Chopra3 Ppt Ch01 FUY

Supply Chain ManagementSupply Chain Management

Chapter 1

Understanding the Supply Chain

1-1IE 753 - Chp. 1 Assist. Prof. F. Uney-Yuksektepe

What is a Supply Chain?What is a Supply Chain?

� Consists of all stages involved, directly or indirectly, in fulfilling a customer request

� SC includes manufacturers, suppliers, transporters, warehouses, retailers, and customers

� Example: Fig. 1.1 Detergent supply chain (Wal-Mart)

IE 753 - Chp. 1 Assist. Prof. F. Uney-Yuksektepe 1-2

Customer wants

detergent and goes

to Wal-Mart

Wal-Mart

Supermarket

Wal-Mart

or third

party DC

P&G or other

manufacturer

Plastic

Producer

Chemical

manufacturer

(e.g. Oil Company)

Tenneco

Packaging

Manufacturer

Timber

Industry

Chemical

manufacturer

(e.g. Oil Company)

Flows in a Supply ChainFlows in a Supply Chain

Customer

Information

Product

� Customer is an integral part of the supply chain

� Includes movement of information, funds, and products in both directions

� Typical supply chain stages: customers, retailers, distributors, manufacturers, suppliers

� All stages may not present in all supply chains(e.g., no retailer or distributor for Dell)

Supply Chain StagesSupply Chain Stages

IE 753 - Chp. 1 Assist. Prof. F. Uney-Yuksektepe

Supplier ManufacturerWholesaler/

DistributerRetailer Customer

Dell ComputerDell Computer

� Customer �� Dell’s web site �� Dell assembly plant �� Dell’s suppliers

� Web site provides the customer with information regarding pricing, product variety and product availability.

� Customer can enter the order, pay for the product and check the status of the order

The Objective of a Supply ChainThe Objective of a Supply Chain

� Maximize overall value created

� Supply chain value: difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request

� Value is correlated to supply chain profitability (supply chain surplus): difference between revenue generated from the customer and the overall cost across the supply chain

� Example: Dell receives $2000 from a customer for a computer (revenue)

� Supply chain incurs costs (information, storage, transportation, components, assembly, etc.)

� Difference between $2000 and the sum of all of these costs is the supply chain profit

� Supply chain profitability is total profit to be shared across all stages of the supply chain

� Supply chain success should be measured by total supply chain profitability, not profits at an individual stage

� Sources of supply chain revenue: the customer

� Sources of supply chain cost: flows of information, products, or funds between stages of the supply chain

� Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability

Decision Phases of a Supply ChainDecision Phases of a Supply Chain

� Supply chain design, planning and operation decisions play a significant role in the success or failure of a firm.

� SC decision phases may be categorized as (depending on the time frame during which the decisions made apply)◦ Supply chain strategy or design

◦ Supply chain planning

◦ Supply chain operation

Supply Chain Strategy or DesignSupply Chain Strategy or Design

� Decisions about the structure of the supply chain and what processes each stage will perform

� Strategic supply chain decisions◦ Locations and capacities of facilities

◦ Products to be made or stored at various locations

◦ Modes of transportation

◦ Information systems

� Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty

Supply Chain PlanningSupply Chain Planning

� Definition of a set of policies that govern short-term operations

� Fixed by the supply configuration from previous phase

� Starts with a forecast of demand in the coming year

Supply Chain PlanningSupply Chain Planning

� Planning decisions:◦ Which markets will be supplied from which locations

◦ Planned buildup of inventories

◦ Subcontracting, backup locations

◦ Inventory policies

◦ Timing and size of market promotions

� Must consider in planning decisions demand uncertainty, exchange rates, competition over the time horizon

Supply Chain OperationSupply Chain Operation

� Time horizon is weekly or daily� Decisions regarding individual customer orders� Supply chain configuration is fixed and operating policies are determined

� Goal is to implement the operating policies as effectively as possible

� Allocate orders to inventory or production, set order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders

� Much less uncertainty (short time horizon)IE 753 - Chp. 1 Assist. Prof. F. Uney-Yuksektepe 1-15

Process View of a Supply ChainProcess View of a Supply Chain

� Cycle view: processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages

� Push/pull view: processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push)

Cycle View of Supply Chain ProcessesCycle View of Supply Chain Processes

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement Cycle

Customer

Retailer

Distributor

Manufacturer

Supplier

Cycle View of a Supply ChainCycle View of a Supply Chain

� 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)

� Cycle view clearly defines processes involved and the owners of each process.

