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Transcript of SCM- Handout I
Dr. Parikshit Charan
Supply Chain Management 1
1
Dr. PARIKSHIT CHARAN
Supply Chain Management: Some
Contemporary Perspectives
Why SCM is Important now?
•1970, Quality•1980, lean manufacturing•1990 and beyond, SCM
–The Increased complexity of supply chain•Emergence of global supply chain•More demanding customers•Shorter production lifecycles•Outsourcing, decentralized control and more…
–Feasibilities•radical improvement in information technology and communication capabilities
Impetus For Supply Chain Management
• New Customer Service Definition• Beyond perfect order-shifting
responsibilities/Vendor Managed Inventory ... • Escalating Logistics Cost ... • Cycle Time Compression--E-Commerce• Globalization--Worldwide rise in exports far exceed
• Worldwide purchasing, manufacturing, and selling.
• Long and complex global pipelines.• Product proliferation.• Cultural adaptation
Four key factors have provided the impetus for companies to take a broader view...
of their enterprise and its environment...
BackgroundSupply Chain
Material management(inbound logistics)
The acquisition and storage of raw materials, parts, and supplies
Physical distribution(outbound logistics)
The complete cycle of material flow from the purchase and internal control of production materials to the planning and control of WIP
All outbound logistics activities related to providing customer service.
Order receipt and processing, inventory deployment, storage and handling, outbound transportation, consolidation, pricing, promotional support, returned product handling, and life cycle support…
Development of Supply Chain Management
Physical distribution (1960-1970)• Focus : Management of inventories for the efficient delivery of finished
goods to customers.
Integrated logistics management (1970-1980)• Focus : INBOUND FLOW (materials management) &
OUTBOUND FLOW (physical distribution) • Challenges: deregulation of transportation, global competition,
foreign sources of supply, and economic factors
Supply chain management (from 1990s)• Focus : Three types of “flows” or basic processes -
Product, Information, and Money• Managing supplier-to-customer material flow that add value to the
final product
Logistics
Logistics is that part of supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point-of-origin to the point-of-consumption in order to meet customers’ requirements.
Dr. Parikshit Charan
Supply Chain Management 2
7
Logistics: Past
The study of logistics has its roots in the military…The traditional view emphasized local optimization within
functional silos and within individual corporations
But functional optimization leads to conflicts ...
8
Logistics...
CLM Definition“The process of planning, implementing, and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods, and related informationfrom point of origin to point of consumption for the purpose of conforming to customer requirements.” This definitionincludes inbound, outbound, internal, and external movements.
CLM - Council of Logistics management -Adopted 1984
...a new flow and process orientation not a set of discreteactivities and handoffs
In 1984 CLM formulated a new definition which refocusedthe concept of logistics...
9
Logistics - Evolution
Integrate internal logistics activities Integrate logistics with other corporate functions
Most modern companies have recognized that to
improve cost and performance to the corporationthey must...
MaterialPlanning
Procurement
Production Planning
Inventory Control
Warehouse Operations
Transportation
Distribution Planning
Customer Service
Suppliers
Accounting /Finance
Manu-facturing
Sales andMarketing
Customers
Other Log.ProvidersCarriers
FinancialInstitutions
but other pressures indicate that companies mustlook outside their own four walls...
10
Complexity in Logistics
Multi-location Multi-productAdded Cost at various stages and locationsMulti-modal transportation Different perspectives held by various stakeholders in the logistics !
Supply Chain ManagementSupply chain management deals with the management of materials, information and financial flows in a network consisting of suppliers, manufacturers, distributors, and customers (Stanford Supply Chain Forum, 1999)
Supply chain management is a set of approaches utilized efficiently to integrate suppliers, manufacturers, warehouses, and stores so that merchandise is 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 et al., 2008)
12
Purchasing
Manufacturing
Distribution
CUSTOMERS
SUPPLIERS
Sales
The Functional Approach
Traditional Approach: Functional, silo based ! No attempt to look holistically!
