: How can financial value be created in an organization?

Improve earnings

How do you increase earnings?

o Increase revenue
o Reduce Costs
o Better utilize Assets

ROI

Profit/ Capital Employed

Profit

Revenue- costs

Capital Employed

AR/AP + cash + Inventory + Fixed Assets

Cost of Inventory

Capital Costs
Service Costs
Storage Space Costs
Inventory Risk Costs

Capital Costs

Investment in Inventory, interest/Financial Expenses

What are capital costs?

Investment in inventory

Interest/financing expenses

Service Costs

Insurance on inventory, Taxes on Inventory

Storage Space Costs

Mfg. Plant Warehouses, Company owned Warehouses, Rented Warehouses, Public warehouses

What are storage space costs?

Mfg. plant warehouses

Company owned warehouses

Rented warehouses

Public warehouses

Inventory Risk Costs

Obsolescence, Damage, shrinkage (theft), Relocation

What are inventory risk costs?

Obsolescence

Damage

Shrinkage (theft)

Relocation costs

Cash to cash cycle

Days of Inv + Days of Accts Rec Days Accts Pay

Traditional Goal:

To increase scope and accuracy in functional measurement

Asset Management

Inventory measures

Traditional Assessment Deficiencies

Bias towards cost and internal customer service metrics

Belief that internal customer service reflect a customer perspective

Metrics are on average over time

Functionally oriented- unable to assess performance along horizontal process

Unable to assess financial perspective

Process Metrics

Focus on total process performance rather than the functional view

Internal Supply Chain

o Perfect order (customer perspective)

Overall assessment of ability to achieve high levels of performance

Overall supply chain

Focus on the end consumer

Supply Chain

is not just goods/products. Also services.

Supply chain looks for the __________.

sweet spot.

What is the overall goal of SCM

Increase profitable consumer takeaway is ultimate goal for SCM

o Dwell Time (operations)

The ratio of the number of days that inventory sit idle to number of days it is actually moving in supply chain

Inventory Days of Supply (ops)

Total inventory expressed as calendar days

o Total Landed Cost (financial)

Sum of all fixed and variable costs in supply chain

Cost Accounting System Deficiencies

Measure revenues and costs at an aggregate level, not at a level appropriate for managerial action

Dont recognize costs vary

Cost Accounting System Deficiencies

Purpose: to report to financial community, not managerial

Revenues/ Costs measured at aggregate level NOT at level appropriate for managerial action.

Does NOT recognize that costs can vary b/w products, services, customers, etc.

Accounting does not match up w/ supply chain b/c of how inventory is viewed.

Activity Based Costing and Management

are techniques to assess true segment profitability

What supply chain should do to provide value to business?

Aim to increase customer service, reduce total cost , reduce fixed capital, reduce working capital

Strategic Profit Model

Allocations are more realistic than traditional accounting which relies on sales volume to allocate overhead

Look to reduce expenses and inventory etc. rather than try to increase sales.

Drivers of Shareholder Value

Revenue growth

Reduce Ops cost

Fixed Capital Efficiency

Working Capital Efficiency

Tax Minimization

What are 5 drivers of shareholder value?

1.Revenue growth
2.Working Capital Efficiency
3.Operating Cost Reduction

4.Fixed Capital Efficiency

5.Tax Minimization

What should drive the design and execution of a companys supply chain?

Balance of customer value and strategy.

Customer service

akin to providing the good/ service conveniently. Supply chain is inherently involved in customer service.

What is Customer Service?

a process for providing significant value-added benefits to the supply chain in a cost-effective way.

What is customer service?

A process for providing significant value-added benefits to the supply chain in a cost effective way

Dont assume __________, ask customers what they _________

customer needs
want/need

The Great Divide

o Sales on one side trying to please customers, the customer on the other side

o The divide hurts sales and separates customers from Supply Chain
o Customers cause you to lose many more customers.

The Great Divide

The space between Manufacturers and Distribution Networks (involving Logistics/SCM of any sort)

The Great Divide is in between the ______ and the _______.

Manufacturer and the Distribution network

Customer Value

= Perceptions of Benefits/ Total Cost of Ownership = Quality x Service/ Cost x Time

Marketing Effectiveness

Consumer Franchise x Customer Franchise x Supply Chain Efficiency

The Perfect Order

For the customer to be happy they must receive the product perfectly see conditions on slide

If one condition is not satisfied, the customer will not be satisfied.

Perfect Order

-Overall assessment of ability to achieve high levels of performance on all metrics of significance to the customer.

Shrinking Window of Service

Supply Chins are forced to become more responsive as customer dissatisfaction increases with time.

What is the shrinking service window?

Customers demanding a higher level of service.

Fill Rate

The rate at which something is delivered when asked for. Amazon running a dist. Center % of orders we are able to
fufill

Should all customers get the same level of service

Typically no. Think delta, 1st class etc.

Three Levels of Customer Service

Basic
Satisfaction
Success

Relationship between service level and sales

eventually levels out.

Basic Service

Achieve internal standards

Satisfaction

Meet customer expectations

Success

Customer of choice achieve their objectives

Default Strategy

A type High Volume

B- In the middle

C- Dont sell that many but keep selling them for some reason

Everyone gets the same service

Tailored Customer Service Strategy

Customers get different levels of service.

Stronger franchise with customers

Lower Logisitcs costs

Reduced expediting

Tailored Customer Service Strategy:

Customers and Customer Segments get Different Levels of service.

Managing Cost/ Price to influence customers

If we pull services off the table( thereby reducing our cost) we can achieve a better profit

Customer Service Level Matrix

If not selling a lot, not getting a lot, review relationship ( bottom left)

High sales, Low profit margin watch your cost, provide efficient service

High Margin, low volume Centralize inventory. Dont know where the customer but know they exist and can

get the product to that customer quickly.

High profit margin, High sales Volume Customized service

Demand side of a business

Generate and Manage customer Demand

Supply side of a business

fulfill or supply customer demand

Three types f utility that businesses create

1. Form
2. Place
3. Time

Supply Chain MGMT

**: the management of upstream and downstream relationships with suppliers and customers to deliver superior
customer value at less cost to the supply chain as a whole.

Old paradigm companies

P&G, Ford

New paradigm companies

Walmart, Toyota, Macdonalds, Dell. Built upon a Supply Chain Value Proposition

Supply Chain Value Proposition

Deliver maximum value to end customerswhile simultaneously

increasing quality,productivity and operational excellence.

Supply Chain Value Proposition

Revenue Growth and High Service Level

End-to-End Cycle Time Compression

Reduce Capital Requirements

Optimize Total Cost

Supply Chain Value Proposition

Deliver maximum value to end customers while simultaneously increasing quality,

productivity and operational excellence.

Old Paradigm

Strong brands, Large advertising budgets, Aggressive Selling

New Paradigm

Win through capabilities and competencies. Managing core processes better than competitors. Sped along by
commoditization of products and industries

What leads to a competitive advantage

Delivering higher levels of Customer Service at a lower cost will lead to a competitive advantage

How to increase Value advantage

Tailored service, reliability, responsiveness

How to increase Productivity Advantage

Capacity utilization, asset turns, integration

Value chain

Made by porter, Support activities : Firm infrastructure, HR, Tech Dev, Procurement. Primary Activities Inbound
Logistics, Operations, Outbound Logistics, Marketing and sales, Service.

Logistics management

part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and
reverse flow and storage of goods, services, and related information between the point of origin and the point of
consumption in order to meet customer requirements.

Supply Management (Procurement or Purchasing)

the identification, acquisition, access, positioning, management of resources and related capabilities the organization
needs or potentially needs in the attainment of its strategic objectives

Operations

is the manufacturing, production, or creation of form utility.

Operations

Actually getting the job done. Getting the information do all that.