� Useful considering operational decisions because it specifies the roles and responsibilities of each member of the supply chain and the desired outcome of each process.

Customer Order CycleCustomer Order Cycle

� Involves all processes directly involved in receiving and filling the customer’s order

◦ Customer arrival

◦ Customer order entry

◦ Customer order fulfillment

◦ Customer order receiving

Replenishment CycleReplenishment Cycle

� All processes involved in replenishing retailer inventories (retailer is now the customer)

◦ Retail order trigger

◦ Retail order entry

◦ Retail order fulfillment

◦ Retail order receiving

Manufacturing CycleManufacturing Cycle

� All processes involved in replenishing distributor (or retailer) inventory

◦ Order arrival from the distributor, retailer, or customer

◦ Production scheduling

◦ Manufacturing and shipping

◦ Receiving at the distributor, retailer, or customer

Procurement CycleProcurement Cycle

� All processes necessary to ensure that materials are available for manufacturing to occur according to schedule

� Manufacturer orders components from suppliers to replenish component inventories

� However, component orders can be determined precisely from production schedules (different from retailer /distributor orders that are based on uncertain customer demand)

Push/Pull View of Supply Chain ProcessesPush/Pull View of Supply Chain Processes

� Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand

� Pull: execution is initiated in response to a customer order (reactive)

� Push: execution is initiated in anticipation of customer orders (speculative)

� Push/pull boundary separates push processes from pull processes

Push/Pull View of Supply ChainsPush/Pull View of Supply Chains

(make(make--toto--stock environment)stock environment)

Procurement,Manufacturing and

Replenishment cycles

Customer Order

Customer

Order Arrives

PUSH PROCESSES PULL PROCESSES

Push/Pull View of Supply Chain Push/Pull View of Supply Chain

ProcessesProcesses

� Useful in considering strategic decisions relating to supply chain design – more global view of how supply chain processes relate to customer orders

� The relative proportion of push and pull processes can have an impact on supply chain performance

Supply Chain Macro Processes in a Firm Supply Chain Macro Processes in a Firm

� Supply chain processes discussed in the two views can be classified into:

◦ Customer Relationship Management (CRM)

◦ Internal Supply Chain Management (ISCM)

◦ Supplier Relationship Management (SRM)

� Integration among the above three macro processes is critical for effective and successful supply chain management

Supply Chain Macro ProcessesSupply Chain Macro Processes

Supplier Relationship

Management

Internal Supply Chain

Management

Customer Relationship

Management

Supplier Firm Customer

�Source

�Negotiate

�Buy

�Design Collaboration

�Supply Collaboration

�Strategic Planning

�Demand Planning

�Supply Planning

�Fulfillment

�Field Service

�Market

�Sell

�Call Center

�Order Management

Examples of Supply ChainsExamples of Supply Chains

� Gateway: a direct sales manufacturer

� Zara: apparel manufacturing and retail

� W. W. Grainger and McMAster-Carr: MRO suppliers

� Toyota: a global auto manufacturer

� Amazon.com: an e-business

GatewayGateway� Manufacturer of PCs, founded in 1985

� Started as a direct sales manufacturer with no retail

� In 1996, it was one of the first PC manufacturers to start selling PCs online.

� In 1999, it had 3 plants in US, one in Ireland, one in Malaysia.

� In the late 1990s, it introduced an aggressive strategy of opening Gateway retail stores throughout the US.

� By 2002, it had ~280 retail stores in the US.

� Avoid carrying any finished-goods inventory in retail stores.

� Simply uses these stores for customers to try the PCs and help in deciding on the right configuration to purchase.

� When customers placed their order, PCs were manufactured to order and shipped from one of the assembly plants.IE 753 - Chp. 1 Assist. Prof. F. Uney-Yuksektepe 1-29

GatewayGateway� Initially, investors rewarded Gateway for this strategy and

raised the stock price to more than $80 per share in late 1999s.

� By November 2002, Gateway shares had dropped to less than $4 and lose a significant amount of money.

� Plants in Salt Lake City, Ireland and Malaysia were shut.

� By 2004, it had closed all its retail outlets and reduced the number of configurations offered to customers.

� In August 2007, Taiwan’s Acer purchased Gateway for a price of $710 million.

� By 2008, Gateway computers were sold through over ten different retail outlets including Best Buy and Circuit City.

