1.0 Introduction to Supply Chain Management (SCM)

8/2/2019 1.0 Introduction to Supply Chain Management (SCM)

1/69

Supply Chain Management

Introduction

1


2/69

What is Supply Chain Management?

Here are two definitions:

The design and management of seamless, value-added process

across organizational boundaries to meet the real needs of the end

customer

-- Institute for Supply Management

Managing supply and demand, sourcing raw materials and parts,

manufacturing and assembly, warehousing and inventory tracking,

order entry and order management, distribution across allchannels, and delivery to the customer

-- The Supply Chain Council

2


3/69


Supply chain Management: Integration of various

activities encompassed by the supply chain throughimproved supply chain relationships to achieve asustainable competitive advantage.

Supply chain: A sequence of suppliers, warehouses,operations and retail outlets, i.e., Organistions that areinvolved in producing and delivering a product orservice.

A basic purpose of supply chain management is tocontrol inventory by managing the flow of materialsthroughout the supply chain.


4/69

Objectives of a Supply Chain

The objectives are :1. To maximize the overall valuegenerated. The valuea supply

chain generates is the difference between what the final

product is worth to the customer and the effort the supply

chain expends in filling the customers request.

2. To achieve maximum supply chain profitability. Supply chain

profitability is the total profit to be shared across all supply

chain stages.

3. To reduce the supply chain costs to the minimum possible

level.


5/69

Supply Chain Dynamics

Three key points about supply chain dynamics are:

1.The supply chain is a highly interactive system.

2.There is an accelerator effect of demand changes.

3.The best way to improve the supply chain is to

reduce the total replenishment time and to feedback actual demand information to all levels.


6/69

What Is the Goal of Supply Chain Management?.

Supply chain management is concerned withthe efficient integration of suppliers, factories,

warehouses and stores so that merchandise is

produced and distributed: In the right quantities

To the right locations

At the right time

In order toMinimize total system cost

Satisfy customer service requirements

6


7/69

Traditional View: Cost breakdown of a

manufactured good

Profit 10%

Supply Chain Cost 20%

Marketing Cost 25%

Manufacturing Cost 45%

Profit

Supply Chain

Cost

Marketing

Cost

Manufacturing

Cost

Effort spent for supply chain activities are invisible to the customers. 7


8/69

A picture is better than 1000 words!

How many words would be better than 3 pictures?

- A supply chain consists of

- aims to Match Supply and Demand,

profitably for products and services

SUPPLY SIDE DEMAND SIDE

The right

Product

Higher

ProfitsThe right

Time

The right

Customer

The right

Quantity

The right

Store

The right

Price=++ ++ +

- achieves

Supplier Manufacturer Distributor Retailer Customer

Upstream Downstream

8


9/69

Detergent supply chain:

Customer wants

detergent and goes

to Jewel

Jewel

Supermarket

Jewel or third

party DC

P&G or other

manufacturer

Plastic

Producer

Chemical

manufacturer

(e.g. Oil Company)

Tenneco

Packaging

Paper

Manufacturer

Timber

Industry

Chemical

manufacturer

(e.g. Oil Company)

9


10/69

Flows in a Supply Chain

Customer

Material

Information

Funds

The flows resemble a chain reaction.

Supplier

10


11/69

SCM in a Supply Network

Supply Chain Management (SCM) is concerned with the management and control of theflows of material, information, and finances in supply chains.

Supply

Demand

Products and Services

Cash

Supply Side OEM Demand Side

THAILAND INDIA MEXICO TEXAS US

N-Tier Suppliers Suppliers Logistics Distributors Retailers

Information

The task ofSCM is to design, plan, and execute the activities at the different stages soas to provide the desired levels of service to supply chain customers profitably

11


12/69

Examples of Supply Chains

Dell / Compaq

Dell buys some components for a product from itssuppliers after that product is purchased by a customer.Extreme case of a pull process

Zara, Spains answer to Italys Benetton Sells apparel with a short design-to-sale cycle, avoids markdowns.

