01 introduction to supply chain management
DESCRIPTION
supply chainTRANSCRIPT
introducing
SCM
Managing Chain
Prof. Manoj K SrivastavaOperations Management Area
Management Development Institute-Gurgaon
Supply Chain Management
Chapter-01
[email protected]://www.mks507.vistapanel.net
Teaser
Part
00
1. Apple2. Procter & Gamble3. Cisco Systems 4. Wal-Mart Stores 5. Dell 6. PepsiCo 7. Samsung Electronics 8. IBM 9. Research In Motion 10. Amazon.com 11. McDonald’s12. Microsoft 13. The Coca-Cola Company 14. Johnson & Johnson15. Hewlett-Packard 16. Nike 17. Colgate-Palmolive 18. Intel 19. Nokia 20. Tesco
Source: AMR research, 2009 http://www.amrresearch.com
Top 20 Supply Chains
2009
If Supply Chain Management is the answer…..
What is the question?
Why Implementing Supply Chain?
Spee
d?
Variety?
Quantity?
The rightProduct
HigherProfits
The rightTime
The rightCustomer
The rightQuantity
The rightStore
The rightPrice
=++ ++ +
De
sig
nQ
ua
lity
Fit
Lo
ca
tio
n
Fo
reca
sti
ng
Re
ach
De
live
ry
Co
st
Op
tim
iza
tio
n
Flexibility
Delivery Reliability Delivery
Time Lead time Invent
ory Level
ProductVolume
Mix Place
Time
Products: Create new products and services
Platforms: Create modular platforms and strategic control points
Solutions: End-to-end solution for customers
Customers: Find new customer segments or unmet customer needs
Customer Experience: Change how customers interact with you
Revenue Model: Change how you get paid
Processes: Innovate on operating processes
Value Chain: Change position or scope of value chain participation
Logistics/Supply Chain: Change the way you source & ship products
Channels: Change how you go to market with your products
Networking: Change how you connect with customers or products
R&D: Create new technologies, materials, products or processes
Direction for Business Innovation
Understand it
Part
01
• To achieve economies of scale and scope – Costs are significant
• To improve business focus and expertise
• Customer Expectations are increasing
• Supply and Distribution Lines are lengthening with complexity
• Adds Significant Customer value
• Customers Increasingly Want Quick & Customised Response
Today’s Challenges…
A supply chain consists of the flow of products and services from:– Raw materials manufacturers– Intermediate products manufacturers– End product manufacturers– Wholesalers and distributors and– Retailers
Connected by transportation and storage activities, and
Integrated through information, planning, and integration activities
entities…activities…problem spots…linkages…?
SCM is a set of approaches –
To integrate Suppliers, Manufacturing Centers , Warehouses,
Dist. Centers, Retail Outlets
Merchandise is produced & distributed
Right quantities, to right locations, at right time
Aim: To minimize system-wide cost, while satisfying
service level requirements
wishes are unlimited…resources are not..?
Some more definitions of SCM
Oliver and Webber (1982)
SCM covers the flow of goods from supplier through manufacturing and distribution channels to end user.
Jones and Riley (1987)
SCM techniques deal with the planning and control of total materials flow from suppliers to through end users.
Christopher (1992)
SCM is the management of a network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer.
Ayers (2000)
SCM is the design, maintenance and operation of supply chain processes for satisfaction of end users.
Sunil Chopra and Peter Meindl (2001)
SCM involves the management of flows between and among stages in a supply chain to maximize total profitability.
Fuel Supplier Industrial
Customer
Raw material Supplier
Component Supplier
Vehicle Manufacturer
SparesDistributor
Service Centre[Retailer]
Customer
Vehicle Repair
Raw material Supplier
Pest control products Manufacturer
Pest control productsDistributor
Maintenance Company [Retailer]
Customer
Pest Control
Water [Nature]
Generating Station[Producer]
Distribution Company[Retailer]
HomeCustomer
Electricity
CommercialCustomer
Supply Chain: Manufacturing Example
Cereal Manufacturer
FlourProcessor
Cereal Manufacturer
ChemicalProcessor
Farmer
Oil Company
ForestLumberProvider
CorrugatedManufacturer
GroceryDistributor
RetailGrocer
Consumer
1st Tier Supplier
2nd Tier Supplier
2nd Tier Customer
1st Tier Customer
3rd Tier Supplier
3rd Tier Customer
Products and Services
Cash
Information
DemandSupply
UpstreamInternal
Downstream
Focal Company
customer / consumer / client manage relationship with whom….in which order? CRM???
