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Transcript of Best Practices in Supply Management
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Why Study Best Practices ?Why Study Best Practices ?
Third Millennium : Horse Race in Business
Only the Best of the Best Companies will survive :
DANTOTSU: a Japanese word for Best ofBest
Instead of reinventing the wheel, a study of Best
Practices helps to adopt the ones most suitable
Benchmarking has become a science
Benchmarking for an ideal home: How do you do it ?
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BENCHMARKING GOES TOPSYBENCHMARKING GOES TOPSY
Heaven is :Living in an English House
With a Japanese wife
Having Chinese Food
On an American Salary
Hell is :
Living in a Japanese House
Eating English Food
On a Chinese Salary
With an American Wife
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ASIAs 50 MOST COMPETITIVE Cos.ASIAs 50 MOST COMPETITIVE Cos.
-- Asia Inc., HongkongAsia Inc., Hongkong
Sundaram Fastners Ltd. (16th)
(Winner of General Motors Supplier of the
Year award)
Reliance Industries (9th)Ranbaxy Laboratories (11th)
Bajaj Auto (20th)
Other International Companies :Sony Corporation
Toyota Motor Corporation
Singapore Airlines
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Sundaram Fastners Ltd.Sundaram Fastners Ltd.
SFL supplies almost all of GM North Americas
requirements of metal caps, some four-and-a halfmillion a year for several types of GMsrequirements in cars, buses, trucks and there hasnot been even a SINGLE rejection in full one year.
Winning this award is an awesome achievementsince the recipients have exceeded theexpectations of their toughest customers GMbuyers, GM engineers, & GM plants
- Harold R Kutner
VP-Prodn. & Logistics, GM North America
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BEST PRACTICESBEST PRACTICES
1. Target 10 : Every year, a cost-saving project with its
vendors is launched, calling for a 10 per cent
reduction in the production cost by improving
material, process and design.
Suppliers Cost Structure is attackedSuppliers Cost Structure is attacked, not profits.not profits.
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2.2. Tear Down Analysis :Tear Down Analysis : Get a sample of the
component, take it apart and work out the cost
structure. For each cost driver, allow a variance
of 15-25 per cent. Calculate the variance of final
cost stage (usually 15-20 per cent) and then
negotiate in this range.
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3. Purchase Managers Pass Book3. Purchase Managers Pass Book
A Purchase Manager is held responsible for agroup of components, any increase in the
purchase price is debited to his/her account,
while any decrease in the price is credited to
him/her. The manager must maintain a positive
balance at all times. The purchase manager is
not allowed to place orders if his/her balance
becomes negative. She/ he can do so only afterobtaining special permission.
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4. Challenge 10204. Challenge 1020
Two tiered Rating : Static Rating
Static Rating : For judging for the first time
A supplier is visited by a Commodity Business TeamCommodity Business Team
(CBTCBT) consisting of Purchase, Materials & Quality
(PMQ)
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Rating of Vendors-contd.Rating of Vendors-contd.
CBT gives its rating on a five category scale, based on:Quality, technical competence, financial stability,locational aspects, systems & procedures, managerialcompetence and industrial relations in following fivecategories:
FM :FM : Fails to meet Requirements
MM:MM: Meets Minimum Requirements
MR :MR : Meets Requirements
ME :ME : Meets and Exceeds RequirementsMeets and Exceeds RequirementsCE :CE : Clearly Exceeds Requirements
Supplier with MM or lower is rejectedSupplier with MM or lower is rejected
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Dynamic RatingDynamic Rating : Cross between a quarterly
report on quality and a monthly report on
delivery. The rating is on a 100-point scale.With 60% on Quality (PMQ), 20% on Delivery
(Material) and 20% on suppliers response to
orders (Purchase).
Challenge 1020Challenge 1020 involved adding 10 per cent of
new capable suppliers and removing the bottom
20 per cent of the non-performers. This helps inimproving quality, costs and the expenses
incurred for servicing the vendor chain.
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5. STABLE VENDOR MODEL OR CHURN5. STABLE VENDOR MODEL OR CHURN
VENDOR MODELVENDOR MODEL
If a new supplier decides to supply at the
reduced price, the existing stable supplier is
expected to lower his cost further to new or
face the option of vacating the slot.
Cut costs, not corners !Cut costs, not corners !
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THE VENDOR ARCHETYPETHE VENDOR ARCHETYPE
Best Practices in handling vendor chains thatare in vogue :
Strategic Items :
Focus at the stable
Vendor chain
Cubbyhole items :
Design & ask
Vendors to adhere
to the
specifications
Leverage/genuine items:Such commodities can be
bought with the quotation.
For these Vendor
Churn should be made
feasible
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6.6. Look at TAC : At TACLook at TAC : At TAC
Maintaining a static relationship with vendorscan be suicidal. Vendor base becomes stagnant.
Project at TAC : Look at Total Acquisition CostProject at TAC : Look at Total Acquisition Cost
(TAC = sum of pure cost, cost of rejection,inventory, tax, inspection, inward expenditure
and line rejections and not pure costs)
Found a 25-35 per cent difference between the
two.
Hindustan Motor reactivated their Vendors BaseHindustan Motor reactivated their Vendors Base
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7. Empower/ Arm Your Vendors7. Empower/ Arm Your Vendors
ssure the start-up a competition-freeenvironment initially, position engineers at
new 6endors operations, help obtain financial
and technical tie-ups.
Annual Vendors Meets, Work3hops, V)sits
Business w)th a handshake
No written contracts; work on Relationships
Consumer Operated Lube Oil Depot (COLD)Vendors officers posted at Buyers premises
as Guest Officers, and the concept of Mother,
Daughter Companies followed in Japan.
