Transcript of Instructor Ch 08
Slide 1CHAPTER 8
CLASSROOM OPENER
GREAT BUSINESS DECISIONS – Michael Dell Decides to Sell PCs
Directly to Consumers and Built-to-Order
Michael Dell decided that to be successful in the PC business and
to gain a significant competitive advantage he would bypass the
dealer channel through which personal computers were being sold.
Dell developed and deployed their own channel for manufacturing and
selling PCs. This personal channel eliminated the reseller markups
and large inventory expenses and allowed Dell to operate with lower
costs than anyone in the industry, which led to higher profit
margins.
Michael Dell understood that consumers were getting smarter and
that customer service abilities were becoming more sophisticated.
Beginning with telephone sales, and then moving to Internet sales,
Dell bypassed retailers and targeted corporate accounts. Dell
understood that tailoring products to meet specific requirements of
large accounts could be accomplished not only more cheaply, but
also more effectively without an intermediary.
Dell boasts sales of $12.3 billion and is the world’s number one
direct-sales computer vendor. The company’s Web site currently
generates over half of its orders. Everybody in the industry is
trying to imitate Dell’s strategy.
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Basics of Supply Chain
Supply Chain Management Success Factors
SCM Success Stories
Using Information Technology to Drive the Supply Chain
Facilities Driver
Inventory Driver
Transportation Driver
Information Driver
Future Supply Chain Trends
Companies that excel in supply chain operations perform better in
almost every financial measure of success, according to a report
from Boston-based AMR Research Inc. When supply chain excellence
improves operations, companies experience a 5 percent higher profit
margin, 15 percent less inventory, 17 percent stronger “perfect
order” ratings, and 35 percent shorter cycle times than their
competitors.
“The basis of competition for winning companies in today’s economy
is supply chain superiority,” said Kevin O’Marah, vice president of
research at AMR Research. “These companies understand that value
chain performance translates to productivity and market-share
leadership. They also understand that supply chain leadership means
more than just low costs and efficiency: It requires a superior
ability to shape and respond to shifts in demand with innovative
products and services.”
McGraw-Hill/Irwin
SECTION 8.1
List and describe the components of a typical supply chain
Define the relationship between decision making and supply chain
management
Identify the factors driving supply chain management
Summarize the best practices for implementing a successful supply
chain management system
8.1 List and describe the components of a typical supply
chain
The components of a typical supply chain include:
Supplier’s supplier, Supplier, Manufacturer, Distributor, Retailer,
Customer, Customer’s Customer
8.2 Define the relationship between decision making and supply
chain management
SCM enhances decision making. Collecting, analyzing, and
distributing transactional information to all relevant parties, SCM
systems help all the different entities in the supply chain work
together more effectively. SCM systems provide dynamic holistic
views of organizations. Users can “drill down” into detailed
analyses of supply chain activities in a process analogous to DSS.
Without SCM systems, organizations would be unable to make accurate
and timely decisions regarding their supply chain.
8.3 Identify the factors driving supply chain management
Although people have been talking about the integrated supply chain
for a long time, it has only been recently that advances in
information technology have made it possible to bring the idea to
life and truly integrate the supply chain. Visibility, consumer
behavior, competition, and speed are a few of the changes resulting
from advances in information technology that are driving supply
chains
8.4 Summarize the best practices for implementing a successful
supply chain management system
The following are the SCM industry best practices:
Make the sale to suppliers - A large part of any SCM system extends
beyond the organization to the suppliers. Since the organization
has very little control over anything external to itself, these
pieces are typically the most complicated. Be sure suppliers are on
board with the benefits that the SCM system will provide to ease
SCM implementation difficulties.
Wean employees off traditional business practices - If the
organization cannot convince people that using the SCM software is
worthwhile, the employees will probably find a way around using the
software.
Ensure the SCM system supports the organizational goals - Be sure
to select SCM software that supports organizational goals and
strategies
Deploy in Incremental phases and measure and communicate success -
Designing the deployment of the SCM system in incremental phases is
the most successful deployment method. The BIG BANG approach –
implementing everything at once – fails 90 percent of the
time.
Be future oriented - An SCM system, like all systems, must scale to
meet future demands.
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BASICS OF SUPPLY CHAIN
The average company spends nearly half of every dollar that it
earns on production
In the past, companies focused primarily on manufacturing and
quality improvements to influence their supply chains
This chapter takes a look at extending an organization through SCM
and discusses:
The reasons for SCM’s explosive growth
Using SCM to enhance decision making
SCM success factors
Traditional SCM thinking involved “I buy from my suppliers, I sell
to my customers.”
