LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy

Supply Chain Structure and Strategy

At the end of this module, you will be able to recognize the effects of product demand and material supply approaches in selecting the appropriate supply chain strategy to meet performance objectives.
Select the Module Introduction from the Table of Contents to begin.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Module Introduction

Module Introduction

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Module Introduction

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Long Description The animation presents the text of the nursery rhyme "For Want of a Nail" and narration. The user clicks "next" after each line of the rhyme is presented. The text of the rhyme and its corresponding images are as follows: For want of a nail, the shoe was lost. Image: Graphic of a nail and a horseshoe. For want of a shoe, the horse was lost. Image: Graphic of a horseshoe and a horse. For want of a horse, the rider was lost. Image: Graphic of a horse and a medieval solider. For want of a rider, the battle was lost. Image: Graphic of a medieval soldier and a medieval battle. For want of a battle, the kingdom was lost. Image: Graphic of a medieval battle and a medieval kingdom on fire. And all for the want of a horseshoe nail. Image: Graphic of a nail on the top; at the bottom, all five remaining graphics align horizontally: a horseshoe, a horse, a medieval soldier, a medieval battle, and a kingdom on fire.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Module Introduction Objective

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Learning Objective At the end of this module, you will be able to recognize the effects of product demand and material supply approaches in selecting the appropriate supply chain strategy to meet performance objectives.

During the Middle Ages, the knight was the symbol of warfighting capability. However, becoming a knight was no easy process. At the age of six, a knight's son was sent to the lord's castle to live and be trained in preparation for knighthood. If his training progressed well, then at about fourteen, the page became a squire and was allowed to carry a sword and shield. Then, when the lord of the castle thought the young man was ready, he was knighted. Knights had two major elements they relied on to survive: their training and their equipment. "For Want of a Nail" is a very old nursery rhyme that illustrates the importance of paying attention to detail. Supply chain strategy is an important element of a business plan. As military logisticians, our business is the supply of goods and services that sustain the warfighter. By understanding the warfighter's (our customer's) requirements and the various supply chain options available to us, we will be in a better position to support the warfighters, both in terms of timeliness and efficiency.

What's in It for Me?

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Module Introduction Contents of the Module

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This module introduces supply chain strategies: the proper alignment of supply chain strategy with the nature of product demand and material supply; and the fundamental drivers of supply chain performance in private and public sector environments. Managers can design supply chains to be extraordinarily responsive, highly cost-efficient, or both. They can also structure the supply chain to be agile or to hedge against risk. The goal of supply chain performance is to achieve the optimum efficiency and responsiveness that results in strategic fit with the business strategy. This module also presents in detail the four drivers of supply chain performance, including their tradeoffs and obstacles to achieving strategic fit in the supply chain.

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Four Drivers The four drivers of supply chain performance are: Inventory requirements Transportation Facilities Information

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Structure

Overview of Supply Chain Structure

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Structure Objective Learning Objective At the end of this lesson, you will be able to recognize the general supply chain structure.

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LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Structure General Supply Chain Structure The supplier-customer relationships that connect the acquisition of raw material supplies at the up-stream end of the supply chain to the consumption points at the downstream end define the supply chain.

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D
In many industries such as automotive, electronic equipment, and apparel, multi-tier supply chains with different suppliers at different tiers of the chain are common. Furthermore, the structure of supply chains can vary substantially. For example, numerous printed circuit board assembly manufacturers exist; however, relatively few IC chip manufacturers dominate their own tier. The automotive industry has few final assemblers but significant suppliers for most parts and subassemblies. Additionally, third-party logistics providers have emerged as a prominent industry and provide outsourced support including distribution, fulfillment, and warehousing. These services support the client's business goals of operational efficiency, flexibility, and customer satisfaction levels, while also permitting the client to focus more on the overall business goals.

Long Description

The diagram is a vertical chain pattern of ovals that repeats several times across the diagram. The ovals are labeled, "Deliver", "Return","Source", or "Make". From left to right the pattern size starts out small and increases until it gets to the halfway point then decreases so that the right half is a mirror image of the left half. At the top center of the the diagram is an oval labeled, "Plan". From the top of the chain is an arrow which has a broad base that spans the entire chain and points up to the Plan oval. The actual chain is divided into five vertical sections by dotted lines. The sections are named from left to right as follows:
Suppliers' Supplier Your Supplier Your Company (in the center of the chain) Your Customer Customer's Customer

Above the Your Supplier section is an additional Plan oval. There is an arrow coming from the chain diagram in that section pointing to the oval. Above the Your Customer section is an additional Plan oval. There is an arrow coming from the chain diagram in that section pointing to the oval.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Structure Auto Industry Supply Chains Supply chains can take on many forms, even within an industry sector. Three examples can be illustrated in the auto industry. In the early 1900s, Ford introduced the Model T and the moving assembly line. This had a tremendous impact on the way America looked at production and supply. Ford's approach to supply was vertical integration, or what he called the "visible hand." He controlled every aspect of supply very tightly by moving steel and glass plants next door to his assembly plants to shorten delivery times, owning most of the subprocesses and providing specifications to his suppliers on how he wanted his parts shipped. For example, suppliers had to deliver products in a wooden box with prescribed dimensions and holes drilled in specific locations. These became the floorboards to the Model T.

