1. Supply Chain Management
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Supply Chain Management
Lecture 2
Chapter 1

2. Announcements Summer Intern Program at Ball Aerospace
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Announcements
Summer Intern Program at Ball Aerospace
10 week summer program that provides candidates with
Practical experience on relevant projects while working with designated mentors
A competitive salary
Access to state-of-the-art equipment
Possible future employment
Housing assistance
Relocation reimbursement
In-house training
Group activities  
For more information visit
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3. Outline Last Tuesday Today Next week Chapter 1 Chapters 2 and 3
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Outline
Last Tuesday
Chapter 1
Sections 1, 2
Today
Sections 3, 4, 5
Next week
Chapters 2 and 3
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4. What is a Supply Chain? Flow of products and services from
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What is a Supply Chain?
Flow of products and services from
Suppliers
Raw materials manufacturers
Intermediate goods manufacturers
Finished goods manufacturers
Distributors and wholesalers
Retailers
Customers
Connected through transportation, information, and exchanges of funds
Bold definition: getting things out of the ground and back into the ground
Supplier
Manufacturer
Distributor
Retailer
Customer
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5. Key Observations In order to maximize supply chain surplus
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Key Observations
In order to maximize supply chain surplus
Every facility that impacts costs needs to be considered
Suppliers’ suppliers
Customers’ customers
Efficiency throughout the supply chain network is required using a network level approach
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6. What is Supply Chain Management?
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What is Supply Chain Management?
Supply chain management involves the management of supply chain assets and products, information, and fund flows to maximize total supply chain surplus
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7. What is Supply Chain Management?
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What is Supply Chain Management?
Getting the right things
to the right places
at the right times
for profit
Supply chain management is the management of flows (product, information, funds, etc) between and among supply chain stages to maximize total supply chain profitability
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8. What is Supply Chain Management?
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What is Supply Chain Management?
“Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer”
The Supply Chain Council
“The design and management of seamless, value-added process across organizational boundaries to meet the real needs of the end customer”
Institute for Supply Management
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9. What is Supply Chain Management?
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What is Supply Chain Management?
“Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements”
Simchi-Levi et al, 2003
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10. SYST 4050 Slides
Video
Ford Manufacturing Supply Chain
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11. What is Supply Chain Management?
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What is Supply Chain Management?
Supply chain management is all about relationships
Management of relationships in order to enhance value and reduce cost
Collaboration is an important part of effective supply chain management
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12. Evolution of Supply Chain Management
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Evolution of Supply Chain Management
1950s
1960s
1970s
1980s
1990s
2000s
Beyond
Traditional Mass Manufacturing
Inventory Management/Cost
Optimization
JIT, TQM, BPR,
Alliances
SCM Formation/
Extensions
Further Refinement of
SCM Capabilities
Mass manufacturing Little to none attention paid to creating partnerships, flexibility
Inventory management MRP systems were developed.
Just-in-time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated carrying costs.
Total Quality Management (TQM) is a business management strategy aimed at embedding awareness of quality in all organizational processes.
Business process reengineering (BPR) is the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in critical contemporary measures of performance, such as cost, quality, service, and speed
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13. Evolution of Supply Chain Management
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Evolution of Supply Chain Management
Mass production era (1900s – 1970s)
In the early 1900s, Henry Ford created the first moving assembly line reducing the time to build a Model T from 728 hours to 1.5 hours
Lean manufacturing era (1970s –1995)
In the early 1970s, Japanese manufacturers like Toyota changed the rules of production from mass to lean. Lean manufacturing focuses on flexibility and quality more than on efficiency and quantity.
Mass customization era (1995 – 2010?)
Beginning around 1995 and coinciding with the commercial application of the Internet, manufacturers started to mass-produce customized products. Henry Ford’s famous statement “You can have any color Model T as long as it’s black” no longer applies.
Mass customization (information management) era
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14. Managing a Supply Chain is Not Easy
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Managing a Supply Chain is Not Easy
Geographically dispersed complex network
Conflicting objectives across the supply chain
Uncertainty and risk factors
Information distortion
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15. Managing a Supply Chain is Not Easy
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Managing a Supply Chain is Not Easy
Geographically dispersed complex network
To make this jacket for the US market, Hong Kong garment producer Li & Fung ordered materials from factories in five countries and had them delivered to Thailand, where the jacket was stitched together. Using a network of Web sites, Li & Fung stays in touch with its worldwide suppliers and can compress the time it takes to get items into stores
A YKK factory site in Macon, Ga., produces 7 million zippers a day, in a total of 1,500 styles in more than 427 standard colors. It's the largest zipper factory in the world.