Operational

Do things better

Revenue growth and High service Level

Improve product and service availability

Sell more volume or share of wallet
Strengthen relationships with more profitable customers
Improve product/service innovation
Align services with cost-to-serve

Revenue Growth and High Service Level

o
o

Improved product and service availability

Strengthen relationships with more profitable customers

Improve product/service innovation

Align services with cost-to-serve

Sell more volume or "share of wallet"

End-to-End

Cycle Time Compression

Increase flexibility and agility

 Postponement
Shorten time-to-market

End-to-End Cycle Time Compression:

Increase Flexibility and Agility

Postponement

Shorten time-to-market

Reduce Capital Requirements

Minimize total inventory (SS, RM, WIP, FG)

Shorten cash-to-cash cycle
Improve fixed asset utilization

Reduce Capital Requirements:

Minimize total inventory (SS, RM, WIP, FG)

Shorten cash-to-cash cycle

Improve fixed asset utilization

Optimize Total Cost

Reduce sourcing, production, logistics, warehousing, and customer support costs

Leverage economies of scale and technology to reduce transaction and unit cost
Manage system performance and mitigate risk

Optimize Total Cost:

Reduce sourcing, production, logistics, warehousing, and customer support costs

Leverage economies of scale and technology to reduce transaction and unit cost

Manage system performance and mitigate risk

Integrated business planning

Where demand and supply meet each other and are achieved through planning. Most businesses cannot achieve

4R's

1.Responsiveness
2. Reliability
3. Resilience
4. Relationships

Examples of Old Paradigm Businesses:

Procter & Gamble

Ford Motor Company

Examples of New Paradigm Businesses:

Walmart

Toyota

McDonalds

Dell

Tactics of the Old Paradigm:

Strong Brands

Large Advertising Budgets

Aggressive Selling

Tactics of the New Paradigm:

Win through Capabilities andCompetencies

Managing Core Processes better thanCompetitors

Sped along by Commoditization of products and industries

Competitive Advantage (Simple Equation):

Product Excellence \times Process Excellence

Competitive Advantage:

Product Excellence (x) Process Excellence

The 3 Cs of Competitive Advantage:

1.

Your Company

2.

Customers

3.

Your Competitiors

Supporting Activities of a Company's Value Chain:

Firm Infrastructure

Human Resource Management

Technology Development

Procurement

Primary Activities of a Company's Value Chain:

Inbound Logistics

Operations

Outbound Logistics

Marketing & Sales

Service

SCM Value Chain Components:

Logistics Management

Supply Management (Procurement or Purchasing)

Operations

Manufacturer Side of The Great Divide

Product Focused

Efficiency Metrics

Economies of Scale and Scope

Distribution Side of The Great Divide:

Focused on Customers

Satisfaction Metrics

Relevance

The "4 Rs" Supply Chain Principles:

0.

Responsiveness - Demand driven instead of forecast driven

1.

Reliability - Primarily delivered through supply chain visibility

2.

Resilience - Coping with Uncertainty

3.

Relationships - Network Competition

Why "one lost customer" isn't just one customer lost:

One customer is dissatisfied

o
o

1 Customer = 1 order ($50)/month @ 10yrs. = $6000

In turn, 16 more Customers Lost throughAdverse Impressions.

A total of 25 Customers lost (1+8+16) totaling $150,00 of revenue lost.

They tell 8 other customers throughword of mouth.

The Perfect Order of the Customer Experience:

Correct order entry

Items are available
Ship date allows delivery
Order picked correctly
Paperwork complete
Timely arrival
Product as expected
Shipment not damaged
Correct invoice
Accurate overcharges
No customer deductions
No errors in payment processing

Porter's Value Chain:

the name given to the Primary and Supporting Activities of A Company's Value Chain.

How to appropriately apply Customer Service to your business:

Do not program your customer service based on what you or your supervision view as "customer needs".

Do Ask your customers to let you know what service levels they actually require.

Today's Competitive Reality:

Zero-sum gain competition

Commodity-type competition

Rising Customer Service "Bar"

Demand maintenance is key to profitability

4 Key Elements of Customer Value:

_________ = (Quality x Service)

(Cost x Time)

0.

Quality

1.

Service

2.

Cost

3.

Time

Relationship between Cost and Service

Cost of Service increases sharply as Service Level nears 100%

Relationship between Revenueand Service:

Sales Revenue sharply increases as Service Level approaches 50% and sharply decreasesthereafter approaching
100%

Default Customer Service Strategy:

Every customer and segment of customers receive the same service

Examples of Capital Costs:

Investment ($) in Inventories

Interest/Financing Expenses

Examples of Service Costs:

Inventory Insurance

Taxes on Inventory

Examples of Storage Space Costs:

Mfg. Plant Warehouses

Company Owned Warehouses

Rented Warehouses

Public Warehouses

Examples of Inventory Risk Costs:

Obsolescence

Damage

Shrinkage (Theft)

Relocation

How to Calculate Cash-to-Cash Cycle:

Days of Inv
+Days A/Rec.
- Days A/Pay.

_____________ <===

How to Calculate Return On Investment (ROI):

Profit

Capital Employed

Traditional Methods of Measurement:

Asset Management: inventory measures

Cost: costs of activities, functions

Productivity: relationship of input to output (usually labor to equipment)

Quality: Physical and information

Customer Service: reliability, timeliness, etc.

Definition of Supply Chain Management:

:the Management of upstream and downstream relationships with suppliers and customers in order to deliver superior
customer value at less cost to everyone involved.

Definition of Logistics:

:the process of strategically managing the procurement, movement, and storage of materials, parts, and finished
inventory through the organization and its marketing channels in such a way that current and future profitability are
maximized through the cost-effective fulfillment of orders

Advantage of using Process Metrics:

focus on the total process performance as opposed to the functional view

Internal Supply Chain (Process Metrics):

Perfect Order (customer perspective) - the overall ability to achieve high levels of performance on all metrics of
significance to the customer

Cash-to-Cash (financial perspective) - the time it takes to convert an investment in raw materials to sales of
finished goods

Overall Supply Chain (Process Metrics):

Focus on the end consumer (customer perspective)

Dwell time (operations perspective)

Inventory Days of Supply (operations perspective)

Total Landed Cost (financial perspective)

The Total Cost of Ownership (Iceberg Example):

Above Surface - Acquisition cost

______________________________________

Below Surface - Management cost,Maintenance cost, Operating cost,Inventory cost, Technical

Support cost,Training cost, Disposal cost

Calculating Profit on the Income Statement:

Sales/Revenue
- (COGS)

- (Expenses)
- (Taxes)

What are the main Cost Accounting System Deficiencies?

They were originated for the purpose of reporting to the financial community, not fot he purpose of taking
managerial action.

They don't recognize that costs can vary substantially between products, services, customers, etc.

What are Activity Based Costing and Management (ABC and ABM)?

:allocation techniques that make it possible to more precisely assure true segment profitability.

What Drives Shareholder Value?

Revenue Growth

Working Capital Efficiency

Operating Cost Reduction

Fixed Capital Efficiency

Tax Minimization

Explain Uncertainty in the Planning Horizon:

When forecasting, error is much higher when trying to predict trends in the distance future in contrast to something in
the near future.

Explain the Lead Time Gap Concept:

The time it takes to procure, make and deliver the finished product to a customer is often longer than the time the
customer is prepared to wait.

Why is forecasting important?

doing this can close the Lead Time Gap, thus boosting customer satisfaction.

Simple Definition of the Demand Penetration Point:

:it occurs at the point in the logistics chain where real demand meets the plan, preferably as far upstream as possible.
The idea is to have a strategic inventory as close as possible to the Raw Materials side of the Supply Chain in hopes
of responding as quickly as possible to demand.

Explain The Supply Chain Fulcrum:

it is the metaphoric balance between Demand (D) and Capacity (C) & Inventory (I). In other words, there must be
enough capacity and/or inventory to meet demand.

___(D)__________________(C)______(I)____
^

__________ __________ ____________ is when dmand is supported by deploying

inventory in anticipation of projected sales levels and location. (popular pre-1970s)

Anticipatory Order Fulfillment

____________ ___________ ___________ is a model that balances fixed order costs

against inventory carrying costs to determine least-costs order frequency to determine
optimum order quantity.

Economic Order Quantity (EOQ)

What does the EOQ and the Naive EOQ model ignore?

variance

Doing more with less is known as _________ ?

leanness (or lean)

Effectiveness is also known as __________.

Agile
(or nimble)

Efficiency is also known as _________ .

Lean

_________ practices work well when the situation involves predictable demand.

Lean

_________ practices work well in less predictable environments where the demand for
variety is high.

Agile

A characteristic of __________ Order Fulfillment is short lead times.

Agile

___________ is known as the ability to respond rapidly to meet the precise needs of an
often fragmented marketplace.

Effectiveness (or Agile)

Which type of order fulfillment has a lower forecast error?

lean

Which type of order fulfillment has a higher stockout rate?

agile

What is the most extreme example of Quick Response?

make-to-order

Which type of order fulfillment has a lower lead time for MTO products?

lean

Which type of order fulfillment has a higher contribution margin (marginal profit per unit
sale) ?

agile

"Quick Response" is a characteristic of ________ Order Fulfillment.

Agile

What is a Hybrid System?

a comination of Lean Order Fulfillment and Agile Order Fulfillment

Seeking to reduce complexity while providing the requisite level of variety that the
market demands is characteristic of what type of order fulfillment?

hybrid system

The example used in class about the paint manufacturer that only makes the base
colors and then allows the colors to be mixed in the retail stores is an example of the
__________ _____________ ___________.

