1. Supply Chain Management

2. What is a Supply Chain ? <ul&><li&>All activities associated with the flow and transformation of goods from raw materials to end users. </li&></ul&><ul&><li&>The term supply chain refers to the entire network of companies that work together to design, produce, deliver, and service products. </li&></ul&><ul&><li&>A network of facilities including: </li&></ul&><ul&><ul&><li&>Material flow from suppliers and their “ upstream ” suppliers at all levels, </li&></ul&></ul&><ul&><ul&><li&>Transformation of materials into semi-finished and finished products ( internal process ) </li&></ul&></ul&><ul&><ul&><li&>Distribution of products to customers and their “ downstream ”customers at all levels . </li&></ul&></ul&>

3. Supply Chain Overview Transportation Customers Warehousing Information
Vendors/plants/ports
Factory
Customers
Information
flows
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
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4. Logistics vs Supply Chain Management
Council of Logistics Management
“Logistics is the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from the point of origin to point of consumption for the purpose of conforming to customer requirements.”
Handfield and Nichols
SCM is the integration of all activities associated with the flow and transformation of goods from raw materials through to end user, as well as information flows, through improved supply chain relationships, to achieve a sustainable competitive advantage.
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

5. Supply Chain Management (SCM) <ul&><li&>A set of processes and sub-processes which attempt to implement and optimize the functions, connected entities, and interacting elements of a supply chain. </li&></ul&><ul&><li&>Involves: </li&></ul&><ul&><ul&><li&>Organizations, procedures, people. </li&></ul&></ul&><ul&><ul&><li&>Activities: Purchasing, delivery, packaging, checking, warehousing, etc. </li&></ul&></ul&><ul&><ul&><li&>Establishment of long-term relationships with suppliers (supply alliances) and distributors </li&></ul&></ul&><ul&><ul&><li&>Effective flow of information through the supply chain </li&></ul&></ul&><ul&><ul&><li&>Supply chain optimization </li&></ul&></ul&>

6. The Logistics/SCM Mission
Getting the right goods or services to the right place, at the right time, and in the desired condition at the lowest cost and highest return on investment.
Product / Service Utility
Possession Utility - the value or usefulness that comes from a customer being able to take possession of a product
Form Utility - in a form that can be used by the customer and is of value to the customer
Place Utility - available where they are needed by customers
Time Utility - available when they are needed by customers
Logistics obviously help time and place utility
Dickson Chiu 2006

7. Evolution of Supply Chain Management
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

8. Supply Chain Schematic
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
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9. Critical Customer Service Loop
Dickson Chiu 2006

10. Physical Distribution Costs
Category
Percent of sales
$/cwt.
Transportation
3.34%
$26.52
Warehousing
2.02
18.06
Order entry
0.43
4.58
Administration
0.41
2.79
Inventory carrying
1.72
22.25
Total
7.65%
$67.71
Logistics cost are about 10% of sales w/o purchasing costs
Add one-third for inbound supply costs
Source: Herb Davis & Company
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

11. Customer Service Performance
Source: Herb Davis & Company
Dickson Chiu 2006

12. Traditional Scope of the Supply Chain
Physical distribution
Physical supply
(Materials management)
Business logistics
Sources of
supply
Plants/
operations
Customers •
Transportation
Inventory maintenance
Order processing
Acquisition
Protective packaging
Warehousing
Materials handling
Information maintenance
Product scheduling
Internal supply chain
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006
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13. Key Activities/Processes
Primary
Setting customer service goals
Transportation
Inventory management
Location
Secondary, or supporting
Warehousing
Materials handling
Acquisition (purchasing)
Protective packaging
Product scheduling
Order processing
Dickson Chiu 2006

14. Logistics Strategy and Planning
The objectives of logistics strategy
Minimize cost
Minimize investment
Maximize customer service
Levels of logistical planning
Strategic
Tactical
Operational
Dickson Chiu 2006

15. The Logistics Strategy Triangle (4 problem areas)
Customer
service goals
The product
Logistics service
Information sys.
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

