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INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

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INTRODUCTION TO SUPPLY CHAIN MANAGEMENT Powered By Docstoc
					Dr. Dinesh Dave`
   Supply Chain Management Defined
   Supply Chain - Discussion
   Supply Chain Models
   Supply Chain Process
   Decision Levels
   Structuring Supply Chain
   Elements of Supply Chain
   Sub-Areas of Supply Chain Management
   Importance of Supply Chain
   Important Elements in Supply Chain
   Current Trends in Supply Chain Management
                                                2
A supply chain is the stream of processes of
  moving goods from the customer order
  through the raw materials stage, supply,
  production, and distribution of products to the
  customer. Managing the chain of events in this
  process is what is known as supply chain
  management.
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)
                                                    3
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)
The planning and management of all activities
  involved in sourcing and procurement, conversion,
  and all logistics management activities … also
  includes coordination with channel partners,
  which can be suppliers, intermediaries, third party
  service providers, and customers (Council of
  Supply Chain Management Professionals)
                                                        4
Firm gained synergy as a vertically integrated firm
  encompassing the ownership and coordination of
  several supply chain activities. Organizational cultures
  emphasized short-term, company focused performance.




                                                        5
Firm in a supply chain focuses activities in its area of
  specialization and enters into voluntary and trust-based
  relationships with supplier and customer firms.
    All participants in the supply chain benefit.
    Boundaries are dynamic and extend from “the firm’s
     suppliers’ suppliers to its customers’ customers (i.e.,
     second tier suppliers and customers).”
    Supply chains now deal with reverse logistics to
     handle returned products, warranty repairs, and
     recycling.
                                                          6
A supply chain consists of the flow of products
  and services from:
     Raw materials manufacturers
     Component and intermediate manufacturers
     Final product manufacturers
     Wholesalers and distributors and
     Retailers
Connected by transportation and storage activities, and
Integrated through information, planning, and integration
   activities
Many large firms are moving away from in-house Vertically
   Integrated structures to Supply Chain Management



                                                            7
Effective management must take into account
  coordinating all the different pieces of this
  chain as quickly as possible without losing any
  of the quality or customer satisfaction, while
  still keeping costs down.




                                                    8
In addition, key to the success of a supply chain is
  the speed in which these activities can be
  accomplished and the realization that
  customer needs and customer satisfaction are
  the very reasons for the network.
Reduced inventories, lower operating costs,
 product availability and customer satisfaction
 are all benefits which grow out of effective
 supply chain management.


                                                       9
10
The model showed in figure starts with firms
 extracting raw materials from ground and then
 selling these to raw material suppliers. These
 firms, acting on purchase orders and
 specifications they have received from
 component manufacturers, turn the raw
 materials into materials that are usable by
 these customers
The component manufacturers, responding to
 orders and specifications from their customers,
 make and sell intermediate components
                                                   11
The final-product manufacturers assemble
 finished products and sell them to wholesalers
 or distributors, who then resell these products
 to retailers as their product orders are received
Retailers in turn sell these products to us, the
 end-product consumers




                                                     12
13
The general concept of an integrative supply
 chain is illustrated by a line diagram that links
 participating firms into a coordinated
 competitive unit.
Value results from the synergy among firms
 constituting a supply chain as a result of five
 critical flows: Information, Product, Service,
 Financial, and Knowledge
The model logically and logistically link a firm
 and its distributive and supplier network to
 customers
                                                     14
The first step is obtaining a customer order,
 followed by production, storage and
 distribution of products and supplies to the
 customer site. Customer satisfaction is
 paramount.
Included in this supply chain process are
  customer orders, order processing, inventory,
  scheduling, transportation, storage, and
  customer service.
A necessity in coordinating all these activities is
  the information service network.
                                                      15
In addition, key to the success of a supply chain is
  the speed in which these activities can be
  accomplished and the realization that customer
  needs and customer satisfaction are the very
  reasons for the network.
Reduced inventories, lower operating costs,
 product availability and customer satisfaction
 are all benefits which grow out of effective
 supply chain management.


