1. Extending the Organization – Supply Chain Management (SCM)
Chapter 10
Extending the Organization – Supply Chain Management (SCM)
CLASSROOM OPENER
GREAT BUSINESS DECISIONS – Michael Dell Decides to Sell PCs Directly to Consumers and Built-to-Order
Michael Dell decided that to be successful in the PC business and to gain a significant competitive advantage he would bypass the dealer channel through which personal computers were being sold. Dell developed and deployed their own channel for manufacturing and selling PCs. This personal channel eliminated the reseller markups and large inventory expenses and allowed Dell to operate with lower costs than anyone in the industry, which led to higher profit margins.
Michael Dell understood that consumers were getting smarter and that customer service abilities were becoming more sophisticated. Beginning with telephone sales, and then moving to Internet sales, Dell bypassed retailers and targeted corporate accounts. Dell understood that tailoring products to meet specific requirements of large accounts could be accomplished not only more cheaply, but also more effectively without an intermediary.
Dell boasts sales of $12.3 billion and is the world’s number one direct-sales computer vendor. The company’s Web site currently generates over half of its orders. Everybody in the industry is trying to imitate Dell’s strategy.
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2. Learning Outcomes
List and describe the components of a typical supply chain
Describe the four factors driving supply chains
Summarize the best practices for implementing successful supply chain management system
10.1 List and describe the components of a typical supply chain
The components of a typical supply chain include:
Supplier’s supplier, Supplier, Manufacturer, Distributor, Retailer, Customer, Customer’s Customer
10.2 Define the relationship between decision making and supply chain management
SCM enhances decision making. Collecting, analyzing, and distributing transactional information to all relevant parties, SCM systems help all the different entities in the supply chain work together more effectively. SCM systems provide dynamic holistic views of organizations. Users can “drill down” into detailed analyses of supply chain activities in a process analogous to DSS. Without SCM systems, organizations would be unable to make accurate and timely decisions regarding their supply chain.
10.3 Describe the four changes resulting from advances in IT that are driving supply chains
Although people have been talking about the integrated supply chain for a long time, it has only been recently that advances in information technology have made it possible to bring the idea to life and truly integrate the supply chain. Visibility, consumer behavior, competition, and speed are a few of the changes resulting from advances in information technology that are driving supply chains
10.4 Summarize the best practices for implementing a successful supply chain management system
The following are the SCM industry best practices:
Make the sale to suppliers - A large part of any SCM system extends beyond the organization to the suppliers. Since the organization has very little control over anything external to itself, these pieces are typically the most complicated. Be sure suppliers are on board with the benefits that the SCM system will provide to ease SCM implementation difficulties.
Wean employees off traditional business practices - If the organization cannot convince people that using the SCM software is worthwhile, the employees will probably find a way around using the software.
Ensure the SCM system supports the organizational goals - Be sure to select SCM software that supports organizational goals and strategies
Deploy in Incremental phases and measure and communicate success - Designing the deployment of the SCM system in incremental phases is the most successful deployment method. The BIG BANG approach – implementing everything at once – fails 90 percent of the time.
Be future oriented - An SCM system, like all systems, must scale to meet future demands.

3. Chain is a misleading word. Supply chain is a network.
SCM
Chain is a misleading word. Supply chain is a network.

4. What Is a Supply Chain? Network of organizations and facilities
Transforms raw materials into products delivered to customers
Works with companies and consumers up and down the chain
Customers order from retailers
Retailers order from distributors
Distributors order from manufacturers
Manufacturers get raw materials from suppliers
Transportation companies, warehouses, and inventories also involved

