U.S. Economic Conditions and Productivity: Insights from the Supply Chain Thomas F. Siems, Ph.D. Sr. Economist & Policy Advisor, Federal Reserve Bank of Dallas ISM’s 90th Annual International Supply Management Conference San Antonio, Texas May 10, 2005
Overview • What is supply chain management? • How has supply chain management evolved? • How have supply chains improved over time? • What are the macroeconomic benefits of supply chain improvements?
Supply Chain Management:The science of better, faster, cheaper Getting the Right Things to the Right Places at the Right Times, for Profit.
Global Services Model • Virtual reality diagnoses • Information sent anywhere in the world, instantly and at a low cost
Supply Chain Evolution (1800s) • Division/specialization of labor • Interchangeable parts • Railroads, electricity, communications
Mass Production Era (1900-1973) • Moving assembly lines • Scientific management methods • Operations research techniques
Lean Manufacturing Era (1974-1995) • Increased global competition • Improved flexibility and quality control • Six-Sigma QC, JIT, TQM
Mass Customization Era (1996-today) • Better information engineering • Internet, wireless communications, B2B e-commerce • Integrate internal systems with external partners
! I’m Next?
Supply Chain Components • Production • How much to produce? Where? What suppliers? • Inventory • Where to store products? How much to store? • Distribution • How should products be moved and stored? • Payments • How (and when) should payments be made?
The Changing Nature of the Firm • Why Do Firms Exist? • Ronald H. Coase (1937) • Transactions Costs • Supply Chain Management is all about reducing transactions costs • Information is Everything • The Internet Changes Everything • Better, Faster, Cheaper • Globalization and the Real-Time Economy
The Real-Time Economy = Ideas + Technology + Information (Better) (Faster) (Cheaper)
Production Production growth volatility Sales growth volatility
Supply Chain Managementat JC Penney • Outsourced sales forecasting and inventory management to supplier • Reduced production volatility and eliminated inventory
Inventory • Inventory is insurance against supply chain uncertainties • Supply chain management substitutes information for inventory
Distribution • Involves greater distances and better coordination
Payments • Eliminate paper • Automate transactions • B2B e-commerce
Supply Chain Management at Progressive Insurance • The 20 minute insurance claim
Supply Chain Management Summary:Better, Faster, Cheaper • Reduced production volatility • Lower inventory levels • Less expensive logistics • Streamlined payments
Do What You Do Best... ...Trade for the Rest!
Real GDP Growth Is Less Volatile Mass Production Era (1948-1973) Lean Manufacturing Era (1974-1995) Mass Customization Era (1996-2004) Average = 4.1% Average = 2.9% Average = 3.5%
Productivity Growth Getting Stronger Mass Production Era (1948-1973) Lean Manufacturing Era (1974-1995) Mass Customization Era (1996-2004) Average = 2.7% Average = 1.5% Average = 3.1%
Unemployment Rate Fairly Stable Mass Production Era (1948-1973) Lean Manufacturing Era (1974-1995) Mass Customization Era (1996-2005) Average = 4.8% Average = 6.9% Average = 5.0%
CPI Inflation More Stable Mass Production Era (1948-1973) Lean Manufacturing Era (1974-1995) Mass Customization Era (1996-2005) Average = 2.7% Average = 5.8% Average = 2.0%
Less Red...More Green Mass Production Lean Manufacturing Mass Customization
New Information Technologies • Extend beyond typical business boundaries • Link together many business functions Then... Now... Phones to GPSs Barcodes to RFIDs
Conclusion • Supply Chain Management: The Science of Better, Faster, Cheaper • Macroeconomic Benefits • more stable economic growth • higher productivity growth • Think Globally, Act Globally • specialize and trade
Supply Chain Management: The Science of Better, Faster, Cheaper Southwest Economy, Issue 2, March/April 2005 http://www.dallasfed.org/research/swe/2005/swe0502b.html Thomas F. Siems, Ph.D. Senior Economist and Policy Advisor Federal Reserve Bank of Dallas firstname.lastname@example.org (214) 922-5129