Today, organizations are quickly realizing the tremendous value
they can gain from having visibility throughout their supply
chain
Knowing immediately what is transacting at the customer end of the
supply chain, instead of waiting days or weeks for this information
to flow upstream, allows the organization to react
immediately
Best Buy checks inventory levels at each of its 750 stores across
North America as often as every half-hour
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The supply chain has three main links:
Materials flow from suppliers and their “upstream” suppliers at all
levels
Transformation of materials into semifinished and finished products
through the organization’s own production process
Distribution of products to customers and their “downstream”
customers at all levels
Collecting, analyzing, and distributing transactional information
to all relevant parties, SCM systems help all the different
entities in the supply chain work together more effectively
SCM has significantly improved companies’ forecasting abilities
over the last few years
Businesses today have access to modeling and simulation tools,
algorithms, and applications that can combine information from
multiple sources to build forecasts for days, weeks, and months in
advance
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CLASSROOM EXERCISE
Supply Chaining
Break your students into groups and ask them to design a supply
chain for an organization of their choice
Ask your students to try to choose an organization that is
currently experiencing supply chain issues, perhaps an organization
where the student has had recent issues, such as not receiving an
order, receiving an incorrect order, or receiving someone else's
order
Be sure to have them list the names of the suppliers,
manufacturers, distributors, retailers, and customers
Ask the students to identify one or two areas where the
organization can improve its supply chain
Have each group present their supply chains to the class along with
their recommendations for improvement
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BASICS OF SUPPLY CHAIN
Best Buy checks inventory levels at each of its 750 stores in North
America as often as every half-hour with its SCM system, taking
much of the guesswork out of inventory replenishment
Supply chain management improves ways for companies to find the raw
components they need to make a product or service, manufacture that
product or service, and deliver it to customers
Plan – This is the strategic portion of supply chain management. A
company must have a plan for managing all the resources that go
toward meeting customer demand for products or services. A big
piece of planning is developing a set of metrics to monitor the
supply chain so that it is efficient, costs less, and delivers high
quality and value to customers.
Source – Companies must carefully choose reliable suppliers that
will deliver goods and services required for making products.
Companies must also develop a set of pricing, delivery, and payment
processes with suppliers and create metrics for monitoring and
improving the relationships.
Make – This is the step where companies manufacture their products
or services. This can include scheduling the activities necessary
for production, testing, packaging, and preparing for delivery.
This is by far the most metric-intensive portion of the supply
chain, measuring quality levels, production output, and worker
productivity.
Deliver – This step is commonly referred to as logistics. Logistics
is the set of processes that plans for and controls the efficient
and effective transportation and storage of supplies from suppliers
to customers. During this step, companies must be able to receive
orders from customers, fulfill the orders via a network of
warehouses, pick transportation companies to deliver the products,
and implement a billing and invoicing system to facilitate
payments.
Return – This is typically the most problematic step in the supply
chain. Companies must create a network for receiving defective and
excess products and support customers who have problems with
delivered products.
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ROLE IN THE SUPPLY CHAIN
IT’s primary role is to create integrations or tight process and
information linkages between functions within a firm
Considerable evidence shows that this type of supply chain
integration results in superior supply chain capabilities and
profits.
CLASSROOM EXERCISE
Near Beer Supply Chain Game
This is an excellent exercise for students who are just learning
about the supply chain.
Factors Driving SCM
Information technology – only recently have advances in IT made it
possible to bring the idea of a truly integrated supply chain to
life
Visibility – more visible models of different ways to do things in
the supply chain have emerged. High visibility in the supply chain
is changing industries, as Wal-Mart demonstrated
Consumer behavior – companies must respond to demanding customers
through supply chain enhancements
Competition – increased competition makes any organization that is
ignoring its supply chain at risk of becoming obsolete
Speed – as the pace of business increases through electronic media,
an organization's supply chain must respond efficiently,
accurately, and quickly
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Visibility
Supply chain visibility – the ability to view all areas up and down
the supply chain
Bullwhip effect – occurs when distorted product demand information
passes from one entity to the next throughout the supply
chain
Visibility – more visible models of different ways to do things in
the supply chain have emerged. High visibility in the supply chain
is changing industries, as Wal-Mart demonstrated
Supply chain visibility allows organizations to eliminate the
bullwhip effect
To explain the bullwhip effect to your students discuss a product
that demand does not change, such as diapers. The need for diapers
is constant, it does not increase at Christmas or in the summer,
diapers are in demand all year long. The number of newborn babies
determines diaper demand, and that number is constant.
Retailers order diapers from distributors when their inventory
level falls below a certain level, they might order a few extra
just to be safe
Distributors order diapers from manufacturers when their inventory
level falls below a certain level, they might order a few extra
just to be safe
Manufacturers order diapers from suppliers when their inventory
level falls below a certain level, they might order a few extra
just to be safe
Eventually the one or two extra boxes ordered from a few retailers
becomes several thousand boxes for the manufacturer. This is the
bullwhip effect, a small ripple at one end makes a large wave at
the other end of the whip.
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Consumer Behavior
Companies can respond faster and more effectively to consumer
demands through supply chain enhances
Demand planning software – generates demand forecasts using
statistical tools and forecasting techniques
Once an organization understands customer demand and its effect on
the supply chain it can begin to estimate the impact that its
supply chain will have on its customers and ultimately the
organizations performance
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Competition
Supply chain planning (SCP) software– uses advanced mathematical
algorithms to improve the flow and efficiency of the supply
chain
Supply chain execution (SCE) software – automates the different
steps and stages of the supply chain
SCP and SCE both increase a company’s ability to compete
SCP depends entirely on information for its accuracy
SCE can be as simple as electronically routing orders from a
manufacturer to a supplier
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Competition
SCP and SCE in the supply chain
Ask your students to determine the different types of information
flows that would be represented in an SCP system
Ask your students to determine the different types of payment flows
that would be represented in an SCE system
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Speed
Why is information speed critical in a supply chain?
If the information arrives three dates late, chances are high that
managers have already made decisions based on current information
that might have been inaccurate
Information timeliness is critical
CLASSROOM EXERCISE
Designing a Digital Dashboard for an SCM System
Digital dashboards offer an effective and efficient way to view
enterprisewide information at near real-time. According to Nucleus
Research, there is a direct correlation between use of digital
dashboards and a company’s return on investment (ROI), hence all
executives should be using or pushing the development of digital
dashboards to monitor and analyze organizational operations.
