What is a supply chain
Detergent supply chain
These supply chain stages: Customers, Retailers, Wholesalers/distributors, Manufacturers,Component/raw material suppliers
THE OBJECTIVE OF A SUPPLY CHAIN: maximize the overall value generated
THE IMPORTANCE OF SUPPLY CHAIN DECISIONS
DECISION PHASES IN A SUPPLY CHAIN:
1. Supply Chain Strategy or Design
2. Supply Chain Planning
3. Supply Chain Operation
PROCESS VIEWS OF A SUPPLY CHAIN:
1. Cycle View:
2. Push/Pull View
CYCLE VIEW OF SUPPLY CHAIN PROCESSES
• Customer order cycle
• Replenishment cycle
• Manufacturing cycle
• Procurement cycle
Each cycle consists of six subprocesses
1. Supplier stage markets product
2. Buyer stage places order
3. Supplier stage receives order
4. Supplier stage supplies order
5. Buyer stage receives supply
6. Buyer returns reverse flows to supplier or third party
PUSH/PULL VIEW OF SUPPLY CHAIN PROCESSES:
Make-to-stock - L.L Bean:
1. Customer order cycle
2.Procurement,Manufacturing,Replenishment Cycles
build-to-order - Dell
1. Customer Order and Manufacturing Cycle
2. Procurement Cycle
Paint Inustry - Interlap
SUPPLY CHAIN MACRO PROCESSES IN A FIRM
1. Customer Relationship Management (CRM): Marketing
• Market
• Price
• Sell
• Call Center
• Order Management
2. Internal supply chain management (ISCM): Manufacturing
• Strategic Planning
• Demand Planning
• Supply Planning
• Fulfillment
• Field Service
3. Supplier Relationship Management (SRM): Purchasing
• Source
• Negotiate
• Buy
• Design Collaboration
• Supply Collaboration
COMPETITIVE AND SUPPLY CHAIN STRATEGIES:
Competitive: Depends on Competitors which inturn depends on customer priorities
General Definitin: product development strategy, marketing and sales strategy, supply chain strategy
Implied Demand Uncertainty:
Demand uncertainty reflects the uncertainty of customer demand for a product.
Implied demand uncertainty is demand uncertainty due to the portion of demand that the supply chain is targeting, not the entire demand
Note:
1. Products with uncertain demand are often less mature and have less direct competition. As a result, margins tend to be high.
2. Forecasting is more accurate when demand has less uncertainty.
3. Increased implied demand uncertainty leads to increased difficulty in matchingsupply with demand.Increased implied demand uncertainty thus leads to both higher oversupply and a higher stockout rate.
4. Markdowns are high for products with high implied demand uncertainty because oversupply often results.
5. Along with demand uncertainty, it is important to consider uncertainty resulting from the capability of the supply chain
6. Supply uncertainty is also strongly affected by the life-cycle position of the product.
The cost-responsiveness efficient frontier is the curve showing the lowest possible cost for a given level of responsiveness. The efficient frontier represents the cost-responsiveness performance of the best supply chains. Lowest cost is defined based on existing technology; not every firm is able to operate on the efficient frontier
STRATEGIC FIT:
1. The competitive strategy and all functional strategies must fit together
2. The different functions in a company must appropriately structure their processes and resources
3. The design of the overall supply chain and the role of each stage must be aligned
HOW IS STRATEGIC FIT ACHIEVED?
Step 1 : Understanding the Customer and Supply Chain Uncertainty
• The Quantity of the Product Needed in Each Lot
• The Response Time that Customers are Willing to Tolerate
• The Variety of Products Needed
• The Service Level Required
• The Price of the Product
• The Desired Rate of Innovation in the Product
Step 2: Understanding the Supply Chain Capabilities
Supply chain efficiency is the inverse of the cost of making and delivering a product to the customer.
Supply chain responsiveness includes a supply chain's ability to do the following:
• Respond to wide ranges of quantities demanded
• Meet short lead times
• Handle a large variety of products
• Build highly innovative products
• Meet a high service level
• Handle supply uncertainty
Step 3: Achieving Strategic Fit
1. The goal is to target high responsiveness for a supply chain facing high implied uncertainty, and efficiency for a supply chain facing low implied uncertainty.
