Företagets logistikfunktion Del 1: Strategisk logistik 7,5 hp

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Föreläsning 1:

”Introduktion till

SCM och Inköp”

Simchi-Levi et al. Kapitel 1 och 2

van WeeleKapitel 1 och 11

www.handels.gu.se2020-01-22Elisabeth Karlsson

Dagens föreläsning

• Supply Chain Management?

‒ Definitioner, utmaningar, möjligheter

• Inköp

‒ Olika begrepp

‒ Roll och betydelse i värdekedjan

• Inköp, logistik och SCM

‒ Relationer mellan dessa

‒ Behovet av samordning mellan externa och interna SC processer

• Lager

‒ Risk pooling

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• Flow of products and services from:

– Raw materials manufacturers

– Intermediate products manufacturers

– End product manufacturers

– Wholesalers and distributors and

– Retailers

• Connected by transportation and storage activities

• Integrated through information, planning, and integration activities

• Cost and service levels

What is a Supply Chain?

2020-01-22Elisabeth Karlsson

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Definitioner i kurslitteraturen:

“Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements.”

(Simchi-Levi, D., Kaminsky, P. and Simchi-Levi, E. (2008) “Designing and Managing the Supply Chain: Concepts, Strategies and Case Studies” (3rd edition), McGraw-Hill)

“The management of all activities, information, knowledge and financial resources associated with the flow and transformation of goods and services up from the raw materials suppliers, component suppliers and other suppliers in such a way that the expectations of the end users of the company are met or surpassed.”

(van Weele, A (2018) “Purchasing and Supply Chain Management” (7th edition, Cengage )

Vad är Supply Chain Management?


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“The design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer.”

Institute for Supply Management

“Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer.”

The Supply Chain Council

Two other definitions


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The Logistics Network


Source: Simchi-Levi et al. (2008)

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1. Every facility that impacts costs need to be considered

- Suppliers’ suppliers

- Customers’ customers

2. Efficiency and cost-effectiveness throughout the system is required

- System level approach

3. Multiple levels of activities

- Strategic – Tactical – Operational

Key observations


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1. Supply chain strategy linked to the development chain

2. Challenging to minimize system costs and maximize system service levels

3. Inherent presence of uncertainty and risk

What Makes SCM Difficult?


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Set of activities and processes associated with new product introduction. It includes:

• product design phase

• associated capabilities and knowledge

• sourcing decisions

• production plans

The development and supply chains intersectat the production point.

The Development Chain


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FIGURE : The enterprise development and supply chain

The Development Chain



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• Geographically dispersed complex network

• Conflicting objectives of different facilities

• Dynamic system - variations over time in:

– Customer demand

– Supplier capabilities

– Supply chain relationships

• System variations over time

– Demand and cost parameters varying over time due to seasonal fluctuations, trends, advertising and promotions, competitors’ pricing strategies etc.

Global Optimization


http://www.google.se/url?sa=i&rct=j&q=&esrc=s&source=images&cd=&cad=rja&uact=8&ved=0ahUKEwjgpKPekrPKAhXJBiwKHVPpCtYQjRwIBw&url=http://www.seprism.com/en/&bvm=bv.112064104,d.bGg&psig=AFQjCNFOaf_0Pmx1mpHRnqKdXlIZdYaVDw&ust=1453199100576655

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REASONS EXAMPLES

- Raw material shortages

- Internal and supplier parts

shortages

- Productivity inefficiencies

Boeing Aircraft’s inventory write-down of $2.6 billion

- Larger than anticipated

inventories

Sales at U.S. Surgical Corporation declined 25 percent, resulting in a loss of $22 million

- Stiff competition

- General slowdown in the PC

market

Intel reported a 38 percent decline in quarterly profit

Uncertainty and Risk Factors1. Matching Supply and Demand a Major Challenge



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Uncertainty and Risk Factors2. Fluctuations of Inventory and Backorders throughout the SC


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3. Forecasting is not a solution

4. Demand is not the only source of uncertainty

5. Recent trends make things more uncertain

– Lean manufacturing

– Outsourcing

– Off-shoring

Uncertainty and Risk Factors


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• 2005 – Hurricane Katrina

– P&G coffee supplies from sites around New Orleans

– Six month impact

• 1999 Taiwan earthquake

– Supply interruptions of HP, Dell

• 2001 India (Gujarat state) earthquake

– Supply interruptions for apparel manufacturers



Freeway in New Orleans after Katrina

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• 2010 - Vulkanutbrottet från Eyjafjallajökul på Island och dess askmoln ledde till kraftiga begränsningar av flygtrafiken i framför allt norra Europa.

