Supply Chain Systems

ManufacturersSuppliers Customer

Demand

Products

Demand

ProductsDistributors

Demand

Products

Prepared By,Bharath M – 1MS09IM401

Today’s Objective Introduce Supply Chain Management

– Share my definition & perspective– Develop a common understanding

Identify current issues and trends in SCM

Propose SCM key success factors

Provide you with some learning & fresh

perspective

Supply Chain Management SCM - what is it?

– Broad scope - raw material to end customer & return (reverse logistics)

– Flows - Information, Material, Funds, Knowledge– Customer-focused, process-oriented– Systems thinking

“When I say logistics, someone else says SCM and someone else says that’s just transportation”Sr. Executive - Food Processor

“ The traditional supply chain is

a dysfunctional process.”

Jim MorehouseA.T. Kearney, Inc.

Internal Supply Chain - Linear Flows Along the

Process

Key: Information, Funds, KnowledgeInformation processingMaterial processing

Procurement Planning

ReceiveMake/Convert

VALO DistributeDeliver

OrderMgt.

Requirements

Capabilities

Invoice

Payment

Requirements

Capabilities

Invoice

Payment

To Suppliers To Customers

External Supply Chain Flows Across Network

MfgOEM

Customer

Raw Mat’lSupplier

VALO

Raw Mat’lSupplier

Raw Mat’lSupplier Component

Mfg

ComponentMfg VALO

Distr.Retailer

Distr.Retailer

...and back through Reverse Logistics

Supply Chain Integration Obstacles

– Functional silo mentality– Functional measures– Incentives– Infrastructure– New roles and responsibilities– Basic requirement for fundamental CHANGE

Challenges– Global markets– E-business– Short product life cycles

Supply Chain Integration requires...

Connecting & coordinating the flows...– Information– Knowledge– Materials– Funds

Alignment– Incentive – Measures– Organizations– Goals

MfgOEM

Customer

Raw Mat’lSupplier

VALO

Raw Mat’lSupplier

Raw Mat’l Supplier Component

Mfg

Component Mfg

VALO

Distr.Retailer

Distr.Retailer

...and back through Reverse Logistics

Current trends in SCM

New supply chain designs Evolutionary nature of the supply chain Enterprise Resource Planning (ERP) Systems

“...you're never going to get to 100% (from IT) ... you'll never be on time; you'll be over budget, and not know how to use it.”- Food Products Retailer*

Current Trends - New supply chain designs

Multiple extended supply chain designs attempted – Virtual Supply chain Internet supply chain

Monorail

– Dis-aggregated Nike, Sara Lee, Trends in automotive OEMs

– The Dell Model– Outsourcing

“...outsourcing is a great solution if you’re not the one responsible for managing the relationship”- Apparel Manufacturer*

Current Trends - The Dell Model (‘we want to be like

Mike’)Is the Dell model right for every company?

– It works for Dell in the ‘90s– What is right for one may not be right for another.

Should steel companies make-to-order like Dell? Should Compaq abandon its model to compete like Dell?

Is the direct model state-of-art?– Amazon.com profitability... when?– Calyx & Corolla direct model only moderate success– How will direct web-based model work where population

does not own or use computers?

Current Trends - Evolutionary nature of the supply chain

The rules and economics change Supply chain strategy evolves

– Cost focused versus business-building

– Strategy Amazon

Evolution of the supply chain organization– Practices– Structures– Culture

“I guess the supply chain per se

kind of falls in place....”

- Packaged Consumer

Products Manufacturer*

Current Trends - Evolutionary Nature of the Supply Chain

Company Evolved Practice Old Practice

Bose JIT II Arm’s length supply relationship, Bose Prod. development

Chrysler Extended Enterprise, SCORE

Antagonistic supply

Dell Account selection, Transparent OE, Metrics, LSP

One system serves all, Cust adjusts OE process, Fcnl metrics

GM Factory-wide scheduling

Separate Mfg & Dist. Schedules

P&G VMI, CRP, Account teams, SLOG, Metrics

We ship – you stock, Over-the-wall Mktg-Mfg-Dist

Current TrendsEnterprise Resource Planning (ERP)

Systems ERP SCM software versus ‘best-of-breed’ modules Expect dip in performance

– Quantify benefits and real costs of implementation Training and skill development and maintenance

“...you're never going to get to 100% (from IT) ... you'll never be on time; you'll be over budget, and not know how to use it.”- Food Products Retailer*

SCM Key Success Factors

Supply chain design Organization infrastructure The path to high performance

Key Success FactorsSupply Chain Design

Make thoughtful choices for your supply chain.– Choice of channels– Business and SC priorities– What to outsource, what to keep in house– What is the proper role for the SC in your company?

