Ch 05 Supply Chain Integration
-
Upload
gadde-bharat -
Category
Documents
-
view
218 -
download
0
Transcript of Ch 05 Supply Chain Integration
-
8/8/2019 Ch 05 Supply Chain Integration
1/41
Supply Chain
Integration
Phil [email protected]
David Simchi-Levi
Philip Kaminsky
Edith Simchi-Levi
-
8/8/2019 Ch 05 Supply Chain Integration
2/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
The Old Paradigm:
Push Strategies Production decisions based on long-term
forecasts
Ordering decisions based on inventory &forecasts
What are the problems with push strategies? Inability to meet changing demand patterns
Obsolescence The bullwhip effect:
Excessive inventory
Excessive production variability
Poor service levels
-
8/8/2019 Ch 05 Supply Chain Integration
3/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
A Newer Paradigm:
Pull Strategies Production is demand driven
Production and distribution coordinated with true customerdemand
Firms respond to specific orders
Pull Strategies result in: Reduced lead times (better anticipation)
Decreased inventory levels at retailers and manufacturers
Decreased system variability
Better response to changing markets
But: Harder to leverage economies of scale
Doesnt work in all cases
-
8/8/2019 Ch 05 Supply Chain Integration
4/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Push and Pull Systems
What are the advantages of push
systems? What are the advantages of pull
systems?
Is there a system that has theadvantages of both systems?
-
8/8/2019 Ch 05 Supply Chain Integration
5/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
A new Supply Chain
Paradigm A shift from a Push System...
Production decisions are based on forecast
to a Push-Pull System
-
8/8/2019 Ch 05 Supply Chain Integration
6/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Push-Pull Supply Chains
Push-Pull Boundary
PUSH STRATEGY PULL STRATEGY
Low Uncertainty High Uncertainty
The Supply Chain Time Line
CustomersSuppliers
-
8/8/2019 Ch 05 Supply Chain Integration
7/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
A new Supply Chain
Paradigm A shift from a Push System... Production decisions are based on forecast
to a Push-Pull System Initial portion of the supply chain is replenished
based on long-term forecasts For example, parts inventory may be replenished
based on forecasts
Final supply chain stages based on actualcustomer demand. For example, assembly may based on actual orders.
-
8/8/2019 Ch 05 Supply Chain Integration
8/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
ConsiderTwo PC
Manufacturers: Build to Stock
Forecast demand
Buys components Assembles computers
Observes demand andmeets demand if
possible. A traditional push
system
Build to order
Forecast demand
Buys components Observes demand
Assembles computers
Meets demand
A push-pull system
-
8/8/2019 Ch 05 Supply Chain Integration
9/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Push-Pull Strategies
The push-pull system takes advantage ofthe rules of forecasting:
Forecasts are always wrong The longer the forecast horizon the worst is the
forecast
Aggregate forecasts are more accurate The Risk Pooling Concept
Delayed differentiation is another example ConsiderBenetton sweater production
-
8/8/2019 Ch 05 Supply Chain Integration
10/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
What is the Best
Strategy?
Pull Push
Pull
Push
I
Computer
II
IV III
Demanduncertainty
(C.V.)
Delivery cost
Unit price
L H
H
L
Economies of
Scale
-
8/8/2019 Ch 05 Supply Chain Integration
11/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Selecting the Best SC
Strategy Higher demand uncertainty suggests push
Higher importance of economies of scale suggests
push High uncertainty/ EOS not important such as the
computer industry implies pull
Low uncertainty/ EOS important such as groceries
implies push Demand is stable
Transportation cost reduction is critical
Pull would not be appropriate here.
-
8/8/2019 Ch 05 Supply Chain Integration
12/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Selecting the Best SC
Strategy Low uncertainty but low value of economies
of scale (high volume books and cds)
Either push strategies or push/pull strategiesmight be most appropriate
High uncertainty and high value ofeconomies of scale For example, the furniture industry
How can production be pull but delivery push?
Is this a pull-push system?
-
8/8/2019 Ch 05 Supply Chain Integration
13/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Characteristics and Skills
RawMaterial Customers
PullPush
Low Uncertainty
Long Lead Times
Cost Minimization
ResourceA
llocation
High Uncertainty
Short Cycle Times
Service Level
Responsiveness
-
8/8/2019 Ch 05 Supply Chain Integration
14/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Locating the Push-Pull
Boundary The push section:
Uncertainty is relatively low Economies of scale important Long lead times
Complex supply chain structures: Thus
Management based on forecasts is appropriate Focus is on cost minimization Achieved by effective resource utilization supply chain optimization
The pull section: High uncertainty Simple supply chain structure Short lead times
Thus Reacting to realized demand is important Focus on service level Flexible and responsive approaches
-
8/8/2019 Ch 05 Supply Chain Integration
15/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Locating the Push-Pull
Boundary The push section requires: Supply chain planning
Long term strategies
The pull section requires: Order fulfillment processes
Customer relationship management Buffer inventory at the boundaries: The output of the tactical planning process
The input to the order fulfillment process.
