business operation of Mercedes-Benz
Global Economics and Business Operations
Dr. –Ing. Rajesh Shankar Priya
Lecturer in Business and Management
TUBS
R.ShankarPriya@tees.ac.uk
Traditional View: Cost breakdown of a manufactured good
Profit 10%
Supply Chain Cost 20%
Marketing Cost 25%
Manufacturing Cost 45%
Profit
Supply Chain
Cost
Marketing
Cost
Manufacturing
Cost
Effort spent for supply chain activities are invisible to the customers.
Notes: Key message here is that logistics costs are a significant fraction of the total value of a product. The problem here is that this a purely cost based view of the supply chain and drives a firm to simply reducing logistics costs. This is an incomplete picture.
What can Supply Chain Management do?
Estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics and supply chain strategies
A typical box of cereal spends 104 days from factory to sale
A typical car spends 15 days from factory to dealership
Faster turnaround of the goods is better?
Laura Ashley (retailer of women and children clothes) turns its inventory 10 times a year five times faster than 3 years ago
inventory is emptied 10 times a year, or an item spends about 12/10 months in the inventory.
To be responsive, it relocated its main warehouse next to FedEx hub in Memphis, TE.
National Semiconductor used air transportation and closed 6 warehouses, 34% increase in sales and 47% decrease in delivery lead time.
Magnitude of Supply Chain Management
Compaq estimates it lost $0.5 B to $1 B in sales because laptops were not available when and where needed
P&G (Proctor&Gamble) estimates it saved retail customers $65 M (in 18 months) by collaboration resulting in a better match of supply and demand
When the 1 gig processor was introduced by AMD (Advanced Micro Devices), the price of the 800 meg processor dropped by 30%
SCM Generated Value
Minimizing supply chain costs
while keeping a reasonable service level
customer satisfaction/quality/on time delivery, etc.
This is how SCM contributes to the bottom line
SCM is not strictly a cost reduction paradigm!
- A supply chain consists of
- aims to Match Supply and Demand, profitably for products and services
SUPPLY SIDE
DEMAND SIDE
The right
Product
Higher
Profits
The right
Time
The right
Customer
The right
Quantity
The right
Store
The right
Price
=
+
+
+
+
+
- achieves
Supplier
Manufacturer
Distributor
Retailer
Customer
Upstream
Downstream
Detergent supply chain:
Customer wants
detergent
Albertson’s
Supermarket
Third
party DC
P&G or other
manufacturer
Plastic cup
Producer
Chemical
manufacturer
(e.g. Oil Company)
Tenneco
Packaging
Paper
Manufacturer
Timber
Industry
Chemical
manufacturer
(e.g. Oil Company)
Notes:
Supply chain involves everybody, from the customer all the way to the last supplier.
Key flows in the supply chain are - information, product, and cash. It is through these flows that a supply chain fills a customer order. The management of these flows is key to the success or failure of a firm. Give Dell & Compaq example, Amazon & Borders example to bring out the fact that all supply chain interaction is through these flows.
Flows in a Supply Chain
Customer
Material
Information
Funds
The flows resemble a chain reaction.
Supplier
SCM in a Supply Network
Supply Chain Management (SCM) is concerned with the management and control of the flows of material, information, and finances in supply chains.
Supply
Demand
Products and Services
Cash
Supply Side OEM Demand Side
THAILAND INDIA MEXICO TEXAS US
N-Tier Suppliers Suppliers Logistics Distributors Retailers
Information
The task of SCM is to design, plan, and execute the activities at the different stages so as to provide the desired levels of service to supply chain customers profitably
Supply Chain
Supply Chain
The connected chain of all of the business entities, both internal and external to the company, that perform or support the logistics function
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Notes:
Many companies are turning to supply chain management for competitive advantage.
A company’s supply chain includes all of the companies involved in all of the upstream and downstream flows of products, services, finances, and information, from initial suppliers (the point of origin) to the ultimate customer (the point of consumption).
Supply Chain Management
Supply Chain
Management
A management system that coordinates and integrates all of the activities performed by supply chain members into a seamless process, from the source to the point of consumption, resulting in enhanced customer and economic value
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Notes:
Visualizing the entire supply chain allows managers to maximize strengths and efficiencies at each level of the process to create a highly competitive, customer-driven supply system.
