Supply chain Management

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Supply Chain Management
Introduction

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A picture is better than 1000 words!
How many words would be better than 3 pictures?
- A supply chain consists of
- aims to Match Supply and Demand,
profitably for products and services
SUPPLY SIDE DEMAND SIDE
The right
Product
Higher
Profits
The right
Time
The right
Customer
The right
Quantity
The right
Store
The right
Price
=
+
+ +
+ +
- achieves
Supplier Manufacturer Distributor Retailer Customer
Upstream
Downstream

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Detergent supply chain:
Customer wants
detergent
Albertson’s
Supermarket
Third
party DC
P&G or other
manufacturer
Plastic cup
Producer
Chemical
manufacturer
(e.g. Oil Company)
Tenneco
Packaging
Paper
Manufacturer
Timber
Industry
Chemical
manufacturer
(e.g. Oil Company)

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Flows in a Supply Chain
Customer
Material
Information
Funds
The flows resemble a chain reaction.
Supplier

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Importance of Supply Chain Management
 In 2000, the US companies spent $1 trillion (10% of GNP) on supply-related
activities (movement, storage, and control of products across supply chains).
Source: State of Logistics Report
 Eliminating inefficiencies in supply chains can save millions of $.
Tier 1
Supplier
Manufacturer Distributor Retailer Customer
Inefficient
logistics
High
stockouts
Ineffective
promotions
Frequent Supply shortages
High landed costs to
the shelf
High inventories
through the chain
Low order fill
rates
Glitch-Wrong Material,
Machine is Down –
effect snowballs

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Cycle View of Supply Chains
Customer Order
Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier
Any cycle
0. Customer arrival
1. Customer triggers an order
2. Supplier fulfils the order
3. Customer receives the order

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Examples of Supply Chains
Dell / Compaq
– Dell buys some components for a product from its suppliers
after that product is purchased by a customer. Extreme case of a
pull process
 Zara, Spain’s answer to Italy’s Benetton
– Sells apparel with a short design-to-sale cycle, avoids markdowns.
 Toyota / GM / Volkswagen, in the course notes
 McMaster Carr / W.W. Grainger, sell auto parts
 Amazon / Barnes and Noble
 Frozen food industry/Fast food industry/5 star restaurants
 Internet shopping: Webvan / Peapod

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Drivers of Supply Chain Performance
Efficiency Responsiveness
Inventory Transportation Facilities
Information
Supply chain structure
Logistical
Drivers
How to achieve
Sourcing Pricing
Cross-
Functional
Drivers

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1. Inventory
 Convenience: Cycle inventory
– No customer buys eggs one by one
 Unstable demand: Seasonal inventory
– Bathing suits
– Xmas toys and computer sales
 Randomness: Safety inventory
– 20% more syllabi than the class size were available in the
first class
– Compaq’s loss in 95
 Pipeline inventory
– Work in process or transit

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2. Transportation
 Air
 Truck
 Rail
 Ship
 Pipeline
 Electronic

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3. Facilities
 Production
– Flexible vs. Dedicated
– Flexibility costs
» Production: Remember BMW: “a sports car disguised as a sedan”
» Service: Can your instructor teach music as well as SCM?
» Sports: A playmaker who shoots well is rare.
 Inventory-like operations: Receiving, Prepackaging,
Storing, Picking, Packaging, Sorting, Accumulating,
Shipping
– Job Lot Storage: Need more space. Reticle storage in fabs.
– Crossdocking: Wal-Mart

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4. Information
 Role in the supply chain
– The connection between the various stages in the supply chain
– Crucial to daily operation of each stage in a supply chain
» E.g., production scheduling, inventory levels
 Role in the competitive strategy
– Allows supply chain to become more efficient and more
responsive at the same time (reduces the need for a trade-off)
– Information technology
» Andersen Windows
 Wood window manufacturer, whose customers can choose from a library of
50,000 designs or create their own. Customer orders automatically sent to
the factory.

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Characteristics of the Good Information
Information Global
Scope
Coordinated
Decisions
Supply Chain
Success
Strategy Analytical Models $$$
Information
 Accurate?
 Accessible?
 Up-to-date?
 In the Correct form?
» If not, database restricted ability. How difficult is it to import data into SAP?

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Quality of Information
 Information drives the decisions:
– Good information means good decisions
 IT helps: MRP, ERP, SAP, EDI
 Relevant information?
 How to use information?

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5. Sourcing
 Role in the supply chain
– Set of processes required to purchase goods and services in a supply chain
– Supplier selection, single vs. multiple suppliers, contract negotiation
 Role in the competitive strategy
– Sourcing is crucial. It affects efficiency and responsiveness in a supply chain
– In-house vs. outsource decisions- improving efficiency and responsiveness
» TI: More than half of the revenue spent for sourcing.
» Cisco sources: Low-end products (e.g. home routers) from China.
 Components of sourcing decisions
– In-house versus outsource decisions
– Supplier evaluation and selection
– Procurement process:
» Every department of a firm buy from suppliers independently, or all together.
 EDS to reduce the number of officers with purchasing authorization.

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6. Pricing
 Role in the supply chain
– Pricing determines the amount to charge customers in a supply chain
– Pricing strategies can be used to match demand and supply
» Price elasticity: Do you know yours?
 Role in the competitive strategy
– Use pricing strategies to improve efficiency and responsiveness
– Low price and low product availability; vary prices by response times
» Amazon: Faster delivery is more expensive
 Components of pricing decisions
– Pricing and economies of scale
– Everyday low pricing versus high-low pricing
– Fixed price versus menu pricing, depending on the product and services
» Packaging, delivery location, time, customer pick up
» Bundling products; products and services