Break your students into groups and ask them to develop a digital
dashboard for the CEO of a transportation company. Be sure your
students have addressed all of the following in their digital
dashboard:
Inventory
Materials
Demand/Supply
Sales
SUCCESS FACTORS
The seven principles highlighted in the figure run counter to
previous built-in functional thinking of how companies organize,
operate, and serve customers
Dell computers offers one of the best examples of an extremely
successful SCM system
Dell’s highly efficient build-to-order business model enabled it to
deliver customized computer systems quickly
The U.S. government has even sent individuals to study Dell’s
supply chain when determining ways to supply troops during
wars
If your students find themselves in the position of implementing an
SCM, be sure they study Dell as an example of exactly what to do
when building and implementing an SCM system
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Wean employees off traditional business practices
Ensure the SCM system supports the organizational goals
Deploy in incremental phases and measure and communicate
success
Be future oriented
Studying industry best practices is an excellent way to improve SCM
implementation success
A large part of any SCM system extends beyond the organization to
the suppliers. Since the organization has very little control over
anything external to itself, these pieces are typically the most
complicated to build, develop, and implement. Be sure suppliers are
on board with the benefits that the SCM system will provide to ease
SCM implementation difficulties
If the organization cannot convince people that using the SCM
software is worthwhile, the employees will probably find a way to
continue performing their job without using the software
Be sure to select SCM software that supports organizational goals
and strategies
Designing the deployment of the SCM system in incremental phases is
the most successful deployment method. The BIG BANG approach –
implementing everything all at once – fails 90 percent of the
time
An SCM system, like all systems, must scale to meet future
demands
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SCM SUCCESS STORIES
Top reasons why more and more executives are turning to SCM to
manage their extended enterprises
The role of SCM is evolving, and it is not uncommon for suppliers
to be involved in product development and for distributors to act
as consultants in brand marketing
CLASSROOM EXERCISE
SCM Again
Break your students into groups and ask them to identify how each
of the “Top reasons executives are using SCM to manage extended
enterprises” in the Figure is supported by an SCM system
For example, how does SCM help an organization control costs and
save costs?
Ans: Organizations gain visibility into their supply chains through
an SCM system. This allows them to identify such things as
inefficient and ineffective business process. Fixing these
processes helps the organization control costs and save
money.
The answers to these questions will vary, and the goal of the
activity is for students to understand the many different benefits
an organization can gain through an SCM system
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SCM SUCCESS STORIES
Numerous decision support systems (DSSs) are being built to assist
decision makers in the design and operation of integrated supply
chains
DSSs allow managers to examine performance and relationships over
the supply chain and among:
Suppliers
Manufacturers
Distributors
Discuss the Apple computer example
Apple Computer initially distributed its business operations over
16 legacy applications
Apple quickly realized that it needed a new business model centered
around an integrated supply chain to drive performance
efficiencies
Apple devised an implementation strategy that focused on specific
SCM functions including finance, sales, distribution, and
manufacturing
The new business model included:
Build-to-order and configure-to-order manufacturing capabilities
(similar to Dell)
Web-enabled configure-to-order order entry and order status
Real-time credit card authorization
Available-to-promise and rules-based allocations
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CLASSROOM EXERCISE
Driving SCM
Break your students into groups and ask them to research each of
the above companies and how they are using SCM to drive their
business operations
Have your students present their findings to the class
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Dell’s Famous Supply Chain
How might Dell use each of the five basic SCM components?
How had Dell influenced visibility, consumer behavior, competition,
and speed though the use of IT in its supply chain?
Explain the seven principles of SCM in reference to Dell’s business
model
1. How might Dell use each of the five basic SCM components?
Student answers to this question will vary. Potential answers
include:
Plan – This is the strategic portion of supply chain management. A
company must have a plan for managing all the resources that go
toward meeting customer demand for products or services. A big
piece of planning is developing a set of metrics to monitor the
supply chain so that it is efficient, costs less, and delivers high
quality and value to customers. Dell must plan how it wants to
handle its supply chain – efficiently or effectively.
Source – Companies must carefully choose reliable suppliers that
will deliver goods and services required for making products.
Companies must also develop a set of pricing, delivery, and payment
processes with suppliers and create metrics for monitoring and
improving the relationships. Dell will need to choose partners who
have the same innovative mindset and are capable of keeping up with
Dells fast pace.
Make – This is the step where companies manufacture their products
or services. This can include scheduling the activities necessary
for production, testing, packaging, and preparing for delivery.
This is by far the most metric-intensive portion of the supply
chain, measuring quality levels, production output, and worker
productivity. Dell needs to ensure all of its computers are of the
highest quality – quality issues in the PC market will kill a PC
manufacturer.
Deliver – This step is commonly referred to as logistics. Logistics
is the set processes that plans for and controls the efficient and
effective transportation and storage of supplies from suppliers to
customers. During this step, companies must be able to receive
orders from customers, fulfill the orders via a network of
warehouses, pick transportation companies to deliver the products,
and implement a billing and invoicing system to facilitate
payments. This step is critical to Dell since it does not have a
distributor to deliver its products.
Return – This is typically the most problematic step in the supply
chain. Companies must create a network for receiving defective and
excess products and support customers who have problems with
delivered products. Since Dell does no have any distributors it
must make the return process as easy as possible for
customers.
2. How had Dell influenced visibility, consumer behavior,
competition, and speed though the use of IT in its supply
chain?
Dell is one of the fasted companies on the planet due to
information technology. Dell only holds 72 hours worth of inventory
in its supply chain, hence it must have tremendous supply chain
visibility. It must be able to anticipate consumer behavior to
ensure its supply chain can meet forecasted demands. Dell’s
competition is working hard to catch-up.
