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Agenda
When firms cooperate, compete and exchange
problems with traditional supply chain management (SCM) problems this creates for
manufacturers problems this creates for their
suppliers problems this creates for consumers
Supply Chain Management Software Who id doing it What is working, what is not…
Quiz
? days a box of cereal spends in the supply chain?
Distorted information causes total inventory in the pharmaceutical supply chain to exceed ? days. $? in savings to be realized.
$ ? wasted because of poor coordination in the food industry supply chain
$ ? Boeing write-off in 1997 due to supply chain inefficiencies
Quiz
A box of cereal spends 104 days in the supply chain
Distorted information causes total inventory in the pharmaceutical supply chain to exceed 100 days. $11 billion in savings to be realized
Poor coordination wasting $ 30 billion annually in the food industry
$ 2.6 billion Boeing write-off in 1997 due to supply chain inefficiencies
Defining SCM
SCM is the coordination of material, information and financial flows between and among enterprises participating in the demand fulfillment process for a product or service.
Spans multiple organizations and industries
Coordination and integration of flows essential for the modern enterprise
A digital nervous system is the corporate, digital equivalent of the human nervous system, providing a well-integrated flow of information to the right part of the organization at the right time. A digital nervous system consists of the digital processes that enable a company to perceive and react to its environment, to sense competitor challenges and customer needs, and to organize timely responses.
Gates: Business @ The Speed of Thought
A digital nervous system requires a combination of hardware and software; it's distinguished from a mere network of computers by the accuracy, immediacy, and richness of the information it brings to knowledge workers and the insight and collaboration made possible by the information.
Gates: Business @ The Speed of Thought
Scott McNealy on Gates’ View
He is right - I would be very nervous if my systems were based on their platforms and products!
RFID Tags
RFID the Supply Chain
Tag ReaderAntenna Middleware Supply chain execution- Coiled
antenna ofreader creates magnetic field with coiled antenna of tag
- Transmits identification data to a reader
-Transmit data tomiddleware
-Associates tag info with product info
-Process information from reader
-Filters data
-Sends data to backend servers
- Backend SCE or ERPsystems receives Information
Where can RFID add value?
From Manufacturing
Into a Store’s Back Room Inventory
On the Shelf At the Cash
Register
Through Distribution Transportation
Out the Door as an anti-theft device
RFID Video
Product Recall
Remember Ford and Firestone? TREAD Act RFID pilots underway to track tires
from manufacturer tovehicle
Medicine
Counterfeits
SCM Software –Who?
What does SCM software do?
Factory Scheduling Bar Code Warehouse Management Transportation Routing and Scheduling Inter Organizational Systems Collaborative Planning & Optimization Multi – echelon optimization E-Procurement & Marketplaces Supplier Contract Management RFID Management Systems
Beer Game video
Traditional supply chain obsolescence
Direction of flow of demand Direction of flow of product
Raw Material vendor
Tier-II Suppliers
Tier-I Suppliers
Manufacturers Distrib
ution Centers
Retailers Custo
mer Zones
Point of Point of differentiatiodifferentiatio
nnDistribution Distribution
costscostsMarket Market
mediation mediation costscosts
The Bullwhip Effect
Customer Retailer Distributor Factory Tier 1 supplier Equipment
Upstream amplification of demand variationProgression of a brushfire to an inferno!
Machine Tools at Bullwhip Tip
-100%
-50%
0%
50%
100%
19
61
19
63
19
65
19
67
19
69
19
71
19
73
19
75
19
77
19
79
19
81
19
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19
85
19
87
19
89
19
91
Data from United States, 1961-1991 (GDP, vehicle production, and machine tool orders
% C
ha
ng
e, y
ea
r to
ye
ar
% change GDP
% change vehicle production index
% change net new orders machine tool industry
The Diaper Supply Chain!
010
203040
5060
7080
Week
Ord
er
Factory
Distributor
Wholesaler
Retailer
Customer
Ripples to tidal wavesStockpiles and stockoutsInsufficient or excessive capacitiesHigher costs
What is the Problem?
The “bullwhip effect” - four key causes Demand signal processing
Currently only order information is shared (not actual sales) Need to instead share POS retail data (sell-through data)
Order batching (retailers only order periodically) Infrequent access to demand information
Order rationing retailers order popular items excessively Hoarding of scare products (inflate demand order of scarce
product to ensure that you have it on-hand)
Special Promotions Alter the normal pattern of product demand from customer;
so that it’s impossible to understand the “true” demand
Interorganizational Systems: CRP
P&G
Warehouse 1
Warehouse 2
BIG RETAILER
< 3% stock outs
< 14days inventory
Before CRP
P&G
Warehouse 1
Warehouse 2
BIG RETAILERBudget
Actual
•Volume discounts•New product promos
•Here and now discounts•Trade marketing
•Bonuses….
Interorganizational Systems
Integration of supply chain across companies
Degrees of integration: information, process, property rights
Increased efficiencies through 1. optimal production/logistics planning 2. lower inventories 3. increased flexibility 4. customer satisfaction
Oh brave new world, this is wonderful…But…
But….
Look out for proprietary systems with high specificity Lock-in
Sharing processes is optimal from logistics viewpoint, but remember ‘knowledge of time and place’
Additional information acquired by one party can reduce bargaining power of other. Competitive industries like retailing, grocery and electronics has demonstrated many examples of this….
Solutions to Improve Sales Forecasting
Vendor Managed Inventory Collaborative Forecasting and
Replenishment Quantity-Flexible contracts
(as contrasted with rigid contracts)
Buyer allowed to make limited changes to forecast information, which is then shared with suppliers. Supplier only ships enough for the “newest” forecast. Why is this helpful?
Types of Shared Information
Inventory information Transition to echelon-based inventory systems Upstream companies can determine when and
what to produce Downstream companies can improve service
levels with less inventory The Apple-Fritz Supplier Hub
Fritz manages entire inbound logistics for Apple Consolidates freight, clears customs, manages the
hub, manages local transportation to Apple FLEX system
Types of Shared Information
Sales Data Variance of orders greater than that of sales The “bullwhip effect” - four key causes
Demand signal processing Move to sharing sell-through data and POS retail
data Order batching
Infrequent access to demand information Order rationing
Hoarding of scare products Promotions
Types of Information Sharing
Production/Delivery Schedule Improves due-date estimation Expand planning horizons
Other Information Sharing Performance metrics Capacity information
Models of Information Sharing
Information Transfer Model Transfer information to the other who maintains
the database for decision-making XML, Web Services, EDI, FAX
EDI Limitations Multiple industry-specific standards Rigid design for transaction processing Rigid text formats Batch-oriented Installation costs
Challenges
Aligning incentives of different partners Channel Management Example
Trust and cooperation Confidentiality of shared information Anti-trust implications, such as possible price
fixing behavior Timeliness and accuracy of information Processes, not technology.. Technological constraints
