Main Function of SCM (Part I)

Supply Chain in Economy (1990, 1996) Freight Transportation $352, $455 Billion Inventory Expense $221, $311 Billion Administrative Expense $27, $31 Billion Logistics Related Activity 11%, 10.5% of GNP

Main Functions Procurement (supplier selection, optimal procurement policies, etc.) Manufacturing (plant location, product line selection, capacity planning, production scheduling, etc.) Distribution (warehouse location, customer allocation, demand forecasting, inventory management, etc.) Logistics (selection of logistics mode, selection of ports, direct delivery, vehicle scheduling, etc.) Global Decisions (product and process selection, planning under uncertainty, real-time monitoring and control, integrated scheduling)

Procurement Known as purchasing, and now supply management To achieve lower operating costs, higher ROI, and a direct contribution to the bottom line the cost of all of those processes and activities associated with procurement at anywhere from 30 percent to as high as 70 percent in some industries like automotive and chemicals

Manufacturing Just-in-time Inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated costs Lean production Came from Toyota Production System, which considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful

Manufacturing Agile Manufacturing (order to build) Considered as improvement from Lean production, only possible due to shorter customer order cycle Outsource Also considered as strategy in Lean production, where company can stay focus and profitable

Supply Chain in Manufacturing Profit 4% Logistics Cost 21% Marketing Cost 27% Manufacturing Cost 48%

Distribution Distribution Network Configuration: Number and location of suppliers, production facilities, distribution centers, warehouses and customers. Distribution Strategy: Centralized versus decentralized, direct shipment, Cross docking, pull or push strategies, third party logistics.

Distribution in a Supply Chain Location centralization (efficiency) vs. decentralization (responsiveness) other factors to consider (e.g., proximity to customers) Capacity (flexibility versus efficiency) Manufacturing methodology (product focused versus process focused) Warehousing methodology (SKU storage, job lot storage, cross-docking) Overall trade-off: Responsiveness versus efficiency

Cost Buildup as a Function of Facilities Total Costs Percent Service Level Within Promised Time Cost of Operations Facilities Inventory Notes: Transportation Labor Number of Facilities 5-10

Where inventory needs to be for a 3 day order response time - typical results --> 5 DCs Customer DC

Where inventory needs to be for a next day order response time - typical results --> 13 DCs Customer DC

Case Study : Motorola’s Outsourced Manufacturing and Technology Global outsourced manufacturing continues to dominate the agendas of executives across numerous industries, as companies look for new ways to deliver high quality products at the most cost effective prices Motorola is expected to step up its outsourcing efforts in 2008, increasing as much as 50 percent of its total handset output to ODM partners, compared to 40 percent in 2007..

Motorola’s Key Issues in Outsourcing Enabling Visibility to Outsourced Operations Ensuring Continuity of Supply Harmonizing Fragmented Business Processes Establishing Common Performance Metrics and Indicators Managing Extended Cycle Times Managing Increased Demand and Supply Network Lead Times and Logistics Costs

Motorola’s strategies Define Common Business Processes Define Joint Performance Metrics and Align Incentives Align the Organizations Establish Partner Agreements Deploy a Shared Process and Information Platform Enable All Partners to Adopt Processes

How did technology outsourcing help Motorola ? Signed 10-year IT infrastructure outsourcing contract worth US$1.6 billion with Computer Sciences Corporation to handle Motorola's global IT help desk and network infrastructure functions

The Outcome Cutting cost Real-time forecasting and procurement between multi-tiers trading partners Stable IT infrastructure Keep competitive advantage with cutting edge technology

Discuss the following questions: What problems do Motorola address? How does outsourcing help solve these problems? What issues and challenges do outsourcing strategy present? What can be done to address these issues? What are the business as well as the technology issues that should be addressed when Motorola outsourced manufacturing and technology?