TheCharacteristicsofSupplyChainManagementComplexity,Variability,ConflictingObjectives©1999AndersenConsulting1OrderResponseTimeProductAvailabilityLeadTimeOrderChangesDueDatePerformanceResourceInvestmentAssetProductivityInventorySupplier&CapacityContractsLevelofServiceCostofServiceTheBusinessChallenges©1999AndersenConsulting2ComplexityVariabilityConflictingObjectivesWhatarethecharacteristicsofSupplyChanManagement,whyisitsohardtomanage?©1999AndersenConsulting3ComplexityLeadTimesLimitFlexibilityLittleorNoPredictabilityandPoorProductMixJanuary?????????????????????????????ChronicCapacityShortagesCurrentProcessesandStructuresInhibitPerformanceInventoryUsedtoCoverProblemsComplicationsintheElectronicsIndustryComplexityinComponent/SemiconductorManufacturing•Masscustomization•Personalization•Productmixeffectsoncapacity•Multipleoptions•Contractedvs.ownedcapacity•Combinedmake-to-forecastandmake-to-order•InvertedBOM•Binning•Multi-stageglobalproduction©1999AndersenConsulting4UncertaintyinthesupplychainresultsinsignificantvariabilityEarlyOn-timeLateEarlyOn-timeLateUnderForecastOverEarlyOn-timeLateCustomerDemandSupplierPerformanceManufacturingCustomerDeliveriesRawMaterialsFinishedGoods•PastPerformance•MarketResearch•AnalyticalTechnique•IncentivePrograms•Responsiveness•Transportation•Location•Quality•ProcessDesign•ProductDesign•Capacity•QualityByTomDavis©AndersenConsulting19985SupplyChannelOrdersActualLaunchRealShortageReturns/CancellationsOver-SupplyChannelFillandPhantomDemandTargetLaunchEndofLifeTrueEndCustomerDemandUnitsPerPeriodTimeMultipleforecastsandunreliablefulfillmenttodaycreatethebullwhipeffect.©1999AndersenConsulting6Shortenedproductlifecyclehasincreasedtheuncertainty.Ramp-upOngoingEndofLifeRamp-upOngoingEndofLifeRoleofInventoryHighUsualLowCostofShortageHighUsualLowCostofOverageLowUsualHighByProfessorHauL.Lee,StanfordUniversity©1999AndersenConsulting7VariabilityNatural•Demand•Materialsupply•Production•DistributionSelf-Introduced•Replenishmentstrategies•Planningprocesses•Inventorystrategies©1999AndersenConsulting8TraditionalfunctionalalignmentscontinuetoimpedeSupplyChainPerformance.—MisalignedFunctionalGoals&Behaviors—PurchasingManufacturingDistributionSales&CustomerServiceGoal:Behavior:LowestpurchasepriceHighestutilizationLowestcost100%customersatisfactionLongleadtimesHighrawmaterialinventorylevelLongrunlengthsInflexibleschedulesHighWIPinventoryLongorderfilltimesInflexibleschedulesHighinventoriesPromiseflexibility©1999AndersenConsulting9ConflictingObjectives-ManufacturingLittle’sLawLittle’sLawAssetUtilizationWIPINVCycleTimeVariabilityWIPCycleTimeVariability©1999AndersenConsulting10ConflictingObjectives-CustomerLittle’sLawAssetUtilizationWIPINVCycleTimeVariabilityOrderResponseTimeEarlyWarningsDueDatePerformanceFillRates©1999AndersenConsulting11ConflictingObjectives-CorporateLittle’sLawAssetUtilizationWIPINVCycleTimeVariabilityOrderResponseTimeEarlyWarningsDueDatePerformanceFillRatesMarketShareProfitMarketRisk