Intro To Scm Lecture 1-a

Delivering a Burger to You


SUPPLY CHAIN MANAGEMENT







Lecture 1-A Introduction to SCM

Fighting a War is not easy planning and carrying out the movement and maintenance of forces.... those aspects of military operations that deal with the design and development, acquisition, storage, movement, distribution, maintenance, evacuation and disposition of material; movement, evacuation, and hospitalization of personnel; acquisition of construction, maintenance, operation and disposition of facilities




When you buy a burger from McDonald or a Zinger from KFC, have you thought where all of 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, effective flow and storage of goods and services to deliver the burger to you

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 military 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'.

a gigantic task indeed.

Definition of Logistics Logistics - ...the process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption for the purpose of conforming to customer requirements." (Reference: Council of Logistics Management) (Note that this definition includes inbound, outbound, internal, and external movements, and return of materials)

It is a fallacy to assume that the best logistics strategy is to get the product from the supplier to the customer the fastest and always be in stock for all organizations.
If this were true, most organizations would not be profitable today.


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THE PURPOSE OF A LOGISTICS SYSTEM







Customer




Earlier

RIGHT QUANTITIES of the RIGHT GOODS to the RIGHT PLACES at the RIGHT TIME in the RIGHT CONDITION at the RIGHT COST.

Companies




The Need for Logistics Improvements

Creating a logistics strategy is a balancing act which takes many variables into account.

From Fragmentation to Integration-1

Today

• No two companies at the same level of competition. • The main motive was to increase production. • Production differentiation very early and far from customer. • Reaction approach of industries.

• Competition at all levels.

• Customer did not care about specifications. • Less market moving powers

• Customers demand exact specifications. • More power devolved to the customer.

• Main motive is customer service. • Product differentiated nearer the customer. • Action approach of industries.

From Fragmentation to Integration-2

Total Integration Era of Fragmentation


Strategy

- design independent system for each logistics activity


Focus

Evolving Integration


- design coordinated internal systems


- activity costs and productivity


Focus -internal logistics costs and customer service levels

Goal - minimize functional disruption

Strategy




Goal










Strategy developing cross-organizational systems and relationships Focus supply chain performance and value, total cost analysis Goal maximize value and customer satisfaction

- internal costs and service objectives

Supply Chain Integration purchasing

Material control

Material Flow Material Management

Sales

production

Functional Integration

Customer Service

Base Line

Manufacturing Management

Distribution

Material Flow

Customer Service

Internal Integration Material Manufacturing Management Management Distribution

Material Flow

Customer Service

Distribution

External Integration

Suppliers

Internal Supply Chain

Material Flow

Customer

Customer Service

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Supply Chain Management


The network of organizations that fulfill customer needs  Can

either be product or service oriented

Product: cars, computers, etc.
Service: MBA students, Hospitals


 By

definition, incorporates multiple firms or organizations not under central control

Philosophy of SCM








The entire supply chain is a single, integrated entity. The cost, quality and delivery requirements of the customer are objectives shared by every company in the chain. Inventory is the last resort for resolving supply and demand imbalances.

Simplistic Supply Chain

Some More Definitions Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements. Simchi-Levi Call it distribution or logistics or supply chain management. By whatever name, it is the sinuous, gritty, and cumbersome process by which companies move, materials, parts, and products to customers. Fortune (1994)

Efficiency: Basis of Production Management







Efficiency leads to lower costs Lower cost implies Lower Price => Greater demand => Better market growth => Higher profits => Product/ Process development => Better market share 1980s and 1990s: Era of achieving excellence at the firm level (JIT, TQM, TPM, ERP, etc) 2000s: Era of achieving excellence at the value chain level (SCM, E-Commerce, etc.)

More Realistic Supply Chain Customer Base

Customer
Retailer
Distributor
Manufacturer
Supplier

Retailer




Retailer

Retailer

Wholesaler

Retailer

Product Flow

Wholesaler

Sell Side The Firm 1st Tier Supplier 1st Tier Supplier

Buy Side

2nd Tier Supplier

2nd Tier Supplier

3rd Tier Supplier

Information Flow

3rd Tier Supplier

Resources Base

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Why is SCM Important?


