Supply Chain Management

Topics
o Introduction
o Supply Chain & Logistics
o Costs in a supply chain
o Dynamics of the chain
o Objectives of supply chain
o Examples
o
o
o 2
Business Challenges of 21st Century

o Power shift to end users

o Requirement of mass customization

o

o Globalization
o

o Time and quality based competition

3
Business Challenges of 21st Century

o Advances in technology
o

o Increasing knowledge intensity

o

o Changing govt. policies

4
 Transitional Sources of
Competitiveness
1970’s 1990’s 2000 2001

• Market
•Product • Time to differentiation
• Product functions • Quality market • Mass
Competitive ?
characteristics •Costs •Innovation •Flexibility customisation
Necessities •Service • Value/price

•production sharing
Competitive •Market • Co-productivity
• Product • Co -petition ?
Advantage • Quality • Time to market differentiation
functions • Innovation •Flexibility •Mass • Co -specialisation
• Costs • Service customisation • Strategic
• Value/price operations : virtual
communities and
value chains

5
6
Globally Dispersed Manufacturing
An Illustration: How Li & Fung Limited Might Make a Dress

Product
ProductDesign
Design QC
QC& &Shipping
Shipping
[Hong
[HongKong]
Kong] [Hong
[HongKong]
Kong]

Yarn
YarnSpinning
Spinning Weaving
Weaving Stitching
Stitching
[Korea]
[Korea] [Taiwan]
[Taiwan] [Indonesia]
[Indonesia]

Zippers+…
Zippers+…
[Japan+…]
[Japan+…]
Focus Shifts
o From internal to external
o
o Vertical/ horizontal integration to
virtual integration

8
In the New Economy the focus is on the customer

In-house core Rigid Products/

competencies infrastructure/ Services Channels Customers
Processes

Traditional Business Design (Product-Focused)

Transition

“Customer Centric” Design (Customer-Focused)

Flexible In-house and

Customers’ Integrated Products/ Infrastructure outsourced core
Value Channels Services Processes
Needs competences

9 2000
Reversing the value chain (Based on paper given by A Lai, HP Greater China Marketing Director: Global June 23/24,
Old Success New Success
Factors Factors
• •
Size Speed

Role Clarity Flexibility

Specialisation Integration

Control Coordination

10
Requirement
" …managers need to be good at mobilizing,
managing, and using resources rather than at
formally acquiring and necessarily owning resources.
The ability to reconfigure, to use resources inside
and particularly outside the boundaries of the
traditional corporation more effectively becomes a
mandatory skill for managements."

11
 Evolution
Purchasing & Logistics 3rd Party service
Supplier & customer Supply Management providers
Relationships Management

1980s - 2000 ? 2000 ?

Managing External Supply Demand

Value Chain
Relationships Chain Chain
Management
Management Management
Process Integration
End-User Customer Focus
1960-1970s

MRP &
MRP- II Materials Management

1950-1960s

Mass Productivity Management

Production 12
Supply Chain


All stages

&

functions

involved in

fulfilling a customer request

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 Supply Chain


Network of facilities including connected
& independent organizations mutually & co-
operatively working together to control,
manage & improve


o Material flow from suppliers & upstream

suppliers at all levels
o

o Transformation of materials into semi-

finished & finished products &
o

o Distribution of products to customers &

their downstream customers at all levels
 14
Supply Chain Flows
Material Flow

Converter
Supplier Retailer
Distributor

Source
Converter Consumers
Distributor End-User
Supplier

Value-Added Services

Funds/Demand Flow

Information Flow

Reuse/Maintenance/After Sales Service Flow

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Supply Chain Management

“the integration of business processes

from end-user through original suppliers
that provides products, services and
information and add value for customers”
§Processes cross organisations and link
organisations
§Efficient integration
§

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Objective of a Supply Chain

o Maximize overall value (profit) generated

n difference between what the final product is worth
to the customer & the effort the supply chain
expends in filling the customer’s request
n total profit to be shared by all stages of the chain
Ø
Ø Minimize system-wide costs while satisfying
system level requirements
o


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Objective of a Supply Chain
o Sources of supply chain revenue
n customers
o Sources of supply chain cost
n flows of information, products, or funds
between stages of the supply chain
n
Ø Supply chain management is the management
of flows between and among supply chain
stages to maximize total supply chain
profitability

18
Business functions
o Plan (Forecasting & Planning)
o Buy (Purchasing )
o Make (Manufacturing & Assembly)
o Store (Inventory, Warehousing)
o Move (Distribution, Transportation
& Returns)
o Sell, Return (Order Management)

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Logistics
o The organization of moving, lodging &
supplying troops & equipments
o “that part of supply chain process that
plans, implements and controls the
efficient, effective forward and reverse
flow and storage of goods, services and
related information between the point of
origin and the point of consumption in
order to meet customers’ requirements”

(Council of Logistics Management)


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Logistics
o Encompass
n distribution, transportation &
inventory management
o
o Simply put, it involves
n Store & move functions only
o

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Cisco’s Value Network
Supply Network

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Costs in Supply Chain

o GDP : Rs. 3339374 Crore*

o
o Logistics Cost : 13% of our GDP
o
o Logistics Cost : Rs. 434118.62 Crore
o
o 1% Reduction in LC : Rs. 4341 Crore
•
•


•
* Economic Survey 2008-09

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
Traditional View: Magnitude of Cost
o Estimated that the grocery industry
could save $30 billion (10% of
operating cost) by using effective
logistics and supply chain strategies
n A typical box of cereal spends 104 days
from factory to sale


o Laura Ashley turns its inventory 10

times a year, five times faster than 3
years ago
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Supply Chain Management:
True Magnitude of Cost
o Compaq estimates it lost $.5 billion to
$1 billion in sales in 1995 because
laptops were not available when and
where needed
o When the 1 gig processor was
introduced by AMD, the price of the
800 mb processor dropped by 30%
o P&G estimates it saved retail customers
$65 million by collaboration resulting
in a better match of supply and
demand
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 Dynamics of the Supply Chain
Order Size

Customer
Demand

Retailer
Retailer Orders
Orders
Distributor
Distributor Orders
Orders

Production
ProductionPlan
Plan

Time
27
 Dynamics of the Supply Chain
Order Size

Customer
Demand

Production
ProductionPlan
Plan

Time
28
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
Traditional Planning Approach
Sequential, Decomposed, Slow

Procurement Manufacturing Sales & Distribution

(Material) (Capacity) (Demand)

C
U
S
T
O
M
E
R

Optimize to Optimize to Optimize to

Mfg objectives Logistics obj Sales & Mktg obj

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Globally Integrated Planning

“The sum of the local optima do not

equal the global optimum.”

(Goldratt, Theory of Constraints, 1986)

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Dell Computers
o SC practices support competitive
strategy


o Basic model of SC
n Direct built-to-order to customers

31
PC Value Chain: Performance of
Traditional PC Manufacturer

32
PC Value Chain: Performance of
Dell Computers

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Dell Computers
o Direct contact
n Fine segmentation
n Analyze needs & profitability of each
segment
n Make better forecast
n Improves supply-demand matching
n Steer customers towards
configurations that can be given
readily
n
34
n
Dell Computers
o Less inventory
n High inventory turns
n <10 days worth inventory
(competitors 60 – 80 days)
n Faster adoption to changes
n Less affected by price reductions &
obsolescence
n Real time information exchange with
suppliers

35
Dell Computers
o Less inventory
n Defects not introduced in large
quantity of products
o Manages payables & receivables
(cash flows)
o Centralize manufacturing &
inventories
o Postponement
o Information
36
n