Supply Chain :
A supply chain consists of all parties involved, directly or indirectly, in fulfilling customer request. The supply chain includes not only the manufacturer and suppliers, but also transporters, warehouses, retailers, and even customers themselves.
Supply Chain Management:
Supply chain management (SCM) is the broad range of activities required to plan, control and execute a product’s flow, from acquiring raw materials and production through distribution to the final client in the most streamlined and cost-effective way possible.
Push And Pull View:
In Pull process, execution is initiated in response to a customer order. Pull Process may also be referred to a reactive processes because they react to customer demand.
In Push Process execution is initiated in anticipation of customer orders based on a forecast. Push Processes may also be referred to as speculative processes because they respond speculated or forecasted rather than actual demand.
A Push/Pull view of supply chain is very useful when considering strategic decisions relating to supply chain design. The goal is to identify an appropriate Push/Pull boundary such that the supply chain can match supply and demands effectively.
Decision phase of Supply chain management:
mainly, Supply Chain management requires many decisions related to flow of information, product and funds .Each decision should be made to raise supply chain surplus. These decisions fall into three categories or phase,depending on the frequency of each decision and the time frame during which a decision phase has an impact .The three are:
Supply Chain Strategy OR Design :
Long term planning
Structure the company’s SC
e.g sourcing, location, facility, capacity, transportation, etc.
Decisions about the structure of the supply chain and what processes each stage will perform
Strategic supply chain decisions
Locations and capacities of facilities
Products to be made or stored at various locations
Modes of transportation
Supply chain design must support strategic objectives
Supply chain design decisions are long-term and expensive to reverse – must take into account market uncertainty.
In this Phase, a company decides how to structure he supply chain over the next several years. It decides what the chain’s configuration will be, how resources will be allocated and what processes each stage will perform.It also Includes whether to outsource or perform a supply chain function In-house, the location and capacity of production and warehousing facilities, the products to be manufactured or stored at various locations, the modes of transportation to be made available along different shipping legs ,and the type o informationsystem to be used.
Supply Chain Planning :
Short term planning with short term operating policies (max: one year planning) SC planning
Goal: maximize SC surplus
Which markets will be supplied from which locations
Planned buildup of inventories
Subcontracting, backup locations
Timing and size of market promotions
Must consider in planning decisions demand uncertainty, exchange rates, competition over the time horizon.
Supply Chain Operation:
Focus: handling + meeting customer order
Time horizon is weekly or daily
Decisions regarding individual customer orders
Supply chain configuration is fixed and operating policies are determined
Goal is to implement the operating policies as effectively as possible
Allocate orders to inventory or production, set order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders
Much less uncertainty (short time horizon)
Decisions are taken regarding individual customer order
and the time frame is week or days
Configuration is fixed and policies are defined
Objective is to handle incoming customer orders in the
best possible manner
Decisions related with:
allocation of inventory or production to
set a date that an order is to be filled,
generate pick lists at a warehouse,
allocate an order to a particular shipping mode
set delivery schedules of trucks, and place replenishment order
Exploit the reduction in uncertainty and optimize.
The third and last decision phase consists of the various functional decisions that are to made instantly within minutes, hours or days. The objective behind this decisional phase is minimizing uncertainty and performance optimization. Starting from handling the customer order to supplying the customer with that product, everything is included in this phase.
For example, imagine a customer demanding an item manufactured by your company. Initially, the marketing department is responsible for taking the order and forwarding it to production department and inventory department. The production department then responds to the customer demand by sending the demanded item to the warehouse through a proper medium and the distributor sends it to the customer within a time frame. All the departments engaged in this process need to work with an aim of improving the performance and minimizing uncertainty.
Zara is a chain of fashion stores owned by Inditex, Spain’s largest apparel manufacturer and retailer. In 2009, Inditex reported sales of 11 billion euros from more than 4,700 retail outlets in about 86 countries.Zara is an apparel manufacturer that relate to the fashion domain. Zara use the strategy which is decrease the time of design the new merchandises (limit to 5-6 weeks). Zara has ability to introduce new designs every week, thus, the apparel in its stores are fresh, therefore, it’s will satisfied the customers demand. Also this strategy will increase the sales volume and reduce the cost about the save the goods in warehouse.The result is that Zara sells most of its products at full price and has about half the markdowns in its stores compared to the competition.Zara manufactures its apparel using a combination of flexible and quick sources in Europe (mostly Portugal and Spain) and low-cost sources in Asia. Inditex choose to have both in-house and outsourced manufacturing. Firstly, Zara have 40% productivity by Inditex. The main reason not only is this strategy will insure the produced is fashion in current season, but also it has a flexible and quick supply delivery to reduce the delivery time to the Europe market. Moreover, another productivity are come to Asian and Latin American countries, because the lobar market and cost in these country are cheap than Europe even include the transport fees.Products with highly uncertain demand are sourced out of Europe, whereas products that are more predicable are sourced from its Asian locations. More than 40 percent of its finished-goods purchases and most of its in-house production occur after the sales season starts. This compares with less than 20 percent production after the start of a sales season for a typical retailer. This responsiveness and the postponement of decisions until after trends are known allow Zara to reduce inventories and forecast error. Zara has also invested heavily in information technology to ensure that the latest sales data are available to drive replenishment and production decisions.