-
8/8/2019 Ch 05 Supply Chain Integration
16/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Locating the Push-Pull
Boundary
-
8/8/2019 Ch 05 Supply Chain Integration
17/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Impact of the Internet
Expectations Were High
E-business strategies were supposed to:
Reduce cost
Increase service level
Increase flexibility
Increase Profit
-
8/8/2019 Ch 05 Supply Chain Integration
18/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Reality is Different..
Amazon.com Example
Founded in 1995; 1st Internet purchase for most people
1996: $16M Sales, $6M Loss
1999: $1.6B Sales, $720M Loss 2000: $2.7B Sales, $1.4B Loss
Last quarter of 2001: $50M Profit
Total debt: $2.2B
Peapod Example
Founded 1989 140,000 members, largest on-line grocer
Revenue tripled to $73 million in 1999
1st Quarter of 2000: $25M Sales, Loss: $8M
-
8/8/2019 Ch 05 Supply Chain Integration
19/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Reality is Different.
Furniture.com launched in 1999, withthousands of products
$22 Million in sales the first nine months
Over 1,000,000 visitors per month
Died November 6, 2000
Logistics costs too high
-
8/8/2019 Ch 05 Supply Chain Integration
20/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Reality is Different.
Dell Example: Dell Computer has outperformed the competition in
terms of shareholder value growth over the eight yearsperiod, 1988-1996, by over 3,000% (see Anderson andLee, 1999)
-
8/8/2019 Ch 05 Supply Chain Integration
21/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
What is E-Business?
E-business is a collection of business models andprocesses motivated by Internet technology, and focusingon improving the extended enterprise performance
E-commerce is the ability to perform major commercetransactions electronically e-commerce is part of e-Business
Internet technology is the driver of the business change
The focus is on the extended enterprise: Intra-organizational
Business to Consumer (B2C)
Business to Business (B2B)
The Internet can have a huge impact on supply chainperformance.
-
8/8/2019 Ch 05 Supply Chain Integration
22/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
The Book Selling Industry
From Push Systems... Barnes and Noble
...T
o Pull Systems Amazon.com, 1996-1999 No inventory, used Ingram to meet most demand Why?
And, finally to Push-Pull Systems Amazon.com, 1999-present
7 warehouses, 3M sq. ft.,
Why the switch? Margins, service, etc. Volume grew
-
8/8/2019 Ch 05 Supply Chain Integration
23/41
Direct-to-Consumer:Cost
Trade-Off
Cost r - ff f or C. om
$0
$2$4
$6
$8
$10
$12
$14
$16
$18
$20
0 5 10 15
Numberof C's
Cost($
million
Tot l ost
I tor
Tr s ort tion
Fi ost
-
8/8/2019 Ch 05 Supply Chain Integration
24/41
-
8/8/2019 Ch 05 Supply Chain Integration
25/41
-
8/8/2019 Ch 05 Supply Chain Integration
26/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Challenges for On-line
Grocery Stores Transportation cost
Density of customers
Very short order cycle times Less than 12 hours
Difficult to compete on cost Must provide some added value such as convenience
Is a push-pull strategy appropriate? What might be a better strategy?
-
8/8/2019 Ch 05 Supply Chain Integration
27/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Less than 300,000
shoppers NNuummbbeerr ooff
ccuussttoommeerrss
AAvveerraaggee
oorrddeerr
DDeelliivveerryy cchhaarrggeess
WWeebbvvaann 2211000000 $$7711 $$44..9955 ffoorr> $$5500PPeeaappoodd 114400000000 $$112200 $$77..9955 ppeerroorrddeerr
HHoommeeGGrroocceerr..ccoomm 5500000000 $$111100 $$99..9955 > $$7755
NNeettGGrroocceerr..ccoomm 6600000000 $$7700 $$22..9999 ffoorr> $$5500SShhooppLLiinnkk..ccoomm 33330000 $$9988 $$2255 mmoonntthhllyy
SSttrreeaammlliinnee..ccoomm 33440000 $$110000 $$3300
Source: D. Ratliff
-
8/8/2019 Ch 05 Supply Chain Integration
28/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
A New Type of Home
Grocer grocerystreet.com
On-line window for retailers
The on-line grocer picks products at the store
Customer can pick products at the store or payfor delivery
-
8/8/2019 Ch 05 Supply Chain Integration
29/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
The Retail Industry
Brick-and-mortar companies establish virtual retailstores
Wal-Mart, K-Mart, Barnes & Noble, Circuit City An effective approach - hybrid stocking strategy
High volume/fast moving products for local storage
Low volume/slow moving products for browsing and
purchase on line (risk pooling)
Danger of channel conflict
-
8/8/2019 Ch 05 Supply Chain Integration
30/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
E-Fulfillment
How have strategies changed?
