1. Supply Chain Management Strategies

2. Supply-Chain Management Strategies
Supply-Chain Management Defined
Understanding Your Industry Model
Business Alignment
Defining Supply Chain Excellence
SCM Ground Rules
A Multi-Disciplinary Approach
Operations, Finance, IT & eOPS

3. What is Supply-Chain Management?
Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together.
Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer.

4. Supply Chain Management Evolution
Historical operational stages:
From disconnected.
Exclusively focus on growth/cost.
Separately managed functions.
Internal performance measurements.
To integrated.
End-to-end process approach.
Customer focus, profitable growth, liquidity, functional integration.

5. OEM 1 OEM 2 T3 T3 T2 T3 T2 T1 T3 T2 T1 T3 T2 T1 T3 T2 T3
Consumer T3
Consumer
Web Site T3 T2
OEM 1
Consumer
Warehouse T3
Retailer T2 T1
Consumer T3 T2 T1
Consumer
Retailer
Consumer T3 T2 T1
OEM 2
Distributor/Retailer
Consumer
Tier 1 supplier
Consumer T3 T2
Distributor
Retailer
Tier2 and 3 Suppliers T3
Consumer
Direct Sales Force
Supply Chain of a Typical Original Equipment Manufacturer

6. Overall Strategy A Supply Chain is fully optimized when:
Bundles of well-priced products/services create unassailable levels of customer attachment (acquisition and retention).
Total supply chain costs are at the lowest level.
The supply chain contributes to profitable sales growth by creating cost/service advantages.
Worldwide effective tax rates are at the lowest level.
Capital efficiency is at the lowest level.
The supply chain is made flexible to respond to changes faster than competitors and to stratify service levels by product, customer, and geography.

7. Supply Chain Issues
The main purpose of the levels in any supply chain is to add processes to the product/service.
Another purpose is to absorb the differences between the stable supply on the upstream side and the erratic demand on the downstream(consumer) side.
The synchronization of the supply chain will optimize efficiency along the chain.

8. Matching Supply-Chains with Products
Functional
Products
Innovative
Products
Efficient
Supply-Chain
Match
Mismatch
Responsive
Supply-Chain
Mismatch
Match

9. IV. Continuous Flow III. Assembly Line II. Batch I. Job Shop Low
Volume,
One of a
Kind
Multiple
Products,
Volume
Few
Major
Higher
High
Standard-
ization
Commercial
Printer
French Restaurant
Heavy
Equipment
Coffee Shop
Automobile
Burger King
Sugar
Refinery
Flexibility (High)
Unit Cost (High)
Flexibility (Low)
Unit Cost (Low)

10. Supply Chain Excellence
New corporate state of being:
Supply chain excellence requires effective strategies, sustained management commitment, and changes in attitude, culture, and organization. More importantly, it requires superior execution.

11. Principles For Supply Chain Excellence
Formulate a differentiated supply chain strategy by channel.
For product categories, product channels, and target customers, develop an operating strategy that, when executed, makes your supply chain different from the rest.
Focus on long- and short-term profitability, liquidity, and growth.

12. Principles For Supply Chain Excellence
Organize your business unit around major processes or channels, not functions. Traditional “silos” separates work and interrupts flows which leads to inefficiency.
Work collaboratively with customers, suppliers, partners, and third parties to change the way operations perform, viewed, and measured. Extended supply chain.

13. Principles For Supply Chain Excellence
Invest/reinvest in supply chain information technology to manage flows end-to-end. IT should support both planning, analysis, and execution.
Invest/reinvest in supply chain knowledge, people, skills, and learning. Supply chain practice is relatively new. Change is a constant, with innovations and problems always occurring. Organizations must invest in ongoing training, mentoring, education, and feedback systems.

14. Principles For Supply Chain Excellence
Operate/manage by product/channel. Think in terms of product/service bundles that are sold through potentially different channels. Supply chains should be set up and driven by the characteristics of each channel.
Outsource parts of the chain for flexibility and better asset management. In many cases, functions can be performed better by third parties.

