SUPPLY CHAIN MANAGEMENT Introduction to SCM Lecture 1 Deliveri ng a Burger to You When you buy a burger from McDonald or a Zinger from KFC, have you thought where all o f the ingredients came from that produced your sandwich? Depending on the restaurant’s location, McDonald’s and KFC source their ingredients from both local and global suppliers. The challenge is to ensure that all restaurants in their network have enough ingredients to meet customer demand. This requires planning, implementing, and controlling the efficient, effectiv e flow and stora ge of goods and services to deliver the burger to you Fighting a war is a little more difficult! design and development, acquisition, storage, movement, distribution, maintenance, planning and carrying out the movement and maintenance of forces evacuation and disposition of material; movement, evacuation, and hospitalization of personnel; acquisition of construction, maintenance, operation and disposition of facilities a gigantic task indeed. Logistics The word logistics was first associated with the military in 1905 as a branch of war that pertains to the movement and the supply for armies. Now, Logistics is not only used in mi litary but also by managers in almost all spheres of activity to fine tune the process of delivery through various supply lines with the primary objective of being able to deliver not just 'in time' but also at 'the desired place'.
implementing, and controlling the efficient, effectiveflow and storage of goods, services, and relatedinformation from point of origin to point of
consumption for the purpose of conforming tocustomer requirements." (Reference: Council ofLogistics Management)
(Note that this definition includes inbound,
outbound, internal, and external movements, andreturn of materials)
It is a fallacy to assume that the best
logistics strategy is to get the product fromthe supplier to the customer the fastestand always be in stock for allorganizations.
If this were true, most organizations wouldnot be profitable today.
THE PURPOSE OF A
LOGISTICS SYSTEM
RIGHT QUANTITIES of the
RIGHT GOODS to the
RIGHT PLACES at the
RIGHT TIME in the
RIGHT CONDITION at the
RIGHT COST.
Creating a logistics strategy is a balancing actCreating a logistics strategy is a balancing actwhich takes many variables into account.which takes many variables into account.
The Need for Logistics Improvements
Earlier Today
C om p ani e s
• No two companies at thesame level of competition.
• The main motive was toincrease production.
• Production differentiationvery early and far fromcustomer.
Logistics Management is that part ofSupply Chain Management that plans,
implements, and controls the efficient,effective forward and reverse flow and
storage of goods, services and relatedinformation between the point of origin andthe point of consumption in order to meetcustomer’s requirements.
…while Supply Chain Management
Supply Chain Management encompasses theplanning and management of all activitiesinvolved in sourcing and procurement,conversion and all Logistics Managementactivities
Importantly it also includes coordinationcollaboration with channel partners which can besuppliers, intermediaries, third party serviceproviders and customers
In essence, Supply Chain Managementintegrates supply and demand managementwithin and across companies.
Logistics vs. Supply Chain Supply Chain Management
The network of organizations that fulfillcustomer needs
Can either be product or service oriented
Product: cars, computers, etc.
Service: MBA students, Hospitals
By definition, incorporates multiple firms ororganizations not under central control
What are the strategic objectives of theorganization?
- Strategic Analysis of the Competition
- Evaluate Channel Structure
The answers to the above question will give anorganization a road map to set its customer service policy.This policy is then translated to the channel structure to
best meet the organization’s goals in the most efficient andeffective manner for a competitive advantage
Competing for the customer
Customer:
Seeking benefit at an acceptable cost
Company
Asset utilization
Competitor
Asset utilization
Value Value
Cost differential
Competitive Advantage Commercial Success
Competitive Advantage Commercial Success
Commercial Success
Cost Advantage Value Advantage
Cost Advantage helps in productivity advantage andsuccessful companies have:
• PRODUCTIVITY ADVANTAGE: lower cost profile
• VALUE ADVANTAGE: product offering• IDEALLY, A COMBINATION OF BOTH
Productivity Advantage
Comes from experience in efficient production,greater sales volume, economy of scale and
on Marketing For the consumer the customer service, brand value,
corporate image and availability are importantconsiderations.
Marketing is improved with strong ties with intermediarysuch as large retail outlets creating customer franchisesas well as what the consumer is looking for.
The consumer and customer franchises need aneffective supply chain to result in market effectiveness.
ConsumerFranchise
X X =CustomerFranchise
Supply ChainEfficiency
MarketEffectiveness
Brand Value
Corporate
ImageAvailability
CustomerService
PartnershipQuick Response
Flexibility
Reduced Inventory
Low CostSuppliers
Market Share
Customer
Retention
Superior ROI
Barriers to SC Integration
Barriers to Logistics/SC Integration arisefrom inappropriate
Organization Structure
Measurement Systems
Inventory Ownership
Information Technology
Knowledge Transfer Capability
Barriers to Logistics Integration-
Organization Structure
Traditional organization structure preventsany cross-functional process from beingimplemented.
Each functional area concerns itself withachieving its own functional excellence
Reason: Most managers are rewarded forachieving functional excellence
Significant modification of how an organizationdeals with cross-functional matters is essential
for successful process integration
Barriers to Logistics Integration-
Measurement Systems
Traditional measurement systems have alsomade cross-functional coordination difficult.
Managers must learn to view their specificfunctions as part of a process rather than asstand-alone activities
And accept increased costs within theirfunctional area for the sake of lower coststhroughout the process
Measurement system must not penalizefunctional managers, otherwise logistical
Planning & Coordination Flows Superior Network Design
SC facilities typically include manufacturingplant, warehouses, cross-dock operations,outsourced facilities and retail stores
All logistical facilities must be managed as apart of company’s logistical/SC network.
The design network including information andtransportation, also handles customer orders,maintains inventory and materials.
Network design needs to be modified toaccommodate changes in demand and supply,product mix, supplier’s supplies andmanufacturing requirements.
Drivers of Supply Chain Performance
Network Design
Information Inventory Sourcing
Pricing Transportation Warehousing, material handling, and
Packaging
Integrated Logistics/SC
It is the competency that links the company withits customers and suppliers. The entireoperation can be divided into two maincategories:
- Information Flow
- Inventory Flow
Information from and about customers flows in theform of sales activity, orders and forecasts.
The information flow is used for purchasing andmanufacturing plans. The products and materialsprocured are used to move the value added inventory,flow takes place to ultimately result in transfer of productto the consumer.
The logistics/SC operation starts withinitial shipment of materials from a supplierand ends with the manufactured orprocessed product to a customer.
PhysicalDistribution
ManufacturingSupport
Procurement
Inventory Flow
Information Flow
Information flow integrates the threeoperating areas of inventory flow andparallel the actual work performed in thethree operating areas of inventory flow.The main component are:
Planning &Coordination Flows
Information Flow
Operational Flows
Inventory Management Policy
Customer Segmentation
Product Requirement
Transportation Integration
Time Based Requirement
Competitive Performance
CustomerSegmentation
ProductRequirement
TransportationIntegration
Time-basedrequirements
Competitiveperformance
Inventory Management PolicySelective Deployment
Customer Segmentation
More weightage to highly profitable and customers withgrowth potential. Inventory needs to be focused onhighly profitable customers (part of segmented logistics)
Product Requirements
In most cases, there is substantial difference in volumeand profitability across product lines. Selective inventorypolicy demands more importance to be given to productline profitability. An enterprise takes more care of itshighly profitable items.
Transport Integration
Regional warehousing saves transportations which mayoffset the cost of holding inventory
