DPS 202 FUNDAMENTALS OF SUPPLY CHAIN MANAGEMENT September-December 2012 By Thomas Ombati Department...

DPS 202DPS 202 FUNDAMENTALS OF SUPPLY FUNDAMENTALS OF SUPPLY

CHAIN MANAGEMENTCHAIN MANAGEMENTSeptember-December 2012September-December 2012

ByBy

Thomas OmbatiThomas Ombati

Department of Management Department of Management ScienceScience

School of BusinessSchool of Business

University of NairobiUniversity of Nairobi

COURSE OBJECTIVESCOURSE OBJECTIVES

This is an introductory course into the field of Procurement and Supply Chain Management. The objectives of this course are to provide students with knowledge in the key areas in supply chain management and to provide a solid understanding of the basic terms, concepts, objects and relationships involved in managing supply chains.

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COURSE CONTENTCOURSE CONTENT

1. Introduction Defining supply chain

Why SCM; Value Addition in SCs; Components of SC; Advantages of Using SCM Approach

2. Supply chain relationship with other functions

Operations; Marketing; Procurement; Accounting/Finance

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CONTENT – Cont...CONTENT – Cont...

3. Supply chain management storage and warehousing.

4. TransportationRole in SC; Modes of Transportation,

Their Advantages an Limitations;Trade offs in Transporter Selection; Empty Backhaul Management

5. Materials handlingImportance; Principles and Devices


6. Inventory ManagementMethods of Managing; In Transit

Inventory; Distributor Managed Inventory

7.Purchasing ManagementObjectives of Purchasing; Changing

Nature of Purchasing; Methods of Purchasing; Supplier selection and Evaluation; Green Purchasing

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8. Location DecisionsLocating Warehouses; Supplier

Location

9. Information flows in Supply Chains.

AssessmentAssignments & Class Projects 15%,CATs

15% and 70% for the Final Exam

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INTRODUCTIONINTRODUCTION

You get into a popular supermarket in You get into a popular supermarket in Nairobi to pick a certain item. "It's out Nairobi to pick a certain item. "It's out of stock !," a supermarket employee of stock !," a supermarket employee tells you. "We'll get a shipment tells you. "We'll get a shipment tomorrow. Actually, several people have tomorrow. Actually, several people have been looking for it... must be a popular been looking for it... must be a popular item," s/he adds. Why was this product item," s/he adds. Why was this product out-of-stock? Especially if there was out-of-stock? Especially if there was high demand for it, as the store high demand for it, as the store employee indicated. employee indicated.

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COMPONENTS OF A SUPPLY COMPONENTS OF A SUPPLY CHAINCHAIN

This example highlights a problem that This example highlights a problem that occurs in occurs in supply chain management supply chain management - - the focus of this course (DPS 202).the focus of this course (DPS 202).

So, if that item So, if that item hadhad been in the s/mkt, been in the s/mkt, how would it have gotten there?- it how would it have gotten there?- it would have transported the item would have transported the item producer's supply chain. Then you producer's supply chain. Then you would have been able to enjoy it, would have been able to enjoy it, instead of going home with some other instead of going home with some other brand that you really didn't want. brand that you really didn't want.

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COMPONENTS – Cont...COMPONENTS – Cont...

A typical supply chain consists of five A typical supply chain consists of five main components: main components:

SuppliersSuppliers. Source of raw materials, . Source of raw materials, component parts, semi-component parts, semi-manufactured products, and other manufactured products, and other items that occur early in the supply items that occur early in the supply chain - unfinished or non-chain - unfinished or non-consumable products. consumable products.

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ManufacturersManufacturers. Makers of products. . Makers of products. Many consider them to be the Many consider them to be the heart heart of the supply chainof the supply chain. Actually, both . Actually, both suppliers and manufacturers are suppliers and manufacturers are producers of products. Suppliers producers of products. Suppliers produce components or produce components or subassemblies, while manufacturers subassemblies, while manufacturers perform the task of final assembly perform the task of final assembly or product integration. or product integration.

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DistributorsDistributors. Responsible for the . Responsible for the packaging, storing, and handling of packaging, storing, and handling of materials at receiving docks, materials at receiving docks, warehouses, and retail outlets.warehouses, and retail outlets.

RetailersRetailers. These are the manufacturer's . These are the manufacturer's customers - the stores that buy the customers - the stores that buy the actual products. actual products.

