What Is All The Fuss About Supply Chain

Management?

• Introduction• We have come a long way!• The supply chain response• Retail supply chain• Auto supply chain• Aerospace supply chain• PC supply chain• McDonald’s Supply chain• More supply chains

We Have Come A Long Way

Clerical

Order Placers

Limited educationalresources

MaterialsManagement

Supply ChainManagement

The Supply Chain Response

As the economy changes, as competition becomes more global, it’s no longer company vs. company but supply chain vs. supply chain.Harold Sirkin, Boston Consulting Group

As the economy changes, as competition becomes more global, it’s no longer company vs. company but supply chain vs. supply chain.Harold Sirkin, Boston Consulting Group

Today’s Business Today’s Business World is a Jungle!!!World is a Jungle!!!Today’s Business Today’s Business

World is a Jungle!!!World is a Jungle!!!

When you find yourself When you find yourself

in in

the jungle, remember, the jungle, remember,

ONLY THE FIT ONLY THE FIT

SURVIVESURVIVE!!!!!!

When you find yourself When you find yourself

in in

the jungle, remember, the jungle, remember,

ONLY THE FIT ONLY THE FIT

SURVIVESURVIVE!!!!!!

What is a Supply Chain?

Customer wantsdetergent and goes

to Supermarket

Customer wantsdetergent and goes

to SupermarketSupermarketSupermarket

Supermarket or 3rd

party DC

Supermarket or 3rd

party DC

P&G or othermanufacturerP&G or othermanufacturer

PlasticproducerPlastic

producer

Chemicalmanufacturer

(e.g. Oil Company)

Chemicalmanufacturer

(e.g. Oil Company)

TennecopackagingTenneco

packaging

Paper manufacturer

Paper manufacturer

TimberindustryTimber

industry

Chemicalmanufacturer

(e.g. Oil Company)

Chemicalmanufacturer

(e.g. Oil Company)

Source: Chopra & Meindl 2001

Supply Chain: Wal-Mart

Customer wants detergent from Wal-Mart

Tenneco Packaging

Wal-Mart or Third-Party Distribution Center

P&G or other Manufacturer

Plastic Producer

The Wal-Mart Store

Chemical Manufacturer

Chemical Manufacturer Paper Manufacturer

Timber Industry

SupplySupply

Sources:plantsvendorsports

Manufacturers,Regionalwarehouses:stocking points

Field warehouses:stockingpoints

Customers,demandcenters

MaterialProduction/purchase costs

Manufacturing/Inventory &warehousing costsTransportation costs Inventory &

warehousing costs

Transportation costs

Source: Simchi-Levi & al, 2000

A Typical Manufacturer’s Supply Chain

The Extended Enterprise Supply Chain

Raw Material Supplier

SubassemblySupplier

Assembly Plant

ComponentSupplier Dealer

DelightedCustomer

Maximized value at minimized cost

Drivers of Supply Chain Performance

• Inventory

• Transportation

• Facilities

• InformationSource: Chopra & Meindl 2001

Competitive Strategy

Supply Chain Strategy

Drivers of Supply Chain Performance

Drivers

Inventory

Transportation

Facilities Information

Source: Chopra & Meindl 2001

Supply Chain Structure

Efficiency Responsiveness

Considerations for Supply Chain Drivers

Driver Efficiency Responsiveness

Inventory Cost of holding Availability

Transportation Consolidation Speed

Facilities Consolidation / Dedicated

Proximity / Flexibility

Information What information is best suited for each objective

Source: Chopra & Meindl 2001

Drivers of Supply Chain Performance

Inventory:• Role of inventory in the Supply Chain:

– Anticipation of future demand– Production and distribution costs reduction

• economies of scale

Source: Chopra & Meindl 2001

Drivers of Supply Chain Performance

Transportation:• Role of transportation in the Supply Chain:

– Transportation moves the product between different stages in a Supply Chain

• Transportation choices impact the responsiveness and the efficiency of the Supply Chain

