MBA 518 Operations Management Supply Chain Management

MBA 518MBA 518Operations ManagementOperations Management

Supply Chain ManagementSupply Chain Management

Greg Magnan, PhD

Fall, 2004

AGENDA

Information: Visibility / Collaboration / Sharing

Organization: Strategy / Structure / People / Processes

Demand Planning

Design

Sourcing, Ordering & Logistics

Customerinterface

Supplier interface

External

Suppliers

Custom

ers Production Engineering

Production Entities

Lean Manufacturing

Company Supply Chain Management

Internal SuppliersFactory

CRM

• SC Defined

• SC Strategy

• SC Benefits

• SC Challenges

• Summary

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Tier 3

Tier 2

Tier 1 Firm

LogisticsServiceProvider

Company/CustomerWarehouses/Dist.

CustomerStores/Dealers

Information & Payment

Materials & Information

“Potential” Supply Chain Flows



Demand Planning

Design


Customerinterface

Supplier interface

External

Suppliers

Custom


Production Entities

Lean Manufacturing



CRM

SCM Uniquely Positioned to Address BOTH

Business Environmental Factors

• Global Competition– Cost, Quality, Delivery, Flexibility,

Innovation

• Increasing Stockholder Demands– ROIC, Asset Efficiency, EVA, etc.

Outsourcing

SupplierIntegration

Lower Costs &Expenses

Strategic Sourcing

Spend Analysis

e-ProcurementImprove AssetMgt. & Lower

CapitalInvestment

Enhance CoreCompetencies

& IncreaseAgility

Centralizedor HybridStructure

ExpandingStrategic

Role & Spanof Control

CorporateStrategicDirectives

Supply ManagementStrategic Response

OrganizationalEffects on

Supply Mgt.

Adapted from Monczka et al., (2004), O’Reilly, (2002), and Leenders and Johnson (2002).

Business StrategyCost/PriceQuality (Performance, Conformance)

Delivery (Speed, Reliability, NPD)

Flexibility (Volume, Product)

Service / Innovation

ProductDev’t / Eng.

HumanResources

Finance /Accounting

InformationSystems

PURCHASINGSupplier Selection

Supplier DevelopmentDesign InvolvementSupplier Capabilities capacity workforce process quality management planning/scheduling inventory technology improvement

OPERATIONS

TechnologyFacility LocationProcess DesignProcess Choice

CapacityWorkforce

Supplier ManagementQuality ManagementPlanning/Scheduling

InventoryOrg. Structure

LOGISTICSInbound trans.

Outbound trans.Transportation mode

Information tech.WarehousesWorkforce

Distribution PlanningQuality ManagementCarrier Management

InventoryCustoms

MARKETING

Brand ManagementSegmentation

Products/servicesRange

MixVolumes

CustomizationRelationships

Channel

Core SC Functions

SCM Defined(Fawcett & Magnan, 2001)

“Supply Chain Management involves collaboration across the enterprise and among channel members to design and manage value-added material, information and cash flows to meet the needs of the end customer. The development and integration of people and technological resources underlie successful supply chain integration.”

Potential Benefits from SCM• Increased market share and sales growth• Reduced inventory levels and total SCM

costs• Decreased order cycle/fulfillment time• Increased asset and capital utilization• Improved delivery performance• Faster response to changing customer

requirements• Improved return on assets and sales• Increased forecast accuracy• Reduced cash-to-cash cycle time

SCOR Model(www.supply-chain.org)NOTE: Barriers to SCM are

concentrated here

SCM Definition: SC Council “Suppliers’ Supplier to Customer’s Customer”

Supplier

Plan

Customer Customer’sCustomer

Make DeliverSource Make DeliverMakeSourceDeliver SourceDeliver

Internal or External Internal or External

Your Company

Source

Return Return ReturnReturn Return Return Return Return



Demand Planning

Design


Customerinterface

Supplier interface

External

Suppliers

Custom


Production Entities

Lean Manufacturing

Manufacturing Supply Chain Management


CRM SRM

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Tier 3

Tier 2

Tier 1 Firm

LogisticsServiceProvider

Company/CustomerWarehouses/Dist.

