Supply Chain Systems
ManufacturersSuppliers Customer
Demand
Products
Demand
ProductsDistributors
Demand
Products
Prepared By,Bharath M – 1MS09IM401
Today’s Objective Introduce Supply Chain Management
– Share my definition & perspective– Develop a common understanding
Identify current issues and trends in SCM
Propose SCM key success factors
Provide you with some learning & fresh
perspective
Supply Chain Management SCM - what is it?
– Broad scope - raw material to end customer & return (reverse logistics)
– Flows - Information, Material, Funds, Knowledge– Customer-focused, process-oriented– Systems thinking
“When I say logistics, someone else says SCM and someone else says that’s just transportation”Sr. Executive - Food Processor
“ The traditional supply chain is
a dysfunctional process.”
Jim MorehouseA.T. Kearney, Inc.
Internal Supply Chain - Linear Flows Along the
Process
Key: Information, Funds, KnowledgeInformation processingMaterial processing
Procurement Planning
ReceiveMake/Convert
VALO DistributeDeliver
OrderMgt.
Requirements
Capabilities
Invoice
Payment
Requirements
Capabilities
Invoice
Payment
To Suppliers To Customers
External Supply Chain Flows Across Network
MfgOEM
Customer
Raw Mat’lSupplier
VALO
Raw Mat’lSupplier
Raw Mat’lSupplier Component
Mfg
ComponentMfg VALO
Distr.Retailer
Distr.Retailer
...and back through Reverse Logistics
Supply Chain Integration Obstacles
– Functional silo mentality– Functional measures– Incentives– Infrastructure– New roles and responsibilities– Basic requirement for fundamental CHANGE
Challenges– Global markets– E-business– Short product life cycles
Supply Chain Integration requires...
Connecting & coordinating the flows...– Information– Knowledge– Materials– Funds
Alignment– Incentive – Measures– Organizations– Goals
MfgOEM
Customer
Raw Mat’lSupplier
VALO
Raw Mat’lSupplier
Raw Mat’l Supplier Component
Mfg
Component Mfg
VALO
Distr.Retailer
Distr.Retailer
...and back through Reverse Logistics
Current trends in SCM
New supply chain designs Evolutionary nature of the supply chain Enterprise Resource Planning (ERP) Systems
“...you're never going to get to 100% (from IT) ... you'll never be on time; you'll be over budget, and not know how to use it.”- Food Products Retailer*
Current Trends - New supply chain designs
Multiple extended supply chain designs attempted – Virtual Supply chain Internet supply chain
Monorail
– Dis-aggregated Nike, Sara Lee, Trends in automotive OEMs
– The Dell Model– Outsourcing
“...outsourcing is a great solution if you’re not the one responsible for managing the relationship”- Apparel Manufacturer*
Current Trends - The Dell Model (‘we want to be like
Mike’)Is the Dell model right for every company?
– It works for Dell in the ‘90s– What is right for one may not be right for another.
Should steel companies make-to-order like Dell? Should Compaq abandon its model to compete like Dell?
Is the direct model state-of-art?– Amazon.com profitability... when?– Calyx & Corolla direct model only moderate success– How will direct web-based model work where population
does not own or use computers?
Current Trends - Evolutionary nature of the supply chain
The rules and economics change Supply chain strategy evolves
– Cost focused versus business-building
– Strategy Amazon
Evolution of the supply chain organization– Practices– Structures– Culture
“I guess the supply chain per se
kind of falls in place....”
- Packaged Consumer
Products Manufacturer*
Current Trends - Evolutionary Nature of the Supply Chain
Company Evolved Practice Old Practice
Bose JIT II Arm’s length supply relationship, Bose Prod. development
Chrysler Extended Enterprise, SCORE
Antagonistic supply
Dell Account selection, Transparent OE, Metrics, LSP
One system serves all, Cust adjusts OE process, Fcnl metrics
GM Factory-wide scheduling
Separate Mfg & Dist. Schedules
P&G VMI, CRP, Account teams, SLOG, Metrics
We ship – you stock, Over-the-wall Mktg-Mfg-Dist
Current TrendsEnterprise Resource Planning (ERP)
Systems ERP SCM software versus ‘best-of-breed’ modules Expect dip in performance
– Quantify benefits and real costs of implementation Training and skill development and maintenance
“...you're never going to get to 100% (from IT) ... you'll never be on time; you'll be over budget, and not know how to use it.”- Food Products Retailer*
SCM Key Success Factors
Supply chain design Organization infrastructure The path to high performance
Key Success FactorsSupply Chain Design
Make thoughtful choices for your supply chain.– Choice of channels– Business and SC priorities– What to outsource, what to keep in house– What is the proper role for the SC in your company?
