lscm jun 2014
TRANSCRIPT
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introducing
Supply Chain Management
Mana
Prof. M
Operations M
Management Development Imks
http://mks507.vistapanel.net
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01. Titanic: What Went Wrong?
02. INTEL: Using Innovation to Create Competitive Advantage
03. McDonalds Food Supply Chain
04. Wal-Marts Supply Chain Practices
05. Procter & Gamble: Using Agent Based Model ing & RFID
06. IDEO: The Power of Design
07. FedEx: Delivering the Goods
08. Mumbai Dabbawallah
09. Procurement at Microsoft
10. NOKIA INDIA: Battery Recall Logistics
11. Dells Supply Chain Strategies
12. Postponement Strategies
13. Historical Examples of Military Logistics
14. Reliance Fresh Stores in Food Retailing
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Global : Logistics Industry Scenario The logistics industry is valued at US$ 3.5 trillion.
The U.S., which contributes to over 25% of the global industry value, spends closon logistic services.
The sector currently employs over 40 million people in the world
Countries Log
India/China
U.S
Europe
Japan
Technology19%
Retail17%
Industrial19%
Health Care4%
Consumer23%
Chemical4%
Automotive10%
Others4%
Global Industry Verticals - Logistics Activity Countries Logistic
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Total GDP US$ 3 Trillion.
India spends 13% of its GDP on logistics compared to an average of 10% in
countries. India logistics market to double by 2012.
The industry would need 4,20,000 skilled people in the SeniorResource Categmanagement it self, by 2015.
Currently, India logistics industry has only 14,000 Warehouse Managers but req35,000 .
Technological change in the logistics industry demands a trained workforce i
sector. Indian logistics industry is at an inflection point and has reached a market size o
in year 2010.
The organized logistics, which is about 6% of the total logistics market, is growyear.
India : Logistics Industry Scenario
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Distribution of Logistics Cost
% of lo
Inbound Logistics
Transportation
StorageInventory
Process LogisticsTransportation
Storage
Outbound Logistics
TransportationStorage
Inventory
Order Processing
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Supply Chain
Intelligence
ProO
Management Devmks
http://www.mks507.iwebs.ws
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1 Apple 1 App
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1. Apple2. Procter & Gamble3. Cisco Systems4. Wal-Mart Stores5. Dell6. PepsiCo7. Samsung Electronics
8. IBM9. Research In Motion10. Amazon.com11. McDonalds12. Microsoft13. The Coca-Cola Company14. Johnson & Johnson15. Hewlett-Packard16. Nike17. Colgate-Palmolive18. Intel19. Nokia20. Tesco
Top 20Supply Chains
2009
1. App2. McD3. Am4. Uni5. Inte6. Pro7. Cisc
8. Sam9. The10. Co11. De12. Ind13. Wa14. Ni15. Sta16. Pe17. H&18. Ca19. 3M20. Le
Source:AMR res earch, 2013
http:/ /www.amrresearch.com
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Why Implementing Supply Chain?
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The right
ProductThe right
TimeThe r
CustoThe right
QuantityThe right
StoreThe right
Price++ ++ +
Flexibility
DeliveryReliability Delivery Time
Lead time
Inventory
Level
ProductVolume
Mix Place
Time
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Very Satisfied
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Customer Satis
Actual Performance
Providing(performance n
you in a
Providing delighters (unknown excitingcharacteristics) can get you market leadership.
CustomerSatisfaction
Very Satisfied
Very Unsatisfied
Per
formsVeryPoorly
You are OKifyou dont
provide them.
redial button on telephone receiver; spare change holders/soft drink holders in automobiles; one-touch recording
button on some VCRs;
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Todays market demands
Quality Being RIGHT
Speed Being FAST
Dependability Being ON TIME
Cost Being PRODUCTIVE
Being ABLE TO CHANGEFlexibility
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Use Value
Esteem Value
Place Value
Time Value
Need vs Requirement
Remove the ef
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Decision Dilemmas.?
Chinese Room A rgument (Searle)
Prisoner 's Dilemma
Laws of Robot ics
Searle, J.R. (1980), 'Minds, brains and programs',Behavioral and Brain Sciences, 3 (3):
Tucker, Albert W., (1980), On Jargo n: The Priso ner's Di lemm a, UMAP J ourn al 1, 101
Poundstone, W., (1992), Prisoners Dilemma, New York
Asim ov, Issac (1957), The Naked Sun , Fawcett , New York
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Lesson Learnt:
Have we defined it properly?
.coz a well stated problem is halfsolved.
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The classical prisoner's dilemma
PrisonerB
Stays Silent Betra
Stays Silent
A: Years
B: Years
A: 10 Y
B: 0 Ye
BetraysA: 0 YearsB: 10 Years
A: 2 YeB: 2 Ye
Prison
er
A
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The classical prisoner's dilemma
Chicken GameRacer
He
Turn Do Not T
TurnYou: 0
He: 0
You:
He:
Do Not TurnYou: 1He: 0
You: He:
RacerYou
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Seethe market,
Do not assumeit..
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Keiretsu (co-opetition)
win-winsituation
a chain is only as good as its weakestlink
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That reallydepends onWHERE youwant to go?
Which PATH Ishould takefrom here?
Aimless aims
I wanna cut cost at any cost !
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Dontcutcost at anycos
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Competing for the Future
with Gary Hamel)
SonyCore Competency
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yminiaturization
3Mknowledge of substadhesives
Hondaengines and power
Cannonoptics, imaging, ele
Products include cocameras, and image
Boeingintegrating large sc
commercial jetlinersmissiles
Core Competency
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INPUT
OUTPUT
PERFORMANCE
OUTCOME
IMPACT
EFFICIENCY
EFFICACY
EFFECTIVENESS
Utilization =
Productivity =
Performance =
Customer Satisfaction =
Supplier Performance =
Value AddedProcess
Outsidethefir
m
Withinthefirm
Sourc e: Mentzer, J. T., Supply Chain Management, Respon
Productivity
impact assessment analysis
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Trade-off betweencost (efforts) and outcome (customer satisfaction)
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Supply Chain Intelligence
making false impressionpromotion tactics?
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A supply chain consists of the flowof products and serv Raw materials manufacturers
Intermediate products manufacturers End product manufacturers Wholesalers and distributors and Retailers
Connected by transportationand storageactivities, and
Integrated through information, planning, and integration
entitiesactivitiesproblem spotslinkages?
Diff t i ti i th l h i h diff
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Different organizations in the supply chain may have differeobjectives
Manufacturers: longrun production, high productivity, lowproductio
Distributors: lowinventory, reduced tran
costs, quickreplenishmeCustomers: shorterorder lead time,
stock inventory, large variety low prices
1st Tier2nd Tier 2nd1st Tier3rd Tier
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Supply Chain: Manufact
CerealManufacturer
FlourProcessor
PolyethyleneBag
Manufacturer
ChemicalProcessor
Farmer
OilCompany
ForestLumberProvider
CorrugatedManufacturer
GroceryDistributor
RG
1 TierSupplier
2 TierSupplier
2nd
Cus1stTier
Customer
3 TierSupplier
(Material) P
Demand
Supply
Upstream
Internal
Downs
FocalCompany
customer / consumer / client
manage relationship with whom.in which order? CRM???
understand contextand hence the relative preference according
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CRM???
understand context and hence the relative preference accordi
Organizations can find their most valuable customers through RFM
How recentlya customer purchased itemsHow frequentlya customer purchased itemsThe monetaryvalue of each customer purchase
S l Ch i C t
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Supply Chains Components The supply chain involves segments:
, where sourcing or procurement from external s
, where packaging, assembly, or manufacturing t
, where distribution or dispersal take place,
external distributors.
movement of information and money and the procedures suppmovement of a product or a service.
Organizations and individuals are also part of the chain
in which industry, which segment to be focused more?
Supply Chain Flows
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Supply Chain Flows
Supply Chain Flows Materials flows are all physical products, new materials, and su
flow along the chain.
