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1. The Characteristics of Supply Chain Management Complexity, Variability, Conflicting Objectives0© 1999 Andersen Consulting
2. Order Response Time Product Availability Lead Time Order Changes Due Date PerformanceResource Investment Asset Productivity Inventory Supplier & Capacity ContractsLevel of ServiceCost of ServiceThe Business Challenges1© 1999 Andersen Consulting
3. ComplexityVariabilityConflicting ObjectivesWhat are the characteristics of Supply Chan Management, why is it so hard to manage?2© 1999 Andersen Consulting
4. ComplexityLead Times Limit FlexibilityLittle or No Predictability and Poor Product Mix?Chronic Capacity ShortagesCurrent Processes and Structures Inhibit PerformanceInventory Used to Cover ProblemsComplications in the Electronics IndustryComplexity 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-order Inverted BOM Binning Multi-stage global production3© 1999 Andersen Consulting
5. Uncertainty in the supply chain results in significant variabilityEarlyOn-timeLateEarlyOn-timeLateUnderForecastOverEarlyOn-timeLateCustomer DemandSupplier PerformanceManufacturingCustomer DeliveriesRaw MaterialsFinished GoodsPast Performance Market Research Analytical Technique Incentive ProgramsResponsiveness Transportation Location QualityProcess Design Product Design Capacity QualityBy Tom Davis4© 1999 Andersen Consulting
6. SupplyChannel OrdersActual LaunchReal ShortageReturns/CancellationsOver-SupplyChannel Fill and Phantom DemandTarget LaunchEnd of LifeTrue End Customer DemandUnits Per PeriodTimeMultiple forecasts and unreliable fulfillment today create the bullwhip effect.5©Andersen Consulting 1998
7. Shortened product life cycle has increased the uncertainty.Ramp-upOngoingEnd of Life Ramp-up Ongoing End of Life Role of Inventory High Usual Low Cost of Shortage High Usual Low Cost of Overage Low Usual HighBy Professor Hau L. Lee, Stanford University6© 1999 Andersen Consulting
8. VariabilityNatural Demand Material supply Production Distribution Self-Introduced Replenishment strategies Planning processes Inventory strategies7© 1999 Andersen Consulting
9. Traditional functional alignments continue to impede Supply Chain Performance.— Misaligned Functional Goals & Behaviors—PurchasingManufacturingDistributionSales & Customer ServiceGoal:Behavior:Lowest purchase priceHighest utilizationLowest cost100% customer satisfactionLong lead times High raw material inventory levelLong run lengths Inflexible schedules High WIP inventoryLong order fill times Inflexible schedulesHigh inventories Promise flexibility 8© 1999 Andersen Consulting
10. Conflicting Objectives - ManufacturingLittle’s Law Little’s LawAsset UtilizationWIP INVCycle TimeVariabilityThroughputWIP Cycle Time Variability9© 1999 Andersen Consulting
11. Conflicting Objectives - Customer Little’s LawAsset Utilization WIP INVCycle TimeVariabilityOrder Response Time Early WarningsDue Date PerformanceFill Rates10© 1999 Andersen Consulting
12. Conflicting Objectives - Corporate Little’s LawAsset Utilization WIP INVCycle TimeVariabilityOrder Response Time Early WarningsDue Date PerformanceFill RatesMarket ShareProfitMarket Risk11© 1999 Andersen Consulting
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