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Transcript of Fundamentals of Supply Chain Management Final
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Supply Chain
Management Fundamentals
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Program Objectives
By the end of this program, participants will be able to develop a
clearunderstanding on:
Supply chain management as a concept
Globalization and its impact on supply chain management
Corporate Strategy and Supply Chain Strategy and the need to
align the two strategies
Strategic importance of customer focus and the demand-driven
supply chain
Risk management strategies that focus on security and continuity of
operations
Use of corporate and supply chain strategy to drive supply chain
decision making
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Learning Objectives (continued)
Principles underlying successful management of people in the supply
chain
Use of metrics to guide supply chain management
Financial impact of supply chain management decisions on costs and
profits
Impact of Security and Compliance issues on supply chains
Concept and purpose of continuous improvement
Benefits of benchmarking to improve supply chains
Continuous Improvement Strategies for Supply Chains
Role of demand planning in supply chain management
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Learning Objectives (continued)
Sources of Variability in demand
Supply chain dynamics, especially the bullwhip effect.
Forecasting process
Collaborations among supply chain partners to facilitate successful
demand planning
Role of marketing in demand planning
Collaborative design for the supply chain and contribution of design to
product cost and delivery cost
Levels of supplier involvement in product design
Role of modularity, mass customization, and design for remanufacture in
the design of services
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Learning Objectives (continued)
Concepts, purposes and elements of Sales Plan, Sales andOperations Planning, and Production Plan
Steps to follow in creating a master production schedule
Concepts of Independent Demand and Dependent Demand
Purpose and elements of material requirements planning
Concept and Objectives of Capacity Requirements Planning (CRP)
Concept, benefits and elements of Inventory Management
Logistics as a concept and its relationship to supply chain strategy
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Learning Objectives (continued)
Various logistics components and functions
o Warehousing
o Value-Added Services
o Transportation
o Logistic Service Providers
o
Reverse Logistics Current Trends in Indian & Global Logistics Industry
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What is Supply Chain
Strategy? Is there a
need to align Corporate
Strategy & Supply Chain
Strategy?
What is the role of
metrics in supply
chain
management?
What is Supply
Chain
Management?
How can we
successfully
manage people in
the Supply Chain?
It is critical foryou to understand these key
concepts ofSupply Chain Management
Lets understand these concepts one by one
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Introduction to Supply Chain ManagementIntroduction to Supply Chain Management
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SCM isSCM is
According to the Council of Supply Chain Management
Professionals (CSCMP), SCM encompasses the planning and
management of all activities involved in sourcing,
procurement, conversion and logistics management
It also includes the crucial components ofcoordination and
collaboration with channel partners, which can be suppliers,
intermediaries, third-party service providers and customers.
It includesIt includes
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Now that we have defined what Supply Chain
Management is
Lets see how does a typical Supply Chain looks like
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Identifying Supply Chains
Basic supply chain: three entities
Supplier Producer Customer
Raw materialsComponents
Services
Energy
ProductsPower
Professional services
Government services
Educational services
RetailerWholesaler
Distributor
End user
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Identifying Supply Chains
Manufacturing supply chain model
Information flow
Manufacturer
Distributor
Customer
Customer
Customer
Customer
Distributor
Tier1 materials
supplier
Tier1 materials
supplier
Tier1 servicesupplier
Tier2 materials
supplier
Tier2 materials
supplier
Tier2 materials
supplier
Tier2 service
supplier
Tier2 service
supplier Primary cash flowPrimary product flow
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Identifying Supply Chains
Services als
ohave supply chains
Electric Power
Utility
Electric backup
power
Home
customers
Electric
transformers
Commercial
customers
Fuel supplies
Facility
maintenance
Janitorial
services
Programming
services
Other
utilities
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Afterhaving looked at various
types ofsupply chains
Lets now identify key supply chain processes and see
how a supply chain evolves
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Key Supply Chain Management Processes
Functions in a company that add value to goods orservices
Value chain
Value stream
Supply chain
Processes that create, produce, and
deliver a product or service
Entities, functions within entities, andprocesses
Functions in a company that add
value to goods or services
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Key Supply Chain Management Processes
SCORSC reference model
ReturnReturn Return
Return CustomersCustomer
Deliver
Suppliers
Supplier Supplier
Internal or External YourCompany
Customer
Internal or External
SourceDeliverMakeDeliverMakeSource Source
Plan
Return ReturnSource
Return
DeliverMakeReturn
Plan Plan
Source:Adapted from Supply-Chain
Council (SCC)
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Key Supply Chain Management Processes
Five SCOR processes
Deliver
Return
Make
Source
Plan Demand/Supply Planning and Management
Sourcing Stocked, Make-to-Order, and Engineer-to-Order
Product
Make-to-Stock, Make-to-Order, and Engineer-to-Order
Product Execution
Order, Warehouse, Transportation, and Installation
Management forStocked, Make-to-Order, and Engineer-
to-OrderProduct
Return ofRaw Materials and Receipt ofReturns of
Finished Goods
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Evolution ofSupply Chain Management
Two types ofsupply chain management
Rawmaterialsextraction
RetailsalesDistribution
Production
ComponentsProductsServices
Lateral (Horizontal) Integration
Coordinated management ofseparately
owned links in the supply chain;
outsourcing
Raw materials extraction
Production components/products/services
Distribution
Retail sales
Degree to which a firm directly controls
multiple links in the supply chain from
raw material extraction toretail sales
Vertical Integration
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Evolution ofSupply Chain Management
1: Multiple
Dysfunction
2: Semifunctional
Enterprise
3: Integrated
Enterprise
4: Extended
Enterprise
Impulsive
activity
Pep talks,
threats
No
teamwork
Little
information
exchange
Mostly manual ops
Inventory reduction in
owned facilities
New low-price
purchasing strategies
Some hard-skills
training, job
enhancement
Enhanced marketing
and forecasting
No coordination ofinitiatives
New focus on
process
Internal process
integration
MRP/ERP
Intranets, etc.,
across functions
Design teams
Enhanced
warehousing,
logistics,forecasting, etc.
Process integration
across entity
boundaries
Eventual electronic
information
connections among
multiple partners
ERP-to-ERP links
E-commerce
Supply chain vs.
supply chaincompetition
Stages ofSCM Evolution
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Evolution ofSupply Chain Management
Stage 3: Integrated Enterprise
ERP
Materials/products/services
Payments
Marketing/sales
Purchasing Productioncontrol
Suppliers DistributionR&DLogistics
Suppliers
Customers
Suppliers
Customers
Customers
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Evolution ofSupply Chain Management
Stage 4: Extended Enterprise
Networked information flow
Materials/products/services
Payments
Supplierssuppliers Inte
rnalchainSuppliers Cust
ome
rscustomersCustomers
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Creating Value through SC Management
Customervalue
Most resources are invested in creating the value of greatest
importance to the market.
Quality Affordability Availability ServiceEnvironmental
Impact
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YouSafexper
t
Globalization is a
process of interaction
and integration amongthe people, companies,
and governments of
different nations, a
process driven by
international trade and
investment and aided byinformation technology.
What is Globalization?
Lets look at some keys to Global SCM Success
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YouSafexper
t
The globalization of
business is the best thing to
happen to supply chainmanagement (SCM) in the
last 30 years. Driven by
overwhelming market
forces, globalization has
forced countries and
companies to become more
efficient, creating the
infrastructure and
competitive advantage
necessary to survive.