Toyota / GM / Volkswagen,

McMaster Carr / W.W. Grainger, sell auto parts

Amazon / Barnes and Noble

Frozen food industry/Fast food industry/5 starrestaurants

Internet shopping: Webvan / Peapod

12


13/69

What is a Supply Chain?A supply chain consists of the flow of products

and services from/to:--Raw materials manufacturers--Intermediate products manufacturers

--End product manufacturers

--Wholesalers and distributors

--Retailers and,

--End customers

Connected by agents, transportation and

storage activities, and Integrated throughsharing of information, planning, and processingactivities

13


14/69

14


15/69

Supply

Sources:plantsvendorsports

RegionalWarehouses:stocking

points

FieldWarehouses:stockingpoints

Customers,demandcenterssinks

Production/purchasecosts

Inventory &warehousingcosts

Transportationcosts

Inventory &warehousingcosts

Transportationcosts

15


16/69

Typical Supply Chains

Purchasing

Receiving Storage Operations Storage

Production Distribution

16


17/69

Typical Supply Chain for a Manufacturer

Supplier

Supplier

Supplier

Storage} Mfg. Storage Dist. Retailer Customer

17


18/69

Supply Chain for Steel in an Automobile Door

MININGCOMPANY

Mines iron ore

STEELMILL

Forms steel ingot

STEELCOMPANY

Forms sheet metal

Iron

ore

Steel

ingots

AUTOMOTIVE

SUPPLIER

Makes door

AUTOMOBILEMANUFACTURER

Makes automobile

CAR

DEALERSHIP

Does preparation

Car

door

Car

FINAL

CONSUMER

Drives automobile

Prepared

car

Sheet

metal

18


19/69

Supply Chain Management in a Manufacturing Plant

Receiving

and

Inspection

RawMaterials,

Parts, and

In-process

Ware-

Housing

Production

Finished

Goods

Ware-

housing

Inspection,

Packaging,

And

ShippingSuppliers

Customers

Materials Management

Purchasing ProductionControl Warehousing andInventory Control Shippingand Traffic

Physical materials flow

Information flow

19


20/69

Supplier

Supplier

}Storage Service Customer

Typical Supply Chain for a Service

20


21/69

Importance of Supply Chain Management

Firms have discovered value-enhancing and long term

benefitsWho benefits most?

Firms with:

- Large inventories

- Large number of suppliers- Complex products

- Customers with large purchasing budgets

Benefits

- Lower purchasing/inventory costs, higher quality/customer

service

21


22/69

Importance of Supply Chain Mgt.Cont.

Firms practicing Supply Chain Management:

1. Start with key suppliers

2. Move on to other suppliers, customers, and

shippers

3. Integrate second tier suppliers and customers

(second tier refers to the customers

customers and the suppliers suppliers)

22


23/69

Importance of Supply Chain Mgt.Cont.

Cost savings and better coordination of resourcesare reasons to employ Supply Chain Management

-- Bullwhip Effect- the magnification of safety stocks and

costs based on separate forecasts and uncoordinated

planning and sharing of information along the supply chain. .

Reducing the bullwhip effect occurs through:

-- Process integration- Interdependent activities can lead to

improved quality, reduced cycle time, better productionmethods, better forecasts, less safety stock, etc.

23


24/69

The Bullwhip Phenomenon

Volatility amplification along the network

Increase in demand variability as we move upstreamaway from the market

Mainly because of lack of communication and

coordination

Delays in information and material flows

Bullwhip effect occurs because of various reasons:

Order Batching - Accumulate orders

Shortage gaming- Ask for more than what is needed

Demand forecast updating24


25/69

Supply Chain: the Magnitude

In 1998, American companies spent $898

billion in supply-related activities (or 10.6% of

gross domestic product).

Transportation 58%

Inventory 38%

Management 4%

Third party logistics services grew in 1998 by15% to nearly $40 billion

25


26/69

Supply Chain: the Magnitude

It is estimated that the grocery industry could

save $30 billion (10% of operating cost) by

using effective logistics strategies.

A typical box of cereal spends more than three

months getting from factory to supermarket.

A typical new car spends 15 days traveling

from the factory to the dealership, althoughactual travel time is 5 days.

