SCM -Decision Phases

07-Dec-15

Supply Chain ManagementSession 4 :

Topic : Decision Phases in Supply Chain, Supply Chain Flow Cycles

Decision Phases in Supply Chain


Supply Chain Design / Strategy

1. Supply Supply Chain Chain Design/St Design/Stra rateg tegy. y. - Decides on how how to structure Supply Chain over next next several years. -

Very Very expen expensive sive to to alter alter on short notice. notice.

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Must take take into into a/c uncert uncertainty ainty in anticip anticipated ated market market conditions over over next 5 years.

Supply Chain Planning

• Decisions includes: - Location and production production and warehousing capacity - Product Product to be manufactured manufactured Supply Chain Operation

- Mode of transport transport to be made available available - Type of information information system to be utilized. utilized.

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07-Dec-15


Decision Phases in Supply Chain 3. Supply Chain Operations

2. Supply Chain Planning

- Time horizon is weekly or daily.

- At this phase Supply Chain’s configuration is already fixed. - Time frame is quarter to a year, forecast for coming years.

• Decisions includes :

- Planning policies are already defined. - Goal is to handle i ncoming customer orders in the best possible manner.

• Decisions includes :

- Which market will be supplied from which location.

- Allocate inventory or production to individual orders

- Subcontracting of manufacturing

- Set a date fullfillment of an order

- Inventory policies

- Generate picklist at warehouse

- Timming and size of marketing promotions.

- Allocate an order to particular shipping mode - Set delivery schedules of travel

Process View of a Supply Chain

Process V iew of a S upply Chain 1. Cycle View

• There are two different ways to view the processes performed in a supply chain. Process View of Supply Chain

The processes in a supply chain are divided into a series of cycles, each performed at the interface between two successive stages of a supply chain.

· Customer order cycle · Replenishment cycle (at retailer/distributor) · Manufacturing cycle (distributor/manufacturer) Cycle View

Push / Pull View

· Procurement cycle (manufacturer/supplier ) Note : Not all suppy chain have four cycles cleary separated Eg: Dell

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07-Dec-15

Cycle View of Supply Chain Processes

Cycle View of Supply Chain Processes • A cycle view of the supply chain defines the processes involved and the owners of each process. • This view is very useful when considering operational decisions. • It specifies the roles and responsibilities of each member of supply chain and the desired outcome for each processes.


Cycle View of Supply Chain Processes • Customer Order Cycle

• Customer Order Cycle

- Occurs at the customer/retailer interface - Includes processes directly involved in receiving and filling the customer’s order. - Begins with retailer’s interaction with customer when and ends when retailer receives the order from customer.


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Cycle View of Supply Chain P rocesses – Customer Order Cycle 

Customer Arrival

Cycle View of Supply Chain Processes – Customer Order Cycle 

- Refers to the customer’s arrival at the location where he / she has access

- During this process,the customer’s order is filled and sent to the

to his/her choices and makes a decision regarding a purchase. -

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Objective of this process is to maximize the conversion of customer arrivals to customer orders.

customer. -

All inventories will need to be updated,which may result in the initiation of the replenishment cycle.

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Objective of the process is to get the correct orders to customers by the promised due dates at the lowest possible cost.

Customer Order Entry

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Refers to customers informing the retailer what products they want to purchase and the retailer allocating products to customers.

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Objective of this process is to ensure that the order entry is quick, accurate and communicated to all supply chain processes that are affected by it.


Customer Order Fulfillment

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Customer Order Receiving During this process is the customer receives the order and takes owneship.

Cycle View of Supply Chain Processes • Replenishment Cycle

• Replenishment Cycle

- Occurs at the retailer/distributor interface - Includes processes involved in replenishing retailer inventory. - Begins when retailer places an order to replenish inventories to meet future customer demand. Objective of Replenishment Cycle : To replenish inventories at the retailer at minimum cost while providing high product availability.


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Cycle View of Supply Chain P rocesses – Replenishment Cycle 

Retail Order Trigger

Cycle View of Supply Chain Processes – Replenishment Cycle 

- Outcome is generation of a replenishment order that is ready to be passed to the distributor or manufacturer. -

Objective of the process is to maximize profitability by ensuring economies of scale and balancing product availability and cost of holding inventory.

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Retail Order Entry

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Placing order conveyed to the distributor.

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Objective of this process is that an order be entered accurately and conveyed quickly to supply chain processes affected by the order.


Retail Order Fulfilment

- Takes place at the distributor. -

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Objective of the process is to get the replenishment order to the retailer on time while minimizing costs.

