2. Effective supply chain management includes:
1. Integrated computer systems that provide the
production schedule and demand forecasts
to all supply chain members.
2. Collaborative program management tools
that allow manufacturers and suppliers to
synchronize activities to respond to events
(threats and opportunities) in real time.
3. Speed: The Next Innovation
Supply Chain Management (SCM) has become a
more important strategic and competitive
variable
It’s pervasive nature affects every aspect of
business from:
1. Costs
2. Customer service
3. Asset productivity (inventory turns)
4. Revenue generation
The best are getting faster as they apply new
technologies and new innovations to SCM
4. Formal Definition:
Encompasses the planning and management of all
activities involved in sourcing and procurement,
conversion, and logistics.
Central to SCM are the coordination and
collaboration activities performed with channel
partners, which may included suppliers,
intermediaries, their party service providers, and
customers.
In essence, supply chain management integrates
supply and demand across companies.
5. Supply Chain Includes
Getting:
Raw material suppliers
Raw material producers (make products)
Wholesalers
Retailers
Ultimate consumers
On time and at the right price!
6. Supply Chain – continued
Also includes other necessary participants to
move product such as warehousing,
transportation, information processing and
materials handling.
7. SCM Critical Processes Include:
1. Customer Relations Management
2. Supplier Relations Management
3. Customer Service Management
4. Demand Management
5. Order Fulfillment
6. Manufacturing Flow Management
7. Product Development and Commercialization
8. Returns Management
8. Can improve overall company performance by:
1. Revenue enhancement
2. Cost reduction
Focuses on integrating the aforementioned
critical processes across all organizational
borders for purposes of:
Enhancing flow
Lowering costs
Increasing profits
9. SUCCESSFUL SCM PROGRAMS
Leading supply-chain-oriented firms focus on:
a. Monitoring actual user demand rather than
forcing products into the market that may not
sell quickly.
a. The result is to minimize the flow of raw
material, finished products and packaging
material, thus minimizing inventory throughout
the entire supply chain.
10. Many US companies have had an adversarial
(transactional) relationship sometimes called
“adversarial commerce.”
Movement towards SCM made companies realize that
adversarial commerce is inefficient and costly.
This limits the ability to compete in a global economy.
A better approach is to develop relationships
(partnerships) between members of the supply chain
but due to proprietary interest, this requires…
TRUST.
11. Traditional Approach
The traditional approach is for each member in the
supply system to operate their business in such as way
as to individually manage their own part.
However, this is inefficient and costly.
Material is often moved around too much resulting in
higher transportation costs.
Communication between sales and other departments
is excessive and time consuming.
12. Requires firms to share sensitive and
proprietary information about:
a. Customers
b. Actual demand
c. Point-of-sales transactions
d. Corporate strategy
12
13. Successful SCM demands
13
Joint planning and joint
communications.
To accomplish this, many companies
set up teams from their supply chain
members that cut across functional
and company boundaries to manage
the movement of goods through the
supply chain.
14. Efficient SCM Programs
To make an SCM program work, there is a need to
create an “overlap” among participants in the supply
chain.
There needs to be a long-term commitment and
interwoven relationships.
This includes sharing information about, well,
everything.
Fig. 11.1 illustrates the stages in the SCM adoption
process.
15. SCM: A Tool for Competitive Advantage
Many companies have now integrated
SCM into all phases of their operation to
include:
Design
Sourcing
Manufacturing
Distribution
This has resulted in enhanced market
position and added value for customers.
16. SCM reduces costs through efficiencies
and
Speeds up the cash cycle, thus increasing
revenues.
17. An efficient and effective supply chain can be a
powerful competitive weapon providing:
Waste reduction – Minimizing duplication of
efforts, harmonizing operations and systems, and
enhancing quality
Time compression – Compressing order-to-
delivery cycle time
Flexible response – Meeting customer’s unique
requirements in cost-effective manner
Unit cost reduction – Reducing cost per unit to end
users by determining performance levels that
customers desire
18. More Is Needed!
Even though SCM is important, more is needed!
To stay ahead of the competition, companies need
to have agile, aligned and adaptable SC systems.
One key is to adapt to changing customer needs
and competitive challenges, and respond
accordingly.
Another key is for the organizations to constantly
assess their alignment with the interest of all firms
to their own within the SC .
19. Good SC benefits the ultimate consumer, and
Benefits all the customers within the supply
chain.
Note: Each member is a customer of the
prior member until the product reaches the
ultimate consumer.
20. Innovative Supply Chains
1. The coupling of inventory movement with financial
movement can:
1. Open doors to greater end-to-end cost savings
2. Have better balance sheets
3. Lower total costs
4. Have higher margins
5. Have a more stable supply chain
And everybody wins!