From shipping cases to single items
From shipping to a relatively small number ofstores to individual end users
What is the difference between on-line and
catalogue selling? Consider for instance Lands End which has
both channels
-
8/8/2019 Ch 05 Supply Chain Integration
31/41
-
8/8/2019 Ch 05 Supply Chain Integration
32/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
E-business Opportunities:
Reduce Facility Costs
Eliminate retail/distributor sites
Reduce Inventory Costs
Apply the risk-pooling concept
Centralized stocking
Postponement of product differentiation
Use Dynamic Pricing Strategies to ImproveSupply Chain Performance
-
8/8/2019 Ch 05 Supply Chain Integration
33/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
E-business Opportunities:
Supply Chain Visibility
Reduction in the Bullwhip Effect
Reduction in Inventory Improved service level
Better utilization of Resources
Improve supply chain performance Provide key performance measures
Identify and alert when violations occur
Allow planning based on global supply chain data
-
8/8/2019 Ch 05 Supply Chain Integration
34/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Distribution Strategies
Warehousing
Direct Shipping
No DC needed
Lead times reduced
smaller trucks
no risk pooling effects
Cross-Docking
-
8/8/2019 Ch 05 Supply Chain Integration
35/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Cross Docking
In 1979 Kmart had 1891 stores and average revenues per store of $7.25
million
Wal-Mart was a small niche retailer in the South with only 229stores and average revenues under $3.5 million
10 Years later Wal-Mart had
highest sales per square foot of any discount retailer
highest inventory turnover of any discount retailer Highest operating profit of any discount retailer.
Today Wal-Mart is the largest and highest profit retailer in the world
Kmart ????
-
8/8/2019 Ch 05 Supply Chain Integration
36/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
What accounts forWal-Marts
remarkable success A focus on satisfying customer needs
providing customers access to goods when and where they wantthem
cost structures that enable competitive pricing This was achieved by way the company replenished
inventory the centerpiece of its strategy. Wal-Mart employed a logistics technique known as cross-
docking goods are continuously delivered to warehouses where they are
dispatched to stores without ever sitting in inventory. This strategy reduced Wal-Marts cost of sales significantly
and made it possible to offer everyday low prices to theircustomers.
-
8/8/2019 Ch 05 Supply Chain Integration
37/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
Characteristics of Cross-
Docking:
Goods spend at most 48 hours in the warehouse
Cross Docking avoids inventory and handling
costs, Wal-Mart delivers about 85% of its goods through
its warehouse system, compared to about 50% forKmart
Stores trigger orders for products.
-
8/8/2019 Ch 05 Supply Chain Integration
38/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
System Characteristics:
Very difficult to manage Requires advanced information technology. Why? What
kind of technology? All ofWal-Marts distribution centers, suppliers and stores
are electronically linked to guarantee that any order isprocessed and executed in a matter of hours
Wal-Mart operates a private satellite-communications
system that sends point-of-sale data to all its vendorsallowing them to have a clear vision of sales at the stores
-
8/8/2019 Ch 05 Supply Chain Integration
39/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
System Characteristics:
Needs a fast and responsive transportationsystem. Why?
Wal-Mart has a dedicated fleet of 2000 truck thatserve their 19 warehouses
This allows them to ship goods from warehouses to stores in less
than 48 hours replenish stores twice a week on average.
-
8/8/2019 Ch 05 Supply Chain Integration
40/41
2003 Simchi-Levi, Kaminsky, Simchi-Levi
StrategyAttribute
irectShipment
rossocking
Inventory atWarehouses
Riskooling
TakeAdvantage
Transportationosts
ReducedInbound osts
ReducedInbound osts
olding
osts
o Warehouse
osts
o olding
ostsemand
ariabilityelayed
Allocationelayed
Allocation
Distribution Strategies
-
8/8/2019 Ch 05 Supply Chain Integration
41/41
2003 Simchi-Levi Kaminsky Simchi-Levi
Transshipment
What is the value of this?
What tools are needed? What if the system is
decentralized?