OPSM 305 Supply Chain Management Class 1: Introduction: What is Supply Chain Management? Koç University Zeynep Aksin

Vendors Intermediate Product Plants Finished Product Plants Distribution Centers Warehouses Customer Zones Supply Chain

Supply Chain of a Typical Original Equipment Manufacturer

Supply Sources: plants vendors ports Regional Warehouses: stocking points Field Warehouses: stocking points Customers, demand centers sinks Production/ purchase costs Inventory & warehousing costs Transportation costs Inventory & warehousing costs Transportation costs

Example: Köşebaşı Restaurant [1]  1995: first restaurant opened in Levent: hosting Chelsea Clinton, Donna Karan, Warren Beatty, Annette Bening, and the international gourmet Tom Zagat.  1999: Köşebaşı is voted one of the 50 restaurants in the world by Conde Nast Traveler magazine. Second rest. In Fenerbahce.  2000: Köşebaşı received the 26th International Tourism, Lodging and Catering Association's award in Madrid.  2001: Köşebaşı Express concept  2002 Time: "Meat lovers can rejoice at Köşebaşı. Don't bother with a mess, sit back and let your waiter make the choices”.  New restaurants: Nişantaşı (2002), Ataşehir Köşebaşı Express (2003), and Ankara (2004). Also in the summer, Köşebaşı serves in Reina and in Bodrum. [1][1]

Köşebaşı Restaurant SC in the summer

 Definition: Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements.  Notice: –Who is involved –Cost and Service Level –It is all about integration Supply Chain Management

Supply Chain Management: the challenge  Global optimization –Conflicting Objectives –Complex network of facilities –System Variations over time  Managing uncertainty –Matching Supply and Demand –Demand is not the only source of uncertainty

Conflicting Objectives in the Supply Chain 1. Purchasing Stable volume requirements Flexible delivery time Little variation in mix Large quantities 2. Manufacturing Long run production High quality High productivity Low production cost

Conflicting Objectives in the Supply Chain 3. Warehousing Low inventory Reduced transportation costs Quick replenishment capability 4. Customers Short order lead time High in stock Enormous variety of products Low prices

Supply Chain: The Magnitude  In 1998, American companies spent $898 billion in supply-related activities (or 10.6% of Gross Domestic Product). –Transportation 58% –Inventory 38% –Management 4%  Third party logistics services grew in 1998 by 15% to nearly $40 billion

Supply Chain challenges: complexity  It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies. –A typical box of cereal spends 104 days getting from factory to supermarket. –A typical new car spends 15 days traveling from the factory to the dealership.

Supply Chain challenges: inventory  Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them.  Boeing Aircraft, one of America ’ s leading capital goods producers, was forced to announce writedowns of $2.6 billion in October The reason? “ Raw material shortages, internal and supplier parts shortages …”. (Wall Street Journal, Oct. 23, 1997)

Supply Chain challenges: collaboration  Procter & Gamble estimates that it saved retail customers $65 million through logistics gains over the past 18 months. “ According to P&G, the essence of its approach lies in manufacturers and suppliers working closely together …. jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain ”. (Journal of Business Strategy, Oct./Nov. 1997)

Supply Chain challenges: structure  Dell Computer has outperformed the competition in terms of shareholder value growth over the eight years period, , by over 3,000% (see Anderson and Lee, 1999) using - Direct business model - Build-to-order strategy.

Supply Chain challenges: efficiency  In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer.

What is a Supply Chain? meat packaging spices Maret Duzey Pazarlama Bakkalim Customer demand sucuk Suppliers Stages? Players? What generates revenue? What generates costs? What are the flows?

Flows in a Supply Chain Customer Information Product Funds

Supply Chain Decisions  Design-long term strategic decisions –Supply chain structure –Location, capacities, transportation,.. –Example: Dell  Planning-medium term tactical decisions –Forecasting, inventories, network,… –Example: Unilever  Operational-short term operational decisions –Order, production, inventory matching –Determining truck routes –Example: Vestel

Dell’s supply chain Powerful upstream: Microsoft, Intel Powerful competition: IBM, HP, Compaq,… Extremely successful: stock price, profitability, sales,.. What accounts for this success? Raw materials Subassemblies Finished goods assembled to order in the channel

Standard PC industry SC Raw materials Subassemblies Finished goods Shipped to channel Final demand Finished goods assembled to order in channel Shipped directly

The Dell advantage  No finished goods inventory  No distributors/retailers-no inventory  Direct sales via web, phone  Almost no materials inventory –Sells whatever is purchased –Sales organization incentivized on profit margins –Buys in volume-discounts –Opt for longest shelf life components  Targets high-end users

Example: restructuring the SC at UL UL Sup. WH WH Sub. WH KA Ind. Markets GroceriesMarkets Sana KA: 64 days Groceries:132 days Shelf life: 120 days! 76 days collection time Sales cost: 4% Trade rebate: 12% Logistics: complex 1997: 35000/76000 tons Sana and Aymar collected

Consumer centric-efficient SC UL Distributors GroceriesMarketKA Consumer Sana KA: 2 weeks 36 days collection time Warehouse stock level 12% -  8% Sales cost: 6% Trade rebate: 5.2% Logistics: simple / outlets Make-to-order

Example SCM issues  Outsourcing  Inventory  Information sharing  Logistics-transportation  Channel selection: bricks versus clicks  Integration and partnerships