ConsumersConsumers. This is you - the person who . This is you - the person who goes into a s/Mkt and buys the product.goes into a s/Mkt and buys the product.

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Graphic on SC ComponentsGraphic on SC Components

AA

BB

GG

HH

II

JJ

KK

CC

DD EE FF

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In the centre, E, is “the operation”. The In the centre, E, is “the operation”. The operation could be a manufacturing operation could be a manufacturing company, a retailer or a public sector company, a retailer or a public sector institution such as a university or institution such as a university or hospital. It is an organization that is hospital. It is an organization that is being considered at any given point in being considered at any given point in time. It is therefore a standpoint. time. It is therefore a standpoint. Rather like being in a river, upstream Rather like being in a river, upstream and downstream are relative concepts and downstream are relative concepts depending upon your position in the depending upon your position in the river.river.

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Lets assume that the operation is a Lets assume that the operation is a motor-car manufacturer. From the motor-car manufacturer. From the manufacturer’s standpoint the manufacturer’s standpoint the suppliers that it has direct dealings suppliers that it has direct dealings with are known as “first-tier” suppliers, with are known as “first-tier” suppliers, shown in the diagram as C and D. shown in the diagram as C and D. These suppliers could be These suppliers could be manufacturers or distributors of major manufacturers or distributors of major assemblies, chassis, transmission assemblies, chassis, transmission systems etc. These suppliers in turn systems etc. These suppliers in turn need to purchase many inputs in order need to purchase many inputs in order to make their products. to make their products.

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Their suppliers are known as “second-Their suppliers are known as “second-tier” suppliers, shown in the diagram tier” suppliers, shown in the diagram as A and B. These goes on & on as A and B. These goes on & on ‘upstream’ to the raw material (initial) ‘upstream’ to the raw material (initial) supplier.supplier.

On the downstream side, the On the downstream side, the manufacturer sells its cars to first-tier manufacturer sells its cars to first-tier customers (dealers) like F. These customers (dealers) like F. These dealers sell the cars to small dealers, G dealers sell the cars to small dealers, G and H, (second-tier customers) who in and H, (second-tier customers) who in turn sell to final customers, I, J and K turn sell to final customers, I, J and K (third-tier customers).(third-tier customers).

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The diagram is a simplification of reality. The diagram is a simplification of reality. In reality the chain resembles a web or In reality the chain resembles a web or network with many different network with many different tributaries. For instance C and D would tributaries. For instance C and D would be supplying other car manufacturers.be supplying other car manufacturers.

All the members of a SC rely upon the All the members of a SC rely upon the demand from the final consumer. In demand from the final consumer. In some SCs the bargaining power lies some SCs the bargaining power lies downstream – eg fast moving consumer downstream – eg fast moving consumer goods (FMCG) retailers, in other SCs, goods (FMCG) retailers, in other SCs, the power lies upstream – eg petroleum the power lies upstream – eg petroleum products.products.

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Identifying where this power lies is very Identifying where this power lies is very important. Without this power, it important. Without this power, it would be very difficult to influence the would be very difficult to influence the other members of SC either up or other members of SC either up or downstream.downstream.

SCs vary in length. Some are very short SCs vary in length. Some are very short (Dell). A farmer who sells her produce (Dell). A farmer who sells her produce directly to consumers by the road side directly to consumers by the road side is an example of a short “no-tier” SC. is an example of a short “no-tier” SC. FMCGs are likely to involve many tiers.FMCGs are likely to involve many tiers.

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Other players in SCOther players in SC

There are many other players in the There are many other players in the supply chain who also play valuable supply chain who also play valuable and important roles in getting and important roles in getting products to the end consumer. For products to the end consumer. For example, consider the facilitating example, consider the facilitating roles outside parties, such as the roles outside parties, such as the following, play in important areas following, play in important areas of the supply chain:of the supply chain:

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Other players – Cont...Other players – Cont...

Logistics providersLogistics providers. Perform individual . Perform individual tasks such as transporting products tasks such as transporting products from one place to another, or from one place to another, or operating strategically placed operating strategically placed warehousing or distribution warehousing or distribution operations. operations. Contract manufacturersContract manufacturers. As. As firms firms specialize and focus on core specialize and focus on core competencies, the use of contract competencies, the use of contract manufacturers has become a well manufacturers has become a well accepted practice. accepted practice.

