Operations Strategies for Effective Supply Chain Management

1. MGT 563OPERATIONS STRATEGIES Dr. Aneel SALMAN Department of Management Sciences COMSATS Institute of Information Technology, Islamabad

2. Recap Lecture 14 • What kind of capacity is needed? • How much capacity is needed to match demand? • When more capacity is needed? • Where facilities should be located (location) • How facilities should be arranged (layout)

3. Why the Interest in Supply Chains? Its Import?

4. Why the Interest in Supply Chains? Its Import? • Dealing with uncertain environments – matching supply and demand • Boeing announced a $2.6 billion write-off in 1997 due to “raw materials shortages, internal and supplier parts shortages and productivity inefficiencies” • U.S Surgical Corporation announced a $22 million loss in 1993 due to “larger than anticipated inventories on the shelves of hospitals” • IBM sold out its supply of its new Aptiva PC in 1994 costing it millions in potential revenue • Hewlett-Packard and Dell found it difficult to obtain important components for its PC’s from Taiwanese suppliers in 1999 due to a massive earthquake • U.S. firms spent $898 billion (10% of GDP) on supply-chain related activities in 1998

5. Why the Interest in Supply Chains? Its Import? • Shorter product life cycles of high-technology products • Less opportunity to accumulate historical data on customer demand • Wide choice of competing products makes it difficult to predict demand • The growth of technologies such as the Internet enable greater collaboration between supply chain trading partners • If you don’t do it, your competitor will • Major buyers such as Wal-Mart demand a level of “supply chain maturity” of its suppliers • Availability of SCM technologies on the market • Firms have access to multiple products (e.g., SAP, Baan, Oracle, JD Edwards) with which to integrate internal processes

6. Why the Interest in Supply Chains? Its Import? • Greater sharing of information between vendors and customers. • Horizontal business processes replacing vertical departmental functions. • Shift from mass production to customized products. • Increased reliance on purchased materials and outside processing with a simultaneous reduction in the number of suppliers. • Value that can be extracted by manufacturing is declining as the cost of materials and distribution climbs.

7. Why the Interest in Supply Chains? Its Import? • Greater emphasis on organizational and process flexibility. • Necessity to coordinate processes across many sites. • Employee empowerment and the need for rules-based real time decision support systems. • Competitive pressure and compressed product life cycles to introduce new products more quickly.

8. Why the Interest in Supply Chains? Its Import? • Companies are restructuring their production facilities on a global basis. • Low-Cost, High-Volume Data Processing and Communication (Internet) are revolutionizing control systems.

9. What the supply chain is not • Among the misunderstanding evidenced, supply chain management is not: • inventory management • logistics management • supplier partnerships • driven from the supply side • a shipping strategy • distribution management • the logistics pipeline • procurement management • a computer system

10. Why Is SCM Difficult? Uncertainty is inherent to every supply chain • Travel times • Breakdowns of machines and vehicles • Weather, natural catastrophe, war • Local politics, labor conditions, border issues The complexity of the problem to globally optimize a supply chain is significant • Minimize internal costs • Minimize uncertainty • Deal with remaining uncertainty

11. Why Is SCM Difficult? • Lack of guidelines for creating alliances with supply chain partners. • Failure to develop measures for monitoring alliances. • Inability to broaden the supply chain vision beyond procurement or product distribution to encompass larger business processes. • Inability to integrate the company's internal procedures. • Lack of trust inside and outside a company. • Organizational resistance to the concept. • Lack of buy-in by top managers. • Lack of integrated information systems and electronic commerce linking firms.

12. What is Supply Chain Management? Some Definitions….

13. A process of collaboration between trading partners that manages the flow of products, information, and funds from point of RM to consumption.

14. Suppliers Manufacturers Warehouses & Distribution Centers Customers Transportation Costs Transportation Costs Transportation Costs Material Costs Manufacturing Costs Inventory Costs What Is the Supply Chain? • Also referred to as the logistics network • Suppliers, manufacturers, warehouses, distribution centers and retail outlets –“facilities” and the • Raw materials • Work-in-process (WIP) inventory • Finished products that flow between the facilities

15. Suppliers Manufacturers Warehouses & Distribution Centers Customers Transportation Costs Transportation Costs Transportation Costs Material Costs Manufacturing Costs Inventory Costs The Supply Chain

16. Suppliers Manufacturers Warehouses & Distribution Centers Customers Transportation Costs Transportation Costs Transportation Costs Material Costs Manufacturing Costs Inventory Costs The Supply Chain – Another View Plan Source Make Deliver Buy

17. Plan Source Make Deliver Buy • A set of approaches used to efficiently integrate • Suppliers • Manufacturers • Warehouses • Distribution centers • So that the product is produced and distributed • In the right quantities • To the right locations • And at the right time • System-wide costs are minimized and • Service level requirements are satisfied