26


27/69

Magnitude of Supply Chain Management

Compaq estimates it lost $0.5 B to $1 B in sales in 1995because laptops were not available when and whereneeded

P&G(Proctor&Gamble) estimates it saved retailcustomers $65 M (in 18 months) by collaborationresulting in a better match of supply and demand

When the 1 gig processor was introduced by AMD(Advanced Micro Devices), the price of the 800 megprocessor dropped by 30%

27


28/69

What can Supply Chain Management do?

Laura Ashley (retailer of women and children clothes)turns its inventory 10 times a year five times faster than3 years ago

inventory is emptied 10 times a year, or an item

spends about 12/10 months in the inventory.To be responsive, it relocated its main warehouse

next to FedEx hub in Memphis, TE.

National Semiconductor used air transportation andclosed 6 warehouses, 34% increase in sales and 47%decrease in delivery lead time.

28


29/69

Importance of SCM understood by some AMR Research:

"The biggest issue enterprises face today is intelligentvisibility of their supply chains-both upstream and down"

Forrester Research:

"Companies need to sense and proactively respond to

unanticipated variations in supply and demand by adoptingemerging technologies such as intelligent agents. To boosttheir operational agility, firms need to transform their staticsupply chains into adaptive supply networks

Gartner Group:

By 2004, 90% of enterprises that fail to apply supply-chainmanagement technology and processes to increase theiragility will lose their status as preferred suppliers

Open ended statement. Agility can be increasedcontinuously.

29


30/69

SCM Generated Value

Minimizing supply chain costs

while keeping a reasonable service level

customer satisfaction/quality/on time delivery, etc.

This is how SCM contributes to the bottom line

SCM is not strictly a cost reduction paradigm!

30


31/69

Supply Chain: The Potential

Procter & Gamble estimates that it savedretail customers $65 million through logisticsgains over the past 18 months.

According to P&G, the essence of its approach lies inmanufacturers and suppliers working closely together .

jointly creating business plans to eliminate the source ofwasteful practices across the entire supply chain.(Journal of business strategy, Oct./Nov. 1997)

31


32/69

Supply Chain: the Potential

In 10 years, Wal-Mart transformed itself bychanging its logistics system. It has the highestsales per square foot, inventory turnover andoperating profit of any discount retailer.

Dell Computer has outperformed thecompetition in terms of shareholder valuegrowth over the eight years period, 1988-1996,by over 3,000% (see Anderson and Lee, 1999)

using Direct business model

Build-to-order strategy.

32


33/69

What is a Supply Chain?

Customer is an integral part of the supply chain

Includes movement of products from suppliers tomanufacturers to distributors, but also includes movementof information, funds, and products in both directions

Probably more accurate to use the term supply networkor supply web

Typical supply chain stages: customers, retailers,distributors, manufacturers, suppliers .

All stages may not be present in all supply chains(e.g., no retailer or distributor for Dell)

33


34/69

Decision Phases of a Supply Chain

Supply chain strategy or design

Supply chain planning

Supply chain operation

34

Supply Chain Strategy or Design


35/69

Supply Chain Strategy or Design

Decisions about the structure of the supply chain andwhat processes each stage will perform

Strategic supply chain decisionsLocations and capacities of facilities

Products to be made or stored at various locations

Modes of transportation Information systems

Supply chain design must support strategic objectives

Supply chain design decisions are long-term and

expensive to reverse must take into account marketuncertainty

35


36/69

Supply Chain Planning

Definition of a set of policies that govern short-term

operations

Fixed by the supply configuration from previousphase

Starts with a forecast of demand in the coming year

36


37/69

Supply Chain Planning

Planning decisions:Which markets will be supplied from which locations

Planned buildup of inventories

Subcontracting, backup locations

Inventory policies

Timing and size of market promotions

Must consider in planning decisions demand

uncertainty, exchange rates, competition over the

time horizon

37

Supply Chain Operation


38/69

Supply Chain Operation

Time horizon is weekly or daily

Decisions regarding individual customer orders

Supply chain configuration is fixed and operating policies aredetermined

Goal is to implement the operating policies as effectively aspossible

Allocate orders to inventory or production, set order due dates,

generate pick lists at a warehouse, allocate an order to aparticular shipment, set delivery schedules, placereplenishment orders

