Pepsi Supply Chain Essay Example

Pepsi Supply Chain Essay Supply Chain Management Adel Abou Heneidy Learning objectives To develop understanding of the following key areas and their interrelationships: * Basic concepts of logistics and supply chain management * The strategic role of a supply chain * The key strategic drivers of supply chain performance * Analytic methodologies for supply chain analysis 2 Supply Chain Management Adel Abou Heneidy Highlights: †¢ †¢ †¢ †¢ †¢ †¢ †¢ Understanding the Supply Chain Supply Chain performance: achieving strategic fit and scope Supply Chain Drivers and obstacles Designing the distribution network in a Supply Chain Network Design in the Supply Chain Network design in uncertainty environment Total cost of SCM Aggregate planning in Supply Chain References: References: th Introduction to materials management: J. R Tony Arnold ; ;Stephen N. Chapman ––55thedition edition Introduction to materials management: J. R Tony Arnold Stephen N. Chapman Supply Chain-Logistics management: Donald J. Bowersox; David J. Closs; M. Bixby Cooper Supply Chain-Logistics management: Donald J. Bowersox; David J. Closs; M. Bixby Cooper Strategic logistics management: Lambert Stock Strategic logistics management: Lambert Stock Operations management: Stevenson Operations management: Stevenson Supply Chain Management: Sunil Chopra Peter Meindl Supply Chain Management: Sunil Chopra Peter Meindl Supply Chain Management 3 Chapter 1 Understanding the Supply Chain 4 Supply Chain Management Adel Abou Heneidy Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together †¢ What is Supply Chain (Value) Management? â€Å" SCM is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize systemwide costs while satisfying service level requirements†. Supply Chain Management Adel Abou Heneidy 5 Another definition of SCM design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand, and measuring performance globally. â€Å" As per APICS Dictionary Supply Chain Management Adel Abou Heneidy 6 The Chain from Original Supply to Final Consumption INFORMATION FLOW Transfer T ransfer Transfer Transfer Transfer Transfer Transfer Transfer Supplier Manufacturing Distribution Retail Outlet Consumer CASH FLOW Supply Chain Optimization We will write a custom essay sample on Pepsi Supply Chain specifically for you for only $16.38 $13.9/page Order now We will write a custom essay sample on Pepsi Supply Chain specifically for you FOR ONLY $16.38 $13.9/page Hire Writer We will write a custom essay sample on Pepsi Supply Chain specifically for you FOR ONLY $16.38 $13.9/page Hire Writer Highest level of customer responsiveness at lowest cost Forward Supply Chain –Supply by customer ends Chain Management ? SAP AG 1998 CPSAP_e February ‘98 /13 7 Adel Abou Heneidy What’s the Supply Chain IT Logistics Supply Chain Management Supply Chain Management Adel Abou Heneidy 8 Main Functions and Activities in SC †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ Forecasting Purchasing Inventory management Information management Quality assurance Scheduling Production and delivery Customer service Supply Chain Management Adel Abou Heneidy 9 Difference between SCM Logistics In definition, Logistics usually refers to interface activities that occur in a single organization and typically include processes such as procurement, inventory, storage and distribution. †¢ Supply chain management (SCM) is the process of planning, implementing, and controlling the operations of the supply chain as efficiently as possible. Supply Chain Management spans a ll movement and storage of raw materials, work-inprocess inventory, and finished goods from point-of-origin to point-of-consumption †¢ I would say logistics is just a part of supply chain Supply Chain Management Adel Abou Heneidy 10 The Logistics/SCM Mission †¢ Getting the right goods or services to the right place, at the right time, and in the desired condition at the lowest cost and highest return on investment. Supply Chain Management Adel Abou Heneidy 11 The concept of Logistics †¢ The concept of logistics covers all activities relating to procurement, transport, and storage of goods to, from, and between members of a supply chain. It includes: – Order processing – Pick pack – Shipping Transport – Customs clearance (and documentation) – Distribution – Warehousing inventory management – Reverse logistics (Returns anagement) Supply Chain Management Adel Abou Heneidy 12 Reverse Logistics †¢ Reverse logistics – the backward flow of goods returned to the supply chain †¢ Reverse logistics is the process of moving goods from their typical final destination for the purpose of capturing value, or proper disposal. †¢ Processing return ed goods – Sorting, examining/testing, restocking, repairing – Reconditioning, recycling, disposing †¢ Gate keeping – screening goods to prevent incorrect acceptance of goods †¢ Avoidance – finding ways to minimize the number of items that are returned Supply Chain Management Adel Abou Heneidy 13 Closed-Loop Supply Chain †¢ Closed-loop SC includes traditional forward supply chain activities, and the additional activities of reverse SC. †¢ These activities include: 1) Product acquisition to obtain products from the end-users. 