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The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

Distribution D Distribution Authorized to Department of Defense and U.S. DoD Contractors Only

Supply Chain

Supply Chain

Management

Management

LOA University

October 19, 2015

(2)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

Who am I?

• Dr. William A Cunningham

• PhD Economics University of Arkansas

• MS Economics Oklahoma State University

• BSBA (Economics Major), Missouri Southern State

University

(3)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

What is a ‘supply chain’?

• Network of organizations:

• Raw materials providers

• Manufacturers

• Wholesalers and distributors and

• Retailers

• Service Providers

• Connected by forward and reverse flows of goods,

information, and enabling resources

(4)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

What Supply Chain

Management Is

Not

• It is not another name for logistics.

• It is not another name for purchasing.

• It is not another name for operations.

• It is not a combination of logistics, purchasing and

operations.

(5)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

[The International Center for Competitive Excellence, 1994]

[The Global Supply Chain Forum, 1998]

Supply Chain Management

… is the management of

relationships

in the

network of organizations, from end customer

through original suppliers, using key

cross-functional business

processes

to create value

for customers and other stakeholders.

(6)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

The Supply Chain

Management Processes

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 3.

S

up

pl

y

C

h

ai

n

M

a

na

g

em

en

t P

ro

ce

ss

es

Logistics

Marketing & Sales

Finance

Tier 2

Supplier

Consumer/

End user

Manufacturer

Information Flow

Purchasing

Production

Tier 1

Supplier

Customer

R&D

PRODUCT FLOW

CUSTOMER RELATIONSHIP MANAGEMENT

PRODUCT DEVELOPMENT AND COMMERCIALIZATION

RETURNS MANAGEMENT ORDER FULFILLMENT DEMAND MANAGEMENT CUSTOMER SERVICE MANAGEMENT SUPPLIER RELATIONSHIP MANAGEMENT

(7)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

Types of Inter-company

Business Process Links

n 2 3 1 2 1 1 n 2 1 3 n 2 1 3 1 n 2 n 1 2 n 1 C o ns um er s/ E nd -u se rs n T ie r 3 t o n s up pl ie rs In iti al S up pl ie rs

Tier 1

Customers

Tier 2

Customers

Tier 3 to

Consumers/

End-users

Tier 2

Suppliers

Tier 1

Suppliers

Tier 3 to

Initial

suppliers

n 1 n 1 n

Members of the Focal Company’s Supply Chain Focal Company

Non-members of the Focal Company’s Supply Chain Managed Process Links

Not-Managed Process Links Non-Member Process Links Monitored Process Links

T ie r 3 to n c us to m er s 1 n

(8)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

The SCM Processes - Briefly

• The

Customer Relationship Management

process

provides the structure for how the relationship with

customers will be developed and maintained.

• The

Supplier Relationship Management

process

provides the structure for how the relationships with

suppliers will be developed and maintained.

Customer Service Management

is the process that

deals with the administration of the PSAs developed by

customer teams as part of the CRM process.

Demand Management

is the process that balances the

customers’ requirements with the capabilities of the

supply chain.

(9)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

The SCM Processes - Briefly

• The

Order Fulfillment

process includes all activities

necessary to design a network and enable a firm to meet

customer requests while minimizing the total delivered cost.

• The

Manufacturing Flow Management

process includes all

activities necessary to obtain, implement and manage

manufacturing flexibility in the supply chain and to move

products through plants.

• The

Product Development and Commercialization

process

provides the structure for developing and bringing to market

products jointly with customers and suppliers.

Returns Management

is the process by which activities

associated with returns, reverse logistics, gatekeeping and

avoidance are managed within the firm and across key

members of the supply chain.

(10)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

Processes Need to Be Standardized

to Avoid Disconnects

Logistics

Marketing & Sales

Finance

Tier 2

Supplier

Consumer/

End user

Manufacturer

Information Flow

Purchasing

Production

R&D

CUSTOMER RELATIONSHIP MANAGEMENT

PRODUCT DEVELOPMENT AND COMMERCIALIZATION

RETURNS MANAGEMENT ORDER FULFILLMENT DEMAND MANAGEMENT

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 14.

CUSTOMER SERVICE MANAGEMENT SUPPLIER RELATIONSHIP MANAGEMENT

MANUFACTURING FLOW MANAGEMENT

Tier 1

Supplier

Customer

PRODUCT FLOW

(11)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

All Functions Need

to Be Involved

Note: Process sponsorship and ownership must be established to drive the attainment of the supply chain vision and eliminate the functional barriers that artificially separate the process flows.

Finance Purchasing Production Logistics Research & Development Sales Marketing

C

U

S

T

O

M

E

R

S

S

U

P

P

L

IE

R

S

Business Functions

Information Architecture, Data Base Strategy, Information Visibility

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 15.

