Theory: The Supply Chain Management Effect Team 6 04/04/05

1. Theory: The Supply Chain Management EffectTeam 6 04/04/05 Arsalan A. LodhiPankaj LuthraDaniel M. Li

2. Agenda Vertical View • Cross Enterprise Integration • Market Mediation • Demand Focus • Collaborative Eco System • Breakthrough Business Models • Tailored Offerings |

3. 1. Cross Functional to Cross Enterprise Integration Author’s Key Points: • Enterprises have moved their focus from Cross Functional to Cross Enterprise Integration • Many forms of cross enterprise Integration • Privately led – for example Wal-Mart, Dell, JC Penny let vendors manage their inventory • Industry-level initiatives – for example ECR, CPFAR. Dominant leaders head towards common goal • Shared initiatives – companies from multiple different industries collaborate to create cost benefits. For example third party logistics Personal Views: • Concept of Cross Enterprise Integration is not new • Complex economy has shifted value-Chain to value-Network |

4. Cross Enterprise Vs Cross Functional Integration • Proposing New Name : Value Network Management Researchers Professionals Organization Vendors Students Partners value distribution channels Customers DynamicRoles |

5. Optimized Management leads to Excellence Total Physical Cost Market Mediation Cost Manufacturing Transportation Cycle Stock Cost Selection Quantity Expected Demand Matched Supply Variety 2. Market Mediation • Author’s Key Points: • Most companies lose their profit margin by overlooking the management of market mediation cost that includes safety stock, safety capacity, price protection, returns and lost sale • Certain industries have uncertain supply – agriculture – requires extensive physical cost management while others like clothing and apparels have uncertain demand – requires extensive market mediation cost management. Tech industry has both uncertain supply and demand requires the management of both components . |

6. 2. Market Mediation Personal Views: • Agree with author. Today’s complex economy requires an effective management of both components – Total Physical Cost and Market Mediation Cost • Recent News – according to LogisticToday – DOT (department of Transportation) announced $3.5 million funding for breakthrough transportation model in SMB market • Clearly Government want to simulate economy with ripple effect • 70-80% of America constitute of SMB market • Efficient supply chain would bring innovation and involve other industries together – perhaps will create more jobs • New Models of Supply Chain requires prediction accuracy, knowledge management, and collaboration tools – that will boost tech industry • Amazon Prime – another example how they are bringing more value for end customers by establishing strong relationships with logistics • Sun MicroSystems, Inc reduced lead times and cost by integrating half of the solution during its transportation – example of effective market mediation management |

7. Cross enterprise Integration + Market Mediation Key Technology Vendors: • Oracle • Retek – covering retail industry • PeopleSoft • SAP • IBM partnered with many ISVs (Independent Software Vendors) • SSA Global Key Supply Chain Services Companies – provides consultancy how companies can optimize their supply chain • IBM • CSC • EDS |

8. 3. Demand-centric Approach Author’s Point • Move away from being supply-focused to more emphasis on pro-active demand management • Better quantification of demand impact on supply-chain performance on sales. • Marketing & Sales become the champions of SCM • Breakthroughs in demand management • Mitigation of the Bullwhip Effect (ie. P&G Pampers) • Investment in better demand information, POS data coupled with reactive supply-chain • Demand based management – integrate marketing efforts and demand-management instruments with supply-chain initiatives (ie. Dell’s dynamic pricing system) Personal Views • Highly reactive supply-chain through aggressive demand management is necessary in adapting supply-chains and capabilities to meet changing market needs. • Is CRM the prerequisite to a more pro-active approach to SCM? |

9. 4. Collaborative, Concurrent Product, Process & SC Design Author’s Point • Product design influences supply chain definition and performance • Early consideration of SCM issues in product development • Increased collaboration (design for supply-chain management) • Use of information systems for collaborative product development (ie. Agile Software, Freeborders) • Postponement strategies • Generic safety stocks • Reduction of demand variability through demand pooling (ie. HP) Personal Views • Collaboration is necessary to: • Establish strategic operating models • Migration from internal-only to extended supply chains • Integration of core business processes with best-in-class partners across the chain |

10. 5. New Supply-Chain Initiatives to Enhance Customer Value Author’s Point • Shifting to a customer oriented approach will bring to light new go-to-market strategies, opening new lines of revenue and enhancing customer value. • GMAC built own auto auction infrastructure – generating revenue from sales and services in addition to becoming the largest auto auction house. • Increased customer awareness through auctions. Personal View • Innovating go-to-market strategies to enhance end-customer experience - is this SCM or CRM? |

11. 6. From Mass Market Supply to Tailored Offerings • Authors Point - • Companies should integrate Sales and Marketing with Supply-Chain logistics to understand the customers needs and provide custom offerings to valuable customers. • Advances in Technology further aids in customizing offerings, thereby enhancing customer experience, increasing sales and enabling efficient resource usage. • Whirlpool web-based configurator. • Companies integrate SCM & CRM to create Digital Loyalty Network’s that help increase profitability. • Samsung performed a "value-driver analysis" by asking customers which of its capabilities would provide the most value. • The results: Samsung has reported 50% sales increases year on year • “In the simplest form, a company will track customers in terms of repeat purchases and share of purchases and then design the most appropriate supply-chain response. “ Source: http://www.optimizemag.com/article/showArticle.jhtml?articleId=17700912 |

12. Interesting Facts • The supply chain management services market will reach $21.6 billion by 2005, according to a report from Gartner Dataquest. • The RFID Journal writes an interesting article suggesting 2005 could be the year for widespread adoption of the RFID standard – Wal-Mart factor (Intel is a significant player with its RFID-EPC technology). • The cost of lost revenue opportunity, measured by leading consumer package goods audit firm, suggest that inventory out of stock situations can account for up to 20% of lost sales. Thank you ! |