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Supply Chain Management Strategies. Supply-Chain Management Strategies. Supply-Chain Management Defined Understanding Your Industry Model Business Alignment Defining Supply Chain Excellence SCM Ground Rules A Multi-Disciplinary Approach Operations, Finance, IT & eOPS.

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slide2

Supply-Chain Management Strategies

  • Supply-Chain Management Defined
  • Understanding Your Industry Model
  • Business Alignment
  • Defining Supply Chain Excellence
  • SCM Ground Rules
  • A Multi-Disciplinary Approach
    • Operations, Finance, IT & eOPS
slide3

What is Supply-Chain Management?

  • Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together.
  • Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer.
supply chain management evolution
Supply Chain Management Evolution
  • Historical operational stages:
    • From disconnected.
      • Exclusively focus on growth/cost.
      • Separately managed functions.
      • Internal performance measurements.
    • To integrated.
      • End-to-end process approach.
      • Customer focus, profitable growth, liquidity, functional integration.
slide5

Consumer

T3

Consumer

Web Site

T3

T2

OEM 1

Consumer

Warehouse

T3

Retailer

T2

T1

Consumer

T3

T2

T1

Consumer

Retailer

Consumer

T3

T2

T1

OEM 2

Distributor/Retailer

Consumer

Tier 1 supplier

Consumer

T3

T2

Distributor

Retailer

Tier2 and 3 Suppliers

T3

Consumer

Direct Sales Force

Supply Chain of a Typical Original Equipment Manufacturer

overall strategy
Overall Strategy
  • A Supply Chain is fully optimized when:
    • Bundles of well-priced products/services create unassailable levels of customer attachment (acquisition and retention).
    • Total supply chain costs are at the lowest level.
    • The supply chain contributes to profitable sales growth by creating cost/service advantages.
    • Worldwide effective tax rates are at the lowest level.
    • Capital efficiency is at the lowest level.
    • The supply chain is made flexible to respond to changes faster than competitors and to stratify service levels by product, customer, and geography.
supply chain issues
Supply Chain Issues
  • The main purpose of the levels in any supply chain is to add processes to the product/service.
  • Another purpose is to absorb the differences between the stable supply on the upstream side and the erratic demand on the downstream(consumer) side.
  • The synchronization of the supply chain will optimize efficiency along the chain.
slide8

Matching Supply-Chains with Products

Functional

Products

Innovative

Products

Efficient

Supply-Chain

Match

Mismatch

Responsive

Supply-Chain

Mismatch

Match

slide9

Few

Major

Products,

Higher

Volume

High

Volume,

High

Standard-

ization

Low

Volume,

One of a

Kind

Multiple

Products,

Low

Volume

Flexibility (High)

Unit Cost (High)

I.

Job

Shop

Commercial

Printer

French Restaurant

II.

Batch

Heavy

Equipment

Coffee Shop

III.

Assembly

Line

Automobile

Assembly

Burger King

IV.

Continuous

Flow

Sugar

Refinery

Flexibility (Low)

Unit Cost (Low)