What is the impact of
Globalization on SCM?
Lets look at some keys to Global SCM Success
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Impact ofGlobalization on SC Management
10 keys to Global SCM Success
Delivered cost
Logistics automation
End-to-end visibility
Supplier portals and advance notice Total ID and regulatory compliance
Transportation flexibility
Variability management
Integrated workflows
Integrated planning and execution
Financial SCM
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Globalization has indeed changed
the scenarioforSupply Chains
Lets now look at what is Corporate Strategy andSupply Chain Strategy, the importance
ofaligning the two, and need to alter these
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Supply Chain Management Strategy
Supply chain strategy = Corporate strategy
S2 S1 Nucleusfirm
C2C1 How does your corporate
strategy relate to supply chain
strategy?
Are corporate and supply chain
strategies aligned?
When is the right time for a
change in strategy?
How do you develop strategic
collaborations?
What is your strategy for
managing risks?
The power of strategic thinking:
It can be a little bit like magic.
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Corporate Strategy
Strategy: Demand-Driven Enterprise
Demand variability among end users
increases at each stage in the chain
because of inherent inaccuracies in each
firms demand forecasts.
Trust and collaboration among supply
chain partners.
Access to real demand data shared
along the supply chain.
Agility to respond to variability in the
flow of orders.
Pull! Dont push.
Solution: Substitute real informationforforecasts.
Problem: Bullwhip Effect
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Corporate Strategy
Strategy: NumberofSupply Chains
Nucleus
Firm Innovative products
Functional products
CustomersSuppliers
High average utilization rate
Minimal inventory with high turns
Short lead time
Suppliers offering cost, quality
Products with maximum performance,
minimal cost.
Buffer capacity (safety stock)
Aggressive reduction of lead times
Suppliers chosen for speed, flexibility,
quality (less emphasis on cost)
Modular design with postponement of
differentiation.
Supply chains forfunctional products need Supply chains for innovative products need
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Corporate Strategy
Supply chain versus supply chain
Competition
between groups of
companies in
completely distinct
networks
Competition
between individual
companies with
different SCM
capabilities
Competition
between channel
masters with power
to determine nature
of supply network
Scenario One ScenarioTwo ScenarioThree
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Corporate Strategy
Building blocks ofcollaborative relationships
Incentives to collaborate
Collective management of
inventory
Leaders with authority
Sharing of knowledge, not only
data
Visible sharing of benefits,
burdens
Varied partner commitment types
Information exchange and
connectivity
Network-wide focus
Network-wide visibility of
inventory
Deterrents to improper
behavior
Trust-building processes
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Corporate Strategy
Management tasks
Stay involved after completing the design
Designate relationship goals and steps to achieve them
Define roles for each partner, avoiding redundancy
Design contracts and a process for resolving
conflicts
1
23
4
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Corporate Strategy
Barriers to collaboration
Each partner working for its own benefit, not the chains
Sub-Optimization
Example: sales bonuses not based upon results at end-user level
Misaligned Incentives
Failure to treat competitor partners with caution
Working with Competitors
Limits imposed by slowest, least sophisticated partner
Weak partnerbottlenecks
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Corporate Strategy
Barriers to collaboration (continued)
Incompatible ERP software, etc.
Technology Barriers
Rebellion of weaker partners against aggressive nucleus firm
Power-based relationships
Example: measuring efficiency gains rather than focusing on ROI
Underestimated benefits
Inability to see value of other ways of doing business
Culture conflicts
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Aligning SC Strategy with Corporate Strategy
Strategic Planning
Goal
Chain
Supply
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Organizational
Design
Supply Chain
Processes
Systems and
TechnologyPeople
Supply Chain
Metrics
Stage of
EvolutionDesign Characteristics
Stage IAd hoc decisions, poorly planned meetings, little or no training,
etc.
Stage II
Functional organization with each function in its own silo making
separate decisions; possible automation, job enrichment, soft
skill training
Stage III
Cross-functional teams focused on business wide process
improvement; team training; cross-functional communication,
automation
Stage IVCross-company partnerships among process-oriented, integrated
partners; global sourcing; executive-level direction
Strategic Planning: Organizational Design
Aligning SC Strategy with Corporate Strategy
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Organizational
Design
Supply Chain
Processes
Systems and
TechnologyPeople
Supply Chain
Metrics
Strategic Planning: Supply Chain Processes
Aligning SC Strategy with Corporate Strategy
Supplier relationship management
Customer relationship management
Customer service management
Finance management
Manufacturing/production management
Order fulfillment management
Returns management
Other
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Organizational
Design
Supply Chain
Processes
Systems and
TechnologyPeople
Supply Chain
Metrics
Strategic Planning: People
Aligning SC Strategy with Corporate Strategy
Educated in Supply chain thinking
Hired, trained, or borrowed from other functions
Knowledgeable in matters beyond one functional
area
Working in teams with a cost management
specialist
Managed diplomatically
Hired by HR with understanding of SC issues
Championed by executive
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Organizational
Design
Supply Chain
Processes
Systems and
TechnologyPeople
Supply Chain
Metrics
Strategic Planning: Supply Chain Metrics
Aligning SC Strategy with Corporate Strategy
Current performance comparisons:
o Past performance
o Desired performance
o Competitors performance
o Industry average performance
o World-class or best-in-class
Checklist comparisons
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Competitive Priorities and Future Direction
Five Vsof
SCM
Visibility Velocity Variability Variety Volume
Manage to
MatchDemand
Manage to
Increase
Manage to
Decrease
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We have seen how we can strategically plan for
organizational design, processes, people and
metrics to align these with ourSC strategy
Lets now have a look on risk management strategiesthat focus on security
and continuity ofoperations
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SC Risk Management Strategies
Risks Risk Management Strategies
Transportation failures Redundant vehicles, modes, operators, etc.
Supplierfailures Multiple suppliers
Climate change, weather Contingency planning (alternate sites, etc.), insurance
Licensing and
Regulation issuesUp-front and continuing research, good legal advice,compliance
Supply qualityCareful supplier selection and monitoring; beware the low
bid for crucial components
Loss ofcustomersService, product innovation, customer communication,
constant prospecting
Theft and vandalismInsurance, security precautions, knowledge of likely risks,
patent protection, etc.
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SC Risk Management Strategies
Risk prevention
Assess
Transportationfailures
Supplierfailures
Climate, weather
Licensing,regulations
Supply quality,
liability Lost customers
Theft, vandalism,etc.
Balance risk
Management
and Cost
Assess RisksPrepare
for
Disruption
Share risks
among Supply
Chain
PartnersBalance
Invest in supplychain flexibility
Have contingencyplans
Be insured
Invest in security
Prepare
Do contingencyplanning.
Go beyond extrasupply.
Know bestpractices.
Plan forsupplierloss.
Test and train.
Maintaininformation flow.
ConsiderRFID,GPS, etc.
Share
Work with partners Ensure reliableroles
Coordinateresponse to crisisorproblems
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Having looked at Risk Management Strategies to
Improve Supply Chains
Lets now see how we can use corporate and supplychain management strategies to drive
supply chain decision making
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Supply chain
strategy
Corporate
strategy
Decisionsabout
Customers & Markets
Technology
Process
Make-or-buy
Using Corporate/SC Strategies to Set Priorities/
Make Decisions
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Supply chainstrategy
Corporatestrategy
Make-or-buyDecision Issues
Is the activity a core competency?
