Slide 1Slide 2What is a Supply Chain?Slide 4Slide 5Slide 6Supply Chain Story ISupply Chain Story IISlide 9Supply Chain Story IIISupply Chain Story IVSupply Chain Story VSupply Chain Story VISupply Chain Story VIISupply ChainSupply Chain ManagementWhy so Difficult to Match Supply and Demand?Losing Sight of the Common ObjectiveThe Bullwhip EffectCauses of the Bullwhip EffectMore Causes of the Bullwhip EffectImpact of the Bullwhip EffectBullwhip Causes and CountermeasuresSlide 25Vendor Managed Inventory (VMI)Slide 27Wal-Mart’s Phenomenal SuccessWal-Mart: Efficient Supply ChainSupply Chain Performance MeasuresSlide 31Inventory TurnsSlide 33Inventory ProductivityEfficient S. Chain: ProcurementWal-Mart and P&G PartnershipEfficient S. Chain: DistributionEfficient S. Chain: Product AssortmentPricing Strategy: EDLPWal-Mart: Market PositionTraditional vertically disintegrated supply chainRole of the DistributorRole of the StoreSupply Chain Structures on InternetMeet Spun.comSlide 46Slide 47Marketing expenditure of the Internet RetailerSlide 49Slide 50Slide 51Slide 52Slide 53Slide 54Slide 55Supply 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.The concept of supply chain defines a series of companies interlinked together by a flow of material and information in order to serve the end customer.What is a Supply Chain?Supplier 1Supplier 2ManufacturerMaterial and Information Flow…Forward: Flow of materialBackward: Flow of informationA Supply Chain Example…CokeJNJKellogP&GGAFLALTXKrogerTier 1 suppliersSuper market chainsState distributorsV. HighlandsPeachtreeOcean DriveFt. Laud.Local storesEnd customerPublixSupply Chain Story IOn tracing the journey of a partSource: The Resilient EnterpriseSupply Chain Story IIPhilips factoryin New MexicoNokiaEricssonSource: The Resilient EnterpriseSupply 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 ChainSupplierManufacturerDistributorRetailerCustomersSupply 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!The Bullwhip EffectAmplification of variability as you move up in the supply chainCustomerRetailerDistributorFactorySuppliersDemand variability increases as we move away from market and towards supplyPervasive across most industriesIncreases costs and degrades serviceCauses of the Bullwhip Effect•Over-reaction to backlogs•Lack of communication•Lack of coordination•Delay times for information and delivery of materialsMore Causes of the Bullwhip Effect•Order batching (ordering costs, transportation economics, sales incentives)•Shortage gaming (concerns about potential supply shortage)•Price variations (promotions  forward buying)•Demand forecast updating–Multiple forecasts - no visibility of end consumer demandImpact of the Bullwhip Effect•High inventory/lost sales/backlog cost•Low customer satisfaction•Low