Fall – 2018 – Chapter 2: Supply Chain Overview

Understanding the Supply Chain

The evolution of the supply chain has changed everything we know about logisitics. Customers are getting their goods sooner and cheaper, while companies are able to utilize new technologies to have real time data for more accurate forecasts, cheaper processes, and maximizing efficiency. To sustain a true competitive advantage companies realize they must utilize every component of Supply Chain Management to defeat the competition.

The Start of a Supply Chain Evolution

  • Until after World War II, logistics were thought of in military terms as the link that supplied troops with rations, weapons, and equipment.
  • SCM was founded in the early 1980’s as American manufacturing was hammered by global competitors and began actively outsourcing.
  • Many modern organizations feature integrated supply chain organization led by senior level executives

Value as a Utility

Throughout all supply chain processes (internal to the company through operational processes and external to the company), the supply chain enables the product to have value added as a utility.

  • Utility: value or benefit a customer receives from a purchase
  • Types of Utility
  1. Form Utility: performed by manufacturers as well as third party logistic companies, which perform value added activities
  2. Time Utility: having products available when needed
  3. Place Utility: having items available where people want them
  4. Possession Utility: Transfer ownership to the customer as easy as possible
  5. Information Utility: Opening two wave flows between channels of communication
  6. Service Utility: Providing fast, friendly service to ensure efficiency and customer relationships

Organizational and Supply Chain Strategy

  •  Mission Statement: a company’s purpose or reason for being and should guide the actions of an organization, lay out its overall goal, while providing an overall path to guide decision making.
  • The mission statement must include: customers, product/services, markets, technology, future survival growth, and profitability, philosophy, self-concept, public image, and concern for employees
  • Objectives: measurable targets a firm uses to evaluate the extent to which it achieves its mission
  • SWOT Analysis
    • Strength
    • Weaknesses
    • Opportunities
    • Threats
      • Strategic choices will be made based on the results from the SWOT analysis
      • The supply chain must be managed to support these strategies
  • Supply Chain Strategy Elements and Drivers
    • “Supply chain strategy defines the connection in combination of activities and functions throughout the value chain in order to fulfill the business value proposal to customers in a marketplace.”
    • Supply chain strategy is driven by interrelation among four elements:

  1. Industry Framework (or marketplace): identifying interaction with customers, suppliers, technological developments, and economical factors that may impact competition
  • Demand Variation
  • Market Mediation Costs- costs incurred when supply doesn’t match demand
  • Product Life Cycle- technological advances have reduced the time to bring the item to market as well as its useful life
  • Relevance of the cost of assets to total costs- largely affects businesses requiring a high utilization rate to remain profitable (e.g.- Chemical industry) this encourages a push mentality to gain high utilization of assets

2. Companies value proposition to the customer via competitive positioning (also known as unique value proposal)

  • This helps determine what it takes to win business and incorporate that into their value proposition resulting in the understanding of required key drivers in the supply chain so that the required value is delivered to the customer

3. Managerial focus (relationship between supply chain, processes, and business strategy)

  • An organization must make sure that its supply chain is linked and aligned with its competitive priorities. This can only be accomplished through its decision making process and management focus.
  • A misalignment can result in the supply chain being sub-optimized

4. Internal (supply chain) processes

  • Must be connected and aligned properly
  • Supply Chain Operations Reference (SCOR) model helps to make sure sourcing, making, and delivering is accomplished.
  • Managers must determine appropriate decoupling point (where a product takes on unique characteristics and specs)
  • This helps determine which internal processes are push (high asset utilization just before the decoupling point) or pull (workload driven by customer demand)

Supply Chain Strategy Methodology

1. Start with customers current and future needs

2. Assess current supply chain capabilities relative to best in class

  • Developing a gap analysis of current vs. ideal state can contribute to a clear roadmap

3. Evaluate supply chain game changers

  • It is necessary to scan the environment to see what trends may impact customers and the supply chain

4. Analyze the competition

  • Value-added services: Sorting and recycling, reverse logistics, and light assembly

5. Survey Technology

  • Finding a good fit to your company

6. Deal with Supply Chain Risks

  • Demand
  • Supply
  • Environmental
  • Business
  • Physical Plant

7. Develop new supply chain capability requirements and create a plan to get there

  • Three issues that are closely tied to strategic supply chain management:
  1. Agility→ the ability to act rapidly to dramatic change to supply and demand
  2. Adaptability→ willingness and capacity to shape supply chain
  3. Alignment→ creating consistency in all interests of participants in supply chain

8. Evaluate current supply chain organizational structure, people, and metrics

9. Develop a business case and get buy-in

  • Business case→ whenever resources such as money or effort are utilized they should be in support of a specific business need

Supply Chain Opportunities and Challenges

  • Demand planning
    • Cross-functional processes such as sales and operations planning help to improve accuracy of  demand estimates to reduce cost
    • Bullwhip Effect: Producing larger than needed lot sizes which are pushed through the supply chain causing inefficiencies throughout. The bullwhip effect describes the magnification    that occurs when orders move up  the supply chain
      • Can be caused by forecast errors, large lot sizes, panic ordering, or variance in lead times
      • There are several way to combat the bullwhip effect which include lean, EDI (avoid batching orders), VMI (collaboration programs), and CPFR (to collaborate with customers and suppliers to share information such as everyday low pricing).

  • Globalization
    • Can optimize the number, location, size, type of facilities, and flow of materials throughout the network
  • Increase competition and price pressures
    • Value-added service can be provided through:
      • Vendor managed inventory (VMI) → middleman between supplier and buyer at supplier’s expense to maintain agreed inventory
      • Radio frequency identification (RFID) → identify and track tags attached to objects
      • Labeling and packaging
      • Drop shipping
      • Collaboration
  • Outsourcing
  • Shortened and more complex product life cycles
    • Increasing pressures to develop and introduce innovative products quickly
  • Closer integration and collaboration with supplier

Supply Chain Talent Pipeline

  • Demand for supply chain talent is project to continue to rise, while the talent gap will become greater

Growing Demand

  • Entry level professional supply management start at around $49,500
  • Average salary of those with 5 years or fewer is $83,689
  • Certifications Available:
    • Certified Professional in Supply Management (CPSM)
    • Certified Production and Inventory Management (CPIM)
    • Certified Supply Chain Professional (CSCP)

Three relationships between Chapter content and location/spatial issues

  1. Walt Disney
    1. Use RFID through wristbands to track attendees location in parts of the Magic kingdom
    2. If you lose your child you can find them
    3. Use these wristbands to be granted access to areas based on the package you bought
  2. Homeless Management Information System
    1. Using GIS to navigate accessibility of public housing, social and environmental factors, and helping at risk youth
  3. BJC Healthcare
    1. Uses Smart Cabinets for inventory management
    2. Full visibility into inventory
    3. Reduced the amount of stock on hand by 23%

PowerPoint: https://docs.google.com/presentation/d/1ZBEywe_o9_W3tjOutaEkpY_ZorZIqFQ4n1glfDYnbhU/edit?usp=sharing

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