2) Reverse logistics to move the product from points of use to points of disposition. 3) Refurbishing 4) Recycling Supply Chain Management Adel Abou Heneidy 14 Traditional Scope of the Supply Chain Business logistics Physical supply (Materials management) Sources of supply Plants/ operations †¢ Transportation †¢ Inventory management †¢ Order processing †¢ Acquisition †¢ Protective packaging †¢ Warehousing †¢ Materials handling †¢ Information management Physical distribution Customers †¢ Transportation †¢ Inventory management †¢ Order processing †¢ Product scheduling †¢ Protective packaging †¢ Warehousing †¢ Materials handling †¢ Information management Internal supply chain 15 Supply Chain Management Problems Supply chain management must address the following problems: †¢ Distribution Network Configuration †¢ Distribution Strategy †¢ Information †¢ Inventory Management †¢ Trade-Offs in Logistical Activities †¢ Cash-Flow Supply Chain Management Adel Abou Heneidy 16 The Importance of SCM †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ †¢ Millions of dollars at stake! Excess Inventory costs Excess freight charges Lost sales / Stock outages Wasted time and energy Extra staff Listings / Delistings Customer dissatisfaction Capital costs Real Estate Costs Supply Chain Management Adel Abou Heneidy 17 Benefits of Supply Chain Management †¢ †¢ †¢ †¢ †¢ †¢ Lower inventories Higher productivity Greater agility Shorter lead times Higher profits Greater customer loyalty Integrates separate organizations into a cohesive operating system Supply Chain Management Adel Abou Heneidy 18 SCM Decision Variables †¢ â₠¬ ¢ †¢ †¢ †¢ †¢ †¢ Number and location of facilities Number and location of suppliers Number and location of warehouses Product stocking locations Modes of transportation Communications network configuration Information system configuration Supply Chain Management Adel Abou Heneidy 19 Key SCM Issues †¢ Distribution network design Determine plant and warehouse locations, capacities, and production/storage levels †¢ Inventory Control – The purpose of inventory is to avoid interrupting a supply process, be it production or end customer demand – How can we avoid such disruptions at the minimum total cost? – Must rely on forecasts Supply Chain Management Adel Abou Heneidy 20 Key SCM Issues †¢ Distribution strategy – Where to hold inventory and how to efficiently transport it to customers? †¢ Ship directly from plant to customers in full truckloads? †¢ Maintain stocks in regional warehouses and distribute locall y? Integration and strategic partnerships – How involved should a firm be with suppliers of both materials and services? – What level of information sharing is appropriate? Supply Chain Management Adel Abou Heneidy 21 Key SCM Issues †¢ Product design issues – Tradeoffs between design changes and logistics savings? – Can design strategies buffer against demand uncertainties? †¢ Information technology – What significant data is critical for sharing with partners? – What is the role of the Internet/e-Commerce in all of this? †¢ Customer value – How does SCM contribute to customer value? Supply Chain Management Adel Abou Heneidy 22 Supply Chain Uncertainty †¢ †¢ †¢ †¢ †¢ †¢ †¢ Poor forecasts Production problems Late deliveries Poor quality Canceled orders Erroneous information Political uncertainty Supply Chain Management Adel Abou Heneidy 23 Conflicting SCM Objectives †¢ Manufacturing and Transportation – Desire economies of scale – Long production runs – Full truckload shipments †¢ Marketing and Sales – Desire flexibility and product variety – Increased inventory for better service †¢ Trade-off s – Service levels – Inventory levels Supply Chain Management Adel Abou Heneidy 24 SCM Features †¢ Multiple entities – Geographically diverse – Different ownership †¢ Conflicting objectives †¢ Random demands †¢ Distributed inventory †¢ Lead times – Manufacturing – Distribution †¢ Different information Supply Chain Management Adel Abou Heneidy 25 The value the SC generates †¢ The objective of SC is to maximize the overall