Retail Order Receiving

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Involves flow of product from distributor to retailer, information and fund from retailer to distributor.

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Objective of this process is to update inventories and display quickly and accurately at the lowest possible cost.

Cycle View of Supply Chain Processes • Manufacturing Cycle

• Manufacturing Cycle

- Occurs at the distributor/manufacturer interface - Includes processes involved in replenishing distributor inventory.


07-Dec-15

Cycle View of Supply Chain P rocesses – Manufacturing Cycle 

Order Arrival

Cycle View of Supply Chain Processes – Manufacturing Cycle 

- Distributor sets replenishment order trigger

Manufacturing and Shipping

- Manufacturing phase, manufacturer produce to production schedule.

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Based on forecast of future demand and current product inventory

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Shipping phase,product shipped to Customer,Retailer,Distributor.

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The resulting order is conveyed to manufacturer.

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Objective is to create and ship the product by the promised due date while meeting quality requirements and keeping costs down.

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Production Scheduling

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During the process, forecasted orders are allocated to a production plan.

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Objective is to maximize the proportion of orders filled on time while keeping costs down.


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Receiving

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Product is received at distributor and inventory updation takes place.

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Other processes related to storage and fund transfer occurs


• Procurement Cycle

- Occurs at the manufacturer/supplier interface

• Procurement Cycle

- Includes processes necessary to ensure that materials are available for manufacturing to occur according to schedule. - Component orders depends on production schedule. - Suppliers to be linked to manufacturer’s production schedule.


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Process View of a Supply Chain • There are two different ways to view the processes performed in a supply chain. Process View of Supply Chain

Push/Pull View • The processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order or in anticipation of customer orders. • Pull processes (Reactive Process) are initiated by a customer order, and

Cycle View

Push / Pull View

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Push processes (Speculative Process) a re initiated and performed in anticipation of customer orders.

Push/Pull View of Supply Chain Processes • The push/pull boundary in a supply chain separates push processes from pull processes. Eg: Dell –inventory replenished in anticipation of customer demand. All processes in procurement & replenishment cycle classified as push processes, in response to forecast.

• Push/Pull Process for the Supply Chain


07-Dec-15

Cycles in Dell Supply Chain

Push/Pull View of Supply Chain Processes • A push/pull view of the supply chain is very useful when considering strategic decision relating to supply chain design. • The goal is to identify an appropriate push/pull boundary that supply chain can match Supply and Demand effectively.

Push/Pull Process for Dell Supply Chain

• Eg: Paint Industry –Until 1980s , push processes – anticipation of customer dd. In 1990s, shifted from push to the pull phase..How ?

The Importance of Supply Chain Flows • There is a close connection between the design and management of supply chain flows and the success of a supply chain. • Dell has only 10 days of inventory contrast to other pc makers of 80 to 100 days. The success of the Dell supply chain is facilitated by sophisticated information exchange. (customized web pages) • Outsourcing

Dell Supply Chain Stages


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Competitive Advantage

Topic : Understanding the Consumer and Supply Chain Strategies

• A competitive advantage is an advantage over competitors gained by offering consumers greater value, either by means of lower prices or by providing greater benefits and service that justifies higher prices. 1. Strategy - Differentiation This strategy is usually associated with charging a premium price for the product - often to reflect the higher production costs and extra valueadded features provided for the consumer.

2. Cost Leadership With this strategy, the objective is to become the lowest-cost producer in the industry. This strategy is usually associated with large-scale businesses offering "standard" products with relatively little differentiation that are perfectly acceptable to the majority of customers. Occasionally, a low-cost leader will also discount its product to maximise sales, particularly if it has a significant cost advantage over the competition and, in doing so, it can further increase its market share.

Competitive and Supply Chain Strategies • Competitivestrategy: defines the set of customer needs a firm seeks to satisfy through its products and services. Examples : Big Bazar – high availability of variety of reasonable quality products at low price. –emphasise on cost. Dell – build-to-order –customers can purchase online, places great emphasis on product variety and customization .

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Competitive Strategy targets one or more customer segments and aims to provide products and services that satisfy these customers’ needs.

Competitive and Supply Chain Strategies • Supply chain strategy: – determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product. – Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important - Includes supplier strategy, operations strategy and logistics strategy. - Decisions regarding inventory, transportation, operating facilities and information flows in the supply chain are all part of supply chain strategy.


