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Supply Chain Management

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Chen Wenjie

on 20 April 2014

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Transcript of Supply Chain Management

6. Other participants will join the groups assigned to them based on the coupon after the retailer has created the game.

Supply Chain
"A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request."
-- Chopra and Meindl
Coffee from Canteen A
Activity 1
When you bought coffee in the morning, what journey do you think it had already taken before it touched your lips?
how can ERP contribute to SCM
Relationship between ERP and SCM
"It is the difference between general physician and heart surgeon." - Sanjiv Sidhu
Efficient commercial process
Customer Service Satisfaction
Planning Control Process
Functions of SCM
Coordination in the supply chain
The Beer Game depicts a fundamental concept of Supply Chain Management:
the bullwhip effect.
A small change in the customer demand
Beer Game Instructions
Magnifies up the supply chain
Four people will play different links on the supply chain – retailer, wholesaler, distributor and producer.

The aim of the game is to have to biggest balance (profit) along the whole supply chain

Per unit delivered, $4 is earned

The Bullwhip Effect
Arises because of the lack of supply chain coordination
Fluctuations in order size and inventory increases as you move up the supply chain
Distorts information because each stage has a different estimate of what demand looks like
could Benefit from having a single major source(ERP) to go to for up-to-date information.
integrates all that information together in a single application
Example: Wal-Mart
Beer Game Instructions
One of the world's most efficient supply chain
Aims to lower cost & increase productivity

Business strategy:
1. Expanding around distribution centers
-> lower additional cost for new stores
2. Using Electronic data interchange with suppliers
-> lower transaction cost, high degree of control and coordination
3. "Big box" store format
-> no delay, no transportation cost from warehouse
4. "Everyday low prices"
-> attraction & accurate forecasting
To do so, we will need need to lower the cost
1. Align goals
2. Timely information sharing
3. Collaborative forecasting and planning
Discovered by Procter & Gamble in the supply chain for Pampers diapers;
They observed that raw materials fluctuated significantly over time while retail stores recorded low variability
It is difficult for the manufacturer to match supply with demand
Beer Game Instructions
There is a lead time of 2 weeks before an order sent out reaches the next upstream participant
There is also a lead time of 2 weeks for delivery to reach the next downstream partner
There is a lead time of 2 weeks before an order sent out reaches the next upstream participant
There is also a lead time of 2 weeks for delivery to reach the next downstream partner
Future trends

1. Type “java control panel” in the windows search box and click
Lower your Java security settings to medium
2. Click on the Java
Beer Game Instructions
Beer Game Instructions
Effects on performance
3. Click on the security tab and lower it to medium

Manufacturing Costs
Inventory Costs
Transportation Costs
Labour costs for shipping and receiving
Product availability => stock run-outs => loss of goodwill
Damaged relationships across the supply chain
Obstacles to coordination
The integration of supply-chain capabilities with ERP systems will continued to be enhanced
Benefit & Potential Disadvantages
Beer Game Instructions
Information sharing
Better forecasting/planning
Lesser lead time
Goal: increase throughput, reduce cost

too much information shared
Lose competitiveness
Timely sharing of information across the overall supply chain
Philosophy of SCM:
a firm has the right product in the right place, at the right price, at the right time, and in the right condition.

Facilitating the synchronization of the entire chain
Beer Game Instructions
will create the game based on the Beer Company on their coupon

1. Local Optimization by each stage
2. Information delay, distortion and variability
3. Behavioral issues
Example of local optimization
If the compensation of a transportation manager at a firm is linked to the average transportation cost per unit, the manager is likely to take actions that lower transportation costs even if they increase inventory costs or hurt customer service.
Information-Processing obstacles
• Forecasting based on received orders and not on customer demand

• Lack of information sharing

Behavioral obstacles
Each player views its actions locally
and is unable to see the impact of its actions on other stages
Different stages of the supply chain
react to the current local situation
rather than trying to identify the root causes
Based on local analysis,
different stages of the supply chain blame each other
for the fluctuations
No stage of the supply chain learns from its actions over time
because the significant consequences of their actions occur elsewhere.
Lack of trust
results in an opportunistic attitude at the expense of the overall performance and the information is not shared or ignored.

A random increase in the consumer demand => the retailer may see it as a growth trend and place order to cover the future growth => the wholesaler receives a larger order with no other info, assumes the trend is going to continue and places an even higher order to cover for future growth. Thus, order size increases as you move up in the supply chain.
Wal-Mart may increase the order size for a planned promotion available for a limited period of time. With no other information, the manufacturer may interpret it as an increase in demand and places orders with suppliers accordingly =>excess inventory after the end of the promotion.
Solutions to achieve coordination

Aligning goals across the supply chain

define the performance of the entire supply chain as an objective

Sharing point-of-sale data

(in reality the only demand the supply needs to satisfy is from the end-customer

Implementing collaborative forecasting and planning to achieve complete coordination

(it is not achieved only by sharing past data – a retailer who had a promotion last month and recorder higher sales may forecast normal sales in the future (after the end of the promotion) while the manufacturer still expects the higher levels to continue)

An enterprise requires:

Free flow of information
Sharing of the right information
Integrate internal business processes (within the corporate boundary)

