supply chain - decision phases
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Supply Chain - Decision PhasesTRANSCRIPT
Supply Chain – Decision Phases
Section 4 part 2
The Magnitude
In 1998, American companies spent $898 billion in supply chain related activities (or 10.6% of Gross Domestic Product)
Third party logistics services grew in 1998 by 15% to nearly $40 billion
It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using more effective logistics strategies A typical box of cereal spends more than three
months getting from factory to supermarket
The Potential
In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer
Wal-Mart designed its supply chain with clusters of stores around distribution centers to facilitate frequent replenishment at its retail stores in a cost effective manner. Frequent replenishment allows stores to match supply and demand more efficiently than the competition. Wal-Mart has been a leader in sharing information and collaborating with suppliers to bring down costs and improve product availability. The results were impressive.
The Impact
In 1996, Dell held 31 days of inventory. It now holds only 4 days of inventory.
The Impact
The Turning Point (The Economist, 9/20/07)
“For such a tiny part of GDP, the contents of warehouses has
had a surprisingly big effect on its volatility. When industries cut
or add stocks according to demand, that adjustment magnifies
the effect of the initial change in sales. Stock levels were once
much larger relative to the size of the economy, so a small slip
in demand could easily blow up into a recession. But thanks to
improvements in technology, firms now have timelier and better
information about buyers. Speedier market intelligence and
production in smaller batches allows firms to match supply to
changing conditions. This makes huge stocks unnecessary and
minimizes the lurches in inventories that were once so
destabilizing.
Study of Supply Chain Management
Successful supply chain management requires decisions on the flow of information, product, and funds that fall into three decision phases Supply chain strategy or design Supply chain planning Supply chain operation
Decision Phases in a Supply Chain
TYPICAL DECISIONS
Strategic
Tactical
TYPETIME FRAME
•Supply chain network design (How many plants? Location and capacities of plants and warehouses?)•Supply chain strategies (Sell direct or through retailers? Outsource or in-house? Focus on cost or customer service?)•Product mix at each plant
years
•Workforce & Production planning •Inventory policies (safety stock level)•Which locations supply which markets•Transportation strategies
3 mo.- 1year
Operational•Production scheduling •Decisions regarding individual orders•Place replenishment orders
daily
Supply chain design, planning, and operation decisions play a significant role in the success or failure of a firm
Supply chain strategy or design Supply chain planning Supply chain operation
Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty
Supply chain planning decisions use a fixed supply chain configuration to come up with an overall production plan
Supply chain operation makes decisions about individual customer orders & daily operations.
Study of Supply Chain Management
A supply chain is a sequence of processes and flows that take place within and between different stages Cycle view
The processes in a supply chain are divided into a series of cycles, each performed at the interface between two successive stages of a supply chain
Push/pull view The processes in a supply chain are divided into
two categories depending on whether they are executed in response or in anticipation of a customer order
Cycle View of Supply Chain Processes
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier
Cycle view defines the processes involved and the owner of each process
Subprocesses in Each Cycle
Supplier markets the product
Buyer
Supplier
Buyer places an order
Supplier receivesthe order
Supplier suppliesthe order
Buyer receivesthe order
Buyer may return the product
Cycle View of Supply Chain Processes
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer Order Process1. Customer Arrival 2. Customer Order Entry3. Customer Order Fullfillment4. Customer Order Receiving
Procurement Process1. Component Order Arrival2. Production Scheduling3. Manufacturing/Shipping4. Receiving
Manufacturing Process1. Order Arrival2. Production Scheduling3. Manufacturing/Shipping4. Receiving
Replenishment Process1. Retail Order Trigger 2. Retail Order Entry3. Retail Order Fullfillment4. Retail Order Receiving
Differences1.In the Customer Order Cycle demand is external2.Scale (and frequency) of an order increases (decreases)
when moving further away from the customer
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)
Push/Pull View of Supply Chain Processes
Customer order arrives
PULL PROCESSES
PUSH PROCESSES
Execution is initiated in response to customer orders (reactive)
Execution is initiated in anticipation of customer orders(speculative)
Processes are divided based on the timing of their execution relative to a customer order
Processes are divided based on their timing
relative to the timing of a customer order They key difference is the uncertainty during
the two phases At the time of execution of a pull process
customer demand is known At the time of execution of a push process
customer demand is not known (and must be forecasted)
Push/Pull Processes for the Supply chain of Dell
PUSH
PULL
Customer Order Cycle andManufacturing Cycle
Procurement Cycle
Customer
Manufacturer
Supplier
Push/Pull Processes for the Supply chain of Detergent
PULL
PUSH
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier