Logistics and Supply Chain Management

Term 6: November 26, 2012 to January 06, 2013 Milind Sohoni email: milind_sohoni@isb.edu Extension: x7140 Office: #4105 Class Time Mon/Wed, As per ASA schedule Office Hours: By e-mail appointments TA: Neha Singhi (neha_singhi@isb.edu) Praveen JN (praveen_jn@isb.edu)

Supply Chain Management Lecture Schedule

Class 1

Day/ Date Mon 26, Nov Thu 29, Nov

Discussion topics Introduction to SCM 1. C&M chapters 1,2, and 3 2. HBS Case: Seven Eleven Japan (# KEL026, S. Chopra) Designing the supply chain network and dealing with uncertainty 1. C&M chapters 5 and 6 2. Applichem (A) (HBS # 9-685-051) Inventory management 1 1. C&M chapters 10 and 11 Inventory management 2 1. C&M chapter 12 Responsive supply chains Supply chain simulation game Supply chain coordination Supply chain contracts and incentives 1. C&M chapter 17 2. Introduce supply chain game Managing transportation, cross-docking and Course wrap up 1. C&M chapter 13 2. HBS Case: Merloni Elettrodomestici SpA (HBS 9-690003) 3. HBS Case: Exel - SCM at Haus Mart (HBS 9-605-080) Strategic sourcing, supply chain game, dabbawallahs, and course wrap up Final Exam as per PGP schedule

Submission (before class)

3 4 5 6 7 8

Mon Dec, 3 Wed Dec, 5 Mon Dec, 10 Wed Dec, 12 Mon Dec, 17 Wed Dec, 19 Mon Dec, 24

Alko Sport Obermeyer (HBS 9-695-022)

HBS case: Barilla Spa (A) (HBS 9-694046)

10

Wed Dec, 26

Report on your supply chain game

Supply Chain Management

Course Description and Objectives

Supply chain management is unique and, to some degree, represents a paradox because it is concerned with one of the oldest and also the most newly discovered activities of business. Supply chain system activities communication, inventory management, warehousing, transportation, and facility location - have been performed since the start of commercial activity. It is difficult to visualize any product that could reach a customer without logistical support. Yet it is only over the last few years that firms have started focusing on logistics and supply chain management as a source of competitive advantage. There is a realization that no company can do any better than its logistics system. This becomes even more important given that product life cycles are shrinking and competition is intense. Logistics and supply chain management today represents a great challenge as well as a tremendous opportunity for most firms. Another term that has recently appeared in the business jargon is demand chain or value chain. From our perspective we will use the phrases logistics management, supply chain management, and demand chain management interchangeably. In this course we will view the supply chain from the point of view of a general manager. Logistics and supply chain management is all about managing the hand-offs in a supply chain - hand-offs of either information or product. The design of a logistics system is critically linked to the objectives of the supply chain. Our goal in this course is to understand how logistical decisions impact the performance of the firm as well as the entire supply chain. The key will be to understand the link between supply chain structures and logistical capabilities in a firm or supply chain.

Grading
Submission cases will account for 40% of the grade. There will be three full case write-ups due during the term. Each case write up is due in groups. Please read the section on Guidelines for Written Case Analyses and try to structure your reports accordingly. Cases must be submitted before class begins -- by 9:00 a.m. on the day it is due. Groups are your regular case-groups during the elective term -- at most 5 students per group. All members of the group must be in the same section. Discussion cases: There are 5 (five) in-class discussion cases. Each team must submit a 3/4th page short write-up by 8:00 a.m. on the day of the class. The one-page write-up must clearly specify the teams recommendations (based on the questions posed in the case pack/syllabus). Failure to do so will result in deduction of class participation points. I will call on any team to come and defend their analysis during class. All the teammembers should be conversant with the case analysis. Supply chain game report: Each group will be required to play an online supply chain simulation game and develop a report on how they made their decisions and their final outcomes. The game will be played outside the classroom. Instructions on how to play the game will be provided by class 7. The reports will be due in the last class. The groups will be evaluated on how they perform in the game (the net profit the team makes and how the board members of the firm evaluate their performance) and how they explain their strategies in the report. Global supply chain management simulation: http://cb.hbsp.harvard.edu/cb/web/product_detail.seam?E=37737&R=6107-HTM-ENG&conversationId=594185