16. Strategic, Tactical, and Operational Decision Making
Decision area
Strategic
Tactical
Operational
Transportation
Mode selection
Seasonal equip-
Dispatching
ment leasing
Inventories
Location, Control policies
Safety stock levels
Order filling
Order
Order entry, transmittal,
Processing
processing
and processing system
orders, Filling
design
back orders
Purchasing
Development of supplier-
Contracting,
Expediting
buyer relations
Forward buying
Warehousing
Handling equipment
Space utilization
Order picking
selection, Layout design
and restocking
Facility
Number, size, and
location
location of warehouses
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

17. Relationship of Logistics to Marketing and Production
Sample
activities:
PRODUCTION/
MARKETING
Transport
Interface
OPERATIONS
Sample
Interface
Inventory
activities:
Sample activities:
activities:
activities:
Order
Customer
Quality control
Promotion
Product
processing
service
Detailed production
Market
scheduling
Materials
standards
scheduling
research
Plant
handling
Pricing
Equipment
maint .
Product
location
Packaging
Capacity planning
mix
Purchasing
Retail
Work measurement
Sales force
location
&
standards
management
Production-
logistics
Marketing-
interface
logistics
interface
Internal Supply Chain
CR (2004) Prentice Hall, Inc.
Dickson Chiu 2006

18. Three Flows in SC <ul&><li&>There are three kinds of flows in a supply chain: material , information , capital . </li&></ul&><ul&><li&>Downstream </li&></ul&><ul&><ul&><li&>Material: Products, Parts </li&></ul&></ul&><ul&><ul&><li&>Information: Capacity, Delivery Schedules </li&></ul&></ul&><ul&><ul&><li&>Finance: Invoices, Pricing, Credit Terms </li&></ul&></ul&><ul&><li&>Upstream </li&></ul&><ul&><ul&><li&>Material: Returns, Repairs, After-sales Services </li&></ul&></ul&><ul&><ul&><li&>Information: Orders, Point-of-sale Data </li&></ul&></ul&><ul&><ul&><li&>Finance: Payments </li&></ul&></ul&>

19. Push vs. Pull in supply chains <ul&><li&>Push or Building-to-stock(BTS): Producing stock on the basis of anticipated demand. Demand forecasting can be done via a variety of sophisticated techniques (some from the Operations Research area and some using Data Mining). </li&></ul&><ul&><li&>Pull or Building-to-order(BTO): Producing stock in response to actual demand (firm orders). </li&></ul&><ul&><li&>The Push-Pull Point: In many supply chains, upstream units employ BTS, while downstream units employ BTO strategies. The point in the supply chain where the switch-over (from BTS to BTO) occurs is called the Push-Pull point. </li&></ul&><ul&><li&>Optimally locating the Push-Pull point is a key determinant of supply chain performance. </li&></ul&><ul&><ul&><li&>Examples ? </li&></ul&></ul&>

20. The Push vs. Pull Model

21. Major Concepts <ul&><li&>Order fulfillment </li&></ul&><ul&><ul&><li&>Deliver right order on time </li&></ul&></ul&><ul&><li&>Front office operations: order taking, advertisement, CRM </li&></ul&><ul&><li&>Back office operations: Accounting, finance, inventor, packaging, logistics </li&></ul&><ul&><li&>Logistics: Managing the flow of goods, information and money along the supply chain </li&></ul&>

22. The Process of Order Fulfillment

23. The Steps of Order Fulfillment <ul&><li&>7
The Steps of Order Fulfillment <ul&><li&>7. Purchasing, warehousing </li&></ul&><ul&><li&>8. Demand forecast </li&></ul&><ul&><li&>9. Accounting, billing </li&></ul&><ul&><li&>10. Customer contacts </li&></ul&><ul&><li&>11. Returns (Reverse logistics) </li&></ul&><ul&><li&>1. Payment Clearance </li&></ul&><ul&><li&>2. In-stock availability </li&></ul&><ul&><li&>3. Packaging, shipment </li&></ul&><ul&><li&>4. Insuring </li&></ul&><ul&><li&>5. Production (planning, execution) </li&></ul&><ul&><li&>6. Plant services </li&></ul&>

