Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved. McGraw-Hill/Irwin CHAPTER 1: 21st-Century Supply Chains

1-2 The supply chain revolution Why integration creates value Generalized supply chain model Responsiveness Financial sophistication Globalization Overview of 21 st -century supply chains

1-3 Supply Chain Management –Consists of firms collaborating to leverage strategic positioning and to improve operating efficiency Supply Chain Strategy –Is a channel and business organizational arrangement based on acknowledge dependency and collaboration Logistics –The work required to move and geographically position inventory The supply chain revolution has reshaped contemporary strategic thinking

1-4 Successful supply chain strategies Source: Supply Chain Management Review, March/ April 2000, p. 29.

1-5 The total integration of the overall business process creates value Table 1.1 Integrative Management Value Proposition

1-6 The integrated value-creation process must be managed across firms from end to end Figure 1.1 The Integrated Supply Chain Framework s

1-7 Logistics activities and decisions at each level of functionality Figure 1.2 Information Functionality

1-8 Transaction system functionality consists of formalized rules and procedures Standardized communications focus on tracking and regulating day-to day logistical transactions For example, –Order entry –Order fulfillment –Inventory adjustment –Invoicing

1-9 Management control functionality focuses on performance management and reporting Provides real time feedback on supply chain performance and resource utilization Common performance dimensions include –Cost –Customer service –Productivity –Quality

1-10 Decision analysis functionality focuses on software tools to assist managers Software tools help to identify, evaluate and compare alternatives to improve effectiveness –E.g., Excel solver Types of analysis include –Supply chain design –Inventory management –Resource allocation –Routing –Segmental profitability Also called decision support software in MIS departments

1-11 Strategic planning functionality transforms transactional data to assist in strategy evaluation Organizes transaction and performance data into a relational database to assist in evaluating alternative business strategies Examples include –Strategic alliance decisions –Development of manufacturing capabilities –Customer responsiveness opportunities

1-12 Figure 1.4 SCIS Usage, Decision Characteristics, and Justification More opportunities exist for improvements at higher levels of functionality

1-13 Supply chain information system modules Enterprise integration and administration Enterprise supply chain operations Enterprise planning and monitoring Communication technology Consumer connectivity

1-14 Application oriented perspective of SCIS modules Figure 1.4 Application Oriented SCIS Framework

1-15 Enterprise resource management (ERP) The backbone of most firm’s logistical information systems Maintains an integrated database of current and historical data Processes most (if not all) transactions across all business functions Example transactions include –Order entry and management –Inventory assignment –Shipping

1-16 Enterprise integration and administration modules are not specific supply chain apps Figure 1.5 Enterprise Integration and Administration Components

1-17 Enterprise operations modules support day- to-day supply chain operations Figure 1.6 Enterprise Operations Modules Enterprise Operations Customer relationship management LogisticsManufacturing Purchasing © Donald J. Bowersox, Ph.D Inventory Deployment Customer Relationship Management (CRM) Forecasting Demand Management (DMS) Collaborative Planning, Forecasting and Replenishment (CPFR ) Order Management (OMS) Finished Inventory Management (FIM) Order Processing (OPS) Warehouse Management (WMS) Transportation Management (TMS) Yard Management (YMS) Accounts Receivable Interface Manufacturing Resource Planning (MRP II) Capacity Management Planning (CMP) Master Production Schedule (MPS) Production Execution and Control (Shop Floor) Quality Management (QM) Purchase Order Administration (POA) Materials Requirements Planning (MRP) Supplier Relationship Management (SRM) Accounts Payable Interface Integrated Inventory Planning Advanced Planning and Scheduling\

1-18 Enterprise planning and monitoring modules facilitate exchange of planning information Figure 1.7 Enterprise Planning and Monitoring Modules

1-19 Integrative management requires simultaneous achievement of 8 processes Table 1.2 Eight Supply Chain Processes

