As a human being, we all consume products and/or services all the time. This morning you got up and ate your breakfast, e.g., eggs, milk, bread, fresh fruits, and the like. After the breakfast, you drove your car to work or school. At your office, you used your computer, perhaps equipped with 27” LCD monitor. During your break, you drank a cup of coffee and played with your iPhone. So on and so forth. You probably take it for granted that you can enjoy all of these products. But if you take a closer look at how each of these products can be made and eventually delivered to you, you will realize that each one of these is no short of miracle. For example, which fruit do you like? Consider fresh strawberries. In order for the strawberries to be on your breakfast table, there must be numerous functions, activities, transactions, and people involved in planting, cultivating, delivering, and consuming strawberries. Moreover, all of these functions, activities, transactions, and people are connected as an integral chain, through which physical products like strawberries themselves and virtual elements such as information and communication flow back and forth constantly. By grouping related functions or activities, we have a supply chain, comprised of four primary functions such as supplier, manufacturer, distributor, and finally consumer. A supply chain is essentially a value chain. For the society or economy as a whole, the goal is to maximize value, i.e., to create satisfactory value without spending too much. In order to create the maximum value for the strawberry supply chain, every participant in the chain must carry out its function efficiently. In addition, all of the members must coordinate with each other effectively in order to ensure value maximization. We have to face the same issues for almost all the products and services we take for granted in our everyday life, e.g., cars, hamburgers, haircuts, surgeries, movies, banks, restaurants, and you name it! In this course, we want to understand fundamental principles of value creation for the consumers or the market. We try to answer questions like how the product or service is made, how the value-creating activities or functions are coordinated, who should play what leadership roles in realizing all these, and so on. As our course title hints, we approach all of these issues from a learning perspective, which is dynamic in nature and emphasizes long-term capability building rather than short-term symptomatic problem solving.
Designing Factors - Structural Dimension Part 1
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Do curso por Korea Advanced Institute of Science and Technology
Gestão da cadeia logística: uma perspectiva investigativa
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Korea Advanced Institute of Science and Technology
357 classificações
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Supply Chain Strategy I: Structural and Infrastructural Dimensions
In order to optimize the supply chain performance, the firm must design its supply chain effectively. In this chapter, we will talk about how to design the effective supply chain and look into the designing factors of supply chain management in detail.
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Bowon KimProfessor
KAIST Business School
Think about this example.
We have, as usual, supply function,
manufacturing, distribution and customers, and
the configuration is about physical placement.
And now let's say that Hyundai Motor
can use supplies in Korea, China, Thailand, UK, and
also the company has its plant in Korea, China, India, and US-Alabama.
And suppose that the company has its warehouses and big you know,
dealerships in Korea, China, Vietnam and US, and the car
maker targets customers in, you know, four different areas.
Korean customers, Chinese customers,
American customers, and European customers.
And then, more specifically, the company should
have chosen its location of the supplier.
And here and there, you know, where you have your supplies in Thailand, or where
you have your supplies and which is supplying in UK and so on and so forth.
And likewise, in Korea, where you want to have your
operations in Shanghai where exactly you want to place your plant.
In India, in the U.S., Alabama, you know.
And likewise in the warehouse.
In warehouses, you, you gotta, you gotta make
a choice about where you want to have your warehouses.
You want a warehouse is here, and, your, your warehouse is Vietnam, in the US.
And then the target customer, where the target customers are.
Or maybe you know, another warehouse very close to the end of the market.
You gotta, you gotta select your, you know,
locations of your customers, or custom target customers.
So that's the question about configurations.
Physical placement, where should I locate?
Where should I place this whole, you know, value chain activities across the world?
And then the next element is connection.
Once you have all these activities and all these functions all across
the world, you gotta make a connection between or among these things.
Okay?
So they say the Korean suppliers supply the
Korean operations and also the Korean suppliers supports
operations in China, Chinese suppliers because the plant has a large demand
and therefore the Chinese suppliers only supply Chinese operations.
And Thailand, suppliers in Thailand support
Chinese operations and also operations in India.
And sometimes it, you
know,
supports US operations in Alabama.