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Tremendous Impact The day Ford turned on the moving assembly line, he was able to cut the cost of producing an automobile in half and double the wages of his workers. At that time there were over 300 automobile manufacturers in America, and most could not compete with Ford's innovations. Within a year most were out of business.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Structure Auto Industry Supply Chains, Cont.

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General Motors' (GM) approach to Supply Chain Management has been more of a decentralized approach, with each division taking responsibility for their own vendors and management being evaluated only on the financial numbers. Thus, the managers only concerned themselves with making their quarterly profit goals, and one key to achieving successful quarterly numbers was to squeeze the profit out of vendors. GM's purchasing czar, Inaki Lopez, was famous for beating supplier cost down to the point that suppliers could not reinvest in improvements or even make their own profit margins. Toyota distinguished itself by creating a relationship with their suppliers that became known as the "Lean Supply Chain." Toyota works closely with their suppliers to the point that they share their production data with them. In turn, suppliers can deliver parts and supplies "just-in-time." Toyota uses a technique called "heijunka" (or production smoothing) so that they do not have large inventories sitting in warehouses waiting for production to use them.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Structure DoD Supply Chain Spectrum The structure of DoD supply chains is changing because of outsourcing programs (A-76), new policy implementation (PBL), and support initiatives (Direct Vendor Delivery, Prime Vendor). A spectrum of support strategies for weapon system and personnel support items now spreads out between total organic and total contractor support. Up to fifty percent of depot maintenance is contracted out to private sector firms. Contractor field support is now common, and prime vendor supply is expanding. A good support strategy depends on the age of the system, existing support infrastructure, support provider capability, legislation and regulation, and business case analysis. In fact, some weapon systems are supported with multiple strategies. Given the variation in support options, it can be concluded that the distinguishing features of organic, contractor, or mixed support is not only who actually performs handson activities, but also who manages and integrates the supply chain activities.

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Spectrum At the full organic end of the spectrum is traditional DoD-managed and integrated support: DoD personnel provide all maintenance and supply in DoD facilities. In the middle of the spectrum are many public-private partnering opportunities such as: contractor use of organic depot maintenance capabilities; national-level contractor support and field-level organic support; and contractor support for unique items and organic support for common items. In mixed support, either organic or contractor personnel manage the supply chain, though usually the contractor handles it. At the other end of the spectrum, full contractor support, the contractor is wholly responsible for weapon system support, and contractor personnel integrate and manage the supply chain.

Long Description The diagram is a spectrum with the left side labeled "Full Organic Support" and the right end labeled "Full Contractor Support". Underneath the left side is the phrase: "Accomplished by Government activities". Underneath the center of the spectrum is the phrase, "Public-Private Partnerships". Underneath the right side is the phrase: "Accomplished by commercial activites".

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Knowledge Review What is the process missing in this model of the supply chain?

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Source Make Deliver Return

Long Description The Standard SCOR Model The diagram is a vertical chain pattern of ovals that repeats several times across the diagram. The ovals are labeled, "Deliver", "Return", or "Source." One label is missing for the purpose of this Knowledge Review. From left to right the pattern size starts out small and increases until it gets to the halfway point then decreases so that the right half is a mirror image of the left half. At the top center of the the diagram is an oval labeled, "Plan". From the top of the chain is an arrow which has a broad base that spans the entire chain and points up to the Plan oval. The actual chain is divided into five vertical sections by dotted lines. The sections are named from left to right as follows: Suppliers' Supplier Your Supplier Your Company (in the center of the chain) Your Customer Customer's Customer Above the Your Supplier section is an additional Plan oval. There is an arrow coming from the chain diagram in that section pointing to the oval. Above the Your Customer section is an additional Plan oval. There is an arrow coming from the chain diagram in that section pointing to the oval.

LOG102 - Fundamentals of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Knowledge Review Your company is GM. In the model, who might be is your direct customer and your direct supplier?

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Car buyer, Delco (brakes) Car buyer, steel manufacturer (for brake drums) Dealer, the steel manufacturer (for brake drums) Dealer, Delco (brakes)

This is the last page of the lesson. To proceed, go to the table of contents.