CUSTOMER
CONSUMER
CLIENT
CRM???understand context and hence the relative preference accordingly….
THE FOCAL COMPANY'S ALTERNATIVES FOR INVOLVEMENT
WITH LINK 2Alternative 1) Integrate with and actively manage Link 2.
Alternative 2) Monitor the procedures of Company A and Company B for integrating and managing Link 2.
Alternative 3)Not involved, leave the integration and management up to Company A and Company B.
Focal Company
Company
A
Company
B
Company
B
Company
B
Link 2
Link 2
Link 1 Link 2
When to monitor… when to let them own.. When to dictate…?
Imm. Suppliers Imm. CustomerThe Firm
1st Tier Suppliers
The Firm
2nd Tier Suppliers
2nd Tier Customer
1st Tier Customer
1st Tier Suppliers
The Firm
2nd Tier Suppliers
2nd Tier Customer
1st Tier Customer
nth Tier Suppliers
nth Tier Customer
…......…......
Supply Chain
Extended Supply Chain
Ultimate Supply Chain
can we manage ultimate supply chain?
Supply Chains Components The supply chain involves THREE segments:
UPSTREAM, where sourcing or procurement from external suppliers occur INTERNAL, where packaging, assembly, or manufacturing take place DOWNSTREAM, where distribution or dispersal take place, frequently by
external distributors.
movement of information and money and the procedures supporting the movement of a product or a service.
Organizations and individuals are also part of the chain
in which industry, which segment to be focused more?
Supply Chain Flows
Supply Chain Flows Materials flows are all physical products, new materials, and supplies that
flow along the chain.
Information flows relates to all data associated with demand, shipments, orders, returns and schedules.
Financial flows include all transfers of money, payments, credit card information, payment schedules, e-payments and credit-related data.
Supply chain refers to the flow of materials, information, payments, and services from raw material suppliers, through factories and warehouses (Value Chain), to the final consumer (Demand Chain).
It includes tasks such as purchasing, payment flow, materials handling, production planning & control, logistics & warehousing, inventory control, and distribution. When it is managed electronically it is referred to as an e-supply chain.
flow speed?... quantum?... precedence?
Supply Chain
UPSTREAM DOWNSTREAMINTERAL
Demand Chain
Value Chain
why it should not be termed as demand chain management?
The FirmKey Suppliers
The Firm Key Customer
Key Suppliers Key Customer
Key Suppliers Key Customer
The Firm
Suppliers CustomerThe Firm
The Firm
Purchasing Production MarketingR & D Logistics
Most companies are working to create seamless processes within their own four walls. (47%)
Some companies house SCM inmarketing & focus on integrationwith key customers. (11%)
Many companies house SCM in purchasing & focus on integration with first-tier suppliers (34%)
Few companies systematicallyintegrate up & downstream (8%)
Collaboration from suppliers' supplier to customers' customer is a vision not yet fully realized!!!
Common
Rare
Supply Chain
Integration
rare makes a difference….but needs a delicate balance among sensitive relations?
From the operations perspective – 90% satisfaction
Customer requirements
Product/ service available?
Product/ service appropriate?
Meets price and delivery
requirements?Customer orders?
Produced as promised?
Received as promised?
100
80
20
Y
N
70
10
Y
N
20
50
Y
N
10
40Y
N
10
10
Y
N9
1Y
N
8
1
Y
N
Customer satisfactionFrom the customer’s perspective – 8% satisfaction
Taking a customer perspective of supply performance can lead to very different conclusions
8
8
1Y
N
9
1
Y
N
making false impression…promotion tactics?