value generated. †¢ The value a supply chain generates is the difference between what the final product is worth to the customer and the effort the SC expends in filling the customer’s request. SC profitability is the total profit to be shared across all SC stages. †¢ SC success should be measured in terms of SC profitability and not in terms of the profit at an individual stage Supply Chain Management Adel Abou Heneidy 26 Elements of Supply Chain Management Element Customers Forecasting Design Processing Inventory Purchasing Suppliers Location Logistics Typical Issues Determining what customers want Predicting quantity and timing of demand Incorporating customer wants, mfg. and time Controlling quality, scheduling work Meeting demand while managing inventory costs Evaluating suppliers and supporting operations Monitoring supplier quality, delivery, and relations Determining location of facilities Deciding how to best move and store materials Supply Chain Management Adel Abou Heneidy 27 Effective Supply Chain †¢ Requires linking the market, distribution channels processes, and suppliers †¢ Supply chain should enable members to: – Share forecasts – Determine the status of orders in real time – Access inventory data of partners Supply Chain Management Adel Abou Heneidy 28 Successful Supply Chain Trust among trading partners †¢ Effective communications †¢ Supply chain visibility †¢ Event-management capability – The ability to detect and respond to unplan ned events †¢ Performance metrics (KPIs) Supply Chain Management Adel Abou Heneidy 29 Decision phases in a Supply Chain †¢ Supply Chain decision phases may be categorized as: 1) SC strategy or design structure of SC over the next several years How resources will be allocated locations / capacities Modes of transportation will be used 2) SC planning Forecasting for the coming periods Which markets will be supplied from which locations ? Inventory policies,†¦ 3) SC operation How the day to day business will be handled ? Supply Chain Management Adel Abou Heneidy 30 Process view of a Supply Chain †¢ A Supply Chain is a sequence of processes and flows that takes place within and between different stages and combine to fill a customer need for a product. There are two different ways to view the processes performed in SC: †¢ 1) Cycle view: Customer order cycle Replenishment cycle Manufacturing cycle Procurement cycle Supply Chain Management Adel Abou Hen eidy 31 Process view of a Supply Chain Customer order cycle: It occurs at the customer / retailer interface Customer arrival Customer order receiving Customer order entry Customer order fulfillment Supply Chain Management Adel Abou Heneidy 32 Process view of a Supply Chain Replenishment cycle: It occurs at the retailer / distributor interface Retail order trigger Retail order receiving Retail order entry Retail order fulfillment Supply Chain Management Adel Abou Heneidy 33 Process view of a Supply Chain Manufacturing cycle: It occurs at the distributor / manufacturer interface Order arrival Receiving Production scheduling Manufacturing shipping Supply Chain Management Adel Abou Heneidy 34 Process view of a Supply Chain Procurement cycle: It occurs at the manufacturer / supplier interface Order based on manufacturer’s Production schedule or supplier stocking needs Receiving at manufacturer Supplier production scheduling Component manufacturing and shipping Supply Chain Management Adel Abou Heneidy 35 Process view of a Supply Chain 2) Push / Pull view: Pull processes are initiated by a customer order. Push processes are initiated and performed in anticipation of customer orders (forecasted). Customer order cycle Customer order manufacturing cycle PULL Customer order arrives Procurement cycle Procurement, manufacturing, replenishment cycles Supply Chain Management Adel Abou Heneidy PUSH L. L Beans SC Dell SC 36 Supply Chain macro processes in a firm SRM Supplier relationship management Source Negotiate Buy Design collaboration Supply collaboration ISCM Internal supply chain management Strategic planning Demand planning Supply planning Fulfillment Field service CRM Customer relationship management Market Sell Call center Order management Supply Chain Management Adel Abou Heneidy 37 Key points: †¢ A cycle view of the SC clearly defines the processes involved and the owners of each process. It specifies the roles and responsibilities of each member of SC and the desired outcomes for each process. †¢ A push / pull view of the SC categorizes processes based on whether they are initiated in response to a customer order (Pull), or in anticipation of a customer order (Push). This view is very useful