1. A Strategic Framework for Supply Chain Design, Planning, and Operation
Introductions – Names, prior work experience including summer, what do students hope to get from class?
Mention some prototypical supply chains we will use repeatedly in class – Wal-Mart, 7-Eleven, Dell and Compaq, Amazon and Borders, Supermarket and e-grocer, W.W. Grainger and McMaster Carr - our goal is to identify factors that drive supply chain success and make a comparison between different supply chains.
Administration of course - We will discuss concepts and methodologies for supply chain management. The context within which both will be learnt and discussed is provided by cases. Discuss role of case packet readings, cases and book.
5 cases due - 10% for each case
25% for final project
20% for final exam
5% for electronic posting
Discuss key dates for submitting project. Three groups will be selected to present.
Show course web page and its organization

2. Outline What is supply chain management?
A supply chain strategy framework
Notes:

3. Traditional View: Logistics in the 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.
Notes: Traditionally logistics and supply chain management has been measured in terms transportation and inventory costs and the administration required to manage both. Traditionally firms would have an inventory manager and a transportation manager. This view is very narrow and causes significant problems in the proper functioning of the supply chain.
Source: Cass Logistics

4. Traditional View: Logistics in the Manufacturing Firm
Profit 4%
Logistics Cost 21%
Marketing Cost 27%
Manufacturing Cost 48%
Profit
Logistics
Cost
Marketing
Manufacturing
Notes: Key message here is that logistics costs are a significant fraction of the total value of a product. The problem here is that this a purely cost based view of the supply chain and drives a firm to simply reducing logistics costs. This is an incomplete picture.

5. Supply Chain Management: The Magnitude in the Traditional View
Estimated that the grocery industry could save $30 billion (10% of operating cost by using effective logistics and supply chain strategies
A typical box of cereal spends 104 days from factory to sale
A typical car spends 15 days from factory to dealership
Laura Ashley turns its inventory 10 times a year, five times faster than 3 years ago

6. Supply Chain Management: The True Magnitude
Compaq estimates it lost $0.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed
When the 1 gig processor was introduced by AMD, the price of the 800 meg processor dropped by 30%
P&G estimates it saved retail customers $65 million by collaboration resulting in a better match of supply and demand

7. What is a supply chain? P&G or other manufacturer Jewel or third
party DC
Jewel
Supermarket
Customer wants
detergent and goes
to Jewel
Plastic
Producer
Tenneco
Packaging
Chemical
manufacturer
(e.g. Oil Company)
Notes:
Supply chain involves everybody, from the customer all the way to the last supplier.
Key flows in the supply chain are - information, product, and cash. It is through these flows that a supply chain fills a customer order. The management of these flows is key to the success or failure of a firm. Give Dell & Compaq example, Amazon & Borders example to bring out the fact that all supply chain interaction is through these flows.
Chemical
manufacturer
(e.g. Oil Company)
Paper
Manufacturer
Timber
Industry

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

9. Cycle View of Supply Chains
Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
The supply chain is a concatenation of cycles with each cycle at the interface of two successive stages in the supply chain. Each cycle involves the customer stage placing an order and receiving it after it has been supplied by the supplier stage.
One difference is in size of order. Second difference is in predictability of orders - orders in the procurement cycle are predictable once manufacturing planning has been done.
This is the predominant view for ERP systems. It is a transaction level view and clearly defines each process and its owner.
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier

10. Push/Pull View of Supply Chains
Procurement,
Customer Order
Manufacturing and
Cycle
Replenishment cycles
PUSH PROCESSES
PULL PROCESSES
In this view processes are divided based on their timing relative to the timing of a customer order. Define push and pull processes.
They key difference is the uncertainty during the two phases.
Give examples at Amazon and Borders to illustrate the two views
Customer
Order Arrives

11. Examples of Supply Chains
Dell / Compaq
Toyota / GM / Ford
McMaster Carr / W.W. Grainger
Amazon / Borders / Barnes and Noble
Webvan / Peapod / Jewel
What are some key issues in these supply chains?
Dell has three production sites worldwide and builds to order. Compaq does both. Consider some decisions involved - where to locate facilities? How to size them? Where is the push/pull boundary? What modes of transport to use? How much inventory to carry? In what form? Where to source from?

12. What is Supply Chain Management?
Managing supply chain flows and assets, to maximize supply chain surplus.
What is supply chain surplus?
Notes:
Supply chain surplus refers to what the customer has paid - total cost expended by supply chain in filling order.