Order Decoupling Point (it is also an example of a Mixed System)

Are Lean Management and Functional Products a Match or a Mismatch?

Match

Are Agile Management and Functional products a Match or a Mismatch?

Mismatch

Are Lean Management and Innovative Products a Match or a Mismatch?

Mismatch

Are Agile Management and Innovative Products a Match or a Mismatch?

Match

The point that the customer order penetrates in the supply chain process is known as
what?

the Order Decoupling Point

True or False: Most companies use a hybrid system.

True

Most manufacturing compaines use which fulfillment strategy?

Lean

Bakeries and Chick-fil-e use both use a/an__________ fulfillment strategy.

Kanban (continuous improvement)

Einstein's Bagel's uses a/an ______ fulfillment strategy.

agile

A system that has mid/high production costs, low inventory costs, high transportation
costs, and low in-stock is a pure example of _________ Order Fulfillment.

Agile

Agile Managment and Dell's MP3 Playerss are a Match or a Mismatch?

Match

Daily Demand x Lead Time is known as the ________ __________.

Reorder Point

True or False: Today, there is more time available for companies to develop new
products, to launch them and to meet marketplace demand.

False.
There is LESS time available for companies to develop new products, to launch them and to meet marketplace
demand.

The supplier must substitute ____________ for ___________ whenever possible.

responsiveness (or information) , inventory

Volatility in the market is being driven by _____________.

globalization

Because of the volatility of the market, there is greater need for ________ .

speed
Remember, time = money.

The uncertainty of volatile markets cause compaines to have ______ forecast errors.

high

True or False: The longer the forecast horizon the worse the forecast.

True

____________ forecasts are more accurate.

Aggregate

True or False: If a firm could drive lead time to zero, it would forecast only next day
sales.

True

Compaines need to decrease ______ _______ to decrease forecast error.

lead time

________ _________ _________ is the % of total cycle time that a product is actually
worked on.

Value Added Time

Value Added Time provides ________, _________, and _________ utility.

Form, Place, Time

True or False: Value Added Time can be as little as 25% of the total time.

False
Value Added Time can be as little as 5% of the total time!

The % of total cycle time that a product may spend waiting, being moved, or being
inspected or counted is known as ___________ __________ _________.

non-value added time

The goal of pipeline management is to reduce the ___________ and/or increase the
__________ of the pipeline.

length , speed

What is the best way to a shortened pipeline?

visibility of demand

Supply chain lead time minus customer's required order cycle time is known as the
________ ________ ________.

Lead Time Gap

What are two methods of reducing the lead time gap?

1. shorten the end-to-end pipeline

2. improve visibility of demand

What is the point that the customer order penetrates in the supply chain process?
(viewed from downstream)

Demand penetration point

What is the difference between the Demand Penetration Point and the Order
Decoupling Point?

The are the same point in the supply chain, however, the Demand Penetration Point is viewed from downstream and
the Order Decoupling Point is viewed from upstream.

The _________ ___________ _________ is "more about the information of actual

demand penetrating upstream..."

Demand Penetration Point

The _______ __________ _______ is where customer demand triggers

an operational response.

Order Decoupling Point

What are two things companies use to obtain visibility of demand (and to quickly
respond to consumer wants)?

1. Information Systems

2. Relationships between supply chain

partners

The amount of Value Added Time compared to (divided by) the Total End-to-End
Pipeline time (x 100) is known as the _________ __________.

Throughput Efficiency (Calculation)

[VAT/TEPT] x 100 = TPE

True or False: The Throughput Efficiency Calculation can be as low as 10%.

True

The time it would take for the system to respond to an increase in demand is known as
what?

Ramp Up Time

The time it would take to drain the system of inventory is known as what?

Drain Time

The time it takes to convert cash paid for raw materials to cash from customer
order/sales is known as what?

cash-to-cash cycle

What are the five stages of the product life cycle?

1. Introduction
2. Growth
3. Maturity
4. Saturation
5. Decline

Stages of Product Life Cycle

Introductory (Agile)
Growth (Agile)
Maturity (Lean)
Decline (Lean)

The ___________ ___________ _________ is the need to develop responsive and fast
systems in order to take advantage of time-based competition.

Synchronous Supply Chain

The Supply Chain needs to be connected through shared ____________.

information

True or False: The Collaborative Process increases the available planning horizon.

True

The supplier taking responsibility for the replenishment of the customer's inventory
within a specified time period is known as _________ ___________ ___________.

Vendor Managed Inventory

What are the three problems of Materials Resouce Planning?

1. it assumes lead time is constant

2. it assumes manufacturing time is

constant

3. it figures all of the processes seperately

What is a process or approach that attempts to consolidate all of the company's

departments and functions into a single systems that services each department's
specific needs?

Enterprise Resource Planning

What are the three components of the supply chain IT infrastructure?

1. Enterprise Resource Planning (ERP)

2. Advanced Planning and Scheduling (APS)
3. Supply Chain Execution Software (SCE)

Information Systems substitute __________ for ___________.

information , inventory

The Cardinal Health ValueLink Program uses integrated ____________ ___________

to devliever products to hospitals on a JIT ("just-in-time") basis, in ready to use
packages, for specified user departments.

information management

What are the two types of Supply Chain Information Flows?

1. Coordination Flows
2. Operating Flows

Is assigning specific tasks to specific tools at specific times part of coordination flows or
operating flows?

operating flows

Is balancing the load and capacities of different resources over time part of coordination
flows of operating flows?

coordination flows

Quick response is using _____________ and ___________ to quickly respond to

consumer wants.

1. information systems

2. relationships

Which type of Supply Chain relationship constists of a low number of relationships, joint
problem solving, aligned objectives, and desired behavior motivated through information
sharing.

Contracting/Outsourcing

What are the three types of Supply Chain Relationships?

1. Channel Structures
2. Contracting/Outsourcing
3. Enterprise Extension

What are some aspects of Enterprise Extension?

exclusive partner base, mutual dependency, shared goals/objectives, close interaction over long-term

EOQ

Fixed costs + inventory costs. ignores variance. Large batches.

Sawtooth Inventory model

1."naive" b/c ignores variance

2.Conventional approach

When do problems occur with Sawtooth model?

When demand is not stable

ROP =

LT*DD

ROP

LT x DD + SS

With an increase in variability we also see an increase in _____

extra inventory

EOQ Inventory Model /w variance

1.accounts for variance

2. Has safety stock that guards against demand or variations in lead time
ROP = LT*DD+ SS

EOQ inventory model with variance

Accounts for variance through safety stock.

Cash to Cash cycle time

how long it takes to convert the cash paid for raw materials to cash from customer order/sales

The longer the pipeline the ____ _________ to changes in demand it will be

Less Responsive

Lean Fulfillment

originated in toyota 1970s

As each product is sold or used it is replaced.
Small batch sizes

Lean fulfillment

Reduce uncertainty by managing demand and order cycle time variance. Originated with Toyota in 1970.

How do we reduce cycle stock?

Reduce in ordering or setup costs

Why reduce cycle stock?

Less inventory and supply variance

Reducing inventory forces what?

Managers to confront the problems. Ocean example

How do we optimize fulfillment?

lower both Cycle stock and safety stock

How do you lower cycle stock

reduce avg lead time

How do we lower cycle stock?

By reducing average lead time

How do we lower safety stock

reduce demand variance and supply variance

Safety Stock

Safeguard against demand or variations in lead time.

How to lower demand variance

demand smoothing, demand/supply integration

How to lower supply variance

Use lean supplier relationships

postponing

put off form/time utility until order is received and rapidly respond.

postponement

the delay in final production in the Leagile supply chain management strategy that enables the company to take
advantage of many of the benefits of lean supply chain management while still providing the agility that improves
customer experiences

- Postponement

the process which the commitment of a product to its final form or location is delayed for as long as possible

Postponement

Unfinished printers held in regional DC's finish and ship orders when recieved

Push

forecast driven, pre set safety stock level

Pull

Demand driven, short cycles. Agile

When should we use agile?

when the environment is less predictable and demand for variety is high

Agile is usually ____ all the way through

Pull

Agile

Able to mix any color on demand

When does lean work best?

high volume, low variety and predictable environments

Order penetration point

point that customer order penetrated in the supply chain

What is the order penetration point?

Point that customer order penetrates in the supply chain process

Postpone order point to between supply and production?

Manufacture to order

Postpone order point to between Production and Central DC ?

Manufacture to stock

Postpone order point to between central DC and Regional DC?

Forward position inventory

ex: power box outside of printer

Functional

Predictive demand, low variety, lead time 6-12 months low forecast error, stockout rate, contribution margin, and
markdown

Innovative

Unpredictive demand, high variety. Higher contribution margin, forecast error, markdown. low lead time

Lean = _______
Agile = _________

functional
Innovative

Lean vs. Agile

0.

