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7/30/2019 Supply Chain Management - Session 16
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7/30/2019 Supply Chain Management - Session 16
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Suppliers Manufacturers Warehouses &Distribution Centers
Customers
Material Costs
TransportationCosts
TransportationCosts Transportation
CostsInventory CostsManufacturing Costs
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The Supply Chain Another View
Suppliers Manufacturers Warehouses &Distribution Centers
Customers
Material Costs
TransportationCosts
TransportationCosts Transportation
CostsInventory CostsManufacturing Costs
Plan Source Make Deliver Buy
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What Is Supply Chain Management (SCM)?
A set of approaches used to efficiently integrate
Suppliers
Manufacturers
Warehouses
Distribution centers
So that the product is produced and distributed
In the right quantities
To the right locations
And at the right time
System-wide costs are minimized and
Service level requirements are satisfied
Plan Source Make Deliver Buy
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Why Is SCM Difficult?
Uncertainty is inherent to every supply chain
Travel times
Breakdowns of machines and vehicles
Weather, natural catastrophe, war
Local politics, labor conditions, border issues
The complexity of the problem to globally optimize a supply
chain is significant
Minimize internal costs
Minimize uncertainty
Deal with remaining uncertainty
Plan Source Make Deliver Buy
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The Objective of a Supply Chain
Maximize overall value created
Supply chain value: difference between whatthe final product is worth to the customer and
the effort the supply chain expends in fillingthe customers request
Value is correlated to supply chain profitability
(difference between revenue generated fromthe customer and the overall cost across thesupply chain)
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The Objective of a Supply Chain
Supply chain incurs costs (information,
storage, transportation, components,
assembly, etc.)
Supply chain profitability is total profit to be
shared across all stages of the supply chain
Supply chain success should be measured by
total supply chain profitability, not profits at
an individual stage
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The Objective of a Supply Chain
Sources of supply chain revenue: the
customer
Sources of supply chain cost: flows ofinformation, products, or funds betweenstages of the supply chain
Supply chain management is the
management of flows between and amongsupply chain stages to maximize total supplychain profitability
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Decision Phases of a Supply Chain
Supply chain strategy or design
Supply chain planning
Supply chain operation
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Supply Chain Planning
Definition of a set of policies that govern
short-term operations
Fixed by the supply configuration from
previous phase
Starts with a forecast of demand in the
coming year
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Supply Chain Planning
Planning decisions:
Which markets will be supplied from which locations
Planned buildup of inventories
Subcontracting, backup locations
Inventory policies
Timing and size of market promotions
Must consider in planning decisions demanduncertainty, exchange rates, competition over the
time horizon
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Supply Chain Operation
Time horizon is weekly or daily
Decisions regarding individual customer orders
Supply chain configuration is fixed and operatingpolicies are determined
Goal is to implement the operating policies aseffectively as possible
Allocate orders to inventory or production, set orderdue dates, generate pick lists at a warehouse, allocatean order to a particular shipment, set deliveryschedules, place replenishment orders
Much less uncertainty (short time horizon)
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Process View of a Supply Chain
Cycle view: processes in a supply chain aredivided into a series of cycles, each performedat the interfaces between two successive
supply chain stages Push/pull view: processes in a supply chain
are divided into two categories depending onwhether they are executed in response to acustomer order (pull) or in anticipation of acustomer order (push)
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Cycle View of Supply Chains
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier
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Cycle View of a Supply Chain
Each cycle occurs at the interface between twosuccessive stages
Customer order cycle (customer-retailer)
Replenishment cycle (retailer-distributor) Manufacturing cycle (distributor-manufacturer)
Procurement cycle (manufacturer-supplier)
Cycle view clearly defines processes involved and theowners of each process. Specifies the roles and
responsibilities of each member and the desired
outcome of each process.
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Customer Order Cycle
Involves all processes directly involved in
receiving and filling the customers order
Customer arrival
Customer order entry
Customer order fulfillment
Customer order receiving
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Replenishment Cycle
All processes involved in replenishing retailer
inventories (retailer is now the customer)
Retail order trigger
Retail order entry
Retail order fulfillment
Retail order receiving
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Manufacturing Cycle
All processes involved in replenishing
distributor (or retailer) inventory
Order arrival from the distributor, retailer, or
customer
Production scheduling
Manufacturing and shipping
Receiving at the distributor, retailer, or
customer
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Procurement Cycle
All processes necessary to ensure that materials areavailable for manufacturing to occur according toschedule
Manufacturer orders components from suppliers toreplenish component inventories
However, component orders can be determinedprecisely from production schedules (different fromretailer/distributor orders that are based on uncertain
customer demand)
Important that suppliers be linked to the manufacturers
production schedule
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Push/Pull View of Supply Chains
Procurement,Manufacturing andReplenishment cycles
Customer Order
Cycle
Customer
Order Arrives
PUSH PROCESSES PULL PROCESSES
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Push/Pull View of
Supply Chain Processes
Supply chain processes fall into one of twocategories depending on the timing of theirexecution relative to customer demand
Pull: execution is initiated in response to acustomer order (reactive)
Push: execution is initiated in anticipation of
customer orders (speculative) Push/pull boundary separates push processes
from pull processes
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Push/Pull View of
Supply Chain Processes
Useful in considering strategic decisions relating to
supply chain design more global view of how
supply chain processes relate to customer orders
Can combine the push/pull and cycle views L.L. Bean (Figure 1.6)
Dell (Figure 1.7)
The relative proportion of push and pull processescan have an impact on supply chain performance
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Summary of Learning Objectives
What are the cycle and push/pull views of asupply chain?
How can supply chain macro processes be
classified? What are the three key supply chain decision
phases and what is the significance of each?
What is the goal of a supply chain and what isthe impact of supply chain decisions on thesuccess of the firm?
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Element Traditional management Supply chain management
(1)Inventory management Independent efforts Joint reduction of channel approachinventories
(2)Total cost approach Minimize firm costs Channel-wide cost efficiencies(3)Time horizon Short term Long term
(4)Amount of information Limited to needs of current As required for planning and
sharing and monitoring transaction monitoring processes
(5)Amount of coordination Single contact for the transaction Multiple contacts between levels in
of multiple levels in the between channel pairs firms and levels of channel
channel
(6)Joint planning Transaction-based Ongoing(7)Compatibility of Not relevant Compatibility at least for key
corporate philosophies relationships
(8)Breadth of supplier base Large to increase competition Small to increase coordination
and spread risks
(9)Channel leadership Not needed Needed for coordination focus
(10)Amount of sharing risks Each on its own Risks and rewards shared over rewards
the long term(11)Speed of operations, Warehouse orientation Distribution center orientation
information and (storage, safety stock) (inventory velocity) interconnecting
inventory levels interrupted by barriers to flows; flows; JIT, quick response acrosslocalized to channel pairs the channel
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Achieving a strategic fit
Strategic fit means that both the competitive
and supply chain strategy must fit together.
i.e. both the competitive and supply chain
strategies have aligned goals.
It refers to consistency between the customer
priorities that the competitive strategy hopes
of satisfy and the supply chain capabilities
that the supply chain aims to build
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How strategic fit is achieved
Understanding the customer and supply chainuncertainty 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
Understanding the supply chain capabilities
Achieving strategic fit
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Drivers of Supply Chain
Facilities
Inventory
Transportation Information
Sourcing
Pricing
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Decision areas of SCM
There are four major decision areas in
1) location,
2) production,3) inventory, and
4) transportation (distribution), and
There are both strategic and operationalelements in each of these decision areas