                                                       16
The decisions associated with supply chain
  management cover both the long-term and short-
  term.
Strategic decisions deal with corporate policies, and
  look at overall design and supply chain structure.
Operational decisions are those dealing with every
 day activities and problems of an organization.
 These decisions must take into account the
 strategic decisions already in place.
Therefore, an organization must structure the supply
  chain through long-term analysis and at the same
  time focus on the day-to-day activities.
                                                        17
18
On the strategic level long term decisions are made.
These are related to location, production, inventory, and
  transportation.
Location decisions are concerned with the size, number,
  and geographic location of the supply chain entities, such
  as plants, inventories, or distribution centers.
The production decisions are meant to determine which
  products to produce, where to produce them, which
  suppliers to use, from which plants to supply distribution
  centers, and so on.
Inventory decisions are concerned with the way of
  managing inventories throughout the supply chain.
Transport decisions are made on the modes of transport to
  use.
                                                           19
Decisions made on the strategic level are of course
 interrelated.
For example decisions on mode of transport are
  influenced by decisions on geographical
  placement of plants and warehouses, and
  inventory policies are influenced by choice of
  suppliers and production locations.
Modeling and simulation is frequently used for
 analyzing these interrelations, and the impact of
 making strategic level changes in the supply
 chain.
                                                   20
On the tactical level medium term decisions are
 made, such as quarterly demand forecasts,
 distribution and transportation planning,
 production planning, and materials requirement
 planning.
The operational level of supply chain management
 is concerned with the very short term decisions
 made from day to day or week to week.



                                               21
Market demands, customer service, transport
 considerations, and pricing constraints all must
 be understood in order to structure the supply
 chain effectively. These are all factors, which
 change constantly and sometimes
 unexpectedly, and an organization must realize
 this fact and be prepared to structure the supply
 chain accordingly.




                                                 22
Structuring the supply chain requires an
  understanding of the demand patterns, service
  level requirements, distance considerations, cost
  elements and other related factors. It is easy to
  see that these factors are highly variable in
  nature and this variability needs to be
  considered during the supply chain analysis
  process. Moreover, the interplay of these
  complex considerations could have a significant
  bearing on the outcome of the supply chain
  analysis process.

                                                  23
There are six key elements to a supply chain:
   Production
   Supply
   Inventory
   Location
   Transportation
   Information