3. Explain the seven principles of SCM in reference to Dell’s
business model.
Students should take the principles of how to build a Dell-like
supply chain and compare them to the following:
Segment customers by service needs, regardless of industry, and
then tailor services to those particular segments.
Customize the logistics network and focus intensively on the
service requirements and on the profitability of the preidentified
customer segments
Listen to signals of market demand and plan accordingly.
Differentiate products closer to the customer, since companies can
no longer afford to hold inventory to compensate for poor demand
forecasting.
Strategically manage courses of supply, by working with key
suppliers to reduce overall costs of owning materials and
services.
Develop a supply chain information technology strategy that
supports different levels of decision making.
Adopt performance evaluation measures that apply to every link in
the supply chain and measure true profitability at every
stage.
McGraw-Hill/Irwin
SECTION 8.2
CLASSROOM OPENER
Nike – Running Back on Track
It drives Vice President Roland Wolfram crazy that while the rest
of the world knows his company for its swooshbuckling marketing and
its association with the world's most famous athletes, the IT world
thinks of Nike as the company that screwed up its supply
chain—specifically, the i2 demand-planning engine that, in 2000,
spat out orders for thousands more Air Garnett sneakers than the
market had appetite for and called for thousands fewer Air Jordans
than were needed.
Too many Air Garnetts. Too few Air Jordans. Nike lost money, time
and a measure of pride when its demand-planning software led it
astray. How did it recover? Patience, perseverance and, most
important, an understanding of what it was trying to accomplish in
the first place
Wolfram calls the i2 problem—a software glitch that cost Nike more
than $100 million in lost sales, depressed its stock price by 20
percent, triggered a flurry of class-action lawsuits, and caused
its chairman, president and CEO, Phil Knight, to lament famously,
"This is what you get for $400 million, huh?"—a "speed bump." Some
speed bump. In the athletic footwear business, only Nike, with a 32
percent worldwide market share (almost double Adidas, its nearest
rival) and a $20 billion market cap that's more than the rest of
the manufacturers and retailers in the industry combined, could
afford to talk about $100 million like that.
But there was a lesson too for people who do, in fact, follow "this
sort of thing," specifically CIOs. The lesson of Nike's failure and
subsequent rebound lies in the fact that it had a business plan
that was widely understood and accepted at every level of the
company. Given that, and the resiliency it afforded the company, in
the end the i2 failure turned out to be, indeed, just a "speed
bump."
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List and describe the four drivers of supply chain management
Explain supply chain management strategies focused on
efficiency
Explain supply chain management strategies focused on
effectiveness
8.5 List and describe the four drivers of supply chain
management
Facilities – processes or transforms inventory into another
product, or it stores the inventory before shipping it to the next
facility. Inventory – offsets discrepancies between supply and
demand. Transportation – moves inventories between the different
stages in the supply chain. Information – an organization must
decide how and what information it wants to share with its supply
chain partners.
8.6 Explain supply chain management strategies focused on
efficiency
Supply chain management strategies focusing on efficiency are most
concerned with using the supply chain to drive down costs. For
example, an efficient SCM will use a centralized warehouse,
inexpensive transportation methods, and freely share lots of
information in a push strategy with its supply chain
partners.
8.7 Explain supply chain management strategies focused on
effectiveness
Supply chain management strategies focusing on effectiveness are
most concerned with using the supply chain to increase customer
satisfaction. For example, an effective SCM will have many
decentralized warehouses close to its customers, excess capacity at
its facilities to meet wide swings in demand, use fast and
expensive shipping methods, and selectively share information using
a pull strategy with its supply chain partners.
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The four primary drivers of supply chain management
Facilities
Inventory
Transportation
Information
Organizations use these four drivers to support either a supply
chain strategy focusing on efficiency or a supply chain strategy
focusing on effectiveness
It might be beneficial to review efficiency and effectiveness since
this section requires the students to have a solid understanding of
efficiency and effectiveness
Efficiency IT metrics – measures the performance of the IT system
including throughput, speed, availability, etc.
Effectiveness IT metrics – measure the impact IT has on business
processes and activities including customer satisfaction,
conversion rates, sell-through increases, etc.
Organizations use the four primary drivers to support their supply
chain strategy
Facilities – processes or transforms inventory into another
product, or it stores the inventory before shipping it to the next
facility
Inventory – offsets discrepancies between supply and demand
Transportation – moves inventories between the different stages in
the supply chain
Information – an organization must decide how and what information
it wants to share with its supply chain partners
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USING IT TO DRIVE THE SUPPLY CHAIN
Analyzing the design of a supply chain in terms of efficiency and
effectiveness
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FACILITIES DRIVER
Facility – processes or transforms inventory into another product,
or it stores the inventory before shipping it to the next
facility
Three primary facilities components
Operational design
Discuss the Toyota example as an organization that uses its
facilities driver to focus on effectiveness
Toyota is an example of a company that stresses effectiveness in
its facilities. Toyota’s goal is to open a facility in every major
market where it does business. These local facilities protect the
company from currency fluctuations and trade barriers and thus are
more effective for Toyota’s customers
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Location
Location efficiency – centralize the location to gain economies of
scale, which increases efficiency
Location effectiveness – decentralize the locations to be closer to
the customers, which increases effectiveness
Efficiency
A company can gain economies of scale when it centralizes it
facilities
It is cheaper for a company to maintain one large facility then
several small facilities
However, the goods are farther from the customers and it might take
longer and be more difficult to deliver the goods in a timely
fashion
Effectiveness
It costs more to have many facilities located closer to customers,
however the company can deliver goods with relative ease and in a
timely fashion
Ask your students if they can think of any other facilities factors
that might influence the efficiency or effectiveness of a company’s
supply chain
Facility costs
Land costs
Employee expenses
Exchange rates
Tax effects
Capacity
Capacity efficiency – minimal excess capacity with the ability to
produce only what is required
Capacity effectiveness – large amounts of excess capacity which can
handle wide swings in demand
Efficiency
A company can save money by building a facility that is only big
enough to handle production requirements
Effectiveness
By spending more money and building in a lot of extra capacity, an
organization can be prepared to handle unexpected future
events
Ask your students if they can think of any other capacity factors
that might influence the efficiency or effectiveness of a company’s
supply chain
Energy costs
Bigger facilities indicates more employees
Technology devices typically decrease in size, will the facility
need the extra capacity if the manufacturing equipment becomes
smaller, or will it be able to produce more in smaller spaces in
the future?