2. Increasing implied uncertainty fromcustomers and supply sources is best served by increasing responsiveness from the supply chain. This relationship is represented by the "zone of strategic fit"
3. Making one stage more responsive allows other stages to focus on becoming more efficient. The best combination of roles depends on the efficiency and flexibility available at each stage.
Ex: Supply Chain I has a very responsive retailer who absorbs most of the uncertainty, allowing (actually requiring) the manufacturer and supplier to be efficient. Supply Chain II, in contrast, has a very responsive manufacturer who absorbs most of the uncertainty, thus allowing the other stages to focus on efficiency.
The important points to remember from this discussion are the following.
1. There is no supply chain strategy that is always right.
2. There is a right supply chain strategy for a given competitive strategy.
ISSUES AFFECTING STRATEGIC FIT:
* Multiple Products and Customer Segments
* Product Life Cycle:
Toward the beginning stages of a product's life cycle:
1. Demand is very uncertain and supply may be unpredictable.
2. Margins are often high, and time is crucial to gaining sales.
3. Product availability is crucial to capturing the market.
4. Cost is often a secondary consideration.
As the product becomes a commodity product later in its life cycle, the demand and supply characteristics change.
1. Demand has become more certain and supply is predictable.
2. Margins are lower due to an increase in competitive pressure.
3. Price becomes a significant factor in customer choice.
* Globalization and Competitive Changes over Time
EXPANDING STRATEGIC SCOPE:
Scope of strategic fit refers to the functions within the firm and stages across the supply chain that devise an integrated strategy with a shared objective. At one extreme, every operation within each functional area devises its own independent strategy with the objective of optimizing its individual performance. At the opposite extreme, all functional areas across all stages of the supply chain devise strategy jointly with a common objective of maximizing supply chain profit.
Operations: Suppliers-Manufacturer-Distributor-Retailer Customer
Stages/Strategies: Competitive-Product development-Supply Chain-Marketing Strategy
INTRACOMPANY INTRAOPERATION SCOPE: Here, each operation within each stage of the supply chain devises strategy independently. Consider an example of a distribution company in which a transportation operation is evaluated based on average shipping cost per unit.
INTRACOMPANY INTRAFUNCTIONAL SCOPE: Given that many operations together form each function within a firm the strategic fit is expanded to include all operations within a function. Applying the intracompany intrafunctional scope and continuing with the distribution example, managers now look not only at transportation costs, but also at warehousing and other supply chain-related costs
In this case the scope of strategic fit expands to an entire function within a stage of the supply chain.
INTRACOMPANY INTERFUNCTIONAL SCOPE: For example, marketing and sales focusing on revenue generation, and manufacturing and distribution focusing on cost reduction. Actions the two functions took were often in conflict, hurting the firm's overall performance. Companies realized the importance of expanding the scope of strategic fit across all functions within the
firm. Instead of looking only at the supply chain costs, the company will now look at revenue as well.
INTERCOMPANY INTERFUNCTIONAL SCOPE: The intracompany interfunctional scope of strategic fit has two major weaknesses. First, it leads to each stage of the supply chain trying to maximize its own profits, which does not necessarily result in the maximization of supply chain surplus. The second major weakness of the intracompany scope was noted in the 1990s
when speed became a key driver of supply chain success. The most significant delays are created at the interface between the boundaries of different stages of a supply chain.
Taking this view requires each company to evaluate its actions in the context of the entire supply chain. This means treating stages in the supply chain that a company does not own as belonging to the company. the manufacturer and the supplier need to work together to actually reduce the amount of inventory that is required. For example, by sharing demand information with the supplier, the manufacturer can lower the amount of inventory needed in the chain, thus reducing overall cost, increasing the supply chain surplus, and making firms in that supply chain more competitive.
AGILE INTERCOMPANY INTERFUNCTIONAL SCOPE: Product life cycles are getting shorter and companies must satisfy the changing needs of individual customers. A company may have to partner with many different firms, depending on the product being produced and the customer being served
Agile intercompany scope refers to a firm's ability to achieve strategic fit when partnering with supply chain stages that change over time. Firms must think in terms of supply chains consisting of many players at each stage.