Information flows relates to all data associated with demand, sorders, returns and schedules.
Financial flows include all transfers of money, payments, crediinformation, payment schedules, e-payments and credit-related
Supply chain refers to the flow of materials, information, payments, and sefrom raw material suppliers,through factories and warehouses (Value Chain ),to the final consumer (Demand Ch ain).
I t includes tasks suc h as purchasing, payment f low, mater ia ls handl ing, product ion planning & cont
warehou sing , invento ry contro l, and dis tr ibution . When it is managed electronic ally it is referred to a
flow speed?... quantum?... precedence?
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Imm. Suppliers Imm. CustomerTheFirm
1stTierSuppliers
TheFirm
2ndTierSuppliers
2nd TCusto
1stTierCustomer
1stTierSuppliers
TheFirm
2ndTierSuppliers
2nd TCusto
1stTierCustomer
nthTierSuppliers
......
Extende
Ultimat
can we manage ultimate supply chain?
The FirmMost companies are working to create
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The
Firm
Key Suppliers
TheFirm Key Customer
Key Suppliers Key Customer
Key Suppliers Key Customer
TheFirm
Suppliers CustoTheFirm
The Firm
Purchasing Production Marketing
R & D Logistics
seamless processes within their ownfour walls. (47%)
Some comSCM inmarketingintegratiowith key c
Many companies houseSCM in purchasing &
focus on integration withfirst-tier suppliers (34%)
Few companies systematicallyintegrate up & downstream(8%)
Collaboration from suppliers' supplier to customers' customer is a vision not yet fully
Supply ChainIntegration
a delicate balance among sensitive relations?
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THE FOCAL COMPANY'S ALTERNATIVES FOR INVOLVEMENT WIT
Alternative 1)Integrate with and actively ma
Alternative 2)Monitor the procedures of ComCompany B for integrating an
Alternative 3)Not involved, leave the integramanagement up to Company A
FocalCompany
Company
A
Company
B
Company
B
Company
B
Link 2
Link 2
Link 1 Link 2
When to monitor when to let them own.. When to dictate
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Supply Chain
UPSTREAM INTERAL
Value Chain
why it should not be termed as demand chain management
Major Issues in SCM
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1. Location
2. Transportation and Logistics
3. Inventory and Forecasting
4. Marketing and Channel Restructuring
5. Sourcing and Supplier Management
6. Information and Electronic Mediated Environments
7. Product Design and New Product Introduction
8. Service and After Sales Support
9. Reverse Logistics and Green Issues
10. Outsourcing and Strategic Alliances
11. Metrics and Incentives
12. Global Issues.
Source: Py ke, D.F., A Framewo rk for Teaching Supply
Major Issues in SCM
learn what constitutes in total known as supply chain
management ?
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is it not blurring boundaries of concepts in present?
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buyers mkt vs sellers mktshrinking profit margins?
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Views of Supply Chain
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Views of Supply Chain
Cycle view: processes in a supply chain are divided in
of cycles, each performed at the interfaces besuccessive supply chain stages
Push/pull view: processes in a supply chain are dividcategories depending on whether they are executed
in responseto a customer order (pull) in anticipationof a customer order (push)
basis of viewswhyhow
Cycle View of Supply Chains
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y pp y
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Each cycle occurs at the
interface between two
successive stages
Customer order cycle
(customer-retailer)
Replenishment cycle
(retailer-distributor)
Manufacturing cycle
(distributor-manufacturer)
Procurement cycle
(manufacturer-supplier)
Cycle view clearly defines processesinvolved and the owners of each process.
Specifies the rolesand responsibilitiesof each member and the desired outcome of
predictabilityoforders
sizeofo
rder
can they be synchronized them.
quanitywisetimewise.anticipationwise?
Push/Pull View of Supply Chains
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Push/Pull View of Supply Chains
Where to pin decouwill you push the rope or pull it? depends
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Supply Chain Macro Processes in a Firm
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pp y
Supply chain processes discussed in the two views caclassified into Supplier Relationship Management (SRM)
Internal Supply Chain Management (ISCM)
Customer Relationship Management (CRM)
Integration among the above three macro processes isfor effective and successful supply chain managemen
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Typology of Supply Chain
On the basis of decoupling point (ETO, MTO, ATO, MTS) sup
Pushvs. Pullsupply chain Leanvs. Agilesupply chain
Efficientvs. Responsivesupply chain
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Trade-off between
cost (efforts) and outcome (customer satisfaction)
Understanding the Supply Chain: Cost-Responsiveness Efficie
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Low
High
Re
sponsivenes
s
Cost (Efficiency) LoHigh
DELL
WA
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Supply chain dynamics
Supply chains with different end objectives nemanaged in different ways
Match product character ist ics with supp ly chain chara
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Matching the supply chain with market
Lean
supply chainmanagement
Mis
Mismatch
Ag
supplymanag
Nature of demandFunctional products Innovativ
PredictableFew changesLow varietyPrice stable
Long lead-timesLow margin
UMHPr
ShH
Supplycha
inobjectives
Responsive
Efficient
Low
cost
Highutilization
Minimumi
nventory
Low-costsuppliers
Low
throughputtimes
Highutilization
Deployedinventory
Flexiblesuppliers
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Campbell's Soup Fashion ApparelProduct Characteristics
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p p pp
Life cycle
Contribution margin
Variety
Forecast error
Stock-out rate
Forced markdowns
Make-to-order LT
Product Life-Cycle: Soup
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1969
1999
1979
200
Product Life-Cycle: Fashion
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Fall Winter Spr
ForecastiMargins?
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Stockout Rat
Markdowns?Variety? New Design?
Functional Products(Soup)
Innovative Products(Fashion clothing)
Demand Uncertainty Low (forecast error) High (forecast error)
Life Cycle Long Short
Risk of Obsolescence Low High
Profit Margin Low High
Variety Low High
Demand volume High Low
PC SUPPLY CHAINS
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V
irtualIntegration
Customer
Dell
Suppliers
Dell Supply ChainTypical PC Supply Chain(Compaq, HP, IBM, etc.)
Customer
DistributionChannels
Manufacturer
Suppliers
PUSH
PULL
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SCM versus Logistics: Four Perspective
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SCM= purchasing+ logistics+ operations+ marketing+..
SCM as Logistics outside the firm
Logistics Defined
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Logistics Management is that part of Supply Chain Mana
that plans, implements, and controls the efficient, effe
forwardandreverseflowand storage of goods, servic
related information between the point of origin and the
consumption in order to meet customers' requireme
Four Subdivisions of Logistics Business logistics Military logistics Event logistics Service logistics
Value-Added Roles of Logistics
The five principal types of economic
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The five principal types of economicutility which add value to a product orservice :
Form
Time
Place
Quantity
Possession
While form and possession utility are not specifically related to logistics, neither woulwithout getting the right items needed for consumption or production to the right placand in the right condition at the right cost. These "five rights of logistics," credited to Plowman, are the essence of the two utilities provided by logistics: time and place util
How much?
where?when?