What is the landed cost?
What are the consequences oflosing skills orknowledge?
Using Corporate/SC Strategies to Set Priorities/
Make Decisions
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Using Corporate/SC Strategies to Set Priorities/
Make Decisions
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Elements ofSupply Chain Management
NetworkPlanning
SupplyContracts
ProductDesign
Outsourcingand Procurement
Strategies
InventoryControl
SCM
Customer
ValueIT & Decision
SupportSystems
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We have seen how corporate and supply chain
strategy drives supply chain decision making
Lets now have a understand the sue ofmetrics to
guide supply chain management
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Supply Chain Performance Metrics
Wont achieve what cant be measured
Cant measure all possible objectives
Choose reasonable number of KPIs
Consider balanced Scorecard and SCOR KPIs
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Supply Chain Performance Metrics
Key Performance Indicators (KPIs)*
*Apply KPIs only to processes and activities based on corporate and supply chain
strategies.
KPIs forProductIntroductions
KPIs forMerchandizingProducts
KPIs forReplenishment
Internal failure rate
External failure rate
Introduction leadtime
Market share
Volume growth
Total SC inventoryturns (across chain)
On-time delivery
Order fulfillmentlead time
Order fill rate
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CustomerPerspective
On-time delivery,
satisfaction, etc.
Measure current
performance
Can predict futureprospects
Supply Chain Performance Metrics
Balanced scorecard
Customer Perspective
Goals Measures
Business Process Perspective
Prospecting calls,
productivity, etc.
Also flexibility,waste reduction,
other SC goals
Business Process
Perspective
Goals Measures
Financial Perspective
Traditional
Cash-to-cash, ROI,
etc.
Retrospective only
Must always bepresent
Financial Perspective
Goals Measures
Innovation & Learning Perspective
Formal staff
training, manage- --
ment training, etc. Product or process
innovations
Innovation &
Learning Perspective
Goals Measures
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Supply Chain Performance Metrics
Level 1 SCOR metrics
Supply Chain Council (SCC) model
Primary, high-level measures, not tied to plan, source,
make, deliver, return processes
Cross-industry standard for SCM
Formulas included for each attribute
Dozens of firms contribute to metrics
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Supply Chain Performance Metrics
SCOR metrics and Performance Attributes
Performance
AttributePerformanceAttribute Definition Level 1 Metric
Supply Chain
Reliability
SC performance in delivering correct product to correct
place at correct time in correct condition and packaging in
correct quantity with correct documentation to correct
customer
Perfect order fulfillment
Supply Chain
Responsiveness Speed at which SC provides products to customer
Order fulfillment cycle
time
Supply Chain
Flexibility
Agility of SC in responding to marketplace changes to gain
or maintain competitive advantage
Upside SC flexibility &adaptability
Downside SCadaptability
Supply Chain
CostsCosts associated with operating the supply chain
SC management cost
Cost of goods sold
Supply Chain
Asset
Management
Effectiveness of organization in managing assets to support
demand satisfaction, including management of all assets:
fixed and working capital
Cash-to-cash cycle time
Return on SC fixedassets
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Supply Chain Performance Metrics
Supply Chain Reliability
SCORLevel1 Metric
Calculation
Percentage of ordersmeeting delivery
performance withcomplete and accuratedocumentation and nodelivery damage
Definition
Perfectorder
fulfillmentTotal Perfect Orders
Total Number of Orders
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Supply Chain Performance Metrics
Supply chain responsiveness
SCORLevel
1 MetricCalculation
Average speed at which
the supply chain
delivers products to
customers
Definition
Average
OrderFulfillment
Cycle Time
Sum of Actual Cycle
Times for All OrdersDelivered
Total Number of Orders
Delivered
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Supply Chain Performance Metrics
Supply Chain Flexibility
Downside SC
Adaptability
Number of days an organization requires
to achieve an unplanned sustainable
20% increase in quantities delivered
Upside SC
Flexibility
Largest sustainable quantity decreaseconsidering source, make, and deliver
components
Upside SC
Adaptability
Least amount of time required to
achieve the increase considering
source, make, and delivercomponents
Amount of increased production an
organization can achieve and sustain in
30 days
Largest sustainable quantity increase
considering source, make, and deliver
components
Reduction in quantities orderedsustainable at 30 days prior to delivery
with no inventory/penalties
SCORLevel
1 MetricCalculationDefinition
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Supply Chain Performance Metrics
Supply Chain Costs
Supply
chain
Management
Cost (SCMC)Cost of
Goods sold
(COGS)
All direct and indirect expenses
associated with operating
SCOR business processes
across the supply chain
Cost
to
Plan
Cost to
Source
Cost to
Deliver
Cost to
Return+++
Supply chain expenses not
measured in supply chain
management costs
SCORLevel 1Metric CalculationDefinition
Cost of Goods Sold = Direct
Material + Direct Labor + Overhead
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Supply Chain Performance Metrics
Supply chain asset management
Cash-to-cash
cycle time
Return on
supply chain
fixed assets
Time required for an
investment in raw materials to
flow back in an organization
Return an organization
receives on capital invested
in supply chain fixed assets
used in plan, source, make,
deliver, and return activities
Inventory Days of Supply Days of Sales
Days ofPayables Outstanding
+Outstanding
Supply Chain Revenue COGS
Supply Chain Management Costs
Supply Chain Fixed Assets
SCORLevel 1
MetricCalculationDefinition
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We have seen how we can measure the cost,
asset management capabilities, flexibility,
responsiveness and reliability ofsupply chains
Lets now see the financial impact ofsupply chain
management decisions on cost and profits
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Managing the SC forFinancial Performance
Taxes and the supply chain
Tax savings
Procurement
Logistics networks
Information technology
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We now know about the various concepts of
supply chain management including the
management offinancial performance
Lets see what kind of leadership and management is
required formanaging supply chains effectively
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Managing and Leading People in the SC
Extended Enterprise
S2 S1 C2C1
Integrated
nucleus firm
with cross-
functional
teams
Management by supply chainprofessionals who
See linked processes
Can manage critical relationships
Understand the business model
Decide based on analysis, fact
Have cost management ability
Understand e-business systems
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Managing and Leading People in the SC
Leadership and Management
VS.
Leader Manager
Develops objectives in line
with organizational strategies
Hires acceptable employees
Communicatesresponsibilities clearly
Solves problems
Counsels employees
Promotes needs of
employees to management
Interacts with other
departments
May or may not be a leader
Exists outside organizational
chart
May or may not be a good
manager
Knows what to do in a crisis
Attracts followers to help solve
problems
Inspires great
accomplishments
Has a vision for his or her
organization
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Now, we are aware of the competencies required
formanaging and leading supply chains
effectively
Lets also study the impact ofsecurity and compliance
issues on the supply chains
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Security and Compliance Issues
Security issues
Container security
Facility access
Info systems access
ID systems
Global terror protection
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Security and Compliance Issues
C-TPAT (Customs-Trade Partnership Against Terrorism)
Voluntary partnership ofbusiness and government
Available to importers, brokers, warehouse operators, manufacturers
Focus on self-assessment
Guidelines provided forsecurity procedures, training, accesscontrols, etc.
Benefits include Free inspections
Account manager
Access to membership list
Special account processes
Self-policing rather than customs verification.