Strategic Advantage – It Can Drive Strategy * Manufacturing is becoming more efficient * SCM offers opportunity for differentiation (Dell) or cost reduction (Wal-Mart or Big Bazaar)




Why is SCM Important? (continued)


* COST – For many products, 20% to 40% of total product costs are controllable logistics costs. * SERVICE – For many products, performance factors such as inventory availability and speed of delivery are critical to customer satisfaction.

Globalization – It Covers The World * Requires greater coordination of production and distribution * Increased risk of supply chain interruption * Increases need for robust and flexible supply chains

Conflicting Objectives in the Supply Chain 1. Purchasing • Stable volume requirements • Flexible delivery time • Little variation in mix • Large quantities 2. Manufacturing • Long run production • High quality • High productivity • Low production cost

Traditional View of Suppliers & SCM


Porter’s Power Model 

Very similar to Ford’s


If a supplier makes a penny, that is a penny that Ford could have made 






Maintain internal manufacturing capability, just-in-case

Vertical Integration Optimization of a relatively static chain 

Conflicting Objectives in the Supply Chain 3. Warehousing • Low inventory • Reduced transportation costs • Quick replenishment capability 4. Customers • Short order lead time • High in stock • Enormous variety of products • Low prices

More Advanced View of SCM Minimize number of suppliers
Work on Just-in-time supplies
Virtual Integration


 Control

Multiple suppliers to spread risk





i.e., classic adversarial relationship

At the company level, supply chain management impacts





not ownership

Adaptive & Responsive supply chains Risk management & mitigation

Long life products

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Shift in focus in supply chains

Shift in focus in supply chains

Kopczak & Johnson, 2003

Kopczak & Johnson, 2003




Shift 1: From Cross-Functional Integration to CrossEnterprise




Old question: how can we improve the way we supply product in order to match supply and demand better, given the demand pattern?  New question: how can we get earlier demand information or affect the demand pattern to match supply and demand? 

Old question: how do we get the various functional areas of our company to work together to supply product to immediate customers?  New question: how to record and activities across companies, as well as across internal functions, to supply product to the market? 





Shift 2: From Physical Efficiency to Market Mediation. Old question: how do we minimize the costs our company incurs in production and distribution of our products?  New question: how do we minimize the cost of matching supply and demand while continuing to reduce the costs of production and distribution? 

Shift in focus in supply chains


Shift 5: From cost reduction to breakthrough business models.  




Shift 3: From Supply Focus to Demand Focus.

Shift 4: From single company, product design to collaborative, concurrent product, process and supply chain design Old question: how can we improve the way we supply product in order to match supply and demand better, given the demand pattern?  New question: how can we get earlier demand information or affect the demand pattern to match supply and demand? 

Process view of a supply chain

Old question: how can we reduce our company's production and distribution costs? New question: what new supply chain and marketing approach would lead to a breakthrough in customer value?

Shift 6: From mass-market supply to tailored offerings.




Cycle view




Push/pull view

Old question: how should we organize our company's operations to serve the mass-market efficiently while offering customized product?  New question: how should we organize a supply chain to serve each customer or segment uniquely and provide a tailored customer experience? 




Cycle View of Supply Chains

Customer order cycle






Customer Customer Order Cycle




Retailer Replenishment Cycle

Replenishment cycle






Distributor Manufacturing Cycle




Manufacturer Procurement Cycle

Supplier

Manufacturin g cycle






Customer Customer Customer Customer

arrival order entry order fulfillment order receiving

Retail order trigger Retail order entry Retail order fulfillment Retail order receiving Order arrival from the distributor, retailer, or customer Production scheduling Manufacturing and shipping Receiving at the distributor, retailer, or customer

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Push/Pull View of Supply Chains





Pull processes: execution is initiated in response to a customer order Push processes: execution is initiated in anticipation of customer orders

Push/Pull View of Supply Chains Procurement, Manufacturing and Replenishment cycles

PUSH PROCESSES

Customer Order Cycle

PULL PROCESSES

Customer Order Arrives

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