Introduction to Supply Chain Management

Introduction to Supply Chain Management - Transcript

Chapter 1
Introduction to Supply Chain Management
McGraw Hill Irwin Copyright 2008 by The McGraw Hill Companies Inc All rights reserved

What Is a Supply Chain
Flow of products and services from
Raw materials manufacturers Intermediate products manufacturers End product manufacturers Wholesalers and distributors and Retailers

Connected by transportation and storage activities Integrated through information planning and integration activities Cost and service levels
1 2

1 1 What Is Supply Chain Management
Supply chain management is a set of approaches utilized to efficiently integrate suppliers manufacturers warehouses and stores so that merchandise is produced and distributed at the right quantities to the right locations and at the right time in order to minimize system wide costs while satisfying service level requirements
1 3

Two Other Formal Definitions
The design and management of seamless valueadded process across organizational boundaries to meet the real needs of the end customer Institute for Supply Management Managing supply and demand sourcing raw materials and parts manufacturing and assembly warehousing and inventory tracking order entry and order management distribution across all channels and delivery to the customer The Supply Chain Council

1 4

PC Industry Supply Chain
Tracing back the screen you stare at for the bulk of your time

1 5

Cisco s Value Network

1 6

SCM Definition
Material Flow

Supplier Source

Converter Distributor

Retailer

Converter Supplier Distributor End User

Consumers

Value Added Services Funds Demand Flow Information Flow Reuse Maintenance After Sales Service Flow
1 7

The SCM Network

FIGURE 1 1 The logistics network
1 8

Key Observations
Every facility that impacts costs need to be considered
Suppliers suppliers Customers customers

Efficiency and cost effectiveness throughout the system is required
System level approach

Multiple levels of activities
Strategic Tactical Operational

1 9

Other Related Observations
Supply chain strategy linked to the Development Chain Challenging to minimize system costs and maximize system service levels Inherent presence of uncertainty and risk

1 10

1 2 The Development Chain
Set of activities and processes associated with new product introduction Includes
product design phase associated capabilities and knowledge sourcing decisions production plans

1 11

1 2 The Development Chain

FIGURE 1 2 The enterprise development and supply chain
1 12

1 3 Global Optimization
Geographically dispersed complex network Conflicting objectives of different facilities Dynamic system
Variations over time Matching demand supply difficult Different levels of inventory and backorders

Recent developments have increased risks
Lean production Off shoring Outsourcing
1 13

Global Apparel Value Chain
Tracing back the dress you are wearing

1 14

1 15

Globally Dispersed Manufacturing
An Illustration How Li Fung Limited Might Make a Dress Product Design Hong Kong QC Shipping Hong Kong

Yarn Spinning Korea

Weaving Taiwan Zippers Japan

Stitching Indonesia

1 16

1 4 Uncertainty and Risk Factors
Matching Supply and Demand a Major Challenge
REASONS EXAMPLES
Boeing Aircraft s inventory writedown of 2 6 billion

Raw material shortages Internal and supplier parts
shortages Productivity inefficiencies

Sales and earnings shortfall Larger than anticipated inventories Stiff competition General slowdown in the PC
market

Sales at U S Surgical Corporation declined 25 percent resulting in a loss of 22 million Intel reported a 38 percent decline in quarterly profit EMC Corp missed its revenue guidance of 2 66 billion for the second quarter of 2006 by around 100 million
1 17

Higher than expected orders for new products over existing products

1 4 Uncertainty and Risk Factors
Fluctuations of Inventory and Backorders throughout the Supply Chain

FIGURE 1 3 Order variations in the supply chain

1 18

1 4 Uncertainty and Risk Factors
Forecasting is not a solution Demand is not the only source of uncertainty Recent trends make things more uncertain
Lean manufacturing Outsourcing Off shoring

1 19

1 4 Uncertainty and Risk Factors
August 2005 Hurricane Katrina
P G coffee supplies from sites around New Orleans Six month impact

2002 West Coast port strike
Losses of 1B day Store stock outs factory shutdowns

1999 Taiwan earthquake
Supply interruptions of HP Dell

2001 India Gujarat state earthquake
Supply interruptions for apparel manufacturers

1 20

1 5 Evolution of Supply Chain Management
Further Refinement of SCM Capabilities SCM Formation Extensions JIT TQM BPR Alliances Inventory Management Cost Optimization Traditional Mass Manufacturing

1950s

1960s

1970s

1980s

1990s

2000s

Beyond

1 21

Progression of Logistics Costs

FIGURE 1 4 Logistics costs share of the U S economy

1 22

Composition of Logistics Costs

FIGURE 1 5 Total U S logistics costs between 1984 and 2005
1 23

1 6 Complexity The Magnitude
U S companies spend more than 1 trillion in supplyrelated activities 10 15 of Gross Domestic Product
Transportation 58 Inventory 38 Management 4