INPUT
OUTPUT
PERFORMANCE
OUTCOME
IMPACT
EFFICIENCY
EFFICACY
EFFECTIVENESS
Utilization =Input Used
Input Available
Productivity =Actual Outputs
Inputs Used
Performance =Actual Outputs
Planned Outputs
Customer Satisfaction =Actual Inputs
Expected Inputs
Supplier Performance =Actual Inputs
Expected Inputs
Value Added Process
Ou
tsid
e t
he
firm
Wit
hin
th
e f
irm
Source: Mentzer, J. T., Supply Chain Management, Response Books, New Delhi, 2001
Productivity
impact assessment analysis…
Automotive Supply Chain
managing so many flows…yet at the time they are needed..
Porter’s Value Chain Model
buyer’s mkt vs seller’s mkt…shrinking profit margins?
The Activity SystemPrimary and Support Activities
is it not blurring boundaries of concepts in present?
Historical Evolution of the Supply Chain
First Revolution: (Ford Motor Co. 1910–1920) Single product, that is, no product variety Vertical integration
Second Revolution: (Toyota Motor Co. 1960–1970) Wide Variety Long-term relationship with suppliers
Third Revolution: (Dell Computers 1995–Current) Customized products Medium-term relationship with suppliers Suppliers have to maintain technology and cost leadership
always existed a leader thereto make footprint on sand of supply chain landscape …?
1. Location
2. Transportation and Logistics
3. Inventory and Forecasting
4. Marketing and Channel Restructuring
5. Sourcing and Supplier Management
6. Information and Electronic Mediated Environments
7. Product Design and New Product Introduction
8. Service and After Sales Support
9. Reverse Logistics and Green Issues
10. Outsourcing and Strategic Alliances
11. Metrics and Incentives
12. Global Issues.
Source: Pyke, D.F., A Framework for Teaching Supply Chain Management, 2000
Major Issues in SCMMajor Issues in SCM
learn what constitutes in total known as supply chain management ?
Views of Supply Chain
Cycle view: processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages
Push/pull view: processes in a supply chain are divided into two categories depending on whether they are executed
in response to a customer order (pull) in anticipation of a customer order (push)
basis of views…why…how…
Cycle View of Supply Chains
Manufacturer
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Supplier
Each cycle occurs at the interface between two successive stages
Customer order cycle (customer-retailer)
Replenishment cycle (retailer-distributor)
Manufacturing cycle (distributor-manufacturer)
Procurement cycle (manufacturer-supplier)
Cycle view clearly defines processes involved and the owners of each process. Specifies the roles and responsibilities of each member and the desired outcome of each process.
pred
icta
bilit
y of
ord
ers
size
of o
rder
can they be synchronized them….quanitywise…timewise….anticipationwise…?
In Push systems, work release is based on downstream demand forecasts– Keeps inventory to meet actual demand – Acts proactively Making generic job application resumes today
In Pull systems, work release is based on actual demand or the actual status of the downstream customers– May cause long delivery lead times– Acts reactively Making a specific resume for a company after talking to the recruiter
produces only in response to customer demand signals
Produces using a forecast of sales and moves them to points of sale where they are stored as finished goods inventory.
will you push the rope or pull it…?depends…
Push/Pull View of Supply Chains
Procurement, Manufacturing, Replenishment cycles
PUSH PROCESSES PULL PROCESSES
Order ArrivesCustomer
Pu
sh
/Pu
ll
Bo
un
da
ry
Customer Order cycles
Supply Chain Push-Pull Systems and Boundaries
Where to pin decoupling point… ?
Supply Chain Macro Processes in a Firm
Supply chain processes discussed in the two views can be classified into
Supplier Relationship Management (SRM) Internal Supply Chain Management (ISCM) Customer Relationship Management (CRM)
Integration among the above three macro processes is critical for effective and successful supply chain management
Role of Logistics in Supply Chain
Part
02
Logistics Defined
Logistics Management is that part of Supply Chain Management
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.Four Subdivisions of Logistics Business logistics Military logistics Event logistics Service logistics
Value-Added Roles of LogisticsThe five principal types of economic utility which add value to a product or service :
FormTimePlaceQuantityPossession
While form and possession utility are not specifically related to logistics, neither would be possible without getting the right items needed for consumption or production to the right place at the right time and in the right condition at the right cost. These "five rights of logistics," credited to E. Grosvenor Plowman, are the essence of the two utilities provided by logistics: time and place utility.
what?
