Supply Chain Management_ Making Supply Meet Demand

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HBR case, Making Supply meet Demand

Transcript of Supply Chain Management_ Making Supply Meet Demand

  • 1. Abhishek Pratap SinghRojer ChoudharySaurabh BarwaniDushyant SinghAjay SinghSanjay Choudhar y

2. Evolution of the Integrated Logistics Concept What is the Right Supply Chain for Your Product? Making Supply Meet Demand in an Uncertain World Mass Customization at HP: The power of postponement The Power of Virtual Integration: An interview with Dell ComputersMichael Dell 3. 4. Materials Management Physical Distribution ManagementRaw materialSubassembliesManufactured partRacking materialsRaw materialSubassembliesManufactured partRacking materialsGoods inProcessInventoryFinishedGoodsInventoryFieldInventory CCuussttoommeerrFieldInventoryBusiness Logistics 5. Physical distributionPost-World War 2 business managementThe movement and handling of goods from the point of productionto the point on production to the point of consumption or userBusiness logisticsEmerged during 1980s~1990s as strategyFrom raw material through finished goods inventoryMaterials ManagementAll materials employed in the production of the finished productInventory control, purchasing, traffic, materials handling, receiving 6. Pressure on cost reductiono During the late 1950s~1960so Increasing marketing costs, well advanced production technologyo Relatively untouched areas distribution(10%~30%) Data processing technologyo Computer technology became increasingly powerful, less costlyo Automated inventory control Customer focuso Right time in the right quantityo Particular importance for those companies selling relativelyhomogeneous products Profit Leverageo 5% cost reduction more than 5% revenue increase 7. Vendor Procurement Customer(30%)Operations(30%)PhysicalDistribution(40%)Stage 1Stage 2(Internal Linkage)Stage 3(External Linkages) 8. Physical Distributiono 1950s~1960so Focus: to meet customer expectation at lowest possible costo Why the integration process started with finished goods The Largest single segment on inventory(40%) Directly impacts customer service Without venturing into production processes Low risk, high gaino Limitation Internal Linkageso Around 1985o 60%~100% of the firm's total inventory could be better managedo Elimination of buffer inventories between loops External Linkageso Efficiencies in relationships with vendors, customers, third partieso EDI, JIT, DRP 9. Cycles-time-to-marketo Removal of timeo Reducing the design-build-ship cycleo Process setup elimination Supply Chain Managemento Last half of the 1990s~2000so Both internal and external units are forged togethero Low-cost and high-value performance to the consumero More responsive inventory systems 10. Bar code scanners Electronic inventory Bar code scanners Electronic inventoryRetailerAutomatically track the flow of goodsElectronically transmit replenishment ordersFewer stockoutsAutomatically track the flow of goodsElectronically transmit replenishment ordersFewer stockoutsSupplierSynchronize production schedules to real-timeSynchronize production schedules to real-timedemand datademand dataFewer inventoryFewer inventory 11. Data erroro 35 leading retailer - 2/3 of SKU(Stock Keeping Unit)o Reduced the companys overall profits by 10%o Phantom stockouts Employees routinely put products in the wrong places 16% stockouts but the items available Why?o Human natureo Retailers distribution centers Wrong quantities for 29% of the SKUs, deviation from actual supplies of25% Items shipped in error that cost less than a certain amount Most stores perform audits solely for financial reasons, to measure theshrink of goods that have been lost or pilfered. Measure inventory by dollar value, not by item 12. Global competitionFaster product developmentVariety of productsGlobal competitionFaster product developmentVariety of productsNew TechnologyPoint-of-sale scannersElectronic data interchangeFlexible manufacturingAutomated warehousingRapid logisticPoint-of-sale scannersElectronic data interchangeFlexible manufacturingAutomated warehousingRapid logisticNew ConceptQuick responseEfficient consumer responseAccurate responseMass customizationLean manufacturingAgile manufacturingQuick responseEfficient consumer responseAccurate responseMass customizationLean manufacturingAgile manufacturingButExcess and shortage of productsMarkdowns and stockoutsex) U.S. food industry, poor coordination is wasting $30billionExcess and shortage of productsMarkdowns and stockoutsex) U.S. food industry, poor coordination is wasting $30billionWhy? Lack of framework for deciding 13. Physical functiono Function Converting raw materials into parts, component, finished goods Transporting all of them from one point in the supply chain to nexto Cost Production, transportation, inventory storage Market mediation functiono Function matched what consumers want to buyo Cost markdown, stock outs & dissatisfied customer 