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1 Supply Chain Operations Flow • Supply Chain Configurations • Supply Chain Strategies

1 Supply Chain Operations Flow Supply Chain Configurations Supply Chain Strategies

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Page 1: 1 Supply Chain Operations Flow Supply Chain Configurations Supply Chain Strategies

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Supply Chain

• Operations Flow

• Supply Chain Configurations

• Supply Chain Strategies

Page 2: 1 Supply Chain Operations Flow Supply Chain Configurations Supply Chain Strategies

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Customer

Retailer

Information Flows

Distributor

Producer / Suppliers

Payments: Funds Flow

Goods/Services: Value Flow

Requirements

Customer Service

Supply Chain Overview

Page 3: 1 Supply Chain Operations Flow Supply Chain Configurations Supply Chain Strategies

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D

T

R

B

P

6 Cylinder Mid-size

4 Cylinder Compact

A H F S

Flexible Flows at Health Clinic

D: Doctor (exam room)

R: Radiology (X ray)

T: Triage (assess severity)

B: Blood test

P: Pharmacy

Physical Exam

Physical Exam

Broken arm

Broken arm

Flu

Flu

Line Flows at Car Assembly Plant

A: Front-end assembly

H: Hood attachment

F: Fluid filling

S: Start-up & testing6 Cylinder Mid-size

4 Cylinder Compact

Operation Flows

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Operations Flow and Competitive Strategy

Flexible Flows

• Customization

• Low Volumes

• High Design Quality

• Long Delivery Time

• More cost

Line Flows

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Jumbled flows

Some dominant flows

Linear flows

Flexible flows

• Tool and die shop

• Health Center

Intermediate flows

• Branch offices

• Print shop

Line flows

• Assembly plant

• Oil refinery

Low Medium High

Volume Volume Volume

Relationship between Flows and Volume

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A Ladder-back Chair

Ladder-back subassembly

Seat subassembly Front legs Leg supports

Back legs Back slats Seat frame Seat cushion

Seat-frame boards

Bill of materials

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Master Production Schedule

MRP ExplosionInventory Records Bill of materials

Materials Requirements Plan

Materials Requirements Planning

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MRP Explosion

Materials Requirements Plan

Materials Requirements Planning

• Release new orders

• Adjust Due date

• Supplier schedules

• Capacity Requirements Plan

Manufacturing Resource Planning

• Performance Reports

Cost and Price Data

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MRP Implementation

Prerequisites

• Computing support for product and parts variety

• Accurate production schedule, inventory records, BOM

Favorable Conditions

• Number of BOM levels > 6

• Large lot sizes

• Low volatility

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Supply Chain

• Operations Flow

• Supply Chain Configurations

• Supply Chain Strategies

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Supply Chain Management: Trends

• Link manufacturers, retailers, customers & suppliers

• Streamline materials flow

• Manage demand fluctuations, global sourcing, shorter life cycles, and lower brand loyalty

• Customer service, growth, revenue enhancement

Need for information integration across the chain

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Tier 1 Suppliers

Tier 2 Suppliers

Manufacturer

Distribution Center 1

Distribution Center 2

Customer Customer Customer Customer

Supply chain for a Manufacturer

S S S S

s s s s

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The Bullwhip Effect in Supply Chains

Customers Distributors Manufacturers

Order variability increases up the chain leading to

• Insufficient / Excessive inventory

• Poor product forecasts

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Causes Behind the Bullwhip Effect

1. Forecast updating. Longer the lead time, greater the swings.

– Share demand data with upstream member

– Upstream member controls inventory (e.g., Vendor Managed Inventory)

– Bypass the distribution system (sell direct).

– Shorten lead time.

2. Order batching. Full truck load orders cause bigger fluctuations

– Share demand data with upstream member

– Use electronic ordering

– Use mixed SKU shipping

– Use a 3rd party logistics company

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3. Price fluctuations. Promotions and trade deals encourage forward buying.

– Reduce the frequency and level of discounting

– Use every day low price policy

4. Rationing. Manufacturer allocates product in short supply based on orders.

– Allocation based on past sales

– Tighten manufacturer’s return policy

– Advance orders to help increase capacity

Causes Behind the Bullwhip Effect (contd.)