Long Description The Standard SCOR Model The diagram is a vertical chain pattern of ovals that repeats several times across the diagram. The ovals are labeled, "Deliver", "Return","Source", or "Make". From left to right the pattern size starts out small and increases until it gets to the halfway point then decreases so that the right half is a mirror image of the left half. At the top center of the the diagram is an oval labeled, "Plan". From the top of the chain is an arrow which has a broad base that spans the entire chain and points up to the Plan oval. The actual chain is divided into five vertical sections by dotted lines. The sections are named from left to right as follows: Suppliers' Supplier Your Supplier Your Company (in the center of the chain) Your Customer Customer's Customer Above the Your Supplier section is an additional Plan oval. There is an arrow coming from the chain diagram in that section pointing to the oval. Above the Your Customer section is an additional Plan oval. There is an arrow coming from the chain diagram in that section pointing to the oval.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Drivers of Supply Chain Performance

Drivers of Supply Chain Performance

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Drivers of Supply Chain Performance Objective Learning Objective At the end of this lesson, you will be able to define the fundamental drivers of supply chain performance in organic and commercial environments.

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LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Drivers of Supply Chain Performance The Four Drivers of Supply Chain Performance The four drivers of supply chain performance are: 1. Inventory requirements 2. Transportation 3. Facilities 4. Information

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Long Description The diagram contains four boxes (Drivers) labeled: Inventory Requirements Transportation Facilities Information The boxes float in a continuum between Efficiency and Responsiveness.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Drivers of Supply Chain Performance Driver 1: Inventory Requirements Inventory "stockage" exists in all supply chains because of a mismatch between supply and demand. Mismatches are often intentional, such as the case when cost-effectiveness dictates batch sizes or when future demand is unclear and immediate customer delivery is required. The spread of inventory throughout the supply chain includes raw materials, work in process, and finished goods by suppliers, manufacturers/repairers, distributors, and retailers. Inventory also has a significant impact on the material flow time of a supply chain. A major conclusion for those who manage inventory is that decreasing inventory (without increasing cost or decreasing responsiveness to the customer) can provide a significant flow time advantage in performance in the supply chain. Inventory also plays a significant role in supporting a firm's competitive strategy. A company can use inventory to achieve a high level of responsiveness by locating inventory stocks close to the customer.

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In a pull or just-in-time environment, suppliers may elect to locate inventories in a customer's stockroom with scheduled shipments on an hourly or minute-by-minute basis. Suppliers may even co-locate specialized manufacturing in a customer's factory, providing instant responsiveness to customer demand. A business can also use inventory to become more efficient by decreasing inventory through centralized stocking. The tradeoff is efficiency versus responsiveness. A supply chain manager must make routine decisions to create a more responsive, efficient supply chain. These decisions typically focus on decreasing procurement, repair or delivery cycle inventory, safety inventory, and seasonal inventory.

Material Flow Time Material flow time is the time that elapses between when material enters the supply chain to when it exits.

Cycle Inventory Cycle inventory is the average amount of inventory used to satisfy demand between receipts of supplier shipments. The size of the inventory is a result of the manufacture/repair or purchase of material in large lots. Companies manufacture/repair or purchase in large lots to exploit economies of scale in the production, transportation, or purchasing process. However, increased lot size leads to an increase in carrying costs. In DoD, these cycle levels are acquisition lead time levels composed of the administrative and production lead times, repair cycle requirement, and economic order quantity.

Safety Inventory Safety inventory is keeping inventory just in case demand exceeds expectation during the lead time or for variations in the lead time. Providers hold inventory to counter uncertainty. If the world were perfectly predictable, business would only need cycle inventory. However, because demand is uncertain and may exceed expectations, companies hold safety inventory to satisfy an unexpectedly high demand.

Seasonal Inventory Seasonal inventory is built-up inventory to accommodate predictable variability in demand. Businesses use seasonal inventory to bring up inventory in periods of low demand and store it for periods of high demand when they will not have the capacity to fill all the orders. Managers face key decisions in determining whether to build seasonal inventory and, if they do build it, in deciding how much to build. If a company can rapidly change the rate of its production system at very low cost, then it may not need seasonal inventory because the production system can adjust to a period of high demand without incurring large costs. However, if changing the rate of production is expensive (e.g., increases or decreases in force, and supplier capacity limitations requiring additional qualified sources), then a business would be wise to have a smooth production rate and build up its inventory during periods of low demand. Therefore, the trade-off managers face in determining how much seasonal inventory to build is the cost of carrying the additional seasonal inventory versus the cost of having a more flexible production rate. Although there is a low level of seasonal inventory in DoD, there is another category called war reserve inventory. This inventory supports projected wartime demand that exceeds normal peacetime demand. DoD collectively refers to these categories as "active inventory." In addition to the active inventory, DoD holds various types of retention inventories called "inactive inventory."