5. Basics of Supply Chain

6. Supply Chain Relationships
Figure CE12-1

7. Case: Nike’s Supply Chain

8. Sample Supply Chain: REI
Customer is the only source of revenue

9. Supply Chain Management
Traditional SCM thinking involved “I buy from my suppliers, I sell to my customers.”
Today, organizations gain value from having visibility throughout their supply chain
Best Buy checks inventory levels at each of its 750 stores across North America as often as every half-hour
This chapter takes a look at extending an organization through SCM and discusses:
The reasons for SCM’s explosive growth
Using SCM to enhance decision making
SCM success factors
Traditional SCM thinking involved “I buy from my suppliers, I sell to my customers.”
Today, organizations are quickly realizing the tremendous value they can gain from having visibility throughout their supply chain
Knowing immediately what is transacting at the customer end of the supply chain, instead of waiting days or weeks for this information to flow upstream, allows the organization to react immediately
Best Buy checks inventory levels at each of its 750 stores across North America as often as every half-hour

10. Supply chain management
1. Share data and information to create visibility
2. Interact to match expectations
3. Synchronize resources and processes to perform as one
Outsourcing Partner
Suppliers
Customers
My Company

11. Basics of Supply Chain The supply chain has three main links:
Materials flow from suppliers and their “upstream” suppliers at all levels
Transformation of materials into semi-finished and finished products through the organization’s own production process
Distribution of products to customers and their “downstream” customers at all levels
Collecting, analyzing, and distributing transactional information to all relevant parties, SCM systems help all the different entities in the supply chain work together more effectively
SCM has significantly improved companies’ forecasting abilities over the last few years
Businesses today have access to modeling and simulation tools, algorithms, and applications that can combine information from multiple sources to build forecasts for days, weeks, and months in advance

12. 5 SCM Components
Best Buy checks inventory levels at each of its 750 stores in North America as often as every half-hour with its SCM system, taking much of the guesswork out of inventory replenishment
Supply chain management improves ways for companies to find the raw components they need to make a product or service, manufacture that product or service, and deliver it to customers
Plan – This is the strategic portion of supply chain management. A company must have a plan for managing all the resources that go toward meeting customer demand for products or services. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less, and delivers high quality and value to customers.
Source – Companies must carefully choose reliable suppliers that will deliver goods and services required for making products. Companies must also develop a set of pricing, delivery, and payment processes with suppliers and create metrics for monitoring and improving the relationships.
Make – This is the step where companies manufacture their products or services. This can include scheduling the activities necessary for production, testing, packaging, and preparing for delivery. This is by far the most metric-intensive portion of the supply chain, measuring quality levels, production output, and worker productivity.
Deliver – This step is commonly referred to as logistics. Logistics is the set of processes that plans for and controls the efficient and effective transportation and storage of supplies from suppliers to customers. During this step, companies must be able to receive orders from customers, fulfill the orders via a network of warehouses, pick transportation companies to deliver the products, and implement a billing and invoicing system to facilitate payments.
Return – This is typically the most problematic step in the supply chain. Companies must create a network for receiving defective and excess products and support customers who have problems with delivered products.

13. Basics of Supply Chain
Plan – This is the strategic portion of supply chain management. A company must have a plan for managing all the resources that go toward meeting customer demand for products or services. A big piece of planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less, and delivers high quality and value to customers.
Source – Companies must carefully choose reliable suppliers that will deliver goods and services required for making products. Companies must also develop a set of pricing, delivery, and payment processes with suppliers and create metrics for monitoring and improving the relationships.
Make – This is the step where companies manufacture their products or services. This can include scheduling the activities necessary for production, testing, packaging, and preparing for delivery. This is by far the most metric-intensive portion of the supply chain, measuring quality levels, production output, and worker productivity.
Deliver – This step is commonly referred to as logistics. Logistics is the set of processes that plans for and controls the efficient and effective transportation and storage of supplies from suppliers to customers. During this step, companies must be able to receive orders from customers, fulfill the orders via a network of warehouses, pick transportation companies to deliver the products, and implement a billing and invoicing system to facilitate payments.
Return – This is typically the most problematic step in the supply chain. Companies must create a network for receiving defective and excess products and support customers who have problems with delivered products.

