Supply Chain Management for Competitive Advantage

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Supply Chain Management for Competitive Advantage

  1. 1. Supply Chain Management for Competitive Advantage Michael Hugos CIO Network Services Co. [email_address]
  2. 2. What is a Supply Chain? <ul><li>“ A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.” </li></ul><ul><ul><li>Ganeshan and Harrison, 1995 </li></ul></ul>
  3. 3. Old Supply Chains vs. New VERTICAL INTEGRATION has given way to “VIRTUAL INTEGRATION” Companies now focus on their core competencies, and partner with other companies to create supply chains for fast moving markets. Raw Materials Transportation Manufacturing Distribution Retail Show Room Slow Moving, Industrial Mass Markets Vertically Integrated Conglomerate Fragmented, Fast Moving Markets Raw Materials Company Manufacturing Company Transportation Company Independent Distributor Independent Retailer
  4. 4. Supply Chain Structure <ul><li>Producers </li></ul><ul><li>Distributors </li></ul><ul><li>Retailers </li></ul><ul><li>Customers </li></ul><ul><li>Service Providers </li></ul><ul><li>Logistics </li></ul><ul><li>Finance </li></ul><ul><li>Market Research </li></ul><ul><li>Product Design </li></ul><ul><li>Information Technology </li></ul>Supplier Company Customer Ultimate Supplier Supplier Company Customer Ultimate Customer Service Providers Simple Supply Chain Extended Supply Chain Raw Mat’l Producer Manufctr Distributor Retailer Retail Customer Logistics Provider Finance Provider Business Customer Market Research Product Designer Example of an Extended Supply Chain
  5. 5. Major Supply Chain Drivers RESPONSIVENESS vs. EFFICIENCY “ Increase throughput while simultaneously reducing inventory and operating expense.” - Goldratt, 1984 1. PRODUCTION What, how, and when to produce 2. INVENTORY How much to make and how much to store 3. LOCATION Where best to do what activity 4. TRANSPORTATION How and when to move product 5. INFORMATION The basis for making these decisions
  6. 6. What is Supply Chain Management? <ul><li>“Supply chain management is the coordination of production, inventory location, transportation, and information among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served.” </li></ul><ul><ul><li>Hugos, 2002 </li></ul></ul>
  7. 7. Aligning Supply Chain & Strategy <ul><li>Understand the requirements of your customers </li></ul><ul><li>Define core competencies and roles your company will play to serve your customers </li></ul><ul><li>Develop supply chain capabilities to support the roles your company has chosen </li></ul>
  8. 8. Responsiveness vs. Efficiency - Cost of information drops , other costs rise - Collect & share timely, accurate data 5. Information <ul><li>Few large shipments </li></ul><ul><li>Slow, cheaper modes </li></ul><ul><li>Frequent shipments </li></ul><ul><li>Fast & Flexible mode </li></ul>4. Transportation - Few central locations serve wide areas <ul><li>Many locations close to customers </li></ul>3. Location <ul><li>Low inventory levels </li></ul><ul><li>Fewer items </li></ul><ul><li>High inventory levels </li></ul><ul><li>Wide range of items </li></ul>2. Inventory <ul><li>Little excess capacity </li></ul><ul><li>Narrow focus </li></ul><ul><li>Few central plants </li></ul><ul><li>Excess capacity </li></ul><ul><li>Flexible manufacturing </li></ul><ul><li>Many smaller plants </li></ul>1. Production Efficiency Responsiveness
  9. 9. What Did Wal-Mart Do? <ul><li>Tactic of expanding around central DCs </li></ul><ul><ul><li>Look for areas to support a group of stores </li></ul></ul><ul><li>Using EDI and RFID with suppliers </li></ul><ul><ul><li>Lower operating costs, greater control </li></ul></ul><ul><li>“Big Box” store format </li></ul><ul><ul><li>Combines a warehouse with a store, lowers costs </li></ul></ul><ul><li>“Everyday low prices” </li></ul><ul><ul><li>Smoothes out demand swings, better forecasting </li></ul></ul><ul><li>Creates a supply chain that drives their business model (mass market, low price) </li></ul>
  10. 10. Markets & Required Performance D E M A N D <ul><li>GROWTH </li></ul><ul><li>Customer Service </li></ul><ul><li>DEVELOPING </li></ul><ul><li>Customer Service </li></ul><ul><li>Product Development </li></ul><ul><li>STEADY </li></ul><ul><li>Customer Service </li></ul><ul><li>Internal Efficiency </li></ul><ul><li>MATURE </li></ul><ul><li>Customer Service </li></ul><ul><li>Internal Efficiency </li></ul><ul><li>Demand Flexibility </li></ul>S U P P L Y
