Supply Chain Management - PowerPoint

Document Sample
Supply Chain Management - PowerPoint Powered By Docstoc
					Operations Management (2)

Supply Chain
Topic 5
Prof. Upendra Kachru

In 1958, J. Forrester noticed that when information between parties that do business is insufficient there are strong fluctuations in order volume, even when there is relatively stable demand. Customer demand makes the retailer place an order on the wholesaler. The wholesaler adds a margin and orders on the manufacturer and the manufacturer places orders on its suppliers. As each firm in the distribution network has incomplete information about the needs of others, therefore it responds with a disproportional increase in inventory levels.

Prof. Upendra Kachru

Operations Management

The Forrester or Bullwhip Effect
The result is:
 Too Much Stock: This results in increase in costs;
• loss of productivity due to existing inventory; • high opportunity cost; and • stockpiling of unsold stock, etc.,

 Or Too Little Stock: This results in the firm‟s inability to cope with demand which results in:
• loss of customers; • delays and halts in production; and • loss of discounts for bulk buying, etc.

As the parties start to share information, the adverse impacts are reduced. This was the basis on which Supply Chain management was born.
Prof. Upendra Kachru

Operations Management

This is a supply network. In this network there are vendors (points of value addition) and customers (points of consumption).

Is this a supply chain?

Prof. Upendra Kachru

Operations Management

The word „supply‟ means the act of providing something useful or the act of giving something that is required or desired. The word „chain‟ implies a series of things or activities that are linked together or are dependant on each other. When put together, the two words form the term „supply chain‟ which refers to the system or chain of activities from a business to a customer and vice versa. This term was first used by Keith and Weber in 1982 to denote a new way to look at a network of supply relationships.
Prof. Upendra Kachru

SUPPLY CHAIN

Operations Management

A supply chain must have at least a set of three or more companies linked by one or more of the upstream or downstream flows of products, funds, or information.

Prof. Upendra Kachru

Operations Management

Again, even if there are three or more sets of companies involved, it may still not be a supply chain. In order to qualify as a supply chain there has to be flow of at least one of the three:
•Goods or Services, •Information, and •Funds

These flow must take place from a source to a customer. This is the basic requirement in a supply chain.
Prof. Upendra Kachru

Operations Management

Let us understand, better, the flows that take place across the supply chain: • Flow of Goods and Services
• Flow of Information • Flow of Funds

SUPPLY CHAIN FLOWS

The flow of goods/ inventory is in forward direction The direction of money flow is in the backward direction. The flow of information is in both directions in a supply chain.
Prof. Upendra Kachru

Information

SUPPLIER

SELLER

BUYER

Products

Funds

Operations Management

Goods and services provide the value flows in a supply chain. Consider the example of Kalyani Breweries. Here, goods flow would consist of raw materials such as barley, hops, yeast, water, etc. It would also include aluminum ore extracted and converted into metal by NALCO, and cans from Supertech Industries, and the final product, canned beer. It will also include a reverse flow if the empty cans are returned for recycling.
Prof. Upendra Kachru

Operations Management

Information flows from the vendor to the customer and also from the customer to the vendor. In case of the Kalyani Breweries, for example, the information could flow to the customer in the form of advertising, quality assurances, stock availability details, etc. The information could flow from the customer to the vendor in the form of orders, and feedback.

Prof. Upendra Kachru

Operations Management

The financial flow involved in the supply chain occurs in the opposite direction. The only source of money is the customer. This money is paid in return for delivery of goods or services and moves through all stages in the supply chain. When the supplier of raw material delivers these to the Brewery, he gets paid for the delivery. This is fund flow. Similarly, when the dealer pays some advance for the stock he has ordered, money exchanges hands.
Prof. Upendra Kachru

Operations Management

Supply Chain
That means, if there are only two organizations involved, it will not be a supply chain.

