SCM Supply Chain Management

Week Four-Five

F Casafranca

2013

Whats New
Engineer by account demand visibility as close to source of demand as possible Allow SCM to manage (and intervene) in inventory flows the cant see and dont own Develop collaborative vision, metric, & processes with key accounts Develop costing systems that reflect horizontal S.C. processes
2

Whats New
(continued)

Think horizontally rather than vertically. Reduce transaction cost by trading information technology for transaction processing Align the firms internal & external business processes to focus on customer value delivery Utilize information technology as a learning/ teaching medium for all supply chain partners
3

- B. J. La Londe, The Ohio State University

A SHIFT IN CUSTOMER (BUYER) DEMAND TOWARD INTEGRATION AND CUSTOMIZATION

Highly Customised Solutions Customers

Level of Customisation

Customer Demand

Customer Demand Basic Services Stand Alone Services

Level of Integration

Highly Integrated Solutions

4

Source: Roger MacFarlane, CEO

SUPPLY CHAIN VALUE CREATION INVOLVES THREE PRODUCT/SERVICE FORMS

Core Product/Service Form
Efficiency Effectiveness Differentiation

Tangible Product/Service Form

Transportation Warehousing Cross-Docking Freight Forwarding etc.

Value-Added Product/Service Form

Visibility Information Technology Order Fulfillment Network Solutions etc.
5

SUPPLY-DEMAND MISALIGNMENT: THE NEED FOR DEMAND MANAGEMENT

Channel Orders True End Customer Demand Channel Fill and Phantom Demand Over-Supply Real Shortage

Production Launch Date End of Life

Returns/ Cancellations

WHAT IS PROCESS MANAGEMENT?

Definition: Managing the use of an organizations resources to produce something of value.

PROCESS DESIGN
Types
Low 1. Project Process High

Volume of Output Capital Intensity

2. Job Process Batch Process 4. Line Process 5. Continuous Process High Low

Degree of Specialization customer involvement

PROCESS ALTERNATIVES
Outsourcing

Vertical Integration
Forward Vertical Integration Backward Vertical Integration Resource Flexibility Capital Intensity Customer Involvement

MANAGEMENT WORK STANDARDS

Establish standard costs and prices

Motivate workers
Comparing process designs Scheduling Inventory Management Capacity planning Timely performance appraisals

PROCESS DEVELOPMENT TOOLS & TECHNIQUES

Process Maps Mind Mapping Productivity

Yield Analysis
Cycle Times Brainstorming Activity Based Management (ABM)

INVENTORY MANAGEMENT
Managers job to balance conflicting costs and pressures between low and high inventories
Inventory holding cost/carrying costs Variable Interest Storage Handling Taxes Insurance Shrinkage

Pressure for High Inventory includes

Customer Service Ordering Cost Setup Cost Utilization (labor & equipment) Transportation Supplier related expenses

INVENTORY SYSTEM DEFINED

Inventory is the stock of any item or resource used in an organization and can include: raw materials, finished products, component parts, supplies, and work-inprocess An inventory system is the set of policies and controls that monitor levels of inventory and determines what levels should be maintained, when stock should be replenished, and how large orders should be

PURPOSES OF INVENTORY
To maintain independence of operations

To meet variation in product demand

To allow flexibility in production scheduling To provide a safeguard for variation in raw material
delivery time

To take advantage of economic purchase-order size

INVENTORY COSTS
Holding (or carrying) costs
Costs for storage, handling, insurance, etc

Setup (or production change) costs

Costs for arranging specific equipment setups, etc

Ordering costs
Costs of someone placing an order, etc

Shortage costs
Costs of canceling an order, etc

INVENTORY SYSTEMS
Single-Period Inventory Model
One time purchasing decision (Example: vendor selling t-shirts at a football game) Seeks to balance the costs of inventory overstock and under stock

Multi-Period Inventory Models

Fixed-Order Quantity Models

Event triggered (Example: running out of stock) Time triggered (Example: Monthly sales call by sales representative)

Fixed-Time Period Models

TYPES OF INVENTORY
Cycle Demand is regular and consistent Uses Lot Sizing (Q) Avg Cycle Inventory = Q/2 Safety Stock Protects against uncertainties in demand Firm places an order earlier than when needed Anticipation Stockpile during low demand periods for high demand Pipeline Orders placed, but not received yet Measured as avg demand during lead time Pipeline = Average Demand/Lead Time

LEVERS FOR REDUCING INVENTORY

Cycle
Streamline Order and Setup processes Increase work repeatability

Safety Stock
Improve demand forecasts Reduce lead times Reduce supply uncertainties Rely more on equipment and labor buffers (cross-train)

ECONOMIC ORDER QUANTITY (EOQ)

Assumes that:

Product demand is constant

No lot size constraints Only costs are holding and setup/ordering

Decisions are independent (cannot combine supplier orders)

No uncertainty in lead times

Lowest point on the Total Cost Curve

JUST-IN-TIME SYSTEMS
Definition: to eliminate waste by cutting unnecessary inventory and removing delays in operations.

