Supply Chain Management

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Supply Chain Management

• Supply chain management deals with the management
  of materials, information and financial flows in
  a network consisting of suppliers, manufacturers,
  distributors, and customers (Stanford Supply
  Chain Forum, 1999)
• Supply chain management is a set of approaches
  utilized efficiently to integrate suppliers,
  manufacturers, warehouses, and stores so that
  merchandise is distributed at the right
  quantities, to the right locations, and at the
  right time, in order to minimize system-wide
  costs while satisfying service level requirements
  (Simchi-Levi et al)
• A supply chain consists of all stages involved,
  directly and indirectly, in fulfilling a customer
  request. Supply chain management involves the
  management of flows between and among stages in a
  supply chain to maximize total profitability
  (Chopra and Meindl)

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Typical supply chain
upstream
downstream
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Toshiba PC supply chain
Best Buy
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How is SCM different?

• Builds on traditional fields such as production
  management, operations management or logistics
  management.
• The key differentiator is the systems approach of
  the supply chain management
• SCM considers every stage and facility in the
  supply chain and the interactions between them,
  whether they belong to different companies or
  different organizations within a company
• SCM considers the total costs in the supply chain
  
• Since SCM deals with all stages of the supply
  chain and their integration, it encompasses the
  firms activities at many levels strategic,
  tactical and operational

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Other operational processes
Product Life-cycle Management (PLM)
Supply Chain Management (SCM)
Customer Relationship Management (CRM)
Supplier Relationship Management (SRM)
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Why supply chain management?

• In 1997, American companies spent 862 billion,
  or about 10 of GNP on supply chain related
  activities which include the cost of movement,
  storage and control of products across the supply
  chain.
• Most of these costs include unnecessary cost
  components due to redundant stock, inefficient
  transportation strategies, and other wasteful
  strategies in the supply chain

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Example Wal-Mart

• In 1979, Kmart was one of the leading companies
  in the retail industry, with 1,891 stores and
  average revenues per store of 7.25 million. At
  that time Wal-Mart was a small niche retailer in
  the South with only 229 stores and average
  revenues about half of those of Kmart stores. In
  10 years Wal-Mart transformed itself in 1992 it
  had the highest sales per square foot and the
  highest inventory turnover and operating profit
  of any discount retailer. Today Wal-Mart is the
  largest and highest profit retailer in the world.
  How did Wal-Mart do it? The starting point was a
  relentless focus on satisfying customer needs
  Wal-Marts goal was simply to provide customers
  with access to goods when and where they want
  them and to develop cost structures that enable
  competitive pricing. The key to achieving this
  goal was to make the way the company replenishes
  inventory the centerpiece of its strategy. This
  was done by using a logistics technique known as
  cross-docking. In this strategy, goods are
  continuously delivered to Wal-Marts warehouses
  from where they are dispatched to stores without
  ever sitting in inventory. This strategy reduced
  Wal-Marts cost of sales significantly and made
  it possible to offer everyday low prices to their
  customers.

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Example Home Depot

• The Home Depot Inc. moves over 85 percent of
  its merchandise directly from suppliers to
  stores, avoiding warehouses altogether
  (http//www.informationweek.com/708/08iukil6.htm)
• The strategy saves money by eliminating an
  expensive network of DCs. But it also carries
  substantial risks in terms of customer service. A
  poorly managed supply chain can result in heavy
  stock-outs.
• (http//www.supplychainbrain.com/archives/7
  .02.homedepot.htm?adcode5)

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Example Dells direct business model

• Selling PCs direct to customer
• Outsourcing component manufacturing
• Virtual integration with the suppliers resulting
  in less inventory. The third party logistics
  company matches the Sony monitors with Dell
  computers and deliver it to the customer
• Direct relationship with customer enables Dell to
  understand the customer needs and segment the
  market to offer value added services
• Compaq, IBM and HP all move to emulate Dell
  business model
• Dell carries 8 days of inventory, while Compaq,
  IBM and Dell have targets to carry 4 weeks of
  inventory

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Why is SCM difficult?

• Global Optimization
• Global and complex supply chains
• Different, conflicting objectives
• Supply chain is dynamic
• System variations over time
• Managing Uncertainty
• Matching supply and demand
• Bullwhip effect
• Forecasts are inaccurate
• Uncertainties in suppliers, logistics

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Key (popular) issues in SCM

• Supply chain design
• Where to locate manufacturing facilities,
  distribution centers, stores so as to minimize
  overall costs and improve service
• Supply contracts
• How to establish relationships between
  manufacturers and retailers so that the whole
  supply chain can increase profits?
• Distribution strategies
• Cross-docking
• Direct shipments to customers
• Pull based, push based, pull-push based systems
• Vendor managed inventory

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Key (popular) issues in SCM

• Supply chain integration and strategic
  partnership
• Coordinating different stages of the supply chain
• Value of information and information sharing
• Outsourcing and procurement strategies
• Managing product variety
• Product postponement
• Component commonality and modularity
• Information technology and decision support
  systems
• Managing customers
• Customer segmentation, revenue management

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Product postponement a storage devices
manufacturer example
End Product Is Completed
Testing Phase
Assembly Phase