objectives of chapters1, 2, 3 - al akhawayn universitya.berrado/mgt5309/mgt5309_ch03.pdf ·...

3-1© 2007 Pearson Education

Objectives of Chapters1, 2, 3

�Building a Strategic Framework to Analyze a SC: (Ch1,2,3)

– Ch1�Define SC, expresses correlation between SC decisions and a firms performance.

– Ch2� Relationship between SC strategy and Competitive strategy, and the concept of strategic fit,

– Ch3�SC drivers and performance metrics

© 2007 Pearson Education 3-2

Chapter 3

Supply Chain Drivers and Metrics

Supply Chain Management(3rd Edition)


Outline

�Drivers of supply chain performance

�A framework for structuring drivers

�Facilities

�Inventory

�Transportation

�Information

�Sourcing

�Pricing

�Obstacles to achieving fit


Drivers of Supply Chain Performance

�Three logistical drivers:

– Facilities

» places where inventory is stored, assembled, or fabricated

» Two major types: production sites and storage sites

» Decision regarding their role, location, capacity and flexibility have to be made

– Inventory

» raw materials, WIP, finished goods within a supply chain

» inventory policies have to be decided

– Transportation

» moving inventory from point to point in a supply chain

» Many combinations of transportation modes and routes



�Three cross-functional drivers:

– Information

» data and analysis regarding inventory, transportation, facilities throughout the supply chain

» potentially the biggest driver of supply chain performance

– Sourcing

» functions a firm performs and functions that are outsourced

– Pricing

» Price associated with goods and services provided by a firm to the supply chain

» Affect the behavior of the buyer



�Cross-functional drivers have become more

important in increasing the SC surplus.

�These drivers do not act independently but interact

with each other to determine the overall SC

performance.

�Drivers have to be structured appropriately to provide

the desired level of responsiveness/efficiency.


A Framework for

Structuring Drivers

Com petitive Strategy

Supply Chain

Strategy

Efficiency Responsiveness

Facilities Inventory Transportation

Information

Supply chain structure

Cross Functional Drivers

Sourcing Pricing

Logistical Drivers


Facilities

�Role in the supply chain

�Role in the competitive strategy

�Components of facilities decisions


Facilities


– the “where” of the supply chain

– Location to and from which inventory is transported

– manufacturing or storage (warehouses)


– economies of scale (efficiency priority)

– larger number of smaller facilities (responsiveness priority)

�Example 3.1: Toyota and Honda


Components of Facilities Decisions

�Role

– Production facilities: Flexible vs. dedicated, Product focused vs. functional focused.

– Warehouses and DCs: Cross-docking vs. Storage facilities

�Location

– centralization (efficiency) vs. decentralization (responsiveness)

– other factors to consider (e.g., macroeconomic factors, quality of workers, cost of facility, availability of infrastructure, tax effects…)

�Capacity (flexibility versus efficiency)

�Overall trade-off: Responsiveness versus efficiency


Inventory



�Components of inventory decisions


Inventory: Role in the Supply Chain

�Inventory exists because of a mismatch between

supply and demand

�Source of cost and influence on responsiveness

�Impact on

– material flow time: time elapsed between when material

enters the supply chain to when it exits the supply chain

– throughput

» rate at which sales to end consumers occur

» I = DT (Little’s Law)

» I = inventory; D = throughput; T = flow time

» Example

» Inventory and flow time are “synonymous” in a supply chain


Inventory: Role in Competitive

Strategy

�If responsiveness is a strategic competitive priority, a

firm can locate larger amounts of inventory closer to

customers

�If cost is more important, inventory can be reduced to

make the firm more efficient

�Trade-off

�Example 3.2 – Nordstrom


Components of Inventory

Decisions

� Cycle inventory– Average amount of inventory used to satisfy demand between shipments

– Depends on lot size

– Trade-off between ordering cost and cost of holding large inventory.

� Safety inventory– inventory held in case demand exceeds expectations, to counter uncertainty.