supply chain excellence
Supply Chain Excellence
  • New corporate state of being:
    • Supply chain excellence requires effective strategies, sustained management commitment, and changes in attitude, culture, and organization. More importantly, it requires superior execution.
principles for supply chain excellence
Principles For Supply Chain Excellence
  • Formulate a differentiated supply chain strategy by channel.
  • For product categories, product channels, and target customers, develop an operating strategy that, when executed, makes your supply chain different from the rest.
  • Focus on long- and short-term profitability, liquidity, and growth.
principles for supply chain excellence12
Principles For Supply Chain Excellence
  • Organize your business unit around major processes or channels, not functions. Traditional “silos” separates work and interrupts flows which leads to inefficiency.
  • Work collaboratively with customers, suppliers, partners, and third parties to change the way operations perform, viewed, and measured. Extended supply chain.
principles for supply chain excellence13
Principles For Supply Chain Excellence
  • Invest/reinvest in supply chain information technology to manage flows end-to-end. IT should support both planning, analysis, and execution.
  • Invest/reinvest in supply chain knowledge, people, skills, and learning. Supply chain practice is relatively new. Change is a constant, with innovations and problems always occurring. Organizations must invest in ongoing training, mentoring, education, and feedback systems.
principles for supply chain excellence14
Principles For Supply Chain Excellence
  • Operate/manage by product/channel. Think in terms of product/service bundles that are sold through potentially different channels. Supply chains should be set up and driven by the characteristics of each channel.
  • Outsource parts of the chain for flexibility and better asset management. In many cases, functions can be performed better by third parties.
principles for supply chain excellence15
Principles For Supply Chain Excellence
  • Think globally…build regionally…operate locally. The best performing supply chains are managed with centralized planning, regional approaches, and local operations.
  • The most critical principle: Execution!!! Focus on it, measure it daily or real time, and give people the authority and accountability to excel at it.
supply chain management approach
Supply Chain Management Approach
  • Three items that flow through the supply chain:
    • Information
    • Money
    • Materials
  • Three areas of decision-making:
    • Materials
    • Processes
    • Logistics
  • Two types of tools:
    • Information Technology
    • Operational Analysis
12 scm ground rules
12 SCM Ground Rules
  • 1. Build in flexibility.
    • Supply chain capacity(push things off your books).
      • Move fixed to variable costs.
      • More flexible production methods.
      • Improved information flows.
      • Use subcontractors, co-packing, outsourcing.
    • Operations capability.
    • Management’s will to change.
12 scm ground rules continued
12 SCM Ground Rules - continued
  • 2. Plan and measure accurately.
    • Total cost approach – true margins, profitability by customer segment.
    • Enterprise-wide planning – demand-driven and supply-aware; reduce cycle times; respond quickly(for high material cost industries).
    • Dashboard concept – 5 to 7 metrics in operational cost, time and response, margins, customer service.
    • Benchmark 1st internally, then expand
12 scm ground rules continued19
12 SCM Ground Rules - continued
  • 3. Develop logistically separate operations /supply chains where appropriate.
    • Entities: suppliers, manufacturers, distributors, freight forwarders, contract carriers, 3rd-party warehousing, 3rd-party logistics partners, 3rd-party maintenance, financing companies, import/export/customs brokers.
    • Fulfillment channels: direct-home, direct-business, retailers, value-added resellers, mass merchandisers, OEMs, service centers, integrators.
    • Order conduits that impact process: fax, Internet, phone, sales force, POS orders, EDI, e-mail.
12 scm ground rules continued20
12 SCM Ground Rules - continued
  • 4. Get lean by emphasizing simplicity and speed. Value Stream Map Current & Future States
    • Reduce uniqueness (parts, designs, suppliers, processes) and variety(transportation resources, parts suppliers).
    • Reduce cycle times and maximize inventory velocity. Key: information.
    • Understand where value is captured and eliminate non-value
12 scm ground rules continued21
12 SCM Ground Rules - continued
  • 5. Optimize Information.
    • Focus on Time to Benefit and Decision Support. ERP? Multiple smaller systems?
    • Take ownership of Customer Information. Most untapped: not articulated needs.
    • Replace assets with Information. E.g. inventory are moved several times before reaching final destination. Replace physical movement with digital movement of customer and product information.
12 scm ground rules continued22
12 SCM Ground Rules - continued
  • 6. Treat customers unequally: Segment and Stratify. No unnecessary excellence.
  • 7. Operate Globally.
    • Economic, time, tax differences.
  • 8. Practice Virtuality (partnering) and Collaborative Manufacturing/Management.
    • Virtuality – attempt to gain scale.
    • Requires more management, not less.
12 scm ground rules continued23
12 SCM Ground Rules - continued
  • 9. Exploit Electronic Commerce.
    • Collapsing supply chain levels. E.g. distribution channel.
    • New channel: many-to-many. Supply Web – key customers can have communities of suppliers; collaboratively plan, forecast, replenish on a real-time(or near real-time) basis.
    • Valued-based differentiation – add value along product, information, process. master channel managers.
12 scm ground rules continued24
12 SCM Ground Rules - continued
  • 10. Leverage People.
  • 11. Operationalize New Product Introductions and Phaseouts.
  • 12. Mass Customize and Postpone.
    • Commodities vs. highly customizable products.
    • Downstream flexibility.
    • E.g. HP printers. Automobile. Amazon.
performance measurement operational
Performance Measurement:Operational
  • 1. Throughput
    • the rate at which money is generated by the system through sales: O2C
  • 2. Inventory
    • all the money that the system has invested in purchasing things it intends to sell
  • 3. Operating Expenses
    • all the money that the system spends to turn inventory into throughput
slide27

Inventory: Bullwhip Effect

The magnification of variability in orders in the supply-chain.

Retailer’s Orders

Wholesaler’s Orders

Manufacturer’s Orders

Order

Quantity

Order

Quantity

Order

Quantity

Time

Time

Time

A lot of retailers each with little variability in their orders….

