Supply Chain Management
Mid-Semester Review
Review
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Definition of supply chain
Decision phases of supply chain
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Strategic, planning & operational
Supply chain cycle times
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Customer order cycle, replenishment cycle,
manufacturing cycle, and procurement
cycle
Impact on customer, retailer, distributor,
manufacturing, and suppliers
Cycle view varies from company to
company
Weeks in Review
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Strategic scope
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Intracompany/intraoperational
Intracompany/intrafunctional
Intracompany/interfunctional
Intercompany/interfunctional
Supply Chain Challenges
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Achieving global optimization
Managing uncertainty
Weeks in Review
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Prerequisites to effective supply chain
management
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Top management support and commitment
Quest for excellence
Effective/efficient communication
Relationship vs. exchange
Team. Partnerships & alliances
Examples
Weeks in Review
Drivers of Supply Chain Performance
Efficiency
Responsiveness
Supply chain structure
Inventory
Transportation
Facilities
Drivers
Information
Weeks in Review
Considerations for Supply Chain Drivers
Driver
Efficiency
Responsiveness
Inventory
Cost of holding
Availability
Transportation
Consolidation
Speed
Facilities
Consolidation /
Proximity /
Dedicated
Flexibility
What information is best suited for
each objective
Information
Flows in a Supply Chain
Product
Information
Customer
Funds
Supply Chain Enablers
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Organizational Infrastructure
Information Technology
Strategic Alliance
Human Resource Management
Supply Chain Enablers
4
3.5
Ranking (4 is Highest Importance)
3
2.5
2
1.5
1
0.5
0
Organizational
Infrastructure
Technology
Supply Chain Enablers
Stategic
Alliance
Human Resource
Management
Organizational Infrastructure
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Coherent business strategy that aligns
business units towards same goals – 32%
Formal process-flow methodologies to enable
the SCM improvements – 15%
People committed to and responsible for
cross-functional processes – 14%
Right process metrics identified to guide
operating units’ performance toward strategic
organizational SCM objective - 13%
Weeks in Review
Functional vs. Innovative Products:
Functional
(Predictable)
Innovative
(unpredictable)
Product life cycle
More than 2 years
3 months to 1 years
Contribution margin
5% to 20%
20% to 60%
Product variety
Low (10 to 20
variants per category)
High (often millions of
variants per category
Forecast accuracy
(margin of error)
10%
40% to 100%
Average stockout rate
1% to 2%
10% to 40%
Average forced
markdown
0%
10% to 25%
Delivery Lead time
6 months to 1 year
1 day to 2 week
Weeks in Review
Physically Efficient vs. Market-Responsive
Physically Efficient
Process
Market-Responsive
Process
Primary purpose
Supply predictable
Respond quickly to
demand efficiently at the unpredictable demand to
lowest possible cost
minimize stockouts, forced
markdowns, and obsolete
inventory
Manufacturing focus
Maintain high average
utilization rate
Deploy excess buffer
capacity for flexibility
Inventory strategy
Generate high turns &
lower inventory cost
Deploy significant buffer
stock of all stock items
Lead-time focus
Shorten lead time at low
cost
Invest in ways to reduce
lead time
Approach to choosing
suppliers
Select primarily for cost
and quality
Select primarily for speed,
flexibility, and quality
Product-design strategy
Maximize performance at Use modular design to
minimum product cost
postpone product
differentiation
Efficiency-Responsiveness
Framework of Supply Chain
Functional Product
Innovative Products
Efficient
Supply Chain
Responsive
Supply Chain
Match
Mismatch
Mismatch
Match
Zone of strategic fit in supply chain
Responsive Supply
Chain
Responsiveness
Spectrum
Zone of
Strategic Fit
Efficient
Supply Chain
Certain
Demand
Implied
Uncertainty
Spectrum
Uncertain
Demand
Supply Chain Strategies
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Push-Based Supply Chain
Pull-Based Supply Chain
Push-Pull Supply Chain
Push-Pull Supply Chains
The Supply Chain Time Line
Customers
Suppliers
PUSH STRATEGY
Low Uncertainty
PULL STRATEGY
High Uncertainty
Push-Pull Boundary
Locating the Push-Pull
Boundary
What is the Best Strategy?
Demand
uncertainty
(C.V.)
