The Characteristics of Supply Chain ManagementComplexity, Variability, Conflicting Objectives02003 Andersen ConsultingOrder Response TimeProduct AvailabilityLead TimeOrder ChangesDue Date PerformanceResource InvestmentAsset ProductivityInventorySupplier & Capacity ContractsLevel ofServiceCost ofServiceThe Business Challenges12003 Andersen ConsultingComplexityVariabilityConflicting ObjectivesWhat are the characteristics of Supply Chan Management, why is it so hard to manage?22003 Andersen ConsultingComplexityLead Times Limit FlexibilityLittle or No Predictability and Poor Product Mix?Chronic CapacityShortagesCurrent Processes and Structures Inhibit PerformanceInventory Used to Cover ProblemsComplications in the Electronics IndustryComplexity in Component / Semiconductor ManufacturingMass customizationPersonalizationProduct mix effects on capacityMultiple optionsContracted vs. owned capacityCombined make-to-forecast and make-to-orderInverted BOMBinningMulti-stage global production32003 Andersen ConsultingUncertainty in the supply chain results in significant variabilityEarlyOn-timeLateEarlyOn-timeLateUnderForecastOverEarlyOn-timeLateCustomer DemandSupplier PerformanceManufacturingCustomer DeliveriesRawMaterialsFinishedGoodsPast PerformanceMarket ResearchAnalytical TechniqueIncentive ProgramsResponsivenessTransportationLocationQualityProcess DesignProduct DesignCapacityQualityBy Tom Davis42003 Andersen ConsultingSupplyChannel OrdersActualLaunchReal ShortageReturns/CancellationsOver-SupplyChannel Fill and Phantom DemandTargetLaunchEnd of LifeTrue End Customer DemandUnits Per PeriodTimeMultiple forecasts and unreliable fulfillment today create the bullwhip effect.5Andersen Consulting 1998Shortened product life cycle has increased the uncertainty.Ramp-upOngoingEnd of LifeRamp-upOngoingEnd of LifeRole of InventoryHighUsualLowCost of ShortageHighUsualLowCost of OverageLowUsualHighBy Professor Hau L. Lee, Stanford University62003 Andersen ConsultingVariabilityNaturalDemandMaterial supplyProductionDistributionSelf-IntroducedReplenishment strategiesPlanning processesInventory strategies72003 Andersen ConsultingTraditional functional alignments continue to impede Supply Chain Performance. Misaligned Functional Goals & BehaviorsPurchasingManufacturingDistributionSales & Customer ServiceGoal:Behavior:Lowest purchase priceHighest utilizationLowest cost100% customer satisfactionnLong lead timesnHigh raw material inventory levelnLong run lengthsnInflexible schedulesnHigh WIP inventorynLong order fill timesnInflexible schedulesnHigh inventoriesnPromise flexibility 82003 Andersen ConsultingConflicting Objectives - ManufacturingLittles Law Littles LawAssetUtilizationWIPINVCycleTimeVariabilityThroughputWIPCycle TimeVariability92003 Andersen ConsultingConflicting Objectives - Customer Littles LawAssetUtilization WIPINVCycleTimeVariabilityOrder Response Time Early WarningsDue Date PerformanceFill Rates102003 Andersen ConsultingConflicting Objectives - Corporate Littles LawAssetUtilization WIPINVCycleTimeVariabilityOrder Response Time Early WarningsDue Date PerformanceFill RatesMarket ShareProfitMarket Risk112003 Andersen Consulting