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16. Managing a Supply Chain is Not Easy
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Managing a Supply Chain is Not Easy
Conflicting objectives across the supply chain
Manufacturer
Distributor
Retailer
Customer
Large production batches
Low inventory
Few DCs
Few stores
Low inventory
Little variety
Close to DCs
Convenience
Short lead time
Large variety of products
Large shipments
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17. Managing a Supply Chain is Not Easy
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Managing a Supply Chain is Not Easy
Uncertainty and risk factors
2005 Hurricane Katrina
P&G coffee supplies from sites around New Orleans
Six month impact
2002 West Coast port strike
Losses of $1B/day
Store stock-outs, factory shutdowns
2001 India earthquake
Supply interruptions for apparel manufacturers
1999 Taiwan earthquake
Supply interruptions for HP and Dell
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18. Managing a Supply Chain is Not Easy
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Managing a Supply Chain is Not Easy
Information distortion
Supplier
Manufacturer
Distributor
Retailer
Customer
Bullwhip effect: P&G coined the term after studying the demand for disposable diapers. As expected, babies use diapers at a fairly steady and predictable rate, and retail sales are quite uniform. But P&G found that each retailer bases his own orders on his own slightly exaggerated forecast, thereby distorting the information about real demand. Wholesalers’ order to the P&G diaper factory fluctuated even more. And P&G’s orders to 3M and other materials suppliers fluctuated even more
It is one of the most important causes of inefficiency in a supply chain
Bullwhip effect
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19. Why Study Supply Chain Management?
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Why Study Supply Chain Management?
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20. SYST 4050 Slides
The Magnitude
In 1998, American companies spent $898 billion in supply chain related activities (or 10.6% of Gross Domestic Product)
Third party logistics services grew in 1998 by 15% to nearly $40 billion
It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using more effective logistics strategies
A typical box of cereal spends more than three months getting from factory to supermarket
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21. SYST 4050 Slides
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
Laura Ashley turns its inventory 10 times a year, five times faster than three years ago
New information system
Centralized warehouse
Wal-Mart designed its supply chain with clusters of stores around distribution centers to facilitate frequent replenishment at its retail stores in a cost effective manner. Frequent replenishment allows stores to match supply and demand more efficiently than the competition. Wal-Mart has been a leader in sharing information and collaborating with suppliers to bring down costs and improve product availability. The results were impressive.
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22. SYST 4050 Slides
The Impact
Producers have streamlined their supply chain operations to hold less inventory relative to sales
In 1996, Dell held 31 days of inventory. It now holds only 4 days of inventory.
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23. SYST 4050 Slides
The Impact
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24. The Impact The Turning Point (The Economist, 9/20/07)
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The Impact
The Turning Point (The Economist, 9/20/07)
“For such a tiny part of GDP, the contents of warehouses has had a surprisingly big effect on its volatility. When industries cut or add stocks according to demand, that adjustment magnifies the effect of the initial change in sales. Stock levels were once much larger relative to the size of the economy, so a small slip in demand could easily blow up into a recession. But thanks to improvements in technology, firms now have timelier and better information about buyers. Speedier market intelligence and production in smaller batches allows firms to match supply to changing conditions. This makes huge stocks unnecessary and minimizes the lurches in inventories that were once so destabilizing. The entire inventory of some lean-running companies now consists of whatever FedEx or UPS is shipping on their account. Mr Cecchetti and his colleagues calculate that, on average, more than half the improvement in the stability of economic growth in the countries they studied is accounted for by diminished inventory cycles. That something so workaday as supply-chain management could have so marked an effect might seem a dull conclusion. But dullness is a virtue, because technological improvement is irreversible”
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25. SYST 4050 Slides
The Impact
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26. Study of Supply Chain Management
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Study of Supply Chain Management
Successful supply chain management requires decisions on the flow of information, product, and funds that fall into three decision phases
Supply chain strategy or design
Supply chain planning
Supply chain operation
Each decision should be made to increase the supply chain surplus
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27. Decision Phases in a Supply Chain
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Decision Phases in a Supply Chain
TIME FRAME
TYPE
TYPICAL DECISIONS
Supply chain network design (How many plants? Location and capacities of plants and warehouses?)
Supply chain strategies (Sell direct or through
retailers? Outsource or in-house? Focus on cost or
customer service?)
Product mix at each plant
years
Strategic
Workforce & Production planning
Inventory policies (safety stock level)
Which locations supply which markets
Transportation strategies
3 mo.- 1year
Tactical
Where is uncertainty the highest?
