If you are studying on SCM, it is necessary to know what metrics are usually used to evaluate a SCM or do comparison between companies. The following content are extracted from Manufacturing Planning & Control Systems for Supply Chain Management (Fifth edition):

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Continuing…

Right Supply Chain for your product

1^st Step:
Determine the nature of your product
Functional v.s. Innovative:
◆ Functional products: Stable predictable demand & long life cycles
Ex.) Staples, Detergent, Long lead time steel
◆ Innovative products: Unpredictable & short life cycle
Ex.) High Fashion, Entirely New Electronic devices.

Correlation Between nature of products and other Attributes

Attributes Functional Innovative
Product Lifecycle > 2 years 3 months. to 1 year
Product margin Low High
Avg. forecast error 10% 40%~100%
Avg. stockout rate 1%~2% 10%~40%
Avg. forced season- 0% 10%~25%
end markdown

2^nd Step:
Determin Structure of the Supply Chain
Supply Chain Strategy Fitting

Factors related to Respondsiveness v.s. Efficiency
Responsiveness Efficiency
Primary Purpose Respond quickly Lowest possible cost
Manuf. Focus Deploy excess capacity High utilization
Inventory Strategy Deploy significant Generate high tums
Buffer or safety stock
Lead time Focus Invest in order to decrease Shorten if no cost increase
Supplier Selection Speed, Flexibility, Quality Price and Quality
Product Desigh Modular Design Minimize Cost, High
Postponement Performance

Example
Supply Chain Types & Design Requirements

3^rd Step:Positioning your supply chain

Functional Products Innovative Products
Efficiency Supply Chain Match Mismatch
Responsive Supply Chain Mismatch Match

Other Supply Chain Design Factors

Supply chain network design (1)

(Ex.) National Semiconductor’s facility network:
Production:
Produces chips in six different locations: four in the US, one in Britain and one in Israel. Chips are shipped to seven assembly locations in Southeast Asia.
Distribution:
The final product is shipped to hundreds of facilities all over the world.
20,000 different routes, 12 different airlines are involved, 95% of the products are delivered within 45 days, 5% are delivered within 90 days.

Cost – Responsiveness Efficiency Frontier

Supply chain network design (2)
Logistics Cost related Trade-offs

Supply chain network design(3)
Logistics Costs and Required Respones Time

Supply chain integration (1)

Integration involves:
◆ Functional Integration (of purchasing, manufacturing, transportation, warehousing)
◆ Spatial Integration (across geographically dispersed vendors, facilities, markets)
◆ Hierarchical Planning (coherence and consistency among overlapping supply chain decisions at various levels of planning)

Supply chain integration (2)
Process integration : Cycle view

Supply chain integration (3)

Information Sharing & Decision support
Need for information technology & system
Intra-firm information systems;
Warehouse management systems;
Transportation management systems;
Intranet/Extranet;
MRP/ERP systems;
CRM systems.
MRP: material requirement planning, ERP: enterprise resource planning, CRM: customer relationship management.

Decision making in supply chain (1)
◆ Strategic level decision – (long term)
Location, capacity, new product development, technology management, modes of transportation.
Scale: Years.
◆ Tactical level decision – (medium term)
Inventory policies, distribution channel, resource and product allocation, subcontracting, promotion.
Scale: Month – year.
◆ Operational level decision – (short term)
Scheduling, vehicle assignments and routing, sourcing and production orders.
Scale: Minute, hour and days.

Decision making in supply chain (2)

Information system in SCM
◆ Plan driven production management
(1) Master planning system MPS
(2) Material requirement planning MRP
(3) Capacity requirement plaining CRP

◆ Demand driven production management
(1) Forecast / Demand planning
(2) Distribution requirement planning DRP
(3) Production planning & scheduling
(4) Fulfilment planning

Supply chain management function MAP

Information system fuction MAP

Supply chain collaboration

□ Cometitive model
Cost in chain are assumed fixed, and manufacturer and retailer compete through price negotiation
□ Cooperative model
Cooperate to cut costs throughout the chain. Each company in the SC, has a part in the establishment of the price, quality and customer satisfaction aspects.
□ Inter-and intra-company integration is essential.
□ Building synergies by integrating business functions, departments and companies.

Internet – Enabled suppy chain

Business to business (B2B)
Product ordering
Sharing product information
Creating display space
Defining customer information
Co-developing products
Business to customer (B2C)
Sharing packing, shipping, inventory, product movement trends and forecasts with the supply chain partners.

Continuous…

Category of industry (or products) that especially needs SCM
1) many sort and small amount production
2) products which need wide area logistic networks
3) large temporal fluctuation of demand change
4) short lifecycle products

Types of Supply Chains

(1) Push vs. Pull

A simple supply chain
A——-B A: Manufacturer B: Finished Goods Inventory (FGI) Buffer

Push system: Completed A products are sent (pushed) to B regardless of system condition.
Pull system: Removal of a product from the finished goods buffer signals the execution of inventory change, and trigger the execution of supply from A.

