Microsoft PowerPoint - The Supply Chain

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Microsoft PowerPoint - The Supply Chain

  1. 1. The Supply-Chain Supply Chain Management SCM This presentation is based on the work and materials of: Marshall L. Fisher, Professor & co-director of the Fishman-David Center for service and Operation management at The Wharton School. David Simchi-Levy, professor at the MIT, President and CEO of Logic Tools. Sept. 2001 Slide 2 Elee – Shanghai
  2. 2. Index Supply Chain - Definitions The objectives of SCM Traditional vs. new SC models Why inventories in the Supply chain SCM strategies The fundamentals of SCM What does it take to implement SCM The benefits gained through SCM Sept. 2001 Slide 3 Elee – Shanghai
  3. 3. Supply chain - Definitions Sept. 2001 Slide 4 Elee – Shanghai
  4. 4. What is the Supply Chain? The supply-chain is a complex sequence of events and decisions, which connects sourcing raw materials with manufacturing and the end consumer. Logistics is the management of this end-to-end supply-chain. Sept. 2001 Slide 5 Elee – Shanghai
  5. 5. The Logistics network A complex network of Factories, Warehouses, Distribution Centers and Retail… Manufacturers Distribution centers Customers Suppliers Plant direct shipments Retailers Ports of entries Cross-dock facilities Demand points Assembly plants Assembly plants Product destination Sept. 2001 Slide 6 Elee – Shanghai
  6. 6. Supply Chain Management Supply Chain Management covers flows of goods from suppliers through manufacturing and distribution up to the customers * Work in process Inventories Finished Raw Stock WIP* Product Material points Stock Purchase Manufactory Factory Distribute Customer Supplier Customer orders orders orders orders orders Supply chain time line The time spent by items from the purchase of raw materials up to the delivery of product to customer Sept. 2001 Slide 7 Elee – Shanghai
  7. 7. Supply Chain Management (SCM) …..is primarily concerned with the efficient integration of suppliers factories, warehouses and stores so that merchandise is produced and distributed in the right quantities to the right locations at the right time in damage-free conditions and so as to minimize the total System cost of a company subject to satisfying service requirements. Sept. 2001 Slide 8 Elee – Shanghai
  8. 8. The objectives of Supply Chain Management Sept. 2001 Slide 9 Elee – Shanghai
  9. 9. The objectives of SCM It is fundament for organizations to adopt the logistics and supply chain model to balance the costs (direct & indirect) of holding (or not) inventories against the need to serve end-consumers quickly and reliably. Sept. 2001 Slide 10 Elee – Shanghai
  10. 10. Bridging the gaps When is a product desired DEMAND Where is a product wanted How much or how many are needed What mix of products is called for How is it desired When is a product made SUPPLY Where it is made or sourced How much or how many are made or acquired What product mix is made or scheduled to be received How is it delivered Sept. 2001 Slide 11 Elee – Shanghai
  11. 11. The objectives of SCM The objectives of the supply chain are to optimize pre and post-production inventory levels, obtain greater efficiency from labor, equipment and space across the company and provide flexible planning and control mechanisms. Sept. 2001 Slide 12 Elee – Shanghai
  12. 12. The objectives of SCM Supply Chain management tries to: Set free capital tied up in inventories in the whole pipeline from supplier to customer, While minimizing the transportation costs, Without sacrificing the desired levels of customer service. Sept. 2001 Slide 13 Elee – Shanghai
  13. 13. The objectives of SCM SCM aims at minimizing the systemwide costs of a company subject to satisfying service level requirements. Company costs Service levels Manufacturing Manufacturing The response time expressed The response time expressed Fixed assets Fixed assets in time units decided by in time units decided by Inventories Inventories demand patterns. demand patterns. Transportation Transportation Hours //Days Week //Months Hours Days Week Months Sept. 2001 Slide 14 Elee – Shanghai
  14. 14. SCM helps companies make better decisions SCM helps companies make better decisions faster, answering questions like: What is the best price to charge for my product? Should I change the price if I have excess inventory? If so, by how much? If I am short of a product, where should I allocate supply? Which suppliers should I buy parts from? Which factory should I manufacture the product? Sept. 2001 Slide 15 Elee – Shanghai