Key success factors of Zara:
Short Lead Time = More fashionable clothes
Lower quantities = Scarce supply
More styles = More choice, and more chances of hitting it.
Until 2002, Zara centralized all its European distribution and some of its global distribution through a single distribution canter (DC) in Spain. It also had some smaller satellite DCs in Latin American countries. Shipments from the DCs to stores were made twice a week. As Zara has grown, it has built another DC in Spain. In 2009, Inditex distributed to stores all over the world from eight DCs located in Spain. The group claimed an average delivery of 24 hours for European stores and up to a maximum of 48 hours for stores in America or Asia from the time the order was received in the DC to the time it was delivered to the stores. Shipments from the DCs to stores were made several times a week. This allowed store inventory to closely match customer demand.
Toyota: A Global Auto Manufacturer :
Toyota Motor Corporation japan’s top auto manufacturer and has experiences significant growth in global sales over the past two decades. The Key issue they are acing is the design of their global production and distribution network. Toyota’s global strategy is to open factories in every market it serves. Toyota must decide what the production capability of each of the factories will be, as this has significant Impact onthe desired distribution system. At one extreme each plant can be equipped only or local production. At the other extreme each plant is capable of supplying every market. Before 1996 Toyota used specialized local factories or each market. After the Asian financial crises in 1996 -1997 Toyota redesigned its plants so it could also export to markets that remain strong when the local make weakens .Toyota calls this strategy “Global Complementation” whether to be global or local is also an issue or Toyota’s parts plants and product design should parts plants be built or local production or should there be a few parts plants globally that supply multiple assembly plants? Toyota has worked hard to increase commonality in parts used around the globe. Although this has helped the company lower costs and improve parts availability, common parts caused significant difficulty when one of the parts had to be recalled. Then Toyota ha to recall about million cars using common parts across north America, Europe and asia ,causing significant damage to the brand as well as to the finances
The importance of Supply Chain Decisions:
There is a close connection between the design and management of supply chain flows(product, information, and funds) and the success of a supply chain. Wal-Mart, Amazon, and Seven-Eleven Japan are examples of companies that have built their own success on superior design, planning, and operation of their supply chain.Dell has put together its success on planning operations and superior design of its supply chain.In shorter span of time Dell has become the world’s biggest personal computer manufacturer .The significant part of dell success is the flow ofinformation,funds and product inside the supply chain. In contrast, the failure of many online businesses such as Web-van can be attributed to weaknesses in their supply chain design and planning. The rise and subsequent fall of the bookstore chain Borders illustrates how a failure to adapt its supply chain to changing environment and customer expectations hurt its performance, Dell Computer is another example of a company that had to revise it’s supply chain design in response to changing technology and customer needs.Wal-Mart has been a leader using supply chain design, planning, and operation to achieve success. From its beginning, the company invested heavily in transportation and information infrastructure to facilitate the effective flow of goods and information.Wal-Mart designed its supply and demand more effectively than the competition. Wal-Mart has been a leader in sharing information and collaborating with suppliers to bring down the costs and improve product availability. The results are impressive. In its 2010 annual report, the company reported a net income of more than $14.3 billion on revenues of about $408 billion. These are dramatic results for a company that reached annual sales of only $1 billion in 1980. The growth in sales represents an annual compounded growth rate of more than 20 percent.
Competitive and Supply Chain Strategies:
Competitive strategy defines the set of customer needs a firm seeks to satisfy through its products and services. / Defines the set of customer needs a firm seeks to satisfy through its products and services, relative to its competitor
The supply chain design or supply chain strategy must be in alignment with competitive strategy. A supply chain design can be taken up only after the competitive strategy is finalized and a supply chain needs to be redesigned or modified whenever there is a change in competitive strategy.
