (An E-Business) –Why is Amazon.com building more warehouses as it grows? How many warehouses should it have, and where should they be located? –What advantages does selling books via the Internet provide over a traditional bookstore? Are there any disadvantages to selling via the Internet? –Why does Amazon.com stock best-sellers while buying other titles from distributors? – Des the Internet channel provide greater value to a bookseller like Borders with retail outlets or to an e-business like Amazon.com?

© 2004 Prentice-Hall, Inc Stages of a Detergent Supply Chain

© 2004 Prentice-Hall, Inc Supply Chain Stages