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MD 850: E-Service Operations Order Fulfillment and Forward Supply Chain Processes MD 850: E-Service Operations Order Fulfillment and Forward Supply Chain Processes

Agenda v Background v Order Fulfillment in e-Services v Supply Chains v v v Agenda v Background v Order Fulfillment in e-Services v Supply Chains v v v Supply Chain Components Supply Chain Problems Supply Chain Design Extending SCM Concepts to E-Services Supply Chain Modeling & Evaluation Supply Chain Technology v SCM Perspective on Li & Fung Case

Background v Competition is changing v Old: “Firm vs. Firm” v New: “Supply Chain Background v Competition is changing v Old: “Firm vs. Firm” v New: “Supply Chain vs. Supply Chain”

Background v Supply Chain v Concept of a “supply chain” is relatively new v Background v Supply Chain v Concept of a “supply chain” is relatively new v Prior to 1996, very few management or engineering schools had courses on supply chain management (SCM) v Previous “stumbling blocks” that impeded SC integration v high transaction costs between partners v poor information availability v challenges of managing complex interfaces between functional organizations

Background v Scope of Supply Chain Topics v Customer Facing & Internal v Customer Background v Scope of Supply Chain Topics v Customer Facing & Internal v Customer Value and SCM v Web-centric product design v Forecasting and inventory management in B 2 C v Order fulfillment and returns management in B 2 C

Background v Scope of Supply Chain Topics v Supplier Facing v Coordinated product design Background v Scope of Supply Chain Topics v Supplier Facing v Coordinated product design and supply chain design v Integration of supply chain planning and procurement v Logistics network configuration v Order fulfillment and returns management in B 2 B v Distribution strategies v Strategic alliances v Models for B 2 B exchanges v Auctions & analysis of auction properties

Background v Scope of Supply Chain Topics v IT Related v Information technology for Background v Scope of Supply Chain Topics v IT Related v Information technology for SCM v Decision Support Systems (DSS) for SCM v Web services: frameworks and technologies v v v Microsoft’s. NET technology Sun’s J 2 EE technology Open Source technologies

Order Fulfillment in e-Services Order Fulfillment in e-Services

Order Fulfillment in e-Services v Goals of customer care applications are simple v What Order Fulfillment in e-Services v Goals of customer care applications are simple v What do online shoppers want? (BCG) v v v Free delivery – 95% Free returns if I am unhappy with product – 91% Guaranteed delivery time – 75% Quicker delivery – 69% Site has a store located near me – 46% v “Proper fulfillment is whatever serves the customer best while preserving adequate profit margins to continue in business at a high level of customer satisfaction”

Order Fulfillment in e-Services v Designing and implementing customer care applications can be another Order Fulfillment in e-Services v Designing and implementing customer care applications can be another matter v Central problems v v v Enterprise information and customer information must be integrated into a unified whole New kinds of customer behavioral information must be captured and processed Customers and employees must share a common knowledge base v All organizational functions must have access to a consistent picture of the customer relationship

Order Fulfillment in e-Services v E-Fulfillment Processes (Bayles, 2001) v Notification Process v Acknowledgement Order Fulfillment in e-Services v E-Fulfillment Processes (Bayles, 2001) v Notification Process v Acknowledgement and confirmation v Instantaneous after purchase v Information fulfillment of digital service-product attributes v Low cost delivery of information v Instant gratification for customer v v Picking and Packing Delivery Reconciliation/settlement of credit card payment request Post-delivery activities that ensure customer satisfaction v Returns v Exchanges

Order Fulfillment in e-Services v Fulfillment Recommendations (e-Service, Chap. 8) v Build an order Order Fulfillment in e-Services v Fulfillment Recommendations (e-Service, Chap. 8) v Build an order confirmation system into your service process to ease customer worries v Grant customers online access to production order process and shipping data v Build (or outsource) warehouse, fulfillment, and product delivery chains that create as much customer contentment on the back end of your service process as on the front end v Focus on fast, efficient fulfillment v Shipping charges … v Probably don’t want to make them free v Perhaps free for … v Large purchase size above some dollar amount v Loyal, high-value customers v In-store pickup

