REFERENCE Designing and Managing the Supply Chain :

Concepts, Strategies, and Case Studiesby D. Simchi-Levi, P. Kaminsky, and E. Simchi-Levi

Ch3 Supply Chain ManagementCh3 Supply Chain Management- Introduction

Introduction to Supply Chain Management : Ch1

Topics to be covered Topics to be covered

2

What is the Supply Chain?What is the Supply Chain?

자재 구매 / 조달 (ProcurementSupply) 시스템

생산 / 운영(Production/Operating) 시스템

유통 (Distribution) 시스템

Supply Chain Management v.s. Logistics ManagementSupply Chain Management v.s. Logistics Management

Suppliers

수송 (Transport)

Raw MaterialStorage

STORAGE

STORAGE

STORAGE

PLANT 1

PLANT 2

PLANT 3

WAREHOUSE

WAREHOUSE

WAREHOUSE

CustomersManufacturers Distributors

수송 (Transport) 수송 (Transport) 수송 (Transport)

3

What is the Supply Chain Management (SCM)?What is the Supply Chain Management (SCM)?

A set of approaches utilized to efficiently integrate

suppliers, manufacturers, warehouses, & customers so that merchandise is produced and distributed

at the RIGHT QUANTITIESRIGHT QUANTITIES,

to the RIGHT LOCATIONSRIGHT LOCATIONS,

at the RIGHT TIMERIGHT TIME, and

with the BEST QUALITYBEST QUALITYin order to minimize the system-wide costs

while satisfying service level requirements.

4

Minimize costsMinimize costs ACROSS THE SYSTEMACROSS THE SYSTEM..Minimize costsMinimize costs ACROSS THE SYSTEMACROSS THE SYSTEM..

EVERY PLAYEREVERY PLAYER in the system has to be in the system has to be considered.considered.EVERY PLAYEREVERY PLAYER in the system has to be in the system has to be considered.considered.

Efficient integrationEfficient integration from STRATEGIC to from STRATEGIC to OPERATIONALOPERATIONAL level.level. Efficient integrationEfficient integration from STRATEGIC to from STRATEGIC to OPERATIONALOPERATIONAL level.level.

Important Observations from the definition :

5

Development of Supply Chain Management

Physical distribution (1960-1970) • Focus : Management of inventories for the efficient delivery of finished

goods to customers.

Integrated logistics management (1970-1980)• Focus : INBOUND FLOW (materials management) &

OUTBOUND FLOW (physical distribution) • Challenges: deregulation of transportation, global competition,

foreign sources of supply, and economic factors

Supply chain management (from 1990s)• Focus : Three types of “flows” or basic processes -

Product, Information, and Money• Managing supplier-to-customer material flow that add value to the

final product

6

In 1998, American companies spent $898 billion in supply-related activities (or 10.6% of Gross Domestic Product).

Transportation 58%Inventory 38%Management 4%

WHY Supply Chain Management is important (-)?WHY Supply Chain Management is important (-)?

It takes a box of cereal 3+ months from factory to supermarket. Efficient Consumer Response (ECR) Initiative estimates $30 billion opportunity by streamlining grocery supply chain

Travel time for new car from factory to dealership < 5 days; yet the typical lead time including waits is 15 days.

Matching supply and demand: “Boeing lost $2.6 billion in Oct. 97 due to raw material, internal, and supplier shortages…” (W.S.J., 10-23-97)

Boeing 777 assembly : 20% in Japan

+ 호주 ( 방향타 ), Northern Ireland & 싱가포르 (

앞바퀴 ),

대한항공 (Wingtip), 브라질 ( 수지안전판과 Wingtip

조립 ), 이탈리아 (Outboard wing flaps)

….Boeing designed a Web front end which provides

current information about availability, location, and

prices of spare parts sought by airlines’ operations

managers. It has become so successful…

Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them.

In 1993, IBM lost a major fraction of its potential sales of desktop computers because it could not purchase enough chips that control the computer displays.

10

WHY Supply Chain Management is important (+)?WHY Supply Chain Management is important (+)?

