Description
the different drivers and obstacles to supply chain.
Supply Chain Drivers and Obstacles
11
2/5/131st June 2007
GLOBAL
Obstacles
2 22
2/5/131st June 2007
GLOBAL
VARIETY
•
Increase in product variety complicates the supply chain by making forecasting and meeting demand more difficult. Increased variety tends to raise uncertainty and results in increased costs and decreased responsiveness. DECREASING PRODUCT LIFECYCLES
•
•
Shorter life cycles increase uncertainty and put additional pressure on supply chain to coordinate and create a good match between supply and demand. FRAGMENTATION OF SUPPLY CHAIN OWNERSHIP • Over the past several decades, most firms have become less vertically integrated.
•
This new ownership structure, has made managing the supply chain more difficult. With the chain broken into many owners, each with its own policies and 33 2/5/131st June 2007
•
GLOBAL
GLOBALIZATION
•
Companies are becoming more global. Global supply chain creates many benefits, such as the ability to source from a global base of suppliers who may better or cheaper goods. But globalization also adds stress to the chain because facilities with the chain are farther apart, making coordination much more difficult.
•
•
44
2/5/131st June 2007
GLOBAL
Drivers
5 55
2/5/131st June 2007
GLOBAL
SUPPLY CHAIN DRIVERS
•
Key drivers that determine the performance of Supply Chain in terms of responsiveness and efficiency are:
Ø
Facilities – Factories / Warehouses Inventory Transportation Information
Ø
Ø
Ø
6 66
2/5/131st June 2007
SUPPLY CHAIN STRATEGY AND DRIVERS Competitive Strategy
Supply Chain Strategy Responsivene ss Facilities Efficienc y Supply Chain Drivers Inventory Transport ation Informatio n
77
2/5/131st June 2007
GLOBAL
FACILITIES
•
Facilities are the locations in the supply chain network can be Factories or Warehouses.
•
Facilities have a significant impact on the supply chain’s performance.
Ø
For example, having multiple warehouses closer to customers could improve the service levels but also improve the warehousing costs.
Ø
Inversely, reducing the number of warehouses, may reduce the costs but might impact the service levels.
Ø
If the decision is to keep the warehouses to a minimal number while still maintaining the service levels, there may need a higher investments in
8 88
information and logistics technologies. 2/5/131st June 2007
GLOBAL
FACILITIES : COMPONENTS OF FACILITIES DECISION LOCATION
•
It means deciding on where to locate the warehouses / factories A basic trade-off is whether to centralize to gain economies of scale of decentralize to become more responsive by being closer to the customer. Other issues to be considered are – Macroeconomic factors,. Quality of workers, Facility Cost, Infrastructure, Taxes, Octroi etc
•
•
CAPACITY • Companies need to make a trade-off between capacity and responsiveness.
•
Excess capacity allows the facility to be very flexible and to respond to wide swings in the demand but increases the cost. Higher utilization will reduce the cost but will not be flexible to react to market fluctuations.
9 99
•
2/5/131st June 2007
GLOBAL
FACILITIES : COMPONENTS OF FACILITIES DECISION OPERATIONS METHODOLOGY
•
This pertains to design a facility with a product focus or a functional focus. A product-focused facility performs many different functions (e.g. fabrication and assembly) in producing a single type of product. A functional focused facility performs few functions (eg. Only fabrication or only assembly) on many types of products. A product focus tends to result in more expertise about a particular type of product at the expense of the functional expertise. Firms must decide which type of expertise will best enable them to meet customer needs.
•
•
•
•
10 1010
2/5/131st June 2007
GLOBAL
FACILITIES : COMPONENTS OF FACILITIES DECISION WAREHOUSING METHODOLOGY
•
Storage Type Layout Infrastructure Automation
•
•
•
11 1111
2/5/131st June 2007
GLOBAL
INVENTORY : COMPONENTS OF INVENTORY DECISION CYCLE INVENTORY
•
Cycle Inventory is the average amount of inventory used to satisfy demand between receipt of supplier shipments. Increase in lot size increases the inventory carrying costs but decreases the transportation and ordering costs.
