Value ChainSupply side- raw materials, inbound logistics and production processesDemand side- outbound logistics, marketing and sales.

Council of Logistics ManagementLogistics is the process of planning, implementing and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods and related information from the point of origin to point of consumption for the purpose of conforming to customer requirements.

WHAT IS SUPPLY CHAIN MANAGEMENT Leads to Business Process Integration

Supply chain is the system by which organizations source, make and deliver their products or services according to market demand.Supply chain management operations and decisions are ultimately triggered by demand signals at the ultimate consumer level. Supply chain as defined by experienced practitioners extends from suppliers suppliers to customers customers.Supply Change Management

SUPPLY CHAIN INCLUDES :

MATERIAL FLOWS

INFORMATION FLOWS

FINANCIAL FLOWS

SUPPLY CHAIN MANAGEMENT IS FACILITATED BY :

PROCESSES

STRUCTURE

TECHNOLOGY

Supply Chain and Demand Chain

Demand chain is defined as the system by which organizations manage sales and distribution of products and services to end users.Conceptually incorrect to look at demand chain separately

Look at the pipe as a whole.

But is there a pipe at all?More a networkNot necessarily linear

A network of independent and interdependent organizations mutually and cooperatively working together to control, manage and improve the flow of materials and information from suppliers to end users

SUPPLY CHAIN DRIVERS

Not new. Value system of Michael PorterWhy sudden interest?Demanding customersShrinking product life cyclesGrowing retailer power in some casesEmergence of specialized logistics providersGlobalizationInformation technology

SUPPLY CHAIN ELEMENTS

Supply Chain Goals

Efficient supply chain management must result in tangible business improvements. It is characterized by a sharp focus on Revenue growthBetter asset utilization Cost reduction.

Reduce Overall Cycle Time : Improve ResponseSupply Chain Management Underlying PrinciplesCompressionConformanceCo-operation Communication (Planning/Manufacturing/Supply) (Forecasts/Plans/Distribution) (Cross -Functional) (Real Time Data)

Changing Paradigm

Functional vs ProcessProducts vs CustomersRevenues vs PerformanceInventory vs InformationTransactions vs Relationships

Critical Success Factors today

Cross functional management and planning skillsAbility to define, measure and manage service requirements by market segmentInformation systemsRelationship management and win win orientation

PUTTING IN PLACE A WELL OILED SUPPLY CHAIN

Supply chain as an efficient customer satisfying processEffectiveness of the whole supply chain is more important than the efficiency of each individual department.

Step1- Designing the supply chainDetermine the supply chain networkIdentify the levels of service required

Step 2 - Optimizing the supply chainDetermine pathways from suppliers to the end customerCustomer markets to Distribution centersDistribution centers to production plantsRaw material sources to production plantsIdentify constraints at vendors, plants and distribution centersGet the big picturePlan the procurement, production and distribution of product groups rather than individual products in large time periods- quarters or years

Step 3- Material flow planning

Determine the exact flow and timing of materialsArrive at decisions by working back from the projected demand through the supply chain to the raw material resourcesTechniquesERP

Step 4 - Transaction processing and short term scheduling

Customer orders arrive at randomThis is a day to day accounting system which tracks and schedules every order to meet customer demandOrder entry, order fulfillment and physical replenishment

Information flows in Supply Chain Management

Information is overriding elementNeed for databasesMaster files: Information about customers, products, materials, suppliers, transportation, production and distribution data- do not require frequent processingStatus files- heart of transaction processing- track orders and infrastructure status- updated daily.Essentially using the same information to make all plans right from structuring the network to processing every day supply chain tasks.

The value chain connects a companys supply side with its demand side.Traditionally information has been a supporting function.Information however can be managed far more creatively.There are various stages of using value added information processes.

Visibility : See physical operations more effectively through information. Information can be used for effective coordination of value chain activities.Mirroring capability : In this stage, virtual activities are substituted for physical ones. A parallel value chain is created.New customer relationships : The company can draw on the flow of information in the virtual value chain to deliver value to customers in new ways.

Conventional functions

Inventory ownership and management Sales and technical support Order handling Credit

Contemporary Trends

Channels being divided into two- Fulfillment and Franchised agent

Fulfillment channel- responsible for getting the manufacturers product from the plant to the end user through a highly efficient logistics and inventory management system

Contemporary Trends

Fulfillment channel may not take ownership of the product but may perform these functions on a per box fee structureFranchised agents responsible for sales and sales support but will not write the order or supply the product

Issues in customer management

Penetration vs SpreadConcentration is necessary to commit the necessary resources for true customer integrationDepth of customer contactR&D - sharing information vs developing new products togetherLogistics - Pros and cons of methods of transportation vs reengineering the logistics process

Implementation: Points to keep in mind

Recognize the difficulty of change.Prepare a blueprint for change that maps linkages among initiatives.Assess the entire supply chain from supplier relationships to internal operations to the market place, including customers, competitors and industry as a whole.

Does our manufacturing strategy increase product line flexibility while continuing to drive down overall production costs?When was the last time we measured lost sales to end customers?Do we have an efficient system to get POS data from retailers?Are we testing our products with end customers? Do we use the resulting data to adjust our forecasting and supply positions? Is the ratio of returned orders to sales increasing?

