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1
Resource Investment Asset Productivity Inventory Supplier & Capacity Contracts
What are the characteristics of Supply Chan Management, why is it so hard to manage?
Complexity
Variability
Conflicting Objectives
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2
Complexity
Complications in the Electronics Industry
Chronic Capacity Shortages
January
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Complexity in Component / Semiconductor Manufacturing
• Mass customization • Personalization • Product mix effects on capacity • Multiple options • Contracted vs. owned capacity • Combined make-to-forecast and make-to-
Time
End of Life
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5
Shortened product life cycle has increased the uncertainty.
Ongoing
Ramp-up
End of Life
Role of Inventory Cost of Shortage Cost of Overage
• Process Design • Product Design • Capacity • Quality
Under Forecast Over
Customer Demand
Raw Materials
Finished Goods
Early On-time Late
Supplier Performance
order • Inverted BOM • Binning • Multi-stage global production
3
Uncertainty in the supply chain results in significant variability
• Past Performance • Market Research • Analytical Technique • Incentive Programs
High raw material Inflexible schedules inventory level High WIP inventory
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By Tom Davis
Early On-time Late
Manufacturing
• Responsiveness • Transportation • Location • Quality
4
Early On-time Late
Customer Deliveries
Multiple forecasts and unreliable fulfillment today create the bullwhip effect.
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7
Traditional functional alignments continue to impede Supply Chain Performance.
— Misaligned Functional Goals & Behaviors—
Purchasing
Manufacturing Distribution
Sales & Customer Service
Goal:
Lowest purchase price
Highest utilization
Lowest cost
100% customer satisfaction
Behavior: Long lead times Long run lengths
Units Per Period
Channel Fill and Phantom Demand
Channel Orders True Endl Shortage
Over-Supply
Target Launch
Supply
Actual Launch
Returns/ Cancellations
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Little or No Predictability and Poor Product Mix
Inventory Used to Cover Problems
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Lead Times Limit Flexibility
Current Processes and Structures Inhibit Performance
The Characteristics of Supply Chain Management
Complexity, Variability, Conflicting Objectives
The Business Challenges
Level of Service
Cost of Service
Order Response Time Product Availability Lead Time Order Changes Due Date Performance
Ramp-up High High Low
By Professor Hau L. Lee, Stanford University
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6
Ongoing Usual Usual Usual
End of Life Low Low High
Variability
Natural • Demand • Material supply • Production • Distribution Self-Introduced • Replenishment strategies • Planning processes • Inventory strategies