Supply Chain

10. The Changing Competitive Environment

1. Logistics - Logistics is the process of strategically  The new rules of competition
managing the procurement, movement and storage of  product life cycle is getting shorter
materials, parts and finished inventory.  commoditization
2. Supply chain management is a wider concept  delivery lead times and flexibility
than logistics  concentration of demand
3. SCM - The focus of supply chain management is on  to do business with fewer suppliers
co-operation and trust and the recognition that,  Globalization of industry
properly managed, ‘whole can be greater than the  materials and components are
sum of its parts’. sourced worldwide
4. Upstream – Processing, manufacturing  products are manufactured offshore
5. Downstream – Delivering, Distributing  sold in many different countries
6. Competitive Advantage - A position of enduring  lengthen supply chain
superiority over competitors in terms of customer  Downward pressure on price
preference may be achieved through better  rapid fall in the price of many
management of logistics and the supply chain consumer goods
 global competitors supported by low-
cost manufacturing bases
 overcapacity
 the removal of barriers to trade and
the deregulation of many markets
 internet makes price comparison
easier
 Customers taking control
 products don’t have value until they
are in the hands of the customer at
the time and place required.
 value – in – use
 market leader
11. Managing 4Rs
 Responsiveness – ability to respond on
costumer’s request, complaints
7. 2 Ways to Competitive Advantage  Reliability – Ability to find another substitute
(sister company) Significant improvements in
 Cost advantage – Lower price, low quality
reliability can only be achieved through re-
 Value advantage (axiom) – high price, high
engineering the processes that impact
quality. It has long been an axiom in
performance
marketing that ‘customers don’t buy
 Resilience – Acting immediately to the
products, they buy benefits’. Put another way,
problem
the product is purchased not for itself but for
the promise of what it will ‘deliver’.  Relationships – rapport, trust
8. Seeking the High Ground 12. Product life cycle
 Clearly it is a position of some strength,  Introduction
occupying ‘high ground’ that is extremely  Growth
difficult for competitors to attack. That will be  Maturity
the leaders in the markets of the future will  Decline
be those that have sought and achieved the 14. 4P’s
twin peaks of excellence: they have gained  Product
both cost leadership and service leadership.  Place
9. The Mission of Logistics Management - Logistics  Price
management, from this total systems viewpoint, is the  Profit
means whereby the needs of customers are satisfied 15. Supplier manufacturing Distributor
through the co-ordination of the materials and Retailer shopper
information flows that extend from the marketplace,
through the firm and its operations and beyond that
to suppliers.
16. Two factors that contributing in a growing
importance of customer service as competitive
weapon
 continual increase in customer expectations
 slow but inexorable transition towards
‘commodity’ type market
17. Costumer value = Perception of benefits(iniisip
mo na magiging benefit mo )/ total cost of
ownership. (nabili muna pero dimo pa alam ang
worth) Ultimately the success or failure of any
business will be determined by the level of customer
value that it delivers in its chosen markets.
18. One way to define ‘competitive advantage’ is
simply that the successful companies will generally be
those that deliver more customer value than their
competitors. Costumer value = quality x service/ cost
x time.
19. Each of the four constituent elements can briefly
be defined as follows:
 Quality: The functionality, performance and
technical specification of the offer.
 Service: The availability, support and
commitment provided to the customer.
 Cost: The customer’s transaction costs
including price and life cycle costs.
 Time: The time taken to respond to customer
requirements, e.g. delivery lead times.
20. The role of customer service is to provide ‘time
and place utility’ in the transfer of goods and services
between buyer and seller.
21. LaLonde and Zinszer in a major study of customer
service practices suggested that customer service
could be examined under three headings
 Pre-transaction elements –
o pre – registration
o Stock availability,
o Target delivery dates,
o Response times to queries.
 Transaction elements – processing of order
o Order fill rate
o On-time delivery
o Back orders by age
o Shipment delays
o Product substitution
 Post-transaction elements - delivering
o First call fix rate
o Customer complaints
o Returns/claims
o Invoice errors
o Service parts availability
22. The impact of out of stock - The potential loss of
business for both manufacturers and retailers caused
by out-of-stock situations is clearly significant.
23. Theodore Levitt, who first said that ‘people don’t
buy products, they buy benefits’. The idea behind this
statement is that it is the totality of the ‘offer’ that
delivers customer value.
24. Customer service objective - customer service
strategy should be to enhance customer retention.
25. Identifying customer service needs
 Identify the key components of customer
service as seen by customers themselves.
o knowing the customer wants
o identifying the key sources of
influence upon the purchase decision
o marketing mix elements such as price,
product quality, promotion, etc.,
 Establish the relative importance of those
service components to customers.
o rank the importance of from most
important up to least important
 Identify ‘clusters’ of customers according to
similarity of service preferences
o to see if any similarities of preference
emerge.
26. PARETO LAW
 The 80/20 rule will often be found to hold: 80
per cent of the profits of the business come
from 20 per cent of the customers.
27. some of the key areas where standards are
essential:
 Order cycle time -This is the elapsed time
from customer order to delivery. Standards
should be defined against the customer’s
stated requirements.