Order Fulfillment in e-Services v Fulfillment Recommendations (e-Service, Chap. 8) v Integrate online bill Order Fulfillment in e-Services v Fulfillment Recommendations (e-Service, Chap. 8) v Integrate online bill payment into the fulfillment process v Return policies … make the return process as easy as the process for buying v Synchronize returns between digital and physical storefronts v Supply on-the-spot return authorization numbers v Be careful with using purchase information for permission marketing v Where possible, employ online post-sale self-help v Use post-transaction web surveys to gather customer feedback and continually improve service performance

Order Fulfillment in e-Services v Fulfillment Tasks for e-Businesses v GOAL: Achieve total end-to-end Order Fulfillment in e-Services v Fulfillment Tasks for e-Businesses v GOAL: Achieve total end-to-end visibility throughout the supply chain v Must deal with international pricing/taxation and shipping issues v Pricing customized to location of customer v Shipping agents to deal with tax issues v Local fulfillment center v Provide online shipping tools v Link web site to package carriers’ host systems v Fed. Ex, UPS – online tracking tools with APIs v USPS – eventually will have tracking tools v Integrate shipping, tracking and distribution systems with ERP systems v Fed. Ex, UPS – systems with APIs for doing so

Order Fulfillment in e-Services v Fulfillment Outsourcing v Potential benefits v Speed to market Order Fulfillment in e-Services v Fulfillment Outsourcing v Potential benefits v Speed to market v Deploy e-Service quickly v No capital investment in fulfillment v Level of service provided by outsourcer may be better than a start-up’s fulfillment service v Scalability v Higher when using an large fulfillment service v Focus v On business competencies, not on shipping v Lower costs v No need to hire shipping staff v Focus on the customer v Capitalize on efficiencies

Supply Chains Supply Chains

Supply Chains What is a Supply Chain? Porter’s “Value Chain” Firm Infrastructure Human Resources Supply Chains What is a Supply Chain? Porter’s “Value Chain” Firm Infrastructure Human Resources Management Technology Development Procurement Inbound Logistics Operations Profit Margin Outbound Logistics Marketing & Sales Service

Supply Chains What is a Supply Chain? Value Chain of Supplier Value Chain of Supply Chains What is a Supply Chain? Value Chain of Supplier Value Chain of Buyer

Supply Chains What is a Supply Chain? Supplier’s Virtual Value Chain Information Flow Value Supply Chains What is a Supply Chain? Supplier’s Virtual Value Chain Information Flow Value Chain Buyer’s Virtual Value Chain Profit Margin Information Flow Value Chain of Supplier Profit Margin of Buyer Profit Margin

Supply Chain Components Supply Chain Components

Supply Chain Components of a Supply Chain? Supplier’s Virtual Value Chain Digital Content Networks Supply Chain Components of a Supply Chain? Supplier’s Virtual Value Chain Digital Content Networks Value Chain of Supplier Networks of Physical Objects Networks of Service Providers Buyer’s Virtual Value Chain Digital Content Networks Value Chain of Buyer Networks of Physical Objects Networks of Service Providers

Supply Chain Components of a Supply Chain? v Supply chain is a “network of Supply Chain Components of a Supply Chain? v Supply chain is a “network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer. ” (Christopher, 1998) v Supply chain components v v v Two or more legally separated organizations Material, information, and financial flows Firms producing objects Logistics service providers Ultimate customer

Supply Chain Problems Supply Chain Problems

Supply Chain Problems v Inventory v v Work of the devil Holding costs Risk Supply Chain Problems v Inventory v v Work of the devil Holding costs Risk of obsolescense Quality problems hidden v The Bullwhip Effect

Supply Chain Problems The Bullwhip Effect A Small Demand Shift Leads To Retailer Distributor Supply Chain Problems The Bullwhip Effect A Small Demand Shift Leads To Retailer Distributor Huge Variation in On-Hand Inventory and Manufacturing Manufacturer Huge Variation in Orders and Inventories Wholesaler “The Bullwhip Effect”