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FACILITIES 3:
Operational Design
Operational design efficiency – product focus design allows the
facility to become highly efficient at producing one single
product, increasing efficiency
Operational design effectiveness – functional focus design allows
the facility to perform a specific function on many different types
of products, increasing effectiveness
Efficiency
If a company chooses a product focus design, it is anticipating
that the facility will produce only a certain type of product
All operations, including fabrication and assembly, will focus on
developing a single type of product
The facility becomes highly efficient in producing a single
product
Effectiveness
If a company chooses a functional focus design, the facility will
perform a specific function (e.g., fabrication only or assembly
only) on many different products
The facility becomes more effective since it can use a single
process on many different types of products
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Inventory – offsets discrepancies between supply and demand
Inventory management and control software – provides control and
visibility to the status of individual items maintained in
inventory
Two primary inventory components
Cycle inventory
Safety inventory
Discuss the Dillard’s example as an organization that uses its
inventory driver to increase effectiveness
Dillard’s department store’s competitive strategy is to appeal to
higher-end customers who are willing to pay a premium to obtain
products immediately. Dillard’s carries large amounts of inventory
to ensure products are always available for its customers. In
return, its customers are willing to pay extra for their
products.
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INVENTORY 1:
Cycle Inventory
Cycle inventory – the average amount of inventory held to satisfy
customer demands between inventory deliveries
Cycle inventory efficiency – holding small amounts of inventory and
receiving orders weekly or even daily
Cycle inventory effectiveness – holding large amounts of inventory
and receiving inventory deliveries only once a month
Efficiency
A company can save money by not maintaining a lot of
inventory
Receiving inventory every day, or every week, allows a company to
operate without the need for large amounts of inventory storage
space
Effectiveness
A company spends money by maintaining large amounts of inventory,
but they are better able to provide immediate goods and services to
their customers (more effective)
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INVENTORY 2:
Safety Inventory
Safety inventory – extra inventory held in the event demand exceeds
supply
Safety inventory efficiency – holding small amounts of safety
inventory
Safety inventory effectiveness – holding large amounts of safety
inventory
Efficiency
A company can save money by not maintaining a lot of safety
inventory
This company runs the risk of losing customers if it runs out of
goods during Christmas and Easter
Effectiveness
A company spends money by maintaining large amounts of excess
safety inventory
However, this company is better able to fulfill its customers’
needs during busy seasons such as Christmas and Easter
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Transportation – moves inventories between the different stages in
the supply chain
Two primary inventory components
Transportation route
Discuss the FedEx example as an organization that uses its
transportation driver to increase effectiveness
FedEx’s entire business strategy focuses on its customers’ need for
highly effective transportation methods. Any company that uses
FedEx to transport a package is focusing primarily on a safe and
timely delivery and not on the cost of delivery. Many businesses
even locate their facilities near FedEx hubs so that they can
quickly transport inventory overnight to their customers.
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Method of Transportation
Global inventory management system – provides the ability to
locate, track, and predict the movement of every component or
material anywhere upstream or downstream in the supply chain
Method of transportation efficiency
Method of transportation effectiveness
The six primary transportation methods include: truck, rail, ship,
air, pipeline, and electronic
Efficiency
A company can save money by shipping goods inexpensively
However, this usually causes the shipment to take longer
It is cheaper to send a package by boat then it is to send it by
plane
Effectiveness
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TRANSPORTATION 2: Transportation Route
Transportation planning software – tracks and analyzes the movement
of materials and products to ensure the delivery of materials and
finished goods at the right time, the right place, and the lowest
cost
Distribution management software – coordinates the process of
transporting materials from a manufacturer to distribution centers
to the final customer
Transportation route efficiency
Transportation route effectiveness
Transportation route efficiency– a company can save money by
shipping its products to a distributor that ships the products to
its customers
Transportation route effectiveness – a company can ship its
products directly to its customers
Efficiency
A company can save money by shipping products to a local
distributor
Effectiveness
A company can ship its products directly to its customers
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INFORMATION DRIVER
Information – an organization must decide how and what information
it wants to share with its supply chain partners
Two primary information components
Analyzing Listerine’s Supply Chain
Break your students into groups and ask them to review Closing Case
One: Listerine’s Journey. Inform your students that they are
working for Listerine and need to perform a risk assessment of the
supply chain. In other words, they need to determine all areas and
potential threats that make the supply chain vulnerable. For
example,
An unusually bad season in Australia causes the eucalyptus harvest
to fall short of expectation production levels, which causes the
price to skyrocket
The factory in Lititz, Pennsylvania, is destroyed by a fire
One of its transportation ships sinks
A hurricane causes one of its transportation ships to be
delayed
8-*
INFORMATION 1:
Information Sharing
Information sharing efficiency – freely share lots of information
to increase the speed and decrease the costs of supply chain
processing
Information sharing effectiveness – share only selected information
with certain individuals, which will decrease the speed and
increase the costs of supply chain processing
Efficiency