Supply Chain Managers
The philosophy behind supply chain management is that by visualizing the entire supply chain, supply chain managers can maximize strengths and efficiencies at each level of the process to create a highly competitive, customer-driven supply system that is able to respond immediately to changes in supply and demand.
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Supply Chain Management
Physical flow process that engineers the
movement of goods
Communicator of customer demand
from point of sale to supplier
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Notes:
Today, supply chain management plays a dual role.
Supply chain management acts as a communicator of customer demand that extends from the point of sale back to the supplier, and second, as a physical flow process that engineers the timely and cost effective movement of goods throughout the entire supply pipeline.
Benefits of Supply Chain Management
Supply chain oriented companies commonly report:
Lower inventory, transportation, warehousing, and packaging costs
Greater supply chain flexibility
Improved customer service
Higher revenues
Increased performance and profitability
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Supply Chain Integration
Material and Service Supplier Integration
Internal Operations Integration
Customer Integration
Relationship Integration
Measurement Integration
Technology and Planning Integration
Firm-to-Firm Social Interactions
Operational Planning and Control
Customer Integration
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Notes:
Firms’ success in achieving each of these types of integration is very important.
Highly integrated supply chains (those that are successful in achieving many or all of these types of integration) have been shown to be better at satisfying customers, managing costs, delivering high-quality products, enhancing productivity, and utilizing company or business unit assets, all of which translate into greater profitability for the firms and their partners working together in the supply chain.
Supply Chain Integration
Relationship
Integration
The ability of two or more companies to develop social connections that serve to guide their interactions when working together.
The performance assessment of the supply chain as a whole that also holds each individual firm or business unit accountable for meeting its own goals
Measurement
Integration
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Supply Chain Integration
Technology and planning integration
The creation and maintenance of information technology systems that connect managers across and through the firms in the supply chain
Material and service supplier integration
Requires firms to link seamlessly to those outsiders that provide goods and services to them so that they can streamline processes and provide quality customer experiences.
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Internal Operations Integration
Links internally performed work into a seamless process that stretches across departmental and/or functional boundaries, with the goal of satisfying customer requirements
A competency that enables firms to offer long-lasting, distinctive, value-added offerings to those customers who represent the greatest value to the firm or supply chain
Customer Integration
Supply Chain Integration
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Key Business Processes
Customer relationship management
Customer service management
Demand management
Order fulfillment
Manufacturing flow management
Supplier relationship management
Product development and commercialization
Returns management
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Notes:
Business processes are composed of bundles of interconnected activities that stretch across firms in the supply chain.
There are eight critical business processes on which supply chain managers must focus. They are listed on this slide.
Customer Relationship Management
Customer
Relationship
Management
(CRM) Process
Allows companies to prioritize their marketing focus on different customer groups according to each group’s long-term value to the company or supply chain
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Notes:
The customer relationship management process provides a set of comprehensive principles for the initiation and maintenance of customer relationships and is often carried out with the assistance of specialized CRM computer software.
Customer Service Management
Customer
Service
Management
Process
Presents a multi-company, unified response system to the customer whenever complaints, concerns, questions, or comments are voiced
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Notes:
Whereas the customer relationship management process is designed to identify and build relationships with good customers, the customer service management process is designed to ensure that those customer relationships remain strong.
Demand Management
Demand
Management
Process
Seeks to align supply and demand throughout the supply chain by anticipating customer requirements at each level and create demand-related plans of action prior to actual customer purchasing behavior
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Notes:
Demand management seeks to minimize the costs of serving multiple types of customers who have variable wants and needs.
It is very difficult to predict exactly what items and quantities customers will buy prior to purchase; however, much of the uncertainty in demand planning can be mitigated by conducting collaborative planning, forecasting, and replenishment (CPFR) activities with the company’s customers and suppliers.
Order Fulfillment
Order
Fulfillment
Process
a highly integrated process, often requiring persons from multiple companies and multiple functions to come together and coordinate to create customer satisfaction at a given place and time
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Notes:
One of the most fundamental processes in supply chain management is the order fulfillment process, which involves generating, filling, delivering, and providing on-the-spot service for customer orders.