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Information-based service Information-based service providers. providers. Refers to firms which Refers to firms which have either software or other have either software or other information technologies which information technologies which assist with the activities of supply assist with the activities of supply chain planning. They may include IT chain planning. They may include IT firms, which provide and manage firms, which provide and manage systems for individual firms and for systems for individual firms and for overall supply chains.overall supply chains.

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Financial institutionsFinancial institutions. Includes . Includes banks and other financial banks and other financial institutions, which provide supply institutions, which provide supply chain services such as freight chain services such as freight payment and billing, inventory payment and billing, inventory financing, and inter-firm transaction financing, and inter-firm transaction management. Services may be for management. Services may be for individual firms or combinations of individual firms or combinations of firms in the supply chain.firms in the supply chain.

DefinitionsDefinitions

SCSC consists of the series of activities and consists of the series of activities and organizations that items move through organizations that items move through on their journey from initial suppliers to on their journey from initial suppliers to final customers (Donald Waters, 2003)final customers (Donald Waters, 2003)

SCSC is a network of organizations that are is a network of organizations that are involved, through up and downstream involved, through up and downstream linkages, in the different process and linkages, in the different process and activities that produce value in the activities that produce value in the form of products and services to the form of products and services to the consumer (Lysons & Farrington, 2006) consumer (Lysons & Farrington, 2006)

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Definitions – Cont...

Supply Chain Management (SCM) Supply Chain Management (SCM) – Is the – Is the mgt of up and downstream r/ships mgt of up and downstream r/ships with suppliers and customers to with suppliers and customers to deliver superior customer value at less deliver superior customer value at less cost to the supply chain as a whole.cost to the supply chain as a whole.

SCMSCM – is a network of connected and – is a network of connected and interdependent organizations mutually interdependent organizations mutually and co-operatively working together to and co-operatively working together to control, manage and improve the flow control, manage and improve the flow of items and information from of items and information from suppliers to end users.suppliers to end users.

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IMPORTANCE OF SCMIMPORTANCE OF SCM

Supply chains are sometimes Supply chains are sometimes referred to as referred to as value chainsvalue chains. The . The concept reflects that value is concept reflects that value is added and services progress added and services progress through supply chain. through supply chain.

Supply chain components and Supply chain components and demand components must be demand components must be considered if supply chain is to be considered if supply chain is to be complete. complete.

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IMPORTANCEIMPORTANCE– Cont...

Demand component of the chain starts Demand component of the chain starts at a point where organizations at a point where organizations output starts or is delivered to its output starts or is delivered to its immediate customers and ends with immediate customers and ends with the final customer in the chain.the final customer in the chain.

Supply chain management is Supply chain management is considered to a large extent with considered to a large extent with efficiency efficiency of supply chain and supply of supply chain and supply chain chain responsivenessresponsiveness..

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SC SC efficiency focuses on minimizing efficiency focuses on minimizing the coststhe costs of the supply chain. SC of the supply chain. SC responsiveness ensures customers’ responsiveness ensures customers’ requirements are metrequirements are met. Some of the . Some of the dimensions of SC responsiveness dimensions of SC responsiveness include:include:

Offering Offering timetimelinessliness; ; ReliabilityReliability; ; FlexibilityFlexibility; ; After sale serviceAfter sale service; Giving ; Giving the the right quantitiesright quantities; ; Offering credit Offering credit facilitiesfacilities

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SCM is concerned with efficient SCM is concerned with efficient integration of suppliers, factories, integration of suppliers, factories, and warehouses so that and warehouses so that merchandise is produced and merchandise is produced and distributed in right quantities, distributed in right quantities, locations and time. This ensures:locations and time. This ensures:

The total systems cost is minimizedThe total systems cost is minimized

Satisfies customer requirementsSatisfies customer requirements

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IMPORTANCE IMPORTANCE – Cont...

Acts as a link in business Acts as a link in business strategies strategies

Ensures focus and scopeEnsures focus and scope

Advices an organization whether Advices an organization whether to make (manufacture)or purchaseto make (manufacture)or purchase

Enables to monitor suppliersEnables to monitor suppliers

Ensures performance of suppliers Ensures performance of suppliers is improvedis improved

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RELATIONSHIP BETWEEN SCM & RELATIONSHIP BETWEEN SCM & OTHER FUNCTIONSOTHER FUNCTIONS

MarketingMarketing

Supply chain mgt is an important area of Supply chain mgt is an important area of business practice and scholarship that business practice and scholarship that overlap with the discipline of marketing overlap with the discipline of marketing and marketing mgt. The success of org and marketing mgt. The success of org depend on their ability to depend on their ability to satisfy satisfy customerscustomers. Since market orientation is . Since market orientation is supposed to be truly related to supposed to be truly related to organization success, the SC strategy organization success, the SC strategy helps to facilitate mkt orientation. helps to facilitate mkt orientation.

