Supply Chain Management - Chopra/Meindl

SUPPLY CHAIN MANAGEMENT Strategy, Planning and Operation Sunil Chopra & Peter Meindl

Chapter 1

WHAT IS A SUPPLY CHAIN

Consists of all parties involved, directly or indirectly, in fulfilling a customer request. The SC includes not only the manufacturer and suppliers, but also transporters, warehouses, retailers, and even customers themselves. Within each organization, such as a manufacturer, the SC includes all functions involved in receiving and filling a customer request. These functions include, but are not limited to, new product development, marketing, operations, distribution, finance, and customer service.

Primary purpose of a SC: Satisfy costumers needs and in the process generate profit for itself.

A SC is dynamic and involves the constant flow of information, product and funds among different stages in both directions.

A typical SC may involve a variety of stages:

- costumer - retailers- wholesalers/ distributors- manufacturers- component/ raw materials suppliers

Objective: Maximize value generated

Value: surplus of a SC = Difference between the value of the final product to the customer and the costs the entire supply chain incurs in filling the customer request.

Value for the customer: Maximum value willing to pay

Customer value – price = customer surplus

Revenue – cost = SC profitability

Profitability Succesful Surplus

For most profit-making supply chains, the SC surplus will be strongly correlated with profits.

SC success should be measured in terms of SC surplus

Only source of revenue is the customer

SC design, planning and operation decisions play a significant role in the success or failure of a firm. To stay competitive a SC must adapt to changing technology and customer expectations.

PHASES IN A SUPPLY CHAIN

Successful SC management requires many decisions relating to the flow of information, products and funds. Each decision raise SC surplus.

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Three categories or phases, depending on the frequency and time frame during which a decision phase has an impact.

1. Supply chain strategy or design: How to structure the SC over the next several years. - Configuration- Allocation of resources- Processes each stage will perform- Outsource or in-house function- Location and capacities of production- Warehousing facilities- Number of locations for storage or manufacturing- Modes of transportation- Information System

A company must ensure that the SC configuration supports its strategic objectives and increases the SC surplus during this phase. Design or strategy decisions are made for the long-term.It’s expensive to alter in short noticeCompanies must take into account uncertainty in anticipated market conditions over the following few years.

2. Supply chain Planning: Time frame ¼ to 1 yearStrategy determines constrains within which planning must be done- Forecast for coming year of demand and other factors (costs, prices in different

markets)- Which market will be supplied from which location- Subcontracting of manufacturing- Inventory policies- Timing and size of marketing and price promotions

Must include uncertainty in demand, exchange rates, and competition.Companies try to incorporate flexibility and exploit it to optimize performance. PLANNING: is a set of operating policies that govern short-term operations.

3. Supply chain Operation: Timer horizon is weekly or daily. Decisions regarding individual customer orders.GOAL: to handle incoming customer orders in the best possible manner. - Allocate inventory or production to individual orders.- Set dates by which they are to be filled- Generate pick lists at a warehouse- Allocate an order to a particular shipping mode and shipment.- Set delivery schedules of trucks.- Place replenishment orders.

Less uncertainty about demand information.

GOAL: exploit the reduction of uncertainty and optimize performance.

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PROCESS VIEWS OF A SUPPLY CHAIN

1. Cycle view: Processes are divided into a series of cycles, each performed at the interface between two successive stages of the supply chain.

CustomerCustomer order cycle Demand is external thus uncertain

RetailerReplenishment cycle Order placement are also

Distributor uncertain but can be projected Manufacturing cycle based on policies followed by a

Manufacturer particular SC strategyProcurement cycle

Supplier

Each cycle consists of 6 sub processes and each starts with the supplier marketing the product to customers.

2. Push/Pull view: Processes divided into 2 categories: - in response to a customer order – REACTIVE PROCCESSES- in anticipation to a customer order – SPECULATIVE PROCCESSES

Push/Pull Boundary(constrains)

Push processes Pull processes

Customer Order Arrives

GOAL: Identify an appropriate push/pull boundary such that the supply chain can match supply and demand effectively

PROCESS VIEWS OF A SUPPLY CHAIN

CRM: Costumer Relationship Management (customer-firm)ISCM: Internal Supply Chain Management (firm)SRM: Supplier Relationship Management (firm-supplier)

INTEGRATION BETWEEN THE THREE IS CRUCIAL

Process1

Process2

Process3

ProcessN - 1

ProcessN

Processk

ProcessK + l

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CRM:

Generate customer demand Facilitate the placement and tracking of orders

- Marketing - Pricing - Sales- Order Management - Call Center Management

At an industrial distributor:

- Preparation of catalogs & MKT materials - Management of website- Management of call center (takes orders and provides services)

ISCM:

Fulfill demand in a timely manner and at a lowest possible cost.

- Planning of internal production and storage capacity (Strategic Planning)- Demand and Supply plans - Fulfillment of actual orders

At an industrial distributor:

- Planning of the location and size of warehouses - Which product to carry at each warehouse- Preparing inventory Management Policies - Picking, Packing and Shipping actual orders

SRM:

Arrange and manage supply sources for various goods and services

- Evaluation and selection of suppliers - Negotiation of supply terms (pricing & delivery)- Communication regarding new products (design collaboration)

- Placement of replenishment orders (Buy) - Supply Collaboration

For a supply chain to be successful, it is crucial that the three macro processes are well integrated.

