Test 1

Introduction to Supply Chains

Supply Chain

• Consists of all stages involved, directly or indirectly in fulfilling customer request
• Includes manufacturer, suppliers, transporters, warehouses, retailers, and customers
• Includes functions such as new product development, marketing, operations, distributions, finance, and customer service.

Supply Chain Stages

• Each stage need not be present in a supply chain
• Example: Dell builds to order, therefore retailer and distributor stages do not exist in that supply chain

Decision Phases in a Supply Chain

1. Supply Chain Design
• During this phase, decisions regarding the following aspects are made:
• Location and capacities of production and warehousing facilities
• Products to be manufactured or stored at various locations
• Modes of transportation
• Type of information system to be used
  
2. Supply Chain Planning
• During this phase, decisions regarding the following are made:
• Which markets will be supplied from which locations?
• Planned build-up of inventories
• Subcontracting or manufacturing
• Replenishment and inventory policies to be followed
• Timing and size of market promotions
  
3. Supply Chain Operation
• Time frame: weekly/daily.
  
• During this phase:
• Firms allocate individual orders to inventory or production
• Set a date that an order is to be filled and generate pick lists at a warehouse
• Allocate an order to a particular shipping mode or shipment
• Set delivery schedules of trucks
• Place replenishment orders

Process View of Supply Chain

1. Cycle View
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• Supply chain processes are broken down into the following four process cycles
• Customer Order Cycle
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• Occurs at the customer/retailer interface and includes all processes directly involved in receiving and filling the customer's order
• Customer Arrival
  
• occurs when
• The customer walks into a supermarket to make a purchase
• The customer calls a mail order telemarketing center
• The customer uses the Web to a mail order firm
• The objective of the customer arrival process is to maximize the conversion of customer arrivals to customer orders
• Customer Order Entry
• This refers customers telling the retailer what products they want to purchase and the retailer allocating products to customers
• The objective of the customer order entry process is to ensure that the order entry is quick and accurate and is communicated to all other supply chain processes that are affected by it.
• Customer Order Fulfillment
• In this process, the customer's order is filled and sent to the customer
• The objective of the customer order fulfillment process is to get the correct and complete orders to customers by the promised dude dates and at the lowest possible cost
  
• Customer Order Receiving
• In this process, the customer receives the order and takes ownership
  
• Replenishment Cycle
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• Occurs at the retailer/distributor interface
• Similar to customer order cycle except that retailer is now the customer
• The objective of the replenishment cycle is to replenish inventories at the retailer at minimum cost while providing the necessary product availability to the customer
• Retail Order Trigger
• Retailer devices a replenishment or ordering policy that triggers an order from the previous stage
• The objective of setting the triggers is to maximize profitability by balancing product availability and cost
• Retail Order Entry
• The objective of the retail order entry process is that an order be entered accurately and conveyed quickly to all supply chain processes by the order
  
• Retail Order Fulfillment
• The objective of the retail order fulfillment is to get the replenishment order to the retailer on time while minimizing costs
  
• Retail Order Receiving
• This process involves product flow from the distributor to the retailer as well as information and financial flows
• The objective of the retail order receiving process is to update inventories quickly and accurately at the lowest possible cost
  
• Manufacturing Cycle
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• Occurs at the distributor/manufacturer interface and includes all processes involved in replenishing distributor inventory
• Order Arrival
• During the order arrival process, a distributor sets a replenishment order trigger based on the forecast of future demand and current product inventories
• The resulting order is then conveyed to the manufacturer
• Production Scheduling
• In this process, orders are allocated to a production plan or schedule
• The objective of the production scheduling process is to maximize the proportion of orders filled on time while keeping costs down
  
• Manufacturing and Shipping
• The objective of this process is to ship the product by the promised due date while meeting quality requirements and keeping costs down
  
• Receiving
• In the receiving process, the product is received at the distributor, finished goods warehouse, retailer, or customer, and inventory records are updated
  
• Procurement Cycle
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• Occurs at the manufacturer/supplier interface
• During the procurement cycle, the manufacturer orders components from suppliers that replenish the component inventories
• Each cycle occurs at the interface between two successive stages of the supply chain
  
