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OPSM 305 Supply Chain Management

Ko ç Un iversity. OPSM 305 Supply Chain Management. Class 1: Introduction: What is Supply Chain Management?. Zeynep Aksin zaksin @ku.edu.tr. Warehouses. Vendors. Distribution Centers. Intermediate Product Plants. Finished Product Plants. Supply Chain. Customer Zones.

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OPSM 305 Supply Chain Management

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  1. Koç University OPSM 305 Supply Chain Management Class 1: Introduction: What is Supply Chain Management? Zeynep Aksin zaksin@ku.edu.tr

  2. Warehouses Vendors Distribution Centers Intermediate Product Plants Finished Product Plants Supply Chain Customer Zones

  3. Supply Chain of a TypicalOriginal Equipment Manufacturer

  4. Customers, demand centers sinks Field Warehouses: stocking points Sources: plants vendors ports Regional Warehouses: stocking points Supply Inventory & warehousing costs Production/ purchase costs Transportation costs Transportation costs Inventory & warehousing costs

  5. Example: Köşebaşı Restaurant [1] • 1995: first restaurant opened in Levent: hosting Chelsea Clinton, Donna Karan, Warren Beatty, Annette Bening, and the international gourmet Tom Zagat . • 1999: Köşebaşı is voted one of the 50 restaurants in the world by Conde Nast Traveler magazine. Second rest. In Fenerbahce. • 2000: Köşebaşı received the 26th International Tourism, Lodging and Catering Association's award in Madrid. • 2001: Köşebaşı Express concept • 2002 Time: "Meat lovers can rejoice at Köşebaşı. Don't bother with a mess, sit back and let your waiter make the choices”. • New restaurants: Nişantaşı (2002), Ataşehir Köşebaşı Express (2003), and Ankara (2004). Also in the summer, Köşebaşı serves in Reinaand in Bodrum. [1]www.kosebasi.com.tr

  6. Köşebaşı Restaurant SC in the summer

  7. Supply Chain Management • Definition: Supply Chain Management 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 and at the right time, and so as to minimize total system cost subject to satisfying service requirements. • Notice: • Who is involved • Cost and Service Level • It is all about integration

  8. Supply Chain Management: the challenge • Global optimization • Conflicting Objectives • Complex network of facilities • System Variations over time • Managing uncertainty • Matching Supply and Demand • Demand is not the only source of uncertainty

  9. Conflicting Objectives in the Supply Chain 1. Purchasing • Stable volume requirements • Flexible delivery time • Little variation in mix • Large quantities 2. Manufacturing • Long run production • High quality • High productivity • Low production cost

  10. Conflicting Objectives in the Supply Chain 3.Warehousing • Low inventory • Reduced transportation costs • Quick replenishment capability 4. Customers • Short order lead time • High in stock • Enormous variety of products • Low prices

  11. Supply Chain: The Magnitude • In 1998, American companies spent $898 billion in supply-related activities (or 10.6% of Gross Domestic Product). • Transportation 58% • Inventory 38% • Management 4% • Third party logistics services grew in 1998 by 15% to nearly $40 billion

  12. Supply Chain challenges: complexity • It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies. • A typical box of cereal spends 104 days getting from factory to supermarket. • A typical new car spends 15 days traveling from the factory to the dealership.

  13. Supply Chain challenges: inventory • Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them. • Boeing Aircraft, one of America’s leading capital goods producers, was forced to announce writedowns of $2.6 billion in October 1997.The reason? “Raw material shortages, internal and supplier parts shortages…”. (Wall Street Journal, Oct. 23, 1997)

  14. Supply Chain challenges: collaboration • Procter & Gamble estimates that it saved retail customers $65 million through logistics gains over the past 18 months.“According to P&G, the essence of its approach lies in manufacturers and suppliers working closely together …. jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain”. (Journal of Business Strategy, Oct./Nov. 1997)

  15. Supply Chain challenges: structure • Dell Computer has outperformed the competition in terms of shareholder value growth over the eight years period, 1988-1996, by over 3,000% (see Anderson and Lee, 1999) using - Direct business model - Build-to-order strategy.

  16. Supply Chain challenges: efficiency • In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer.

  17. What is a Supply Chain? meat Customer demand sucuk packaging Maret Duzey Pazarlama Bakkalim spices . . . Stages? Players? What generates revenue? What generates costs? What are the flows? Suppliers

  18. Flows in a Supply Chain Information Product Customer Funds Supply Chain

  19. Supply Chain Decisions • Design-long term strategic decisions • Supply chain structure • Location, capacities, transportation,.. • Example: Dell • Planning-medium term tactical decisions • Forecasting, inventories, network,… • Example: Unilever • Operational-short term operational decisions • Order, production, inventory matching • Determining truck routes • Example: Vestel

  20. Dell’s supply chain Finished goods assembled to order in the channel Raw materials Subassemblies Powerful upstream: Microsoft, Intel Powerful competition: IBM, HP, Compaq,… Extremely successful: stock price, profitability, sales,.. What accounts for this success?

  21. Standard PC industry SC Shipped directly Finished goods Raw materials Subassemblies Final demand Shipped to channel Finished goods assembled to order in channel

  22. The Dell advantage • No finished goods inventory • No distributors/retailers-no inventory • Direct sales via web, phone • Almost no materials inventory • Sells whatever is purchased • Sales organization incentivized on profit margins • Buys in volume-discounts • Opt for longest shelf life components • Targets high-end users

  23. Example: restructuring the SC at UL UL Sup. WH KA Ind. Markets WH Sana KA: 64 days Groceries:132 days Shelf life: 120 days! . . . Sub. WH 76 days collection time Groceries Markets Sales cost: 4% Trade rebate: 12% Logistics: complex 1997: 35000/76000 tons Sana and Aymar collected

  24. Consumer centric-efficient SC Warehouse stock level 12% - 8% UL Make-to-order 120000-140000/180000 outlets 36 days collection time Distributors Groceries Market KA Sana KA: 2 weeks Consumer Sales cost: 6% Trade rebate: 5.2% Logistics: simple

  25. Example SCM issues • Outsourcing • Inventory • Information sharing • Logistics-transportation • Channel selection: bricks versus clicks • Integration and partnerships

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