EFFECTIVE SUPPLY CHAIN MANAGEMENT

OUTLINE FOR DISCUSSION

Why a complete SCM methodology?

Understanding uncertainty
Modeling supply chains Using strategic modeling tool Case studies

Remote localization of low-cost Deskjet printers JV with low-cost Asian manufacturer

Conclusions
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WHY A COMPLETE SCM METHODOLOGY?

Improve customer satisfaction while reducing costs

Increasing competition(exceptional service 2 customers at lowest cost)

Multisite manufacturing(different facilities r located at diverse locations)

Complex channels of independent dealers Increasing demand for local products Customer demand of exceptional service
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UNCERTAINTY IN SUPPLY CHAIN

Complexities in manufacturing network

Multiple suppliers
Complex processes to make subassemblies/ final product(uncertainity) Variety of customers Varied transportation options

Uncertainties propagate through a manufacturing network Inventory protects against uncertainties

How much to hold?(avoid huge inventory costs) Where to hold?(vendor should keep more for me and supply when required)

System optimization

Reapportion stock to reduce overall inventory

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Approach analytically(step by step approach using proper tools)

UNCERTAINTY IN SUPPLY CHAIN

3 steps for improvement

Benchmarking current performance

Possible performance given existing operating characteristics like order review period, forecast accuracy Metrics: Inventory investment , Inventory turnover ratio, order fill rate

Controlling uncertainty

Understand relative impact of different sources of uncertainty

Planning changes

Costs/ benefits of sweeping changes to inventory network

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MODELING SUPPLY CHAINS

3 steps

Develop a simple, generic framework to describe supply chains

Model propagation of uncertainty up & down the chain Create modeling approach to support strategic decision makers Plan what things you can change.ie iterative process. Goes out of the supply chain only when there is demand from the customer.may remain at warehouse or at retail store.
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SIMPLE GENERIC MODEL

Supply
Material transformation

Demand

Inventory control

Understand impact of uncertainty

Consider distribution function like traditional manufacturing process

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INCLUDE UNCERTAINTY

Sources of uncertainty

Suppliers

On-time performance, average lateness, degree of inconsistency

Manufacturing

Frequency of downtime, repair time & its variation Probability distribution of performance & reliability

Customers

Average demand & its variability Effective variability vs. actual variability
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ACT STRATEGICALLY
Customer service affected by uncertainties How to reduce these?

Uncertainty cycle
Manufacturing Process design Product design Capacity Quality Supplier Performance Responsiveness Transportation Location Quality Customer Deliveries

Customer Demand Past performance Market research Analytical techniques Incentive programs

USING A STRATEGIC MODELING TOOL

1.

Valid input

Data collection problems

Accuracy of data Valid data

2.

Iterative analysis(go on refining each policy and then see)Act when refined.

Tool to measure benefits/ costs of changes in alternative SC policy

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USING A STRATEGIC MODELING TOOL

3.

Useful output

2 key measures of customer service

Line-item fill rate (Compare fill rate vs. weeks of supply for alt. policies)Fill rate measures resposiveness and tell us how much customer orders u r able 2 fill from items u have in stock. Order aging curve (Compare days late vs. cum. portion of orders shipped for alt. policies)

Benchmarking with data on historical performance

Fill rate(customer serivce) vs. FGI (weeks of supply-inventory cost)

Less items on hand-high fill rate-satisfy more customers with less inventory.
Plot on monthly basis Compare actual & predicted
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HP CASE 1: LOCALIZING GENERIC PRODUCTS

Low cost DeskJet printers

5 separate facilities for manufacturing & distribution

6 months long pipeline Excessive inventory

How to reduce costs without sacrificing customer goodwill?

Postponement of localization

Remote localization at distribution centers Risk pooling

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POSTPONEMENT

Benefits

Lower safety stocks

Stock of less valuable generic models Offsetting demand risks

Drop in shipping costs

When does this strategy work?

In regions having demand of many printer options

During new product introduction

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HP CASE 2: ADDING A MANUFACTURING

PARTNER

JV with a low cost Asian partner

High shipping time

Lead time increases by 3 months Benefits of analysis

Showed that stock increases from usual 1 month (FGI at US) to 5 months
Choose best alternative

Co-location of 2 firms factories

Cut down 3 months shipping delay More attractive deal with partner
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INTERPRETING FINDINGS

Root causes of inventory

Minimum stock

WIP, pipeline, periodic review About 40%

Supply variance Process variance Demand variance Traditional focus

Inventory reduction

Improving manufacturing
Working with suppliers
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Required focus

Forecast demand better Design products that allow better risk pooling

CONCLUSIONS

Focus on thorough SC analysis with data and quantitative techniques Change product and process of each stage to reduce uncertainties and improve performance

Take a systems view of the problem

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