CHAPTER 1: INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

Marco Bijvank Session 1 1 April 2014

WHAT IS SCM?
Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.
Source: 2012 CSCMPs definition of Supply Chain Management

WHAT IS SCM?

Possible questions to ask ourselves related to SCM?

Information Monetary Material flows flows flows

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SUPPLY CHAIN NETWORK STRUCTURE

first tier suppliers

SUPPLY CHAIN NETWORK STRUCTURE

second tier customer first tier customer

WHAT IS SCM?
1. 2. 3. 4. 5. 6. 7. 8. 9. 10.
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Introduction to SCM Inventory Management and Risk Pooling Network Planning Supply Contracts The Value of Information What about objectives? Supply Chain Integration Distribution Strategies Strategic Alliances Procurement and Outsourcing Strategies Global Logistics and Risk Management

OBJECTIVES

What do we observe?

Source: McKinsey 2011, respondents are 639 executives

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COMPETITIVE ADVANTAGE
Can superior SCM lead to competitive advantage?

product customer leadership intimacy (best product) (best service) operational excellence (best performance)

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HEINEKEN - EXPORT
Early 90-s: export less than 20% of total volume 450 wholesale customers in US Produce and distribute by order
can, bottle and keg transported in one shipment

Demand increased
lead time up to 60 days high inventory level

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HEINEKEN - EXPORT
Seattle

Boston
Baltimore New York Norfork Long Beach Charleston

Oakland

Houston Miami

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HEINEKEN - EXPORT
STAR Chain in 2002:
supplier Planning USA Retail Retail

supplier
supplier

Production

Distribution

Export
Netherlands wholesale

DC (non Heineken)
Retail

Catering

End 2006: more than 60% of volume is exported Forecast for US 7 stock locations close to port
lead time: 2-3 days 1 container = 1 SKU 20% less containers 20-25% cost savings

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MAGNITUDE OF SUPPLY CHAINS

Cost-breakdown of a product
profit 10% supply chain cost 20% marketing cost 25% manufacturing cost 45%

U.S. companies spend more than $1 trillion in supply-related activities (10-15% of GDP)
transportation 58% inventory 38% management 4%

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SUPPLY CHAIN: THE POTENTIAL

The grocery industry could save 10% of operating cost ($30 billion) by using effective logistics strategies A typical box of cereal spends 104 days getting from factory to supermarket A typical new car spends 15 days traveling from the factory to the dealership (travel time is 5 days) Compaq estimates it lost $0.5 billion to $1 billion in sales because laptops were not available when and where needed

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SUPPLY CHAIN DISRUPTIONS AND CORPORATE PERFORMANCE

591 announcements of supply chain disruptions (production or shipment delays) from Wall Street Journal and Dow Jones News during 1989-2000 Sun Microsystems delays shipments of workstations and servers, Dow Jones News Service, December, 14, 2000. Sony Sees Shortage of Playstation 2 for Holiday Season, The Wall Street Journal, September 28, 2000. Boeing pushing for record production, finds parts shortages, delivery delays, Wall Street Journal, June 26, 1997. Hershey will miss earnings estimate by as much as 10% because of problems in delivering order, Wall Street Journal, September 14, 1999.
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RESPONSIBILITY FOR DISRUPTIONS

40
35 30 37%

% of firms

25

20
15 10 5

19% 17% 16%

5%

6%

0
internal customer supplier nature and other government combinations none provided

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REASONS FOR DISRUPTIONS

25 23%

20 16%
% of firms 15 9% 13% 10% 7% 5 4%

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0 part ramp/roll-out order production development quality shortages problems changes by problems problems problems customers
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none provided

STOCK MARKET REACTION TO CORPORATE EVENTS

Operational events Increase in R&D expenditure 1.4% Effective TQM implementation 0.6% Internal corporate restructuring 1.0% Plant closing Supply chain disruption -0.7% -10.2% Marketing events Change in firm name Brand leveraging 0.7% 0.3%

Celebrity endorsement
New product introduction

0.2%
0.3%

Delay introduction of new -5.3% products IT events

Financial events Stock splits Increasing financial leverage Decreasing financial leverage 3.3% 7.6% -5.3% Open market share repurchase 3.5%

IT Investments IT problems E-commerce

1.0% -1.8% 7.5%

Seasoned equity offerings

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-3.0%

ARE SUPPLY CHAINS MORE PRONE TO DISRUPTIONS TODAY?

Globalization of supply chains Increased reliance on outsourcing and partnerships Single sourcing Over-concentration of operations Little slack in the supply chain focus on efficiency Competition

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SUMMARY KEY ISSUES IN SCM

Strategic decisions Tactical decisions Operational decisions Has a huge potential when the objectives are aligned between all parties in the supply chain!

Can result in huge risk when not correctly performed

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