And supplies in UK support India and also they support
operations in Korea and the US support American operations.
And once you make your cause in Korea you, you
know, shipped to has caused to the Korean you know, Pusan.
Korean you know, city, and also you export to some of them to the US.
And some are you also want to ship some of them to the South East Asian countries.
And once you have, you know, built your cause in China, you ship most of them to
the Chinese or the warehouses in China, because again, China has a huge demand.
And therefore, you know, the market needs all
of those, you know, cars produced in China.
And in India, you might support here and here.
And also US.
And, you make your calls in the US, and
most of them are consumed in the US market.
So, the distribution centers go there.
And then from this distribution center, final customers, customers in
Korea, customers in the US, and sometimes we ship cars to EU countries as well.
China, from China to China and if they have some
leftover they want to ship them to Korean market.
And here, Chinese market and U.S. market.
And the U.S., European countries, and also United States.
So, that's the connection.
How to make the sort of long-term or sometimes short-term
relationship, connection between this physical presence, all right.
And then also uncertainties are everywhere and in order
to cope with the uncertainty, you've gotta have your inventories.
How much, where should I have my inventories?
Where should I have my inventories?
How much?
Right?
So these inventories are [UNKNOWN].
And, here you also need to have some inventories and these are pretty
much semi-finished or almost completed or finished the product.
And usually in the distribution centers or warehouses you have finished
products, which are ready to be shipped to the end customers.
And obviously, you have some inventories here, as you know, finished product.
Very close to the end market, or maybe close to the retail stores.
So, where should I have my inventory, how much inventory should I have?
That's another very important question for this structure dimension.
And finally, there are some transportation options, and
logistical options, which logistical options I want to use, okay?
So maybe you know, sometimes you want to use airplanes.
But not, not likely in the, you know, automobile industry.
You probably don't ship your cars using aircraft.
But, obviously you know, in some other
cases, some other products for instance, a smartphone.
Sometimes you ship smartphones from one place to another using airplane, right?
That's
possible.
For this car, usually either you can use a
ship or maybe train or, you know, trucks [UNKNOWN].
So which transportation option you want to use?
That's, that's the decision [UNKNOWN] this transportation or logistics options.
Okay, that's the, you know, nicely drawn picture that, shows everything.
You know, the configuration, interconnection,
and inventory, and transportation options.
Obviously, you know, it's not a complete
picture but you can place where you want to have your inventories and where,
you know, what kind of transportation options you can use and so on and so
forth.
I do need to get I want to add a little more detailed explanation for each one.
I already mentioned that configuration, configuration is about geographic
placement or physical placement of the value chain functions and activities.
It requires [UNKNOWN] long term commitment, right?
So long term strategy factors like work force quality, you know?
Whether, would, there would be highly educated
work forces and highly educated employees available.
What about this you know text relationship between,
you know, domestic market and you know foreign market.
Nowadays many countries have signed you know, free trade agreements.
Probably, you know, there is free FTA's signed
between the US and Korea, and also EU
and Korea, and I think that there will
be you know, similar contract between Korea and China.
So these are the, you know, factors you have to think about.
Whether, what about this long-term trade partnership,
trade relationship between these countries involved here.
And connection is about how to connect
these dispersed supply chain functions and activities.
And, obviously, we have to always think about these two things.
We already mentioned the reason why we
considering this you know structures dimension infrastructure dimension.
Eventually we want to maximize both, not just one of these, we want
to maximize both efficiency driven value and
responsiveness driven value at the same time.
And therefore whatever we make a decision,
whatever decision we make regarding each one
of these structured dimension elements, we have to think about the way to take
into account this efficiency and responsiveness issues at the same time.
And inventory.
We already mentioned that inventory is buffer against uncertainty.
Buffer against uncertainty.
Because there is uncertainty there is inventory.
Inventory occurs due to uncertainty or in anticipation of uncertainty
we want to hold inventory so the relationship is both ways.
Inventory is everywhere.
Inventory is every point between two
consecutive supply chain or value chain activities.
So inventory is everywhere.
The thing is that inventory is
in different forms.
