Supply Chains for Competitve Advantage

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Transcript of Supply Chains for Competitve Advantage

  • 1. Supply Chain Management for Competitive Advantage Michael Hugos CIO Network Services Co. [email_address]
  • 2. What is a Supply Chain?
    • A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers.
      • Ganeshan and Harrison, 1995
  • 3. Old Supply Chains vs. New VERTICAL INTEGRATION has given way to VIRTUAL INTEGRATION Companies now focus on their core competencies, and partner with other companies to create supply chains for fast moving markets. Raw Materials Transportation Manufacturing Distribution Retail Show Room Slow Moving, Industrial Mass Markets Vertically Integrated Conglomerate Fragmented, Fast Moving Markets Raw Materials Company Manufacturing Company Transportation Company Independent Distributor Independent Retailer
  • 4. Supply Chain Structure
    • Producers
    • Distributors
    • Retailers
    • Customers
    • Service Providers
    • Logistics
    • Finance
    • Market Research
    • Product Design
    • Information Technology
    Supplier Company Customer Ultimate Supplier Supplier Company Customer Ultimate Customer Service Providers Simple Supply Chain Extended Supply Chain Raw Matl Producer Manufctr Distributor Retailer Retail Customer Logistics Provider Finance Provider Business Customer Market Research Product Designer Example of an Extended Supply Chain
  • 5. Major Supply Chain Drivers RESPONSIVENESS vs. EFFICIENCY Increase throughput while simultaneously reducing inventory and operating expense. - Goldratt, 1984 1. PRODUCTION What, how, and when to produce 2. INVENTORY How much to make and how much to store 3. LOCATION Where best to do what activity 4. TRANSPORTATION How and when to move product 5. INFORMATION The basis for making these decisions
  • 6. What is Supply Chain Management?
    • Supply chain management is the coordination of production, inventory location, transportation, and information among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served.
      • Hugos, 2002
  • 7. Aligning Supply Chain & Strategy
    • Understand the requirements of your customers
    • Define core competencies and roles your company will play to serve your customers
    • Develop supply chain capabilities to support the roles your company has chosen
  • 8. Responsiveness vs. Efficiency - Cost of information drops , other costs rise - Collect & share timely, accurate data 5. Information
    • Few large shipments
    • Slow, cheaper modes
    • Frequent shipments
    • Fast & Flexible mode
    4. Transportation - Few central locations serve wide areas
    • Many locations close to customers
    3. Location
    • Low inventory levels
    • Fewer items
    • High inventory levels
    • Wide range of items
    2. Inventory
    • Little excess capacity
    • Narrow focus
    • Few central plants
    • Excess capacity
    • Flexible manufacturing
    • Many smaller plants
    1. Production Efficiency Responsiveness
  • 9. What Did Wal-Mart Do?
    • Tactic of expanding around central DCs
      • Look for areas to support a group of stores
    • Using EDI and RFID with suppliers
      • Lower operating costs, greater control
    • Big Box store format
      • Combines a warehouse with a store, lowers costs
    • Everyday low prices
      • Smoothes out demand swings, better forecasting
    • Creates a supply chain that drives their business model (mass market, low price)
  • 10. Markets & Required Performance D E M A N D
    • GROWTH
    • Customer Service
    • DEVELOPING
    • Customer Service
    • Product Development
    • STEADY
    • Customer Service
    • Internal Efficiency
    • MATURE
    • Customer Service
    • Internal Efficiency
    • Demand Flexibility
    S U P P L Y
  • 11. Performance Measures
    • Cycle time for new product development/introduction
    • Outside flexibility
    • Return on sales
    • Cash-to-cash cycle time
    • Quoted lead time & completion rate
    • On time delivery rate
    • Warranty returns & repairs
    • % of sales from new products
    • % of SKUs as new products
    PRODUCT DEVELOPMENT
    • Activity cycle times
    • Upside flexibility
    DEMAND FLEXIBILITY
    • Inventory value
    • Inventory turns
    INTERNAL EFFICIENCY
    • Order & line item fill rate
    • On time delivery rate
    • Return rate
    Build to Stock CUSTOMER SERVICE Build to Order
  • 12. The Bullwhip Effect Mo. 24 20 16 12 8 4 0 300 600 To Manufacturer 900 Distributor Orders 1200 Mo. 24 20 16 12 8 4 0 300 600 To Distributor 900 Retailer Orders 1200 Mo. 24 20 16 12 8 4 0 300 600 For Product 900 Customer Demand 1200
  • 13. Why The Bullwhip?
    • Demand Forecasting
      • Based on orders received not end user demand
    • Order Batching
      • Companies place periodic orders based on EOQ, etc
    • Product Rationing
      • Allocation of available supply as % of amount ordered
    • Product Pricing
      • Promotional pricing causes distortions in demand
    • Performance Incentives
      • Qtrly and yearly quotas and sales bonuses
  • 14. Benefits of Data Sharing Low High Inventory Levels High Service Levels Company A
    • Company A may have high levels of customer service
    • But success may be short-lived if its customer is not the end use customer the supply chain ultimately serves.
  • 15. Benefits of Data Sharing (cont.) Low High Inventory Levels High Service Levels
    • Bullwhip distortions drive up inventory
    X & Y Supply Chains
    • Company A may be part of Supply Chain X which has to hold more inventory than Supply Chain Y to deliver similar levels of customer service.
  • 16. Supply Chain Collaboration
    • Companies perform operations in one or more of these supply chain activities
    • Entire supply chains are more efficient if each company improves their performance
    • Collaborative Planning, Forecasting & Replenishment (CPFR)
    • PLAN
    • Demand Forecasting
    • Product Pricing
    • Inventory Mgmt.
    • SOURCE
    • Procurement
    • Credit & Collections
    • MAKE
    • Product Design
    • Production Scheduling
    • Facility Management
    • DELIVER
    • Order Management
    • Delivery Scheduling
  • 17. The Synchronized Supply Ch