E4

A Strategic Framework for Supply Chain Management

[Chopra & Meindl] CH. 1-3

Prof. Anthony F. HAN

Prepared for EMBA Program School of Management, National Chiao Tung University

Outline
A supply chain strategy framework (Ch1)
y Two Process Views y Cycle View y Push/Pull View

(Ch1)
y y y

Achieving Strategic Fit and Scope (Ch 2) Supply Chain Drivers and Obstacles (Ch3)
y Trade-off Efficiency and Responsiveness

(Ch 2) (Ch3)
y

Flows in a Supply Chain

Product Information

Supplier

Cash/Funds (Transaction)*

Customer

[]: ; ; ;
3

Cycle View of A Supply Chain

Order Cycle (in general) -order transmission -order processing -order preparation -order shipping Cycle View (pp. 8-12) -Divide into (order) four cycles -Good for operational decisions

- - - - - -

Major Steps in Order Processing

Validation Configuration Pricing Credit Check Product Check
y ATP (Available to Promise) y CTP (Capable to Promise) --APS (Advanced Planning &
Scheduling) Can Help

/
y ATP () y CTP () --APS ()

Confirmation

Four Cycles of Supply Chain

Customer

Customer Order Cycle Retailer Replenishment Cycle Distributor Manufacturing Cycle Manufacturer Procurement Cycle Supplier
6

Prof. A. Han

WIP

FG

FG D R

WIP

Supply Chain Drawing

Push/Pull Process View /

Divide by OP (Order Penetration) point [Sharman] Push Process (Speculation) y Before OP point y Process in anticipation of customer orders Pull Process (Postponement) y After OP point y Process in response of customer orders Push/Pull View is good for strategic planning

OP () y OP y () y OP y ()
8

 Push and Pull View of A Supply Chain

- -Customer Order Cycle -Order Fulfillment() PULL PROCESSES

Procurement, Manufacturing and Replenishment cycles

PUSH PROCESSES

OP

Customer Order Arrives

OP Point
9

The Importance of Supply Chain Dells Success Quaker Oats Lesson

(p.17)

Dell
y 199417 Snapple y y y 1999300M .
10

y $1.7B bought Snapple in 1994.12. y Two distinct supply chains y Cant create synergy and SC value y Sold to Triarc about $300M 1997.~4.

Examples of Supply Chains

Micron Electronics: Direct Sales Manufacturing 7-Eleven: Convenience Store W.W. Grainger / McMasterCarr: MRO Toyota: Global Auto Manufacturer Amazon / Borders / Barnes and Noble What are some key issues in these supply chains? ---Very Good for Group discussion---

Micron Grainger / McMasterCarr

11

Strategic Fit of a Supply Chain

(Chapter 2)

()

Company Strategy: (mission/vision) y Define target customers to satisfy through its products and services Supply Chain Strategy MUST support Company/Corporate Strategy

(/) y y

12

Business (Competitive) Strategy

Examples: y Wal-Mart: Everyday Low Price; Product Variety y McMaster Carr: Nextday Delivery; Product Variety y Dell: Customization y Compaq: Availability y 7-Eleven: Convenience (Time/Place Utility)

y y McMaster Carr y Dell y Compaq y 7-Eleven (/)

13

How to Achieve Strategic Fit

1. Understanding the Customer 2. Understanding the Supply Chain 3. Make Strategic Fit 1. 2. 3.
14

Step 1: Understanding the Customer

Customer Demand Attributes

y y y y y y

Lot size Response time Service level Product variety Price Innovation

Implied Demand Uncertainty

15

Impact of Customer Needs

Price

Responsiveness

Customer Need

Detergent
Low

High Fashion
High

Implied Demand Uncertainty

Impact of Customer Needs on Implied Demand Uncertainty [Table 2.1 p.30]
16

Step 2: Understand the Supply Chain

Supply Chain (Performance) Attributes ()

y y y y y Response time Service level Product variety Price Innovation

Supply Chain Responsiveness

17

Cost-Responsiveness Efficient Frontier

Responsiveness

Showing highest possible cost-efficiency for a given responsiveness level

Upgrade by technology

Cost Efficiency

18

Step 3: Achieving Strategic Fit

Dell

Barillia

19

BarillaThe Choice of Italy

20

Strategic Positioning on the Frontier

21

14. Other Issues About Strategic Fit

Multiple products and customer segments Product life cycle Competitive changes over time Outsourcing and Alliances