Lean : Containing little fat

1.

Agile : Nimble

3 types of fulfillment

Anticipatory
Lean
Agile
also Hybrid

Weakness of EOQ

hold inventory in anticipation of order

What are some drivers of time based competition? (3)

1. shortening life cycles

2. Customers drive for reduced inventories
3. Volatile markets make forecasting dangerous

Drivers of time-based competition

1. Shortening product life cycles

2. Customers' drive for reduced inventories.
3, Volatile markets make forecasting dangerous.

4 stages of PLC

Intro - agile
growth - agile
maturity- lean
decline - lean

Value added time

total time spent on a good that provides form, place or utility. often as little as 5% of cycle.

Non value added time

doesn't add utility, often result of firms own self inflicted rules

Value added time

Total cycle time product is actually worked on

Non-Value added time

total cycle time product may be sitting waiting, being moved, being inspected, or being counted.

Causes of non-value added time

Economic Batch Quantities

Economic Order Quantities
Minimum Order Sizes
Fixed Inventory Review Periods
Production Planning Cycles
Forecasting Review Periods

What are some self inflicted rules that affect NVAT

Economic batch quantities

economic order sizes
minimum order sizes

fixed inventory review periods

production planning cycles
Forecasting review periods

What is the goal of pipeline MGMT

to reduce the length of pipeline and/or speed up the flow through the pipeline

As time increases ____ is added

cost

What is speed/responsiveness

how fast we can respond to demand

What is reliability?

the consistency of speed

What is reliability?

Primarily delivered through supply chain visibility

The further the forecast horizon is, the _____ the forecast

worse

Everything must relate back to ______ _____

Customer Value

Products and services flow from _______ to __________

sources to consumers

How does information flow?

It flows both ways

Funds flow from _______ to ________

Consumers
Sources

What does information enable

consolidation

Coordination and Planning

1.Weeks or months in advance

2. Aggregate data of demand and capacity
3. Balances the load and capacity of different resources over time
Planning what is going to do

Coordination and planning

0.

Weeks or months in advance

1.

Aggregate data of demand and capacity

2.

Balances the load and capacities of different resources over time

Ops and scheduling

1. Hours or days in advance

2.individual jobs and tasks,
3. Specific tasks to specific tools at specific times
Actually getting the job done

WMS

Warehouse management system

TMS

Transport management system

SCM's tend to be ________

functional

How do we optimize effectiveness and efficiency?

manage key processes horizontally across the SCM

IT systems give us ____ and ____

Eyes
Ears

Do we always want the closest relationship with our suppliers?

Not always, in the case of unreliable suppliers or commodity suppliers

Combine __ and ________ __________ to reduce order cycle times

IT
Appropriate relationships

Existing Process

Vertical, information goes through different tiers. Becomes shorter as it propagates down the chain. 14 days

Collaborative Process

"Web" design shorter time than existing process. From 14 days to 1 day

Enterprise Resource Planning (ERP)

Gives you the system capability to talk to all the different parts of your org

ERP (Enterprise Resource Planning)

Gives you the system capability to talk to all different parts of the organization, share data, standardize warehouse
data.

APS

Advanced Planning and scheduling

SCE

Supply Chain Execution Software

Transactional Structures

-High number of relationships

-price dominated
-little interaction
-motivate through reward and punishment

Contracting/Outsourcing

-low # of relationships
-Joint problem solving
- aligned objectives
- motivate through info sharing

Strategic Partnerships

- executive partner base

- mutual dependency
- shared goals/objectives
- close interaction over long term

Transactional > Contracting > Strategic

Increasing formality, effort, increasing impact

What is the "pyramid" order (Top to bottom)

-Ownership
- Joint Venture
- Outsourcing
-Contracting
- Channel (arm's length)

As the pyramid goes up we see an increase in...? (4)

1. Top MGMT involvement

2. Strategic Impact
3. Time Required
4. Value Potential

Substitute _______ for inventory

Information

Order Cycle

Elapsed time from recognition of need until product is available for use or resale.

Respond (1) ______ in a (2)______ manner.

1. Quickly
2. Volatile

Anticipatory

Lean
Agile
Three types of fulfillment

Decision rules for fulfillment

1. What should we product or purchase.

2. How much should we product or purchase?
3.Where should we position the product?

______ is undesirable in a supply chain.

Push

Anticipatory Fulfillment

Demand is supported by developing inventory in anticipation of projected sales levels and location.

This is traditional.

Economic Order Quantity Model

Balances fixed order costs against inventory carrying costs to determine least-costs order frequency to determine
optimum order quantity. (minimizes the sum of ordering and carrying costs). Ignores variance.

Naive reorder point

Considered naive because it also ignores various. It is the conventional approach to fulfilling orders. Reorder point is
based on EOQ

The more ______ the more extra inventory customers end up with.

Variability

Anticipatory Order Fulfillment Operations

Demand fluctuation and lengthy lead times caused by large lot, low frequency ordering are covered by maintaining
large stock. This results in increased capital investment and reduced customer service.

The more ____ there is the more problems that may arise

Inventory

Why reduce safety stock?

Less demand variance

Agile Fulfillment

Eliminate uncertainty by postponing form and/or time and place utility until order is received and then rapidly respond
when order is received. Customer focus vs. Product focus.

Agile Fulfillment

1.

Eliminate uncertainty by postponing form and/or time and...

2.

Agile supply chain is market sensitive meaning it is...

3.

Key Techniques for Agility

4.

Customer focus vs. Product focus

5.

Cross functional and cross organizational process integration

6.

Leveraging relationship

7.

Information visibility

8.

Postponement: the process which the commitment of a...

The move to lean and then agile operations requires a shit from (1) ____ to (2) ____

1. Push
2. Pull

Lean typically pulls through the manufacturing facility but moves to a push at some point
because of .

Level production schedules

High variability and low volume (demand is less predictable)

Agile

Low variability and high volume (predictable demand)

Lean

Forward position

When inventory is already sitting there

Manufacture to stock

When some inventory is sitting in a location and will be assembled once order is received.

Manufacture to order

Nothing is done until the order is placed.

Shortening Product Life Cycles

Less time to develop new products, launch them, and meet marketplace demand.

Drive for reduced inventories

Firms focusing on reducing inventories to release capital locked up in inventory and holding costs. Instead, the
supplier must substitute responsiveness for inventory whenever possible.

Volatile Markets

Forecasting is always wrong, the further the forecast horizon, the worse the forecast. If a firm could drive lead time to
zero, it would forecast only next day sales.

Pipeline Management

Total time it takes to deliver an order to a customer

Pipeline Management

1.

Value added time (VAT): The percent of the total cycle time that a product is actually worked on

2.

Non-Value added time (NVAT): The percent of the total cycle time that a product may spend waiting, being
moved, or...

3.

Goal: Reduce the length of the pipeline and/or speed up the flow through the pipeline (Longer pipelines obscure
the...

4.

Goals of Pipeline Management

What is the goal of pipeline management?

To reduce the length of the pipeline and/or speed up the flow of through the pipeline.

Goals of Pipeline Management

1.

Lower cost

2.

Higher quality

3.

More flexibility

4.

Faster response times

Three things that add value

Form Utility
Place Utility
Time Utility

Form Utility

Providing product in a form that customers want to consume it.

Place Utility

Having product available to where someone wants to consume it.

Time Utility

Having product available when someone wants to consume it

Information does these three things

1. Extends the Supply Chain

2. Facilitates Responsiveness
3. Enables consolidation

Coordination

Planning what you are going to do and what is going to happen at high levels to plan what to do in the future.

Coordination

How dispersed activities, or activities performed in several different nations, are coordinated

Coordination

How dispersed activities, are coordinated

Coordination Flows

Strategic Plan
Capacity Plan
Production Plan
Procurement Plan
Logistics Plan

Operating Flows

Order MGMT
Order processing
LIS operation
Warehousing
Transportation

Shared Information

Synchronizes planning and can reduce information lag from 14 days to 1 day and increase the available planning
horizon.

RFIC (Radio frequency identification control)

Helps coordinate all ERP, APS, and SCE so supplies know what to make based on what consumers are ordering,
what manufacturers should make, what we need to ship, etc.

Horizontal Process Integration

Manage key processes horizontally across the supply chain to optimize effectiveness and efficiency.

Relationships should be designed with their ______ in mind.

Purpose

Combing IT Systems capability and appropriate relationships to reduce order cycle

times for delivery of the right product to satisfy demand

Substitue information for inventory

Companies have developed systems that employ these principles under the banner of
Quick Response.