Likely to vary by industry, stage in life cycle, company strategy, company culture
Understand best practices of leaders – But do what makes sense for your company– Thoughtful reapplication of learning
Key Success Factors Organization Infrastructure
Measurement systems– Measure processes end-to-end– Customer-connected measures– Congruent goals (e.g., perfect orders)
Communication systems Compensation & incentive systems Career and skill development systems ‘Systems orientation’
– Shared authority– Horizontal Process Management model– Managing processes - key for SCM organizations
Key Success Factors Organization Infrastructure - A
TestimonyWhich is the driver for your business’ success,
information technology or the people in the organization?
“Absolutely THE PEOPLE, no question.” Don Schneider, CEO Schneider National
March 5, 1999
Horizontal Process Management Model - Choosing “What’s right” for your business
How should one resolve conflict between function and process?
Matrix as an analytical tool – Primary business strategy vs. functional interdependence – Primary business strategy
Differentiated Service Differentiated Product Low Cost
– Functional interdependence (subjective) Low (functions operate independent of each other) Medium High (rapid, immediate impact across functions)
Key Success FactorsThe Path to High Performance
Change Management / Implementation– Evolution or revolution– Process-dominant organization
Customers and Suppliers FirstEnvision and articulate the potentialExpect continuous change
– Reengineering is not a one-time event
Traditional Functional Organization
What happened? Reacting to the crisisRealizes the problem possibly too lateManagement supports but doesn’t fully understand (fad)Limited willingness to challenge entrenched barriers Attempted use of teams, some process-based practices
Customers & suppliers first!Mgt. understands the potential - works with supplier and/or customers to drive change internallySystemic customer-oriented measures, decision- making criteria
Avoiding changeAvoiding change Alignment doesn’t apply to us - “We are unique”Another ‘fad’…. We’ll wait it out….
The Path to High Performance SCM… Three Choices
The Path to SCM‘Customers & Suppliers first!’
Traditional Functional Organization
In transitionLow-hanging fruit leads to bigger opportunities‘Right’ levels of alignment & process/function focusDecision-making based on processes & customerAuthority & responsibility shared by cross-fcnl teams
Customers & suppliers first!Mgt. understands the potential - works with supplier and/or customers to drive changeSystemic customer-oriented measures, decision- making criteria
High performanceInternal & external alignmentProfits through reduced cost, increased revenues, reduced working capital
Traditional Functional Organization
Poor performanceMissed opportunitiesDrifting with mgt. fads
Not Getting to SCM - ‘Avoiding Change’
Avoiding changeAvoiding change Alignment doesn’t apply - “We are unique”Another ‘fad’…. We’ll wait it out….
The Path to SCM…...Which path is for you?
Traditional Functional Organization
In transitionLow-hanging fruit leads to bigger opportunities‘Right’ levels of alignment & process/function focusDecision-making based on processes & customer. Authority & responsibility shared by cross-fcnl teams
Poor performanceMissed opportunitiesDrifting with mgt. fads
Reacting to the crisisRealizes the problem possibly too lateManagement supports but doesn’t fully understand Limited willingness to challenge entrenched barriers Attempted use of teams, some process-based practices
Customers & suppliers first!Mgt. understands the potential - works with supplier and/or customers to drive changeSystemic customer-oriented measures, decision- making criteria
Avoiding changeAvoiding change Alignment doesn’t apply - “We are unique”Another ‘fad’…. We’ll wait it out….
High performanceInternal & external alignmentProfits through reduced cost, increased revenues, reduced working capital
HPM Matrix - Choose “What’s right”
DifferentiatedService Strategy
DifferentiatedProduct Strategy
Low Cost Strategy
Low Medium High
InformalCoordination
Focus on Customer
FormalStructure
Balance Process-Function
FormalStructure
Process Dominant
Ad hocCoordination
Focus on Operation
InformalCoordination
Function Dominant
FormalStructure
Balance Process-Function
Ad hocCoordination
Optimize Cost Driver
InformalCoordination
Optimize Cost Driver
InformalCoordination
Balance Process-FunctionOptimize Cost Driver
Functional Interdependence
Strategy
HPM Matrix - Choose “What’s right”
DifferentiatedService Strategy
DifferentiatedProduct Strategy
Low Cost Strategy
Low Medium High
Informal Coord Formal Formal
Ad hoc Informal Coord Formal
Ad hoc Informal Informal
Functional Interdependence
Strategy
P&G (early 80’s)Corning ConsumerKaytok (Make-to-Invty)
P&G (80-90s) Xerox - 2000?P&G - 2000?