  15. 15. Traditional versus new supply chain models Sept. 2001 Slide 16 Elee – Shanghai
  16. 16. Traditional approach of SCM Supply chain partners operate in silos Suppliers Manufacturers Warehouse Retailers Customers Interface between entities Traditional organizations set performance goals for each function to be managed in isolation with no or little attention given to inter-functional relationships. Sept. 2001 Slide 17 Elee – Shanghai
  17. 17. Traditional approach of SCM By making use of local information to make demand forecasts and passing them onto downstream partners, information distortion is created. Suppliers Manufacturers Warehouse Retailers Customers Over Over Over Over Over forecasting forecasting forecasting forecasting forecasting Over Over Over Over Over purchasing purchasing purchasing purchasing purchasing Over Over Over Over Over producing producing producing producing producing Over Over Over Over Over stocking stocking stocking stocking stocking Unwanted inventories Sept. 2001 Slide 18 Elee – Shanghai
  18. 18. Efficient implementation of the Supply Chain Supply Chain Management concept accepts the whole supply chain as a single entity & enable a total transparency of demand information across all business partners Push-pull boundary Push Pull Pull Pull orders are received Retailers Suppliers Manufacturers customers Warehouses The product is pulled by demand. Sept. 2001 Slide 19 Elee – Shanghai
  19. 19. Supply Chain Management (SCM) Ensuring free flow is the core essence of the Supply Chain concept. Cross-functional collaboration is of utmost importance for such an organization to be effective. Sept. 2001 Slide 20 Elee – Shanghai
  20. 20. Efficient implementation of the Supply Chain All functions along the chain share the common objective of supply and are involved in strategic decision-making Push-pull boundary Push Pull Pull Pull orders are Manufacturers Warehouses customers Suppliers Retailers received Sept. 2001 Slide 21 Elee – Shanghai
  21. 21. Why do we have inventories in the Supply Chain? Sept. 2001 Slide 22 Elee – Shanghai
  22. 22. Why inventories in the supply-chain? But also, promotions, seasonality, Numerous reasons among batch process, tight capacities etc.. which, Demand variability Product nature Desired service levels (90% - 99%) High fluctuation of product demand Stock Suppliers long delivery time (Safety High delivery variability or Information distortion unwanted) Sept. 2001 Slide 23 Elee – Shanghai
  23. 23. Inventory is a symptom To decrease inventories, one needs to address the root cause of Why inventories are high in the Supply-Chain Sept. 2001 Slide 24 Elee – Shanghai
  24. 24. Demand patterns Different demand patterns generate Different inventory levels Next day delivery High level of service Low cost network Plant to customers Sept. 2001 Slide 25 Elee – Shanghai
  25. 25. Type of Products Different products induce Different distribution Different distribution patterns patterns Sept. 2001 Slide 26 Elee – Shanghai
  26. 26. Service levels Two different types of products with similar service requirements “NEXT DAY DELIVERY” induce different storing patterns. Sept. 2001 Slide 27 Elee – Shanghai
  27. 27. Case study – Food cans vs. Hi-tech Low value - Low margins Many DCs close to customers High Inventory levels Sept. 2001 Slide 28 Elee – Shanghai
  28. 28. Grocery products – functional products Stable, predictable demand patterns & cycle life times NEXT - DAY SERVICE Many DCs to be close to customers Each inventory in warehouses has to hold safety stock to protect against demand variability Bulk shipments Weekly trucks High buffer inventory levels Replenishment by weekly trucks Remote inventory base (4 weeks) (Next day delivery) Manufacturing site Points of sales
  29. 29. High tech products High values, High margins Minimized inventories Premium transport service Sept. 2001 Slide 30 Elee – Shanghai
  30. 30. High tech products – short cycle life time Great variety NEXT-DAY Unpredictable demand Direct Premium Air-freight No remote buffer inventory Less warehouse implies SERVICE higher geographic Premium trucking coverage of each warehouse service Premium Air freight service Manufacturing site Points of sales
  31. 31. Supply chain Management Strategies Sept. 2001 Slide 32 Elee – Shanghai
