Coursera KAIST: SCM101

Supply Chain Management

A Learning Perspective
Lecture 6

Professor Bowon Kim

KAIST Business School

2014 Bowon Kim

Strategic Dimensions of
Supply Chain Management
Formal definition of SCM
Supply Chain
Supply Chain System

S M D C

Supplier/vendor Manufacturer Distributor Customer

Service Service Service contact
supporter creator /provider

Efficiency-driven Responsiveness-driven
value more relevant value more relevant

Supply Chain Management

Goal or objective to maximize BOTH efficiency- driven AND responsiveness-
driven value at the same time
How? by designing the supply chain effectively
Designing factors?
Structural
Infrastructural

3
Designing Factors of SCM
Structural dimension
Configuration, connection, inventory, logistic
Involving investment in physical facilities, materials, systems
Related with physical products/materials
Analogy computer hardware

Infrastructural dimension
Coordination
Involving intangible, invisible, implicit factors such as communication,
information, collaboration, intrinsic,
Analogy computer software

4
Designing Factors Structural Dimension

Elements of Structural Dimension Operational Strategic

Configuration (Location)

Connection (Production; Matching)

Inventory

Logistics (Transportation; Distribution)

Strategic over a longer time horizon

Operational short-term, day-to-day basis

5
 S M D C
Suppliers Manufacturers Distributors Customers
Vendors Service Support Operations Local Service Providers End Users
Korea Korea Korea-Busan Korea

China China-Shanghi China-Shanghi China

Thailand India Vietnam US

UK US-Alabama US EU

Country Connection Transportation

(Logistical Options)
Local Location Inventory
6
Designing Factors Structural Dimension

A. Configuration (Location) Decisions

Geographic placement of supply chain (value chain) functions or
activities
Involving a commitment of resources to a long-term plan
Factors to consider: long-term, strategic factors, so as to enhance
efficiency and responsiveness
B. Connection (Matching) Decisions
How to connect dispersed supply chain functions or activities
Factors to consider: efficiency, responsiveness

7
Designing Factors Structural Dimension

C. Inventory Decisions
Inventory exists at every stage of the supply chain as either raw
materials, semi-finished or finished goods
The primary purpose buffer against uncertainty
Inventory Types and Locations
Raw Material Work-in-Process Finished Goods
Inventory Inventory Inventory
Inventory I Inventory II Inventory III
raw materials finished products finished products
intermediate products semi-finished ready to ship to customers

I II III

8
Designing Factors Structural Dimension
C. Inventory Decisions Forecasting Methods
Product Life Cycle

Number of Units (Sales)

Introduction Growth Maturity Decline

Data:

Time:
(Decision Horizon)

Methods:

9
Designing Factors Structural Dimension

C. Inventory Decisions
Fundamental Roles of Inventory
Cost
Innovation
Problem Solving
Deployment Strategy
Push
Physical products flow downstream
Information (including market demand) flows downstream
Decoupled processes
Make-to-stock system
Excessive inventory

10
Designing Factors Structural Dimension

C. Inventory Decisions
Deployment Strategy
Pull
Physical products flow downstream
Information flows upstream
Coupled processes
Make-to-order system
Zero inventory enhancing problem solving; but, false alarms?
Intelligent (contingent inventory system)
Combining the advantages of push and pull systems
Determining the causes of deviation random versus systematic
Regarding inventory NOT as part of normal operations
Supporting problem solving
D. Logistics (Transportation; Distribution) Decisions
Transportation/logistical options, fast (expensive) versus slow (cheap)
Linked with inventory decisions unit value versus speed

11
Designing Factors Infrastructural Dimension

Coordination Supply Chain Perspective (Capability)

Coordination among channel participants; prerequisite for system-
optimal performance

Coordination Level and Typology

Inter-function

Intra-function

Intra-firm Inter-firm

12
Levels of SC Coordination

Supplier Manufacturer Distribution

Supplier Manufacturer Distribution

Coordination Materials Flow

Intensity
Information Flow
Supplier Manufacturer Distribution

Coordination
Integrated
Coordination

Supplier Manufacturer Distribution

13

13
Designing Factors Infrastructural Dimension
Why difficult to coordinate?
Barriers to effective coordination
A. Lack of systematic and fair measurement
B. Leakage of proprietary knowledge
C. Culture/inertia

Costs due to Coordination Failure

Information quality : uncertainty increase, planning failure,
unnecessary risk taking mismatch between supply and demand
stock-outs, high inventories (unnecessary markdown costs, disposal
costs,); high inventory carrying costs
Inefficiency: non-value-added activities, unnecessary mistakes, sub-
optimal resource allocation, opportunity costs

14
Sustainable SC Coordination
Supply Chain System

Supplier Manufacturer Distributor

Profit without
coordination
s m d
Profit with
coordination
s m d
First Fundamental
Condition
s + m + d < s + m + d
Second Fundamental
Condition
s < s , m < m , and d < d

15
SCM Process Strategy
Process Management

Process a collection of tasks, connected by flows of goods

and information, that transforms various inputs into valuable
outputs
Service versus manufacturing
How much customer involvement is required during the value
creation process
Physical products?
Inventory possibility?
Process strategy
Volume versus customization

17
Mass Customization
High
Blue Ocean
Mass
Customization
Customization

Red Ocean

Low
Low High
Volume
18
To Minimize the Mismatch between
Supply and Demand
Mismatch between supply and demand
Supply Chain System

S M D C

Supply Demand

SD
Match
(balanced)

Mismatch S>D
(unbalanced)
S<D
Costs due to mismatch
Overstocking cost inventory holding cost
Understocking cost lost sales, loyalty loss

20
Mismatch between supply and demand

Why mismatch occurs?

S-D mismatch is one of the most important comprehensive indications of
SCM ineffectiveness
External
Changes in customer requirements or needs
Demand uncertainty
Internal
Inability to gather more accurate demand information
Inability to plan/schedule better with the given forecasting
Inability to develop new products valued by the customers at the right time
Environmental
Technological changes
Competition
Other macroeconomic forces
A key SCM goal
To minimize the mismatch
How? Through effective coordination across the value chain

21
Uncertainty in SCM

Aggregate level uncertainty Product mix-level uncertainty

Forecasting using macroeconomic variables
method econometrics
Aggregate Demand >> Aggregate Supply
capacity increase
focused strategy refocusing the target
market
Aggregate Demand << Aggregate Supply
capacity reduction
demand management generating
market demand
new product development, quality
improvement
Responsiveness is the key, assuming DS at the
aggregate level
Value of flexibility is very high
Supply chain coordination tools employed
risk-based production planning,
postponement
Forecasting
Abundant data available
Quantitative methods: regression
analysis, time series analysis
No or very few data available
Qualitative methods: judgmental,
market research, expert opinion
(Delphi method)

22