CHARACTERISTICS OF JIT SYSTEMS

Employee involvement

Inventory reduction
Also known as:
Zero inventory

Stockless production
Lean production Synchronous manufacturing

Material as needed
Continuous flow manufacturing

JIT MATERIAL FLOW METHODS

Pull Method customer demand will activate production of the item(s). Push Method production of the item begins in advance of customer needs.

KANBAN CARD SYSTEM

Storage Area Fabrication Areas

Production Lines

Shows the flow of a Kanban card and storage box.

LINE FLOW STRATEGY

OWMM one worker, multiple machines - used for low volume of certain product Continuous Flow assembly line processing

"Profit is the payment you get when you take advantage of change "
- Joseph A. Schumpeter

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THE BALANCED SUPPLY CHAIN

COMPARISON OF HONDA AND CHRYSLER

Honda

Manages more suppliers in second- and third-tiers Supply network more complex Expends more corporate resources Takes less risk in supply chain stability Chrysler

Manages less suppliers in tertiary level

Supply network less complex Spends less corporate resources on supplier management Takes more risk in supply chain stability

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SUPPLY BASE
A group of suppliers within the reach of the visible hand of the focal company The portion of the supply network within the purview of the focal company Suppliers actively managed by the focal company Not all suppliers in the supply base are top-tier suppliers.

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FOCAL COMPANY AND ITS SUPPLY BASE

The Focal Company

Supply Base

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SUPPLY BASE MANAGEMENT

Number of Suppliers Number of current suppliers with enduring business relations Differentiation of Suppliers Degree of different characteristics among suppliers (e.g., culture, operating practices, etc.)

Links among Suppliers

Supplier-supplier relationships

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SUPPLY BASE MANAGEMENT AND PERFORMANCE IMPLICATIONS

+
Supply base management Number of Suppliers Differentiations Inter-Relationships

Transaction cost Supply risk Supplier responsiveness Supplier innovation

BALANCED SUPPLY TOOLS.

BASIC BUILDING BLOCKS

Buyer-Supplier Dyads

Supplier-Supplier Dyads
Buyer-Supplier-Supplier Triads

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BUYER-SUPPLIER DYADS
Competitive Adversarial

New Adversarial
Cooperative Information and resource sharing Common goals Deep Understanding Tough love

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SUPPLIER-SUPPLIER DYADS

Competitive Cooperative

Co-Opetitive (cooperative competition)

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COMPETITIVE SUPPLIER-SUPPLIER DYADS: FROM THE BUYERS PERSPECTIVE

Pros Maintaining leverage power Control of information exchange between suppliers Cons Lack of supplier synergy High administrative and transaction cost

36

COOPERATIVE SUPPLIER-SUPPLIER DYADS: FROM THE BUYERS PERSPECTIVE

Pros
Information and knowledge sharing Capacity flexibility

Cons
Potential for supplier collusion Forward integration by suppliers

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CO-OPETITIVE SUPPLIER-SUPPLIER DYADS: FROM THE BUYERS PERSPECTIVE

Pros Opportunity to gain advantage of both competitive and cooperative relationships Low supplier switching cost Cons Relationship uncertainty Risk of suppliers opportunistic behaviors

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TRIADS
The Real Fundamental Building Block Three States of Buyer-Supplier-Supplier Triads Balanced States

Unbalanced States
Structural Hole States

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BALANCED STATES AND UNBALANCED STATES

Buyer Buyer Buyer

+
S1

+
S2

S1

S2

+
S1

S2

+
Balanced State 1
Buyer Buyer

+
Balanced State 2
Buyer

Balanced State 3

+
S1

+
S2

+
S1

S2

S1

S2

Unbalanced State 1

+
Unbalanced State 2

Unbalanced State 3
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CLASS EXERCISE
Form into Three teams and discuss:

-Team A: The concept of Focal Base and Supply Base Management

-Team B: The concept of DIADS and their type of relationships -Team C: The concept of TRIADS and their type of relationships

-Team D: The six Balanced and Unbalanced states for TRIADS

Please provide an example using a Family or friendship relationships

Be ready to present in 10 minutes.

QUESTIONS??