A company can save money by sharing information with everyone
involved in the supply chain
For example, if a company posts its inventory list in a location
where everyone on the Internet can access it – then all kinds of
companies can bid on the inventory goods
Effectiveness
It costs a company to be selective on what types of information it
shares with its different partners
It takes time and money to safeguard information, which is what the
company would have to do to ensure it didn’t get into the wrong
hands
8-*
Pull information strategy (efficiency) – supply chain partners are
responsible for pulling all relevant information
Pull technology – pulls information
Push technology – sends information
Pull strategy
A company can save money by asking its partners to incur the
expense and responsibility of pulling supply chain information from
the organization’s systems
Effectiveness
Push strategy
A company will have to incur the expense and responsibility of
pushing supply chain information out to its supply chain
partners
8-*
8-*
Wal-Mart’s supply chain management strategy emphasizes efficiency,
but also maintains adequate levels of effectiveness
Facilities focus – Efficiency
Inventory focus – Efficiency
Transportation focus – Effectiveness
Information focus - Efficiency
Transportation focus
Information focus
Invests heavily in technology and the flow of information through
its entire supply chain
Although Wal-Mart has spent a lot of money on its supply chain and
uses a push information sharing strategy – its overall information
focus is on using information to enable the company to maintain
small amounts of inventory (efficiency)
Wal-Mart uses its supply chain to operate its business in a
just-in-time fashion
8-*
Wal-Mart’s supply chain management drivers
8-*
Selling chain management
Collaborative demand planning
Supply chain event management (SCEM) – enables an organization to
react quickly to resolve supply chain issues
Selling chain management – applies technology to the activities in
the order life cycle from inquiry to sale
Collaborative engineering – allows an organization to reduce the
costs required during the design process of a product
Collaborative demand planning – helps organizations reduce their
investment in inventory, while improving customer satisfaction
through product availability
The functionality in supply chain management systems is becoming
more and more sophisticated as supply chain management
matures
The future stages of SCM will incorporate more functions such as
marketing, customer service, and product development
It will also use more advanced communication methods, adoption of
more user friendly decision support systems, and availability of
shared information to all participants in the supply chain
8-*
Dell’s Famous Supply Chain
Identify the four primary drivers of SCM and explain how Dell uses
each one to gain efficiency or effectiveness in its supply
chain
Choose one of the fast growth SCM components and explain how Dell
can use it to increase business operations
What is RFID and how could Dell use the technology to improve its
supply chain?
4. Identify the four primary drivers of SCM and explain how Dell
uses each one to gain efficiency or effectiveness in its supply
chain.
Facilities – processes or transforms inventory into another
product, or it stores the inventory before shipping it to the next
facility. Dell strategically places its facilities next to parcel
delivery companies so it can ship items in and out more quickly.
This allows the company to be extremely efficient in terms of
facilities.
Inventory – offsets discrepancies between supply and demand. Dell
only carriers 24 hours worth of inventory in its entire supply
chain. This allows the company to be extremely efficient, but could
cause problems with effectiveness if natural disasters or human
relation problems occur.
Transportation – moves inventories between the different stages in
the supply chain. Dell focuses on effectiveness by using the
fastest methods of transportation available.
Information – an organization must decide how and what information
it wants to share with its supply chain partners. Dell openly
shares information with all of its partners, it has to in order to
maintain only 24 hours worth of inventory. This focuses on
efficiency.
5. Choose one of the fast growth SCM components and explain how
Dell can use it to increase business operations.
Supply chain event management (SCEM) - Enables an organization to
react more quickly to resolve supply chain issues. SCEM software
increases real-time information sharing among supply chain partners
and decreases their response time to unplanned events. Dell can use
SCEM to discover the benefits of real-time supply chain
monitoring.
Selling chain management - Applies technology to the activities in
the order life cycle from inquiry to sale. Dell can use selling
chain management to provide additional CRM to its customers during
the sales process. The PC business is tough and Dell has a lot of
competition. Building a reputation for outstanding customer
relationships is one way that Dell could create a competitive
advantage over its customers.
Collaborative engineering - Allows an organization to reduce the
cost and time required during the design process of a product. Dell
can collaborate with all of its supply chain partners to create
more efficient and effective business processes throughout the
supply chain.
Collaborative demand planning - Helps organizations reduce their
investment in inventory, while improving customer satisfaction
through product availability. Dell can collaborate with all of its
supply chain partners to create more efficient and effective
business processes throughout the supply chain.
6. What is RFID and how could Dell use the technology to improve
its supply chain?
Radio frequency identification (RFID) technologies use active or
passive tags in the form of chips or smart labels that can store
unique identifiers and relay this information to electronic
readers. RFID tags contain a microchip and an antenna, and
typically work by transmitting a serial number via radio waves to
an electronic reader, which confirms the identity of a person or
object bearing the tag. Dell can add RFID tags to every product and
shipping box. At every step of the item’s journey, a reader scans
one of the tags and updates the information on the server. Dell can
observe sales patterns in real time and make swift decisions about
production, ordering, and pricing. Integrating RFID in the supply
chain will help Dell achieve greater efficiency and effectiveness
through the use of real-time information.
8-*
BudNet
How can an SCM system help a distributor such as Anheuser-Busch
make its supply chain more effective and efficient?
