What Is All The Fuss

About Supply Chain

Management?
• Introduction
• We have come a long way!
• The supply chain response
• Retail supply chain
• Auto supply chain
• Aerospace supply chain
• PC supply chain
• McDonald’s Supply chain
• More supply chains
 We Have Come A Long
Way
Supply Chain
Materials Management
Management
Limited educational
resources
Order
Placers

Clerical
The Supply Chain Response

As the economy changes,

as competition becomes
more global, it’s no
longer
company vs. company but
supply chain vs. supply
chain.
Harold Sirkin,
Boston Consulting Group
Today’s Business
World is a Jungle!!!
When you find yourself
in

the jungle, remember,

ONLY THE FIT

SURVIVE!!!
 What is a Supply Chain?
Supermarket Customer wants
P&G or other
or 3rd Supermarket detergent and goes
manufacturer to Supermarket
party DC

Plastic Tenneco Chemical

producer packaging manufacturer
(e.g. Oil Company)

Chemical
Paper Timber
manufacturer
manufacturer industry
(e.g. Oil Company)

Source: Chopra & Meindl 2001

Supply Chain: Wal-Mart
Customer wants detergent
from Wal-Mart

The Wal-Mart Store

Wal-Mart or Third-Party
Distribution Center

P&G or other
Manufacturer

Plastic Producer Tenneco Packaging Chemical Manufacturer

Chemical Manufacturer Paper Manufacturer

Timber Industry
A Typical Manufacturer’s Supply Chain
Manufacturer
s, Customers
,
Field
Sources
: Regional warehouses: demand
plants warehouses: stocking centers
vendors stocking points
ports points

Supply

Manufacturing
/
Inventory &
warehousing
Material costs Transportation
Production/ Transportation
costs costs
purchase Inventory
&
costs warehousi Source: Simchi-Levi & al, 2000
ng
costs
The Extended Enterprise Supply Chain

Subassembly Assembly
Supplier Plant

Raw Delighted
Material Component Customer
Supplier Supplier Dealer

Maximized value at minimized cost

 Drivers of Supply Chain
Performance

• Inventory

• Transportation

• Facilities

• Information
Source: Chopra & Meindl 2001
 Drivers of Supply Chain Performance

Competitive Strategy

Supply Chain Strategy

Efficiency Responsiveness

Supply Chain
Structure

Inventor Transportati Facilities Informatio

y on n
Drivers Source: Chopra & Meindl 2001
Considerations for Supply Chain Drivers

Driv
Source: Chopra & Meindl 2001
Drivers of Supply Chain Performance

Inventory:
• Role of inventory in the Supply Chain:
– Anticipation of future demand
– Production and distribution costs reduction
• economies of scale

Source: Chopra & Meindl 2001

Drivers of Supply Chain Performance

Transportation:
• Role of transportation in the Supply Chain:
– Transportation moves the product between different
stages in a Supply Chain
• Transportation choices impact the responsiveness and the
efficiency of the Supply Chain

Source: Chopra & Meindl 2001

Drivers of Supply Chain Performance

Facilities:
• Role of facilities in the Supply Chain:
– Where inventory is transformed into another state -
manufacturing facility
– Where inventory is stored before being shipped -
warehousing facility
• Choices such as number of facilities or capacity impact the
Supply Chain

Source: Chopra & Meindl 2001

Drivers of Supply Chain Performance

Information:
• Role of Information in the Supply Chain:
– Serves as the connection between the Supply Chain’s
various stages (allows coordination of actions)
– Allows daily operations of each stage of the Supply
Chain (ex. : a production scheduling system needs
information)

Source: Chopra & Meindl 2001

 SC Nokia

• Nokia’s frequent & rapid product introduction,

major contributors to fast revenue & profit growth
are:
– supported by a very flexible & efficient SC
• Nokia has put in place:
– rapid response manufacturing,
– quick-ship logistics,
– global SC web that links Nokia’s suppliers & plants,
supports Vendor Managed Inventories and
collaborative planning

Source: Accenture, 2003

 SC Zara (1)
• Global clothing manufacturer/retailer – 44
countries
• Focused on time to market, costs, order fulfillment
& customer satisfaction
• Zara owns 630 retail stores worldwide
• Store managers send customer feedback directly to
Zara’s in-house designers via handheld devices
– designers are kept abreast of fast-changing trends &
demands
– gives Zara vital information on sale of less-desirable
merchandise
– better managed inventories

Source: Accenture, 2003

 SC Zara (2)

• Zara acquires fabrics in only 4 colors &

postpones dyeing & printing until close to
manufacturing  reducing waste and
minimizing need to clear unsold inventories
• Zara can deliver new styles in 3 to 6 weeks,
compared with up to 5 months for competitors

Source: Accenture, 2003

 SC Henkel
• Multinational manufacturer of consumer &
industrial products
• Put in place collaborative planning, forecasting &
replenishment (CPFR) with Condis, a Spanish
supermarket & several packaging suppliers for
laundry & home care products
• Involves daily interchange for key items,
coordinates business planning (combined
promotions & collaborative forecasts) & jointly
defined & measured key performance indicators.

