Discussion Article

Supply Chain Management

● The supply chain is the sequence of suppliers and organizational buyers that spans all stages of processing from raw materials to final customers.

● Supply chain management (SCM) involves managing the external resources, i.e., those sources of goods and services that are not under direct corporate control.

● It is the integration of the required activities to achieve a sustainable competitive advantage,

Syllabus Highlights Course Summary This course is grounded in the new reality of globalization in the production and delivery of products and services. It is targeted to practitioners who participate in global production decision making to support their organization’s strategic and tactical supply chain goals.

It employs a variety of important and essential conceptual theories, qualitative concepts, and quantitative methodologies. Topics that concern the challenges faced by supply chain practitioners will be addressed. Further, the course addresses the integration of superior supply chain and other business practices across locations that are geographically dispersed and culturally diverse.

The products and services addressed include those that are produced offshore, those that are outsourced, and those that are produced internally. They also span products and services that are mature and those that are new to the market. 6

Syllabus Highlights

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Articles: During several weeks, all students will take part in a set of focused discussions that concern the material covered in the lectures and the assigned articles. Case Studies: Each of the case study assignments will evaluate students’ ability to synthesize various aspects of the course and apply them to a complex scenario. Analysis of a case study will combine conceptual and cognitive elements. Problem Set Assignments: Each of the problem set assignments will evaluate students’ ability to apply the quantitative aspects of the course material. The problem set will require the use of Excel to practice developing or using a decision-making tool within a global supply chain context. It will be an individual assignment, with a well-organized professional submittal.

Syllabus Highlights

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Examinations: Two in-class exams will be given, on dates noted above. The exams are closed book and notes. However, you will be allowed to use a one-page (double sided) sheet with notes that you create. Please bring a calculator to the exams (phones and laptops cannot be used as calculators). In-class exams are not cumulative and cover the material through the weeks indicated on the schedule. An entire class session will be devoted to the final exam. Check out more exam information on the Study Guide.

Syllabus Highlights

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Course Summary Sept. 5 Sept. 12

Lecture 1: Introduction to Global Supply Chains Lecture 2: Supply Chain Strategy and Challenges

Sept. 19 Sept. 26

Lecture 3: Supply Chain Risks Lecture 4: Time Series Forecasting

Oct. 3 Oct. 17

Lecture 5: Performance Metrics Lecture 6: Aggregate Planning

Oct. 24 Oct. 31 Nov. 7

Lecture 7: Buffering & Risk Pooling Mid-term Exam Lecture 8: Delayed Differentiation

Nov. 14 Nov. 28

Lecture 9: Supply Chain Optimization Lecture 10: Service Supply Chains and Logistics

Dec. 5 Dec. 12

Lecture 11: Use of Analytics in Supply Chains Lecture 12: Business Function Integration

Dec. 19 Final Exam

The Supply Chain

Lecture 1- Introduction to Global Supply Chains

SCM

SupplierSupplier

Supplier

Supplier Supplier

Supplier A Supplier DSupplier B Supplier C

Supply Chain Components

Supplier

Customers

2nd-Tier Suppliers

1st-Tier Suppliers

3rd-Tier Suppliers

4th-Tier Suppliers

Supply Chain Components (Example)

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Suppliers

DownstreamUpstream

Logistics

Inbound Logistics

Raw Materials

Distributors

Retailers Users

Suppliers (e.g., foil, cardboard)

Raw Material Suppliers

(e.g., multiple vendors)

Logistics (land)

Logistics (air)

Packing (Mexico)

Logistics (sea)

Small Customer Large Customer

(e.g., Wal-Mart , Target)

Consumers

Plastics Molding (E. Europe)

A Global Supply Chain

Warehouse

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ABS Plastic – the raw

material used to mold LEGO

bricks.

A LEGO “die” – used to shape

melted plastic into bricks (made in

Germany).

A LEGO mold – placed in an injection molding machine

and used to produce bricks in large quantities (mainly in

Eastern Europe).

LEGO headquarters

in Billund, Denmark.

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LEGO bricks produced in

large batches.

LEGO bricks shipped to

Mexico.

LEGO bricks stored prior to

shipment to Mexico.

