Post on 30-May-2018
transcript
8/14/2019 Suppy Chain Mgt Intro
1/261
Introduction to SupplyChain Management
Dr. Dale S. RogersCenter for Logistics Management
University of Nevada
MGRS 474/674
Dr. Dale S. RogersCenter for Logistics Management
University of Nevada
MGRS 474/674
8/14/2019 Suppy Chain Mgt Intro
2/261
Seminar Goal
s Establish an understanding of the role and function ofsupply chain management strategies in the context ofthe technology marketplace.
s Develop a more thorough understanding of the
critical interrelationships that compose the supplychain.
s Concept of supply chain system design
s Introduce and ask participants to identify anopportunity to establish or improve supply chains.
8/14/2019 Suppy Chain Mgt Intro
3/261
Future of Competition
My Supply Chain vs. Your SupplyChain
SupplierSupplier InboundInbound
TransportTransportOutboundOutbound
TransportTransportDistributionDistributionManufacturingManufacturing UltimateUltimate
CustomerCustomer
SupplierSupplier InboundInbound
TransportTransportOutboundOutbound
TransportTransportDistributionDistributionManufacturingManufacturing UltimateUltimate
CustomerCustomer
8/14/2019 Suppy Chain Mgt Intro
4/261
is the process of planning, implementing
and controlling the efficient, cost effectiveflow and storage of raw materials, in-process
inventory, finished goods, and related
information from point-of-origin to point-of-
consumption for the purpose of conforming to
customer requirements.
[Council of Logistics Management, 1986]
1986 CLM DEFINITION OF LOGISTICS
8/14/2019 Suppy Chain Mgt Intro
5/261
SUPPLY CHAIN MANAGEMENT
is the integration of key business processes
from end user through original suppliers, that
provides products, services, and information
that add value for customers and
other stakeholders.
[The International Center for Competitive Excellence, 1994]
[Global Supply Chain Forum, 1998]
8/14/2019 Suppy Chain Mgt Intro
6/261
1998 CLM DEFINITION OF LOGISTICS
.is that part of the supply chain process that
plans, implements, and controls the efficient,effective flow and storage of goods, services,
and related information from the point-of-
origin to the point-of-consumption in order to
meet customers' requirements.
[Council of Logistics Management, 1998]
8/14/2019 Suppy Chain Mgt Intro
7/261
Supply
ChainBusiness
Processes
Tier 1Supplier
Tier 2Supplier
SUPPLY CHAIN MANAGEMENTIntegrating and Managing Processes Across the Supply Chain
LogisticsPurchasing Marketing & Sales
R&D
CustomerConsumer/End-user
CUSTOMER RELATIONSHIP MANAGEMENT
CUSTOMER SERVICE MANAGEMENT
DEMAND MANAGEMENT
ORDER FULFILLMENT
MANUFACTURING FLOW MANAGEMENT
PROCUREMENT
PRODUCT DEVELOPMENT AND COMMERCIALIZATION
RETURNS
PRODUCT FLOWProduction Finance
Manufacturer
Information Flow
Source: Douglas M. Lambert, Martha C. Cooper, Janus D. Pagh, Supply Chain Management: Implementation Issues and Research Opportunities, TheInternational Journal of Logistics Management, Vol. 9, No. 2, 1998, pp. 2.
8/14/2019 Suppy Chain Mgt Intro
8/261
Customer Relationship
Management Process! Customer focus teams develop and implement
customer partnering programs.
! Product/service agreements are established.
! New customer interfaces are used to better predict
customer demand and improve the way customers
are serviced.
! Teams identify and eliminate sources of productionvariability.
! Key performance evaluation criteria (both company
performance and customer account profitability) areused to measure results.
Required BehaviorsRequired Behaviors
Customer relationships are managed by customer focus teams which
negotiate mutually beneficial product / service agreements with large,strategically significant customers.
ustomer RelationshipManagement
8/14/2019 Suppy Chain Mgt Intro
9/261
Customer ServiceManagement Process
! Customer Service provides a single source ofcustomer information, a point of contact for
administration of the product / service agreement.
! Instant promising/availability information isconveyed via the supply/demand manager
interface.
! On-line/real-time product and pricing information
assists customers with order placement.
! On-line/real-time access to order status
information is available to support customer
enquiries.
Required BehaviorsRequired Behaviors
Maximizing customer service means providing a focused point of contactfor all customer enquiries in order to insulate them from the complexity of alarge, multi-divisional corporation.
Customer ServiceManagement
8/14/2019 Suppy Chain Mgt Intro
10/261
Demand ManagementProcess
! Demand requirements and supply capabilities are
continuously modeled using point of sale and key
customer data.
! Market requirements and production plans are
coordinated on an enterprise-wide basis.
! Multiple sourcing and routing options are
considered at the time of order receipt.! Worldwide on-line/real-time inventory availability
check and promising capacity is employed.
! Demand and production rates are synchronised and
inventories are managed globally.
Required BehaviorsRequired Behaviors
In demand management, customer demand is continuously gathered,compiled and renewed in order to match our supply capability withrequirements in the market.
DemandManagement
8/14/2019 Suppy Chain Mgt Intro
11/261
Fulfilment Process
! Customer need dates and requirements drive
the process.
! Manufacturing, distribution, and transportation
plans are integrated.
! Strategic alliances with channel partners and
carriers are formed to meet requirements and to
reduce total-delivered-cost of the product to
customers.
Required BehaviorsRequired Behaviors
Customer orders that are 100% on-time, accurate, and complete require anintegrated supply and delivery system that is responsive, flexible andcustomer-driven.
Fulfillment
8/14/2019 Suppy Chain Mgt Intro
12/261
Manufacturing Flow
Management Process! Production must shift from a supply/push method
of operation to a demand/pull method based on
customer needs.
! Manufacturing processes must flexibly respond to
market changes with rapid changeover capabilities
for mass customisation.
! Minimum lot sizes are planned to move toward a
make to order environment.! Production priorities are driven by required delivery
dates.
! Specific supply strategies are developed for each
customer segment.
Required BehaviorsRequired Behaviors
Rapid response to changing market conditions implies maximum flexibility
in production planning and manufacturing capabilities.
Manufacturing Flow
Management
8/14/2019 Suppy Chain Mgt Intro
13/261
Procurement
Procurement Process
Relationships with major suppliers are corporately managed in strategicalliances while purchase order transactions become simplified andintegrated with the supply process.
Required BehaviorsRequired Behaviors
! Strategic plans of suppliers and company are
aligned to focus resources on holding down costs
and developing new products.
! Supplier categorisation and management is
implemented on a corporate global basis, with
purchasing in a strategic contracting role.
! Purchase order transactions are integrated with
the supply process to improve productivity and all
areas of supplier performance.
8/14/2019 Suppy Chain Mgt Intro
14/261
SUPPLY CHAIN NETWORK STRUCTURE
Members of the Focal Companys Supply Chain
n
2
3
1
2
1
1
n
2
1
3
n
1
21
n
2
n
1
2
n
1
Tie
r3
ton
cus
tom
ers
Consumers/E
nd-customers
n
Tier
3
tons
uppliers
InitialSupp
liers
Focal Company
Tier 1Customers
Tier 2Customers
Tier 3 toConsumers/
End-CustomersTier 2
SuppliersTier 1
Suppliers
Tier 3 toInitial
suppliers
n
1
n
8/14/2019 Suppy Chain Mgt Intro
15/261
2) What processes should belinked with each of these
key supply chain members?
1) Who are the key supplychain members with whom
to link processes?
3) What level of integration andmanagement should be applied
for each process link?
Supply ChainBusinessProcesses
Supply ChainNetworkStructure
Supply ChainManagementComponents
SUPPLY CHAIN MANAGEMENT FRAMEWORK:
Elements and Key Decisions
Source: Douglas M. Lambert, Martha C. Cooper, and Janus D. Pagh, Supply Chain Management: Implementation Issues and Research Opportunities, TheInternational Journal of Logistics Management, Vol. 9, No. 2, 1998.
8/14/2019 Suppy Chain Mgt Intro
16/261
Managed Process Links
Monitor Process Links
Not-Managed Process Links
Non-Member Process Links
n
2
3
1
2
n
1
1
n
2
1
3
n
n
1
1
21
n
2
n
1
2
n
1
n
1 n
Tier 1Customers
Tier 2Customers
Tier 3 toConsumers/
End-CustomersTier 2
SuppliersTier 1
Suppliers
Tier 3 toInitial
suppliers
n
1
TYPES OF INTER-COMPANY BUSINESS PROCESS LINKS
InitialSu
ppliers
Ti
er3
tons
uppliers
Tie
r3
ton
cus to
mers
Consumers
/End-customers
Members of the Focal Companys Supply Chain
Non-Members of the Focal Companys Supply Chain
Focal Company
8/14/2019 Suppy Chain Mgt Intro
17/261
The Global Supply Chain Forum, The Ohio State University -- Do not reproduce, cite or quote without written permission.
Alternative 1) Integrate with and activelymanage Link 2.
Alternative 2) Monitor the procedures of
Company B and Company C for integratingand managing Link 2.
Alternative 3) Not involved, leave theintegration and management up toCompany B and Company C.