Kaytok ( MTO)
Wal-Mart
Am. Std.
Xerox
Xerox - 2000?P&G - 2000?
SummaryMFG
Fcnl Interdep
Strat
SCM Introduction
Current Issues
SCM Key Success Factors– Supply chain design– Organization infrastructure– Path to high performance
Target’s Supply Chain
11 Regional distribution centers859 Stores in 41 statesFlow strategy“Door per store concept”Forecasting and ordering is centralized and
automatic
Leveraging total supply chain strategies to reduce expense in a retail environment and how Target utilizes emerging trends in supply chain management.
Floor Ready
PreticketingPrefolded towelsHanger programRemoval of excess packaging
Segmentation
Improves store level instocksMinimizes total inventory investmentImproves supply chain efficiencies
Three Distinct Segments
Slow selling itemsFast selling items, unpredictable salesFast selling items, predictable sales
Other Variables to Consider
Physical characteristics of an itemReceipt frequency from the vendorVendor reliability
EDI Communications with Supplier
850 Purchase Order870 Order Status856 Ship Notice/Manifest or Advance Ship
Notice830 Vendor Projections or Forecast810 Invoicing
Partners On-Line
Sales and inventory reportsVendor Partnership manualsAccounts payable informationNewsletters and news flashes
Instability of Today’s Supply Chain Coordination
Vo
lum
es
Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
ConsumerDemand
ConsumerDemand
Retailer Warehouseto Shop
Retailer Warehouseto ShopRetailer OrdersRetailer Orders
Production PlanProduction Plan
Manufacturer Forecastof SalesManufacturer Forecastof Sales
Source: Bullwhip Effect , Hau Lee, Stanford University
Retailer’s Orderto Manufacturer
Wholesaler’s Order to Manufacturer
ConsumerSales
Manufacturer’s Order to Supplier
Demand Buffers along the Supply Chain
Planning: Level of Collaboration
collaboration/trust
evolution
CategoryManagement
CPFR(CFAR)
Key AccountManagement
Retailer-DrivenContinuousReplenishment
Vendor-ManagedInventory
PantryManagedInventory
Solution Maps as a Tool in Strategic Planning
Understand company business processes Assure systems are aligned to drive improvement in
major business processes Identify gaps in information availability to support
business strategies Determine long-range plan for evolution to a state of
improved information Determine status of legacy systems and integration
requirements Determine investment in overall information
technology over strategic planning period
Globalization
Consolidation
Technology
Business Drivers for the 21st Century
Each of these drivers directly impacts or is impacted by the Supply Chain…...
Companies Will Succeed...
By aggressively evaluating their supply chain(s)
By focusing on key business drivers By extending their enterprise thinking to
include suppliers’ suppliers and customers’ customers
By utilizing best practices, not fixed rules By implementing “advantage technology”
Impact of Technology
The most valuable links on the value chain tend to belong to people who own knowledge---particularly about customers….He who controls information in many cases controls the business.
Fortune Magazine
The Shift to Advantaged Applications
Costs
ERP as Infrastructure/IT Renewal (High investment/lower ROI)
ERP Integrated w/ SCMDrives ROI and SupplyChain Benefits
Strategic/Decision Support/Inter-business Networking(e.g. Market Management)Very high ROI
Future Vision
Benefits
Changing the Goals ofBusiness Solutions to Support Value
Chains
•Infrastructure
• Y2000 Compliance
• Integrated Systems to
Support Operations
and Financials
ERP
Goals
Supply ChainManagementGoals
Business/MarketOptimizationGoals
•Operational Improvement (e.g., Cost Reduction, Capacity Expansion
•Improved Customer Service
•Market Management
• Pricing Optimization
•Channel Management
The Value Shift
Inventory Information
Physical Assets Intellectual Assets
Closed Shop Collaboration
VerticalIntegration Virtual Integration
Thank You