                                                24
Production:
Strategic decisions regarding production focus on what
  customers want and the market demands.
This first stage in developing supply chain agility takes into
  consideration what and how many products to produce, and
  what, if any, parts or components should be produced at
  which plants or outsourced to capable suppliers.
These strategic decisions regarding production must also focus
  on capacity, quality and volume of goods, keeping in mind
  that customer demand and satisfaction must be met.
Operational decisions, on the other hand, focus on scheduling
  workloads, maintenance of equipment and meeting
  immediate client/market demands.
Quality control and workload balancing are issues which need to
  be considered when making these decisions.
                                                              25
Supply:
An organization must determine what their facility or
  facilities are able to produce, both economically and
  efficiently, while keeping the quality high.
Outsourcing is an excellent alternative to be considered for
  those products and components that cannot be produced
  effectively by an organization’s facilities.
Companies must carefully select suppliers for raw materials.
  When choosing a supplier, focus should be on developing
  velocity, quality and flexibility while at the same time
  reducing costs or maintaining low cost levels.
Strategic decisions should be made to determine the core
  capabilities of a facility and outsourcing partnerships
  should grow from these decisions.
                                                           26
Inventory:
Strategic decisions focus on inventory and how much
  product should be in-house.
A delicate balance exists between too much inventory,
  which can cost anywhere between 20 and 40 percent of
  their value, and not enough inventory to meet market
  demands. This is a critical issue in effective supply chain
  management.
Operational inventory decisions revolved around optimal
  levels of stock at each location to ensure customer
  satisfaction as the market demands fluctuate.
Control policies must be looked at to determine correct
  levels of supplies at order and reorder points. These
  levels are critical to the day to day operation of
  organizations and to keep customer satisfaction levels
  high.                                                         27
Location:
Location decisions depend on market demands and
   determination of customer satisfaction.
Strategic decisions must focus on the placement of production
   plants, distribution and stocking facilities, and placing them in
   prime locations to the market served.
Once customer markets are determined, long-term
   commitment must be made to locate production and stocking
   facilities as close to the consumer as is practical.
In industries where components are lightweight and market
   driven, facilities should be located close to the end-user. In
   heavier industries, careful consideration must be made to
   determine where plants should be located so as to be close to
   the raw material source.
Decisions concerning location should also take into
   consideration tax and tariff issues, especially in inter-state and
   worldwide distribution.                                          28
Transportation:
Strategic transportation decisions are closely related to
    inventory decisions as well as meeting customer demands.
Using air transport obviously gets the product out quicker and to
    the customer expediently, but the costs are high as opposed
    to shipping by boat or rail. Yet using sea or rail often times
    means having higher levels of inventory in-house to meet
    quick demands by the customer.
It is wise to keep in mind that since 30% of the cost of a product
    is encompassed by transportation, using the correct transport
    mode is a critical strategic decision.
Above all, customer service levels must be met, and this often
    times determines the mode of transport used.
Often times this may be an operational decision, but
    strategically, an organization must have transport modes in
    place to ensure a smooth distribution of goods
                                                                 29
Information:
Effective supply chain management requires obtaining
  information from the point of end-use, and linking
  information resources throughout the chain for speed of
  exchange.
Overwhelming paper flow and disparate computer systems are
  unacceptable in today’s competitive world.
Fostering innovation requires good organization of information.
Linking computers through networks and the internet, and
  streamlining the information flow, consolidates knowledge
  and facilitates velocity of products.
Account management software, product configurators,
  enterprise resource planning systems, and global
  communications are key components of effective supply chain
  management strategy.
                                                              30
The sub-areas comprising a supply chain
 include:
  Forecasting / Planning
  Purchasing / Procurement
  Logistics
  Operations
  Inventory Management
  Transport
  Warehousing
  Distribution
  Customer Service
                                          31
Forecasting / Planning:

All businesses need to forecast and plan. To look
  forward and predict what will be required in
  terms of resources and materials in order to
  deliver their product or service to their
  customer in a timely manner.

Activities include demand planning, inventory
 planning, capacity planning, etc.
                                                    32
Purchasing:
The commercial part of the supply chain is purchasing or
  procurement.
This is where a business identifies suppliers to provide the products
  and services that it needs to acquire in order to create and
  deliver its own service or product. Costs and terms of business
  are negotiated and agreed and contracts created.
Thereafter the suppliers performance and future contractual
  arrangements will be managed in this area.
Definition purchasing is limited to the actual commercial
  transaction, while procurement includes the wider elements of
  the acquisition, including logistics and performance
  management.                                                       33
Logistics:
Definition logistics refers to the movement of
 goods or materials, whether inbound, through,
 or outbound.
In some manufacturing businesses forecasting
  and planning will be found within a logistics
  department, in other businesses logistics will
  be exclusively managing the movement and
  transportation of goods and materials.
                                                   34
Operations:
Operations is a general management type activity
 ensuring that a business uses its resources
 effectively to meet its customer commitments.
Usually referring to the conversion activity of the
 business, i.e. the point where the acquired
 resources and/or materials are converted into the
 product or service that the business is selling on to
 its customers.

                                                     35
Inventory Management:
Sometimes found within Logistics Management, or
 Demand Planning or Operations
Inventory Management typically takes
  responsibility for both the replenishment of
  physical stock, the levels of physical stock, and of
  course storage and issue of physical stock.
Stock may be materials and goods sourced from
  suppliers, work in progress, or finished goods
  awaiting sale/dispatch.
                                                         36
Transport Management:
Involves the control of a company
  owned fleet of vehicles, collecting,
  moving, or delivering materials and
  goods, or managing transport services
  sourced from a 3rd party transport
  provider.
                                      37
Warehousing:

Warehousing can involve the control of
 company warehouse space, or
 managing warehouse space sourced
 from 3rd party providers.


