Supply Chain Management

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Supply Chain Management

• Lecture 2

2
Announcements

• Summer Intern Program at Ball Aerospace
• 10 week summer program that provides candidates
  with
• Practical experience on relevant projects while
  working with designated mentors
• A competitive salary
• Access to state-of-the-art equipment
• Possible future employment
• Housing assistance
• Relocation reimbursement
• In-house training
• Group activities  
• For more information visit
• http//www.recruitingsite.com/csbsites/ball_aerosp
  ace/JobDescription.asp?JobNumber617603
• http//www.ballaerospace.com/

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Outline

• Last Tuesday
• Chapter 1
• Sections 1, 2
• Today
• Chapter 1
• Sections 3, 4, 5
• Next week
• Chapters 2 and 3

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What is a Supply Chain?

• Flow of products and services from
• Suppliers
• Raw materials manufacturers
• Intermediate goods manufacturers
• Finished goods manufacturers
• Distributors and wholesalers
• Retailers
• Customers
• Connected through transportation, information,
  and exchanges of funds

Manufacturer
Distributor
Retailer
Customer
Supplier
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Key Observations

• In order to maximize supply chain surplus
• Every facility that impacts costs needs to be
  considered
• Suppliers suppliers
• Customers customers
• Efficiency throughout the supply chain network is
  required using a network level approach

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What is Supply Chain Management?
Supply chain management involves the management
of supply chain assets and products, information,
and fund flows to maximize total supply chain
surplus
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What is Supply Chain Management?
Getting the right things
to the right places
at the right times
for profit
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What is Supply Chain Management?

• Managing supply and demand, sourcing raw
  materials and parts, manufacturing and assembly,
  warehousing and inventory tracking, order entry
  and order management, distribution across all
  channels, and delivery to the customer
• The Supply Chain Council
• The design and management of seamless,
  value-added process across organizational
  boundaries to meet the real needs of the end
  customer
• Institute for Supply Management

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What is Supply Chain Management?

• Supply chain management is a set of approaches
  utilized to efficiently integrate suppliers,
  manufacturers, warehouses, and stores, so that
  merchandise is produced and 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, 2003

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• Video
• Ford Manufacturing Supply Chain

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What is Supply Chain Management?

• Supply chain management is all about
  relationships
• Management of relationships in order to enhance
  value and reduce cost
• Collaboration is an important part of effective
  supply chain management

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Evolution of Supply Chain Management
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Evolution of Supply Chain Management

• Mass production era (1900s 1970s)
• In the early 1900s, Henry Ford created the first
  moving assembly line reducing the time to build a
  Model T from 728 hours to 1.5 hours
• Lean manufacturing era (1970s 1995)
• In the early 1970s, Japanese manufacturers like
  Toyota changed the rules of production from mass
  to lean. Lean manufacturing focuses on
  flexibility and quality more than on efficiency
  and quantity.
• Mass customization era (1995 2010?)
• Beginning around 1995 and coinciding with the
  commercial application of the Internet,
  manufacturers started to mass-produce customized
  products. Henry Fords famous statement You can
  have any color Model T as long as its black no
  longer applies.

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Managing a Supply Chain is Not Easy

• Geographically dispersed complex network
• Conflicting objectives across the supply chain
• Uncertainty and risk factors
• Information distortion

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Managing a Supply Chain is Not Easy

• Geographically dispersed complex network

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Managing a Supply Chain is Not Easy

• Conflicting objectives across the supply chain

Manufacturer
Distributor
Retailer
Customer

• Low inventory
• Few DCs

• Large production batches

• Convenience
• Short lead time
• Large variety of products

• Few stores
• Low inventory
• Little variety
• Close to DCs

• Large shipments

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Managing a Supply Chain is Not Easy

• Uncertainty and risk factors
• 2005 Hurricane Katrina
• PG coffee supplies from sites around New Orleans
• Six month impact
• 2002 West Coast port strike
• Losses of 1B/day
• Store stock-outs, factory shutdowns
• 2001 India earthquake
• Supply interruptions for apparel manufacturers
• 1999 Taiwan earthquake
• Supply interruptions for HP and Dell

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Managing a Supply Chain is Not Easy

• Information distortion

Manufacturer
Distributor
Retailer
Customer
Supplier
Bullwhip effect
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Why Study Supply Chain Management?
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The Magnitude

• In 1998, American companies spent 898 billion in
  supply chain related activities (or 10.6 of
  Gross Domestic Product)
• Third party logistics services grew in 1998 by
  15 to nearly 40 billion
• It is estimated that the grocery industry could
  save 30 billion (10 of operating cost) by using
  more effective logistics strategies
• A typical box of cereal spends more than three
  months getting from factory to supermarket