Supply Chain Management

Class Participation will account for 20% of the grade. Your grade will depend on your preparation of the assignments and the quality of your contribution. Generally, you should contribute to the creation of a positive learning environment. Some key characteristics of valuable contributions are: Relevance: Are your comments timely and linked to the comments of others? Advancement: Do your comments take the discussion farther or deeper than previous comments? Fact-based: Have you used specific data to support the assertions that you are making? Logic: Is your reasoning consistent and logical? Originality: Do your comments merely restate the facts or do they provide new insights? There will be enough opportunities for you to participate. To increase opportunities for effective participation, I will occasionally cold call students. Please leave your name card up for the entire duration of each class and keep the same seat for the duration of the term. Grade Component Submission cases (3 full) Class participation End-term Exam Supply chain game report Individual/Group Group Individual Individual Individual/Group Weight 40 % (Alko: 12%, Barilla: 13%, Sport Obermeyer: 15%) 20 % 30 % 10 %

Learning Goals
In addition to the aforementioned course objectives, this course has been designed to achieve the following learning goals: Critical and Integrative Thinking: As part of the course students are expected to analyze various business situations (for example business situations described in case assignments) and apply the conceptual frameworks discussed in class to arrive at possible solutions. Students will be able to identify problems, analyze data, build analytical models of business situations and develop the ability to derive managerial insights through such qualitative and quantitative analyses. Assessment: Case assignment (Sport Obermeyer) and the online supply chain game report. Interpersonal Awareness and Working in Teams and Effective Oral Communication: As part of the term project and case assignments, students will learn how to work in teams to develop their recommendations. They will also learn technical writing skills while developing their project report and case submissions and effective oral communication skills during class participation and project presentations. Assessment: Class participation and term project.

Supply Chain Management

Attendance Policy: Attendance for the course is strongly recommended and each student is expected to be present (and maintain classroom etiquette) for all the sessions of the module. Your class participation points depend on this. The honor code applies as follows: Submission cases may not be discussed with anyone outside your study group. It is extremely important and part of the honor code that each member of a group contributes to each case analysis of the group. If any individual has not contributed for a particular write-up, s/he should not append his/her name to the case report but submit a separate report his/her own. It will also be the groups responsibility to ensure that this happens. Only one written report will be due per group per assignment. However, as I have stressed, each member must contribute to the analysis leading to the report.

Course Materials and other Readings

Available at the campus bookstore: The recommended textbook is Supply Chain Management: Strategy, Planning, and Operations by S. Chopra and P. Meindl (C&M), 3rd or 4th Edition. Course home page: This page will guide you to all the downloadable files related to the course, in particular: Excel spreadsheets for submission cases (posted in the course of the term) Excel spreadsheets with examples that illustrate concepts discussed in C&M. Files with class overheads (posted in the course of the term). Links to other web locations that may be of interest to the class. I encourage you to inform me of interesting links so I can make them available to the entire class. In class: Lecture handouts and occasional supplementary readings will be distributed in class. Some other textbooks on the subject that may be of interest: 1. Modeling the Supply Chain by Jeremy F. Shapiro. 2. Designing and Managing the Supply Chain, 2nd Ed. by D. Simchi-Levi, P. Kaminsky, E. Simchi-Levi. 3. Business logistics Management by Ronald H. Ballou

Guidelines for Written Case Analyses

The reports are graded for both content and presentation. A good paper should clearly and succinctly state the recommendations in the first paragraph to provide the reader with a framework. (If a lengthy description of the recommendation seems necessary, append it to the report.) The remaining paragraphs should each present a major part of the rationale for the recommendation in terms of the desirable and undesirable consequences of adopting it. The rationale must consider capabilities that the logistics system under study needs to excel at, and how the current system either provides these capabilities or fails to provide them. Some common problems in preparing reports result from inadequate analysis. Analysis for a report is a time consuming and intellectually challenging task. Each case has a set of questions which are a guide to help you with the analysis however, you should not limit your analysis to narrowly answering these questions. The objective is to evaluate a complete range of alternatives and anticipate and discuss the full consequences of your recommendation. A good report is not a chronology of analysis, but a clearly articulated statement of recommendation and support. If there are options under consideration in the case that are rejected by you, a clear rationale for your decision should be provided. Facts stated in the case need not be restated unless used to make a point. I will assume that