when considering strategic decisions relating to SC. †¢ Within a firm, all SC activities belong to one of three macro processes: CRM ISCM SRM Integration between the three macro processes is crucial for successful SC. Supply Chain Management Adel Abou Heneidy 38 Chapter 2 Supply Chain Performance: Achieving strategic fit and scope Supply Chain Management Adel Abou Heneidy 39 Competitive and Supply Chain Strategies †¢ Competitive strategy: defines the set of customer needs a firm seeks to satisfy through its products and services †¢ Product development strategy: specifies the portfolio of new products that the company will try to develop †¢ Marketing and sales strategy: specifies how the market will be segmented and product positioned, priced, and promoted Supply Chain Management Adel Abou Heneidy 40 Competitive and Supply Chain Strategies †¢ Supply chain strategy: – determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product – In other words, it addresses your warehouse or distribution center network, inventory stocking strategy, facility layout and processes, staffing, technology, systems and related costs is critical to maintaining a competitive advantage. – Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important Supply Chain Management Adel Abou Heneidy 41 The Value Chain: Linking Supply Chain and Business Strategy Business Strategy New Product Marketing Strategy Strategy Supply Chain Strategy New Product Development Marketing and Operations Distribution Sales Service Supply Chain Management Adel Abou Heneidy 42 Framework for Supply Chain Strategy Business Objectives Supply Chain Objectives Business Strategy Supply Chain Strategy Management Processes Supply Chain Processes Importance to Top Management Focus of Top Management Supply Chain Management Adel Abou Heneidy 43 Aligning Supply Chain Strategy with Business Strategy Business Objectives Supply Chain Objectives Business Strategy Supply Chain Strategy Supply Chain Processes Management Processes Importance to Top Management Focus of Top Management Supply Chain Management Adel Abou Heneidy 44 Value Chain Analysis †¢ †¢ †¢ Value Chain Analysis describes the activities that take place in a business and relates them to an analysis of the competitive strength of the business. Primary Activities those that are directly concerned with creating and delivering a product (e. g. component assembly). Support Activities, which whilst they are not directly involved in production, may increase effectiveness or efficiency (e. g. uman resource management). It is rare for a business to undertake all primary and support activities. Value Chain Analysis is one way of identifying which activities are best undertaken by a business and which are best provided by others (out sourced). †¢ Supply Chain Management Adel Abou Heneidy 45 Competitive Strategies Competitive Strategies Competitive Advant age Lower Cost Differentiation Broad Target Competitive Scope Narrow Target Cost Leadership Differentiation Cost Focus Focused Differentiation Supply Chain Management Adel Abou Heneidy 46 Strategies, Forces, and Tactics in Competitive Markets Cost leadership †¢ based on efficient operations †¢ based on effective operations †¢ economies of scale – become a low cost producer – market segmentation (niche) – Focused differentiation †¢ Market niche – Cost focus †¢ narrow market low cost Supply Chain Management Adel Abou Heneidy 47 Value Chain with Typical Strategic IS Value Chain with Typical Strategic IS Mapped onto it Mapped onto it EDI-Based Purchasing System Inbound Logistics ComputerIntegrated Mftg. Operations Automated Ordering System Outbound Logistics Expert Systems for Salespeople Marketing and Sales Telemaintenance Expert Systems Service Upstream Chains of Suppliers Downstream Chains of Customers Supply Chain Management Adel Abou Heneidy 48 Steps in Value Chain Analysis †¢ Value chain analysis can be broken down into a three sequential steps: (1) Break down a market/organization into its key activities under each of the major headings in the model; (2) Assess the potential for adding value via cost advantage or differentiation, or identify current activities where a business appears to be at a competitive disadvantage; (3) Determine strategies built around focusing on activities where competitive advantage can be Supply Chain Management Adel Abou Heneidy 49 Achieving Strategic Fit †¢ Strategic fit: – Consistency between customer priorities of competitive strategy and supply chain capabilities specified by the supply chain strategy – Competitive and supply chain strategies have the same goals †¢ A company may fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy