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8/19/2017 Supply Chain Management_Janat Shah
The Supply Chain Network
Transportation Transportation
Material Costs Costs Costs Transportation
Manufacturing Costs Inventory Costs Costs
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Supply Chain Processes
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Supply Chain Management: Success Stories
Dell: Inventory turn-over ratio of 58.7 compared to industry
average of 12 (Net Profitability of 5.3.%) ( Drop from 7.8% in
2006)
Wal-Mart: Inventory turn-over ratio of 9.9 compared to
industry average of 5.5 ( Net profitability of 3.5%)
Zara Corporation: Lead-time from new product to stores is 15
to 20 days compared to industry average of six months ( Net
profitability of 11.3%)
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8/19/2017 Supply Chain Management_Janat Shah
Supply Chain Management: A Definition
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Supply Chain Management: A Pictorial Representation
C1
C2
C3
C4
C5
C6
Converter
Supplier Retailer
Distributor
Source
Converter Consumers
Distributor End-User
Supplier
Value-Added Services
Funds/Demand Flow
Information Flow
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Supply Chain: The Potential
P&Gs estimated savings to retail customers of $65 million
through logistics gains
Dell Computers 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
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Complexity: The Magnitude
U.S. companies spend more than $1 trillion in supply-related 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.
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Complexity: The Magnitude
Compaq computers 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
Boeings forced announcement of write-downs of $2.6b
Raw material shortages, internal and supplier parts
shortages.
Ciscos multi-billion ($2.2b) dollar write-off of inventories in
2001-2002
Customers balked on orders due to market meltdown
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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.
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Ratio of Logistics Cost to GDP for
Selected Countries*
FIGURE 1-5: Total U.S. logistics costs between 1984 and 2005
Supply Chain Management_Janat Shah
Logistics Costs for the Indian Economy*
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Benefits
A 1997 PRTM Integrated Supply Chain Benchmarking Survey
of 331 firms found significant benefits to integrating the supply
chain
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Dell Computers: Focus on Cost
Reduction
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Dells 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.
SCM
Formation/
Extensions
Inventory Management/Cost
Optimization
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Historical Evolution of the Supply Chain
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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
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Key Observations
Integrated activity:
* Among functions such as logistics, manufacturing, distribution,
design/engineering, marketing, finance,etc.
* Multiple organizations,i.e., suppliers, customers & 3 PL, 4PL
providers
* Coordination of conflicting goals, metrics, etc.
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Key Observations (contd)
One goal in SCM: Factors that contribute to
uncertainty
respond to uncertainty in
customer demand without inaccurate demand
creating costly excess forecasting
inventory
long variable lead times
late deliveries
Negative effects of uncertainty
incomplete shipments
lateness
product changes batch
incomplete orders ordering
price fluctuations and
Inventory discounts
insurance against supply inflated orders
chain uncertainty
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The Development Chain
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Todays Marketplace Requires:
Personalized content and services for their customers
Collaborative planning with design partners,
distributors, and suppliers
Real-time commitments for design, production,
inventory, and transportation capacity
Flexible logistics options to ensure timely fulfillment
Order tracking & reporting across multiple vendors
and carriers
Distribution Strategies Selection of distribution strategies (e.g., direct ship vs. cross-docking)
How many cross-dock points are needed?
Cost/Benefits of different strategies
Integration and Strategic Partnering How can integration with partners be achieved?
What level of integration is best?
What information and processes can be shared?
What partnerships should be implemented and in which situations?
Outsourcing & Procurement Strategies What are our core supply chain capabilities and which are not?
Does our product design mandate different outsourcing approaches?
Risk management
Product Design How are inventory holding and transportation costs affected by product
design?
How does product design enable mass customization?
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Key Issues in SCM
Supply chain integration and strategic partnering
Integration achieved successfully by information sharing
and operational planning
What information should be shared and how should it be
used?
What is its impact on the design and operation of the
supply chain?
What is the degree of integration needed within the
organization and with external partners
What is the type of partnership that should be implemented
for a given situation?
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Key Issues in SCM
Outsourcing and offshoring strategies
Deciding what to make internally and what to buy from
outside sources
Determining internal core competencies
Risks associated with outsourcing and how can they be
minimized
How do you ensure timely supply of products?
When should you keep dual sources for the same product?
When should you offshore?
What is the impact of offshoring on inventory levels and
cost of capital
What are the risks of offshoring?
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Key Issues in SCM
Product design
Effective design plays critical role in the supply chain
Certain designs may increase inventory holding and
transportation costs while other designs reduce
manufacturing lead time
How to leverage product design to compensate for
uncertainty in customer demand?
How to quantify the resultant savings?
How to implement mass customization?
What role does supply chain management play in the
successful implementation of these concepts?
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Key Issues in SCM
Smart pricing
Organizations integrate pricing and inventory to influence
market demand and improve bottom line
Can smart pricing strategies be used to improve supply
chain performance?
Local issues
SCM impacted by local dynamics, customer preferences,
government policies such as tax free zones, infrastructural
constraints and strength of supply chain partners
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Key Issues in SCM
Information Technology and DS Systems
Critical enabler of effective SCM
What data should be transferred?
How frequently should it be transferred?
What infrastructure is required internally and between
partners?
Customer Value
Measure of company contribution to its customer
How does SCM contribute to enhancing customer value?
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Chain Global Optimisation Managing Risk &
Uncertainty
Distribution Network Supply Y
Contribution
Demand forecasting
Procurement planning
Production planning
Inventory management
Transportation
Order processing
Relationship management
Higher than expected orders for new products EMC Corp. missed its revenue guidance of $2.66
over existing products billion for the second quarter of 2006 by around
$100 million
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Uncertainty and Risk Factors
Fluctuations of Inventory and Backorders
throughout the Supply Chain
Supply
FIGURE 1-3: Order variations in the Chainchain
supply Management_Janat Shah
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