FocalCompany Company B Company C
Link 1 Link 2
THE FOCAL COMPANYS ALTERNATIVES FOR
INVOLVEMENT WITH LINK 2
8/14/2019 Suppy Chain Mgt Intro
18/261
SUPPLY CHAIN MANAGEMENT: THE DISCONNECTS
Tier 1Supplier
Tier 2Supplier
LogisticsPurchasing Marketing & Sales
R&D
CustomerConsumer/
End-Customer
CUSTOMER RELATIONSHIP MANAGEMENT
CUSTOMER SERVICE MANAGEMENT
DEMAND MANAGEMENT
ORDER FULFILLMENT
MANUFACTURING FLOW MANAGEMENT
PROCUREMENT
PRODUCT DEVELOPMENT AND COMMERCIALIZATION
RETURNS
PRODUCT FLOWProduction Finance
Manufacturer
Information Flow
8/14/2019 Suppy Chain Mgt Intro
19/261
Company A Product Development Supply Chain
Customer Management
Company B Strategy Development Business Management
Market Development Product Development Manufacturing Capability Development Order Fulfillment
Company E Customer Relationship Management Customer Order Fulfillment Business Planning Manufacturing & Supply Product Development Procurement
Company D Business Process
- Marketing Planning- Prospecting- Exploring Needs- Developing Solutions- Decision- Presenting & Closing
- Delivering- Demonstration Results
Company F Supply Chain Account Planning
Company C Selling Process Customer Order Fulfillment
Manufacturing & Supply New Product Creation Procurement
REPRESENTATIVE BUSINESS PROCESSES
IDENTIFIED IN SELECTED CASE COMPANIES
8/14/2019 Suppy Chain Mgt Intro
20/261
8/14/2019 Suppy Chain Mgt Intro
21/261
AN ILLUSTRATION OF A SUPPLY CHAIN SHOWING EACH
INTEGRATED AND MANAGED BUSINESS PROCESS LINK
Product Development andCommercialization Process
Demand Management Process
Customer Relationship Management Process
Order Fulfillment Process
Not-Managed Business Process Link.
Focal Company.
Selected Members of the
Focal Company's Supply Chain.
Managed Demand Management Process Links
Managed Order Fulfillment Process LinksManaged Product Develop./Commercial Process LinksManaged Customer Relationship Manag. Process Links
8/14/2019 Suppy Chain Mgt Intro
22/261
AN ILLUSTRATION OF A SUPPLY CHAIN COMBINING ALL THEINTEGRATED AND MANAGED BUSINESS PROCESS LINKS
Managed Customer Relationship Manag. Process Links
Not-Managed Business Process Links.
Focal Company.
Selected Other Membersof the Focal Company'sSupply Chain.
Managed Product Develop./Commercial. Process Links
Managed Order Fulfillment Process Links
Managed Demand Management Process Links
8/14/2019 Suppy Chain Mgt Intro
23/261
IMPLEMENTATION OF SUPPLY CHAIN MANAGEMENT
Note: Process sponsorship and ownership must be established to drive the attainment of the supply chain vision and eliminatethe functional barriers that artificially separate the process flows.
Information Architecture, Data Base Strategy, Information Visibility
Technical Logistics PurchasingFinance &
Accounting
Sales &
Marketing
BusinessProcesses
Typical
FunctionsSilos
Manufac-
turing
C
UST
OME
RS
DemandManagement
NetworkPlanning
CapabilityPlanning
SourcingDemandPlanning
CustomerRelationshipManagement
Requirements
Definition
Manufacturing
Strategy
Sourcing
Strategy
Customer
Profitability
Account
Management
Requirements
Definition
Customer ServiceManagement
PerformanceSpecifications
CoordinatedExecution
AccountAdministration
TechnicalService
Manufacturing FlowManagement
Production
Planning
Integrated
SupplyManufacturingProcess
Stability
FulfillmentDistribution
ManagementPlantDirect
SelectedSupplier(s)
DistributionCost
SpecialOrders
ProductDevelopment andCommercialization
ProcessSpecifications
MaterialSpecifications R & D Cost
ProductDesign
BusinessPlan
MovementRequirements
PriorityAssessment
CostTo Serve
TradeoffAnalysis
ProcessRequirements
EnvironmentalRequirements
Packaging
Specifications
Prioritization
Criteria
S
UPP
LIE
RS
ProcurementIntegratedPlanning
SupplierManagement
MaterialsCost
MaterialSpecifications
OrderBooking
InboundFlow
Cost
8/14/2019 Suppy Chain Mgt Intro
24/261
CHARACTERISTICS OF
SUPPLYCHAIN MANAGEMENT
! Strategy and policies shared acrosssupplychain
! Fully coordinated supply chain cash tocash
! Integrated business processes for entiresupply chain
8/14/2019 Suppy Chain Mgt Intro
25/261
THE MOVE TOWARDSTRADE MARKETING
To:To:
Building Stronger Partnerships Through Multiple LinkagesBuilding Stronger Partnerships Through Multiple Linkages
MIS
R&D
MKT
LOG
ACCT
MIS
R&D
MKT
LOG
ACCT
Customer Supplier
From:From:
Traditional Buyer/Supplier RelationshipTraditional Buyer/Supplier RelationshipMIS
R&D
MKT
LOGACCT
MIS
R&D
MKT
LOGACCT
Buyer Seller
8/14/2019 Suppy Chain Mgt Intro
26/261
8/14/2019 Suppy Chain Mgt Intro
27/261
FUTURE RESEARCH OPPORTUNITIES:
PROCESSES What are the operational definitions of the key business
processes and what are the relationships among the processes?
What are the relationships among the processes and thefunctional silos? What is the tolerance for sub-optimization?
How do you obtain buy-in from the functional areas in order toimplement a process approach within the firm?
How can the various participants in a company be encouraged towork toward a common goal? Marketing and manufacturingreward structures often tend to be counter to one another yet thefirm has overall profitability goals.
Does the answer lie in similar reward structures, rewards tied tooverall performance, or will process teams accomplish much ofthis?
Beyond internal integration, how does inter-organizational change
management be implemented?
8/14/2019 Suppy Chain Mgt Intro
28/261
How should the existing supply chain be mapped?
Should the map include all connected firms or only the value-adding firms?
Are there other means of determining who should and should notbe part of the supply chain map? For example, should only the
most critical members be mapped?
What are the implications for good SCM practice based upon theshape of the supply chain, that is horizontal structure, verticalstructure and focal company position in the supply chain?
FUTURE RESEARCH OPPORTUNITIES:
SUPPLY CHAIN MAPPING
8/14/2019 Suppy Chain Mgt Intro
29/261
8/14/2019 Suppy Chain Mgt Intro
30/261
What metrics should be used to evaluate the performance of theentire supply chain, individual members or subsets of members?
What are the potential barriers to implementation and how shouldthey be overcome?
What characteristics of managing the supply chain are related tohigher performance of the supply chain, subsets of firms in the
supply chain, and the individual firms? Since the processes mayvary by link, these measures may need to be both processspecific and global.
FUTURE RESEARCH OPPORTUNITIES:
METRICS
8/14/2019 Suppy Chain Mgt Intro
31/261
What is the process to take the map of the existing supply chainand modify it to obtain the best supply chain given the desiredoutputs?
How frequently should the supply chain structure be reviewed?What approaches could be used to perform the evaluation?
Which approaches are appropriate for different supply chainforms and situations?
How should the firm analyze the network to determine if there is abetter configuration?
How does building a stronger relationship with one member affect
the management time allocable to other members? Should a third party manage some relationships to free resources
for this closer relationship, which thus, changes the membershipof the network? Is it an iterative process?
FUTURE RESEARCH OPPORTUNITIES:
NETWORK REDESIGN
8/14/2019 Suppy Chain Mgt Intro
32/261
What determines with whom to link business processes?
What are the steps to take to determine with whom to link?
What are the critical factors to the firm's success and that enablethe firm to link with specific companies?
What are the barriers to forming these relationships? Should thedecision process vary based on whether Tier 1 or Tier ncompanies are the focus?
For Tier n companies, what critical factors imply a closerrelationship of managed or monitored links to key members toassure supply, quality, and service?
What are the compelling reasons to have closer ties withcompanies beyond the first tier?
FUTURE RESEARCH OPPORTUNITIES:
INTEGRATION
8/14/2019 Suppy Chain Mgt Intro
33/261
What determines the processes to link with these key members?
How should the firm decide which internal process to link withwhich suppliers and customers?
What decision criteria determine whose internal businessprocesses prevail across all or part of the supply chain?
FUTURE RESEARCH OPPORTUNITIES:
PROCESS INTEGRATION
8/14/2019 Suppy Chain Mgt Intro
34/261
What determines the type/level of integration that should beapplied to each process link? It is important to provide firms withsome guidelines regarding what level of managementcomponents to apply to achieve the desired relationship andmanagement of a link. More components and/or a higher level ofeffort on a component may be required to achieve a desired levelof integration of a process link.
What constitutes a low level versus a high level of a specificmanagement component?
What is the relationship among the management components forsuccessful SCM?
Do changes in the physical and technical componentsautomatically require changes in the managerial and behavioralcomponents?
FUTURE RESEARCH OPPORTUNITIES:IMPLEMENTATION OF MANAGEMENT COMPONENTS
8/14/2019 Suppy Chain Mgt Intro
35/261
8/14/2019 Suppy Chain Mgt Intro
36/261
SUCCESSFUL SCM IS BASED ON DETERMINING:
Who are the key supply chain
members with whom to integrateprocesses?