• High availability of variety of products of reasonable quality
• Low price – McMaster-Carr (MRO)
• More than 500,000 different products (through a catalog and Web)
• Convenience, availability, responsiveness
• Not competing based on low price
Clearly the competitive strategy at Walmart is different from that at McMaster
Another example of blue Nile and Zales . Blue Nile with its online retailing model or diamonds, and Zales sells diamond and jewelry through retail outlets. blue Nile has emphasized the variety ofdiamonds available from its website and the act that margins are significantly lower than its bricks and motor competition. Customers however have to wait to get their jewelry and do not have any opportunity to touch and see it before purchase the amount and variety available at zales is limited but blue Nile stones on its site a typical zales store carries fewer than a thousand a blue Nile customer purchasing online , places great emphasis on product variety and cost . a customer purchasing jewelry at Zales is most concerned with art response time and help in product selection. Thus, firms competitive strategy will be based on its customer’s priorities.
Achieving Strategic Fit:
Consistency between customer priorities of competitive strategy and supply chain capabilities specified by the supply chain strategy.
Competitive and supply chain strategies have the same goals.
A company may fail because of a lack of strategic fit.
e.g. Dell’s competitive strategy before and after 2007.
Strategic fit is achieved with three steps, namely:
Step 1: Understanding the customer and supply chain uncertainty
Step 2: Understanding the supply chain
Step 3: Achieving strategic fit
How is Strategic Fit Achieved?
Step 1: Understanding the customer and supply chain uncertainty
Identify the needs of the customer segment being served
• Quantity of product needed in each lot
• Response time customers will tolerate
• Variety of products needed
• Service level required
• Price of the product
• Desired rate of innovation in the product
Understanding the customer
• Demand uncertainty: uncertainty of customer demand for a product
• Implied demand uncertainty: resulting uncertainty for the supply chain given the portion of the demand the supply chain must handle and attributes the customer desires
Impact of customer needs on implied demand uncertainty:
Customer Need Causes implied demand uncertainty to increase because …
Range of quantity increases Wider range of quantity implies greater variance in demand
Lead time decreases Less time to react to orders
Variety of products required increases Demand per product becomes more disaggregated
Number of channels increases Total customer demand is now disaggregated over more channels
Rate of innovation increases New products tend to have more uncertain demand
Required service level increases Firm now has to handle unusual surges in demand
Uncertainty resulting from the capability of the supply chain
Impact of supply source capability on supply uncertainty
Step 2: Understanding the supply chain
How does the firm best meet demand in uncertain environment?
Dimension describing the supply chain is supply chain responsiveness
Supply chain responsiveness — ability to
• respond to fluctuations in demand
• meet short lead times
• handle a large variety of products
• build highly innovative products
• meet a very high service level
• handle supply uncertainty
There is a cost to achieving responsiveness!
Supply chain efficiency
• Cost of making and delivering the product to the customer
• Increasing responsiveness results in higher costs that lower efficiency
Cost-responsiveness efficient frontier:
• e.g., Seven-Eleven Japan, Sam’s Club
Step 3: Achieving strategic fit
Maxtch supply chain responsiveness with implied uncertainty
All functions in the value chain must support the competitive strategy to achieve strategic fit – Fig. 2.7 Two extremes: Efficient supply chains (Barilla) and responsive supply chains (Dell) – Table 2.3 Two key points – there is no right supply chain strategy independent of competitive strategy – there is a right supply chain strategy for a given competitive strategy.
Comparison of Efficient and Responsive Supply Chains:
Primary goal Lowest cost Quick response
Product design strategy Min product cost Modularity to allow postponement
Pricing strategy Lower margins Higher margins
Mfg strategy High utilization Capacity flexibility
Inventory strategy Minimize inventory Buffer inventory
Lead time strategy Reduce but not at expense of greater cost Aggressively reduce even if costs are significant
Supplier selection strategy Cost and low quality Speed, flexibility, quality
Transportation strategy Greater reliance on low cost modes Greater reliance on responsive (fast) modes
Product Life Cycle :
The demand characteristics of a product and the needs of a customer segment change as a product goes through its life cycle Supply chain strategy must evolve throughout the life cycle Early: uncertain demand, high margins (time is important), product availability is most important, cost is secondary Late: predictable demand, lower margins, price is important, Inc. 2-28 Product Life Cycle Examples: pharmaceutical firms, Intel As the product goes through the life cycle, the supply chain changes from one emphasizing responsiveness to one emphasizing efficiency.
Competitive Changes Over Time:
Competitive pressures can change over time More competitors may result in an increased emphasis on variety at a reasonable price The Internet makes it easier to offer a wide variety of products The supply chain must change to meet these changing competitive conditions