Supply Chain Management Adel Abou Heneidy 50 Steps in achieving strategic fit †¢ Step 1: Understanding the customer’s needs and supply chain uncertainty †¢ Step 2: Understanding the supply chain †¢ Step 3: Achieving strategic fit Supply Chain Management Adel Abou Heneidy 51 Understanding the Supply Chain: Cost-Responsiveness Efficient Frontier Responsiveness High A The SC of â€Å"A† has high responsiveness, but with high cost, which means with low efficiency. The SC of â€Å"B† has low B responsiveness, but with low cost, which means with high efficiency Low Cost High Supply Chain Management Adel Abou Heneidy Low 52 Step 1: Understanding the Customer and Supply Chain Uncertainty †¢ †¢ †¢ †¢ †¢ †¢ †¢ Identify the needs (attributes of demand) of the customer segment being served Quantity of product needed in each lot Response time customers will tolerate Variety of products needed Service level required Price of the product Desired rate of innovation in the product Supply Chain Management Adel Abou Heneidy 53 Step 1: Understanding the Customer and Supply Chain Uncertainty †¢ †¢ †¢ Overall attribute of customer demand Demand uncertainty: uncertainty of customer demand for a product Implied demand uncertainty: reflects uncertainty for the supply chain given the portion of the demand the supply chain must handle and attributes the customer desires Understand customers by mapping their demand on the implied uncertainty spectrum †¢ Supply Chain Management Adel Abou Heneidy 54 Achieving Strategic Fit †¢ Understanding the Customer – – – – – – Lot size Response time/ Lead time Service level Product variety Price (sensitivity to) Innovation Supply Chain Management Adel Abou Heneidy Implied Demand Uncertainty 55 Impact of Customer Needs on Implied Demand Uncertainty Customer Need Range of quantity increases Lead time decreases Variety of products required increases Number of channels increases Rate of innovation increases Required service level increases Causes implied demand uncertainty to increase because †¦ Wider range of quantity implies greater variance in demand Less time to react to orders Demand per product becomes more disaggregated Total customer demand is now disaggregated over more channels New products tend to have more uncertain demand Firm now has to handle unusual surges in demand Supply Chain Management Adel Abou Heneidy 56 Step 2: Understanding the Supply Chain †¢ How does the firm best meet demand? Dimension describing the supply chain is supply chain responsiveness †¢ Supply chain responsiveness ability to: – respond to wide ranges of quantities demanded – meet short lead times – handle a large variety of products – build highly innovative products – meet a very high service level Supply Chain Management Adel Abou Heneidy 57 Step 2: Understanding the Supply Chain †¢ There is a cost to achieving responsiveness †¢ Supply chain efficiency: cost of making an d delivering the product to the customer †¢ Increasing responsiveness results in higher costs that lower efficiency Supply Chain Management Adel Abou Heneidy 58 Step 3: Achieving Strategic Fit †¢ All functions in the value chain must support the competitive strategy to achieve strategic fit †¢ Two extremes: Efficient supply chains and responsive supply chains Supply Chain Management Adel Abou Heneidy 59 Achieving Strategic Fit Shown on the Uncertainty/Responsiveness Map Responsive supply chain Responsiveness spectrum of it e on gic F Z e t ra St Efficient supply chain Certain demand 60 Implied uncertainty spectrum Uncertain demand Comparison of Efficient and Responsive SC Efficient Primary goal Product design strategy Pricing strategy Mfg strategy Inventory strategy Lead time strategy Supplier selection strategy Transportation strategy Lowest cost Min product cost Lower margins High utilization Minimize inventory Reduce but not at expense of greater cost Cost and low quality Greater reliance on low cost modes Supply Chain Management Adel Abou Heneidy Responsive Quick response Modularity to allow postponement Higher margins Capacity flexibility Buffer inventory Aggressively reduce even if costs are significant Speed, flexibility, quality Greater reliance on responsive (fast) modes 61 Multiple Products and Customer Segments †¢ Firms sell different products to different customer segments (with different implied demand uncertainty) †¢ The supply chain has to be able to balance efficiency and responsiveness given its portfolio of products and customer segments †¢ Two approaches: – Different supply chains – Tailor supply chain to best meet the needs of each product’s demand Supply Chain Management Adel