24. Key Business Areas <ul&><li&>Enterprise performance </li&></ul&><ul&><li&>Customer service </li&></ul&><ul&><li&>Order management </li&></ul&><ul&><li&>Demand planning </li&></ul&><ul&><li&>Warehouse distribution </li&></ul&><ul&><li&>Partnerships </li&></ul&><ul&><li&>Supplier/supply base management </li&></ul&>

25. Benefits of SCM <ul&><li&>Reduce uncertainty along the chain </li&></ul&><ul&><li&>Proper inventory levels in the chain </li&></ul&><ul&><li&>Minimize delays </li&></ul&><ul&><li&>Eliminate rush (unplanned) activities </li&></ul&><ul&><li&>Provide good customer service </li&></ul&>

26. Global Supply Chain <ul&><li&>Can be very long </li&></ul&><ul&><li&>Possible cross-border problems </li&></ul&><ul&><li&>Need information technology support for: </li&></ul&><ul&><ul&><li&>communication and collaboration </li&></ul&></ul&><ul&><li&>Possible delays due to: customs, tax, translations, politics </li&></ul&>

28. An Illustration: How Li & Fung Limited Might Make a Dress
Globally Dispersed Manufacturing
An Illustration: How Li & Fung Limited Might Make a Dress
QC & Shipping
[Hong Kong]
Product Design
Zippers+…
[Japan+…]
Stitching
[Indonesia]
Weaving
[Taiwan]
Yarn Spinning
[Korea]

29. Problems along the Supply Chain <ul&><li&>Delays in production, distribution etc. </li&></ul&><ul&><li&>Expensive Inventories </li&></ul&><ul&><li&>Lack of partners’ coordination </li&></ul&><ul&><li&>Uncertainties in deliveries </li&></ul&><ul&><li&>Poor demand forecast </li&></ul&><ul&><li&>Interference with production </li&></ul&><ul&><li&>Poor quality </li&></ul&>

30. Magnitude of Supply Chain Costs Example: The Apparel Industry
Manufacturer
Distributor
Retailer
Customer
Cost per Percent
Shirt Saving
$ %
$ %
$ %

31. More Challenges <ul&><li&>Complexity of the supply chain network </li&></ul&><ul&><ul&><li&>e.g. large numbers of suppliers and distributors </li&></ul&></ul&><ul&><li&>Complexity in product structure and manufacturing process </li&></ul&><ul&><ul&><li&>How much product differentiation/ customization/ localization should be supported ? </li&></ul&></ul&><ul&><ul&><li&>Where do you customize a product (upstream or downstream) ? </li&></ul&></ul&><ul&><li&>decentralized control/organizational &silos& </li&></ul&><ul&><li&>increasing pressure for customer service and asset utilization </li&></ul&>

32. Variability in the supply chain <ul&><li&>Demand variability </li&></ul&><ul&><ul&><li&>Even the most sophisticated demand forecasting tools often fail to anticipate demand </li&></ul&></ul&><ul&><ul&><li&>Examples of demand variability problems ? </li&></ul&></ul&><ul&><li&>Process variability </li&></ul&><ul&><ul&><li&>Production unit downtimes </li&></ul&></ul&><ul&><ul&><li&>Unexpected staff absences </li&></ul&></ul&><ul&><li&>Supply variability </li&></ul&><ul&><ul&><li&>e.g., late deliveries from suppliers </li&></ul&></ul&>

33. The Bullwhip Effect <ul&><li&>Slight changes in actual demand create problems </li&></ul&>Babies Distributors Proctor & Gamble 3M Retailers

34. Bullwhip effect
The bullwhip effect can be explained as an occurrence detected by the supply chain where orders sent to the manufacturer and supplier create larger variance then the sales to the end customer. 
These irregular orders in the lower part of the supply chain develop to be more distinct higher up in the supply chain. 
This variance can interrupt the smoothness of the supply chain process as each link in the supply chain will over or underestimate the product demand resulting in exaggerated fluctuations.