Pull
H
I
II
Computer
IV
Push
III
Delivery cost
Unit price
L
L
Pull
H
Push
Economies of
Scale
E-Fulfillment Requires a New
Logistics Infrastructure
Traditional Supply Chain
e-Supply Chain
Supply Chain Strategy
Push
Push-Pull
Shipment Type
Bulk
Parcel
Inventory Flow
Unidirectional
Bi-directional
Simple
Highly Complex
Destination
Small Number of Stores
Highly Dispersed Customers
Lead Times
Depends
Short
Reverse Logistics
Distribution Strategies
Strategy
Attribute
Direct
Shipment
Cross
Docking
Risk
Pooling
Take
Advantage
Transportation
Costs
Holding
Costs
Demand
Variability
Inventory at
Warehouses
Reduced
Inbound Costs
No Warehouse
Costs
Reduced
Inbound Costs
No Holding
Costs
Delayed
Allocation
Delayed
Allocation
E-business Opportunities:
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Reduce Facility Costs
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Eliminate retail/distributor sites
Reduce Inventory Costs
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Apply the risk-pooling concept
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Centralized stocking
Postponement of product differentiation
Use Dynamic Pricing Strategies to
Improve Supply Chain Performance
E-business Opportunities:
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Supply Chain Visibility
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Reduction in the Bullwhip Effect
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Reduction in Inventory
Improved service level
Better utilization of Resources
Improve supply chain performance
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Provide key performance measures
Identify and alert when violations occur
Allow planning based on global supply chain data
Logistics Design Decisions
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Determine the appropriate number of
warehouses
Determine the location of each
warehouse
Determine the size of each warehouse
Allocate space for products in each
warehouse
Determine which products customers
will receive from each warehouse
Logistics Design Decisions
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Determine the appropriate number of
warehouses
Determine the location of each
warehouse
Determine the size of each warehouse
Allocate space for products in each
warehouse
Determine which products customers
will receive from each warehouse
Decision Classifications
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Strategic Planning: Decisions that typically involve
major capital investments and have a long term effect
1. Determination of the number, location and size of
new plants, distribution centers and warehouses
2. Acquisition of new production equipment and the
design of working centers within each plant
3. Design of transportation facilities, communications
equipment, data processing means, etc.
Decision Classifications

Tactical Planning: Effective allocation of manufacturing
and distribution resources over a period of several
months
1. Work-force size
2. Inventory policies
3. Definition of the distribution channels
4. Selection of transportation and trans-shipment
alternatives
Decision Classifications
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Operational Control: Includes day-to-day operational
decisions
1. The assignment of customer orders to individual
machines
2. Dispatching, expediting and processing orders
3. Vehicle scheduling
Performance Measures
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What you measure is what you get
Performance measures strongly affect
the behavior of managers and
employees
Tailor your performance measures to fit
company’s mission and strategy
Over-reliance of a single measure might
be detrimental to company’s long-term
survivability
The Balanced Scorecard Framework
Financial Perspective
GOALS
MEASURES
How do we
look to
shareholders
?
Internal Business
Perspective
GOALS MEASURES
What
must we
excel at?
Customer Perspective
GOALS MEASURES
How do
customers
see us?
Innovation & Learning
Perspective
GOALS MEASURES
Can we
continue to
improve
and create
value?
Framework for Supply Chain
Performance Metrics
Business Strategy
Supply Chain Strategy
Supply Chain Objectives
Operational Metrics
Customer Service Metrics
Financial metrics
Supply Chain Performance
Framework
Customer Service
Metrics
Goals Measures
Operational Metrics
Goals Measures
Financial Metrics
Goals
Measures
Efficiency Frontier of a Single
Product Line
10
Weeks of
Supply
Company B
0
Company A
80%
100%
Fill Rate
Critical Factors in SC Performance
Metrics
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Establish performance objectives with
customers in mind
Consider using order windows as the basis for
order fulfillment metrics
Reflect reliability issues in the metrics they
choose
Implement metrics consistently throughout
the supply chain
Aggregate results as they move up the chain
Critical Factors in SC Performance
Metrics (cont’d)
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Apply process control techniques to the
business process
Avoid pitting players in the systems
against one another
Collect only data you really intend to
use
Communicate the actions and rational
to everyone
Bullwhip Effect
Increasing propagation of
variability upstream through the
supply chain
Increasing Variability Upstream
the Supply Chain –Bullwhip Effect
Impact of the Bullwhip Effect
Performance Measure
Impact on Performance
Manufacturing Cost
Inventories
Lead Time
Transport Cost
Shipping & Receiving Cost
Customer Service Level
Profitability
What are the Causes….
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Demand forecasting
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Long cycle times
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Min-max inventory level
Order-up-to level
orders increase more than forecasts
Long lead times magnify this effect
Impact on safety stock
Product life cycle
Batch ordering
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Volume & transportation discount
What are the Causes….
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Price fluctuation
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Promotional sales
Forward buying
Inflated orders
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Orders placed increase during shortage
periods
IBM Aptiva orders increased by 2-3 times
when retailers thought that IBM would be
out of stock over Christmas
Ways to Cope with the Bullwhip Effect
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Reducing uncertainty
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Centralizing demand information
Bullwhip inherent in use of various forecasting
techniques
Reducing variability

Use of EDLP strategy (Payless)
Ways to Cope with the Bullwhip
Effect (cont’d)
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Lead time reduction
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Order lead time (time to produce and ship)
Information lead time (time to process order)
Efficient network distribution design
Strategic partnership
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Vendor managed inventory (VMI)
Sharing of customer information
Collaborative forecasting
Presentations/Case
Studies/Game
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Accenture – 3G Wireless communication
Army Logistics Operations
Payless ShoeSource – Supply Chain
Seven Eleven Japan
Li & Fung Internet
Beer Game