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8. Vendor Satisfaction Index8. Vendor Satisfaction Index
(a) Bharati Telecom follows a system of 360 Degappraisal by the Vendor i.e Vendor is asked
to give a feed-back about how he evaluates
the buying company through an evaluation
format.
(a) Source Rationalistion Index : (Eichers)
Suppliers per part reduced from 2.5 to 1.1
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9. SFLs Fruit Salad : Quality practice of9. SFLs Fruit Salad : Quality practice of
Parts Per Million Co.Parts Per Million Co.
If one wants to eat fruit-salad, one has to wash
each fruit, peel each fruit, cut each fruit, mix
with the necessary cream and it is ready to eat.
On the contrary, you cannot get fruit salad byrunning a road roller on all the fruits.
Quality is an obsession and organization wideQuality is an obsession and organization wide
cultureculture
Quality has become EQUALITY and is anQuality has become EQUALITY and is an
essential to do businessessential to do business
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10. Other Best Practices10. Other Best Practices
CTOCTO Cost Take Out ProgrammeKIPKIP Knowledge Improvement Programme
ZISZIS Zero Inventory of Scrap
ZINZIN Zero Inventory of Non-moving items
ZIIZII Zero Investment Improvements
CEOCEO Meets, Materials Management Week/DayCelebrations
NIRMANIRMA A fine network of kiosks and constantlymoving delivery vans
AMULAMUL Cooperative sourcing milk from small farmersLIJJATLIJJAT Cooperative of rural women
Bombays Dubba WallasBombays Dubba Wallas : Perfect example ofDistribution
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Best Practices emerge from a creative mindset ..Best Practices emerge from a creative mindset ..
If you do business today, with theIf you do business today, with thepractices of yesterday, You will be outpractices of yesterday, You will be out
of business tomorrow. !!of business tomorrow. !!
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Thank You
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WORLD CLASS MATERIALSWORLD CLASS MATERIALSMANAGEMENTMANAGEMENT
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CHALLENGES OF THE BUSINESS ENVIRONMENT
WORLD-CLASS ORGANISATION
WORLD CLASS MATERIALS MANAGEMENT
CHARTING PATH FORWARD
PROFILE OF 21ST CENTURY MATERIALS
MANAGER
OUTLINE OF THE PRESENTATIO
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1.1 LIBERALISATION
1.2 GLOBALISATION
1.3 COMPETITION
1.0 CHALLENGES OF THE BUSINESS ENVIRON
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1.4 SPEED :EVERYTHING MUST BEFASTER, SOONER, NEWER,QUICKER
1.5 CUSTOMEREXPECTATIONS:
PRODUCTS MUST BEBETTER YET CHEAPER
1.6 INVENT THE FUTURE :
NO MORE PREDICTIONS
.0 CHALLENGES OF THE BUSINESS ENVIRONM
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1.7 ONGOING PRACTICE OF :ANTICIPATE CUSTOMER NEEDS &COMPETITOR S MOVES
1.8 EXAMINETRADITIONAL BUSINESS
CYCLES & SUPPLY CHAINS
1.9 ELIMINATE PROCESSES THAT DO NOT
ADD VALUE TO PRODUCTS ORMARKET
POSITION
1.0 CHALLENGES OF THE BUSINESS ENVIRON
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The quality Advantage
The speed Advantage
The dependability Advantage
The flexibilityAdvantage
The cost Advantage
Doing it RIGHT
Doing things
FAST
Doing things on
TIME
Changing what
you DO
Doing things
1.10 TO GAIN COMPETITIVE ADVANT
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2.0 WORLD CLASSORGANISATIONS
2.1 WORLD-CLASS IS NOT A FIXEDSTANDARD
IT IS A MOVING TARGET
WHAT IS EXCELLENT TODAY MAY
BECOME AVERAGETOMORROW
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2.2 WORLD CLASS IS NOTNECESSARILYWORLDSCALE
WHAT IS WORLD CLASS ?
CONFEDERATION OF BRITISH
INDUSTRIES
AGENDA FOR COMPANIES ASPIRING TOBE
WORLD CLASS :
2.0 WORLD CLASSORGANISATIONS
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Manufacturing yesterdayA sea of inventory
Longsetup
tim
Productioninflexibility
Equipmentdowntime
Lowmotivation
Qualitydefects
PoorProduction flow
Inaccurateinflexiblescheduling 9
W ld l f t i
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World-class manufacturingJust in Time production
Shortset uptime
Flexibleproduction
Noequipmentdownti
me
Rs WIP Rs
Highmotivation
Zeroqualitydefect
s
In lineproduction flow
Rapidflexiblescheduling
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2..3 AGENDA FOR COMPANIES ASPIRING
TO BE WORLD-CLASS
ESTABLISH A CLEAR SENSE OF STRATEGIC DIRECTION ENSURING THIS IS COMMUNICATED,
UNDERSTOOD AND IMPLEMENTED THROUGHOUT THE BUSINESS AND ITS SHAREHOLDERS.
BENCHMARKAGAINST THE BEST PERFORMERS IN AREAS LIKE PRODUCTIVITY, TIME TO MARKET
AND STOCK-TURN.
2.0 WORLD CLASSORGANISATIONS
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DEVELOP GREATER CUSTOMER FOCUS IN EVERY
FACET OF
BUSINESS
RECOGNISE THAT INNOVATION WILL
DIFFERENTIATE
WINNERS AND LOSERS
RECOGNISE THAT PEOPLE ARE THE CRUCIAL
FACTOR IN THE
BUSINESS AND INVEST IN THEM
2.3 AGENDA FOR COMPANIES ASPIRING TO
WORLD-CLASS (contd...)