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RELATIONSHIPRELATIONSHIP – Cont...

Effective SCM is an important element Effective SCM is an important element in meeting customer needs.in meeting customer needs.

Market orientation affects mgt of Market orientation affects mgt of firm’s relationships and SCs.firm’s relationships and SCs.

The marketing and sales force is well The marketing and sales force is well positioned to implement, facilitate positioned to implement, facilitate and coordinate SC activities.and coordinate SC activities.

Objective of marketing is creating Objective of marketing is creating exchanges and output for its exchanges and output for its

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customer satisfaction.SC function customer satisfaction.SC function is also concerned with SC is also concerned with SC responsiveness which focuses responsiveness which focuses on customer satisfaction.on customer satisfaction.

Marketing concept consists of Marketing concept consists of these pillars.these pillars.Customer focusCustomer focusCoordinating the marketing Coordinating the marketing functionfunctionProfitability of an organizationProfitability of an organizationApril 19, 2023 31


FinanceFinance

Many company executives have the Many company executives have the traditional vision of supply chain and traditional vision of supply chain and do not always realize opportunities do not always realize opportunities that the different actions of supply that the different actions of supply chain could bring to an organization.chain could bring to an organization.

Efficient and responsive supply chains Efficient and responsive supply chains lead to maximum productivity of any lead to maximum productivity of any organization.organization.

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Supply chain activities have a cost Supply chain activities have a cost relationship with financial relationship with financial performance of an org. They affect performance of an org. They affect profit and loss statements, balance profit and loss statements, balance sheets and cost of capital.sheets and cost of capital.

Single opportunities exist for a Single opportunities exist for a competent SCM which includes competent SCM which includes reduction of expenses, generation reduction of expenses, generation of better returns in investments and of better returns in investments and improvements of profit margins.improvements of profit margins.

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Controlling of SCM will lead to Controlling of SCM will lead to improved profit margins .improved profit margins .

Improved collaborations between Improved collaborations between finance and other business and finance and other business and supply chain function is necessary supply chain function is necessary to improve performance of an to improve performance of an organization.organization.

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ProcurementProcurement

Supply chain management has a Supply chain management has a direct relationship with direct relationship with procurement.procurement.

Supply chain management is an Supply chain management is an overall term that encompasses overall term that encompasses various activities procurement various activities procurement being one of them. Procurement is being one of them. Procurement is a subset of SCM.a subset of SCM.

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An org should follow proper steps An org should follow proper steps in a contract within the in a contract within the procurement cycle in order to procurement cycle in order to improve understanding of its own improve understanding of its own supply chain and to establish the supply chain and to establish the right environment for good supply right environment for good supply chain mgt.chain mgt.

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Operations Management Operations Management

SCM uses the cross functional approach SCM uses the cross functional approach including managing movement of raw including managing movement of raw materials into an org, certain aspects of materials into an org, certain aspects of internal processing of materials into internal processing of materials into finishing goods and movement of finishing goods and movement of finished goods out of the organization.finished goods out of the organization.

Firms strive on competencies and Firms strive on competencies and become more flexible, reduce their become more flexible, reduce their ownership of raw materials and ownership of raw materials and distribution channels.distribution channels.

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Operations mgt focuses on the Operations mgt focuses on the quality dimensions which include quality dimensions which include timeliness, flexibility, accessibility timeliness, flexibility, accessibility and delivery of the right quantity at and delivery of the right quantity at the required time. This quality the required time. This quality dimensions require knowledge of dimensions require knowledge of operations mgt.if they are well operations mgt.if they are well coordinated, they will result into a coordinated, they will result into a positive outcome in the SCM.positive outcome in the SCM.

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These functions are increasingly These functions are increasingly being outsourced. Operations mgt being outsourced. Operations mgt is critical in this respect. The effect is critical in this respect. The effect is to increase number of firms is to increase number of firms involved in satisfying customer involved in satisfying customer demands, while reducing mgt demands, while reducing mgt control of the daily logistics control of the daily logistics operations. Less control and more operations. Less control and more supply chain partners lead to the supply chain partners lead to the creation of SCM relationships. creation of SCM relationships.

