Slide 1Slide 2What is a Supply Chain?Supply ChainSlide 5Supply Chain ManagementWhy so Difficult to Match Supply and Demand?Losing Sight of the Common ObjectiveSupply Chain Story ISupply Chain Story IISlide 11Supply Chain Story IIISupply Chain Story IVSupply Chain Story VSupply Chain Story VISupply Chain Story VIISupply Chain Performance MeasuresSlide 18Inventory TurnsSlide 20Inventory ProductivityWal-Mart’s Phenomenal SuccessWal-Mart: Efficient Supply ChainEfficient S. Chain: ProcurementWal-Mart and P&G PartnershipEfficient S. Chain: DistributionEfficient S. Chain: Product AssortmentPricing Strategy: EDLPWal-Mart: Market PositionSupply Chain DesignMeet Spun.comSlide 32Slide 33Marketing expenditure of the Internet RetailerSlide 35Slide 36Slide 37Slide 38Slide 39Slide 40Supply Chain ManagementSupply Chain ManagementWhat is a Supply Chain?What is a Supply Chain?A supply chain is the system of organizations, people, activities, information and resources involved in moving a product or service from supplier to customer. Supply chain activities transform raw materials and components into a finished product that is delivered to the end customer.Supply ChainSupplierManufacturerDistributorRetailerCustomersA Supply Chain Example…CokeJNJKellogP&GGAFLALTXKrogerTier 1 suppliersSuper market chainsState distributorsV. HighlandsPeachtreeOcean DriveFt. Laud.Local storesEnd customerPublixSupply Chain ManagementSupply Chain Management is the design and management of processes across organizational boundaries with the goal of matching supply and demand in the most cost effective way. SupplyDemandMission impossible: Matching Supply and DemandWhy so Difficult to Match Supply and Demand?•Uncertainty in demand and/or supply•Changing customer requirements•Decreasing product life cycles•Fragmentation of supply chain ownership•Conflicting objectives in the supply chain•Conflicting objectives even within a single firm–Marketing/Sales wants: more FGI inventory, fast delivery, many package types, special wishes/promotions–Production wants: bigger batch size, depots at factory, latest ship date, decrease changeovers, stable production plan–Distribution wants: full truckload, low depot costs, low distribution costs, small # of SKUs, stable distribution planLosing Sight of the Common ObjectiveI'm glad that the hole is not on our side!Supply Chain Story IOn tracing the journey of a partSource: The Resilient EnterpriseSupply Chain Story IIPhilips factoryin New MexicoNokiaEricssonSource: The Resilient EnterpriseOn responding to a supply chain disruptionSupply Chain Story IIPhilips factoryin New MexicoNokiaEricssonSource: The Resilient EnterpriseOn responding to a supply chain disruptionSupply Chain Story IIIIn the mid-1990s, the Swedish car manufacturer Volvo found itself with excessive stocks of green cars. To move them along, the sales and marketing departments began offering attractive special deals, so green cars started to sell. But nobody had told the manufacturing department about the promotions. It noted the increase in sales, read it as a sign that consumers had started to like green, and ramped up production. Source: Chain reaction, The Economist, Jan 31, 2002On Internal communication and collaborationSupply Chain Story IVOn external communication and collaborationSupply Chain Story VUS auto man.SuppliersSuppliersToyota“Toyota helped us dramatically improve our production system. We started by making one component, and as we improved, [Toyota] rewarded us with orders for more components. Toyota is our best customer.”-Senior executive, supplier to Ford, GM, Chrysler, and Toyota, July 2001**“The Big Three [US automakers] set annual cost-reduction targets [for the parts they purchase]. To realize those targets, they’ll do anything. [They’ve unleashed] a reign of terror, and it gets worse every year. You can’t trust anyone [in those companies]”-Director, interior systems supplier to Ford, GM, and Chrysler, October 1999** And ** Source: Building Deep Supplier Relationships, HBR, December 2004Arm’s LengthPartnershipOn supplier managementSupply Chain Story VITraditional Supply ChainDell Supply Chain•On April 20, 2001 Dell toppled Compaq as the world’s largest PC maker*–Dell’s market share was 12.8% as opposed to Compaq’s market share 12.1%•Compaq and HP could not get into a price war with Dell because–Dell’s profit margin was 18%–Compaq and HP’s profit margins were in single digits*Source: Forbes.com, April 24, 2001?On gaining competitive advantageSupply Chain Story VIIIn the late 1970s, with about 200 stores, Wal-Mart was a relatively small retailer. At that time, Sears and Kmart dominated the retail market. Since then, Wal-Mart gained significant market share from these retailers and became the largest and most profitable retailer in the world. Today, Wal-Mart is admired for its collaboration and technology driven supply chain practices and is leading the retailing industry with its innovative supply chain practices. On gaining competitive advantageSupply Chain Performance MeasuresCostTotal Supply Chain Cost is the sum of all supply chain costs for all products processed through a supply chain during a given periodInventory Turnover is the ratio of the cost of goods sold to the value of average inventory.Weeks of inventory is the ratio of average inventory to the average weekly salesCustomer ServiceAverage Response Time is the sum of delays of ordering, processing, and transportation between the time an order is placed at a customer zone and the time the order arrives at the customer zoneWhat do these measures mean?•Inventory Turnover: how often the company replenishes inventory. High value of inventory turnover means that the inventory was not sitting around a long time.•Weeks of Supply: how many weeks worth of inventory does the company have on hand. High value of weeks of supply means that the firm has a lot of inventory sitting around.Inventory TurnsKmart 1998 1999 2000 2001 2002Inventory $6.367B $6.536B $6.350B $5.796B $4.825BTot.Revenue $33.674B $35.925B $37.028B $36.151B $30.762BCOGS $26.319B $28.161B $29.732B $29.853B $26.258BNet Income $0.518B $0.364B ($0.268B) ($2.446B) ($3.219B)Wal-Mart 1998 1999 2000 2001 2002Inventory $16.497B $17.076B $19.793B $21.644B $22.749BTot.Revenue $117.958B $137.634B $165.013B $191.329B $217.799BCOGS $93.438B $108.725B $129.664B $150.255B $171.562BNet Income $3.526B $4.430B $5.377B