CustomerStores/Dealers

Information & Payment

Materials & Information

“Potential” Supply Chain Flows



Demand Planning

Design


Customerinterface

Supplier interface

External

Suppliers

Custom


Production Entities

Lean Manufacturing



CRM



Demand Planning

Design


Customerinterface

Supplier interface

External

Suppliers

Custom


Production Entities

Lean Manufacturing



CRM



Demand Planning

Design


Customerinterface

Supplier interface

External

Suppliers

Custom


Production Entities

Lean Manufacturing



CRM



Demand Planning

Design


Customerinterface

Supplier interface

External

Suppliers

Custom


Production Entities

Lean Manufacturing



CRM

Capacity, inventory, promotion, delivery/ASN

Raw mat'ls, intermediate products, finished goods

Credits, consigment, payment terms, invoice

Purch. orders, inventory/quality/promotion plans

Returns, repairs, servicing, recycling, disposal

Payments, consignment, financing

Suppliers Manufact. Distributors Retailers Customers

Information

Material

Finance

Information

Material

Finance

Source: Adapted from Lee, "Creating Value Through Supply ChainIntegration," SCMR, 2000

Supply Chain Flows

Source: Lee (2000)

SC Process Elements IT? Other Fn?

MKTG / CRM / Merchandising

• ID/Segment.; Promo

• Category Mgt., Pricing Yes Eng., Mfg., Proc.

Product Dev’t• Innov.; Make-Buy

• Project Mgt., X-Funct. YesMktg, Proc.,

Finance; Mfg

Sourcing/Proc./Sup. Rel’p Mgt

• Supplier Mgt.

• Aggregation/Leverage Yes Finance, Mfg, Eng.

Demand Mgt. / SC Planning

• Forecasting

• Collaboration Yes S/Mktg, Mfg, Proc

Manufacturing• Schedule; Ordering

• Inventory; Specs Yes Proc, Eng, Log, S/Mktg

Fulfillment• Logistics; Inventory

• Transportation YesS/Mktg, Mfg,

Proc

Risk / Returns• Disasters, interruption

• Reverse logistics YesS/Mktg, Mfg,

Proc, Log

Supply Chain PerformanceTimme & Timme, 2000

• C-level Executives: CEO, CFO, COO, etc.– What is their view of

SCM?– What language is

needed to articulate benefits?

• Growth, Profitability, Capital Utilization– How do they affect

Economic Profit (EP)?

Source: Timme and Timme, “The Financial-SCM Connection,” SCMR, 2000.

http://www.manufacturing.net/scm/index.asp?layout=articleWebzine&articleid=CA151957


• Economic Profit • SCM supports:

– Revenue growth– Customer service– Cost reduction– Asset efficiency

• Purchasing 100


Supply Chain Strategy

“Companies are investing resources--of both time and capital--to improve their supply chain capabilities. But many are not pleased with the return on these investments. The lack of coherent supply chain strategy typically lies at the root of the problem.” [emphasis added]

-- Derocher and Kilpatrick, “Six Supply Chain Lessons for the Millenium,” SCMR, 2000

Strategic SC Alignment(Fisher, Marshall, “What is the Right Supply Chain

for Your Product?,” HBR, 1997)

FunctionalProducts

InnovativeProducts

EfficientSupply Chain

ResponsiveSupply Chain

Q: What happens when you have BOTH kinds of products??A: Ought to have BOTH kinds of supply chains.

Evolutionary Status of SCM

Source: Poirier & Quinn, “A Survey of SC Progress,” SCMR, 2003

Source: Poirier & Quinn, “A Survey of SC Progress,” SCMR, 2003

More from Poirier & Quinn…

CAPS Focus Study (2001)

http://www.capsresearch.org

http://www.capsresearch.org/

SC Integration(Fawcett & Magnan, 2002)

47%

34%

11%

8%

0%

SC Relationship Barriers • Lack of Trust• Little Understanding or Commitment to

SC Principles• Fear of Relinquishing Control• Different Goals & Objectives• Inadequate Information Systems• Short-term / “Wall Street” emphasis on

outcomes• Involvement in too many supply chains

Source: Moberg, Speh & Freese, “SCM: Making the Vision a Reality,” SCMR, 2003

“Can You Hear Me Now?”

Source: Handfield & Straight, “What Sourcing Channel is Right for You,” SCMR, 2003

SC Relationship Barriers--Solutions

• Develop a New Breed of Manager

• Build “Relationship-Management” Skills

• Establish Inter-organizational Teams

• Create New Performance Measures

• Invest in Information Technology

• Develop Long-term Focus (Boards, too)

• Engage in More Practical and Applied Research

Source: Moberg, Speh & Freese, “SCM: Making the Vision a Reality,” SCMR, 2003

Bullwhip Effect

Source: Lee, et al., “The Bullwhip Effect In Supply Chains, SMR, 1997.

Bullwhip Effect – Order Variation

Source: Lee, et al., “The Bullwhip Effect In Supply Chains, SMR, 1997.