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Drivers of Supply Chain Performance Driver 2: Transportation Transportation moves the product between different locations in a supply chain and significantly affects both responsiveness and efficiency. Quicker methods (modes of transport, different amounts) increase supply chain responsiveness but decrease efficiency. The type of transportation can also affect inventory and facility location. For example, international transactions are the current commercial trend, but the supply chain manager must plan for travel time and customs processing. Transportation is prominent in a company's competitive strategy when considering customer need. If a firm's competitive strategy targets a customer that demands high responsiveness and that customer is willing to pay for this level, then they can use transportation as a driver for increasing supply chain responsiveness. The fundamental tradeoff for transportation is cost (efficiency) versus speed (responsiveness). A transportation cost analysis must consider the effects of speed on inventory required.

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Long Description Transportation Alternatives A diagram of six ovals arranged in a circle. The center of the circle has another oval labeled, "Transportation Alternatives," There are arrows coming from this center circle pointing to each of the other ovals. Going clockwise, the ovals are labeled: Truck Rail Ship Air Pipeline (oil, gas) Electronic (Internet)

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Drivers of Supply Chain Performance Driver 3: Facilities Facilities include all locations in the supply chain to store, assemble, or fabricate inventory. In DoD, it is where personnel repair weapon systems and secondary items. The two major types of facilities are: Manufacture/repair sites Storage (warehouse, distribution) sites Whatever the function, decisions regarding location, capacity, and flexibility of facilities significantly affect supply chain performance. For example, a company can increase responsiveness by setting up warehouses near its customers instead of creating only one remote stock facility. This usually decreases cost while increasing responsiveness. Since facilities are a key driver of supply chain performance, factors such as location, capacity, manufacture/repair methodology, and warehousing methodology also affect supply chain performance by way of the facilities component. In DoD, depot and field repair facilities are cornerstones of the supply chain.

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Location Deciding where a company will locate its facilities constitutes a large part of the design of a supply chain. A basic tradeoff here is whether to centralize to gain economies of scale or decentralize to become more responsive by being closer to the customer. Businesses must also consider a host of issues related to the various characteristics of the local area where the facility may be situated. These include macro-economic factors, strategic factors, quality of workers, costs of workers and facility, availability of infrastructure, proximity to customers and the rest of the network, and tax effects. In DoD, the location of these facilities is largely determined through the Base Realignment and Closure process.

Capacity Businesses must also decide what a facility's capacity to perform its intended function or functions will be. A large amount of excess capacity allows the facility to be very flexible and to respond to wide swings in the demands placed on it. Excess capacity, however, costs money and therefore can decrease efficiency. A facility with little excess capacity will likely be more efficient per unit of product it produces than one with a lot of unused capacity.

Manufacture/Repair Methodology Design teams also keep manufacture/repair methodology considerations in mind when they create new facilities. This translates to a facility design with a product focus or a functional focus. A productfocused factory performs many different functions (such as fabrication and assembly) in manufacturing a single type of product. A functional-focused factory performs few functions (such as fabrication or only assembly) on many types of products. A product focus tends to result in more expertise about a particular type of product at the expense of the functional expertise that comes from a functional manufacturing methodology. Businesses must decide which type of expertise will best enable them to meet customer needs. They must also make a decision regarding the ratio of flexible to dedicated capacity in their portfolios. Flexible capacity can be used for many types of products but is often less efficient, whereas dedicated capacity can be used for only a limited number of products but is more efficient. The tradeoff, again, is between efficiency and responsiveness.

Warehousing Methodology As with manufacturing, companies can choose from many methodologies when designing warehouse. Stock-Keeping Unit (SKU) storage is a traditional warehouse that stores all of one type of product together. Job lot storage is storing together different products for performing a particular job or satisfying a particular customer. Generally, job lot storage requires more storage space than SKU storage but can create a more efficient picking and packing environment. Wal-Mart pioneered cross docking where they do not actually keep goods in a warehouse. Instead, trucks from suppliers, each carrying a different type of product, deliver goods to a facility. There, the inventory is broken into smaller lots and quickly loaded onto store-bound trucks that carry a variety of products, some from each of the supplier trucks.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Drivers of Supply Chain Performance Driver 4: Information Even though information does not have a physical presence, it is still a major supply chain driver. Information deeply affects every part of the supply chain in several ways. Information serves as the connection between the supply chain's various stages, allowing coordination of actions and maximizing total supply chain profitability. Information is also crucial to the daily operations of each stage in a supply chain, such as the case for production scheduling, order status, and inventory status. A growing trend is the importance of information and information systems in balancing responsiveness versus efficiency. The tremendous growth of information technology as a functional discipline and a science is testimony to the impact that information has on the effective and efficient operation of a business. Similar to all other drivers, businesses must trade off between efficiency and responsiveness when trying to include more supply chain information.