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Inventory/order cycle length
Inventory / lost sa
Inventory
Transportation/los
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Product dollar value / logistics costs
Susceptibility to loss & damage/logisti
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Supply Chain StrategyPart
1.4Achieving Strategic Fit:
Consistent SCM and Competitive strategie
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Fit SC to the customer
Understanding the Customer Range of demand, pizza hut stable
Production lot size, seasonal products
Response time, organ transplantation
Service level, product availability
Product variety
Innovation
Accommodating poor qualityImpli
f
p g
Implied
Uncerta
Issues Affecting Strategic Fit
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Multiple products and customer segme
Product life cycle
Competitive changes over time
Early: uncertain demand, high marginproduct availability is most important
Late: predictable demand, lower marg
Shift from responsiveness
increased eInternet
Achieving StraUncertainty/Respon
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y/ p
Implied uncertaintyspectrum
Responsivesupply chain
Efficient supplychain
Certain demand Unce
Responsivenessspectrum
Low Cost
HighCompanies try to moveZone of Strategic fit
INTRODUCTION
MATURING
COMMODITY
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The Strategic Fit Framework
for achieving strategic fit in Supply Chain StrategyA Framework for Structuring Drivers
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Competitive Strategy
Supply Chain Strategy
Efficiency Res
Facilities Inventory Transportation Information Sourc
Cross functional drivers
FacilitiesR l i th l h i C t f f iliti d i
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Role in the supply chain
the where of the supply chain manufacturing or storage (warehouses)
Role in the competitive strategy
economies of scale (efficiencypriority)
larger number of smaller facilities(responsivenesspriority)
Components of facilities decis
Location
centralization (efficiency)decentralization (respons
other factors to consider customers)
Capacity (flexibility versus
Manufacturing methodologfocused versus processfo
Warehousing methodologyjob lot storage, cross-dock
InventoryUnexpected changes in customer demand (always
hard to predict and uncer ta inty is growing)
Types of InventoCycle inventory
Average amount of inventory used toshipments
Depends on lot size
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hard to predict , and uncer ta inty is growing)
Short product life cyclesProduct proliferation
Uncer ta in s upp lyQuantityQualityCostsDelivery time
Inventory exists because of a mismatchbetween supply and demand
Source of cost and influenceon responsiveness
If you move your inventory faster, you dont need as much inventory (inventory veloci
If responsivenessis a strategic competitive priority, a firm can locate largeramounts of inventor
If cost is more important, inventory can be reducedto make the firm more efficient
Trade-off: More inventory increases responsiveness, less inventory increases efficien
p
Safety inventory
inventory held in case demand excee
costs of carrying too much inventorysales
Seasonal inventory inventory built up to counter predicta
cost of carrying additional inventory vproduction
Opportunistic Inventory:
Takes advantage of bargains.
Moves the product betweenstages in the supply chain
If responsiveness is a strategipriority, then faster transportaprovide greater responsiveneswho are willing to pay for it
Transportation
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stagesin the supply chain
Impact on responsiveness andefficiency
Fastertransportation allowsgreaterresponsiveness butlowerefficiency
Also affects inventory andfacilities
g p y
Can also use slower transportcustomers whose priority is p
Mode(s) of TransportationAir: fastest but most expensiveTruck: Relatively quick, inexpensive and vRail: Inexpensive mode to be used fShip: Slowest but often the most ecoPipeline: Used (primarily) for oil and gasElectronic transportation:for goods as m
Route and Network Selectionroute: pathalong which a product isnetwork: collectionof locations and
Insource or Outsource to some 3PL
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TransportationNetworks
The connection between the
Information Push (MRP) versus pull (deminformation transmitted quicthe supply chain)
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The connection between thevarious stages in the supplychainallows coordinationbetween stages
Crucial to dailyoperation of eachstage in a supply chain: e.g.,production scheduling, inventorylevels
Allows supply chain to becomemore efficient and moreresponsive at the same time(reduces the need for a trade-off)
Coordination and informatio
Forecasting and aggregate p
Extentand modes of informaand coordination
Pricingand revenue manage
Enabling technologiesEDIInternetERP systemsSupply Chain Managem
Information exchange is necessary for the most extensive mode
The role of Info
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Information exchangeis necessary for the most extensive modecoordination sought in contemporary supply chains. It allows thto improve simultaneously its efficiency and responsiveness.
Information-related decisions Push vs. pull
Extentand modes of information sharing and coordination
Forecasting and Aggregate Planningschemes
Pricingand revenue managementpolicies
Enabling Technologies: Electronic Data Interchange (EDI):Enables paperless transactions, primoperations of the SC.
TheInternetand the WWW.
Enterprise Resource Planning (ERP):enables transactional tracking andinformation in the SC.
Supply Chain Management (SCM) software:decision support tools.
Set of business processes required
Sourcing Pricing strategies
Prici
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p qto purchase goods and services ina supply chain
Supplier selection, single vs.multiple suppliers, contractnegotiation
In-house vs. outsource
Supplier evaluation and selection
Procurement process
g gmatchdemand an
Firms can utilize ostrategies to imprand responsivene
Low price and lowavailability; vary p
response times Pricing and econo
Everyday low priclow pricing
Fixed price versus
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Strategic Scope
Expanding Strategic Scope
Scope of strategic fit
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Scope of strategic fit The functions and stages within a supply chain that devise a
integrated strategy with a shared objective
One extreme: each function at each stage develops its own Other extreme: all functions in all stages devise a strategy jo
Five categories: Intracompany intraoperation scope
Intracompany intrafunctional scope Intracompany interfunctional scope
Intercompany interfunctional scope
Flexible interfunctional scope
Strategic Scope:Intracompany Intraoperation Scope
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p y p pSuppliers Manufacturer Distributor Retailer
CompetitiveStrategy
Product Dev.Strategy
Supply Chain
Strategy
MarketingStrategy
Strategic Scope:Intracompany Intrafunctional Scope
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Suppliers Manufacturer Distributor Retailer
CompetitiveStrategy
Product Dev.Strategy
Supply Chain
Strategy
MarketingStrategy
Strategic Scope:Intracompany Interfunctional Scope
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Suppliers Manufacturer Distributor Retailer
CompetitiveStrategy
Product Dev.Strategy
Supply Chain
Strategy
MarketingStrategy
Strategic Scope:Intercompany Interfunctional Scope
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Suppliers Manufacturer Distributor Retailer
CompetitiveStrategy
Product Dev.Strategy
Supply Chain
Strategy
MarketingStrategy
Different Scopes of Strategic Fit Across a Supply
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Suppliers Manufacturer Distributor Retailer
CompetitiveStrategy
Product Dev.Strategy
Supply Chain
Strategy
MarketingStrategy
Intracompanyintraoperation
Intracompany
intrafunctional
Intracompanyinterfunctional
In
in
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Supply
Chapter-02
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emerging
Trends and Future
Reenginee
Prof. M
Operations M
Management Development I
p
http://mks507.vistapanel.net
Global Retail Development Index
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Ten
Emerging trends
Current Trends in Supply Chain ManagementExpanding the Supply Chain
firms are expanding partnerships and building facilities in foreign markets. The expansion inv
b dth f i f t i ffi & t il it f i li & t
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breadth-foreign manufacturing, office & retail sites, foreign suppliers & customers
depth-second and third tier suppliers & customers
Increasing Supply Chain Responsiveness Firms will increasingly need to be more flexible and responsive to customer needs Supply chains will need to benchmark industry performance and meet and improve on a c Responsiveness improvement will come from more effective and faster product & service
The Greening of Supply Chains Producing, packaging, moving, storing, delivering and other supply chain activities can be
environment Supply chains will work harder to reduce environmental degradation
Large majority (75%) of U.S. consumers influenced by a firms environmental friendliness re Recycling and conservation are a growing alternative in response to high cost of natural re
Reducing Supply Chain Costs Cost reduction achieved through: Reduced purchasing costs, Reducing waste, Reducing
Reducing non-value added activities
Continuous Improvement through: Benchmarking- improve over competitors performancIncreased knowledge of supply chain processes
Current Trends in Supply Chain ManagementfromCross-functional Integration toCross-enterprise, too
How do we coordinate activities across companies, as well as across internal functions, to supply pr
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fromPhysical Efficiency toMarket MediationHow do we minimize the costs of matching supply and demand while continuing to reduce the costs
distribution?
fromSupply Focus toDemand FocusHow can we get earlier demand information or affect the demand pattern to match supply & demand
fromSingle Company Product Design toCollaborative, Concurrent Product, Process and SHow should collaborators design the product, process and supply chain to minimize costs?
fromCost Reduction toBreakthrough Business ModelsWhat new supply chain and marketing approach would lead to a breakthrough in customer value?
fromMass Market Supply toTailored OfferingsHow should we organize the supply chain to serve each new customer or segment uniquely and pro
experience?