13. 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

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

15. Levels of Implied Demand Uncertainty
Detergent
Long lead time steel
High Fashion
Emergency steel
Customer Need
Price
Responsiveness
Low
High
Implied Demand Uncertainty

16. Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier
High
Low
Cost
High
Low

17. Achieving Strategic Fit
Implied uncertainty spectrum
Responsive supply chain
Efficient supply chain
Certain demand
Uncertain demand
Responsiveness spectrum
Zone of Strategic Fit

18. Strategic Scope Suppliers Manufacturer Distributor Retailer Customer
Competitive Strategy
Product Dev. Strategy
Supply Chain Strategy
Strategic scope must cover all boxes, at least at the supply chain end. Each stage must have fit across its vertical boxes and supply chain strategy spanning all players. This fit allows the countering of multiple owners and helps avoid local optimization.
Marketing Strategy

19. 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.

20. Considerations for Supply Chain Drivers

21. Supply Chain Decisions: Structuring Drivers
Strategy
(Design)
Planning
Strategic: How many warehouses should Amazon build? Where should they be built? Strategic decisions relate to allocation of resources.
Planning: What titles are stocked in house? What replenishment policies to follow? Geographical responsibility by warehouse. Planning decisions relate to policies for utilization of resources.
Operation: How is a specific order to be filled? From where? Shipping mode etc. Operation decisions relate to filling specific orders given resources.
Discuss the time frame for each decision and how the strategic decision defines constraints for the planning decision which defines constraints for the operation decision.
Operation

22. Major Obstacles to Achieving Fit
Multiple owners / incentives in a supply chain
Increasing product variety / shrinking life cycles / customer fragmentation
Local optimization and lack of global fit
Increasing implied uncertainty

23. Dealing with Multiple Owners / Local Optimization
Information Coordination
Contractual Coordination

24. Dealing with Product Variety: Mass Customization
Long
Lead Time
Short
Mass
Customization
Stress the importance of time compression in supply chain. Detail NPD time as well as material flow time. The advantage of lower flow times is magnified for short product life cycles. Consider a firm with a 10 day material flow time versus a 90 day material flow time(rough comparison of Dell and Compaq in Early 1998). For a six month product life cycle this advantage is significant. For a three year product life cycle this advantage is somewhat less significant.
Base goal in a supply chain: Flow time reduction (this is what the operations course was all about)
High
Low
Cost
Customization
Low
High

25. Fragmentation of Markets and Product Variety
Are the requirements of all market segments served identical?
Are the characteristics of all products identical?
Can a single supply chain structure be used for all products / customers? No! A single supply chain will fail different customers on efficiency or responsiveness or both.
Notes:
Dell is a niche player. Compaq has a broader set of customers served. Compaq cannot come up with a single supply chain that is best in all instances. The same case can be made for Amazon as well - different people use the web channel as either a convenience or to get a better deal. Currently Amazon is trying to satisfy both with a single supply channel. Is this appropriate in the long term.

26. Tailored Logistics
Each Logistically Distinct Business (LDB) will have distinct requirements in terms of
Inventory
Transportation
Facility
Information
Key: How to gain efficiencies while tailoring logistics?
Notes: Clever here refers to the ability of a firm to service these different requirements in the most cost effective way without hurting customer service in any case. The key ability will be one to make the right tradeoffs and come up with optimal structures for communication, inventory, transportation, and location.

27. Applying the Framework to e-commerce: What is e-commerce?
Commerce transacted over the Internet
Is product information displayed on the Internet?
Is negotiation over the Internet?
Is the order placed over the Internet?
Is the order tracked over the Internet?
Is the order fulfilled over the Internet?
Is payment transacted over the Internet?

28. Existing Channels for Commerce
Product information
Physical stores, EDI, catalogs, face to face, …
Negotiation
Face to face, phone, fax, sealed bids, …
Order placement
Physical store, EDI, phone, fax, face to face, …
Order tracking
EDI, phone, fax, …
Order fulfillment
Customer pick up, physical delivery

29. Revenue Impact of E-Commerce
Length of supply chain
Product information
Time to market
Negotiating prices and contract terms
Order placement and tracking
Order fulfillment
Payment

30. Cost Impact of E-Commerce
Facility costs
Site and processing cost
Inventory costs
Cycle, Safety, Seasonal inventory
Transportation costs
Inbound and outbound costs
Information sharing
Coordination