2. Push/Pull View
• Pull processes are initiated in response to a customer order
• Push processes are executed in anticipation of customer orders
• Push Pull boundary in a supply chain separates push processes from pull processes
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• Dell Supply Chain Flows
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• Dell carries only about 10 days worth of inventory
• Dell supply chain is facilitated by sophisticated information exchange
• If a customer calls in with a problem, production is stopped and design flaws are fixed in real time
• Defective merchandise produced is minimized as there is no finished product with the identified design flaw
• Dell has created customized web pages so that its major suppliers can view demand forecasts
• Quaker Oasts and Snapple
• Quaker Oats owns Gatorade which was strong in south and southwest United States
• Snapple was strong in northeast and west coast
• In 1994, Quaker purchased Snapple at a cost of $1.7 billion
• Gatorade was manufactured in plants owned by Quaker
• Snapple was produced under contract by outside plants
• Gatorade sold through supermarkets and grocery stores.
• Snapple sold through restaurants and independent retailers
• Supply chain disparities hurt the sales of both products
• After 28 months, Quaker sold Snapple to Triarc Companies for $300 million

Supply Chain Drivers and Metrics

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• Drivers of supply chain performance are:
1. Inventory
2. Transportation
3. Facilities
4. Information
• Goal of a supply chain strategy is to strike a balance between responsiveness and efficiency
• Supply chain strategy should fit with the competitive strategy
• Example: Wal-Mart
• Competitive Strategy: Reliable, low-cost retailer for mas consumption of goods.  This strategy dictates that the ideal supply chain will emphasize efficiency and responsiveness.
• Inventory Driver
• Wal-Mart maintains an efficient supply chain by keeping low levels of inventory.
• Wal-Mart uses "Corss Docking," a system in which inventory is directly shipped to stores from manufacturer Transportation Driver
• Transportation Driver
• Wal-Mart runs its own fleet to keep responsiveness high
• Increases cost and investment, but benefits in terms of responsiveness
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• Facilities Driver
• Uses central distribution centers
• Builds facilities only where the demand is sufficient to justify having them
• Information Driver
• Wal-Mart feeds demand information all the way back up the supply chain to suppliers who manufacture only what is being demanded
• Information system which enables to share demand information results in an improved supply chain both in terms of responsiveness and efficiency
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1. Inventory
• Role in the Supply Chain
• Inventory increases the amount of demand that can be satisfied by having the product ready and available when the customer wants it
• Inventory reduces cost by exploiting any economies of scale that may exist during both production and distribution
• Role in the Competitive Strategy
• If a high level of responsiveness is required, a company can locate large amounts of inventory close to the customer
• By storing inventories by centralized stocking, efficiency in the supply chain can be achieved
• Components of Inventory Decisions
1. Cycle Inventory
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• Average amount of inventory used to satisfy demand between receipt of supplier shipments
• Trade-off is the cost of holding larger lots of inventory versus the cost of ordering frequently
  
2. Safety Inventory
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• Inventory held just in case demand exceeds expectation
• Trade-off is between the costs of having too much inventory and the costs of losing sales due to not having enough inventory
  
3. Seasonal Inventory
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• Inventory that is built up to counter predictable variability in demand
• Built up during periods of low demand and stored for periods of high demand when manufacturers will not have the capacity to produce to meet the demand.
• Trade-off is the cost of carrying the additional seasonal inventory versus the cost of having a more flexible production rate
• Overall trade-off regarding inventory decisions is between responsiveness and efficiency
2. Transportation
• Role in the Supply Chain
• Transportation moves the product between different stages in a supply chain
• Faster transportation makes the supply chain more responsive but reduces its efficiency
• Role in the Competitive Strategy
• If the strategy targets customers who demand a high level of responsiveness, and are willing to pay for this, then company can opt for faster transportation
• If the main decision criterion is price, then more cost effective transportation is to be used.
• Components of Transportation Decisions
1. Mode of Transportation
• Air: Most expensive, but very fast
• Truck: Relatively quick and inexpensive mode with high levels of flexibility
• Rail: Inexpensive mode used for large quantities
• Ship: Slowest mode but often the only economical choice for large overseas shipments
• Pipeline: Used to transport oil and gas
• Electronic: Digitized products such as software and musical CDs can be transported over the Internet
  
2. Route and Network Selection
• Route is the path along which a product is shipped
• Network is the collection of locations and routes along which a product can be shipped
• Companies have to decide whether to ship products directly to customers or to use a series of distribution layers
  
