A Strategic Framework for Supply Chain Design, Planning, and Operation

1. A Strategic Framework for Supply Chain Design, Planning, and Operation

2. Outline • What is supply chain management? • A supply chain strategy framework

3. Traditional View: Logistics in the Economy (1990, 1996) • Freight Transportation $352, $455 Billion • Inventory Expense $221, $311 Billion • Administrative Expense $27, $31 Billion • Logistics related activity 11%, 10.5% of GNP. Source: Cass Logistics

4. Profit Logistics Cost Marketing Cost Manufacturing Cost Traditional View: Logistics in the Manufacturing Firm • Profit 4% • Logistics Cost 21% • Marketing Cost 27% • Manufacturing Cost 48%

5. Supply Chain Management: The Magnitude in the Traditional View • Estimated that the grocery industry could save $30 billion (10% of operating cost by using effective logistics and supply chain strategies • A typical box of cereal spends 104 days from factory to sale • A typical car spends 15 days from factory to dealership • Laura Ashley turns its inventory 10 times a year, five times faster than 3 years ago

6. Supply Chain Management: The True Magnitude • Compaq estimates it lost $0.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed • When the 1 gig processor was introduced by AMD, the price of the 800 meg processor dropped by 30% • P&G estimates it saved retail customers $65 million by collaboration resulting in a better match of supply and demand

7. What is a supply chain? P&G or other manufacturer Jewel or third party DC Jewel Supermarket Customer wants detergent and goes to Jewel Plastic Producer Tenneco Packaging Chemical manufacturer (e.g. Oil Company) Chemical manufacturer (e.g. Oil Company) Paper Manufacturer Timber Industry

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

9. Cycle View of Supply Chains Customer Customer Order Cycle Retailer Replenishment Cycle Distributor Manufacturing Cycle Manufacturer Procurement Cycle Supplier

10. Push/Pull View of Supply Chains Procurement, Customer Order Manufacturing and Cycle Replenishment cycles PUSH PROCESSES PULL PROCESSES Customer Order Arrives

11. Examples of Supply Chains • Dell / Compaq • Toyota / GM / Ford • McMaster Carr / W.W. Grainger • Amazon / Borders / Barnes and Noble • Webvan / Peapod / Jewel What are some key issues in these supply chains?

12. What is Supply Chain Management? Managing supply chain flows and assets, to maximize supply chain surplus. • What is supply chain surplus?

13. The Value Chain: Linking Supply Chain and Business Strategy Business Strategy New Product Strategy Marketing Strategy Supply Chain Strategy New Product Development Marketing and Sales Operations Distribution Service Finance, Accounting, Information Technology, Human Resources

14. Achieving Strategic Fit • Understanding the Customer • Lot size • Response time • Service level • Product variety • Price • Innovation Implied Demand Uncertainty

15. Levels of Implied Demand Uncertainty Detergent Long lead time steel High Fashion Emergency steel Customer Need Price Responsiveness Low High Implied Demand Uncertainty

16. Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier Responsiveness High Low Cost High Low

17. Responsive supply chain Responsiveness spectrum Zone of Strategic Fit Efficient supply chain Certain demand Implied uncertainty spectrum Uncertain demand Achieving Strategic Fit

18. Strategic Scope Manufacturer Distributor Retailer Customer Suppliers Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy

19. Efficiency Responsiveness Supply chain structure Inventory Transportation Facilities Information Drivers Drivers of Supply Chain Performance

20. Considerations for Supply Chain Drivers

21. Supply Chain Decisions: Structuring Drivers Strategy (Design) Planning Operation

22. Major Obstacles to Achieving Fit • Multiple owners / incentives in a supply chain • Increasing product variety / shrinking life cycles / customer fragmentation Local optimization and lack of global fit Increasing implied uncertainty

23. Dealing with Multiple Owners / Local Optimization • Information Coordination • Contractual Coordination

24. Dealing with Product Variety: Mass Customization Long Lead Time Short Mass Customization High Low Cost Customization Low High

25. Fragmentation of Markets and Product Variety • Are the requirements of all market segments served identical? • Are the characteristics of all products identical? • Can a single supply chain structure be used for all products / customers? No! A single supply chain will fail different customers on efficiency or responsiveness or both.

26. Tailored Logistics • Each Logistically Distinct Business (LDB) will have distinct requirements in terms of • Inventory • Transportation • Facility • Information Key: How to gain efficiencies while tailoring logistics?

27. Applying the Framework to e-commerce: What is e-commerce? • Commerce transacted over the Internet • Is product information displayed on the Internet? • Is negotiation over the Internet? • Is the order placed over the Internet? • Is the order tracked over the Internet? • Is the order fulfilled over the Internet? • Is payment transacted over the Internet?

28. Existing Channels for Commerce • Product information • Physical stores, EDI, catalogs, face to face, … • Negotiation • Face to face, phone, fax, sealed bids, … • Order placement • Physical store, EDI, phone, fax, face to face, … • Order tracking • EDI, phone, fax, … • Order fulfillment • Customer pick up, physical delivery

29. Revenue Impact of E-Commerce • Length of supply chain • Product information • Time to market • Negotiating prices and contract terms • Order placement and tracking • Order fulfillment • Payment

30. Cost Impact of E-Commerce • Facility costs • Site and processing cost • Inventory costs • Cycle, Safety, Seasonal inventory • Transportation costs • Inbound and outbound costs • Information sharing • Coordination