  32. 32. What SCM is looking for is to develop production & delivery mechanisms and processes that can produce goods to the actual end-user rate of demand for the smallest time-period manageable. Ensure that the variety of products reaching the market place matches what customers want to buy. Sept. 2001 Slide 33 Elee – Shanghai
  33. 33. The functions of the SMC A physical function Production Procurement Storage Transportation A Market interface function Ensure that the following conditions are met: the right product at the right place at the right time in the right quantity, exactly as per Customers’ needs and expectations. Sept. 2001 Slide 34 Elee – Shanghai
  34. 34. Supply-Chain strategies Made-to-stock environment Efficient SC to market demand Push Product Functional products characteristics typically… Inventory of Retail products, Stable, predictable Food cans, demand Finished goods beer, drinks & life cycle time Pasta, Low level of demand All production and baby diapers uncertainty distribution decisions are Etc… Low margin made on long-term forecasts The problems 1/ Forecast are always wrong, with long-term 2/ The longer the forecast horizon, the worst the forecast forecasts 3/ Aggregate forecast are more accurate. (risk-pulling concept.) Sept. 2001 Slide 35 Elee – Shanghai
  35. 35. New Supply-Chain strategies Made-to-order environment Responsive SC to market demand Inventory of Innovative products parts All sorts of industries High tech industries Unpredictable demand Assembly Computer (Dell) Short life cycle time Fashion Great variety ..etc … High margins Decisions based on accurate customer demand. Ensure that the variety of products reaching the market place matches what customers want to buy Sept. 2001 Slide 36 Elee – Shanghai
  36. 36. What Strategy for your products? Is your product functional or innovative? Should your SC be physically efficient or responsive to the market? Where in the SC to position inventory and available production capacity in order to hedge against uncertain demand? Sept. 2001 Slide 37 Elee – Shanghai
  37. 37. Physically Efficient vs. Market-Responsive SC Physically Efficient Market-Response process Process Primary purpose Supply predictable Respond quickly to unpredictable Demand efficiently at the demand to minimize forced lowest possible cost markdowns, obsolete inventories Manufacturing focus Maintain high average Deploy excess buffer capacity utilization rate Inventory strategy Generate high returns & Deploy significant buffer minimize inventory stocks of parts or finished throughout the SC goods Lead-time focus Shorten lead times as long Invest aggressively in ways to as it does not increase cost reduce lead times Approach to choosing Select primarily for cost & Select primarily for speed, suppliers quality flexibility and quality Product design strategy Maximize performance & Use modular design to postpone minimize cost product differentiation as long as Sept. 2001 possible Slide 38 Elee – Shanghai
  38. 38. Matching SC with products Functional products Innovative products Supply chain Efficient match mismatch Supply chain Responsive mismatch match Sept. 2001 Slide 39 Elee – Shanghai
  39. 39. The Push - Pull Strategy Push based strategies Pull based strategies Parts Parts Assembly Assembly Responsive SC Efficient SC model replenishment replenishment made on made on model made made accurate customer accurate customer on forecast on forecast demands demands The push-pull boundary It is the point at which the product goes from being pushed in anticipation of customer order, to being pulled by actual demand. Sept. 2001 Slide 40 Elee – Shanghai
  40. 40. What is the appropriate strategy for a company? The higher the demand uncertainty, The lower the demand uncertainty, the more we want to use the more we want to use Pull based strategies. Push based strategies (high predictability) The higher the transport cost*, The lower the transport costs*, the more we want to make use of we more we are willing to use Push based strategies. Pull based strategies. (aggregate shipments possibility) (*Transport costs as a percentage of a unit cost) Sept. 2001 Slide 41 Elee – Shanghai
  41. 41. Raw Materials The Pull-Push boundary Car Some Retail Traditional End customer Furniture Dell industry Amazone retailers Production Assembly Manufacturer Distributor Store DC DC It is the inflection point where demand information exerts its influence on….. Sept. 2001 Slide 42 Elee – Shanghai
