Supply chain management

Peter Trkman, Ph. D.

assistant professor

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Content
Intro
Strategy
What e-business can offer
Performance measurement
Risk

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What is a supply chain?

Main flows: products (services), information, money

a nice picture

SC in practice: a network of
connections

http://www.gscg.org:8080/opencms/export/sites/default/gscg/images/

SC: definiton

the flow of material, information and money from suppliers of raw

material, production and transport companies to the final customer,

the connection of business processes between various links

(companies) in the chain,

usually includes more than one company

(several different but similar definitions exist)

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Supply chain strategy

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Strategic actions

and the main problems

It all comes down to

information sharing
and what to do with this information
trust

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Volvo and green cars

1995: excessive inventory of green cars

sales and marketing group started aggressively offering
special deals, discounts, and rebates
green cars started to sell
supply chain planning group decided to produce even more
green cars to meet the seemingly increased demand.
Volvo was left with a huge inventory of green cars at the end
of the year

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Bullwhip effect
Theoretically described in the 60s
practical case study in the 80s (Pampers diapers)
the use of diapers is constant
the orders for Procter & Gamble fluctuate quite a bit
the orders for their suppliers even more

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Demand fluctuation

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One of the reasonssupplier discounts

Source: Mason-Jones et al., 2000

Main reasons for bullwhip

Rewards system
local optimization
employees rewards!
Information processing
lack of information
planning on the base of the orders not final customer demand
Barriers
lot sizing
long lead-times
Pricing policy
price fluctuation
quantity discounts
The 3 P: people, people, peopleand the lack of trust

The role of e-business

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What e-business can offer

better information flow

closer cooperation between companies
new business models

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Information sharing
-

point-of-sale data sharing

production plans
development plans
etc.

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New business models

E.g. vendor managed inventory

collaborative planning and forecasting
mass customization
etc.

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Dell - 1994

unimportant computer producer

high stock levels
low quality
low profitability

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Main changes

the production for known customer (build-to-order model)

direct ordering and distribution (no intermediary)

inbound and outbound logistics vital; the assembly of procured

components

important role of information system (visibility of orders)

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Dell - presentation
Movie:
http://www.youtube.com/watch?v=EEhNkzdKyrw

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Dell - transformation

1994-1998: increase in sales from 2 to 16 billions USD

2005: 49 billions USD
information system is key:
the customer orders over the internet and can follow the
status of the order
assembly strongly supported with IT (as shown in the
movie)

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Dell critical success factors

demand management (forecasting, adaptation, price fluctuation)

product life-cycle management (what will be sold in the future)
supplier selection
a small number of reliable suppliers
liquidity management
4 days cycle for customers; 45 days for suppliers

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Part 4: Performance measurement

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Measurement & strategy

Source: Santos et al., 2006

Performance measurement
You Cant Manage What You Cant Measure

service level
final customers satisfaction
efficiency/profitability of the whole chain

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Measurement & performance

Main criteria for suppliers evaluation

-

lead time
reliability
flexibility
frequency (delivery lots)
quality of products/services kakovost materiala/storitev
transport costs
coordination ability
cooperation in development
exchange rates, duties etc.
viability: (more in the risks section)

Both averages and variability matters!

A possible approach: balanced

scorecard

SCOR model:

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SCOR model: measurement

Vir:Theeranuphattana, Tang, 2008

Case study: Avon Europe

Main problems:
3-weeks promotion cycle
12-weeks production cycle and 150-days inventory levels
inflexibility (e.g. language: labels in different languages)

Source: Cohen, Roussel: Strategic Supply chain Management.

McGraw-Hill, 2005
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Case study: Avon Europe

18-monts project (team of 45 employees)

planning centralization centraliziranje planiranja
central database of stock levels
regional planning of stock level and service level
production centralization (new plant in Poland)

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Case study: Avon Europe

Typical example
The search of global optimum: when to print the labels to the
container?
marketing department: as soon as possible (better look)
production department: as soon as possible (we always did
it)
raunovodstvo: as soon as possible (additional costs)
Global optimum
later: flexibility,responsiveness, lower stock level

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Case study: Avon Europe

reorganization of the company

new responsibilities and measures of performance
first process redesign, then informatization

bottom line: 50 mio $ annual savings

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Assesment of Risk of Supplier

Disruption

Based on: Trkman, P., McCormack, K.: A conceptual model for managing
supply chain risk in turbulent environment. International Journal of Production
Economics 119, 247-258 (2009). Avabilable online (www.sciencedirect.com)
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For the beginning

On March, 17 2000 the lighting caused the fire in Philips
production plant; Albuquerque, New Mexico, USA. The fire
destroyed several millions of chips
Nokia has redirected its orders to other Philips plants and
(mainly) to other suppliers (multiple-sourcing strategy).
Ericsson did not use back-up suppliers (single-sourcing), which
caused several months of production problems and over
400 mio USD loss.

several similar stories

Thomas & Friends Wooden Railway paid 30 millions USD (due
to lead in the toys paint)
Chrysler had to stop its production in several plants due to the
banckrupcy of its suppliers (Plastech).well, now they have
lots of other problems as well
Peabody Energy had a loss of 34 millions USD due to the
breach of contract from one of its suppliers

Definition
Supply chain risk management is a formal process that includes
the identification of potential risks, the assesment of their
likelihood and consequences and finally a proper
management (e.g. acceptance, insurance, mitigation) of
those risks.

Risks in supply chain - motivation

82% of companies are concerned about supply chain risks
.only 11% manage those risks (Source: Aberdeen Research)
Slovenia: approximately 10% of companies have a "business
continuity plan (BCP) (nidar, Groznik, 2007)

Source AMR Research

Risks in SCM

Source: Supply Chain Council, 2007

Sources of risks and uncertainties

Important: supplier connected risks
should be considered &
monitored:
1. Endogenous uncertainty
1. market turbulence
2. technological turbulence
2. Exogenous uncertainty
1. discrete events
2. continuous events

 and other unexpected events

A formal process of risk management

Source: DRK Research Institute

Identification of risks

Supplier characteristics
Financial performance
Human Resource Factors
Operational Factors
Culture
Relationship factors

Important: performance per se and performance in the

chain are not neccessarily the same thing

Role in SC strategy & structure

SC type (lean, agile, hybrid)

Supplier type (commodity, strategic)

Business structure

Geographic Location

Supplier portfolio matrix