When the order fulfillment process is managed diligently, the amount of time between order placement and receipt of the customer’s payment following order shipment (known as the order-to-cash cycle) is minimized as much as possible.
Since many firms do not view order fulfillment as a core competency, they often outsource this function to a third party logistics firm that specializes in the order fulfillment process.
Manufacturing Flow Management
Manufacturing
Flow
Management
Process
Concerned with ensuring that firms in the supply chain have the needed resources to manufacture with flexibility and to move products through a multi-stage production process
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Notes:
The goals of the manufacturing flow management process are centered on leveraging the capabilities held by multiple members of the supply chain to improve overall manufacturing output in terms of quality, delivery speed, and flexibility, all of which tie to profitability.
Supplier Relationship Management
Supplier
Relationship
Management
Process
Closely related to the manufacturing flow management process and contains several characteristics that parallel the customer relationship management process
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Notes:
Supplier relationship management provides structural support for developing and maintaining relationships with suppliers.
The management of supplier relationships is a key step toward ensuring that firms’ manufacturing resources are available, and thereby the supplier relationship management process has a direct impact on each supply chain member’s bottom-line financial performance.
Product Development and Commercialization
Product
Development and
Commercialization
Process
Includes the group activities that facilitates the joint development and marketing of new offerings among a group of supply chain partner firms
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Notes:
New products and services are not the sole responsibility of a single firm who serves as inventor, engineer, builder, marketer, and sales agent; rather, they are often the product of a multi-company collaboration with multiple firms and business units playing unique roles in new product development, testing, and launch activities, among others.
Returns Management
Returns
Management
Process
Enables firms to manage volumes of returned product efficiently, while minimizing returns-related costs and maximizing the value of the returned assets to the firms in the supply chain
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Notes:
In addition to the value of managing returns from a pure asset-recovery perspective, many firms are discovering that returns management also creates additional marketing and customer service touch points that can be leveraged for added customer value above and beyond normal sales and promotion-driven encounters.
the process of strategically managing the efficient flow and storage of raw materials, in-process inventory, and finished goods from point of origin to point of consumption.
Logistics is…
Logistics
Notes:
Orchestrating the physical means through which products move it is critical to any supply chain.
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Logistical Components of the Supply Chain
Supply Chain Team
Sourcing & Procurement
Production Scheduling
Order Processing
Inventory Control
Warehouse & Materials Handling
Transportation
Logistics Information System
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Notes:
The supply chain consists of several interrelated and integrated logistical components, as shown on this slide.
Integrating and linking all of the components is the logistics information system.
The supply chain team orchestrates the movement of goods, services, and information from the source to the consumer.
The best supply chain teams move beyond the organization to include external participants, such as suppliers, transportation carriers, and third-party logistics suppliers. Members of the supply chain communicate, coordinate, and cooperate extensively.
Sourcing and Procurement
Plan purchasing strategies
Develop specifications
Select suppliers
Negotiate price and service levels
Reduce costs
The Role of Purchasing:
© iStockphoto.com/Maria Toutoudaki
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Notes:
One of the most important links in the supply chain is that between the manufacturer and the supplier. Purchasing professionals are on the front lines of supply chain management, planning purchasing strategies, developing specifications, selecting suppliers, and negotiating price and service levels.
The goal of most activities is to reduce the costs of raw materials and supplies. Instead of tough negotiations to get the best possible price, purchasing helps establish and cooperative relationships with vendors.
Production Scheduling
Push / Pull
Strategy
Traditional Focus
Push
Start of Production
Manufacturing
Inventory- Based
Mass Production
Customer Focus
Pull
Customer-Order Based
Mass Customization
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Notes:
In a traditional mass-marketing manufacturing, production begins when forecasts call for additional products to be made or inventory is low.
In a customer-focused “pull” manufacturing environment, production of goods is not started until an order is placed by the customer specifying the desired configuration, also known as mass customization or build-to-order.
In this environment of customer demand and mass customization, supply chains need to be flexible and be able to shift production based on demand.
Just-in-Time Manufacturing
A process that redefines and simplifies manufacturing by reducing inventory levels and delivering raw materials at the precise time they are needed on the production line.
JIT
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Notes:
JIT, or lean production, was borrowed from the Japanese. Manufacturers work with suppliers to get necessary items to the assembly line at the precise time they are needed for production.