Source: Chopra & Meindl 2001

Drivers of Supply Chain Performance

Facilities: • Role of facilities in the Supply Chain:

– Where inventory is transformed into another state - manufacturing facility

– Where inventory is stored before being shipped - warehousing facility

• Choices such as number of facilities or capacity impact the Supply Chain

Source: Chopra & Meindl 2001

Drivers of Supply Chain Performance

Information:• Role of Information in the Supply Chain:

– Serves as the connection between the Supply Chain’s various stages (allows coordination of actions)

– Allows daily operations of each stage of the Supply Chain (ex. : a production scheduling system needs information)

Source: Chopra & Meindl 2001

SC Nokia

• Nokia’s frequent & rapid product introduction, major contributors to fast revenue & profit growth are:– supported by a very flexible & efficient SC

• Nokia has put in place:– rapid response manufacturing,– quick-ship logistics,– global SC web that links Nokia’s suppliers & plants,

supports Vendor Managed Inventories and collaborative planning

Source: Accenture, 2003

SC Zara (1)

• Global clothing manufacturer/retailer – 44 countries

• Focused on time to market, costs, order fulfillment & customer satisfaction

• Zara owns 630 retail stores worldwide• Store managers send customer feedback directly to

Zara’s in-house designers via handheld devices– designers are kept abreast of fast-changing trends &

demands– gives Zara vital information on sale of less-desirable

merchandise– better managed inventories

Source: Accenture, 2003

SC Zara (2)

• Zara acquires fabrics in only 4 colors & postpones dyeing & printing until close to manufacturing reducing waste and minimizing need to clear unsold inventories

• Zara can deliver new styles in 3 to 6 weeks, compared with up to 5 months for competitors

Source: Accenture, 2003

SC Henkel

• Multinational manufacturer of consumer & industrial products

• Put in place collaborative planning, forecasting & replenishment (CPFR) with Condis, a Spanish supermarket & several packaging suppliers for laundry & home care products

• Involves daily interchange for key items, coordinates business planning (combined promotions & collaborative forecasts) & jointly defined & measured key performance indicators.

Source: Accenture, 2003

Cost in the Average New Vehicle?

30%Chrysler

70%Supply Chain

A Typical Seating Supply Chain

Johnson Controls

Chrysler FordGeneralMotors

Canadian Fab

Douglas &Lomason

Technotrim

Milliken &Company

Lear Favesa

Collins & Aikman

Textileather

Soft Trim Suppliers

Dudek &Bock Spring

Rockford SpringR. R. Spring

Specialty Screw

Excel/Atwood

Hardware Suppliers

SUPPLIERS

TVS-M

KANBAN/

REUSABLE CONTAINERS

TRANSPORTATIONVANNED STOREWISE

MATERIAL FLOW

INFORMATION FLOW

IMAGE-SOUTH ZONE(WITH MILKRUN)

LOGISTICS SERVICE PROVIDER

LOGISTICS SERVICE PROVIDER

BAR CODED INVOICES

JIT CALLS TROUGH INTERNET

EMPTYCONTAINERS

2BIN

SUPPLIERS

TVS-M

SCHEDULES

DISPOSABLE CONTAINERS

TRANSPORTATIONVANNED LOCATIONWISE

AT 3PL START HUB

MATERIAL FLOW

INFORMATION FLOW

IMAGE-NORTH/WEST ZONE(WITH MILKRUN)

LOGISTICS SERVICE PROVIDER

LOGISTICS SERVICE PROVIDER

UNPACKING AT RECEIPT

ASN

SUPPLIERS

TVS-M

SCHEDULES

DISPOSABLE CONTAINERS

DOOR DELIVERY BY SUPPLIER

MATERIAL FLOW

INFORMATION FLOW

IMAGE-REMOTE SUPPLIERS

UNPACKING AT INWARDING

ASN

Best practice suppliers,who are leading the

Supply-Chain EDI Initiative Supply Chain Example

Working together towards process improvement

Chrysler

(Tier 1)Dana Corp.