What are the supply chain processes
to link with these key members? What type/level of integration should
be applied to each of these process
links?
8/14/2019 Suppy Chain Mgt Intro
37/261
LOGISTICS MANAGEMENT DEFINED
Counci l o f Logis t ic s Management (1986)
the process of planning, implementing and controllingthe efficient, cost effective flow and storage of rawmaterials, in-process inventory, finished goods, andrelated information from point-of-origin to point-of-consumption for the purpose of conforming to customerrequirements.
8/14/2019 Suppy Chain Mgt Intro
38/261
SUPPLY CHAIN MANAGEMENT
is the integration ofkey business processes
from end user through original suppliers, that provides
products, services, and information
that add value for customers
and other stakeholders.
[The International Center for Competitive Excellence, 1994][Global Supply Chain Forum, 1998]
8/14/2019 Suppy Chain Mgt Intro
39/261
8/14/2019 Suppy Chain Mgt Intro
40/261
8/14/2019 Suppy Chain Mgt Intro
41/261
8/14/2019 Suppy Chain Mgt Intro
42/261
8/14/2019 Suppy Chain Mgt Intro
43/261
Sub-Optimization
s Local optimizations result fromorganizations optimizing own resultsrather than the total supply chain.
s Systems approach is critical.s Performance measurements and
reward systems must be synchronizedwith supply chain objectives.
8/14/2019 Suppy Chain Mgt Intro
44/261
UCS Operations & Program S pport Vision
8/14/2019 Suppy Chain Mgt Intro
45/261
...Racing as a team for marketdifferentiation in supply chainmanagement.
UCS Operations & Program Support Vision
Partnering with our clients aroundthe globe, serving their needs forfuture success...
8/14/2019 Suppy Chain Mgt Intro
46/261
8/14/2019 Suppy Chain Mgt Intro
47/261
Computing History
s 1833 Charles Babbage developed a calculating machine with input, storage
and outputs 1848 George Boole's work on mathematics (Boolean algebra) is the basis
for all binary operations
s 1878 W. T. Odhner used pin-wheels for the next generation of mechanical
calculating machines
s 1886 Herman Hollerith (founder of IBM) had the idea of using punchedcards to keep and transport information
s 1886 Dorr E. Felt built the first successful key-driven (as opposed to dial)calculator
s 1891 William S. Burroghs invented the first robust calculating machine andstarted the office calculation industry
8/14/2019 Suppy Chain Mgt Intro
48/261
8/14/2019 Suppy Chain Mgt Intro
49/261
Burroughs Calculating Machines
8/14/2019 Suppy Chain Mgt Intro
50/261
Burroughs Calculating Machines
s
Small, portable - 25lbs.
s Square keys added
wings to thefingers
s Faster keying
1949
1920s
Elements in the Framework of
8/14/2019 Suppy Chain Mgt Intro
51/261
Supply Chain Management
BusinessProcesses
Supply Chain
Management
ManagementComponents
Supply Chain
Structure
8/14/2019 Suppy Chain Mgt Intro
52/261
Supply Chain Strategy
Manufacturing
TransformationStrategy
Logistics
Strategy
Product
Strategy
Demand
ManagementStrategy
MarketingStrategy
8/14/2019 Suppy Chain Mgt Intro
53/261
SupplierSupplier
PlantsPlants SupplierSupplier
OwnedOwned
WhsesWhsesCompaqCompaq
PlantsPlants
OrderOrder
FulfillmentFulfillment
CustomerCustomer
EDIEDI
ReplenishmentReplenishmentEDI JITEDI JIT
SignalsSignalsBTOBTO
SignalsSignals OrdersOrders
THE CUSTOMER PULLS PRODUCT THROUGH THE SUPPLY CHAIN
Supply Chain Strategy
8/14/2019 Suppy Chain Mgt Intro
54/261
8/14/2019 Suppy Chain Mgt Intro
55/261
Selecting Supply Chains
Company
Customer Customer CustomerCustomer
Supplier Supplier Supplier
A firms supply chain is much more like an uprooted tree than a chain
Not all supply chains are appropriate for ECR.
El t f S l Ch i
8/14/2019 Suppy Chain Mgt Intro
56/261
Elements of Supply Chain
Management
CustomerService
Management
DemandManagement
CustomerRelationshipManagement
OrderFulfillment
Procurement
ManufacturingFlow
Management
ProductDevelopment
andCommercialization
8/14/2019 Suppy Chain Mgt Intro
57/261
8/14/2019 Suppy Chain Mgt Intro
58/261
Customer Service
s
Single point of contact - one face to thecustomer
s Current information about the order
s Production and distribution status
s Product information
8/14/2019 Suppy Chain Mgt Intro
59/261
Demand Management
s
Synchronize flow of products andmaterials to customer demand
s Forecasting
s Reduction of variability
8/14/2019 Suppy Chain Mgt Intro
60/261
Manufacturing Flow
8/14/2019 Suppy Chain Mgt Intro
61/261
Manufacturing Flow
Management
s
Making products that customer wantss Flexible manufacturing
8/14/2019 Suppy Chain Mgt Intro
62/261
Procurement
s
Managing relationships with strategicsuppliers
s Not just bid &buy
s Should not be order placers
s Support manufacturing flow
management and new productdevelopment
8/14/2019 Suppy Chain Mgt Intro
63/261
8/14/2019 Suppy Chain Mgt Intro
64/261
Burroughs ComputersBurroughs built splendid machines attracted a
loyalty that surpassed even IBMs.What made the Burroughs computers so good was
the then-unique idea that the software people,
the programmers, needed to participate indesigning the computers from the beginning.
In most firms, engineers came first, programmers
second. Burroughs went much further than theother firms in bringing programmers in quickly.Source: Joel Shurkin, (1996). Engines of the Mind, pp. 273-274.
8/14/2019 Suppy Chain Mgt Intro
65/261
8/14/2019 Suppy Chain Mgt Intro
66/261
Planning & Control
s
Key to moving organization or supplychain in right direction.
s Joint planning
s Planning important during allevolutionary phases
s
Control is best performing metrics.
AVERAGE INVENTORY INVESTMENT UNDER
8/14/2019 Suppy Chain Mgt Intro
67/261
Inve ntory
Averagecycle
inventory
A. With variable demand
Ss(
afetytock50)
yAverageinve nto r(150)
200
100
8 10 20 30 40
Days
CONDITIONS OF UNCERTAINTY
AVERAGE INVENTORY INVESTMENT UNDER
8/14/2019 Suppy Chain Mgt Intro
68/261
Inve ntory
Averagecycle
inventory
B. With variable lead time
Safetystock(40)
Averageinventory(140)
200
100
10 20 30 40Days
12
CONDITIONS OF UNCERTAINTY
8/14/2019 Suppy Chain Mgt Intro
69/261
8/14/2019 Suppy Chain Mgt Intro
70/261
FACTORS INFLUENCING SAFETY STOCKS
Forecast error
Exposure to stockout
Lead time
Service level requirement
RELATIONSHIP BETWEEN INVENTORY
8/14/2019 Suppy Chain Mgt Intro
71/261
INVESTMENT AND CUSTOMER SERVICE LEVELS
75 84.1 90.3 94.5 97.799.9 100
675
728
780
850
1025
Service percentage
Inventoryinvestmentinunits
8/14/2019 Suppy Chain Mgt Intro
72/261
8/14/2019 Suppy Chain Mgt Intro
73/261
Organizational Structure
s
Is the organization designed to facilitateor hinder supply chain management ?
s Cross-functional teams.
s Interorganizational teams.
8/14/2019 Suppy Chain Mgt Intro
74/261
8/14/2019 Suppy Chain Mgt Intro
75/261
8/14/2019 Suppy Chain Mgt Intro
76/261
Product Structure
s How is new product introductioncoordinated across the supply chain?
s How does product fit with other other
products?s Product complexity
8/14/2019 Suppy Chain Mgt Intro
77/261
8/14/2019 Suppy Chain Mgt Intro
78/261
Power & Leadership Structure
s Channel captain
s Source of power
8/14/2019 Suppy Chain Mgt Intro
79/261
Risk and Reward Structure
s How are risks and rewards sharedacross supply chain?
s How are risks and rewards shared
through out the organization?s What are the risks and rewards?
s What should suppliers and customersrisk?
8/14/2019 Suppy Chain Mgt Intro
80/261
Culture & Attitude
s Compatibility of corporate cultures.
s How are employees valued?
s What are values of the firm?
Supply Chain Management as a
8/14/2019 Suppy Chain Mgt Intro
81/261
Strategic Weapon
s Finance companys Outsourcing for nearly 100 years
Process Focus versus
8/14/2019 Suppy Chain Mgt Intro
82/261
Traditional Functions
s Focus of every process is on meetingthe customers needs.
s Traditional functional approach does not
focus on meeting the customers needs.
