1. Supply Chain Systems
Manufacturers
Suppliers Customer
Products Distributors Products
Products
Demand Demand
Demand
Prepared By,
Bharath M – 1MS09IM401

2. Today‟s Objective
 Introduce Supply Chain Management
– Share my definition & perspective
– Develop a common understanding
 Identify current issues and trends in SCM
 Propose SCM key success factors
 Provide you with some learning & fresh
perspective

3. Supply Chain Management
 SCM - what is it?
– Broad scope - raw material to end customer & return
(reverse logistics)
– Flows - Information, Material, Funds, Knowledge
– Customer-focused, process-oriented
– Systems thinking
“When I say logistics, someone else says SCM
and someone else says that’s just transportation”
Sr. Executive - Food Processor

4. “ The traditional supply chain is
a dysfunctional process.”
Jim Morehouse
A.T. Kearney, Inc.

5. Internal Supply Chain -
Linear Flows Along the
To Suppliers Process To Customers
Requirements Requirements
Capabilities Procure Order Capabilities
Planning Mgt.
ment
Invoice Invoice
Payment Payment
Make/ Distribute
Receive VALO
Convert Deliver
Key: Information, Funds, Knowledge
Information processing
Material processing

6. External Supply Chain
Flows Across Network
Raw Mat‟l
VALO Distr.
Supplier Component
Retailer
Mfg
Mfg Customer
OEM
Raw Mat‟l
Supplier
Distr.
Component Retailer
VALO
Mfg
Raw Mat‟l
Supplier
...and back through Reverse Logistics

7. Supply Chain Integration
 Obstacles
– Functional silo mentality
– Functional measures
– Incentives
– Infrastructure
– New roles and responsibilities
– Basic requirement for fundamental CHANGE
 Challenges
– Global markets
– E-business
– Short product life cycles

8. Supply Chain Integration
requires...
 Connecting &
Raw Mat‟l VALO
coordinating the Supplier Component
Distr.
Retailer
flows... Mfg
– Information
– Knowledge Mfg Customer
– Materials OEM
Raw Mat‟l
– Funds Supplier
 Alignment Distr.
– Incentive Component VALO
Retailer
Mfg
– Measures
Raw Mat‟l
– Organizations
Supplier
– Goals ...and back through Reverse Logistics

9. Current trends in SCM
 New supply chain designs
 Evolutionary nature of the supply chain
 Enterprise Resource Planning (ERP) Systems
“...you're never going to get to 100% (from IT) ...
you'll never be on time; you'll be over budget,
and not know how to use it.”
- Food Products Retailer*

10. Current Trends -
New supply chain designs
 Multiple extended supply chain designs attempted
– Virtual Supply chain Internet supply chain
 Monorail
– Dis-aggregated
 Nike, Sara Lee, Trends in automotive OEMs
– The Dell Model
– Outsourcing
“...outsourcing is a great solution if you’re
not the one responsible for managing the
relationship”
- Apparel Manufacturer*

11. Current Trends -
The Dell Model („we want to be like
Mike‟)
 Is the Dell model right for every company?
– It works for Dell in the „90s
– What is right for one may not be right for another.
 Should steel companies make-to-order like Dell?
 Should Compaq abandon its model to compete like Dell?
 Is the direct model state-of-art?
– Amazon.com profitability... when?
– Calyx & Corolla direct model only moderate success
– How will direct web-based model work where population
does not own or use computers?

12. Current Trends -
Evolutionary nature of the supply chain
 The rules and economics change
 Supply chain strategy evolves
– Cost focused versus “I guess the supply chain per se
business-building kind of falls in place....”
- Packaged Consumer
– Strategy
Products Manufacturer*
 Amazon
 Evolution of the supply chain
organization
– Practices
– Structures
– Culture

13. Current Trends -
Evolutionary Nature of the Supply Chain
Company Evolved Practice Old Practice
Bose JIT II Arm‟s length supply
relationship, Bose
Prod. development
Chrysler Extended Enterprise, Antagonistic supply
SCORE
Dell Account selection, One system serves all,
Transparent OE, Cust adjusts OE
Metrics, LSP process, Fcnl metrics
GM Factory-wide Separate Mfg & Dist.
scheduling Schedules
P&G VMI, CRP, Account We ship – you stock,
teams, SLOG, Metrics Over-the-wall Mktg-
Mfg-Dist

14. Current Trends
Enterprise Resource Planning (ERP)
Systems
 ERP SCM software versus „best-of-breed‟ modules
 Expect dip in performance
– Quantify benefits and real costs of implementation
 Training and skill development and maintenance
“...you're never going to get to 100% (from IT) ...
you'll never be on time; you'll be over budget,
and not know how to use it.”
- Food Products Retailer*