07-Dec-15

Competitive Strategy and Supply Chain Strategy – The relationship

Achieving Strategic Fit

Competitive strategy

New Product Development

Marketing & Sales

Operations

Distribution

Service

Supply Chain Strategy

Supplier Strategy

Operations Strategy

Logistics Strategy

See the Dell example – Matching competitive and procurement strategies • Suppose Dell’s competitive strategy is to deliver a product within 72 hours of receiving an order but is product suppliers, on average take 7 days to resupply inventory, then, Dell is not going to be able to accomplish its competitive strategy.

• Strategic fit: – Consistencybetween 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 or because its processes and resources do not provide the capabilities to execute the desired strategy • Example of strategic fit -- Dell

The Dell’s competitive and Supply Chain strategies • Competitive strategy: provide a l arge variety of customizable computer-related products at a reasonable price and to let customers select from thousands of configurations.

• Supply Chain strategy: Two possible options:

• There is a lack of strategic fit.

1. Efficient procurement limiting variety and exploiting economies of scale or

• Also, look at Dell’s competitive strategy.

2. High flexibility and responsiveness producing a large variety of products.

• Dell’s Supply Chain Strategy is No. 2 Consequently, Dell focuses on designing easily customizable products, common platforms and components that can be assembled quickly.


07-Dec-15

Example of Supply Chain and Competitive Strategic Fit- Dell • A supply chain strategy that emphazises flexibility and responsiveness has a better strategic fit with Dell’s competitive strategy of providing a large variety of customizable products. •

Competitive Strategy- To provide a large variety of customizable products at reasonable price.

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Supply Chain Strategy- Use common components that can be assembled quickly and in response to customer order , proves Dell’s supply chain’s ability.

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Dell clearly acheived stong strategic fit between its different functional strategies and its competitive strategy.

How is Strategic Fit Achieved? • A competitive strategy will specify one or more customer segment that a company hopes to satisfy. • To achieve strategic fit, a company must ensure that its supply chain capabilities support its ability to satisfy the targeted customersegments. Three Basic Steps to Achieve Strategic Fit :

• Step 1: Understanding the customer and supply chain uncertainty • Step 2: Understanding the supply chain • Step 3: Achieving strategic fit

Step 1: Understanding the Customer and Supply Chain Uncertainty

• Identify the needs of t he custom er segment being served • Quantity of product needed in each lot


• Demand uncertainty: uncertainty of customer demand for a product

• Response time customers will tolerate • Variety of products needed • Service level r equired (regarding product availability) • Price of the product (emergency order not price sensitive) • Desired rate of innovation in the product (low price, no expectation in new apparel design)

• Implied demand uncertainty: resulting uncertainty from the specific customer desires for only that portion of demand which the supply chain must be able to handle. • First step to strategic fit is to understand customers by mapping their demand on the implied uncertainty spectrum.


07-Dec-15

Step 1: Understanding the Customer and Supply Chain Uncertainty •


Implied demand uncertainty is defined in the context multiple supply chains supplying the same product. Multiple supply chains com e due to different attributes that they satisfy.

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Another Example : Circuit board supplier – customers include build-toorder PC manufacturers and small variety PC manufacturers.

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Dell –same day lead time, suppliers need to bulid up inventory to be prepared for whatever demand Dell had that day.

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An example is a firm supplying a product, say medicines, 24 hours versues a firm that supplies during normal day hours.

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Forecast errors high, stockouts high, becos of these factors, margins would be likely higher.

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The implied demand uncertainty for the 24 hour firm can be high as on some days there is heavy demand and some days very less demand and also the demand for specific medicines can be high on s ome days and can be even zero on some days.

Other manufacturers – longer lead time, reduces forecast errors and stockout rates, margins would be likely smaller.

Correlation Between Implied Demand Uncertainty and Other Attributes Attribute Product margin

Low Implied Uncertainty

High Implied Uncertainty

Low

High

Note : These examples shows that even with the same product, different customer segments can have different implied demand uncertainty given different service requirements.

