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UNDERSTANDING THE SUPPLY CHAIN and IT'S PERFORMANCE, Supply chain…
UNDERSTANDING THE SUPPLY CHAIN and IT'S PERFORMANCE
SUPPLY CHAIN
Definition:
Supply chain consists of all links/stages involved directly or indirectly in
fulfilling customer’s request /order
SUPPLT CHAIN MANAGEMNET
3 flows of SC
Flows of goods
Flows of funds
Flows of information
Value chain
Value chain is a set of activities that focuses on creating or adding value to the product
The different between the value of the product and its price remains with the customers as consumer surplus.
Should be maximize the overall value generated.
DECISIONS PHASES OF A SUPPLY CHAIN
Supply chain planning
Decisions over the next quarter or year
Fixed by the supply configuration from previous phase that establishes constraints for planning
Supply chain operation
Daily or weekly operational decisions
Supply chain configuration is fixed and operating policies are determined
Supply chain strategy or design
How to structure the supply chain over the next several years
must support strategic objectives
long-term and expensive to reverse
PROCESS VIEW OF A SUPPLY CHAIN
Cycle view
Replenishment cycle (retailer-distributor)
Manufacturing cycle (distributor-manufacturer)
Customer order cycle (customer-retailer)
Procurement cycle (manufacturer-supplier)
The processes in a supply chain are divided into a series of cycles, each performed at the interface between two successive stages of the supply chain.
Push/Pull view
Push view
are initiated and performed in anticipation of customer orders.
may also be referred to as speculative processes
operate in an uncertain environment because customer demand is not yet known.
Pull view
are initiated by a customer order
may also be referred to as reactive processes
operate in an environment in which customer demand is known
COMPETITIVE AND SUPPLY CHAIN STRATEGIES
Competitive strategy
Describes the customer needs a firm aim to sastify through its offering
All support one another and competitive strategy
Product development strategy
Define the new product portfolio the new company aims to develop
Marketing strategy
Define market sementation and product positioning, pricing and promotion
Supply chain strategy
Determine material procurement, transportation, production and distribution
ACHIEVING STRATEGIC FIT
when
Competitive and supply chain strategies have
aligned goals
A company may fail due to a lack of strategic fit or inadequate capabilities to execute its strategy.
Supply chain design and stage roles must align with strategy.
Functions must align processes and resources to execute strategies.
LOGISTICS VS SUPPLY CHAIN MANAGEMENT
Logistics
Logistics basically consists of activities within an organization (intra-organization).
Logistics focuses on transport, inventory management, warehousing, etc.
Supply chain management
SCM refers to network among organizations coordinating to deliver products to markets (inter-organization)
SCM consists of logistics activities, marketing, new product introduction, finance, customer service.
HOW IS STRATEGIC FIT ACHIEVED?
STEP 1
STEP 1: Understanding the customer and supply chain uncertainty
Quanity each lot
Approriate response time
Service level required
Product's price
Desired rate of innovation
Variety of product
Demand uncertainty
STEP 2
Understanding supply chain capabilities
Supply chain responsiveness
meet short lead times
handle a large variety of products
build highly innovative products
meet a high service level
handle supply uncertainty
respond to wide ranges of quantities demanded
Supply chain capabilitties
Supply chain efficiency is the inverse of production and delivery costs
Lower costs mean higher efficiency.
There is a trade-off between efficiency and responsiveness.
STEP 3
STEP 3: Achieving strategic fit
Ensure that the degree of supply chain responsiveness is
consistent with the implied uncertainty
Assign roles to different stages of the supply chain that ensure the appropriate level of responsiveness
Ensure that all functions maintain consistent strategies that support the competitive strategy
DRIVERS OF SUPPLY CHAIN PERFORMANCE
Logistical and cross-functional drivers
Inventory
Raw materials + Work in process + Finished goods
Role
Mismatch between supply and demand
Producing in large quantities to fulfill the future demand
Increases responsiveness
Inventory decisions
Cycle inventory: lot size & frequency
Safety inventory: amount to hold
Seasonal inventory: amount to hold
Level of product availability
Transportation
Role
Moves products between stages
Faster transportation, higher cost but also higher level of responsiveness
Transportation decisions
Design of transportation network
Choice of transportation mode
Facilities
where product is stored,
assembled, or fabricated
Production
Flexibility
product-focused; functional-focused
Storage
Cross-docking
Storage
Location
Centralize vs Decentralize
Macroeconomic factors: workers, infrastructure, tax, etc.
Capacity
High utilized capacity: More efficient but low flexibility when demand fluctuates
Sourcing
The choice of who will perform a particular supply chain activity
Sourcing decisions
In-house vs Outsource
Supplier selection
Procurement
Pricing
Role
Influences the customer expectation
Could be used to match supply and demand
How much to charge the customer
Pricing decisions
Pricing and economies of scale
Every day low pricing vs high-low pricing
Fixed price vs menu pricing
Differential pricing provides responsiveness to customers that value it and low cost to customers that do not value responsiveness as much
Information
Data and analysis concerning facilities, inventory, transportation,
costs, prices, and customers throughout the supply chain
Information decisions
Push vs Pull
Coordination and information sharing
Sales and Operations Planning
Technologies: ERP, SCM, RFID
Supply chain Surplus = Customers Value - Supply Chain Cost
Supply Chain Surplus = Customer Surplus + Supply Chain Profitability
How does the firm best meet demand?
Responsiveness comes at a cost!
Level of inventory ↑ → Responsiveness ↑ & Efficiency ↓
High or low?