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.0 WORLD CLASS MATERIALS MANAGE
BENCHMARKING AGAINST BEST PERFORMERS
CUSTOMER FOCUS (INTERNAL & EXTERNAL)
DEVELOP & INVEST IN PEOPLE.
PARTNERSHIP SOURCING.
CONTRIBUTE TO INNOVATIVE PRODUCTS &PROCESSES.
SENSE OF STRATEGIC DIRECTION13
3 1 OPERATIONAL3 1 OPERATIONAL
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Efficiency :The ratio of input to usable out
Doing Things Right (DTR)
Effectiveness :
How well expected
or desired resultsare achieved
Doing Right Things(DRT)
OPERATION
AL
EXCEL
LENCE
3.1 OPERATIONAL3.1 OPERATIONAL
EXCELLENCEEXCELLENCE
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3.2 STRATEGIC3.2 STRATEGIC SUPERIORITYSUPERIORITY
VISION : The lowest total costs on the
planet
MISSION : To obtain the highest quality
material at the lowest overall
cost with the greatest
flexibility.
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OPERATIONS & STRATEGY MATRIXOPERATIONS & STRATEGY MATRIX
?
??xSTRATEG
Y
Wrong Right
OPERATIONS
WORLD CLASS = OE + SS
Wron
g
Right
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PURCHASING STRATEGY !?PURCHASING STRATEGY !?
COMPLE
XIT
Y
VALUELOW HIGH
HIGH
LOW VALUEHIGH COMPLEXITY
HIGH VALUE
LOW COMPLEXITY
LOW VALUE
LOW COMPLEXITY
HIGH VALUEHIGH COMPLEXITY
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3.3 ELECTRONIC COMMERCE3.3 ELECTRONIC COMMERCE
EC IS THE ABILITY TO EXECUTE TRANSACTIONS BETWEEN TWO
OR MORE PARTIES USINGCOMPUTERS LINKED TOGETHERBY NETWORKS
(like phone lines, cable, TV lines,leased lines, land-line radio, orsatellite radio)
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3 4 ELECTRONIC3 4 ELECTRONIC
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3.4 ELECTRONIC3.4 ELECTRONIC
E - COMMERCE-LINGOE - COMMERCE-LINGO
1.Electronic Catalogues
Graphical / Descriptive catalogues of goods and services
2.Electronic Data Interchange (EDI)
The Computer-to-computer exchange of business data in astandardised format.
3.Value-added Network (VAN)
A third party entity which electronically exchanges in
formation between subscribers and trading partners.
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E-Commerce Lingo contd......E-Commerce Lingo contd........
Electronic Funds Transfer (EFT)
5 The electronic transfer of cash between
accounts at different financial institutions :
DIGITAL CASH
Electronic / Digital Signature :
5 A mechanism which allows the receiver of an
electronic transmission to verify the sender
and the integrity of transmission through theuse of an electronic key (code) which is shared
by the sender and the receiver
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-DIRECTORIES
-INTERACTIVE APPLICATIONSEducational
InformationalAllow search across legal text and contracts e.g.
Contract Manager
-STORAGE TOOLS
3.5 Purchasing via CD-ROM /INTERNET
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A PROVEN BEST PRACTICE particularly for small value PURCHASESCard providers upgrading their systems, reports, and software
Ensure Savings - as number of transactions get eliminated, and
Transaction costs get reduced
3.6 PROCUREMENT CARDS3.6 PROCUREMENT CARDS
CHASEBANK
CITI BANK
HASING CARD
YOUR PURCHASING MORE PRODUCTIVE
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3.7 MEASURING PURCHASING PERFORMANCE3.7 MEASURING PURCHASING PERFORMANCE
Making purchases that arrive on timeMaking purchases that pass incoming quality
assurance inspection
Meeting target costsKnowledge of commodities in the purchasers
area
of responsibility
Ability to control purchase order cycle time
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MEASURING PURCHASINGMEASURING PURCHASING
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Ability to cultivate qualifiedsuppliers
Ability to perform work with a
minimum of errorsAbility to determine the bottomprice a supplier will
takeAmount of complexity ofcommodities in
purchasers responsibility
MEASURING PURCHASINGMEASURING PURCHASING
PERFORMANCEPERFORMANCE
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TYPES OF MEASUREMENTSTYPES OF MEASUREMENTS
Cost reduction - the reduction of costs either indepartment
processes or in current purchases made by thepurchasing department.
Material Price & Availability - effectively trackingchanges in material price and availability and analysingthe historical data for improved price negotiations.
Since purchasing has the potential for
making a significant contribution to theorganisation, select measurements thatshow value
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3.8 PURCHASING PERFORMANCE BENCHMARK3.8 PURCHASING PERFORMANCE BENCHMARK
The original 19 benchmarks developed by CAPS are :
1. Purchase rupees as a percent of sales rupees
2. Purchasings operating expense as a percent of sales rupees
3. Purchasings operating expense as a percent of purchase rupees
4. Purchasing employees as a percent of total company employees
5. Sales rupees per purchasing employee
contd.....
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Purchasing Performance Benchmarks contd........Purchasing Performance Benchmarks contd........
6. Purchase rupees per purchasing employee
7. Purchase rupees per professional purchasing
employee
8. Active suppliers per purchasing employee
9. Active suppliers per professional purchasing employee
10. Purchase rupees spent per active supplier
contd......
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11. Purchasings operating expense peractive supplier
12. Change in the number of active
suppliers during the
reporting period
13. Percent of purchases spent with
minority-owned
suppliers
14. Percent of purchases spent with
Purchasing PerformancePurchasing Performance
Benchmarks contd........Benchmarks contd........