SCM is experiencing explosive growth. Explain why this statement is
true using BudNet as an example
Evaluate BudNet’s effect on each of the five factors that are
driving SCM success
List and describe the components of a typical supply chain along
with its ability to help Budweiser make effective decisions
1. How can an SCM system help a distributor such as Anheuser-Busch
make its supply chain more effective and efficient?
An SCM system can help make a distributor more effective by
tracking, monitoring, and analyzing inventory throughout the entire
supply chain. An SCM system can trigger the production of a product
for a manufacturer, determine where to transport the finished
product through a specific distribution company to a particular
supplier, and can even recommend the optimal location for the
product at the supplier’s store. A good SCM system will know
exactly when a customer purchases a product from a supplier, and
will automatically request product replacement from the
manufacturer. This drives efficiency and effectiveness since
inventory levels throughout the entire supply chain can be operated
by just-in-time.
2. SCM is experiencing explosive growth. Explain why this statement
is true using BudNet as an example.
An SCM can help an organization:
Control costs and improve saving
Improve productivity
Reduce inventory
Improve visibility
Maintain and gain a competitive advantage
3. Evaluate BudNet’s effect on each of the five factors that are
driving SCM success.
There are five factors that are contributing to the explosive
growth of SCM. (1) IT, (2) Visibility, (3) Consumer behavior, (4)
Competition, (5) Speed. BudNet is using these factors to control
quality, improve productivity, and ultimately increase revenues.
Anheuser-Busch uses BudNet to constantly adjust production levels,
fine-tune marketing campaigns, change marketing strategies, design
promotions to suit the ethnic makeup of its markets, detect rivals
and competition, and define product placement and pricing
strategies.
4. List and describe the components of a typical supply chain along
with its ability to help Budweiser make effective decisions.
Plan – This is the strategic portion of supply chain management. A
company must have a plan for managing all the resources that go
toward meeting customer demand for products or services. A big
piece of planning is developing a set of metrics to monitor the
supply chain so that it is efficient, costs less, and delivers high
quality and value to customers. Dell must plan how it wants to
handle its supply chain – efficiently or effectively.
Source – Companies must carefully choose reliable suppliers that
will deliver goods and services required for making products.
Companies must also develop a set of pricing, delivery, and payment
processes with suppliers and create metrics for monitoring and
improving the relationships. Dell will need to choose partners who
have the same innovative mindset and are capable of keeping up with
Dells fast pace.
Make – This is the step where companies manufacture their products
or services. This can include scheduling the activities necessary
for production, testing, packaging, and preparing for delivery.
This is by far the most metric-intensive portion of the supply
chain, measuring quality levels, production output, and worker
productivity. Dell needs to ensure all of its computers are of the
highest quality – quality issues in the PC market will kill a PC
manufacturer.
Deliver – This step is commonly referred to as logistics. Logistics
is the set processes that plans for and controls the efficient and
effective transportation and storage of supplies from suppliers to
customers. During this step, companies must be able to receive
orders from customers, fulfill the orders via a network of
warehouses, pick transportation companies to deliver the products,
and implement a billing and invoicing system to facilitate
payments. This step is critical to Dell since it does not have a
distributor to deliver its products.
Return – This is typically the most problematic step in the supply
chain. Companies must create a network for receiving defective and
excess products and support customers who have problems with
delivered products. Since Dell does no have any distributors it
must make the return process as easy as possible for
customers.
As Budweiser evolves into an extended organization, the roles of
supply chain participants are changing. Budweiser’s suppliers might
be involved in product development and its distributors might act
as consultants in brand marketing. The notion of virtually seamless
information links within and between organizations is an essential
element of integrated supply chains.
8-*
CLOSING CASE TWO
Listerine’s Journey
Summarize SCM and describe Warner-Lambert’s supply chain strategy.
Diagram the SCM components
Detail Warner-Lambert’s facilities strategy
Detail Warner-Lambert’s inventory strategy
1. Summarize SCM and describe Warner-Lambert’s supply chain
strategy. Diagram the SCM components.
The supply chain consists of all parties involved, directly or
indirectly, in the procurement of a product or raw material. Supply
chain management (SCM) involves the management of information flows
between and among stages in a supply chain to maximize total supply
chain effectiveness and profitability.
2. Detail Warner-Lambert’s facilities strategy.
Supply chain facility strategy processes or transforms inventory
into another product, or it stores the inventory before shipping it
to the next facility. The three primary facilities components
include location, capacity, and operational design.
Warner-Lambert’s facility strategy includes:
Location efficiency – centralize the location to gain economies of
scale, which increases efficiency
Capacity effectiveness – large amounts of excess capacity which can
handle wide swings in demand
Operational design efficiency – product focus design allows the
facility to become highly efficient at producing one single
product, increasing efficiency
3. Detail Warner-Lambert’s inventory strategy.
Inventory offsets discrepancies between supply and demand. The two
primary inventory components include cycle inventory and safety
inventory. Warner-Lambert’s inventory strategy includes:
Cycle inventory effectiveness – holding large amounts of inventory
and receiving inventory deliveries only once a month
Safety inventory effectiveness – holding large amounts of safety
inventory
8-*
CLOSING CASE TWO
Listerine’s Journey
What would happen to Warner-Lambert’s business if a natural
disaster in Saudi Arabia depletes its natural gas resources?
Assess the impact to Warner-Lambert’s business if the majority of
the eucalyptus crop was destroyed in a natural disaster
Detail Warner-Lambert’s information strategy
4. What would happen to Warner-Lambert’s business if a natural
disaster in Saudi Arabia depletes its natural gas resources?
