1. Supply Chain Management
Mid-Semester Review

2. Review Definition of supply chain Decision phases of supply chain
Strategic, planning & operational
Supply chain cycle times
Customer order cycle, replenishment cycle, manufacturing cycle, and procurement cycle
Impact on customer, retailer, distributor, manufacturing, and suppliers
Cycle view varies from company to company

3. Weeks in Review Strategic scope Supply Chain Challenges
Intracompany/intraoperational
Intracompany/intrafunctional
Intracompany/interfunctional
Intercompany/interfunctional
Supply Chain Challenges
Achieving global optimization
Managing uncertainty

4. Weeks in Review Prerequisites to effective supply chain management
Top management support and commitment
Quest for excellence
Effective/efficient communication
Relationship vs. exchange
Team. Partnerships & alliances
Examples

5. Weeks in Review Drivers of Supply Chain Performance
Efficiency
Responsiveness
Inventory
Transportation
Facilities
Information
Supply chain structure
Drivers
How does a supply chain make the efficiency / responsiveness tradeoff and position at the appropriate point - using Inventory, Transportation, Facilities, and Information decisions.

6. Weeks in Review Considerations for Supply Chain Drivers

7. Flows in a Supply Chain Supply Chain Customer Product Information
Funds
Supply Chain

8. Supply Chain Enablers Organizational Infrastructure
Information Technology
Strategic Alliance
Human Resource Management

9. Supply Chain Enablers

10. Organizational Infrastructure
Coherent business strategy that aligns business units towards same goals – 32%
Formal process-flow methodologies to enable the SCM improvements – 15%
People committed to and responsible for cross-functional processes – 14%
Right process metrics identified to guide operating units’ performance toward strategic organizational SCM objective - 13%

11. Weeks in Review Functional vs. Innovative Products:
Functional (Predictable)
Innovative (unpredictable)
Product life cycle
More than 2 years
3 months to 1 years
Contribution margin
5% to 20%
20% to 60%
Product variety
Low (10 to variants per category)
High (often millions of variants per category
Forecast accuracy (margin of error)
10%
40% to 100%
Average stockout rate
1% to 2%
10% to 40%
Average forced markdown 0%
10% to 25%
Delivery Lead time
6 months to 1 year
1 day to 2 week

12. Weeks in Review Physically Efficient vs. Market-Responsive
Physically Efficient Process
Market-Responsive Process
Primary purpose
Supply predictable demand efficiently at the lowest possible cost
Respond quickly to unpredictable demand to minimize stockouts, forced markdowns, and obsolete inventory
Manufacturing focus
Maintain high average utilization rate
Deploy excess buffer capacity for flexibility
Inventory strategy
Generate high turns & lower inventory cost
Deploy significant buffer stock of all stock items
Lead-time focus
Shorten lead time at low cost
Invest in ways to reduce lead time
Approach to choosing suppliers
Select primarily for cost and quality
Select primarily for speed, flexibility, and quality
Product-design strategy
Maximize performance at minimum product cost
Use modular design to postpone product differentiation

13. Efficiency-Responsiveness Framework of Supply Chain
Functional Product
Innovative Products
Match
Mismatch
Efficient Supply Chain
Responsive Supply Chain

14. Zone of strategic fit in supply chain
Responsive Supply Chain
Responsiveness Spectrum
Zone of Strategic Fit
Efficient Supply Chain
Implied Uncertainty Spectrum
Uncertain Demand
Certain Demand

15. Supply Chain Strategies
Push-Based Supply Chain
Pull-Based Supply Chain
Push-Pull Supply Chain

16. Push-Pull Supply Chains
The Supply Chain Time Line
Push-Pull Boundary
PUSH STRATEGY
PULL STRATEGY
Customers
Suppliers
Low Uncertainty
High Uncertainty

17. Locating the Push-Pull Boundary
The figure provides examples of the location of the push-pull boundary for various companies and industries
What is the impact of pushing the push-pull boundary from right to left? Clearly as items move along the supply chain time line (from left to right) their value increase. Thus, locating the boundary as far to the left as possible will reduce inventory holding cost. However this is appropriate for products with short assembly and transportation lead times.

