Professional Documents
Culture Documents
Supply Chain Management: Utdallas - Edu/ Metin
Supply Chain Management: Utdallas - Edu/ Metin
Introduction
utdallas.edu/~metin 1
Outline
What is supply chain management?
A supply chain strategy framework
Components of a SCM
Major obstacles and common problems
Seven Eleven Japan
utdallas.edu/~metin 2
Traditional View: Supply Chains in
the Economy (1990, 1996)
Profit
Profit 10%
Supply Chain
Cost
Supply Chain Cost 20% Marketing
Cost
Effort spent for supply chain activities are invisible to the customers.
utdallas.edu/~metin 4
What can Supply Chain Management do?
Estimated that the grocery industry could save $30 billion (10% of operating
cost) by using effective logistics and supply chain strategies
– A typical box of cereal spends 104 days from factory to sale
– A typical car spends 15 days from factory to dealership
– Faster turnaround of the goods is better?
Laura Ashley (retailer of women and children clothes) turns its inventory 10
times a year five times faster than 3 years ago
– inventory is emptied 10 times a year, or an item spends about 12/10 months in the
inventory.
– To be responsive, it relocated its main warehouse next to FedEx hub in Memphis, TE.
utdallas.edu/~metin 5
Magnitude of Supply Chain Management
Compaq estimates it lost $0.5 B to $1 B in sales in 1995
because laptops were not available when and where
needed
utdallas.edu/~metin 7
Top 25
Supply Chains
utdallas.edu/~metin 8
SCM Generated Value
utdallas.edu/~metin 9
A picture is better than 1000 words!
How many words would be better than 3 pictures?
- A supply chain consists of
Upstream
Downstream
The right
Product
+ + + + +
The right
Price
The right
Store
The right
Quantity
The right
Customer
The right
Time
= Higher
Profits
utdallas.edu/~metin 10
Detergent supply chain:
Chemical
Plastic cup Tenneco
manufacturer
Producer Packaging
(e.g. Oil Company)
Chemical
Paper Timber
manufacturer
Manufacturer Industry
(e.g. Oil Company)
utdallas.edu/~metin 11
Flows in a Supply Chain
Material
Information
Supplier Customer
Funds
utdallas.edu/~metin 12
SCM in a Supply Network
Supply Chain Management (SCM) is concerned with the management and control of
the flows of material, information, and finances in supply chains.
Cash
Products and Services
Information
THAILAND INDIA MEXICO TEXAS US
N-Tier Suppliers Suppliers Logistics Distributors Retailers
Supply
The task of SCM is to design, plan, and execute the activities at the different stages
so as to provide the desired levels of service to supply chain customers profitably
utdallas.edu/~metin 13
Importance of Supply Chain Management
In 2000, the US companies spent $1 trillion (10% of GNP) on supply-related
activities (movement, storage, and control of products across supply chains).
Source: State of Logistics Report
utdallas.edu/~metin 14
A Generic Supply Chain
Sources: Regional Field Customers,
plants Warehouses: Warehouses: demand
vendors stocking stocking centers
ports points points sinks
Supply
Inventory
Purchase Inventor
y
Transportation
utdallas.edu/~metin 15
Cycle View of Supply Chains
Customer
Customer Order
Cycle
Retailer
Any cycle
Replenishment Cycle 0. Customer arrival
1. Customer triggers an order
Distributor 2. Supplier fulfils the order
3. Customer receives the order
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
utdallas.edu/~metin 16
Push vs Pull System
What instigates the movement of the work in the system?
utdallas.edu/~metin 17
Push/Pull View of Supply Chains
Procurement, Customer Order
Manufacturing and Cycle
Replenishment cycles
Customer
Order Arrives
Push-Pull boundary
utdallas.edu/~metin 18
Examples of Supply Chains
Dell / Compaq
– Dell buys some components for a product from its suppliers
after that product is purchased by a customer. Extreme case of a
pull process
Zara, Spain’s answer to Italy’s Benetton
– Sells apparel with a short design-to-sale cycle, avoids markdowns.
