lecture 01 - introduction to scm
DESCRIPTION
Supply Chain ManagementTRANSCRIPT
Quality in Supply Chain Design
Lecture 1: Introduction to SCM
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Outline
Supply Chain Management
SCM Challenges in Today’s Global Economy
Magnitude of Supply Chain Costs
Topics Covered
What Is a Supply Chain?• Flow of products and services from raw
materials manufacturers; intermediate products manufacturers; end product manufacturers; wholesalers and distributorsand; retailers
• Connected by transportation and storageactivities
• Integrated through information, planning, and coordination activities
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Source
Supplier
Supplier
Distributor
Distributor
Retailer
End-User
Converter
Converter Consumers
Information Flow
Funds/Demand Flow
Value-Added Services
Material Flow
Reuse/Maintenance/After Sales Service Flow
What Is a Supply Chain?
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Supply Chain for a Car
Components
Raw material suppliers. For instance, suppliers for steel, rubber, plastics, etc.
Parts suppliers. For instance, suppliers for engines, steering wheels, seats, and electronic components, etc.
Automobile manufacturer. For instance, Ford.
Automobile dealers. For instance, Hayward Ford.
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Supply Chain for a Car
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Supply Chain for a Consumer Mortgage
The supply chain for a consumer mortgage offered by a bank may involve various components.
Marketing companies that handle solicitation to potential customers.
Credit reporting agencies that evaluate potential customers.
The bank that extends the mortgage loans.
Mortgage brokers through which the loans are distributed.
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Product vs. Service Supply ChainThere are a number of differences between the two types of
supply chains. For instance:
In a product supply chain, there is both a flow of information and physical products. In a service supply chain, it is primarily information.
Contrary to a service supply chain, transportation and inventory are major cost components in a product supply chain.
Services typically cannot be held in inventory, so matching capacity with demand is frequently more important in a service supply chain.
In a service supply chain, the (explicit) cost of information is higher than in a product supply chain.
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Supply Chain Goals & Strategies
All companies involved in the supply chain want to maximize their respective profits by increasing revenue and decreasing cost.
However, companies may employ different strategies in order to achieve this goal.
Some of them focus on customer satisfaction and quick delivery, while others may be more concerned about minimizing inventory holding costs.
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Supply Chain for a Car
Typically, the automobile dealer would like to offer a variety of car colors and configurations to accommodate different customer preferences, and meanwhile have a short delivery lead time from the manufacturer.
However, in order to maximize the length of production runs, and utilize resources more efficiently, the manufacturer would like to aggregate orders from different dealers and offer less variety in car configurations.
Multi-objective Optimization
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Supply Chain for a Consumer Mortgage
The marketing companies strive to increase the response rate from homebuyers in order to maximize their returns.
Banks aim at a customer portfolio with a relatively low risk, healthy flow of payments and low average loan maturity date.
The brokers would like to maximize their sales commissions
Multi-objective Optimization
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Source
Supplier
Supplier
Distributor
Distributor
Retailer
End-User
Converter
Converter Consumers
Information Flow
Funds/Demand Flow
Value-Added Services
Material Flow
Reuse/Maintenance/After Sales Service Flow
What Is a Supply Chain?
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Supply Chain: A Simplified View
Two pictures:
(1) components and
(2) flow
One goal: Optimization
(1) minimize cost
(2) maintain service levels
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SCM: A Systems Approach
The Supply Chain network 14
SCM: A Systems Approach
Every facility that impacts costs need to be considered
Multiple levels of activities
Strategic – Tactical – Operational
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Supply Chain ManagementSimchi-Levi’s Definition:
Supply chain management is a set of approaches utilized to efficiently
integrate suppliers, manufacturers, warehouses, and stores, so that
merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to
minimize system wide costs while satisfying service level requirements.
