CHAPTER 1:INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

Marco BijvankSession 11 April 2014

WHAT IS SCM?

“Supply chain management encompasses the planning and management of all activities involved in

sourcing and procurement, conversion, and all logistics management activities. Importantly, it also

includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence,

supply chain management integrates supply and demand management within and across companies.”

Source: 2012 CSCMP’s definition of Supply Chain Management

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WHAT IS SCM?

Material flowsMonetary flowsInformation flows

Possible questionsto ask ourselvesrelated to SCM?

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SUPPLY CHAIN NETWORK STRUCTURE

first tier suppliers

4

first tier customer

second tier customer

SUPPLY CHAIN NETWORK STRUCTURE

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WHAT IS SCM?

1. Introduction to SCM2. Inventory Management and Risk Pooling 3. Network Planning 4. Supply Contracts 5. The Value of Information 6. Supply Chain Integration 7. Distribution Strategies8. Strategic Alliances9. Procurement and Outsourcing Strategies 10. Global Logistics and Risk Management

What about objectives?

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OBJECTIVES

Source: McKinsey 2011, respondents are 639 executives

What

do we

observe?

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COMPETITIVE ADVANTAGE

Can superior SCM lead to competitive advantage?

product leadership

customer intimacy

operational excellence

(best product) (best service)

(best performance)

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9

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HEINEKEN - EXPORT• Early ‘90-s: export less than 20% of total volume• 450 wholesale customers in US• Produce and distribute by order

– can, bottle and keg transported in one shipment• Demand increased

– lead time up to 60 days– high inventory level

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HEINEKEN - EXPORT

Seattle

Oakland

Long Beach

HoustonMiami

Charleston

Norfork

Boston

New YorkBaltimore

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HEINEKEN - EXPORT• STAR Chain in 2002:

• End 2006: more than 60% of volume is exported• Forecast for US 7 stock locations close to port

– lead time: 2-3 days– 1 container = 1 SKU 20% less containers– 20-25% cost savings

supplier

supplier

supplier

Planning

Produc-tion

Distri-bution

USA

Export

Netherlands

Retail

Retail

Retail

DC (non Heineken)

Catering

wholesale

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MAGNITUDE OF SUPPLY CHAINS

• Cost-breakdown of a product– profit 10%– supply chain cost 20%– marketing cost 25%– manufacturing cost 45%

• U.S. companies spend more than $1 trillion in supply-related activities (10-15% of GDP)– transportation 58%– inventory 38%– management 4%

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SUPPLY CHAIN: THE POTENTIAL

• The grocery industry could save 10% of operating cost ($30 billion) by using effective logistics strategies

• A typical box of cereal spends 104 days getting from factory to supermarket

• A typical new car spends 15 days traveling from the factory to the dealership (travel time is 5 days)

• Compaq estimates it lost $0.5 billion to $1 billion in sales because laptops were not available when and where needed

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SUPPLY CHAIN DISRUPTIONS AND CORPORATE PERFORMANCE

591 announcements of supply chain disruptions (production or shipment delays) from Wall Street Journal and Dow Jones News during 1989-2000• Sun Microsystems delays shipments of workstations and

servers, Dow Jones News Service, December, 14, 2000.• Sony Sees Shortage of Playstation 2 for Holiday Season,

The Wall Street Journal, September 28, 2000.• Boeing pushing for record production, finds parts

shortages, delivery delays, Wall Street Journal, June 26, 1997.

• Hershey will miss earnings estimate by as much as 10% because of problems in delivering order, Wall Street Journal, September 14, 1999.

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RESPONSIBILITY FOR DISRUPTIONS

intern

al

custo

mer

supp

lier

natur

e and

gove

rnmen

t

other

combin

ation

s

none

prov

ided

0

5

10

15

20

25

30

35

40 37%

19%17%

5% 6%

16%

% o

f firm

s

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REASONS FOR DISRUPTIONS

part

short

ages

ramp/r

oll-ou

t prob

lems

order

chan

ges b

y cus

tomers

produ

ction

prob

lems

deve

lopmen

t prob

lems

quali

ty pro

blems

none

prov

ided

0

5

10

15

20

25 23%

9%

13%10%

4%7%

16%

% o

f firm

s

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STOCK MARKET REACTION TO CORPORATE EVENTS

Operational eventsIncrease in R&D expenditure

1.4%Effective TQM implementation

0.6%Internal corporate restructuring 1.0%Plant closing

-0.7%Supply chain disruption

-10.2%

Marketing eventsChange in firm name

0.7%Brand leveraging

0.3%Celebrity endorsement

0.2%New product introduction

0.3%Delay introduction of new

-5.3% products

Financial eventsStock splits

3.3%Open market share repurchase

3.5%Increasing financial leverage

7.6%Decreasing financial leverage

-5.3%Seasoned equity offerings

-3.0%

IT eventsIT Investments

1.0%IT problems

-1.8%E-commerce

7.5%

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ARE SUPPLY CHAINS MORE PRONE TO DISRUPTIONS TODAY?

• Globalization of supply chains• Increased reliance on outsourcing and partnerships• Single sourcing• Over-concentration of operations• Little slack in the supply chain – focus on efficiency• Competition

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SUMMARY – KEY ISSUES IN SCM

• Strategic decisions• Tactical decisions• Operational decisions

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Has a huge potential when the objectives are aligned between all parties in the supply chain!

Can result in huge risk when not correctly performed