Supply Chain

• The supply chain can cost 50% to 80% of revenue
  • A corporation cannot sustain competitive advantage without a competitive supply chain
  • A best-in-class supply chain will drive company financial results
• Three best-in-class supply chains: Schneider Electric, Cisco, Colgate-Palmolive
• Definition
  • Network of activities associated with the flow and transformation of goods from raw materials to the end use, and to the end of product life.
  • Includes all companies associated with the transformation of goods
• Supply Chain Operations Reference Model | SCOR
• Supply chains must be driven by a forecast
  • Forecasts are (almost) always wrong
  • Excess inventory, high costs, waste and lost customers are the consequence of forecasting inaccuracies.

Concepts

• Profit Sharing
• Collaboration — to  increase speed of supply and reduce inventory and costs.
• Operations Terms
  • Build to order = products built to confirmed orders
  • Build to plan = products built to a forecast
  • Forecast accuracy
  • Manufacturing cycle time = start to finish manufacturing time
  • Lead times = order to delivery time
  • Customer requested date
  • Promised delivery date

Demand Forecast

• Horizontal - Fluctuation of demand about a constant mean remains relatively consistent
• Trend - Demand exhibits an increasing or decreasing pattern over time
• Seasonal - Any pattern that regularly repeats itself and is of a constant length
• Cyclical - Patterns that are created by economic fluctuations.
• Random - Unexplained and un-forecastable variation that cannot be predicted.

Inventory

Optimize the inventory levels by reducing the supply chain cycle time from order to delivery.

• Inventory types
  • Raw Materials (RM): Basic substance in its natural, modified, or semi-processed state
  • Work-in-Process (WIP): product at an intermediate stage in processing (semi-finished goods)
  • Finished Goods (FG): completed products available for sale to an internal or external customer
  • Buffer/Safety Stock: used to protect against uncertainties and potential reliability/quality issues.
• Inventory strategy — constant trade-offs
  • Customer Service Levels: Ensuring the firm has the right products in the place at the right time
  • Inventory Costs: Balancing customer service levels with inventory ordering & carrying costs
  • Operational Performance: Balancing the customer service levels and costs with cash flow and operational efficiencies desired
• Inventory Models
  • Single Period — Newsvendor Model
  • Multiple Period Model

Integration

• Virtual Integration: A method of achieving the advantages of vertical integration without incurring the direct overhead costs (capital costs, people costs etc.) or taking on all of the risk.
• Moving to Virtual Integration via Outsourcing
  • Reduces operating costs
  • Improves company focus on its own core competencies
  • Gain access to world-class capabilities and skills
  • Frees up internal resources for other purposes
  • Shares risks with partners
• Supplier Relationship are critical when virtualizing
  • Competitive Orientation: win-lose zero sum game, hard negotiations on cost with short-term objectives, commoditizes the relationships, many suppliers. Contract-based relationship.
  • Cooperative Orientation: Buyer & sellers become partners, long-term orientation, cooperative work on commitments, early supplier involvement on new products/services, fewer suppliers. Partnership-based relationship.

Strategy

• Functional Product
  • Meet predictable demand at lowest cost.
  • Being physically efficient — must contend with Bullwhip Effect!
• Innovative Product
  • Quickly reacting to changes in demand.
  • Being market responsive. — by delaying differentiation

IT

• ERP (Enterprise Resource Planning) and SCM (Supply Chain Management) Systems