Likely to vary by industry, stage in life cycle, company strategy, company culture

Understand best practices of leaders – But do what makes sense for your company– Thoughtful reapplication of learning

Key Success Factors Organization Infrastructure

Measurement systems– Measure processes end-to-end– Customer-connected measures– Congruent goals (e.g., perfect orders)

Communication systems Compensation & incentive systems Career and skill development systems ‘Systems orientation’

– Shared authority– Horizontal Process Management model– Managing processes - key for SCM organizations

Key Success Factors Organization Infrastructure - A

TestimonyWhich is the driver for your business’ success,

information technology or the people in the organization?

“Absolutely THE PEOPLE, no question.” Don Schneider, CEO Schneider National

March 5, 1999

Horizontal Process Management Model - Choosing “What’s right” for your business

How should one resolve conflict between function and process?

Matrix as an analytical tool – Primary business strategy vs. functional interdependence – Primary business strategy

Differentiated Service Differentiated Product Low Cost

– Functional interdependence (subjective) Low (functions operate independent of each other) Medium High (rapid, immediate impact across functions)

Key Success FactorsThe Path to High Performance

Change Management / Implementation– Evolution or revolution– Process-dominant organization

Customers and Suppliers FirstEnvision and articulate the potentialExpect continuous change

– Reengineering is not a one-time event

Traditional Functional Organization

What happened? Reacting to the crisisRealizes the problem possibly too lateManagement supports but doesn’t fully understand (fad)Limited willingness to challenge entrenched barriers Attempted use of teams, some process-based practices

Customers & suppliers first!Mgt. understands the potential - works with supplier and/or customers to drive change internallySystemic customer-oriented measures, decision- making criteria

Avoiding changeAvoiding change Alignment doesn’t apply to us - “We are unique”Another ‘fad’…. We’ll wait it out….

The Path to High Performance SCM… Three Choices

The Path to SCM‘Customers & Suppliers first!’

Traditional Functional Organization

In transitionLow-hanging fruit leads to bigger opportunities‘Right’ levels of alignment & process/function focusDecision-making based on processes & customerAuthority & responsibility shared by cross-fcnl teams

Customers & suppliers first!Mgt. understands the potential - works with supplier and/or customers to drive changeSystemic customer-oriented measures, decision- making criteria

High performanceInternal & external alignmentProfits through reduced cost, increased revenues, reduced working capital

Traditional Functional Organization

Poor performanceMissed opportunitiesDrifting with mgt. fads

Not Getting to SCM - ‘Avoiding Change’

Avoiding changeAvoiding change Alignment doesn’t apply - “We are unique”Another ‘fad’…. We’ll wait it out….

The Path to SCM…...Which path is for you?

Traditional Functional Organization

In transitionLow-hanging fruit leads to bigger opportunities‘Right’ levels of alignment & process/function focusDecision-making based on processes & customer. Authority & responsibility shared by cross-fcnl teams

Poor performanceMissed opportunitiesDrifting with mgt. fads

Reacting to the crisisRealizes the problem possibly too lateManagement supports but doesn’t fully understand Limited willingness to challenge entrenched barriers Attempted use of teams, some process-based practices

Customers & suppliers first!Mgt. understands the potential - works with supplier and/or customers to drive changeSystemic customer-oriented measures, decision- making criteria

Avoiding changeAvoiding change Alignment doesn’t apply - “We are unique”Another ‘fad’…. We’ll wait it out….

High performanceInternal & external alignmentProfits through reduced cost, increased revenues, reduced working capital

HPM Matrix - Choose “What’s right”

DifferentiatedService Strategy

DifferentiatedProduct Strategy

Low Cost Strategy

Low Medium High

InformalCoordination

Focus on Customer

FormalStructure

Balance Process-Function

FormalStructure

Process Dominant

Ad hocCoordination

Focus on Operation

InformalCoordination

Function Dominant

FormalStructure

Balance Process-Function

Ad hocCoordination

Optimize Cost Driver

InformalCoordination

Optimize Cost Driver

InformalCoordination

Balance Process-FunctionOptimize Cost Driver

Functional Interdependence

Strategy

HPM Matrix - Choose “What’s right”

DifferentiatedService Strategy

DifferentiatedProduct Strategy

Low Cost Strategy

Low Medium High

Informal Coord Formal Formal

Ad hoc Informal Coord Formal

Ad hoc Informal Informal

Functional Interdependence

Strategy

P&G (early 80’s)Corning ConsumerKaytok (Make-to-Invty)

P&G (80-90s) Xerox - 2000?P&G - 2000?