The New Model of Relationships

Hard bargaining vs shared destinyExit vs VoiceArms length relations vs Involving dealers and suppliers in product developmentPiling up vs Replenishing dealer inventory more frequentlyIn short working together as partners to cut costs, boost efficiencies, innovate and share value

Adversarial vs partnershipsShort term vs long term contractsLarge vs small order quantityFull truck load vs small parcelsInspection vs no inspection

Written order vs understandingMany vs few suppliersDesign and then invite quote from vendor vs involving vendor in developmentBargaining, holding cards close to chest vs Shared destiny, transparency

SummarySegmentation of customers based on service needsCustomization of logistics networkListen to signals of market demand and plan accordingly.Differentiate product close to the customerSource strategicallyDevelop a supply chain wide technology strategyAccept channel spanning performance measures

The Bullwhip Phenomenon

Volatility amplification along the networkIncrease in demand variability as we move upstream away from the marketMainly because of lack of communication and coordinationDelays in information and material flows

Bullwhip effect occurs because of various reasons:Order Batching- Accumulate ordersShortage gaming- Ask for more than what is neededDemand forecast updating

Important points to keep in mind

Segment customers based on service needs.Modify the supply chain to meet these service requirements profitably.Customize the logistics network.Develop forecasts collaboratively involving every link of the supply chain.Locate the leverage point where the product is unalterably configured to meet a single requirementDelay product differentiation till the last possible moment.

Assess options such as modularized design or modification of manufacturing processes that can increase flexibility.Cultivate warm relationships with suppliers.Efficient supply chain management has to be accompanied by a technology strategy.

Warehousing and transportation 6Inventory5Late delivery returns2Obsolescence20Lost sales60

Need to minimize obsolescence costsMinimize product range flexibilityReduce product development cycle

Advantages of a tightly coordinated supply chain traditionally facilitated by vertical integration.Combined with focus and specialization.Leveraging on investments others have made and focusing on delivering solutions and systems to customersFewer things to manage - fewer things go wrongSuppliers engineers part of Dells Design teamHave only a few partners

Share information with partners in Real time fashion.Stitch together a business with partners that are treated as if they are inside the company.Change focus from how much inventory there is to how fast it is movingAssets collect risks around them one way or the other.Limited or no testing - Eg. Sony Monitors

Only three Manufacturing centers - Austin, Ireland and Malaysia.Inventory levels and replenishment needs sometimes conveyed to vendors on hourly basis.Substitute information for inventory and ship only when we have real demand from real end customersClever segmentation - Focus on institutional markets - 70% to very large customers with annual purchases exceeding $1 million.

Exit from retail business after wrong entry in 1989.Segmentation - closeness to customers and access to valuable information.Demand forecasting as a critical sales skillHelp global customers, manage their total purchase of PCs by selling them a standard productDell server loads software on customers computersMeet customers needs faster and more efficiently than any other model.

Founded in 1906Today 35 offices in 20 countries1997 revenues of $ 1.7 billionLargest export trading company in Hong KongCustomers- American and European retailersSources clothing and other consumer goods ranging from toys to fashion accessories to luggage

Order from EuropeBuy yarn from KoreaWeave and dye in TaiwanBuy Japanese zippers made in ChinaMake the garments in Thailand in five different factoriesPulling apart the value chain and optimizing at each step

Victor Fung Today, assembly is the easy part. The hard part is managing your suppliers and the flow of parts. Good supply chain management strips away time and cost from product delivery cycles. Our customers have become more fashion driven, working with six or seven seasons a year instead of just two or three. Once you move to shorter life cycles, the problem of obsolete inventory increases dramatically. With customer tastes changing rapidly and markets segmenting into narrow niches, its not just fashion products that are becoming increasingly time sensitive.

Endorsement by Stan Shih, CEO, AcerBuying right thingsReaching into suppliers to ensure that certain things happen on time and at the right quality level.

Buyer informs five weeks before delivery.Reserve undyed yarn from yarn supplier.Lock up capacity in weaving and dyeing mills.Outsourcing not same as leaving suppliers to do the worrying.Single factories are too small to have much buying power and to demand faster deliveries from suppliers.To shorten delivery cycle, need to go upstream to organize production.Li & Fung able to delay commitment to a particular fashion trend.

Integrated logistics managementElimination of consolidators in container shipmentsSmokeless factoryDesignProcurementInspection of raw materialsProduction planningLine balancingInspection of finished goodsNo worker ownershipNo labour management

If we dont own factories, can we say we are in manufacturing? Absolutely, because of the 15 steps in the manufacturing value chain, we probably do 10.Basic operating unit is the division.Divisions focused on serving single customers or groups of small customers.Less emphasis on geographic groupingMerchandising decisions decentralizedFinancial controls and operating procedures tightly centralized. Strong focus on inventory and working capital management.

As far as I am concerned, inventory is the root of all evil. At a minimum, it increases the complexity of managing any business. So its a word we dont tolerate around here.Need for sophisticated information systems. Li & Fung working to create a database to systematically track all supplier relationships. Someone might steal our database but when they call up a supplier, they dont have the long relationship with the supplier that Li & Fung has. It makes a difference to suppliers when they know that you are dedicated to the business, that you have been honoring your commitments for 90 years.

Broadening the middleBetter prices and better margins for customersTackling the soft $3 in the cost structure. $3 represents the inefficiency in the supply chain for a consumer product priced at $4. Look at costs throughout distribution channels than just in factory

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