supply chain management final – Flashcards
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two fundamental distribution strategies
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- Items can be directly shipped from the supplier or manufacturer to the retail stores or end customer - Use intermediate inventory storage points (typically warehouses and/or distribution centers)
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Choice of strategy depends on
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- Costs of warehousing and transportation - Inventory turnover raters (volume) - Service level requirements - Level of coordination between supply chain entities (centralized vs. de-centralized)
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Functions of warehouses
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- Transportation consolidation - Product mixing - Cross-docking - Service - Protection against contingencies - Production smoothing
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Direct shipment distribution advantages and disadvantages
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Advantages: - Retailer avoids the cost of operating a distribution center - Lead times are reduced Disadvantages: - Risk-pooling effects are negated - Manufacturer and distributor transportation costs increase
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Commonly used scenarios for inventory
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- Retail store requires fully loaded trucks - Often mandated by powerful retailers - Lead time is critical - Manufacturer may be reluctant but may have no choice - Prevalent in the grocery industry o Lead times are critical because of perishable goods
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Traditional warehousing strategy
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o Distribution centers and warehouses hold all inventory o Provide downstream customers with inventory as needed
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Cross-docking strategy
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o Warehouses and distribution centers serve as transfer points for inventory o No inventory is held at these transfer points
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Centralized pooling and transshipment strategies
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o May be useful when there is a large variety of different products
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Cross-docking
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- Popularized by Wal-Mart - Warehouses function as inventory coordination points rather than as inventory storage points - Goods arriving at warehouses from the manufacturer o Are transferred to vehicles serving the retailers o Are delivered to the retailers as rapidly as possible - Good spend very little time in storage at the warehouse o Often less than 8 hours o Limits inventory costs and decreases lead times
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decentralized system
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- Each facility identifies its most effective strategy without considering the impact on the other facilities in the supply chain - Leads to local optimization
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centralized system
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- Decisions are made at a central location for the entire supply network - Typical objective: minimize the total cost of the system subject to satisfying some service-level requirements - Centralized control leads to global optimization - At least as effective as the decentralized system - Coordination strategies
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if system cannot be centralized
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- Often helpful to form partnerships to approach the advantages of a centralized system
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Customer service
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- If the customer arrives at a store and does not find the item they want: o Switches to another retailer o This only helps the manufacturer - No impact on the centralized system
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customer service in a de-centralized system
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o If a dealer knows its competitors do not keep enough inventory: Retailer will raise the inventory level o If a dealer knows that its competitor has significant inventory: Retailer will reduce its inventory level Retailer won't see customers who switch o Dealer's strategy depends on its competitor's strategy
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Transshipment
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- Shipment of items between different facilities at the same level in the supply chain to meet some immediate need: o Occurs mostly at the retail level o Retailers with different owners may not want to do transshipments o Distributor integration strategies may be adopted
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How transshipment is achieved
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o With advanced information systems o Shipping costs are reasonable o Retailers have same owner
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Performance management
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monitoring, controlling, directing ... allows for competitive benchmarking
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Balanced scorecard
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financial performance, operational performance, innovation and learning, and customer service / accommodation
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Outputs that influence customer service
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o Product availability o Order cycle time o Logistics responsiveness o Logistics system information o After-sale logistics support
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a perfect order
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o Is delivered complete o Is delivered to customer's required time frame o Has all the required and accurate documentation o Is in perfect condition
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operational performance - time
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- Order cycle time - On-time delivery - Response time - Forecasting cycle time
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operational performance - quality
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- Order processing accuracy - Correct shipments - Perfect order fulfillment - Overall customer satisfaction
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operational performance - asset management
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- Return on equity - Return on assets - Inventory holdings or turnover
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supply chain performance metrics
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-cash-to-cash cycle time - inventory day of supply -total order cycle time
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cash-to-cash cycle time
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a. Cash-to-cash = total inventory days of supply + days sales b. Outstanding - days payables outstanding
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inventory days of supply
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a. Total inventory in the supply chain "relationship" b. Calendar days of supply based on forecasted rate of sales c. Inventory days' supply = quarter year average inventory / quarter year daily average goods sold
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total order cycle time
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a. The average actual time from customer order placement to acceptable receipt by the customer
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total supply chain costs
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order fulfillment + material acquisition + inventory holding + logistics related information systems + logistics related finance support + production
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total landed cost
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- The cost to produce and deliver one product will cost X-amount, which is a proportion of the total supply chain cost - The X-amount is used by the customer to decide between our product and the products of our competitors
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sales to cost savings relationship
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- There are two functional ways to increase profit: o Increase sales OR decrease costs - The smaller the profit margin, the greater the volume sales required to increase profit
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Financial performance
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- The typical/traditional accounting system uses: o Gross sales, gross margin and net profit (before and after taxes) - These measure were developed for the purpose of reporting to shareholders rather than managerial concern - Provides a measure of revenue and cost at an aggregate level with potential for managerial insight - Provides misleading or non-useful information from operations perspective - Does not factor in differences in costs between products or customers
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strategic profit model