• 2011 – Jordbävning i Japan ledde till att kärnkraftreaktorn i Fukushima kollapsade.


Source: adapted from Manuj, I. and J.T. Mentzer, (2008) "Global supply chain risk management strategies",

International Journal of Physical Distribution & Logistics Management, Vol. 38, No. 3, pp. 192-223.

Risks in Global Supply Chains

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1950 1960 1970 1980 1990 2000 Beyond

Traditional Mass Manufacturing

Inventory Management/Cost Optimization

JIT, TQM, BPR, Alliances

SCM Formation/Extensions

Further Refinement of

SCM Capabilities

Evolution of SCM



Evolution of logistical integration

Source: Markus Hesse, Jean-Paul Rodrigue, The transport geography of logistics and freight distribution,

Journal of Transport Geography, Volume 12, Issue 3, September 2004, Pages 171-184,)

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FIGURE: Total U.S. logistics costs between 1984 and 2005

Composition of Logistics Costs




Source: SCDigest, based on Data from State of Logistics 2013 Report

Transport 62,8 %

Lagerhållning 32,6 %

Administration 4,6 %

US Logistics Cost Breakdown in 2012


Supply Chain Management - Potential

Målet: reducera sina supply chain kostnader med 10% under en 4-årsperiod.

Utgångsläge: Veckovis påfyllning av återförsäljarnas lager med

direktleveranser och cross docking leveranser från lagringspunkter nära

produktionsanläggningarna.

Förändring: Genomförde en ”supply chain network redesign program”, som

resluterade i nya mellanlagringspunkter, optimering av cross docking

terminalernas lokalisering, ökad användning av 3PL.

Resultat: Nådde sitt mål, med minskning av lager på 1 miljard USD, halvering

av ledtid till kund och minskning av transportkostnader på 5%.

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• Focus on reducing supply chain costs (e.g. through outsourcing,

off shoring, lean manufacturing, JIT) has increased the level of risk in the supply chain.

• Approaches to manage risk in the supply chain:

– Building redundancy into the supply chain

– Using information

– Incorporating flexibility into supply contracts

– Including risk assessment measures

Need to find the right balance between cost reduction

and risk management.

Cost Reduction and Risk Management


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Summary

Critical abilities for successful SCM:

1. Match supply chain strategies with product characteristics.

2. Replace traditional supply chain strategies with globally optimized supply chain strategies.

3. Effectively manage uncertainty and risk.



The role of purchasing in the value chain

Primary activities can bedivided in five generic categories:

• Inbound Logistics

• Operations

• Outbound logistics

• Marketing and sales

• Services

The procurement function should be able to meet the material requirements related to inbound and outbound logistics, and to operations.

Direkt material

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Support activities can be divided in four generic

categories:

• Procurement

• Technology development

• Human resources management

• Firm infrastructure

Procurement activities may also be related to supplyingproducts and services for the other support functions.


Indirekt material

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Source: van Weele (2018)


Definition of concepts (1)

Source: van Weele, (2018)

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Definition of concepts (2)Purchasing:

All activities for which the company receives an invoice from outside parties.

Definition:“Managing the company’s external resources in such a way that the supply of all goods, services, capabilities and knowledge which are necessary for running, maintaining and managing the company’s primary and support activities is secured at the most favorable conditions”.

Procurement:

All activities that are required in order to get the product from the supplier to its final destination.


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Definition of concepts (3)Sourcing:

Finding sources of supply, guaranteeing continuity in supply, ensuring alternative sources of supply and gathering knowledge of procurable resources.

Purchasing Management:

All activities that are required to manage supplier relationships.

Value Chain Management:

Challenging suppliers to improve the value proposition to the end-customers of the value chain. Usually the supplier works closely together with the customer’s technical and marketing staff to reduce the product’s overall costs and add new designs or features to the product which increase the value for the end customer.