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Push-Based vs. Pull-Based Supply Chain

Manufacturer

Manufacturer

Distribution CenterDistribution Center

Retail Store

Retail Store• Forecast• Master Scheduling• Stock Distribution Center• Manual ordering

• Order point based on forecast

• Deals, promotion, forward buying

• Manual ordering

• Manage shelf inventory

• Promotions

• Manual order entry

Customer Purchase

Customer Purchase

• POS data collection

• Perpetual inventory control

• Automatic electronic ordering

• Automatic electronic ordering

• Shipping container marking

• EDI

• POS data drives scheduling• Short cycle manufacturing• Advance shipping notice• Barcode scanner

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Pull System Characteristics

Requirements Benefits

Process Redesign

New Technologies

Manufacturing capability

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Supply Chain Dynamics

External

• Volume / product mix changes from customers

• Late / under-filled shipments

Internal

• Internal shortages / breakdowns

• Engineering changes/ new products/ sales promotions

• Information errors (e.g., forecasting errors)

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Operations Measure

Aggregate inventory value

Weeks of supply

Inventory turns

Production and material costs

Percentage defects

Percentage on-time delivery

New-product development time

Supplier lead time

Financial Measure

Current assets

Working capital

Working capital

Contribution margin

Contribution margin

Revenue

Revenue

Working capital

Supply-Chain Performance Measures

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Matching Environments with Supply Chains

Factors

Demand Competitive priorities Lead Time New-product introduction Contribution margins Product variety Stockouts / Excess Stock

Efficient Chains

Predictable Low cost Consistent quality On-time delivery Long Infrequent Low Low Low

Responsive Chains

Unpredictable Development speed Fast delivery Customization Frequent High High

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Design Features for Supply ChainsFactor Efficient Chains Responsive Chains Flow strategy Line flows

High volume Standardized products

Flexible or intermediate flows

Product or service variety Capacity cushion

Low

High

Inventory investment

Low High inventory turns

As needed Fast delivery time

Lead time Shorten aggressively

Supplier selection Design Strategy

Emphasize low prices Consistent quality On-time delivery Maximize performance

Fast delivery time Customization Volume flexibility

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Supply Chain

• Operations Flow

• Supply Chain Configurations

• Supply Chain Strategies

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Competitive Advantage in the Supply Chain

Proprietary

• Supplier owns technology

• Advantage to supplier

Generic

• Technology in public domain

• No advantage possible

Custom

• Joint design, full protection

• Full advantage

Tailored

• Joint ownership, some protection

• Variable advantage

Many Customers Single Customer

Single supplier

Many suppliers

Access and control of technological capabilities

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Appropriate B2B Relationships

Total equity

Investment stake

Strategic alliance

Joint development

Performance partnership

Long term contract

Preferred suppliers

Competitive bids

Short term contracts

Spot market

Outsource

Insource

Close Relational Market collaboration Competence competition

Core

strategy

Control over capabilities

Off

strategy

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Rely on Competition

Criteria

• Over-supply in market

• Commoditization

• Rapid innovations

• Price collapse

• Testing suppliers

Strategies

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Rely on Collaboration

Criteria

• Complementary capabilities

• Access to vital assets

• Required for market access

• Enduring relationships

• Common goals

Strategies

• Long term contracting

• Share sales data

• Joint R&D

• Share cost data

• Joint marketing

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Redesign of Supply Chain

Harmonize, Rationalize

• SKU reduction

• Process Design

• Integrated platform

• Supplier reduction

• Supplier involvement

• Brand rationalization

Electronic Chain

• Intranet / Extranet / Internet

• On-line catalogs

• e-Purchasing

• EDI

• Efficient Consumer Response

• Transaction processing

Cut Low Value Work

• Outsource

• Preferred suppliers

• Certification

• Share schedule

• Supplier managed inventory

• Purchasing cards

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Current Focus Required Focus Typical Activities:

1. New product

2. Design for manufacturability

3. Strategic cost management

4. Electronic chain

5. Breakthrough projects

6. Joint training

7. Contract management

8. Requisitioning

9. Stock control

10.Low value purchases

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Change Management

Quick Win

Supplier reduction

Analysis

Cost analysis

Capability

Web procurement

Major Project

Outsource

Restructure

Strategic Alliance

Functional Change

Process Change

Strategic Change

Business Transformation

Strategic Impact

Incremental Change Short Term Migration Plan Long term

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Low External Demand for Change High

High

Internal Support

Low

Transformational Leadership

Opportunistic activity Process Initiatives

Supply Chain Realignment

Challenges of Supply Chain Redesign