A natural disaster in Saudi Arabia which depletes its natural gas
would cause problems in Warner-Lambert’s supply chain. Without the
natural gas that yields the synthetic alcohol, Listerine would be
unable to deliver its 43-proof punch. Unless it could quickly find
another vendor of the natural gas or if it had a large safety
inventory, the production of Listerine would come to a complete
stop.
5. Assess the impact to Warner-Lambert’s business if the majority
of the eucalyptus crop was destroyed in a natural disaster.
A natural disaster which destroyed all of the eucalyptus crop would
be devastating to Warner-Lambert’s business and would cause many
problems in its supply chain. The price of eucalyptus would
skyrocket causing unforeseen increases in costs throughout the
supply chain. Unless it could quickly find an alternative
ingredient to eucalyptus, the production of Listerine would come to
a complete stop.
6. Detail Warner-Lambert’s information strategy.
An organization must decide how and what information it wants to
share with its supply chain partners. The two primary information
components include information sharing and push vs. pull strategy.
The case did not discuss in detail Warner-Lambert’s information
strategy, but if it focused on efficiency it would:
Information sharing efficiency – freely share lots of information
to increase the speed and decrease the costs of supply chain
processing
Pull information strategy (efficiency) – supply chain partners are
responsible for pulling all relevant information
8-*
Levi’s
How did Levi Strauss achieve business success through the use of
supply chain management?
What might have happened to Levi’s if its top executives had not
supported investments in SCM?
David Bergen, Levi’s CIO, put together a cross-functional team of
key managers from IT, finance, and sales to transform Levi’s
systems to meet Wal-Mart’s requirements. Analyze the relationships
between these three business areas and SCM systems. How can an SCM
system help support these three critical business areas?
1. How did Levi Strauss achieve business success through the use of
supply chain management?
Levi’s used its SCM system to decreased the power of its buyers,
increased its own supplier power, increased switching costs to
reduce the threat of substitute products or services, created entry
barriers thereby reducing the threat of new entrants, and increased
efficiencies while seeking a competitive advantage through cost
leadership.
2. What might have happened to Levi’s if its top executives had not
supported investments in SCM?
One of the main factors that brought Levi’s back from the dead was
its ability to sell jeans in Wal-Mart. Wal-Mart demands that all
partners have up-to-date SCM systems that can easily integrate with
Wal-Mart’s systems. If Levi’s top executives did not have the
foresight to view selling jeans at Wal-Mart as a competitive
advantage, then chances are the company would not have made a
strong comeback in the highly competitive clothing market. Although
Levi’s was in the process of upgrading its systems, it was going to
take over five years to implement. This was simply too long. Levi’s
had no choice but to spend the money to upgrade its SCM system if
it wanted to do business with Wal-Mart.
3. David Bergen, Levi’s CIO, put together a cross-functional team
of key managers from IT, finance, and sales to transform Levi’s
systems to meet Wal-Mart’s requirements. Analyze the relationships
between these three business areas and SCM systems. How can an SCM
system help support these three critical business areas?
Business personnel and IT personnel must work together for an
organization to succeed. If Levi’s failed to include IT personnel,
finance personnel, or sales personnel in the cross-functional team,
it would have had a difficult time achieving a successful system
transformation. All managers in all areas of the company will need
to use the SCM system to make strategic decisions.
8-*
Levi’s
Describe the five basic SCM components in reference to Wal-Mart’s
business model
Explain RFID and provide an example of how Levi’s could use the
technology to increase its business operations
4. Describe the five basic SCM components in reference to
Wal-Mart’s business model.
Plan – This is the strategic portion of supply chain management. A
company must have a plan for managing all the resources that go
toward meeting customer demand for products or services. A big
piece of planning is developing a set of metrics to monitor the
supply chain so that it is efficient, costs less, and delivers high
quality and value to customers. Dell must plan how it wants to
handle its supply chain – efficiently or effectively.
Source – Companies must carefully choose reliable suppliers that
will deliver goods and services required for making products.
Companies must also develop a set of pricing, delivery, and payment
processes with suppliers and create metrics for monitoring and
improving the relationships. Dell will need to choose partners who
have the same innovative mindset and are capable of keeping up with
Dells fast pace.
Make – This is the step where companies manufacture their products
or services. This can include scheduling the activities necessary
for production, testing, packaging, and preparing for delivery.
This is by far the most metric-intensive portion of the supply
chain, measuring quality levels, production output, and worker
productivity. Dell needs to ensure all of its computers are of the
highest quality – quality issues in the PC market will kill a PC
manufacturer.
Deliver – This step is commonly referred to as logistics. Logistics
is the set processes that plans for and controls the efficient and
effective transportation and storage of supplies from suppliers to
customers. During this step, companies must be able to receive
orders from customers, fulfill the orders via a network of
warehouses, pick transportation companies to deliver the products,
and implement a billing and invoicing system to facilitate
payments. This step is critical to Dell since it does not have a
distributor to deliver its products.
Return – This is typically the most problematic step in the supply
chain. Companies must create a network for receiving defective and
excess products and support customers who have problems with
delivered products. Since Dell does no have any distributors it
must make the return process as easy as possible for
customers.
Wal-Mart plans each of the above components into and throughout its
supply chain. Since Wal-Mart is essentially a distributor and does
not manufacture anything itself, it must be able to plan, source,
make, deliver, and return everything it distributes from its
manufacturers.
5. Explain RFID and provide an example of how Levi’s could use the
technology to increase its business operations.