Order Fulfillment Decisions

1.

What should we produce or purchase

2.

How much should we produce or purchase

3.

Where should we position the product

Anticipatory Order Fulfillment

Demand is supported by deploying inventory in anticipation of projected sales levels and location

Economic Order Quantity Model (EOQ)

1.

EOQ balances fixed order costs against inventory carrying costs to determine least-costs order frequency to
determine optimum order quantity.

2.

Can be modified to accommodate volume transportation rates & purchase quantity discounts

3.

IGNORES VARIANCE

LT

Lead Time

DD

Daily Demand

SS

Safety Stock

Synchronization of activities through shared information

One set of numbers and one schedule for the entire supply chain

Process Reengineering

Simplifying and reshaping the organizational processes with the goal of achieving the desired outcomes at less cost
and in shorter time frames.

Impact of Shortened Order/Set-up Costs

Reduction in ordering or setup costs drives lower total cost at lower order quantity

Reduce process and network complexity

Less handling, Less materials, Ask why things are the way they are.

Performance cycle acceleration and postponement

Keep a product as a generic work in process as long as possible to allow flexibility and to ensure the right product is
at the right place at the right time

Use appropriate metrics

Business performance reflects customer responsiveness

Lean Order Fulfillment

Reduce uncertainty by managing demand and order cycle time variance

What is lean order fulfillment?

Shrink total order cycle time to reduce cycle stock and improve responsiveness to demand and manage variation to
reduce safety stock

Reduce uncertainty by managing demand and order cycle time variance

1.

Synchronization of activities through shared information : One set of...

2.

Process Reengineering : Simplifying and reshaping the organizational...

3.

Supplier partnerships/delivery lead time and variance reduction, quality...

4.

Reduce process and network complexity : Less handling, Less materials, Ask...

5.

Performance cycle acceleration and postponement : Keep a product as a...

6.

Use appropriate metrics : Business performance reflects customer responsiveness

Lean : Containing little fat

Works best in high volume, low variety and predictable environments

Agile : Nimble

Needed in less predictable environments where the demand for variety is high

Kanban

As one product is sold it is replaced

Hybrid

Seek to reduce lead time, Postpone the distribution of the product

Goal of Hybrid

Build an agile response upon s lean platform by following lean principles to the decoupling point and agile after the
decoupling point

Example

Paint manufacturers

Lean

provide few base colors

Time Based Competition

Time Money

Customers Perspective

the elapsed time from order to delivery (Order to Delivery cycle)

Goal

Reduce the length of the pipeline and/or speed up the flow through the pipeline (Longer pipelines obscure the
visibility of end demand so that it is difficult to link manufacturing and procurement decisions to marketplace
requirements)

Time Based Competition: Time Money

1.

Shortening Product Life Cycles (PLC)

2.

Customers drive for reducing inventories

3.

Volatile markets = Uncertainty = High forecast error

Shortening Product Life Cycles (PLC)

1.

Less time available to develop new products, to launch them and to meet marketplace demand

2.

Getting into the market late means less time to make a profit and higher risk of obsolescence

Customers Perspective: the elapsed time from order to delivery (Order to Delivery
cycle)

1.

6 Steps

2.

Order preparation and transmittal

3.

Order received and entered into system

4.

Order processing

5.

Warehouse picking and packing

6.

Transit time

7.

Customer receiving

Customers drive for reducing inventories

1.

Firms are focusing on reducing inventories to release capital locked up in inventory and holding costs

2.

The supplier must SUBSTITUTE RESPONSIVENESS for INVENTORY whenever possible

Volatile markets = Uncertainty = High forecast error

1.

Forecasting is always wrong

2.

The longer the forecasting horizon, the worse is the forecast

3.

Aggregate forecasts are more accurate

4.

If a firm could drive lead time to zero, it would forecast only next day sales

5.

The response is to increase safety stock to provide protection against errors

6.

The real target is to reduce lead time as much as possible at every stage in the pipeline

Ramp up time

The time it would take for the system to respond to an increase in demand

Drain time

The time it would take to drain the system of inventory

Value added time (VAT): The percent of the total cycle time that a product is actually
worked on

1.

Provides form, place, or time utility

2.

Can be as little as 5% of the time

3.

Creates some benefit to the customer

Non-Value added time (NVAT): The percent of the total cycle time that a product may
spend waiting, being moved, or being inspected

1.

All the time that is not VAT

2.

Should be minimized as close to zero as possible

The GAP

supply chain lead time Customers required order cycle time

Drain time: The time it would take to drain the system of inventory

The challenge is to find ways in which the ratio of value added to cost added time in the pipeline can be improved

Lead Time Gap

1.

The time it takes to procure, make and deliver the finished product to a customer is often longer than the time the
customer is prepared to wait for it.

2.

The GAP = supply chain lead time Customers required order cycle time

3.

Reducing the gap can be achieved by shortening end-to-end pipeline time while simultaneously trying to gain
earlier warning of requirements through improved visibility of demand

What is a lead time gap?

SC lead time - customer's order cycle time

The GAP = supply chain lead time Customers required order cycle time

1.

Supply chain lead time: Procurement, manufacturing and delivery

2.

Customers order cycle time: the length of time that the customer is prepared to wait

Supply Chain Collaboration and its benefits

1.

Existing processes are slow, inefficient, and communicate dated information while the collaborative process
communicates up-to-date planning information in real-time

2.

All stages in the supply chain must march to the beat of the same drum (do this through shared information)

3.

Key processes that need to be linked

Supply Chain Information Flows

1.

Coordination and planning

2.

Operations and scheduling

Key processes that need to be linked

1.

Planning and scheduling

2.

Design

3.

New product introduction

4.

Product content management

5.

Order management

6.

Sourcing and procurement

Supply Chain Information Systems

1.

Enterprise Resource Planning (ERP): Manage all the information and fluctuations of a business from shared data
stores

2.

Advanced planning and scheduling (APS): Raw materials and production capacity are optimally allocated to
meet demand

3.

Supply Chain Execution Software (SCE)

Operations and scheduling

1.

Hours or days in advance

2.

Individual jobs and tasks, specific tools and capabilities

3.

Assigns specific tasks to specific tools at specific times

Result of Improved Information Technology

1.

Electronic Data Interchange (EDI)

2.

Bar coding

3.

Electronic point of sale systems (EPOS)

4.

Laser scanners

5.

Enterprise Resource Planning Systems (ERP)

Demand Penetration Point

Demand is captured in as close to real time as possible and as close to the final customer as possible

Vendor Managed Inventory

Supplier takes responsibility for replenishment of the customers inventory within a specified time period

_______ in a SC can arise from some number of sources.

Complexity

______ & _________ are not shown the amount of attention it needs.

Risk and Complexity

Network Complexity

The more nodes and links that exists in a network then clearly the more complex it becomes.

Process Complexity

Is manifested in processes with multiple steps, often performed in series rather than on parallel.

The more steps in the process and the more handoffs that exists, the greater the
likelihood that there will be frequent discrepancies between planned and actual
outcome. This is a example of what kind of complexity?

Process Complexity

Range Complexity

Most businesses organizations find that the range of products and or services that they offer to the market has a
tendency to grow rather than reduce.

Typically as more variants are added to a range the demand per variant will reduce,
with a sequent impact of forecast accuracy. This is an example of what complexity?

Range

Product Complex.

The design of products can have a significant impact on SC complexity.

________ complexity can arise because of the number of components or subassembly

is high.

Product

Customer Complexity

arises as a result of too many non-standard service options or customized solutions.

Supplier Complexity

The size of the supplier base can add to SC complex. by increasing the number of relationships.

Organizational Complexity

can also be extended by having to work across time zones and cultures as a result of a global business.

Info Complexity

is directly or indirectly influenced by the other types of complexities

The story told about Nokia and the other phone companies was an example of _____
risk assessment?

BAD

When a bad hit takes place to a company, when they are not being proactive to risk
affects what the most?

Effects shareholders return the hardest which gets upped mgmt. involved

What are the 5 types of SC Risk?

Supply, Process, Demand, Control, and Environmental

Risk Profilling

SC Risk Profile = Probability of it happening x the impact it would make if it did.

What would be your primary risk concern in these following scenarios?

Northface sources its jacket production to a supplier in China.

All could be argued but Process would be the primary because of the lag time and travel time

EA Sports outsources coding of Madden Football 2011 to a subcontractor in India

Process: mgmt. of the company is so far away

Control: Intellectual Properties in other countries are lower.

What are the three main products to be stolen?

Technology, tobacco, and alcohol

External Risk

Natural disasters, wars, terrorism and epidemics, legal restrictions. Any kind of risk that cant not be controlled or
prevented by mgmt.

