Professional Documents
Culture Documents
Introduction
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Outline
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Freight Transportation
$352, $455 B
Inventory Expense
$221, $311 B
Administrative Expense
$27, $31 B
Profit
10%
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.
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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.
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AMR Research:
"The biggest issue enterprises face today is intelligent visibility of their
supply chains-both upstream and down"
Forrester Research:
"Companies need to sense and proactively respond to unanticipated
variations in supply and demand by adopting emerging technologies such as
intelligent agents. To boost their operational agility, firms need to transform
their static supply chains into adaptive supply networks
Gartner Group:
By 2004, 90% of enterprises that fail to apply supply-chain management
technology and processes to increase their agility will lose their status as
preferred suppliers
Open ended statement. Agility can be increased continuously.
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Top 25
Supply Chains
AMR research http://www.amrresearch.com
publishes reports on supply chains
and other issues.
The Top 25 supply chains report comes
out in Novembers.
The table on the right-hand side is from
The Second Annual Supply Chain
Top 25 prepared by Kevin Riley and
Released in November 2005.
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Manufacturer
Distributor
Upstream
Retailer
Customer
Downstream
- achieves
The right
Product
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+ + + + +
DEMAND SIDE
The right
The right
The right
The right
The right
Price
Store
Quantity
Customer
Time
Higher
Profits
10
Plastic cup
Producer
Chemical
manufacturer
(e.g. Oil Company)
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Third
party DC
Tenneco
Packaging
Paper
Manufacturer
Albertsons
Supermarket
Customer wants
detergent
Chemical
manufacturer
(e.g. Oil Company)
Timber
Industry
11
Supplier
Information
Customer
Funds
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Supply Chain Management (SCM) is concerned with the management and control of
the flows of material, information, and finances in supply chains.
Cash
Products and Services
Information
THAILAND
INDIA
N-Tier Suppliers Suppliers
Supply Side
MEXICO
Logistics
TEXAS
Distributors
OEM
US
Retailers
Demand Side
Demand
Supply
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
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Frequent Supply
shortages
Tier 1
Supplier
Glitch-Wrong Material,
Machine is Down
effect snowballs
Inefficient
logistics
Manufacturer
Distributor
High inventories
through the chain
Retailer
Ineffective
promotions
Customer
High
stockouts
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Regional Field
Warehouses:Warehouses:
stocking
stocking
points
points
Customers,
demand
centers
sinks
Supply
Inventory
Purchase
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Transportati
on
Invento
ry
15
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Any cycle
0. Customer arrival
1. Customer triggers an order
2. Supplier fulfils the order
3. Customer receives the order
Manufacturer
Procurement Cycle
Supplier
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PUSH PROCESSES
Customer Order
Cycle
PULL PROCESSES
Customer
Order Arrives
Push-Pull boundary
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SCM Strategy
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Mission-Strategy-Tactics-Decisions
Strategy
Tactics
Operational decisions
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Mission:
Goal:
Strategy:
Tactics:
Operations:
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-Coupons
New
Product
Development
Marketing
and
Sales
23
Strategies:
Product Development
It relates to Technologies for future
operations (via patents) and Set
of products/services
Be the technology leader
IBM workstations
24
Strategies
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Implied (Demand)
Uncertainty for SC
Implied trouble
for SC
27
Customized products
High Fashion Clothing
Emergency steel,
for maintenance/replacement
Customer Need
Implied Demand Uncertainty
Responsiveness
High
28
Efficiency frontier
Fix responsiveness
Inefficient
Impossible
Inefficiency Region
Low
High
Low
Cost in $
29
Gourmet dinner
<High margin>
of it
e
F
n
Zo egic
t
ra
t
S
Responsivenes
spectrum
Efficient
(low cost)
supply chain
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Lunch buffet
<Low margin>
Certain
demand
Implied
uncertainty
spectrum
Uncertain
demand
30
Peapod has the same business model but more focused in terms of
service and locations. It actually survives with its parent company
Royal Aholds (Dutch Retailer) cash.
Delivers now at a fee of $6.95 within a day.
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Source www.deloitte.com/dtt/cda/doc/content/dtt_2008globalpowersofretailing.pdf
32
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Wal-Mart: Efficiency
Target: More quality and service
Carrefour: International, ambiance
K-Mart: Confused.
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Other Factors
e.g. Flat screen TV producer of AU Optronics of Taiwan was looking for ways to make its SC
more efficient in June 2004.
Replacement sales
Selling to replace broken units.
35
Efficient
(low cost)
supply chain
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Certain
demand
Uncertain
demand
36
Integration
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Strategic Scope
Suppliers Manufacturer Distributor
Retailer
Customer
Competitive
Strategy
Product Dev.
Strategy
Supply Chain
Strategy
Marketing
Strategy
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Inventory
Information
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Transportation
Sourcing
Facilities
Pricing
Logistical
Drivers
CrossFunctional
Drivers
40
1. Inventory
Pipeline inventory
Work in process or transit
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Littles law
Long run averages = Expected values
I=R.T
I=Pipeline inventory;
R=output per time=throughput;
T=delay time=flow time
10/minute
Spend 1 minute
42
2. Transportation
Air
Truck
Rail
Ship
Pipeline
Electronic
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3. Facilities
Production
Flexible vs. Dedicated
Flexibility costs
Production: Remember BMW: a sports car disguised as a sedan
Service: Can your instructor teach music as well as SCM?
