The Characteristics of Supply Chain Management Complexity, Variability, Conflicting Objectives 2003 Andersen Consulting 1 Order Response Time Product Availability Lead Time Order Changes Due Date Performance Resource Investment Asset Productivity Inventory Supplier & Capacity Contracts Level of Service Cost of Service The Business Challenges 2003 Andersen Consulting 2 What are the characteristics of Supply Chan Management, why is it so hard to manage? 2003 Andersen Consulting 3 Complexity Complexity 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 production 2003 Andersen Consulting 4 Uncertainty in the supply chain results in significant variability Customer Demand Supplier Performance Manufacturing Customer Deliveries Raw Materials Finished Goods By Tom Davis 2003 Andersen Consulting 5 Supply Channel Orders Actual Launch Real Shortage Returns/Cancellations Over-Supply Channel Fill and Phantom Demand Multiple forecasts and unreliable fulfillment today create the bullwhip effect. 2003 Andersen Consulting 6 Shortened product life cycle has increased the uncertainty. Ramp-up Ongoing End of Life Role of Inventory High Usual Low Cost of Shortage High Usual Low Cost of Overage Low Usual High By Professor Hau L. Lee, Stanford University 2003 Andersen Consulting 7 Variability Natural Demand Material supply Production Distribution Self-Introduced Replenishment strategies Planning processes Inventory strategies 2003 Andersen Consulting 8 Traditional functional alignments continue to impede Supply Chain Performance. — Misaligned Functional Goals & Behaviors— Goal: Behavior: Lowest purchase price Highest utilization Lowest cost 100% customer satisfaction Long lead times High raw material inventory level Long run lengths Inflexible schedules High WIP inventory Long order fill times Inflexible schedules High inventories Promise flexibility 2003 Andersen Consulting 9 Conflicting Objectives - Manufacturing Little’s Law Little’s Law Asset Utilization WIP INV Cycle Time Variability Throughput WIP Cycle Time Variability