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In summary;In summary;

The purpose of SCM is to improve The purpose of SCM is to improve trust and collaboration among trust and collaboration among supply chain partners thus supply chain partners thus improving inventory visibility and improving inventory visibility and reliability in the inventory reliability in the inventory movement.movement.

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Supply Chain ActivitiesSupply Chain Activities

There are several main activities that There are several main activities that cut across the components of the cut across the components of the supply chain, as well as link them supply chain, as well as link them together. They include:together. They include:

WarehousingWarehousing, , PurchasingPurchasing , ,Order Order processingprocessing,, Demand planningDemand planning, , Inventory managementInventory management, , TransportationTransportation, and , and Customer Customer serviceservice..

WAREHOUSINGWAREHOUSING

A warehouse is a hub in logistics A warehouse is a hub in logistics network where goods are temporarily network where goods are temporarily stored or re-routed to different channel stored or re-routed to different channel in the network. In this respect in the network. In this respect warehouse are used for supply, warehouse are used for supply, handling/transshipment and handling/transshipment and distribution.distribution.

Supply warehousesSupply warehouses

Usually part of the production operation Usually part of the production operation and are used to store raw materials, and are used to store raw materials,

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Warehousing – Cont...Warehousing – Cont...

auxiliary supplies and other resources auxiliary supplies and other resources needed for production as well as needed for production as well as finished products and finished goods finished products and finished goods used during this particular season.used during this particular season.

Transshipment warehousesTransshipment warehouses

Goods are housed for short periods Goods are housed for short periods between their transfers from one means between their transfers from one means of transportation to another. They are of transportation to another. They are frequently operated by logistics frequently operated by logistics providers and retail companies.providers and retail companies.

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Distribution warehousesDistribution warehousesClassified into central, regional and Classified into central, regional and local distribution w/h depending on the local distribution w/h depending on the area they serve. Central distribution area they serve. Central distribution w/h are generally referred to as central w/h are generally referred to as central w/h while decentralized regional or w/h while decentralized regional or local distribution w/h are called supply local distribution w/h are called supply or or delivery warehousesdelivery warehouses. In delivery . In delivery w/h, goods from production are stored w/h, goods from production are stored before being delivered to customers. before being delivered to customers. goto51goto51

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Further Classification of Further Classification of WarehousesWarehouses

Classification can also be done on the Classification can also be done on the basis of either the basis of either the oownership, wnership, structure structure or or service rendered.service rendered.

On the basis of ownershipOn the basis of ownership

Private warehousesPrivate warehouses

Public government warehousesPublic government warehouses

Bonded warehousesBonded warehouses

Co-operative warehousesCo-operative warehouses

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Private WarehousesPrivate Warehouses

Warehouses owned and managed by Warehouses owned and managed by manufacturers or traders to store manufacturers or traders to store exclusively their own stock of goods.exclusively their own stock of goods.Generally they are constructed by Generally they are constructed by farmers near their fields, by wholesalers farmers near their fields, by wholesalers and retailers near their business centres and retailers near their business centres and by manufacturers near their and by manufacturers near their factories. Their design and the facilities factories. Their design and the facilities provided therein are according to the provided therein are according to the nature of products to be stored.nature of products to be stored.

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Public WarehousesPublic Warehouses

They store goods for the general They store goods for the general public. Any one can store their goods public. Any one can store their goods in the warehouse on payment of rent. in the warehouse on payment of rent. An individual, partnership or company An individual, partnership or company may own these warehouses. To start may own these warehouses. To start such a warehouse, a license from the such a warehouse, a license from the govt is required. The govt also govt is required. The govt also regulates the functions and regulates the functions and operations of these warehouses. operations of these warehouses. Mostly these warehouses are used by Mostly these warehouses are used by manufacturers, wholesalers, manufacturers, wholesalers, exporters, importers, govt agencies.exporters, importers, govt agencies.

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Government WarehousesGovernment Warehouses

Warehouses owned, managed and Warehouses owned, managed and controlled by central govt or public controlled by central govt or public corporations or local authorities.corporations or local authorities.Both govt and private enterprises Both govt and private enterprises may use these warehouses to store may use these warehouses to store their goods.their goods.

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Bonded WarehousesBonded Warehouses

Warehouses owned, managed and Warehouses owned, managed and controlled by govt as well as controlled by govt as well as private agencies. Private private agencies. Private warehouses have to obtain licence warehouses have to obtain licence from the govt.from the govt.