For the manufacturer, JIT means that raw materials arrive at the assembly line “just in time” to be installed.
For the supplier, JIT means supplying customers with products in just a few days rather than weeks.
For the consumer, JIT means lower costs, shorter lead times, and products that closely meet the consumer’s needs.
Benefits of JIT
For manufacturers: reduces raw material inventories; immediate shipping of products
For suppliers: daily or hourly deliveries rather than weekly
For customers: lower costs; shorter lead times; products tailored to customer needs
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Notes:
The benefits of JIT are shown on this slide.
Order Processing
Order processing is becoming more automated through the use of computer technology known as ELECTRONIC DATA INTERCHANGE (EDI).
a system whereby orders are entered into the supply chain and filled.
An Order Processing System is…
Notes:
As an order enters the system, management must monitor two flows: the flow of goods and the flow of information.
Shipping incorrect merchandise or partially filled orders can create just as much dissatisfaction as stockouts or slow deliveries.
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Inventory Control
Inventory
Control
System
A method of developing and maintaining an adequate assortment of materials or products to meet a manufacturer’s or a customer’s demand
Notes:
The goal of inventory management is to keep inventory levels as low as possible while maintaining an adequate supply of goods to meet customer demand.
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Inventory Control
Tools for managing inventory include:
materials requirement planning (MRP) or materials management – supplier to manufacturer
distribution resource planning (DRP) – manufacturer to end user
automatic replenishment programs – minimal forecasting
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Warehousing and Materials Handling
Most manufacturers today have moved to AUTOMATED materials-handling systems to minimize the amount of handling.
a method of moving inventory into, within, and out of the warehouse.
A Materials-Handling System is…
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Notes:
Although JIT manufacturing processes may eliminate the need to warehouse many raw materials, manufacturers keep some safety stock on hand in the event of an emergency. Additionally, inventory may be stored for seasonally-demand products.
Storage helps manufacturers manage supply and demand.
A materials-handling system moves inventory into, within, and out of the warehouse, performing the functions shown on this slide.
Transportation
Airways
Water
Pipelines
Motor Carriers
Railroads
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Notes:
Supply chain logisticians must decide which mode of transportation to use to move products from supplier to producer and from producer to buyer. These decisions are related to other logistics decisions. The five major modes of transportation are listed on this slide.
Transportation Mode Choice
Cost
Transit time
Reliability
Capability
Accessibility
Traceability
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Notes:
Supply chain managers choose a mode of transportation on the basis of the criteria shown on this slide.
Criteria for Ranking Modes of Transportation
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Trends in Supply Chain Management
Electronic distribution
Outsourcing of logistics functions
Advanced computer technology
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Notes:
Several technological trends are affecting the job of the supply chain manager:
Advanced computer technology has boosted the efficiency of logistics with tools such as automatic ID systems, radio frequency technology, and supply chain software systems.
Outsourcing of logistics functions is a rapidly growing segment in which a manufacturer or supplier turns over the entire or partial function of supply chain management to an independent third party.
Electronic distribution includes any kind of product or service that can be distributed electronically. For instance, computer software can be purchased and downloaded electronically.
Advanced Computer Technology
Automatic identification systems
- Bar coding
- Radio frequency technology
Communications technology
Supply chain software systems
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Discussion/Team Activity:
Discuss examples of the use of advanced computer technology from the text including Amazon.com, Walmart, and American Apparel.
Outsourcing Logistics Functions
Outsourcing Benefits
Reduce inventories
Locate stock at fewer plants and distribution centers
Provide same or better levels of service
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Notes:
Turning their logistics functions over to firms with expertise in that area allows companies to focus on their core competencies.
Digital Distribution
a distribution technique that includes any kind of product or service that can be distributed electronically, whether over traditional forms such as fiber-optic cable or through satellite transmission of electronic signals.
Digital Distribution is…
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Green Supply Chain Management
Requires integrating green thinking into all phases of the supply chain
Green materials sourcing
Environmental impact of packaging, shipment, use
Incorporate end-of-life management
Recycling
Clean disposal
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Global Logistics and Supply Chain Management
Logistical challenges of global markets:
Understanding and coping with the legalities of trade in other countries
Uncertainty regarding shipping
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