ITM 310

Supply Chain Management

Your problem is my problem, my problem is your

problem !

Your problem is my problem, my problem is your

problem !
A factory (Aisin) supplying brake fluid proportioning
("P") valves to Toyota's 20 automobile plants in Japan
had a major fire early Saturday February 1, 1997.
Toyota buys from Aisin and uses in most of its cars.
Most Toyota plants kept only a four-hour supply of
the $5 valve;
Without it, Toyota had to shut down its 20 auto
plants in Japan, which build 14,000 cars a day.
Fortunately, 5 days after the fire, its car factories
started up again.

Your problem is my problem, my problem is your

problem !
October 9, 2007--Fiat Albea autos are domestically produced in
Bursa.
But the headlights are imported from Brazil.
A significant stock-out is reported in terms of
spare head-lights at retail stores.
Customers are disappointed with dealers.
Dealers blame the manufacturer.
Manufacturer claims that its suppliers fault and
they try to provide spare parts by saving from their
manufacturing.

Your problem is my problem, my problem is your

problem !
November, 2009--Ford and GM, instead of racing to develop the fuel-saving
technology separately, they decided to share the $720
million investment for a new 6-speed transmission in 2002
and even use the same suppliers.
In late September 2009, workers at a plant of Rico Auto
Industries near New Delhi, India, went on strike.
That caused both firms reshuffle supplies and production
plans.
Fords Oakville, Ontario, plant was closed last week
and GMs Delta Township, Mich., plant was scheduled
to be closed this week, November6, 2009.

Your profit is my profit, my profit is your profit !

September 24, 2001 --Dell Computer founder Michael S. Dell speak
about the future of technology.
His bet is that software giant Microsoft Corp. and
chipmaker Intel Corp. will continue to invest
heavily in technology advances.
He can then buy their sophisticated software
and chips to sell ever more powerful gear with
ever fatter margins.

SUPPLY CHAIN

Innovation
Accessories
Store
Innovation

??? stores
Roast
Latin America

Store
Africa
Asia/ Pacific

Farm Support Centers

Typical Supply Chain for a Manufacturer

Supplier
Manuf.

Supplier
Supplier

Storage

Distribt.
Storage

Retailer

o A typical box of cereal spends

104

factory to sale

Customer

from

15 days days

o A typical car spends

from factory to

Customer

Customer

Customer

Distribution
center

Distribution
center

Supply Chain

Customer

Manufacturer

Tier 1

Tier 2

Tier 3

Supplier of services

Supplier of materials

Supply Chain Management

Supply Chain: the sequence of organizations - their
facilities, functions, and activities - that are involved in
producing and delivering a product or service.

Which questions can I answer by studying SCM?

Before

After

Traditional View: Cost breakdown of a manuf. good

Profit
Supply Chain Cost
Marketing Cost

10%

Profit

20%

Supply Chain
Cost

25%

Marketing
Cost

45%

Manufacturing
Cost

Manufacturing Cost

Effort spent for supply chain activities are invisible to the customers.

Running Lean
Number of times Dell and Compaq turn
inventory over in each quarter, calculated at
an annual rate.

Dell, Inc.
Dell is a leader because of their fast response time.
Customer orders are on delivery trucks in 36 hours.
Their focus is on how fast inventory moves.
The bulk of its components are housed within 15 minutes of each
of its plants.
As customers place orders, suppliers know when to ship
components.
Suppliers restock the warehouse and manage the inventory.
Careful supply chain management is the key.

How/where to buy each?

The Need for Managing the Supply Chain

In the past, organizations did little to manage the supply chain
beyond their own operations and immediate suppliers which led
to numerous problems:
Oscillating inventory levels
Inventory stock-outs
Late deliveries
Quality problems

Is that really difficult to manage SC?

Supply chains are intertwined

Difficult to obtain global optimization when parts

are independent
c
w
p

Uncertainty and risk are inherent in every supply

chain

The challenge
Conflicting interest
Retailers would like to have daily deliveries
Daily deliveries are expensive for the suppliers
Manufacturers would like to have a stable
production environment.
Buyers would like to have the flexibility to
adjust to the demand and change orders with
a short notice.
Lack of information
Information about the demand is not
transmitted up stream.

Evolution of Supply Chain Management

Further
Refinement of
SCM Capabilities
SCM
Formation/
Extensions
JIT, TQM, BPR,
Alliances
Inventory Management/Cost
Optimization
Traditional Mass Manufacturing

1950s

1960s

1970s

1980s

1990s

2000s

Beyond

Flow of the course

PART I SUPPLY CHAIN IN BROAD PERSPECTIVE
What is SCM and why to manage SCs?
Elements (drivers) of SCs, obstacles, coordination in
SC
Distribution network design models
PART II DISASSEMBLE SUPPLY CHAINS
Inventory planning
PART III SUPPLY CHAIN STRATEGIES
Inventory Pooling Models
Supplier selection
Supply contracts
Better supply-demand match