Dr. Parikshit Charan
Supply Chain Management 3
GENERAL SUPPLY CHAIN NETWORKGENERAL SUPPLY CHAIN NETWORK
Customer 1 Customer 2 ...Customer m
Supplier 1 Supplier 2 ... Supplier n
SOURCES
SINKS
ProductionFacilities
LogisticFacilities
Enterprise
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Issues in Management of Supply Chain
Lead timeTotal costManagement of InventoryMaterial HandlingPerformance Monitoring & ControlSensitization about the Logistics cost to all the stakeholders !Information Sharing…………..
ENTERPRISE Supply Chain NETWORKENTERPRISE Supply Chain NETWORK
Customer 1 Customer 2 ...Customer m
Supplier 1 Supplier 2 ... Supplier n
SOURCES
SINKS
ProductionFacilities
LogisticFacilities
Enterprise
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Purchasing
Manufacturing
DistributionSUPPLIERS
Sales
Integrated Supply Chain Approach
Looks at the entire chainGlobal rather than local focusIntegrated rather than fragmented approach
CUSTOMERS
INTEGRATED SUPPLY CHAIN NETWORKINTEGRATED SUPPLY CHAIN NETWORK
Customer 1 Customer 2 ...Customer m
Supplier 1 Supplier 2 ... Supplier n
SOURCES
SINKS
ProductionFacilities
LogisticFacilities
IntegratorIntegrator
CONSUMERS
INTERMEDIARIES
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Supply Chain StagesSupply ChainSupply Chain encompasses all activities associated with theencompasses all activities associated with the flow flow
and transformation ofand transformation of materials materials andand informationinformationfrom thefrom the raw material stageraw material stage through to thethrough to the end userend user. .
Supplier Manufacturer Distributor Retailer Customer
Dr. Parikshit Charan
Supply Chain Management 4
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Supplier
Supplier
ManufacturingPlants
RegionalWarehouses
Field Warehouses
RetailOutlets
CustomersJohn Birchak, Intel Corp., National Science Foundation, University of
Florida, October 1998
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Broadened Scope of Information and Coordination
Supplier Customer Customer’sCustomer
Suppliers’Supplier
Make DeliverSource Make MakeSourceDeliver SourceDeliver
(internal or external)
(internal or external)
Your Company
Source Deliver
Plan
21
Supply Chain Management ...
Customers
MaterialPlanning
Procurement
Production Planning
Inventory Control
Warehouse Operations
Transportation
Distribution Planning
Customer Service
Suppliers
Accounting /Finance
Manu-facturing
Sales andMarketing
Other Log.Providers
CarriersFinancialInstitutions
MaterialPlanning
Procurement
Production Planning
Inventory Control
Warehouse Operations
Transportation
Distribution Planning
Customer Service
Suppliers
Accounting /Finance
Manu-facturing
Sales andMarketing
Customers
Other Log.ProvidersCarriers
FinancialInstitutions
The clear implication is the need for further integrationof all the parties involved…
to prosper in this dynamic environment...Integration Migration
...
The Dynamics of the Supply ChainO
rder
Siz
e
TimeSource: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
CustomerDemand
CustomerDemand
Retailer OrdersRetailer OrdersDistributor OrdersDistributor Orders
Production PlanProduction Plan
What Management Gets...