“According to Procter & Gamble, the essence of its

approach lies in manufacturers and suppliers

working closely together…

Procter & Gamble estimates that it saved retail customers $65 million over the 18 months.

jointly creating business plans to eliminate the source

of wasteful practices across the entire supply chain.

- Journal of Business Strategy (1997)

We believe buyer and suppliers optimize the results of the working relationship when there is a foundation of trust. By treating suppliers honestly, ethically, and fairly, we do our part in building that foundation, just as the supplier must do its part. We honor the confidentiality of proprietary supplier information regarding technology, cost, or other sensitive information unless given written permission to share it. We do this not only because we believe it to be right, but also because it makes working with P&G and supplying our requirements attractive to current and future suppliers. We strive to give a clear understanding of the “rules of the game” to suppliers before and after commercial interactions.

Stephen Rogers, Director of Technology Purchases at P&GPresentation at the University of San Diego

Source : World Class Supply Management, Burt et. al

In two years National Semiconductor reduced

distribution costs by 2.5%, decreased delivery time

by 47%, and increased sales by 34%

by closing six warehouses around the globe and

air-freighting microchips to customers from a new

centralized distribution center in Singapore

– Fortune (1994)

Laura Ashley turns its inventory 10 times a year, five times faster than three years ago. This is achieved by using

- New Information System

- Centralized Warehouse

In 1979 Kmart was one of the leading companies in the retail industry, with 1,891 stores and average revenues per store of $7.25 million. At that time Wal-Mart was a small niche retailer in the South with only 229 stores and average revenues about half those of Kmart stores. In 10 years Wal-Mart had transformed itself; in 1992 it had the highest sales per square foot and the highest inventory turnover and operating profit of any discount retailer. Today Wal-Mart is the largest and highest profit retailer in the World. How did Wal-Mart do it? The starting point was a relentless focus on satisfying customer needs; Wal-Mart's goal was simply to provide customers with access to goods when and where they want them and to develop cost structures that enable competitive pricing. The key to achieving this goal was to make the way the company replenishes inventory the centerpiece of its strategy. This was done by using a logistics technique known as cross-docking. In this strategy, goods are continuously delivered to Wal-Mart's warehouses from where they are dispatched to stores without ever sitting in inventory. This strategy reduced Wal-Mart's cost of sales significantly and made possible to offer everyday low prices to their customers.

- Stalk et. al, Harvard Business Review (1992)

15

Biz파트너Biz

파트너 고객고객기업기업

생산생산생산생산 마케팅마케팅마케팅마케팅 재무재무 // 회계회계재무재무 // 회계회계인사인사인사인사 구매구매구매구매 연구연구

개발개발연구연구개발개발

기업기업

생산라인

생산공장

Main Issue = Productivity Main Issue = Global Optimization

Production Management

What makes SCM difficult?

Operations Management

Supply Chain Management

Main Issue = Operation Efficiency

Global Optimization

Uncertainty in Supply chain

Ord

er

Siz

e

Time

Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

CustomerDemand

Retailer OrdersDistributor Orders

Production Plan

Supply chain 은 매우 복잡한 네트워크

National Semiconductor

Global Optimization 이 힘든 이유Global Optimization 이 힘든 이유

WaferWafer가공가공

TestTest& &

Ass’blyAss’blyDeliveryDelivery

미국 미국 33 개 공장개 공장

영국 영국 11 개 공장개 공장

말레이시아 말레이시아 & & 싱가포르싱가포르

CompaqCompaq

FordFord

IBMIBM

SiemensSiemens

95% 4595% 45 일일

5% 905% 90 일일

주문주문

1212 대의 항공기 대의 항공기 & 20,000& 20,000 개의 개의 Delivery Delivery 항로 운영 항로 운영 (1994)(1994)

Supply chain 상의 각 Player 들이 추구하는 사업목표의 상이성 & 이들 목표간의 conflict

Supply chain 은 한번 세팅으로 끝나는 것이 아니라 진화 또는 변화할 수 있음 (Static Dynamic)