8/14/2019 Suppy Chain Mgt Intro
83/261
8/14/2019 Suppy Chain Mgt Intro
84/261
Balanced Scorecard
8/14/2019 Suppy Chain Mgt Intro
85/261
Strategic Framework
Communicating&
Linking
Balanced
Scorecard
ClarifyingVision &
Strategy
StrategicFeedback
and Learning
Planning &TargetSetting
Product Development &
8/14/2019 Suppy Chain Mgt Intro
86/261
Commercialization
s Measuring development cost for new components
s Measuring development time for new componentss Determining component-level specs
s Determining new introduction plans for products
s Sharing component-level specs
s Determining new product introduction performance objectives
s Sharing estimated lifecycles for products
s Determining product-level specs
s Sharing new product introduction performance objectives
s Sharing new introduction plans
s Sharing product-level specs
s Measuring product quality
i l C i
8/14/2019 Suppy Chain Mgt Intro
87/261
Virtual Corporations
Brand Owner
Raw Material/Assembly
Supplier
HumanResourceServiceSupplier
Financial
ServicesSupplier
ManufacturerSupplier
LogisticsServices
Supplier
Marketing
ServiceSupplier
InformationServiceSupplier
Distributor
8/14/2019 Suppy Chain Mgt Intro
88/261
T i M i i M
8/14/2019 Suppy Chain Mgt Intro
89/261
Turning Metrics into Moneys What measurements should a supply chain
manager focus on?
s Which performance measurements best translateinto bottom-line achievement?
s For many managers, the measurements that are
used to determine their performance are notreally appropriate.
s Measurements are often developed for ease of
use and not really good gauges of success.
T diti l M t
8/14/2019 Suppy Chain Mgt Intro
90/261
Traditional Measurements
s Standard costing systems
s Management by variances can bethe enemy of good supply chain
management.
Shift
8/14/2019 Suppy Chain Mgt Intro
91/261
Shift
s Shift from treating financial (cost)figures as only foundation forperformance to one of a broader set of
metrics.s Long-term success is not just based on
profitability. Rather it is based on
adherence to principles.
Wh M t i T k ?
8/14/2019 Suppy Chain Mgt Intro
92/261
Where are Metrics Taken?
s Might not be good enough tomeasure within the firm.
s Measure entire supply chain.
SupplierSupplier InboundInbound
TransportTransportOutboundOutbound
TransportTransportDistributionDistributionManufacturingManufacturing UltimateUltimate
CustomerCustomer
8/14/2019 Suppy Chain Mgt Intro
93/261
R d fi T k
8/14/2019 Suppy Chain Mgt Intro
94/261
Redefine TasksIn knowledge and service work, however, the first
questions in increasing productivity - and working
smarter - have to be, What is the task?What are we trying to accomplish? Whydo it all?
The easiest, but perhaps also the greatest,productivity gains in such work will come fromdefining the task eliminating what does not needto be done.
Source: Peter Drucker, The New Productivity Challenge, Harvard Business Review , November-December 1991, p. 4.
8/14/2019 Suppy Chain Mgt Intro
95/261
8/14/2019 Suppy Chain Mgt Intro
96/261
Frequency of Measurement
8/14/2019 Suppy Chain Mgt Intro
97/261
Frequency of Measurements Frequency of
reportedinformation shouldfollow operations
cycle.s Flood of data not
much better than a
drought.
8/14/2019 Suppy Chain Mgt Intro
98/261
8/14/2019 Suppy Chain Mgt Intro
99/261
8/14/2019 Suppy Chain Mgt Intro
100/261
8/14/2019 Suppy Chain Mgt Intro
101/261
8/14/2019 Suppy Chain Mgt Intro
102/261
Whiz-Kid Failure
8/14/2019 Suppy Chain Mgt Intro
103/261
Whiz-Kid Failure
s Organized,
systematic,measurement of thewrong things can
lead to the undoingof many years ofgood, hard work.
s Systems can bedangerous.
8/14/2019 Suppy Chain Mgt Intro
104/261
8/14/2019 Suppy Chain Mgt Intro
105/261
Oracle is not a Silver BulletSilver BulletSilver BulletSilver BulletSilver BulletSilver BulletSilver BulletSilver Bullet
8/14/2019 Suppy Chain Mgt Intro
106/261
Oracle is not a Silver BulletSilver BulletSilver BulletSilver BulletSilver BulletSilver BulletSilver BulletSilver Bullets Results from ERP implementations
mixed.
ss TrueTrueTrueTrueTrueTrueTrueTrue information integration is positive.
s Supply chain management personneloften lose functionality after ERPimplementation.
s Drains resource
s What will you get from Cornerstone?
Planning Systems
8/14/2019 Suppy Chain Mgt Intro
107/261
Planning Systems
s For aftermarket parts, planning systems
critical.
s Can take you down wrong path.
s Systems weakest link will drivebehavior.
8/14/2019 Suppy Chain Mgt Intro
108/261
Enterprise Resource Planning
PackagesP C
8/14/2019 Suppy Chain Mgt Intro
109/261
PackagesPros
s Links planning,
scheduling, andtransactions to financials
s Singular database
s
Links with customers/vendors of similar ERP
Cons Lacks functional demand
planning & scheduling
Very expensive when
modifications are needed
Implementation can takeyears
Packages: Baan, SAP, Oracle, DAI, American Software,
JD Edwards, D&B Software, PeopleSoft,
MarCam, Ross Systems, Daly & Wolcott
Enterprise Resource Planning
Systems
8/14/2019 Suppy Chain Mgt Intro
110/261
Syste s
s Motivation is from top management
s Many logistics managers believe thatthey have to give up functionality when
moving to an ERPs In-the-box versus Out-of-the-box
8/14/2019 Suppy Chain Mgt Intro
111/261
Process ChangeIt d t b fi h d th t t
8/14/2019 Suppy Chain Mgt Intro
112/261
gs It used to be a firm changed the systems to
match current business processes. Today,
many ERP installations have moved firmsto change business processes to matchthe new system.
8/14/2019 Suppy Chain Mgt Intro
113/261
Data Manipulation Tools
8/14/2019 Suppy Chain Mgt Intro
114/261
p
s Good supply chain managers do not
have to rely on IT to get data analysiscompleted.
s
Need to be able to use tools such as: Excel
Access
Planning tools
8/14/2019 Suppy Chain Mgt Intro
115/261
When the Priests arent Satisfied
8/14/2019 Suppy Chain Mgt Intro
116/261
8/14/2019 Suppy Chain Mgt Intro
117/261
Customer Perspective
8/14/2019 Suppy Chain Mgt Intro
118/261
CustomerAcquisition
Customer
Profitability
MarketShare
CustomerRetention
Customer
Satisfaction
Balanced Scorecard
FinancialObj ti
8/14/2019 Suppy Chain Mgt Intro
119/261
CustomerRelationships and
Measures
Vision &
Strategy
Objectives&
Measures
InternalBusiness
Processes
Learning
&Growth
Balanced Scorecard
Strategic FrameworkClarifying
8/14/2019 Suppy Chain Mgt Intro
120/261
Communicating&
Linking
Balanced
Scorecard
ClarifyingVision &
Strategy
StrategicFeedback
and Learning
Planning &
TargetSetting
Supply Chain ClassificationsMargin
8/14/2019 Suppy Chain Mgt Intro
121/261
Margin
High Low
LongLife Cycle
Products
Short
Life CycleProducts
Niche Commodity
Fashion
Inventory holding
costs are stable
Inventory holding
costs change overproduct life cycle
of product
Rolex Lumber
X-Mas trees,
DressesBread,
Dresses
What is the Value of
Integration?
8/14/2019 Suppy Chain Mgt Intro
122/261
s Identify Supply
Initiativess Quantify Impact on
Profits and/or
Capitals Quantify Impact on
Value
Economic Value Added
Net
Operating
Profit
AfterTaxes
Capital
Charge-
Economic
ProfitEconomic Value is created when a company deploys its
capital to create value in excess of capital costs
Profit > cost of capital
Economic Value Added
8/14/2019 Suppy Chain Mgt Intro
123/261
s Change in Economic Profit from year to
the next.s Economic profit
NOPAT capital charge
What is EVA?
8/14/2019 Suppy Chain Mgt Intro
124/261
s EVA = Return - cost of capital employed
s EVA is the value created by a business overand above the required rate of return oninvestors (Shareholders) capital.
s EVA is a business performance measure thatgives the total economic view.
s EVA is a decision making tool.
s EVA links business planning/performancewith required shareholder return.
EVA Best Explains Changes in
Stock Market Value
8/14/2019 Suppy Chain Mgt Intro
125/261
Earnings per share 18%
Cash flow 22%
Return on Equity 35%
EVA 50%
Management of the Capital (Assets)
Invested in the Business is as Critical as the
Management of the Cost.
8/14/2019 Suppy Chain Mgt Intro
126/261
s Capital includes the assets employed in
running the businesss Working Capital includes Cash,
Inventory, Receivables, Payabless Fixed Assets include Land, Buildings,
Equipment, Vehicles
Logistics EVAs Will generally be negative is considered
8/14/2019 Suppy Chain Mgt Intro
127/261
independently from revenue generation.
No revenue/no profit Operating expenses
Major capital investment required in fixed assets andlease commitments
s Logistics must be part of the business designthat creates EVA within the business unit.