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A key decision regarding information is determining what information is most valuable in decreasing cost and increasing responsiveness within a supply chain. This decision depends on the supply chain structure and market segments served. For example, some companies target customers who require costly customized products. These companies might find that an investment in information helps them to respond more quickly to their customers' needs.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Drivers of Supply Chain Performance Knowledge Review Which one of the following are drivers of supply chain performance?

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Transportation, information and Inventory Transportation, Inventory, and Material and Product Design Facilities, Inventory, and Material and Product Design Inventory, Transportation, and Material and Product Design

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Drivers of Supply Chain Performance Knowledge Review Your boss wants you to reduce your inventory and wants to know what the impact will be. What do you tell him?

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Cost will be reduced, and customer responsiveness will improve. Vendor deliveries will decrease, and warehousing cost will increase. Reducing inventory may improve efficiency, but it also might impact responsiveness. Demand forecast accuracy will improve.

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LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Strategy

Overview of Supply Chain Strategy

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Strategy Objective Learning Objective At the end of this lesson, you will be able to define a supply chain strategy and its relationship to the goals of the business strategy.

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LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Strategy General Supply Chain Strategy A supply chain strategy is a major component of a long-term business plan. The supply chain strategy defines the: Materials acquisition plan Materials transportation to and from the business location Product manufacture/repair Distribution of the product to the customer Any follow-up service

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The supply chain strategy is only one of several key functional plans that make up the overall corporate business strategy.
This business strategy would also include other functional plans from groups such as: Marketing Finance Quality New product or service development

Each of the functional groups contributes directly to the business' success or failure. While no one function can ensure the company's success, failure by any one function may prevent the overall achievement of the organization's strategic goals.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Strategy DoD Supply Chain Strategy

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As in the private sector, the DoD supply chain strategy is not an end in itself. In the PBL framework, the supply chain strategy is a major component of the overall PBL strategy for supporting a weapon system. In turn, the PBL strategy must be consistent with the deployment and joint warfighting plans for the weapon system and the deployable force.

Chips Magazine U.S. Army Logistics Application of Supply Chain Strategy http://www.chips.navy.mil/archives/08_Oct/web_pages/index.html

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Overview of Supply Chain Strategy Knowledge Review A supply chain strategy is a long-term business plan. It includes which of the following?

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Materials acquisition plan and distribution of product Marketing plan and distribution of the product to the customer Materials transportation to and from the business and a quality plan Financial forecast and materials transportation

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LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Choosing a Fitting Supply Chain Strategy

Choosing a Fitting Supply Chain Strategy

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Choosing a Fitting Supply Chain Strategy Objective

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Learning Objective At the end of this lesson, you will be able to describe "strategic fit" and the factors to be considered by a business in arriving at a supply chain strategy that achieves strategic fit.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Choosing a Fitting Supply Chain Strategy How to Fit a Supply Chain to Customer Needs A company strategically fits a supply chain when the capabilities of the supply chain match the needs and priorities of the customer. Strategic fit requires an understanding of: All of the key customer needs The capabilities of the business' supply chain This may result in adjustments to the supply chain strategy to accommodate the customer's goals. All too often, the wrong factors drive business decisions. A classic example is the auto industry. Dealers' lots are sometimes filled with automobiles, not because of customer demand, but because of production in anticipation of sales. These huge inventories come at a cost. When sales are slow, the dealers have to take discounts at the expense of profit.

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Long Description The diagram has three elements. The first two elements are in a horizontal row are labeled: Understand customer needs Understand supply chain capability Underneath the two boxes is a hexagon labeled "Adjust strategy to support the needs." There are arrows coming from the two boxes pointing to the hexagon.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Choosing a Fitting Supply Chain Strategy Understanding the Customer's Needs

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The supply chain strategy and structure starts with the specific needs of the customer and not the capability of the supplier or support provider. In DoD, this means that the needs of a specific weapon system or a specific operational customer should drive the supply chain. The needs of a depot maintenance activity and a deployed unit to support a weapon system may be very different. Therefore, the supply chain strategy should be customer-focused and tailored to unique requirements. A DoD Lesson Learned is that the strategy needs to integrate multiple supply chains to provide seamless support to the customer. To the extent possible, the customer should quantify the requirements for supply chain performance. The SCOR model details the following supply chain attributes that should be measured: Delivery reliability Responsiveness Flexibility Supply chain costs Asset management efficiency Readiness and sustainability

While the last three categories of supply chain attributes are not customer facing (measuring performance from customer's perspective), they do assess the customer's expectations in terms of performance and cost, and measure the responsiveness and efficiency of the supply chain.

