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Lecture 21 Overview of Supply Chain Management
1
Reasons for which you might consider a supply chain management career
A typical box of cereal spends ____ days getting from factory to supermarket.
A typical new car spends ___ days traveling from the factory to the dealership.
Cisco’s $____ dollar write-off of inventories in
2001-2002.
Internal Supply Chains
Suppliers CustomersRM FG
Material Flow
Inventory Management
Yield Management Supply Contracts
Manufacturer
The Goal of SCM:Matching Supply with Demand!
Information Flow
Value of Information
Outline
Why is a Supply Chain Important? What comprises a Supply Chain? Supply Chain Optimization Managing Uncertainty Supply Chain Network Design
Supply Chain: The Magnitude In 1998, American companies spent $898 billion in supply-
related activities (or 10.6% of gross domestic product).
- Transportation __% - Inventory __%, - Management __% Third party logistics services grew in 1998 by 15% to nearly $40
billion It is estimated that the grocery industry could save $______(10%
of operating cost) by using effective logistics strategies. Compaq computer estimates it lost $500 million to $1 billion in
sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them.
Boeing aircraft, one of America's leading capital goods producers, was forced to announce write downs of $_______ in October 1997, due to “Raw material shortages, internal and supplier parts shortages…”.
Progression of Logistics Costs
Total U.S. logistics costs between 1984 and 2005
Magnitude of Supply Chain Costs – A $25 book
Supply Chain: The Potential
Dell Computer has outperformed the competition in terms of shareholder value growth over the eight years period, 1988-1996, by over 3,000% using
Direct business model Build-to-order strategy
Procter & Gamble estimates that it saved retail customers $65 million through logistics gains over the past 18 months.“According to P&G, the essence of its approach lies in manufacturers and suppliers working closely together …. jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain”.
Guess Who?
Critical Success Factors
• EDLP Strategy
• Channel Master
• EDI-INT, IT Strategy
_______’s level of supply chain management is so efficient that there is almost no need for warehouses. Inventory is moved from one location to another quickly and efficiently, thereby cutting costs.
What Is a Supply Chain?
Flow of products and services from:
Raw materials manufacturers Intermediate products manufacturers End product manufacturers Wholesalers and distributors and Retailers
Connected by transportation and storage activities
Integrated through information, planning, and integration activities
The Supply Chain Network
Price & product availability
What Is the Goal of Supply Chain Management?
Supply chain management is concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed:
In the right quantities At the right price To the right locations At the right time
In order to: Minimize total system cost Maximize total system revenue Satisfy customer service requirements
Supply chain management is to match supply and demand better!
Customer
Information
Products/Services
Funds
Flows in a Supply Chain
Source: Supply Chain Management (Chopra and Meindl)
Why supply chain management is difficult?
Supply chain strategy linked to the Development Chain
Challenging to minimize system costs and maximize system service levels globally (Global Optimization)
Inherent presence of uncertainty and risk
All of the advanced strategies, techniques, and approaches for Supply Chain Management focus on:
- Global Optimization- Managing Uncertainty
The Development Chain
The enterprise development and supply chain
Global Optimization is Hard
The supply chain is a geographically dispersed complex network
Different facilities have conflicting objectives
The supply chain is a dynamic system
The system varies over time
Global Optimization - Complex NetworkNational Semiconductors
•Production:– Produces chips in six different locations in the US, Britain and Israel– Chips are shipped to seven assembly locations in Southeast Asia
•Distribution– The final product is shipped to hundreds of facilities all over the world– 20,000 different routes– 12 different airlines are involved– 95% of the products are delivered within 45 days– 5% are delivered within 90 days.
Conflicting Objectives in the Supply Chain
1. Purchasing• Stable volume requirements • Flexible delivery time• Little variation in mix• Large quantities
2. Manufacturing• Long run production• High quality• High productivity• Low production cost
3. Warehousing• Low inventory • Reduced transportation costs• Quick replenishment capability
4. Customers• Short order lead time• Enormous variety of products• Low prices
Tools and Approaches for Global Optimization
Everything for optimization, plus… Strategic Alliances/Supplier Partnerships Supply Contracts/Incentive Schemes
Demand is not the only source of uncertainty Lead times Capacity Transportation times Natural disasters Component availability
Forecasting does not solve the problem Forecasting is always wrong The longer the forecast horizon the worse the forecast
Recent trends make things more uncertain Lean manufacturing Outsourcing Off-shoring
Uncertainty and Risk Factors
August 2005 – Hurricane Katrina P&G coffee supplies from sites around New Orleans Six month impact
2002 West Coast port strike Losses of $1B/day Store stock-outs, factory shutdowns
1999 Taiwan earthquake Supply interruptions of HP, Dell
2001 India (Gujarat state) earthquake Supply interruptions for apparel manufacturers
Uncertainty and Risk Factors
Dealing with Uncertainty
Pull Systems Centralization Postponement Strategic Alliances Collaborative Forecasting
Supply Chain Variability
Vo
lum
es
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
ActualConsumerDemand
ActualConsumerDemandRetailer Orders to
Warehouse
Retailer Orders to WarehouseWarehouse OrdersWarehouse Orders
Production PlanProduction Plan
Manufacturer Forecastof Sales
Manufacturer Forecastof Sales
What Management Gets...
Vo
lum
es
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
ConsumerDemand
ConsumerDemand
Production PlanProduction Plan
What Management Wants…
Vo
lum
es
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
ConsumerDemand
ConsumerDemand
Production PlanProduction Plan
Supply Chain Network Design: Key Issues Pick the optimal number, location, and size of warehouses and/or
plants Determine optimal sourcing strategy
Which plant/vendor should produce which product Determine best distribution channels
Which warehouses should service which customers The objective is to balance service level against
Production and purchasing costs Inventory carrying costs Facility costs (handling and fixed costs) Transportation costs
That is, we would like to find a minimal-annual-cost configuration of the distribution network that satisfies product demands at specified customer service levels.
Mapping Allows You to Visualize Your Supply Chain
Service Level Service Level Within Promised Within Promised
TimeTime
TransportationTransportation
Cost Buildup as a Function of Facilities
Cos
t of
Op
erat
ion
sC
ost
of O
per
atio
ns
Number of FacilitiesNumber of Facilities
InventoryInventory
FacilitiesFacilities
Total CostsTotal Costs
LaborLabor
5-30
Supply Chain — A Contemporary ViewNetwork Perspective
Source: “The Supply Chain Management Effect” (Kopczak and Johnson)
End CustomerEnd Customer
RetailersRetailers
DistributorsDistributors
ManufacturersManufacturers
SuppliersSuppliers
Design Product,
Process, and Supply Chain
Design Product,
Process, and Supply Chain
Introduce Product
Introduce Product
Promote, Price, and
Merchandise Product
Promote, Price, and
Merchandise Product
Fulfill Product Demand
Fulfill Product Demand
Recycle, Reuse, or Dispose of
Product
Recycle, Reuse, or Dispose of
Product
Product Life Cycle View
Fu
nct
ion
al S
C V
iewProducts, Information, and
Finances Flow Across All Process and Supply Chain Players
Products, Information, and Finances Flow Across All Process
and Supply Chain Players
