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Learning Objectives
Why is the supply chain important? What are the key supply chain decisions made by a firm? How has the supply chain evolved over the last century? What are the unique challenges of managing a supply chain in India?
Connected by transportation and storage activities Flow of information, products and funds in both directions Cost and service levels
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Suppliers
Manufacturers
Customers
Material Costs
Transportation Transportation Costs Transportation Costs Manufacturing Costs Inventory Costs Costs
Supply Chain
All facilities, functions, activities, associated with flow and transformation of goods and services from raw materials to customer, as well as the associated information flows An integrated group of processes to source, make, and deliver products
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PLANTS
SCM Definition
Material Flow
Converter Distributor
Supplier Source
Retailer
Consumers
Value-Added Services Funds/Demand Flow Information Flow Reuse/Maintenance/After Sales Service Flow 1 3
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P&Gs estimated savings to retail customers of $65 million through logistics gains
Dell Computers outperforming of the competition in terms of shareholder value growth over more than two decades by over 3,000% using: Direct business model Build-to-order strategy
Wal-Mart transformation into the worlds largest retailer by changing its logistics system: highest sales per square foot, inventory turnover and operating profit of any discount retailer
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The grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies
A typical box of cereal spends 104 days getting from factory to supermarket. A typical new car spends 15 days traveling from the factory to the dealership.
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Ciscos multi-billion ($2.2b) dollar write-off of inventories in 2001-2002 Customers balked on orders due to market meltdown
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Transactional Complexity
National Semiconductors:
Production:
Produces chips in six different locations: four in the US, one in Britain and one in Israel Chips are shipped to seven assembly locations in Southeast Asia.
Distribution
The final product is shipped to hundreds of facilities all over the world 20,000 different routes 12 different airlines are involved 95% of the products are delivered within 45 days 5% are delivered within 90 days.
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Does logistics cost capture every thing? How do we capture logistics cost of India versus China?
FIGURE 1-5: Total U.S. logistics costs between 1984 and 2005
Supply Chain Management_Janat Shah
93-94 prices
Logistics Cost/GDP (%) 13.4 12.4 12.1 11.89 11.59
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Benefits
A 1997 PRTM Integrated Supply Chain Benchmarking Survey of 331 firms found significant benefits to integrating the supply chain
Delivery Performance Inventory Reduction Fulfillment Cycle Time Forecast Accuracy Overall Productivity Lower Supply-Chain Costs Fill Rates Improved Capacity Realization
Source: Cohen & Roussel Supply Chain Management_Janat Shah
16%-28% Improvement 25%-60% Improvement 30%-50% Improvement 25%-80% Improvement 10%-16% Improvement 25%-50% Improvement 20%-30% Improvement 10%-20% Improvement
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Dells SCM
Dell sells its computer systems directly to end customers, bypassing distributors and retailers (resellers). Dell's supply chain consists of only three stages the suppliers, the manufacturer (Dell), and end users. Dells direct contact with customers allows it to: properly identify market segments, analyze the requirements and profitability of each segment, and develop more accurate demand forecasts. Another Dells advantage is that it is able to get the customers requirements regarding software to be loaded
Supply Chain Management_Janat Shah
Further Refinement of SCM Capabilities SCM Formation/ Extensions JIT, TQM, BPR, Alliances Inventory Management/Cost Optimization Traditional Mass Manufacturing
1950s
1960s
1970s
1980s
1990s
2000s
Beyond
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freight car
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Key Observations
Every facility that impacts costs need to be considered Suppliers suppliers Customers customers Efficiency and cost-effectiveness throughout the system is required System level approach Multiple levels of activities Strategic Tactical Operational
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Key Observations
Integrated activity: * Among functions such as logistics, manufacturing, distribution, design/engineering, marketing, finance,etc. * Multiple organizations,i.e., suppliers, customers & 3 PL, 4PL providers * Coordination of conflicting goals, metrics, etc. Responsible for multiple flows: * Information (orders, status, contracts) * Physical (finished goods, raw material, w.i.p.) * Financial (payment, credits, etc.)
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respond to uncertainty in customer demand without creating costly excess inventory Negative effects of uncertainty lateness incomplete orders
Inventory insurance against supply chain uncertainty
inaccurate demand forecasting long variable lead times late deliveries incomplete shipments product changes batch ordering price fluctuations and discounts inflated orders
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product design phase associated capabilities and knowledge sourcing decisions production plans
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Network Planning
Warehouse locations and capacities Plant locations and production levels Transportation flows between facilities to minimize cost and time How should inventory be managed? Why does inventory fluctuate and what strategies minimize this? Impact of volume discount and revenue sharing Pricing strategies to reduce order-shipment variability Selection of distribution strategies (e.g., direct ship vs. cross-docking) How many cross-dock points are needed? Cost/Benefits of different strategies How can integration with partners be achieved? What level of integration is best? What information and processes can be shared? What partnerships should be implemented and in which situations?
What are our core supply chain capabilities and which are not? Does our product design mandate different outsourcing approaches? Risk management How are inventory holding and transportation costs affected by product design? How does product design enable mass customization?
Product Design
Source: Simchi-Levi
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Chain Distribution Network Contribution Inventory Control Production Sourcing Supply Contracts Distribution Strategies Outsourcing & Off shoring Product Design Information Technology Customer Value Smart Pricing Supply
Global Optimisation Y
Y Y
Y Y Y
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Lack of visibility reduces suppliers ability to handle variability Suppliers use inventory buffers to compensate increasing costs Errors in manual filling processes can cause stock-outs revenue issues can increase costs, lower customer service and reduce All of these
Supply Chain Management_Janat Shah
REASONS
Raw material shortages Internal and supplier parts shortages Productivity inefficiencies Sales and earnings shortfall Larger than anticipated inventories
Sales at U.S. Surgical Corporation declined 25 percent, resulting in a loss of $22 million Intel reported a 38 percent decline in quarterly profit
EMC Corp. missed its revenue guidance of $2.66 billion for the second quarter of 2006 by around $100 million
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Supply Chain Management_Janat Shah FIGURE 1-3: Order variations in the supply chain
Summary
What is supply chain management? The supply chain encompasses all activities associated with the transformation of goods from the raw material stage to the final stage,. Supply chain management involves planning, design and control of flow of material, information and finance along the supply chain Why is the supply chain important? On account of globalization and increased competition, firms have to manage a larger number of product lines with shorter product life cycles under the situation of changed power in supply chain performance would help Indian firms equations within a chain. improvement in becoming globally competitive.
Supply Chain Management_Janat Shah