Impact of Customer Needs on Implied Demand Uncertainty Customer Need

Causes implied demand uncertainty to increase because …

R an ge of qu an tit y i nc re ase s

Wid er ra nge o f q ua nt it y imp li es greater variance in demand

Lead time decreases

Less time to react to orders

Avg. forecast error

10%

40%-100%

Variety of products required increases

Demand per product becomes more disaggregated

Avg. stockout rate

1%-2%

10%-40%

Number of channels increases

Total customer demand is now disaggregated over more channels

R at e o f in no va ti on i nc re ase s

Ne w p ro du ct s t en d t o ha ve mo re uncertain demand

Required service level increases

Firm now has to handle unusual surges in demand


07-Dec-15

Achieving Strategic Fit

Levels of Implied Demand Uncertainty

• Understanding the Customer Predictable supply and demand

Predictable supply and uncertain demand or uncertain supply and predictable demand or somewhat uncertain supply and demand

Highly uncertain supply and demand

– Lot size – Response time – Service level

Salt at a supermarket

An existing automobile model

A new communication device

Figure 2.2: The Implied Uncertainty (Demand and Supply)

Step 2: Understanding the Supply Chain Capabilities • How does the firm best meet demand thro its supply chain? • Supply chain r esponsiveness -- ability to – respond to wide ranges of quantities demanded – meet short lead times – handle a large variety of products – build highly innovative products – meet a very high service level

– Product variety

Implied Demand Uncertainty

– Price – Innovation

Step 2: Understanding the Supply Chain Capabilities • Step is to achieve a strategic fit between competitive and supply chain strategies to understand the supply chain and map it on the responsiveness spectrum . • There is a cost to achieving responsiveness. • Respond to a wider range of quantities demanded, capacity must be increased, which increases cost. • There should trade-off between Cost and Responsiveness, through using existing possible technology of lowest cost .


07-Dec-15

Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier

Responsiveness Spectrum

Responsiveness

High Highly efficient

Somewhat efficient

Integrated steel mill :

Hanes apparel

Somewhat responsive

Highly responsive

Most automotive production

Dell

Low High

Low

Cost

Achieving Strategic Fit Shown on the Uncertainty/Responsiveness Map

Step 3: Achieving Strategic Fit • Step is to ensure that what the supply chain does well is consistent with target customer’s needs. • **A Co.must ensure the consistency betw een the degree of supply chain responsiveness and impl ied uncertai nty

Responsive supply chain

Responsiven ess spectrum

• Implied Uncertaint y repesents customer needs or the firm’s strategic position and the capability of supply sources. • The supply chain ’s responsiveness represents the supply chain strategy. (Figure in next slide)

Efficient supply chain Certain demand

Implied uncertainty spectrum

Uncertain demand


07-Dec-15

• For a high level of performance, companies should move their competitive strategy ( and resulting implied uncertainty ) and supply chain strat egy (and resulting responsiveness) toward the zone of strategic fit . Example :

• Nestle India Ltd , Maggi Noodles is product with stable customer demand , giving it low implied demand uncertainty.

Step 3: Achieving Strategic Fit • Final Step in acheiving strategic fit is to match supply chain responsiveness with the implied uncertainty from demand and supply.

• Supply is predictable.Nestle could design highly responsive supply chain – being custom made in very small batches in response to customer orders, transport thro. FedEx. • Result – loss of customers, due to expensive supply chain design for a product which focus cost reducti on .

Comparison of Efficient and Responsive Supply Chains Efficient

Responsive

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 expens e 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

Other Issues Affecting Strategic Fit • Multiple products and customer segments • Product life cycle • Competitive changes over time


07-Dec-15

Multiple Products and Customer Segments • Firms sell different products to different customer segments (with different implied demand uncertainty)

Product Life Cycle

• Eg: Levis Jeans – standard size (Lower Implied demand uncetainty) and customized (higher implied demand uncetainty).

• 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

• The supply chain has to be able to balance efficiency and responsiveness given its portfolio of products and customer segments

• Early: uncertain demand, high margins (time is important), product availability is most important, cost is secondary • Late: predictable demand, lower margins, price is important

• Two approaches:

• As products mature,the corresponding supply chain strategy should, in general, move from being responsive to being efficient.

– Different supply chains for products made on same line in a plant (high level of responsiveness shipped thro. FedEx). – Tailor supply chain to best meet the needs of each product’s demand or customer segment.

Changes in Supply Chain Strategy Over a Product Life Cycle Responsive supply chain

Responsiveness spectrum

Efficient supply chain Product Maturity

Implied uncertainty spectrum

Product Introduction


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Product Life Cycle • Examples: pharmaceutical firms (introducing new drug), Intel • As the product goes through the life cycle, the supply chain changes from one emphasizing responsiveness to one emphasizing efficiency • Demand and supply characteristics change over a product’s life cycle. • Because demand and supply characteistics change,the supply chain strategy must also change over the product life cycle if a company is to continue achieving strategic fit.

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 competitiveconditions • With the change in competitive strategy, a firm must also change its supply chain strategy to maintain strategic fit.


SCM -Decision Phases

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