Supply Chain Management [It’s drivers and Obstacles]
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Transcript of Supply Chain Management [It’s drivers and Obstacles]
Supply Chain Management[It’s drivers and Obstacles]
A Framework for Supply Chain Drivers
Competitive Strategy
Supply Chain Strategy
Efficiency Responsiveness
Facilities Inventory Transportation
Information
Supply chain structure
Cross Functional Drivers
Sourcing Pricing
Logistical Drivers
FacilitiesRole in the supply chain
◦the “where” of the supply chain◦manufacturing or storage
(warehouses)Role in the competitive strategy
◦economies of scale (efficiency priority) - TOYOTA
◦larger number of smaller facilities (responsiveness priority) HONDA
Inventory: Role in the Supply ChainInventory exists because of a mismatch
between supply and demandSource of cost and influence on responsivenessImpact on
◦ material flow time: time elapsed between when material enters the supply chain to when it exits the supply chain
◦ throughput rate at which sales to end consumers occur I = RT (Little’s Law) I = inventory; R = throughput; T = flow time Example Inventory and throughput are “synonymous” in a supply
chain
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Inventory: Role in Competitive StrategyIf responsiveness is a strategic
competitive priority, a firm can locate larger amounts of inventory closer to customers
If cost is more important, inventory can be reduced to make the firm more efficient
Example – Nordstrom
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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
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Transportation: Role in the Competitive StrategyIf responsiveness is a strategic
competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it
Can also use slower transportation modes for customers whose priority is price (cost)
Can also consider both inventory and transportation to find the right balance
Example 3.3: Laura Ashley
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Components ofTransportation DecisionsMode 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 outsourceOverall trade-off: Responsiveness
versus efficiency
Information: Role in the Supply Chain
The connection between the various stages in the supply chain – allows coordination between stages
Crucial to daily operation of each stage in a supply chain – e.g., production scheduling, inventory levels
Internal and external systems connecting the parts of the firm to each other, customers and suppliers
Companies employ various systems:◦ Decision support systems◦ Warehouse management systems◦ Production planning and tracking◦ Transaction and sales processing◦ Communications systems: Email, Intranets
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Information: Role in the Competitive StrategyAllows supply chain to become
more efficient and more responsive at the same time (reduces the need for a trade-off)
Components of Information DecisionsPush (MRP) versus pull (demand information
transmitted quickly throughout the supply chain)
Coordination and information sharingForecasting and aggregate planningEnabling technologies
◦ EDI◦ Internet◦ ERP systems◦ Supply Chain Management software
Overall trade-off: Responsiveness versus efficiency
The Role of Sourcing in a Supply ChainPurchasing
◦ Also called procurement, is the process by which companies acquire raw materials, components, products, services, or other resources from suppliers to execute their operations
Sourcing ◦ Is the entire set of business processes required to purchase
goods (raw materials, components, products) and servicesOutsourcing
◦ Results in the supply chain function being performed by a third party
For any supply chain, the most significant decision is whether to outsource the function or perform it in-house
Sourcing ProcessOnce a decision to outsource has
been made, the sourcing process includes
Supplier scoring and assessment
Designcollaboration
Supplier selection and contract negotiation
Procurement
Sourcing planning and analysis
Sourcing Process
Supplier scoring and assessment◦ Process used to rate suppliers
Supplier selection◦ Choose the appropriate supplier(s)
Design collaboration◦ Work together with supplier when designing
components for the
final product Procurement
◦ Process placing orders and receiving orders from supplier(s)
Sourcing planning and analysis◦ Analyze spending across various suppliers, identify
opportunities
for decreasing cost
Supplier scoring and assessment
Designcollaboration
Supplier selection and contract negotiation
Procurement
Sourcing planning and analysis
Outsourcing versus off-shoringWhat is the difference?
A firm off-shores a supply chain function if it maintains ownership but moves the production facility offshore
A firm outsources if the firm hires an outside firm to perform an operation rather than executing the operation within the firm
Source: The A.T. Kearney Global Outsouring Index, 2009
Outsourcing in Practice
India and Philippines account for 50% of the world’s business process outsourcing (BPO) market
BPO is a form of outsourcing that involves the contracting of the operations and responsibilities of a specific business functions to a third-party service provider
Outsourcing in Practice
Outsourcing to China (Walmart)
About 85% of Walmart’s merchandise is made abroad◦ A whopping 10%-13% of everything China sends to
the US ends up on Walmart’s shelves Over $15 billion worth of goods per year Walmart has almost 600 people in China to make
purchases
◦ The price of portable DVD players dropped in half when Walmart found a Chinese factory to built in giant quantities Walmart’s success has forced other retailers and
manufacturers to reevaluate their supply chains
◦ Walmart has led the way to product safety through its “responsible sourcing program” In 2009, Walmart required “an identifiable trail” from raw
material to suppliers
How do third parties increase the supply chain surplus?
Lower cost and higher quality◦Specialized third party is further
along the learning curve for some supply chain activity
Capacity aggregation◦Increase SC surplus by aggregating
demand across multiple firms and gaining economies of scaleIntel’s family of mobile PC processors
gives consumers more choice by enabling PC makers to design notebooks of every shape and size
How do third parties increase the supply chain surplus?
Transportation aggregation◦Increases supply chain surplus by
aggregating transportation across a variety of shippers
Pricing: Role in the Supply ChainPricing determines the amount to
charge customers in a supply chain
Pricing strategies can be used to match demand and supply
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Pricing: Role in the Competitive Strategy
Firms can utilize optimal pricing strategies to improve efficiency and responsiveness
Low price and low product availability; vary prices by response times
Example: Amazon
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Components of Pricing DecisionsPricing and economies of scaleEveryday low pricing versus high-
low pricingFixed price versus menu pricingOverall trade-off: Increase the
firm profits
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