The production and distribution decisions with Push or Pull strategies
◆ Push supply chains:
Long term forecasts
More time to react to changing market place
Bullwhip effect
◆ Pull supply chains:
Demand driven
Elimination of inventory, reduction of bullwhip effect and increased service levels
Difficult to keep service level for longer lead time

Bullwhip Effect in push type SCM

Procter and Gamble, manufacturers Pampers
The supply chain for Pampers is broadly as follows:

Suppliers—Manufacture—Distributer—Retailer—Customer
The following demand curves are observed in PG’s supply chain:

Production Distribution Models

Push-Pull Supply Chain:
Hybrid of the Push & Pull systems
Initial stages – Push-based strategy
Final stages – Pull-based strategy
The push part – where long-term forecasts have small uncertainty and variability.
The pull part – where uncertainty and variability are high

Types of Supply Chains (2)

Lean supply chain (LSC):
Lean supply chain employs lean production and time compression in paralled. Not adapatable to future market requirements.

Agile supply chain (ASC):
Agile supply chain responds to unpredictable market changes and capitalizes on them and exploits a dynamic type of alliance known as a “virtual organization”. A virtual organization is the integration of core competencies distributed among a number of carefully chosen but real organizations.

Hybrid supply chain (HSC):
A hybrid supply chain helps to achieve mass customization by postponing product differentiation until final assembly. The lean supply chain is utilized for component productions. The agile part of the chain establishes a company-market interface to understand and satisfy requirements by being responsive and innovative.

What Makes SCM Difficult?

◆ Variations Over Time
Environment changes over time
◆Conflicts
Achieving Global Optiimization vs. Local Optimization
Minimizing the cost and maximizing the service level is frequently a difficult task for a single facility. SCM tries to optimize these globally.
◆ Uncertainty
Customer demand can never be forecasted exactlly, travel times will never be certain, machines and vehicles will breakdown.

Variations Over Time
Supply Chain evolves over time.
Customer demand and supplier capatilities change over time. Cumstomer-supplier relationship changes over time (customer power increases, …etc.)
Seasonality
Competitors pricing strategies
Advertising and Promotions
Promotions destroy the simplicity of a predictable demand for a good product at a reasonable price.

Conflicting Objectives in the Supply Chain

1. Puurchasing
◆ Stable volume requirements
◆ Flexible delivery time
◆ Little variation in mix
◆ Large quantities

2. Manufacturing
◆ Long run production
◆ High quality
◆ High productivity
◆ Low production cost

3. Warehousing
◆ Low inventory
◆ Reduced transportation costs
◆ Quick replenishment capability

4. Customers
◆ Short order lead time
◆ High in stock
◆ Enormous variety of products
◆ Low prices

Uncertainty (examples)
Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them.
Boeing Aircraft, one of America’s leading capital goods producers, was forced to announce write downs of $2.6 billion in October 1997. The reason? “Raw material shortages, internal and supplier parts shortages…” (Wall Street Journal, Oct. 23. 1997)

Uncertainty in Supply Chain
◆ Demand uncertainty: uncertainty of customer demand for a product
◆ Implied demand uncertainty:
the uncertainty that exists due to the portion of the demand the supply chain must handle and attributes the customer desires.
ex.) Firms, which sell same products to different customer segments who have different attributes face a different implied demand uncertainty (parts for manufacturing or maintenance, personal use or business use, etc.)

Impact of Customer Needs on Demand Uncertainty

Supply Chain Challenges

Achieving Global Optimization under:
Conflicting Objectives
Complex network of factilities
System Variations over time

Managing Uncertainty
Matching Supply and Demand
Demand is not the only source of uncertainty (delivery lead times, component availability, machine breakdowns, natural disasters…etc.)

Global competition is not between the companies but between the supply chains.

Supply Chain Management Network:
SCM network includes all the companies involved in all the upstream and downstream flows of products, services, finances, and information from the initial supplier to the ultimate customer.

SCM network includes:
Raw material and semi-finished products suppliers, distributors and warehouses, manufacturing centers, consumers.

Main processes in Supply Chain:
*Production planning & inventory control
*Distribution and logistics

Supply chain value(supply chain profitability) is difference between revenue generated from the customer and the overall cost across the supply chain

Supply Chain Costs:
Acquisition, storage, transportation, repair, maintenance, production operation, information, salvage/resale, disposal, recycle, etc.

Supply Chain Management Objectives
*Minimize the cost and making profits while keeping a reasonable service level customer satisfaction/quility/on time delivery,etc.
*Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufactures, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements.

Logistics VS. Supply Chain Management
Logistics Management
Logistics is that part of the supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from point of origin to point of consumption in order to meet a customer’s requirments.[Council of Logistics Management, 1998]
Supply Chain Management
Supply chain management is the integration of key business processes from end user through original suppliers, that provides products, services, and information that add value for customers and other stakeholders.[Global Supply Chain Forum, 1998]

Global optimum in major decisions in:
Process & information system development, structuring the distribution networks, price policies, procurement policies, production planning, performance evaluation..etc.