SCM: Supply Chain Management

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SCM Supply Chain Management

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• Tel [phone]
• Fax[phone]
• mailto ckfarn_at_mgt.ncu.edu.tw
• http//www.mgt.ncu.edu.tw/ckfarn
• 2005

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Supply Chain

• Here, we focus on the FIXED relationships among
  business buyers and sellers
• Supply Chain
• From a FOCAL to its suppliers
• Demand Chain
• From a customer to its FOCAL supplier

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What is a Supply Chain
TSMC
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Intel
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Customers, demand centers sinks
Field Warehouses stocking points
Sources plants vendors ports
Regional Warehouses stocking points
Supply
Inventory warehousing costs
Production/ purchase costs
Transportation costs
Transportation costs
Inventory warehousing costs
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Supply Chain Management

• Definition
• Supply Chain Management is primarily concerned
  with the efficient integration of suppliers,
  factories, warehouses and stores so that
  merchandise is produced and distributed in the
  right quantities, to the right locations and at
  the right time, and so as to minimize total
  system cost subject to satisfying service
  requirements.
• Notice
• Everyone is involved
• Systems approach to reducing costs
• Integration is the key

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Conflicting Objectives in the Supply Chain

• 1. Purchasing
• Stable volume requirements
• Flexible delivery time
• Little variation in mix
• Large quantities
• 2. Manufacturing
• Long run production
• High quality
• High productivity
• Low production cost

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Conflicting Objectives in the Supply Chain

• 3. Warehousing
• Low inventory
• Reduced transportation costs
• Quick replenishment capability
• 4. Customers
• Short order lead time
• High in stock
• Enormous variety of products
• Low prices

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The Dynamics of the Supply Chain
Customer Demand
Order Size
Time
Source Tom Mc Guffry, Electronic Commerce and
Value Chain Management, 1998
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Bull Whip Effect

• Fluctuation in customer demand
• Inaccurate forecast
• Long lead time
• Principles for Forecasting
• Forecasts are always inaccurate
• The longer the planning horizon, the worse the
  forecast is

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What Management Gets...
Customer Demand
Order Size
Time
Source Tom Mc Guffry, Electronic Commerce and
Value Chain Management, 1998
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What Management Wants
Volumes
Customer Demand
Time
Source Tom Mc Guffry, Electronic Commerce and
Value Chain Management, 1998
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The Dynamic Supply Chain

• Increasing customer power leads to increased
  demands on retailers
• Increased retailer power leads to increased
  demands on suppliers

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Supply Chain The Magnitude

• In 1998, American companies spent 898 billion in
  supply-related activities (or 10.6 of Gross
  Domestic Product).
• Transportation 58
• Inventory 38
• Management 4
• Third party logistics services grew in 1998 by
  15 to nearly 40 billion

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Supply Chain The Magnitude

• It is estimated that the grocery industry could
  save 30 billion (10 of operating cost) by using
  effective logistics strategies.
• A typical box of cereal spends more than three
  months getting from factory to supermarket.
• A typical new car spends 15 days traveling from
  the factory to the dealership, although actual
  travel time is 5 days.

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Supply Chain The Magnitude

• Compaq computer estimates it lost 500 million to
  1 billion in sales in 1995 because its laptops
  and desktops were not available when and where
  customers were ready to buy them.
• In 1993, IBM lost a major fraction of its
  potential sales of desktop computers because it
  could not purchase enough chips that control the
  computer displays.

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Supply Chain The Magnitude

• Boeing Aircraft, one of Americas leading capital
  goods producers, was forced to announce
  writedowns of 2.6 billion in October 1997.The
  reason? Raw material shortages, internal and
  supplier parts shortages. (Wall Street Journal,
  Oct. 23, 1997)

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Supply Chain The Potential

• In 10 years, Wal-Mart transformed itself by
  changing its logistics system. It has the highest
  sales per square foot, inventory turnover and
  operating profit of any discount retailer.
• Laura Ashley turns its inventory 10 times a year,
  five times faster than three years ago. This is
  achieved by using
• - New Information System
• - Centralized Warehouse

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ISSUESWhy Keep Inventory?

• Uncertainty in customer demands
• Uncertainty in the supply
• Uncertainty in quantity and quality
• Uncertainty in delivery time
• Uncertainty in costs
• Economies of scale

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General Systems Theory

• Input, Process, Output, Feedback

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Buffer Inventory

• Companies LOVES and HATES inventory
• The Best Inventory Management No inventory

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ISSUESDemand Forecast

• The three principles of all forecasting
  techniques
• Forecasting is always wrong
• The longer the forecast horizon the worse the
  forecast
• Aggregate forecasts are more accurate

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ISSUES Whats New in Logistics?

• Global competition
• Shorter product life cycle
• Increasing product variety
• New, low-cost distribution channels
• More powerful well-informed customers

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ISSUES Whats New in Logistics?

• New communications and information technologies
  POS and EDI technology
• Wireless technology
• Decision Support Systems
• Integrated systems
• Multi-modal transportation

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ISSUES Whats New in Logistics?

• New concepts in logistics
• Push Vs Pull strategies
• Cross docking
• Strategic alliances
• Manufacturing postponement
• Design for Logistics

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Visibility
Manufacturer
orders
Distributor
sell-through
Store
Store
Store
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Environmental Changes

• Processing and communication speed
• Response time
• Potential
• Requirements
• E.g. 982
• Things that were unimportant before becomes
  important

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Keys to improving SC effectiveness

• Visibility
• Postment