Toyota / GM / Volkswagen, in the course notes
McMaster Carr / W.W. Grainger, sell auto parts
Amazon / Barnes and Noble
Frozen food industry/Fast food industry/5 star restaurants
Internet shopping: Webvan / Peapod
utdallas.edu/~metin 19
SCM Strategy
utdallas.edu/~metin 20
Mission-Strategy-Tactics-Decisions
Mission, Mission statement
– The reason for existence of an organization
Strategy
– A plan for achieving organizational goals
Tactics
– The actions taken to accomplish strategies
Operational decisions
– Day to day decisions to support tactics
utdallas.edu/~metin 21
Life Strategy for Ted
Ted is an undergrad. He would like to have a career in business, have
a good job, and earn enough income to live comfortably
New Marketing
Product and Operations Distribution Service
Development Sales
utdallas.edu/~metin 26
Achieving Strategic Fit: Consistent SCM
and Competitive strategies
Fit SC to the customer
High
Efficiency frontier
Inefficiency Region
Low
Responsive
(high cost)
Gourmet dinner
supply chain
<High margin>
Responsivenes e o f it
n F
spectrum Zo egic
t
t ra
S
Lunch buffet
<Low margin>
Efficient
(low cost)
supply chain
Certain Implied Uncertain
demand uncertainty demand
utdallas.edu/~metin spectrum 30
Loosing the strategic fit: Webvan
Webvan started a merger with HomeGrocer in Sept 2000 and
completed in May 2001.
Declared bankruptcy in July 2001. Why?
– “Webvan was so behemoth that could deliver anything to anyone anywhere
that it lost sight of a more mundane task: pleasing grocery customers day
after day”.
– Short to midterm cash mismanagement. Venture capital of $1.2 B run out.
– Merger costs: duplicated work force, integration of technology, realignment
of facilities.
Peapod has the same business model but more focused in terms of
service and locations. It actually survives with its parent company
Royal Ahold’s (Dutch Retailer) cash.
– Delivers now at a fee of $6.95 within a day.
utdallas.edu/~metin 31
Top 10 Retailers Reported in 2008 – First 4
utdallas.edu/~metin 33
Big retailers’ Strategy
Wal-Mart: Efficiency
Target: More quality and service
Carrefour: International, ambiance
K-Mart: Confused.
– Squeezed between Target and Wal-Mart
– Reliance on coupon sales
– Do coupons stabilize or destabilize a Supply chain?
K-Mart and Sears merged in November 2004.
Now called Sears Holdings.
» K-Mart gets cash
» Sears gets presence outside malls 34
utdallas.edu/~metin
Other Factors
Multiple products in a SC. Multiple customers for a given product
– Separate supply chains or Tailored supply chains
» e.g. Barnes and Noble: Retailing and/or e-tailing
– Product and/or customer classes
» e.g. UTD library loans books for 6 months (2 weeks) to faculty (students)
» Customer segmentation by pricing
Competitors: more, faster and global
» UTD online programs compete globally
Product life cycle (shortening)
– SCM strategy moves toward efficiency and low implied uncertainty as products age
» e.g. Air travel is becoming more efficient
e.g. Southwest airlines lead the drive for efficiency
e.g. Airbus announced A380 accommodating 555-800 people on Jan 17, 2005.
» e.g. Flat screen TV producer of AU Optronics of Taiwan was looking for ways to make its
SC more efficient in June 2004.
– Replacement sales
» Selling to replace broken units.
e.g. AC replacement is about 50% of the market.
– Macroeconomic factors for visibility
» Forecasting Home Depot sales from S&P 500 price index.
utdallas.edu/~metin Positive correlation is detected. 35
Achieving Strategic Fit over a Lifecycle
Responsive
(high cost)
supply chain
e o f it
n F
Zo egic
t
t ra
S
Efficient
(low cost)
supply chain
Certain Uncertain
demand demand
utdallas.edu/~metin 36
Integration
Integration is the central theme in SCM
Building synergies by integrating business functions,
departments and companies
utdallas.edu/~metin 37
Strategic Scope
Suppliers Manufacturer Distributor Retailer Customer
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
utdallas.edu/~metin 38
Supply Chain Drivers and Obstacles
utdallas.edu/~metin 39
Drivers of Supply Chain Performance
How to achieve
Efficiency Responsiveness
Logistical
Inventory Transportation Facilities
Drivers
Cross-
Information Sourcing Pricing Functional
utdallas.edu/~metin
Drivers 40
1. Inventory
Convenience: Cycle inventory
– No customer buys eggs one by one
Unstable demand: Seasonal inventory
– Bathing suits
– Xmas toys and computer sales
Randomness: Safety inventory
– 20% more syllabi than the class size were available in the
first class
– Compaq’s loss in 95
Pipeline inventory
– Work in process or transit
utdallas.edu/~metin 41
Little’s law
Long run averages = Expected values
I=R.T
I=Pipeline inventory;
R=output per time=throughput;
T=delay time=flow time
10/minute
Spend 1 minute
utdallas.edu/~metin 43
3. Facilities
Production
– Flexible vs. Dedicated
– Flexibility costs
» Production: Remember BMW: “a sports car disguised as a sedan”
» Service: Can your instructor teach music as well as SCM?
» Sports: A playmaker who shoots well is rare.
utdallas.edu/~metin 45
Characteristics of the Good Information
utdallas.edu/~metin 46
Quality of Information
Information drives the decisions:
– Good information means good decisions
IT helps: MRP, ERP, SAP, EDI
Relevant information?
