Supply Chain Management:

From Vision to Implementation

Chapter 1: Supply Chain Management and Competitive Strategy

Chapter 1: Learning Objectives

1. Define supply chain management and identify how supply chain collaboration can improve performance. 2. Discuss the extent to which supply chain strategies are being implemented.

Chapter 1: Learning Objectives

3. Define strategic management and discuss how supply chain management supports the development and execution of a winning competitive strategy. 4. Identify the four process steps involved in designing and implementing a supply chain strategy.
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Theory of Supply Chain Management

Companies seek to design business models that meet customer needs better than competitors. Success depends on the ability to Design, Make, and Deliver

innovative, high quality, low cost products and services that customers demand.
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Theory of Supply Chain Management

Supply chain management allows companies to focus on their unique skill sets. Supply chain management requires a common understanding of supply chain objectives and individual roles, an ability to work together, and a willingness to adapt in order to create and delivery the best products and services possible.
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Supply Chain: Manufacturing Example

Supply Chain: Manufacturing Example

Supply Chain: Service Example

Supply Chain: Service Example

Supply Chain Management Defined

Supply chain management is the design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer. - Institute for Supply Management

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Supply Chain Integration

Internal Process Integration: increase collaboration among the companys functional groups. Backward Process Integration: collaboration with 1st-tier and 2nd-tier (leading companies) suppliers. Forward Process Integration: collaboration with 1sttier customers. Complete Integration: collaboration from the suppliers supplier to the customers customer.

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Supply Chain Integration

Common

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Internal Value Chain Elements

Executive Management defines company strategy and allocates resources to achieve it. Supply Management coordinates the upstream supply base, finding the right suppliers and building the right relationships with them. Operations transforms the inputs acquired from suppliers into more highly valued products. Logistics moves and stores materials so they are available when and where they are needed. Marketing manages the downstream relationships with customers, identifying their needs and communicating to them how the company can meet those needs.
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Internal Value Chain Elements

Human Resources designs the systems used to hire, train, and develop the companys employees. Accounting maintains business records that provide information needed to control operations. Finance acquires and controls the capital required to operate the business. Information Technology builds and maintains the systems needed to capture and communicate information among decision makers. Research and Development (R&D) is responsible for new product design.

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Internal Value Chain: Local Focus

Executive Management R&D Information Technology

Operations

Supply Management

Logistics

Finance

Marketing

Accounting

Human Resource Management

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Internal Value Chain: Company Focus

Executive Management R&D

Information Technology

Operations

Upstream Suppliers

Supply Management

Logistics

Downstream Customers

Finance

Marketing

Accounting

Human Resource Management

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Internal Value Chain: Company Focus

Executive Management R&D

Information Technology

Operations

Upstream Suppliers

Supply Management

Logistics

Downstream Customers

Finance

Marketing

Accounting

Human Resource Management

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SCM: Linked Value Chains

Executive Management R&D Information Technology
Executive Management R&D Executive Management R&D

Operations
Executive Management R&D Executive Management R&D

Information Technology

Information Operations Technology

Operations

Information Technology

Information Operations Technology

Operations

Supply Management

Supply Management

Supply Logistics Management

Logistics

Supply Management

Logistics Management

Supply

Logistics

Logistics

Finance

Finance

Marketing

Marketing

Finance

Finance Marketing

Marketing

Accounting

Human Resource Management

Accounting

Human Resource Management

Accounting

Human Resource Management

Accounting

Human Resource Management

Finance

Marketing

Suppliers Supplier

Supplier

Focal Human Customer Resource Accounting Firm Management

Customers Customer
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Supply Chain Integration

Common

Theoretical Ideal

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Supply Chain Management Problems

The goal of supply chain management is to use technology and teamwork to build efficient and effective processes that create value for the end customer. The goal is compromised when processes, value chain elements, and/or companies work toward local rather than global optimum.
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The Bullwhip Effect

Variation in demand is exaggerated as information moves upstream away from the point of use. Variation in demand is exaggerated due to infrequent demand and/or inventory level information exchange and order batching.

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The Bullwhip Effect

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The Bullwhip Effect

Bullwhip effect costs can be as high as 12 to 25% Bullwhip can be effectively mitigated by:
Sharing point of sale data Collaborative forecasting Collaborative future product promotion planning

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Integrating SCM and Strategy

What makes Dell and Wal-Mart successful? Its the business model, and supply chain is an enabler. Thats why youre seeing this growing importance of supply chains. People realize this is the weapon of the future.
- Robert W. Moffat Jr., IBM
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Strategy
Strategy is the basis from which a consistent allocation of resources is made to achieve some objective. The objective of for-profit organizations is to make money; the best way to achieve this objective may be to focus on satisfying the customer.
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Contingency Theory
Contingency theory recognizes the need for managers to consider the relationship between a changing environment, managerial decisionmaking, and performance. Situational awareness is key to effectively aligning company resources in a changing competitive environment.
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Industrial Organization Theory