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Purchasing Performance Benchmarks contdPurchasing Performance Benchmarks contd
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Purchasing Performance Benchmarks contd........Purchasing Performance Benchmarks contd..........
16. Percent of active suppliers accounting for 90 percentof purchase rupees
17. Percent of purchase rupees processed throughelectronic data interchange (EDI)
18. Percent of goods purchases handled by thepurchasing department
19. Percent of services purchases handled by the
purchasing department.
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Types of Measurements contd........ Types of Measurements contd........
The cost of lead-time and its improvement
AUTOMATION
Automating the purchasing and supply department
PRODUCTIVITY
Responsiveness to internal customers
Co-operation with other organisational functions
Supplier development and success of suppliercertification
programs
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3 9 CEOS PERCEPTIONS3 9 CEOS PERCEPTIONS
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3.9 CEO S PERCEPTIONS3.9 CEO S PERCEPTIONS
ABOUT PURCHASING FUNCTIONABOUT PURCHASING FUNCTION
81% PURCHASING IS IMPORTANT
55% IT IS EFFECTIVE
36% THOUGHT ADDS VALUE TO FIRMS BOTTOMLINE
41% HIGH INTEREST IN PURCHASE MEASURES
46% AVERAGE INTEREST
13% NO INTEREST ????
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Remember, for a measure to beeffective, it should be easy tounderstand, relevant to yourneeds, quantifiable, meaningfulto customers, strategicallymotivated and tacticallydeployed, and aligned with
organisation business needs andgoals.
By Michael Harding, C.P.M.,CPIM, Principal of Harding &
Associates in Bristol, Vermont,and Steven Kranz, C.P.M.
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CEOS PERCEPTIONS OF PURCHASING PERFORMANCECEOS PERCEPTIONS OF PURCHASING PERFORMANCE
Quality of purchased item
Key supplier problems that couldaffect delivery of materials
Internal Customer Satisfaction
terested in non-quantitative measuresterested in non-quantitative measures
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CEOS HAVE CAUSED ORALLOWED THE PURCHASING OF
GOODS AND SERVICES TO BESPLINTERED IN VARIOUSDEPARTMENTS
NOTAM
AJOR
CONTRIB
UTOR
TOMOST
DECISION
MAKING
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A HIGH PERFORMANCE DEPT.
REPORT SUCCESS : BOTTOMLINE IMPACT TALK LANGUAGE OF MONEY :
RELATE YOUR ARGUMENTS TO PROFIT &LOSS
PRESENT YOUR CASE FROM THE CEOs
PERSPECTIVE
DEMONSTRATE THAT YOUR IDEASCONTRIBUTE TO CORPORATE GOALS
WHAT THE CEO WANTS?
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3 10 INNOVATION
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Innovation
ContinuousImprovement
Improvement
Time
3.10 INNOVATION
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3.11 INTER-DEPENDECIES : EMPLOYEES3.11 INTER-DEPENDECIES : EMPLOYEES
5 WITH EVERY PAIR OF HANDS YOU GET A FREE BRAIN
5
CORRECTING & DIRECTING TO LISTENING & LEARNING5 COMMAND & CONTROL TO COMMITMENT (SEE
ILLUSTRATION)
5 STOCK TYPE (LIFE TIME EMPLOYMENT) & FLOW TYPE
(TEMPORARY)
5 ON-THE-JOB TRAINING IN JAPAN, WEST-OFF THE JOB,
OBSESSED WITH QUALIFICATIONS
5 THE DAYS OF THE MACHO-MANAGERS IN WORLD-CLASS
COS ARE IN THE PAST
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4 0 CHARTING PATH FORWARD
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4.0 CHARTING PATH FORWARD
WHERE ARE WE TODAY?
WHERE DO WE WANT TOGO ?
HOW DO WE GET THERE ?
GOALS > OBJECTIVES >38
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5 5.0 PROFILE OF 21ST CENTURY
MATERIALS MANAGER
JOBS IN THE FUTURE CANNOT BEASSURED BY THE SKILLS OF THEPAST
TACTICAL STYLE MMs WILL BECOME
A RARE BREED
INSTEAD OF GETTING KNOWN FOR
YOUR TOOLS BUILD A REPUTATION39
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COGNITIVE ABILITIES
INTELLECTUAL POWER
HOLISTIC THINKING
ANALYTICAL SKILLS
INTERPERSONAL ABILITIES
SELF-AWARENESS SKILLS
COMMUNICATION SKILLS
INFLUENCE SKILLS
TECHNICAL ABILITIES
PROBLEM SOLVING
COMMODITY KNOWLEDGE
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CHANGE
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FROM REACTIVE TO
PROACTIVE FROM TO DEFENSIVE TOASSERTIVE
FROM INWARD TOOUTWARD
FOCUSED
FROM TRADITIONAL TODYNAMIC
FROM EXECUTIVE TO
ENTREPRENEUR
CHANGE
41
Isnt it getting a bit hot?
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Isn t it getting a bit hot?Well, it will probably soon pass
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Im having the time
of my life!