14. Information Technology’s Role in the Supply Chain
Factors Driving SCM
Information technology – only recently have advances in IT made it possible to bring the idea of a truly integrated supply chain to life
Visibility – more visible models of different ways to do things in the supply chain have emerged. High visibility in the supply chain is changing industries, as Wal-Mart demonstrated
Consumer behavior – companies must respond to demanding customers through supply chain enhancements
Competition – increased competition makes any organization that is ignoring its supply chain at risk of becoming obsolete
Speed – as the pace of business increases through electronic media, an organization's supply chain must respond efficiently, accurately, and quickly

15. Visibility
Supply chain visibility – the ability to view all areas up and down the supply chain in real time
Bullwhip effect – occurs when distorted product demand information passes from one entity to the next throughout the supply chain- More appears at the end of this presentation
Supply chain visibility allows organizations to eliminate the bullwhip effect
Visibility – more visible models of different ways to do things in the supply chain have emerged. High visibility in the supply chain is changing industries, as Wal-Mart demonstrated
Supply chain visibility allows organizations to eliminate the bullwhip effect
To explain the bullwhip effect to your students discuss a product that demand does not change, such as diapers. The need for diapers is constant, it does not increase at Christmas or in the summer, diapers are in demand all year long. The number of newborn babies determines diaper demand, and that number is constant.
Retailers order diapers from distributors when their inventory level falls below a certain level, they might order a few extra just to be safe
Distributors order diapers from manufacturers when their inventory level falls below a certain level, they might order a few extra just to be safe
Manufacturers order diapers from suppliers when their inventory level falls below a certain level, they might order a few extra just to be safe
Eventually the one or two extra boxes ordered from a few retailers becomes several thousand boxes for the manufacturer. This is the bullwhip effect, a small ripple at one end makes a large wave at the other end of the whip.

16. Consumer Behavior
Companies can respond faster and more effectively to consumer demands through supply chain enhances
Demand planning software – generates demand forecasts using statistical tools and forecasting techniques
Once an organization understands customer demand and its effect on the supply chain it can begin to estimate the impact that its supply chain will have on its customers and ultimately the organizations performance

17. Competition
Supply chain planning (SCP) software– uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain while reducing inventory.
Supply chain execution (SCE) software – automates the different steps and stages of the supply chain
SCP and SCE both increase a company’s ability to compete
SCP and SCE both increase a company’s ability to compete
SCP depends entirely on information for its accuracy
SCE can be as simple as electronically routing orders from a manufacturer to a supplier

18. Competition
SCP and SCE in the supply chain

19. Speed Why is information speed critical in a supply chain?
If the information arrives three days late, chances are high that managers have already made decisions based on current information that might have been inaccurate
Information timeliness is critical
IT is an enabler of information timeliness
Digital dashboards
Why is information speed critical in a supply chain?
If the information arrives three dates late, chances are high that managers have already made decisions based on current information that might have been inaccurate
Information timeliness is critical
IT is an enabler of information timeliness
CLASSROOM EXERCISE
Designing a Digital Dashboard for an SCM System
Digital dashboards offer an effective and efficient way to view enterprisewide information at near real-time. According to Nucleus Research, there is a direct correlation between use of digital dashboards and a company’s return on investment (ROI), hence all executives should be using or pushing the development of digital dashboards to monitor and analyze organizational operations.
Break your students into groups and ask them to develop a digital dashboard for the CEO of a transportation company. Be sure your students have addressed all of the following in their digital dashboard:
Inventory
Materials
Demand/Supply
Sales
Supplier’s supplier
Supplier
Manufacturer
Distributor
Retailer
Customer
Customer’s Customer

20. Today’s Supply Chain Reality
Increased outsourcing
Large global supply networks
Increased competition
Consumer driven
Lack of visibility reduces suppliers’ ability to handle variability
Errors in manual filling processes can cause stock-outs
All of these issues can increase costs, lower customer service and reduce revenue