Ord
er S
ize
TimeSource: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
CustomerDemand
CustomerDemand
Production PlanProduction Plan
What Management Wants…
Volu
mes
TimeSource: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
Production PlanProduction PlanCustomerDemand
CustomerDemand
Dr. Parikshit Charan
Supply Chain Management 5
25
My customer wants it next
day
Long production runs reduce
costs
1 day more and we save 10% in transport costs
I want to see it in stock before I
believe
You have to reduce
inventories and other costs by 20% this year
Others go to JIT
There is no simple key to successThere is no simple key to success
26
Profit
TOTALCOSTS
ASSETS
TIME
CASH
FLEXIBILITY
ENVIRONMENT
INFORMATION
SERVICE
QUALITY
Planning ObjectivesPlanning Objectives-- Longer perspective brings in moreLonger perspective brings in more
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Initiatives TechnologyIntegrationCost Management
Cycle Time Alliances
EnvironmentalPressures
Inbound, Operations & Outbound
The Core Issuesin Supply Chain Management
63428
Supply Chain Network- Sample StructureIn
itial
Su p
p lie
rs
Con
sum
e rs/
E nd-
Cus
tom
e rs
1
n
n
1
2
3
1
n
1
2
1
n
1
2
Focal Company
Members of the Focal Company’s Supply Chain
1
2
3
n
Tier 3 to Initial Suppliers
Tier 2Suppliers
Tier 1Suppliers
Tier 1Customers
Tier 2Customers
Tier 3 toConsumers/
End-Customers
1
n
1
2
n
n
n
Tier
3 to
n s
uppl
iers
Tie r
3 t o
n c
usto
mer
s
29
CoreCompetencyAreasTier 1
FocalCompany
Closest Integration* Design team member
- R& D collaboration* Prod/logistics info sharing* Rare partnership
Tier 1
Tier 1
Tier 1
Tier 1
Close collaboration (less expensive than innermost core)* Exchange design/development information* Prod/logistics info sharing* Increasing partnership
Tier 1
Tier 1
Tier 1
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Tier 2
Non-coreCriticalAreas
Collaboration principally via tier 1 suppliers
* Occasional direct contact with focal company
Degree of integrationdecreases
Degree of integrationdecreases
Non-strategic, Non-critical Areas
.
.
.
.
.
.
.
.
.
30
Four Flows within Supply Chain
Supply chain management requires parallel control of• Physical Goods• Logistics Information• Payments• Ownership Rights
Ownership Rights
Physical Distribution
Logistics Information
Payments
8 8 8 8 8 8
8 8 8 8 8 8
w w w w w w
w w w w w w
CustomerNeeds
CustomerSatisfaction
OrderMgt.
8 8 8
ww
Forecast-ing
ProductionPlanning
Procure-ment
Manu-facturing
InventoryMgt.
Warehousing&Materials Mgt.
Transpor-tation
Network Planning
Ownership Rights
Dr. Parikshit Charan
Supply Chain Management 6
Goals of SCM•Maximize the overall value generated in the chain•Generate cost savings and better customer service over the entire supply chain•Ideal:
–Have the right product–At the right place–At the right time–At the least cost–In the right amount
upstream
downstream
Typical supply chain
Toshiba PC supply chainupstream
downstream
Intel,AMD
Seagate,IBM
Microsoft,Red Hat
Toshiba America Irvine, California
Europe DC
Toshiba Turkey
North America DC
How is SCM different?Builds on traditional fields such as production
management, operations management or logistics management.The key differentiator is the systems approach of
the supply chain managementSCM considers every stage and facility in the
supply chain and the interactions between them, whether they belong to different companies or different organizations within a companySCM considers the total costs in the supply chain Since SCM deals with all stages of the supply
chain and their integration, it encompasses the firm’s activities at many levels: strategic, tactical and operational
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Enablers of Supply Chain Management...
• Increased Organizational IntegrationInternalExternal
• Advances in Communications and Information TechnologyCapabilities
EDI/XML/InternetRF/GPS/POS data capture Broadband CommunicationsIntegrated database management toolsCheaper and faster processing …
Perspective
There are two principal factors which makesupply chain management a reality...