Bonded warehouses are used to Bonded warehouses are used to store imported goods for which store imported goods for which import duty is yet to be paid.import duty is yet to be paid.

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Bonded WarehousesBonded Warehouses

Incase of imported goods the Incase of imported goods the importers are not allowed to take importers are not allowed to take away the goods from the ports till away the goods from the ports till such duty is paid.such duty is paid.

These warehouses are generally These warehouses are generally owned by dock or custom owned by dock or custom authorities and are found near the authorities and are found near the ports. ports.

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On the Basis of StructureOn the Basis of Structure

Warehouses are built in different Warehouses are built in different ways to meet the special requirement ways to meet the special requirement for storage. Different warehouses are for storage. Different warehouses are constructed for specific goods. While constructed for specific goods. While selecting the types of warehouse, selecting the types of warehouse, one has to take into consideration one has to take into consideration the nature of goods.the nature of goods.Classical warehouse Classical warehouse - A big hall of - A big hall of singles storey building divided into singles storey building divided into various big and small rooms to store various big and small rooms to store goods of general nature.goods of general nature.

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Cont...Cont...

SiloSilo - Vertical structure room equipped - Vertical structure room equipped with mechanical devices. The loading with mechanical devices. The loading and unloading functions are affected and unloading functions are affected through mechanical devices in the through mechanical devices in the shape of big tanks or bunkers.shape of big tanks or bunkers.

BinsBins - They are small cylindrical cabins - They are small cylindrical cabins of different sizes meant to store of different sizes meant to store varieties of products .These are varieties of products .These are manually operated and provide bulk manually operated and provide bulk storage facility.storage facility.

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Cont...Cont...

ElevatorsElevators - Big vertical premise and are of - Big vertical premise and are of craned types.craned types.Used for lifting and de-lifting of products Used for lifting and de-lifting of products from elevators, goods are directly from elevators, goods are directly discharged from wagons.discharged from wagons.

Portable warehousesPortable warehouses - A type of temporary - A type of temporary warehouse which can be removed or set warehouse which can be removed or set in a short time. These warehouses have in a short time. These warehouses have enough capacity to withstand rain and enough capacity to withstand rain and winds e.g coca cola depos.winds e.g coca cola depos.

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On the basis of service On the basis of service renderedrendered

Specific commodity warehousesSpecific commodity warehouses - - Meant to store specific goods e.g. Meant to store specific goods e.g. cotton, petroleum products and wool. cotton, petroleum products and wool. They are specifically constructed to They are specifically constructed to accommodate the above articles.accommodate the above articles.

Cold storageCold storage - They are meant to store - They are meant to store agricultural products of perishable agricultural products of perishable nature e.g. fruits, vegetable, eggs nature e.g. fruits, vegetable, eggs and butter.and butter.

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Cont...Cont...

Bank warehousesBank warehouses - Maintained by - Maintained by banks to keep goods as securities.banks to keep goods as securities.

The goods received by banks The goods received by banks against credits or loans are kept in against credits or loans are kept in these warehouses.these warehouses.

General merchandise warehousesGeneral merchandise warehouses - - Goods which don’t require any Goods which don’t require any special storage facility are stored special storage facility are stored in these warehouses.in these warehouses.

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Characteristics of WarehousesCharacteristics of Warehouses

Mechanical appliances should Mechanical appliances should be there for loading and be there for loading and unloading of goods.unloading of goods.There should be adequate spaceThere should be adequate spaceCold storage facilities for Cold storage facilities for preservation of perishable itemspreservation of perishable itemsProper arrangement to protect Proper arrangement to protect goods from sun light,raingoods from sun light,rain

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Cont...Cont...

Sufficient parking space to Sufficient parking space to facilitates easy and quick loadingfacilitates easy and quick loading

Security to avoid theft of goods.Security to avoid theft of goods.

The building should be fitted with The building should be fitted with latest fire fighting equipmentslatest fire fighting equipments

Convenience i.e. accessibilityConvenience i.e. accessibility

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Functions of WarehousesFunctions of Warehouses

Storage of goodsStorage of goods

Protection of goodsProtection of goods

Risk bearing Risk bearing

FinancingFinancing

ProcessingProcessing

Grading and brandingGrading and branding

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Inventory ManagementInventory Management

Inventory is all the goods and Inventory is all the goods and materials held in an organization for materials held in an organization for sale or use.sale or use.