                                         38
Distribution:
Distribution involves the physical distribution of the
  company’s products to the sub-distributor or directly to
  the customer base.
Typically this is a combined transport and warehousing
  operation, responsible for storing and delivering
  products to meet the customers needs.
Again this combined activity may be placed with a 3rd
  party service provider who will control and implement
  the processes.

                                                          39
Customer Service:
Most people do not recognize customer service as
 part of supply chain management, but it is in fact
 the final piece in the puzzle.
Having taken the business inputs, created and
 delivered a product or service, the final element is
 to check that the customers expectations were
 achieved, and manage any actions necessary to
 meet your customer obligations and
 commitments.
                                                      40
Firms have discovered value-enhancing and long
term benefits

Who benefits most? Firms with:
   Large inventories
   Large number of suppliers
   Complex products
   Competitive environment


                                                 41
Cost savings and better coordination of resources are reasons to
employ Supply Chain Management
    Reduced Bullwhip Effect- the magnified reduction of
     safety stock costs based on coordinated planning and
     sharing of information
    Collaborative planning, forecasting, and
     replenishment activities reduce the Bullwhip Effect
     and lead to better customer service, lower inventory
     costs, improved quality, reduced cycle time, better
     production methods, and other benefits.

                                                                   42
Supply         Supplier management, supplier evaluation,
Management     supplier certification, strategic partnerships
               Demand management, MRP, ERP, inventory
Operations     visibility, JIT (AKA lean production & Toyota
               Production System), TQM (AKA Six Sigma)
               Transportation management, customer
               relationship management, distribution network,
Distribution
               perfect order fulfillment, global supply chains,
               service response logistics

Integration    Process integration, performance measurement

                                                                  43
Purchasing:
   Long term relationships
   Supplier management- improve performance
    through
    ▪ Supplier evaluation (determining supplier capabilities)
    ▪ Supplier certification (third party or internal certification
      to assure product quality and service requirements)
   Strategic partnerships- successful and trusting
   relationships with top-performing suppliers

                                                                      44
Operations:

  Demand management- match demand to
   available capacity
  Linking buyers & suppliers via MRP and ERP
   systems
  Use JIT to improve the “pull” of materials to
   reduce inventory levels
  Employ TQM to improve quality compliance
   among suppliers

                                                   45
Distribution:
   Transportation management- tradeoff decisions
    between cost & timing of delivery/customer service
    via trucks, rail, water & air
   Customer relationship management- strategies to
    ensure deliveries, resolve complaints, improve
    communications, & determine service requirements
   Network design- creating distribution networks
    based on tradeoff decisions between cost &
    sophistication of distribution system

                                                         46
Integration:
  Supply Chain Process Integration: when supply
   chain participants work for common goals.
   Requires intrafirm functional integration. Based
   on efforts to change attitudes & adversarial
   relationships
  Supply Chain Performance Measurement:
   Crucial for firms to know if procedures are
   working
                                                      47
Expanding the Supply Chain
  U.S. firms are expanding partnerships and
   building facilities in foreign markets
  The expansion involves:
   ▪ breadth- foreign manufacturing, office & retail sites,
     foreign suppliers & customers
   ▪ depth- second and third tier suppliers & customers




                                                              48
Increasing Supply Chain Responsiveness
  Firms will increasingly need to be more flexible and
   responsive to customer needs
  Supply chains will need to benchmark industry
   performance and meet and improve on a continuous
   basis
  Responsiveness improvement will come from more
   effective and faster product & service delivery
   systems

                                                          49
The Greening of Supply Chains:
Producing, packaging, moving, storing, delivering
  and other supply chain activities can be harmful
  to the environment
   Supply chains will work harder to reduce
    environmental degradation
   Large majority (75%) of U.S. consumers influenced by
    a firm’s environmental friendliness reputation
   Recycling and conservation are a growing alternative
    in response to high cost of natural resources

                                                           50
Reducing Supply Chain Costs
  Cost reduction achieved through:
   ▪ Reduced purchasing costs
   ▪ Reducing waste
   ▪ Reducing excess inventory, and
   ▪ Reducing non-value added activities
  Continuous Improvement through
   ▪ Benchmarking- improve over competitors’ performance
   ▪ Trial & error
   ▪ Increased knowledge of supply chain processes

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