Lecture supply chain management chapter 1 overview of supply chain, supply chain management

BÙI THỊ BÍCH LIÊNCONTENT• Chapter 1: Overview of supply chain, supply chain management.• Chapter 2: Supply chain planning • Chapter 3: Sourcing and procurement • Chapter 4: Making • Chap

SUPPLY CHAIN MANAGEMENT

MSC BÙI THỊ BÍCH LIÊN

CONTENT

• Chapter 1: Overview of supply chain, supply chain management.

• Chapter 2: Supply chain planning

• Chapter 3: Sourcing and procurement

• Chapter 4: Making

• Chapter 5: Delivering

• Chapter 6: Measuring performance of SC

• Chapter 7: Supply chain design and integration

Course book and support materials

• 1 Michael Hugos (2018), Essentials of Supply Chain Management, John Wiley and Sons Inc (course book)

• Tinh hoa quản trị chuỗi cung ứng: Michael Hugos (Essentials

of Supply Chain Management)

• Quản trị chuỗi cung ứng: Đoàn Thị Hồng Vân

• Quản trị chuỗi cung ứng: Những trải nghiệm tuyệt vời

• Quản trị chuỗi cung ứng hoàn hảo: (Peter Bolstorff, Robert

Rosenbaum) Nxb Lao động Xã hội

• SUPPLY CHAIN MANAGEMENT Strategy, Planning and

Operation: Sunil Chopra, Peter Meindl

• Purchasing Supply Management : P Fraser Johnson

• Supply Chain Logistics Management: Donald J Bowersox

• Logistics & Supply Chain Management: creating value-adding

networks (3rd Edition): Martin Christopher

References

Assessment

• 50%: In class process

– 15%: midterms test (online test – multiple choice) – 15%: team work (group presentation) + attendance

• 50%: Final test

– 60- 90 minutes – Multiple choice questions, short questions and practices

Chapter 1: Overview of the supply

chain and supply chain management

 Definition and Objectives (SC, SCM)

1

 Structure and tiering of the SC

2

 How the SC works?

3

 Participants in the SC

4

 Supply chain challenges

5

Learning Objective Students should be able to:

• Appreciate what a supply chain is and what it does

• Understand the structures of supply chains

• Define the different organizations that participate in any supply chain

• Understand the need to align supply chain capabilities with competitive priorities

Why Supply Chain Management?

Management

Total Cost $14,000

1950-1980s Manufacturing

• 50 years ago, U.S is the only

country that can manufacture cars

●You buy a car from GM, all the

money will go to the GM

1980-2000s Supply Chain

Management

• Today, foreign parts and labors are

much cheaper than that in US

●You buy a car from GM, only a

portion of money will go to the GM

1 Definition of Supply chain

• A supply chain is a network of partners who collectively convert a basic commodity (upstream) into a finished product (downstream) that is valued by end‐customers

(Alan Harrison and et., 2014)

• A supply chain is the global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution, and cash” (Blackstone 2013)

……….

…………

……….

1.1 SCM

SCM encompasses the planning and controlling of all processes

involved in procurement, conversion, transportation and

distribution across a supply chain SCM includes coordination and

collaboration between partners, which can be suppliers,

intermediaries, third party service providers, and customers In

essence, SCM integrates supply and demand management within

and between companies in order to serve the needs of the end‐

customer (Council of SCM Professionals‐CSCMP, 2010)

……….

……….

Process Orientation Coordination, collaboration, synchronization Integrating flows

Throughout from the origin to destination Internal and external

A picture is better than 1000 words!

How many words would be better than 3 pictures?

- A supply chain consists of

- aims to Match Supply and Demand,

profitably for products and services

SUPPLY SIDE DEMAND SIDE

The right

Product

Higher

Profits

Right

Time

Right Customer Right

Quantity Right Right price+ =

achieves

Supplier Manufacturer Distributor Retailer Customer

Upstream

Downstream

1.2 The Objectives of the Supply

Chain

Competitive Strategies

SC strategies

Structure of SC

Responsiveness Cost

Cost of Making and delivering

goods to Customers

Capability of the enterprises in

Production and Location

Inventory and Transportation

Information

Meet the right quantity

At the right time Processing and combining variety of cargoes Customer service quality

Efficiency Responsiveness

 Low Total cost

 Variety choice

 Big volume purchasing

 Little service

 Less convenient

 High Quality

 Creation

 New and improvement

 Unique

 Speed

1.3 Differences between Logistics and

Differences between Logistics and SCM

Logistics

Activit

- ies

Scope

Goal

Effects

Transport, warehouse,

inventory, order

processing, customer

service, forecast, info

management

Logistics + Sourcing + Manufacturing + Coordination + Integration with suppliers and customers …  Multi-functions