Provide the logistics solution
Minimize costs to maximize profits
Minimize asset investment/Maximize assetproductivity
Logistics Can Be A Major
Contributor to EVAImprovement
8/14/2019 Suppy Chain Mgt Intro
128/261
ps Cost
s Services
s Asset Management
8/14/2019 Suppy Chain Mgt Intro
129/261
8/14/2019 Suppy Chain Mgt Intro
130/261
Benchmarking
8/14/2019 Suppy Chain Mgt Intro
131/261
Flow SubstitutionsInformation
8/14/2019 Suppy Chain Mgt Intro
132/261
Inventory
Information
Finance
Source: Professor Hau Lee, Stanford University
Forecast improvements,signaling
Consignment, credit terms, return policy
Pricing, deals, data sales
Perfect Quality is Defined by
Whom?s When is the order frozen?
8/14/2019 Suppy Chain Mgt Intro
133/261
s When is the order frozen?
s Speed of information versus speed ofmanufacturing
s Quality of product includes customer
satisfaction
Formalizations Group members
l l d t d
8/14/2019 Suppy Chain Mgt Intro
134/261
clearly understand
culture and missions Understand
positioning
s Rules & proceduresgive freedom
Supply Chain MeasurementsArea Measurement TypeService Fill rate linear
Cost Logistics cost linear
8/14/2019 Suppy Chain Mgt Intro
135/261
Productivity Asset/Utilization Inventory linear
Productivity Asset/Utilization Recycling linear
Productivity Asset/Utilization Throughput number of items sold linearTime Response time linear
Time Cash-to-cash linear
Time Operating expense cost to convert inventory to
throughput
linear
Productivity Asset/Utilization &
Service
ROA with 100% customer satisfaction linear
Service & Time Order aging curve curve
Service & Time Line fill rate by time curve
Value Economic profit linear
8/14/2019 Suppy Chain Mgt Intro
136/261
Service Defections
Wh t i th t f l i t ?
8/14/2019 Suppy Chain Mgt Intro
137/261
s What is the cost of losing a customer?
s What is the cost of a lost sale?
s What are defectors telling you?
s Watch the doors Do you have a Zero defections
culture?
Performance vs. Variety vs.
Lower CostLower Cost
8/14/2019 Suppy Chain Mgt Intro
138/261
Performance Variety
New Model of Service
s Value investments in people as much as investments
8/14/2019 Suppy Chain Mgt Intro
139/261
s Value investments in people as much as investments
in machines, and sometimes more.s Use technology to support efforts of men and women
on front lines - and not just to monitor or replacethem.
s Make recruitment and training as crucial forsalesclerks and housekeepers as for managers andsenior executives.
s
Link compensation to performance for employees atevery level, not just for those at the top.
Design for .s DFM - Design for Manufacturability
s DFSCM - Design for Supply Chain
8/14/2019 Suppy Chain Mgt Intro
140/261
s DFSCM Design for Supply ChainManagement
s DFR - Design for Responsiveness
s Design for Postponement
s DFRL - Design for Reverse Logistics
Even
s DFS - Design for Service
Design for Service
s Put customers first s Expanding IT
8/14/2019 Suppy Chain Mgt Intro
141/261
s Put customers first.
s Focus on where andhow customersinteract with
company.s Value strategy
s Flattened
organization
s Expanding IT
systemss Shifted from
Manufacturing to
assembly.s Concentrate on
customers.
s Selective hiring &liberal training.
Design for Responsiveness
StagesActivity Transactional Interactive Interdependent
Info Sharing Information ond d
Some sharing of process
i f i
Extensive sharing of
i f b h
8/14/2019 Suppy Chain Mgt Intro
142/261
component and product
specs shared
information process info at both
strategic and tactical
levelsDecision Making Design decisions made
independently
Some collaboration with
partners to influence
des ign choices
Supply chain structures,
component specification,
and detailed design
developed by consensus
and negotiation between
partners
Performance
measures
Performance measures
by product development
not related to supply
chain performance
Some use of
performance measures to
track time-to-availability
and total lifecycle costs
Extensive use of
performance measures
tied to sharing of
rewards and risks
Technology Separate designdatabases and systems
Some sharing of
analytical tools and
accounting databases
Extensive use of
technology to facilitate
fast decision-making
Source: Professor Hau Lee, Stanford University
Service Guarantees
8/14/2019 Suppy Chain Mgt Intro
143/261
s Commit to error-free service.
s Unconditional
s Easy to understand and communicate.
s Meaningful
s Easy to invoke.
s Easy to collect.
Customer Service Dimensions
s Care and concern - employee friendliness
8/14/2019 Suppy Chain Mgt Intro
144/261
s Care and concern employee friendliness,
courtesy, and warmth.s Initiative - employees ability and willingness
to jockey the system on customer behalf.
s Problem solving - figuring out solutions tocustomer problems whether unusal orroutine.
s Recovery - going the extra yard.
Cost of Lost Customer
s Costs 5 times more to replace a
8/14/2019 Suppy Chain Mgt Intro
145/261
s Costs 5 times more to replace a
customer than retaining one.
Service Recovery
s Measure the costs of service recovery.
8/14/2019 Suppy Chain Mgt Intro
146/261
s Measure the costs of service recovery.
s Break the silence.s Anticipate needs for recovery.
s Act fast.
s Train employees.
s Empower the front line.
s
Close the loop.s Brilliant recoveries.
Order Management Cycle
OrderGeneration
Order Planning,Sales
forecasting,Capacityplanning
PostSales
Service
8/14/2019 Suppy Chain Mgt Intro
147/261
OrderSelection
andPrioritization
OrderReceipt
andentry
CostEstimation
andPricing
Scheduling
OrderFulfillment
Billing
Returnsand Claims
Relationships Between
Competitors
conflict
8/14/2019 Suppy Chain Mgt Intro
148/261
s These c ha rac teriza tions c an be thought
of as a c ontinuum tha t ranges fromc onflic t as the most competitive mod e to
c ollusion where there is a tota l absenc e of
competition.
conflict
competition
coexistence
cooperation
collusion
Identifying a service strategy
s What attributes of service are - and will
8/14/2019 Suppy Chain Mgt Intro
149/261
at att butes o se ce a e a d
continue to be - most important to ourtarget markets?
s On which important service attributes isthe competition weakest?
s What are the existing and potential
service capabilities of our company?
Defining a service strategys What are the companys integral service competencies? What are
the critical knowledge and skills that define and drive the firm bothphilosophically and practically?
8/14/2019 Suppy Chain Mgt Intro
150/261
p p y p y
s What are the companys service incompetencies? What are theknowledge and skill weaknesses?
s What are the companys resource strengths and weaknesses?Finances, facilities, technologies, human and other resources
s
What is the companys service reputation? How do customers,noncustomers, and employees view service performance?
s What is the companys belief system? What is valued in theorganization? What is the companys core culture?
s
What is the companys service strategy? What is the reason forbeing today?
Service Checklist
s Is our service strategy clear & compelling to all of ouremployees?
s Does our service strategy deliver genuine value to customers?
8/14/2019 Suppy Chain Mgt Intro
151/261
s Does our service strategy deliver genuine value to customers?
s Does our service strategy emphasize excellent service quality?
s Do we live our service strategy in this company?
s Does our service strategy demand superior achievement?
s Does our service strategy differentiate our company from
competitors?
s Do we reinforce our service strategy with explicit servicestandards that guide and energize employees?
s Do we reinforce our service strategy with appropriate symbols?
Push/Pull Boundary
8/14/2019 Suppy Chain Mgt Intro
152/261
Suppliers Manufacturing Distributor Retailer
Push/Pull Boundary
Postponement is the delay of the point of productdifferentiation to a point further downstream in the
supply chain.
Profitable Customers
s Up to 70% of a firms typical customers
8/14/2019 Suppy Chain Mgt Intro
153/261
p yp
are not at all profitable.s At a pharmaceutical distributor, only
30% of customers were profitable.
Top 30% generated 261% of the profits
Top 10% generated 151% of the profits
Remaining 70% lost 161% of top 30 profitsSource: Hope & Hope, (1995) Transforming the Bottom Line. Harvard Business School Press
Real Costs of Inventory
s At other electronics firms, inventory is a
8/14/2019 Suppy Chain Mgt Intro
154/261
serious concern to managementbecause real costs have been growing.
s Do we know what real costs of inventoryare?
Life-Cycle Management
8/14/2019 Suppy Chain Mgt Intro
155/261
s Selecting & implementing supply-chain
management strategies appropriate tolife-cycle stage.
Electronics Product Life Cycle
4
8/14/2019 Suppy Chain Mgt Intro
156/261
42
Development Volume Shipments End of Life
Life Cycle Support
Chasm
8/14/2019 Suppy Chain Mgt Intro
157/261
Inventory Carrying Costs
s consist of expenses such as:
8/14/2019 Suppy Chain Mgt Intro
158/261
cost of money, insurance,
taxes,
shrinkage,
warehousing, and
obsolescence.