•
SAFETY INVENTORY
•
Safety inventory is the inventory held to manage uncertainty – both supply side and demand side. Safety inventory involves making a trade-off between the costs of having too much inventory and the costs of losing due to not having enough inventory
•
12 1212
2/5/131st June 2007
GLOBAL
INVENTORY : COMPONENTS OF INVENTORY DECISION SEASONAL INVENTORY
•
Seasonal inventory is inventory that is built up to counter predictable variability in demand. Companies using seasonal inventory will build up inventory in periods of low demand and store it for periods of high demand when they will not have the capacity to produce all that is demanded.
•
13 1313
2/5/131st June 2007
GLOBAL
TRANSPORTATION : COMPONENTS OF TRANSPORTATION DECISION MODE
•
Generally, there are about 6 modes of physical transportation, each has different characteristics with respect to the speed, cost, flexibility etc.
Mode Air Truck / TL Truck / LTL Rail Water Pipeline
Revenue / Tonmile (in cents) 56.25 9.13 26.12 2.40 0.73 1.37
2/5/131st June 2007
Source: Transportation in 14 America. 1414
GLOBAL
TRANSPORTATION : COMPONENTS OF TRANSPORTATION DECISION ROUTE AND NETWORK SELECTION
•
A route is the path along which a product is shipped and network is the collection of locations and routes along which a product can be shipped.
Ø
A company needs to decide whether to ship products directly to customers or to use a series of distribution layers
INSOURCE OF OUTSOURCE
•
Traditionally, much of the transportation function has been performed inhouse. Today, much of transportation is outsourced. Apart from the costs, this has got a strategic implication.
•
•
15 1515
2/5/131st June 2007
GLOBAL
INFORMATION
•
Information consists of data and analysis concerning Order Processing, facilities, inventory, transportation and customers through out the supply chain.
•
Information is potentially the biggest driver of performance in the supply chain as it directly affects each of the other drivers.
•
Though Order Processing costs are less than 10% of the overall SCM costs, the impact of information management on SCM costs and customer service is much higher.
•
Good information systems can help a firm improve both its responsiveness and efficiency. 1616 2/5/131st June 2007
doc_301810098.pptx
the different drivers and obstacles to supply chain.
Supply Chain Drivers and Obstacles
11
2/5/131st June 2007
GLOBAL
Obstacles
2 22
2/5/131st June 2007
GLOBAL
VARIETY
•
Increase in product variety complicates the supply chain by making forecasting and meeting demand more difficult. Increased variety tends to raise uncertainty and results in increased costs and decreased responsiveness. DECREASING PRODUCT LIFECYCLES
•
•
Shorter life cycles increase uncertainty and put additional pressure on supply chain to coordinate and create a good match between supply and demand. FRAGMENTATION OF SUPPLY CHAIN OWNERSHIP • Over the past several decades, most firms have become less vertically integrated.
•
This new ownership structure, has made managing the supply chain more difficult. With the chain broken into many owners, each with its own policies and 33 2/5/131st June 2007
•
GLOBAL
GLOBALIZATION
•
Companies are becoming more global. Global supply chain creates many benefits, such as the ability to source from a global base of suppliers who may better or cheaper goods. But globalization also adds stress to the chain because facilities with the chain are farther apart, making coordination much more difficult.
•
•
44
2/5/131st June 2007
GLOBAL
Drivers
5 55
2/5/131st June 2007
GLOBAL
SUPPLY CHAIN DRIVERS
•
Key drivers that determine the performance of Supply Chain in terms of responsiveness and efficiency are:
Ø
Facilities – Factories / Warehouses Inventory Transportation Information
Ø
Ø
Ø
6 66
2/5/131st June 2007
SUPPLY CHAIN STRATEGY AND DRIVERS Competitive Strategy
Supply Chain Strategy Responsivene ss Facilities Efficienc y Supply Chain Drivers Inventory Transport ation Informatio n
77
2/5/131st June 2007
GLOBAL
FACILITIES
•
Facilities are the locations in the supply chain network can be Factories or Warehouses.
•
Facilities have a significant impact on the supply chain’s performance.
Ø
For example, having multiple warehouses closer to customers could improve the service levels but also improve the warehousing costs.