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Definition of concepts (4)

Different definitions...

• Ordering…

• Buying…

• Purchasing…

• Procurement…

• Sourcing…

• Supply Chain Management…

• Value Chain Management….


Operativa, kortsiktiga och marginalfokuserade

Strategiska, långsiktiga samt prestations- och värde-fokuserade


Importance of purchasing to business

Source: van Weele, (2018)

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Profit 1,5 %

Value added: 20 %

Purchased materialsAnd services: 78,5 %

Question: what shouldmanagers do?

Sales: 100%

Challenge for managers: how to manage our EXTENDED ENTERPRISE ?

Purchased materials and services have a large impacton company profitability…

Importance of purchasing to business


Suppliers determine 78,5%of total cost, innovation,carbon footprint andcustomer value…

Purchased materials and services have a large impacton company profitability…

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DuPont analys:

RT

Kapital-omsättn. hast.

Vinst-marginal

×

(mn € = miljoner Euro)

Övr. kostn.

Kostn. för inköp avvaror och tj.

+Tot. kostn.

Försäljning

-

Tot. kapital

Räntefriaskulder

-

Försäljning

Nettotillg. /

Vinst före skatt

Försäljning

/

105 mn €

105 mn €

105 mn €

145 mn €

95 mn €

50 mn €

2.1

40 mn €

60 mn €

100 mn €

5 mn €

4.7 %

9.9 %


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DuPont analys:

RT

Kapital-omsättn. hast.

Vinst-marginal

×

(mn € = miljoner Euro)

Övr. kostn.

Kostn. för inköp avvaror och tj.

+Tot. kostn.

Försäljning

-

Tot. kapital

Räntefriaskulder

-

Försäljning

Nettotillg. /

Vinst före skatt

Försäljning

/

105 mn €

105 mn €

105 mn €

145 mn €

95 mn €

50 mn €

2.1

40 mn €

60 mn €58,8 mn €

100 mn €98,8 mn €

5 mn €6,2 mn €

4.7 %5,9 %

9.9 %12,4 %


- 2 %

+ 25 %

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Classification of purchasing goodsIn general, purchased materials and services can be grouped into the following categories:

• Raw materials (Råmaterial)

• Supplementary materials (Tillsatsmaterial)

• Semi-manufactured products (Halvfabrikat)

• Components (Komponenter)

• Finished products (Färdiga varor/handelsvaror)

• Investment goods or capital equipment (Fasta inventarier)

• Maintenance, repair and operating materials (Underhåll, driftvaror)

• Services (Tjänster)


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New developments in purchasing

• Leveraged purchasing and supply strategies• Global sourcing• Supplier integration • Early supplier involvement in new product development • Reciprocity agreements and compensation agreements• Corporate Social Responsibility and business integrity

1. Seller’s market Buyer’s market

2. Increasing pressure on sales prices and margins leads to:


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Summary

• In short, purchasing represents a business area which is being confronted with many changes and challenges.

• Without doubt these challenges will put purchasing and supply chain management more in the spot light in business.


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Purchasing, Logistics and SCM- Definitions and concepts




Co-ordination of internal and externalsupply chain processes

1. Design, engineering and product development activities can strongly affect logistics processes.

– Tolerances and specifications

– Standardization of component

2. The production department also determines effectiveness and efficiency of logistics functions.

– Aim for high-capacity utilization, e.g. builds up buffer stock

– Sub-optimization

3. Logistics management starts with the customer.

– Sales department promises “impossible” delivery times

– Rush work and extra costs.

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Basic logistics structures (1)

Order decoupling point (or order penetration point):

– Indicates how deeply the customer order penetrates the firm’s materials planning systems

– Defines from what moment on a production order becomes customer specific.


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Basic logistics structures (2)Five basic manufacturing and logistics structures

1. Making and sending to stock (MSS)

Products are manufactured and distributed to distribution points which are dispersed and located close to the customer. E.g. sweets, foods, beverages.

2. Making to (central) stock (MTS)

Finished products are kept in stock at the end of the production process and are from there shipped to geographically dispersed customers. E.g. dairy products.

3. Assembly to order (ATO)

Only systems elements, modules or subassemblies are in stock at the manufacturing center, whereas final assembly takes place based on a specific customer order. E.g. cars, computers.

