BME 17 – CH 1 (PRELIMS)

Chapter One: 21ST – Century Supply Chains

Overview of 21st-century supply chains

 The supply chain revolution

 Why integration creates value
 Generalized supply chain model
 Responsiveness
 Financial sophistication
 Globalization
The supply chain revolution has reshaped contemporary strategic thinking

 Supply Chain Management

 Consists of firms collaborating to leverage strategic positioning and to
improve operating efficiency
 Supply Chain Strategy
 Is a channel and business organizational arrangement based on
acknowledge dependency and collaboration
 Logistics
 The work required to move and geographically position inventory

Successful supply chain strategies

A recent Andersen Consulting study revealed six different, but equally successful,
supply chain strategies.

 Market Saturation Driven: Focusing on generating high profit margins, through

strong brands and ubiquitous marketing and distribution.
 Operationally Agile: Configuring assets and operations to react nimbly to
emerging consumer trends along lines of product category or geographic region.
 Freshness Oriented: Concentrating on earning a premium by providing the
consumer with product that is fresher than competitive offerings.
 Consumer Customizer. Using mass customization to build and maintain close
relationships with end-consumers through direct sales.
 Logistics Optimizer: Emphasizing a balance of supply chain efficiency and
effectiveness.

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 Trade Focused: Prioritizing "low price, best value" for the consumer (as with the
logistics optimizer strategy but focusing less on brand than on dedicated service
to trade customers).

The total integration of the overall business process creates value

Table 1.1 Integrative Management Value Proposition

Economic Value Market Value

Lowest total cost  Attractive Relevancy Value

assortment
 Economy-of-scale  Customization
 Economy-of-
efficiency  Segmental
scope
 Product/service diversity
effectiveness
creation  Product/service
 Product/service
positioning
Procurement/Manufact presentation
uring Strategy Supply Chain Strategy
Market/Distribution
Strategy

The Integrated value-creation process must be managed across firms from end to
end

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Logistics activities and decisions at each level of functionality

Transaction system functionality consists of formalized rules and procedures

 Standardized communications focus on tracking and regulating day-to-day

logistical transactions
 For example,
- Order entry
- Order fulfillment
- Inventory preparation
- Invoicing
Management control functionality focuses on performance management and
reporting

- Provides real time feedback on supply chain performance and resource

utilization
- Common performance dimensions include
o Cost
o Customer Service
o Productivity
o Quality

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Decision Analysis functionality focuses on software tools to assist managers

 Software tools help to identify, evaluate and compare alternatives to improve

effectiveness
 E.g., Excel solver
 Types of analysis include
o Supply chain design
o Inventory Management
o Resource allocation
o Routing
o Segmental profitability
 Also called decision support software in MIS departments
Strategic planning functionality transforms transactional data to assist in strategy
evaluation

 Organized transaction and performance data into a relational database to

assist in evaluating alternative business strategies
 Examples include
o Strategic alliance decisions
o Development of manufacturing capabilities
o Customer responsiveness opportunities
More opportunities exist for improvements at higher levels of functionality

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Supply chain information system modules

 Enterprise Resource Planning (ERP)

- Enterprise integration and administration
- Enterprise supply chain operations
- Enterprise planning and monitoring
- Financial

 Communication systems
 Execution systems
 Planning Systems

Application oriented perspective of SCIS modules

Enterprise resource management (ERP)

 The backbone of most firm's logistical information systems

 Maintains an integrated database of current and historical data
 Processes most (if not all) transactions across all business functions
 Example transactions include
- Order entry and management
- Inventory assignment
- Shipping
 Legacy; SAP, Oracle, Microsoft

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Enterprise integration and administration modules are not specific supply chain
apps

Enterprise operations modules support da-to-day supply chain operations

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Integrative management requires simultaneous achievement of 8 processes

Concepts necessary for achieving integrated management

 Lowest total process cost is the focus of integrated management

o Differs from lowest cost of each function in the process
 Collaboration of operating information, technology and risk has been
encouraged by national legislation to keep US-based firms competitive
 Enterprise extension includes expanded managerial influence and control
beyond traditional ownership boundaries of a single enterprise
 Integrated service providers (ISP) provide a range of logistics services to
accommodate customers, ranging from order entry to product delivery
o Commonly known as third (or fourth) party service providers
Enterprise extension

 Information sharing paradigm - supply chain participants sharing operating

information can achieve à high degree of collaboration and enhanced strategic
planning.
 Process specialization paradigm - the commitment to focus collaborative
arrangements on planning joint operations with a goal of eliminating
nonproductive or non-value adding redundancy by firms in a supply chain.

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Integrated service providers (ISPS)

 Outsourcing
 Transportation modes
 Public warehouses
 Value-added services
 Third- and fourth-party service providers
 Asset- or nonasset-based service providers
Forces driving supply chain strategies

 Responsiveness
 Financial sophistication
 Globalization
Responsiveness emerges as a competitive advantage

Postponement strategies keep supply chains responsive

 Types of Postponement
- Manufacturing (or Form)
- Geographic (or Logistics)
- Combined
 Manufacturing and geographic types are exact opposites in practice but have the
same goal
- Meeting customer demand quickly while minimizing inventories

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Manufacturing (or form) postponement

 Manufacturing one order at a time

 Base modular construction of product
 No customization until the exact customer specs and financial commitment is
received
 Objective is to maintain products in an uncommitted status as long as possible
 Balances economy of scale with responsiveness
- Can build a sufficient quantity of "ready to customize" basic units
 Requires a lot of forethought during product design

Example of manufacturing postponement

Geographic (or logistics) postponement

 Build or stock a full-line inventory at one or a few strategic locations

 Forward deployment of inventory is postponed until customer orders are received
 Once orders received, specific item is expedited to the local distributor

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 Advantages are manufacturing

economies of scale along with
responsiveness to customer
 Often used for critical, high cost
parts and assemblies (e.g. engines)

Combined postponement

 Keeping the basic products centralized and performing the customization at the
destination distributor
 Historical example – Autos
- Installing dealer options like sound systems, GPS, sunroofs on new cars
purchased
 Contemporary example - Computers
- Dell Computers, doing final assembly or packaging additional system options
like printers, digital cameras at a distribution center

Barriers to implementing responsive systems

 Need for publicity help corporations to maintain planned quarterly profits –

Expectations result often drive promotional and pricing strategies to “Load the
channel” with inventory.
 Need to establish collaborative relationships – Most business managers do not
have training or experience in development of collaborative arrangements.

Financial sophistication enables measurement of time-based supply chain

 Cash-to-Cash Conversion — the time required to convert raw material or
inventory purchases into sales revenue.

 Dwell Time Minimization — dwell time is the ratio of time that an asset sits idle
to the time required to satisfy its supply chain mission

 Cash Spin — reducing assets in the supply chain can “spin” cash for reinvestment
in other projects

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