References: Supply Chain Saves the World. Boston, MA: AMR Research (2006); Designing and Managing the Supply Chain – Concepts, Strategies and Case Studies; D. Simchi-Levi, P Kaminski and E. Simchi-Levi; 3rd Edition; McGraw Hill Supply Chain Saves the World Strategy and Policy SCM-655: Global Supply Operations Strategy Summer 2015 Note: Don’t forget to go through Audio Setup Wizard. 1.System Check 2.Key Concepts 3.Discussion Board & Case Study Examples 4.Question & Answer

Today’s Journey The 21 st -Century Supply Chain Demand Driven Supply AMR Stages of Development Discussion Board & Case Study Examples Strategy V2-00

The Customer is King Supply chain strategies built in the 20 th century were not designed to serve the customer and leave billions of dollars wasted in: o Idle inventory o Redundant work o Errors V2-01

Demand Driven Customer Service The fix is not just fine tuning the existing chain, but rebuilding it as a demand-driven supply network (DDSN) V2-02

Demand Driven Supply Networks A system of technologies and processes that senses and reacts to real time demand across a network of customers, suppliers and employees. V2-03

Key Elements to Demand Driven Supply System: The next-generation supply chain must be scalable without compromising flexibility Demand: Companies must learn to see demand at many levels. It means applying business judgment quickly across all demand. Network: Contract manufacturers, outsourced designs and 3 rd party logistics providers transform the supply chain away from vertically integrated firms V2-04

Moment of Truth Demand-driven strategies start at the “moment of truth” – when supply meets demand – and works backward to initiate the supply network V2-05

Push vs. Pull Systems Unlike the conventional linear chain, the demand-driven supply chain is an interaction between three overlapping domains: Demand, Supply and Product Old Push SystemNew Pull System Accepting demandShaping demand Product Innovation an externality Embedded Product Innovation Deterministic optimization Probabilistic optimization Supply Demand Product V2-06

Push vs. Pull Pepsi V2-07 Mission Production Headquarters Central Supply Bryan School Grocery Chain Local Distribution Customer

Push vs. Pull Pepsi V2-08 Mission Production Headquarters Central Supply Bryan School Grocery Chain Local Distribution Customer

Push System Characteristics All forecasting and order decisions are made centrally. Advantages: Coordination among factory, central supply and distribution Disadvantages: Not fully responsive to local demand V2-09

20 th Century Characteristics Factories employed mass-production for efficiency Demand accepted as given – supply was pushed Slow time-to-market for new products High inventories to support demand variability Poor customer service - perfect order performance Little supply chain support for product innovation V2-10

20 th Century Supply Chain - Push Strategy Strategy: forecast-driven enterprise Problem: Bullwhip Effect Demand variability among end users increases at each stage in the chain because of inherent inaccuracies in each firm’s demand forecasts. CustomerRetailerDistributorFactorySupplier(s) Maximum orders (demand) Minimum orders (demand) V2-11

Pull System Characteristics Each distribution center orders from central supply what it needs when required without regard for: Advantages: Allows each center to operate independently Demand data may be more accurate Disadvantages: Lack of coordination, poor customer service, disrupted factory schedules Needs of other distribution centers Available inventory at central supply Production schedule at the factory V2-12

21 st Century – Demand Driven Characteristics Improved customer service – perfect order Improved financials (ROA, Shareholder Value) Faster time-to-market for new products Reduced inventories matched to demand flow High supply chain support for product innovation V2-13

21 st Century Supply Chain - Pull Strategy Strategy: demand-driven enterprise Demand variability among end users increases at each stage in the chain because of inherent inaccuracies in each firm’s demand forecasts. Trust and collaboration among supply chain partners. Access to real demand data shared along the supply chain. “Agility” to respond to variability in the flow of orders. Pull! Don’t push. Solution: Substitute real information for forecasts. Problem: Bullwhip Effect V2-14

Perfect Orders Bring Financial Success Impact of Perfect Order Fulfillment Perfect Order Fulfillment Metric (%) V2-15

Strategic Elements for 21 st Century Business Demand Management Supply Management Product Management V2-16

Demand Management Demand Management is the process of shaping, sensing and responding to customer demand Includes functions & processes for: Marketing Sales Service Price Management Demand forecasting Demand Planning V2-17

