Coursera KAIST: SCM101

Supply Chain Management

A Learning Perspective
Lecture 6

Professor Bowon Kim

KAIST Business School

2014 Bowon Kim

Strategic Dimensions of
Supply Chain Management

Formal definition of SCM

Supply Chain
Supply Chain System
S

Supplier/vendor
Service
supporter

Manufacturer
Service
creator

Distributor
Service contact
/provider

Customer

Responsiveness-driven
value more relevant

Efficiency-driven
value more relevant

Supply Chain Management

Goal or objective to maximize BOTH efficiency- driven AND responsivenessdriven value at the same time
How? by designing the supply chain effectively
Designing factors?
Structural
Infrastructural

Designing Factors of SCM

Structural dimension
Configuration, connection, inventory, logistic
Involving investment in physical facilities, materials, systems
Related with physical products/materials
Analogy computer hardware

Infrastructural dimension
Coordination
Involving intangible, invisible, implicit factors such as communication,
information, collaboration, intrinsic,
Analogy computer software

Designing Factors Structural Dimension

Elements of Structural Dimension

Operational

Configuration (Location)
Connection (Production; Matching)
Inventory
Logistics (Transportation; Distribution)

Strategic over a longer time horizon

Operational short-term, day-to-day basis

Strategic

M
Manufacturers

S
Suppliers
Vendors

D
Distributors

Service Support Operations

Korea

Local Service Providers

Korea

China

China-Shanghi

C
Customers
End Users

Korea-Busan

Korea

China-Shanghi

China

Thailand

India

Vietnam

US

UK

US-Alabama

US

EU

Country
Local Location

Connection

Transportation
(Logistical Options)

Inventory
6

Designing Factors Structural Dimension

A. Configuration (Location) Decisions
Geographic placement of supply chain (value chain) functions or
activities
Involving a commitment of resources to a long-term plan
Factors to consider: long-term, strategic factors, so as to enhance
efficiency and responsiveness

B. Connection (Matching) Decisions

How to connect dispersed supply chain functions or activities
Factors to consider: efficiency, responsiveness

Designing Factors Structural Dimension

C. Inventory Decisions
Inventory exists at every stage of the supply chain as either raw
materials, semi-finished or finished goods
The primary purpose buffer against uncertainty
Inventory Types and Locations
Raw Material
Inventory

Work-in-Process
Inventory

Finished Goods
Inventory

Inventory I
Inventory II
Inventory III
raw materials
finished products
finished products
intermediate products semi-finished ready to ship to customers
I

II

III

Designing Factors Structural Dimension

C. Inventory Decisions Forecasting Methods
Number of Units (Sales)

Product Life Cycle

Introduction

Growth

Maturity

Data:
Time:
(Decision Horizon)
Methods:
9

Decline

Designing Factors Structural Dimension

C. Inventory Decisions
Fundamental Roles of Inventory

Cost

Innovation

Problem Solving

Deployment Strategy
Push

Physical products flow downstream

Information (including market demand) flows downstream
Decoupled processes
Make-to-stock system
Excessive inventory

10

Designing Factors Structural Dimension

C. Inventory Decisions
Deployment Strategy
Pull

Physical products flow downstream

Information flows upstream
Coupled processes
Make-to-order system
Zero inventory enhancing problem solving; but, false alarms?

Intelligent (contingent inventory system)

Combining the advantages of push and pull systems

Determining the causes of deviation random versus systematic
Regarding inventory NOT as part of normal operations
Supporting problem solving

D. Logistics (Transportation; Distribution) Decisions

Transportation/logistical options, fast (expensive) versus slow (cheap)

Linked with inventory decisions unit value versus speed
11

Designing Factors Infrastructural Dimension

Coordination Supply Chain Perspective (Capability)
Coordination among channel participants; prerequisite for systemoptimal performance

Coordination Level and Typology

Inter-function

Intra-function

Intra-firm
12

Inter-firm

Levels of SC Coordination

Supplier

Manufacturer

Distribution

Supplier

Manufacturer

Distribution

Coordination
Intensity

Materials Flow

Supplier

Manufacturer

Distribution

Information Flow
Coordination

Integrated
Coordination

Supplier

Manufacturer

Distribution

13
13

Designing Factors Infrastructural Dimension

Why difficult to coordinate?
Barriers to effective coordination
A.

Lack of systematic and fair measurement

B.

Leakage of proprietary knowledge

C.

Culture/inertia

Costs due to Coordination Failure

Information quality : uncertainty increase, planning failure,

unnecessary risk taking mismatch between supply and demand

stock-outs, high inventories (unnecessary markdown costs, disposal
costs,); high inventory carrying costs
Inefficiency: non-value-added activities, unnecessary mistakes, suboptimal resource allocation, opportunity costs

14

Sustainable SC Coordination
Supply Chain System

Supplier

Profit without
coordination
Profit with
coordination

First Fundamental
Condition

Second Fundamental
Condition

Manufacturer

s
s

m
m

Distributor

d
d

s + m + d < s + m + d
s < s , m < m , and d < d
15

SCM Process Strategy

Process Management
Process a collection of tasks, connected by flows of goods
and information, that transforms various inputs into valuable
outputs
Service versus manufacturing
How much customer involvement is required during the value
creation process
Physical products?
Inventory possibility?

Process strategy
Volume versus customization

17

Mass Customization

Customization

High

Blue Ocean

Mass
Customization

Red Ocean

Low
Low

High
Volume
18

To Minimize the Mismatch between

Supply and Demand

Mismatch between supply and demand

Supply Chain System
S

Supply

Demand

Match
(balanced)

SD

Mismatch
(unbalanced)

S>D
S<D

Costs due to mismatch

Overstocking cost inventory holding cost
Understocking cost lost sales, loyalty loss
20

Mismatch between supply and demand

Why mismatch occurs?

S-D mismatch is one of the most important comprehensive indications of

SCM ineffectiveness

External

Changes in customer requirements or needs

Demand uncertainty

Internal

Inability to gather more accurate demand information

Inability to plan/schedule better with the given forecasting
Inability to develop new products valued by the customers at the right time

Environmental

Technological changes
Competition
Other macroeconomic forces

A key SCM goal

To minimize the mismatch

How? Through effective coordination across the value chain

21

Uncertainty in SCM
Aggregate level uncertainty

Product mix-level uncertainty

Forecasting using macroeconomic variables

method econometrics
Aggregate Demand >> Aggregate Supply
capacity increase
focused strategy refocusing the target
market
Aggregate Demand << Aggregate Supply
capacity reduction
demand management generating
market demand
new product development, quality
improvement

Responsiveness is the key, assuming DS at the

aggregate level
Value of flexibility is very high
Supply chain coordination tools employed
risk-based production planning,
postponement
Forecasting
Abundant data available
Quantitative methods: regression
analysis, time series analysis
No or very few data available
Qualitative methods: judgmental,
market research, expert opinion
(Delphi method)

22