Supply chain design, planning, and operation decisions play a significant role in the success or failure of a firm
Supply chain strategy or design
Supply chain planning
Supply chain operation
Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty
Supply chain planning decisions use a fixed supply chain configuration to come up with an overall production plan
Supply chain operation makes decisions about individual customer orders
Operational
Production scheduling
Decisions regarding individual orders
Place replenishment orders
daily
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28. Study of Supply Chain Management
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Study of Supply Chain Management
A supply chain is a sequence of processes and flows that take place within and between different stages
Cycle view
The processes in a supply chain are divided into a series of cycles, each performed at the interface between two successive stages of a supply chain
Push/pull view
The processes in a supply chain are divided into two categories depending on whether they are executed in response or in anticipation of a customer order
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29. Cycle View of Supply Chain Processes
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Cycle View of Supply Chain Processes
Customer
Customer Order Cycle
Cycle view defines the processes involved and the owner of each process
Retailer
Replenishment Cycle
Distributor
Each cycle occurs at the interface between two successive stages
Customer order cycle (customer-retailer)
Replenishment cycle (retailer-distributor)
Manufacturing cycle (distributor-manufacturer)
Procurement cycle (manufacturer-supplier)
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
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30. Subprocesses in Each Cycle
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Subprocesses in Each Cycle
Buyer
Supplier markets the product
Buyer may return the product
Buyer places an order
Buyer receives the order
Supplier receives the order
Supplier supplies the order
Supplier
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31. Cycle View of Supply Chain Processes
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Cycle View of Supply Chain Processes
Customer Order Process
1. Customer Arrival
2. Customer Order Entry
3. Customer Order Fullfillment
4. Customer Order Receiving
Customer Order Cycle
Replenishment Process
1. Retail Order Trigger
2. Retail Order Entry
3. Retail Order Fullfillment
4. Retail Order Receiving
Replenishment Cycle
Manufacturing Process
1. Order Arrival
2. Production Scheduling
3. Manufacturing/Shipping
4. Receiving
Differences
In the CustomerOrderCycle demand is external
Scale (and frequency) of an order increases (decreases) when moving further away from the customer
Each cycle occurs at the interface between two successive stages
Customer order cycle (customer-retailer)
Replenishment cycle (retailer-distributor)
Manufacturing cycle (distributor-manufacturer)
Procurement cycle (manufacturer-supplier)
Manufacturing Cycle
Procurement Process
1. Component Order Arrival
2. Production Scheduling
3. Manufacturing/Shipping
4. Receiving
Procurement Cycle
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32. Push/Pull View of Supply Chain Processes
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Push/Pull View of Supply Chain Processes
Execution is initiated in response to customer orders
(reactive)
PULL PROCESSES
Customer order arrives
Execution is initiated in anticipation of customer orders
(speculative)
PUSH PROCESSES
Processes are divided based on their timing relative to the timing of a customer order
They key difference is the uncertainty during the two phases
At the time of execution of a pull process customer demand is known
At the time of execution of a push process customer demand is not known (and must be forecasted)
Processes are divided based on the timing of their execution relative to a customer order
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33. Push/Pull Processes for the Supply chain of Dell
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Push/Pull Processes for the Supply chain of Dell
PULL
Customer
Make-to-order
Customer Order Cycle and
Manufacturing Cycle
Manufacturer
Procurement Cycle
PUSH
Supplier
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34. Push/Pull Processes for the Supply chain of Detergent
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Push/Pull Processes for the Supply chain of Detergent
Customer
PULL
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Make-to-stock
Manufacturing Cycle
PUSH
Manufacturer
Procurement Cycle
Supplier
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35. Are the following systems push or pull?
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Are the following systems push or pull?
Soda vending machines
Amazon.com
Emergency care
Execution is initiated in response to customer orders
Execution is initiated in anticipation of customer orders
Paint industry
Runway capacity at an Airport
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36. Cycle View Versus Push/Pull View
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Cycle View Versus Push/Pull View
Which view is more useful when considering operational decisions and which view is more useful when considering strategic decisions?
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37. Examples of Supply Chains
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Examples of Supply Chains
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38. SYST 4050 Slides
Celestial Seasonings
The herbs were originally harvested by hand in the Rocky Mountains
Currently, herbs and leafs come from growers around the world
“We’ve been working to establish sustainable harvests and fair wages for more than 30 years”
What are advantages of having one production facility?
What are disadvantages of having one production facility?
What advantages does selling tea over the Internet provide?
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