6-1 Chapter 6: Supply Chain Integration CMB 8050 Matthew J. Liberatore.
MBA 8503: O PERATIONS AND S UPPLY C HAIN M ANAGEMENT Matthew J. Liberatore Spring 2011 1 Welcome!
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Transcript of MBA 8503: O PERATIONS AND S UPPLY C HAIN M ANAGEMENT Matthew J. Liberatore Spring 2011 1 Welcome!
MBA 8503: OPERATIONS AND SUPPLY CHAIN MANAGEMENT
Matthew J. LiberatoreSpring 2011
1
Welcome!
INTRODUCTION TO OPERATIONS AND SUPPLY CHAIN MANAGEMENT
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Class 1: 1/12/11
WHAT IS OPERATIONS AND SUPPLY CHAIN MANAGEMENT?
Operations and Supply Chain Management is defined as the design, operation, and improvement of the systems that create and deliver the firm’s primary products and services
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Operations and Supply Chain ManagementSupply Chain Processes
SourcingProcesses
ManufacturingProcesses
ServiceProcesses
DistributionProcessesLogistics
ProcessesLogisticsProcesses
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INTRODUCTION TO OPERATIONS MANAGEMENT
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KMART VERSUS WAL-MART
Both chains started in 1962 In 1987, Kmart had 2,223 stores to Wal-Mart’s
1,198. Kmart’s sales were $25.63 billion to Wal-Mart’s
$15.96 billion By 1991, Wal-Mart’s sales exceeded Kmarts Kmart still had more stores
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KMART VERSUS WAL-MART CONTINUED In year ending January 1996, Wal-Mart’s
sales were $93.6 billion to Kmart’s $34.6 billion.
During this time Kmart emphasized marketing and merchandising (such as national TV ad campaigns).
Wal-Mart was investing millions in its operations to lower cost.
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KMART VERSUS WAL-MART CONTINUED Wal-Mart developed sophisticated
distribution system that integrated its computer system with its distribution system.
Kmart’s employees lacked skills needed to plan and control inventory.
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IMPORTANCE OF OPERATIONS
Improvements in operations can simultaneously lower costs and improve customer satisfaction.
Improving operations often dependent on advances in technology.
Can obtain competitive advantage by improving operations.
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OPERATIONS
Heart of every organizationOperations are the tasks that
create valueOperations management uses
resources to transform inputs into desired outputs
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THE PRODUCTION SYSTEM
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SYSTEMS PERSPECTIVE
Inputs Transformation System
Alter Transport Store Inspect
Outputs Environment
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Automobile FactoryPrimary Inputs
Sheet steel, engine partsResources
Tools, equipment, workersPrimary Transformation Function
Fabrication and assembly of carsDesired Output
High quality cars
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HospitalPrimary Inputs
PatientsResources
MDs, nurses, drugs, equipmentPrimary Transformation
FunctionHealth care (diagnosis and
treatment)Primary Output
Healthy individuals
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CHARACTERISTICS OF PRODUCTS AND SERVICES
Products ServicesTangible Intangible
Minimal customer contact Extensive customer contact
Minimal customer participation Extensive customer participation
Delayed consumption Immediate consumption
Equipment intensive Labor intensive
Quality easily measured Quality difficult to measure
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FACILITATING GOOD CONCEPT
Often confusion in trying to classify organization as manufacturer or service
Facilitating good concept avoids this ambiguity All organizations defined as service The tangible part of the service is defined as
facilitating good Pure Services
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THE RANGE FROM SERVICES TO PRODUCTS
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INTRODUCTION TO SUPPLY CHAIN MANAGEMENT
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WHAT IS A SUPPLY CHAIN?
Flow of products and services from:Raw materials manufacturers Intermediate products manufacturersEnd product manufacturersWholesalers and distributors andRetailers
• Connected by transportation and storage activities
• Integrated through information, planning, and integration activities
• Cost and service levels
WHAT IS SUPPLY CHAIN MANAGEMENT?
Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements.
TWO OTHER FORMAL DEFINITIONSThe design and management of seamless, value-added process across organizational boundaries to meet the real needs of the end customer
Institute for Supply ManagementManaging supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer
The Supply Chain Council
PC Industry Supply ChainTracing back the screen you stare at for the bulk of your time.