How much?
why?
where?when?
Logistics in the Firm: Factors Affecting the Cost and Importance of Logistics
Competitive Relationships Inventory / order cycle length. Inventory / lost sales effect Transportation / lost sales effect
Product Relationships Product dollar value / logistics costs. Weight density / logistics costs. Susceptibility to loss & damage / logistics costs.
Spatial Relationships
Inventory/order cycle length
Inventory / lost sales effect
Inventory level
1 2
Transportation/lost sales effect
3
Product dollar value / logistics costs
Weight density / logistics costs
54
Susceptibility to loss & damage/logistics costs
6
Spatial Relationships:
Spatial Relationships are extremely significant to logistics is spatial relationships, the location of fixed points in the logistics system with respect to demand and supply points. Spatial relationships are very important to transportation costs, since these costs tend to increase with distance.
Type of Supply Chain
Part
03
Typology of Supply Chain• On the basis of decoupling point (ETO, MTO, ATO, MTS) supply chain• Push vs. Pull supply chain• Lean vs. Agile supply chain• Efficient vs. Responsive supply chain
P:D ratios and differences
P-time (Production time)The time it takes to pass a product or service through supply chainincluding the time needed to procure the longest lead time parts and the total manufacturing time
D-time (Demand time)The time for which a customer is willing to wait to have their demand fulfilledShort D-times face increased supply chain challenges compared with those who have long D-times.
P-time = customer raises order deliver product to customer
D-time [expected minimum, expected maximum]
P:D ratios and differences
Practices to cope when P-time ≥ D-time
• Control
• Simplify
• Compress
• Integrate
• Coordinate
• Automate
Optimizing throughput and improving process capability
Untangling process flows and reducing product complexity
straightening process flows and reducing batch sizes
Improving communications and implementing teams
Adding customer-specific parts as late as possible
Using robots and IT systems
On the basis of OPP / Decoupling point
Source Make Assemble Deliver
Supplier Raw Material WIP Finished Goods
ETO MTO ATO MTS
Long Short
Customer Decoupling Point
Customer Lead Time
Customer Decoupling Point
Customer Decoupling Point
Schedule Orders Schedule Modules Schedule Finished Goods
Long Short
Fab
MTSStocked Locally
Procurement Lead Time
DesignLead Time Production
Lead TimeDelivery
Lead TimeOrder
Lead Time
Assembly
MTSStocked Centrally
ATO
MTOStocked Materials
MTOPurchased Materials
ETO
Total Fulfillment Lead Time
Customer receives product
Push-Pull Strategy
Push / Pull Boundary
Furniture SC
Grocery SC
Traditional PC Industry
Dell - the Pull-Push boundary
Vir
tual
Inte
gra
tio
n
Customer
Dell
Suppliers
Dell Supply Chain
PUSH
PULL
Typical PC Supply Chain(Compaq, HP, IBM, etc.)
