Supply Chain Enablers Organizational Infrastructure Information Technology Strategic Alliance Human Resource Management

Supply Chain Enablers

Organizational Infrastructure Coherent business strategy that aligns business units towards same goals – 32% Formal process-flow methodologies to enable the SCM improvements – 15% People committed to and responsible for cross-functional processes – 14% Right process metrics identified to guide operating units’ performance toward strategic organizational SCM objective - 13%

Information Technology Operations, marketing , & logistics data coordinated within the company – 30% Data readily available to managers, not embedded in legacy system – 27% Operations, marketing, & logistics data coordinated between companies – 18% Linking SCM to ERP systems – 10%

Strategic Alliance Expectations clearly stated, understood, and agreed upon up front – 48% Collaborating on supply chain and product service strategies – 18% Top management of partnering companies interface on a regular basis – 9% Top management communicate why strategic alliances are important and should be pursued – 8%

Human Resource Management Enablers Source, hire, and select skilled and quality people at all management levels – 27% Find change agents to champion SCM implementation – 27% Compensation and incentives in place for SCM performance – 14% Finding the internal process facilitators knowledgeable in SCM – 13% Appropriate job description and responsibilities – 12%

Drivers of Supply Chain Performance Efficiency Responsiveness Inventory Transportation Facilities Information Supply chain structure Drivers How does a supply chain make the efficiency / responsiveness tradeoff and position at the appropriate point - using Inventory, Transportation, Facilities, and Information decisions.

Considerations for Supply Chain Drivers

Functional vs. Innovative Products: Differences in Demand Functional (Predictable) Innovative (unpredictable) Product life cycle More than 2 years 3 months to 1 years Contribution margin 5% to 20% 20% to 60% Product variety Low (10 to 20 variants per category) High (often millions of variants per category Forecast accuracy (margin of error) 10% 40% to 100% Average stockout rate 1% to 2% 10% to 40% Average forced markdown 0% 10% to 25% Delivery Lead time 6 months to 1 year 1 day to 2 week

Physically Efficient vs. Market-Responsive Supply Chain Physically Efficient Process Market-Responsive Process Primary purpose Supply predictable demand efficiently at the lowest possible cost Respond quickly to unpredictable demand to minimize stockouts, forced markdowns, and obsolete inventory Manufacturing focus Maintain high average utilization rate Deploy excess buffer capacity for flexibility Inventory strategy Generate high turns & lower inventory cost Deploy significant buffer stock of all stock items Lead-time focus Shorten lead time at low cost Invest in ways to reduce lead time Approach to choosing suppliers Select primarily for cost and quality Select primarily for speed, flexibility, and quality Product-design strategy Maximize performance at minimum product cost Use modular design to postpone product differentiation

Efficiency-Responsiveness Framework of Supply Chain Functional Product Innovative Products Match Mismatch Efficient Supply Chain Responsive Supply Chain

Zone of strategic fit in supply chain Responsive Supply Chain Responsiveness Spectrum Zone of Strategic Fit Efficient Supply Chain Implied Uncertainty Spectrum Uncertain Demand Certain Demand

Achieving Strategic Fit Understanding the Customer Lot size Response time Service level Product variety Price Innovation Implied Demand Uncertainty

The Value Chain: Linking Supply Chain and Business Strategy New Product Strategy Marketing Strategy Supply Chain Strategy New Product Development Marketing and Sales Operations Distribution Service Finance, Accounting, Information Technology, Human Resources

Flows in a Supply Chain Supply Chain Customer Information Product Funds Supply Chain

Sequential Optimization vs. Global Optimization Procurement Planning Manufacturing Distribution Demand Sequential Optimization Supply Contracts/Collaboration/Information Systems and DSS Procurement Planning Manufacturing Distribution Demand Global Optimization Source: Duncan McFarlane

The Dynamics of the Supply Chain Production Plan Distributor Orders Retailer Orders Order Size Customer Demand What is shown here is how divergent these various forecasts are in relation to real demand. Why?? Because they are developed independently from each other and are dated, and unconnected to each other and the daily fluctuations in the market Time Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

The Dynamics of the Supply Chain Production Plan Order Size Customer Demand What is shown here is how divergent these various forecasts are in relation to real demand. Why?? Because they are developed independently from each other and are dated, and unconnected to each other and the daily fluctuations in the market Time Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998