GatewayGateway

� Why did Gateway have multiple production facilities in the US?

� What advantage or disadvantages does increasing the number of production facilities offer?

� How does Gateway decide which production facility will produce and ship a customer order?

� What factors did Gateway consider when deciding which plants to close?

� Why did Gateway choose not to carry any finished-product inventory at its retail stores?

GatewayGateway

� Should a firm with an investment in retail stores carry any finished-goods inventory?

� What are the characteristics of products that are most suitable to be carried in finished-goods inventory?

� What characterizes products that are best manufactured to order?

� Is the Dell model of selling directly without retail stores always less expensive than a supply chain with retail stores?

� What are the supply chain implications of Gateway’s decision to offer fewer configurations?

ZaraZara� Chain of fashion stores owned by Inditex, Spain’s largest apparel manufacturer and retailer.

� In 2007 � sales of about 9.5 million Euros from more than 3600 retail outlets in 68 countries.

� In 2007, company opened about two new stores for each day.

� With a volatile customer demand, Zara has grown rapidly with a strategy to be highly responsive to changing trends with affordable prices.

� Design-to-sales cycle times in the apparel industry have traditionally averaged more than six months, Zara has achieved cycle times of four to six weeks.

ZaraZara� Thus, Zara’s products on display match customer preferences much more closely than the competition.

� As a result, Zara sells most of its products at full price and has about half the markdowns in its stores compared to the competition.

� Zara manufactures its apparel using a combination of flexible and quick sources in Europe and low cost sources in Asia.

� This contrasts with most apparel manufacturers, who have moved most of their manufacturing in Asia.

� ~%40 of the manufacturing capacity is owned by Inditex and the rest is outsourced.

ZaraZara

� More than 40% of its finished-goods purchases and most of its in-house production occur after the sales season starts.

� For a typical retailer this amount is less than %20.

� The responsiveness and the postponement of decisions until after trends are known allow Zara to reduce inventories and forecast error.

� Zara has also invested heavily in information technology to ensure that the latest sales data are available to derive replenishment and production decisions.

ZaraZara

� In 2007 � 8 distribution centers located in Spain serve for all over the world

� Averaged delivery time � 24 hours for European stores, up to a maximum of 40 hours for stores in America or Asia

� Shipments from the DCs to stores were made several times a week � allows inventory to closely match customer demand

� In 2007 � globally 627 million garments are distributed

ZaraZara

� What advantage does Zara gain against the competition by having a very responsive supply chain?

� Why has Inditex chosen to have both in-house manufacturing and outsourced manufacturing?

� Why has Inditex maintained manufacturing capacity in Europe even though manufacturing in Asia is much cheaper?

� Why does Zara source products with uncertain demand from local manufacturers and products with predictable demand from Asian manufacturers?

� What advantage does Zara gain from replenishing its stores multiple times a week compared to a less frequent schedule?

� How does the frequency of replenishment affect the design of its distribution system?

� What information infrastructure does Zara need in order to operate its production, distribution, and retail network effectively?

AmazonAmazon� Amazon. Com � sells books, music and other items over the internet

� Based in Seattle, fills all orders using books purchased from a distributor in respond to customer orders

� Different than traditional bookstore, which usually purchases directly from publishers and stocks book in anticipation of customer orders.

� In 2008 � 8 warehouses in the U.S. and 15 warehousesin the rest of the world

� Uses U.S. postal service, UPS and FedEx to send books to customers

� Expand the set of products � toys, apparel, electronics, jewelry and shoes.

AmazonAmazon

� Has been profitable since 2003.

� Several bricks-and-mortar players (such as Borders and Barnes & Noble) have also started selling using the internet channel.

� Borders � used Amazon

� BarnesandNoble.com �initially a separate company (Original strategy)

� Barnes & Noble � the retail and online supply chains shares warehousing and transportation to some extent

� Departure from the company’s original strategy

AmazonAmazon

� Why is Amazon building more warehouses as it grows?

� How many warehouses should it have and where should they be located?

� What advantages does selling books via the internet provide over a traditional bookstore?

� Are there any disadvantages to selling via the internet?

� Should Amazon stock every book it sells?

� What advantage can bricks-and-mortar players derive from setting up an online channel?

� How should they use the two channels to gain maximum advantage?

� For what products does the e-commerce channel offer the geratest advantage? What characterizes these products?

Chopra3 Ppt Ch01 FUY

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