15. Principles For Supply Chain Excellence
Think globally…build regionally…operate locally. The best performing supply chains are managed with centralized planning, regional approaches, and local operations.
The most critical principle: Execution!!! Focus on it, measure it daily or real time, and give people the authority and accountability to excel at it.

16. Supply Chain Management Approach
Three items that flow through the supply chain:
Information
Money
Materials
Three areas of decision-making:
Processes
Logistics
Two types of tools:
Information Technology
Operational Analysis

17. 12 SCM Ground Rules 1. Build in flexibility.
Supply chain capacity(push things off your books).
Move fixed to variable costs.
More flexible production methods.
Improved information flows.
Use subcontractors, co-packing, outsourcing.
Operations capability.
Management’s will to change.

18. 12 SCM Ground Rules - continued
2. Plan and measure accurately.
Total cost approach – true margins, profitability by customer segment.
Enterprise-wide planning – demand-driven and supply-aware; reduce cycle times; respond quickly(for high material cost industries).
Dashboard concept – 5 to 7 metrics in operational cost, time and response, margins, customer service.
Benchmark 1st internally, then expand

19. 12 SCM Ground Rules - continued
3. Develop logistically separate operations /supply chains where appropriate.
Entities: suppliers, manufacturers, distributors, freight forwarders, contract carriers, 3rd-party warehousing, 3rd-party logistics partners, 3rd-party maintenance, financing companies, import/export/customs brokers.
Fulfillment channels: direct-home, direct-business, retailers, value-added resellers, mass merchandisers, OEMs, service centers, integrators.
Order conduits that impact process: fax, Internet, phone, sales force, POS orders, EDI, .

20. 12 SCM Ground Rules - continued
4. Get lean by emphasizing simplicity and speed. Value Stream Map Current & Future States
Reduce uniqueness (parts, designs, suppliers, processes) and variety(transportation resources, parts suppliers).
Reduce cycle times and maximize inventory velocity. Key: information.
Understand where value is captured and eliminate non-value

21. 12 SCM Ground Rules - continued
5. Optimize Information.
Focus on Time to Benefit and Decision Support. ERP? Multiple smaller systems?
Take ownership of Customer Information. Most untapped: not articulated needs.
Replace assets with Information. E.g. inventory are moved several times before reaching final destination. Replace physical movement with digital movement of customer and product information.

22. 12 SCM Ground Rules - continued
6. Treat customers unequally: Segment and Stratify. No unnecessary excellence.
7. Operate Globally.
Economic, time, tax differences.
8. Practice Virtuality (partnering) and Collaborative Manufacturing/Management.
Virtuality – attempt to gain scale.
Requires more management, not less.

23. 12 SCM Ground Rules - continued
9. Exploit Electronic Commerce.
Collapsing supply chain levels. E.g. distribution channel.
New channel: many-to-many. Supply Web – key customers can have communities of suppliers; collaboratively plan, forecast, replenish on a real-time(or near real-time) basis.
Valued-based differentiation – add value along product, information, process. master channel managers.

24. 12 SCM Ground Rules - continued
10. Leverage People.
11. Operationalize New Product Introductions and Phaseouts.
12. Mass Customize and Postpone.
Commodities vs. highly customizable products.
Downstream flexibility.
E.g. HP printers. Automobile. Amazon.

25. Performance Measurement: Operational
1. Throughput
the rate at which money is generated by the system through sales: O2C
2. Inventory
all the money that the system has invested in purchasing things it intends to sell
3. Operating Expenses
all the money that the system spends to turn inventory into throughput 6

27. Inventory: Bullwhip Effect
Quantity
Order
Time
Retailer’s Orders
Wholesaler’s Orders
Manufacturer’s Orders
The magnification of variability in orders in the supply-chain.
A lot of retailers each with little variability in their orders….
…can lead to greater variability for a fewer number of wholesalers, and…
…can lead to even greater variability for a single manufacturer.

