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Supply ChainValue Chain Business System
© K.E.Homa
Supply Chain
For product-based companies, “it” all comes together in the supply chain … a.k.a. value chain, business system … the underlying infrastructure for procuring, transforming, delivering, and servicing.
OrderEntryDEMAND
Del’y &Service
SUPPLY
OperationsLINKINGPROCESSES
Customer’s View
OrderEntryDEMAND
Del’y &Service
SUPPLY
OperationsLINKINGPROCESSES
CCost
QQuality
SService
FFlexibility
Customer’s View
MatlLabor$$$
INPUTS
Goods& Svcs
OUTPUTS
Operations
TRANSFORMINGPROCESSES
EEfficiency
PProductivity
AAdvantage
Producer’s View
SUPPLY CHAINValue Chain Business System
Design Purch. Mfg. Distrib. Service
Complementary / synergistic combinations
Suppliers CustomersLogistics Purch. Mfg. Distrib. Service
TRADITIONAL SITUATION • Operations focused• Sequential processes• Sub-optimization
PROGRESSIVE ACTIONS• More integration• Concurrent processing• Better information flow
Supply ChainPrototypical View
From a strategic / tactical perspective …
Ownership is usually a legal detail and financial impracticality, not necessarily a strategic imperative.
Allied networks (formal & virtual) of best providers are increasingly prevalent.
Supply Chain
Caveat Virtual There is nothing virtual about merely shifting investment and costs
from one supply chain partner to another.
If someone is left holding the investment or cost, it’s real not virtual!
Supply Chain
Strategic advantage usually requires a creative (unique and synergistic) combination of options across supply chain activities.
Supply Chain
Technology Product Design
Manufacturing Marketing Distribution Service
– Idea source– State of art– Prod./process
integration– Patents
– Function– Physical
characteristics– Aesthetics– Quality
– Integration– Technology– Raw materials– Capacity– Location– Procurement
– Prices– Advertising/
promotion– Sales force– Package– Brand
– Channels– Integration– Inventory– Warehousing– Transport
– Warranty– Speed– Captive/
independent– Prices
Complementary / synergistic combinations
Supply Chain Leverage Points
Global Optimization Objective is too deliver appropriate service level at lowest
cost across the system. Locally optimizing processes in one ‘silo’ sometimes increases total system costs.
Supply Chain
Value Added Each stage of the supply chain must add valueadd value …
consistent with globally optimizing CQFS*CQFS* … and provide adequate financialfinancial returnsreturns to the provider
Supply Chain
* Cost Quality Flexibility Service
Supply Chain : Value Added
ValueAdded
ValueAdded
ValueAdded
Profit
Profit
Profit
Parts &Matl
SUPPLIER MANUFACTURER DISTRIBUTOR RETAILER
PRICEPROFIT
R.O.S. R.O.I
OrderEntry
Del’y &Service
MatlLabor$$$
Goods& Svcs
Operations
Demand
Supply
Inputs Output
2-DimensionalIntegrated View
OrderEntry
Del’y &Service
MatlLabor$$$
Goods& Svcs
Operations
PRODUCTIVITY
SERVICE LEVEL
Fill rateOn-time
CostR.O.I.
PerformanceMetrics
• Better service
• Lower costs
• Less investment
Supply Chain ManagementMega-Objectives
• Appropriate Q, F, S
• Lowest Cost
• Lowest Investment)
Supply Chain Performance Requirements: CQFS*
* Cost Quality Flexibility Service
• Hassle-free order entry
• High fill rates
• Consistent cycle times
• Dependable deliveries
• Timely order tracking
• Accurate invoicing
Customers’ requirements escalating...
Customer ServiceMinimum Requirements
• Full Availability (100%)
• Near-immediate delivery
• Scheduled Deliveries
• Perfect Orders, Shipments, Bills
Zero tolerance !
Customer ServiceEmerging Requirements
• Ship complete … or cancel
• Near-immediate deliveries
• Electronic shipping notices
• Continuous replenishment(Vendor managed inventory)
Customer ServiceEscalatinging Requirements
InvestmentInvestment
J. I. T. / Quick Response
Long Payment Terms
Consignment / Buy-Backs
Vendor Managed Inventory
CostsCosts
Slotting Fees
Pre-Tagging
Precisely Built Loads
In-Store Service
New Games …Shifting investment, costs and risk back to suppliers
Caveat Virtual There is nothing virtual about merely shifting investment and costs
from one supply chain partner to another.
If someone is left holding the investment or cost, it’s real not virtual!
Supply Chain
Product design and operations’ process efficiency are inextricably linked.
Operations efficiency is ultimately limited by product ‘design for manufacturing’.
Supply Chain
Information (logical assets) moves faster and is usually cheaper (after infrastructure is in place) than physical assets (people, plants, trucks, inventory, etc.).
Best operators support physical assets with logical assets … and substitute logical for physical whenever possible.
Supply Chain
Suppliers CustomersLogistics Purch. Mfg. Distrib. Service
Product DesignEstablishes the “upper bound” on supply chain efficiency
Information TechnologyEnables and institutionalizes supply chain processes
Complementary / synergistic combinations
Supply ChainPrototypical View
Supply ChainValue Chain Business System
© K.E.Homa
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