Asset Management Efficiency Asset management efficiency is the effectiveness of an organization in managing assets to support customer demand satisfaction. Performance measures include cash-cash cycle time and inventory turns. DoD could use the following as measurements: Inventory turn at wholesale level Inventory turn at retail level

Delivery Reliability Delivery reliability is the performance of the supply chain in delivering the correct product: to the correct place at the correct time; in the correct condition, packaging, and quantity; with the correct documentation; to the correct customer. The performance metrics associated with this attribute include delivery performance, fill rate, and perfect order fulfillment. In DoD, these performance measures also include time-definite-delivery/perfect order. DoD is currently developing a time-definite-delivery measure and is also considering some form of a perfect order fulfillment metric. The time-definite-delivery metric will measure the percentage of support actually delivered against a customer's required delivery dates or an established time standard.

Flexibility Flexibility involves the agility of a supply chain in responding to marketplace changes to gain or maintain competitive advantage. Performance measurements include: Accelerating supply chain response time to meet changing customer requirements Production flexibility

Lesson Learned General Claude V. Christianson acknowledged in an interview:

"We weren't as effective as we could be. When the Army, Navy, Air Force and Marines work side-by-side in the same region, as they did in Iraq, the combined supply system is a clashing mismatch of different cultures, incompatible communications systems, different stock numbers for similar items, even different vocabularies. Keeping track of a spare Marine Corps tank transmission as it moves from a Marine Corps depot to an Air Force cargo plane to an Army truck, for instance, is one of our biggest challenges."

May Be Very Different For example, a depot has the need to level its workload. That is, they desire to keep everyone busy, all of the time. An operational customer, especially in time of conflict, has many surge requirements. How can these two conflicting needs be balanced?

Readiness and Sustainability Although not part of the SCOR model, the readiness and sustainability of weapon systems and personnel is the major objective of DoD's supply chain performance. Performance measures could include: Not-mission-capable rates attributed to supply and maintenance Availability of war reserve materiel or other readiness indicators Sustainability measures

Responsiveness Responsiveness is the velocity at which a supply chain provides products to the customer. A performance metric would include order fulfillment lead-time. DoD currently measures responsiveness through: Logistics response time: Is the measurement from the date the customer's requisition is submitted to the date the wholesale system delivers the materiel and it is received by the customer. Customer Wait Time: Is the measure of time from the point when a customer generates an order until that materiel is delivered from all sources including local retail stocks, to the location specified by the customer.

Supply Chain Costs These are the costs associated with operating the supply chain. Performance measures include cost of goods sold and value-added productivity. In DoD, these measures could include: Supply chain costs associated with the working capital fund process Percentage of change in customer prices from year to year

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Choosing a Fitting Supply Chain Strategy Supply Chain Responsiveness Versus Efficiency

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Once a business understands the customer's needs, the next issue is how they will develop a supply chain strategy to best meet those needs. If we search for a single idea that characterizes supply chain operations, it is the idea of the tradeoff between responsiveness and efficiency. Further insight into the supply chain requires an understanding of the key characteristics of the chain. Providers often use supply chain responsiveness to describe key supply chain abilities: 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 The more of these capabilities that a supply chain has, the more responsive it is. However, responsiveness comes at a cost. A business often increases production capacity to respond to a wider range of quantities demanded, which results in increased costs.

Increases Production Capacity Increasing capacity for many people means to increase the factory or repair floor: to add facilities and people. However, some suppliers are taking a different approach and are attempting to make their processes more flexible by reorganizing the factory and using such strategies as cellular manufacturing, kanban or pull manufacturing, and lean production techniques. The goal is to improve flexibility without significantly impacting cost.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Choosing a Fitting Supply Chain Strategy Fitting Efficiency into a Supply Chain

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Models of businesses with high levels of responsiveness exist that are also highly efficient. They accomplish both goals by integrating information and developing strong partnerships with suppliers. Authorities often cite Dell and Wal-Mart as leading examples of businesses that demonstrate the capability to achieve both efficiency and responsiveness. Research by the Council of Logistics Management indicates that many of the most responsive companies are also the most efficient (i.e., they cost the least as a percentage of sales). The private sector experience shows that businesses can create supply chains to be responsive as well as more efficient. DoD can accomplish this by pursuing supply chain strategies such as cycle time reduction and segmentation.