Internal Risk

Arise as a result of how the SC is structured and managed

Whilst _______ risk cant be controlled by managerial actions, __________ risk can be.

External, Internal

What are the main two reasons a company decides to go global?

Increase revenue and decrease costs

Marketing makes expenses __________ when you go global due to the fact of selling
and marketing to a new area.

Increase

Economic protectionism

using tariffs & quotas to shield & protect a countries economy from foreign competition

What does CAGE stand for?

Culture, Administrative, Geographical, and Economics

T or F: Complexity is exponentially high due to differences?

True

Configuration

where, and in how many nations, each value chain is performed

Configuration

Where and in how many nations

Offshoring

The movement of some of a company's operations to another country.

offshoring

Moving manufacturing to a foreign country

Offshoring

Relocating a function to another country

What is the biggest factor when offshoring is considered?

TAXES

What is a trade off needed to be considered when you offshore?

You might pay less in wages but you might increase transportation costs.

focused factories

provide economy of scale but increase lead time and variability.

-lower production costs

-higher transportation costs

choose this if the benefits of lower prod. costs outweighs the increased transport costs.

Focused Factories

Specialization, associate with EU.

Provide Economy of scale but increase lead time and variability

Centralization of Inventories

in the same was that the advert of glob. has encouraged companies to rationalize production into fewer locations, so
too has it led to a trend towards the centralized inventories

Inventory Centralization

Keep rare parts central. Reduces total inventory holdings. Caterpillar

postponement and localization

less investment in inventory, postpone completing the product until it is ready to be sold, completetion finished at
factory closest to customer

When considering network companies there are 6 characteristics exhibited.

-Outside-in focus
- Embedded Innovations
- Extended SC
- Balanced Metrics
-Attitudes
-SC Talent

Traditional View of Competition

Individual businesses compete as stand alone entities

New paradigm of competition

SC's compete with one another.

What are some characteristics of the new paradigm model?

Virtual networks, info based, and customer value oriented

Conventional Organization Structure

Traditional, functional, vertical, and silo.

Focus is on departments, not what is good for the company as a whole.

Horizontal Organizations

-organized around processes

-flat and de-layered
-built upon multi-functional teams
-guided by market-based performance metrics

DSI

Demand Supply Integration

KPI

Key Performance Indicators: the measures that are tied to business drivers requires input from both IT and business
to figure out.
- Customer retention
-end-to-end pipeline time
- Total cost to serve
perfect order achievement

What gets _________ gets __________.

measured, managed.

Benchmarking

- continuous, systematic process for evaluating the products, services, and work processes of organizations that are
recognized as representing best practices for the purposes of organizational improvement

Benchmarking is an _______

ongoing process

What are the three types of benchmarking?

Internal, competitive, and best in class.

3 types of benchmarking

internal
Competitive
Best in class/ process

T/F: Benchmarking helps identify current pain and motivate positive change.

True

T shaped leaders

The long stream means a manager know in very deep details a certain area of business, and the top sides represents
that you know other details within business.
( I am an example: I have my AS in Acct, but I am getting my BS in SCM with a dual concentration in Business Logs.
and Business Analytics. I am very well rounded)

What are the three ways to manage the SC as a network?

-Collective Strategy Development

-Win-Win Thinking
- Open Communication

collective strategy development

all network members must collectively agree on a strategic goal for the network and means to attain it

Win- win thinking

getting members of the supply chain to focus on a goal so that if achieved everyone will benefit

Open Communication

Leaders sharing all types of information throughout the company and across all levels.

The Important Business Transformations

from supplier centric to customercentric

Transformation:
leads to the design of customer driven supply chains

From Push to Pull

- Demand-specific distribution
- Order-specific delivery
- Order-specific assembly
- Order-specific production
- Order-specific purchasing

from inventory to information

Transformation:
leads to capturing and sharing information on real demand

From transactions to relations

customer retention is a key measure of success in the world relationship marketing

From 'truck and shed' to 'end-to-end' management

unlocking the capital within the inventory and not holding

from functions to process

not focusing as a function or area within the company but all working together to focus on the processes.

from stand alone to network rivalry

today companies finds itself a member of an extended enterprise.... this is referring to the new paradigm

sustainability

The effort to minimize the use of resources, especially those that are not polluting and nonrenewable

Sustainability

Referring to the environment

Sustainable

People, planet, profit (triple bottom line)

Requires new tech and business processes

Sustainable

- People, Planet, Profit

(Triple Bottom Line)
- Requires new technology and new business processes

Eco-efficiency

producing more value in terms of products and services with less resources, waste, and pollution.

Resource Footprint can be described with 5 terms

Design, source, make, deliver, return.

What is the triple bottom line?

Evaluation of a company's performance with regard to:

1.

People.

2.

Planet.

3.

Profit.

Triple bottom Line

Social - People
Environmental-Planet
Economic - Profit

Triple Bottom Line

- Social
- Environmental
- Economic

What % of companies dont have a risk management strategy?

90%

How many days after announcement of problem do we see return in shareholder

returns?

1-2 days

Types of SC risk (PSDCE)

1. Process
2. Supply
3. Demand
4. Control
5. Environmental

What is the formula for supply chain risk?

Probability of disruption * Impact

How can we mitigate through redundancy? (IMP)

1. Inventory and capacity

2. Multiple facilities/ suppliers
3. pooled demand

How do we manage through resilience? (PLILC)

1.Postponement
2. Lean Processes - speed and reliability
3. Improve visibility
4. Leverage supplier relationships
5. Control complexity and variability

Redundancy is a way to achieve _______

resiliency

What is the biggest market for freight theft?

Electronics

Why cargo theft?

low risk, high reward

Where does theft go?

Back into the supply chain

What is the Gray market?

It is when goods are stolen out of the SC and sold and also brought back into the SC

Supply Risk

Disruptions in supply

Demand Risk

Volatility in demand

Process Risk

Problems arising in our processes

Control Risk

Disturbances caused by our own control systems, order quantities, batch sizes etc

Environmental risks

External forces

Resilience

the ability of the system to return to its original or desired state after being disturbed

What is resilience?

Coping with uncertainty

Steps to manage supply chain risk (7)

1. Understand SC
2. Improve SC
3. Identify critical paths

4. Manage crit paths

5. Improve network visibility
6. Establish a SC continuity team
7. Work with suppliers and customers

Lightening strikes example

Fire at phillips plant, put ericsson out of market, Nokia had another supplier and was able to survive

Does going global cause SC disruptions?

Yes

What three things can lead to global SC disruptions? (OLO)

1. Outsourced customer service

2. Long lead times
3. Offshore contract managing

What 4 reasons cause a firm to go global? (IDOO)

1. Increase Revenue
2. Decrease costs
3. Outsourcing
4. Offshoring

Increase Revenue

When a foreign competitor moves into your market, competing with them in their home market may level the playing
field

Decreasing costs

1. Economy of scale
2. moving functions to lower cost regions may lower overall cosrs

Outsourcing

Hiring another firm to do a process for you outside your domestic country

We've seen a decline in ________ ________

economic protectionism

What RTA's have seen to more trade?

NAFTA, EU, APEC, ASEAN, MERCOSUR, TPP

What is so different about Global SCM? (HPCPC)

1. Hard to plan and execute

2. People are different across cultures
3. Companies sometimes abandon basic decisions and underestimate these differences

4. Partnerships are necessary but difficult

5. Complexity is higher due to differences

What are some complexities due to these differences? (3)

1. # of competitors, markets and customers

2. distances, languages, time zones, cultures, customs
3. Fundamental differences in approach to business and life

What are the "Twin challenges"

1. Markets are not homogenous, variety is required

2, Requirement for coordination to offset higher costs.

Consumers want a global brand to provide _________ levels of value in all of their
markets

equitable

Why can apple provide equitable levels of value well?

Small market and high profit margin

2 factors that are apart of Competitive global advantage

1. Configuration
2. Coordination

If we're completely local we _______

Manufacture locally

If we are global we _______

Manufacture globally and bring it locally and globally

Network Strategies (FIPE)

1. Focused Factories
2. Inventory Centralization
3. Postponement
4. End to end visibility / event mgmt

End to end visibility / Event MGMT

We can't communicate w/o great IT systems. 90% of decisions are routine and 10% get flagged.

4 trends have led to major changes in SC's

(DIGT)

1. Decline of economic protectionism

2. Increase in economic integration
3. global competition among global companies for global consumers
4. tech advances that ease and lessen cost of communication

Global SC involves more _______ about shipment in transit

uncertainty

More touch points =

More complexity, variability & uncertainty

What is the key to global?

global planning and coordination, local implementation

3 aspects of the traditional view of competition

1. Individual Business
2. Stand Alone
3. Mass production, supplier driven

New view of competition (3)

1. SC compete with one another

2. Mass customization
3. Market driven

Conventional org structure is also called?

