Supply Chain
5 Primary
Processes
Inbound Logistics - Receiving, storing, disseminating inputs to the product (materials, warehousing, inventory, transport, returns to suppliers etc).
Operations - Transforming inputs into the final product (machining, packing, assembly, equipment maintenance, testing etc)
Outbound logistics - collecting, storing and distributing product to buyers (finished goods, warehousing, material handling, freight, order processing and scheduling)
Sales and marketing - induce buyers to purchase a product and enable them to buy it (advertising, promotions, sales, quoting, pricing, relations, marketing)
Service - providing service to enhance or maintain the value of the product (installation, repair, training, parts supply, adjustment)
Historic
Roadblocks
Technological implementations
don't work as planned. Supply chain
software is difficult to implement
Projects cost too much and
never come close to meeting
service targets
Supply chain projects were
inconsistent with a companies current
business strategy
It is too difficult to manage change
internally and externally
What do top performing
companies do?
They aim for balance - consistently
good in most areas that they add up to best in class
They increase demand visibility - having a high level of forecast accuracy is key to reaching perfect order fulfilment (blanchard)
They isolate high costs - the best companies
know where they hold their costs and why, so
that is where they focus investment and efforts
Karen Butner, global supply chain management leader for the IBM Institute for Business Value, boils it all down to one common factor: “Top supply chains all have the ability to respond quickly to shifts in demand with innovative products and services.”
“Such a strategy,” he suggests, “starts with assessing the
future needs of their customers. The strategy development process then determines the new supply chain capabilities the company will need in the future to meet its customer needs.
Efficiency
Better to optimise the supply chain
as a whole rather than each
individual element within the chain
Sources of waste
Delay in resource of a system (e.g. items stuck
as inventory in a store or trapped in a queue)
Bullwhip effect - magnifies demand variability
at each interface between customer and supplier
Can be Reduced By
reducing the number of stages in the supply chain
sharing demand information across the supply chain (real time tracking at each stage?)
generating smaller, more frequent replenishment orders
reducing lead times
limiting promotions that create demand surges.
Vertical Integration - taking control of
other parts of the supply chain
how much to own and what to leave to others?
upstream integration
security of supply
reliability of supply
restricts competitors access to materials
control of raw material costs
downstream integration
control of customers, force them into
certain types of behvaiours (order timing)
guarantees business
access to market data
customer knowledge
extent
narrow (1 / 2 above or below your area)
wide (whole supply chain or close to
balance and capacity
structural imbalance impossible to avoid
outsource shortages
sell surplus to competitors?
keep core capacity and outsource variation?
Ford Example
Why?
Guarantee of supply
cost control
schedule control
technical capabilities
economies of scale
economies of scale
produce their own energy
own health, security, fire services
huge impact on the local economy
takes workers from other areas
more everything (schools, roads etc) needed
more housing needed
what might make ford
de-integrate the process?
steel more widely available
so running own factory less economic
where technological advancements
are made, ford would need to follow suit (expensive)
or leave to others and use outdated techniques
others might become cheaper/better as time marches on
changes to market demand might mean
people want more variety than ford are set up to provide
ownership of supply chain reduces market forces within the supply chain, promoting inefficiency
scale differences huge between either end of the chain
alternatives? OUTSOURCING
advantages
the ability to focus on core internal capabilities
access to supplier capabilities
reduced need for capital investment
fewer direct staff
outsource suppliers usually have lower unit costs
clear, identifiable supply chain costs
can be used to expand overall capacity.
disadvantages
some loss of control
costs involved in managing suppliers
reduced economies of scale
potential closure of existing facilities
need to share sensitive information with third parties
risks of being dependent on a supplier
increased supply chain risks.
Supply Chain
Partnerships
Lamberts categories
of supply relationships
Type 1 – Organisations recognise each other as partners, with limited coordination and planning. Often only one division or functional area.
Type II – Organisations progress beyond coordination to integration of activities. Multiple functions/departments involved in the partnership.
Type III – Organisations share a significant level of operational integration. No ‘end date’ to the relationship.
Joint Ventures - structural joint working
Vertical Integration - same company
Arms Length - No collaboration
Supplier/Supermarket
Example
Supplier
advantages
big order quantities
regular order quantities
only having to deal with one customer rather than many
Disadvantages
imbalance of power
abusive buying practices
significant investment to meet the supermarket’s requirements
order changes/cancellations
Supermarket
advantages
significant buying power
coordination of supply with sales
setting standards
influencing what is grown and quantities
disadvantages
suppliers ‘locked in’ so more difficult to switch
suppliers may be unable to sustain supply (e.g. poor harvest)
suppliers might be unable to maintain low prices/high quality standards
Summary
It is often better to try to optimise performance across an entire supply chain rather than just concentrating on local optimisation of one tier in the supply chain.
The ‘bullwhip effect’ means that supply chains are naturally unstable and flow of goods or services through supply chains must be carefully managed.
Vertically integrated systems can often be inefficient because of inherent lack of flexibility and a removal of market forces.
Many supply chains are integrated through partnerships between organisations to improve their performance.
The trend has been towards more outsourcing within supply chains – but care has to be taken to outsource carefully and not outsource too much.
Supply partnerships are most effective if there is not too much of a power imbalance between parties. The supply chain must be managed for the benefit of all parties.