LEGO bricks moved to the

packing facility.

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LEGO bricks stored prior to packing.

Pre-pack packing into

foil bags.

Packing into various

sized boxes.

Pre-packs stored in

warehouse.

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LEGO sets stored in distribution center.

LEGO sets shipped to customers

(i.e., retailers).

LEGO sets purchased by consumers.

LEGO sets transported to distribution facility.

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Customers want availability, flexibility and cost-effective

solutions

Suppliers want predictability &

certainty

shareholders want growth &

profitability 21

Wants, Needs, and Expectations

Example: New Toy Sales

Forecasts are made before the year starts & revised monthly, based on current sales activity.

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Sa le

s

Jan DecApril July

All sales are expected to follow a seasonal pattern, but popularity of each product is uncertain.

Oct

Strategic Need for SCM

● Total supply chain costs represent better than half of the total operating expenses for most organizations

● The broader concept of the supply chain includes the supply, storage, and movement of materials, information, personnel, equipment, and finished goods within the organization and between it and its business environment

● The objective of SCM is to integrate the entire process of satisfying the customer’s needs all along the supply chain

Supply Chain Strategy

● Supply chain strategy needs to be tailored to meet the needs of the customers which is multifaceted: cost; quality; timeliness; reliability; etc. – In situations where the goods are basic commodities

with standard benefits (food, home supplies, standard clothing), then cost reduction is often the focus

– In fashion goods, timeliness may be the focus of the supply chain

– In high technology, new functionality may be more important than cost

Supply Chain Strategy

● When operating in multiple markets, producers may need a different supply chain for each

● Many organizations choose to outsource portions of their requirements to third-party companies – Allows a firm to focus on its core

competencies – Reduces capital investment – Gains access to best practices

Management Goals ● BETTER: Maximize quality for customers:

– product (e.g., meets design specifications). – service (satisfies customers’ needs and wants).

● COST EFFECTIVE: Minimize costs for manufacturers/suppliers: – low production/distribution costs. – high resource utilization.

● FASTER: Minimize lead time for customers: – B2B (e.g., meets lead time agreement). – B2C (e.g., good availability & responsiveness).

● SUSTAINABLE: Provide great solutions: – Sustainable solutions and sustainable success – Reduced wasted, defects, and burdens 26

Matching Supply w/Demand

• Dealing with complexity – interconnected processes, geographical dispersion, cultural

differences, geopolitical issues, multiple stakeholders, etc.

• Dealing with ambiguity – customer preferences, “hidden” costs and benefits, etc.

• Dealing with externally-imposed change – competition, partners, suppliers, global economy, etc.

• Dealing with risks & uncertainty – consumer demand, lead time variation, quality, natural &

made-made disasters, etc. 27

Sourcing Strategies

● Global sourcing is an important aspect of supply chain outsourcing strategy

● Outsourcing is the process of contracting with external suppliers for goods and services that were previously provided internally

● One danger to outsourcing is being hollowed out ● More recent trend is outsourcing entire

production process to contract manufacturers

Purchasing/Procurement

● Obtaining quality materials and services at the right cost when they are needed

● Identify and quality suppliers, negotiate contracts, arrange transportation, oversee and manage suppliers

● Important considerations include price, quality, lead times, and reliability

● Manufacturing organizations spend an average of 55 percent of revenue for outside materials and services.

Value Analysis

● A special responsibility of purchasing, or purchasing working jointly with engineering/design and operations is to regularly evaluate the function of purchased items or services, especially those that are expensive or used in high volumes

● The goal is to either reduce the cost of the item or improve its performance

Logistics

● Planning and controlling efficient, effective flows of goods, services, and information from one point to another

● Consists of inventories, distribution networks, storage and warehousing, transportation, information processing, and even production

● Logistic is taking on tremendous importance

Decision Making in Supply Chains

● Supply chain practices should not rely on a simplified set of assumptions, for example: – minimization of labor costs across the supply chain, or – minimization of all inventory using lean production

throughout the supply chain.

● When multiple decision criteria are not accounted for, several problems can be expected, for example: – excessive overstocks and/or understocks, – time spent recovering from unanticipated events, and/or – high operating/distribution costs that reduce profitability.

