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Teh Hong Geap

on 30 January 2015

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Focus of SCM
Importance of SCM
Friday, January 23, 2015
Vol XCIII, No. 311
Classification of Supply Chain Flows
Sales, Orders, Inventory, Quality, Promotion Plans
Capacity, Promotion Plans, Delivery Schedules
Returns, Repairs, Servicing, Recycling, Disposal
Raw Materials, Intermediate Products, Finished Goods
Payments, Consignments
Credits, Consignment, Payment terms, Invoice
Classification of Supply Chain Flows
General Motors Service Parts Organisation
Parts Plant
Distribution Center
Replenishment Orders
Service Request
Example of why information sharing between Upstream parties and Downstream parties is important
Original Price $50
Now $40
Walmart Promotion
Sales increases by 50%
Build more inventory by producing more pampers
Better forecasts
Objective of every Supply Chain
Maximise the overall value generated by the chain

Value generated = Value of final product to the customer minus the total costs across the supply chain

1. A customer puchases a car for $20000

Value generated by the supply chain = $20000 - total costs spent on production, inventory, transportation and etc

This value represents the supply chain profitability
Will be shared by all parties within the supply chain
Measuring Success of Supply Chain
looking at the total supply chain profitability instead of the local profits of the individual supply chain stages.
In order to be successful, a supply chain should try to work as one entity to maximize supply chain
Making the Supply Chain fit your Product
Managing supply chains effectively is a difficult and challenging task
Current business trends of shortening product life cycle
Increased Product Variety
Globalisation of Business
Growing advances in information technology
Growing advances in information technology
Making the Supply Chain fit your Product
When designing a supply chain strategy, managers need
to ensure :
Strategy is aligned with the product it is supporting and

More specifically with the uncertainties related to the product

Demand and Supply Uncertainties
Product Uncertainties
Supply-Side Uncertainty
Demand-Side Uncertainty
Long Product Life Cycle
More Stable Demand
E.g. Groceries, basic clothing, food, oil and gases.
Short Life Cycle
High Innovation and Fashion Content
Highly Unpredictable Demand
E.g. Haute Couture, computers and telecom
Product Life Cycle
Contribution Margin
Product Variety
Margin of error in demand forecast at time of production commitment
Average Stock-Out Rate
Forced end of the season markdowns as % of full price
Lead time required for Made-to-Order products
More than 2 years
2 months to 1 year
5% - 20%
20% - 60%
Low (10–20 variants per category)
High (Hundreds of variants per category)
40% - 100%
1% - 2%
10% -40%
10% - 25%
6 months to 1 year
1 day to 2 weeks
Manufacturing process and technology utilised are mature
Supply base is well established
Manufacturing process and underlying technology are still under development and are changing rapidly
Hence, supply base may be limited in both size and experience
Process stability and yield
Supply Sources
Reliability of suppliers
Process changes
Capacity constraints
Lead time
Fewer breakdowns
Stable and Higher yields
Fewer Quality Problems
More Supply Sources
Reliable suppliers
Fewer Capacity Constraints
Easier to change over
Dependable Lead Time
Vulnerable to breakdowns
Variable and lower yields
Potential quality problems
Fewer supply sources
Unreliable suppliers
Potential capacity constraints
Difficult to change over
Variable lead time
Product Uncertainties
Demand Uncertainty
Supply Uncertainty
(Functional Product)
(Innovative Product)
(Stable process)

(Evolving process)
Grocery, basic apparel,
food, oil and gas
Hydroelectric power, some
food products
Haute Couture, Computers, electro dance music
Telecom, semi-conductor, high end computer
Uncertainty framework examples
SCM is an oversight

Definition of Supply Chain Management

Directly or indirectly fulfilling a customer's request

SCM involves coordinating and integrating these flows both within and among companies

Component of SCM

A process from supplier to manufacturer to wholesaler to retailer to consumer
Supply chain management is essential for global companies

Integration of supply with demand help companies

1) Increase market share
2) Reduce cost
3) Improve customer service
4) Increase market value

After 1980s, the focus turn into efficiency in manufacturing, while quality have become the basic requirement

Before 1980s, company see quality as the main focus in SCM

Today a good management have become the actual focus in SCM, as it contribute to success in most major company
Supply Chain for Wal-Mart
Suppy Chain Management
Effective SCM Strategy
Efficient Supply Chain
Productivity Improvement
Good supply chain management involves the following functions :

Locating the source of material
Identifying the channel of distribution
Building relationships between supplier and customers
Gathering and assessing information from end consumers
Identifying the logistics structure
Optimising the overall performance in supply chain

1) Dell
2) Zara
3) 7-11 (Japan)

Successful story - Dell

Successful Companies
1) Dells' supply chain mode depend on direct sale to customer

2) Dell also provides its suppliers real-time information

Such mode enable Dell to exert greater control
Get additional information about its customer
Dell can make educated decisions that will affect the entire supply chain
Such up to dated information ensure that they keep the right levels of inventory of the right components
Secret of Dells' success

3) Dell’s close contact with customers
as well as understanding of customer's needs

Dell is able to achieve the following :

1) Lower cost of capital invested in inventories

2) Develop the ability to go faster to market with new components

3) Ensuring that defects are not introduced

Successful Story - ZARA
Successful Story - 7-11
Supply Chain Strategies
The Supply chain management approach have contribute to its success.

