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Outline
What
is supply chain management? A supply chain strategy framework Components of a SCM Major obstacles and common problems Seven Eleven Japan
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Freight Transportation
$352, $455 B
Inventory Expense
Inventory manager in charge Inventory software
$221, $311 B
Transportation and inventory managers
$27, $31 B
$898 B spent domestically for SC activities in 1998. $1,160 B of inventory in the US economy in the early 2000s.
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Supply
Marketing
Cost
Cost
25%
45%
Manufacturing Cost
Manufacturing
Effort spent for supply chain activities are invisible to the customers.
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Estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics and supply chain strategies
A typical box of cereal spends 104 days from factory to sale A typical car spends 15 days from factory to dealership Faster turnaround of the goods is better?
Laura Ashley (retailer of women and children clothes) turns its inventory 10 times a year five times faster than 3 years ago
inventory is emptied 10 times a year, or an item spends about 12/10 months in the inventory. To be responsive, it relocated its main warehouse next to FedEx hub in Memphis, TE.
National Semiconductor used air transportation and closed 6 warehouses, 34% increase in sales and 47% decrease in delivery lead time.
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estimates it lost $0.5 B to $1 B in sales in 1995 because laptops were not available when and where needed (Proctor&Gamble) estimates it saved retail customers $65 M (in 18 months) by collaboration resulting in a better match of supply and demand
P&G
When
the 1 gig processor was introduced by AMD (Advanced Micro Devices), the price of the 800 meg processor dropped by 30%
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AMR Research:
"The biggest issue enterprises face today is intelligent visibility of their supply chains-both upstream and down"
Forrester Research:
"Companies need to sense and proactively respond to unanticipated variations in supply and demand by adopting emerging technologies such as intelligent agents. To boost their operational agility, firms need to transform their static supply chains into adaptive supply networks
Gartner Group:
By 2004, 90% of enterprises that fail to apply supply-chain management technology and processes to increase their agility will lose their status as preferred suppliers
Open ended statement. Agility can be increased continuously.
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A picture is better than 1000 words! How many words would be better than 3 pictures?
- A supply chain consists of
Supplier Manufacturer Distributor Retailer Customer
Upstream
Downstream
- aims to Match Supply and Demand, profitably for products and services
SUPPLY SIDE DEMAND SIDE
- achieves
The right
Product
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+ + + + +
The right The right The right The right
The right
Price
Store
Quantity
Customer
Time
Higher
Profits 10
Tenneco Packaging
Paper Manufacturer
Timber Industry
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Material Information
Supplier
Funds
Customer
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Information
THAILAND INDIA N-Tier Suppliers Suppliers MEXICO Logistics TEXAS Distributors US Retailers
Supply Side
OEM
Demand Side
Demand Supply
The task of SCM is to design, plan, and execute the activities at the different stages so as to provide the desired levels of service to supply chain customers profitably
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Tier 1 Supplier
Manufacturer
Distributor
Retailer
Customer
High stockouts
Ineffective promotions
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Supply
Inventory
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Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Any cycle 0. Customer arrival 1. Customer triggers an order 2. Supplier fulfils the order 3. Customer receives the order
Manufacturer
Procurement Cycle
Supplier
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In Pull systems, work release is based on actual demand or the actual status of the downstream customers
May cause long delivery lead times Acts reactively
e.g. Making a specific resume for a company after talking to the recruiter
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PUSH PROCESSES
PULL PROCESSES
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Toyota
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/ GM / Volkswagen, in the course notes McMaster Carr / W.W. Grainger, sell auto parts Amazon / Barnes and Noble Frozen food industry/Fast food industry/5 star restaurants Internet shopping: Webvan / Peapod 19
SCM Strategy
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Mission-Strategy-Tactics-Decisions
Mission,
Mission statement
Strategy
A plan for achieving organizational goals The actions taken to accomplish strategies
Tactics
Operational
decisions
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Strategies
Marketing and sales strategy relates to positioning, pricing and promotion of products/services
e.g. Never offer more than 40% discount e.g. EDLP = every day low price
At Wal-Mart
Supply chain management strategy relates to procurement, transportation, storage and delivery
e.g. Never use more than 1 supplier for every input e.g. Never expedite orders just because they are late e.g. Always use domestic suppliers within the sales season not in advance.
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Understand
Match
the Wishes with the Capabilities How to meet extensive Wishes with limited Capabilities?
