International Supply chain management

1
International Supply chain management

• dr. Peter Trkman
• docent

2
Outline

• Part 1 Intro
• Part 2 SCM Strategy
• Part 3 What e-business can offer
• Part 4 Performance measurement
• evaluation of e-procurement benefits
• use of simulations
• Part 5 Standards in SCs
• Part 6 SCM selected future trends

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Learning objectives

• Be able to understand the importance of SCM and
  the main challenges
• Be able to understand each of the covered topics
• its importance
• its connection to SC strategy/performance
• Be able to apply it to real-world examples

4
Course materials

• Partly based on
• Chopra, S., Meindl, P. (2007). Supply Chain
  Management strategy, planning and operation.
  Upper Saddle River, New Jersey Pearson Prentice
  Hall.
• Supplemented with materials from various sources
  (listed in the references section)
• Note if any of you is particularly interested in
  a specific topic I can recommend/send additional
  materials

5
Intro what is a supply chain
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What is a supply chain?
Main flows products (services), information,
money
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a nice picture
8
SC in practice a network of connections
http//www.gscg.org8080/opencms/export/sites/defa
ult/gscg/images/supplychain_simple.gif
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SC definiton

• the flow of material, information and money from
  suppliers of raw material, production and
  transport companies to the final customer,
• the connection of business processes between
  various links (companies) in the chain,
• usually includes more than one company
• (several different but similar definitions
  exist)

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Why is SCM important
It has become a competitive differentiator!
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Why is SCM important?

• http//www.youtube.com/watch?v6rmV__Yrk7Q

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The main goals

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Part 2Supply chain strategy
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Content (part 2)

• importance of strategy
• information flow
• problems in real world
• bullwhip effect

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Strategic actions
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and the main problems
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It all comes down to

• information flow/sharing
• and what to do with this information
• trust

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Information flow in theory
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Information flow in practice
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Problems (1) Volvo and green cars

• 1995 excessive inventory of green cars
• sales and marketing group started aggressively
  offering special deals, discounts, and rebates
• green cars started to sell
• supply chain planning group decided to produce
  even more green cars to meet the seemingly
  increased demand.
• Volvo was left with a huge inventory of green
  cars at the end of the year

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Problems (2) Bullwhip effect

• Theoretically described in the 60s
• practical case study in the 80s (Pampers diapers)
• the use of diapers is constant
• the orders for Procter Gamble fluctuate quite a
  bit
• the orders for their suppliers even more

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Demand fluctuation
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One of the reasonssupplier discounts
Source Mason-Jones et al., 2000
24
Achieving strategic fit

• Competitive strategy and functional strategy must
  fit togetger to form a coordinated overall
  strategy
• The different functions in a company must
  appropriately structure their processes and
  resources to be able to execute these strategies
• (remember Volvo ?)
• the design of the SC must be aligned to support
  this strategy

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Connection of strategy, planning and operation
Strategy/design
Planning
Operation
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Last but certainly not least

• Cooperation in the SC
• How to achieve it? Which are the main barriers?
• How to cooperate with suppliers in e.g. product
  development
• What are the potential consequence of supplier
  non-performance
• (more in the section on SC risks)

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Sidenote process redesign AS-IS model
Source Trkman et al., 2007
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Process redesign TO-BE model
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Part 3 the role of e-business
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Content

• information sharing
• new business models
• CPFR
• VMI
• case studies
• Henkel/Eroski
• Dell
• Amazon

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What e-business can offer

• better information flow
• closer cooperation between companies
• new business models

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Information sharing

• point-of-sale data sharing (retailer and
  supplier)
• production plans
• development plans
• etc.

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New business models

• E.g. vendor managed inventory
• collaborative planning, forecasting and
  replenishment (CPFR)
• mass customization
• etc.

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CPFR

• A fundamental apsect of successful collaboration
  is the identification and resolution of
  exceptions
• WHY are exception so problematic?
• (p.519)

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CPFR
Source http//www.vics.org/docs/committees/cpfr/C
PFR_Tabs_061802.pdf
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CPFR case study

• Henkel (detergent manufacturer) and Eroski
  (retailer)
• Problem frequent stockouts, specially during
  promotions (15-20 products being promoted every
  month)
• Sidenote why are promotions the most
  problematic?
• 70 of forecasts had an average error of over 50
• only 5 had errors under 20
• Sidenote what is the added value of such
  forecasts?
• after CPFR
• 70 of sales had errors under 20 and only 5
  over 50
• customer level of 98

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Critical success factors

• Front-end Agreement minimizes surprises on either
  side.
• Formalizes the planning process
• Clearly stated KPI metrics
• Cross-functional project teams
• Long-term cooperative relationship
• Commitment and support from top management

Source www.csupomona.edu/hco/CBiz/CPFR(5)_Henkel
-Eroski.ppt
38
Results
Source www.csupomona.edu/hco/CBiz/CPFR(5)_Henkel
-Eroski.ppt
39
VMI, mass customization case studyDell - 1994

• unimportant computer producer
• high stock levels
• low quality
• low profitability

