Supply Chain Risk Management

• The objective of supply chain management is to structure the supply chain to maximize its competitive advantage and benefits to the ultimate consumer.

Red Lobster's Supply Chain

• Is the world's largest seafood restaurant company.
• Serves 140 million meals annually from over 700 restaurants.
• Makes commitment to seafood sustainability.
• Sources food from five continents and thousands of suppliers.
• Incorporates supplier qualification, product tracking, independent audits, and just-in-time delivery in its supply chains.

The Supply Chain's Strategic Importance

• Involves the coordination of all supply chain activities, from raw materials to a satisfied customer
• Includes suppliers, manufacturers, service providers, distributors, wholesalers, retailers, and final customers.
• Entails a large portion of sales dollars spent on purchases.
• Seeks to improve innovation, speed design, and reduce costs.
• Supplier relationships are becoming more integrated and long-term.
• Managing supplier relationships requires added emphasis.
• The Supply Chain includes the functions: Plan, Source, Make, Deliver, Return and Enable.

Supply Chain Costs

• In the restaurant industry, costs represent 35% of sales.
• In the petroleum industry, costs represent 79% of sales.
• In the automobile industry, costs represent 67% of sales.

Supply Chain Management Strategies

• Low cost strategy focuses on:
  • Cost of primary selection criteria
  • Minimizing inventory to hold down costs
  • Inexpensive transportation with discount distributors.
  • Maximize performance through minimize cost.
• Response strategy focuses on:
  • Capacity, Speed and Flexibility in primary supplier selection.
  • Use buffer stocks to ensure speedy supply.
  • Fast premium transportation and customer service
  • Low set up time with rapid production ramp-up
• Differentiation strategy focuses on:
  • Product development skills with willingness to share information while jointly developing products
  • Minimize inventory to avoid product obsolescence.
  • Knowledgeable sales staff, along with research data.
  • Modularity of design to aid product differentiation.

Sourcing Issues

• Make-or-buy decisions involve choosing between obtaining products/services externally versus producing them internally.
• Outsourcing encompasses transferring traditional internal activities/resources to outside vendors.
• Outsourcing gains efficiency through specialization, and focus on core competencies.

Six Sourcing Strategies

• Many suppliers: Commonly used for commodity products; purchasing is based on price and competition.
• Few suppliers: Involves long-term relationships, creating value through economies of scale and learning curve improvements.
• Vertical integration: Refers to developing the ability to produce previously purchased goods or services.
• Joint ventures: Entail formal collaboration to enhance skills, secure supply, and reduce costs.
• Keiretsu networks: Developed in Japan, representing a middle ground between few suppliers and vertical integration, with suppliers becoming part of the company coalition.
• Virtual companies: Rely on various supplier relationships to provide services on demand, creating fluid organizational boundaries for unique enterprises.

Supply Chain Risk

• More reliance on supply chains increases overall risk.
• Fewer suppliers increase dependence.
• Globalization and logistical complexity compound risk.
• Political and currency risks also contribute.

Risk and Mitigation Tactics

• Involves researching and assessing possible risks, and developing innovative planning to reduce potential disruptions.
• Requires preparation for responses to negative events and flexible, secure supply chains with a diversified supplier base.
• Supplier failure can be mitigated by multi sourcing, effective penalty contracts, subcontractors set on retainer and preplanning
• Supplier quality failures can be mitigated through, careful supplier selection, training, certification, and monitoring
• Outsourcing risks can be mitigated by taking over production or performing the process internally.
• Logistic delays can be mitigated with redundant transportation, warehouses, and secure packaging, along with effective contracts with penalty clauses.
• Distribution risks can be mitigated by careful monitoring, and effective contracts with penalties
• Information distortion or loss, can be mitigated with redundant IT systems and training of supply chain partners on data use.
• Political risks are mitigated by cross country diversification, franchising and licensing
• Economic risks are mitigated with hedging, and purchasing contracts with adjustable price fluctuation terms
• Natural catastrophes are mitigated through sourcing diversification and insurance
• Vandalism, theft and terrorism risks are mitigated with RFID, GPS patent protection security measures and insurance.