  42. 42. The furniture industry High level of demand uncertainty High level of demand uncertainty High delivery cost (% to the unit price) High delivery cost (% to the unit price) Many different type of fabrics, colors decided on order. Made Inventory Inventory Raw Materials End customer on Consolidation of bulky shipments order Production Assembly Manufacturer Distributor Store DC DC Sept. 2001 Slide 43 Elee – Shanghai
  43. 43. Dell - the Pull-Push boundary High level of demand uncertainty High level of demand uncertainty Low delivery cost (% to the unit price) Low delivery cost (% to the unit price) Demand Pull from customer demand forecast made No inventory Raw Materials End customer at Push assembly of finished products Parts inventory made on forecast Production Assembly Manufacturer Distributor Store DC DC Sept. 2001 Slide 44 Elee – Shanghai
  44. 44. Traditional computer industry High level of demand uncertainty High level of demand uncertainty Low delivery cost (% to the unit price) Low delivery cost (% to the unit price) Demand forecast made on long term forecast Manufacturing Inventory Push Raw Materials End customer of Inventory finished Inventory of products finished of finished products products Production Assembly Manufacturer Distributor Store DC DC Sept. 2001 Slide 45 Elee – Shanghai
  45. 45. Car industry High level of demand uncertainty High level of demand uncertainty would look like In which case the business model High delivery cost something like…. price) (% to the unit High delivery cost (% to the unit price) Demand forecast made on long term forecast Orders received through Internet Manufacturing Demand forecast Inventory Push Raw Materials End customer made of Inventory End customer finished Inventory Push at of Raw Materials Direct delivery to end-customer products finished of manufacturing …But today, some web-sites propose products No inventory finished of products on-lineforecast ordering finished products Parts inventory made on of Production customized models…. Assembly Manufacturer Distributor Sales Production Assembly DC Manufacturer DC Distributor Point Store DC DC Sept. 2001 Slide 46 Elee – Shanghai
  46. 46. The Grocery Pull-Push boundary Low level of demand uncertainty Low level of demand uncertainty Pasta High delivery cost (% to the unit price) High delivery cost (% to the unit price) Soup drinks Very predictable distribution patterns. Because high level of predictability, Demand orders can be made on long-term forecast forecast made at Pull from customer Raw Materials End customer Push Distributor demand DC Production Assembly Manufacturer Distributor Store DC DC Sept. 2001 Slide 47 Elee – Shanghai
  47. 47. The Grocery Pull-Push boundary Low level of demand uncertainty Low level of demand uncertainty High delivery cost (% to the unit price) High delivery cost (% to the unit price) Very predictable distribution patterns. Demand Because high level of predictability, forecast orders can be made on long-term forecast made at Raw Materials End customer Store Push DC Production Assembly Manufacturer Distributor Store DC DC Sept. 2001 Slide 48 Elee – Shanghai
  48. 48. The basics of Supply Chain Management Sept. 2001 Slide 49 Elee – Shanghai
  49. 49. Management of the Supply Chain The management of the supply chain relates to two levels of decision Sept. 2001 Slide 50 Elee – Shanghai
  50. 50. Management of the Supply Chain Strategic decision Strategic decision Optimal number of warehouses Sept. 2001 Slide 51 Elee – Shanghai
  51. 51. Strategic Network design Pick the optimal number of location size of warehouse Optimize the trade-offs between nr of facilities & service levels Optimize the trade-offs between transportations and warehousing costs Determine optimal sourcing strategy > (Which vendor should produce which products?) Determine best distribution channels > (Which warehouse should service which customer?) Sept. 2001 Slide 52 Elee – Shanghai
  52. 52. Which network suits your business model best ? Low margin functional products High tech high value products Many DCs to be close to customers Innovative, short cycle life times Stable & predictable demand patterns Great variety Each inventory in warehouses has to hold safety stock to protect against Direct Premium Air-freight demand variability No remote buffer inventory Less warehouse implies High buffer higher geographic inventory levels coverage of each warehouse Sept. 2001 Slide 53 Elee – Shanghai
