LOGISTICS & SUPPLY CHAIN MANAGEMENT Section 1 Understanding the Supply Chain and its logistics activities CORRADO CERRUTI
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
What is Logistics?
Logistics takes care of the activities and the decisions
releted to:
Physical flows Information flow
from the raw materials suppliers till the customers. Logistics activities are splitted among: inbound logistics plant logistics outbound logistics 2
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
What is a Supply Chain?
Supply Chain includes all the activities involved,
directly or indirectly, in fulfilling a customer request (there including also logistics) Includes manufacturers, suppliers, transporters, warehouses, retailers, and customers Within each company, the supply chain interacts with all functions involved in fulfilling a customer request (product development, marketing, operations, distribution, finance, customer service)
3
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
The Supply Chain
4
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
What is a Supply Chain?
Detergent supply chain at Wal-Mart
P&G or other manufacturer
Wal-Mart or third party DC
Plastic Producer
Wal-Mart Supermarket
Chemical manufacturer (e.g. Oil Company)
Tenneco Packaging
Chemical manufacturer (e.g. Oil Company)
Customer wants detergent and goes to Wal-Mart
Paper Manufacturer
Timber Industry
Tier 2
5
Tier 3
Tier 1
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Metaphors of the Supply Chain The Chain
The Network or the Web
The Stream
6
The Pipeline
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
The objective of a Supply Chain Maximize overall value created Supply chain value (or supply chain surplus):
difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customer’s request Value is correlated to supply chain profitability (difference between revenue generated from the customer and the overall cost across the supply chain)
7
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
The objective of a Supply Chain Example: Dell receives €2000 from a customer for a
computer (revenue) Supply chain incurs costs (information, storage, transportation, components, assembly, etc.) Difference between €2000 and the sum of all of these costs is the supply chain profit Supply chain profitability is total profit to be shared across all stages of the supply chain Supply chain success should be measured by total supply chain profitability, not profits at an individual stage 8
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
The objective of a Supply Chain Sources of supply chain revenue: the customer Sources of supply chain cost: flows of information,
products, or funds between stages of the supply chain
Supply
chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability 9
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
The objective of Logistics
Maximize
overall value function/department by:
created
by
this
Minimizing logistics costs
Maximizing revenues through an outstanding logistics service
Managing the trade-offs between logistics costs and revenues
Logistics performance might be a key target for the
company or a “nice-to-have” 10
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Decision Phases of a Supply Chain There are three major decision phases in a supply chain, with different time horizons: Supply chain strategy or design (long-term) Supply chain planning (medium-term) Supply chain operation (short-term)
11
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Supply Chain Strategy or Design Decisions about the structure of the supply chain and
what processes each stage will perform Strategic supply chain decisions
Locations and capacities of facilities Products to be made or stored at various locations Modes of transportation Information systems
Supply chain design must support strategic objectives Supply chain design decisions are long-term and
expensive to reverse – must take into account market uncertainty
12
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Supply Chain Planning (1)
Definition of a set of policies that govern medium
and short-term operations (time frame: 12 months down to 3 months) Fixed by the supply configuration from previous
phase. Supply constraints!
chain
configuration
establishes
Starts with a forecast of demand in the coming year
and is deployed over different time horizons … from a rough check on the overall capacity and requirements down to specific plans. 13
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Supply Chain Planning (2)
Planning decisions: Which markets will be supplied from which locations Subcontracting of manufacturing Inventory policies Timing and size of market promotions
Must
consider in planning decisions demand uncertainty, exchange rates, competition over the time horizon As a result, companies define a set of operating policies that govern short-term operations. 14
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Supply Chain Operation
Time horizon is weekly or daily Decisions regarding individual customer orders Supply chain configuration is fixed and operating
policies are determined Goal is to implement the operating policies as effectively as possible Allocate orders to inventory or production, set order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders Much less uncertainty (short time horizon) 15
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Process View of a Supply Chain Cycle view: processes in a supply chain are divided
into a series of cycles, each performed at the interfaces between two successive supply chain stages Push/pull view: processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push)
16
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Cycle View of Supply Chains Customer Customer Order Cycle Retailer Replenishment Cycle
Distributor Manufacturing Cycle
Manufacturer Procurement Cycle Supplier 17
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Cycle View of a Supply Chain
Each cycle occurs at the interface between two
successive stages Customer order cycle (customer-retailer) Replenishment cycle (retailer-distributor) Manufacturing cycle (distributor-manufacturer) Procurement cycle (manufacturer-supplier) Cycle view clearly specifies the roles and responsibilities of each member and the desired outcome of each process.