18. What is the Best Strategy?
Demand uncertainty
(C.V.)
Delivery cost
Unit price
L H H L
Economies of Scale
Pull Push
Pull
Push I
Computer II IV
III

19. E-Fulfillment Requires a New Logistics Infrastructure

20. Distribution Strategies

21. E-business Opportunities:
Reduce Facility Costs
Eliminate retail/distributor sites
Reduce Inventory Costs
Apply the risk-pooling concept
Centralized stocking
Postponement of product differentiation
Use Dynamic Pricing Strategies to Improve Supply Chain Performance
Two Summary Slides: opportunities provided by e-business

22. E-business Opportunities:
Supply Chain Visibility
Reduction in the Bullwhip Effect
Reduction in Inventory
Improved service level
Better utilization of Resources
Improve supply chain performance
Provide key performance measures
Identify and alert when violations occur
Allow planning based on global supply chain data

23. Logistics Design Decisions
Determine the appropriate number of warehouses
Determine the location of each warehouse
Determine the size of each warehouse
Allocate space for products in each warehouse
Determine which products customers will receive from each warehouse

24. Logistics Design Decisions
Determine the appropriate number of warehouses
Determine the location of each warehouse
Determine the size of each warehouse
Allocate space for products in each warehouse
Determine which products customers will receive from each warehouse

25. Decision Classifications
Strategic Planning: Decisions that typically involve major capital investments and have a long term effect
1. Determination of the number, location and size of new plants, distribution centers and warehouses
2. Acquisition of new production equipment and the design of working centers within each plant
3. Design of transportation facilities, communications equipment, data processing means, etc.

26. Decision Classifications
Tactical Planning: Effective allocation of manufacturing and distribution resources over a period of several months
1. Work-force size
2. Inventory policies
3. Definition of the distribution channels
4. Selection of transportation and trans-shipment alternatives

27. Decision Classifications
Operational Control: Includes day-to-day operational decisions
1. The assignment of customer orders to individual machines
2. Dispatching, expediting and processing orders
3. Vehicle scheduling

28. Performance Measures What you measure is what you get
Performance measures strongly affect the behavior of managers and employees
Tailor your performance measures to fit company’s mission and strategy
Over-reliance of a single measure might be detrimental to company’s long-term survivability

29. The Balanced Scorecard Framework
Financial Perspective
Internal Business
Perspective
How do we look to shareholders?
GOALS MEASURES
GOALS MEASURES
What must we excel at?
Customer Perspective
Innovation & Learning
Perspective
How do customers see us?
GOALS MEASURES
GOALS MEASURES
Can we continue to improve and create value?

30. Framework for Supply Chain Performance Metrics
Business Strategy
Supply Chain Strategy
Supply Chain Objectives
Operational Metrics
Customer Service Metrics
Financial metrics

31. Supply Chain Performance Framework
Customer Service
Metrics
Goals Measures
Operational Metrics
Financial Metrics
Goals Measures
Goals Measures

32. Efficiency Frontier of a Single Product Line10
Weeks of Supply
Company B
Company A
80%
100%
Fill Rate

33. Critical Factors in SC Performance Metrics
Establish performance objectives with customers in mind
Consider using order windows as the basis for order fulfillment metrics
Reflect reliability issues in the metrics they choose
Implement metrics consistently throughout the supply chain
Aggregate results as they move up the chain

34. Critical Factors in SC Performance Metrics (cont’d)
Apply process control techniques to the business process
Avoid pitting players in the systems against one another
Collect only data you really intend to use
Communicate the actions and rational to everyone

35. Bullwhip Effect
Increasing propagation of variability upstream through the supply chain

36. Increasing Variability Upstream the Supply Chain –Bullwhip Effect

37. Impact of the Bullwhip Effect

38. What are the Causes…. Demand forecasting Long cycle times
Min-max inventory level
Order-up-to level
orders increase more than forecasts
Long cycle times
Long lead times magnify this effect
Impact on safety stock
Product life cycle
Batch ordering
Volume & transportation discount

39. What are the Causes…. Price fluctuation Inflated orders
Promotional sales
Forward buying
Inflated orders
Orders placed increase during shortage periods
IBM Aptiva orders increased by 2-3 times when retailers thought that IBM would be out of stock over Christmas

40. Ways to Cope with the Bullwhip Effect
Reducing uncertainty
Centralizing demand information
Bullwhip inherent in use of various forecasting techniques
Reducing variability
Use of EDLP strategy (Payless)

41. Ways to Cope with the Bullwhip Effect (cont’d)
Lead time reduction
Order lead time (time to produce and ship)
Information lead time (time to process order)
Efficient network distribution design
Strategic partnership
Vendor managed inventory (VMI)
Sharing of customer information
Collaborative forecasting

42. Presentations/Case Studies/Game
Accenture – 3G Wireless communication
Army Logistics Operations
Payless ShoeSource – Supply Chain
Seven Eleven Japan
Li & Fung Internet
Beer Game