supply chain management mid-semester review. review definition of supply chain decision phases of...
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Supply Chain Management
Mid-Semester Review
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
Weeks in Review
Strategic scope Intracompany/intraoperational Intracompany/intrafunctional Intracompany/interfunctional Intercompany/interfunctional
Supply Chain Challenges Achieving global optimization Managing uncertainty
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
Weeks in Review
Drivers of Supply Chain Performance
Efficiency Responsiveness
Inventory Transportation Facilities Information
Supply chain structure
Drivers
Weeks in ReviewConsiderations for Supply Chain Drivers
Driver Efficiency Responsiveness
Inventory Cost of holding Availability
Transportation Consolidation Speed
Facilities Consolidation /Dedicated
Proximity /Flexibility
Information What information is best suited foreach objective
Flows in a Supply Chain
CustomerInformation
Product
Funds
Supply Chain Enablers
Organizational Infrastructure Information Technology Strategic Alliance Human Resource Management
Supply Chain Enablers
0
0.5
1
1.5
2
2.5
3
3.5
4
OrganizationalInfrastructure
Technology StategicAlliance
Human ResourceManagement
Supply Chain Enablers
Ra
nk
ing
(4
is H
igh
es
t Im
po
rta
nc
e)
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%
Weeks in ReviewFunctional 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 20 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
Weeks in ReviewPhysically 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
Efficiency-Responsiveness Framework of Supply Chain
Match Mismatch
Mismatch Match
Functional Product Innovative Products
Efficie
nt
Su
pp
ly
Ch
ain
Re
sp
on
siv
e
Su
pp
ly C
hain
Zone of strategic fit in supply chain
Certain Demand
Implied Uncertainty Spectrum
Uncertain Demand
Responsive Supply Chain
Responsiveness Spectrum
Efficient Supply Chain
Zone of Strategic Fit
Supply Chain Strategies
Push-Based Supply Chain Pull-Based Supply Chain Push-Pull Supply Chain
Push-Pull Supply Chains
Push-Pull Boundary
PUSH STRATEGY PULL STRATEGY
Low Uncertainty High Uncertainty
The Supply Chain Time Line
CustomersSuppliers
Locating the Push-Pull Boundary
What is the Best Strategy?
Pull Push
Pull
Push
I
Computer
II
IV III
Demand uncertainty
(C.V.)
Delivery costUnit price
L H
H
L
Economies of Scale
E-Fulfillment Requires a New Logistics Infrastructure
Traditional Supply Chain e-Supply Chain
Supply Chain Strategy Push Push-Pull
Shipment Type Bulk Parcel
Inventory Flow Unidirectional Bi-directional
Reverse Logistics Simple Highly Complex
Destination Small Number of Stores Highly Dispersed Customers
Lead Times Depends Short
StrategyAttribute
DirectShipment
CrossDocking
Inventory atWarehouses
RiskPooling
TakeAdvantage
TransportationCosts
ReducedInbound Costs
ReducedInbound Costs
HoldingCosts
No WarehouseCosts
No HoldingCosts
DemandVariability
DelayedAllocation
DelayedAllocation
Distribution Strategies
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
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
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
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
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.
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
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
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
The Balanced Scorecard Framework
Financial Perspective
GOALS MEASURES
Internal BusinessPerspective
GOALS MEASURES
Customer Perspective
GOALS MEASURES
Innovation & LearningPerspective
GOALS MEASURES
How do we look to
shareholders?
How do customers
see us?
What must we excel at?
Can we continue to
improve and create
value?
Framework for Supply Chain Performance Metrics
Business Strategy
Supply Chain Strategy
Supply Chain Objectives
Financial metricsCustomer Service MetricsOperational Metrics
Supply Chain Performance Framework
Operational Metrics
Goals Measures
Financial Metrics
Goals Measures
Customer ServiceMetrics
Goals Measures
Efficiency Frontier of a Single Product Line10
0
80% 100%
Weeks o
f S
up
ply
Fill Rate
Company B
Company A
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
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
Bullwhip Effect
Increasing propagation of variability upstream through
the supply chain
Increasing Variability Upstream the Supply Chain –Bullwhip Effect
Impact of the Bullwhip Effect
Performance Measure Impact on Performance
Manufacturing Cost
Inventories
Lead Time
Transport Cost
Shipping & Receiving Cost
Customer Service Level
Profitability
What are the Causes…. Demand forecasting
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
What are the Causes….
Price fluctuation 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
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)
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
Presentations/Case Studies/Game
Accenture – 3G Wireless communication
Army Logistics Operations Payless ShoeSource – Supply Chain Seven Eleven Japan Li & Fung Internet Beer Game