EMBA 716 2008 Chapter 14

EMBA 7162008

Chapter 14Global Supply

Chain Management

Outline

• Supply chain management• Trends in supply chain management• Importance of supply chain management• Building a superior supply chain• Emerging technology - RFID• Keys to offshore success• Ethics in supply chain management

Tomorrow’s Supply Chain

“Tomorrow's supply chains will be built on information. Business processes will stretch across departments, business units, and organizations. Supply and demand will be synchronized around the world and around the clock. Tomorrow's supply chains demand complete visibility and access to information, executed with the greatest efficiency, in the most cost effective way.”

Oracle

http://www.oracle.com/index.html

Supply Chain Management

• “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.”

Council of Supply Chain Management Professionals

buy make move sell

Supply Chain Network

• A supply chain is essentially a network consisting of suppliers, manufacturers, distributors, retailers and customers

• Involves three types of flows requiring close coordination: – “material flows, which represent physical product flows from

suppliers to customers as well as reverse flows for product returns, servicing and recycling”

– “information flows, which represent order transmission and order tracking, and which coordinate the physical flows”

– “financial flows, which represent credit terms, payment schedules and consignment arrangements”

• These flows often referred to as the ‘3Bs’ of SCM; “boxes, bytes and bucks.”

(http://knowledge.wharton.upenn.edu/papers/download/BCGSupplyChainReport.pdf)

Buyer Supplier

Freight Forwarder Freight Forwarder

Terminal at Origin

Surface Carriers

Ocean Carrier

BankBank

Air Freight

Terminal at Destination

Terminal at Origin

1. Request for Quote

2. Quotation

3. Purchase Order

4. P. O. Confirmation

5. Shipper Order/Instr.+ Invoice + Packing List

6. Ship Order/ Instr.

11. Pre-alert/Arrival Notice

7b. Shipping Order Cycle (S/O, BoL)7a. Ship Instr. Cycle

8. Gate-out/ Gate-in

10. Bay Plan

13. Payment Order14. Remittance

15. Import Documents

16. Proof ofDelivery

9. Bay Plan

Capture Gate Movement

(Gate-out/in)

Capture Gate Movement

12. Export Documents

8. Gate-in/ Gate-out

5. Shipper Order/Instr. + Invoice

7a. Manifest

7a. Manifest 7a. Manifest

Terminal at Destination

IBM’s Supply Chain is Complex, Extensive, Contains High Value Items & Controlled Technologies

(http://www.wto.org/english/tratop_e/inftec_e/symp_oct04_e/gregory_e.ppt)

Importance of SCM

• Leading organizations today are using the supply chain to enhance differentiation, increase sales, penetrate new markets & channels, and gain a competitive advantage – Wal-Mart and Dell

• Cisco: In 2001, the company announced that it was writing down $2.2 billion in unusable inventory due to supply chain problems. The materials planning system allowed demand for components to be double- and triple-counted across its suppliers. Cisco’s stock was $82 in March 2000, but fell to $13.19 in April 2001.

• Nike: In May 2001, the company announced that sales for the preceding quarter were $100 million below expectation because of supply chain problems. Its stock dropped 20%, an amount so large that the $100 million loss in sales appeared like small change.

(http://www.computerworld.com/softwaretopics/erp/story/0,10801,86908,00.html)

Trends in SCM

• Increasing globalization, complexity, and speed• "Global sourcing will be the next battle ground for

competition. Within five years, businesses that do not make global sourcing an imperative will be struggling not only to compete, but also to survive.“

Aberdeen Group• “The major trends in business right now — low-cost

country sourcing, outsourcing, customization, globalization and more — all create tremendous complexities in a supply chain. In most cases, however, companies have not changed how they manage this critical part of the business.”

Steve MatthesenVP and global leader for supply chain at BCG

(http://knowledge.wharton.upenn.edu/papers/download/BCGSupplyChainReport.pdf)

Flexibility and Changing Market

• “Complexity and demand for new products continue to overwhelm supply chains. Globalization has done its part to increase complexity, as have new regulatory requirements to mitigate security risks. Retailers are also stoking the complexity fires by setting ever-higher standards for their suppliers. As customers become more demanding and companies struggle to please them with rapid introductions of new products, innovation-driven industries risk developing supply chains clogged with inefficiency, cost, and inventory. In an environment of global complexity, what companies need most is supply chain flexibility. The more flexible you are, the faster your supply chain can respond to the market, and the better your chances to capture competitive advantage.”

Randy Garber and Suman Sarkar, A.T. Kearney(http://www.scmr.com/article/CA6406208.html)

Building a Superior Supply Chain

“Evidently, it isn’t by becoming more efficient that the supply chains of Wal-Mart, Dell, and Amazon have given those companies an edge over their competitors. According to my research, top performing supply chains possess three very different qualities. First, great supply chains are agile. They react speedily to sudden changes in demand or supply. Second, they adapt over time as market structures and strategies evolve. Third, they align the interests of all the firms in the supply network so that companies optimize the chain’s performance when they maximize their interests. Only supply chains that are agile, adaptable, and aligned provide companies with sustainable competitive advantage”

Hau Lee, Stanford University(Hau Lee,“Building a Triple-A Supply Chain,” Harvard Business Review, October 2004)

7-Eleven Japan

(Hau Lee,“Building a Triple-A Supply Chain,” Harvard Business Review, October 2004)

• Mission: “To consistently serve the changing needs of customers for their convenience.”