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Main changes

• the production for known customer (build-to-order
  model)
• direct ordering and distribution (no
  intermediary)
• inbound and outbound logistics vital the
  assembly of procured components
• important role of information system (visibility
  of orders)

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Dell - presentation

• Movie
• http//www.youtube.com/watch?vEEhNkzdKyrw

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Dell - transformation

• 1994-1998 increase in sales from 2 to 16
  billions USD
• 2005 49 billions USD
• information system is key
• the customer orders over the internet and can
  follow the status of the order
• assembly strongly supported with IT (as shown in
  the movie)

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Dell critical success factors

• demand management (forecasting, adaptation, price
  fluctuation)
• product life-cycle management (what will be sold
  in the future)
• supplier selection
• a small number of reliable suppliers
• liquidity management
• 4 days cycle for customers 45 days for suppliers

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Part 4 Performance measurement
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Performance measurement

• You Cant Manage What You Cant Measure

Source http//www.balancedscorecard.org
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You get what you measure
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Measures at SC level

• Main measures in general
• service level
• final customers satisfaction
• efficiency/profitability of the whole chain
• But hard to measure/take actions based on these
  measures

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Measurement performance
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Measurement strategy
Source Santos et al., 2006
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Main areas

• facilities
• inventory
• transportation
• information
• sourcing
• pricing
• pp. 44-60

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Facility

• Metrics
• Capacity
• Utilization
• Theoretical lead/cycle time
• Actual cycle time
• processing/setup/idle time

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Inventory

• Metrics
• average inventory
• average safety inventory
• seasonal inventory
• fraction of time out of stock

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Transportation

• Metrics
• average cost per shipment
• average outbound transportation costs
• fraction transported by mode

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Information

• Metrics
• forecast horizon
• frequency of update
• forecast error
• variance from plan
• usual mistake you plan, then you do not measure
  whether the plan was achieved
• (practical example)

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Sourcing

• set of business processes required to purchase
  goods and services
• Decisions
• in-house or outsource?
• supplier selection
• (see also the section on risks)
• procurement
• see the case in the next (sub)section

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Sourcing - 2

• Metrics
• Average and range of purchase price
• Supply lead time
• Fraction on-time deliveries (see lab exercise)

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Pricing

• profit margin
• days sales outstanding
• fixed costs per order
• average order size

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Main criteria for suppliers evaluation

• lead time
• reliability
• flexibility
• frequency (delivery lots)
• quality of products/services kakovost
  materiala/storitev
• transport costs
• coordination ability
• cooperation in development
• exchange rates, duties etc.
• viability (more in the risks section)
• Both averages and variability matters!

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Part 5 Standards in SCs
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Content

• Presented standards
• SCOR
• GS1
• Global Evalog

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The SC without standards
Complex processes
Source Mateja Podlogar
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The SC with standards
Unified language
Source Mateja Podlogar
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SCOR

• Process view of SC
• a systematic hierarhic set of processes

Source Supply Chain Council, www.supply-chain.org
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SCOR model
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Level 1
Source Supply Chain Council, www.supply-chain.org
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Level 2
Source Supply Chain Council, www.supply-chain.org
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Level 4
Source Supply Chain Council, www.supply-chain.org
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(No Transcript)
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SCOR model measurement
SourceTheeranuphattana, Tang, 2008
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SCOR metrics
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Popis bodocega želenega stanja procesov 4.
stopnje v Danofossovi Diviziji daljinskega
ogrevanja
Source Danfoss, Mr. Mihelic
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GS1

• GS1 a set of standards for efficient management
  of SCM with unique identification of products,
  transport vehicles , locations and services

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(No Transcript)
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(No Transcript)
75
GLOBAL EVALOG

• MMOG/LE Materials Management Operations
  Guideline/Logistics Evaluation
• Standard by
• Oddette http//www.odette.org/html/home.htm in
• AIAG (Automotive Industry Action Group)
  http//www.aiag.org/scriptcontent/index.cfm?sectio
  nhome
• Several main car manufacturers

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Categories

• 6 chapters, 206 criteria

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Processes
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Measurement

• The main criteria
• delivery performance
• supplier performance
• internal performance

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Why Renault chose MMOG LE to assess its
suppliers ?

• 100 of Renault suppliers have to remain or to
  reach the world class level, in terms of
  logistics results and organization
• Renault doesnt assess all suppliers
• ? It was decided to use self assessments in order
  to
• 1) get a diagnostic of suppliers logistics
  current level, compared to benchmarks detailed in
  MMOG LE
• 2) check suppliers progress planning

Source www.smmt.co.uk/businessimprovement/DenisMo
zzo.ppt
80
PART 7 SCM Selected Future Trends
Picture source http//cutlerynewsjournal.files.wo
rdpress.com/2008/10/futuristic-sci-fi-01.jpg
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Content

• Assorted topics
• RFID
• analytics
• environment

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Supply chain management future trends

• http//www.youtube.com/watch?vUS5lO1HfmEo
• Summary
• information, information and its utilization
• collaboration working together
• barriers environment, regulatory, price changes,
  congestions

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New promising technology - RFID

• Advantages over bar-code
• no physical contact needed
• new data can be written
• a larger quantity of data
• increased visibility/transparency in SCs
• Several potential uses
• see e.g. http//en.wikipedia.org/wiki/Rfid

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RFID main components

• System components
• tag
• either active (own batery) or passive (without
  energy source)
• either read-only, write-once or full read-write
• reader devices that convert radio waves from
  RFID tags into a form that can be passed to
  middleware software
• middleware for retrieving data,filtering data
  feeds to application software, generating
  inventory movement notifications, monitoring tag
  and reader network performance, capturing
  history.