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- Shows the relationship between asset management, margin management, and financial leverage - Highlights key decision making areas - Shows impact on ROA of different strategies - Also known as the DuPont Model - Return on assets as a key indicator - ROA = Profit margin x asset turnover = return on assets
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Social and environmental performance
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- More and more firms looking to include performance metrics for social and environmental indicators - Most performance metrics for these types of indicators are developed in-firm - ISO 14000 and 20121 established as international standards - Companies need to manage social and environmental performance both internally and externally (with suppliers and customers) - Triple Bottom Line gaining popularity for firms to report
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market globalization
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o One fifth of the US firm's output produced overseas o Since the late 1980's, over half of U.S. companies increased the number of countries in which they operate
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advanced economies
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o Requiring increasing use of B2B information technology
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developing economies
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o Requiring increasing basic products and services o Becoming global competitors o Tax laws, Free Trade Agreements and Incentives
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types of international supply chain
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-international distribution - international suppliers - off-shore manufacturing - fully integrate global supply chain
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- International distribution
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o Manufacturing domestically - distribution and (some) marketing overseas
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international suppliers
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o Raw materials / components from foreign suppliers - manufacturing domestic (finished good could then be shipped overseas)
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off-shore manufacturing
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o Product sourced and manufactured in a single overseas location - shipped back to domestic warehouses for local distribution
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fully integrate global supply chain
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o Products supplied, manufactured and distributed from multiple facilities located around the world
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Global market forces
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competitive pressures and opportunities o Foreign competition in local markets o Growth in international demand for international product o Global presence as a defensive tool Nestle and Kellogg's o Presence in state-of-the-art markets Japan - consumer electronics Germany - machine tools US - suv's
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technological forces
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tech availability, shorten tech transfer time and take advantage of local expertise
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diffusion of knowledge
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Many high tech components developed overseas Need close relationships with foreign suppliers
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technology sharing / collaboration
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Access to technology / markets Global location of R&D facilities Close to production (as product life cycles get shorter) Close to expertise (ex - Indian programmers)
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Global cost forces
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o Labor cost: diminishing importance (costs underestimated, benefits overestimated_ o Other cost priorities: Integrated supplier infrastructure Skilled labor Capital intensive facilities Tax break o Joint ventures o Cost sharing with government entities
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Political and economic forces
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currency, tariffs, local content requirements o Exchange rate fluctuations and operating flexibility o Regional trade agreements (Europe, North America, Pacific Rim) o Trade protection mechanisms Japanese automakers in US Local content requirements Health / environmental regulations Agricultural subsidies (for example)
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Advantages of global supply
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- Standardized products: o Economies of scale - Lower costs - Potential sources of raw materials, labor, outsourcing, manufacturing options, etc. - Increased access to new markets o Through increasing the size and scope of the supply chain - Flexibility: provide (potentially) the flexibility to cope with the uncertainty of international markets
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Risk of international supply chain
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1. Substantial geographic distances a. Logistics networks stretched b. Lead time implications 2. Added forecasting difficulties a. Aggregation of demand becomes more difficult b. Qualitative knowledge of markets limited 3. Infrastructural inadequacies a. Worker skill, performance expectations b. Supplier availability, reliability, contracts c. Lack of local technologies and utilities d. Inadequacies in transportation, communications infrastructure 4. Exchange rate uncertainties a. Can affect selling price, costs of inputs, relative cost of inputs vs. outputs 5. Cultural differences a. Local rules b. Attitudes to work 6. Political issues a. Tariffs and tax rates b. Levels of government control c. Stability of political systems and processes 7. Added competition "at home" a. Entry into other markets can attract competition at home
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Managing the unknown-unknown
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- Create redundancy - Increase velocity in sensing and responding - Create an adaptive supply chain
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Speculative strategies
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"Put it all in red"
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Hedge strategies
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o Losses in one part of the supply chain will be offset by gains elsewhere o A supply chain that can be simultaneously successful in one location and unsuccessful in others o At different times some plants will be more successful than others
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Flexible strategies
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o Multiple suppliers and excess manufacturing capacity in different countries o Products can be moved from region to region based on changes in economic conditions (Design)
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Region-specific products
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o Some products have to be designed and manufactured specifically for certain regions o Example: automobile designs Honda accord has two basic body styles • A smaller body style tailored to European and Japanese tastes • A larger body style catering to American tastes Nissan designates lead-country status to every model • Pathfinder and Maxima had US as the lead-country
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global products
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o Truly global means no modification necessary for global sales: Coca-cola Levi Jeans Luxury brands such as Gucci
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Expectations for regional business depend on the characteristics of the region involved
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o Language Expressions, gestures, and context o Beliefs, or specific values about something Can differ widely from culture to culture o Customs Vary greatly from country to country Local customers are always important
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Performance expectations
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- Operating standards in developed economies uniform - Operating standards vary greatly in emerging nations o Research and negotiations required o Governments usually play a large role - In emerging economies traditional performance measures may have no meaning o Customer service measures used in the West are irrelevant o A firm has little control of the timing and availability of product Ex) Walmart in South America
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Environmental impacts in supply chain
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o Raw material suppliers Agriculture, mining and refining, electricity generation, chemicals o Manufacturers Chemicals, metal pressing, plastics, widgets, waste o Customers (assemblers or consumers) Returned goods (obsolete, defective, part of a take-back scheme) End-of life waste (computers, cars, white-goods) Post-consumer waste (coffee cups, general rubbish, plastics, etc.) o Transportation Air pollution, shipping accidents, fuel consumption o Warehouses - limited impact o Retailers - limited impact Energy, water, paper, space, etc.