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Security and Compliance Issues
Financial Reporting
Compliance Issues
Sarbanes-OxleyAct (SOX)2002: Focuses on corporate governance with the goal of
protecting investors by adding to the scope of disclosures already required by U.S.
securities laws and requiring segregation of duties.
Section 401:Applies to all publicly traded companies. Requires disclosure of certainoff-balance-sheet transactions and other relationships that affect a firms financial
condition and operations such as service contracts and VMI arrangements.
Section 404: Requires annual reports to include internal control report that states
managements internal controls for financial reporting and contains assessment of the
effectiveness of these controls.
Benefits ofcompliance with SOX: Encourages a more competitive supply chain and
enhances both investor and market confidence.
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Security and Compliance Issues
Sustainability
Compliance Issues
Material content reporting: Regulates handling of hazardous materials and
encourages more thorough documentation and disclosure of potentially problematic
trade goods.
Independent green initiatives: Encourages reuse, recycling, and recovery ofindustrial materials and responsible handling of end-of-life products.
U.S. Food and Drug Administration regulations: Require more thorough
documentation of the chain of custody of drugs as they move from company to
company, including distribution centers and carriers.
Packaging: Encourages global solutions to issues related to wooden shipping pallets
such as harboring harmful insects, use of hazardous sterilization chemicals, and
contributions to the waste stream.
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We are now aware about the impact ofsignificant
regulations on supply chains
Lets now understand the concept ofcontinuous
improvement and how it can be used as a SCM Strategy
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Continuous Improvement
Root
causes
Small
steps
Never-
ending
Process-
oriented
Total QualityBottom-up
implementation
Top-down
direction
C i I
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Continuous Improvement
Continuous improvement model
Process assessment
Implementation and change management
Project planning
Process analysis
4
3
2
1
Vi ibilit d A l i
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Visibility and Analysis
Visibility and analysis
You cant fix what you cant see.
Sharedcustomer
data
Sharedsupplier
data
Facts Are YourFriends
Vi ibilit d A l i
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Visibility and Analysis
Process analysis
OrderFulfillment Process Map
Customerneeds item
Order
fulfilled
ShipmentNeeded?
Createmaster
data
Customerin system?
YesEnterorder
Orderblock
(auto)
A
NoA
Yes
No
Createshipment
Performgoods issue
Create
invoice
Vi ibilit d A l i
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Visibility and Analysis
Identify the pattern
LCL
UCL
CL
Time
Control chart
Defect measurement
Makes variance visible
Contains samples from sequences
Reveals spikes indicating defects
Straightforward counting of
defects
Customerdefines defect
Customercomplaints
Focus groups
Vi ibilit d A l i
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Visibility and Analysis
Finding root causes
Methods
Pareto diagrams
Cause-and-effect diagrams
Root cause analysis
Paretodiagram
15
Occurrence
%
Attribute
80
4Weight Etc.Finish Shape
1
Cause-and-effect diagram
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We have looked at the ContinuousImprovement Model as well how to increase
visibility and analyze the root
causes ofproblems in supply chains
Lets now understand the concept and benefits offollowing benchmarking and continuous improvement
strategies/ methods in SCM
G l d B h ki
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Goals and Benchmarking
Benchmarking
Definition: Setting goals by comparison to another entity
or authoritative definition of excellence
Competitivebenchmarking
Setting goals by
reference to a
competitor
Processbenchmarking
Setting process
goals by reference
to an authoritative
process description
(e.g., Oliver Wightchecklist)
Best-in-classbenchmarking
Setting goals by
reference to the
best performer
Contin o s Impro ement Methods
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Continuous Improvement Methods
Five-phase six-sigma process
Define the problem
Measure existing performance; record informationabout underlying causes
Analyze information to determine root causes ofproblem
Improve process by effecting solutions to problem
Control process until solutions become ingrained
M
C
I
A
D
Continuous Improvement Methods
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Continuous Improvement Methods
Just-in-Time (JIT)
Cycle time reduction
Inventory reduction
Lab
orco
streducti
on
Quality cost reduction
Material cost reduction
Improved vendorrelationships
JIT principles JIT benefits
Eliminate waste
Eliminate variability
Pull, d
ont push(Kanban)
Strive forcontinuousimprovement
Continuous Improvement Methods
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Continuous Improvement Methods
Lean supply chain thinking
Eliminate waste in value streams.
Meet customerdemand.
Increase velocity.
Reduce need forworking capital.Increase inventory turns.
Gain market share.
Increase profitability.
Develop the workforce.
Produce perfect quality.
Lean principles
House ofToyota
Value stream mapping
Kaizen event (blitz)
Lean objectives
Implementation and Change Management
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Implementation and Change Management
When implementing improvements
Choose KPIs (workable number) and set baselines; use
all four quadrants of BSC
Have master plan and project plans
Communicate plans to all participants
Conduct a pilot to build confidence
Address change management issues
Monitor and adjust
Topic Review
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Topic Review
Key supply chain management processes
Creating value through supply chain management
Impact of globalization on supply chain management
Aligning supply chain strategy with corporate strategy
Competitive priorities and future direction
Using ERP to align operations with strategy
Supply chain risk management strategies
Using corporate and supply chain strategies to setpriorities and make decisions
Elements of supply chain management
Topic Review
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Topic Review
Supply chain performance metrics
Managing the supply chain for financial performance
Managing and leading people in the supply chain
Synchronization and key success factors
Security and compliance issues
Visibility and analysis
Goals and benchmarking
Continuous improvement methods Implementation and change management
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We have looked at the strategies
for improving supply chains
Lets now understand the role of
Demand Planning in SCM
Demand Planning An Overview
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Demand
Trend
Seasonality
Randomvariation
Cycle
Demand Planning An Overview
Demand: c
omp
onents
Trend: Linear, geometric, exponential
Seasonality:Holidays, weather
Random variation:
Data fluctuation caused by random
occurrences
Cycle: Increases/decreases in
economy
Demand Planning An Overview
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What causes demand variability?
How can supply chains reduce
variability?
How can organizations improve demand
forecasts (which are always wrong)?
How can supply chain partners
collaborate on demand planning?
What is marketings role in demand
planning?
Aspects ofDemand Planning
Demandvariability
Reducevariability
Improveforecasts
Partnercollaboration
Role ofmarketing
Demand Planning An Overview
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We had an overview ofDemand Planning
Lets now look at the sources ofvariability in Demand
Supply Chain Dynamics
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Supply Chain Dynamics
o Forecast errors
o Lead times
o Order batching
o Price fluctuations
o Rationing and shortage
gaming Customerorders
Maximum
demand
Minimum
demand
Retail
orders
Distributor
orders
And soon up
the chain
Causes of the Bullwhip Effect
Supply Chain Dynamics
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Supply Chain Dynamics
Avoid multiple forecasts.
Reduce lead times.
Reduce batched order sizes.
Keep pricing stable.
Prevent shortage gaming.
Postponement.
Countermeasures to tame the bullwhip effect
Customer
orders
Maximum
demand
Minimum
demand
Retail
orders
Distributor
orders
And soon
up the chain
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We have understood the sources ofvariability in
demand and looked at supply chain dynamics
Lets now learn about the Demand Forecasting process
Forecasting
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Forecasting
Principles offorecasting
Forecasts are
Necessary (sometimes)
Wrong (almost always, and they should include
an estimate of error)
More accurate for product groups than for
individual items
More accurate for near term than for long term
Not appropriate for dependent demand items.
