8/25/00S.Chopra/Logistics Strategy1A Strategic Framework for Supply Chain Design, Planning, and OperationSyllabus8/25/00S.Chopra/Logistics Strategy2OutlineuWhat is supply chain management?uA supply chain strategy framework uSeven Eleven Japan8/25/00S.Chopra/Logistics Strategy3Traditional View: Logistics in the Economy (1990, 1996)uFreight Transportation$352, $455 BillionuInventory Expense$221, $311 BillionuAdministrative Expense$27, $31 BillionuLogistics related activity 11%, 10.5% of GNP.Source: Cass Logistics8/25/00S.Chopra/Logistics Strategy4Traditional View: Logistics in the Manufacturing FirmuProfit4%uLogistics Cost21%uMarketing Cost27%uManufacturing Cost 48%ProfitLogistics CostMarketing CostManufacturing Cost8/25/00S.Chopra/Logistics Strategy5Supply Chain Management: The Magnitude in the Traditional ViewuEstimated that the grocery industry could save $30 billion (10% of operating cost by using effective logistics and supply chain strategies A typical box of cereal spends 104 days from factory to sale A typical car spends 15 days from factory to dealershipuLaura Ashley turns its inventory 10 times a year, five times faster than 3 years ago8/25/00S.Chopra/Logistics Strategy6Supply Chain Management: The True MagnitudeuCompaq estimates it lost $0.5 billion to $1 billion in sales in 1995 because laptops were not available when and where neededuWhen the 1 gig processor was introduced by AMD, the price of the 800 meg processor dropped by 30%uP stores open in clusters with corresponding DCsu844 stores in the Tokyo region; Seven Eleven has 5,523 stores in 21 prefectures 8/25/00S.Chopra/Logistics Strategy41Information StrategyuQuick access to up to date information (as contrasts with data) High speed data network linking stores, headquarters, DCs and suppliers Store hardware Store computer POS registers linked to store computer Graphic Order Terminals Scanner terminals for receiving8/25/00S.Chopra/Logistics Strategy428/25/00S.Chopra/Logistics Strategy43Information Analysis of POS DatauSales analysis of product categories over timeuSKU analysisuAnalysis of waste or disposaluTen day (week) sales trend by SKUuSales trends for new productuSales trend by time and dayuList of slow moving itemsuContribution of product to sections in store display8/25/00S.Chopra/Logistics Strategy44Distribution StrategyuDelivery arrives from over 200 plantsuDelivery is cross docked at DC (over 80 DCs for food)uFood DCs store no inventoryuCombined delivery system: frozen foods, chilled foods, room temperature and hot foodsu11 truck visits per store per day (compared to 70 in 1974)uNo supplier (not even coke!) delivers direct8/25/00S.Chopra/Logistics Strategy45The Futureu7-eleven growing rapidly in the USu7-eleven aims to be a web depot in both the US and Japan. Does this make sense from a supply chain perspective?8/25/00S.Chopra/Logistics Strategy46SummaryuTwo views of a supply chainuA strategic framework: Achieving fit - Efficiency/Responsiveness and Supply chain driversuTailored logisticsuE-commerce frameworku7-elevenPlanning Demand and Supply in a Supply ChainForecasting and Aggregate Planning47Learning ObjectivesuPhases of supply chain decisionsuIdentify components of a demand forecastuTime series forecastinguEstimate forecast erroruAggregate planning in the supply chain48Supply Chain DecisionsuStrategy or design:Forecast uPlanning:ForecastuOperationActual demanduProduction: Scheduling, inventory control, aggregate planninguMarketing: Sales-force allocation, promotion, new product introductionuFinance: Plant/equipment investment, budgetary planninguPersonnel: Workforce planning, hiring, layoffs49Characteristics of forecastsuForecasts are always wrong. Should include expected value and measure of error.uLong-term forecasts are less accurate than short- term forecasts: Forecast horizonuAggregate forecasts are more accurate than disaggregate forecasts50Demand Forecast Involve Factors:uPast demanduPlanned advertising or marketing effortsuDisplay position in a cataloguState of the economyuPlanned price discountsuActions competitors have taken51Forecasting MethodsuQualitative: Subjective, human judgment Little historical data Experts have market intelligenceuTime Series: Past demand history is a good indicator of future demand Static; AdaptiveuCausal: Correlation between demand and environment factorsuSimulation: Imitate the customer choices52Basic Approach to Demand ForcastinguUnderstand the objective of forecastinguIntegrate demand planning and forecastinguIdentify the major factors that influence the demand forecastuUnderstand and identify customer segmentsuDetermine the appropriate forecasting techniqueuEstablish performance and error measures for the forecast53Components of an observationObserved demand (O) = Systematic component (S) + Random component (R)uMultiplicative: S = L T seasonal factoruAdditive: S = L+T+ Seasonal factor uMixed: S = ( L+T)seasonal facto