18
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Push/Pull View of Supply Chains Procurement, Manufacturing and Replenishment cycles
Customer Order Cycle
PUSH PROCESSES
PULL PROCESSES
Customer Order Arrives 19
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Push/Pull View of Supply Chain Processes
Supply chain processes fall into one of two categories depending
on the timing of their execution relative to customer demand Pull: execution is initiated in response to a customer order (reactive processes). It operates in an uncertain environment (customer demand is not yet known) Push: execution is initiated in anticipation of customer orders (speculative or forecasted processes). Here customer demand is known Push/pull boundary separates push processes from pull processes. It is a firm’s choice to select the position of the push/pull boundary The relative proportion of push and pull processes can have an impact on supply chain performance 20
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Push/Pull processes for Dell (customized PCs)
Customer Order and Manufacturing Cycle
PULL PROCESSES Customer Order and Manufacturing Cycle Customer Order Arrives
Procurement Cycle
PUSH PROCESSES
21
Procurement Cycle
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
The traditional view: Push-oriented Strategies
Classical manufacturing supply chain strategy Manufacturing forecasts are long-range
Orders from retailers’ warehouses
Longer response time to react to marketplace changes
Unable to meet changing demand patterns Supply chain inventory becomes obsolete as demand for certain products disappears
Increased variability (Bullwhip effect) leading to:
Large inventory safety stocks Larger and more variably sized production batches Unacceptable service levels Inventory obsolescence
Inefficient use of production facilities (factories)
How is demand determined? Peak? Average? How is transportation capacity determined?
Examples: Auto industry, large appliances, others? 22
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
The “modern” view: Pull-oriented Strategies
Production and distribution are demand-driven
Coordinated with true customer demand None or little inventory held Only in response to specific orders Fast information flow mechanisms Point-of-Sale (POS) data Decreased lead times Decreased retailer inventory Decreased variability in the supply chain and especially at manufacturers Decreased manufacturer inventory More efficient use of resources More difficult to take advantage of scale opportunities Examples: Dell, Amazon
23
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
The Hybrid Solution: Push/Pull Strategies
Hybrid of “push” and “pull” strategies to overcome disadvantages
of each Early stages of product assembly are done in a “push” manner Partial assembly of product based on aggregate demand forecasts (which are more accurate than individual product demand forecasts) Uncertainty is reduced so safety stock inventory is lower
Final product assembly is done based on customer demand for
specific product configurations Supply chain timeline determines “push-pull boundary” PushPull Boundary
“Generic” Product
Raw Materials
Push Strategy
“Customized” Product
Pull Strategy
Supply Chain Timeline 24
End Consumer
Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Achieving an Integrated Supply Chain Time
Stage One: Baseline
Customer service
Material flow Purchasing
Material Control
Sales
Production
Stage Two: Functional Integration
Customer service
25%
Material flow Materials Management
Distribution
Manufacturing Management
Distribution
MRP
Stage Three: Internal Integration
Customer service
Material flow Materials Management
Manufacturing Management
Distribution
ERP
Stage Four: External Integration
Customer service
Material flow Suppliers
Internal Supply Chain
Customers
Strategic buffer
(Source: Stevens 1989)
Supply Chain Macro Processes in a Firm Grant, L'analisi strategica per le decisioni aziendali, Il Mulino, 2011 Capitolo I. Il concetto di strategia
Supply chain processes discussed can be classified into three
macro categories. Supplier
Firm
Supplier Relationship Management (SRM) Source Negotiate Buy Design Collaboration • Supply Collaboration • • • •
Customer
Internal Supply Chain Management (ISCM) • • • • •
Strategic Planning Demand Planning Supply Planning Fulfillment Field Service
26
Customer Relationship Management (CRM) • • • • •
Market Price Sell Call Center Order Management