Customer
DistributionChannels
Manufacturer
Suppliers
PUSH
PULL
PC SUPPLY CHAINS
ATOMTS
Assembly made on accurate customer
demands
Parts replenishment made on forecast
Efficient supply chain Responsive supply chain
Lean vs Agile Strategy
Supply chain dynamics
Supply chains with different end objectives need to be managed in different ways
Match product characteristics with supply chain characteristics
Designing the Supply Chain
• Efficient supply chains are designed for efficiency and low cost by minimizing inventory and maximizing efficiencies in process flow. (Lean)
• Responsive supply chains focus on flexibility and responsive service and are able to react quickly to changing market demand and requirements. (Agile)
Matching the supply chain with market requirements
Lean
supply chain management
Mismatch
Mismatch
Agile
supply chain management
Nature of demandFunctional products Innovative products
PredictableFew changesLow varietyPrice stableLong lead-timesLow margin
UnpredictableMany changesHigh varietyPrice markdownsShort lead-timesHigh margin
Su
pp
ly c
hai
n o
bje
cti
ves
Res
pons
ive
Effi
cien
t
Low
cos
tH
igh
utili
zatio
nM
inim
um in
vent
ory
Low
-cos
t sup
plie
rs
Low
thro
ughp
ut ti
mes
Hig
h ut
iliza
tion
Dep
loye
d in
vent
ory
Fle
xibl
e su
pplie
rs
Low implieddemand uncertainty
Somewhat certain demand
Somewhat uncertain demand
High implieddemand uncertainty
Purely functional: e.g. petrol
Established goods: e.g. soap powder
New models of existing goods: e.g. new TV set
Entirely new product: e.g. fashion item
Highlyefficient
Somewhat efficient
Somewhat responsive
Highlyresponsive
Textile millTraditional apparel
manufacturerVertically integrated apparel
manufacturerQuick response manufacturer of
fashion apparel
Campbell's Soup Fashion Apparel
Life cycle
Contribution margin
Variety
Forecast error
Stock-out rate
Forced markdowns
Make-to-order LT
Product Characteristics
Product Life-Cycle: Soup
1969
1999
1989
1979
2009
Product Life-Cycle: Fashion
Fall Winter
Spring
Margins?
Retail Price: $139.50Retail Price: $1.39
<
Variety? New Design?
<Differed in color, size, style, etc.,
95% newUnchanged over years, only 5%
Forecasting Error?
<High forecast error, 40-100%
errorHighly predictable, service
level of 98%
Markdowns?
<Deep discount in the end of the seasonRare
Functional Products(Soup)
Innovative Products(Fashion clothing)
Demand Uncertainty Low (forecast error) High (forecast error)
Life Cycle Long Short
Risk of Obsolescence Low High
Profit Margin Low High
Variety Low High
Demand volume High Low
Two Types of Products
Efficient vs Responsive
ENVIRONMENTS BEST SUITED FOR EFFICIENT AND RESPONSIVE SUPPLY CHAINS
Factor Efficient Supply Chains Responsive Supply Chains
Demand Predictable, low forecast errors Unpredictable, high forecast errors
Competitive priorities
Low cost
consistent quality
on-time delivery
Development speed, fast delivery times
Customization, volume flexibility
variety, top quality
New-service/product introduction Infrequent Frequent
Contribution margins Low High
Product variety Low High
Factor Efficient Supply Chains Responsive Supply Chains
Operation strategyMake-to-stock or standardized services or products; emphasize high volumes
Make-to-order, or customized service or products; emphasize variety
Capacity cushion Low High
Inventory investment Low; enable high inventory turns If needed to enable fast delivery time
Lead time Shorten, but do not increase costs Shorten aggressively
Supplier selection Emphasize low prices, consistent quality, on-time delivery
Emphasize fast delivery time, customization, variety, volume flexibility, top quality
Lean vs Agile
Distinguishing attributes Lean supply Agile supply
Typical products Commodities Fashion goods
Marketplace demand Predictable Volatile
Product variety Low High
Product life cycle Long Short
Customer drivers Cost Availability
Profit margin Low High
Dominant costs Physical costs Marketability costs
Stockout penalties Long-term contractual Immediate and volatile
Purchasing policy Buy materials Assign capacity
Information enrichment Highly desirable Obligatory
Forecasting mechanism Algorithmic Consultative
Characteristic Lean Agile
Logistics focus Eliminate waste Customers and markets
Partnerships Long-term, stable Fluid clusters
Key measures Output measures like productivity and cost
Measure capabilities, and focus on customer satisfaction
Process focus Work standardization, conformance to standards
Focus on operator self-management to maximize autonomy
Logistics planning Stable, fixed periods Instantaneous response
Volumes Predictable volumes and usage patterns
Unpredictable volumes and usage patterns
Key drivers Economies of scale - high volumes, low cost Consolidation of global volumes
Ability to deliver - short and reliable lead timesAbility to respond at short notice
Customisation Low - generic items High - customized items
Supplier positioning Anywhere - search for low costs Close to the integration centre - search for responsiveness
Supply Chain Strategy
Part
04
CUSTOMER ACCEPTANCE
CRITERIA
What to focus? Need or Requirement?
