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U.S. Economic Conditions and Productivity: Insights from the Supply Chain

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  1. 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

  2. The Supply Chain

  3. 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?

  4. Supply Chain Management:The science of better, faster, cheaper Getting the Right Things to the Right Places at the Right Times, for Profit.

  5. Dell Direct Model

  6. Global Services Model • Virtual reality diagnoses • Information sent anywhere in the world, instantly and at a low cost

  7. Supply Chain Evolution (1800s) • Division/specialization of labor • Interchangeable parts • Railroads, electricity, communications

  8. Mass Production Era (1900-1973) • Moving assembly lines • Scientific management methods • Operations research techniques

  9. Lean Manufacturing Era (1974-1995) • Increased global competition • Improved flexibility and quality control • Six-Sigma QC, JIT, TQM

  10. Mass Customization Era (1996-today) • Better information engineering • Internet, wireless communications, B2B e-commerce • Integrate internal systems with external partners

  11. ! I’m Next?

  12. 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?

  13. 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

  14. The Real-Time Economy = Ideas + Technology + Information (Better) (Faster) (Cheaper)

  15. Information Distortions and the “Bullwhip Effect”

  16. The Bullwhip Effect in Action

  17. Production Production growth volatility Sales growth volatility

  18. Reduced "Bullwhip Effect" for Durables

  19. Supply Chain Managementat JC Penney • Outsourced sales forecasting and inventory management to supplier • Reduced production volatility and eliminated inventory

  20. Inventory • Inventory is insurance against supply chain uncertainties • Supply chain management substitutes information for inventory

  21. Inventory ManagementContinues to Improve

  22. Distribution • Involves greater distances and better coordination

  23. Logistics Costs Continue to Fall

  24. Payments • Eliminate paper • Automate transactions • B2B e-commerce

  25. Supply Chain Management at Progressive Insurance • The 20 minute insurance claim

  26. Supply Chain Management Summary:Better, Faster, Cheaper • Reduced production volatility • Lower inventory levels • Less expensive logistics • Streamlined payments

  27. Do What You Do Best... ...Trade for the Rest!

  28. U.S. Business CycleExpansions and Contractions

  29. Real GDP Growth

  30. 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%

  31. Productivity Growth

  32. 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%

  33. Productivity Growth Over Business Cycles

  34. Unemployment Rate

  35. 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%

  36. Manufacturing Payrolls Decline, But Output Rises

  37. Turnover in the U.S. Labor Market(Private Sector)

  38. Consumer Price Index Inflation

  39. 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%

  40. Less Red...More Green Mass Production Lean Manufacturing Mass Customization

  41. New Information Technologies • Extend beyond typical business boundaries • Link together many business functions Then... Now... Phones to GPSs Barcodes to RFIDs

  42. 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

  43. 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 tom.siems@dal.frb.org (214) 922-5129