Source: Kopczak & Johnson, The Supply Chain Management Effect, Sloan Ma
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Few Head linesto move towards
Risk-adjustedSupply Chain Management
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"Typhoon Deals New Blow to Taiwan Manufacturers
( New York Times , Sept. 20, 2001) "South Korea Incurred $270M Export Losses from U.S. Ports' Woe ( Dow Jones International News , Oct. 10, 2002)
"Uncertain Economy Hinders Highly Precise Supply System ( New York Times , March 15, 2003)
"SARS Could Impact IT Supply Chain (wallstreetandtech.com , April 2, 2003)
A sudden shock to the rope with little or no slack can result in a
Process Demand SupplyUncertainty
Supply Chain Characteristics Displayed byValue Streams in LSDG Audit
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Source: Logist ics Systems Dynamic Group (LSD
LSDGUncertainty Index
risk adjustment
make a Seamless Supply Cha
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can't think of my supply chain as me and my suppliers," say
Accenture. "So much has been outsourcedto suppliers that theextension of your business.
To succeed, you need to merge theirmetrics with yourmetrics.
convergence
Sourc e: http ://www.keepmedia.com/pub s/Supply ChainManagement
CPFR:Collaborative Planning
and Replenish
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committee, made upmanufacturers, an
provider
developed a set oprocesse
forcollaboration on a
buyer/seller fu
towards overall efficsupply cha
collaboration
Voluntary Inter-industry Commerce Standards Association (VICS)
Graham Stevens Supply Chain Reference Framew
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integration
Source: Steve Geary, Paul Childerhouse, And Denis Towil , Uncertainty
Supply Chain Manag
SCOR Model
BPRBench-
ki
A company canimprove theway it travelsthe road by
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BPRmarking
Processmeasurement
Top Level
(ProcessTypes)
Configuration level(Process categories)
Process element leve
(Decompose processe
Implementation leve(Decompose process elem
configurability
So
the road bymoving fromfoot to horseand then horseto car
BPR looks attaking adifferent path,such as anairplane whichignore the roadcompletely
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SC
e-SC
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Who
Who
Who needs t
Who needs
RACI analysis of business processes:
SC
RACI(process ownership)
Sourc
AMR Research's three-tiered Hierarchy of Supply Chain Metrics Using
Supp
with a
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Source: Debra Hofman, AMR Research Achieving Supply Ch ain Exc
granularity
top
targ
analy
g
comp
and e
and di
of th
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granularityInventory Hides Problems Less Invento
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Productivityproblems
Productivityproblems
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Compatible partnerhaving same granularity
Supplier Manufacturer Warehouses Retaile
Ventana Research Performance Cycleperformance from a business and IT perspectiveComprehend the status ofpeople, organization, and
b i
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Source: Mark Smith , Ventana Research, Imp roving Supply Ch ain Perfor
chain intelligence
business processes
Communicate,guidance, training,
incentives
Plan for futudecision
performance
Customer-Driven Supply Chains
Lucent Technologies recently installedTradeStream to gain better visibility into
The fact that Lucent caintegrated, real-time viean information exchang
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its major telecommunications orders fromcustomers like AT&T, which typically are
very large orders of 200 or more line items
an information exchangfield-service employees
allows Lucent to do thincould before, because econfidence in the data tavailable,says Henry Bpresident of marketing sOptum. Now they havethe data, which is basedvisibility.
real-time visibility
Source: Jean V. Murphy , Custom er-Driven Supp ly Chains Begin With Real-Time Visibi l i ty Global Logist ics & Sup ply
CRM to CMR CRMtoCMR
Lean supply chains1. Sort: Needed from the unneeded2. Shine: Clean, scrub, and fix3. Set in order: A place for everything4 Standardize: A plan to sustain
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Source: Russell W. Goodman, Leaning the Supply Chain: Like a Diet, It Never Ends Global Lo gist ics & Supply
leanness
1. Seiri () : Sorting: Get rid of what you dont need2. Seiton () : Simplify, Straighten, Set in order: Place for everything, everything at its place3. Seis () : Shine: Polish your operation, make everything more visible4. Seiketsu(): Standardize: To avoid redundant processes, standardize similar5. Shitsuke() : Sustaining: There must be sustained monitoring of the entire lean process
4. Standardize: A plan to sustain5. Sustain: Following through
Convergence
Risk adjustment
Collaboration
1
2
3
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Emergi
Integration
RACI (Process ownership)
Configurability
Chain intelligence
Granularity
Real-time visibility
Leanness
4
5
6
7
8
9
10
Agility
Objectives:
Respond to short-termh i d d
Triple-A Supply Chain
Adaptability
Objectives:
Adjust SCs design to meetl hif i k
Al
Objective
Create incf
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changes in demand orsupply quickly; handle
external disruptionssmoothly
Methods: Promote information flow
Develop collaborativerelationships
Design for Postponement
Inventory buffers of
inexpensive, key items Dependable logistics systems
or partner
Contingency plans / crisis mgt.teams
structural shifts in markets;modify supply network to
strategies, products andtechnologies.
Methods: Monitor global economies;
suppliers/mkts
Use intermediaries for freshsuppliers & logisticsinfrastructure
Evaluate needs of ultimateconsumersnot just immediatecustomers
Create flexible product designs
Evaluate products technology /product LCs
performan
Methods: Exch
knowsupp
Lay dresposupp
Evaluconsimme
Equitand ginitiat
Source: Lee, The Triple-A Supply Chain Management, Harvard B
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Supply
Chapter-03
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Supply Chain
Technology and Collaboration
Informatio
Prof. M
Operations M
Management Development [email protected]
http://mks507.vistapanel.net
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Supply Chain TechnologyInformation Visibility: RFI
Part
3.1
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Information Visibility: RFID
Technology Technology Technol
Customer Customer ServerServer Customer
Role of Technology in Services
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Technology Technology
Server ServerCustomerCustomer
D. Technology-Mediated
Service Encounter
E. Technology-Generated
Service Encounter
A. Technology-Free
Service Encounter
B. Technology-Assisted
Service Encounter
C. Technolo
Service E
Source: Craig M. Froehle and Aleda V. Roth, New Measurement Scales for Evaluating Perceptions of the TechService Experience, Journal of Operat ions Management
Radio Frequency Identification
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Identification system that
consists of chip-based tagsand readers
Data is store
retrieved rem
radio waves
Onboard
Product i
Major Player: IBM, Texas Instruments
The RFID device serve
a bar code or a magne
credit card or ATM ca
identifier fo
RFID: UPC vs. EPC
UPC Requires line-of-sight readers
Only one product can be scanned at a
time
EPC Tags can be read from many ra
Many products can be scanne
Tags can store large amounts o
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A class of product
Static
Tags can store large amounts o
Uniquely identifies products
specific instance of a p
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Header
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length, type, structure, version and generation of EPC
Header(8 bits)
specific format of EPClength, type, structure,version and gen
256
ePC Manager(28 bits)
Who owns this set ofnumbers
268,435,456
Object Class(24 bits)
Type of object,class of item likeSKU
16,777,215
Serial Number(36 bits)
unique instance of theobject
68,719,476,735268 million companies can each categorize
16 million different products
and each product category may contain over
68.7billionindividual items.
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The Physics of RFID
How It works.
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LowFreq.
HighFreq.
MediumFreq.
134 kHz 13.56 MHz 915 MT1-RFID T1-RFID UHF T1
Ultra HighFreq.
LF MF HF VHF UHF
100 kHz 1 MHz 10 MHz 100 MHz
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ITEM PACKAGING TRANSPORT UNIT UNIT LOAD CONTAINER
Active RFID
ISO 18000-7
Passive RFID
125 kHz & 13.56 MHz ISO 15693 & ISO 14443-3
868 MHz EPCglobal Gen 2 ISO 18000-6
Bar Code
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2003
Source: http://www.symbol.com/prod
20
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RFID Regulation ITU Re
International Telecommunication Union
RFID Capabilities
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RFID Capabilities
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Applications of RFID
Applications
Keyless entry
EPC
Proximity cards
Animal and human imp
Avid
Pet-ID
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y
Libraries Security device
Bookstores
VeriChip
RFID-privacy legislatio
REAL ID Act
.