14. Supply Chain focusType Physically Efficient Process Market-Responsive ProcessPrimary purpose at lowest possible cost minimize stockouts & markdownsManufacturing focus maintain high average utilization deploy excess buffer capacityInventory strategy high turns, minimum inventory deploy significant buffer stocksLead-time shorten lead time as long as itdoesnt increase costinvest aggressively in ways toreduce lead timeChoosing suppliers cost and quality speed, flexibility, qualityProduct-designmaximize performance,minimize costmodular design in order topostpone product differentiation 15. Problemso Most companies still treat the world as if it were predictableo Poor job of incorporating demand uncertainty into their productionplanning processeso Design their planning processes as if that initial forecast trulyrepresented reality. why? its complicated to factor multiple demand scenarios into planning most companies simply dont know how to do ito Frequent introductions of new products have two side effects reduce the average lifetime of products demand is divided over a growing number of SKUs ex) GM Cadillac(Seville and Eldorado) vs. Buicks and Olds mobiles 16. Accurate responseo Improve forecasto Redesign planning processes to minimize the impact of inaccurate forecastscosts per unit of stockouts and markdowns, costs per unit of stockouts and markdowns, mmiisssseedd ooppppoorrttuunniittyy ccoossttpprreeddiiccttaabbllee wweellll mmaakkee iinn aaddvvaanncceeuunnpprreeddiiccttaabbllee ppoossttppoonnee ddeecciissiioonnss,, eeaarrllyy iinn tthhee sseelllliinngg sseeaassoonn 17. Obermeyero leading suppliers in the US fashion sky apparel marketo newly designed each yearo difficult to predict weather, fashion, trends, economyUntil the mid-1980sdesign and show samples to retailers in Marchplace production orders with suppliers in March ~ Aprilreceive goods an D/C in September~Octobership to retail outletsdesign and show samples to retailers in Marchplace production orders with suppliers in March ~ Aprilreceive goods an D/C in September~Octobership to retail outletsSales volume grewPressure to reduceSales volume grewPressure to reduceMore complex supply chain(global)Increased lead times, markdown, stockoutMore complex supply chain(global)Increased lead times, markdown, stockout 18. First step: Shorten lead time - Quick responseo Computerized systems order process time, time to computematerial requirementso Anticipate what materials it would require pre-position in a warehouseo Air freight to expedite delivery Second step: Improving forecasto Buying committee Group of company managers from a range of functional area Sales exceed by 200%, less than 15% of the forecast 19. Risk-based production sequencingnnoonn rreeaaccttiivvee ccaappaacciittyyrreeaaccttiivvee ccaappaacciittyyDemand forecast are most accurate market signals 20. Redesigno reduced the variety of zippers used (color, length)o use the same kinds of raw materials 21. orders be fulfilled ever more quicklyhighly customized products and servicesorders be fulfilled ever more quicklyhighly customized products and servicesPostponing the t Postponing the taasskk o off d diiffffeerreennttiiaattiinngg a a p prroodduuccttOrganizational-design principlesOrganizational-design principlesProductProcessSupply networkProductProcessSupply network 22. Modular Designo Flexibility, quickly, inexpensivelyo Common components, differential components Benefitso Maximize the number of standard components assemble those common components earlier stage postpone the differential componentso The modules of the product separately, possible at the same time shortens the total time required for productiono Easily diagnose production problems, isolate potential quality problems Considerationso Cost of materials < benefits of standardization( lead time, inventory,stockout) 23. Modular processo breaking down into independent sub processeso flexibility Process postponemento ex) paint store: a broad range of different paints color pigmentso ex) retail apparel industry: body-measurement process+cut-and-sew processo specific garment instead of stock in all sizes and colors, eliminating discountso relatively low-cost raw fabrics Process resequencingo ex) Benetton: dyeing, knitting knitting, dyeingo ex) HP disk driver: inserting printed circuit board, testing disk driver standard tests + customized tests Process standardization 24. Redesign networko Optimum number and location of factories and D/C Multi-function warehouseo perform light manufacturing 25. The dominant model in the PC industryA Value chain with arms-length transactions from one layer to the nextsuppliers manufacturer D/C customerDells direct modelEliminated the time and cost of third-party distributionsuppliers manufacturer customerVirtual integrationBlurring the traditional boundaries and roles in the value chainsuppliers masnuupfpalicetrusrer customer 26. Fast-cycle segmentationo The finer the segmentation, the better forecast what customerneeds and when