Supply Management Supply Management includes functions & processes for: Direct Material Sourcing Production Operations Manufacturing and Assembly Contract Management Indirect Procurement Warehousing and Distribution Inventory Management V2-18

Strategic Supply Management Strategic Supply Management – establishes supply policies, internal and external supplier relationships and supply network high level plans Includes functions & processes for: Network Design Logistics Planning Capacity Planning Stage-gate Product Development Sales and Operations Planning (S&OP) V2-19

Tactical Supply Management Tactical Supply Management – links the supply plan to tactical replenishment planning Includes functions & processes for: Reorder Links such as EDI Vendor Managed Inventory Standing Supply Contracts Transfer Pricing Agreements Manufacturing is just one node of the supply network that includes all internal and external suppliers. V2-20

Supply Network Operations Supply Network Operations – synchronized execution of manufacturing and logistics processes across dynamic supply network Best Practice Processes include: Lean Flow Manufacturing Cross-docking Kitting Customized Late-stage Assembly Optimized Parts & Labor Provisioning V2-21

Product Management Demand-driven businesses proactively manage product lifecycles to introduce new models or product platforms with minimal cannibalization of existing sales. Includes functions & processes for: Probabilistic Product Portfolio Analysis Reuse of Proven Technologies Cross-Functional Product Development Concurrent Engineering (Stage-Gate) Quality Function Deployment V2-22

Demand Driven Supply Chain Benchmarks Being demand driven means embracing customer demand completely enough to bring a steady stream of valuable new products and services to market as well as maintain excellent operations. V2-23

Demand Driven Change Formalized new product development & launch process Design products for manufacturing / supply (postponement, commonality of parts, lean) Utilize portfolio management V2-24

Product Life Cycle IntroductionGrowthMaturityDeclinePhase-out Units sold Time V2-25

Product Development Portfolio $$ Potential Probability of Success V2-26

QFD House of Quality The Voice of the Customer technical features / characteristics “the hows” central (or relationship) matrix “ Customer Requirements (WHATS) Technical Design Requirements (HOWS) Relationship Matrix Between Customer Requirements and Design Requirements Correlation Matrix Technical Priority “ Customer Importance Competitor A Performance Competitor B Performance Importance Weighting Identify customer requirements and their importance Identify technical design requirements Create relationship matrix and correlation matrix Evaluate competitors Identify technical features and priorities V2-27

Optimal Design Process – Concurrent V2-28 Marketing R&D Production Customer Care Customer Requires concurrency of function and cross-functional participation

Evolution of Supply Chain Organizations 1: Multiple Dysfunction 2: Semi-functional Enterprise 3: Integrated Enterprise 4: Extended Enterprise Impulsive activity Pep talks, threats No teamwork Little information exchange Mostly manual ops Inventory reduction in owned facilities New low-price purchasing strategies Some hard-skills training, job enhancement Enhanced marketing and forecasting No coordination of initiatives New focus on process Internal process integration MRP/ERP Intranets, etc., across functions Design teams Enhanced warehousing, logistics, forecasting, etc. Process integration across entity boundaries Eventual electronic information connections among multiple partners ERP-to-ERP links E-commerce Supply chain vs. supply chain competition Stages of organizational development V2-29

AMR - Stages of Maturity Every department for itself Slow and sequential planning Every company for itself Internal optimization Single-tier partnering Data sharing with tier 1 partners Multi-tier federation Multi-tier visibility and collaboration Multi-tier visibility and collaboration Process MaturityInformation Maturity 1. React 2. Anticipate 3. Collaborate 4. Orchestrate Site-to-site traditional supply chain – little integration Connected Enterprise – internal integration, clumsy external links Connected Network – external integration, no strategic control Demand-driven External integration V2-30 Where would you place: Apple? Pepsi? Intel? Johnson & Johnson?

Action Steps to make DDSN Happen Identify capable leaders in key functions Align the organization to achieve success Benchmark current performance Forecast accuracy Perfect order performance Time-to-market Develop improvement initiatives and goals Constantly review competitive moves Plan for internal resistance V2-31

Information Technology’s Role Enable data gathering and analysis Improve communication Improve global visibility and decision making Connect work processes to: Increase speed Improve quality Improve profitability V2-32

Doing Well by Doing Good Corporate leaders understand that long-term growth depends on new markets and matching opportunity with capability. Companies that “save the world” may also be making all the $$. V2-33