• 34,200 stores in 14 countries • Inventory turnover of 55 and very low stock out rates• Invested in real time system to track changes in

customer preference and data on sales and consumers at every store

• The information allowed the supply chain to detect demand fluctuations between stores, alert suppliers to shifting demand, help efficient inventory allocation among stores, and to ensure timely restocking.

• Reduce cycle time

7-Eleven Japan

• Deliveries to each store are scheduled within a ten- minute margin and several times daily

• A penalty (= gross margin of the products delivered) is assessed on the carrier if truck is late by more than 30 minutes

• Trust - truck’s contents are not verified during delivery, saving time and money since drivers don’t have to wait after dropping off goods.

• Store shelves are reconfigured at least 3 times a day to cater to different customer segments and requirements at different time of day.


7-Eleven Japan

• 7-Eleven’s logistics system effectiveness is considered legendary.

• Within 6 hours of the Kobe earthquake on January 17, 1995, when relief trucks were moving slowly on the highways, 7-Eleven, with the help of 7 helicopters and 125 motorcycles, delivered 64,000 rice balls to the city.

• Wal-Mart?


• The technology that’s getting the biggest buzz along the supply chain right now is RFID (Radio Frequency Identification) and positioned to replace bar codes to measure the flow and location of goods.

• “The possibilities with RFID are endless. Tagging products will lead to real improvements for customers and staff with instant information and improved availability”

Colin Cobain, UK IT Director, TESCO• “With our large-scale introduction of RFID, we will for

the first time cover the entire process chain with this technology.”

Zygmunt Mierdorf, CIO at Metro Group.

Radio Frequency Identification

RFID

• RIFD (Radio Frequency Identification) is a technology that has been around for decades.

• At a basic level, “it is a technology that involves tags that emit radio signals and devices called readers that pick up the signal.”

• RFID tags “consist of a chip for holding data and an antenna for communicating the data through radio waves.”

(http://zonecours.hec.ca/documents/198329.GeneralRFID,version25novembre.pdf)

How RFID Works


Supply Chain – Global Vision

Supply Chain – RFID

(Principles of Operations Management, Heizer & Render, 5th Edition)

1500 Eurosin wallet

Serial numbers:597387,389473

…

Wigmodel #4456

(cheap polyester)

30 items of lingerie

Das Kapital and Communist-

party handbook

Replacement hipmedical part #459382

Here’sMr. Jonesin 2020…

The Consumer Privacy Problem!

(http://www.rsasecurity.com/rsalabs/staff/bios/ajuels/publications/five_cent/RFID_five%20cent.ppt)

Benefits of RFID

• Inventory visibility will increase– Stock can be moved without explicit scanning– Easier detection of source of theft and losses– Supply chain “speed” will be accelerated– Faster reading (scanning) - faster goods turnover– More detailed data about a product can be read– Improved collaboration with business partners

• More information can be exchanged in “real time” which improves demand and forecasting accuracy– Standardized technology means same information

can be understood by multiple business partners• Potential to authenticate product & combat fake goods


(http://www.atkearney.com/shared_res/pdf/OffshoringFinal_S.pdf)

Figure 2. Popular Destinations



Figure 3. Aggregate Offshore Results


Keys to Offshore Success

• Supplier selection: Don't focus on price, focus on capability

• Transition: Calibrate ramp up speed to experience and send staff overseas

• Focus on operational performance, not cost savings• Invest in the management team and don’t outsource

ownership• Mitigate common problems by communicating openly


Figure 7. Top companies focus more on operational performance


Fig. 8. Linking Mindset, Management Team and Results


Figure 10. Open Communications

Ethics in Supply Chain

• “Being an ethical company isn’t enough anymore. Enterprises are being judged by the company they keep, which means the whole supply chain must be ethical. If a dishonest supplier 6,000 miles away disregards manufacturing standards to make more profit, it reflects on the U.S. company that hired the supplier. The public holds the supplier accountable— not the outsourced vendor.”

• “Supplier ethics is a serious and growing problem. It is one of the biggest ethics issues enterprises face today. It impacts revenue and market share because consumers reward companies that deliver a safe product to market and punish those that do not.”

Richard CelliniVice President, Integrity Interactive(“How Ethical is Your Supply Chain?” January 2008, www.industryweek.com)

Ethics in Supply Chain

• Integrity Interactive Corp., a provider of risk reduction and management services, found in their survey that “78% of companies do not include suppliers in their company compliance and ethics programs, and nearly 58% are not sure if their company regularly assesses ethics risks in their supply chain.”

• The Integrity Interactive study was in response to the recent outcry associated with tainted dog food & toothpaste, lead paint in toys, automotive recalls and other supply chain problems.

• Mattel, the maker of Barbie dolls and Hot Wheels cars, recalled nearly one million toys made in China in the US in 2007.

(“How Ethical is Your Supply Chain?” January 2008, www.industryweek.com)

(http://www.nytimes.com/2007/08/02/business/02toy.html)

Supplier Ethics Management

• Supplier ethics management (SEM) is an emerging business practice

• SEM “aims to help companies manage their suppliers and supply relationships through strategies, programs and metrics that better align supplier business conduct with purchaser standards.”

• “The goal,” Cellini explains, “is to reduce a purchasing company’s overall risk of corporate integrity failure in the supply chain by aligning supplier conduct with purchaser standards in three major areas of corporate integrity: compliance, ethics and corporate responsibility.”


5 Tenets of SEM

• Incorporate ethics and compliance into the supplier selection process

• Compile historical profiles of key suppliers compliance • Allocate ethics and compliance personnel to track

major supply relationships• Regular assessments of supplier ethics• Segment suppliers according to importance and ethics

risks


Thank You

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EMBA 716 2008 Chapter 14

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