(Tier 2)Impact Forge

(Tier 3)Mac SteelNorthstar

Steel

Axles

Forgings

Communication Flow

(Supply Chain EDI)

Material Flow

(On-Time Delivery)

Great Cars & Trucks

Steel

DealershipsExtended Enterprise In Action:

Modularity is a key design advantage in the manufacture of modern aircraft

A clear move towards

Modularity

Expanding the Operations Frontier -Dell’s “revolution” in the PC market

• Dell’s competitive advantage: Provide customized PC configurations, with short delivery times and affordable prices.

• Dell’s success in PC market:

Vir

tual

Inte

gra

tio

n

Customer

Dell

Suppliers

Dell Supply Chain

PUSH

PULL

PC SUPPLY CHAINS

Typical PC Supply Chain(Compaq, HP, IBM, etc.)

Customer

DistributionChannels

Manufacturer

Suppliers

PUSH

PULL

The Critical Success Factors underlying Dell’s competitive advantage

• Very high product (configurable) variety – mass customization!

• Direct fulfillment - no intermediaries• No production launch until customer order booked

(pure pull!)• Very low finished goods inventory (costs) – high

inventory turns (raw material inventory influenced by “recommended configurations”)

• High velocity material flows & fulfillment

Supporting Dell’s competitive advantage through a new operational model

•Focused on strategic partnerships: suppliers down from 200 to 47•Suppliers maintain nearby ship points; delivery time 15 minutes to 1 hour•Suppliers own inventory until used in production•Demand pull throughout value chain – “information for inventory” substitution

• Demand forecasting is critical – changes are shared immediately within Dell and with supply base

• Customers frequently steered to “recommended configurations” with high availability to balance supply and demand

• External logistics supplier used to manage inbound supply chain

Emerging factors and trends enabling Dell’s strategy

• The commoditization of the PC industry– Standardized and interchangeable components– Emergence of reliable manufacturing service

providers• Recent advances in Supply Chain Management

– Information Technology (IT) platforms that allow the effective and efficient information exchange and coordination across the entire supply chain

– 3rd party logistics service providers– Emerging emphasis on virtual rather than vertical

company integration

Suppliers(International)

1.2 Million PC/Yr.Glasgow U.K.

Warehouse

PortPC Assembly

Plant

13 TransshipmentPoints (TPs) in Europe

Country-wide Distribution

Centers (DCs)

Retailers

Example of a Typical Supply Chain: IBM Europe PC Supply Chain

McDonald’s Supply Chain

• Purchasing– “The 3 legged stool”: Corporation – Franchisees –

Suppliers– Exclusive, certified facilities– Handshake agreements, Trust– Long term win-win partnership, risk sharing– Rigorous product and service specifications– Strong focus on quality, product specification and

environmental audits– Decentralized supplier structure, zone

consolidation for multinational suppliers– Distributor is wholesaler for Restaurants

The McDonald’s Supply Chain

• Logistics– ~100 sales items in the restaurant– ~400 SKUs in the warehouse (Hubs: up to 1,500)– ~200 restaurants per DC (~180 DCs globally)– Delivery frequency: ~3/wk, higher in urban areas– 2-3 stops per route– Exclusive distributors (3PL)– Freight consolidation (via freight forwarders)– Long term partnerships with service providers,

risk sharing– Strong quality focus (Cold Chain, HACCP, QIP)

The McDonald’s Supply Chain

• McDonald’s Supply Chain Challenges– Even stronger focus on freshness and quality– On-going product innovations– Strong customer demand fluctuations

based on promotions– Order- and inventory management

restaurant – DC – supplier -raw material supplier

– Bull Whip effect – Cannibalization– Change Management in a de-

centralized structure (NT + OO = EOO)

The McDonald’s Supply Chain

New Product Introductions

Big Mac Brand Advertising

Monopoly

Big Mac / Sony Connect

Big Macs discounted in selected markets

Core Product Promotions

Promotional Impact

Vision of Supply Chain Integration

(Quality,service,cleanliness and value)

Two future orientated strategies

McD DC :

integrated

… but they need not care where the goods come from!”