Security and JIT

• JIT shipments can be misrouted, stolen, damaged, or excessively delayed.
• Security and inventory management are improving through technological innovations.
• Advancements in security include location tracking, motion sensors, broken seal detection, temperature monitoring, and radioactivity detection.
• Expedited shipments possible with tracking.

Managing the Integrated Supply Chain

• Issues such as lack of local optimization can magnify fluctuations.
• Push incentives in the channel for sales can create inaccurate data.
• Large lots of inventory may increase holding costs but may not lead to more sales
• Bullwhip effect refers to when fluctuations/orders increase as they move up the supply chain.
• Opportunities include accurate "pull" data, lot size reduction, single-stage control of replenishment, and vendor-managed inventory (VMI).
• Further opportunities are found in collaborative planning, blanket orders, standardization, and postponement.
• Electronic ordering and funds transfer speed transactions, Omnichannel Strategy provides integrated channels for both communication and shipping Blockchain aids tracking and verification while Digitalization & IOT provides visibility to enable managers.

Building the Supply Base

• Begins with supplier evaluation, finding potential suppliers, checking certification and assessing potential to becoming a good supplier.
• Supplier Development occurs with integrating suppliers into the system by setting quality requirements, product specifications, and schedules.
• Negotiation, use of cost-based models, and competitive bidding are negotiation techniques that are important purchasing elements.
• Share risks, benefits with contracting and leverage volume through centralized purchasing.
• Electronic procurement includes online catalogs, web sites, and auctions

Logistics Management

• Objective is to have efficient operations through the integration of material acquisition, movement, and storage.
• Frequent candidate for outsourcing to gain logistics competitive advantages.

Shipping Systems

• Trucking: Flexible but vulnerable to accidents, moving majority of manufactured goods.
• Railroads: Capable of carrying large loads; containers and piggybacking improve flexibility.
• Airfreight: Fast and flexible for light loads but may be expensive.
• Waterways: Used for bulky, low-value cargo when shipping cost matters more than speed.
• Pipelines: Used for transporting oil, gas, and other chemical products..
• Multimodal: Shipping Methods includes utilizing standardized containers, especially in international shipments

Shipping Costs

• Faster shipping is pricier than slower shipping.
• Faster methods involve smaller shipment, while slower methods involve larger ones.

Warehousing

Provides storage, break-bulk, consolidation, cross-docking and postponement.

• Channel assembly means implementation and shipping of components to manufacturing partner.
• Channel assembly can reduce inventory, improve response with less channel investment.
• Third-party logistics (3PL) occurs when an outside party is sued to reduce inventory, costs, and improve delivery.

Distribution Management

• Considers factors such as the outbound flow of products (rapid response, product choice, service).
• More facilities will improve response and customer satisfaction but increase cost.
• Important to measure total costs include: Inventory, Transportation and Facility Costs.
• Downstream management, facilities, packaging are vital

Ethics and Sustainable Supply Chain Management

• Personal ethics are critical to succeed in the long term
• Supply chain considerations require ethical behavior regarding the environment.
• Key Principles from the Institute of Supply: promote supplier relationships, and social responsibility, and knowledge of laws to avoid conflict of interest.
• Establishing Sustainability involves return or reverse logistics that sends returns back up the supply chain.
• Closed-loop supply chains optimize all forward and reverse flows.

Measuring Supply Chain Performance

• Assets committed to inventory can be calculated with the following equation: (Average inventory investment/Total assets) x 100
• Inventory Turnover can be calculated with the following equation: Cost of goods sold/Average inventory investment
• Weeks of supply can be calculated with the following equation: Average inventory investment/(Annual cost of goods sold/52 weeks)
• SCOR Model helps firms benchmark performance for the industry. Benchmark Metrics:
  • (Total perfect orders) / (Total number of orders) measures reliability.
  • (Sum of actual cycle times for all orders delivered) / (Total number of orders delivered) measures the responsiveness
  • Time required to achieve an increase in quantities delivered by 20% measures Agility
  • Cost to plan + Cost to source + Cost to deliver + Cost to return measures cost.
  • Inventory days of supply + Days of receivables outstanding - Days of payables outstanding measures asset management.
• Audits, communication, trust, and a mutual belief that "we are in this together” are ways to sustain performance.