Traditional, functional, vertical, silo

What is the core objective of the Conventional org structure?

Generate orders and fulfill orders w/o regard to cost

What are 2 barriers to SC integration?

1. Cost of an order moving through the pipeline is not visible

2. People want to protect and grow their own function. Sales want to protect "turf"

What is the core objective of a horizontal org?

Link demand and supply through Demand supply integration (DSI)

What are some distinguishing factors of a horizontal org? (4)

1. Organized around processes

2. Flat and de-layered
3. Built upon multi functional teams
4. Guided by market based performance metrics

KPI (key performance indicator)

"What gets MEASURED gets MANAGED"

What are some examples of KPI

Cost, relationships, service quality, time

Internal Benchmarking

within your own org

Can we do it better?

Competitive benchmarking

Look at competitors
Are we competitive?

Best in class

Can be different industry or product

Can we do it differently

As benchmarking increases firms become more aware of their _________ __________

Competitive advantage

4X4 matrix

sustain Attain
Change Avoid

4x4 matrix continued

flows in a U shape, usually goes from sustain to where something is wrong, when things go wrong is usually when
change happens

Scenario planning

using benchmarking to play out a scenario

T shaped managers

Stem represents need to go deep into expert fields

sides are communication and broad conceptual knowledge

What is recipe for competitive advantage?

Managing internal and external relationships, Info visibility, integrate supply and demand.
Goal: Quickly respond to market changes

Strategic

Doing things differently

Eco Efficiencey

Producing more value in terms or products/ services with less resources, waste and pollution

5 aspects of resource footprint

Design
Source
Make
Deliver
Return

Design

Packaging

Source

location of suppliers/ resouce

Make

Improve efficiency

Deliver

Minimize transport intensity

Return

Develop reverse logic capabilities

Green

eco efficiency
Performing current processes more efficiently

Green

-Eco-efficiency
-Performing current business processes more efficiently

4 environments involved in creating a sustainable SC

1. Market Environment - product and development stewardship

2. Competitive Environment - upstream suppliers
3. Regulatory environment- Internal Ops
4. Internal Environment - Downstream Consumers

What is the focus of sustainability

to find the balance between sound ecological decisions and profitable operations

3 emerging mega trends

Increase in population
More urbanization and mega cities
Redistribution of wealth

Yesterday's market (3)

Independent entities
Inventory Based
Low cost production

Tomorrows market (3)

Virtual networks
Information based
Customer value oriented

Dynamic flexibility

ability to respond to demand changes for products

Structural flexibility

Ability to deal with major changes on demand or supply side

Rapid Manufacturing

products are built up layer by layer using fused metal powders of polymers

Scarcity

The innability of the supply of natural resources to meet the demand for natural resources at a particular location

Traditional difference in viewing scarcity (2)

1 Substitutions will mitigate scarcity

2 World has finite amount of resources

Common beliefs about scarcity (2)

1. Renewable or non renewable

2. humans use most available and highest quality resources first

What is research recovery approach primarily for?

non renewable resources

NRS and Closed Loop

Outflows are put back into the SC

5 steps of resource footprint

1) Design - choice of materials

2) Source - location of suppliers
3) Make - improve energy/efficiency
4) Deliver - reconsider transportation modes
5) Return - 'reverse logistics' capabilities

Creating substantial supply chain

- market, internal, competitive, regulatory

- upstream suppliers, internal operations, product development and stewardship, downstream customers

What is a business at it's core?

Generating and managing customer demand and then fulfilling that demand

What are the support activities of a business?

General management

Finance & accounting

Information technology

Design & engineering

Hr & Org design

What are the components of the supply chain?

Raw materials

Company operations

Distribution network

End customer/consumer

Qualities to describe the old company paradigm?

Strong brands

Large advertising budgets

Aggressive selling

Qualities to describe the new paradigm companies?

Win through capabilities and competencies

Managing core processes better than competitors

Sped along by commoditization of products and industries

What is the competitive advantage formula?

Product excellence x process excellence

How do you gain competitive advantage using SCM?

Increasing value and productivity advantage

What is a commodity market?

A company with a low productivity advantage and a low value advantage

What is a service leader?

A company with a low productivity advantage and a high value advantage

What is a cost leader?

A company with a low value advantage but a high productivity advantage

What is a cost and service leader?

A company with a high value advantage and a high productivity advantage

What are the 4 R's?

Responsiveness

Reliability

Relationships

Resilience

What is responsiveness?

Demand driven instead of forecast driven

What are relationships?

Network competition

What are the components of demand management?

Learning about customers

Giving customers what they want

Telling customers about what you can give them

What are the components of capacity forecast?

Supply

Developing a supply line to fit market strategy

Understanding relationships between supply chain members

Managing supply chain components

What is the formula for customer value?

Perceptions of benefits/Total cost of ownership = Quality x service / cost x time

What is the marketing effectiveness formula?

Consumer franchise x customer franchise x supply chain effectiveness = market efectiveness

What are the components of a marketing driven supply chain?

Segment customers

Define customer service objectives

Set customer service priorities and standards

Execute the strategy

Re-evaluate

Repeat

What are the three levels of customer service focus?

Success

Satisfaction

Basic service

What are the three levels of Customer service focus?

1.Basic Service-Achieve internal standards.

2.Satisfaction-Meet Customer expectations
3.Success-Customers of choice achieve their objectives

What is basic service?

Achieve internal standards

What are the components of the cost of inventory?

Capital costs

Service costs

Storage and space costs

Inventory risk costs

What is the cash-to-cash cycle formula?

Days of inventory + Days acct rec - days accts payable = cash-to-cash cycle

At its core, a business _____ and ______ customer demand.

1.Manages (and generates)

2. Fulfills (or Supplies)

What are the three types of unity a business creates?

1.Form
2.Place
3.Time

Supply Chain Management

the management of upstream and downstream relationships with suppliers and customers to deliver superior
customer value at less cost to the supply chain as a whole.

Some 19th century business problems include

1.Scarcity
2.Limited technology
3.Adversarial Posture

Current Business Problems

1.Era of supply chain competition

2.Globalization of the industry
3.Downward pressure on price
4.Customers taking control

All the _____paradigm customers were built upon ______.

New, Supply Value Proposition

Old company paradigm characteristics

1.Strong Brands
2.Large Advertising budgets
3.Aggressive selling

New paradigm company characteristics

1.Win through capabilities and competencies

2.Managing core process better than competitors
3.Sped along by commoditization of products and industries.

Competitive advantage=
______X______

Product Excellence X Process Excellence

Delivering higher levels of ______ at a lower cost will lead to a _________.

Customer service, Competitive

You can increase the Value advantage your company has by maximizing

-tailored service
-reliability
-responsiveness

You can increase the productivity advantage your company has by maximizing

Capacity utilization, Asset turns, Integration

Low cost plus high service=

Superior customer value

Business is about providing value to customersthis will result in

profit, market share, success

The ________is Porters conceptualization of how businesses provide this value.

Value Chain

What is at the core of how a business creates value?

Supply Chain Management

The supply chain management value proposition is centered around what three things?

Customer Service, Asset Utilization, and Total Cost Management.

Ways to maximize revenue crowth and service level include

1.improve product and sevice availability

2.Sell more volume or 'share of wallet'
3.Strengthen relationships with more profitable customers
4.Improve product/service innovation
5.Align services with cost-to-serve

Ways to reduce capital requirements (Increase asset utilization)

1.Minimize total inventory

2.Shorten cash to cash cycle
3.Improve fixed asset utilization

You can optimize total cost, therefor increasing SCM management by

1.Reducing sourcing, production, lgistics, warehousing and customer costs

2.Leverage economies of scale and technology to reduce transaction and unit cost
3.Manage system performance and mitigate risk

You can Improve customer service by compressing end to end cycle time by

1.Increasing flexibility and agility

2.Postponement
3.Shorten service time to market

What are some characteristics of Demand planning (Sales and Marketing)

1.Involves learning about customers (determining customer value)

2.Giving customers what they want (deliver customer value)
3.Telling customers about what you can give them (communicating customer value)

What are some characteristics of Supply (Logistics, Procurement, operations)

planning?

1.Developing a supply line to fit market strategy.

2.Understanding relationships between Supply Chain Members
3.Managing supply chain components

What are the 4 R's and what are examples of each?

1.Responsiveness: Demand-Driven vs. Forecast-Driven, Customized Birthday Cake at Kroger

2.Reliability: Primarily delivered through visibility, Kroger informing supplier of inventory in real time
3.Resilience: Coping with uncertainty, AppleIphone 4 display supplier
4.Relationships: Network competition, Boeing and Partners on 787 project

What is the primary goal of SCM?