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SCM: Other Definition
The design and management of seamless, value-added process across organizational boundaries to meet the real needs of the end customer
Institute for Supply Management
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SCM: Other Definition
Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer
The Supply Chain Council
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Outline
Supply Chain Management
SCM Challenges in Today’s Global Economy
Magnitude of Supply Chain Costs
Topics Covered
SCM Challenges:
Optimization, integration and synchronization with
development chain
complex, large scale network
facilities with difference, conflicting objectives
dynamic systems
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Set of activities and processes associated with new product introduction. Includes:
product design phase
associated capabilities and knowledge
sourcing decisions
production plans
The Development Chain
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The Development Chain
The Supply Chain network 22
The Development Chain
The enterprise development and supply chain
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SCM Challenges:
Optimization, integration and synchronization with
development chain
complex, large scale network
facilities with difference, conflicting objectives
dynamic systems
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Large Scale Complex NetworksGeographically dispersed complex network
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Global Apparel Supply ChainTracing back the dress you are wearing
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QC & Shipping
[Hong Kong]
Product Design
[Hong Kong]
Zippers+…
[Japan+…]
Stitching
[Indonesia]
Weaving
[Taiwan]
Yarn Spinning
[Korea]
An Illustration: How Li & Fung Limited Might Make a Dress
Globally Dispersed Manufacturing
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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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SCM Challenges:
Optimization, integration and synchronization with
development chain
complex, large scale network
facilities with difference, conflicting objectives
dynamic systems
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Decentralized environments
A
B
C
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Decentralized environments
Airport FacilityScheduling
SCM Challenges:
Optimization, integration and synchronization with
development chain
complex, large scale network
facilities with difference, conflicting objectives
dynamic systems
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SCM Challenges
Dynamic system: uncertainty and risk Variations over time
Matching demand-supply is difficult
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Uncertainty and Risk FactorsMatching Supply and Demand a Major Challenge
REASONS EXAMPLES
•Raw material shortages
•Internal and supplier parts
shortages
•Productivity inefficiencies
Boeing Aircraft’s inventory write-
down of $2.6 billion
•Sales and earnings shortfall
•Larger than anticipated inventories
Sales at U.S. Surgical Corporation
declined 25 percent, resulting in a
loss of $22 million
•Stiff competition
•General slowdown in the PC
market
Intel reported a 38 percent decline
in quarterly profit
•Higher than expected orders for
new products over existing
products
EMC Corp. missed its revenue
guidance of $2.66 billion for the
second quarter of 2006 by around
$100 million35
Uncertainty and Risk FactorsFluctuations of Inventory and Backorders
Order variations in the supply chain
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Forecasting is not a solution
Demand is not the only source of uncertainty
Recent trends make things more uncertain
Lean manufacturing
Outsourcing
Off-shoring
Uncertainty and Risk Factors
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Uncertainty and Risk Factors
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2002 West Coast port strike Losses of $1B/day
Store stock-outs, factory shutdowns
1999 Taiwan earthquake Supply interruptions of HP, Dell
2001 India (Gujarat state) earthquake Supply interruptions for apparel manufacturers
Uncertainty and Risk Factors
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Uncertainty and Risk Factors
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Outline
Supply Chain Management
SCM Challenges in Today’s Economy
Magnitude of Supply Chain Costs
Topics Covered
Magnitude of Supply Chain CostsCost Elements of a Typical Trade Book
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Magnitude of Supply Chain CostsExample: The Apparel Industry
Manufacturer Distributor Retailer Customer
Cost per Percent
Shirt Saving
$52.72 0%
$41.34 28%
$20.45 62%
Manufacturer Distributor Retailer Customer
Manufacturer Distributor Retailer Customer
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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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The Magnitude
Compaq computer’s 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
Boeing’s forced announcement of write-downs of $2.6b Raw material shortages, internal and supplier parts shortages….
Cisco’s multi-billion ($2.2b) dollar write-off of inventories in 2001-2002 Customers balked on orders due to market meltdown
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Composition of Logistics Costs
Total U.S. logistics costs between 1984 and 2005 46
Progression of Logistics Costs
Logistics costs’ share of the U.S. economy
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Supply Chain: The Potential
P&G’s estimated savings to retail customers of $65 million through logistics gains
Dell Computer’s 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
Wal-Mart transformation into the world’s largest retailer by changing its logistics system:
highest sales per square foot, inventory turnover and operating profit of any discount retailer
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Cross-Docking
Product vs. Service Supply Chain
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A Narrowcasting
Environment
Retail Store
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Expressive Commerce: Strategic Sourcing at Procter & Gamble
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Outline
Supply Chain Management
SCM Challenges in Today’s Economy
Magnitude of Supply Chain Costs
Topics Covered
SCM Challenges & Solutions
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DevelopmentChain
Distributed Large scale
Conflicting Objectives
Dynamic Environment
Inventory
Risk Pooling
Value of InformationTech Standard
Strategic Alliance
Smart Pricing
Procurement
Supply Contracts
eMarkets
Distribution
SCM Challenges & Solutions
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DevelopmentChain
Distributed Large scale
Conflicting Objectives
Dynamic Environment
Inventory
Risk Pooling
Value of InformationTech Standard
Strategic Alliance
Smart Pricing
Procurement
Supply Contracts
eMarkets
Distribution
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Summary
Supply Chain Management
SCM Challenges in Today’s Economy
Magnitude of Supply Chain Costs
Topics Covered
Materials of some slides are taken from David Simchi-Levi; Philip Kaminsky; Edith Simchi-Levi. "Designing and Managing the Supply Chain". McGraw-Hill Higher Education, 2008. ISBN-13: 9780073341521 (ISBN-10: 0073341525)
Used by Permission.