How to use information?
utdallas.edu/~metin 47
Information Technology in a Supply
Chain: Legacy Systems
Strategic
Planning
Operational
utdallas.edu/~metin 48
Information Technology in a Supply Chain:
ERP Systems
Strategic
Planning
utdallas.edu/~metin 49
Information Technology in a Supply Chain:
Analytical Applications
Strategic
SCM
utdallas.edu/~metin 50
ERP Systems
Wider focus
Push (MRP) versus Pull (demand information transmitted
quickly throughout the supply chain)
Real-time information
Coordination and Information sharing
Transactional IT
Expensive and difficult to implement
– About 25% of ERP installations are cancelled within a year
– About 70% of ERP installations go over the budget
utdallas.edu/~metin 51
IT Push
500
400
300
200
100
0
1965 1973 1981 1989 1997
IT investment($B)
utdallas.edu/~metin 52
Supply Chain Software Push
See Top 100 under /articles.html
Source Kanakamedala,
Ramsdell, Srivatsan (2003).
McKinsey Quarterly, No 1.
utdallas.edu/~metin 53
5. Sourcing
Role in the supply chain
– Set of processes required to purchase goods and services in a supply chain
– Supplier selection, single vs. multiple suppliers, contract negotiation
Role in the competitive strategy
– Sourcing is crucial. It affects efficiency and responsiveness in a supply chain
– In-house vs. outsource decisions- improving efficiency and responsiveness
» TI: More than half of the revenue spent for sourcing.
» Cisco sources: Low-end products (e.g. home routers) from China.
Components of sourcing decisions
– In-house versus outsource decisions
– Supplier evaluation and selection
– Procurement process:
» Every department of a firm buy from suppliers independently, or all together.
utdallas.edu/~metin EDS to reduce the number of officers with purchasing authorization. 54
6. Pricing
Role in the supply chain
– Pricing determines the amount to charge customers in a supply chain
– Pricing strategies can be used to match demand and supply
» Price elasticity: Do you know yours?
Role in the competitive strategy
– Use pricing strategies to improve efficiency and responsiveness
– Low price and low product availability; vary prices by response times
» Amazon: Faster delivery is more expensive
Components of pricing decisions
– Pricing and economies of scale
– Everyday low pricing versus high-low pricing
– Fixed price versus menu pricing, depending on the product and services
» Packaging, delivery location, time, customer pick up
» Bundling products; products and services
utdallas.edu/~metin 55
Considerations for Supply Chain Drivers
Driver Efficiency Responsiveness
utdallas.edu/~metin 56
Major Obstacles to Achieving Fit
SC is big:
– Variety of products/services
– Spoiled customer
– Multiple owners (Procurement, Production, Inventory,
Marketing) / multiple objectives
– Globalization
utdallas.edu/~metin 58
Major obstacles to achieving fit
Instability and Randomness:
– Increasing product variety
– Shrinking product life cycles
– Customer fragmentation: Push for customization, segmentation
– Fragmentation of Supply Chain ownership: Globalization
Increasing implied
uncertainty
utdallas.edu/~metin 59
Common problems
Lack of relevant SCM metrics: How to measure
responsiveness?
» How to measure efficiency, costs, worker performance, etc?
Poor inventory status information
» Theft: Major problem for furniture retailers.
» Transaction errors: Retailers with inaccurate inventory records
for 65% of SKUs
» Information delays, dated information, incompatible info. systems
» Misplaced inventory: 16% of items cannot be found at a major retailer
» Spoilage: active ingredients in the products are losing their properties
» Product quality and yield
» Lack of visibility in SCs
Do you know the inventory your distribution centers hold?
Do you know the inventory your fellow retailer holds?
utdallas.edu/~metin 60
Common problems
Poor delivery status information
» Not knowing the order status
Poor IT design
» Unreliable, duplicate data
» Security problems: too much or too little
Ignoring uncertainties
– “The flight from uncertainty and ambiguity is so motivated that we often
create pseudocertainty.”
– Nitin Nohra, HBR February 2006 issue, p.40.
Internal customer discrimination
» Giving lower priority to internal customers than external customers
Poor integration
Elusive inventory costs
» Accounting systems do not capture opportunity costs
SC-insensitive product design
utdallas.edu/~metin 61
Summary
Supply Chain Introduction
Competitiveness / Business strategy / SCM strategy
Components
» Inventory, Transportation, Facilities, Information, Sourcing, Pricing
Challenges
utdallas.edu/~metin 62
Seven Eleven Japan (SEJ)
A Case Study
utdallas.edu/~metin 63
Factual Information on Seven Eleven Japan (SEJ)
Largest convenience store in Japan with market value of $95 B. The third largest
retail company in the world after Wal-Mart and Home Depot.