Supply Chain Problems Historical Inventory Management v Inventories v Independent demand v Multiple Period Supply Chain Problems Historical Inventory Management v Inventories v Independent demand v Multiple Period Demands v v Assume demand pattern. Forecast when you will stock out. At the appropriate time, order some order quantity (or up to some quantity), so that with the amount you receive at a future date -- plus the buffer inventory (“safety stock”) -- you will have a small probability of stocking out Single Period Demand -- “paperboy problem”; “fashion goods” Order to balance costs of “overage” against costs of “underage” -giving maximum profit A/B/C -- some inventories more important or costly than others v Monitor costly inventories closely v Don’t monitor cheap inventories, just hold lots of buffer stock v Dependent demands v v MRP/MRP II ERP/Extended ERP

Supply Chain Problems Drawbacks of Inventory Methods v Inventories v Independent demand v Multiple Supply Chain Problems Drawbacks of Inventory Methods v Inventories v Independent demand v Multiple Period Demands, Single Period Demand, A/B/C v v v v Paper orders Misplaced products Inaccurate inventories Human errors Cycle Counting -- strategies to count everything in warehouse (e. g. , 1/N of warehouse at a time, over N periods); facilitates balancing the objectives of different inventory methods Dependent demands MRP/MRP II/ERP/Extended ERP v v Stacks of paper production schedules Paper order releases Change reports -- to previous schedules System nervousness -- when allowing updating of schedules

Supply Chain Problems What “The Experts” Now Suggest v Rocket Science Retailing (Fisher et Supply Chain Problems What “The Experts” Now Suggest v Rocket Science Retailing (Fisher et al. , HBR, July/Aug 2000) v Retailer objective: “right product, right place, right time, right price” v Historically, the opposite has happened v v v most inventory planning is for long life-cycle products online and offline stockouts increasing markdowns supply chain lead times often are so long, that forecasts of demand only confirm that the product will tank, and nothing can be done about it Rocket Science Retailing v “create a high-tech forecasting system supported by a flexible supply chain”

Supply Chain Problems What “The Experts” Now Suggest v Rocket Science Retailing (Fisher et Supply Chain Problems What “The Experts” Now Suggest v Rocket Science Retailing (Fisher et al. , HBR, July/Aug 2000) v Forecasting v v Update forecasts based on early sales data Track and predict forecasting accuracy Get product testing right -- make it scientific Use a variety of forecasting approaches v Supply Chain Speed v v Work with supply chain partners Reserve production capacity; hold generic raw-material inventories that can later be developed into finished product Troubleshoot production problems, design for easy manufacturability Make decision making flexible; empower employees

Supply Chain Problems What “The Experts” Now Suggest v Rocket Science Retailing (Fisher et Supply Chain Problems What “The Experts” Now Suggest v Rocket Science Retailing (Fisher et al. , HBR, July/Aug 2000) v Inventories v Need to track stockouts v UNFORTUNATELY, no commercial software available to track stockouts v Accurate, Available Data v Most retailing data inaccurate and inaccessible to employees v Store-level sales data usually incorrect v v Why: (1) clerk scanning one item multiple times to ring up multiple slightly different items, (2) like-for-like returns, without scanning in return and exchange Inventory counts usually off warehouse ships wrong item, supplier shorts, case-pack dimensions change without changing in inventory system Most companies don’t keep enough data v kills their ability to forecast time-series of demand accurately v aggregation of data kills knowledge at SKU level v lack of SKU kills ability to customize supply chain and shipments

Supply Chain Problems What “The Experts” Now Suggest v Manufacturing for Lean Retailing (Abernathy Supply Chain Problems What “The Experts” Now Suggest v Manufacturing for Lean Retailing (Abernathy et al. , HBR, Nov/Dec 2000) v Historical v v large order at beginning of period manufacturers treated SKUs within a product line all the same v Lean Retailing v v Manufacturers must replenish retailers stocks on an ongoing basis; tend to accomplish by holding extra inventory; get stuck with inventory if styles change; risk of getting stuck increases with product proliferation Solution v Need to differentiate between SKUs -- think of product lines as portfolios of distinct goods v Need to rethink sourcing strategies, reallocating manufacturing across v off-shore sources (high volume, low-variance demands) v close-to-market sources (low volume, high-variance demand)