35. Common Causes of the Bullwhip Effect <ul&><li&>Demand forecast mismatches </li&></ul&><ul&><ul&><li&>Demand forecasting distributed across units in the supply chain </li&></ul&></ul&><ul&><li&>Order Batching </li&></ul&><ul&><ul&><li&>Sometimes helps achieve economies of scale </li&></ul&></ul&><ul&><li&>Price Fluctuations </li&></ul&><ul&><ul&><li&>“ forward buy” inducements through lower prices </li&></ul&></ul&><ul&><li&>Others: </li&></ul&><ul&><ul&><li&>partners build “just in case” inventories </li&></ul&></ul&><ul&><ul&><li&>lack of trust among partners </li&></ul&></ul&><ul&><ul&><li&>cannot order material from suppliers </li&></ul&></ul&>

36. Product design <ul&><li&>The product has been designed so that localization (or customization or differentiation) can occur as close as possible to the local market. </li&></ul&><ul&><li&>The product is built for a specific market before it is shipped out of the factory </li&></ul&>Upstream differentiation Downstream differentiation Example: The Hewlett-Packard Deskjet Printer. How might you localize ?

37. Technology in the SC <ul&><li&>The internet and the web can be very effective communication enhancers </li&></ul&><ul&><li&>Software includes demand forecasting tools and planning tools to allow all SC members to coordinate their activities and adjust their production levels. </li&></ul&><ul&><li&>Software can allow members to: </li&></ul&><ul&><ul&><li&>review past performance </li&></ul&></ul&><ul&><ul&><li&>monitor current performance </li&></ul&></ul&><ul&><ul&><li&>predict future production levels of products . </li&></ul&></ul&>

38. Web SCM <ul&><li&>Share information about consumer demand </li&></ul&><ul&><li&>Receive rapid notification of product design changes and adjustments </li&></ul&><ul&><li&>Provides specs and drawings more efficiently. </li&></ul&><ul&><li&>Increase speed of processing transactions. </li&></ul&><ul&><li&>Reduce cost of handling transactions. </li&></ul&><ul&><li&>Reduce errors in entering transaction data </li&></ul&><ul&><li&>Share information about defect rates and types. </li&></ul&>

39. Cisco’s Value Network

40. Example 2: Dell <ul&><li&>Create “Virtual integration” : the entire supply chain acts like a single integrated company. </li&></ul&><ul&><ul&><li&>Upstream partners: contract manufacturers (CM) and component suppliers </li&></ul&></ul&><ul&><ul&><li&>Downstream partners/customers (most are business corporations) </li&></ul&></ul&><ul&><li&>Share information with suppliers on inventory levels. </li&></ul&><ul&><li&>Maintain long-term relationships with key suppliers for design collaboration. </li&></ul&>

41. Example 2: Benefits for Dell <ul&><li&>Dell and Suppliers work together as a “Virtual Enterprise” </li&></ul&><ul&><li&>BTO benefits (low inventory) </li&></ul&><ul&><li&>Dynamic pricing: change prices rapidly in response to demand and availability </li&></ul&><ul&><li&>Strong links to corporate customers </li&></ul&>

42. Example 3: Covisint <ul&><li&>B2B Supply Chain Benefits </li&></ul&><ul&><ul&><li&>Automated procurement </li&></ul&></ul&><ul&><ul&><ul&><li&>lower procurement costs </li&></ul&></ul&></ul&><ul&><ul&><ul&><li&>lower inventories </li&></ul&></ul&></ul&><ul&><ul&><li&>Collaboration: </li&></ul&></ul&><ul&><ul&><ul&><li&>complete visibility </li&></ul&></ul&></ul&><ul&><ul&><ul&><li&>less bullwhip </li&></ul&></ul&></ul&><ul&><ul&><li&>Efficient market </li&></ul&></ul&><ul&><ul&><ul&><li&>More profits </li&></ul&></ul&></ul&><ul&><ul&><li&>Sell unused capacity </li&></ul&></ul&>

43. Supply chain integration: Benefits <ul&><li&>Tangible benefits </li&></ul&><ul&><ul&><li&>Inventory reduction, personnel reduction, productivity improvement, order management improvement, financial cycle improvements. </li&></ul&></ul&><ul&><li&>Intangible benefits </li&></ul&><ul&><ul&><li&>Information visibility, new / improved processes, customer responsiveness, standardization, flexibility, globalization, and business performance. </li&></ul&></ul&>