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CASE 1: SCM COMPLEXITY
Dr. Parikshit Charan
Supply Chain Management 7
37
Scope / ActivitiesSupply Chain Management
Materials Management & Transportation Manufacturing Packaging Total Quality ManagementDistribution Systems
38
Product Portfolio Oral CareToothbrush
Med
EnoRegular, Lemon,
Jaljeera
Crocin
HorlicksJHlx CHlx MHlx EHlx
Boost
BiscuitsHlxStd Ch.Hlx
Elaichi
BoostEB
Viva Maltova Aquafresh mouthpastex-fresh, F‘n M
NHCHlx P JordanAquafresh
Flex, FnD, FlexiKidFlexi friend
39
Manufacturing Facilities - NHC Powders
3 FactoriesNabha - Punjab Rajahmundry - A.P.Hamira - Punjab
SD1 ProjectSonepat - Haryana R
NSD1
H
40
Packaging Facilities - Nutritional
7 Packing SitesFaridabad (F)Calcutta (C)Hyderabad (H)Chennai (CH)Nabha (N)Hamira (HA)Chittagong - Bangladesh (CG)
F
C
H
HA
CH
N
NNN
CG
41
Manufacturing Facilities - NHC Solids
2 Biscuit sitesBurdwanHyderabad B
H
42
Mfring & Packing Facilities-Aquafresh
2 sitesGoa (Tooth Brush)Nashik (Toothpaste)
G
N
Dr. Parikshit Charan
Supply Chain Management 8
43
Mfring & Packing Facilities -OTC
1 Site (ENO)Hyderabad
H
44
Sales depots
Sales depots 32 nos
45
Supply ComplexitiesFinished Goods Movement
•250 vendors,350 materials,15 sites
•P/S movementof avg.. 1200 kms
•Over 1000 consignments/month shippedacross 130site-depotlinkages
•12 supply sites catering to 37 markets
•Primary freight costof Rs. 30 crore p.a. 46
Export Supplies
BangladeshBangladesh
Sri LankaSri Lanka
MyanmarMyanmar
Middle EastMiddle East
MauritusMauritus
Supply Complexities
Nepal
47
Major Problems
Forecast inaccuracyUn-organised transport sectorLonger lead time for some raw materialsFrequent change in statuary requirementsSales promotions disturbs the planning cycles some times leads to major write offs
48
Effective Supply Chain-Challenges
Effective Supply chain is not limited to manufacturing & distributing products only but also……..
Dr. Parikshit Charan
Supply Chain Management 9
49
Effective Supply Chain-Challenges
Design product to its supply chainSupplier relationshipManufacturing:- should it be in-house or to be out-sourced ?Least Product inventoriesThird Parties:- Partners can add significant value
50
Distribution:- shippers should add value rather than mere transportationWork on the “Customer’s Pull”rather than “Push”Is consumer response is making its way into the chain ?
Effective Supply Chain -Challenges
51
Then..What’s the way out?
Effective Supply Chain-Challenges Contemporary Strategies
Successful businesses match market demand and core capabilities ...Carriers had transport assets and systems
trucks, cars, terminals, tracking and tracing systems, fleet management systems ...
Shippers had critical need for more efficient logistics systems, but no expertiseShippers needed resources in their core areas
Result: Alliances in logistics--Third Party Logistics ...
Contemporary Logistics Strategies
ComplementaryCapabilities
Sharing of risksand resources
Focus on corebusiness
StrategicAlliances
CompetitiveAdvantage
The competitive marketplace has given rise to logistics alliances ...
Trends in Global Supply Chain Management
Collaborative Product DevelopmentRisk PoolingPostponementDemand signal closest to supplier and accurate
POS data capture and transmission and now RFID in each piece of product eliminating the need for line of sight scanning—Unilever
Dr. Parikshit Charan
Supply Chain Management 10
Supply Chain Management and the Internet
Relationships with suppliers will endure--Web-based connectivity will enable the transaction network to become more efficient -- sharing of savings will take placeNew technology will impact business supply chains beyond recognition--Globalization will overpower existing relationships as companies access different suppliers in various countries and drive down prices
There are two conflicting views ...