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Manufacturing and environmental impacts
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- Largest consumer of energy, water, and raw materials - Large producer of air and water emissions and waste to landfill - Around 60% of the total waste produced in OECD countries arises from manufacturing industries - Hazardous wastes o Controlled by law in most countries o By-products of manufacturing and industrial processes or discarded commercial products such as pesticides or cleaning products - Non-hazardous wastes o All other benign wastes or unused and discarded materials - Volumes of non-hazardous wastes produced annually far exceeds the volume of hazardous wastes produced across all countries
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Procurement and outsourcing impacts
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- Application of mass production principles within natural systems unable to accommodate it - Forcing suppliers to cut costs over protection of nature and people - Relying on less stringent legislation in less developed countries (poor control of emission points in factories is leading to pollution of land, water, and air o Example: Past - Union Carbide and Bhopal Recent - Walmart and Chilean salmon
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Transportation impacts
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- Use of faster transportation or frequent trips produces a greater load of air pollution and fuell usage - As supply chains reduce inventory and rely more on direct shipping, transportation impacts increase - Air pollution o NOx and Sox = smog, CO2 = greenhouse effect, diesel = particulates o Water-based transport contributes the lowest air pollution impact her mile, then rail, then road, the air - Fuel consumption o Water-based transport consumes the lowest intensity of fuel consumption per mile, then rail, then road, then air
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End-of-life or post-consumer waste
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- Decreasing landfill space and available land for new landfills - Dumping of excess products in developing countries (computers can contain dangerous and hazardous materials) - Dumping of waste in rivers and on land - Represents a waste of valuable resources
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ONE OF FOUR MAIN STRATEGIES TO CHOOSE FROM
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- Reverse logistics and recycling: retrieve end-of-life waste or goods and add value - Risk management: requiring suppliers to reduce their environmental impact through the power of purchasing - Cost reduction: using cleaner or more efficient practices in all operations - Innovation: producing new types of environmentally sound or "green" products and services
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- Products can become part of either a "take-back" or recycling scheme:
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o Products are either 1. Dumped by the consumer at the landfill 2. Recycled by the consumer and picked up by municipal waste collection 3. Returned by the consumer to a designated collection point o Third option is the most valuable
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- Increasing practice because of changes in:
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o End-of-life and packaging disposal legislation o Consumer awareness and expectations o Growing use of leasing rather than buying o Product returns, recalls, and take-back schemes
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- Barriers to improvements
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o Lack of financial viability o Lack of available returns providers and infrastructure to hold goods (no dedicated warehouse space) o Lack of company motivation o Distribution costs often several times higher than moving the original product in the forward direction
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Manufacturing and production solutions:
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- Inventory reduction - Just-in-time manufacturing - Energy use reduction or heat-capture/recycling - Often referred to as "lean and green' manufacturing o Toyota motor corporation o Boeing o Most prevalent in manufacturing firms
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TRANSPORTATION IMPACT SOLUTIONS
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- Optimization based around fuel economies - virgin airlines - Greater use of fuel efficient technologies - Fedex - New York City's first mini-fleet of hybrid taxicabs - the Ford Escape Hybrids o A New York taxi averages nearly 100,000 miles of driving annually o Fuel savings from the hybrid technology will recover the cost of technology within 1 year on the road o Was driven by rising fuel prices
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PROCUREMENT AND OUTSOURCING SOLUTIONS
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- Procurement is a critical function for generating change in the supply chain - Companies can introduce: o Risk management based or customer-driven solutions o Purchasing partnerships to create efficiencies and learning - If a major customer (Walmart) can influence process improvement why not also environmental problems? - Examples: o Starbuck's responsible sourcing guideline o Ford motor company's supplier requirement to certify to ISO14001 o Toyota's supplier environmental management system o Ben and Jerry ice-cream
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public-private
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- Responsible care - Equator principles - USDA organic - LEED - Forest Stewardship Council - ISO 14001
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private
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- Starbucks responsible sourcing - Home Depot - Whole foods animal welfare rating - Toyota EMS
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innovation
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- Complex type of strategy - Requires sustainability to be incorporated into product and process design - May involve the generation of protected IP and patents o Seventh generation o Toyota Prius o Organic Products o Bio-fuels o Technologies