Sports: A playmaker who shoots well is rare.
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4. Information
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Global
Scope
Strategy
Information
Accurate?
Accessible?
Up-to-date?
In the Correct form?
Coordinated
Decisions
Supply Chain
Success
Analytical
Models
$$$
If not, database restricted ability. How difficult is it to import data into SAP?
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Quality of Information
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Planning
Operational
Supplier
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Manufacturer
Distributor
Retailer
Customer
48
Planning
Potential
Operational
ERP
Supplier
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Manufacturer
Potential
ERP
Distributor
ERP
Retailer
Customer
49
Planning
APS
Supplier
Apps
MES
Operational
Supplier
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Manufacturer
Distributor
Retailer
Dem Plan
CRM/SFA
Customer
50
ERP Systems
Wider focus
Push (MRP) versus Pull (demand information transmitted
quickly throughout the supply chain)
Real-time information
Coordination and Information sharing
Transactional IT
Expensive and difficult to implement
About 25% of ERP installations are cancelled within a year
About 70% of ERP installations go over the budget
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IT Push
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Source Kanakamedala,
Ramsdell, Srivatsan (2003).
McKinsey Quarterly, No 1.
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5. Sourcing
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6. Pricing
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SC is big:
Variety of products/services
Spoiled customer
Multiple owners (Procurement, Production, Inventory,
Marketing) / multiple objectives
Globalization
57
Contractual Coordination
Mechanisms to align local objectives with global ones
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Increasing implied
uncertainty
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Common problems
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Common problems
Poor IT design
Unreliable, duplicate data
Security problems: too much or too little
Ignoring uncertainties
The flight from uncertainty and ambiguity is so motivated that we often
create pseudocertainty.
Nitin Nohra, HBR February 2006 issue, p.40.
Poor integration
Elusive inventory costs
Accounting systems do not capture opportunity costs
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Summary
Challenges
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Largest convenience store in Japan with market value of $95 B. The third largest
retail company in the world after Wal-Mart and Home Depot.
Established in 1974.
In 2000, total sales $18,000 M, profit $620 M.
Average inventory turnover time 7-8.5 days.
Stock value increased by 3000 times from 1974 to 2000.
In 1985, there were 2000 stores in Japan, increasing by 400-500 per year.
Return on equity 14% over 2000-2004.
A SEJ store is about the half the size of a US 7-eleven store,
that is about 110 m2.
Sales:
Products
32.9% Processed food: drinks, noodles, bread and snacks
31.6% Fast food: rice ball, box lunch and hamburgers
12.0% Fresh food: diary products
25.3% Non-food: magazines, ladies stockings and batteries.
Services: Utility bill paying, installment payments for credit companies, ATMs, photocopying
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More on SEJ
More factual info:
Average sales about twice of an average US store
SKUs offered in store: Over 3,000 (change by time of day, day of week, season)
Virtually no storage space
No food cooking at the stores
Japanese Images of Seven Eleven:
Convenient
Cheerful and lively stores
Many ready made dinner items I buy
Famous for its great boxed lunch and dinner
- On weekends, when I was single, I went to buy lunch and dinner
SC strategy:
Micro matching of supply and demand (by location, time of day, day of week, season)
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6000
5000
4000
Number of Stores
3000
2000
1000
0
85
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87
88
89
90
91
92
93
94
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Net Sales
600
400
200
0
85
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87
88
89
90
91
92
93
94
67
Profit
85
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87
88
89
90
91
92
93
94
68
Inventory
6
4
2
0
85
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87
88
89
90
91
92
93
94
69
Information Strategy
Quick access to up to date information (as opposed to data):
In 1991, SEJ implemented Integrated Service Digital Network to link stores, headquarter,
DCs and suppliers
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Analysis of
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Facilities Strategy
inventory.
A single truck brings a group of products and visits several stores within a geographical region
Aggregation: No supplier (not even coke!) delivers direct
The number of truck deliveries per day is reduced by a factor of 7 from 1974 to 2000.
Still, at least 3 fresh food deliveries per day. Goods are received faster with the use of
scanners.
Have many outlets, at convenient locations, close to where customers can walk
Focus on some territories, not all: When they locate in a place they blanket (a.k.a.
clustering) the area with stores; stores open in clusters with corresponding DCs.
844 stores in the Tokyo region; Seven Eleven had stores in 32 out of 47 prefectures in 2004. No
stores in Kobe.
Success rate of franchise application <= 1/100
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Why SEJ does not allow direct delivery from suppliers to retailers?
Point out which of the following strategies can also be used in US (or Taiwan)
Information strategy
Facilities strategy
Discuss the differences between the Japanese and US (or Taiwanese) consumers with
regard to
Frequency and amount of grocery purchase
Use of credit cards vs. cash for purchase
7-eleven inventory turnover rate is 50 in Japan and 19 in the USA.
7-eleven growing rapidly in the US so it aims to be a web depot in both the US and Japan.
Does this make sense from a supply chain perspective?
Cost vs. Responsiveness
Business strategy
What is the risk of micro-matching strategy?
No direct deliveries to SEJ, what is the potential risk of this strategy if used in the USA?
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