Inventory Driven Carrying
Costs100%
Product
Salvaged
8/14/2019 Suppy Chain Mgt Intro
159/261
Time
50%
0%
Product
Introduction
And Volume
Sales
Product
Obsolescence
BargainBasement
Discounts
Product Responsibility Curve
8/14/2019 Suppy Chain Mgt Intro
160/261
Product Life Cycle
Product Responsibility Curve
BirthEnd of Life
End ofResponsibility
8/14/2019 Suppy Chain Mgt Intro
161/261
Supply Chain ChallengesIncreasing
Product Variety
InformationDistortion(Bullwhip Effect)
Logistics
Complexities
Geographical Increasing demand Complex global
8/14/2019 Suppy Chain Mgt Intro
162/261
Geographical
marketpreferences, localgovt regulations
Increasing demand
variability upstreamin supply chain
Complex global
supply chains withmultiple sites, flows,borders, modes
Diverse customer
preferences
Beer-game,
whiplash effect
Complexities in
labor management,laws, cultures
Short & overlappingproduct life cycles
What you see is notwhat they see
Bullwhip impactworsens with longcycle times
Source: Professor Hau Lee, Stanford University
Symptoms: Curses & Paralyses
Variety Proliferation
InformationDistortion
Logistics
ComplexityForecastingnightmare
Inventory piling up Long lead times
8/14/2019 Suppy Chain Mgt Intro
163/261
High mfg cost Service degradation High Logistics costs
High inventories Wasteful resources Excessive overhead
Poor customer
service
Poor capacity
planningHigh obsolescence Inefficient scheduling& transportation
High product support& service costs
Misinformed marketvalue
Source: Professor Hau Lee, Stanford University
LEAP (Leading Edge Advanced
Procurement)s Total cost of ownership
8/14/2019 Suppy Chain Mgt Intro
164/261
s Facilitate virtualizations ERS - Evaluated Receipt Settlement -
pay in X days after receipt of goods
s Life cycle management
s Supply chain integration
s Eliminate transaction processing
s Web-based procurement (Ariba, etc.)
Invoice Payment
s In Europe, shared services center
8/14/2019 Suppy Chain Mgt Intro
165/261
processes 200,000 invoices/years Soon to be 350,000 invoices/year
Types of Organizational
Problemss Technical - routine or possibly expert
8/14/2019 Suppy Chain Mgt Intro
166/261
methods exist.s Adaptive - routine methods do not exist
and challenge is to effectively mobilize
community to solve the problem.
s Hybrid - problem requires a combination
of technical and adaptive leadership tobe solved.
8/14/2019 Suppy Chain Mgt Intro
167/261
Solving Problems
Action Technical or Routine Adaptive
Direction Define problem Identify adaptivechallenge
8/14/2019 Suppy Chain Mgt Intro
168/261
Protection Shield org from threat Let org balanceexternal pressures
Orientation Clarify roles torespond
Challenge currentroles and resistpressure
Managing Conflict Restore order Expose conflicts
Maintain Norms Maintain norms,social network
Challengeunproductive norms;modify social network
Source: Dr. Corey Billington, Hewlett-Packard
2,000/200,000 Problem
s At Ford, FCSD buyers looking for 2,000
8/14/2019 Suppy Chain Mgt Intro
169/261
parts with many special requirementswhile Assembly plants want 200,000with less hassle to the supplier.
s Purchasing job much tougher.
s Must emphasize other issues besides
cost savings.s Creativity required.
8/14/2019 Suppy Chain Mgt Intro
170/261
Computer Business Increasingly
Complex & Competitives Technology
Rapid Innovation
Differentiated to commodity
s Product
Multiple channelstructures
8/14/2019 Suppy Chain Mgt Intro
171/261
product
Short product life cycles
30% reduction per year inresale value
Demand distortion
Collapse of the middle
s Customer
Increasinglysophisticated
Demanding uniqueconfigurations
Product proliferation
s Supply Chain
Transition from vertically-integrated to network
structure Globalization
Concentration of suppliers
Integration Opportunities
s Compress supply chain structure
s Collaboration planning forecasting &
l i h
8/14/2019 Suppy Chain Mgt Intro
172/261
replenishments Joint capacity planning
s Product development is an integration
opportunity
Integration Opportunities
s Compress Supply Chain
Internal postponement
E t l t t
s Collaboration, Planning,Forecasting & Replenishment
C ll b ti d d l i
8/14/2019 Suppy Chain Mgt Intro
173/261
External postponement Sales agent
Direct
Collaborative demand planning Synchronized order fulfillment
& replenishment
Joint capacity planning
s Product Development is IntegrationOpportunity
Supply Chain structural analysis
Design for postponement/manage
product variety
Use standard & intergenerational parts &suppliers
Demand Plannings Today, distributors build financial plans which drive
category and assortment planning, driven by saleshistory.
M f t b ild fi i l l b d k t
8/14/2019 Suppy Chain Mgt Intro
174/261
s Manufacturers build a financial plan based on marketdemand and / or account projections that driveproduction planning.
s These processes all affect the ability to execute atshelf level, yet the business processes and systemsare not integrated.
s The lack of integration creates natural disconnects inthe supply chain causing excessive response times,costs and inventory.
8/14/2019 Suppy Chain Mgt Intro
175/261
CPFR Critical Metrics
s Results-orientedmetrics
Out of stock on store
shelf
s Process-orientedmetrics
Order forecast
accuracy
8/14/2019 Suppy Chain Mgt Intro
176/261
shelf Inventory turns
consolidated acrossvalue chain
Total value-chain cycletime
Sales forecastaccuracy
Profitability Return on assets
accuracy Order fill rates to each
inventory holdinglocation
Cycle time for eachprocess activity
Process cost
Collaborative Planning,
Forecasting, & Replenishments Method to improve alignment of supply and demand.
8/14/2019 Suppy Chain Mgt Intro
177/261
Supply-Demand MismatchShort product life
cycles
Product shortages
Independent planning
& execution decisions
Supply-Demand AlignmentShared forecasting &
demand
Synchronized order
fulfillment
Joint capacity planning
s Supply-Demand alignment can significantly impactbottom-line.
Collaborative Planning,
Forecasting, & Replenishments In Stanford University study, collaborative planning is
estimated to reduce each segment of the PC industry
inventory investment 10 to 25 percent and increase
8/14/2019 Suppy Chain Mgt Intro
178/261
inventory investment 10 to 25 percent and increaseEVA from $135 to $330M.
s Turns improve 33%
Source: Andersen & Stanford CDDN Study, 1997.
Collaborative Plannings Forecasting, order fulfillment and capacity planning
are opportunity areas within Collaborative Planningthat partners are using to improve supply chain
performance
8/14/2019 Suppy Chain Mgt Intro
179/261
performance.Forecasting
SynchronizedOrder
Fulfillment
JointCapacityPlanning
Collaborative Planning Stages
Activity Transactional Interactive InterdependentInfo Sharing Minimal info shared for
demand forecastingSome sharing of demandinfo (e.g., historical
sales, forecast
assumptions)
Extensive sharing ofdemand and promotional
info
Decision Making Demand forecast Some collaboration with Demand forecast
8/14/2019 Suppy Chain Mgt Intro
180/261
Source: Professor Hau Lee, Stanford University
Decision Making Demand forecastdeveloped independent
of partners
Some collaboration with
partners to influence
demand forecast
Demand forecast
developed by consensus
and negotiation among
partners
Performance
measures
No performance
measures used
Some use of
performance measures to
track forecast accuracy
Extensive use of
performance measures
linked to shared risks
and rewards among
partners
Technology Limited use oftechnology
Some use of EDI to
share/transmit demand
info
Extensive use of
technology including
EDI, web, demand
planning tools
Collaborative Planning,
Forecasting, & Replenishments Improves alignment of supply & demand
s Moves firm from transactional toi d d i i i
8/14/2019 Suppy Chain Mgt Intro
181/261
s Moves firm from transactional tointerdependent activities
s Positive bottom-line impact
s Large value creation resulting fromsynchronization and fewer assets
Integration Issues
s Some passive interfaces, but very little
true integration
8/14/2019 Suppy Chain Mgt Intro
182/261
true integration.s Where there are points of integration,
these points often allow no reaction time
to correct divergent paths to the extentof satisfying consumer demand.
Integrate Business Processess Jointly managed business processes must be defined.
Leverage the competencies, systems and resources of each tradingpartner
Facilitate collaboration on planning , forecasting, and replenishment
8/14/2019 Suppy Chain Mgt Intro
183/261
p g , g, p
s Standards for the sharing of information (data formats)must be defined to facilitate the collaboration process.
s Methods of integrating results of collaboration intooperational systems of both the distributors and suppliersmust be developed.
s
Key performance measures for joint, co-managed supplychain activities must be defined and agreed upon.
8/14/2019 Suppy Chain Mgt Intro
184/261
Aggregate Forecasting &
Replenishments Data aggregated to product family or
brand level by week or month byi
8/14/2019 Suppy Chain Mgt Intro
185/261
brand level, by week or month, byregion
s Data inaccuracy hidden by aggregation
processs Conventional DRP or push-based
planning
Inventory Management MethodsBus
Plan
Aggregate
Forecasting
Vendor Managed
Inventory
Jointly Managed
InventoryAssembleData
Syndicated data &historical sales
POS, whsewithdrawl data,,syndicated data
POS data byproduct, store &week
Sales
Forecst
SF at high level of
detail
Product,Cus DC, by
week
Store level by week
by product
8/14/2019 Suppy Chain Mgt Intro
186/261
Orderforecast
Focus on mfgsupport within firm
Focus on retailerDC by invenotry &cost targets
Time-phasedreplenishment ofstores & all DCs
OrderGen
Retailer assumes100% fulfillment
Pull from storereplenishment orconsumer dmd
Either party basedon store level salesthat are timephased
Order
Fulfillment
Available at
supplier DC
Priority to VMI
customer fromsupplier DCs
From DC or mfg
depnding onintegration plan
Source: CPFR Draft, 1/98
Compressed Supply Chain
s May change which firm or organization within thefirm own sales and customer relationships
s May change which firm or organization within thefirm own order fulfillment and final configuration
8/14/2019 Suppy Chain Mgt Intro
187/261
firm own order fulfillment and final configuration
s Reduces inventory investment
s Increases value by providing a clearer signal of
customer demands Greater flexibility through delayed product
differentiation
s Utilizes postponement
Internal Postponement
s Internal postponement reduces inventory investment bydelaying product differentiation and final configurationfrom traditional manufacturing site to internal
distribution centers
8/14/2019 Suppy Chain Mgt Intro
188/261
s Delays customization of finished goods and installationof the most expensive and fastest-depreciatingcomponents
s Delayed customization allows supply chain toaccommodate more demand variability with lessinventory
s Raw increases & FGI decreases resulting in overallreduction in inventory
Design Principles
s Process Design Principles
Keep the view of entire supply chain in mind...extend to the
process customers customer; suppliers supplier...