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Boiled - MORTAL
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THANK YOUTHANK YOU
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BENCHMARKINGBENCHMARKINGBENCHMARKINGBENCHMARKING
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ContentsContents
1. Benchmarking
2. Thought
3. Definition
4. Definition
5. Definition
6. Who does it
7. Objectives
8. Change- How Benchmarking help
9. Types of Benchmarking
10. Variations of Benchmarking
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ContentsContents
11. Benchmarking : Fundamentals
12. 10- Step Benchmarking process
13. 5 Phases of Benchmarking
14. 5 Phases of Benchmarking
15. Benchmarking16. Who can help
17. Benchmarking Companies
18. AI&Ts 12- Steps19. ALOAs Six Steps
20. Benchmarking Purchasing performance
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ContentsContents
21. Benchmarking Purchasing Performance22. Epilogue
23. Epilogue
BENCHMARKINGBENCHMARKING
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BENCHMARKINGBENCHMARKING
INVENTED BY : TAIICHI OHRO
who also developed the Just-in-Time inventory system in
Toyota. He compared the movement of components in Toyota
with that of consumer products in American Super Markets.
THE HOTTEST AND LEAST UNDERSTOOD TERM
Benchmarking isBenchmarking is
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Benchmarking is Benchmarking is
AN ONGOING INVESTIGATION AND LEARNING
EXPERIENCE SO THAT BEST INDUSTRY PRACTICESARE UNCOVERED, ADOPTED, AND IMPLEMENTED.
A PROCESS OF INDUSTRIAL RESEARCH THAT
ENABLES MANAGERS TO PERFORM COMPANY TOCOMPANY COMPARISONS OF PROCESSES ANDPRACTICES TO IDENTIFY THE BEST OF THE BESTAND ATTAIN A LEVEL OF SUPERIORITY ORCOMPETITIVE ADVANTGE.
A METHOD OF ESTABLISHING PERFORMANCEGOALS AND QUALITY IMPROVEMENT PROJECTSBASED ON INDSUTRYS BEST PRACTICES.
FORMAL DEFINITIONSFORMAL DEFINITIONS
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FORMAL DEFINITIONSFORMAL DEFINITIONS
THE CONTINUOUS PROCESS OF MEASURING PRODUCTS,SERVICES AND PRACTICES AGAINST THE COMPANYSTOUGHEST COMPETITORS OR THOSE COMPANIESRENOWNED AS INDUSTRY LEADERS
- Robert C Camp
BM IS A POSITIVE, PRO-ACTIVE PROCESS TO CHANGEOPERATIONS IN A STRUCTURED FASHION TO ACHIEVESUPERIOR PERFORMANCE.
BM is the process of identifying, understanding and adopting
outstanding practices, and processes, from Organizationsanywhere in the world, in order to help the Organizationimprove its own performance.
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D A N T O T S UD A N T O T S Ua Japanese word which means :a Japanese word which means :
Striving to be the BEST OF THE BEST
Logic : Searching out and emulating the best
can fuel the motivation of everyone involved,
often producing break-through results.
WHO DOES ITWHO DOES IT
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WHO DOES ITWHO DOES IT
Xerox, Ford, AT&T, DuPont, HP, J&J, IBM,
Motorola
Hindustan Lever, Citibank, RPG Group, Arvind
Mills
OBJECTIVESOBJECTIVES
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OBJECTIVESOBJECTIVES
1. To inculcate external orientation instead of
extrapolating from internal practices and past
trends.
2. To establish credible goals
3. To pursue continuous improvement
4. To meet ever-increasing customer expectations
CHANGE HOW BM HELPS ?CHANGE HOW BM HELPS ?
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CHANGE - HOW BM HELPS ?CHANGE - HOW BM HELPS ?
BELIEVE THERE IS A NEED FOR CHANGE : When
you see gaps between own Company and competition,you want to change.
DETERMINE WHAT YOU WANT TO CHANGE : By
understanding how industry leaders do things, you
identify what you have to change.
CREATE A PICTURE OF HOW YOU WANT TO WORK
AFTER THE CHANGE : By seeing what is possible and
the effect of its adoption by your Company.
BM MOTIVATES TO EVOLVE STRATEGIES TO DRIVE
EFFORTS.
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TYPES OF BENCHMARKINGTYPES OF BENCHMARKING
INTERNAL BENCHMARKING : Comparison of practices between similar operations within a firm.
COMPETITIVE BENCHMARKING : Comparison to the best face-off competitors
FUNCTIONAL BENCHMARKING :
Comparison of functional activities, even in dissimilar industries foruncovering innovative practices.
VARIATIONS OF BENCHMARKINGVARIATIONS OF BENCHMARKING
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VARIATIONS OF BENCHMARKINGVARIATIONS OF BENCHMARKING
PRODUCT BM :
Comparison between different features and attributes ofproducts.
PERFORMANCE BM :
Comparison of indicators of a business as a whole, or
divided into critical functions and processes.
PROCESS BM :
Comparison of processes - business, support services
and management
STRATEGIC BM :
Studying and outperforming strategies of competition.
BENCHMARKING :BENCHMARKING :
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FUNDAMENTALSFUNDAMENTALSKNOW YOUR OPERATION :
Assess Strengths & Weaknesses Document Work Process Steps & Processes
Define Critical Performance Measures
KNOW INDUSTRY LEADERS & COMPETITORS Practices
Performance Levels
INCORPORATE THE BEST & GAIN SUPERIORITY :
Involve line management : Gain Commitment Create World-class Work Practices
Achieve Superior Service Levels of Delivery
10-STEP10-STEP
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BENCHMARKING PROCESSBENCHMARKING PROCESS
10. Recycle the Process
9. Implement and monitor
8. Develop Action Plans
7. Revise Performance Goals
6. Communicate Findings
5. Project Future Performance Gaps
4. Analyze Performance Gaps
3. Collect Data2. Identify Whom to Benchmark
1. Decide What to Benchmark
FIVE PHASESFIVE PHASESPLAN ANALYSE INTEGRATE ACT IMPROVEPLAN ANALYSE INTEGRATE ACT IMPROVE
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PLAN, ANALYSE, INTEGRATE, ACT, IMPROVEPLAN, ANALYSE, INTEGRATE, ACT, IMPROVE
(MATURITY)(MATURITY)
1. PLANNING : What to Benchmark
Whom to Benchmark
Data sources and Data collection
2. ANALYSIS : Measuring the gap at present
Projecting the gap into the future
3. INTEGRATION : Evolve goals, objectives and strategies and integrateinto business plans and operational reviews.
Five Phases contd Five Phases contd
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4. ACTION & IMPLEMENTATION : Work out specific action plans, milestones, target dates,
persons responsible.
