Supply Chain

Supply Chain Options

S1

P1

S2

S3

S4

P2

P3

C1

C2

C3

Suppliers Plants Customers

Supply Chain Strategies

• Low Cost single supply chain for all products and customers

• Differentiation unique supply chains by product or customer groups

• Responsiveness customer focused, information technology for speed and reengineering, advanced logistics planning

• Portfolio Approach supply chain platforms (analogy: manufacturing cells)

Customers and capabilities

• Understanding the customer and supply chain uncertainty

• Understanding the supply chain capabilities

• Achieving strategic fit – Redesign the supply chain– Alter strategy

Causes of demand variations

• Quantity of the product needed in each lot

• Response time that customers are willing to tolerate

• Variety of products needed

• Service level required

• Price of the product

• Desired rate of innovation in the product

Implied demand uncertainties

Customer Needs Implied Demand Uncertainty

Range of quantity required increases

Lead time decreases

Variety of products required increases

Number of channels for product acquisition increases

Rate of innovation increases

Required service level increases

Increases because a wider range of the quantity required implies greater variance in demand

Increases because there is less time in which to react to orders

Increases because demand per product becomes more disaggregate

Increase because the total customer demand is now disaggregated over more channels

Increases because new products tend to have more uncertain demand

Increase because the firm now has to handle unusual surges in demand

Supply Source Capability Supply Uncertainty

Frequent breakdowns Unpredictable and low yields Poor qualityLimited supply capacity Inflexible supply capacityEvolving production process

IncreasesIncreasesIncreasesIncreasesIncreasesIncreases

Supply uncertainty

Efficiency/responsiveness

Highly efficient Integrated steel mills: Production scheduled weeks or months in advance with little variety or flexibility

Somewhat efficient Hanes apparel: A traditional make-to-stock manufacturer with production lead time of several weeks

Somewhat responsive

Most automotive production: Delivering a large variety of products in a couple of weeks

Highly responsive Dell: Custom-made PCs and servers in a few days

Supply Chain Matching

Match Mismatch

Mismatch Match

Functional Products

Innovative Products

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Supply Chain Dynamics

2-tier Supply Chain

Bull-Whip Effect

Manufacturer Retailer Consumer

Supply Chain Dynamics

Causes of Bullwhip

• Number of tiers in supply chain

• Order arrival lead time

• Forecast variations

• Order batching

• Capacity constraints

• Price increase

Elements of strategy

• Structure and Ownership

• Infrastructure and Process Alignment

• Sustaining advantage

Structure & Ownership• Supply chains for individual products (multiple

markets) – Saturn car, collaborative product design, outsourcing

• Supply chains for individual markets (multiple products) – Geographical region (China), customer segments,

logistics

• Product and Process Matching• Channel Design

– Business models

Electronic proximity

Business model

• Partners – PC Supplier– Ford Motor Company– Ford Employees– Buyer-Club– Vendors in Buyer-Club

The model

• PC Associates acquire PCs at a discount • PCs are given to Ford for its employees free of charge• Ford pays $25 per month for Internet access per

employee, but charges $5 per month from the employees

• Employees belong to the buyer-club on the PCA web page

• Vendors join the buyer-club to take advantage of economies of scale. Buyers are given Price Discounts

• Buyer-Club profits are shared three ways: Vendors, PCA, and Ford

Process Alignment

• Managing Material Flow – demand assessment, inventory location and

sharing, supplier contracts

• Coordination and Control – monitoring and accountability, troubleshooting

• Managing Flow of Information

– routing, access and transparency, distributed-databases, strategic/operational

• Leveraging Connectivity – EDI/shareware/Intranet, online learning,

transaction-speed, waste-reduction

Telecommunication Supply Chain

Figure 9.17: Telecommunication Industry: Supply Chain for Total Customer Solution

Switching/Routers

BackbonesAccess

ProvidersServicesProtocols

Wireless

Optical

Cable

PrivateNetwork

FrameRelay

Telepony Data

Internet

Packet

Local PhoneCompany

Cellular PhoneCompany

CableCompany

Direct

Customer

Fax

Audio

Video

ATM Circuit

InternetAccess

Providers

Sustaining Advantage

• Agility/responsiveness– inventory network and transshipment– modular product design– restructuring

• Redesigning the chain– information technology and logistics– changes in customer preferences– new in-house capabilities or acquisitions– experience curve, environment scanning