3. In House or Outsource
• Earlier, transportation function was an in house activity
• Now, transportation is being outsourced
• The fundamental trade-off for transportation is between the cost of transporting a given product and the speed with which the product is transported
3. Facilities
• Role in the Supply Chain
• Facilities are needed during manufacturing and warehousing stages of the supply chain
• Role in the Competitive Strategy
• Fewer facilities will result in economies of scale and increases efficiency
• More facilities located close to customers will result in higher responsiveness
• Components of Facilities Decisions
1. Location
• Macroeconomic factors, strategic factors, quality of workers, cost of workers, cost of facility, availability of infrastructure, proximity to customers have to be considered for location decisions
  
2. Capacity
• Excess capacity allows the facility to be flexible and respond to variations in demand
• Excess capacity costs money and decreases efficiency
• High utilization facility with no excess capacity will be very efficient but cannot respond to variation in demand
  
3. Manufacturing Methodology
• Facilities have to be designed to have either a product focus or functional focus
• A product focused factory performs many different functions to produce a single type of product (More Efficient Approach)
• A functional focused factory performs few functions on many types of products (More Responsive Approach)
  
4. Warehousing Methodology
• Stock-Keeping Unit (SKU) Storage
• Traditional warehouse that stores all of one type of product together
  
• Job Lot Storage
• Different types of products needed to perform a particular job are stored together
  
• Cross Docking
• Goods are not actually warehoused in a facility
• Inventory supplied from suppliers is broken into smaller lots and quickly loaded onto store-bound trucks
• The overall trade-off is between the cost of the number, location, and type of facilities and the level of responsiveness that these facilities provide the customers\
4. Information
• Role in the Supply Chain
• Information servers as the connection between vairous stages of the supply chain
• Information is crucial to the daily operations of each stage in the supply chain
• Role in the Competitive Strategy
• Information systems can be used to make the supply chain mroe efficient and responsive
• Example: "Window of Knowledge" is an information system used by Anderson Windows.  It provides users a choice of Design Windows using over 50,000 components which can be combined in different ways.  Once the customer chooses a design, the system gives the price quotes and sends information to the factory
• Components of Information Decisions
1. Push vs. Pull
• Push systems create schedules to suppliers based on information from Material Requirements Planning (MRP)
• Pull systems require information on actual demand to be transmitted quickly throughout the supply chain.
  
2. Coordination and Information Sharing
• Supply chain coordination occurs when the different stages of the supply chain work towards overall profitability rather than on maximizing progitability at each stage.  Coordination requires that each stage shares appropriate information with other stages.
  
3. Forecasting and Aggregate Planning
• Forecasting is making projections about future needs and conditions
• Aggregate Planning transforms forecasts into plans of activity to satisfy the projected demand
  
4. Enabling Technologies
• Electronic Data Interchange (EDI) allows companies to place instantaneous paperless purchase orders with suppliers
• The Internet enables the different stages of the supply chain to communicate efficiently
• Enterprise Resource Planning (ERP) systems provide transactional tracking from any part of a company to its supply chain
• Supply Chain Management (SCM) software (example: i2 Technologies) provides analytical decision support in addition to visibility of information

Obstacles to Achieving Strategic Fit

1. Increasing variety of products
• Products that were formerly quite generic are now custom-made for a specific customer
• Increase in product variety makes forecasting and meeting demand more difficult.
• Increased variety tends to raise uncertainty and results in increased cost and decreased responsiveness.
  
2. Decreasing Product Life Cycles
• Today, life-cycles of some products can be measured in months compared with the old standard of years
• Decreased life cycles increases uncertainty and reduces the time frame within which the supply chain can achieve it.
  
3. Increasingly demanding customers
• Today, customers are demanding faster fulfillment, better quality, and better performing products for the same price they paid years ago
• Growth in customer expectations means that the supply chain must provide more just to maintain its business
  
4. Fragmentation of Supply Chain Ownership
• Nowadays most firms are not vertically integrated
• Companies take advantage of supplier and customer competencies
• As the supply chain gets broken into many owners, it becomes more difficult to coordinate
  
5. Globalization
• Supply chains are becoming more global
• Globalization adds stress to the supply chain as coordination among widely dispersed facilities becomes difficult.  Global competition renders supply chain performance a very critical factor
  
6. Difficulty in Executing New Strategies
• Many highly talented employees at all levels of the organization are necessary to make a supply chain strategy successful