To balance customer value

What are the two primary ways companies compete?

Cost and Value

Why is SCM/Logistics so important to a company?

It focuses on customer service, unlike marketing

What is Place in SMC and Marketing?

HAVING IT IN THE RIGHT PLACE THE WAY THE CUSUMER WANTS IT!!

Who should you rely on when creating your customer service standards for your
company?

THE CUSTOMER! Ask them to see what levels of customer service they actually require.

If we are asking customers about what they want, we must bridge the gap
between________.

The great divide

Focus in many companies today seems to be_______.

Getting new customers

Many companies would be well advised to spend more time

retaining existing customers

The customer value equation

CV=Perception of benefits/cost of ownership=Quality X Service/Cost x Time

_______ are really the only areas of the business that have the ability to influence both
the numerator (quality x service) and denominator (cost x time) of the CV equation

SC and Logistics

What is the process for providing significant value added benefits to the supply chain in
a cost effective way. This definition illustrates the trend to think of _______as a processfocused orientation that includes supply chain management concepts

Customer service, customer service

A successful Logistics and SC process produces _______, which keeps _______, who
attract more customers.

Customer value, customers

Customers want a ______, if anything is wrong, the supply chain has failed

Perfect Order

What are some characteristics of a perfect order?

Correct order entry

Items are available

Ship date allows delivery

Order picked correctly
Paperwork complete
Timely arrival
Product as expected
Shipment not damaged
Correct invoice
Accurate overcharges
No customer deductions
No errors in payment processing

Two critical dimensions of service that a customer measures a suppliers performance

on are

Delivery time, and fill rate

Today, customers are_____there service level demands.

Increasing

______maintenance is key to profitability.

Demand

T/F You should make 100% of your customers happy all the time.

False

Companies must devise a supply strategy that decides ____they are going to make
happy and ________.

who, how often

In a company, instead of making all customers happy, you must find the optimum mix
between ______ and _______ to maximize profits and increase shareholder value.

Service , cost

The steps in finding an optimum customer strategy

1.Segment Customers
2.Define customer service objectives
3.Set customer service priorities and standards
4.Execute the strategy
5.Re-Evaluate

T/F In relation to the Revenue and service relationship,

at some point the incremental benefit of providing services is outweighed by the

additional cost.
TRUUU

T/F When the gap btw revenue and cost is the highest, you are maximizing profitability.

TRU

What are examples of each level of the customer service focus in relation to an airline?

1.Basic Service-transport me safely from A to B.

2.Satisfactionon time and with satisfactory service
3.Successdo this in a reliable way and provide value to me which makes me choose Delta over other airlines

What are the effects of all customers getting the same service treatment?

1.You are an average supplier to key accounts

2.You are a superior supplier to other customers.
3.You have high inventories
4. You expedite excessively

What are the actions of a company when they decide not to treat all customers
equally?

1.Determine strategic profitability of customer

2.Categorize customers based upon strategic importance
3.Establish different customer strategy for each category

What are the affects customers segments getting different levels of services?

-Stronger franchise with best customers

-Lower logistics costs
-Higher inventory turns
-Reduced expediting

Why do airlines charge for baggage?

Because they realized that the cargo space is valuable. So airlines began offering tickets (services) at a lower price
but also made you pay additional for cargo to find the incremental cost trade-off.

If your sales volume is high and your profit margin is high what kind of customer service
is offered?

Customized service with high availability

If your sales volume is high and your profit margin is low what kind of customer service
are you offering?

Efficient service, (be careful about costs)

If your sales volume is low and your profit margin is low what kind of customer service
are you offering?

You need to review your customer relationship.

If your sales volume is low and your profit margin is high what level of customer service
are you offering?

Centralized Inventory with expedited delivery.

What are 3 ways to improve the value of the firm?

1.Increase revenue
2. Reduce costs
3. Utilize assets more efficiently

Capital you can convert into cash in a relatively short amount of time is

working capital, ex. inventory

Cash cycle formula

Days of inv.+days of accts rec-Day of accs payable.

Cash to Cash

-The time it takes to convert an investment in raw materials to sales of finished goods.

Inventory Days of Supply

-The total inventory in the supply chain relationship -- inbound, plant and all stocking locations in the channel -expressed as calendar days of supply based on recent actual daily rate of sales (or forecasted rate of sales).

What are inventory days of supply?

The total inventory in the supply chain relationship expressed as calendar days of supply based on recent actual daily
rate of sale

Dwell Time

The ratio of the number of days that inventory (or other assets) sit idle to the number of days it is actually moving in
the supply chain.

What is dwell time?

The ratio of the number of days that inventory sit idle to the number of days it is actually moving in the supply chain

Total Landed Cost

The sum of all fixed and variable costs in and along a supply chain

T/F: Total cost of ownership is how much more you buy the company for.

False,
Total cost of ownership is much more than just the price you buy it for! Costs are underwater such as Mgmt costs,
maintenance cost, operating cost, inventory cost, technical support costs, training cost, disposal costs

Some supply chain costs include;

Landed cost, inventory carrying cost, life cycle cost, support cost, opportunity cost,

If you focus on the _____you will worry less about the financial ______.

Inputs, Outputs

_____and ____ are the allocation techniques that make it possible to more precisely
assess true segment profitability.

ABC ABM

Allocations are more ______than traditional cost accounting which relies on sales
volume or direct labor hours to allocate "overhead."

-realistic

A _____ financial perspective must be taken when maximizing overall company

competitiveness

-holistic

SO LOGISTICS IMPACTS THE BOTTOM LINE ______ THROUGH REDUCED

COSTS AND _______ THROUGH INCREASED SALES

directly, indirectly

Clothing companies order there cloths how far in advance?

1 month to one quarter

What are some benefits about ordering inventory months in advance?

You always have product to sell and you wont lose sales,
Easier to order months in advance, having inventory in stock could drive a sale where a customer wasnt aware they
needed that,

Disadvantages to ordering inventory in advance

Can be left in dust by responsive supply chain if those are going on in your region.

What are some benefits to having a responsive supply chain

Perishable items may lock us in to short cycle, less money tied up in working capital and inventory, less storage time

What are some disadvantages to using a responsive supply chain?

by and large takes much more effort much more attention and research but gives you advantage

Lead Time Gap Concept

The time it take to procure, make and deliver the finished product to a customer is often longer than the time the
customer is prepared to wait.

Lead gap time=SC lead time-Customer's order cycle time

SC lead time-Customer's order cycle time

Supply chain lead time

procurement, manufacturing, and delivery of order

Customer's order cycle time

time that the customer is prepared to wait on order

In conventional organizations, the only way to close the lead time gap is to attempt to
______ the market's and carry just-in-case _____.

forecast, inventory

Ideally, a reduction in the gap can be achieved by ______ the SC lead time (pipeline
time) while simultaneously trying to gain earlier warning of requirements through
improved _______ of demand.

Shortening, visibility

What is the goal of lead gap time?

make lead gap time as small as possible and have right things on the shelf at the right time.

Demand penetration point (decoupling point)

-Where the plan meets demand

-How far demand penetrates back upstream in the supply chain

When you know how much demand is coming far into the future, you will have less
_____and less _______.

Capacity Inventory

What is landed cost?

The sum of all fixed and variable costs in a supply chain

What is the total cost of ownership equation?

landed cost + inv carry cost + life cycle cost + support cost + opportunity cost

What is the ROP formula?

Average lead time * average daily demand

What is the ROP formula with variance?

Lead time * daily demand + safety stock

What are the qualities for lean?

Lean works best in high volume, low variability and predictable environments

What are the qualities for agile?

Agility is needed in less predictable environments where the demand for variety is high

What is agile order fulfillment?

Postpone some steps in the supply chain order cycle until actual demand occurs, then accelerate cycle time using
higher unit cost operations

What is the role of smc in the marketing mix?

Place

Customers seek

Availability, quality, cost, speed

When is Cash Out of Reach

Your business's cash is out of reach when it is uncollected from customers and when it is soaked up by inventory that
sits on the shop floor, in office storage areas, or on computer disks.

What is the focus of a traditional organization

Marketing/Sales Driven - revenue at any cost

What is the 80/20 rule?

20% of customers/products make up 80% of sales/profits

What are the components of inventory carrying cost

Holding
Inspection
Insurance
Obsolescence

The experience curve

a phenomenon with its roots in the earlier notion of the 'learning curve'
all costs, not just production costs, would decline at a given rate as volume increased.
the relationship the experience curve describes is between real unit costs and cumulative volume.