Firms should structure a supply chain organization that mirrors the macro processes and ensures good communication and coordination among the owners of processes that interact with one another.

EXAMPLES OF SUPPLY CHAIN

Gateway and Apple: Gateway was first PC manufacturer to start selling PCs online without retail infrastructure. Then introduced aggressive strategy of opening stores throughout US, with no finished-goods inventory and focused on helping customers select the right configuration to purchase. Then PCs were manufactured and shipped to the customer. No success, was sold to Acer in 2007. In contrast, Apple has always carried product inventory at its stores. Given its product designs it carries relatively little variety in the stores.

Zara: Spain’s largest apparel manufacturer and retailer. Has grown rapidly with a strategy to be highly responsive to changing trends with affordable prices. Design-to-sales cycle times are four to six weeks (in contrast to industry average of more than 6 months).

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Results, sells more of its products at full price and has about half the markdown in its stores compared with the competition. Manufactures using a combination of flexible and quick sources in Europe and low-cost sources in Asia. Responsiveness reduces inventories and forecast error. Also has invested heavily in IT to ensure latest sales data are available.

W.W.Grainger and McMaster-Carr (MRO Suppliers): Both Sell maintenance, repair, and operations products, both have catalogs and web pages. W.W.Grainger has several hundreds stores, customers can walk into a store, call in an order, or place it via the website. Orders are either shipped or picked up by the customer. McMaster-Carr, ships almost all its orders (except some near its DCs pick up their orders). Neither of the manufacture any product, they both primarily serve the role of distributor or retailer. Their success is largely linked to their supply chain management ability.

Toyota: Top auto manufacturer and has experienced significant growth in global sales. A key issue facing is the design of its global production and distribution network. Whether to be global or local is also an issue for Toyota’s parts plants and product design.

Amazon: Sells books, music, and many other items over the internet and is one of the pioneers of online consumer sales. Started by filling all orders using books purchased from a distributor in response to customer orders. As it grew, the company added warehouses, allowing it to react more quickly to customer orders.

Maci’s: After selling for decades form its department stores, Macy’s has made a big push into omni-channel retailing, allowing customers to have a seamless experience between shopping online or at a store. If customers desire, orders placed online can be picked up at select stores and items purchased online can be returned to stores.

Chapter 2

COMPETITIVE AND SUPPLY CHAIN STRATEGIES

Competitive Strategy: - Is relative to company’s competitors

- The set of customer needs to be satisfy through products and services

Value Chain

Every function plays a role & must develop its own strategy

Product Development Strategy:

Specifies portfolio of new products Dictates effort will be done in-house or outsourced

Marketing & Sales Strategy:

Finance, Accounting, Information Technology, Human Resources

ServiceDistributionOperationsMarketing and Sales

New Product Development

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Market segmentation Product positioning Product promotion Product Price

Supply Chain Strategy:

Nature of procurement of raw materials Transportation to and from the company Manufacture of the product or operation to provide the service Distribution of product to customer Follow up service specifications, and if in-house or outsourced

Supply chain strategy specifies what the operations, distribution, and service functions, whether performed in-house or outsourced, should do particularly well.

Includes a specification of the broad structure of the supply chain and what many traditionally call “supplier strategy”, “operations strategy”, and “logistics strategy”.

For a firm to succeed, all functional strategies must support one another and the competitive strategy.

ACHIEVING STRATEGIC FIT

Strategic fit requires that both the competitive and supply chain strategies of a company have aligned goals. It refers to consistency between the customer priorities that the competitive strategy hopes to satisfy and the supply chain capabilities that the supply chain strategy aims to build.

To achieve strategic fit:

1. Competitive Strategy + All functional Strategies must fit together to form a coordinated overall strategy

Each functional strategy must support other functional strategies and help a firm reach its competitive strategy goal.

2. Different functions in a company must appropriately structure their processes and resources to be able to execute these strategies successfully.

3. Design of overall supply chain + role of each stage must be aligned to support the supply chain strategy

To achieve strategic fit a company must ensure that its supply chain capabilities support its ability to satisfy the needs of the targeted customer segment

A competitive strategy specifies, either implicitly or explicitly, one or more customer segment that a company hopes to satisfy

Three steps to achieving strategic fit:

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1. Understanding customer and supply chain uncertainty: Understand the customer needs for each targeted segment and the uncertainty these needs impose on the supply chain. These needs help define the desired cost and service requirements. The SC uncertainty helps identify the extent of the unpredictability of demand and supply that the SC must be prepared for.

In general, customer demand from different segments varies along several attributes:

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

GOAL: identify one key measure for combining all of these attributes. This single measure then helps define what the supply chain should do particularly well.

Demand uncertainty: reflects uncertainty of customer demand for a product.

Implied demand uncertainty: is the resulting uncertainty for only the portion of the demand that the supply chain plans to satisfy based on the attributes the customer desires.

Emergency order

2. Understanding the supply chain capabilities.3. Achieving strategic fit: If a mismatch exists, the company will need to adjust strategies to

aligned them.

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Supply Chain Management - Chopra/Meindl

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