MBA 518 Operations Management Supply Chain Management Greg

MBA 518 Operations Management Supply Chain Management Greg Magnan, Ph. D Fall, 2004

AGENDA • • • SC Defined SC Strategy SC Benefits SC Challenges Summary

Business Environmental Factors • Global Competition – Cost, Quality, Delivery, Flexibility, Innovation • Increasing Stockholder Demands – ROIC, Asset Efficiency, EVA, etc. SCM Uniquely Positioned to Address BOTH

Core SC Functions

SCM Defined (Fawcett & Magnan, 2001) “Supply Chain Management involves collaboration across the enterprise and among channel members to design and manage value-added material, information and cash flows to meet the needs of the end customer. The development and integration of people and technological resources underlie successful supply chain integration. ”

Potential Benefits from SCM • Increased market share and sales growth • Reduced inventory levels and total SCM costs • Decreased order cycle/fulfillment time • Increased asset and capital utilization • Improved delivery performance • Faster response to changing customer requirements • Improved return on assets and sales • Increased forecast accuracy • Reduced cash-to-cash cycle time

SCM Definition: SC Council “Suppliers’ Supplier to Customer’s Customer” Plan Deliver Return Source Make Return Deliver Return Supplier Source Make Return Deliver Return Your Company Internal or External NOTE: Barriers to SCM are concentrated here Source Return Make Deliver Source Return Customer’s Customer Internal or External SCOR Model (www. supply-chain. org)

Manufacturing Supply Chain Management Customer interface Production Entities Factory CRM Supplier interface Internal Suppliers Demand Planning Lean Manufacturing Design Production Engineering Information: Visibility / Collaboration / Sharing Organization: Strategy / Structure / People / Processes External Suppliers Customers SRM Sourcing, Ordering & Logistics

Supply Chain Flows Source: Lee (2000)

SC Process Elements MKTG / CRM / Merchandising • ID/Segment. ; Promo • Category Mgt. , Pricing Product Dev’t Sourcing/Proc. / Sup. Rel’p Mgt Demand Mgt. / SC Planning IT? Other Fn? Yes Eng. , Mfg. , Proc. • Innov. ; Make-Buy • Project Mgt. , X-Funct. Yes Mktg, Proc. , Finance; Mfg • Supplier Mgt. • Aggregation/Leverage Yes Finance, Mfg, Eng. Yes S/Mktg, Mfg, Proc Yes Proc, Eng, Log, S/Mktg Yes S/Mktg, Mfg, Proc, Log • Forecasting • Collaboration Manufacturing • Schedule; Ordering • Inventory; Specs Fulfillment • Logistics; Inventory • Transportation Risk / Returns • Disasters, interruption • Reverse logistics

Supply Chain Performance Timme & Timme, 2000 • C-level Executives: CEO, CFO, COO, etc. – What is their view of SCM? – What language is needed to articulate benefits? • Growth, Profitability, Capital Utilization – How do they affect Economic Profit (EP)? Source: Timme and Timme, “The Financial-SCM Connection, ” SCMR, 2000.

Supply Chain Performance Timme & Timme, 2000 • Economic Profit • SCM supports: – – Revenue growth Customer service Cost reduction Asset efficiency • Purchasing 100

Supply Chain Performance Timme & Timme, 2000

Supply Chain Strategy “Companies are investing resources--of both time and capital--to improve their supply chain capabilities. But many are not pleased with the return on these investments. The lack of coherent supply chain strategy typically lies at the root of the problem. ” [emphasis added] -- Derocher and Kilpatrick, “Six Supply Chain Lessons for the Millenium, ” SCMR, 2000

Strategic SC Alignment (Fisher, Marshall, “What is the Right Supply Chain for Your Product? , ” HBR, 1997) Q: What happens when you have BOTH kinds of products? ? A: Ought to have BOTH kinds of supply chains.