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Challenge:
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SC to the customer the Customer Implied (Demand) Uncertainty for SC Implied trouble for SC
Understanding
Range of demand, pizza hut stable Production lot size, seasonal products Response time, organ transplantation Service level, product availability Product variety Innovation Accommodating poor quality
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Short lead times, product variety, distribution channel variety, high rate of innovation and high customer service levels all increase the Implied Demand Uncertainty
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Efficiency frontier
Fix responsiveness
Inefficient
Impossible
Inefficiency Region
Low
High
Low
Cost in $
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Responsivenes spectrum
Certain demand
Uncertain demand
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Webvan started a merger with HomeGrocer in Sept 2000 and completed in May 2001. Declared bankruptcy in July 2001. Why?
Webvan was so behemoth that could deliver anything to anyone anywhere that it lost sight of a more mundane task: pleasing grocery customers day after day. Short to midterm cash mismanagement. Venture capital of $1.2 B run out. Merger costs: duplicated work force, integration of technology, realignment of facilities.
Peapod has the same business model but more focused in terms of service and locations. It actually survives with its parent company Royal Aholds (Dutch Retailer) cash.
Delivers now at a fee of $6.95 within a day.
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Source www.deloitte.com/dtt/cda/doc/content/dtt_2008globalpowersofretailing.pdf
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Confused.
Squeezed between Target and Wal-Mart Reliance on coupon sales Do coupons stabilize or destabilize a Supply chain?
K-Mart
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Other Factors
e.g. Southwest airlines lead the drive for efficiency e.g. Airbus announced A380 accommodating 555-800 people on Jan 17, 2005.
e.g. Flat screen TV producer of AU Optronics of Taiwan was looking for ways to make its SC more efficient in June 2004.
Replacement sales
Selling to replace broken units.
Certain demand
Uncertain demand
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Integration
Integration Building
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Strategic Scope
Suppliers Manufacturer Distributor Competitive Strategy Product Dev. Strategy Supply Chain Strategy Marketing Strategy Retailer Customer
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Inventory
Transportation
Facilities
Logistical Drivers
Information
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Sourcing
Pricing
CrossFunctional Drivers 40
1. Inventory
Pipeline inventory
Work in process or transit
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Littles law
Long run averages = Expected values I=R.T I=Pipeline inventory; R=output per time=throughput; T=delay time=flow time
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2. Transportation
Air Truck Rail Ship Pipeline Electronic
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3. Facilities
Production
Inventory-like
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4. Information
Role
The connection between the various stages in the supply chain Crucial to daily operation of each stage in a supply chain
E.g., production scheduling, inventory levels
Role
Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off) Information technology
Andersen Windows
Wood window manufacturer, whose customers can choose from a library of 50,000 designs or create their own. Customer orders automatically sent to the factory.
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Strategy
Analytical Models
$$$
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Quality of Information
Information IT
helps: MRP, ERP, SAP, EDI Relevant information? How to use information?
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Planning
Operational
Supplier
Manufacturer
Distributor
Retailer
Customer
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Planning
Potential
ERP
Potential
ERP
Operational
ERP
Supplier
Manufacturer
Distributor
Retailer
Customer
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Planning
Supplier Apps
APS
Dem Plan
MES
CRM/SFA
Operational
Supplier
Manufacturer
Distributor
Retailer
Customer
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ERP Systems
Wider
focus Push (MRP) versus Pull (demand information transmitted quickly throughout the supply chain) Real-time information Coordination and Information sharing
Transactional
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IT Push
500 400 300 200 100 0 1965
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1973
1981
1989
1997
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IT investment($B)
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5. Sourcing
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6. Pricing
Packaging, delivery location, time, customer pick up Bundling products; products and services utdallas.edu/~metin
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Efficiency Cost of holding Consolidation Consolidation / Dedicated Low cost/slow/no duplication Low cost sources Constant price
Responsiveness Availability Speed Proximity / Flexibility High cost/ streamlined/reliable Responsive sources Low-high price
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is big:
Variety of products/services Spoiled customer Multiple owners (Procurement, Production, Inventory, Marketing) / multiple objectives Globalization
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Information Coordination
Information sharing / Shyness / Legal and ethical issues
Contractual Coordination
Mechanisms to align local objectives with global ones
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and Randomness:
Increasing product variety Shrinking product life cycles Customer fragmentation: Push for customization, segmentation Fragmentation of Supply Chain ownership: Globalization
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Common problems
Lack
Poor inventory status information Theft: Major problem for furniture retailers. Transaction errors: Retailers with inaccurate inventory records for 65% of SKUs Information delays, dated information, incompatible info. systems Misplaced inventory: 16% of items cannot be found at a major retailer Spoilage: active ingredients in the products are losing their properties Product quality and yield Lack of visibility in SCs
Do you know the inventory your distribution centers hold? Do you know the inventory your fellow retailer holds?