22

Supply Chain Drivers and Obstacles

(Chapter 3)

()

Supply Chain Drivers

y Major Factors Impact SC Performance

Inventories Transportation Facilities Information

23

INVENTORY
Components of Inventory Decisions
y Cyclic (Periodic) Inventory y Safety Stock y Seasonal Inventory

y y y

Impact
y More inventory: higher costs, better responsiveness

24

TRANSPORTATION
Components of Transportation Decisions
y Mode: Air, Truck, Rail, Ship, Pipeline, Internet y Network Routing/Scheduling y In-house or Outsource

y y y

Trade-off
y Speed vs. Cost y Responsive (Customize) vs. Efficiency

y y

25

FACILITIES
Production/Storage Facilities Components of Facility Decisions
y Location y Capacity (Efficiency vs. Flexibility) y Manufacturing/Warehousin g Methodology 9 SKU Storage, Job Lot Storage 9 Cross-docking

y y y / 9SKU 9
26

INFORMATION
Key to connect SC stages Glue of SC process interface Information Decisions
y Forecasting; Aggregate Planning; Coordination and information sharing

Enabling Technologies
y EDI, Internet, ERP, SCM Software,

y EDI ERP

27

Components of Information Decisions

Push vs Pull
y Push requires information in form of MRP to take the Master production schedule and roll it back, creating schedules for suppliers with part types, quantities, delivery dates, y Pull system requires information on actual demand to be transmitted extremely fast through the entire supply chain so that production and distribution of parts and products can accurately reflect the real demand.

y MRP y

28

Considerations for Supply Chain Drivers

Responsiveness

Driver

Efficiency

Inventory Transportation Facilities Information

Cost of holding

Availability
Consolidation Speed

Proximity / Flexibility Consolidation / Dedicated /

What information is best suited for each objective

29

Supply Chain Decisions

Strategy (Design) Planning Operation

()

30

Strategic Structure SC Drivers:

Case of Wal-Mart (p.51)

Goal: Low-cost retailer w/wide variety SC Strategy: Efficiency also responsive Structure
Inventory- Crossdock (efficiency) Transportation- Own fleet (responsiveness) Facility- Centralized DC (efficiency) Information- ECR, POS, (efficiency /responsiveness)

ECRPOS ()
31

Major Obstacles to Achieving Fit

Multiple owners / incentives in a supply chain

Local optimization and lack of global fit Increasing product variety / shrinking life cycles / customer fragmentation

//

Increasing implied uncertainty

32

Tailored Logistics
A single supply chain will fail different customers on efficiency or responsiveness or both. Each Logistically Distinct Business (LDB) will have distinct requirements in terms of y Inventory y Transportation y Facility y Information
See Fisher, What the Right Supply Chain for your Product, Harvard Business Review, 1997.

LDB y y y y

33

Summary
Two views of a supply chain A strategic framework: Achieving fit Efficiency/Responsiven ess and Supply chain drivers Tailored logistics Yet to learn to overcome obstacles

34

Order Penetration Points [Sharman, 1984]

Supplier Engineer Fabricate Assemble Deliver Install Customers

Make standard product to plan Make standard modoles to plan Make parts to plan OP 3 Assembleand sell from stock of parts OP 2 Sell semicustomized system from stock

OP 1 Sell from stock

Small appliances

Computer systems

Wood fumiture

OP 4 Make to order

Marine diesels

OP 5 Design and make to order

Oil refineries

Stock points

Note: OP Point is where product specifications get frozen. (Boundary of Push and Pull)

(Apply OP Points to Improve the Supply Chain)

OP

ROUTES TO IMPROVEMENT (Sharman, 1984)

1. OP Point is where product specifications get frozen. ~Supply chain push/pull boundary 2. System Redesign: ( )
-Re-arrange OP points in the supply chain
OP OP OP ( ) OP 40%

3. System Rebalance ( )
(a) / (critical cost/service trade-off) (b)

RETURN 36

Wal-Mart Not Selling

[Dr. Roger Blackwell, 1997] After I spoke at one of Walmarts Saturday-morning meetings last year in Bentonville, Arkansas. One of the executives commented, We dont sell stuff, we buy stuff for consumers.

RETURN

37