Supply Chain Problems IT to the Rescue v “The Wearable Warehouse”, Business 2. 0 Supply Chain Problems IT to the Rescue v “The Wearable Warehouse”, Business 2. 0 v VISION v “Turn the supply chain into the warehouse” v v reliable inventory numbers better order fulfillment security: reducing in-transit theft … (in turn, improving on-hand data) accurate tracking of goods v Humans (networked objects) provide services to the system v v Essentially automated Cycle Counting Wireless IS implements strategy for what item should be counted when v Distributed, heterogeneous objects [inventory containers] report what they contain and where they are, to update system information

Supply Chain Design Supply Chain Design

Supply Chain Design v Research in Supply Chain Design and Management v Stretches back Supply Chain Design v Research in Supply Chain Design and Management v Stretches back to 1940 s/1950 s v Prior to 1990 s, most SCM research was for “simple” material flows and transportation v Most complex: optimal policy for a single-product, singlestage, capacitated SC with a stationary demand process v Simple multi-stage and/or multi-product supply chain models were computationally intractable v First mathematical modeling papers with computational results were published in 1991 v Start of modern supply chain management research

Supply Chain Design Conceptual Approaches v Research in Supply Chain Design and Management v Supply Chain Design Conceptual Approaches v Research in Supply Chain Design and Management v Conceptual SCM Research v Porter’s Value Chain Model (1985) v Fine’s Clockspeed (1998) Approach

Supply Chains Conceptual Frameworks v Clockspeed (Charles Fine, MIT) v “Biologists study fruit flies Supply Chains Conceptual Frameworks v Clockspeed (Charles Fine, MIT) v “Biologists study fruit flies because their fast rates of evolution permit rapid learning that can then be applied to understanding the genetics of slowerclockspeed species -- like humans. ” v Managers should study industrial equivalents of fruit flies v Fast clockspeed industries v v v Internet services personal computers multimedia entertainment

Supply Chains Conceptual Frameworks v Clockspeed (Charles Fine, MIT) v “The ultimate core competency Supply Chains Conceptual Frameworks v Clockspeed (Charles Fine, MIT) v “The ultimate core competency of an organization is “supply chain design, ” which I define as choosing what capabilities along the value chain to invest in and develop internally, and which to allocate for development by suppliers. ” v “Fast-clockspeed” supply chain characteristics v v v rapidly evolving world designing and redesigning firm’s chain of capabilities objective is a series of competitive advantages -- often quite temporary

Supply Chains Conceptual Frameworks v Clockspeed (Charles Fine, MIT) v Computer-industry motivated principles about Supply Chains Conceptual Frameworks v Clockspeed (Charles Fine, MIT) v Computer-industry motivated principles about the design and evolution of supply chains v “Beware of Intel Inside” v v v IBM employed modular supply chain design (Intel, MS DOS) power in the chain, and financial rewards, had shifted upstream since most modern products are largely computer components and electronics, they potentially fall prey to same forces Supply Chain Double Helix v oscillation of supply chain structure v Three-Dimensional Concurrent Engineering v concurrent design of capabilities (product, process, supply chain) v

Supply Chains Conceptual Frameworks Niche Competitors Integral Product, Vertical Industry High-Dimensional Complexity Organizational Rigities Supply Chains Conceptual Frameworks Niche Competitors Integral Product, Vertical Industry High-Dimensional Complexity Organizational Rigities (Charles Fine, Clockspeed, 1998) Pressure to Dis-Integrate Modular Product, Horizontal Industry Pressure to Integrate Supply Chain Double Helix Technical Advances Supplier Market Power Proprietary System Profitability