Kaytok ( MTO)

Wal-Mart

Am. Std.

Xerox

Xerox - 2000?P&G - 2000?

SummaryMFG

Fcnl Interdep

Strat

SCM Introduction

Current Issues

SCM Key Success Factors– Supply chain design– Organization infrastructure– Path to high performance

Target’s Supply Chain

11 Regional distribution centers859 Stores in 41 statesFlow strategy“Door per store concept”Forecasting and ordering is centralized and

automatic

Leveraging total supply chain strategies to reduce expense in a retail environment and how Target utilizes emerging trends in supply chain management.

Floor Ready

PreticketingPrefolded towelsHanger programRemoval of excess packaging

Segmentation

Improves store level instocksMinimizes total inventory investmentImproves supply chain efficiencies

Three Distinct Segments

Slow selling itemsFast selling items, unpredictable salesFast selling items, predictable sales

Other Variables to Consider

Physical characteristics of an itemReceipt frequency from the vendorVendor reliability

EDI Communications with Supplier

850 Purchase Order870 Order Status856 Ship Notice/Manifest or Advance Ship

Notice830 Vendor Projections or Forecast810 Invoicing

Partners On-Line

Sales and inventory reportsVendor Partnership manualsAccounts payable informationNewsletters and news flashes

Instability of Today’s Supply Chain Coordination

Vo

lum

es

Time

Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

ConsumerDemand

ConsumerDemand

Retailer Warehouseto Shop

Retailer Warehouseto ShopRetailer OrdersRetailer Orders

Production PlanProduction Plan

Manufacturer Forecastof SalesManufacturer Forecastof Sales

Source: Bullwhip Effect , Hau Lee, Stanford University

Retailer’s Orderto Manufacturer

Wholesaler’s Order to Manufacturer

ConsumerSales

Manufacturer’s Order to Supplier

Demand Buffers along the Supply Chain

Planning: Level of Collaboration

collaboration/trust

evolution

CategoryManagement

CPFR(CFAR)

Key AccountManagement

Retailer-DrivenContinuousReplenishment

Vendor-ManagedInventory

PantryManagedInventory

Solution Maps as a Tool in Strategic Planning

Understand company business processes Assure systems are aligned to drive improvement in

major business processes Identify gaps in information availability to support

business strategies Determine long-range plan for evolution to a state of

improved information Determine status of legacy systems and integration

requirements Determine investment in overall information

technology over strategic planning period

Globalization

Consolidation

Technology

Business Drivers for the 21st Century

Each of these drivers directly impacts or is impacted by the Supply Chain…...

Companies Will Succeed...

By aggressively evaluating their supply chain(s)

By focusing on key business drivers By extending their enterprise thinking to

include suppliers’ suppliers and customers’ customers

By utilizing best practices, not fixed rules By implementing “advantage technology”

Impact of Technology

The most valuable links on the value chain tend to belong to people who own knowledge---particularly about customers….He who controls information in many cases controls the business.

Fortune Magazine

The Shift to Advantaged Applications

Costs

ERP as Infrastructure/IT Renewal (High investment/lower ROI)

ERP Integrated w/ SCMDrives ROI and SupplyChain Benefits

Strategic/Decision Support/Inter-business Networking(e.g. Market Management)Very high ROI

Future Vision

Benefits

Changing the Goals ofBusiness Solutions to Support Value

Chains

•Infrastructure

• Y2000 Compliance

• Integrated Systems to

Support Operations

and Financials

ERP

Goals

Supply ChainManagementGoals

Business/MarketOptimizationGoals

•Operational Improvement (e.g., Cost Reduction, Capacity Expansion

•Improved Customer Service

•Market Management

• Pricing Optimization

•Channel Management

The Value Shift

Inventory Information

Physical Assets Intellectual Assets

Closed Shop Collaboration

VerticalIntegration Virtual Integration

Thank You