Supply Chain Value Chain Business System © K.E.Homa

Supply Chain For product-based companies, “it” all comes together in the supply chain … a.k.a. value chain, business system … the underlying infrastructure for procuring, transforming, delivering, and servicing.

Order Entry DEMAND Del’y & Service SUPPLY Operations LINKING PROCESSES Customer’s View

Order Entry DEMAND Del’y & Service SUPPLY Operations LINKING PROCESSES C C ost Q Q uality S S ervice F F lexibility Customer’s View

Matl Labor $$$ INPUTS Goods & Svcs OUTPUTS Operations TRANSFORMING PROCESSES E E fficiency P P roductivity A A dvantage Producer’s View

SUPPLY CHAIN Value Chain Business System DesignPurch.Mfg.Distrib.Service Complementary / synergistic combinations

SuppliersCustomers LogisticsPurch.Mfg.Distrib.Service TRADITIONAL SITUATION Operations focused Sequential processes Sub-optimization PROGRESSIVE ACTIONS More integration Concurrent processing Better information flow Supply Chain Prototypical View

From a strategic / tactical perspective … Ownership is usually a legal detail and financial impracticality, not necessarily a strategic imperative. Allied networks (formal & virtual) of best providers are increasingly prevalent. Supply Chain

Caveat Virtual There is nothing virtual about merely shifting investment and costs from one supply chain partner to another. If someone is left holding the investment or cost, it’s real not virtual! Supply Chain

Strategic advantage usually requires a creative (unique and synergistic) combination of options across supply chain activities. Supply Chain

Technology Product Design Manufacturing MarketingDistributionService –Idea source –State of art –Prod./process integration –Patents –Function –Physical characteristics –Aesthetics –Quality –Integration –Technology –Raw materials –Capacity –Location –Procurement –Prices –Advertising/ promotion –Sales force –Package –Brand –Channels –Integration –Inventory –Warehousing –Transport –Warranty –Speed –Captive/ independent –Prices Complementary / synergistic combinations Supply Chain Leverage Points

Global Optimization Objective is too deliver appropriate service level at lowest cost across the system. Locally optimizing processes in one ‘silo’ sometimes increases total system costs. Supply Chain

Value Added add value CQFS*financial returns Each stage of the supply chain must add value … consistent with globally optimizing CQFS* … and provide adequate financial returns to the provider Supply Chain * Cost Quality Flexibility Service

Supply Chain : Value Added Value Added Value Added Value Added Profit Parts & Matl SUPPLIER MANUFACTURER DISTRIBUTOR RETAILER PRICEPRICE PROFIT R.O.S. R.O.I

Order Entry Del’y & Service Matl Labor $$$ Goods & Svcs Operations Demand Supply InputsOutput 2-Dimensional Integrated View

Order Entry Del’y & Service Matl Labor $$$ Goods & Svcs Operations PRODUCTIVITYPRODUCTIVITY SERVICE LEVEL Fill rate On-time Cost R.O.I. Performance Metrics

Better service Lower costs Less investment Supply Chain Management Mega-Objectives

Appropriate Q, F, S Lowest Cost Lowest Investment) Supply Chain Performance Requirements: CQFS* * Cost Quality Flexibility Service

Hassle-free order entry High fill rates Consistent cycle times Dependable deliveries Timely order tracking Accurate invoicing Customers’ requirements escalating... Customer Service Minimum Requirements

Full Availability (100%) Near-immediate delivery Scheduled Deliveries Perfect Orders, Shipments, Bills Zero tolerance ! Customer Service Emerging Requirements

Ship complete … or cancel Near-immediate deliveries Electronic shipping notices Continuous replenishment (Vendor managed inventory) Customer Service Escalatinging Requirements

Investment J. I. T. / Quick Response Long Payment Terms Consignment / Buy-Backs Vendor Managed Inventory Costs Slotting Fees Pre-Tagging Precisely Built Loads In-Store Service New Games … Shifting investment, costs and risk back to suppliers

Caveat Virtual There is nothing virtual about merely shifting investment and costs from one supply chain partner to another. If someone is left holding the investment or cost, it’s real not virtual! Supply Chain

Product design and operations’ process efficiency are inextricably linked. Operations efficiency is ultimately limited by product ‘ design for manufacturing’. Supply Chain

Information (logical assets) moves faster and is usually cheaper (after infrastructure is in place) than physical assets (people, plants, trucks, inventory, etc.). Best operators support physical assets with logical assets … and substitute logical for physical whenever possible. Supply Chain

SuppliersCustomers LogisticsPurch.Mfg.Distrib.Service Product Design Establishes the “upper bound” on supply chain efficiency Information Technology Enables and institutionalizes supply chain processes Complementary / synergistic combinations Supply Chain Prototypical View

Supply Chain Value Chain Business System © K.E.Homa