 Stock availability- This relates to the
percentage of demand for a given line item
(stock keeping unit, or SKU) that can be met
from available inventory
  Order-size constraints -More and more
customers seek just-in-time deliveries of small
quantities. Do we have the flexibility to cope
with the range of customer demands likely to
be placed upon us?
 Ordering convenience -Are we accessible and
easy to do business with? How are we seen
from the customers’ viewpoint? Do our
systems talk to their systems?
 Frequency of delivery -A further
manifestation of the move to just-in-time is
that customers require more frequent
deliveries within closely specified time
windows.
 Delivery reliability- It is a reflection not just of
delivery performance but also of stock
availability and order processing
performance.
27. Inventory
 Inventory means quantity of goods held in
stock.
 It also means the entire stock of a business,
including materials, components, work in
progress and finished products.
28. Inventory Management
 includes aspects such as controlling and
overseeing purchases — from suppliers as
well as customers — maintaining the storage
of stock, controlling the amount of product
for sale, and order fulfillment. is usually
defined as an established system for tracking
items and to make effective decisions on
when and how much to order
29. FUNCTIONS OF INVENTORY MANAGEMENT
 Provide a selection of goods for anticipated
customer demand and to separate the firm
fluctuations in that demand.
 Decouple various parts of the production
process. Decoupling operations keeps the
show going even if there are problems with
certain inventory parts or supplies.
 Take advantage of quantity discounts
because buying in bulk would lessen the cost
of goods and their delivery expenses.
 The last function would be to hedge against
inflation and upward price changes.
30. TYPES OF INVENTORY
 INPUT – can be humans, financial energy,
equipment and raw materials
 OUTPUT – are parts, components and finished
product
 INTERIM STAGES – are partially finished goods
or work process.
31. MANAGING INVENTORIES
 ABC Analysis is an inventory application of
what is known as the Pareto principle
32. The Objectives of Inventory Control
 To record accuracy, a prerequisite to
inventory management, production
scheduling and sales, can be maintained by
either periodic or perpetual systems.
 To have periodic systems require regular
checks of inventory to maintain and
determine quality on hand.
33. INVENTORY CONTROL
 A variation of the periodic system is the two-
bin system that means using a “two
containers” of inventory that reorders when
the first container is empty.
 Perpetual inventory, on the other hand, keeps
track of removals from inventory
continuously. This can be done thru
automated processes such as point-of-sale
(POS) and bar code.
34. EFFECTIVE INVENTORY SYSTEM
 An effective inventory system requires good
incoming and outgoing record keeping as well
as good security.
 Stock rooms should have restricted access,
good housekeeping and storage areas that
hold fixed amounts of inventory and should
be labelled accurately.
35. STAGES IN ORDER TO COLLECTION CYCLE
1. Order placement and communication
2. Order entry
3. Credit check
4. Documentation
5. Order picking
6. Delivery
7. Invoicing and collection
36. True cost of inventory
 Cost of capital
 Storage and handling
 Obsolesce
 Damage and deterioration
 Pilferage/shrinkage
 Insurance/ management cost
37. THE ROLE OF TRANSPORTATION
32. Reasons for freight Transportation o High quality service just-in-time
 Specialty and surplus cause the necessity of  Pipeline
trading o Lower-long term cost
 Trading improves specialty and makes bigger o Dependable
surplus o High initial cost
 Trading requires freight transportation o Risk of breakage or leaking
 Trading reduces total cost and improves total  Package carriers
profits o Companies like FedEx , UPS, USPS that
33. Logistics as a system carry small packages ranging from
 Suppliers letters to shipments about 150
 Purchasing pounds
 Manufacturing 35. Key factors
 Physical Distribution  Level of service
 Customers o Speed
 Value added inventory flow (1 to 5) o Safety
 Requirement information flow (5 to 1) o Reliabilty
34. Transportation modes  Factors for the transportation service
 Rail freight Transport capability
o Carrying about 36% of the ton-miles o Cost
o High cost in capital o Speed
o Low friction, high capacity o Cosistency
 Trucking 36. Freight Transportation Cost structure
o Mostly variable costs  Fixed cost
o Rubber tire on concrete  Variable cost
o Higher rate than rail  Fixed cost – insurance, vehicles, incensing
o Truckload operation (TL)  Operating cost – Driver compensation (wages,
 Straight forward from origin meals, health plans)
to destination  Vehicle operation costs – fuel, tires,
 Independent owner maintenance
o Less Than truckload Operation (LTL)
 Pick up shipments from
various points
 More like railroad operation
 Water Transport
o Internal waterways
o Intracostal waterways
o International waterways
o Wet bulk – oil etc
o Dry bulk – coal, grain etc.
o Convenient for global shipping
 Container
o A container is a standardized reusable
steel box for the safe efficient and
secure storage and movement of
materials and products within a global
containerized
 Containerization
o It is a system of freight transport
based on range of steel intermodal
containers . built to standardized
dimensions, can be loaded, unloaded,
stacked, transported efficiently over
long distance and transferred from
one mode to another container/ships.
 Air freight
o High price