Supply Chain Management

the most important issues are raised in the report and that all else is less important to the writer. Both desirable and undesirable consequences should be factually stated and supported. In the overall evaluation of the report the discussion of all consequences of the recommendation is of the greatest importance. You must clearly discuss how your recommendations aid in the development of capabilities that are important for the logistics system under study. As per the honor code, an individual should include his/her name on a report only if they have contributed to the analysis. The following table summarizes deadlines, submission and formatting guidelines. Written Case Analyses: Deadlines, Submission and Format Guidelines Written case analyses are due before the beginning of the class session (at the specified time) for which they are assigned. Late assignments are not acceptable - no credit will be given. Submit a hardcopy of your analysis one per group. Length & format: Typed, double-spaced and about 2 to 3 pages, not including appendices and exhibits. Exhibits need not be typed but should be neat and easy to understand.

Supply Chain Management

Lecture 1: Strategic Planning in Supply Chains

In this lecture we will discuss supply chain management and its importance to the success of a firm. We will discuss different views of a supply chain and raise a variety of supply chain related questions that need to be answered by any firm. Our goal is to develop a framework within which supply chain decisions may be analyzed and appropriate tradeoffs considered. We will define key performance measures for a supply chain and establish initial links to logistical drivers that a supply chain designer or manager may control. Supply chain decisions will be divided into three categories: strategic/design, planning, and operational. We start discussion on the issues involved in supply chain design. We will illustrate the strategic framework for supply chain decisions in the context of the Seven Eleven Japan case. Discussion Case: Seven Eleven Japan (# KEL026, S. Chopra). Readings: HBS Case: Seven Eleven Japan (# KEL026, S. Chopra) Chapters 1 3, C&M Recommended readings (after class): SMR article: Outcome-driven supply chains, 51(2), p. 33 (S. A. Melnyk) HBR article: What is the right supply chain for your product? (M. Fisher) HBR article: Meeting the challenge of disruptive change, 78(2), p. 66 (C. Christensen and M. Overdorf)

Lecture 2: Designing the Supply Chain Network and Dealing with Uncertainty
In this session we will discuss issues in designing a supply chain network under uncertainty. We will use the Applichem (A) case as the context for discussing network design. Please read the case. Discussion Case: Applichem (A) (HBS 9-685-051). Readings: C&M chapters 4, 5, and 6 HBS Case: Applichem (A) (HBS # 9-685-051) Spreadsheets: Location.xls, Applichem.xls HBR article: Making most of foreign factories, 75(2), p. 73 (K. Fedrows)

Lecture 3: Inventory Management 1 (Cycle inventory, Aggregation, and Quantity Discounts)

Supply Chain Management

We will begin our discussion on management of inventory in the supply chain to ensure fit with stated strategic objectives. Our first goal is to understand the buildup of cycle inventory and managerial actions that can improve supply chain performance in terms of cycle inventory. We will focus on the link between cycle inventory and pricing. We will review the basic EOQ model and its implications. Then, we will discuss the role of safety inventory. Specifically, we will discuss various measures of customer service such as cycle service level and fill rate. We will derive precise relationships between these customer service measures and safety inventory. We will then discuss various managerial levers for decreasing safety inventory. Our goal is to discuss strategies that allow a supply chain to provide high variety at reasonable costs. We will use the spreadsheet invex.xls for in class discussion. Readings: C&M Chapter 10 Spreadsheets: Invex.xls Review problem set on inventory management models

Lecture 4: Inventory Management 2 (Managing Uncertainty, Safety Stock, and Risk Pooling)
We will review the notion of risk pooling and its impact on supply chain inventories. In this context we will study inventory pooling by analyzing the ALKO case to identify various factors that affect the organization of inventories within the distribution system. The case illustrates the inventory, transportation, and facility tradeoffs when designing a supply chain. A key objective will be to understand the role of pooling inventories in the face of independent demands and how this understanding can be used strategically, as well as to improve operations. We will first revise concepts about the newsvendor model. Our ability to manage inventory effectively depends critically on uncertainty, supply lead times, and product life-cycles. In this context we will discuss the notion of mass customization, and the advantages of postponement. We will focus on perishable goods for this discussion. Submission case: Alko (Can be found in the course pack or in C&M) Readings: C&M Chapters 11 and 12 Note on ordering multiple products Spreadsheets: Multi-item.xls Note on postponement HBR article: Mass customization at Hewlett-Packard: The power of postponement (E. Feitzinger and H. Lee)

