Supply Chain Operations Flow Supply Chain Configurations Supply

Supply Chain • Operations Flow • Supply Chain Configurations • Supply Chain Strategies 1

Supply Chain Overview Goods/Services: Value Flow Requirements Retailer Customer Information Flows Distributor Producer / Suppliers Customer Service Payments: Funds Flow 2

Flexible Flows at Health Clinic Physical Exam D Physical Exam Flu P R Broken arm D: Doctor (exam room) T R: Radiology (X ray) Flu T: Triage (assess severity) B B: Blood test P: Pharmacy A: Front-end assembly Line Flows at Car Assembly Plant H: Hood attachment F: Fluid filling 6 Cylinder Mid-size A S: Start-up & testing 6 Cylinder Mid-size H F S 4 Cylinder Compact Operation Flows 3

Operations Flow and Competitive Strategy Flexible Flows Line Flows • Customization • • Low Volumes • • High Design Quality • • Long Delivery Time • • More cost • 4

Relationship between Flows and Volume Jumbled flows Flexible flows • Tool and die shop • Health Center Intermediate flows Some dominant flows • Branch offices • Print shop Line flows • Assembly plant • Oil refinery Linear flows Low Medium High Volume 5

Bill of materials A Ladder-back Chair Ladder-back subassembly Back legs Back slats Seat subassembly Seat frame Seat-frame boards Front legs Leg supports Seat cushion 6

Materials Requirements Planning Master Production Schedule Inventory Records MRP Explosion Bill of materials Materials Requirements Plan 7

Materials Requirements Planning MRP Explosion Materials Requirements Plan • Release new orders • Adjust Due date • Supplier schedules • Capacity Requirements Plan Cost and Price Data Manufacturing Resource Planning • Performance Reports 8

MRP Implementation Prerequisites • Computing support for product and parts variety • Accurate production schedule, inventory records, BOM Favorable Conditions • Number of BOM levels > 6 • Large lot sizes • Low volatility 9

Supply Chain • Operations Flow • Supply Chain Configurations • Supply Chain Strategies 10

Supply Chain Management: Trends • Link manufacturers, retailers, customers & suppliers • Streamline materials flow • Manage demand fluctuations, global sourcing, shorter life cycles, and lower brand loyalty • Customer service, growth, revenue enhancement Need for information integration across the chain 11

Supply chain for a Manufacturer Customer Distribution Center 1 Customer Distribution Center 2 Manufacturer S S s s Tier 1 Suppliers Tier 2 Suppliers S S s s 12

The Bullwhip Effect in Supply Chains Customers Distributors Manufacturers Order variability increases up the chain leading to • Insufficient / Excessive inventory • Poor product forecasts • • • 13

Causes Behind the Bullwhip Effect 1. Forecast updating. Longer the lead time, greater the swings. – Share demand data with upstream member – Upstream member controls inventory (e. g. , Vendor Managed Inventory) – Bypass the distribution system (sell direct). – Shorten lead time. 2. Order batching. Full truck load orders cause bigger fluctuations – Share demand data with upstream member – Use electronic ordering – Use mixed SKU shipping – Use a 3 rd party logistics company 14

Causes Behind the Bullwhip Effect (contd. ) 3. Price fluctuations. Promotions and trade deals encourage forward buying. – Reduce the frequency and level of discounting – Use every day low price policy 4. Rationing. Manufacturer allocates product in short supply based on orders. – Allocation based on past sales – Tighten manufacturer’s return policy – Advance orders to help increase capacity 15

Push-Based vs. Pull-Based Supply Chain Customer Purchase Manufacturer • Forecast • Master Scheduling • Stock Distribution Center • Manual ordering Retail Store • POS data collection • Perpetual inventory control • Automatic electronic ordering Distribution Center • Order point based on forecast • Deals, promotion, forward buying • Automatic electronic ordering • Manual ordering • Shipping container marking • EDI Retail Store • Manage shelf inventory • Promotions • Manual order entry Customer Purchase Manufacturer • POS data drives scheduling • Short cycle manufacturing • Advance shipping notice • Barcode scanner 16

Pull System Characteristics Requirements Benefits Process Redesign New Technologies Manufacturing capability 17

Supply Chain Dynamics External • Volume / product mix changes from customers • Late / under-filled shipments Internal • Internal shortages / breakdowns • Engineering changes/ new products/ sales promotions • Information errors (e. g. , forecasting errors) 18

Supply-Chain Performance Measures Operations Measure Financial Measure Aggregate inventory value Current assets Weeks of supply Working capital Inventory turns Working capital Production and material costs Contribution margin Percentage defects Contribution margin Percentage on-time delivery Revenue New-product development time Revenue Supplier lead time Working capital 19

Matching Environments with Supply Chains 20

Design Features for Supply Chains 21

Supply Chain • Operations Flow • Supply Chain Configurations • Supply Chain Strategies 22

Competitive Advantage in the Supply Chain Access and control of technological capabilities Proprietary Single supplier • Supplier owns technology • Joint design, full protection • Advantage to supplier • Full advantage Generic Many suppliers Custom Tailored • Technology in public domain • Joint ownership, some protection • No advantage possible • Variable advantage Many Customers Single Customer 23

Appropriate B 2 B Relationships Core strategy Total equity Investment stake Insource Strategic alliance Joint development Control over capabilities Performance partnership Long term contract Preferred suppliers Outsource Off Competitive bids Short term contracts Spot market strategy Close collaboration Relational Competence Market competition 24

Rely on Competition Criteria Strategies • Over-supply in market • • Commoditization • • Rapid innovations • • Price collapse • • Testing suppliers • 25

Rely on Collaboration Criteria Strategies • Complementary capabilities • Long term contracting • Access to vital assets • Share sales data • Required for market access • Joint R&D • Enduring relationships • Share cost data • Common goals • Joint marketing 26

Redesign of Supply Chain Harmonize, Rationalize Electronic Chain Cut Low Value Work • SKU reduction • Intranet / Extranet / Internet • Outsource • Process Design • On-line catalogs • Preferred suppliers • e-Purchasing • Certification • Integrated platform • Supplier reduction • Supplier involvement • Brand rationalization • EDI • Efficient Consumer Response • Transaction processing • Share schedule • Supplier managed inventory • Purchasing cards 27

Current Focus Required Focus Typical Activities: 1 2 3 4 5 6 1 7 4 5 6 7 8 9 10 2 3 1. New product 2. Design for manufacturability 3. Strategic cost management 4. Electronic chain 5. Breakthrough projects 6. Joint training 7. Contract management 8. Requisitioning 9. Stock control 10. Low value purchases 28

Change Management Strategic Change Business Transformation Process Change Strategic Impact Functional Change Capability Major Project Strategic Alliance Outsource Web procurement Analysis Quick Win Restructure Cost analysis Supplier reduction Incremental Change Short Term Migration Plan Long term 29

Challenges of Supply Chain Redesign High Transformational Leadership Supply Chain Realignment Opportunistic activity Process Initiatives Internal Support Low External Demand for Change High 30