Fitting the SC to the customer or vice versa?
Understand the customer Wishes
Understand the Capabilities of your SC
Match the Wishes with the Capabilities
Challenge: How to meet extensive Wishes with limited Capabilities?
Fit SC to the customerUnderstanding the Customer
Range of demand, pizza hut stable
Production lot size, seasonal products
Response time, organ transplantation
Service level, product availability
Product variety Innovation Accommodating poor quality
Implied trouble for SC
Achieving Strategic Fit:Consistent SCM and Competitive strategies
Implied (Demand) Uncertainty for
SC
Issues Affecting Strategic Fit Multiple products and customer
segments
Product life cycle
Competitive changes over time
Early: uncertain demand, high margins (time is important), product availability is most important, cost is secondary
Late: predictable demand, lower margins, price is important
Shift from responsiveness to efficiency
increased emphasis on varietyInternet
The Strategic Fit
Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier
Low
High
Re
sp
on
siv
en
ess
Cost (Efficiency) LowHigh
DELL
WAL-MART
Efficiency Frontier
Achieving Strategic Fit Uncertainty/Responsiveness
Map
Implied uncertainty spectrum
Responsive supply chain
Efficient supply chain
Certain demand Uncertain demand
Responsiveness spectrum
Zone of
Strategic Fit
Low Cost
High CostCompanies try to move Zone of Strategic fit
INTRODUCTION
MATURING COMMODITY
The Strategic Fit Framework
for achieving strategic fit in Supply Chain Strategy
A Framework for Structuring Drivers
Competitive Strategy
Supply Chain Strategy
Efficiency Responsiveness
Facilities Inventory Transportation Information Sourcing Pricing
Cross functional “drivers”
Supply Chain Structure
• Information exchange is necessary for the most extensive modes of coordination sought in contemporary supply chains. It allows the supply chain to improve simultaneously its efficiency and responsiveness.
• Information-related decisions– Push vs. pull– Extent and modes of information sharing and coordination– Forecasting and Aggregate Planning schemes– Pricing and revenue management policies– Enabling Technologies:
• Electronic Data Interchange (EDI): Enables paperless transactions, primarily for “backend” operations of the SC.
• The Internet and the WWW.• Enterprise Resource Planning (ERP): enables transactional tracking and global visibility of
information in the SC.• Supply Chain Management (SCM) software: decision support tools.
The role of Information
Drivers of Supply Chain Performance• Facilities
– places where inventory is stored, assembled, or fabricated– production sites and storage sites
• Inventory– raw materials, WIP, finished goods within a supply chain– inventory policies
• Transportation– moving inventory from point to point in a supply chain– combinations of transportation modes and routes
• Information– data and analysis regarding inventory, transportation, facilities throughout the supply chain– potentially the biggest driver of supply chain performance
• Sourcing– functions a firm performs and functions that are outsourced
• Pricing– Price associated with goods and services provided by a firm to the supply chain
Facilities• Role in the supply chain
– the “where” of the supply chain– manufacturing or storage (warehouses)
• Role in the competitive strategy– economies of scale (efficiency priority)– larger number of smaller facilities
(responsiveness priority)
Components of facilities decisions
• Location
– centralization (efficiency) vs. decentralization (responsiveness)
– other factors to consider (e.g., proximity to customers)
• Capacity (flexibility versus efficiency)
• Manufacturing methodology (product focused versus process focused)
• Warehousing methodology (SKU storage, job lot storage, cross-docking)
InventoryUnexpected changes in customer demand (always hard to predict, and uncertainty is growing)
Short product life cyclesProduct proliferation
Uncertain supplyQuantityQualityCostsDelivery time
Inventory exists because of a mismatch between supply and demand
Source of cost and influence on responsiveness
If you move your inventory faster, you don’t need as much inventory (inventory velocity)
If responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory closer to customers
If cost is more important, inventory can be reduced to make the firm more efficient
Trade-off: More inventory increases responsiveness, less inventory increases efficiency (reduces cost).