Actual
Forecast
Monthly
Demand
Forecasting
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Forecasting
Qualitative approaches toforecasting demand
Combined expertise of management; includes
pyramid forecasting and historical analogy
When to use qualitative
forecasting methods:
Fornew products
When hard data are
lacking
As a check on
quantitative forecasts
Management
estimate
Sales force
estimate
Estimate given by entire sales force, to cover
all customer types and to capitalize on market
insights; may be overly optimistic
Systematic gathering and analysis of data about
potential markets, sales, consumer attitudes, etc.
Market
research
Delphi
method
Personal
insight
Anonymous, repeated responses to questionnaires
and comments by selected experts
Estimate made by one person with special
experience, knowledge, or seniority
Forecasting
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Forecasting
Intrinsic Extrinsic
Quantitative approaches toforecasting demand
Based upon time series data
from past performance of
product.
Generally show variability from Steady trends
Seasonality (not just
seasons)
Cycleslong-term ups and
downs
Chancerandom movement.
Based upon factors related to
demand forproduct, such as
Impact ofhousing starts
onfurnitu
re sales
Impact ofpopulation aging
on demand formedication,
assisted living, etc.
Forecasting
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Forecasting
Intrinsic forecasting methods compared
*Previously calculated forecast**Constant = 0.2
Naive
forecast
Moving
average
Weightedmovingaverage
950
(Average ofprevious 3 months)
(975 + 1,125 + 950) 3 = 1,016.67 (1,017)
1,027
(Previous months demand)
Actualdemand
3-monthmovingaverage
Exponentialsmoothing
Weightedmovingaverage
Naiveforecast
Actual
demand
1,021
Method/Calculation
1,000
975
1,125
1,025
950 1,125
1,017
1,046
Prev. forecast + Constant** v Prev. forecast error:1,040 + 0.2 (975 1,040) = 1,027
Exponentialsmoothing
(Weighted average ofprevious 3 months)
(3 x 975 + 2 x 1,125 + 1 x 950) (3 + 2 + 1) = 1,020.83
1,040*
975
1,000
FebJan Mar MayApr
Forecasting
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Forecasting
Seasonal index (by month) Average Januarydemand = 119 % ofmonthly average
demandSales (Demand)
Feb
Jan
May
950 975
Avg. Monthly Demand =
Total Avg. Annual Demand =
1,270
1,325
Apr
1,125
2006
983
Mar
Jul-Dec
2005Month
1,250
1,055
Deseas
onalizedAvg. Monthly
Demand200420062004
940 935950
950 940975
1,115 1,1251,005
1,250
SeasonalIndex
Jun 1,000
1,0421,083
Seaso
nalA
vg.Demand
1,260 1,260
975
942
955
1,082
1,233
12,663
1,036 (v 6)
1,055
1,055
1,055
1,055
1,055
1,055
1,055
1.17
1.03
0.91
0.89
0.92
0.98
1.19
(12,663 12)
Forecasting
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Forecasting
Mean absolute deviation (MAD) with smoothingNOTE:Absolute
deviation
measures the
size of the
errornot the
directionand
therefore has
no +/ sign.
WMAPE is
replacing MAD
in many
organizations.
Absolute
DeviationDemand
Jun
May
Jul
Total Deviation
Month
2
ExponentialForecast with .4
Smoothing
(65.86 / 8 = 8.23)MeanAbsolute Deviation (MAD)
Error
(Deviation)
3
8.23
65.86
25Nov
16.13
+14.78 (25 10.22)
Oct 15
10.22
+7.96 (15 7.04)
Sep 5.0710 +4.93 (10 5.07)
Aug 5 5.12 0.12 (5 5.12)
Dec 15.87
14.78
7.96
4.93.12
5.2
7
10
+15.87 (32 16.13)
5.20 (2 7.2)
7.00 (3 10)
10.00 (4 14)
7.04
7.20
10.00
14.004
32
Forecasting
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Forecasting
Standard deviation
Anotherway to calculate forecast error:
Standard deviation (approximate) = MADv 1.25
This calculation is commonly provided in most software
programs.
Forecasting
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Fo ecasting
Extrinsic forecasting techniques
Extrinsic forecasts are based upon
factors related to demand fora
product orservice, such as leading or
lagging economic indicators.
Leading indicators are long-
term cyclical trends such as
Housing starts
Construction contract awards
Auto
mo
bile pro
ductio
nFarm income
Steel production
Gross national income.
Abstract Business Cycle Graph
Forecasting
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g
Service sectorforecasting
Service businesses, such as
restaurants, may track
seasonal demand in units as
short as minutes.
Some restaurant variables
Workers pershift
Registers in operation
Numberofavailable tables
Space requirements(diners, queues, wait staff,kitchen staff, otherworkers)
Amount and types offoods
Percentageofsales by
hourofday
5-64-53-42-31-212-1 7-811-12 8-9 9-106-7
15%
10%
5%
20%Lunchtime Dinnertime
Hourofday
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We have a clearunderstanding on Demand
Forecasting Process
Lets now look at various collaborations among supply
chain partners tofacilitate successful Demand
Planning
Types ofCollaboration
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yp
Information sharing (quick response program,
orQRP)
Retailer provides POS data to supplier.
Customer (retailer) enters orders.Supplier synchronizes supply with demand
but may still do own forecasting.
Types ofCollaboration
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yp
Continuous replenishment (CR)
Retailer provides POS data to supplier.
Supplier and customer collaborate on ship
dates.
Forecasts become more accurate, resulting in
reduced inventory.
Types ofCollaboration
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yp
Traditional
Relationship
Vendor-Managed Inventory
CustomerRole
Buy goods from supplier.
Base orders on forecasts.
Stock shelves, design
displays, manage
storage, determinereplenishment.
Provide location.
Handle sales.
Participate in joint forecasting.
Manage relationship.
Provide logistical support.
SupplierRole
Sell to customer.
Base forecasts and
inventory on order history.
Provide logistical support.
Consign goods at customer location (sometimes
retaining ownership).
Determine display and storage.
Provide storage units (e.g., bins).
Determine replenishment schedule.
Maintain inventory records.
Handle delivery, receiving, stocking, counting.
Vendor-managed inventory (VMI)
Types ofCollaboration
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yp
Measuring VMI success
Reduced or eliminated bullwhip effect?
Reduced inventory costs for the overall
supply chain?
Better on-time delivery percentage?
Reduced or eliminated stockouts?
Shorter lead time for deliveries?
Increased inventory turns?
Measurable
VMI
Benefits
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YouSafexper
t
While we are talking
about various types
ofcollaborations
among supply chainpartners, CPFR is
one of the types to
facilitate Demand
Planning. Its full
form is Collaborative
planning,forecasting, and
replenishment
What is
CPFR?