Supply Chains Conceptual Frameworks PRODUCT Performance Specifications PROCESS Technology, & Process Planning Recipe, Unit Supply Chains Conceptual Frameworks PRODUCT Performance Specifications PROCESS Technology, & Process Planning Recipe, Unit Process Details, Strategy Product Architecture, & Make/Buy 3 -D C. E. : Supply Chain Overlapping Responsibilities Time, Space, & Availability SUPPLY CHAIN Manufacturing System, Make/Buy (Charles Fine, Clockspeed, 1998)

3 -D C. E. : Supply Chain Concurrency Model Supply Chains Conceptual Frameworks PRODUCT 3 -D C. E. : Supply Chain Concurrency Model Supply Chains Conceptual Frameworks PRODUCT Design Architecture Detailed Performance Specific’s and Functions Modular vs. Integral PROCESS Unit Processes Technology & Equipment SUPPLY CHAIN Manufact. System Logistics & Coord. System Set of Organizations and Allocation of Tasks Functional Cellular Supply Chain Architect. Autonomous vs. Integrated Focus Technology Architecture (Charles Fine, Clockspeed, 1998)

Supply Chains Conceptual Frameworks v Clockspeed (Charles Fine, MIT) v Prediction: v “supply chain Supply Chains Conceptual Frameworks v Clockspeed (Charles Fine, MIT) v Prediction: v “supply chain design as a strategic precursor to supply chain management will only increase in the decade to come as industry clockspeeds continue to accelerate, and the halflives of many capabilities in our existing supply chains need replacement and/or upgrading”

Extending Supply Chain Concepts to e-Service Operations Extending Supply Chain Concepts to e-Service Operations

Supply Chains Conceptual Frameworks Process Control Service-Product Static; Mechanization Dynamic Niche Need Unique Items Supply Chains Conceptual Frameworks Process Control Service-Product Static; Mechanization Dynamic Niche Need Unique Items Broad Need Dynamic; Intelligence Common Items (Heim and Sinha, 2001) (Jaikumar, 1994) ?

Supply Chains Conceptual Frameworks n Evolutio Past: Many suppliers/customer flows Flow volumes small and Supply Chains Conceptual Frameworks n Evolutio Past: Many suppliers/customer flows Flow volumes small and sporadic Coming: Stable, selective supply chain relationships Few suppliers/customer flows (Reliable suppliers, Loyal customers) Large, steady flow volumes Geographic proximity (Schonberger, World Class Manufacturing: The Next Decade, 1996)

Supply Chains Conceptual Frameworks Relationship + Speedy e-Service Communication + Network Design, Control & Supply Chains Conceptual Frameworks Relationship + Speedy e-Service Communication + Network Design, Control & Management Supply Chain Control Static Dynamic Unique Items Li & Fung Common Items Covisint Relationship (MD 850, 2001) Relationship + Speedy e-Service Communication

Supply Chains Conceptual Frameworks v Business 2. 0, Kalakota & Robinson, 2001 v First Supply Chains Conceptual Frameworks v Business 2. 0, Kalakota & Robinson, 2001 v First Generation: Communities, Storefronts, and RFP/RFQ Facilitators v Second Generation: Virtual Distributors and Auction Hubs v Third Generation: Collaborative Trading Hubs v end-to-end management of their supply chains v Industry Consortiums: Joint-Venture Procurement Hubs v v Covisint -- automotives Orbitz. com -- airlines

Supply Chains Conceptual Frameworks Process Control Service-Product Static Dynamic Static; Dynamic; Mechanization Intelligence Niche Supply Chains Conceptual Frameworks Process Control Service-Product Static Dynamic Static; Dynamic; Mechanization Intelligence Niche Need Unique Items Broad Need Common Items Supply Chain Control Static Unique Items Common Items Dynamic

Services Goods e-Service 49 = 262, 144 possible design positions Digital Content Services Goods e-Service 49 = 262, 144 possible design positions Digital Content

Guiding Principles Guiding Principles

Supply Chain Some Guiding Principles v Align (a la 3 -D Concurrent Engineering) v Supply Chain Some Guiding Principles v Align (a la 3 -D Concurrent Engineering) v Product v Process v Supply Chain Reasonable Question: Yes, but how?

