Changes in Consumer Demand. What is a supply chain? Supply Chain Management

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1 Introduction to Supply Chain Management - Twenty-first Centur Supply Chains By Rhonda Lummus Changes in Consumer Demand Product Proliferation Mass Customization Consumer Direct The Internet - E-tail Promotions/Incentives What is a supply chain? Supply Chain Management Suppliers Suppliers Supply Chain: Sequence of activities and organizations involved in producing and delivering a good or service Direct Suppliers Producer Distributor Final Customer The integration of the activities that procure materials, transform them into intermediate goods and final products, and deliver them to customers. This includes: Transportation, sourcing, manufacturing and assembly, warehousing and inventory tracking, order fulfillment, distribution and delivery to customers retailers.

2 Dell and the Value Chain Flow within Supply Chains People look at Dell, and they see the customer-facing aspects of the direct-to-consumer business model, the one-o-one relationships. What is not really understood is that behind these relationships lies the entire value chain: invention, development, design, manufacturing, logistics, service, delivery, sales. The value created for our customers is a function of integrating all those things. Michael Dell, Technology Review, July/August 2001 Returned Goods Material Flow Cash Flow Supplier Mfg. Retailer Consumer Supplier Wholesaler Retailer Information Flow Definition of Logistics Logistics The process of planning, implementing, and controlling the efficient, effective flow and storage of goods, services, and related information from the point of origin to the point of consumption for the purpose of conforming to customer requirement. Logistics: The process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, in-process inventory, finished goods and related information from the point of production to the point of consumption for the purpose of conforming to customer requirements * Coordination of inbound and outbound flows of material and information *Council of Logistics Management

3 Logistics provides a company a competitive advantage by: Positioning the firm with the lowest cost transportation processes Maintaining agility in terms of customer shipping requirements Providing speed to market and quick delivery of raw materials Developing third party logistics providers to achieve operating excellence Operations Management Operations management (OM) is defined as the design, operation, and improvement of the systems that create and deliver the firm s primary products and services Production systems use resources to transform inputs into goods and services Vertical Integration 1-12 Generalized Supply Chain Model Relationship Management Information, Product, Service, Financial and Knowledge Flows Owned forests, iron mines, rubber plantation, coal mines Ships, railroad lines Dock facilities, blast furnaces, foundries, rolling mills, stamping plants, an engine plant, glass manufacturing, a tire plant, its own power plant, and 90 miles of RR track 1927 Model A Production begins 15,000,000 cars in 15 years 120,000 employees in WWII M A T E R I A L S SUPPLIER NETWORK Procurement INTEGRATED ENTERPRISE Manufacturing Distribution DISTRIBUTIVE NETWORK E N D C O N S U M E R S Capacity, Information, Core Competencies, Capital and Human Resources McGraw-Hill/Irwin Supply Chain Logistics Management, First Edition. Bowersox, Closs, and Cooper. Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

4 Successful Supply Chain Strategies 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 Accenture Managing the Supply Chain Collaboration - supply chains compete with other supply chains Extended enterprise - joint planning with supply chain partners Information sharing - sharing forecasts, promotion details, new product introduction, inventory, costs, shipments Managing the Supply Chain Process planning - who does what, and how to improve on it Outsourcing - transportation, warehousing, valueadded services, third-party logistics providers

5 Reversing the Supply Chain Managing the Supply Chain Old Model Buy raw materials Make finished product Move goods to market Sell through retailers New Model Sell customized product Move to delivery based on consumption Make only those products for which there is a known demand Buy raw materials in line with accurate production requirements Postponement -- withhold any modification until as long as possible. Keep product generic vanilla - flexible manufacturing, delay customization, have distributor assemble products from components, in-store customization, final package at the distributor Delayed Customization Benefits of SCM Before Siemens Medical Eng. Group: Reduced cycle time from 22 weeks to 6 weeks. Gillette: Achieved a 50-percent reduction in finishedgoods inventory by packaging the blades to each retailers needs. Production Storage Shipping Storage Sears: Cross-docking goods is nearly 10 percent cheaper than storing them in a warehouse. Dell: Negative cash-to-cash cycle time After

6 Cash-to-Cash Cycle Times Supply-Chain Issues Calendar Days Computers Industrial Telecom Chemicals Packaged Goods Best in Class '98 Average ' Overall 89 Leadership: power and risk Confidentiality: partner in multiple chains Measurement: across companies Sharing rewards: pricing Flexibility: disruption, part availability Communication: manage timely shipment of parts and products Social issues: antitrust, increased prices Evolution of Supply Chain Management Factor Inventory Mgmt. Inventory flows Cost Information Risk Planning Inter-organizational Relationships Traditional Firm Focused Interrupted Firm Minimization Firm Control Firm Focus Firm orientation Firm Focus on low cost Supply Chain Pipeline Coordination Seamless/Visible Landed Cost Shared Shared Supply Chain Team Approach Focusing on Landed cost What s in it for you? Information Systems - Links within outside the company Accounting - Paperless transactions between partners Marketing - Meeting customers needs (speed, quality, variety) and Management - Relationships between companies