Source www.theiia.org/download.cfm?file93793
85
RFID - problems

• relatively expensive
• relatively unreliable
• so we have acquired lots of data what to do
  with it now?

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All kinds of possible uses ?
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(No Transcript)
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RFID

• What is a RFID
• http//www.youtube.com/watch?vyNPDgudPmXE
• Kind of a joke
• http//www.youtube.com/watch?veob532iEpqk

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Business analytics
Some companies have built their very businesses
on their ability to collect, analyze, and act on
data. Every company can learn from what these
firms do (Davenport, 2007).
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The main challenge

• How to make correct relevant business decision
  based on bundles of very large volumes of both
  internal and external data.

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Potential answer

• An application of various advanced analytic
  techniques to data to answer questions or solve
  problems related to SCM. BA is not a technology
  but rather a group of approaches, organizational
  procedures and tools that are used in combination
  with one another to gain information, analyze
  that information, and predict outcomes of the
  problem solutions in any of the four areas of
  SCOR
• (adapted from Bose, 2009)

92
Examples by SCOR area

• in Plan analysing data to predict market trends
  of products and services and to improve
  performances of enterprise business systems
  (Azvine, 2005)
• in Source the use of agent-based procurement
  system with procurement model, search,
  negotiation and evalution agents to improve
  supplier selection, price negotiation and
  supplier evaluation (Lee, 2009)
• in Make the data can show the correct production
  of each and every inventory item not only in
  terms of time, but also about each production
  belt and batch (Ranjan, 2008)
• in Deliver various application of BA in
  logistics management have been made in order to
  bring products to market more efficiently (Reyes,
  2005)

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Business analytics in SCOR areas

• SourceMarcos Paulo Valadares de Oliveira,
  unpublished

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Case - UPS

• UPS among the worlds most rigorous
  practitioners of operations research and
  industrial engineering,
• Its capabilities were, until fairly recently,
  narrowly focused.
• Today, UPS is wielding its statistical skill to
  track the movement of packages and to anticipate
  and influence the actions of people assessing
  the likelihood of customer attrition and
  identifying sources of problems.
• it is able to accurately predict customer
  defections by examining usage patterns and
  complaints.
• When the data point to a potential defector, a
  salesperson contacts that customer to review and
  resolve the problem, dramatically reducing the
  loss of accounts.

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It aint simple the dimensions of BA use
Source www.analytics4.co.uk/en/about.php
96
Impact of analytics
Source Davenport, 2006
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Environment
98
Corporate responsibility

• See e.g. http//www.ericsson.com/ericsson/corpora
  te_responsibility/index.shtml
• Note this is just a brief intro to a very
  important topic for our future however most of
  the issues are not SC specific, therefore they
  are not presented in great detail

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Wal-mart approach
100
Possible steps

• Identifying Goals, Metrics, and New Technologies
• Certifying Environmentally Sustainable Products
• Providing Network Partner Assistance to Suppliers
  
• Committing to Larger Volumes of Environmentally
  Sustainable Products
• Cutting out the Middleman
• Consolidating Direct Suppliers
• Restructuring the Buyer Role
• Licensing Environmental Innovations

Sourcehttp//www.scmr.com/article/CA6457969.html
3
101
Important areas

• energy efficiency
• material and resource management, efficiency and
  control
• safe and clean production
• distribution and logistics
• total costs
• risk and liability
• secure supply
• innovation management.

Source http//www.fivewinds.com/uploadedfiles_sha
red/EnvironmentalSupplyChainManagement040127.pdf
102
References (general)

• (note additional references available on request)
• Main textbook
• Chopra, S., Meindl, P. (2007). Supply Chain
  Management strategy, planning and operation.
  Upper Saddle River, New Jersey Pearson Prentice
  Hall.
• Other references
• Berlak, J., Weber, V. (2004). How to make
  e-Procurement viable for SME suppliers.
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• Brun, A., Caridi, M., Fahmy Salama, K.,
  Ravelli, I. (2006). Value and risk assessment of
  supply chain management improvement projects.
  International Journal of Production Economics,
  99(1-2), 186-201.
• Caridi, M., Cavalieri, S., Diazzi, G.,
  Pirovano, C. (2004). Assessing the impact of
  e-Procurement strategies through the use of
  business process modelling and simulation
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• Changchien, S. W., Shen, H.-Y. (2002). Supply
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• Cho, S.-H., Eppinger, S. (2005). A
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• Cohen, S., Roussel, J. (2005). Strategic supply
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• Davenport, T. (2006). Competing on Analytics.
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103
References (cont.)

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104
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• .

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106
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