Types of InventoryCycle inventory
• Average amount of inventory used to satisfy demand between shipments
• Depends on lot size
Safety inventory• inventory held in case demand exceeds expectations• costs of carrying too much inventory versus cost of losing
sales
Seasonal inventory• inventory built up to counter predictable variability in demand• cost of carrying additional inventory versus cost of flexible
production
Opportunistic Inventory: • Takes advantage of “bargains”.
ShortageExcess
• Moves the product between stages in the supply chain
• Impact on responsiveness and efficiency
• Faster transportation allows greater responsiveness but lower efficiency
• Also affects inventory and facilities
• If responsiveness is a strategic competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it
• Can also use slower transportation modes for customers whose priority is price (cost)
Transportation
Mode(s) of TransportationAir: fastest but most expensiveTruck: Relatively quick, inexpensive and very flexible modeRail: Inexpensive mode to be used for large quantitiesShip: Slowest but often the most economical Pipeline: Used (primarily) for oil and gasElectronic transportation: for goods as music and movies
Route and Network Selectionroute: path along which a product is shippednetwork: collection of locations and routes
Insource or Outsource to some 3PL provider
Transportation Networks
• The connection between the various stages in the supply chain – allows coordination between stages
• Crucial to daily operation of each stage in a supply chain: e.g., production scheduling, inventory levels
• Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off)
Information Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain)
Coordination and information sharing
Forecasting and aggregate planning
Extent and modes of information sharing and coordination
Pricing and revenue management policies
Enabling technologiesEDIInternetERP systemsSupply Chain Management software
• Set of business processes required to purchase goods and services in a supply chain
• Supplier selection, single vs. multiple suppliers, contract negotiation
• In-house vs. outsource
• Supplier evaluation and selection
• Procurement process
Sourcing• Pricing strategies can be used to
match demand and supply
• Firms can utilize optimal pricing strategies to improve efficiency and responsiveness
• Low price and low product availability; vary prices by response times
• Pricing and economies of scale
• Everyday low pricing versus high-low pricing
• Fixed price versus menu pricing
Pricing
Considerations for Supply Chain Drivers
Driver Efficiency (Cost) Responsiveness
Inventory Cost of holding Availability
Transportation Consolidation Speed
Facilities Consolidation/Dedicated Proximity / Flexibility
Information Low cost/slow High cost/streamlined/ reliable
Strategic Scope
Expanding Strategic Scope
Scope of strategic fit The functions and stages within a supply chain that devise an
integrated strategy with a shared objective One extreme: each function at each stage develops its own strategy Other extreme: all functions in all stages devise a strategy jointly
Five categories: Intracompany intraoperation scope Intracompany intrafunctional scope Intracompany interfunctional scope Intercompany interfunctional scope Flexible interfunctional scope
Strategic Scope:Intracompany Intraoperation Scope
Suppliers Manufacturer Distributor Retailer Customer
Competitive Strategy
Product Dev. Strategy
Supply Chain Strategy
Marketing Strategy
Strategic Scope:Intracompany Intrafunctional Scope
Suppliers Manufacturer Distributor Retailer Customer
Competitive Strategy
Product Dev. Strategy
Supply Chain Strategy
Marketing Strategy
Strategic Scope: Intracompany Interfunctional Scope
Suppliers Manufacturer Distributor Retailer Customer
Competitive Strategy
Product Dev. Strategy
Supply Chain Strategy
Marketing Strategy
Strategic Scope: Intercompany Interfunctional Scope
Suppliers Manufacturer Distributor Retailer Customer
Competitive Strategy
Product Dev. Strategy
Supply Chain Strategy
Marketing Strategy
Different Scopes of Strategic Fit Across a Supply Chain
Suppliers Manufacturer Distributor Retailer Customer
Competitive Strategy
Product Dev. Strategy
Supply Chain Strategy
Marketing Strategy
Intracompany intraoperation
Intracompany intrafunctional
Intracompany interfunctional
Intercompany interfunctional