  11. 11. Performance Measures <ul><li>Cycle time for new product development/introduction </li></ul><ul><li>Outside flexibility </li></ul><ul><li>Return on sales </li></ul><ul><li>Cash-to-cash cycle time </li></ul><ul><li>Quoted lead time & completion rate </li></ul><ul><li>On time delivery rate </li></ul><ul><li>Warranty returns & repairs </li></ul><ul><li>% of sales from new products </li></ul><ul><li>% of SKUs as new products </li></ul>PRODUCT DEVELOPMENT <ul><li>Activity cycle times </li></ul><ul><li>Upside flexibility </li></ul>DEMAND FLEXIBILITY <ul><li>Inventory value </li></ul><ul><li>Inventory turns </li></ul>INTERNAL EFFICIENCY <ul><li>Order & line item fill rate </li></ul><ul><li>On time delivery rate </li></ul><ul><li>Return rate </li></ul>Build to Stock CUSTOMER SERVICE Build to Order
  12. 12. The “Bullwhip Effect” Mo. 24 20 16 12 8 4 0 300 600 To Manufacturer 900 Distributor Orders 1200 Mo. 24 20 16 12 8 4 0 300 600 To Distributor 900 Retailer Orders 1200 Mo. 24 20 16 12 8 4 0 300 600 For Product 900 Customer Demand 1200
  13. 13. Why The Bullwhip? <ul><li>Demand Forecasting </li></ul><ul><ul><li>Based on orders received not end user demand </li></ul></ul><ul><li>Order Batching </li></ul><ul><ul><li>Companies place periodic orders based on EOQ, etc </li></ul></ul><ul><li>Product Rationing </li></ul><ul><ul><li>Allocation of available supply as % of amount ordered </li></ul></ul><ul><li>Product Pricing </li></ul><ul><ul><li>Promotional pricing causes distortions in demand </li></ul></ul><ul><li>Performance Incentives </li></ul><ul><ul><li>Qtrly and yearly quotas and sales bonuses </li></ul></ul>
  14. 14. Benefits of Data Sharing Low High Inventory Levels High Service Levels Company ‘A’ <ul><li>Company A may have high levels of customer service </li></ul><ul><li>But success may be short-lived if its customer is not the end use customer the supply chain ultimately serves. </li></ul>
  15. 15. Benefits of Data Sharing (cont.) Low High Inventory Levels High Service Levels <ul><li>Bullwhip distortions drive up inventory </li></ul>‘ X’ & ‘Y’ Supply Chains <ul><li>Company A may be part of Supply Chain X which has to hold more inventory than Supply Chain Y to deliver similar levels of customer service. </li></ul>
  16. 16. Supply Chain Collaboration <ul><li>Companies perform operations in one or more of these supply chain activities </li></ul><ul><li>Entire supply chains are more efficient if each company improves their performance </li></ul><ul><li>Collaborative Planning, Forecasting & Replenishment (CPFR) </li></ul><ul><li>PLAN </li></ul><ul><li>Demand Forecasting </li></ul><ul><li>Product Pricing </li></ul><ul><li>Inventory Mgmt. </li></ul><ul><li>SOURCE </li></ul><ul><li>Procurement </li></ul><ul><li>Credit & Collections </li></ul><ul><li>MAKE </li></ul><ul><li>Product Design </li></ul><ul><li>Production Scheduling </li></ul><ul><li>Facility Management </li></ul><ul><li>DELIVER </li></ul><ul><li>Order Management </li></ul><ul><li>Delivery Scheduling </li></ul>
  17. 17. The Synchronized Supply Chain Market demand sets the drum beat or pace. Manage uncertainty with a buffer of inventory or capacity. Reduce uncertainty and keep buffers low by sharing market data. Data is the rope that ties the supply chain together (Slides excerpted from my book, Essentials of Supply Chain Management , John Wiley & Sons publisher, 2003) Flow of Inventory Raw Mat’l Manfctr Distr Retailer Market Demand Buffer Buffer Buffer Buffer Sales & Forecast Data “ Drum – Buffer – Rope”
  18. 18. <ul><li>Network Services Company’s </li></ul><ul><li>Supply Chain Strategy </li></ul>
  19. 19. Our Supply Chain Goal <ul><li>Create the low cost and highly responsive supply chain that we need in order to be the distributor of choice in the markets we serve </li></ul><ul><ul><li>Automate all routine processing of common transactions (orders, invoices, product masters, advance ship notices, price books) so as to increase productivity and decrease errors </li></ul></ul><ul><ul><li>Focus people on more value added activities such as customer service, inventory management, and sales </li></ul></ul>
  20. 20. Use UPCs to Communicate Eliminate the COST , the ERRORS , and the WASTED TIME by using common item numbers…use UPC #s NP&PC ASN INVOICE PO ASN Member Member Members PO INVOICE PO INVOICE Supplier Supplier Suppliers Customers PO ASN INVOICE PO INVOICE PO PRICE BKS PRICE BKS PRICE BKS
