EFFECTIVE SUPPLY CHAIN

MANAGEMENT
OUTLINE FOR DISCUSSION
 Why a complete SCM methodology?
 Understanding uncertainty
 Modeling supply chains
 Using strategic modeling tool
 Case studies
 Remote localization of low-cost Deskjet printers
 JV with low-cost Asian manufacturer
 Conclusions
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WHY A COMPLETE SCM METHODOLOGY?
Improve customer satisfaction while reducing costs

 Increasing competition
 Multisite manufacturing
 Complex channels of independent dealers
 Increasing demand for local products
 Customer demand of exceptional service

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UNCERTAINTY IN SUPPLY CHAIN
 Complexities in manufacturing network
 Multiple suppliers
 Complex processes to make subassemblies/ final product
 Variety of customers
 Varied transportation options
 Uncertainties propagate through a manufacturing
network
 Inventory protects against uncertainties
 How much to hold?
 Where to hold?
 System optimization
 Reapportion stock to reduce overall inventory 4

 Approach analytically
UNCERTAINTY IN SUPPLY CHAIN
 3 steps for improvement
 Benchmarking current performance
 Possible performance given existing operating
characteristics like order review period, forecast accuracy
 Metrics: Inventory investment , Inventory turnover ratio,
order fill rate

 Controlling uncertainty
 Understand relative impact of different sources of
uncertainty

 Planning changes
 Costs/ benefits of sweeping changes to inventory network
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MODELING SUPPLY CHAINS
 3 steps
 Develop a simple, generic framework to describe
supply chains
 Model propagation of uncertainty up & down the
chain
 Create modeling approach to support strategic
decision makers

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SIMPLE GENERIC MODEL

Supply Demand
Material
transformation

 Inventory control
 Understand impact of uncertainty
 Consider distribution function like
traditional manufacturing process
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INCLUDE UNCERTAINTY
 Sources of uncertainty
 Suppliers
 On-time performance, average lateness, degree of
inconsistency

 Manufacturing
 Frequency of downtime, repair time & its variation
 Probability distribution of performance & reliability

 Customers
 Average demand & its variability
 Effective variability vs. actual variability
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ACT STRATEGICALLY
 Customer service affected by uncertainties
 How to reduce these?

Uncertainty cycle
Manufacturing Customer
•Process design Deliveries
•Product design
•Capacity
•Quality

Supplier Customer Demand

Performance •Past performance
•Responsiveness •Market research
•Transportation •Analytical
•Location techniques
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•Quality •Incentive programs
USING A STRATEGIC MODELING TOOL
1. Valid input
 Data collection problems
 Accuracy of data
 Valid data
2. Iterative analysis
 Tool to measure benefits/ costs of changes in
alternative SC policy

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USING A STRATEGIC MODELING TOOL
3. Useful output
 2 key measures of customer service
 Line-item fill rate (Compare fill rate vs. weeks of supply for
alt. policies)
 Order aging curve (Compare days late vs. cum. portion of
orders shipped for alt. policies)

 Benchmarking with data on historical performance

 Fill rate vs. FGI (weeks of supply)
 Plot on monthly basis
 Compare actual & predicted
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HP CASE 1: LOCALIZING GENERIC
PRODUCTS

 Low cost DeskJet printers

 5 separate facilities for manufacturing & distribution
 6 months long pipeline
 Excessive inventory
 How to reduce costs without sacrificing customer
goodwill?
 Postponement of localization
 Remote localization at distribution centers
 Risk pooling
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POSTPONEMENT
 Benefits
 Lower safety stocks
 Stock of less valuable generic models
 Offsetting demand risks
 Drop in shipping costs
 When does this strategy work?
 In regions having demand of many printer options
 During new product introduction

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HP CASE 2: ADDING A MANUFACTURING
PARTNER

 JV with a low cost Asian partner

 High shipping time
 Lead time increases by 3 months
 Benefits of analysis
 Showed that stock increases from usual 1 month (FGI at
US) to 5 months
 Choose best alternative

 Co-location of 2 firm’s factories

 Cut down 3 months shipping delay
 More attractive deal with partner
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INTERPRETING FINDINGS
 Root causes of inventory
 Minimum stock
 WIP, pipeline, periodic review
 About 40%
 Supply variance
 Process variance
 Demand variance
 Inventory reduction
 Traditional focus
 Improving manufacturing
 Working with suppliers
 Required focus
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 Forecast demand better
 Design products that allow better risk pooling
CONCLUSIONS
 Focus on thorough SC analysis with data and
quantitative techniques
 Change product and process of each stage to
reduce uncertainties and improve performance
 Take a systems view of the problem

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