28. Minimizing Waste: Inventory Hides Problems
Work in
process
queues
(banks)
Change
orders
Engineering design
redundancies
Vendor
delinquencies
Scrap
Design
backlogs
Machine
downtime
Decision
Inspection
Paperwork
backlog
Example: By identifying defective items from a vendor early in the production process the downstream work is saved.
Example: By identifying defective work by employees upstream, the downstream work is saved.

29. Cost Minimization Goal
Ordering Costs
Holding
Costs
QOPT
Order Quantity (Q) C O S T
Annual Cost of
Items (DC)
Total Cost
By adding the item, holding, and ordering costs together, we determine the total cost curve, which in turn is used to find the Qopt inventory order point that minimizes total costs.

30. ABC Classification System
Items kept in inventory are not of equal importance:
dollars invested
profit potential
$ volume
stock-out penalties 30 60 A B C
% of
$ Value
Use
So, identify inventory items based on percentage of total dollar value, where “A” items are roughly top 15 %, “B” items as next 35 %, and the lower 65% are the “C” items.

31. Production Costs Average unit cost of output Under Utilization
Over Utilization
Best Operating
Level
Volume

32. Economies & Diseconomies of Scale
100-unit
plant
200-unit
300-unit
400-unit
Volume
Average
unit cost
of output
Economies of Scale and the Experience Curve working
Diseconomies of Scale start working

33. Rule: Bottlenecks govern both throughput and inventory in the system.
Saving Time
What are the consequences of saving time at each process?
Bottleneck
Nonbottleneck
Rule: Bottlenecks govern both throughput and inventory in the system.
Rule: An hour lost at a bottleneck is an hour lost for the entire system.
Rule: An hour saved at a nonbottleneck is a mirage. 17

34. Waste in Operations (1) Waste from overproduction
(2) Waste of waiting time
(3) Transportation waste
(4) Inventory waste
(5) Processing waste
(6) Waste of motion
(7) Waste from product defects

35. Design for Manufacturability
Traditional Approach
“We design it, you build it” or “Over the wall”
Concurrent Engineering
“Let’s work together simultaneously”

36. Designing for the Customer: Quality Function Deployment
Interfunctional teams from marketing, design engineering, and manufacturing
Voice of the Customer
House of Quality

37. Measuring Product Development Performance
Time-to-market
Productivity
Quality

38. Quality Specifications
Design quality: Inherent value of the product in the marketplace
Dimensions include: Performance, Features, Reliability, Durability, Serviceability, Response, Aesthetics, and Reputation.
Conformance quality: Degree to which the product or service design specifications are met

39. Internal Failure Costs
Costs of Quality
External Failure
Costs
Appraisal Costs
Prevention Costs
Internal Failure Costs
Costs of
Quality

40. Example: Pareto Analysis
Can be used to find when 80% of the problems may be attributed to 20% of the
causes.
80%
Frequency
Design
Assy.
Instruct.
Purch.
Training
Other

41. Performance Measurement: Financial
Net profit
an absolute measurement in dollars
Return on investment
a relative measure based on investment
Cash flow
a survival measurement 5

42. Formulas for Measuring Supply-Chain Performance
Inventory Turnover =
Cost of goods sold
Average aggregate inventory value
Weeks of Supply = 52 Weeks
Average aggregate inventory

43. The Context of E-Ops Business Model Operations
“How we make our money?”
Operations
“How do we manage production of the product or service?”
Information System Architecture
“The set of tools used to support processes.”

44. Business Web Models B-Web Model Example Marketplace Ebay Aggregator
E-Trade
Alliance
AOL
Value Chain
Dell Computers
Distributive Network
UPS

45. Traditional vs. Electronic Commerce Purchasing
Process Step Traditional Electronic Commerce
Acquire product information
Magazines, flyers, online catalogues
Web pages
Send order
Fax, mail
, Web pages
Check inventory at warehouse
Printed form, phone form
Online database, Web pages
Buyer sends payment
Mail
EDI

46. The Shape of Things to Come
Old Model
Plan – Execute - Plan
I2, Manugistics, Oracle, SAP
New Model
Plan – Execute – Measure - Plan
I2, Manugistics, Oracle, SAP, SeeCommerce