15. SCM Key Success Factors
 Supply chain design
 Organization infrastructure
 The path to high performance

16. Key Success Factors
Supply Chain Design
 Make thoughtful choices for your supply chain.
– Choice of channels
– Business and SC priorities
– What to outsource, what to keep in house
– What is the proper role for the SC in your company?
 Likely to vary by industry, stage in life cycle, company
strategy, company culture
 Understand best practices of leaders
– But do what makes sense for your company
– Thoughtful reapplication of learning

17. Key Success Factors
Organization Infrastructure
 Measurement systems
– Measure processes end-to-end
– Customer-connected measures
– Congruent goals (e.g., perfect orders)
 Communication systems
 Compensation & incentive systems
 Career and skill development systems
 „Systems orientation‟
– Shared authority
– Horizontal Process Management model
– Managing processes - key for SCM organizations

18. Key Success Factors
Organization Infrastructure - A
Testimony
Which is the driver for your business‟ success,
information technology or the people in the
organization?
“Absolutely THE PEOPLE, no question.”
Don Schneider, CEO Schneider National
March 5, 1999

19. Horizontal Process Management Model -
Choosing “What‟s right” for your business
 How should one resolve conflict between function
and process?
 Matrix as an analytical tool
– Primary business strategy vs. functional interdependence
– Primary business strategy
 Differentiated Service
 Differentiated Product
 Low Cost
– Functional interdependence (subjective)
 Low (functions operate independent of each other)
 Medium
 High (rapid, immediate impact across functions)

20. Key Success Factors
The Path to High Performance
 Change Management / Implementation
– Evolution or revolution
– Process-dominant organization
 Customers and Suppliers First
 Envision and articulate the potential
 Expect continuous change
– Reengineering is not a one-time event

21. The Path to High Performance SCM
… Three Choices
Customers & suppliers first!
Mgt. understands the potential - works with supplier
and/or customers to drive change internally
Systemic customer-oriented measures, decision-
making criteria
What happened? Reacting
Traditional to the crisis
Functional Realizes the problem possibly too late
Organization Management supports but doesn‟t fully understand (fad)
Limited willingness to challenge entrenched barriers
Attempted use of teams, some process-based practices
Avoiding change
Avoiding change
Alignment doesn‟t apply to us - “We are unique”
Another „fad‟…. We‟ll wait it out….

22. The Path to SCM
„Customers & Suppliers first!‟
High performance
Internal & external alignment
Profits through reduced cost, increased
revenues, reduced working capital
Customers & suppliers first!
Mgt. understands the potential - works with supplier
and/or customers to drive change
Systemic customer-oriented measures, decision- In transition
making criteria Low-hanging fruit leads to bigger
opportunities
„Right‟ levels of alignment &
process/function focus
Decision-making based on processes
Traditional & customer
Functional Authority & responsibility shared by
Organization cross-fcnl teams

23. Not Getting to SCM - „Avoiding Change‟
Traditional
Functional
Organization
Poor
Avoiding change
performance
Avoiding change
Missed opportunities
Alignment doesn‟t apply - “We are unique”
Drifting with mgt.
Another „fad‟…. We‟ll wait it out….
fads

24. The Path to SCM…... High performance
Internal & external alignment
Which path is for you? Profits through reduced cost, increased
revenues, reduced working capital
In transition
Low-hanging fruit leads to bigger
opportunities„Right‟ levels of
Customers & suppliers first! alignment & process/function focus
Mgt. understands the potential - works with supplier Decision-making based on processes &
and/or customers to drive change customer. Authority & responsibility
Systemic customer-oriented measures, decision- shared by cross-fcnl teams
making criteria
Traditional Reacting to the crisis
Functional Realizes the problem possibly too late
Management supports but doesn‟t fully
Organization
understand Limited willingness to challenge
entrenched barriers Attempted use of teams,
some process-based practices
Avoiding change
Avoiding change
Poor
Alignment doesn‟t apply - performance
“We are unique” Missed opportunities
Another „fad‟…. We‟ll wait it out…. Drifting with mgt. fads

25. HPM Matrix - Choose “What‟s right”
Differentiated Informal Formal Formal
Service Coordination Structure Structure
Strategy
Focus on Customer Balance Process-Function Process Dominant
Strategy Differentiated Ad hoc Informal Formal
Product Coordination Coordination Structure
Strategy
Focus on Operation Function Dominant Balance Process-
Function
Informal
Ad hoc Informal Coordination
Low Cost Coordination Coordination
Strategy Balance Process-
Optimize Cost Driver Optimize Cost Driver Function
Optimize Cost Driver
Low Medium High
Functional Interdependence