21. Case Study: Dell’s SCM
Dell sells its computer systems directly to end customers, bypassing distributors and retailers (resellers). Dell's supply chain consists of only three stages— the suppliers, the manufacturer (Dell), and end users.
Dell’s direct contact with customers allows it to:
properly identify market segments,
analyze the requirements and profitability of each segment, and
develop more accurate demand forecasts.
Another Dell’s advantage is that it is able to get the customers requirements regarding software to be loaded

22. Supply Chain Management Success Factors
SCM industry best practices include:
Be sure suppliers are on board with the SCM benefits
Wean employees off traditional business practices
Ensure the SCM system supports the organizational goals
Be future oriented- scale to meet future demands
Studying industry best practices is an excellent way to improve SCM implementation success
A large part of any SCM system extends beyond the organization to the suppliers. Since the organization has very little control over anything external to itself, these pieces are typically the most complicated to build, develop, and implement. Be sure suppliers are on board with the benefits that the SCM system will provide to ease SCM implementation difficulties
If the organization cannot convince people that using the SCM software is worthwhile, the employees will probably find a way to continue performing their job without using the software
Be sure to select SCM software that supports organizational goals and strategies
Designing the deployment of the SCM system in incremental phases is the most successful deployment method. The BIG BANG approach – implementing everything all at once – fails 90 percent of the time
An SCM system, like all systems, must scale to meet future demands

23. SCM Success Stories
Top reasons why more and more executives are turning to SCM to manage their extended enterprises

24. SCM Success Stories CLASSROOM EXERCISE Driving SCM
Break your students into groups and ask them to research each of the above companies and how they are using SCM to drive their business operations
Have your students present their findings to the class

25. The Bullwhip Effect
The bullwhip effect occurs when distorted product demand information passes from one entity to the next throughout the supply chain.

26. The Bullwhip Effect
The bullwhip effect is the magnification of demand fluctuations, not the magnification of demand. The bullwhip effect is evident in a supply chain when demand increases and decreases. The effect is that these increases and decreases are exaggerated up the supply chain.

27. Example: Diapers
Babies use diapers at a very predictable rate, and retail sales resemble this fact. Information is readily available concerning the number of babies in all stages of diaper wearing. It is observed that this product with uniform demand created a wave of changes up the supply chain due to very minor changes in demand.

28. The Bullwhip Effect Example: Diaper order from retailer:
Retailer waits until the inventory falls below ceratin level and then reorder + a few more
The same process applied to distributors and also to the manufacturer
Small change in demand is amplified at each stage of SC and becomes quite large at the end of the chain creating a ripple effect.

29. The Bullwhip Effect

30. The Bullwhip Effect
It can be seen that the Distributor orders to the factory experience demand fluctuate far more drastically than the retail demand.

31. The Bullwhip Effect

32. Some reasons for the effect
Over-reacting to the backlog orders.
Little or no communication between supply chain partners.
Delay times between order processing, demand, and receipt of products.
Limitations on order size (i.e. retailers can order products in cases of 10 from wholesaler; however, distributors receive orders in cases of 1,000)
Inaccurate demand forecasts.

33. Solution to Bullwhip Effect
Implement an effective SCM for greater visibility across the supply chain
Eliminate effect by giving participants access to consumer-demand information
Interorganizational information systems share data

34. RFID tag & SCM Radio Frequency Identification
Tiny tags that carry large amount of data tracking
Supply Chain around the globe are being revamped with RFID tags.
Walmart (US) has been using this for several years [cost 40 cents per tag]

35. RFID IBM COMMERCIAL

36. Demo
Bullwhip Fun Demo

37. SCM Demos Supply Chain Management For A Better World
Information Technology in Wal-Mart
Xbox supply chain (4 min)
Supply Chain Case Study ( 9 Min)

38. SAP- SCM Demo
SAP SCM Demo
RFID Supply Chain Simulation Movie