Much less uncertainty (short time horizon)

38


39/69

Process View of a Supply Chain

Cycle view: processes in a supply chain are divided intoa series of cycles, each performed at the interfaces

between two successive supply chain stages

Push/pull view: processes in a supply chain are divided

into two categories depending on whether they are

executed in response to a customer order (pull) or inanticipation of a customer order (push)

39


40/69

Cycle View of Supply Chains

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement Cycle

Customer

Retailer

Distributor

Manufacturer

Supplier

40

Cycle View of a Supply Chain


41/69

Cycle View of a Supply Chain

Each cycle occurs at the interface between two successivestages

Customer order cycle (customer-retailer)

Replenishment cycle (retailer-distributor)

Manufacturing cycle (distributor-manufacturer)

Procurement cycle (manufacturer-supplier)

Cycle view clearly defines processes involved and the ownersof each process. Specifies the roles and responsibilities of eachmember and the desired outcome of each process.

41


42/69

Push/Pull View of Supply Chains

Procurement,Manufacturing andReplenishment cycles

Customer Order

Cycle

Customer

Order Arrives

PUSH PROCESSES PULL PROCESSES

42

P sh s P ll S stem


43/69

Push vs Pull System

What instigates the movement of the work in the

system?

In Push systems, work release is based on downstreamdemand forecasts

Keeps inventory to meet actual demand Acts proactively

e.g. Making generic job application resumes today

In Pull systems, work release is based on actual demandor the actual status of the downstream customers

May cause long delivery lead times

Acts reactively

e.g. Making a specific resume for a company after talking to the recruiter43


44/69

SUPPLY CHAIN MANAGEMENT

Supply side- raw materials, inbound logistics

and production processes

Demand side- outbound logistics, marketing

and sales.

44


45/69

SUPPLY CHAIN DRIVERS

Why sudden interest?

Demanding customers

Shrinking product life cycles

Proliferating product offerings

Growing retailer power in some cases

Doctrine of core competency

Emergence of specialized logistics providers

Globalization

Information technology

45

SUPPLY CHAIN ELEMENTS


46/69

SUPPLY CHAIN ELEMENTS

Supply Chain Design Resource Acquisition Long Term Planning (1 Year ++)

Strategic

Production/ Distribution Planning Resource Allocation

Medium Term Planning ( Qtrly, Monthly)Tactical

Shipment Scheduling Resource Scheduling

Short Term Planning ( Weekly, Daily)Operational

46


47/69

Supply Chain Goals

Efficient supply chain management mustresult in tangible business improvements.

It is characterized by a sharp focus on

Revenue growth

Better asset utilization

Cost reduction.

47


48/69

Reduce Overall Cycle Time : Improve Response


Underlying Principles

Compression

ConformanceCo-operation

Communication

(Planning/Manufacturing/Supply)

(Forecasts/Plans/Distribution)(Cross -Functional)

(Real Time Data)

48


49/69

Changing Paradigm

Functional vs Process

Products vs Customers

Revenues vs Performance

Inventory vs Information

Transactions vs Relationships

49


50/69

Critical Success Factors today

Cross functional management and planning skills

Ability to define, measure and manage service

requirements by market segment

Information systems

Relationship management and win win

orientation

50


51/69

PUTTING IN PLACE A WELL OILED SUPPLY CHAIN

Supply chain as an efficient customer satisfying

process

Effectiveness of the whole supply chain is more

important than the efficiency of each individualdepartment.