Source: Accenture, 2003

Cost in the Average New Vehicle?

70% 30%
Supply Chain Chrysler
 A Typical Seating Supply Chain
General
Chrysler Ford
Motors

Johnson Controls

Soft Trim Suppliers Hardware Suppliers

Excel/Atwood

Douglas &
Lear Favesa Lomason R. R. Spring Rockford Spring

Collins & Milliken & Dudek &

Aikman Specialty Screw Bock Spring
Company

Textileather Technotrim Canadian Fab

 IMAGE-SOUTH ZONE(WITH MILKRUN)
INFORMATION FLOW

KANBAN/ LOGISTICS SERVICE

2BIN PROVIDER

EMPTY
TVS-M CONTAINERS

JIT CALLS
TROUGH SUPPLIERS
INTERNET

BAR CODED
INVOICES

TRANSPORTATION
LOGISTICS REUSABLE
VANNED STOREWISE
SERVICE CONTAINERS
PROVIDER
MATERIAL FLOW
 IMAGE-NORTH/WEST ZONE(WITH MILKRUN)
INFORMATION FLOW

LOGISTICS SERVICE
SCHEDULES PROVIDER

TVS-M

ASN SUPPLIERS

UNPACKING
AT RECEIPT

TRANSPORTATION
VANNED LOCATIONWISE LOGISTICS SERVICE
AT 3PL START HUB PROVIDER DISPOSABLE
CONTAINERS

MATERIAL FLOW
 IMAGE-REMOTE SUPPLIERS
INFORMATION FLOW

SCHEDULES

TVS-M

ASN SUPPLIERS

UNPACKING
AT INWARDING

DOOR DELIVERY
BY SUPPLIER DISPOSABLE
CONTAINERS

MATERIAL FLOW
 Dealerships
Extended Enterprise In Action:
Working together towards
process improvement
Co
mm
(Su uni
ppl cati
yC o
Chrysler hai n Flo
nE w
Great Cars & Trucks D I)
(Tier 1)
Axles Dana
Corp.

(Tier 2)
Forgings Impact
(O Mat Forge
n -T e r i
im al F (Tier 3)
e D low
eli Mac Steel
Best practice suppliers, v er Steel
who are leading the y) Northstar
Supply-Chain EDI Initiative Steel
Supply Chain Example
A clear move towards
Modularity

Modularity is a key
design advantage
in the manufacture
of modern aircraft
 Expanding the Operations Frontier -
Dell’s “revolution” in the PC market
• Dell’s competitive advantage: Provide customized
PC configurations, with short delivery times and
affordable prices.
• Dell’s success in PC market:
 PC SUPPLY CHAINS

Customer Customer
PULL

Virtual Integration
Distribution
Channels
PULL
Dell
PUSH
Manufacturer

Suppliers
PUSH
Suppliers

Typical PC Supply Chain Dell Supply Chain

(Compaq, HP, IBM, etc.)
 The Critical Success Factors underlying
Dell’s competitive advantage
• Very high product (configurable) variety – mass
customization!
• Direct fulfillment - no intermediaries
• No production launch until customer order booked
(pure pull!)
• Very low finished goods inventory (costs) – high
inventory turns (raw material inventory influenced
by “recommended configurations”)
• High velocity material flows & fulfillment
 Supporting Dell’s competitive advantage
through a new operational model
•Focused on strategic • Demand forecasting is
partnerships: suppliers down critical – changes are
shared immediately within
from 200 to 47
Dell and with supply base
•Suppliers maintain nearby ship • Customers frequently
points; delivery time 15 steered to “recommended
minutes to 1 hour configurations” with high
•Suppliers own inventory until availability to balance
supply and demand
used in production
• External logistics supplier
•Demand pull throughout value used to manage inbound
chain – “information for supply chain
inventory” substitution
 Emerging factors and trends enabling
Dell’s strategy
• The commoditization of the PC industry
– Standardized and interchangeable components
– Emergence of reliable manufacturing service providers
• Recent advances in Supply Chain Management
– Information Technology (IT) platforms that allow the
effective and efficient information exchange and coordination
across the entire supply chain
– 3rd party logistics service providers
– Emerging emphasis on virtual rather than vertical company
integration
 Example of a Typical Supply Chain: IBM Europe PC Supply Chain