1) Fast-response supply chain incorporating all the different stages in its supply chain

2) From design and manufacturing to distribution and retailing

Zara’s supply chain approach enables it to make its design and production decisions within a fashion season instead of well in advance of a season, resulting in better response to demand

1. Efficient Supply Chain

2. Risk-Hedging Supply Chain

3. Responsive Supply Chain

4. Agile Supply Chain

Focus on producing the highest cost efficiencies

Low demand and supply uncertainties

Minimising physical, transportation and inventory storage

1) Eliminate non-value adding activities
2) Pursue scale economies
3) Optimize capacity utilization
4) Implement efficient information transmission

Two major ways of achieving cost efficiency:
1) Productivity improvement
2) Effective logistics and distribution

Basic elements of manufacturing excellence:
1) Just-in-time systems
2) Automation
3) Economies of scale
4) Facility layout
5) Workflow streamlining

For example, Toyota and POSCO

Effective Logistics and Distribution
Ship products directly from the manufacturing source to the customer without going through distribution centers

For examples, retail giants such as Wal-Mart and Costco
-Direct-to-store distribution processes

Example, Longs Drug

Risk-hedging supply chains
Risk-hedging supply chains
Responsive Supply Chains
Responsive Supply Chains
Pooling and sharing resources across the supply chain

Risk of supply disruption can be shared

Uncertainties regarding:

Inventory pooling among different facilities

- Yield, process reliability, supply source and lead time
- For example, Retailing and Distributors (Ingram-Microhave)

Safety stocks
Increase safety stock of its key component and Sharing them with other companies
Hedge against the risk of supply disruption

Develop multiple supply bases
Backup sources for their products
Cost of having multiple sources might be high

Real-time sharing
Information transparency among the members
Cost-effective transhipment of goods from one site to another site

1. Benetton, uses the idea of postponement
- Redesigning its manufacturing processes
- Postponing the colour decision until the demand for different
colour arrives

2. Sports Obermeyer
- Accurate response
- Produces product with more predictable demand before the
- Makes the unpredictable products within the season, after
more demand information becomes available
-Build-to-order processes
-Mass customization
-Information sharing
-Ensuring of order accuracy
Being responsive and flexible to the changing and diverse needs of the customers
For example, Fashion Industry
Responsive Supply Chains (ZARA)
Agile Supply Chains
Roles of the Internet in Supply Chain Management
Agile Supply Chains (Xilinx Inc)
Fast-response supply chain

Incorporating all the different stages in its supply chain

Designing and manufacturing in small batches

Similar to the concept of accurate response (Sports Obermeyer)

Faster mode of transport

Efficient delivery to retailers and Constantly changing designs

-Hybrid of responsive and risk-hedging strategies
Responsive and flexible to customer’s need
Hedging for the risks of supply shortages

Lean and flexible structure
Fast and efficient response to customers
Reducing the overall cost

-For example, Xilinx Inc

Efficient Supply Chains:

Internet enables tight and cost effective information integration
Enabling production and distribution schedules to be optimized
Responsive Supply Chains:

Internet has enabled very accurate and timely capturing of highly personalized requirements
Fast transfer of order information
Roles of the Internet in Supply Chain Management
Risk-hedging Supply Chains:

Supply and demand information transparency in real-time through the internet makes pooling risks more manageable
Internet used to support risk-hedging supply chains

Covisint was established by 3 major car manufacturers in the United States and later Nissan and Renault

Roles of the Internet in Supply Chain Management
Agile Supply Chain:

Create an e-hub that will link multiple tiers of suppliers via the Internet
1. Focus on the demand side of the business and smart
information to achieve efficient use of scarce shelf space

High cost of real estate in Japan

2. Systems to analyse hourly sales trends each day and make the

Efficient product replenishment: high level of stock availability
3. Its systems delivered dividends:

low operational costs
low inventories
short cycle times
high customer service

SEJ achieved significantly higher sales per store than it’s Competitors


Increased sales
Better market penetration
Higher profits
Superior shareholder returns
Supply Chain Management
Lecturer : Mr. Jeremy Seow & Capt. V. Yadav
Group 4 :
Teh Hong Geap
Ajmeer Khan
Donovan Heng
Darren Sim
Meng XinYi
Supply chain will be necessary for Wal-Mart to supply the goods
to the customer
Develop better forecast and keeping lower inventories
results available to all stores and suppliers
Successful Story - 7-11
Only a customer's purchase provides a positive financial flow
Workable Framework
Coordination of the entire Supply Chain
Highlights the importance of variation and uncertainty
Does not adress products whose dominant uncertainty is neither supply nor demand
Full transcript