Supply chain

Management
Strategies
This presentation is based on the work and materials of:
ƒ Marshall L. Fisher, Professor & co-director of the Fishman-David Center for service and Operation management at The Wharton School.
ƒ David Simchi-Levy, professor at the MIT, President and CEO of Logic Tools.

Feb 02 Slide 1 Elee – Shanghai

 ƒ What SCM is looking for is to develop
production & delivery mechanisms and processes
that can produce goods
to the actual end-user rate of demand
for the smallest time-period manageable.

ƒ Ensure that the variety of products

reaching the market place
matches what customers want to buy.

Feb 02 Slide 2 Elee – Shanghai

 The functions of the SMC

¾ A physical function
Production Procurement
Storage Transportation

¾ A Market interface function

Ensure that the following conditions are met:

the right product at the right place

at the right time in the right quantity,
exactly as per Customers’ needs and expectations.

Feb 02 Slide 3 Elee – Shanghai

 Supply-Chain strategies
Made-to-stock environment
Efficient SC to market demand

Push
Product Functional products
characteristics typically…
Inventory of Retail products,
ƒ Stable, predictable Food cans,
demand Finished goods beer, drinks
& life cycle time Pasta,
ƒ Low level of demand All production and baby diapers
uncertainty distribution decisions are Etc…
ƒ Low margin made on long-term
forecasts

The problems 1/ Forecast are always wrong,

with long-term 2/ The longer the forecast horizon, the worst the forecast
forecasts 3/ Aggregate forecast are more accurate. (risk-pulling concept.)

Feb 02 Slide 4 Elee – Shanghai

 New Supply-Chain strategies
Made-to-order environment
Responsive SC to market demand

Inventory of
Innovative products parts All sorts of industries
High tech industries
¾ Unpredictable demand Assembly Computer (Dell)
¾ Short life cycle time
Fashion
¾ Great variety
..etc …
¾ High margins Decisions based
on accurate customer
demand.
Ensure that the variety of
products reaching the market
place matches what customers
want to buy

Feb 02 Slide 5 Elee – Shanghai

 What Strategy for your products?

ƒ Is your product functional or innovative?

ƒ Should your SC be physically efficient or responsive to the

market?

ƒ Where in the SC to position inventory and available

production capacity in order to hedge against uncertain
demand?

Feb 02 Slide 6 Elee – Shanghai

 Physically Efficient vs. Market-Responsive SC

Physically Efficient Market-Response

process Process

Primary purpose Supply predictable Respond quickly to unpredictable

Demand efficiently at the demand to minimize forced
lowest possible cost markdowns, obsolete inventories

Manufacturing focus Maintain high average Deploy excess buffer capacity

utilization rate

Inventory strategy Generate high returns & Deploy significant buffer

minimize inventory stocks of parts or finished
throughout the SC goods

Lead-time focus Shorten lead times as long Invest aggressively in ways to

as it does not increase cost reduce lead times

Approach to choosing Select primarily for cost & Select primarily for speed,
suppliers quality flexibility and quality

Product design strategy Maximize performance & Use modular design to postpone
minimize cost product differentiation as long as
Feb 02 possible Slide 7 Elee – Shanghai

By Marshall L. Fisher, Professor & co-director of the Fishman-David Center for service and Operation management at The Wharton School.
 Matching SC with products

Functional products Innovative products

Supply chain
Efficient

match mismatch
Supply chain
Responsive

mismatch match

Feb 02 Slide 8 Elee – Shanghai

 The Push - Pull Strategy
Push based strategies Pull based strategies

Parts
Parts Assembly
Assembly

Responsive SC
Efficient SC
model

replenishment
replenishment made on
made on

model
made
made accurate customer
accurate customer
on forecast
on forecast demands
demands

The push-pull boundary

It is the point at which the product goes from being pushed

in anticipation of customer order,
to being pulled by actual demand.