  53. 53. Management of the Supply Chain Tactical decision Tactical decision Optimal flows of products Sept. 2001 Slide 54 Elee – Shanghai
  54. 54. Tactical Network design Optimize the flow of product through the supply chain Analyze impact of strategies for seasonal products or volatile demand (When will we run out of space and which warehouse/plant?) Optimize the trade-offs between capacities and inventory Analyze the alternatives for dealing with a shortage of warehouse space or production capacities > Should we add capacities? / Should we build inventory? > Should we re-align territories? Sept. 2001 Slide 55 Elee – Shanghai
  55. 55. What does it take to implement a successful Supply Chain Management Sept. 2001 Slide 56 Elee – Shanghai
  56. 56. For transforming a traditional company with functional organization to a successful Supply Chain Organization, the key challenge is to build a platform, (the SC network) that will facilitate the 3 flows i.e. material, information, financial flows. Sept. 2001 Slide 57 Elee – Shanghai
  57. 57. Supply Chain Management (SCM) Financial flows Expected Supplier Production Customer Capacity Capacity orders Finished Goods To customer Products From Production Availability From Components Availability Customer Supplier Orders Availability Raw material Goods in hand Information flow in both directions Material flow from supplier to customer A platform that facilitates the 3 flows: Materials, information and financials Sept. 2001 Slide 58 Elee – Shanghai
  58. 58. Supply chain integration a reality Four key dimensions will have to be implemented. Sept. 2001 Slide 59 Elee – Shanghai
  59. 59. Workflow coordination Streamlining workflow activities among supply chain partners. - Workflow coordination encompasses of a host of activities including procurement, order execution, engineering change, design optimization and financial exchanges. Sept. 2001 Slide 60 Elee – Shanghai
  60. 60. Synchronization The goal of synchronization in SC integration is to develop production, delivery mechanisms and processes that can produce goods to the actual end-users rate. Sept. 2001 Slide 61 Elee – Shanghai
  61. 61. Information integration Information is the enabler of supply chain integration. It refers to sharing & exploiting the information collectively so that the entire chain is driven by true consumer demand. The business platform should provide both connectivity and the ability to integrate a large variety of operational systems Sept. 2001 Slide 62 Elee – Shanghai
  62. 62. The trust factor Trust is the quality that allows cooperation and coordination to take place both within the organization and across the supply chain partners. Trust is essential to the free and open flow of information needed to respond to the customer needs at each point of interaction. Without openness, the network will not be responsive and not being put at an economic advantage. Sept. 2001 Slide 63 Elee – Shanghai
  63. 63. The benefits gained through the implementation of Supply Chain solutions. Sept. 2001 Slide 64 Elee – Shanghai
  64. 64. The benefits gained through SCM solutions Increased visibility Provide with some ways to see an aggregated view across the constituents of the Supply Chain. Companies have greater visibility into inventories (including suppliers inventories). Visibility combined with coordination and synchronization is the basic enabler to supply chain implementation. Increased reliability Companies can make accurate promises of availability to their customers. They can fulfill on those promises to get the goods into customer’s hands fast and at the lowest cost. Sept. 2001 Slide 65 Elee – Shanghai
  65. 65. The benefits gained through SCM solutions Squeeze inefficiencies Through the efficient matching of supply and demand, one reduces obsolete or unwanted inventories deriving savings, energy savings, reduced pollution. Increase the velocity of business Information flows faster through the extended supply chain enabling faster response lead times inducing faster response time to customer requirements ….Savings and revenue improvements….. Sept. 2001 Slide 66 Elee – Shanghai
  66. 66. Why is the SMC so important? Effective management of the supply chain can lead to up to 5% cost decrease that has the same impact on profit as 30% increase in sales. Sept. 2001 Slide 67 Elee – Shanghai

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