4. Making to order (MTO)

Only raw materials and components are kept in stock. Every customer is a specific project. E.g. beer and lemonade cans, basic construction materials

5. Engineering and making to order (ETO)

No stock at all. The purchase and order of materials takes place based on the specific customer order. E.g. construction companies and shipyards.




The order decoupling point concept


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Just-in-time management (JIT)

JITAll materials and products become available at the very moment when they are needed in the production process, not sooner and not later but exactly on time and exactly in the right quantity.

Major objectiveContinuously tackle and solve manufacturing bottlenecks within, and interfaces between, consecutive steps in the manufacturing process.

Nothing is produced if there is no demand!


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• JIT production and scheduling cannot be successfully implemented without a “zero defects philosophy”

• JIT and zero defects need to go hand-in-hand:

o Smaller batches make it necessary to detect quality defects at an early stage

o Almost no slack in the production process – defect products may threaten the continuity of the entire production process

o JIT must be supported by all functions within the company



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Consequences for suppliers (1)

Advantages of JIT for a supplier:

• Supplier is able to plan his production volume much better because he’s informed regularly about the quantities to be delivered.

• Administrative savings: supplier’s and customer’s production and materials planning systems are linked through electronic information systems (like EDI),

• Constant communication on quality and costs improvements can lead to product and process innovation

• Investment policy: JIT contracts are signed for a long period of time and guarantee a certain volume and turnover over that time period


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Disadvantages of JIT for a supplier:

• It may result in a pyramid shaped structure with a strong hierarchy in the different links of the supply chain. The large manufacturers at the top of the pyramid impose their demands ruthlessly on the often smaller first tier suppliers

• It takes time (and money) to deliver at zero defects or to produce zero defects. These investments come at the expense of the supplier

• Supplier can become very dependent on only one manufacturer. This can become a threat to its continuity.



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• Suppliers located near the JIT-partner are in an advantageous position

• ‘Quality on Time’

• Supplier classification:

On time delivery Quality delivery

A= excellent

B=good

C= inadequate

1= excellent

2= good

3= inadequate

Example: C1 supplier provides high quality but does not always deliver on time

JIT and supplier selection


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Summary

Some typical coordination problems between purchasing and logistics:

• Lack of well defined specifications

• Lack of standardization

• Frequent changes in materials planning

• Unreliable planning information

• Insufficient integration of purchasing in materials management


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Why Is Inventory Important?


Distribution and inventory (logistics) costs are quite substantial

In SCM the goal is correct inventory level:

• At the right place

• At the right time

• Minimize system costs

• Satisfying customer service requirements

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Inventory In a Supply Chain


• Raw material inventory

• Work-in-process (WIP) inventory

• Finished product inventory

Each of these needs its own inventory control mechanism

Raw materials Finished goodsWork in

process (WIP)

Manufacturing process

Inventory

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Why Is Inventory Required?


• Uncertainty in customer demand

o Shorter product lifecycles

o More competing products

• Uncertainty in supplies

o Quality/Quantity/Costs/Delivery Times

• Delivery lead times

• Incentives for larger shipments

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Risk Pooling


• Demand variability is reduced if one aggregates demand across locations.

• More likely that high demand from one customer will be offset by low demand from another.

• Reduction in variability allows a decrease in safety stock and therefore reduces average inventory.

“If there is only one theoretical concept you need to understand to make better supply chain decisions, it is Risk pooling. Very close but still a far second is the Bullwhip effect.

(Edith Simchi-Levi, 2013)

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Risk Pooling

• Across locations: combining several warehouses into a single central warehouse

• Across time: using quarterly demand forecasts instead of monthly forecasts to do capacity planning

• Across products: designing products with maximum commonality and delaying product differentiation in the supply chain as much as possible


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Risk Pooling & Demand Variation

• Standard deviation measures how much demand tends to vary around the average

o Gives an absolute measure of the variability

• Coefficient of variation is the ratio of standard deviation to average demand

o Gives a relative measure of the variability, relative to the average demand


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Risk Pooling – Ett exempel

Företaget ACME och dess förutsättningar:

• Acme tillverkar och distribuerar elektronisk utrustning

• Man har två lager (i Newton och Paramus) för försörjning av den

nordöstra marknadens två regioner.