Feb 02 Slide 9 Elee – Shanghai

 What is the appropriate strategy for a company?

ƒ The higher the demand uncertainty, ƒ The lower the demand uncertainty,
the more we want to use the more we want to use
Pull based strategies. Push based strategies
(high predictability)

ƒ The higher the transport cost*, ƒ The lower the transport costs*,
the more we want to make use of we more we are willing to use
Push based strategies. Pull based strategies.
(aggregate shipments possibility)

(*Transport costs as a percentage of a unit cost)

Feb 02 Slide 10 Elee – Shanghai

 The Pull-Push boundary
Raw Materials

Car Some Retail Traditional

End customer
Furniture Dell industry Amazone retailers

Production Assembly Manufacturer Distributor Store

DC DC

It is the inflection point where demand information exerts its influence on…..

Feb 02 Slide 11 Elee – Shanghai

 The furniture industry
ƒƒ High level
High level of
of demand
demand uncertainty
uncertainty
ƒƒ High delivery
High delivery cost
cost (%
(% to
to the
the unit
unit price)
price)

Many different type of fabrics, colors

decided on order.

Made
Inventory

Inventory
Raw Materials

End customer
on Consolidation of bulky shipments
order

Production Assembly Manufacturer Distributor Store

DC DC

Feb 02 Slide 12 Elee – Shanghai

 Dell - the Pull-Push boundary
ƒƒ High level
High level of
of demand
demand uncertainty
uncertainty
ƒƒ Low delivery
Low delivery cost
cost (%
(% to
to the
the unit
unit price)
price)

Demand
Pull from customer demand
forecast
made
No inventory
Raw Materials

End customer
at
Push
assembly of
finished products
Parts inventory
made on forecast

Production Assembly Manufacturer Distributor Store

DC DC

Feb 02 Slide 13 Elee – Shanghai

 Traditional computer industry
ƒƒ High level
High level of
of demand
demand uncertainty
uncertainty
ƒƒ Low delivery
Low delivery cost
cost (%
(% to
to the
the unit
unit price)
price)

Demand forecast made on long

term forecast

Manufacturing
Inventory
Push
Raw Materials

End customer
of Inventory
finished Inventory
of
products finished of
finished
products
products

Production Assembly Manufacturer Distributor Store

DC DC

Feb 02 Slide 14 Elee – Shanghai

 Car industry
ƒƒ High level
High level of
of demand
demand uncertainty
uncertainty
ƒƒ High delivery
High delivery cost
cost (%
(% to
to the
the unit
unit price)
price)

Demand forecast made on long

term forecast

Manufacturing
Inventory
Push
Raw Materials

End customer
of Inventory
finished Inventory
of
cars of
finished
finished
cars
cars

Production Assembly Manufacturing Factory Automobile

storage dealers

Feb 02 Slide 15 Elee – Shanghai

 The Grocery Pull-Push boundary (case one)
ƒƒ Low level
Low level of
of demand
demand uncertainty
uncertainty
Pasta
ƒƒ High delivery
High delivery cost
cost (%
(% to
to the
the unit
unit price)
price) Soup
drinks
Very predictable distribution patterns.
Because high level of predictability, Demand
orders can be made on long-term forecast forecast
made
at Pull from
customer
Raw Materials

End customer
Push Distributor
demand
DC

Production Assembly Manufacturer Distributor Store

DC DC

Feb 02 Slide 16 Elee – Shanghai

 The Grocery Pull-Push boundary (case two)
ƒƒ Low level
Low level of
of demand
demand uncertainty
uncertainty
ƒƒ High delivery
High delivery cost
cost (%
(% to
to the
the unit
unit price)
price)

Very predictable distribution patterns. Demand

Because high level of predictability, forecast
orders can be made on long-term forecast made
at
Raw Materials

End customer
Store
Push
DC

Production Assembly Manufacturer Distributor Store

DC DC

Feb 02 Slide 17 Elee – Shanghai