Abou Heneidy 62 Product Life Cycle The demand characteristics of a product and the needs of a customer segment change as a product goes through its life cycle †¢ Supply chain strategy must evolve throughout the life cycle †¢ Early: uncertain demand, high margins (time is important), product availability is most important, cost is secondary †¢ Late: predictable demand, lower margins, price is important Supply Chain Management Adel Abou Heneidy 63 Product Life Cycle †¢ As the product goes through the life cycle, the supply chain changes from one emphasizing responsiveness to one emphasizing efficiency Supply Chain Management Adel Abou Heneidy 64 Competitive Changes Over Time †¢ Competitive pressures can change over time †¢ More competitors may result in an increased emphasis on variety at a reasonable price †¢ Changes in technology can make it easier to offer a wide variety of products †¢ The supply chain must change to meet these changing competitive conditions Supply Chain Management Adel Abou Heneidy 65 Key points: †¢ To achieve a strategic fit, a company must: 1) Understand customers needs, the uncertainty of the SC, and to identify the implied uncertainty. ) Understand the SC’s capabilities in terms of â€Å"Efficiency† â€Å"Responsiveness† The key to strategic fit is ensuring the SC responsiveness is consistent with customer needs, supply capabilities, and the resulting implied uncertainty. When the scope of strategic fit is narrow, individual functions try to optimize their performance based on their own goals, which leads to: 1) Conflicting actions 2) Reducing SC surplus As the scope of strategic fit is enlarged to include the entire SC, actions are evaluated based on their impact on overall SC performance, which helps increase SC surplus. Supply Chain Management Adel Abou Heneidy 66 Chapter 3 Supply Chain Drivers and obstacles Supply Chain Management Adel Abou Heneidy 67 Drivers of Supply Chain Performance Drivers determine supply chain performance. For each driver, managers must make tradeoffs between efficiency (cost) and responsiveness. †¢ †¢ †¢ †¢ Inventory Transportation Facilities Information Drivers (4 enablers) of SC Price People Discuss ! Supply Chain Management Adel Abou Heneidy 68 Inventory All of the raw materials, work in process (WIP), and finished goods within the supply chain. Inventory policies can dramatically alter a supply chain’s efficiency and responsiveness. Why hold inventory? Unexpected changes in customer demand (always hard to predict, and uncertainty is growing) * Short product life cycles * Product proliferation (spreading) Supply Chain Management Adel Abou Heneidy 69 Why hold inventory? Unexpected changes in customer demand (always hard to predict, and uncertainty is growing) * Short product life cycles * Product proliferation (spreading) * Uncertain supply: Quantity / Quality / Costs / Delivery time What if there was no uncertainty in supply or demand—would it still be necessary to hold inventory? Supply Chain Management Adel Abou Heneidy 70 Inventory’s Impact Inventory can increase amount of demand that can be met by increasing product availability. Inventory can reduce costs by exploiting economies of scale in production, transportation, and purchasing. Inventory can be used to support a firm’s competitive strategy. More inventory increases responsiveness, less inventory increases efficiency (reduces cost). Inventory can significantly affect material flow/cycle/ throughput time. In other words: If you move your inventory faster, you don’t need as much inventory (inventory velocity) 71 Types of Inventory Needed †¢ Cycle Inventory – The average amount of inventory used to meet demand between replenishments. †¢ Seasonal Inventory – Inventory that is built up to meet predictable variation in demand. – Amount of seasonal inventory depends on how quickly and inexpensively a firm can change its rate of production. Supply Chain Management Adel Abou Heneidy 72 Types of Inventory †¢ Safety Inventory – Random, unpredictable, unexpected Inventory held to counter uncertainty in demand or supply (â€Å"just-in-case† inventory). †¢ Pipeline Inventory – Work-in process of transit †¢ Inventory held to do business. Supply Chain Management Adel Abou Heneidy 73 Transportation †¢ Modes and routes for moving inventory throughout the supply chain. Transportation’s Impact Transportation’s I mpact Faster transportation allows a supply chain to be more responsive but generally less efficient. Less than full truckloads allows a supply chain to be more responsive but generally less efficient. Transportation can be used to support a firm’s competitive strategy. Customers may