Conceptual Supply Chain Modeling and Evaluation Conceptual Supply Chain Modeling and Evaluation

Supply Chains Supply Chain Structures v e-Fulfillment v Step #1: Model Supply Chain Process Supply Chains Supply Chain Structures v e-Fulfillment v Step #1: Model Supply Chain Process v Example: Furniture Industry Traditional Furniture Supply Chain Manufacturing Ship to Retail Repair Damage Inventory at Retail Local Shipping Assembly at Home

Supply Chains Supply Chain Structures Pure e-Tailer Furniture Supply Chain Manufacturing Long Distance Shipping Supply Chains Supply Chain Structures Pure e-Tailer Furniture Supply Chain Manufacturing Long Distance Shipping Local Shipping Assembly at Home Repair Damage Pure e-Tailers with Warehouses Furniture Supply Chain Manufacturing Ship to Warehouse Repair Damage Inventory at Warehouse Local Shipping Assembly in Home

Supply Chains Supply Chain Structures Manufacturer Direct Furniture Supply Chain Manufacturing Long Distance Shipping Supply Chains Supply Chain Structures Manufacturer Direct Furniture Supply Chain Manufacturing Long Distance Shipping Local Shipping Assembly at Home Repair Damage Retailers On The Web Furniture Supply Chain Manufacturing Ship to Retail Repair Damage Inventory at Retail Local Shipping Assembly at Home

Supply Chains Supply Chain Evaluation v e-Fulfillment v Step #2: Back to the Basics Supply Chains Supply Chain Evaluation v e-Fulfillment v Step #2: Back to the Basics (Cost, Quality, Flexibility, Delivery) v Analyze supply chain characteristics -- basic operations strategies -- based on knowledge of product and process characteristics in that industry v 3 -D v Concurrent Engineering Determine if there exists a dominant strategic position compared to existing position(s) of incumbents … v (Cdom, Qdom, Fdom, Ddom) “better than” (Cx, Qx, Fx, Dx) for all design positions X

Supply Chains Possibly Better Supply Chain Evaluation Possibly Worse v e-Fulfillment v Furniture Industry Supply Chains Possibly Better Supply Chain Evaluation Possibly Worse v e-Fulfillment v Furniture Industry Relative Cost of Returns Cost of Inventory Cost of Repair Cost of Shipping Cost of Order Capture Cost of Quality Traditional Retailer L M L L H L Pure e-Tailer H L H H M H e-Tailer w/ Warehouse H M M M Retailer on the Web L M L L H M

Supply Chain Management Technology Supply Chain Management Technology

Background Supply Chain Management Technology Procurement long-term Distribution Sales Strategic Network Planning mid-term Master Background Supply Chain Management Technology Procurement long-term Distribution Sales Strategic Network Planning mid-term Master Planning Material Requirements Planning short-term Production Planning Scheduling Demand Planning Distribution Planning Transport Planning Demand Fulfillment & Available-to. Promise Advanced Planning System (APS) Software Modules

Background Supply Chain Management Technology Procurement Production Distribution Sales Strategic Network Planning Configuration Purchasing Background Supply Chain Management Technology Procurement Production Distribution Sales Strategic Network Planning Configuration Purchasing Quantities Material Requirements Planning Simulation Results Master Planning Capacity Booking Dist’n Quant. /Alloc. Stock Levels Lot Sizes Production Planning Lot-Sizes Scheduling Due Dates Forecast Demand Planning Forecast Distribution Planning Tranportation Demand Quantity/Modes Fulfillment & ATP Transport Current Orders Planning Due Dates Supply Coordination and Data Flows of APS Modules

Supply Chain e-Services Technology v SCM Technologies v J 2 EE Technologies v SAP Supply Chain e-Services Technology v SCM Technologies v J 2 EE Technologies v SAP re-tooled all of its applications to support the J 2 EE protocol, in addition to its own ABAP technology standards v Many examples of using Java for enhanced SCM v. NET Technology v Doesn’t support multiple platforms, which will be difficult for integration of supply chain v Supply chain vendors have been trying to convince Microsoft to support J 2 EE, so they could easily integrate enterprise SCM to the desktop, but Microsoft has refused

