Introduction to Supply Chain Management (SCM)

1. Introduction to Supply Chain Management (SCM) • Rev: Feb, 2012 • Euiho (David) Suh, Ph.D. • POSTECH Strategic Management of Information and Technology Laboratory • (POSMIT: http://posmit.postech.ac.kr) • Dept. of Industrial & Management EngineeringPOSTECH

2. Contents

3. Discussion Questions • Why do you think implementing SCM is difficult? • Find a successful case of SCM and explain it. • EDI involves the electronic exchange business transaction documents over the Internet or other networks between supply chain trading partners. • What is the concept explained in the below pharagraph? • A cross-functional interenterprise system that uses information technology to help support and manage the links between some of the organization's key business processes and those of its suppliers, customers, and partners. The intent is to create a fast, efficient, and low-cost network of business relationships to get an organization's products and services from concept to market.

4. Suppliers Manufacturers Warehouses & Distribution Centers Customers Transportation Costs Transportation Costs Transportation Costs Material Costs Manufacturing Costs Inventory Costs What is a Supply Chain? 1. Introduction • Definition • The interrelationships with suppliers, customers, distributors, and other businesses that are needed to design, build, and sell a product make up the network of business entities, relationships, and processes

5. Supply Chain Management 1. Introduction Customer Relationship Management Management customer services Satisfaction of ordering Management production Management demand Supply • Definition • Applying a total systems approach to the entire flow of information, materials and service throughout the supply chain to provide the right quantitiesof right stuff, to the right locations and at the right time, and so as to minimize total system costsubject to satisfying service requirements

6. Sales Strategy vs. Production Strategy 2. Motivation in SCM Percentages are % of sales Reducing production costs is more feasible. Increase sales 100% Reduce production costs by 12% • What would sales & production costs have to be to double net income? Which is easier? • Solution

7. The Importance of Supply Chain Management (1/2) 2. Motivation in SCM • 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

8. The Importance of Supply Chain Management (2/2) 2. Motivation in SCM • 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

9. History of Supply Chain Management 2. Motivation in SCM

10. $ 9.2B Grow 7% annually $ 6.5B 2008 2012 (source : AMRresearch, 2008) Supply Chain Technology Market 2. Motivation in SCM  “The supply chain, and the technologies that support it, will play an important role in helping companies deal and thrive in an economy that is going to be quite unlike anything we’ve seen in the post-war era,” - John Fontanella - vice president of research at AMR Research

11. Why Is SCM Difficult? 2. Motivation in SCM Plan Source Make Deliver Buy • 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

12. Electronic Data Interchange (EDI) 3. Strategic approaches of SCM The electronic exchange of business transaction documents between supply chain trading partners One of the earliest uses of information technology for supply chain management The almost complete automation of an e-commerce supply chain process Many transactions occur over the Internet, using secure virtual private networks A communications standard for sharing business documents and settlement information among firms

13. Today’s Marketplace Requires: 3. Strategic approaches of SCM Shared visibility for trading partners Personalized content and services for their customers Collaborative planning with design partners, distributors, and suppliers Real-time commitments for design, production, inventory, and transportation capacity Flexible logistics options to ensure timely fulfillment Order tracking& reporting across multiple vendors and carriers

14. Supply Chain Management – Key Issues (1/3) 3. Strategic approaches of SCM • Forecasts are never right • Very unlikely that actual demand will exactly equal forecast demand • The longer the forecast horizon, the worse the forecast • A forecast for a year from now will never be as accurate as a forecast for 3 months from now • Aggregate forecasts are more accurate • A demand forecast for all CV therapeutics will be more accurate than a forecast for a specific CV-related product • Nevertheless, forecasts (or plans, if you prefer) are important management tools when some methods are applied to reduce uncertainty

15. Purchasing Manufacturing Distribution Customer Service/ Sales Few change- overs Stable schedules Long run lengths High inventories High service levels Regional stocks Low pur-chase price Multiple vendors Low invent-ories Low trans-portation SOURCE MAKE DELIVER SELL Supply Chain Management – Key Issues (2/3) 3. Strategic approaches of SCM Overcoming functional silos with conflicting goals

16. Supply Chain Management – Key Issues (3/3) 3. Strategic approaches of SCM

17. Supply Chain Management Operations Strategies 3. Strategic approaches of SCM

18. Role and Goals of SCM 4. Roles of SCM • Role of SCM • SCM management helps a company get the right products to the right place at the right time, in the proper quantity and at an acceptable cost. • Goals of SCM • To manage a process efficiently by forecasting demand • Controlling inventory • Enhancing the network of business relationships with customers, suppliers, distributors, and others • Receiving feedback on the status of every link in the supply chain

19. Supply Chain Management – Benefits 4. Roles of SCM Source: Cohen & Roussel A 1997 PRTM Integrated Supply Chain Benchmarking Survey of 331 firms found significant benefits to integrating the supply chain

20. Benefits and Challenges of SCM 4. Roles of SCM • Key Benefits • Faster, more accurate order processing • Strategic relationships with supplier • Lower transaction and materials cost • Quicker times to market • Reductions in inventory levels • Key Challenges • Lack of demand planning knowledge, tools, and guidelines • Inaccurate data provided by other information systems • Lack of collaboration among marketing, production, and inventory management • SCM tools are immature, incomplete, and hard to implement

21. Case Study • In the Text book • Real World Case 3 : Perdue Farms and Others: Supply Chain Management Meets the Holiday Season • Domestic Case  Click Here

22. Reference O’Brien & Marakas, “Introduction to Information Systems – Fifteenth Edition”, McGraw – Hill, Chapter 7, pp. 276~281 KeebomKang, “Global Logistics and Information Technology(PPTSlide)”, Graduate School of Business Naval Postgraduate School KeebomKang, “B2B: Applications for Improving Supplier Selection(PPTSlide)”, Graduate School of Business Naval Postgraduate School “Basics of Supply Chain Management(PPTSlide)”, Stevens Institute of Technology