Internal All members of SCInternal + External

Decreasing Logistics cost,

increasing customer

service quality

Decreasing system’s cost

Maximizing the value of the

chain

Short – Term

Mid - term

Long – term Strategies

2 Structure and Tiering of SC

2.1 Structure of supply chain

Complete supply chain

2.2 Participants in The Supply Chain

• Producers

• Distributors

• Retailers

• Customers

• Service providers

Facilities Transportation Inventory Information

Supply chain structure

Drivers

Drivers of Supply Chain Performance

• Facilities

– places where inventory is stored, assembled, or fabricated

– production sites and storage sites, distribution centres.

• Inventory

– raw materials, WIP, finished goods within a supply chain

– inventory policies

• Transportation

– moving inventory from point to point in a supply chain

– combinations of transportation modes and routes

• Information

– data and analysis regarding inventory, transportation, facilities

throughout the supply chain

– potentially the biggest driver of supply chain performance

Facilities

• Role in the supply chain

– the “where” of the supply chain – manufacturing or storage (warehouses)

• Role in the competitive strategy

– economies of scale (efficiency priority): IKEA – larger number of smaller facilities

(responsiveness priority): 7 Eleven

• Example 3.1: Toyota and Honda

• Components of facilities decisions

Case studies

• Toyota and Honda use facilities decisions to be more

… to their customers These companies

have an end goal of opening manufacturing facilities in every

major market that they enter While there are other benefits to

opening local facilities, such as protection from currency

fluctuation and trade barriers, the increase in …

plays a large role in Toyota and Honda’s decision to place

facilities in their local markets The flexibility of Honda

facilities to assemble both SUVs and cars in the same plant

allowed the company to keep costs down in the downturn of

2008 While competitors’ SUV production facilities were idle,

Honda facilities maintained a high level of utilization

3-40

Components of Facilities Decisions

• Location

– centralization (efficiency) vs decentralization (responsiveness) – other factors to consider (e.g., proximity to customers, workers, costs

of facility, availability of infrastructure, macroeconomics…)

• Capacity (flexibility versus efficiency: trade-off to determine the right amount of capacity to have and used capacity)

• Manufacturing methodology (product focused versus process focused)

• Warehousing methodology (SKU storage, job lot storage, cross-docking)

• Overall trade-off: Responsiveness versus efficiency

• Role in the supply chain

• Role in the competitive strategy

• Components of inventory decisions

3-42

Inventory: Role in the Supply Chain

• Inventory exists because of a mismatch between supply and demand

• Source of cost and influence on responsiveness

Inventory: Role in Competitive

Strategy

• If … is a strategic competitive priority, a firm

can locate larger amounts of inventory closer to

customers

• If … is more important, inventory can be

reduced to make the firm more efficient

• Trade-off

• Example 3.2 – Nordstrom

Case Nordstrom

• Nordstrom’s competitive strategy targets upper-end customers with high … requirement These customers are willing to pay a premium to have the products they want when they want them To support this competitive strategy, company uses inventory, company stocks a large variety and quantity of products to ensure a high level of availability In fact, Nordstrom stocks a significantly larger amount of inventory than other department stores Nordstrom incurs higher costs because of its large inventory, but it gain extra margin from its customers, who are willing to pay for the level of service that Nordstroms’s inventory makes possible

Components of Inventory Decisions

• Cycle inventory: convenience

– Average amount of inventory used to satisfy demand between

shipments

– Depends on lot size

• Safety inventory: randomness

– inventory held in case demand exceeds expectations

– costs of carrying too much inventory versus cost of losing sales

• Seasonal inventory: unstable demand

– inventory built up to counter predictable variability in demand

– cost of carrying additional inventory versus cost of flexible

production

• Overall trade-off: Responsiveness versus efficiency

– more inventory: greater responsiveness but greater cost

Transportation

• Role in the supply chain

• Role in the competitive strategy

• Components of transportation decisions

3-47

Transportation: Role in

the Supply Chain

• Moves the product between stages in the supply chain

• Impact on responsiveness and efficiency

– Faster transportation allows greater responsiveness but

lower efficiency

• Also affects inventory and facilities

3-48

Transportation:

Role in the Competitive Strategy

• If … is a strategic competitive priority, then faster transportation modes can provide greater