Size compariso(RFID chip, Dime, Rice
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How is an RFID chip implanted?
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Human
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Human
Tracking
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RFIDImplant
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Anim
als
Track
ing
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Shops
Security
Doors andGarages
Security
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Product Mon
and Cont
Shoppin
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Electronic
Passport
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Contactless
payment
Automated
Toll Collection
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Product Tracking
Wireless / Batch
Inventory ManagementMaterial Handling
By Destination
Wh i it i ? Wh h
Tracking Inventory
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y g
Material HandlingInspecting / Maintaining
Material HandlingAggregate / De-aggregate
Where is it?
What is i t?
What is inside
the box?
Where is it going ? Where has
Should it be here?
What have I assembled or disassembled?
How many do I have? Do I have enough?
Has this been repaired?
Is this under warrantee?
Has this been inspected?
Is th is com plete?
What is the assets status or
Library Inventory Process
RFID also has had a significant impact on inventoryprocesses in libraries. With a full hand-held wand which ispassed alongside the books on the shelves; by taggedcollection, inventory can be taken with a portable, he readerpicks up the individual signals from each item's tag, withoutneeding to remove or even tip the books outward from theshelves.
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With RFIDnot only does the cost of doing an inventory in the library go down, the odds of actuinventories goes up. Inventory with RFID has also proven to be extremely useful and cost-effectiveor miss helved items. Even Searching for books by just typing its name on the Reader .
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Internet of ThingsCivil liberties groups (among others) have become increasingly concerned about the
use of RFIDs to track the movements of individuals. For example, passports will
soon be required to contain some sort of RFID device to speed border crossings.
Scanners placed throughout an airport, for example, could track the location of
every passport over time, from the moment you left the parking lot to the moment
you got on your plane.
There are also concerns about the fact that, even after you leave the store, any RFID
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, y , y
devices in the things you buy are still active. This means that a thief could walk past
you in the mall and know exactly what you have in your bags, marking you as a
potential victim. A thief could even circle your house with an RFID scanner and pull
up data on what you have in your house before he robs it. Military hardware and
even clothing make use of RFID tags to help track each item through the supply
chain. Some analysts are concerned that, if there are particular items associated
with high-level officers, roadside bombs could be set to go off when triggered by an
RFID scan of cars going by.
There was a recent report revealing clandestine tests at a Wal-Mart store where
RFID tags were inserted in packages of lipstick, with scanners hidden on nearby
shelves. When a customer picked up a lipstick and put it in her cart, the movement
of the tag was registered by the scanners, which triggered surveillance cameras.
This allowed researchers 750 miles away to watch those consumers as they walked
through the store, looking for related items.
"Imagine an Interneeveryday objects, roconnected to one andigital world.
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Comprehensiveness
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Supply Chain Coordinatio(Bullwhip effect)
Part
3.2
Gaps
No clear identification of ownerand customersof measures
(joint determination is very essential)
Not evaluating consequencesand outcomes
(Efficacy is prerequisite to customer satisfaction)
Imbalance between efficiencyand effectiveness
(key processes has to be identified and owned)
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F
illThe
G (key processes has to be identified and owned)Lack of Process Orientationof measurement
(Physical Orientation alone is not a suitable indicator)
Lack of Measures of relationships
(economic, physical, psychological measures are equally
Lack of real-time visibility
(every affected party must be informed)
Lack of Multi-firmoptimization
(have to look beyond sub-optimization)
*
Adding value along the chain is essential for competitiveness, however problems exis
complex or long chains and in cases where many business partners are involved.
due to
uncertainties
need to coordinate several activities, internal units, and business partners.
Supply Chain Problems
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Demand forecasts are a major source of uncertainties Competition
Prices
Weather conditions
Technological development
Customer confidence
Uncertainties exist in delivery times
Machine failures Road conditions
Shipments
Quality problems may also create production delays
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Coordinationin supply chains
Obstacles Incentive Obstacles Information Processing Obstacles
Operational Obstacles
Pricing Obstacles
Coo
in a Sup
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g
Behavioral Obstacles
Manageria Aligning Goals and Incentives
Improving Information Accuracy
Improving Operational Performanc
Designing Pricing Strategies to Stab
Building Strategic Partnerships and
Achieving Coordination in Practice
Quantify the bullwhip effect
Get top management commitment for coordination
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Devote resources to coordination
Focus on communication with other stages
Try to achieve coordination in the entire supply cha
Use technology to improve connectivity in the supp
Share the benefits of coordination equitably
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Bullwhip effect
What is Bullwhip Effect?
The bullwhip effect is a phenomenon observed in supply chademand variability increases as one moves up the supply c
customers towards to distributors to manufacture
At P&G, diap
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Bullwhip effect refers to the phenomenon where orders to theto have larger variance than sales to the buyer (i.e., informatioand the distortion propagates upstream in an amplified form (amplification).
, p
distributors hvariability that cconsumer fluctu
At Hewlett-Packto the printer have much variations that c
SStores orders towholesaler
Wholesalersorders to
manufacturer
Manufacturersorders to its
suppliers
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00 TimeTime00 Time
RetailStore
Whole-saler
Manu-facturer
Supplier
Time
Inaccurate information can cause minor fluctuations in demand for a produas one moves further back in the supply chain. Minor fluctuations in retail s
can create excess inventory for distributors, manufacturers, and s
DCs weekly ordersto Manufacturer w
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Babies dailydemand for diapers
Retailers dailyorders to
distribution center
9,000
7,000
5,000
3,000
0
Orderquantity
Day 1 Day 30 Day 1 Day 30 Day 1 Day 30 Da
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Causes
price fluctuation
poor demand
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erratic shifts in orders up and down the supply ch
order batching
rationing within thechain
forecastingBullwhip Effect
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Illustrations
When product demand exceeds supply, a manufacturer ofteproduct to customers. Example:
Cause 2: Rationing and Shortage Gaming
Dealer 1 Order = 100 Received = 67
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Knowing the manufacturer policy, customers exaggerate their realneeds when they order (gamethe system). Example:
As a result, customers orders give the supplier little information on a products realdemandproblem for new products
Car ManufacturerAvailable = 200 Dealer 2 Order = 200 Received = 133Only 2/3 of the order can b
Car Manufacturer
Dealer 1
Dealer 2
Need = 120
Need = 180
Order = 180
Order = 270Order more than needed so that if only 2
order is filled you still get what you actua
Available = 500
Coordinating S.C. Inventory Consider a simple demand driven supply chain: a buyer and a su
The buyer produces D= 10,000 units/year of a product at a constatime the buyer places an order for a certain component, the order$100. The buyers inventory holding cost is H= $10/yr and optimquantity:
BuyerSupplier Customers
DS
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The supplier produces an order whenever one is received from th
Each time the seller sets up to produce a batch of componentsetup cost is Ss= $300.