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The Principles of Supply Chain Management

● A Systems Approach- a guiding philosophy pertaining to the supply chain that all elements are important.

● Strategic Direction - the enterprise is moving in the same direction.

● Critical Mass - Every level in the enterprise has sufficient resources to achieve the goals.

● Effective use of resources - Every level of the enterprise utilizes its resources effectively.

Key SCM Considerations

● Value system and the related supply chain consider the important aspects of customer value creation, integration, and sustainable success.

● Supply chain has many elements of the push systems of production and pull systems of lean.

● Services sometimes include the customer in the supply chain

Factors Driving SCM ● Procurement costs are increasing

● Increasing global competition

● Outsourcing

● Internet

● Shorter life cycles

● Greater supply chain complexity

● Increasing concern for the natural environment

Location ● Location is a key supply chain decision - facilities

relative to suppliers, producers, and customers

● Decision is divided into three stages – Regional – Community – Site

● Some services may only be concerned with site selection

Supply Chain Design

● The supply chain consists of the network of organizations that supply inputs to the business unit, the business unit itself, and the customers

● Supplier networks can include external suppliers ● A broad view of the process focuses management

attention on the entire process that creates value rather than individual activities

Push vs. Pull Systems ● Operating systems can be broadly classified in two ways:

– push systems create inventory in anticipation of demand, and – pull systems create inventory in response to demand.

● Manufacturing systems can be push or pull systems: – push systems are often called “make to stock,” while – pull systems are often called “make to order.”

● Service systems are almost always pull systems: – the service cannot be initiated until the customer expresses a

need (e.g., radiology, troubleshooting, product design, background check, etc.).

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Main Planning/Execution Options

● For component parts that are used in finished products, push and pull are managed differently.

● In push systems, MRP (material requirements planning) is often used: – a final schedule is “explored” into component parts – they are

made ahead of time to be available when needed.

● In pull systems, JIT (just in time) is often used: – the subsequent step in the production system “signals” the

need for component parts from the previous step in the production system.

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Push–Pull (Hybrid) Supply Chain

Initial forecast & determination of

inventory buffer by product (large batches)

e.g., make “safe” quantities for each product

“Push” Production

Revised forecast & determination of capacity buffer by

resource (small batches)

e.g., weekly replenishment

cycle

“Pull” Production Jan Dec

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Forecasting

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● A forecast can be based on judgements (i.e., by humans), models (i.e., by mathematical equations), or collaboration (i.e., by organizations).

● A forecasting model is chosen based on its ability to accurately predict the past – and therefore less than effective when the future is not

perfectly aligned with the past.

● To be most effective, those providing forecasts should be integrated with those who use forecasts to make decisions, – but this sometimes not the case, especially in large

organizations.

Applications of Forecasts

● Long-range facility planning (many years) – e.g., buildings, major equipment, location.

● Medium-range capacity planning (many months) – e.g., machines, labor, tools.

● Short-term scheduling (many weeks or days) – e.g., personnel, supplies.

The most obvious applications of forecasting are for products that may be manufactured in global supply chains, but forecasting is also important in services.

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Buffering ● With INVENTORY, at a targeted level of product

manufacturing: – raw material (most desirable) – work-in-process (i.e., partially made products) – final products (least desirable)

● With CAPACITY, for critical resources: – labor – equipment – facilities

Buffering is may be necessary, but excessive buffering is costly

and increases lead times.

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Summary

Our focus is on: – The System – Customers and Stakeholders – The Processes – Measures of Success – Relationships of the Players – The External Environment – Long Term

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Article 1 Discussion

Made in America, Again (by Sirkin, Zinser, and Hohner) Boston Consulting Group For this article discussion, read the article listed above and react as you deem appropriate. For example, you may agree with a point being made. Or, you have provided additional information related to the topic but not addressed in the article. Or, you may disagree with a point being made. In every case, you must provide arguments that are supported with your specific experience or publications (e.g., peer reviewed articles, magazine stories, or newspaper accounts).

If you did not attend the class, you are required to create one post (using 150-250 words); your response to another student’s post must be completed by Day 7 at 11:59 PM.

Grades will be based on the criteria described in the Discussion Participation Grades table found in the syllabus.

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