Types ofCollaboration - CPFR
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y
VendorManagement
Collaboration Tasks RetailerTasks
Analysis
Demand & Supply Management
Execution
Strategy & PlanningManufacturerTasks
Category Management
Store Execution
SupplierScorecard
Market Data Analysis
Demand Planning
Exception Management
Logistics/Distribution
Buying/Re-buying
Logistics/Distribution
Execution Monitoring
CustomerScorecard
Production & Supply Planning
Performance Assessment
Sales Forecasting
OrderPlanning/Forecasting
POS Forecasting
Replenishment Planning
OrderGeneration
OrderFulfillment
Collaboration Arrangement
Joint Business Plan
Account Planning
Market Planning
Types ofCollaboration
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CPFR scenarios
Retail Event Collaboration
Collaborative Assortment Planning
DC Replenishment Collaboration
Store Replenishment Collaboration
Trading partnercollaboration on POSforecasts, store clustering, replenishment
parameters, presentation stock, assortment
optimization
Jo
intor
der
co
mmitments, co
llabor
ativeforecasting, joint order issuing, mutual
ordersupport to enhance VMI
Joint forecasting of industry trends,consumer tastes, macroeconomic conditions
using assortment plans with graphics,
purchase orders with style, color, size, etc.
Planning and executing promotions,handling exceptions, evaluating
performance forcontinuous improvement
Types ofCollaboration
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CP
FR
Benefits* C
PFR
Challenges Increased sales
Faster turns
Improved inventory control
Cost savings
Improved in-stock and on-shelf Lowerlogistics costs
Increased costs
Resistance to data sharing
Difficulties in bridging internal
functions
May be mor
e diff
icult thancollaboration among firms
Hard forretailers to establish
supplier-specific teams
*Studies by Kurt Salmon Associates and AMR. See www.vics.org fordetails.
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We have a clearunderstanding on Demand
Forecasting Process
Lets now understand the role ofmarketing in Demand
Planning
Role ofMarketing in Demand Planning
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MarketResearch
ProductIntroductions
ProductManagement
Finding markets
Analyzing markets
Refining product
design
Educating
customers and SC
partners
Pricing
Placement
Packaging
Branding
Continuing
research
Upgrading designs
Altering strategy
Managing end of
life cycle
Impact of product design choicesRole ofMarketing in Demand Planning
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S2S3 Plant C3S1 C2C1
How difficult
to make?
How costly
machines,
labor, etc.?
What raw
materials?
How to
source
materials?
How many
components?
How hard to
assemble
and when?
How easy or
hard and how
costly to
transport and
warehouse?
How reliable,
easy to use, easy
to service, easy
torecycle or
reuse?
On sale, service,
use, returns, etc.
Reverse product flow (reverse logistics)
On supplyOn manufacture
and assemblyOn logistics
Flow ofmaterials, components, products
Impact of product design choices
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The Role ofMarketing in
Demand Planning is clear to us.
Lets now look at Collaborative Design for the SupplyChains, the contribution ofdesign to product cost and
the delivery cost and the levels ofsupplier
involvement
Collaborative Product Design for the SC
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Evolution ofdesign for the supply chain
Supplier
Design
Sequential (first
blueprint, then
manufactu
re,then logistics,
etc.)
No cross-
functional
collaboration
No supplierinvolvement
Traditional
Design
Product design
by supplier
basedo
n generalspecifications
from buyer
Informal
Collaboration
Informal
consultation with
suppliers
Noformal
collaboration
teams, meetings,
etc.
Formal
Collaboration
Cross-functional
design teams
Formalcollaboration
among supply
chain partners
Collaborative Product Design for the SC
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Varieties ofdesign collaboration
Concurrent engineering
(CE) and design for
manufacture (DFM)
Design for
logistics (DFL)
Logistics specialists add expertise on ease
ofpacking, shipping, storing, etc.
Designers, manufacturing engineers, suppliers
(and others) pool expertise to produce designs
that are ready to build/assemble.
Design teams considerhow to handle
products that need to be returned, repaired,
replaced, orrecycled; also wise energy use
and mitigation ofproduct hazards.
Design forreverse
logistics/
environment
Postponement Organization designs product andmanufacturing process so that differentiation isdelayed as long as possible.
Collaborative Product Design for the SC
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Benefits ofdesign collaboration
S2S3 Plant C3S1 C2C1
Cost overruns reduced because ofefficient manufacture
Approaches to design improved with supplierexpertise
Satisfaction enhanced with marketing, customer input
Efficient transport, warehousing enhanced by innovation
Quality forprice improves with supplier input
Forsale, service,use, returns, etc.
Reverse product flow (reverse logistics)
ForsupplyFormanufactureand assembly For logistics
Flow ofmaterials, components, products
Varieties ofProduct Design
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Component
commonality
Definition TradeoffsStrategy
Replace similarparts with a
single part.
Risks
Lowercost forbulk purchase
of identical parts
Production streamlining
Simpler, cheaperstorage
Benefits
Cost ofproduction modifications
Loss ofdesign flexibility
Possible reduction offit, finish
Replace multiple bolt
sizes with one size.
Modulardesign (see next
slide).
Varieties ofProduct Design
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Modular
design
Design identical
components foruse in all
products in a family.
Risks
Lowerdesign cost forproduct
family
Production streamlining
Expanded customerbase
More efficient logistics
Benefits
Highercost perproduct (lower
forfamily)
Loss ofdesign flexibility
Possible reduction offit, finish
RAM modules for
computers
Interchangeable
camera lenses
Shoe laces
College courses
Definiti
on
Trade
offsSt
rategy
Varieties ofProduct Design
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Universality
(also called
standardiza-
tion)
Design one product for
multiple markets. Can
combine with modularity
(one base product with
modules to adapt to
markets).
Risks
Increased sales volume
potential
Reduced cost ofdesign,
production compared to
market-specific products
Benefits
Potential loss ofsales in each
particularmarket
Less perceived quality, style
compared to specialized
products
Loss ofcustomer loyalty
One size fits all and
unisex clothing
Cars, trucks with option
packages fordifferent
market segments
Definition TradeoffsStrategy
Varieties ofProduct Design
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Mass
customization
(also called
delayed
differentiation)
Delay final assembly of
components intofinal
products to increase ability
to customize to customer
specifications (assumes
modularity).
Risks
Economies ofscale
More efficient, expert workers
doing assembly
Increased sales volume (more
markets orsegments)
Reduced inventory costs
Benefits
Investment costs fornew
equipment, training, etc.
Possible friction with
distributors overadded tasks
Option packages on
automobilesfor
consumerselection
HPs assembly of
printers at distributor,
not factory
Definition TradeoffsStrategy
Varieties ofProduct Design
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Design for
remanufacture
Products developed in a
manner that allows
components to be used in
otherproducts; process is
associated with green
manufacturing.