Implementation : by people who actually perform the
work
Measure progress and report on NEED TO KNOW BASIS
5. MATURITY : Stay current with industry changes and update
Incorporate best practices in all business processes, it
becomes a standard way of life to change to STAY
AHEAD.
BENCHMARKBENCHMARK
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BENCHMARKBENCHMARK
A BENCHMARK IS A STANDARD OF
EXCELLENCE OR ACHIEVEMENT AGAINST
WHICH OTHER THINGS MUST BE MEASURED
OR JUDGED.
WHO CAN HELP ?WHO CAN HELP ?
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WHO CAN HELP ?WHO CAN HELP ?
*AMERICAN PRODUCTIVITY & QUALITY CENTRE
Created
APCQ BENCHMARKING CLEARING HOUSE
*NAPMs
CENTRE FOR ADVANCED PURCHASING STUDIES
*In India
INSTITUTE OF QUALITY
NATIONAL CENTRE FOR QUALITY MANAGEMENT
BENCHMARK COMPANIESBENCHMARK COMPANIES
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BENCHMARK COMPANIESBENCHMARK COMPANIES
--------------------------------------------------------------------------Area Company
--------------------------------------------------------------------------
Assembly Automation .. Ford Motor Co.Billing & Collections .. American ExpressCustomer Focus .. Xerox
Employee Suggestions .. ToyotaIndustrial Design .. Black & DeckerInformation Systems .. General ElectricMarketing .. Proctor & GambleResearch & Development Corning
Supply Management .. Motorola, Xerox, Ford MotorCo.Training .. Caterpillar------------------------------------------------------------------------------
AT & Ts 12-STEPSAT & Ts 12-STEPS
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AT & T s 12-STEPSAT & T s 12-STEPS
1. Determining who the clients are 7. Verifying that the BM process is part ofthe business planning process.
2. Helping the clients understand the 8. Developing Implementation Plan
purpose of the Information
3. Testing the Environment 9. Analyzing the Data
4. Determining Degrees of Urgency 10. .Integrating the Recommended
Actions
5. Determining the Scope & Type of 11. Taking Action
Benchmarking Needed
6. Selecting & Preparing the Team 12. Continuing Improvement
ALCOAS SIX STEPSALCOAS SIX STEPS
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ALCOA S SIX STEPSALCOA S SIX STEPS
1. Deciding What to Benchmark
2. Planning the Benchmark Project
3. Understanding Your Own Performance
4. Studying Others
5. Learning From the Data
6. Using the Findings
BENCHMARKING PURCHASINGBENCHMARKING PURCHASING
PERFORMANCEPERFORMANCE
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PERFORMANCEPERFORMANCE1. Comparing total system against that of another
Company / Division.2. Comparing total system against that of a Competitor
3. Comparing total system against the best in another
industry
4. Comparing a specific purchasing component againstanother Division.
5. Comparing a specific purchasing against another
Competitor
6. Comparing a specific purchasing against any one in
the field
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7. Comparing firms paid prices against those of the
industry overall
8. Comparing Actual Budgets against PlannedBudgets.
9. Comparing Results of a Zero based Budgeting
Process.
10. Baselining good practices in each area.
11. Asking internal customers what they think of
purchasings performance.
J. Carinato
EPILOGUEEPILOGUE
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OGU
STATEMENT OF THE ORGANISATIONS
MISSION
EXPECTATIONS OF THE CUSTOMERS
STATEMENT OF EACH FUNCTIONs -
BROAD PURPOSES
SPECIFIC OUTPUTS : QUALITY
COSTS
EPILOGUE contd...EPILOGUE contd...
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EPILOGUE contd...OGU co td
BENCHMARKING IS NOT BLINDLY COPYING. IT
IS CREATIVE ADOPTION OF OTHERS
SUPERIOR PRACTICES.
BRINGS ABOUT LEARNING CULTURE,
EXTERNAL FOCUS STIMULUS FOR
IMPROVEMENT, INCREASED CUSTOMER
SATISFACTION, IMPROVED BOTTOMLINE,
INCREASED MARKET SHARE, IMPROVED
FINANCIAL RESULTS .END
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STRATEGIC ISSUES IN SUPPLYSTRATEGIC ISSUES IN SUPPLYCHAIN MANAGEMENTCHAIN MANAGEMENT
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STRATEGIC ISSUES IN SUPPLY CHAINSTRATEGIC ISSUES IN SUPPLY CHAIN
MANAGEMENTMANAGEMENT
Contents:Contents:
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Contents:Contents:
1.0 Global Scenario
2.0 Objectives of the Supply Chain
3.0 Supply Chain Management
4.0 Supply Chain Strategy/ ies
5.0 Barriers to MM & Root-causes6.0 Epilogue
1 0 Global Scenario1 0 Global Scenario
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1.0 Global Scenario1.0 Global Scenario1.0 Highly Competitive Environment :
Reduced Costs
Increased Quality Improved Responsiveness & Services
Flexibility
Better product availability
1.1 No Business is an Island : It is not enough to become efficient - Effectiveness has to be
created in Suppliers, the distribution channels and all associatedactivities to enable value to reach the customers.