Cycle Time Reduction Cycle time reduction is the shortening of the various cycles in the supply chain. Decreasing cycle time makes the supply chain more responsive, while at the same time decreasing inventory and other costs. This also makes the supply chain more efficient. In DoD, cycle time reduction would include decreasing: Procurement lead time: The time from the establishment of a material procurement requirement at an acquisition activity until the manufacturer or other provider delivers it into the DoD support system Repair lead time: The time from establishment of a material repair requirement at a repair management organization until personnel repair the item and return it to the DoD support system Order and ship time: The time from generation of a material order (requisition) by a using customer until the customer receives material at the specified location

Models of Businesses Toyota is an excellent example of a company that has worked to integrate its supply chain to achieve greater efficiency and flexibility.

Segmentation Segmentation is recognizing that all items are not the same and that different item and market characteristics require different procurement and support strategies and different relationships with suppliers. The strategy of segmentation is more difficult to implement in DoD. With more than four million items stocked and supplied by more than 100,000 suppliers, it is difficult to segment items by market and item characteristics and form different procurement strategies, supplier relationships, and support strategies for each segment. However, under PBL, the focusing of supply chains for each weapon system enables the implementation of a segmentation strategy because it deals with far fewer items and only a few major suppliers.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Choosing a Fitting Supply Chain Strategy Other Supply Chain Strategies In summary, supply chains range from those that focus on responsiveness to those that focus on efficiency and some that try to combine the two goals. Other private sector supply chain supporting strategies include: Developing tailored and customer-focused supply chains Integrating multiple chains to provide seamless support Reducing cycle time Segmentation

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Why is this Important to the DoD? A message from a Special Forces Captain serving in Afghanistan summed up the situation: Days into the combat of Operation Iraqi Freedom, tank and mechanized infantry units streaked across the empty desert toward Baghdad, ready to fight. The Army struggled to send forward ammo and water in huge truck convoys, which quickly came under fire on the unguarded two-lane highways. DoD logistics transformation is aimed at giving the warfighter the support they need, when they need it. Is this easy?

Long Description Private Sector Supply Chain Strategies The diagram features four boxes arranged in a circle. Going clockwise, they are labeled: Customer-focused Tailored to requirements Segmented Integrated supply chain There are double-headed arrows between each of the boxes. Between the Tailored to Requirements box and the Segmented box is an additional arrow that points to the word, "Effectiveness". Between the Segmented box and the Integrated Supply Chain is an additional arrow that points to the word, "Responsiveness".

The Actual Message The actual message from a Special Forces Captain serving in Afghanistan: "We have little water, less food, no sleep for the past three days, and we only have 10 rounds per Afghan soldier. We are attacking, we are attacking."

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Choosing a Fitting Supply Chain Strategy Knowledge Review Which supply chain ability best describes the characteristic "responsiveness"?

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Respond to wide ranges of quantities demanded Meet all long and short-term customer needs Respond to a customer business inquiry All of the above

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LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Obstacles to Choosing a Fitting Strategy

Obstacles to Choosing a Fitting Strategy

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Obstacles to Choosing a Fitting Strategy Objective

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Learning Objective At the end of this lesson, you will be able to identify several major obstacles to achieving the supply chain strategic fit.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Obstacles to Choosing a Fitting Strategy The Four Main Obstacles to Strategically Fitting a Supply Chain The key to achieving a strategic fit is a business's ability to find a balance between responsiveness and efficiency that best matches the type of demand it is targeting. Several obstacles can upset this balance. Some of these are a direct result of the relatively recent operational and customer trend changes that have occurred in the commercial business world. While these obstacles have made it more difficult today than in the past for businesses to create the ideal balance, they have also afforded increased opportunities for improving supply chain management. Some of these obstacles include: 1. Increasing variety of products 2. Decreasing product life cycles 3. Increasingly demanding customers 4. Globalization

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LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Obstacles to Choosing a Fitting Strategy Obstacle 1: Increasing Variety of Products Customers are demanding even more customized products, with the manufacturing sector responding by initiating strategies such as mass customization and segment-of-one (where a business views each customer as an independent market segment). Products that were formerly generic are now custommade for a specific consumer. Dell is an ideal model of today's trend in product migration from generic to custom. Market segments increasingly fragment as customers demand products made to their needs. The increase in product variety complicates the supply chain by making forecasting and meeting demand much more complex. Increased variety tends to raise uncertainty, and uncertainty frequently results in increased cost and decreased responsiveness within the chain.

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Generic to Custom Generic is what you get when you go to a store like Best Buy--you get what is on the shelf. You can create, to some degree, your own model, but there is not much customization available at these chains. Compare this to Dell or Gateway. Either online or by phone, you can customize your purchase to include specific chips or software packages.