The suppliers total (setup) cost = Ss(D/EOQb) = 300(10,000/44
Optimal ordering quantity for the central izedsupply chain:
2 2(10,000)(110
bb
DSEOQ
H
2 ( ) 2(10, 000)(100
10
b sSC
D S SEOQ
H
$ 11,184
TC = 894 x 10/2 + (10000/894) x 100= $ 5,589
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Suppliers cost (at Q=4= Ss (D/E
= $6,711
Buyers cost (at Q=447= (2 x D
= (2 x 10
= $ 4,472
Suppliers cost (at Q=8
= Ss (D/E
= $3,356
SC overall cost (at Q=8
= (2 x D
= (2 x 10
= $ 8,944
$ 8,944
$ 5,589
$ 3,356
$ 4,472
$ 6,711
If buyer orders Q=894, supply chains total cost is reduced
Buyer's optimal
quantity
Centralized supply chain's
optimal quantity Cost saving
Q=447 Q=894
Supplier cost $6,711 $3,356 $3,356
Buyer cost $4,472 $5,589 -$1,116
Supply chain cost $11,184 $8,944 $2,239
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But, buyer incurs a higher cost, and will not order Q=894The SC is NOT coordinated without a compensation for buyer
For any order quantity Q, the buyer always bears a fraction of of the total chain
Supplier promises to pay buyer = (1) (buys total holding a The buyer promises to pay the supplier = () (suppliers total setup c
Buys optimal quantity = SCs optimal quantity = centralized SCs optimal qu
There exist a such that buyer and suppliers are both better off than orderi
Order synchronization Multiple retailers who tend to order around the same time period
Manufacturers responding to an MRP system that place raw material orders at the beginnin
Order batching In order to save on shipping or ordering costs, firms order a full pallet or full truck load
Trade promotions and forward buying Supplier offers a discount on product ordered in a specific time period
Supplier offers a quantity discount
Bullwhip effec
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A retailer orders a large quantity intending to take advantage of a discount and sells excesssecond retailer (this strategy is called diversion)
Reactive and over-reactive ordering A retailer who is not sure that demand is stable over time may act aggressively when faced
lower or higher than expected demand
Shortage gaming A retailer who wants to insure product from an under-capacitated supplier may over order e
receive a portion of the ordered quantity
Demand forecast updating / Inflated Orders IBM Aptiva orders increased by 2-3 times when retailers thought that IBM would be out of s
Long cycle times Long lead times magnify this effect
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Effects
Distorted information can lead totremendous inefficiencies
excessive inventoriespoor customer servicelost revenuesineffective shipments
Even slight demanduncertainties and variabilitybecome magnified if eachdistinct entity on the chain,makes ordering andinventory decisions with
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A common way to solve the bullwhip problem is by sharing information a
chain through EDI, extranets, and groupware technologies. For exampl
vendor-managed inventory (VMI) strategy, the vendor monitors inventory l
falls below the threshold for each product this automatically triggers a
shipment.
missed production schedules.respect to its own interestabove those of the chain
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Remedies
Centralizing demand informationoccurs when customer demand informaall members of the supply chain.
Reducing uncertainty. This can be accomplished by centralizing demand
Reducing variability. This can be accomplished by using a technique madWalMartand then Home Depotcalled everyday low pricing(EDLP). EDLP
Bullwhip effect
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promotions as well as the shifts in demand that accompany them.
Reducing lead time. Order times can be reduced by using EDI (electronic
Strategic partnerships. The use of strategic partnerships can change howshared and how inventory is managed within the supply chain. These will b
Cross-docking. This involves unloading goods arriving from a supplier and immegoods onto outbound trucks bound for various retailer locations. This eliminates stoinbound warehouse, cuts the lead time, and has been used very successfully by WalMothers.
Delayed differentiation. This involves adding differentiating features to standardprocess. For example, Bennetton decided to make all of their wool sweaters in undyethe sweaters when they had more accurate demand data. Another term for delayed dipostponement.
Di hi i Thi ll fi t hi di tl t t th th th
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Direct shipping. This allows a firm to ship directly to customers rather than throuapproach eliminates steps in the supply chain and reduces lead time. Reducing one supply chain is known as dis intermediat ion. Companies such as Delluse this approa
Sharing Information:Retailers may give the supplier frequent access to actual coso that the supplier can make its production plans accordingly.
Vendor Managed inventory:The retailer no longer decides when and how muchInstead, the supplier decides the timing and quantity of shipments to the retailer (e.g.
Smoothing the flow of products:Supplier and the retailers coordinate the timinretailers do not place orders at the same time.
Solutions for Battling Bullwhip Effect
Vendor Managed Inventory (VMI)
Vendors take control of inventory management at retailers
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Quick Response (QR)
Vendors receive POS data from retailers, and use tinformation to synchronize their production and inactivities.
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Measure th
Supply
Chapter-04
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supply chain
Performance Measurement
Prof. M
Operations M
Management Development Imks
http://mks507.vistapanel.net
Different standards of comparisongive different messages
X Actual performance
70
80
90
100Improvement goal
Competitor performance
Absolute performance
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40
X XX
X
X
Time
Last years average performance50
6070
Performance by historical standardsis
Performance against improvement goalis
Performance against competitorsis
Absoluteperformance is
Measuring Supply Chain Performance
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Assets committed to inventory
Inventory turnover (Absolute, Weeks)
Average aggregate value of inventory
1. Assets committed to inventory
Measuring Supply Chain Performance
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2. Inventory turnover
Measuring Supply Chain Performance
Inventoryturnover =
Cost of goods sold
Inventory investment
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Inventory turnover
M i S
Higher, the better
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Measuring SuppPerforman
Lower, the better
Measuring Supply Chain Performance
3. Average aggregate value of inventory
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PART I
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PART-IPerformance Measurement Syste
Why to measure
The current interest in performance measurements has led to
variety of supporting adages or cliches in the industry, such as
A thi d i
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Anything measured improves.
What you measure is what you get.
Anything measured gets done.
You cant manage what you do not measure.
Yesterdays Measurement Crisis
We measured the wrongthings.
We measured everything that was easyto measure.
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The measures we had bore no relat ionship to our
The only measures that mattered were the f inancial o
In the 1980s measurement was a neces
Todays Measurement Crisis
We measure too much.
We spend too much time and effort trying to quantify the
unquant i f iable.Paralysis withothe realit o
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Our measurement systems are so complexthat nobodyunderstands what our priorities are.
We measure, but we fail to fully analyse and take act ionwe gather.
Paralysis withothe reality o
The Reality of Organisations
We use2% of what we measure, the rest is to
We measure the wrong things, to four decimal plac
accuracy
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accuracy .
If you want to know what my inventory levels are today, co
six weeks.
We are masters of the micro. We measure paper clipacquisition times.
We measure everything thand moves, but nothing tha
D d F t l 65% t
Just one of the 3,000 key performance indicators
proposed for the London Underground (www.tf l .gov.uk/tube/, 29 Jan
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TodaysMarket
Reality
Demand Forecasts:only 65% accurate
Orders: 20% filled imperfectly
Inventory:$1.2 trillion stockpiled in the supply chai
Markdowns:on 30% of merchandise sold
New Products:75% fail to meet expectations
* Source:Achieving Supply Chain Excellence, AMR Research, A
Deliver 20% More Perfect Orders68%
90%
Laggards
Leaders
While holding 1/3rdless inventory
Laggards
Leaders
72 Days
54 Days
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What leaders are doing
and spend 5% of revenue less on SCM costs!!
26%
21%
Laggards
Leaders
* Source:Value Chain Survey, IBM-In
1st
Generation performance measuremFrameworkstried to supplement the traditional financial measures with non-financial and often intangible) mea
ended up developing more rounded and comprehensive measurement frameworks,
Balanced Scorecard (Kaplan/Norton 1992)
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Balanced Scorecard (Kaplan/Norton,1992)
The Performance Prism (Neely et al., 2002)
Skandias Navigator Edvinsson / Marlone, 1997)
Balanced Scorecard Approach:A brief Introductionrecommends the use of executive information systems (EIS)limited number of balanced metrics, closely aligned to strategic objectivesexpected to be used by 40% of Fortune 1000 companies
When applied to supply chain context a small number of balanced supply chain measb d f ti
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based on four perspectives:
1.Financial perspective (e.g., cost of manufacturing and cost of wareh
2.Customer perspective (e.g., on-time delivery and order fill rate)
3.Internal business perspective (e.g., manufacturing adherence-to-plan an
4.Innovative and learning perspective (e.g., APICS-certified employees and new product d
Kaplan R S and Norton D P (1992) "The b alanced sco recard: m easures that d r ive per formance", Harvard B usines
aligning activities with stra
Th
The Strategic Balanced Scorecard Framew
Effect
To achieve our financial goals, whatcustomer needs must we sat is fy?