Ø
Inversely, reducing the number of warehouses, may reduce the costs but might impact the service levels.
Ø
If the decision is to keep the warehouses to a minimal number while still maintaining the service levels, there may need a higher investments in
8 88
information and logistics technologies. 2/5/131st June 2007
GLOBAL
FACILITIES : COMPONENTS OF FACILITIES DECISION LOCATION
•
It means deciding on where to locate the warehouses / factories A basic trade-off is whether to centralize to gain economies of scale of decentralize to become more responsive by being closer to the customer. Other issues to be considered are – Macroeconomic factors,. Quality of workers, Facility Cost, Infrastructure, Taxes, Octroi etc
•
•
CAPACITY • Companies need to make a trade-off between capacity and responsiveness.
•
Excess capacity allows the facility to be very flexible and to respond to wide swings in the demand but increases the cost. Higher utilization will reduce the cost but will not be flexible to react to market fluctuations.
9 99
•
2/5/131st June 2007
GLOBAL
FACILITIES : COMPONENTS OF FACILITIES DECISION OPERATIONS METHODOLOGY
•
This pertains to design a facility with a product focus or a functional focus. A product-focused facility performs many different functions (e.g. fabrication and assembly) in producing a single type of product. A functional focused facility performs few functions (eg. Only fabrication or only assembly) on many types of products. A product focus tends to result in more expertise about a particular type of product at the expense of the functional expertise. Firms must decide which type of expertise will best enable them to meet customer needs.
•
•
•
•
10 1010
2/5/131st June 2007
GLOBAL
FACILITIES : COMPONENTS OF FACILITIES DECISION WAREHOUSING METHODOLOGY
•
Storage Type Layout Infrastructure Automation
•
•
•
11 1111
2/5/131st June 2007
GLOBAL
INVENTORY : COMPONENTS OF INVENTORY DECISION CYCLE INVENTORY
•
Cycle Inventory is the average amount of inventory used to satisfy demand between receipt of supplier shipments. Increase in lot size increases the inventory carrying costs but decreases the transportation and ordering costs.
•
SAFETY INVENTORY
•
Safety inventory is the inventory held to manage uncertainty – both supply side and demand side. Safety inventory involves making a trade-off between the costs of having too much inventory and the costs of losing due to not having enough inventory
•
12 1212
2/5/131st June 2007
GLOBAL
INVENTORY : COMPONENTS OF INVENTORY DECISION SEASONAL INVENTORY
•
Seasonal inventory is inventory that is built up to counter predictable variability in demand. Companies using seasonal inventory will build up inventory in periods of low demand and store it for periods of high demand when they will not have the capacity to produce all that is demanded.
•
13 1313
2/5/131st June 2007
GLOBAL
TRANSPORTATION : COMPONENTS OF TRANSPORTATION DECISION MODE
•
Generally, there are about 6 modes of physical transportation, each has different characteristics with respect to the speed, cost, flexibility etc.
Mode Air Truck / TL Truck / LTL Rail Water Pipeline
Revenue / Tonmile (in cents) 56.25 9.13 26.12 2.40 0.73 1.37
2/5/131st June 2007
Source: Transportation in 14 America. 1414
GLOBAL
TRANSPORTATION : COMPONENTS OF TRANSPORTATION DECISION ROUTE AND NETWORK SELECTION
•
A route is the path along which a product is shipped and network is the collection of locations and routes along which a product can be shipped.
Ø
A company needs to decide whether to ship products directly to customers or to use a series of distribution layers
INSOURCE OF OUTSOURCE
•
Traditionally, much of the transportation function has been performed inhouse. Today, much of transportation is outsourced. Apart from the costs, this has got a strategic implication.
•
•
15 1515
2/5/131st June 2007
GLOBAL
INFORMATION
•
Information consists of data and analysis concerning Order Processing, facilities, inventory, transportation and customers through out the supply chain.
•
Information is potentially the biggest driver of performance in the supply chain as it directly affects each of the other drivers.
•
Though Order Processing costs are less than 10% of the overall SCM costs, the impact of information management on SCM costs and customer service is much higher.
•
Good information systems can help a firm improve both its responsiveness and efficiency. 1616 2/5/131st June 2007
doc_301810098.pptx