INBS 510

1. INBS 510 Supply Chain October 24, 2005 Myron Feinstein http://www.mercy.edu/faculty/astory

2. Supply Chain SC management is a set of approaches to efficiently integrate suppliers, manufacturers, warehouses and stores, so that merchandise is produced and distributed in the right quantities, to the right locations, and at the right time, in order to minimize system-wide costs while satisfying service level requirements.

3. Supply Chain • Customer demand is variable • Supply is uncertain Balancing supply and demand is difficult To set up a Supply Chain which functions properly, it is necessary to know the “capabilities” of the system: capacities, cycle times, reliabilities. Supply Chain participants (different companies) can have conflicting performance metrics.

4. Supply Chain • Strategic • major capital investments; long-term effect • number, size and location of new plants, d.c.’s, etc. • Tactical • allocation of manufacturing and distribution resources over a period of several months • workforce size, inventory policies • Operational Control • day-to-day decisions • vehicle scheduling, assignment of customer orders to individual production machines

5. Supply Chain Shareholder Value depends upon return on assets Supply Chain management is concerned with: • Customer Service • Typical metrics: out-of-stock on shelf, total SC lead time • Total SC Cost • Asset Utilization • Typical metric: % capacity utilization • Working Capital - Typical metrics: total SC inventory, inventory turns, cash-to-cash cycle,

6. Supply Chain Issues • Supply Chain partners agonize over • Forecasting demand • Deploying assets (what to make when) • Planning inventory • Agreeing joint performance metrics

7. “Bullwhip Effect” • Variability increases as you go upstream the Supply Chain • Babies use diapers with little variation (say 10 per day) • Parents buy diapers in large batches (when they are on sale) • Retail stores place larger orders when a manufacturer has a promo • Distribution Centers/Wholesalers order full truckloads • Manufacturers order material (from suppliers) in “economic” quantities • From the orders material suppliers get from the manufacturer, • it looks to them as though babies use diapers very erratically! • Sharing information with SC partners (“transparency”) • can significantly reduce this distortion of true demand

8. Inventory • Inventory = waste • Replace inventory with information • WalMart has a strategic advantage • Uses cross-docking • Uses suppliers’ money!

9. VMI/SMI • Many Supply Chain partners have agreed to manage • aggregated demand upstream • Vendor-Managed Inventory (VMI) • Supplier-Managed Inventory (SMI) • The supplier manages the inventory of the customer • The customer sends information about sales (or warehouse withdrawal) and current inventory position • The supplier agrees to increase customer’s inventory turns • and reduce the percent out-of-stock

10. CPFAR Collaborative planning, forecasting and replenishment (CPFAR) Collaborative Manufacturer/Retailer partnerships Jointly forecast demand and plan replenishment • Partners do joint business planning • Share promotional event calendars • Share point-of-sale (POS) data • Develop joint forecasts of demand This process improves forecast error, reduces Supply Chain inventory and increases inventory turns and store service levels

11. Supply Chain Some Decision Support Systems (software) • Physical network design (algorithms) • Demand forecasting • Capacity planning • Transportation planning • Inventory management • Production scheduling • Lead time quotation SAP, i2, Manugistics

12. Grocery Shopping - 4 Approaches • Peapod • “Just a delivery bag for big supermarket chains.” • Subscription fee/mo. + delivery charge/order • People need to be home to accept order • Net Grocer • FedEx from NJ warehouse (pantry staples) • Delivery charge by $ brackets • Streamline • Chores; time-shifting; Share of Customer • Webvan • Purpose-built distribution centers