Lecture 5: Responsive Supply Chains 1 (Postponement and Accurate Response)

We will discuss issues related to accurate response, mass customization, quick response, and other sourcing decisions. We will also discuss the role that high cost, low cycle time suppliers can play for a firm that may be

Supply Chain Management

competing on low cost. To do so, we will begin by analyzing the Sport Obermeyer. Finally, we will develop the notion of tailored Purchasing based on the uncertainty of product demand and discuss its application across different product categories as well as for a single product. Submission case: Sport Obermeyer (HBS 9-695-022) Readings: C&M chapter 13 HBS Case: Sport Obermeyer (HBS 9-695-022) Recommended readings (After class): HBR article: Making supply meet demand in an uncertain world, 72(3), p. 83 (M. Fisher, J. Hammond, W. Obermeyer, and A. Raman) HBS case: Quick response in the apparel industry (HBS 9-690-038, J. Hammond and M. Kelley) HBR article: Rapid-fire fulfillment (K. Ferdows, M. Lewis, and J. Machuca)

Lecture 6: Issues in Supply Chain Coordination 1

Well play an in-class simulation game in class and begin understanding coordination issues in a supply chain. The game venue will declared during the first half of the course. After a de-brief session we will discuss issues with coordinating a supply chain.

Lecture 7: Issues in Supply Chain Coordination 2

We will continue our discussion related to incentives and lack of visibility in the supply chain. We will then discuss the response of supply chain partners to simple incentives and the impact this has on the supply chain using the Barilla case as a context. The causes discussed relate to incentives and lack of visibility in the supply chain. We will discuss the response of supply chain partners to simple incentives and the impact this has on the supply chain. We will then focus our attention on the role of intermediaries in a supply chain. We will also introduce the online supply chain simulation game in this class. You will play this game in your case groups outside class and create a report to be submitted in the last class. Submission case: Barilla SpA (A) (HBS 9-694-046) Readings: C&M chapter 17 HBS Case: Barilla Spa (A) case (HBS 9-694-046) Recommended readings (After class): SMR article: The bullwhip effect in supply chains (H. Lee, V. Padmanabhan, and S. Whang) HBR article: Fast, global, and entrepreneurial: Supply chain management, Hong Kong style, 76(5), p.102 (J. Magretta)

Supply Chain Management

Lecture 8: Designing Supply Chain Contracts and Incentives

We will begin our discussion with various supply chain contracts using stylized models to enhance our understanding of the coordination issues involved. We will then focus on various issues faced by a firm during selection of a supplier base and how should these be addressed. Readings: C&M chapter 14 HBR article: Turning the supply chain into a revenue chain (G. Cachon and M. Lariviere) HBR article: Coordination: An overview (HBS note 9-696-001) HBR article: Aligning incentives in supply chains, 32(11), p. 94 (V. G. Narayanan and A. Raman)

Lecture 9: Managing Transportation, Cross-Docking, and Transit Points

We will discuss the role of transportation in the supply chain and raise various tradeoffs involved in designing and operating a transportation network. We will discuss the different transportation modes available. We will motivate the link between transportation and inventory costs in the design of transportation networks. We will also consider different problems that are relevant when making transportation decisions. We will use the Merloni Elettrodomestici case to discuss the issue of transit points and cross docking. We will then use the SCM at Haus Mart case to study the issue of outsourcing. Discussion case: Merloni Elettrodomestici (HBS 9-690-003)

SCM at Haus Mart (HBS 9-605-080)

Readings: C&M chapter 13 HBS Case: Merloni Elettrodomestici SpA (HBS 9-690-003)

HBS Case: Exel - SCM at Haus Mart (HBS 9-605-080)

Lecture 10: Strategic sourcing and other issues

We will discuss issues related to strategic outsourcing and other issues related to modern day supply chains. We will also debrief the online supply chain simulation game and understand how decisions were made. Finally, we will wrap up the course. Submission report: Your report on the decisions you made and outcomes you achieved in the online supply chain simulation game. Readings: C&M chapter 13 HBR article: Strategic sourcing: From periphery to the core, 83(2), p. 132 (M. Gottfredson, R. Puryear, and S. Phillips) HBR article: The transparent supply chain, 88(10), p. 76 (S. New)

10