Customer
To satisfy our sh areholders, what finan
object ives must we accompl ish?
Financial
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To achieve and m aintain a compet i t ive posit ion,
how mus t the organizat ion learn and improv e?
Innovation, Learning & Growth
Cause
Actions
To satisfy our cu stom ers, in which internal
busin ess processes must we excel?
Internal Business Process
customer needs must we sat is fy?
What Questions Does a Scorecard System An
Vision
Mission
To succeed financially, howshould we appear to our owners?
Objective Measure Target InitiativeFinancial
MeasureInternal Busin
ObjectiveCustomer
Measure Target InitiativeObjective
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StrategyTo satisfy our
business process
To achieve our vision, how will wesustain our ability to learn and improve?
To achieve our vision,how should we appear to
our customers?Measure Target InitiativeObjective
Learning & Growth
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Articles inHarvard Business Review:
The Balanced Scorecard:
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The Balanced Scorecard:Measures that Drive Performance
Jan - Feb 1992
Putting the Balanced Scorecardto Work
Sep - Oct 1993
Using the Balanced Scorecard asStrategic Management System
Jan - Feb 1996
ThePerformance Prism
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1 . S takeho lder Sa tis fac t ionwho are the key stakeholders and what do they w ant an
2. St rat eg ieswh at strategies do w e have to put in place to sat isfy the wants and nee
stakeholders?
3. Pr oc es ses wh at cr i t ica l processes do we require if we are to execute these strate
4. Capab i li ti eswh at capabi l i ties do w e need to operate and enhance these processe
5 . S takeho lder Con tr ibu tionwhat contr ib ut ions do w e require from ou r stakeholder
mainta in and d evelop these capabi l i t ies?
Neely, A.; Adam s, C. (2001) Perspectives on Performance: The Performance Prism, Journal of Cost Manag
Know your stakeholders and their want
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y
keholderValue
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DeliveringSta
Skandia NavigatorEdvinsson and Malone (1997)
Intellectual capital is measured through themetric measures (91 intellectually based anmetrics) that cover five components: (1) fin(3) process; (4) renewal and development; a
The philosophy behind the report was that statements represent only past financial inf
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organization. Additional information about needed to understand both an organizationcapabilities. To fill this void, Skandia develoreporting that combined traditional financiameasures of intellectual capital. This reportcalled a "navigator" for two reasons. First,
an organization in managing intellectual asintended to guide people through a compremeasures that represent the true resourcesfuture potentialof an organization.
Skandia, a Swedish insurance and financial services company, published a supplement to i ts 1994 annual report eCapital in Skandia" (Skandia, 1995). Leif Edvinsson is the corporate director of i
linking past, present, future
2
nd
Generation performance measuremFrameworks
Individual stock measures (Pike/ Roos, 2001).
Strategy maps (Kaplan and Norton, 2000)
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Success and risk maps (And y Neely and colleagues, 20
IC-Navigator model (Roos et al., 1997; Chatzkel, 2002)
Strategy Map / Strategic Linkage M
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Strategy Map / Strategic Linkage M
Strategic Linkage Model
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Strategic Linkage ModelThe measurable strategic objectives
organized in a cause and effect diagram to
capture management thinking on therelationships of the medium term activities
and outcomes
Strategic
To identmust be
interim
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Kaplan, R. S./Norto n, D. P., The Strategy Focused Organization: How Balanced Scorecard CNew Business Envi
requireds
Success Map
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Success Map
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Neely, A., Marr, B., Roos, G., PiTowards the third generation of performance measurement, Contr
3rd
Generation performancemeasurement Frameworks
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pmeasurement Frameworks
2020
Destination statement
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2020
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Strategic Linkag
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Balanced scorecard measures and ta
To track whether objectives are being achieved
To drive the right management actions
Destination
A clearly articulated and quantified long-range description of the desire
business at a particular point in time; Typically this is focused on how will look after 3-5 years
The document describes how things are at that time, rather than the thdone between now and then to arrive at that end point.
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DestinationStatement
To build management consensusTo articulate the intended results of implementing strategy
PART-IIBalanced Supply Chain Scoreca
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Balanced Supply Chain Scoreca
Supply Chain Performance Measu(in various categories)
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pp y (in various categories)
Order Fill Rate Line Item Fill Rate
Quantity Fill Rate
Backorders/stockouts
Customer satisfaction
% Resolution on first customer call
Customer returns Order track and trace performance
C t di t
Customer Service Measures
Total landed cost Point of consumption
availability
Total supply chain inv
Retail shelf display
Channel inventories
EDI transactions
Percent of demand/s
Percent of customers
Extended Enterpris
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Customer disputes
Order entry accuracy
Order entry times Forecast accuracy Percent perfect orders
New product time-to-market New product time-to-first make Planning process cycle time Schedule changes
Process, Cross-Functional Measures
Percent of customers
Percent of suppliers
forecast
Supplier inventories
Internet activity to su
Percent automated te
Product quality WIP inventories Adherence-to-schedule Yields Cost per unit produced Setups/Changeovers Setup/Changeover costs Unplanned stockroom issues Bill-of-materials accuracy
Routing accuracy Plant space utilization Line breakdowns
Manufacturing Related Measures
Finished goods inventory turns Finished goods inventory days of sup On-time delivery Lines picked/hour Damaged shipments Inventory accuracy Pick accuracy Logistics cost Shipment accuracy On-time shipment
Delivery times Warehouse space utilization End-of-life inventory
Logistics Related M
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Line breakdowns Plant utilization Warranty costs Source-to-make cycle time Percent scrap/rework Material usage variance Overtime usage
Production cycle time Manufacturing productivity Master schedule stability
End of life inventory Obsolete inventory Inventory shrinkage Cost of carrying inventory Documentation accuracy Transportation costs Warehousing costs Container utilization Truck cube utilization In-transit inventories Premium freight charges Warehouse receipts
Cash flow Income
Revenues
Return on capital employed
Cash-to-cash cycle
Return on investment
Revenue per employee
Invoice errors
R t t
Administration/Financial Measures
Market share Percent of sales fro
to-market
Percent of products
80% of sales
Repeat versus new
Marketing Related
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Return on assets
Material inventories
Supplier delivery performance
Material/component quality
Material stockouts Unit purchase costs
Material acquisition costs
Expediting activities
Purchasing Related Measures
APICS trained pers Patents awarded
Employee turnover
Number of employe
Other Measures
Integrated Supply Chain Balanced ScorFramework
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a e o
CUSTOMER PERSPECTIVE
Goals
Customer view of Product
Of timeliness
Of flexibility
Customer value
Measures
No. of customer contact points
Relative Customer order response time
Customer perception of flexible response
Customer value ratio
INNOVATION AND LEARNING PER
Goals
FINANCIAL PERSPECTIVE
Goals
Profit Margins
Cash Flow
Revenue Growth
Return on assets
Measures
Profit margin by Supply chain partners
Cash to cash cycle
Customer Growth and profitability
Return on SC assets
Customer Benefits
Financial Benefits
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INTERNAL BUSINESS PERSPECTIVE
Goals
Waste Reduction
Time Compression
Flexible Response
Unit cost reduction
Measures
SC cost of Ownership
SC cycle efficiency
No. of Choices / Av response time% of SC target costs Achieved
Goals
Product Innovation
Partnership Mgmt.
Information Flows
Threats and Subsitutes
Product Final
Product categ
Shared data s
Performance technologies
SCM Goals
SCM Impr
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purchasing management and
sourcing
Supply
Chapter-05
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p g g
Strategic Sourcing
Prof.
Operations
Management Developmenmks
http://mks507.vistapanel.net
Sourcing decisions and purchasing activities serve to link a coits upstream supply chain partners
Sourcing decisions
High level, often strategic decisions regarding which productswill be provided internallyand which will be provided by exteh i t
Focus
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chain partners
Purchasing
The activities associated with identifying needs, locating asuppliers, negotiating terms, and following up to ensuperformance.