8/14/2019 Suppy Chain Mgt Intro
189/261
s Question everything.
Why is this process done at all?
Why is it done here?
Why is it done by that person?
Why is it done in this sequence?
Adding value or adding cost?
Is the customer willing to pay for it?
Product Development
s Opportunity to integrate supply chain
s
Improves procurements Firms that design products with supply
8/14/2019 Suppy Chain Mgt Intro
190/261
p ps Firms that design products with supply
chain performance issues in mind can
improve time to availability
Order Fulfillment StagesActivity Transactional
Interactive InterdependentInfo Sharing Limited to basic order
infoSome sharing ofinventory availability
and shipment info
Extensive sharing ofinventory, shipment and
sell-through info
Decision Making Independent orderdecisions Phantom
Demand
Some negotiation of
order decisions among
partners
Synchronized ordering
decisions driven by
shared replenishment
policies, channelinventory data and POS
8/14/2019 Suppy Chain Mgt Intro
191/261
inventory data and POS
data (VMI/JMI)
Performance
measures
Limited performance
measures
Some shared
performance measureslike lead times, on-time
delivery, and inventoryavailability
Extensive use of
performance measurestied to shared risks and
rewards
Technology Limited use oftechnology
Some use of technology
to track orders and
material flow
Extensive use of
technology to allow real-
time tracking or ordersand material and
automatic replenishment
Source: Professor Hau Lee, Stanford University
Capacity Planning StagesActivity Transactional Interactive InterdependentInfo Sharing Limited capacity info Some sharing of
capacity info for
materials,
manufacturing, and
logistics resources
Extensive sharing ofcapacity info including
ability to flex up or
down
Decision Making Independent of partnersand reactive short-termcommitments
Some shared decision-making about material
contracts manufacturing
Extensive use of sharedcapacity decisions
characterized by flexible
8/14/2019 Suppy Chain Mgt Intro
192/261
commitments contracts, manufacturing
and logistics resources;
may include outsourcing
characterized by flexible
contracts, outsourcing,
and contingency
planning
Performance
measures
Limited to internal
partners
Some measures related
to reliability and quality
Extensive use of
performance measurestied to sharing of
rewards and risks
Technology Limited to internalpartners
Some use of technology
to share info like EDI
Use of transaction and
decision support systemsthat provide support for
capacity planning
Source: Professor Hau Lee, Stanford University
Ten Dimensions of Service
QualityTangibles: Appearance of physical facilities, equipment, personnel, and
communication materials.
Reliability: Ability to perform the promised service dependably and accurately.
Responsiveness: Willingness to help customers and provide prompt service
Competence: Possession of the required skills and knowledge to perform theservice.
8/14/2019 Suppy Chain Mgt Intro
193/261
Courtesy: Politeness, respect, consideration, and friendliness of contactpersonnel.
Credibility: Trustworthiness, believability, honesty of the service provider.
Security: Freedom from danger, risk, or conflict.
Access: Approachability and ease of contact.
Communication: Keeping customers informed in language they can understandand also listening to them.
Understanding the Customer: Making the effort to know customers and theirneeds.
From: Zeithaml, Parasuraman, and Berry. (1990). Delivering Quality Service. New York: The Free Press
Predictions - 1994
s Information technology critical
s
Look for nichess Convergence
8/14/2019 Suppy Chain Mgt Intro
194/261
s Convergence
s Outsourcing will increase
s Focus Speed - Time-Based Competitions Prerequisite Service Quality
s Global Challenge
How has the Business changed
since 1994?s More sophisticated
s
Systems much bigger issues Getting into businesses that would not have 5
8/14/2019 Suppy Chain Mgt Intro
195/261
s Getting into businesses that would not have 5years ago
s International demandss Customers want more better, faster, cheaper
s Customers say they want to be more
integrateds Value-added services growing
New Value-Added Services
s Offerings that used to be value-added
services are now considered to be anormal part of everyday business
8/14/2019 Suppy Chain Mgt Intro
196/261
normal part of everyday business.
s New value-added services such as
inventory financing
Add Services that Enhance Core
Businesses and IncreaseCapabilities
q Understand Mission - Articulate Service
8/14/2019 Suppy Chain Mgt Intro
197/261
Philosophy
q Set Multiple and Measurable Objectivesq Assist Customer in Understanding
Possibilities
q Concentrate on Winnersq Benchmark
Long-Term Competitive Edge
s With rare exception, products cannot be thesource of long-term competitive edge.
s Superior products can usually provide only atemporary advantage
8/14/2019 Suppy Chain Mgt Intro
198/261
s Service-based strategies are more permanent
Market Share vs. Customer Share
TOTAL
9%
13%
8/14/2019 Suppy Chain Mgt Intro
199/261
" Often price-based
" Rarely establishes loyalty
" Easy to defect
28%
50%
Built on relationship withcustomers
Allows a more tailoredsolution
Increases switching costs
Understand Profits
8/14/2019 Suppy Chain Mgt Intro
200/261
q Know how profitable each customer
isq Know how profitable all your
Differentiate Customers, Not
Just Services
q Make sure all levels of firm knowyour customers.
8/14/2019 Suppy Chain Mgt Intro
201/261
you custo e s
q Determine which customers are
more valuable than others.q Make sure you know the value of
retaining each customer.
Share of Customer
q Identify potential customers
Basic servicesValue added services
8/14/2019 Suppy Chain Mgt Intro
202/261
q Link customers identities to their
transactions with youq Learn about your customers
businesses with competitors
q Collaborate with customers
Partnerships
s Some firms believe that they are involved in realpartnerships.
s To customers, partnershipping does not implyequality.
8/14/2019 Suppy Chain Mgt Intro
203/261
equa ty
s Honest disclosure of costs
s Co-manage productivitys Profit sharing
s Incentives
8/14/2019 Suppy Chain Mgt Intro
204/261
Satisfying Customerss Customers select third party logistics firms based on
customer service, knowledge, management strength,systems, location and price. While most customersstress issues other than price, reasonable cost isalways expected.
As value standards rise so do customer
8/14/2019 Suppy Chain Mgt Intro
205/261
s As value standards rise, so do customerexpectations. You can stay ahead only by moving
ahead.s Producing an unmatched level of a particular kind of
value requires a superior operating model - amachine- dedicated to just that kind of value.
8/14/2019 Suppy Chain Mgt Intro
206/261
1994 Selection FactorsFactor Mean Std DevService quality 6.44 0.98
Reliability 6.41 0.97On time performance 6.32 0.98Good communication 6.02 1.16Customer support 5.93 1.18Speed of service 5.90 1.04Flexibility 5.87 1.17
Management quality 5.83 1.14Willingness to customize service 5.67 1.17Order cycle time 5.66 1.31Price 5 65 1 20
8/14/2019 Suppy Chain Mgt Intro
207/261
Price 5.65 1.20Easy to work with 5.54 1.25Location 5.52 1.30Cost reduction 5.43 1.34Vendor reputation 5.40 1.28Special expertise 5.33 1.33Systems capabilities 5.09 1.36Personal relationships 5.02 1.47Technical competence 4.96 1.43Variety of available services 4.81 1.40
Early notification of disruptions 4.58 1.77Decreased labor problems 4.56 1.64Decreased asset commitment 4.55 1.49Increased competition 4.36 1.51Global capabilities 3.00 1.75
1999 Selection FactorsScale of 1 to 7
Factor MeanService quality 6.36Reliability 6.29On time performance 6.20
Price 5.98Flexibility 5.81Cost reduction 5 80
Factor MeanSpecial expertise 5.37Vendor reputation 5.34Easy to work with 5.33
Systems capabilities 5.30Technical competence 5.15Personal relationships 4 92
8/14/2019 Suppy Chain Mgt Intro
208/261
Cost reduction 5.80Management quality 5.78Speed of service 5.73Order cycle time 5.68Good communication 5.67Customer support 5.62Location 5.61
Customize service 5.53
Personal relationships 4.92Variety of services 4.86Early notification disruptions4.64Decreased assets 4.61Decreased labor problems 4.58Increased competition 4.32Global capabilities 3.08
Int erna t iona l demands
s 3rd par t ies have to
prepare to serve
internationalmarkets.