… to customers who are willing to pay for it

• Can also use slower transportation modes for customers whose priority is …

• Can also consider both inventory and transportation to find the right balance

Case Blue Nile

• Blue Nile is an online retailer of diamonds that has used …

transportation using Fedex to ship diamonds to customers in the US,

Canada, and several countries in Europe and Asia Given the high

value of diamonds, company offers free shipping for the overnight

delivery … shipping, however, allows Blue Nile to

centralize its inventory of diamonds and also eliminate the need for

expensive storefronts In spite of the high transportation costs, Blue

Nile has very low costs compared to bricks – and – mortar retailers

because of the low facility and inventory expense Blue Nile is thus

able to offer significantly lower prices than its bricks and mortar

competition

Components of Transportation Decisions

• Mode of transportation:

– air, truck, rail, ship, pipeline, electronic transportation – vary in cost, speed, size of shipment, flexibility

• Route and network selection

– route: path along which a product is shipped – network: collection of locations and routes

• In-house or outsource

• Overall trade-off: Responsiveness versus efficiency (cost

of transportation a product and the speed with which that product is transported)

Information

• Role in the supply chain

• Role in the competitive strategy

• Components of information decisions

Information: Role in the Supply Chain

• The connection between the various stages in the supply chain – allows coordination between stages

– E.g.: Seven Eleven uses information to improve product availability while decreasing inventories

– Walmart uses information on shipments from suppliers to facilitate cross-docking and lower inventory and transportation expense

• Crucial to daily operation of each stage in a supply chain – e.g., production scheduling, inventory levels

Information:

Role in the Competitive Strategy

• Allows supply chain to become more efficient and more

responsive at the same time (reduces the need for a

trade-off)

• Information technology

• What information is most valuable?

• Example: Ton Hoa Sen uses ERP, Maersk uses SAP

(Systems Applications and Products in Data Processing)

Characteristics of the Good Information

Information

Accurate?

Accessible?

Up-to-date?

3-55

Components of Information

Decisions

• Push (MRP) versus pull (demand information transmitted

quickly throughout the supply chain)

• Coordination and information sharing:

– if the supplier is to produce the right parts in a timely manner for a

manufacturer in a pull system, the manufacturer must share demand

and production info with the supplier

• Forecasting and aggregate planning

• Enabling technologies

– EDI: paperless PO, decrease time needed to get product

– Internet

– ERP systems: transactional tracking and global visibility of info

– Supply Chain Management software: analytic decision support

• Overall trade-off: Responsiveness versus efficiency

Information: Example

• DHL is a logistics and parcel delivery company that operates in more than 140,000 destinations with a presence in more than 220 countries, which involves working in diverse local environments with different languages, cultures, and local knowledge For DHL, working locally means that its employees and customers have access to accurate tracking info On their packages in their local language DHL moved from a decentralized info system involving 50 systems to a centralized integrated system to reduce risk and decrease costs and,, at the same time, improve customer service.

This resulted in a 40% reduction in infrastructure costs, coupled with

operation

Information – related metrics

• Forecast horizon

• Frequency of update

• Forecast error

• Variance from plan: planned production/inventory >< the

actual value

• Ratio of demand variability to order variability

Sourcing

• Role in the supply chain: is a set of business processed required to purchase goods and services Aim to provide appropriate level of responsiveness at the lowest cost

Sourcing: Example

• Zara has a souring strategy that varies by product type

For basic product such as T-shirts, Zara aims for

… Because demand is predictable These

products are sourced from suppliers in low cost countries

• For trendy products for which demand is unpredictable,

in contrast, Zara sources from company – owned

factories in Europe These factories are not …

But they are flexible and To the rapidly

evolving needs of the trendy market

Components of sourcing decisions

• In-house or outsource

• Supplier selection

• Procurement: direct material and MRO (transaction cost)

• Role in the Supply chain: Affects customer segments to

buy a product, influencing the customer needs that

supply chain must fulfill

• Pricing is also a lever that can be used to match supply

and demand, especially when the supply chain is not

very flexible

Pricing: Example

• Amazon offers its customers a large menu of prices for products that are purchased from the company For example, in January

2014, a person purchasing 2 books worth $40 could use standard shipping (3 – 5 days) at a cost of $4.98, two day shipping at a cost of $14.97, one day shipping at a cost of $24.97, or free shipping (5 – 8 days) The pricing menu allows Amazon to attract customers with varying levels of desired responsiveness.

Whereas customers paying for one day shipping impose a high degree of uncertainty on Amazon, customers opting for free shipping can be used to level out the work load at the warehouse over time Amazon can thus use its pricing to provide responsiveness to those who value it while using customers who want a low price to help it improve its efficiency

Components of pricing decisions

• Pricing and Economies of scale

• Everyday low pricing >< high – low pricing

• Fixed price >< menu pricing: website

Considerations for Supply Chain Drivers