Allow an individual organization to integrate its business processes with those of its business partners
Increased management information
Operation Process
Shorter reaction time
Better quality of Product
Mass customization
Controlled Inventory level
Standardization of both process and data
4. Go to
Beer Game Instructions
Service Providers
Supply Chain Management
Presented by My Favorite Group
Chen Wenjie
Huang Yixuan
Saleh Bagesher
Victor Stinga
Xu Mengxing

Bean from Company B
Shipped from Company D
Shipped by Company C
Roasted in Company F
Grown in Farm H
Selected by Company G
Loan Provided by Bank E
Participants in Supply Chain
- Customer
- Retailer
- Distributor
- Manufacturer
- Service Provider
-- Any organization or individual that purchases and uses a product

1. purchase + sell again
2. final end user, consume it
-- Any organization that makes a product

1. Raw materials
2. Semi-finished goods
3. Finished goods
4. Intangible items (eg. music, software)

-- Company that takes inventory in
large quantity
from manufacturers and delivers a bundle of related product lines to customers

1. Takes ownership (sales & promotion, inventory management, warehouse operations, transportation, customer support, post-sales service)

2. Does not take ownership (mainly sales & promotion)
What, how and when to produce
-- Store inventory and sell in
smaller quantities
to the
general public

Method to attract customers:
Low price /Product range /Service /Convenience
How much to make and how much to store
The basis for making these decisions
How and when to move product
Where best to do what activity
Definition of
Supply Chain Management (SCM)
Service Provider
An organization that provides
to manufacturers, distributors, retailers, or customers. They focus on a
particular activity

1. Transportation and warehousing
2. Financial
3. Marketing and advertising
4. IT
5. Design
6. Legal
7. Advisory....
“Supply chain management is the coordination of production, inventory, location, and transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served.”
-- Michael Hugos
Increasing throughput
while simultaneously
both inventory and operating

-- Reason for throughput occurs is different, depending on its own market.
eg. high levels of service, lowest prices.

Goal of SCM
of the product needed in each lot
response time
that customers are willing to tolerate
of products needed
service level
of the product
The desired rate of
in the product.
Understand Markets
Your Company Serves
5 Major Supply Chain Drivers
For responsiveness:
Stock high levels of inventory for a wide range of product
Store products at many locations close to customers
For efficiency:
Reduce inventory levels of all items
Store inventory in central locations

All decisions are based on timely availability of information regarding other four supply chain drivers.
Information is used for two purposes in supply chain
1. coordinating daily activities
2. forecasting planning to anticipate and meet future demands.
For responsiveness:
Collect and share accurate and timely data
For efficiency:
Collect and share less information so as not to risk having that information used against them

Different modes of transportation are:
electronic transportation
For responsiveness:
fast and flexible
For efficiency
large batches and less often
Location refers to the geographical sitting of supply chain facilities.
It also includes the decision related to which activities should be performed in each facility.
For responsiveness:
Open up many locations to be physically close to the customer base
For efficiency:
Operate from only a few locations
Centralize activities in common locations

The fundamental managerial decision is how to resolve trade-off between responsiveness and efficiency.
For responsiveness:
Factories with a lot of excess capacity
Use flexible manufacturing techniques
Do production in many smaller plants that are close to major groups of customers
For efficiency:
Factories with very little excess capacity
Factories optimized for a limited range of product
Centralize production for better economics of scale

Components of Supply
Chain Management
1. Plan
2. Source
3. Make
4. Deliver
5. Return
The strategic portion to manage all the resources that go toward meeting customer demand for their product or service.

Developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers. (related to 5 drivers)
Choose suppliers to deliver the goods and services
A set of pricing, delivery and payment processes with suppliers need to be developed
Metrics for monitoring and improving the relationships need to be created.
Put together processes for managing their goods and services inventory
Manufacturing step
Activities for production, testing, packaging and preparation for delivery
This is the most metric-intensive portion of SCM—companies are able to measure quality levels, production output and worker productivity.
Also known as logistics

Companies receive orders from customers, develop a network of warehouses, deliver products to customers and set up an invoicing system to receive payments. (O2C)
Could be a problematic part of the supply chain for many companies

A responsive and flexible network for receiving defective and excess products back from their customers

Support customers who have problems with delivered products.
Evolving Structure of Supply Chain
Fast-moving markets:
Focus on core competencies and outsource the rest
Fragmented supply chain

Slow-moving markets:
Vertical Integration
Gain maximum efficiency through economies of scale
1. Understand the market your company serves
2. Define core competencies of your company
3. Develop needed supply chain capabilities

Aligning Supply Chain with Business Strategy
Develop Needed Supply
Chain Capacities
ERP Systems
Introduction to Supply Chain
& Supply Chain Management

Beer Distribution Game
Bullwhip Effect

Beer Game Instructions
There is a lead time of 2 weeks before an order sent out reaches the next upstream participant

There is also a lead time of 2 weeks for delivery to reach the next downstream partner

Lower your Java security settings to medium

1. Type “java control panel” in the windows search box

2. Click on Java

Beer Game Instructions
Relationship between

Result: expenditure decreases
Consequently, organizations begin to rely on SCM systems as a new source of competitive advantages.
Define Core Competency
of Your Company
Apple - Manufacturer
Wal-Mart - Retailer
Let the games begin...
Full transcript