Inventory refers to materials in a Inventory refers to materials in a supply chain or in a segment chain supply chain or in a segment chain expressed in quantities, locations or expressed in quantities, locations or values.values.

Inventory and its mgt are related to Inventory and its mgt are related to both materials mgt and physical both materials mgt and physical distribution mgt.distribution mgt.

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Inventory Management - Cont...Inventory Management - Cont...

Inventory Management entails unified Inventory Management entails unified management of all those internal management of all those internal activities associated with the activities associated with the acquisition, storage, issue, use and acquisition, storage, issue, use and internal distribution of inventories used internal distribution of inventories used in production. It is the activity of in production. It is the activity of determining the range and quantities of determining the range and quantities of materials to be stocked in an materials to be stocked in an organization and the regulation of organization and the regulation of receipts and issues of these stocks.receipts and issues of these stocks.

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Reasons for Keeping InventoryReasons for Keeping Inventory

It enables the org to reduce the risk It enables the org to reduce the risk due to supply failure or uncertainty. due to supply failure or uncertainty. Protections against contingencies Protections against contingencies e.g. strikes transport, breakdown e.g. strikes transport, breakdown due to floods, crop failure and other due to floods, crop failure and other similar factors is required. Due to similar factors is required. Due to these safety and buffer stocks are these safety and buffer stocks are kept to take care of such kept to take care of such occurrences.occurrences.

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Reasons - Cont...Reasons - Cont...

Enables org to meet unexpected Enables org to meet unexpected demands for customization of demands for customization of products.products.Ensure rapid replenishment of items in Ensure rapid replenishment of items in constant demand e.g. office stationery.constant demand e.g. office stationery.Hedge against anticipation shortage Hedge against anticipation shortage and price increases especially in times and price increases especially in times of high inflation more as deliberate of high inflation more as deliberate policy of speculation.policy of speculation.Take advantage of lots of purchase.Take advantage of lots of purchase.

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Aims of Inventory Aims of Inventory ManagementManagement

Provide both internal and external Provide both internal and external customers with the required customers with the required service levels in terms of quality service levels in terms of quality and order rate fill.and order rate fill.Ascertain present and future Ascertain present and future requirements for all types of requirements for all types of inventory to avoid overstocking inventory to avoid overstocking while avoiding bottlenecks needs in while avoiding bottlenecks needs in production.production.

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Aims – Cont...Aims – Cont...

Provide upstream and Provide upstream and downstream inventory downstream inventory visibility in the supply chain.visibility in the supply chain.Keeps costs to a minimum Keeps costs to a minimum level by varying reducing, level by varying reducing, economical and analysis of economical and analysis of costs incurred in obtaining and costs incurred in obtaining and carrying inventories. carrying inventories.

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Inventory ClassificationInventory Classification

Manufacturing enterprisesManufacturing enterprisesRaw materials Raw materials Components and sub-assembliesComponents and sub-assembliesConsumablesConsumablesFinished goodsFinished goodsChain usage SupplyChain usage SupplyPrimary inventories i.e. raw Primary inventories i.e. raw materials, WIP and unfinished materials, WIP and unfinished goods. Support inventories –MROs goods. Support inventories –MROs maintenance repair and operating maintenance repair and operating items.items.April 19, 2023 65

Scope of Inventory Scope of Inventory ManagementManagement

Demand mgt and ForecastingDemand mgt and ForecastingManaging items with difficult supply Managing items with difficult supply and demand patternsand demand patternsReviewing safety stock levelsReviewing safety stock levelsImplementing lean inventory policiesImplementing lean inventory policiesEnsuring safety and scarcity of Ensuring safety and scarcity of suppliessuppliesAppropriate disposal of scrap, Appropriate disposal of scrap, surplus and obsolete itemssurplus and obsolete itemsDeveloping cost effective and Developing cost effective and procedures relating to ordering, procedures relating to ordering, procurement and budgeting of procurement and budgeting of supplies.supplies.

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MODEL

- COSTS - NB- DIAGRAM- ASSUMPTIONS- MODEL

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WarehousingWarehousing

Warehousing refers to activities Warehousing refers to activities involved in storing goods on a large involved in storing goods on a large scale in a systematic and orderly scale in a systematic and orderly manner and making them available manner and making them available conveniently when needed.conveniently when needed.