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Sourcing policy- determining dependency on suppliers and designing plans to reduce th
Direct versus indirect buying- determining the (possible) cost benefits of buying fromdistributors, or buying directly from the manufacturer.
Make-or-buy analysis- analysis of savings opportunities by eliminating particular produbuying the required products from third parties; buy or lease may be considered as an alternat
Integration between purchasing and other functional areas- plans aimed atproblems between purchasing and materials management, pure engineering, and between purcadministration or treasury
Setting up a purchasing information and control system l i f h
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Setting up a purchasing information and control system- analysis of purchaneeds and design of an automation plan; possibilities of linking this system with existing inforother functional areas.
Centralized or decentralized purchasing- balancing cost benefits and strategic coto a centralized or decentralized organization of purchasing
Standardization- determining possibilities to achieve standardization in order to reduce pvariety; balancing savings and risks.
Supplier Development Through Procureme
Supplier PurcMarketing Initiative
Purchasing Response
The Marketing Viewpoint
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The Procurement Viewpoint
Supplier PurcProcurement Initiative
Marketing Response
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Volume consolidation / Supply baseoptimization Buy
Supplier-buyer integration / Linked costminimization Bu
Value management / Optimization Consum
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Sourcing Pathways (Source: Mercer Mgmt Consu
Sales synergy Se
Typical Firms Benchmark Firms
Administrative costs aspercent of purchases
3.3% 0.8%
Lead time (weeks)15 8
Time spent in placingorder
42 minutes 15 minutes
Percentage of latedeliveries
33% 2%
P t f j t d
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Sourcing Pathways (Source: Mercer Mgmt Consu
Percentage of rejectedmaterial
1.5% .0001%
Number of shortagesper year
400 4
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Six stage purchasing developmental mod
1. Transaction orientation serve the factory
2. Commercial orientation lowest unit price
3. Coordinated purchasing saving through synerg
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4. Internal integration: cross-functional purchasing, total cost
5. External integration supply-chain optimiza
6. Value chain integration total customer satisfac
Effectiveness/Cumulative
savings
Transactionalorientation
Commercialorientation
Purchasingco ordination
Internalintegration
ExternalIntegration
Vin
Publicutilities
FinancialServices
Pharma
Food andbeverages
telecommu-nication
automotiv
Computer/PCs
Consumerelectronics
CROSS-FUNCTIONADECENTREALIZED
FUNCTIONAL FOCUS
CENTRE-LED
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orientation orientation co-ordination integration Integration in
focus
Activities
Dilemmas
serve thefactory
ClericalOrder processing
Initial purchasingControl ofpurchasingexpenditure
Reduce cost
CommercialTenderingNegotiatingApr supplier listsSupplier basemanagement
Savings throughsynergy
CommercialContractingGlobal sourcing
ContractmanagementEthics
Total Cost ofownership
Cross functionalbuying teamsSystems integrationVendor rating etc.Communicationand informationinfrastructure
Supply chainoptimization
OutsourcingEDI/InternetE-CommerceCost modelsSocialresistance
T
CCS
GIH
Procurement
Process
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Supplier identification
and evaluation
Description
Needs identification
Is th ere a preferred sup pl ierNo
Yes
The Purchasing Process
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Invoice clearance & payments
Records maintenance
Receipt and inspection
Follow up and expediting
Purchase order preparation
The Purchasing ProcessNeeds Identification
Needs identification
Purchase requisitionAn internal document completed by a user that in
purchasing of a specific need
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Reorder point systemA method used to initiate the purchase of routine
Typically, each item has a predetermined order po
quantity
The Purchasing ProcessDescription
Description by market grade/industry standard
DescriptionThe communication of a users neepotential suppliers in the most effiaccurate way possible
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Description by market grade/industry standard
Description by brand
Description by specification
Description by performance characteristics Description by prototypes or samples
The Purchasing Process
Supplier Identification and Evaluation - I
Supplier identificationand evaluation
The complexity of the prod
or service increases
The amount of money that i
The amount of effort increase
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The amount of money that i
committed increases
The length of the proposed
buyer-supplier relationshipincreases
Supplier identificationand evaluation
Process and design capabiliti
Management capability Financial condition and cost s
Criteria for supplierassessment:
The Purchasing ProcessSupplier Identification and Evaluation - II
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Planning and control systems
Environmental regulation com
Longer-term relationship pote
Supplier selection
Preferred supplier
Competitive bidding
Negotiation
The Purchasing ProcessSupplier Selection - I
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Supplier selection
Preferred supplierA supplier that has demonstrated performance capabilities through
purchase contracts and therefore preference during the supplier sel
The Purchasing ProcessSupplier Selection - II
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process
Supplier selection The buying firm can provide qualified
with clear descriptions of the items or Volume is high enough to justify the c
effort
Competitive bidding is moeffective when:
The Purchasing ProcessSupplier Selection - III
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The firm does not have a preferred su
Supplier selection The item is new or technically complex
with only vague specifications
The purchase requires agreement about a wideperformance factors
Th li t ti i t i th
Negotiation is most effecti
The Purchasing ProcessSupplier Selection - IV
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The supplier must participate in the
development effort
The supplier cannot determine risks
and costs without input from the buyer
Purchase order preparation
Receipt and inspection
Follow-up and expediting
Purchase order preparation74% of firms currently have electronic data
with some part of their supply base
Follow-up and expediting Receipt and inspection
I i l d t
The Purchasing ProcessThe Order Cycle
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Records maintenance
Invoice clearing and payment Invoice clearance and payment
Records maintenance
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ProcurementProcess
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StraightRebuy
Buyer reorders an existing productor service from the list of acceptablesuppliers.
ModifiedRebuy
Users, influencers, or deciders in thebuying center want to change theproduct specifications, price,
delivery schedule, or supplier.
New Buyfirst-time buyer , greater risks,buying center is enlarged to includeall who have a stake in the new buy.
r ljics supply matrix
Suppl
yRisk
High Bottleneck items (Distinctives)*Suppliers technology critical*Difficult to substitute*Unique requirements*Engineering Items
Ensure Supply
Non-critical items (Generics)*Many suppliers available*Easy-to-find substitute products
Strategic items (C*Unique specifications*Suppliers technology cri*Difficult to substitute*Unique specifications
Form long-term p
Leverage items (comm*Large volume purchases*can find substitutes, many suppl
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Profit impactLow
Easy to find substitute products*Office Items, MRO
Simplify and Automate
*Basic Production, Packaging item*Logistics Services
exploit purchasing power & mLow
Typology of Buying Decision
ommerc
ial
ncertainty
Low
PurchasingDepartment
Dominant
EngineeringDominant
C F ti
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CoU
n
Product ComplexityLow
Finance And AdmnDominant
Cross FunctionDecision
High
Supplier BASE
Single vs MultipleCentralized vs Decentralized
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Single sourcingThe buying firm depends on a single company for all or nearly all of an item or
Multiple sourcingThe buying firm shares its business across multiple suppliers
Cross sourcingUsing a single supplier for a certain part or service and another supplier with t
biliti f i il t
Sourcing Strategies
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capabilities for a similar part
Dual sourcingUsing two suppliers for the same purchased product or service
Trends in Purchasing Management - I
Contract length Competitive bidding,reviewed annually orsemiannually
Long-term contracts (>performance improvem
Purchaseconsolidation
Products and servicespurchased by individualbusiness units
Purchases consolidatebusiness units to leveraand purchasing efforts
Area of Traditionally In the FuturePurchasing
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p g
Number ofsuppliers
Suppliers switched often,with many suppliers for
each purchased item
Firms more likely to sindual-source in order to
performance and reduc
Trends in Purchasing Management - II
Location ofsuppliers
Primarily domestic or evenlocal
Global sourcing to asuppliers in the worl
Topmanagementsperception ofpurchasing
Purchasing seen as anuisance or non-value addedactivity
Purchasing sees as harness suppliers c
Area of Traditionally In the FuturePurchasing
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purchasing