8/25/00s.chopra/logistics strategy1 a strategic framework for supply chain design, planning, and...
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8/25/00 S.Chopra/Logistics Strategy 1
A Strategic Framework for Supply Chain Design, Planning, and
Operation
8/25/00 S.Chopra/Logistics Strategy 2
Outline
What is supply chain management? A supply chain strategy framework
8/25/00 S.Chopra/Logistics Strategy 3
Traditional View: Logistics in the Economy (1990, 1996)
Freight Transportation $352, $455 Billion Inventory Expense $221, $311 Billion Administrative Expense$27, $31 Billion Logistics related activity 11%, 10.5% of GNP.
Source: Cass Logistics
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Traditional View: Logistics in the Manufacturing Firm
Profit 4%
Logistics Cost 21%
Marketing Cost 27%
Manufacturing Cost 48%
Profit
Logistics Cost
Marketing Cost
Manufacturing Cost
8/25/00 S.Chopra/Logistics Strategy 5
Supply Chain Management: The Magnitude in the Traditional View
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
Laura Ashley turns its inventory 10 times a year, five times faster than 3 years ago
8/25/00 S.Chopra/Logistics Strategy 6
Supply Chain Management: The True Magnitude
Compaq estimates it lost $0.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed
When the 1 gig processor was introduced by AMD, the price of the 800 meg processor dropped by 30%
P&G estimates it saved retail customers $65 million by collaboration resulting in a better match of supply and demand
8/25/00 S.Chopra/Logistics Strategy 7
What is a supply chain?
Customer wantsdetergent and goes
to Jewel
Customer wantsdetergent and goes
to Jewel
JewelSupermarket
JewelSupermarket
Jewel or thirdparty DC
Jewel or thirdparty DC
P&G or othermanufacturerP&G or othermanufacturer
PlasticProducer
PlasticProducer
Chemicalmanufacturer
(e.g. Oil Company)
Chemicalmanufacturer
(e.g. Oil Company)
TennecoPackagingTenneco
Packaging
Paper Manufacturer
Paper Manufacturer
TimberIndustryTimber
Industry
Chemicalmanufacturer
(e.g. Oil Company)
Chemicalmanufacturer
(e.g. Oil Company)
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Flows in a Supply Chain
Customer
Information
Product
Funds
8/25/00 S.Chopra/Logistics Strategy 9
Cycle View of Supply Chains
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier
8/25/00 S.Chopra/Logistics Strategy 10
Push/Pull View of Supply Chains
Procurement,Manufacturing andReplenishment cycles
Customer OrderCycle
CustomerOrder Arrives
PUSH PROCESSES PULL PROCESSES
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Examples of Supply Chains
Dell / Compaq Toyota / GM / Ford McMaster Carr / W.W. Grainger Amazon / Borders / Barnes and Noble Webvan / Peapod / Jewel
What are some key issues in these supply chains?
8/25/00 S.Chopra/Logistics Strategy 12
What is Supply Chain Management?
Managing supply chain flows and assets, to maximize
supply chain surplus.
What is supply chain surplus?
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The Value Chain: Linking Supply Chain and Business Strategy
NewProduct
Development
Marketingand
Sales Operations Distribution Service
Finance, Accounting, Information Technology, Human Resources
Business Strategy
New ProductStrategy
MarketingStrategy Supply Chain Strategy
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Achieving Strategic Fit
Understanding the Customer– Lot size
– Response time
– Service level
– Product variety
– Price
– Innovation
ImpliedDemand
Uncertainty
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Levels of Implied Demand Uncertainty
Low High
Price Responsiveness
Customer Need
Implied Demand Uncertainty
DetergentLong lead time steel
High FashionEmergency steel
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Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier
High Low
Low
High
Responsiveness
Cost
8/25/00 S.Chopra/Logistics Strategy 17
Achieving Strategic Fit
Implied uncertainty spectrum
Responsive supply chain
Efficient supply chain
Certain demand
Uncertain demand
Responsiveness spectrum Zone o
f
Strateg
ic Fit
8/25/00 S.Chopra/Logistics Strategy 18
Strategic Scope
Suppliers Manufacturer Distributor Retailer Customer
Competitive Strategy
Product Dev. Strategy
Supply Chain Strategy
Marketing Strategy
8/25/00 S.Chopra/Logistics Strategy 19
Drivers of Supply Chain Performance
Efficiency Responsiveness
Inventory Transportation Facilities Information
Supply chain structure
Drivers
8/25/00 S.Chopra/Logistics Strategy 20
Considerations for Supply Chain Drivers
Driver Efficiency Responsiveness
Inventory Cost of holding Availability
Transportation Consolidation Speed
Facilities Consolidation /Dedicated
Proximity /Flexibility
Information What information is best suited foreach objective
8/25/00 S.Chopra/Logistics Strategy 21
Supply Chain Decisions: Structuring Drivers
Strategy(Design)
Planning
Operation
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Major Obstacles to Achieving Fit
Multiple owners / incentives in a supply chain
Increasing product variety / shrinking life cycles / customer fragmentation
Increasing implied uncertainty
Local optimization and lack of global fit
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Dealing with Multiple Owners / Local Optimization
Information Coordination
Contractual Coordination
8/25/00 S.Chopra/Logistics Strategy 24
Dealing with Product Variety: Mass Customization
MassCustomization
MassCustomization
High
HighLow
Low
Long
Short
Lea
d T
ime
Cost
Customizatio
n
8/25/00 S.Chopra/Logistics Strategy 25
Fragmentation of Markets and Product Variety
Are the requirements of all market segments served
identical?
Are the characteristics of all products identical?
Can a single supply chain structure be used for all
products / customers? No! A single supply chain
will fail different customers on efficiency or
responsiveness or both.
8/25/00 S.Chopra/Logistics Strategy 26
Tailored Logistics
Each Logistically Distinct Business (LDB) will have distinct requirements in terms of– Inventory
– Transportation
– Facility
– Information
Key: How to gain efficiencies while tailoring logistics?
8/25/00 S.Chopra/Logistics Strategy 27
Applying the Framework to e-commerce: What is e-commerce?
Commerce transacted over the Internet– Is product information displayed on the Internet?
– Is negotiation over the Internet?
– Is the order placed over the Internet?
– Is the order tracked over the Internet?
– Is the order fulfilled over the Internet?
– Is payment transacted over the Internet?
8/25/00 S.Chopra/Logistics Strategy 28
Existing Channels for Commerce
Product information – Physical stores, EDI, catalogs, face to face, …
Negotiation– Face to face, phone, fax, sealed bids, …
Order placement– Physical store, EDI, phone, fax, face to face, …
Order tracking– EDI, phone, fax, …
Order fulfillment– Customer pick up, physical delivery
8/25/00 S.Chopra/Logistics Strategy 29
Revenue Impact of E-Commerce
Length of supply chain Product information Time to market Negotiating prices and contract terms Order placement and tracking Order fulfillment Payment
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Cost Impact of E-Commerce
Facility costs– Site and processing cost
Inventory costs– Cycle, Safety, Seasonal inventory
Transportation costs– Inbound and outbound costs
Information sharing– Coordination
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