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21 st-Century

Supply Chains

McGraw-

Copyright 2010 by The McGraw-Hill Companies, Inc. All rig

Overview of 21st-century supply chains

The supply chain revolution


Why integration creates value
Generalized supply chain model
Responsiveness
Financial sophistication
Globalization

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The supply chain revolution has reshaped


contemporary strategic thinking
Supply Chain Management
Consists of firms collaborating to
leverage strategic positioning and
to improve operating efficiency

Supply Chain Strategy


Is a channel and business
organizational arrangement
based on acknowledge
dependency and collaboration

Logistics
The work required to move and
geographically position inventory

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Successful supply chain strategies

Source: Supply Chain Management Review, March/ April 2000, p. 29.

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The total integration of the overall business


process creates value
Table 1.1 Integrative Management Value Proposition

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The integrated value-creation process must


be managed across firms from end to end

Figure 1.1 The Integrated Supply Chain Framework

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Forces driving supply chain strategies

Information technology
Integrative management
Responsiveness
Financial sophistication
Globalization

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Postponement strategies keep supply


chains responsive
Types of Postponement
Manufacturing (or Form)
Geographic (or Logistics)
Combined

Manufacturing and geographic types are exact


opposites in practice but have the same goal
Meeting customer demand quickly while minimizing
inventories

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Manufacturing (or Form) Postponement


Manufacturing one order at a time
Base modular construction of product
No customization until the exact customer specs and
financial commitment is received
Objective is to maintain products in an uncommitted status
as long as possible
Balances economy of scale with responsiveness
Can build a sufficient quantity of ready to customize basic units

Requires a lot of forethought during product design


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Example of Manufacturing Postponement

Keeping all the car panels a base color (white or gray) until
the order is received, then painting to the color ordered

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Geographic (or Logistics) Postponement


Build or stock a full-line inventory at one or a few strategic
locations
Forward deployment of inventory is postponed until customer
orders are received
Once orders received, specific item is expedited to the local
distributor
Advantages are manufacturing economies of scale along with
responsiveness to customer
Often used for critical, high cost parts and assemblies (e.g.
engines)
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Example of Geographic Postponement

Keeping full inventory in a central warehouse and releasing


customer orders to local distributors or direct shipping to
customer
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Combined Postponement
Keeping the basic products centralized and performing
the customization at the destination distributor
Historical example - Autos
Installing dealer options like sound systems, GPS, sun
roofs on new cars purchased

Contemporary example - Computers


Dell Computers, doing final assembly or packaging
additional system options like printers, digital cameras at a
distribution center

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Barriers to implementing responsive


systems
Need for publicly held
corporations to maintain
planned quarterly profits
Expectations of continued financial
results often drive promotional and
pricing strategies to load the
channel with inventory

Need to establish collaborative


relationships
Most business managers do not have
training or experience in development
of collaborative arrangements

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Financial sophistication enables


measurement of time-based supply chain
Cash-to-Cash Conversion
the time required to convert raw
material or inventory purchases
into sales revenue
Dwell Time Minimization
dwell time is the ratio of time
that an assets sits idle to the
time required to satisfy its
supply chain mission
Cash Spinreducing assets in
the supply chain can spin
cash for reinvestment in other
projects
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Globalization offers firms several attractive


opportunities
Demand exceeds local
supply
90% of global demand is not
fully satisfied by local supply

Strategic sourcing
Identifying and matching the
sources of raw materials and
components to manufacturers
and distributors

Offshoring
Moving manufacturing and
distribution operations to
countries with favorable labor
costs and tax laws
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Significant differences for global logistics


Distance of typical order-to-delivery operations is
significantly longer compared to domestic business
Documentation requirements for business
transactions is significantly more complex
Operations must be deal with significant Diversity
in work practices and local operating environments
How consumers Demand products and services
must accommodate cultural variations
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