Supply Chain Management

1. Supply Chain Management Mid-Semester Review

2. 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

3. Weeks in Review • Strategic scope • Intracompany/intraoperational • Intracompany/intrafunctional • Intracompany/interfunctional • Intercompany/interfunctional • Supply Chain Challenges • Achieving global optimization • Managing uncertainty

4. 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

5. Efficiency Responsiveness Supply chain structure Inventory Transportation Facilities Information Drivers Weeks in ReviewDrivers of Supply Chain Performance

6. Weeks in ReviewConsiderations for Supply Chain Drivers

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

8. Supply Chain Enablers • Organizational Infrastructure • Information Technology • Strategic Alliance • Human Resource Management

9. Supply Chain Enablers

10. 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%

11. Weeks in ReviewFunctional vs. Innovative Products:

12. Weeks in ReviewPhysically Efficient vs. Market-Responsive

13. Efficiency-Responsiveness Framework of Supply Chain Functional Product Innovative Products EfficientSupply Chain ResponsiveSupply Chain

14. Zone of strategic fit in supply chain Responsive Supply Chain Responsiveness Spectrum Zone of Strategic Fit Efficient Supply Chain Implied Uncertainty Spectrum Uncertain Demand Certain Demand

15. Supply Chain Strategies • Push-Based Supply Chain • Pull-Based Supply Chain • Push-Pull Supply Chain

16. PUSH STRATEGY PULL STRATEGY High Uncertainty Low Uncertainty Push-Pull Boundary Push-Pull Supply Chains The Supply Chain Time Line Customers Suppliers

17. Locating the Push-Pull Boundary

18. Demand uncertainty (C.V.) Pull Push H L I Computer II IV III Delivery cost Unit price L H Economies of Scale Pull Push What is the Best Strategy?

19. E-Fulfillment Requires a New Logistics Infrastructure

20. Distribution Strategies

21. 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

22. 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

23. 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

24. 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

25. 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.

26. 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

27. 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

28. 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

29. The Balanced Scorecard Framework Financial Perspective Internal Business Perspective How do we look to shareholders? GOALS MEASURES GOALS MEASURES What must we excel at? Customer Perspective Innovation & Learning Perspective How do customers see us? GOALS MEASURES GOALS MEASURES Can we continue to improve and create value?

30. Framework for Supply Chain Performance Metrics Business Strategy Supply Chain Strategy Supply Chain Objectives Operational Metrics Customer Service Metrics Financial metrics

31. Supply Chain Performance Framework Customer Service Metrics Goals Measures Operational Metrics Financial Metrics Goals Measures Goals Measures

32. Efficiency Frontier of a Single Product Line 10 Weeks of Supply Company B 0 Company A 80% 100% Fill Rate

33. 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

34. 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

35. Bullwhip Effect Increasing propagation of variability upstream through the supply chain

36. Increasing Variability Upstream the Supply Chain –Bullwhip Effect

37. Impact of the Bullwhip Effect

38. 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

39. 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

40. 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)

41. 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

42. Presentations/Case Studies/Game • Accenture – 3G Wireless communication • Army Logistics Operations • Payless ShoeSource – Supply Chain • Seven Eleven Japan • Li & Fung Internet • Beer Game