1.2 Competition is not between individual businessesbut between groups of businesses. One supplychain competes against another supply chain.
2 0 Objectives of the Supply Chain2 0 Objectives of the Supply Chain
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2.0 Objectives of the Supply Chain2.0 Objectives of the Supply Chain
A well-oiled Supply Chain is expected to support
the strategic objectives of a business by adoptingthe following performance objectives defined inspecific measurable parameters :
Reduced Costs (C) Shorter Lead Time (T) Best Quality (Q) Flexibility (F) Enhanced Service (S)
Better Product availability & reliability (R)
Slack Vs Taut Supply ChainSlack Vs Taut Supply Chain
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Slack Vs Taut Supply ChainSlack Vs Taut Supply Chain
Supply Chain should be neither too slack to
be inefficient nor too taut to break :
Slack (inefficiency) : High Storage, delayed movement, poor
processing (under-utilization)
Taut (Fire Fighting) : Inadequate storage, frenzied movement
and poor processing (unacceptable quality).
SCM at Material & People LevelsSCM at Material & People Levels
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SCM at Material & People LevelsSCM at Material & People Levels
At Material level : Flow of materials through procurement,
manufacture, distribution, sales and consumption (disposal).
At People level : Social entity of people, organized as structures
and systems for delivering the desired value.
Material Flow
Information Flow
Design Supplies Pur &Stores
Mfg. Mktg. Customer
DefinitionDefinition
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DefinitionDefinition
The Integrated Management of all the
linkages and value-adding activities from the
suppliers supplier to the customers
customer in such a way that enhanced
customer value is achieved at lower costs.
4 0 Supply Chain Strategy4 0 Supply Chain Strategy
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4.0 Supply Chain Strategy4.0 Supply Chain Strategy
Strategic Supply Chain ManagementStrategic Supply Chain Management is directly
related to and draws strength from the business
strategy of an organization. It is developed from
business strategy.
Five aspects of Business Strategy / PolicyFive aspects of Business Strategy / Policy :(i) Products / Services for marketing
(ii) Market Segments (geographic) of operations
(iii) Customer Segments
(iv) Channels of Distribution (Distributors, Dealers,
Retailers)
(v) Customer Service
Five Elements of Supply Chain Strategy :
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pp y gy
Strategic Supply Chain Management
Components of Strategic Supply Chain Management
DistributionStrategy
Sourcing
Strategy InventoryStrategy
Customer
ServiceStrategy
Integration
Strategy
4.1 Sourcing Strategy :
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4.1 Sourcing Strategy :
Make or Buy
Sourcing
Strategy
Elements of Sourcing Strategy
Mfg.Management
CapacityManagement
Three Elements of Sourcing StrategyThree Elements of Sourcing Strategy
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Three Elements of Sourcing StrategyThree Elements of Sourcing Strategy
(i) Manufacturing ManagementManufacturing Management : Traditionally, PPC
Systems were designed to maximise efficiency oflabour and utilization of machines. These are no
longer adequate.
Now, production processes have to optimize
balance between Customer Satisfaction and
Efficiency.
(ii) Make or Buy DecisionsMake or Buy Decisions : Traditionally, factors such
as cost of inhouse manufacturing, cost of sourcedsupplies, labour cost changes, overheads,
capacity, availability and transport interruptions
were considered.
Now faster deliveries easy access for service
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Now, faster deliveries, easy access for service,
repairs and replacements and customer
preferences have also to be considered.
(iii) Capacity Management : Traditionally, the decision
on plant location were based on factors like cost of
land, Govt. subsidies, cost of power, availability of
labour, sales tax concessions etc.
Now proximity to customers, costs of distribution,
supply channel infrastructure availability, access to
service facilities, access to modes of transport
network and access to I.T. have also to be
considered.
4 2 Distribution Strategy4.2 Distribution Strategy
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Linkage between the firms customers and the sources
of its products or services that the firm provides to themarket place. This decision involves consideration of
distribution costs, long term commitment to certain
types of costs associated with a channel of distribution.
Distribution Strategy
Elements of Distribution Strategy
4.2 Distribution Strategy4.2 Distribution Strategy
Channel
Selection
Supply Chain
Management
Distribution
Planning
Elements of Distribution StrategyElements of Distribution Strategy
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gygy(i) Channel SelectionChannel Selection : Choice of Channel depends on the
products or services to be marketed, volumes involved,
geographical locations, long-term policy regarding marketingand level of customer service desired.
(ii) Supply Chain ConfigurationSupply Chain Configuration : Has a number of participants e.g.
sources of supplies, storage or stocking stations & distribution
channels till the supplies reach the end customers. Their
location has important bearing on the efficacy of supply chainsystem and the business results of the organization. Supply
Chain configuration calls for determining numbers and location
of each of the
participants, their role, etc. Factors such as Volume of supplies,
b f t hi l ti t f
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number of customers, geographic locations, cost of
transportation, distribution costs, level of customer delight and
vendor satisfaction are involved.
(iii) Distribution PlanningDistribution Planning : Wide variety of transport choices, faster
mode provides high level of customer satisfaction as well as
opportunities to seize business opportunities when there is a
sudden demand. Decisions whether to have own fleet or not,
costs of transportation, transportation mode, capacity, location,routing and the schedules of distribution so that supplies reach
the destination on time; are to be taken. Decisions ensuring JIT
supplies to customers are to be taken.
4.3 Inventory Strategy4.3 Inventory Strategy
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4.3 Inventory Strategy4.3 Inventory Strategy
This is the core of SCM. The major cost of a supply
chain, the level of customer satisfaction, the businessgrowth (or fall) are largely influenced by the Inventory
Strategy.