22. SCM Drivers
SCM efficiency & effectiveness is made possible
through:
Powerful information systems
Internet technology
Supply chain software
23. Internet Technology
• Over the last 10 years, we’ve seen a
revolution take place in SCM technology
attributed directly to Internet
development.
• It was very difficult to integrate all the
various facets of the SC without real time
application provided by the Internet.
24. One determinant is the “nature of demand
for the product.”
Is it:
Functional?
or
Innovative?
25. Functional products include MRO, office furniture
etc.
They have a predictable demand pattern
Goal for functional products is to design an
efficient physical distribution system that
minimizes logistics and lowers inventory costs
Efficiency means developing systems that
effectively coordinate manufacturing, ordering and
delivering while minimizing production and
inventory costs
26. Innovative Products
Innovative products include software, wireless
products, and other high-tech products.
They have a less predictable demand.
They have short life cycles.
The focus is to have enough inventory to meet
demand and maximize profits.
Strategy is capture customer information so
that the SC organization can position
inventory and production capacity to properly
respond to demand ASAP.
27. Cooperation
• Supply chains are not supply chains if there is any
form of adversarial relationships.
• In order for a supply chain to work, the
participants need to work in a partnering way.
• Highly effective supply chains feature integrated
operations across participants, share information
in a timely fashion and add value for the customer.
28. 1. Need to clearly define strategic objectives
2. Understand where their objectives diverge, and
3. Work together to resolve any differences
Once partners agree on establishing an
integrated supply chain, performance metrics
can be established to track its goals.
The metrics must measure performance, and
are tied to a financial system that rewards each
participant fairly.
29. SCM is focused on the integration of all business
processes that add value for customers.
In business usage, logistics is similar to SCM,
however, it is not as encompassing.
Logistics refers to designing and managing
necessary activities centered around
transportation, inventory, warehousing and
communications to make materials available for
manufacturing and ultimately to consumers.
30. Logistics embodies two flows:
Inbound - Physical Supply: Flows that
provide raw materials, components, and
supplies to the production processes
Outbound - Physical Distribution: Flows
that deliver completed products to
customers and channel intermediaries
31. Logistical Integration
SCM and Logistics has risen in importance due to:
1. Time-based competition
2. Improved communications & software technology
3. Expanding globalization
4. More attention to quality
5. The changing face of inter-firm relationships
Managers can make virtually no logistical decision
without evaluating how it might affect other
logistical areas.
33. Strategic Role of Logistics
• Historically, logistics was viewed as a cost of doing
business.
• Its function was to deliver higher productivity.
• Today, it is viewed as a critical strategic weapon
against competition for delivering products to the
market in as efficient and effective way that offers
customers value.
• The result is loyal customers and more profitability.
34. Sales-Marketing-Logistics Integration
• Progressive firms have teams of sales,
production, logistics, information systems and
marketing personnel.
• Sales calls are made by teams of specialists who
contact customers and offer logistical solutions
to customer problems.
35. JIT SYSTEMS
Just In Time systems originally applied to moving
inventory through the production process.
The objective is to get the right part to the right place
at the right time in perfect condition (zero defects).
JIT’s purpose is to relate production to purchase.
Example: If 100 units are expected to be purchased,
then produce 100 units (getting product to match
market needs).
35
36. JIT continued
One consequence of JIT inventory
has been to reduce suppliers to
preferred supplier status
(relationships).
Preferred suppliers have seen their
business grow tremendously.
37. LOGISTICAL SYSTEMS
Again, due to the interconnectedness of the
logistical system, almost no decisions can be
made without evaluating the effects upon other
areas (refer to next slide).
Linkages determine how quickly companies can
get their product from production to market.
As a result, poor performance on any member’s
part can result in extra cost, higher inventories,
or even lost customers.
38. Source: Adapted from James R. Stock and Douglas M. Lambert, Strategic Logistics Management, 5th ed. (Homewood, Ill.: McGraw-Hill, 2000)
39. When managing the logistical system, two
measurements need to be considered:
1. Total distribution costs
2. Level of logistical services provided to customers
Trying to reduce distribution cost yet still provide
good services to the customer is a balancing act.
The approach is to use the Total-Cost or
Trade-Off method.
40. Total Cost or Trade-Off
Approach
Total Cost or Trade-Off considers the effect of
costs vs. efficiency at all levels within the
logistical system.
The assumption is that a change at one stage
will affect something at another stage.
