Supply Chain Management

1
Supply Chain Management

• Tuesday, September 20, 2005

Jack MarksStephen PetersonJames Rockholt
2
What is a Supply Chain?

• Supply Chain Flow of information, materials,
  and services that starts with raw material
  suppliers and continues through other stages in
  the operations process until the product reaches
  the end customer.

3
Thus, Supply Chain Management Is

• The integration of the supplier, distributor,
  and customer logistics requirements into one
  cohesive process to include demand planning,
  forecasting, materials requisition, order
  processing, inventory allocation, order
  fulfillment, transportation services, receiving,
  invoicing, and payment.

4
In Other Words

• SCM involves an attempt to coordinate all
  processes involved in producing, shipping and
  distributing products, generally with large
  suppliers
• Extending the concept of logistics beyond the
  firm

5
Then and Now

• Companies used to only care about what was going
  on inside their walls
• Globalization and the information age have forced
  firms to actively manage supply chains in the
  most efficient and effective way possible
• SCM can greatly reduce costs and improve
  supplier/customer relationships, but it adds
  complexity to modern business strategy

6
Three Kinds of Flow

• Physical Flows
• Inbound from supplier
• Production activities
• Outbound to customer
• Information Flows
• Electronic order scheduling
• Automated inventory management
• Online transactions payment systems
• Relationships
• Who will perform what activities
• Contractual agreements joint ventures
• Performance reviews with specific feedback

7
Basic SCM Components

• Stage 1 Plan
• Stage 2 Source
• Stage 3 Make
• Stage 4 Deliver
• Stage 5 Return
• Stage 6 Monitor

8
Stage 1 PLAN

• Demand Planning
• Forecast sales of your product and what that
  means in terms of raw materials requirements from
  supplier
• Must understand aggregate demand before you can
  determine how best to meet business requirements
• Order Promising
• Time to deliver product to customer given
  constraints and lead times

9
Stage 2 SOURCE

• Strategic Network Optimization
• What plants and distribution centers should serve
  which markets for your product?
• Which suppliers do you need to produce your goods
  or services
• Develop policies for procurement, payment, and
  pricing
• Be able to manage the inventory you receive from
  your suppliers

10
Stage 3 MAKE

• Production Scheduling
• Feasible schedule that involves production,
  testing, packaging, and prep for delivery
• Measure quality levels, worker productivity, and
  overall production output
• Connects the supply and the distribution sides of
  your business
• Other strategies involved
• TQM
• JIT

11
Stage 4 DELIVER

• Transportation Execution
• Movement of materials from supplier to production
• Shipment of finished products to customers
• Logistics
• Coordinate receipt of orders
• Invoice and receive payments
• Utilize distribution network for transportation
  of products

12
Stage 5 RETURN

• Flexible networks must be capable of receiving
  defects back into the chain
• Defective or excess products are taken back from
  customers
• Tends to be one of the more problematic areas of
  the chain

13
Stage 6 MONITOR

• Must continually analyze processes for potential
  inefficiencies
• Look for ways to restore or improved wasted
  potential or stages not performing up to the
  plan
• Information must flow back through the chain
  quickly for maximum adaptability

14
The SCOR Model
Deliver
Make
Deliver
Make
Source
Source
Make
Deliver
Source
CustomersCustomer
Your Company
Supplier
Customer
SuppliersSupplier
Internal or External
Internal or External
SCOR Model
Building Block Approach Processes Metrics Be
st Practice Technology
15
SCOR Model Continued
Plan
P1 Plan Supply Chain
P4 Plan Deliver
P5 Plan Returns
P2 Plan Source
P3 Plan Make
Source
Make
Deliver
M1 Make-to-Stock
S1 Source Stocked Products
D1 Deliver Stocked Products
Suppliers
M2 Make-to-Order
S2 Source MTO Products
D2 Deliver MTO Products
Customers
M3 Engineer-to-Order
S3 Source ETO Products
D3 Deliver ETO Products
D4 Deliver Retail Products
Return Deliver
Return Source
Enable
16
Why SCM?