8/14/2019 Suppy Chain Mgt Intro
209/261
s Man y customers
wan t to move tofewer providers
Flexibility
s 3rd par t ies cannot easily define
themselves much anymore. Theyhave to be flexible, quick, and n imble.
8/14/2019 Suppy Chain Mgt Intro
210/261
Special Qualities of Services
$ Intangilibility
$ Inseparability
8/14/2019 Suppy Chain Mgt Intro
211/261
$ Heterogeneity
$ Perishability
Intangibility of Services
q Cannot be stored
q Cannot be protected
through patentsq Cannot be readily
displayed or
q Stress tangible cues.
q Use personal sourcesmore than non-personalsources.
q Simulate or stimulateword of mouth
Marketing Problems Marketing Strategies
8/14/2019 Suppy Chain Mgt Intro
212/261
displayed orcommunicated
q Prices are difficult toset
word-of-mouthcommunications.
qCreate strongorganizational image.
q Use cost accounting tohelp set prices.
q Engage in postpurchase
communications.
From: Zeithaml, Parasuraman, Berry. Problems and Strategies in Services Marketing. Journal of Marketing, (Spring 1985)
Inseparability of Services
q
Customer involved inproduction.
q Other customers
qEmphasize selection andtraining of public contact.
q Manage customers.
Marketing Problems Marketing Strategies
8/14/2019 Suppy Chain Mgt Intro
213/261
involved in production.
q Centralized mass
production of servicesdifficult.
q Use multisite locations
From: Zeithaml, Parasuraman, Berry. Problems and Strategies in Services Marketing. Journal of Marketing, (Spring 1985)
Heterogeneity of Services
q Standardization andquality control difficult toachieve.
q Industrialize service(standardizing certaincommon services).
Marketing Problems Marketing Strategies
8/14/2019 Suppy Chain Mgt Intro
214/261
q Customize service.
From: Zeithaml, Parasuraman, Berry. Problems and Strategies in Services Marketing. Journal of Marketing, (Spring 1985)
Perishability of Services
q Services cannot be q Use strategies to copewith fluctuating demand
Marketing ProblemsMarketing Strategies
8/14/2019 Suppy Chain Mgt Intro
215/261
inventoried. with fluctuating demand.
q Make simultaneous
adjustments in demandcapacity to achievecloser match between thetwo.
From: Zeithaml, Parasuraman, Berry. Problems and Strategies in Services Marketing. Journal of Marketing, (Spring 1985)
Relationships Between
Competitorsconflict
competition
8/14/2019 Suppy Chain Mgt Intro
216/261
s These c harac teriza tions c an b e thought of as a
c ontinuum that ranges from c onflic t as the mostc ompetitive mode to c ollusion where there is a tota l
absenc e of c ompetition.
coexistence
cooperation
collusion
Service Mapping
s Visualize the interaction of the customer and theservice system from the point of view of the
customer.s Insure that all aspects of the service system add
value to the customers experience of the service
8/14/2019 Suppy Chain Mgt Intro
217/261
value to the customer s experience of the servicewhich the company intends to deliver.
s Identify the points at which the service system mightbreak down, or otherwise fail to produce the intendedvalue for customers.
Service Map Format
Activities which can be directlyperceived by customers, including
customer interaction
Line of visibility
8/14/2019 Suppy Chain Mgt Intro
218/261
Activities which are invisible tocustomers
y
Service Process Fail Points
s Process does not add value to customers.
s Customer involvement does not supportservice concept.
s Inadequate integration between customer
8/14/2019 Suppy Chain Mgt Intro
219/261
s Inadequate integration between customerinvolvement and the service system.
s Operations infrastructure is poorly defined.
Does Not Add Value
s No clear vision of level of service
s
Vision not accepted totally within theorganization
N t ti it d i d ith
8/14/2019 Suppy Chain Mgt Intro
220/261
s Not every activity designed with
objective of service speed in mind
Customer Involvement Does
Not Support Service Concepts Interaction with customer is cluttered
s
Too many steps for customers Too complex
8/14/2019 Suppy Chain Mgt Intro
221/261
Inadequate Integration BetweenCustomer Involvement and the Service
System
s Poor communication linkages between
first line customer service providers andthe rest of the organization.
8/14/2019 Suppy Chain Mgt Intro
222/261
g
s
Potential customer needs notanticipated and integrated into theservice system
Operations Infrastructure IsPoorly Defined
s Systems and procedures overlycomplicated.
s System designed according to criteriawhich have little to do with meeting
8/14/2019 Suppy Chain Mgt Intro
223/261
which have little to do with meeting
customer needs.
Service-Profit Chain Audit
s How do we define loyal customers?
s Do measurements of customer profitability include
profits from referrals?s What proportion of business development
expenditures are directed to the retention of existing
8/14/2019 Suppy Chain Mgt Intro
224/261
expenditures are directed to the retention of existingcustomers?
s Why do our customers defect?
s Are customer satisfaction data gathered in anobjective, consistent, and periodic fashion?
s Where are the listening posts for obtaining customerfeedback in your organization?
Service-Profit Chain Audit
s How is information concerning customer satisfactionused to solve customer problems?
s How do you measure service value?s How is information concerning customers
perceptions of value shared with those responsible
8/14/2019 Suppy Chain Mgt Intro
225/261
perceptions of value shared with those responsiblefor designing a product or service?
s To what extent are measures taken of differencesbetween customers perceptions of quality deliveredand their expectations before delivery?
Service-Profit Chain Audit
s Do the organizations efforts to improve externalservice quality emphasize effective recovery from
service errors in addition to providing a service rightthe first time?
s How do you create employee loyalty?
8/14/2019 Suppy Chain Mgt Intro
226/261
s Have we made an effort to determine the right levelof employee retention?
s Is employee satisfaction linked to customersatisfaction with enough frequency to establish trends
for management use?
Service-Profit Chain Audit
s To what extent are measures of customersatisfaction, customer loyalty, or the quality and
quantity of service output used in recognizing andrewarding employees?
s Do employees know who their customers are?
8/14/2019 Suppy Chain Mgt Intro
227/261
8/14/2019 Suppy Chain Mgt Intro
228/261
Service Laws
s First Law of Service
Satisfaction = Perception - Expectations
s Second law of Service
Its Hard to Play Catch-Up Ball
8/14/2019 Suppy Chain Mgt Intro
229/261
It s Hard to Play Catch Up Ball
Waiting
8/14/2019 Suppy Chain Mgt Intro
230/261
Waiting is frustrating, demoralizing,agonizing, time consuming, andincredibly expensive. Federal ExpressCommercial
Principles of Waiting
s Unoccupied time feels longer than occupiedtime.
s Pre-process waits feel longer than in-process waits.
s Anxiety makes waits seem longer.
s Uncertain waits are longer than known,finite waits.
8/14/2019 Suppy Chain Mgt Intro
231/261
s Unexplained waits are longer than
explained Fwaits.
s Unfair waits are longer than equitable waits.
s The more valuable the service, the longer Iwill wait.
s Solo waiting feels longer than groupwaiting.
Service Defections
s What is the cost of losing a customer?
s
What is the cost of a lost sale?s What are defectors telling you?
s Watch the door
8/14/2019 Suppy Chain Mgt Intro
232/261
s Watch the door
s Do you have a Zero defectionsculture?
Loyalty
s Loyalty integral to to firms basic business strategy.
s Economic benefits.
s Select the right customers.s Demand management
s Who can you deliver superior value to?
8/14/2019 Suppy Chain Mgt Intro
233/261
y p
s Customers build trust with employees - notexecutives
Loyalty Measures
s Understand cause-and-effect relationships betweenloyalty and profits.
s Retention rates Share of purchases
s Repeat purchases
8/14/2019 Suppy Chain Mgt Intro
234/261
s Referralss Customer acquisition costs
s Customer service employee retention
New Model of Service
s Value investments in people as much as investmentsin machines, and sometimes more.
s Use technology to support efforts of men and womenon front lines - and not just to monitor or replacethem.
M k it t d t i i i l f
8/14/2019 Suppy Chain Mgt Intro
235/261
s Make recruitment and training as crucial forsalesclerks and housekeepers as for managers andsenior executives.
s Link compensation to performance for employees at
every level, not just for those at the top.
Identifying a service strategy
s What attributes of service are - and willcontinue to be - most important to ourtarget markets?
s On which important service attributes is
8/14/2019 Suppy Chain Mgt Intro
236/261
the competition weakest?s What are the existing and potential
service capabilities of our company?
Defining a service strategys What are the companys integral service competencies? What are
the critical knowledge and skills that define and drive the firm bothphilosophically and practically?
s What are the companys service incompetencies? What are the
knowledge and skill weaknesses?s What are the companys resource strengths and weaknesses?
Finances, facilities, technologies, human and other resources
s What is the companys service reputation? How do customers,
8/14/2019 Suppy Chain Mgt Intro
237/261
p y p ,
noncustomers, and employees view service performance?s What is the companys belief system? What is valued in the
organization? What is the companys core culture?
s What is the companys service strategy? What is the reason for
being today?
Service Checklist
s Is our service strategy clear & compelling to all of ouremployees?
s Does our service strategy deliver genuine value to customers?
s Does our service strategy emphasize excellent service quality?
s Do we live our service strategy in this company?
s Does our service strategy demand superior achievement?
s Does our service strategy differentiate our company fromtit ?