It means holding preserving goods It means holding preserving goods in large quantities from time of in large quantities from time of production until their use or sale.production until their use or sale.

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Need for warehousingNeed for warehousing

Seasonal production-Seasonal production-agricultural agricultural commodities are harvested during commodities are harvested during certain seasons but their certain seasons but their consumption or use takes place consumption or use takes place through out the year. Therefore through out the year. Therefore there is need for proper storage or there is need for proper storage or warehousing for these commodities warehousing for these commodities from where they can be supplied as from where they can be supplied as and when required.and when required.

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Need for Warehousing – Cont...Need for Warehousing – Cont...

Seasonal demand- Seasonal demand- certain goods certain goods are demanded seasonally like are demanded seasonally like sweaters or umbrellas. Their sweaters or umbrellas. Their production takes place throughout production takes place throughout the year to meet the seasonal the year to meet the seasonal demand. Therefore there is need to demand. Therefore there is need to store these goods in a warehouse store these goods in a warehouse to make them available at the time to make them available at the time of need. of need.

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Large scale production-Large scale production-in case of in case of manufactured goods, production manufactured goods, production takes place to meet the existing as takes place to meet the existing as well as future demand of the well as future demand of the products. Manufacturers also produce products. Manufacturers also produce huge quantities to enjoy benefits of huge quantities to enjoy benefits of large-scale production which is more large-scale production which is more economical. Therefore the finished economical. Therefore the finished products which are produced on a products which are produced on a large scale needs to be stored large scale needs to be stored properly until they are sold.properly until they are sold.

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Quick supply- Quick supply- both industrial as well both industrial as well as agricultural goods are produced as agricultural goods are produced at some specific places but at some specific places but consumed throughout the country. consumed throughout the country. Therefore its essential to stock Therefore its essential to stock these goods near the place of these goods near the place of consumption, so that without consumption, so that without making any delay this goods are making any delay this goods are made available to consumers at the made available to consumers at the time of their need.time of their need.

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Continuous production-Continuous production- continuous continuous production of goods in factories production of goods in factories require adequate supply of raw require adequate supply of raw materials so there is a need to keep materials so there is a need to keep sufficient quantity of stock of raw sufficient quantity of stock of raw materials in the warehouse to materials in the warehouse to ensure continuous production.ensure continuous production.

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Price stabilization- Price stabilization- to maintain a to maintain a reasonable level of the price of goods reasonable level of the price of goods in the market there is need to keep in the market there is need to keep sufficient stock in the warehouse. sufficient stock in the warehouse. Scarcity in supply of goods may Scarcity in supply of goods may increase their price in the market. increase their price in the market. Again, excess production and supply Again, excess production and supply may also lead to a fall in prices of the may also lead to a fall in prices of the product. By maintaining a balance of product. By maintaining a balance of supply of goods, warehousing leads to supply of goods, warehousing leads to price stabilization. price stabilization.

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Flows in a SCFlows in a SC

Three items flow along the supply chain, connecting the five components. These items are: Product/material – flow of physical goods from suppliers through the distribution centres to stores;

Information – flow of demand data from the end-customer back to suppliers, and supply data from suppliers to retailer, so that material flow can be accurately planned and controlled.

Financial resources

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Some Quotes to RememberSome Quotes to Remember

Conscience is the Inner Voice Conscience is the Inner Voice that Warns us Somebody that Warns us Somebody

May be LookingMay be Looking

H. MenckenH. Mencken

US CriticUS Critic

(1880 – 1956)(1880 – 1956)

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Don’t Look Forward to the Day Don’t Look Forward to the Day You Stop Sitting (Working) You Stop Sitting (Working)

Because When it Comes, You’ll Because When it Comes, You’ll Know You're DeadKnow You're Dead

Tennessee WilliamsTennessee Williams

US PlaywrightUS Playwright

(1958)(1958)

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Have You Met the Devil Have You Met the Devil Lately? If Not, Then You Lately? If Not, Then You May be Walking in the May be Walking in the

Same DirectionSame Direction

Pastor Oscar MuriuPastor Oscar Muriu

Nairobi Chapel 2003Nairobi Chapel 2003

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The Things That Destroy us Are: Pleasure Without Work,

Knowledge Without Character, Business Without Morality,

Science Without Humanity and Worship Without Sacrifice

Mahatma Ghandhi

DPS 202 FUNDAMENTALS OF SUPPLY CHAIN MANAGEMENT September-December 2012 By Thomas Ombati Department...

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