Evolutionary Status of SCM Source: Poirier & Quinn, “A Survey of SC Progress, ” SCMR, 2003

Source: Poirier & Quinn, “A Survey of SC Progress, ” SCMR, 2003

More from Poirier & Quinn…

CAPS Focus Study (2001) http: //www. capsresearch. org

SC Integration (Fawcett & Magnan, 2002) 47% 34% 11% 8% 0%

SC Relationship Barriers • Lack of Trust • Little Understanding or Commitment to SC Principles • Fear of Relinquishing Control • Different Goals & Objectives • Inadequate Information Systems • Short-term / “Wall Street” emphasis on outcomes • Involvement in too many supply chains Source: Moberg, Speh & Freese, “SCM: Making the Vision a Reality, ” SCMR, 2003

“Can You Hear Me Now? ” Source: Handfield & Straight, “What Sourcing Channel is Right for You, ” SCMR, 2003

SC Relationship Barriers--Solutions • • Develop a New Breed of Manager Build “Relationship-Management” Skills Establish Inter-organizational Teams Create New Performance Measures Invest in Information Technology Develop Long-term Focus (Boards, too) Engage in More Practical and Applied Research Source: Moberg, Speh & Freese, “SCM: Making the Vision a Reality, ” SCMR, 2003

Bullwhip Effect Source: Lee, et al. , “The Bullwhip Effect In Supply Chains, SMR, 1997.

Bullwhip Effect – Order Variation Source: Lee, et al. , “The Bullwhip Effect In Supply Chains, SMR, 1997.

Matching Supply & Demand Source: Vitasek, et al. , “Solving the Supply–Demand Mismatch, ” SCMR, 2003.

Supply Chain Planning & Execution Source: AMR Research, 2000

SC Planning Systems Source: Taylor, David A. “A Master Plan for Software Selection, ” SCMR, 2004

e-Procurement: What is it? • What are the steps in procurement? – Need / Requisition – Supplier Selection • RFx, Negotiation, Auction, Criteria – Contract – Transactions • PO through payment – Relationship Maintenance • Performance • Which can be automated?

e-Procurement: Transactions Buyer • Purchase Order / Order – PO change? • ASN receipt • Tracking • Receiving / Inspection • Accounting: matching Supplier • • PO Ack. / Sales Order Fulfillment (stock / mfg) ASN Transportation • Invoice • Payment received – Payment • Supplier Performance Other issues: Forecasting, collaboration, planning systems, cost improvement (product and trans. )

Strategic Sourcing • “Applying standard analytics-driven processes for sourcing any category of spend. ” • Purchasing Magazine • “Sourcing will be key to unlocking value. ” – ISM/Forrester – Focus on procurement automation limits payback – Spend Management must begin with a sourcing strategy • Spend analysis, aggregation, supplier reduction – Online sourcing will catch up • “real value is in using enterprise-wide tools to enforce employee compliance with strategic sourcing agreements. ”

ISM/Forrester Report on Technology in SM: Q 3/2003 • Adoption of online purchasing continues to grow – Large companies: 20% fully adopted • More companies are saving $ as a result – 45% of large volume • Materials purchased: – Indirect (89% bought some / 12% of indirect online) – Direct (74% bought some / 9. 9% of direct online) • Auctions (25% used. . . large volume) and e. Marketplaces (33%): about 45% increased use • Enterprise-wide tools: 46% • Online tools strengthen relationships: collaboration • Buyers mostly dissatisfied w/ Supplier online capability • Integration with suppliers was biggest challenge

PRTM’s SC Advice SC Critical Elements • • • SC Strategy SC Processes Organizational Model Integrated Info. Sys. Perf. Mgt. Framework Setting Your Strategy 1. Define the Performance Criteria of SC 2. Set Perform. Targets 3. ID Operational Processes (order mgt. , dist, etc. ) 4. Select integration level for customers & suppliers Source: PRTM, “Managing Your SC in the 21 st Century, ” 2002

Technology Enabled Supply Chain Source: Porter, A. M. (2004), “The Case for Holistic Strategies, ” Purchasing, March 18, pp. 55 -59.

Supplier Rating Criteria Source: Carbone, James (2004), “Using TCO to Rate Suppliers, ” Purchasing, Feb. 19, pp. 30 -34.

Lucent (con’t)

Summary • Supply Chain Management – People, processes, technology – Materials, information, cash • Supply Chain Performance – Growth, profitability, capital utilization – Growing gap between haves and have-nots • Supply Chain Solutions – Strategy: Align internal and external processes & resources to business strategy and company performance objectives – Diagnostic: Pinpoint improvement needs – Education: Relationships, process change, executives