26. HPM Matrix - Choose “What‟s right”
Differentiated Informal Coord Formal Formal
Service
Xerox - 2000?
Strategy
P&G - 2000?
Strategy Differentiated Ad hoc Informal Coord Formal
Product Xerox
Strategy P&G (early 80‟s) P&G (80-90s) Xerox - 2000?
Corning Consumer P&G - 2000?
Am. Std.
Kaytok (Make-to-Invty) Kaytok ( MTO)
Ad hoc Informal Informal
Low Cost
Strategy
Wal-Mart
Low Medium High
Functional Interdependence

27. Summary
 SCM Introduction MFG
 Current Issues
 SCM Key Success Factors
– Supply chain design Strat
– Organization infrastructure
– Path to high performance Fcnl Interdep

28. Target‟s Supply Chain
 11 Regional distribution centers
 859 Stores in 41 states
 Flow strategy
 “Door per store concept”
 Forecasting and ordering is centralized and
automatic

29. Leveraging total supply chain strategies
to reduce expense in a retail environment
and how Target utilizes emerging trends
in supply chain management.

30. Floor Ready
 Preticketing
 Prefolded towels
 Hanger program
 Removal of excess packaging

31. Segmentation
 Improves store level instocks
 Minimizes total inventory investment
 Improves supply chain efficiencies

32. Three Distinct Segments
 Slow selling items
 Fast selling items, unpredictable sales
 Fast selling items, predictable sales

33. Other Variables to Consider
 Physical characteristics of an item
 Receipt frequency from the vendor
 Vendor reliability

34. EDI Communications with
Supplier
 850 Purchase Order
 870 Order Status
 856 Ship Notice/Manifest or Advance Ship
Notice
 830 Vendor Projections or Forecast
 810 Invoicing

35. Partners On-Line
 Sales and inventory reports
 Vendor Partnership manuals
 Accounts payable information
 Newsletters and news flashes

36. Instability of Today’s Supply Chain
Coordination
Manufacturer Forecast
of Sales
Volumes
Consumer
Demand
Retailer Warehouse
Retailer Orders to Shop
Production Plan
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

37. Demand Buffers along the Supply
Chain
Consumer
Sales
Retailer‟s Order
to Manufacturer
Wholesaler‟s
Order to
Manufacturer
Manufacturer‟s
Order to Supplier
Source: Bullwhip Effect , Hau Lee, Stanford University

38. Planning: Level of
Collaboration
collaboration/
trust
Pantry
Managed
Inventory
CPFR
(CFAR)
Vendor-
Managed
Inventory
Category
Retailer-
Management
Driven
Continuous
Replenishment Key Account
Management
evolution

39. Solution Maps as a Tool in Strategic
Planning
 Understand company business processes
 Assure systems are aligned to drive improvement in
major business processes
 Identify gaps in information availability to support
business strategies
 Determine long-range plan for evolution to a state of
improved information
 Determine status of legacy systems and integration
requirements
 Determine investment in overall information
technology over strategic planning period

40. Business Drivers for the
21st Century
Globalization
Consolidation
Technology
Each of these drivers directly impacts or
is impacted by the Supply Chain…...

41. Companies Will Succeed...
 By aggressively evaluating their supply
chain(s)
 By focusing on key business drivers
 By extending their enterprise thinking to
include suppliers‟ suppliers and customers‟
customers
 By utilizing best practices, not fixed rules
 By implementing “advantage technology”

42. Impact of Technology
The most valuable links on the value chain
tend to belong to people who own
knowledge---particularly about
customers….He who controls information
in many cases controls the business.
Fortune Magazine

43. The Shift to Advantaged Applications
Future Vision
Strategic/Decision Support/
Inter-business Networking
(e.g. Market Management)
Very high ROI
ERP Integrated w/ SCM
Drives ROI and Supply
Chain Benefits
Benefits
ERP as Infrastructure/
IT Renewal (High investment/
lower ROI)
Costs

44. Changing the Goals of
Business Solutions to Support Value Chains
Supply Chain Business/Market
ERP
Management Optimization
Goals Goals Goals
•Infrastructure •Operational
Improvement •Market Management
• Y2000 Compliance (e.g., Cost Reduction,
Capacity Expansion •Pricing Optimization
• Integrated Systems
to •Channel Management
Support Operations •Improved Customer
and Financials Service

45. The Value Shift
Inventory Information
Physical Assets Intellectual Assets
Closed Shop
Collaboration
Vertical
Integration Virtual Integration

46. Thank You