– costs of carrying too much inventory versus cost of losing sales

� Seasonal inventory– inventory built up to counter predictable variability in demand

– cost of carrying additional inventory versus cost of flexible production

� Level of Product Availability– Fraction of demand that is served on time from product held in inventory

� Overall trade-off: Responsiveness versus efficiency– more inventory: greater responsiveness but greater cost

– less inventory: lower cost but lower responsiveness


Transportation



�Components of transportation decisions


Transportation: Role in

the Supply Chain

�Moves the product between stages in the supply chain

�Impact on responsiveness and efficiency

�Faster transportation allows greater responsiveness

but lower efficiency

�Also affects inventory and facilities

�Dell example


Transportation:

Role in the Competitive Strategy

�If responsiveness is a strategic competitive priority,

then faster transportation modes can provide greater

responsiveness to customers who are willing to pay

for it

�Can also use slower transportation modes for

customers whose priority is price (cost)

�Can also consider both inventory and transportation to

find the right balance

�Example 3.3: Laura Ashley


Components of

Transportation Decisions

�Mode of transportation selection

– air, truck, rail, ship, pipeline, electronic transportation

– vary in cost, speed, size of shipment, flexibility

�Route and network design

– network: collection of transportation modes, locations and routes

– route: path along which a product is shipped

– Direct supply vs. intermediate consolidation points

– Supply and Design points to be included in a single run

– Set of transportation modes to be used

� In-house or outsource



Information



�Components of information decisions


Information: Role in

the Supply Chain

�The connection between the various stages in the

supply chain – allows coordination between stages

�Crucial to daily operation of each stage in a supply

chain – e.g., production scheduling system, warehouse

mgt system


Information:


�Allows supply chain to become more efficient and

more responsive at the same time (reduces the need

for a trade-off)

�Information technology

�What information is most valuable?

�Example 3.5: Dell


Components of Information

Decisions

�Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain)

�Coordination and information sharing

�Forecasting and aggregate planning

�Enabling technologies– EDI– Standards to electronically exchange info between and within

businesses

– Internet communication between and within stages of the SC

– ERP systems—real time transactional tracking within and across SC stages

– Supply Chain Management software—Analytical decision support of information from ERP

– RFID–a RF tag applied to items for tracking



Sourcing



�Components of sourcing decisions


Sourcing: Role in

the Supply Chain

�Set of business processes required to purchase goods

and services in a supply chain

�Supplier selection, single vs. multiple suppliers,

selection criteria, contract negotiation


Sourcing:


�Sourcing decisions are crucial because they affect the

level of efficiency and responsiveness in a supply

chain

�In-house vs. outsource decisions- improving

efficiency and responsiveness

�Example 3.6: Cisco


Components of Sourcing

Decisions

�In-house versus outsource decisions

�Supplier evaluation, selection and negotiation

�Procurement process

�Overall trade-off: Increase the supply chain profits

with little risk


Pricing



�Components of pricing decisions


Pricing: Role in

the Supply Chain

�Pricing determines the amount to charge customers

for goods and services

�Pricing strategies can be used to match demand and

supply

�Pricing affects significantly the level and type of

demand that the SC will face.


Sourcing:


�Firms can utilize optimal pricing strategies to improve

efficiency and responsiveness

�Low and steady price and low product availability;

varying prices by response times

�Example 3.7: Amazon


Components of Pricing Decisions

�Pricing and economies of scale

�Everyday low pricing versus high-low pricing

�Fixed price versus menu pricing

�Overall trade-off: Increase the firm profits


Wal-Mart Example

�Competitive strategy: Wal-Mart aims to be a reliable, low-cost retailer for a wide variety of mass-consumption goods.

� SC strategy: Efficiency with an adequate level of responsiveness.

� Inventory: low level of inventory through cross-docking �efficiency

� Transportation: Wal-Mart runs its own fleet� responsiveness.