Sometimes the inventory is just a [INAUDIBLE] raw materials
or intermediate products when there is a supplier uncertainty.
Right?
This is the, you know, manufacturing and this is suppliers and if
we don't, we don't have a high level of confidence or, if
we don't have reliability in terms of the suppliers, then the, in
order to cope with the uncertainty we want to have invented with raw materials.
And now, sometimes inventory is a semi-finished or
finished products when there is process uncertainty, right?
Inside the assembly line.
Inside the you know, manufacturing system.
You have some uncertainties between processes
and between, you know, manufacturing activities.
You know, the flow is now synchronized and so on and so forth.
And sometimes even if you don't want to
have inventory you have, you do have a method.
In this case, work in processing inventory right?
Or that is a work in process, okay?
And once you complete your products, once you complete
your products, then that becomes finished good, finished goods inventory.
And that's usually very close to the end, the customers were probably
at the distribution centers and warehouses and so on and so forth.
So, inventory is everywhere.
And inventory is for buffering against uncertainty.
So there is very, very delicate, very you know, critical
relationship between uncertainty and inventory.
In fact, uncertainty you know, causes lots of problems for companies.
Especially uncertainty, causes lots of troubles, actual problems
in supply chain management, which we will discuss further.
Another thing which is the you know,
again, the relationship between uncertainty and inventory.
You know, uncertainty is not uncertainty is not an absolute concept.
Kenneth Ardoll suggested that uncertainty.
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Is one of information.
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In other words, if you have more information, then
the uncertainty you must deal with, will go down.
It's a very simple relationship.
Now we say that, you know,
other things being equal as we have more uncertainty.
Uncertainty, our inventory will fly [INAUDIBLE].
And if that is the case, in other words, if this is the case, that means that
as we have more information our level of uncertainty,
in other words the level of uncertainty we have to deal with will go down.
So if I combine these two together, If I combine these two together
as I have more information about the market.
Usually, the most important information a company must
have is the information about the market demand, right?
So as you have more information, you might be able to deduce your inventory.
Okay, so that's very important relationship.
And what is this information?
Measure that, the most significant or most important information the [UNKNOWN] try
to have is the information about the demand.
And how we can get that information from, should do the forecasting.
All right?
And therefore in supply chain management, firms forecasting
capability is one of the most important capabilities.
Very important abilities firms must have.
Now let's look at the forecasting method.
Very briefly.
In order to, in order to see, you know, which forecasting method is,
most, appropriate, most effective.
That depends on actually where you stand in terms of
your product life cycle.
If you are in the early stage of product life cycle,
maybe introduction period, you don't have many data points.
You have a long-term perspective, and because you don't
have data, you probably need to use qualitative forecast method.
But as your product moves along this product life cycle, and your
enter has growth in maturity phase and you have a more and more data
and that means that you can now use quantitative approaches.
Like time season analysis, digression analysis.
Those are the two very rare known, very useful quantitative forecasting tools.
But as you approach the maturity and decline stage, although
you have more data, your time horizon becomes shorter and shorter.
And somehow you can use quantitative tools because you have more and more
data but at the same time you are facing another type of uncertainty.
What's going to happen to this market?
Right?
Is this the case that we will be able to, you know, ride another product life cycle?
Or we are going to stay here for long time or
it might go away, it might go you know, it might disappear.
So you have to face another type of uncertainty and you probably
don't have enough data about that and therefore as we approach
toward the climbing stage, it becomes again necessary for
us to duke it or use more qualitative approaches as well.
And as I mentioned, inventory is such an important indicator.
Inventory is a very, very important element in supply chain management.
Not just this you know, [UNKNOWN] is effected.
The reason we pay attention to this inventory, usually the
inventory management cost is about 20 to 40% of the product value per year.
So inventory is one of the most
expensive items in any company's balance sheet, or any company's income statement.
So, inventory is important because of these cost
implications.
But again, inventories important, it's not just
limited to the, to the cost implication only.
We're going to look at the some other important factors.
Some other important characteristics of inventory.
And we will understand why inventory deduction is
such an important driver in supply chain management.
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