21st-Century

Supply Chains

Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin

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Overview of 21st-century supply chains

• The supply chain revolution• Why integration creates value• Generalized supply chain model• Responsiveness• Financial sophistication• Globalization

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The supply chain revolution has reshaped contemporary strategic thinking

• Supply Chain Management– Consists of firms collaborating to

leverage strategic positioning and to improve operating efficiency

• Supply Chain Strategy– Is a channel and business

organizational arrangement based on acknowledge dependency and collaboration

• Logistics– The work required to move and

geographically position inventory

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The total integration of the overall business process creates value

Table 1.1 Integrative Management Value Proposition

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The integrated value-creation process must be managed across firms from end to end

Figure 1.1 The Integrated Supply Chain Framework

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Forces driving supply chain strategies

• Information technology• Integrative management• Responsiveness• Financial sophistication• Globalization

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Integrative management requires simultaneous achievement of 8 processes

Table 1.2 Eight Supply Chain Processes

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Concepts necessary for achieving integrated management

• Lowest total process cost is the focus of integrated management– Differs from lowest cost of each function in the process

• Collaboration of operating information, technology and risk has been encouraged by national legislation to keep US-based firms competitive

• Enterprise extension includes expanded managerial influence and control beyond traditional ownership boundaries of a single enterprise

• Integrated service providers (ISP) provide a range of logistics services to accommodate customers, ranging from order entry to product delivery– Commonly known as third (or fourth) party service providers

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Responsiveness emerges as a competitive advantage

Figure 1.2 Anticipatory Business Model

Figure 1.3 Responsive Business Model

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Postponement strategies keep supply chains responsive

• Types of Postponement– Manufacturing (or Form)– Geographic (or Logistics)– Combined

• Manufacturing and geographic types are exact opposites in practice but have the same goal– Meeting customer demand quickly while minimizing

inventories

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Manufacturing (or Form) Postponement

• Manufacturing one order at a time• Base modular construction of product• No customization until the exact customer specs and

financial commitment is received• Objective is to maintain products in an uncommitted status

as long as possible• Balances economy of scale with responsiveness

– Can build a sufficient quantity of “ready to customize” basic units• Requires a lot of forethought during product design

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Example of Manufacturing Postponement

Keeping all the car panels a base color (white or gray) until the order is received, then painting to the color ordered

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Geographic (or Logistics) Postponement

• Build or stock a full-line inventory at one or a few strategic locations

• Forward deployment of inventory is postponed until customer orders are received

• Once orders received, specific item is expedited to the local distributor

• Advantages are manufacturing economies of scale along with responsiveness to customer

• Often used for critical, high cost parts and assemblies (e.g. engines)

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Example of Geographic Postponement

Keeping full inventory in a central warehouse and releasing customer orders to local distributors or direct shipping to customer

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Combined Postponement

• Keeping the basic products centralized and performing the customization at the destination distributor

• Historical example - Autos– Installing dealer options like sound systems, GPS, sun

roofs on new cars purchased• Contemporary example - Computers

– Dell Computers, doing final assembly or packaging additional system options like printers, digital cameras at a distribution center

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Barriers to implementing responsive systems

• Need for publicly held corporations to maintain planned quarterly profits

– Expectations of continued financial results often drive promotional and pricing strategies to “load the channel” with inventory

• Need to establish collaborative relationships

– Most business managers do not have training or experience in development of collaborative arrangements

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Financial sophistication enables measurement of time-based supply chain

• Cash-to-Cash Conversion—the time required to convert raw material or inventory purchases into sales revenue

• Dwell Time Minimization—dwell time is the ratio of time that an assets sits idle to the time required to satisfy its supply chain mission

• Cash Spin—reducing assets in the supply chain can “spin” cash for reinvestment in other projects

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Globalization offers firms several attractive opportunities

• Demand exceeds local supply– 90% of global demand is not fully satisfied by local supply

• Strategic sourcing– Identifying and matching the

sources of raw materials and components to manufacturers and distributors

• Offshoring– Moving manufacturing and

distribution operations to countries with favorable labor costs and tax laws

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Significant differences for global logistics

• Distance of typical order-to-delivery operations is significantly longer compared to domestic business

• Documentation requirements for business transactions is significantly more complex

• Operations must be deal with significant Diversity in work practices and local operating environments

• How consumers Demand products and services must accommodate cultural variations