• Primary Goal
• control the inventory a company has on hand by
  providing the company with a complete view into
  its suppliers to understand inventory levels and
  production capacity
• Build on existing supply chain processes, not
  necessarily replace them
• Your chain is only as strong as its weakest link

17
Why SCM?

• Advantages
• Reduced inventories on hand for raw
  materials/parts as well as finished goods
• Reduced inventory carrying cost and inherent
  pricing risks
• Quicker product cycle more turnover, higher
  efficiency ratios, better company valuation
  statistics
• Leaner production process could decrease
  time-to-market
• Decreased transportation costs
• Optimized ordering costs
• Automation of tasks relating to
  ordering/restocking
• Increased customer retention and loyalty

18
Why SCM?

• Disadvantages
• High up-front costs to develop and implement the
  systems required to manage the chain
• Requires high level of trust from your suppliers
  and business partners
• Resistance to change (internal external)
• Initial batch of mistakes
• Only as good as the information fed into the
  system
• Needs to be continually monitored and tweaked as
  time goes on
• Blindly following the system without thinking
  about the results it outputs can lead to failures
  that affect the entire business

19
Industry Use

• Companies such as Dell and Wal-Mart have used SCM
  to create incredibly efficient business models
  that have catapulted them to the forefront of
  their industries
• RFID tags are rapidly hitting the marketplacea
  new development in SCM
• More automation
• More precise tracking of goods materials means
  more accurate forecasts and decisions

20
Case Study Dell vs. HP

• 2003 HP/Compaq merger
• Dells focus going forward cost leader
• HP chooses to be highly tailored to each market
  segment they sell to
• Recent shakeups at HP against Dells record 2Q
  earnings shows who is currently winning the
  battle
• SCM one of the keys to increased returns in a
  market with ever-shrinking margins

21
What You Need to Know

• The Information Revolution
• SCM has come to the forefront of managers minds
  in part because technical constraints have been
  removed
• Major way IT helps SCM removing time-sensitive
  information delays from the chain
• B2B and rise of e-commerce have forced companies
  to compete and implement SCM thats where we
  come in

22
What You Need to Know

• Increased Competition/Globalization
• Todays business environment requires faster
  decisions that are more accuratewith even higher
  penalties
• Increased customer demands (in both B2B/B2C)
  force the use of SCM to be highly successful
• More firms will need systems to be put in place
  updated with new technology
• 3PL Third Party Logistics

23
What You Need to Know

• Third Party Logistics (3PL)
• Outsourcing of SCM logistics design and control
• 78 of North American companies use 3PL services
  vs. 94 for Western Europe
• US-based 3PL firms made 60 billion in revenues
  in 2002
• Some firms doing 3PL
• FedEx Supply Chain Management
• Caterpillar Logistics
• Ryder Logistics
• UPS Supply Chain Services

24
What You Need to Know

• Relationship Management
• Proper care for business relationships between
  the company and its suppliers customers is one
  of the most difficult issues facing a manager
• Relationship breakdown can lead to disastrous
  effects in the form of production stoppages and
  delays down the chain
• No business is an island all employees should be
  able to see the bigger picture

25
Questions Activity
26
References

• Business Essentials. 4th Edition. Pearson
  Education, Inc. 2003
• Dell to HP Catch Me If You Can. CRM Buyer. (20
  May 2003)
• http//www.crmbuyer.com/story/21546.html
• Koch, Christopher. The ABCs of Supply Chain
  Management. CIO Magazine.
• http//www.cio.com/research/scm/edit/012202_scm.ht
  ml
• Management Information Systems for the
  Information Age. 4th Edition. McGraw-Hill
  Companies, Inc. 2004
• NC State University, Supply Chain Resource
  Consortium.
• http//scrc.ncsu.edu/index.html
• Pisello, Tom. Quantifying Supply Chain Management
  Benefits. SearchSAP.com (15 Sept. 2005)
• http//searchsap.techtarget.com/generic/0,295582,s
  id21_gci1125310,00.html
• Supply Chain Counsel
• http//www.supply-chain.org/index.ww
• Supply Chain Management. Wikipedia
• http//en.wikipedia.org/wiki/Supply_chain_manageme
  nt