“As demand arises on customers’ side ...

... supply turns on and off automatically, ...

The McDonald’s Supply Chain “One Stop Shopping” processes and an automated water supply have a lot in common:

One Stop Shopping

Delivering a wide range of benefits to our restaurants

• Common business models and tools

• Borderless knowledge transfer

• Optimization of services

• Economies of scale

• Centralized competence

• Financial strength

• Easy customer communications

DC Sofia, Bulgaria

McDonald’s Logistics Network

• DQMP (Distributor Quality Management Process)

• Operations and Customer Relations (Operations Manual)

• Quality Control (HACCP / QIP) (Hazard analysis critical

control point Quality inspection program)

• Cold Chain standards

• Hygiene regulations

• Product handling standards

• Emergency and contingency plans

• Risk & Crisis management

• Continuous unannounced internal and 3rd party audits for

DCs result in superior quality scores regularly.

McDonald’s Logistics Standards

“One-Stop-Shopping“Lean Logistics Solution

Supply Chain Services for McDonald‘s restaurants

Results

SUPPLY CHAINS OF

COSTUME JEWELLERY

FOOTWEAR

PROCESSED MANGO

LEATHER GOODS

HOLIDAY DÉCOR

FURNITURE

HOUSEWARE

Example of an Extended Supply Chain Structure (Hugos, 2003)

Raw Material Producer

Manufacturer Distributor Retailer Retail Customer

Product Designers

Market Research

Logistics Provider

Finance Provider

Business Customer

Supply Chain of the Costume Jewelry Sector (Beng Hui, 2005)

Collectors of Raw Materials Middle Men/Resellers

ExportersSubcontractorsForeign Buyers/Retailers

Final Customer

Manufacturers of Foreign Made components

Supply Chain of the Fine Jewelry Sector (Beng Hui, 2005)

Local Miners

Middlemen/CB

Jewelry Manufacturer

Foreign/Buyers Retailers

Local Retailers

Foreign customers

Local customersSupplier of

Imported Jewels

Supply Chain of the Processed Mango Sector (Beng Hui, 2005)

Independent Farmers

Middlemen

Company Owned Farms

Mango Processor

Fresh Mango Exporter

Foreign Buyers/ Retailers

Foreign Customer

Local Retailers

Local Customers

Supply Chain of the Leathergoods Sector (Manalang, 2005)

Foreign Makers of Components

Local Middlemen

Local Tannery

Local Fiber Processors

Foreign Tannery

Foreign Merchandisers

Leather goods Manufacturer

Local Wholesalers/ Direct Selling

Local Retailers

Foreign Wholesalers

Foreign Retailers

Local Customers

Foreign CustomersSubcontractors

of non-leather components

Supply Chain of the Footwear Sector (Manalang, 2005)

Foreign Makers of Components

Local Middlemen

Local Tannery

Subcontracting for some large companies

Footwear Manufacturer

Local Wholesaler/ Direct Selling

Local Retailers

Local Customers

Supply Chain of the Holiday Decors Sector (Mutuc, 2005)

Local Supplier of Imported Materials

Processors/Collectors of Local RM

Local Middlemen

Subcontracting

Holiday Décor Manufacturer

Foreign Buyers/Retailers

Foreign Customers

Local Retailers

Local Customers

Supply Chain of the Furniture Sector (Mutuc, 2005)

Local Supplier of Imported Materials

Processors/Collectors of Local RM

Local Middlemen

Subcontracting for special designs (i.e. weaving)

Furniture Manufacturer

Foreign Buyers/Retailers

Foreign Customers

Local Retailers

Local Customers

Supply Chain of the Houseware Sector (Mutuc, 2005)

Local Supplier of Imported Materials

Processors/Collectors of Local RM

Local Middlemen

Subcontracting

Manufacturing

Foreign Buyers/Retailers

Foreign Customers

Local Retailers

Local Customers