51

The steps involved


52/69

The steps involved

Step1

- Designing the supply chain

Determine the supply chain network

Identify the levels of service required

52


53/69

Step 2 - Optimizing the supply chain

Determine pathways from suppliers to the end

customer Customer markets to Distribution centers

Distribution centers to production plants

Raw material sources to production plants

Identify constraints at vendors, plants and distribution

centers

Get the big picture

Plan the procurement, production and distribution of

product groups rather than individual products in large

time periods- quarters or years

53


54/69

Step 3-

Material flow planning

Determine the exact flow and timing of materials

Arrive at decisions by working back from theprojected demand through the supply chain to the

raw material resources

Techniques

ERP

54


55/69

Step 4

Transaction processing and short term scheduling

Customer orders arrive at random

This is a day to day accounting system which tracksand schedules every order to meet customer

demand

Order entry, order fulfillment and physical

replenishment

55

I f ti fl i S l Ch i M t


56/69

Information flows in Supply Chain Management

Information is overriding element

Need for databases

Master files: Information about customers, products, materials,

suppliers, transportation, production and distribution data- donot require frequent processing

Status files- heart of transaction processing- track orders and

infrastructure status- updated daily.

Essentially using the same information to make all plans rightfrom structuring the network to processing every day supplychain tasks.

56


57/69

Visibility : See physical operations more

effectively through information. Information can

be used for effective coordination of value chain

activities.

Mirroring capability : In this stage, virtual

activities are substituted for physical ones. Aparallel value chain is created.

New customer relationships : The company can

draw on the flow of information in the virtual

value chain to deliver value to customers in new

ways.

57


58/69

Dealer Management

Conventional functions : Inventory ownership and management

Sales and technical support

Order handling

Credit

58


59/69

Contemporary Trends

Channels being divided into two- Fulfillment

and Franchised agent

Fulfillment channel- responsible for getting the

manufacturers product from the plant to the

end user through a highly efficient logistics and

inventory management system

59


60/69

Contemporary Trends

Fulfillment channel may not take ownership of

the product but may perform these functions on

a per box fee structure

Franchised agents responsible for sales and sales

support but will not write the order or supply

the product

60


61/69

Issues in customer management

Concentration is necessary to commit the

necessary resources for true customer integration

Depth of customer contact

R&D - sharing information vs developing new

products together

Logistics - Pros and cons of methods of transportationvs reengineering the logistics process

61

I l t ti P i t t k i i d


62/69

Implementation: Points to keep in mind

Recognize the difficulty of change.

Prepare a blueprint for change that maps linkages

among initiatives.

Assess the entire supply chain from supplier

relationships to internal operations to the market

place, including customers, competitors and industryas a whole.

62

IS THE SUPPLY CHAIN WORKING?


63/69

IS THE SUPPLY CHAIN WORKING?

Does our manufacturing strategy increase product line

flexibility while continuing to drive down overallproduction costs?

When was the last time we measured lost sales to end

customers?

Do we have an efficient system to get POS data from

retailers?

Are we testing our products with end customers? Do

we use the resulting data to adjust our forecasting andsupply positions?

Is the ratio of returned orders to sales increasing?

63


64/69

The New Model of Relationships

Hard bargaining vs shared destiny

Arms length relations vs Involving dealers and suppliers in

product development

Piling up vs Replenishing dealer inventory more frequently

In short working together as partners to cut costs, boostefficiencies, innovate and share value

64


65/69

Adversarial vs partnerships

Short term vs long term contracts

Large vs small order quantity

Full truck load vs small parcels

Inspection vs no inspection

65


66/69

Written order vs understanding

Many vs few suppliers

Design and then invite quote from vendor vsinvolving vendor in development

Bargaining, holding cards close to chest vs Shared

destiny, transparency

66

Important points to keep in mind


67/69

Important points to keep in mind

Segment customers based on service needs.

Modify the supply chain to meet these service

requirements profitably. Customize the logistics network.

Develop forecasts collaboratively involving every linkof the supply chain.

Locate the leverage point where the product isunalterably configured to meet a single requirement

Delay product differentiation till the last possible

moment. Assess options such as modularized design or

modification of manufacturing processes that canincrease flexibility.

67


68/69

Important points to keep in mind (contd.)

Cultivate warm relationships with suppliers.

Efficient supply chain management has to beaccompanied by a technology strategy.

Customization of logistics network

Listen to signals of market demand and plan

accordingly.

Differentiate product close to the customer

Source strategically

Develop a supply chain wide technology strategy

68


69/69

The End

Thanks for your attention!

1.0 Introduction to Supply Chain Management (SCM)

Documents

Transcript of 1.0 Introduction to Supply Chain Management (SCM)