SEEM 4610 Supply Chain Management 1

SEEM 4610 Supply Chain Management

Janny M.Y. Leung

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What is a Supply Chain?

A supply chain consists of all stages involved, directly and indirectly, in fulfilling a customer’s request.

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Who is in a supply chain? Suppliers transporters manufacturers warehouses distributors retailers customers

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What happens in a supply chain?

RetailerDistributorManufacturer

Supplier

Supplier

Transporter

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Flows in a supply chain Material flows Information flows Cash flows

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What happens in a supply chain?

On-line retailer

Manufacturer

Supplier

Supplier

Order assembler

Manufacturer

Transporter

Bank

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Traditional view of logistics Manufacturing cost 48% Marketing cost 27% Logistics cost 21% Profit 4 %

Logistics related activity account for 11% of GNP of USA

Savings in cost reduction: typical box of cereal spends 104 days from factory to sale US Grocery industry: 10% operating cost = $30 billion

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Supply Chain Management: The True Magnitude Compaq estimates it lost US$1 billion in sales in

1995 because laptops were not available when and where needed

When the new 1 gig processor was introduced by AMD, the price of 800 MB processor dropped by 30%

Proctor&Gamble estimated savings of US$65 million by collaboration resulting in better matching of supply and demand

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“Staple yourself to an order” Every time an order is handled, a customer

is handled Every time an order is neglected, a

customer is neglected Supply chain management:

focus on the systemic view focus on the customers’ interest

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The order management cycle

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Objective of a supply chainMaximiseMaximise the overall value generated

= (Worth of product to customer) –

(cost/effort expended in filling request)

The customer is the ONLY source of revenue!The customer is the ONLY source of revenue!

Supply chain management is the management of the flows in a supply chain to maximise total profitability

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Cycle view of a supply chain

Customer order cycle

Replenishment cycle

Manufacturing cycle

Procurement cycle

CustomerCustomer

RetailerRetailer

DistributorDistributor

ManufacturerManufacturer

SupplierSupplier

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Customer Order Cycle

Customer Arrival

Customer order entry

Customer order fulfilment

Customer order receiving

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Replenishment Cycle

Retail order trigger

Retail order entry

Retail order fulfilment

Retail order receiving

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Manufacturing Cycle Order Arrival

(from distributor, retailer or customer) Production Scheduling Manufacturing Shipping Receiving at distributor/retailer/customer

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Procurement Cycle Order trigger

Production/purchase planning

Shipping

Delivery/receipt of order

Component orders can be much better controlled Component orders can be much better controlled

once manufacturing schedule is set!once manufacturing schedule is set!

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Push/Pull Boundary in a Supply Chain Pull processes

initiated in response to a customer order e.g. Dell

Push processes initiated in anticipation of customer orders e.g. supermarket

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Drivers of Supply Chain Performance

Supply chain structure inventory transportation facilities information

Efficiency Responsiveness

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Considerations for Supply chain drivers

Driver Efficiency Responsiveness

Inventory Holding costs Availability

Transportation Consolidation Speed

Facilities Centralised/Dedicated

ProximityFlexibility

Information What information flowstructure is best suited?

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Decision Phases in a Supply Chain Supply chain strategy and design

configuration location/capacity transportation modes

Supply chain planning distribution flow planning inventory level/location outsourcing

Supply chain operation order fulfilment replenishment shipment

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Importance of Supply Chain -

Dell’s Success Story Dell since 1993, earnings growth > 65% Direct Sales

customers -> manufacturers -> suppliers Customer management

enormous database steers customers over phone to configurations in stock

Make-to-order; low inventory matching supply to demand; reduce obsolescence risk

Co-ordinates direct shipment from suppliers with service representatives sophisticated information exchange among suppliers and logistics

provider Few manufacturing centers (Austin, Brazil, China, Ireland, Malaysia)

Tight tracking and management of cash flow

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Dell.com

Voice-to-voice

Face-to-face

Inside Sales Reps-Take order-Review info-Enter in system

JIT Inventory-Mat’l immediately ready to use-Qty meeting order vol.

Custom-designed Computers

- The Traveler specifies unique configuration

-The Traveler travels throughout assembly to shipping

Kitting

- Traveler is pulled, all components required to make the system are picked into a tote

Build to Order

-Workers use the kit to assemble and initial test the entire system

test

Testing and Integration

Boxing & Shipping

Dell’s Direct Model

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Seven-Eleven Japan Phenomenal growth

1974: first store; 1999: 8097 stores In last decade: sales tripled, inventory

reduced by 1/3, profits quadrupled Company image

convenient, cheerful ready-made lunch and dinner

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Seven Eleven stores Key products (over 3000 SKUs):

processed foods 50 % fresh foods 30% non-food 20%

Small stores, no storage space

Supply chain objective:

Micro-matching of supply and demandMicro-matching of supply and demand(by location, time of day, day of week, season,etc.)

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7-11 Supply Chain strategy Facilities

dominant location strategy 844 in Tokyo, 5523 in 21 prefectures

Information high-speed data network linking stores, HQ, suppliers and DCs store computer linked to POS and scanner for sales and receiving sales analysis by SKU and product categories sales trend impacts store display

Distribution deliveries from over 200 plants cross-docking at distribution centres (hold no food inventory) combined delivery (fresh+chilled+frozen) reduce truck visit to stores no direct delivery

Approx. 60 inventory turns per year!!Approx. 60 inventory turns per year!!

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Other Supply Chain Examples Amazon.com

no retail stores purchase from book distributor instead of from

publisher “assemble”-to-order books and music

Li & Fung integrator role Supply Chain Management - Hong Kong Style

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Readings “Staple yourself to an order”, B.P. Shapiro,

V.K. Rangan, J.J. Sviokla, Harvard Business Review, July-August, 1992.

“Fast Global and Entrepreneurial: Supply Chain Management, Hong Kong Style” Harvard Business Review, Sept-Oct 1998.