  21. 21. Use UPCs to Communicate (cont.) <ul><li>Members can still use their item numbers for internal transactions </li></ul><ul><li>Use UPCs when communicating with Network, Customers, and Suppliers </li></ul><ul><li>Benefits </li></ul><ul><ul><li>Eliminate errors in ordering, packing, and invoicing </li></ul></ul><ul><ul><li>Reductions in time spent finding product and resolving discrepancies </li></ul></ul><ul><ul><li>Better customer service </li></ul></ul><ul><ul><li>Reductions in days sales outstanding (DSO) </li></ul></ul>
  22. 22. Keep it Super Simple (KISS) <ul><li>ASCII Flat Files - every computer system can read & write these files, great format to exchange data </li></ul><ul><li>Internet & FTP - these two technologies make data transfer easy and cheap </li></ul><ul><li>Batch Interfaces - batch data transfer every hour, every ½ hour, every 10 minutes approaches real-time at a fraction of the cost of true real-time </li></ul><ul><li>Relational Databases - provide powerful means to store, retrieve, and display data and are easily interfaced to spreadsheets and web pages </li></ul>
  23. 23. Network’s Supply Chain System <ul><li>We combine simple technology to create a cost effective and scalable supply chain system: </li></ul><ul><ul><li>Use of Internet & FTP to transport data </li></ul></ul><ul><ul><li>Adoption of ASCII flat files as common format (can be upgraded to XML when needed) </li></ul></ul><ul><ul><li>Batch interfaces to ERP and other systems </li></ul></ul><ul><ul><li>Data warehouse accessed via LAN and web </li></ul></ul>
  24. 24. Supply Chain System Components NSC Member Company NSC Member Company NSC Member Company NSC Mt. Prospect Location NetLink NetLink NetLink is a two-way, Internet-based data transfer system that links member company computer systems
  25. 25. Supply Chain System Components NSC Member Company NSC Member Company NSC Member Company NSC Mt. Prospect Location NetLink NetLink Data Whse Data Whse The data warehouses support web-based systems and coordination among NSC member companies
  26. 26. Supply Chain System Components NSC Member Company NSC Member Company NSC Member Company NSC Mt. Prospect Location NetLink NetLink Data Whse Data Whse NSC Virtual Private Network The VPN provides data security for our business transactions
  27. 27. Supply Chain System Components NSC Member Company NSC Member Company NSC Member Company NSC Mt. Prospect Location NetLink NetLink Data Whse Data Whse NSC Virtual Private Network Order Entry Customer Service Product Catalog Sales History Inventory Status Order Status Web-Based E-Commerce Systems Web-based systems currently provide product catalogs, order entry, and sales reporting
  28. 28. Network Services’ Supply Chain CUSTOMER Order Entry Customer Service Product Catalog Sales History NSC Member Company NSC Member Company NSC Member Company NSC Mt. Prospect Location CUSTOMER CUSTOMER CUSTOMER CUSTOMER NSC Virtual Private Network Web-Based E-Commerce Systems NetLink NetLink Data Whse S U P P L I E R S U P P L I E R S U P P L I E R Data Whse Inventory Status Order Status
  29. 29. Timely Data Enables Collaboration The data warehouse provides different views of the data to support senior executives, line managers, and staff. It also facilitates sharing of data with supply chain partners. Strategic Market View Tactical Company View Operations View Data Warehouse Reports to Suppliers Reports to Customers
  30. 30. Business Benefits <ul><li>Data is entered only once </li></ul><ul><li>Reduction in both cost of order processing and error rates </li></ul><ul><li>Automatic routing of orders, invoices, and other data between all parties </li></ul><ul><li>Electronic integration with systems used by customers, members, and suppliers </li></ul>
  31. 31. Business Results <ul><li>The data visibility enables us to be more responsive to customer, and suppliers needs </li></ul><ul><li>We now sell supply chain management services along with our products </li></ul><ul><li>Our position as the electronically connected “middleman” is what makes this all possible </li></ul><ul><li>Slides excerpted from my books : Essentials of Supply Chain Management , John Wiley & Sons publisher, 2003 Building The Real-Time Enterprise: An Executive Briefing , John Wiley & Sons publisher, 2005 </li></ul>

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