Warehouse

Port
PC Assembly
Plant Retailers

Suppliers 1.2 Million PC/Yr. 13 Transshipment Country-wide

(International) Glasgow U.K. Points (TPs) in Europe Distribution
Centers (DCs)
McDonald’s Supply
Chain
 The McDonald’s Supply Chain
• Purchasing
– “The 3 legged stool”: Corporation – Franchisees –
Suppliers
– Exclusive, certified facilities
– Handshake agreements, Trust
– Long term win-win partnership, risk sharing
– Rigorous product and service specifications
– Strong focus on quality, product specification and
environmental audits
– Decentralized supplier structure, zone
consolidation for multinational suppliers
– Distributor is wholesaler for Restaurants
 The McDonald’s Supply Chain
• Logistics
– ~100 sales items in the restaurant
– ~400 SKUs in the warehouse (Hubs: up to 1,500)
– ~200 restaurants per DC (~180 DCs globally)
– Delivery frequency: ~3/wk, higher in urban areas
– 2-3 stops per route
– Exclusive distributors (3PL)
– Freight consolidation (via freight forwarders)
– Long term partnerships with service providers, risk
sharing
– Strong quality focus (Cold Chain, HACCP, QIP)
 The McDonald’s Supply Chain
• McDonald’s Supply Chain Challenges
– Even stronger focus on freshness and quality
– On-going product innovations
– Strong customer demand fluctuations
based on promotions
– Order- and inventory management
restaurant – DC – supplier -
raw material supplier
– Bull Whip effect
– Cannibalization
– Change Management in a de-
centralized structure
(NT + OO = EOO)
New Product
Introductions
Core Product Promotions

Big Mac /
Big Mac Sony Connect
Monopoly
Brand
Big Macs
Advertising
discounted
in selected
markets
Promotional Impact
Vision of Supply Chain Integration

(Quality,service,cleanliness and value)

 Two future orientated strategies
McD DC :

integrated
 One Stop Shopping
The McDonald’s Supply Chain “One Stop Shopping” processes
and an automated water supply have a lot in common:

“As demand arises on

customers’ side ...

... supply turns on and off

automatically, ...

… but they need not care

where the goods come from!”
 McDonald’s Logistics Network
Delivering a wide range of
benefits to our restaurants
• Common business models and
tools
• Borderless knowledge transfer
• Optimization of services
• Economies of scale
• Centralized competence
• Financial strength
DC Sofia, Bulgaria

• Easy customer communications

 McDonald’s Logistics Standards
• DQMP (Distributor Quality Management Process)
• Operations and Customer Relations (Operations Manual)
• Quality Control (HACCP / QIP) (Hazard analysis critical
control point Quality inspection program)
• Cold Chain standards
• Hygiene regulations
• Product handling standards
• Emergency and contingency plans
• Risk & Crisis management
• Continuous unannounced internal and 3rd party audits for
DCs result in superior quality scores regularly.
 “One-Stop-Shopping“
Lean Logistics Solution
Supply Chain Services for
McDonald‘s restaurants
Results
SUPPLY CHAINS OF
COSTUME JEWELLERY
FOOTWEAR
PROCESSED MANGO
LEATHER GOODS
HOLIDAY DÉCOR
FURNITURE
HOUSEWARE
Example of an Extended Supply
Chain Structure (Hugos, 2003)

Product Market
Designers Research

Raw Manufacturer Distributor Retailer Retail

Material Customer
Producer

Logistics Finance Business

Provider Provider Customer
 Supply Chain of the Costume
Jewelry Sector (Beng Hui, 2005)
Manufacturers of
Collectors of Foreign Made
Raw Materials Middle Men/Resellers components

Foreign
Subcontractors Exporters Buyers/Retailers

Final
Customer
 Supply Chain of the Fine Jewelry
Sector (Beng Hui, 2005)
Local Miners

Jewelry Foreign/Buyers Foreign

Middlemen/C Manufacturer Retailers customers
B

Local Local
Supplier of Retailers customers
Imported
Jewels
Supply Chain of the Processed
Mango Sector (Beng Hui, 2005)
Local
Independent Middlemen Customers
Farmers

Local Retailers

Company Mango
Owned Processor Foreign Buyers/
Farms Retailers

Fresh
Mango
Exporter
Foreign
Customer
Supply Chain of the Leathergoods
Sector (Manalang, 2005)
Local
Foreign Local Wholesalers/
Makers of Middlemen Direct Selling
Components

Local Local
Local Retailers Customers
Tannery
Leather goods
Manufacturer
Local Fiber Foreign Foreign
Processors Wholesalers Retailers

Foreign Foreign Foreign

Tannery Merchandisers Subcontractors Customers
of non-leather
components
Supply Chain of the Footwear
Sector (Manalang, 2005)
Foreign Makers Local Local
of Components Middlemen Wholesaler/
Direct Selling

Local Footwear Local

Tannery Manufacturer Customers

Local
Subcontracting Retailers
for some large
companies
Supply Chain of the Holiday Decors
Sector (Mutuc, 2005)
Local Subcontracting
Supplier of
Imported
Materials Local Local
Retailers Customers
Holiday Décor
Manufacturer

Processors/ Foreign Foreign

Collectors Local Buyers/Retailers Customers
of Local Middlemen
RM
Supply Chain of the Furniture Sector
(Mutuc, 2005)
Subcontracting for special
Local designs (i.e. weaving)
Supplier of
Imported
Local Local
Materials
Retailers Customers
Furniture
Manufacturer

Processors/ Foreign Foreign

Collectors Local Buyers/Retailers Customers
of Local RM Middlemen
 Supply Chain of the Houseware
Sector (Mutuc, 2005)
Local Subcontracting
Supplier of
Imported
Local Local
Materials
Retailers Customers
Manufacturing

Processors/C Foreign Foreign

ollectors of Local Buyers/Retailers Customers
Local RM Middlemen