# Supply Chain - The supply chain can cost 50% to 80% of revenue - A corporation cannot sustain [[advantage|competitive advantage]] without a competitive supply chain - A best-in-class supply chain will drive company financial results - Three best-in-class supply chains: Schneider Electric, Cisco, Colgate-Palmolive - Definition - Network of activities associated with the **flow and transformation of goods** from raw materials to the end use, and to the end of product life. - Includes **all companies** associated with the transformation of goods - [[scor|Supply Chain Operations Reference Model | SCOR]] - Supply chains must be driven by a forecast - Forecasts are (almost) always wrong - Excess inventory, high costs, waste and lost customers are the consequence of forecasting inaccuracies. ## Concepts - Profit Sharing - Collaboration -- to  increase speed of supply and reduce inventory and costs. - Operations Terms - Build to order = products built to confirmed orders - Build to plan = products built to a forecast - Forecast accuracy - Manufacturing cycle time = start to finish manufacturing time - Lead times = order to delivery time - Customer requested date - Promised delivery date ## Demand Forecast - Horizontal - Fluctuation of demand about a constant mean remains relatively consistent - Trend - Demand exhibits an increasing or decreasing pattern over time - Seasonal - Any pattern that regularly repeats itself and is of a constant length - Cyclical - Patterns that are created by economic fluctuations. - Random - Unexplained and un-forecastable variation that cannot be predicted. ## Inventory Optimize the inventory levels by reducing the supply chain cycle time from order to delivery. - Inventory types - **Raw Materials (RM):** Basic substance in its natural, modified, or semi-processed state - **Work-in-Process (WIP):** product at an intermediate stage in processing (semi-finished goods) - **Finished Goods (FG):** completed products available for sale to an internal or external customer - **Buffer/Safety Stock:** used to protect against uncertainties and potential reliability/quality issues. - Inventory strategy -- constant trade-offs - **Customer Service Levels:** Ensuring the firm has the right products in the place at the right time - **Inventory Costs:** Balancing customer service levels with inventory ordering & carrying costs - **Operational Performance:** Balancing the customer service levels and costs with cash flow and operational efficiencies desired - Inventory Models - Single Period -- Newsvendor Model - Multiple Period Model ## Integration - **Virtual Integration:** A method of achieving the advantages of vertical integration without incurring the direct overhead costs (capital costs, people costs etc.) or taking on all of the risk. - Moving to Virtual Integration via Outsourcing - Reduces operating costs - Improves company focus on its own core competencies - Gain access to world-class capabilities and skills - Frees up internal resources for other purposes - Shares risks with partners - **Supplier Relationship** are critical when virtualizing - **Competitive** Orientation: win-lose zero sum game, hard negotiations on cost with short-term objectives, commoditizes the relationships, many suppliers. *Contract-based relationship.* - **Cooperative** Orientation: Buyer & sellers become partners, long-term orientation, cooperative work on commitments, early supplier involvement on new products/services, fewer suppliers. *Partnership-based relationship.* ## [[strategy|Strategy]] - Functional Product - Meet predictable demand at lowest cost. - Being physically efficient -- must contend with [[bullwhip|Bullwhip Effect]]! - Innovative Product - Quickly reacting to changes in demand. - Being market responsive. -- by *delaying differentiation* ## IT - ERP (Enterprise Resource Planning) and SCM (Supply Chain Management) Systems