Cisco’s Value Network
Source
Supplier
Supplier
Distributor
Distributor
Retailer
End-User
Converter
Converter Consumers
Information Flow
Funds/Demand Flow
Value-Added Services
Material Flow
Reuse/Maintenance/After Sales Service Flow
SCM Definition
THE SCM NETWORK
FIGURE 1 The logistics network
KEY OBSERVATIONS
Every facility that impacts costs need to be consideredSuppliers’ suppliersCustomers’ customers
Efficiency and cost-effectiveness throughout the system is requiredSystem level approach
Multiple levels of activitiesStrategic – Tactical – Operational
OTHER RELATED OBSERVATIONS
Supply chain strategy linked to the Development Chain
Challenging to minimize system costs and maximize system service levels
Inherent presence of uncertainty and risk
Set of activities and processes associated with new product introduction. Includes: product design phase associated capabilities and knowledge sourcing decisions production plans
THE DEVELOPMENT CHAIN
THE DEVELOPMENT CHAIN
Figure 2 The enterprise development and supply chain
GLOBAL OPTIMIZATION Geographically dispersed complex network Conflicting objectives of different facilities Dynamic system
Variations over time Matching demand-supply difficult Different levels of inventory and backorders
Recent developments have increased risks Lean production/Off-shoring/Outsourcing
GLOBAL APPAREL VALUE CHAINTRACING BACK THE DRESS YOU ARE WEARING
QC & Shipping[Hong Kong]
QC & Shipping[Hong Kong]
Product Design[Hong Kong]
Product Design[Hong Kong]
Zippers+…[Japan+…]
Zippers+…[Japan+…]
Stitching[Indonesia]
Stitching[Indonesia]
Weaving[Taiwan]
Weaving[Taiwan]
Yarn Spinning[Korea]
Yarn Spinning[Korea]
An Illustration: How Li & Fung Limited Might Make a Dress
Globally Dispersed Manufacturing
MATCHING SUPPLY AND DEMAND A MAJOR CHALLENGE
REASONS EXAMPLES•Raw material shortages
•Internal and supplier parts shortages
•Productivity inefficiencies
Boeing Aircraft’s inventory write-down of $2.6 billion
•Sales and earnings shortfall
•Larger than anticipated inventories
Sales at U.S. Surgical Corporation declined 25 percent, resulting in a loss of $22 million
•Stiff competition
•General slowdown in the PC market
Intel reported a 38 percent decline in quarterly profit
•Higher than expected orders for new products over existing products
EMC Corp. missed its revenue guidance of $2.66 billion for the second quarter of 2006 by around $100 million
Forecasting is not a solution Demand is not the only source of uncertainty Recent trends make things more uncertain
Lean manufacturing Outsourcing Off-shoring
UNCERTAINTY AND RISK FACTORS
August 2005 – Hurricane KatrinaP&G coffee supplies from sites around New
OrleansSix month impact
2002 West Coast port strike Losses of $1B/dayStore stock-outs, factory shutdowns
1999 Taiwan earthquake Supply interruptions of HP, Dell
2001 India (Gujarat state) earthquakeSupply interruptions for apparel
manufacturers
UNCERTAINTY AND RISK FACTORS
EVOLUTION OF SUPPLY CHAIN MANAGEMENT
1950s 1960s 1970s 1980s 1990s 2000s Beyond
Traditional Mass Manufacturing
Inventory Management/Cost Optimization
JIT, TQM, BPR, Alliances
SCM Formation/Extensions
Further Refinement of
SCM Capabilities
PROGRESSION OF LOGISTICS COSTS
FIGURE 1-4: Logistics costs’ share of the U.S. economy
LOGISTICS COSTS TRENDS
After rising over 50 percent in the five years leading up to the recession, total logistics costs have fallen the past two years.
Logistics costs in 2009 were equal to about $1.1 trillion – a drop of $244 billion (or 18.2) over 2008
COMPOSITION OF LOGISTICS COSTS
Transportation costs were down more than 20 percent last year
Transportation costs now account for 4.9 percent of GDP, well below the 6 percent share in 2008.
Carrying costs accounted for 2.5 percent of GDP in 2009, down from 2.9 percent in 2008 and well off the 8.3 percent of GDP in 1981
COMPLEXITY: THE MAGNITUDE
The grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies
A typical box of cereal spends 104 days getting from factory to supermarket.
A typical new car spends 15 days traveling from the factory to the dealership.
COMPLEXITY: THE MAGNITUDE
Compaq computer’s loss of $500 million to $1 billion in sales in one year
Laptops and desktops were not available when and where customers were ready to buy them
Boeing’s forced announcement of write-downs of $2.6b Raw material shortages, internal and supplier parts
shortages….
Cisco’s multi-billion ($2.2b) dollar write-off of inventories in 2001-2002 Customers balked on orders due to market meltdown
TRANSACTIONAL COMPLEXITY
National Semiconductors:• Production:
– Produces chips in six different locations: four in the US, one in Britain and one in Israel
– Chips are shipped to seven assembly locations in Southeast Asia.
• Distribution– The final product is shipped to hundreds of facilities all
over the world– 20,000 different routes– 12 different airlines are involved– 95% of the products are delivered within 45 days– 5% are delivered within 90 days.
MAGNITUDE OF SUPPLY CHAIN COSTSCOST ELEMENTS OF A TYPICAL TRADE BOOK
MAGNITUDE OF SUPPLY CHAIN COSTSEXAMPLE: THE APPAREL INDUSTRY
Manufacturer Distributor Retailer Customer
Cost per Percent
Shirt Saving
$52.72 0%
$41.34 28%
$20.45 62%
Manufacturer Distributor Retailer Customer
Manufacturer Distributor Retailer Customer
SUPPLY CHAIN: THE POTENTIAL P&G’s estimated savings to retail customers of $65 million through
logistics gains
Dell Computer’s outperforming of the competition in terms of shareholder value growth over more than two decades by over 3,000% using: Direct business model Build-to-order strategy
Wal-Mart transformation into the world’s largest retailer by changing its logistics system: highest sales per square foot, inventory turnover and operating profit of
any discount retailer
KAPLAN AND NORTON’S (2006) OPERATION S STRATEGY AND THE BALANCED SCORECARD
KAPLAN AND NORTON’S (2006) STRATEGY MAP TEMPLATES