• Kunderna (detaljister) erhåller produkter från ett av lagren

• Lagren får sina produkter från en tillverkare i Chicago

• Nuvarande distributionsstrategi ger en servicenivå på 97 %, d.v.s. vardera

lager har en strategi där sannolikheten för brist är 3 %.


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En ny idé!

• Man funderar på att ersätta de två lagren med ett centrallager (som lokaliseras på lämpligt ställe mellan Newton och Paramus).

• Man vill behålla servicenivån på 97 %

• Fördel med nuvarande system: närhet till kunderna på respektive marknad – kortare ledtid.

• Fördel med centrallager – antingen samma servicenivå med lägre lagernivåer eller högre servicenivå med samma lagernivåer.


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Risk Pooling – alternativen


Supplier

Supplier

Warehouse 1

Warehouse 2

Warehouse

Market A

Market A

Market B

Market B

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Forecasting

Rules of forecasting:

1. The forecast is always wrong.

2. The longer the forecast horizon, the worse the forecast.

3. Aggregate forecasts are more accurate.


More likely that high demand from one customer will be offset by low demand from another.

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PRODUKT A

Vecka 1 2 3 4 5 6 7 8

Newton 33 45 37 38 55 30 18 58

Paramus 46 35 41 40 26 48 18 55

Summa 79 80 78 78 81 78 36 113

PRODUKT B

Vecka 1 2 3 4 5 6 7 8

Newton 0 2 3 0 0 1 3 0

Paramus 2 4 0 0 3 1 0 0

Summa 2 6 3 0 3 2 3 0

Veckoefterfrågan för två produkter (A och B):

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Statistik Produkt Genomsnittligefterfrågan

Efterfrågansstandard-avvikelse

Variations-koefficient

Newton A 39.3 13.2 0.34

Newton B 1.125 1.36 1.21

Paramus A 38.6 12.0 0.31

Paramus B 1.25 1.58 1.26

Total A 77.9 20.71 0.27

Total B 2.375 1.9 0.81

Summering:

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Produkt Genomsnittligefterfråganunder ledtid

Säkerhetslager Beställnings-punkt

Order-storlek(Q)

Newton A 39.3 25.08 65 132

Newton B 1.125 2.58 4 25

Paramus A 38.6 22.8 62 131

Paramus B 1.25 3 5 24

Total A 77.9 39.35 118 186

Total B 2.375 3.61 6 33

Lagernivåer:

Genomsnittligt lager = säkerhetslager+Q/2


Genomsn. lager = säkerhetslager+Q/2

Två regionlager i Newton och Paramus

• Produkt A: (25,08+132/2)+(22,8+131/2)=91+88=179

• Produkt B: (2,58+25/2)+(1,25+24/2)=15,08+13,25=28,33

Centrallager

• Produkt A: (39,35+186/2)=132,35

• Produkt B: (3,61+33/2)=20,11

• Lagerminskning produkt A: (179-132,35)/179=0,26

• Lagerminskning produkt B: (28,33-20,11)/28,33=0,29

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Besparing i lager:

Genomsnittligt lager för Produkt A:

– C:a 88 enheter i lagret i Paramus

– C:a 91 enheter i lagret i Newton

– C:a 132 enheter i centrallagret

Genomsnittligt lager har minskat med 26 %

Genomsnittligt lager för Produkt B:

– C:a 15 enheter i lagret i Paramus

– C:a 14 enheter i lagret i Newton

– C:a 20 enheter i centrallagret

Genomsnittligt lager har minskat med 29 %


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Risk Pooling: Critical Points


1. The higher the coefficient of variation, the greater the benefit from risk pooling.

2. Risk pooling benefits are greater in situations where demand observed at warehouses are negatively correlated.

3. Reallocation of items from one market to another is easily accomplished in centralized systems.


Centralized vs. Decentralized Systems

• Safety stock: lower with centralization

• Service level: higher service level for the same inventory investment with centralization

• Overhead costs: higher in decentralized system

• Customer lead time: response times shorter in a decentralized system

• Transportation costs: not clear. Consider outbound and inbound costs.

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Tack för att ni lyssnade! Frågor?


Företagets logistikfunktion Del 1: Strategisk logistik 7,5 hp

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