Three Elements of Inventory Strategy :Three Elements of Inventory Strategy :
Demand
Forecasting
Inventory
Strategy
Stock Facilities Inventory
Planning Planning
(i) Demand ForecastingDemand Forecasting : Regular, cyclical or
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(i) Demand ForecastingDemand Forecasting : Regular, cyclical or
seasonal demand. Demand forecasting enables
a Company to organize sourcing strategy and
stocking policies. A faulty demand forecastingcan throw supply chain haywire whereas an
accurate forecast results in smooth operations.
(ii) Inventory PlanningInventory Planning : Fixing levels of inventory,min/max stocks, ROLs, lead time of
procurement, order quantity etc. Inventory
Planning involves setting up of procedures for
monitoring inventories and exercising controls.Many softwares and tools are available.
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(iii) Stock Facilities PlanningStock Facilities Planning : Storage facilities,
handling equipment, proximity to rail/road
heads, closeness to distribution channels
are important.
4.44.4 CUSTOMER SERVICE STRATEGYCUSTOMER SERVICE STRATEGY
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The strategy defining methods and means to respond to
the needs and expectations of the customers in a manner
that maximises profitability. Companies do not sell theirproducts but relationships, solutions, supports and care.
Customer service has become the cutting edge and a
valuable business activity. Customer Service Strategy is
developed from three factors.
Input for Customer Service Strategy
Service
Needs
Customer
ServiceStrategy
Service
Cost
Revenue
Manage-
ment
(i) Identification of Service NeedsIdentification of Service Needs : The
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(i) Identification of Service NeedsIdentification of Service Needs : The
exercise calls for : Segmentation of customers
Identification of segments unique to the Company
Identification of service needs relevant to each customer
segmentation / product / geographic location.
(ii) Cost of ServiceCost of Service : The issues involved are asto how to improve the service so as to
maximise a firms profitability. This involves
determination of :
Service Costs incurred by the firm at current level ofservice
Cost of providing newly identified level of service
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(iii) Revenue ManagementRevenue Management : The principal of
maximising profitability and growth cannot
be sacrificed. Increased customer service
also must lead to these. Service is a profit
centre.
4.5 SUPPLY CHAIN INTEGRATION4.5 SUPPLY CHAIN INTEGRATIONSTRATEGYSTRATEGY
Traditionally suppliers and manufacturers
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Traditionally, suppliers and manufacturers
operate rather independently. Information on
stocks with manufacturer, distributors, dealers,retailers is not available. In an efficient SCM,
manufacturers, suppliers, distribution channels
and customers are linked in the form of a chain
to develop and deliver products as a singleorganization of pooled skills and resources.
This integration can have three forms in a spirit
of partnership :
Information Integration
Decision Integration
Financial Integration
Integration
Strategy
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(i) Information IntegrationInformation Integration : Share confidential &
critical information, EDI, IT applications like
ERP have been successfully tried. Planning
and implementation of information systems can
help to analyze product flows, order patterns,
inventories, obsolescence, levels of production
and supply costs.
(ii) Decision IntegrationDecision Integration : Joint decisions oninventories, distribution prices, etc. The entire
supply chain system would be behaving as if it
is a single company.
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(iii) Financial IntegrationFinancial Integration : It implies that each
of the participants has a financial stake in
operations of other participants. Suppliers
can be equity holders in the venture of
manufacturers and manufacturers extendtheir financial participation to the
distribution channels.
5.0 BARRIERS TO MM AND ROOT5.0 BARRIERS TO MM AND ROOTCAUSESCAUSES
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The old approach was to create a new
functional silo - Materials Management. Few
companies were successful in using
multifunctional teams to effectively manage
their material flows.
People were selected and promoted based on
perceived management skills and
professional certifications rather than theirskills in directing process improvements.
It was rare for companies to take holistic
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p
approaches to managing materials. Key measures
and systems were generally focused inward. Most
organizations were overly focused on their internaloperations and had inadequate focus, processes
and resources to manage supplier and customer
linkages and relationships.
A strategic approach was uncommon. Reach-out or
stretch goals were rarely put in place to generate
out-of-the-box thinking (Conventional goals yield
conventional solution).
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Conventional solutions were widelyadopted - for example computer systems
such as MRP and MRP II. Those with
vested interests in technical solutions
fought long battles with proponents ofcommon-sense approaches, such as JIT
and lean manufacturing. The most
common MRP and MRP II software, for
many years, did not contain effectivemeans to support the processes of
purchasing and supplier management.
This is still true today in many companies.
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Inappropriate financial information was widely
used in decision making. Considerable
outsourcing has occurred, and resources
have been eliminated. Insourcing will be
difficult. Bad decisions are hard to correctquickly.
Very little benchmarking was done as a
means to share best materials managementpractices (with the exception of systems,
which rarely were a best practice).
6.0 Epilogue6.0 Epilogue
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g
Finally, SCM encompasses all activitiesassociated with moving goods from raw
materials through to the end user.
These include Sourcing and Procurement,
Production Scheduling, Order Processing,
Inventory Management, Transportation,
Warehousing and Customer-service.
Best supply chain management programmes focus on actual
customer demand. Instead of forcing into the market a
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customer demand. Instead of forcing into the market a
product that may not sell quickly, they react to actual
customer demand.
So they minimise the flow of raw materials, finished product
and packaging materials at every point in the pipeline. SCM
systems pull data from every step of supply chain, providing
a clear, global picture of where the enterprise is heading.
By linking SCM applications with other business systems,companies can slash cycle time and reduce inventory. They
can also reach beyond their own corporate walls to better
connect with suppliers, distributors and end customers.