Market forces constrained by the power of suppliers, buyers, existing rivals, potential rivals, and providers of substitute products/services should drive decisionmaking. Industrial Organization core questions:
1. Where does market power exist? 2. What are the sources of that power?
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Resource-Based Theory
Resource-based theory emphasizes management of internal sources to establish a unique skill set. Unique skills/processes (core competence) lead to competitive advantage, the ability to deliver distinctive products/services in a way that adds value in the eyes of the customer.
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Four Decision Areas for Strategy

1. Environment
Internal company culture, functional relationships, reward and measurement system External competitive, economic, legal, and political environments

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Environmental Considerations

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Four Decision Areas for Strategy

1. Environment
Internal company culture, functional relationships, reward and measurement system External competitive, economic, legal, and political environments

2. Resources all assets a firm can bring to bear, including: people, technology, infrastructure, materials, and money.
Success requires investment in knowledge and processes
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Four Decision Areas for Strategy

3. Objectives unifies decision-making throughout a company.
Focusing on the right objectives is the key to a winning business strategy.

4. Feedback input to the control mechanism, insuring the company strategy adapts to a changing competitive environment.
Marketplace custom expectations, company capabilities, and competitor actions General exchange rates, government policies, technologies, weather and other natural occurrences
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Strategic Thinking: Traditional View

A valid business model must answer two questions: 1. What is our business?
Who are our customers? What is the real value that we offer them?

2. How can we do it better than anyone else?

Unique organizational capabilities Almost always process based
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Supply Chain Strategy

Seeks to leverage the resources and skills of diverse companies in the supply chain to deliver exceptional value to the end customer. Addresses:
How the capabilities of other chain members can be used to create value for the end customer How their own strategy and actions impact the ability of the supply chain to create value for the end customer
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Supply Chain Strategy

Rather than What is our business? the SC strategist inquires: What is the overall supply chains value proposition? How does our company uniquely help the chain deliver on its value proposition?

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Supply Chain Strategy

Rather than How can we do it better than anyone else? the SC strategist asks: What valued capabilities do other members of the chain possess? How can we bring these complementary competencies together in a way customers value? What type of relationships should we maintain with other members of the supply chain? Are any customer-valued competencies missing? If so, who is best positioned to develop them? How much of the value-added process should we control?

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SCM Impact on Strategic Thinking

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SCM Impact on Strategic Thinking

Great firms will fight the war for dominance in the marketplace not against individual competitors in their field but fortified by alliances with wholesalers, manufacturers, and suppliers all along the supply chain. In essence, competitive dominance will be achieved by an entire supply chain, with battles fought supply chain versus supply chain. - Roger Blackwell

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The Supply Chain Road Map

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The Supply Chain Road Map

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A Return to the Opening Story

Based on what you have now read and discussed: 1. Wal-Mart, Dell, and Honda each take different and unique approaches to SCM. How would you define SCM for the purpose of Dougs presentation? 2. How would you suggest Doug organize his presentation to capture senior managements imagination? 3. Looking ahead, what do you think Dougs biggest challenge is?
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Supply Chain Management:

From Vision to Implementation
Supplement A: The Beer Game

Beer Game Layout

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General Information
Developed by MIT to simulate a simple 6-tier single product supply chain. The game is played in a series of periods; each period corresponds to one week. Each order has a two-week delay and each shipment has a two-week delay.

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Beer Game Layout

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General Information
There is cost associated with having too much inventory (i.e., inventory carrying costs) and too little inventory (i.e., backlogs, lost sales, lost customers). To hold a unit of inventory for one week costs $1.00. Each unit of backlog costs $2.00 per week. Inventory and backlog levels are tracked during the game on a form.
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Order Entry Form

Week
1 2 3
Backlog = previous period backlog + current period demand amount shipped in current period
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Inventory

Backlog

Order

Game Sequence
1. 2. Receive Inventory and Transport Orders products in shipping delay boxes are advanced one position on the game board. Look at and Fill Incoming Orders receive incoming order and ship the requested number of units (plus any existing backlog), if possible, into the empty shipping delay box that was created during step 1. If you dont have enough inventory, ship as much as you can and add any unfilled orders to your backlog. Record Inventory or Backlog Levels count your inventory or calculate your backlog and record it.

3.

4.

Place an Order decide how many units to order from your immediate supplier. Advance your previous periods order from the order placed box into the suppliers incoming order box and place your new order in the order placed box. Place orders face down so they cannot be seen by your supplier.
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Rules of the Game

You may NOT communicate with your supplier or any other tier in the supply chain. The only communication that takes place between the is through the order cards that are passed face down along the supply chain.

Customer demand is determined in advance. Retailers are not allowed to share this information with other tiers.
Each step in the game sequence must be completed by each of the tiers for the current period before the next period can be started.

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