Supply Chain Management

1. Supply Chain Management Professor Stephen R. Lawrence Leeds School of Business University of Colorado Boulder, CO 80309-0419

2. SCM Defined

3. Supply Chain Management • Supply Chain Management = SCM • SCM used to be called “logistics” • from the verb loger, “to lodge or quarter” • “Multi-echelon Production Control” • SCM is an amalgam of traditional business and operations functions: • Inventory, logistics, scheduling, aggregate planning, transportation, purchasing, …

4. SCM at Dell The greatest challenge of working with suppliers is getting them in sync with the fast pace we have to maintain. The key to making it work is information. Michael Dell Harvard Business Review, Mar/Apr 1998

5. SCM Definitions • The art of managing the flow of materials and products from source to user • Set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system-wide costs while satisfying service level requirements

6. SCM Diagram Vendors Our Firm Customers adapted from Porter, Competitive Advantage, Free Press, 1985

7. SCM Information Flows

8. SCM Examples

9. SCM at Hershey Chocolate • Inbound traffic • cocoa beans and sugar • warehousing and inventory control • Outbound traffic • 1 billion pounds of chocolate annually • 30,000,000 Hershey Kisses per day • 12 third-party manufactures • 2 regional distribution centers • 14 public warehouses • 12 channels of distribution Moskal, “Logistics gets some RESPECT,” Industry Week, June 18, 1990.

10. SCM at Bergen Brunswig • Distributes pharmaceuticals and health care products • 16% share of wholesale drug business • $3.4 billion sales • Ships to 10,000 pharmacies • independent, chain, hospitals • 100,000 SKU’s, 32 distribution centers • Relies “100% on logistics for profit and value added” Moskal, “Logistics gets some RESPECT,” Industry Week, June 18, 1990.

11. SCM at Bergen Brunswig • Orders from customers 99% automated • Orders arrive between 5PM and 10PM • Delivered the following morning • Order receipt to product delivery • averages 12 hours • Small orders • 3 Ben Gays, 4 Tylenols, 3 Bayers (not cases) Moskal, “Logistics gets some RESPECT,” Industry Week, June 18, 1990.

12. SCM at Black & Decker • 4,000 to 6,000 suppliers worldwide • 70 worldwide manufacturing plants • 20 distribution centers • Markets products in 58 countries • Supplies market on JIT basis (Quick Response) • 3-5 day order cycle time, 90% fill rate • Cross-functional logistics operation • sales and marketing, manufacturing, distribution and transportation, customer service Moskal, “Logistics gets some RESPECT,” Industry Week, June 18, 1990.

13. SCM Issues

14. Why an Interest in SCM? • Productivity (cost reduction) • Timeliness • Flexibility Adapted from Professor Joe Geunes

15. Key SCM Issues • Distribution network design • Determine plant and warehouse locations, capacities, and production/storage levels • Inventory Control • The purpose of inventory is to avoid interrupting a supply process, be it production or end customer demand • How can we avoid such disruptions at the minimum total cost? • Since we don’t know the future we must rely on forecasts – how do we use these forecasts to set reorder levels and order quantities? Adapted from Professor Joe Geunes

16. Key SCM Issues • Distribution strategy • How do we decide where to hold inventory and how to efficiently transport it to customers? • Ship directly from plant to customers in full truckloads? • Maintain stocks in regional warehouses and distribute locally? • Cross-docking strategies? • Integration and strategic partnerships • How involved should a firm be with suppliers of both materials and services? • What level of information sharing is appropriate? Adapted from Professor Joe Geunes

17. Key SCM Issues • Product design issues • What is the tradeoff between design changes and logistics savings? • Can design strategies buffer against demand uncertainties? • Information technology • What are the significant data that are critical for sharing with partners? • What is the role of the Internet/e-Commerce in all of this? • Customer value • How does supply chain management contribute to customer value? • How do new trends in customer value affect supply chain management? Adapted from Professor Joe Geunes

18. Global SCM Opportunities • Trade barriers declining • Regional trans-national trading groups • NAFTA • European Community • Asia • Improved transportation systems • Improved information systems

19. New Developments in SCM • Third party logistics • “one-stop shopping” for logistics services combining warehousing, transportation, order picking, ... • Partnerships • non-adversarial cooperation between shippers, carriers, and warehouses • Cross-docking

20. SCM and Technology • Containerization • Telecommunications & the Internet • Bar-coding & RF tracking • expedites automatic product and order tracking • Electronic Data Interchange (EDI) via Internet • computer-to-computer order entry communication

21. Tour of Port of LA

34. After a Typhoon Things don’t always go as planned…

37. Supply Chain Management