18. Supply Chain Drivers

19. THE PAST, PRESENT AND FUTURE OF SCM

20. The Past • 3000 BC: Transportation Efficiency • 1950AD: Total Cost Awareness • 1955: Customer Service • 1960: Inventory Management Focus, Cost Control • 1965: Comprehensive Outsourcing • 1970s: Material Requirement Planning (MRP) & Bill of Materials (BOM) - Operations Planning

21. The Past • 1975: Operational Integration and Quality (Six Sigma) • 1980s: Manufacturing Resource Planning (MRPII), JIT - Materials Management, Logistics • 1985: Financial Positioning and Operational Excellence • 1990s: SCM – Enterprise Resource Planning (ERP) - “Integrated” Purchasing, Financials, Manufacturing, Order Entry and GLOBALIZATION • 1995: Customer Relationship and Enterprise Extension

22. The Present • 2000s: Optimized “Value Network” with Real-Time Decision Support; Synchronized & Collaborative Extended Network AND Supply Chain Integrative Management • 2005: Responsive Supply Chain Management 2008: Supply Chain Sustainability • 2010+: Multi-firm Collaboration

23. 2010 AND BEYOND • Multi-Firm Collaboration • Talent and Resource Swapping –“Federating” • Knowledge-Dependent Process Automation: • Intelligent Probotics • Extreme Postponement: • •Driven by Demand “Sensing”, not Forecasting • Nanogenome Supply Chain Technology

24. From Push to Pull Making Responsiveness- An Operational Reality

25. Two Extreme Models: • Similar in concept to pure competition and pure monopoly • Anticipatory Push Business Model • Response-driven Business Model

26. Anticipatory Business Model • Forecast Driven • Push Mentality – Allocation Paced

27. Responsive Business Model • Endcast Driven • Pull Mentality – Requirements Paced

28. Steps To Achieving Responsiveness • Achieving Integrated Logistics • Leveraging Collaborative Management • Achieving EERS Value Performance

29. 1. Achieving Integrated Logistics The process of moving and positioning inventory to meet customer requirements at the lowest possible total cost to serve. • Time and Place Positioning • Lowest Total Cost • Asset Minimization • Supply Chain Connectivity

30. 2. Leveraging Collaborative Management Or SC Collaboration (SCC)

31. SCC – What Is It? • Many different definitions depending on perspective • The means by which companies within the supply chain work together towards mutual goals by sharing • Ideas • Information • Processes • Knowledge • Information • Risks • Rewards • Why collaborate? • Accelerate entry into new markets • Changes the relationship between cost/value/profit equation

32. Retailers Synchronized Production Scheduling Collaborative Product Development Suppliers Manufacturer Collaborative Demand Planning Distributors/ Wholesalers • Collaborative Logistics Planning • Transportation services • Distribution center services Logistics Providers • Cornerstone of effective SCM • The focus of many of today’s SCM initiatives • The only method that has the potential to eliminate or minimize the Bullwhip effect

33. Its Benefits Source: Cohen & Roussel

34. SC Collaboration Spectrum Extensive Not Viable Synchronized Collaboration • The green arrow describes increasing complexity and sophistication of: • Information systems • Systems infrastructure • Decision support systems • Planning mechanisms • Information sharing • Process understanding • Higher levels of collaboration imply the need for both trading partners to have equivalent (or close) levels of supply chain maturity • Synchronized collaboration demands joint planning, R&D and sharing of information and processing models • Movement to real-time customer demand information throughout the supply chain Coordinated Collaboration Extent of Collaboration Cooperative Collaboration Transactional Collaboration Limited Low Return Many Few Number of Relationships Source: Cohen & Roussel

35. Successful SC Collaboration • Try to collaborate internally before you try external collaboration • Help your partners to work with you • Share the savings • Start small (a limited number of selected partners) and stay focused on what you want to achieve in the collaboration • Advance your IT capabilities only to the level that you expect your partners to manage • Put a comprehensive metrics program in place that allows you to monitor your partners’ performance • Make sure people are kept part of the equation • Systems do not replace people • Make sure your organization is populated with competent professionals who’ve done this before

36. 3. The EERS Value Performance Model • Service Excellence - Effectiveness • Cost Minimization and Avoidance - Efficiency • Customer Value Generation - Relevancy Continuous Improvement - Sustainability

37. Examples of Supply Chain

38. Hershey’s Supply Chain • Inbound Traffic • cocoa beans and sugar • warehousing and inventory control • Outbound Traffic • 1B pounds of chocolate annually, 30M kisses per day • 12 third party manufacturers • 2 regional distribution centers • 14 warehouses • 12 channels of distribution

39. Black & Decker’s Supply Chain 4,000 to 6,000 suppliers worldwide 70 worldwide manufacturing plants 20 distribution centers Markets products in 58 countries Supplies market on JIT basis 3-5 day order cycle time, 90% fill rate