The grocery industry could save 30 billion 10 of operating cost by using effective logistics strategies A typical box of cereal spends 104 days getting from factory to supermarket A typical new car spends 15 days traveling from the factory to the dealership

1 24

Complexity The Magnitude
Compaq computer s loss of 500 million to 1 billion in sales in one year
Laptops and desktops were not available when and where customers were ready to buy them

Boeing s forced announcement of write downs of 2 6b

Raw material shortages internal and supplier parts shortages

Cisco s multi billion 2 2b dollar write off of inventories in 2001 2002
Customers balked on orders due to market meltdown

1 25

Transactional Complexity
National Semiconductors




Production Produces chips in six different locations four in the US one in Britain and one in Israel Chips are shipped to seven assembly locations in Southeast Asia Distribution The final product is shipped to hundreds of facilities all over the world 20 000 different routes 12 different airlines are involved 95 of the products are delivered within 45 days 5 are delivered within 90 days

1 26

PC Value Chain
Performance of Traditional PC Manufacturer

1 27

PC Value Chain Focus on Cost Reduction
Performance of Dell Computers

1 28

Magnitude of Supply Chain Costs
Cost Elements of a Typical Trade Book

1 29

Magnitude of Supply Chain Costs
Example The Apparel Industry
Cost per Shirt Percent Saving

Manufacturer

Distributor

Retailer

Customer

52 72

0

Manufacturer

Distributor

Retailer

Customer

41 34

28

Manufacturer

Distributor

Retailer

Customer

20 45

62

1 30

Supply Chain The Potential
P G s estimated savings to retail customers of 65 million through logistics gains Dell Computer s outperforming of the competition in terms of shareholder value growth over more than two decades by over 3 000 using
Direct business model Build to order strategy

Wal Mart transformation into the world s largest retailer by changing its logistics system
highest sales per square foot inventory turnover and operating profit of any discount retailer

1 31

1 7 Key Issues in Supply Chain Management
Chain Global Optimization Managing Risk and Uncertainty

Distribution Network Configuration Inventory Control Production Sourcing Supply Contracts Distribution Strategies

Strategic Partnering
Outsourcing and Offshoring Product Design Information Technology Customer Value Smart Pricing

Supply Supply Supply Both Supply Development Development Development Supply Both Supply

Y Y Y Y Y Y Y Y Y Y Y Y

Y Y Y

TABLE 1 1 Key supply chain management issues

1 32

1 8 Book Objectives and Overview
Inventory management Logistics network planning Supply contracts for strategic as well as commodity components The value of information and the effective use of information in the supply chain Supply chain integration Centralized and decentralized distribution strategies Strategic alliances Outsourcing off shoring and procurement strategies International supply chain management Supply chain management and product design Customer value Revenue management and pricing strategies Information technology and business processes Technical standards and their impact on the supply chain

1 33

Software Packages
Computerized Beer Game Risk Pool Game Procurement Game

1 34

CASE Meditech Surgical
Intent diagnosis of supply chain Business overview Supply chain Production planning What s wrong How to fix it

1 35

Endoscopic Surgical Instruments
Permits minimally invasive surgery Market created in early 80 s rapidly growing Old products continually updated and replaced with new product introductions

1 36

Business Overview
National and Meditech split the market Compete based on product innovations customer service cost National sells to physicians Meditech sells to material managers Customer preferences change slowly

1 37

External Supply Chain
Hospitals

Domestic Dealers

Part suppliers

Meditech Assembly

Meditech Warehouse

Hospitals

Int l Meditech Affiliates
1 38

Internal Supply Chain
Parts Inventory Assembly Bulk Inventory Packaging Sterilization FG Inventory

2 16 weeks

2 weeks

1 week

1 39

Production Planning
Annual Forecast Monthly Revision Transfer Requirements Monthly Plan MRP

Parts Procurement Plan

Weekly Assembly Schedule
1 40

Monthly Plan

Production Planning
MRP

Material Plan

Order point Order quantity

Parts Inventory

Assembly

Bulk Inventory

Packaging Sterilization

FG inventory
1 41

What s Wrong
Poor service for new product introductions Poor forecasting Panic ordering And high FG inventory

1 42

What Is Going On
Demand is quite predictable Usage in hospitals is quite stable Market share moves slowly over time With each new product dealer must build inventory to fill pipeline

1 43

Why Did Meditech Think Demand Was Unpredictable
Poor information systems No one looked at demand No one had responsibility for forecast errors Tendency to shift the blame Built in delays and monthly buckets in planning system Amplifier in planning system
1 44

What to Do
Recognize that demand is stable and predictable Establish accountability for forecast Eliminate planning delays and or reduce time bucket Alternatively put assembly within pull system and eliminate bulk inventory

1 45