Supply chain 상의 각종 파라미터들의 가변성

•Supplier : Large volume & Flexible delivery date 를 선호

•Company : Flexible volume & Precise delivery date 를 선호

•생산부서 : Large production run 을 선호•물류 / 배송 센터 : Low level inventory 를 선호

•현재의 Supplier 가 미래의 Supplier 가 된다는 보장이 없음•현재는 없던 고객의 Buying power 가 생길 수 있음

고객수요 , 각종 비용 항목 ( 물류비용 , 재고비용… ), 생산기간 , 수송기간 등은 유행 , 계절적 요인 , 파업 , 사고 , 유가 파동 등등의 여러가지 이유로 달라질 수 있음

19

• Distribution network configuration – Ch2

• Inventory control – Ch3

• Supply Contracts

• Distribution strategy – Ch5

• Supply chain integration and strategic partnering – Ch5 &6

• Outsourcing and Procurement Strategy – Ch7

• Production design – Ch9

• Information technology and Decision support system – Ch11 & 12

• Customer value – Ch10

Key issues in SCM

Global Optimization

Managing Uncertainty

Distribution network configuration v

Inventory control v

Supply Contracts v

Distribution strategy v v

Supply chain integration and strategic partnering

v

Outsourcing and Procurement Strategy v

Production design v

Information technology and Decision support system

v v

Customer value v v

Distribution network configurationDistribution network configurationDistribution network configurationDistribution network configuration

Warehouse locations and capacities Redesign the distribution network Production levels at each plant Transportation flow from plant to warehouse to retailer When you order a book from amazon.com, which ware

house handles your order?

Supply ContractsSupply ContractsSupply ContractsSupply Contracts

Pricing, Volume discounts, delivery lead times, Quality, Returns

Revenue or Cost share

How much inventory to keep? What size should orders be? When orders should be placed? Who places orders? Who has the ownership of the inventory? VMI, Risk Pooling

Inventory controlInventory controlInventory controlInventory control

Outsourcing and Procurement StrategyOutsourcing and Procurement StrategyOutsourcing and Procurement StrategyOutsourcing and Procurement Strategy

Classical Strategy - keeping inventory at the warehouse Cross Docking – Wal-Mart Direct Shipping : Suppliers -> Customers

Distribution strategyDistribution strategyDistribution strategyDistribution strategy

Information sharing How does information affect the design and operation of

the supply chain? What level of integration is needed? What types of partnerships can be implemented?

Supply chain integration and strategic partneringSupply chain integration and strategic partneringSupply chain integration and strategic partneringSupply chain integration and strategic partnering

Customer valueCustomer valueCustomer valueCustomer value

Measure of company’s contribution to its customer How to measure ?

Main motivation for SCM practice Impact of internet and e-commerce ? IT and DSS main competitive advantage ?

Information technology and Decision support systemInformation technology and Decision support systemInformation technology and Decision support systemInformation technology and Decision support system

What role does product design play in SCM? Leverage product design to compensate for uncertain

ty in customer demand? Postponement Strategy, Mass Cusomization

Production designProduction designProduction designProduction design

25

No Supply Chain Metrics (no performance measures for the entire supply chain)

Inadequate Definition of Customer Service (average line item fill rate ? Average lateness ? Overall order fill rate ?)

Inaccurate Delivery Status Data

Inefficient Information Systems

Ignoring the Impact of Uncertainties

Simplistic Inventory Stocking Policies (2 weeks supply)

SCM - 위기

Poor Coordination

Incomplete Shipment Methods Analysis (even though faster transportation is most costly, one should consider shorter lead times and less pipeline inventory investment)

Incorrect Assessment of Inventory Costs

Organizational Barriers

Product-Process Design without Supply Chain considerations (generic product -> country specific components at distribution centers)

Separation of Supply Chain Design from Operational Decisions

Incomplete Supply Chain

Service Level

&Inventory

Level

Service Level

InventoryLevel

Conventional Wisdom

Now!

결론결론

Ch4 Supply Chain ManagementCh4 Supply Chain Management- Inventory Management

Inventory Management and Risk Pooling : Ch3

(p43 – 63)

Topics to be covered in week 5 & 6Topics to be covered in week 5 & 6

Week 5 = Inventory Management : Introduction & Basic Model

Week 6 = Inventory Management : Advanced Model & New Topics