demand and be willing to pay for a high level of responsiveness. Supply Chain Management Adel Abou Heneidy 74 Transportation Decisions Mode of transportation is the manner in which a product is moved (air, truck, rail, ship, pipeline, electronic). Each mode differs with respect to speed, size of shipments, cost, and flexibility. Routes are paths along which a product can be shipped. In house or outsource the transportation function. Many companies use third-party logistics providers (3PL) to perform some or all of their transportation activities Supply Chain Management Adel Abou Heneidy 75 Facilities †¢ Places within the supply chain where inventory is stored, assembled, or fabricated. †¢ Decisions on location, capacity, and flexibility of facilities have a significant impact on performance. †¢ †¢ †¢ †¢ †¢ †¢ Warehouses Factories Processing centers Distribution centers Retail outlets Offices Supply Chain Management Adel Abou Heneidy 76 Facilities Impact Facilities either store inventory between supply chain stages (warehouses, distribution centers, retailers) or transform inventory into another state (fabrication or assembly plants). Centralization of facilities uses economies of scale to increase supply chain efficiency (fewer locations and less inventory) usually at the expense of responsiveness (distance from customer). Supply Chain Management Adel Abou Heneidy 77 Facility Decisions Location. Centralize to gain economies of scale or decentralize to be more responsive. Other issues include quality and cost of workers, cost of facility, infrastructure, taxes (duties), quality of life, etc. Capacity. Excess capacity allows a company to be more responsive to changes in the level of demand, but at the expensive of efficiency. Manufacturing Methodology. Decisions between a product or functional focus, between flexible or dedicated capacity. Warehousing Methodology. Chose between SKU storage (stores all of one type of product together), Job lot storage (stores different products together to satisfy a particular customer or job), or cross-docking. Supply Chain Management Adel Abou Heneidy 78 †¢ How Toyota Honda use facilities decisions to be more responsive to their customers? 1) By opening manufacturing facilities in every major market that they enter to be near of the customers. ) Also, by opening local facilities they protect themselves from currency fluctuation and trade barriers. Supply Chain Management Adel Abou Heneidy 79 Information Data and analysis regarding inventory, transportation, facilities, and customers throughout the supply chain. It is potentially the biggest driver since it affects all the other drivers. Information’s Role †¢ †¢ †¢ †¢ Information connects various supply chain stages and allows them to coordinate activities. Information is crucial to the daily operations of each stage of the supply chain. An information system can enable a firm to get a high variety of customized products to customers rapidly. An information system can enable a firm to understand changing consumer needs more quickly Supply Chain Management Adel Abou Heneidy 80 Information Decision Components Push versus Pull. Push systems (like MRP) need information on anticipated demand to create production and purchasing schedules. Pull system (like JIT) need accurate and quick information on actual demand to move inventory and schedule production in the chain. Coordination and Information Sharing. How will the goal of maximizing supply chain profitability be achieved through the coordination of activities and sharing of appropriate information? Forecasting and Aggregate Planning. How will future demand and market conditions be forecast, and to what extent will collaborative forecasting be used? How will aggregate planning be used to meet forecasted demand and to what extent will it be shared throughout the supply chain? Enabling Technologies. Which information technologies will be used and integrated throughout the supply chain? lectronic data interchange (EDI), the Internet, enterprise resource planning (ERP) systems, supply chain management (SCM) software. 81 Major Obstacles to Achieving Fit †¢ SCM is big: – Variety of products and services – Spoiled/ demanding customers – Multiple owners (procurement, production, inventory, marketing) / multiple objectives – Globalization Local optimization and lack of global fit Supply Chain Management Adel Abou Heneidy 82 Major Obstacles to Achieving Fit †¢ Instability and Randomness: – Increasing product variety – Shrinking life cycle – Customer fragmentation Increasing implied uncertainty Supply Chain Management Adel Abou Heneidy 83 Major Obstacle / Chall