* FootnoteSource:Sources
THERE IS ALREADY SIGNIFICANT ACTIVITY IN AUTO SECTOR
Existing Planned/Announced
Vendor marketplaces
Consortium of Bajaj Auto, M&M, Telco, HM, Maruti, Hero Honda,TVS SuzukiEscorts, Kalyani
Vendor Integration TELCO Bajaj Auto, Ford, Fiat, Hyundai,Hero Honda, TVS Suzuki, Toyota, M&M
InternalConnectivity Almost All
Dealer Integration Maruti, Fiat, Ford, ALL
Daewoo, Hyundai, Hero Honda, TVS Suzuki, Bajaj Auto, LML, Kinetic, HM Lancer, M&M
Basic WebsiteAlmost All Piaggio, Greaves, Hero Honda
Sophisticated websitewith customisation,cataloging
Daewoo, Honda Fiat, Hyundai
Auto Sector
Supply Chain IntegrationBuy Side
Supplier Integration
Sell Side Re intermediation
Relationship building with Customers
Maruti SuzukiExtranet for Dealers - 150 Dealers, 9 Models, 1000 Sub-assemblies, Avg.. 15 components per sub-assembly, changes avg.. 10 per week
Wrong Orders / Re-conciliation problemsWrong shipmentMultiple Printed Catalog / Addendum and Errata
One ECatalog, Multiple Views, Ordering Modules, Dealer Service, back-ending into Enterprise systems...
Dr. Parikshit Charan
Supply Chain Management 11
Prof. J.P. MacDuffie, IMVP & The Wharton School
Barriers to Success in Emerging SCM
Resistance to changePoor data availabilitySupply chain design complexityOrganization structurePoor cross-functional collaborationLack of trust (suppliers, customers)Lack of E-commerce skillsUnsure top management commitment
Source: Adapted from A.D. Lttle Survey, 1999
Supply Chain Integration -Dealing with Conflicting Goals
Lot Size vs. InventoryInventory vs. TransportationLead Time vs. TransportationProduct Variety vs. InventoryCost vs. Customer Service
Future of Supply Chain
More Integration: Comfortable Core competenceNew Market evolutionIncreased variety-Low volume productsIndustry MaturityPower/DominanceIntegration & Information sharing
Emerging Issues in Supply Chain Management
Vendor managed Inventory (VMI) - In this case supplier decides on the appropriate inventory levels of each product and the inventory policies to maintain these levels e.g. Campbell Soup, Maruti
Third party logistics(3PL) and Fourth party logistics(4PL) – This trancends from Prahlad’s concept of core competence .It is simply the use of an outside company to execute part or complete materials management and product distribution function of the firm e.g. Fed Ex, UPS
Outsourcing- It means handing over certain logistics related to manufacturing to another company. Outsourcing ensures strategic growth, adding technological strength and improving market access.Risk pooling – It mainly involves the concept of centralized warehousing. Centralized warehousing reduces safety stocks and average inventory in the system. This is clear from the argument that in case of unequal demand reallocation of inventory is easier from a central warehouse. The higher the coefficient of variation, the greater the advantage in keeping a central warehouse.Reverse LogisticsCross Docking-may be defined as effective removal ofWarehouse facilities of company. Product is directly transferred to customer. Warehouse is reduced from invty storage to an invty. Coordinating function
* Web enabled SCM / ERP etc.
Dr. Parikshit Charan
Supply Chain Management 12
Goals of IT in SCMCollect and store information on each product from production to delivery/purchase point
Provide complete visibilityTrackingAlerting
Access any data in the system from a single point of contact. This is complicated by the fact that one may need information which resides
in various locations within one companyin different companies
Analyze and plan activities based on total supply chain information.
Decision Support SystemsAdvanced Planning Systems
Summary...
New customer service paradigmsDecreasing cycle times/E-commerceCost pressuresGlobalization & complexity
It is clear that the concept of Supply Chain Management providescompanies and countries a framework within which they can assess how the challenges of the competitive market
IntegrationTechnology
can be met through application of the offsetting enablers
making Logistics/SCM another element of competitive advantage.
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THANK YOU