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The Potential

• In 10 years, Wal-Mart transformed itself by
  changing its logistics system. It has the highest
  sales per square foot, inventory turnover and
  operating profit of any discount retailer
• Laura Ashley turns its inventory 10 times a year,
  five times faster than three years ago
• New information system
• Centralized warehouse

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The Impact
In 1996, Dell held 31 days of inventory. It now
holds only 4 days of inventory.
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The Impact
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The Impact

• The Turning Point (The Economist, 9/20/07)
• For such a tiny part of GDP, the contents of
  warehouses has had a surprisingly big effect on
  its volatility. When industries cut or add stocks
  according to demand, that adjustment magnifies
  the effect of the initial change in sales. Stock
  levels were once much larger relative to the size
  of the economy, so a small slip in demand could
  easily blow up into a recession. But thanks to
  improvements in technology, firms now have
  timelier and better information about buyers.
  Speedier market intelligence and production in
  smaller batches allows firms to match supply to
  changing conditions. This makes huge stocks
  unnecessary and minimizes the lurches in
  inventories that were once so destabilizing. The
  entire inventory of some lean-running companies
  now consists of whatever FedEx or UPS is shipping
  on their account.Mr Cecchetti and his colleagues
  calculate that, on average, more than half the
  improvement in the stability of economic growth
  in the countries they studied is accounted for by
  diminished inventory cycles. That something so
  workaday as supply-chain management could have so
  marked an effect might seem a dull conclusion.
  But dullness is a virtue, because technological
  improvement is irreversible

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The Impact
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Study of Supply Chain Management

• Successful supply chain management requires
  decisions on the flow of information, product,
  and funds that fall into three decision phases
• Supply chain strategy or design
• Supply chain planning
• Supply chain operation

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Decision Phases in a Supply Chain
TYPICAL DECISIONS
TYPE
TIME FRAME
Strategic
Tactical
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Study of Supply Chain Management

• A supply chain is a sequence of processes and
  flows that take place within and between
  different stages
• Cycle view
• The processes in a supply chain are divided into
  a series of cycles, each performed at the
  interface between two successive stages of a
  supply chain
• Push/pull view
• The processes in a supply chain are divided into
  two categories depending on whether they are
  executed in response or in anticipation of a
  customer order

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Cycle View of Supply Chain Processes
Customer
Customer Order Cycle
Cycle view defines the processes involved and the
owner of each process
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
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Subprocesses in Each Cycle
Buyer
Supplier markets the product
Buyer may return the product
Buyer places an order
Buyer receivesthe order
Supplier receivesthe order
Supplier suppliesthe order
Supplier
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Cycle View of Supply Chain Processes
Customer Order Process 1. Customer Arrival 2.
Customer Order Entry 3. Customer Order
Fullfillment 4. Customer Order Receiving
Customer Order Cycle
Replenishment Process 1. Retail Order Trigger 2.
Retail Order Entry 3. Retail Order
Fullfillment 4. Retail Order Receiving
Replenishment Cycle
Manufacturing Process 1. Order Arrival 2.
Production Scheduling 3. Manufacturing/Shipping 4.
Receiving
Manufacturing Cycle
Procurement Process 1. Component Order Arrival 2.
Production Scheduling 3. Manufacturing/Shipping 4.
Receiving
Procurement Cycle
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Push/Pull View of Supply Chain Processes
Execution is initiated in response to customer
orders (reactive)
PULL PROCESSES
Customer order arrives
Execution is initiated in anticipation of
customer orders (speculative)
PUSH PROCESSES
Processes are divided based on the timing of
their execution relative to a customer order
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Push/Pull Processes for the Supply chain of Dell
PULL
Customer
Customer Order Cycle and
Manufacturing Cycle
Manufacturer
Procurement Cycle
PUSH
Supplier
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Push/Pull Processes for the Supply chain of
Detergent
Customer
PULL
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
PUSH
Manufacturer
Procurement Cycle
Supplier
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Are the following systems push or pull?
Soda vending machines
Amazon.com
Emergency care
Paint industry
Runway capacity at an Airport
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Cycle View Versus Push/Pull View
Which view is more useful when considering
operational decisions and which view is more
useful when considering strategic decisions?
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Examples of Supply Chains
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Celestial Seasonings

• The herbs were originally harvested by hand in
  the Rocky Mountains
• Currently, herbs and leafs come from growers
  around the world
• Weve been working to establish sustainable
  harvests and fair wages for more than 30 years

What are advantages of having one production
facility?
What are disadvantages of having one production
facility?
What advantages does selling tea over the
Internet provide?