Cost advantages: materials and
resources
Cost savings forcustomer
Compliance with environmental
laws
Caterpillars customer-
driven replacement of
heavy equipment parts
Definition BenefitsStrategy
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We have gained a clarity on collaborative design,levels ofsupplier involvement, various
approaches and factors affecting the design of
services
Lets now understand the concepts, purposes andelements ofSales Plan, Sales and Operations
Planning and Production Plan
Operations Planning and Control
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Business Planning
Sales and OperationsPlanning
Material
Requirements
Planning
FinalAssembly
Scheduling
Demand
Management
Capacity
Requirements
Planning
Master
Production
Scheduling
Rough-Cut
Capacity
Planning
Initial sales tool
forraising capital
Parent of
future supply
chain
activitiesResource
Planning
Sales and Operations Planning (S&OP)
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Business planning
Sales and operations
planning
Capacity
Planning
Masterscheduling
Detailed planning and
executio
n systems
Sales
planProduction
plan
Demand
Management
Forecasting
and
Sales and Operations Planning (S&OP)
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Contributions to sales and operations planning
S&OP Product groups
Demand Side Production SideCooperation
Sales and Operations Planning (S&OP)
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Monthly sales and operations planning process
Step 5
Step 4
Step 3
Step 2
Step 1
Pre-S&OP
meeting
Supply planning
Demandplanning
Data gathering
Statistical forecast reviewed by
sales and marketing
Supply management team may alteroperations plan ifnecessary
Key players review data, set
executive meeting agenda
Statistical forecast updated
VPs meet monthly toreview
decisio
ns and strategy
Executive
S&OP meeting
Master Production SchedulingSales and Operations Planning (S&OP)
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Master Production SchedulingWeekly MPS
August
4
LX15 15-ppm
MPSWeeklyproduction numbers for
specific products
Aggregate production
plan (S&OP)
Months
Weeks
LX21 21-ppm
1,200
July
3214321
LX30 30-ppm
1,000
75
125
100
50
100
150 75
100
75
75
50
50
50
100
150
100
150
100
50
150
25
150
75
75
MasterProduction Scheduling
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Purposes ofMPS
Provide sales-operations contract
o Assure sales force of product availability
o Assure operations of sales force commitment
Balance supply with demand for
o Low inventory costs
o Fewer stockouts
o More efficient production
MasterProduction Scheduling
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MPS FocusSupply-Demand Option
Make-to-order(MTO)(Many items made from few
components; e.g., custom products)
Make-to-stock (MTS)(Few items made from many
components; integral design)
Assemble-to-order (ATO)(Many end items, few components;
e.g., computers assembled at or
nearpoint ofsale)
Schedule module production.
Schedule raw materials.
Schedule finished goods.
Master Production SchedulingMasterProduction Scheduling
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Master Production SchedulingMasterscheduling grid
1 2 3 4 5 6 7 8 9
20 22 21 25 24 23 21 21 25
19 17 15 11 9 5 2 1 050
Period
Forecast
Cust. orders
ATP
PAB
MPSDTF PTF
Master Production SchedulingMasterProduction Scheduling
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Master Production SchedulingPlanning horizon
Component
lead time (1)
Raw material
lead time
Component
lead time (2)
Wk 8Wk 7Wk 6Wk 5Wk 4Wk 3Wk 2Wk 1
Raw material
lead time
Master Production SchedulingMasterProduction Scheduling
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Master Production SchedulingProjected available balance (PAB)
1 2 3 4 5 6 7 8 9
20 22 21 25 24 23 21 21 25
19 17 15 11 9 5 2 1 0
50 31 14 49 24 0 27 6 35 10
50 50 50
Period
Forecast
Cust. orders
ATP
PAB
MPS
DTF PTF
Master Production SchedulingMasterProduction Scheduling
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Master Production SchedulingAvailable-to-promise (ATP)
1 2 3 4 5 6 7 8 9
20 22 21 25 24 23 21 21 25
19 17 15 11 9 5 2 1 0
50 31 14 49 24 0 27 6 35 10
14 15 43 49
50 50 50
Period
Forecast
Cust. orders
ATP
PAB
MPS
DTF PTF
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We have understood the concepts ofSales Plan,
Sales and Operations Planning and Production
Plan. We have also gained a clarity on purpose
and objectives ofMasterProduction Scheduling.
L
ets no
w loo
k at the pur
po
se and elementsof
Mater
ialRequirement Planning
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Material Requirements Planning
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S&OP
BusinessPlanning
CRPMRP
MPS RCCP
FAS
Demand
Mgmt.
Material
Requi
rements
Planning
Bills of
material
Master
production
schedule
Inventory
status
Make/buy
action plan
MRP
outputs
Planning
factors
MRP
inputs
Material Requirements Planning
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Bill ofmaterial (BOM)
Summary BOMs list all parts and their quantities required in a given product
structure. Unlike indented bills of materials, summary BOMs do not list level of
manufacture, and they list components only once for the total quantity used.
Boxed Toy Wagon
Unit of Measure
Ea
Material Number Description Quantity
1Wagon base
L-54002039
5-1001
P-2354
EaAxle
5-3001
Ea
Ea24-2234A
4Wheel3-W33
1
Handle
121-233C
Ea
Ea
Ea
1
1
4
Corrugated box
Product label
Hub nut
Note:
Material Requirements Planning
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Bill ofmaterialComputer-generated
bill ofmaterial
BOM forelectric motorLevel 3
Level 3 lists components
for three subassemblies:Stator assembly
Rotor assembly
End bell-top
Material Requirements Planning
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The routing file
Operation
description
and standards
Operation
30
PackageWork centers
Fill line
Boxes, etc.
Operation
20
Package
Operation
number
Operation
10
Fill(100 bottles/minute)
Mix(1 hour/batch)
Blending
Bottles, caps,
and labelsIngredients
Map ofcomponents journey from work centerto work center
Material Requirements Planning
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Lot-for-lot scheduling
Material Requirements Planning
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Offsetting
One week
76543
G
81Time in Weeks
2
A
D
E
B
D
F
E
C
Must have D and E
completed here to
begin production on BStart production ofD
One week
One week
Two weeks
One week
Twoweeks to produce
Three weeks
Two weeksTwo weeks
Material Requirements Planning
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Managing MRP
Counteracting nervousness
o Net change (not plan regeneration)
o Time fences (rescheduling only with authorization)
o Pegging components to end products in bill of material
Is nervousness a sign of deeper problems?
Material Requirements Planning
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Evolution ofMRP software
MRP Closed-Loop
MRPMRP II
Automates BOM
Improves on-time
delivery; frees uptime to plan
Assumes infinite
capacityhence,
impossible
schedules
Refinement of
MRP: provides
feedback oncapacity available
Tradeoff:
installation and
training costs
Includes financials
(crosses boundaries)
Makes capacity morevisible
Translates detailed
information to financial
statements
Helps realign with plan
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Distribution Requirements Planning
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Pull vs. push systems
Pull system Push system
1. Enters
order
Retailers
Distributor
Factory
2. Requests
inventory
4. Shipsinventory
3. Shipsinventory
4. Shipsinventory
3. Ships
inventory
Retailers
Distributor
Factory
1. Automated
sales data
2. Factory
management
makes inventory
decisions
Distribution Requirements Planning
DRP t
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Customer
orders
Resupplyaction plan
Inventory
status
Distributionnetwork
Distribution requirements plan
Forecasting
Resupply needs
Gross to net calculationsPlanned order recommendationsException action messagesInput to MPS
DRP components
Distribution Requirements Planning
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DRPrequirements
Gross requirement is retail demand forecast
Accurate lead time information required for order release dates
Shortages and overstocks potentially reduced
Better customer service, lower inventory costs can result from
more frequent release of smaller orders
Net RequirementScheduled
ReceiptsSafety
StockPAB+= -
Gross
Requirements +
Distribution Requirements Planning
DRP id
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WarehouseA Week1 2 3 4 5 6 7 8
Gross reqmts 80 80 80 70 80 90 90 90
Schd receipts
Proj avbl 90 10 30 50 80 0 10 20 30
Net reqmts 70 50 20 90 80 70
Plnd ord rcpts 100 100 100 100 100 100
Plnd ord rlses 100 100 100 100 100 100
Lot Size Quantity Lead Time
Warehouse A 100 1
DRP grid
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Afterhaving learnt the purpose and elements of
Material Requirement Planning
Lets now look at the concept and objectives ofCapacity Requirement Planning
Capacity Management
Capacity KPIs
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Just the Right Amount
Supply = Demand
On-time fulfillment
Quality items
Optimal use of
resources
Demand > Supply
Stockouts, broken
orders, orovertime,
temps, work shifts,
etc.