Supply Chain e-Services Technology v SCM Technologies v Open. Adaptor. org v v v Supply Chain e-Services Technology v SCM Technologies v Open. Adaptor. org v v v open source supply chain integration system, made opensource on 1/30/2001 originally developed for financial services developed by investment bank Dresdner Kleinwort Wasserstein (Dr. KW) already used in global integration 40 projects by Dr. KW “allows the rapid, simple and often code-free integration of any system to any other system, enabling the complete supply chain, plus internal systems, to be integrated while allowing access to the web”

SCM Perspective on Li & Fung Case Study SCM Perspective on Li & Fung Case Study

SCM Perspective Li & Fung v Sourcing Characteristics v Seasons v v Past: 2 SCM Perspective Li & Fung v Sourcing Characteristics v Seasons v v Past: 2 -4 Now: 6 -7 … “fast clockspeed”? v Customers v v Past: potentially many, but very slow deals, as translation was the service Now: 350 big customers, potentially 22, 800 SMEs might be added v Suppliers v v Past: relatively few Now: 7500 suppliers, 26 countries … more than 1 million workers engaged on their behalf (assuming 200/plant)

SCM Perspective Li & Fung Supply Chain Control Static 1910 Interpreter Margin=15% Unique Items SCM Perspective Li & Fung Supply Chain Control Static 1910 Interpreter Margin=15% Unique Items Common Items Broker Margin=10, 5, then 3% 1970 s: Regional Sourcing Agent Dynamic Present Li & Fung Margin = 6 -8% softgoods 10 -30% hardgoods, function of sourcing complexity Breaking up Value Chain Dispersed Manufacturing Rational Kitting of Parts 1980 s: Delivering Manufacturing Programs

SCM Perspective Li & Fung The Process Front End Design Engineering Production Planning The SCM Perspective Li & Fung The Process Front End Design Engineering Production Planning The Goods and Related Services Back End Softgoods Hardgoods Textiles USA Toys Accessories Festive Items Furnishings Handicrafts Home Travel Goods Sporting Goods Textiles ROW Raw Material and Component Sourcing Quality Control Testing Logistics Managing Production

SCM Perspective Li & Fung Communications Li & Fung Client Design “Sense” Materials Sourcing SCM Perspective Li & Fung Communications Li & Fung Client Design “Sense” Materials Sourcing Factories “Respond” Quality Control Logistics

SCM Perspective Li & Fung Client Design “Operational Support System” Materials Sourcing Factories Quality SCM Perspective Li & Fung Client Design “Operational Support System” Materials Sourcing Factories Quality Control Logistics

SCM Perspective Li & Fung Retail Price $4 Client Design Materials Sourcing Margin to SCM Perspective Li & Fung Retail Price $4 Client Design Materials Sourcing Margin to Share = $3 Li & Fung Factories Quality Control Cost: $1 Logistics

SCM Perspective Transaction Fee % Covisint Retail Price $19, 000 Ford, GM, et al. SCM Perspective Transaction Fee % Covisint Retail Price $19, 000 Ford, GM, et al. Design Materials Sourcing Tier 1 Only Margin (Ford, GM) = $3, 000 Covisint Factories Quality Control Tier 1 Only Cost: $16, 000? Logistics Tier 1 Only

Summary v Conceptual supply chain frameworks v Fine: Two supply chain “periods” within an Summary v Conceptual supply chain frameworks v Fine: Two supply chain “periods” within an industry v Fine: 3 -D engineering of product, process, supplychain v Guiding principle: link up service-product, service-process, service supply chain v Very complex task v 3 product components, 3 process components, 3 supply chain types … all must work together v Many different supply chain models

Summary v Evaluation can initially (subjectively) be done based on standard operations strategies/metrics v Summary v Evaluation can initially (subjectively) be done based on standard operations strategies/metrics v v Cost Quality Flexibility Delivery v Thorough analysis and management of supply chains will involve hefty mathematics/OR models