� Facilities: Centrally located DCs within its network of stores�Efficiency.

� Information: Large investment to share information across the SCall the way to the suppliers� Responsiveness and Efficiency.

� Sourcing: Different sources for different product � Efficiency through economies of scale.

� Pricing: EDLP� Low variability in demand, enable efficiency.


Obstacles to Achieving

Strategic Fit

�Increasing variety of products

�Decreasing product life cycles

�Increasingly demanding customers

�Fragmentation of supply chain ownership

�Globalization

�Difficulty executing new strategies


Summary

�What are the major drivers of supply chain

performance?

�What is the role of each driver in creating strategic fit

between supply chain strategy and competitive strategy

(or between implied demand uncertainty and supply

chain responsiveness)?

�What are the major obstacles to achieving strategic fit?

�In the remainder of the course, we will learn how to

make decisions with respect to these drivers in order to

achieve strategic fit and surmount these obstacles


Case Study: Seven-Eleven Japan Co.

1. A CONVENIENCE STORE CHAIN ATTEMPTS TO BE RESPONSIVE AND PROVIDE CUSTOMERS WHAT THEY NEED, WHEN THEY NEED IT, WHERE THEY NEED IT. WHAT ARE SOME DIFFERENT WAYS THAT A CONVENIENCE STORE SUPPLY CHAIN CAN BE RESPONSIVE? WHAT ARE SOME RISKS IN EACH CASE?

2. SEVEN-ELEVEN'S SUPPLY CHAIN STRATEGY IN JAPAN CAN BE DESCRIBED AS ATTEMPTING TO MICRO-MATCH SUPPLY AND DEMAND USING RAPID REPLENISHMENT. WHAT ARE SOME RISKS ASSOCIATED WITH THIS CHOICE?

3. WHAT HAS SEVEN-ELEVEN DONE IN ITS CHOICE OF FACILITY LOCATION, INVENTORY MANAGEMENT, TRANSPORTATION, AND INFORMATION INFRASTRUCTURE TO DEVELOP CAPABILITIES THAT SUPPORT ITS SUPPLY CHAIN STRATEGY IN JAPAN?


Case Study: Seven-Eleven Japan Co.

4. SEVEN-ELEVEN DOES NOT ALLOW DIRECT STORE DELIVERY IN JAPAN, WITH ALL PRODUCTS FLOWING THROUGH ITS DISTRIBUTION CENTER. WHAT BENEFIT DOES SEVEN-ELEVEN DERIVE FROM THIS POLICY? WHEN IS DIRECT STORE DELIVERY MORE APPROPRIATE?

5. WHAT DO YOU THINK ABOUT THE 7DREAM CONCEPT FOR SEVEN-ELEVEN JAPAN? FROM A SUPPLY CHAIN PERSPECTIVE IS IT LIKELY TO BE MORE SUCCESSFUL IN JAPAN OR THE UNITED STATES? WHY?

6. SEVEN-ELEVEN IS ATTEMPTING TO DUPLICATE THEIR SUCCESSFUL JAPANESE SUPPLY CHAIN STRUCTURE IN THE UNITED STATES WITH THE INTRODUCTION OF CDCS. WHAT ARE THE PROS AND CONS OF THIS APPROACH? KEEP IN MIND THAT STORES ARE ALSO REPLENISHED BY WHOLESALERS AND DSD BY MANUFACTURERS.

7. THE UNITED STATES HAS FOOD SERVICE DISTRIBUTORS LIKE MCLANE THATALSO REPLENISH CONVENIENCE STORES. WHAT ARE THE PROS AND CONS TOHAVING A DISTRIBUTOR REPLENISH CONVENIENCE STORES VERSUS A COMPANY LIKE SEVEN-ELEVEN MANAGING ITS OWN DISTRIBUTION FUNCTION?

objectives of chapters1, 2, 3 - al akhawayn universitya.berrado/mgt5309/mgt5309_ch03.pdf ·...

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