Established in 1974.
In 2000, total sales $18,000 M, profit $620 M.
Average inventory turnover time 7-8.5 days.
Stock value increased by 3000 times from 1974 to 2000.
In 1985, there were 2000 stores in Japan, increasing by 400-500 per year.
Return on equity 14% over 2000-2004.
A SEJ store is about the half the size of a US 7-eleven store,
that is about 110 m2.
Sales:
– Products
» 32.9% Processed food: drinks, noodles, bread and snacks
» 31.6% Fast food: rice ball, box lunch and hamburgers
» 12.0% Fresh food: diary products
» 25.3% Non-food: magazines, ladies stockings and batteries.
– Services: Utility bill paying, installment payments for credit companies, ATMs, photocopying
utdallas.edu/~metin 64
More on SEJ
More factual info:
Average sales about twice of an average US store
SKU’s offered in store: Over 3,000 (change by time of day, day of week, season)
Virtually no storage space
No food cooking at the stores
SC strategy:
Micro matching of supply and demand (by location, time of day, day of week, season)
utdallas.edu/~metin 65
Seven Eleven - Number of Stores
1999: 8,027
6000 2004: 10,356
5000
4000
2000
1000
0
85 86 87 88 89 90 91 92 93 94
utdallas.edu/~metin 66
Seven Eleven - Net Sales (B Yen)
Sales 1,963 B Yen in 2000
1400
1200
1000
800
Net Sales
600
400
200
0
85 86 87 88 89 90 91 92 93 94
utdallas.edu/~metin 67
Seven Eleven - Pre tax Profit (B Yen)
100
90
80
70
60
50 Profit
40
30
20
10
0
85 86 87 88 89 90 91 92 93 94
utdallas.edu/~metin 68
Seven Eleven - Inventory turnover (days)
14
12
10
8
Inventory
6
4
2
0
85 86 87 88 89 90 91 92 93 94
utdallas.edu/~metin 69
Information Strategy
Quick access to up to date information (as opposed to data):
In 1991, SEJ implemented Integrated Service Digital Network to link stores, headquarter,
DCs and suppliers
utdallas.edu/~metin 70
utdallas.edu/~metin 71
Information Analysis of POS Data
Analysis of
– Sales for product categories over time
– SKU (stock keeping unit)
– Waste or disposal
– 10 day (or week) sales trend by SKU
utdallas.edu/~metin 72
Facilities Strategy
Limited storage space at stores which have only 125-150 m2 space
– Frequent and small deliveries to stores
Deliveries arrive from over 200 plants.
Products are grouped by the cooling needs
– Combined delivery system: frozen foods, chilled foods, room temperature and hot foods.
– Such product groups are cross-docked at distribution centers (DC). Food DCs store no
inventory.
– A single truck brings a group of products and visits several stores within a geographical region
– Aggregation: No supplier (not even coke!) delivers direct
The number of truck deliveries per day is reduced by a factor of 7 from 1974 to 2000.
Still, at least 3 fresh food deliveries per day. Goods are received faster with the use of
scanners.
Have many outlets, at convenient locations, close to where customers can walk
Focus on some territories, not all: When they locate in a place they blanket (a.k.a.
clustering) the area with stores; stores open in clusters with corresponding DC’s.
– 844 stores in the Tokyo region; Seven Eleven had stores in 32 out of 47 prefectures in 2004. No
stores in Kobe.
– Success rate of franchise application <= 1/100
utdallas.edu/~metin 73
The Present and the Future
Is food preparation a good idea at 7-eleven locations?
– e.g. Compare microwave heating vs. salad preparation.
Why SEJ does not allow direct delivery from suppliers to retailers?
Point out which of the following strategies can also be used in US (or Taiwan)
– Information strategy
– Facilities strategy
Discuss the differences between the Japanese and US (or Taiwanese) consumers with
regard to
– Frequency and amount of grocery purchase
– Use of credit cards vs. cash for purchase
– 7-eleven inventory turnover rate is 50 in Japan and 19 in the USA.
7-eleven growing rapidly in the US so it aims to be a web depot in both the US and Japan.
Does this make sense from a supply chain perspective?
– Cost vs. Responsiveness
– Business strategy
What is the risk of micro-matching strategy?
No direct deliveries to SEJ, what is the potential risk of this strategy if used in the USA?
utdallas.edu/~metin 74
Deloitte 2008 Global Retailers Survey
Excerpts from
www.deloitte.com/dtt/cda/doc/content/dtt_2008globalpowersofretailing.pd
f
Downloaded on Jan 30, 2008.
utdallas.edu/~metin 75