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Common problems
Poor IT design
Unreliable, duplicate data Security problems: too much or too little
Ignoring uncertainties
The flight from uncertainty and ambiguity is so motivated that we often create pseudocertainty.
Nitin Nohra, HBR February 2006 issue, p.40.
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Summary
Supply
Challenges
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Largest convenience store in Japan with market value of $95 B. The third largest retail company in the world after Wal-Mart and Home Depot. Established in 1974. In 2000, total sales $18,000 M, profit $620 M. Average inventory turnover time 7-8.5 days. Stock value increased by 3000 times from 1974 to 2000. In 1985, there were 2000 stores in Japan, increasing by 400-500 per year. Return on equity 14% over 2000-2004. A SEJ store is about the half the size of a US 7-eleven store, that is about 110 m2. Sales:
Products
32.9% Processed food: drinks, noodles, bread and snacks 31.6% Fast food: rice ball, box lunch and hamburgers 12.0% Fresh food: diary products 25.3% Non-food: magazines, ladies stockings and batteries. Services: Utility bill paying, installment payments for credit companies, ATMs, photocopying
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More on SEJ
More factual info: Average sales about twice of an average US store SKUs offered in store: Over 3,000 (change by time of day, day of week, season) Virtually no storage space No food cooking at the stores Japanese Images of Seven Eleven:
Convenient Cheerful and lively stores Many ready made dinner items I buy Famous for its great boxed lunch and dinner - On weekends, when I was single, I went to buy lunch and dinner
SC strategy:
Micro matching of supply and demand (by location, time of day, day of week, season)
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Number of Stores
86
87
88
89
90
91
92
93
94
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Net Sales
86
87
88
89
90
91
92
93
94
67
Profit
86
87
88
89
90
91
92
93
94
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Inventory
86
87
88
89
90
91
92
93
94
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Information Strategy
Quick access to up to date information (as opposed to data): In 1991, SEJ implemented Integrated Service Digital Network to link stores, headquarter, DCs and suppliers
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Analysis of
Sales for product categories over time SKU (stock keeping unit) Waste or disposal 10 day (or week) sales trend by SKU
Sales trends for new product In the early 1990s, half-prepared fresh noodle sales were going up, new fresh noodle products were quickly developed Sales trend by time and day
Different sales patterns for different sizes of milk at different times of the day results in rearrangement of the milks in the fridge. Extreme store micromanagement.
Let us speculate: Flavored milks are put in front of the pure milks in the evening (or the morning?).
List of slow moving items About half of 3000 SKUs are replaced by new ones every year
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Facilities Strategy
Limited storage space at stores which have only 125-150 m2 space Frequent and small deliveries to stores Deliveries arrive from over 200 plants. Products are grouped by the cooling needs
Combined delivery system: frozen foods, chilled foods, room temperature and hot foods. Such product groups are cross-docked at distribution centers (DC). Food DCs store no
inventory.
A single truck brings a group of products and visits several stores within a geographical region Aggregation: No supplier (not even coke!) delivers direct
The number of truck deliveries per day is reduced by a factor of 7 from 1974 to 2000. Still, at least 3 fresh food deliveries per day. Goods are received faster with the use of scanners. Have many outlets, at convenient locations, close to where customers can walk Focus on some territories, not all: When they locate in a place they blanket (a.k.a. clustering) the area with stores; stores open in clusters with corresponding DCs.
844 stores in the Tokyo region; Seven Eleven had stores in 32 out of 47 prefectures in 2004. No stores in Kobe. Success rate of franchise application <= 1/100
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Why SEJ does not allow direct delivery from suppliers to retailers? Point out which of the following strategies can also be used in US (or Taiwan)
Information strategy Facilities strategy
Discuss the differences between the Japanese and US (or Taiwanese) consumers with regard to
Frequency and amount of grocery purchase Use of credit cards vs. cash for purchase 7-eleven inventory turnover rate is 50 in Japan and 19 in the USA.
7-eleven growing rapidly in the US so it aims to be a web depot in both the US and Japan. Does this make sense from a supply chain perspective? Cost vs. Responsiveness Business strategy What is the risk of micro-matching strategy? No direct deliveries to SEJ, what is the potential risk of this strategy if used in the USA?
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