1-20 Concepts necessary for achieving integrated management Lowest total process cost is the focus of integrated management –Differs from lowest cost of each function in the process Collaboration of operating information, technology and risk has been encouraged by national legislation to keep US-based firms competitive Enterprise extension includes expanded managerial influence and control beyond traditional ownership boundaries of a single enterprise Integrated service providers (ISP) provide a range of logistics services to accommodate customers, ranging from order entry to product delivery –Commonly known as third (or fourth) party service providers

1-21 Enterprise extension Information sharing paradigm – supply chain participants sharing operating information can achieve a high degree of collaboration and enhanced strategic planning. Process specialization paradigm – the commitment to focus collaborative arrangements on planning joint operations with a goal of eliminating nonproductive or non-value adding redundancy by firms in a supply chain.

1-22 Integrated service providers (ISPs) Outsourcing Transportation modes Public warehouses Value-added services Third- and fourth-party service providers Asset- or nonasset-based service providers

1-23 Forces driving supply chain strategies Information technology Integrative management Responsiveness Financial sophistication Globalization

1-24 Responsiveness emerges as a competitive advantage Figure 1.8 Anticipatory Business Model Figure 1.9 Responsive Business Model

1-25 Postponement strategies keep supply chains responsive Types of Postponement –Manufacturing (or Form) –Geographic (or Logistics) –Combined Manufacturing and geographic types are exact opposites in practice but have the same goal –Meeting customer demand quickly while minimizing inventories

1-26 Manufacturing (or form) postponement Manufacturing one order at a time Base modular construction of product No customization until the exact customer specs and financial commitment is received Objective is to maintain products in an uncommitted status as long as possible Balances economy of scale with responsiveness –Can build a sufficient quantity of “ready to customize” basic units Requires a lot of forethought during product design

1-27 Example of manufacturing postponement Keeping all the car panels a base color (white or gray) until the order is received, then painting to the color ordered

1-28 Geographic (or logistics) postponement Build or stock a full-line inventory at one or a few strategic locations Forward deployment of inventory is postponed until customer orders are received Once orders received, specific item is expedited to the local distributor Advantages are manufacturing economies of scale along with responsiveness to customer Often used for critical, high cost parts and assemblies (e.g. engines)

1-29 Example of geographic postponement Keeping full inventory in a central warehouse and releasing customer orders to local distributors or direct shipping to customer

1-30 Combined postponement Keeping the basic products centralized and performing the customization at the destination distributor Historical example - Autos –Installing dealer options like sound systems, GPS, sun roofs on new cars purchased Contemporary example - Computers –Dell Computers, doing final assembly or packaging additional system options like printers, digital cameras at a distribution center

1-31 Barriers to implementing responsive systems Need for publicly held corporations to maintain planned quarterly profits –Expectations of continued financial results often drive promotional and pricing strategies to “load the channel” with inventory Need to establish collaborative relationships –Most business managers do not have training or experience in development of collaborative arrangements

1-32 Financial sophistication enables measurement of time-based supply chain Cash-to-Cash Conversion — the time required to convert raw material or inventory purchases into sales revenue Dwell Time Minimization — dwell time is the ratio of time that an assets sits idle to the time required to satisfy its supply chain mission Cash Spin —reducing assets in the supply chain can “spin” cash for reinvestment in other projects

1-33 Globalization offers firms several attractive opportunities Demand exceeds local supply –90% of global demand is not fully satisfied by local supply Strategic sourcing –Identifying and matching the sources of raw materials and components to manufacturers and distributors Offshoring –Moving manufacturing and distribution operations to countries with favorable labor costs and tax laws

1-34 Significant differences for global logistics Distance of typical order-to-delivery operations is significantly longer compared to domestic business Documentation requirements for business transactions is significantly more complex Operations must be deal with significant Diversity in work practices and local operating environments How consumers Demand products and services must accommodate cultural variations