21st-Century

Supply Chains

McGraw-Hill/Irwin Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
 Overview of 21st-century supply chains

• The supply chain revolution

• Why integration creates value
• Generalized supply chain model
• Responsiveness
• Financial sophistication
• Globalization

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 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

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 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.

• 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).
Source: Supply Chain Management Review, March/ April 2000, p. 29.
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The total integration of the overall business
process creates value

Table 1.1 Integrative Management Value Proposition

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

Figure 1.1 The Integrated Supply Chain Framework 1-6

 Forces driving supply chain strategies

• Information technology
• Integrative management
• Responsiveness
• Financial sophistication
• Globalization

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 Integrative management requires
simultaneous achievement of 8 processes

Table 1.2 Eight Supply Chain Processes 1-8

Concepts necessary for achieving integrated
management
• Lowest total process cost is the focus of integrated management
– 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
– Commonly known as third (or fourth) party service providers

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 Responsiveness emerges as a competitive
advantage
Figure 1.2 Anticipatory Business Model

Figure 1.3 Responsive Business Model

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 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

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 Example of Manufacturing Postponement

Keeping all the car panels a base color (white or gray) until
the order is received, then painting to the color ordered

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 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
• Advantages are manufacturing economies of scale along
with responsiveness to customer
• Often used for critical, high cost parts and assemblies (e.g.
engines)
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 Example of Geographic Postponement

Keeping full inventory in a central warehouse and releasing

customer orders to local distributors or direct shipping to
customer
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 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, sun
roofs 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
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 Barriers to implementing responsive
systems
• Need for publicly held
corporations to maintain
planned quarterly profits
– Expectations of continued financial
results 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

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 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 assets 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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 Globalization offers firms several attractive
opportunities
• Demand exceeds local
supply
– 90% of global demand is not
fully satisfied by local supply
• Strategic sourcing
– Identifying and matching the
sources of raw materials and
components to manufacturers
and distributors
• Offshoring
– Moving manufacturing and
distribution operations to
countries with favorable labor
costs and tax laws

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 Significant differences for global logistics

• Distance of typical order-to-delivery operations is

significantly longer compared to domestic business
• Documentation requirements for business
transactions is significantly more complex
• Operations must be deal with significant Diversity
in work practices and local operating environments
• How consumers Demand products and services
must accommodate cultural variations

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