TooLittle
Supply > Demand
Layoffs, idle
machines, unused
storage, etc., orexcess inventory
Too Much
Capacity KPIs
Capacity Management
Time horizons of capacity management
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Time horizons ofcapacity management
Medium
range
Implement/control
Resource
requirements plan
Plan
Production activity
control
Capacity requirements
planShort
range
S&OP/production
plan
Master production
schedule
Rough-cut capacity
plan
Material requirements
planning
Capacity
control
Long
range
Short
range
Capacity Management
P d ti ti it t l
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Manufacturing Operations
MPS
MRP
PACCapacity
control
S&OP
CRP
RCCP
Resource
planning
Levels ofcapacity
planning and control
ExecuteWork
information
Orderrelease
PlanResources
Schedule
Production activity control
ControlPriority
Tracking
MonitoringReporting
Capacity Management
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Concentrate on constraints
Keep inventory before constraint.
Maintain optimum incoming rate.
Improve constraint flow.
Avoid constraint when possible.
Reschedule (last resort).
MPS
MRP
PACCapacity
control
S&OP
CRP
RCCP
Resource
planning
Levels ofcapacity
planning and control
Capacity Management
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Use visual signals
Pull inventory through with visualsignals (e.g., kanban).
Start production only at signal.
Maintain smallest possible lot sizes.Synchronize entire chain to customer
requirements.
MPS
MRP
PACCapacity
control
S&OP
CRP
RCCP
Resource
planning
Levels ofcapacity
planning and control
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We are now clearon the concept and objectives of
CRP.
Lets have a look at the concept, benefits and elementof Inventory Management
Inventory Management
Inventory management KPIs
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Inventory management KPIs
Hit customersatisfaction targets
Reduce inventorycosts
Availability
On-time delivery
QualityHoldingOrdering
Transporting
Inventory Management
Why have inventory?
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Why have inventory?
Five goodreasons for
holdinginventory
For economies of scale5
To hedge against price fluctuations4
To fill the pipeline (while other goods are
in transport)3
To cover fluctuations in supply or
demand2
To meet future demand1
Inventory Management
Four types of inventory
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Four types of inventory
End
customer
Component
supplierManufacturer
Raw
materials
supplier
Distributor
(2) Work-in-process:
Held during idle time at
plant (slow cycle times)
(4) MRO: Held as needed to maintain, repair, operate equipment
(3) Finished goods:
Items held in readiness
for purchase by end
customer
(1) Raw materials:
Held to decouple, get
good price, ensure
supply
Inventory Management
How you count counts
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How you count, counts
Traditional method, requires store shutdown
Annual count of all items
Often done by temps
Disruptive, expensive, error-prone
Necessary for, e.g., retail
May
Cycle
Count
Count some items each day
Count all items a set number of times annually
Count A items more often than B or C items
Timely correction of errors, no store shutdown
DecJulyJun Aug MarSep FebJan AprNovOct
Periodic
Count
Inventory Management
Inventory costs
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Inventory costs
Carrying costs (holding costs): rent, depreciation,operating cost, taxes, insurance, handling, leases, labor,
scrap, investment costs, pilferage, etc.
Ordering costs incurred when ordering more inventory:
materials and labor in processing forms; also setup costsrelated to preparing for production, such as cleaning,
adjusting, modifying machines, etc.
Othercosts: backorders, lost sales, lost customers, etc.
Inventory Management
Safety stock and service levels
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CustomerService
Safety stock and service levels
98%
Diminishing
returns
100%
95%
Safety Stock
Cost of safety stock + cost
of stockouts: one number.
Decrease safety stockneed by
Frequent orders
Shorter lead time
More accurate forecasts.
Beware of diminishingreturns.
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Now that we have understood the various
elements of Inventory Management
Lets understand what Logistics is, what are itsfunctions and how is it different from SCM.
Logistics isLogistics is
All tasks necessary to get the right goods to the right place at the
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y g g g g p
right time in the right condition for the right priceglobally.
Transportation
Warehousing Materials handling
Packaging
Information processing
Finance
It IncludesIt Includes
Role ofLogistics in Supply Chain Management
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S2S3 PlantRaw
materialsS1 C3C1
Damaged, defective, recycled, recalled
Materials, components, products
C2End
users
What is the difference
between SCM and
Logistics?
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YouSafexper
t
SCM is more
strategic in nature,
Logistics is moreoperations-oriented.
Logistics can be
considered as a part
ofSCM.
Lets see clearly how
is SCM different fromLogistics
g
Difference Between Logistics and SCMDifference Between Logistics and SCM
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Sourcing and
Procurement
Manufacturing
Coordination and
Collaboration
Integration ofSupply and
Demand
Management
SUPPLY CHAIN MANAGEMENT
Inventory Management
Inbound and Outbound
Transportation
Materials Handling
Packaging
Communication Warehousing
Supply and Demand Planning
Data Analysis
LOGISTICS MANAGEMENT
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Now that we have understood the difference
between Logistics and SCM
You might want to know more about the segmentation
ofLogistics. Lets look at these one by one
Segmentation ofDomestic LogisticsSegmentation ofDomestic Logistics
P k iP k i
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DomesticDomestic
LogisticsLogistics
WarehousingWarehousing
TransportationTransportation
ValueAddedValueAdded
ServicesServices
PackagingPackaging
LabelingAndLabelingAnd
AssemblingAssembling
Express ServicesExpress Services
TrackingAndTrackingAnd
TracingTracing
Cold Chain, etc.Cold Chain, etc.
WarehousingWarehousing
W h i f h
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Warehousing refers to the
storage of product andgoods to be transported,
whether inbound or
outbound
The warehousing segmentconstitutes about 35% of the
total logistics industry in
India
Warehousing
A very brief history of warehousing
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A very briefhistory ofwarehousing
Evolved to
Warehousing integrated with logistics strategy
Efficient use of space (better forecasting
reduces need for mass storage)
Attention to optimal numbers and locations
Parts storage added on supply side; mixed
shipments on distribution side
Increased activity aided by new equipment,
automation, and training
Previous decades
Materials handling and
space efficiency
ignored
Location and numberscriteria: perhaps one
per territory
Little technology;
heavy use of
inexpensive labor
Warehousing
Value-added warehousing
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g
S2
CustomersSuppliers
C2
S1 C1Plant
Warehouses Production
PlantRaw
materials
Finished
goods
Warehouses
Finished
goods
Components
Orderpicking
Packaging
Move orship
Cycle/physical counts
Warehousing
activities
Receive
Prepackage
Put-away
Store
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Warehousing
Who should own the warehouses?
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Private Public Contract
Structure Firm itself ownswarehouses
Independent
ownership; fee for
services
Independent ownership;
longer-term relationship
Benefits
Control; no markup;
strongest market
presence
Flexibility; economies of
scale and lower labor
costs
Tailored services; lower
costs; flexibility; access to
more markets; stable
relationship
Drawbacks Inflexible budget;depreciation;
illiquidity of asset
Loss of control; less
market presence;
markups
Loss of control; less
market presence;
markups
Warehousing
Warehousing c