Download OPSM 451 Service Operations Management

Koç University
OPSM 305 Supply Chain Management
Class 1:
Introduction: What is Supply Chain
Management?
Zeynep Aksin
[email protected]
Supply Chain
Vendors
Intermediate
Product
Plants
Finished
Product
Plants
Distribution Warehouses
Centers
Customer
Zones
Supply Chain of a Typical
Original Equipment Manufacturer
Sources:
plants
vendors
ports
Regional
Warehouses:
stocking
points
Field
Warehouses:
stocking
points
Customers,
demand
centers
sinks
Supply
Inventory &
warehousing
costs
Production/
purchase
costs
Transportation
costs
Inventory &
warehousing
costs
Transportation
costs
Example: Köşebaşı Restaurant [1]
 1995: first restaurant opened in Levent: hosting Chelsea Clinton,
Donna Karan, Warren Beatty, Annette Bening, and the international
gourmet Tom Zagat .
 1999: Köşebaşı is voted one of the 50 restaurants in the world by
Conde Nast Traveler magazine. Second rest. In Fenerbahce.
 2000: Köşebaşı received the 26th International Tourism, Lodging
and Catering Association's award in Madrid.
 2001: Köşebaşı Express concept
 2002 Time: "Meat lovers can rejoice at Köşebaşı. Don't bother with
a mess, sit back and let your waiter make the choices”.
 New restaurants: Nişantaşı (2002), Ataşehir Köşebaşı Express
(2003), and Ankara (2004). Also in the summer, Köşebaşı serves in
Reina and in Bodrum.
[1] www.kosebasi.com.tr
Köşebaşı Restaurant SC in the summer
Supply Chain Management
 Definition:
Supply Chain Management is primarily concerned
with the efficient integration of suppliers, factories,
warehouses and stores so that merchandise is
produced and distributed in the right quantities, to the
right locations and at the right time, and so as to
minimize total system cost subject to satisfying
service requirements.
 Notice:
– Who is involved
– Cost and Service Level
– It is all about integration
Supply Chain Management: the challenge
 Global optimization
– Conflicting Objectives
– Complex network of facilities
– System Variations over time
 Managing uncertainty
– Matching Supply and Demand
– Demand is not the only source of uncertainty
Conflicting Objectives in the Supply Chain
1. Purchasing
• Stable volume requirements
• Flexible delivery time
• Little variation in mix
• Large quantities
2. Manufacturing
• Long run production
• High quality
• High productivity
• Low production cost
Conflicting Objectives in the Supply Chain
3. Warehousing
• Low inventory
• Reduced transportation costs
• Quick replenishment capability
4. Customers
• Short order lead time
• High in stock
• Enormous variety of products
• Low prices
Supply Chain: The Magnitude
 In 1998, American companies spent $898
billion in supply-related activities (or 10.6% of
Gross Domestic Product).
– Transportation 58%
– Inventory 38%
– Management 4%
 Third party logistics services grew in 1998 by
15% to nearly $40 billion
Supply Chain challenges: complexity
 It is estimated that the grocery industry could
save $30 billion (10% of operating cost) 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.
Supply Chain challenges: inventory
 Compaq computer estimates it lost $500 million to $1
billion in sales in 1995 because its laptops and desktops
were not available when and where customers were
ready to buy them.
 Boeing Aircraft, one of America’s leading capital goods
producers, was forced to announce writedowns of $2.6
billion in October 1997.
The reason? “Raw material shortages, internal and
supplier parts shortages…”. (Wall Street Journal, Oct. 23,
1997)
Supply Chain challenges: collaboration
 Procter & Gamble estimates that it saved
retail customers $65 million through logistics
gains over the past 18 months.
“According to P&G, the essence of its approach lies in
manufacturers and suppliers working closely together
…. jointly creating business plans to eliminate the
source of wasteful practices across the entire supply
chain”.
(Journal of Business Strategy, Oct./Nov. 1997)
Supply Chain challenges: structure
 Dell Computer has outperformed the competition in
terms of shareholder value growth over the eight
years period, 1988-1996, by over 3,000% (see
Anderson and Lee, 1999) using
- Direct business model
- Build-to-order strategy.
Supply Chain challenges: efficiency
 In 10 years, Wal-Mart transformed itself by
changing its logistics system. It has the
highest sales per square foot, inventory
turnover and operating profit of any discount
retailer.
What is a Supply Chain?
meat
packaging
Maret
spices
.
.
.
Suppliers
Duzey
Pazarlama
Bakkalim
Customer
demand
sucuk
Stages?
Players?
What generates revenue?
What generates costs?
What are the flows?
Flows in a Supply Chain
Information
Product
Customer
Funds
Supply Chain Decisions
 Design-long term strategic decisions
– Supply chain structure
– Location, capacities, transportation,..
– Example: Dell
 Planning-medium term tactical decisions
– Forecasting, inventories, network,…
– Example: Unilever
 Operational-short term operational decisions
– Order, production, inventory matching
– Determining truck routes
– Example: Vestel
Dell’s supply chain
Raw
materials
Subassemblies
Finished
goods
assembled to
order in the
channel
Powerful upstream: Microsoft, Intel
Powerful competition: IBM, HP, Compaq,…
Extremely successful: stock price, profitability, sales,..
What accounts for this success?
Standard PC industry SC
Shipped
directly
Finished
goods
Raw
materials
Subassemblies
Shipped to
channel
Finished goods
assembled to order
in channel
Final
demand
The Dell advantage




No finished goods inventory
No distributors/retailers-no inventory
Direct sales via web, phone
Almost no materials inventory
–
–
–
–
Sells whatever is purchased
Sales organization incentivized on profit margins
Buys in volume-discounts
Opt for longest shelf life components
 Targets high-end users
Example: restructuring the SC at UL
UL
Sup. WH
KA
WH
.
.
.
Sub. WH
Ind. Markets
Sana KA: 64 days
Groceries:132 days
Shelf life: 120 days!
76 days collection time
Groceries
Markets
Sales cost: 4%
Trade rebate: 12%
Logistics: complex
1997: 35000/76000 tons Sana and Aymar collected
Consumer centric-efficient SC
Make-to-order
120000-140000/180000 outlets
Groceries
UL
Distributors
Market
Warehouse stock level
12% - 8%
36 days collection time
KA
Sana KA: 2 weeks
Consumer
Sales cost: 6%
Trade rebate: 5.2%
Logistics: simple
Example SCM issues






Outsourcing
Inventory
Information sharing
Logistics-transportation
Channel selection: bricks versus clicks
Integration and partnerships