The method is to consider the total cost,
considering any trade offs in performance or
quality at each stage, then assess its effect on
other members while considering the total cost
(including abstract costs such as losing the
41. Activity-Based Costing (ABC) is a technique
used to measure costs of performing specific
activities and trace those costs to:
1. Products
2. Customers
3. Channels that consumed the activity
This method even traces costs to the customer
demanding certain services. For example…
42. ABC continued
For example, assume a customer wants
daily JIT delivery, but the inventory
ordered is too small.
What would you do?
You’d track the cost of that service to the
customer and you’d either:
a. Charge him extra for the service
b. Have him increase his inventory order to
economic feasibility, or
c. Drop him as a customer.
43. Determines the total cost of acquiring and
using an item from a particular supplier.
This approach identifies costs (often buried
in overhead/general expenses) that related
to holding, poor quality and/or delivery
failure.
Buyers using TCO to analyze those costs as
part of the purchase price can discern
suppliers with an efficient logistics system.
They should have lower costs and lower
44. B2B Logistical Service
Logistics is a service similar to quality and is used by
customers to measure performance.
When quality between competitors and price are the
same, the next determinant may be logistical speed.
Logistical service translates into product availability.
45. Delivery & Responsiveness
Logistical service relates to the availability and delivery
of products to the customer.
Responsive logistical service advances customer
satisfaction and develops buyer-seller relationships.
Effective logistics reduces inventory, thus saving costs;
consistent delivery leads to dependencies which leads
to repeat business.
46.
47. What Is the Right Level of Logistical Service?
Different products require different logistical
services.
Made-to-order products (heavy equipment)
have a low logistical service requirement.
Replacement parts have very high logistical
service requirements. There is a great need
to get replacement products to the customer
ASAP.
48. Poor logistics result in higher inventory
carrying costs to distributors.
Poor logistics implementation can result in
inventory shortages which can lead to
customer dissatisfaction (customer
disengagement).
Effective logistics allows distributors to
compete effectively since it allows them to be
more valuable to their (mutual) customers.
49. B2B LOGISTICAL MANAGEMENT CONSIDERATIONS
Three major areas are logistically
intertwined. They are:
1. Logistical facilities
2. Transportation
3. Inventory considerations
The best approach is to take the Total
Cost view for these activities.
50. LOGISTICAL FACILITIES
Logistically located, proper facilities reduce
transportation costs, and/or increase
delivery service to customers.
Warehousing circumvents the need for
expensive transportation (e.g., air
transportation vs. trucking) and costly order
processing by keeping products in local
markets.
Maintenance, Repair & Operating (MRO)
products are directly affected by this issue.
51. Logistic Facilities and Assembling,
Packaging, Order Processing & Labeling
• When manufacturer reps are employed, orders
should go directly to a local warehouse since reps
don’t own the product.
• One approach is to outsource local warehousing.
• In fact, not only is warehousing often outsourced,
but so is assembling, packaging, order processing
and labeling.
52. TRANSPORTATION
Transportation is usually the most expensive part of the
logistic process.
There are various transportation choices (see next slide
for details).
Cost, speed, reliability, and capability need to be
considered when making the choice.
Studies show that carrier performance improved when
they were involved in buyer and seller relationships.
Further, if carriers are integrated into the chain, overall
competitive advantage increased.
53. The best decision as to which mode results
from balancing of:
1. Service
2. Variable costs
3. Investment required
4. Speed of ordinary vs. expedited (rush)
orders
54. Buffer between supply and demand
Logistical systems are necessary to
balance this difference
55. Inventories are needed because:
1. Production and demand not perfectly matched.
Production usually occurs in anticipation of demand.
2. Operating deficiencies in logistical system often
result in product unavailability.
3. Business customers cannot predict their product
needs with certainty.
57. The objective of Total Quality
Management and JIT principles is to
eliminate excess inventory.
Current thinking is that inefficiencies in
the system results in excess/shortfall
inventory.
If there could be better forecasting,
improved delivery and zero
manufacturing defects, the possibility to
eliminate the need for inventory is
possible, especially due to certain
58. In high tech markets where obsolescence is
a reality, close attention to inventory is an
absolute must.
Inventory management considers four
factors (inventory driven costs) that can
reduce profits:
1. Obsolescence
2. Devaluation
3. Price protection
4. Return costs
59. Third Party Logistics
Almost everything is a make or buy situation.
Same goes for various logistical functions.
Most companies are now outsourcing
transportation, warehousing and information
processing. The trend is continuing.
This is really a form of specialization and
division of labor.
60. The results of specialization are:
1. Lower costs
2. Better service
3. Improved asset utilization
4. Increased flexibility
5. Access to leading technologies
61. Third Party Caution
Despite certain advantages, there
are some reasons for caution.
Due to outsourcing, companies can
lose control over the logistics
process.
Take product quality for example:
Bad dog food
Lead paint in toys
