Transcript Supply Chains - Kansas State University

SUPPLY CHAINS
September 19, 2002
OUTLINE FOR LECTURE
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Value chain vs. supply chain
Nature of the product and supply chain
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functional
innovative
The physical value chain vs. the virtual
value chain
Supply chains in agriculture
VALUE CHAIN
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Series of value adding activities
connecting a company’s supply side
with its demand side.
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Supply side activities include raw materials,
inbound logistics and production processes.
Demand side activities include outbound
logistics, product development, marketing
and sales.
SUPPLY CHAIN
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All activities necessary to provide a
product or service to the customer
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Supply chain goes beyond the firm to
encompass all value-adding activities
involved.
One can think of a supply chain as a value
chain with all the activities involved--no
longer confined to the activities of a firm.
DEVISING THE RIGHT SUPPLY
CHAIN
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Critical to success
As much as $30 billion wasted annually
in the U.S. food industry because of
poor coordination (1998).
EVIDENCE OF SUPPLY CHAIN
PROBLEMS
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Dysfunctional industry practices--price
promotions in grocery business
High costs
Excess of some products and shortage
of others--markdowns and stockouts at
the same time
CATEGORIZING PRODUCTS BASED
ON DEMAND PATTERNS
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Functional products are products that satisfy
basic needs and, hence, do not change much
over time. Thus they have stable, predictable
demand and long life cycles, e.g., canned
soup, loaf bread, raw meats.
Innovative products have unpredictable
demands and short life cycles, e.g. apparel
and hybrid seed corn.
COMPARISONS
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Functional Products
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Low margins
long life cycle
low product variety
demand predictable
low stockout rate
zero mark downs
long lead times for
made to order
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Innovative
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high margins
short life cycles
high product variety
demand unpredictable
high stockout rates
end of season mark
downs
short lead time for made
to order
TWO FUNCTIONS OF A
SUPPLY CHAIN
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Physical--converting from raw material
to final product delivered to consumer
Market mediation--ensuring that the
variety of products reaching
marketplace matches what consumers
want to buy.
PHYSICAL COSTS
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Costs of production, transportation and
inventory storage
MARKET MEDIATION COSTS
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Costs that arise when
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supply exceeds demand and product has to be
marked down and sold at a loss or
supply falls short of demand, resulting in lost sales
opportunities and dissatisfied customers.
Mediation costs are low for functional
products, but high for innovative products. (
Key to design of the supply chain.)
MATCHING SUPPLY CHAIN TO
PRODUCT
Product
Functional
Innovative
Efficient
Responsive
Supply Chain
Match
Mismatch
Mismatch
Match
EFFICIENT SUPPLY OF
FUNCTIONAL PRODUCTS--e.g.
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Continuous replenishment, Campbell Soup,
1991
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using EDI retailers each morning report demand
for all Campbell’s products and inventories in
distribution centers.
Campbell uses the info to forecast future demand
and to determine what products require
replenishment. Trucks leave and deliver on same
day the needed replenishment.
Did away with price promotions
Stores that gave discounted price, given lower
price from Campbell.
ECONOMIC IMPACT ON
RETAILER
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Most retailers figure that the cost of inventory
for a year is 25% of what they pay for the
product.
A two week inventory reduction represents a
cost saving of about 1% of sales.
Translates to a 50% increase in profit when
retailer’s average profit is 2% of sales.
ECONOMIC IMPACT ON
CAMPBELL
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Campbell’s sales grew twice as fast
Because retailers liked what program
did they
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carried broader line of Campbell products
gave more shelf space
RESPONSIVE SUPPLY FOR AN
INNOVATIVE PRODUCT
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Sports Obermeyer manufactures fashion ski
wear
95% new design each year
Early order from key retailers as basis to
forecast demand to within 10%
Announced to employees the cost of each
extra day delay. Employees suggested how
to improve responsiveness at least cost.
Consensus forecasts by six member
forecasting committee to identify the best.
ECONOMIC IMPACT OF ACCURATE
RESPONSE SYSTEM
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Obermeyer’s cut costs of over and
under production in half, which
increased net by 60%.
Retailers happy with Obermeyer’s more
responsiveness.
AN AGRICULTURAL EXAMPLE-PIONEER HYBRID
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Reducing lead time to breed and deliver new
varieties that growers will choose.
Improved forecasting of grower demand
based on test plot yields instead of advanced
orders (This is the key.)
Improved sales and profitability
Pioneer sees itself as an information
company.
LECTURE SUMMARY
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Value chain vs. supply chain
Nature of the product and supply chain
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functional
innovative
DISCUSSION OF SUPPLY
CHAINS IN FOOD AND
AGRICULTURE