DRIVERS OF SUPPLY CHAIN PERFORMANCE:
1. Facilities: Production and Storage Sites
2. Inventory: raw materials, work in process, and finished goods
3. Transportation
4. Information
5. Sourcing
6. Pricing
FRAMEWORK FOR STRUCTURING DRIVERS
Diagramconsosting:
Competitive, Supply Chain strategy
Logistical Drivers: facilities, Inventory, Transportation
Crossfunctional Drivers: Information, Sourcing, Pricing
WalMart Cross Docking strategy
FACILITIES:
ROLE IN THE SUPPLY CHAIN
ROLE IN THE COMPETITIVE STRATEGY
COMPONENTS OF FACILITIES DECISIONS:
1. Role
2. Location
3. Capacity
Facility-Related Metrics
• Capacity
• Utilization
• Theoretical flow/cycle time
• Actual average flow/cycle time
• Flow time efficiency
• Product variety
• Volume contribution of top 20 percent SKUs and customers.
• Processing/setup/down/idle time
• Average production batch size
• Production service level
OVERALL TRADE-OFF: RESPONSIVENESS VERSUS EFFICIENCY
INVENTORY:
ROLE IN THE SUPPLY CHAIN
ROLE IN THE COMPETITIVE STRATEGY
COMPONENTS OF INVENTORY DECISIONS:
1. Cycle Inventory
2. Safety Inventory
3. Seasonal Inventory
4. Level of Product Availability
Inventory-Related Metrics:
• Average inventory
• Products with more than a specified number of days of inventory
• Average replenishment batch size
• Average safety inventory
• Seasonal inventory
• Fill rate.
• Fraction of time out of stock
Overall Trade-Off: Responsiveness Versus Efficiency
TRANSPORTATION:
ROLE IN THE SUPPLY CHAIN
ROLE IN THE COMPETITIVE STRATEGY
COMPONENTS OF TRANSPORTATION DECISIONS:
1. Design of Transportation Network
2. Choice of Transportation Mode
Transportation-Related Metrics:
• Average inbound transportation cost
• Average incoming shipment size
• Average inbound transportation cost per shipment
• Average outbound transportation cost
• Average outbound shipment size
• Average outbound transportation cost
• Fraction transported by mode
Overall Trade-Off: Responsiveness Versus Efficiency
INFORMATION:
ROLE IN THE SUPPLY CHAIN
ROLE IN THE COMPETITIVE STRATEGY
COMPONENTS OF INFORMATION DECISIONS:
1. Push Versus Pull
2. Coordination and Information Sharing
3. Forecasting and Aggregate Planning
4. Enabling Technologies: Electronic data Exchange, Internet, Enterprise Resource Planning, Supply Chain Management, Radio Frequency Identification
Information-Related Metrics:
Overall Trade-Off: Responsiveness Versus Efficiency
• Forecast horizon
• Frequency of update
• Forecast error
• Seasonal factors
• Variance from plan .
• Ratio of demand variability to order variability
SOURCING:
ROLE IN THE SUPPLY CHAIN
ROLE IN THE COMPETITIVE STRATEGY
COMPONENTS OF SOURCING DECISIONS:
1. In-House or Outsource
2. Supplier Selection
3. Procurement SOURCING-Related Metrics:
• Days payable outstanding
• Average purchase price
• Range of purchase price
• Average purchase quantity
• Fraction on-time deliveries
• Supply quality
• Supply lead time
Overall Trade-Off: Responsiveness Versus Efficiency
PRICING:
ROLE IN THE SUPPLY CHAIN
ROLE IN THE COMPETITIVE STRATEGY
COMPONENTS OF PRICING DECISIONS:
1. Pricing and Economies of Scale
2. Everyday Low Pricing Versus High-Low Pricing
3. Fixed Price Versus Menu Pricing
PRICING-Related Metrics:
• Profit margin
• Days sales outstanding
• Incremental fixed cost per order
• Incremental variable cost per unit
• Average sale price
• Average order size
• Range of sale price .
• Range of periodic sales
Overall Trade-Off: Responsiveness Versus Efficiency
OBSTACLES TO ACHIEVING STRATEGIC FIT:
INCREASING VARIETY OF PRODUCTS
DECREASING PRODUCT LIFE CYCLES
INCREASINGLY DEMANDING CUSTOMERS
FRAGMENTATION OF SUPPLY CHAIN OWNERSHIP
GLOBALIZATION
DIFFICULTY EXECUTING NEW STRATEGIES