…can lead to greater variability for a fewer number of wholesalers, and…

…can lead to even greater variability for a single manufacturer.

slide28

Minimizing Waste: Inventory Hides Problems

Example: By identifying defective items from a vendor early in the production process the downstream work is saved.

Machine

downtime

Scrap

Vendor

Change

delinquencies

Work in

orders

process

queues

Engineering design

Design

(banks)

redundancies

backlogs

Example: By identifying defective work by employees upstream, the downstream work is saved.

Decision

Paperwork

Inspection

backlogs

backlog

backlogs

slide29

Cost Minimization Goal

By adding the item, holding, and ordering costs together, we determine the total cost curve, which in turn is used to find the Qopt inventory order point that minimizes total costs.

Total Cost

C

O

S

T

Holding

Costs

Annual Cost of

Items (DC)

Ordering Costs

QOPT

Order Quantity (Q)

slide30

ABC Classification System

  • Items kept in inventory are not of equal importance:
    • dollars invested
    • profit potential
    • $ volume
    • stock-out penalties

60

% of

$ Value

A

30

B

0

C

% of

Use

30

60

So, identify inventory items based on percentage of total dollar value, where “A” items are roughly top 15 %, “B” items as next 35 %, and the lower 65% are the “C” items.

slide31

Best Operating

Level

Production Costs

Average

unit cost

of output

Under Utilization

Over Utilization

Volume

slide32

Economies & Diseconomies of Scale

Economies of Scale and the Experience Curve working

100-unit

plant

Average

unit cost

of output

200-unit

plant

400-unit

plant

300-unit

plant

Diseconomies of Scale start working

Volume

saving time

Nonbottleneck

Bottleneck

Saving Time

What are the consequences of saving time at each process?

  • Rule: Bottlenecks govern both throughput and inventory in the system.
  • Rule: An hour lost at a bottleneck is an hour lost for the entire system.
  • Rule: An hour saved at a nonbottleneck is a mirage.
slide34

Waste in Operations

(1) Waste from overproduction

(2) Waste of waiting time

(3) Transportation waste

(4) Inventory waste

(5) Processing waste

(6) Waste of motion

(7) Waste from product defects

slide35

Design for Manufacturability

  • Traditional Approach
    • “We design it, you build it” or “Over the wall”
  • Concurrent Engineering
    • “Let’s work together simultaneously”
slide36

Designing for the Customer: Quality Function Deployment

  • Interfunctional teams from marketing, design engineering, and manufacturing
  • Voice of the Customer
  • House of Quality
slide37

Measuring Product Development Performance

  • Time-to-market
  • Productivity
  • Quality
slide38

Quality Specifications

  • Design quality: Inherent value of the product in the marketplace
    • Dimensions include: Performance, Features, Reliability, Durability, Serviceability, Response, Aesthetics, and Reputation.
  • Conformance quality: Degree to which the product or service design specifications are met
slide39

Appraisal Costs

Costs of

Quality

External Failure

Costs

Prevention Costs

Internal FailureCosts

Costs of Quality

slide40

Example: Pareto Analysis

Can be used to find when 80% of the problems may be attributed to 20% of the

causes.

80%

Frequency

Design

Assy.

Instruct.

Purch.

Training

Other

performance measurement financial
Performance Measurement:Financial
  • Net profit
    • an absolute measurement in dollars
  • Return on investment
    • a relative measure based on investment
  • Cash flow
    • a survival measurement
slide42

Formulas for Measuring Supply-Chain Performance

  • Inventory Turnover =
  • Cost of goods sold
  • Average aggregate inventory value
  • Weeks of Supply = 52 Weeks
  • Average aggregate inventory
  • Cost of goods sold
slide43

The Context of E-Ops

Business Model

“How we make our money?”

Operations

“How do we manage production of the product or service?”

Information System Architecture

“The set of tools used to support processes.”

slide44

Business Web Models

Marketplace

B-Web

Model

Aggregator

Alliance

Value Chain

Distributive Network

Example

Ebay

E-Trade

AOL

Dell Computers

UPS

slide45

Traditional vs. Electronic Commerce Purchasing

Process Step Traditional Electronic Commerce

Acquire product information

Magazines, flyers, online catalogues

Web pages

Send order

Fax, mail

E-mail, Web pages

Check inventory at warehouse

Printed form, phone form

Online database, Web pages

Buyer sends payment

Mail

EDI

the shape of things to come
The Shape of Things to Come

Old Model

Plan – Execute - Plan

I2, Manugistics, Oracle, SAP

New Model

Plan – Execute – Measure - Plan

I2, Manugistics, Oracle, SAP, SeeCommerce