Mass Customization Other businesses are attempting to achieve responsiveness by focusing on mass customization. Look at a recent magazine delivered to your house and you might see evidence where they directed advertising towards you by name. Another good example is Amazon (www.amazon.com). Once Amazon identifies your shopping preferences, they start recommending books to you based on past purchases.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Obstacles to Choosing a Fitting Strategy Obstacle 2: Decreasing Product Life Cycles The life cycle (development, production and deployment) of commercial products is shortening. Unlike a decade ago, a business today may have to measure a product's life cycle in months instead of years. For example, personal computer life cycles are currently less than a year for new product development and have a useful life of only about three years. Some automotive manufacturers have lowered their product development times from over five years to three years. This decrease in product life cycles makes the job of achieving strategic fit with suppliers more difficult. The supply chain must constantly adapt to manufacture/repair and deliver new products in addition to coping with these products' demand uncertainty. Shorter life cycles increase uncertainty and narrow the window of opportunity for when the supply chain can achieve strategic fit. Increased uncertainty combined with a smaller window of opportunity has put additional pressure on supply chains to coordinate and create a firm operational correlation between supply and demand.

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LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Obstacles to Choosing a Fitting Strategy Obstacle 3: Increasingly Demanding Customers Numerous studies, articles, and first-hand accounts document how customer demands have increased with regard to delivery lead times, cost, and product performance in recent years. Many companies used to raise prices periodically, not due to a change in demand or any other factor, but simply as a standard business practice. Currently, there are few reports of businesses forcing price increases, especially without losing market share. Today's customers demand faster order fulfillment, increased quality, and better-performing products for the same price or lower than they paid years ago. This is a new paradigm. Only a few companies, like Wal-Mart, have been able to achieve both efficiency and responsiveness. However, more companies are making attempts to adopt the best practices and supply chain models to achieve these goals.

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Customer Demands Take for example the Toyota ad where a husband and wife are talking about a new purchase and arguing about the color of the exterior and interior. The wife shows the husband a pamphlet with her color combination, and he likes it. The pamphlet was custom created for her. Delivery could be in weeks!

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Obstacles to Choosing a Fitting Strategy Obstacle 4: Globalization Over the past few decades, governments around the world have loosened trade restrictions. This has resulted in a dramatic increase in global trade. The increase in globalization has had two main impacts on the supply chain. The first impact is that supply chains are now more likely than ever to be global. Having a global supply chain creates many benefits, such as the ability to source from a global base of suppliers who may offer better or cheaper goods than were available in a company's home nation. However, globalization also adds stress to the chain because facilities within the chain are further apart, making coordination much more difficult. The second significant impact is an increase in competition, as once protected national suppliers must now compete with companies from around the world. In the past, if there were few companies offering to satisfy customers' needs, then individual businesses could take more time responding to those needs. However, in most industries, there are now many more firms aggressively pursuing their competitors' business. All at once, this competitive situation makes supply chain performance key to maintaining or growing sales, puts more strain on supply chains, and forces companies to make tradeoffs even more precisely.

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Competition This competition is sometimes not fair or on an even playing field. For example, many Japanese businesses enjoy a unique relationship with both banking and government. Other countries have less restrictive environmental and labor laws that further reduce their cost of doing business, making them even more competitive.

Stress Other stresses related to globalization include the need to communicate across different languages, cultures, monetary systems, time zones, and industry standards that might be different (like electrical).

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Obstacles to Choosing a Fitting Strategy DoD Trends Many of the private sector supply chain structure trends also apply to DoD to some degree. For example, DoD is facing the same reductions in product life cycles as the private sector for things like computers and other commercial electronics. DoD is at the same time coping with the issue of extending the life of major weapon systems. These systems are being taken far past their original design intent. This requires that the supply chain handle problems of technology insertion (putting new technology into old platforms) and diminishing sources (parts are not available) at the same time. DoD customers are also becoming more demanding as they expect supply chain performance to match that experienced in their private lives and to satisfy the more variable requirements of today's military operations.

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Major Weapon Systems This includes all types of major weapon systems: aircraft, ships, wheeled and track vehicles including the C-17 and B-52 aircraft for the Air Force, the M-1 tank and Bradley Fighting vehicle for the Army, and the F-14 fighter for the Navy.

Long Description The graphic features photos of two B-52s; one on top in black and white with the caption: 1954. The B-52 on the bottom is in color and has the caption: 2040. The graphic indicates that DoD is coping with the issue of extending the life of major weapon systems, which in some cases are being taken far past their original design intent.

LOG 102 Fundamental of System Sustainment Management Supply Chain Structure and Strategy Obstacles to Choosing a Fitting Strategy Knowledge Review What is the effect of globalization on the supply chain and achieving strategic fit?

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It requires an increase in professionally skilled managers. There is no significant effect on the supply chain. Efficiency must increase to offset a potential decrease in inventory value. It requires precise supply chain strategies to maintain or grow sales.

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