Logistics

Capabilities ManufacturingCapabilities SourcingCapabilities CustomerProfitability Account

Management Technological Capabilities Marketing Plan & Resources Business Processes Customer Relationship Management

Forecasting Manufacturing Capabilities Sourcing Capabilities Competitors’ Initiatives Alignment of Logistics Activities Coordinated Execution Prioritization of Customers Knowledge of Customer Operations Production Planning Integrated Supply Network Design

Made-to-Order Material Constraints DistributionCost Role of Logistics Service in Marketing Mix Process Specifications Material

Specifications R & D Cost Product

Design

Logistics Requirements

Priority

Assessment Cost-to-Serve Tradeoff Analysis Process Requirements Environmental Requirements Differentiation Opportunities from Manufacturing Capabilities Prioritization Criteria Integrated

Planning SupplierCapabilities Total DeliveredCost Material Specifications Capabilities Required for Competitive Positioning Inbound Material Flow Manufacturing Cost Knowledge of Marketing Programs Product Design Reverse Logistics Capabilities

Re-manufacturing Material Specifications Revenue & Costs Technical Service Customer Knowledge Customer Opportunities Product/Service Gaps in Market Sales Growth Opportunities Design for Manufacturability Knowledge of Customer Requirements Knowledge of Customer Requirements Competing Programs in Customer Space Demand Management Customer Service Management Manufacturing Flow Management Order Fulfillment Product Development & Commercialization Supplier Relationship Management Returns Management

(12)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

The Critical Supply Chain

Management Linkages

Supply Chain Performance = Increase in Profit for A, B, C, and D

Manufacturer

C

Retailer/

End User

A

Wholesaler/

Distributor

B

P&L for

C as supplier

P&L for

B as supplier

Revenue

-

Cost

Profit

Revenue

-

Cost

Profit

Supplier

D

P&L for

A as customer

Revenue

-

Cost

Profit

P&L for

B as customer

Revenue

-

Cost

Profit

P&L for

C as customer

Revenue

-

Cost

Profit

Total Cost Report

for D as supplier

Cost =

Profit

CRM

SRM

SRM

SRM

CRM

CRM

(13)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

It Is Critical to Measure

the Financial Impact

• The development of customer profitability reports

enables the CRM process teams to track

performance over time.

• More profitable customers will be allocated more

resources.

• Similarly, wholesalers and retailers should use

profitability reports to evaluate suppliers, but

manufacturers should use total cost reports to

evaluate suppliers.

• The performance of each process should be

measured in terms of its impact on EVA

®.

(14)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

How CRM Affects EVA

®

ECONOMIC VALUE ADDED NET PROFIT MARGIN NET PROFIT NET SALES TOTAL EXPENSES GROSS MARGIN CGS COST OF CAPITAL INVENTORY TOTAL ASSETS CURRENT ASSETS FIXED ASSETS OTHER CURRENT ASSETS

+

+

SALES =

CAPITAL CHARGE

%

© Supply Chain Management Institute. Source: Supply Chain Management: Processes, Partnerships, Performance, p. 18.

Strengthen relationships with profitable customers

Improve ”share of customer”

Improve plant productivity

Improve demand planning

Reduce safety stock

Improve investment planning and deployment

Targeted marketing

Improve trade spending

Eliminate or reduce services provided to low-profit

customers

Optimize physical network/facilities

Leverage new or alternative distribution channels

Reduce overhead / management / admin. costs

Reduce HR costs / improve effectiveness

Improve mix ( e.g. align services and costs to serve)

Sell higher margin products

Make to order, mass customization of inventories

Improve product development and asset investment

Improve asset utilization and rationalization

Reduce accounts receivable

(15)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

Building High-Performance

Supply Chain Relationships

• Supply chain management is all about

relationship

management.

• Partnerships require significant investment, so

the goal is to fit the type of relationship to the

business situation.

• Management Tools:

• The partnership model assists with determining the

right level of partnership between two organizations.

• The collaboration framework assists with structuring

of relationships when symmetry and/or working

history are lacking between organizations.

(16)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

Supply Chain Management:

Elements and Key Decisions

2) What processes should be

linked with each of these

key supply chain members?

1) Who are the key supply

chain members with whom

to link processes?

3) What level of integration and

management should be applied

for each process link?

Supply Chain

Management

Processes

Supply Chain

Network

Structure

Supply Chain

Management

Components

(17)

The AFIT of Today is the Air Force of Tomorrow.

Air University: The Intellectual and Leadership Center of the Air Force Aim High…Fly - Fight - Win

Conclusions

• Supply chain management is

not

just another

name for logistics, nor a combination of

logistics, purchasing and operations.

• It is a way of doing business that is:

• Process-oriented

• Cross-functional

• Cross-firm

• The partnership model helps firms manage

the most important business relationships

with customers and suppliers.

References

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