Matching Supply & Demand

Source: Vitasek, et al., “Solving the Supply–Demand Mismatch,” SCMR, 2003.

SC Responsiveness

Order Management

Warehouse Management

Transportation Management

International Trade Logistics

Inventory Management

Production Scheduling

Manufacturing Planning

Distribution Planning

Supply Planning

Supply Chain CollaborationDemand Forecasting and Planning

SC Network Design

Decision Support

Seconds /Minutes

Hours /Days

Weeks /Months

Quarters Years

SCM Enterprise ApplicationDecision Support Tools

Supply Chain Execution

Supply Chain Planning

Source: AMR Research, 2000

Supply Chain Planning & Execution

SC Planning Systems

Source: Taylor, David A. “A Master Plan for Software Selection,” SCMR, 2004

e-Procurement: What is it?• What are the steps in procurement?

– Need / Requisition– Supplier Selection

• RFx, Negotiation, Auction, Criteria

– Contract– Transactions

• PO through payment

– Relationship Maintenance • Performance

• Which can be automated?

e-Procurement: Transactions

• Purchase Order / Order– PO change?

• ASN receipt• Tracking• Receiving / Inspection

• Accounting: matching– Payment

• Supplier Performance

• PO Ack. / Sales Order• Fulfillment (stock / mfg)• ASN• Transportation

• Invoice• Payment received

Buyer Supplier

Other issues: Forecasting, collaboration, planning systems, cost improvement (product and trans.)

Strategic Sourcing• “Applying standard analytics-driven processes

for sourcing any category of spend.” • Purchasing Magazine

• “Sourcing will be key to unlocking value.”– ISM/Forrester– Focus on procurement automation limits payback– Spend Management must begin with a sourcing

strategy• Spend analysis, aggregation, supplier reduction

– Online sourcing will catch up• “real value is in using enterprise-wide tools to enforce

employee compliance with strategic sourcing agreements.”

ISM/Forrester Report on Technology in SM: Q3/2003

• Adoption of online purchasing continues to grow– Large companies: 20% fully adopted

• More companies are saving $ as a result– 45% of large volume

• Materials purchased:– Indirect (89% bought some / 12% of indirect online)– Direct (74% bought some / 9.9% of direct online)

• Auctions (25% used...large volume) and eMarketplaces (33%): about 45% increased use

• Enterprise-wide tools: 46%• Online tools strengthen relationships: collaboration• Buyers mostly dissatisfied w/ Supplier online capability• Integration with suppliers was biggest challenge

PRTM’s SC AdviceSC Critical Elements• SC Strategy• SC Processes• Organizational Model• Integrated Info. Sys.• Perf. Mgt. Framework

Setting Your Strategy1. Define the Performance

Criteria of SC

2. Set Perform. Targets

3. ID Operational Processes (order mgt., dist, etc.)

4. Select integration level for customers & suppliers

Source: PRTM, “Managing Your SC in the 21st Century,” 2002

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Transpo. & Logistics Visibility of costs Access to

ordering data Carrier reduction Material handling POU

Procurement Supplier development e-procurement Supplier rationalization Supplier metrics X-functional integration

Supply Chain Tech Visibility Data integrity Supplier access Links with legacy

systems Use of Internet

Org. Strategy,Structure & People Strategy Culture Processes/Metrics People

Engineering SC costs SC knowledge DFM Old/new models Suppliers

Supply Chain Strategy Vision / Strategy Processes / Metrics Collaboration Information Sharing Executive support

Materials Management Inventory reduction Fill rate Supplier collaboration Process definition Manufacturing links Procurement links

Mfg./Operations Schedule stability Pull-based Cycle time

reduction Quality / DFM X-functional

integration

Supply Chain ManagementDiagnostic Results (Sample)

Technology Enabled Supply Chain

Source: Porter, A.M. (2004), “The Case for Holistic Strategies,” Purchasing, March 18, pp. 55-59.

Supplier Rating Criteria

Source: Carbone, James (2004), “Using TCO to Rate Suppliers,” Purchasing, Feb. 19, pp. 30-34.

Lucent (con’t)

Summary• Supply Chain Management

– People, processes, technology– Materials, information, cash

• Supply Chain Performance– Growth, profitability, capital utilization– Growing gap between haves and have-nots

• Supply Chain Solutions– Strategy: Align internal and external processes &

resources to business strategy and company performance objectives

– Diagnostic: Pinpoint improvement needs– Education: Relationships, process change,

executives

MBA 518 Operations Management Supply Chain Management

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