SUPPLIER

SELLER

BUYER

Products

Funds

Information

Prof. Upendra Kachru

Operations Management

In traditional Materials Management and Logistics, the interaction between parties is across a single interface.

In Supply Chain Management the interaction between parties is across more than one interface.

Prof. Upendra Kachru

Operations Management

Supply Chain Structure

In the supply chain discussed earlier let us look the relationships between organizations.
 First the beer needs to be brewed. It is brewed by Kalyani Breweries.  The beer needs cans for containment. The cans are supplied by Supertech Industries.  But to make the cans, Supertech needs aluminum metal. They get the metal from NALCO, who mine the ore and then smelt it.

Prof. Upendra Kachru

Operations Management

Supply Chain Structure

Though Supertech and NALCO are part of the supply chain, their structural relationship with Kalyani Breweries are different. These variations in the structural relationship are described as tiers.
Supertech supplies directly to Kalyani Breweries, it is a first-tier supplier in the supply chain. Using the same logic, NALCO is a second-tier supplier. It does not directly supply to Kalyani, it is the supplier of a supplier.
Prof. Upendra Kachru

Operations Management

Supply Chain Structure

Kalyani Breweries cans (packages) the beer and sells it to USBN Ltd., the distributor, who is again in a first tier relationship with Kalyani Breweries. USBN Ltd., in turn, sells the canned beer to retailers like DSIDC Ltd. DSIDC Ltd. has a second tier relationship in the supply chain with Kalyani Breweries, as Kalyani Breweries does not supply directly to DSIDC Ltd. These are all different tiers in the supply chain.
Prof. Upendra Kachru

Operations Management

Supply Chain Structure
Another way to look at the relationships between different organizations within a supply chain is based on how the product or service flows between the members of the supply chain. DSIDC Ltd. is the last link in the supply chain. All its physical transactions will move backwards. So retail organizations, like DSIDC Ltd., only have backward linkages.

Prof. Upendra Kachru

Operations Management

Supply Chain Structure
At the other end, you have a supplier of raw materials. In this case NALCO. NALCO has no backward linkages for its physical transactions. All its linkages will be forward linkages. So raw material suppliers, like NALCO, only have forward linkages.

Prof. Upendra Kachru

Operations Management

Supply Chain Structure

Supply chains have both buyers and suppliers as an integral part i.e. their physical transactions have both forward as well as backward linkages.
SUPPLIER SELLER BUYER

Products

Funds

Information

Prof. Upendra Kachru

Operations Management

These activities can be downstream, upstream or both. Upstream and downstream is generally used in the case of goods.
 ‘Upstream’ means a forward linkage i.e. the firm is a supplier to the supply chain. By, „buy side‟, we mean that the demand is generated by organizations that are upstream.  Similarly ‘downstream’ is a backward linkage i.e. the firm is a seller to the supply chain. By „sell-side‟, we mean that a downstream linkage reacts to the demand that is generated by the „upstream linkage‟.

Prof. Upendra Kachru

Operations Management

The definition of a basic supply chain is: A set of three or more companies directly linked by one or more of the upstream or downstream flows of products, services, finances and information from a source to a customer

SUPPLIER

SELLER

BUYER

Products

Funds

Information

Prof. Upendra Kachru

Operations Management

An extended supply chain is: Suppliers of the immediate supplier and customers of the immediate customer, all linked by one or more of the upstream and downstream flows of products, services, finances, and information.

Prof. Upendra Kachru

Operations Management

A basic supply chain is when all the structural relationships are first tier relationships.
SUPPLIER SELLER SUPPLIER BUYER BUYER

Products

Funds

Information

An extended supply chain is when there is more than one tier in the supply chain, such as the „Kalyani Breweries‟ Supply chain.
Prof. Upendra Kachru

Operations Management

Supply chain management (SCM) represents one of the most significant paradigm shifts of modern business management by recognizing that individual businesses no longer compete as solely autonomous entities, but rather as supply chains i.e. they can do it better collectively.

Supply Chain Management - A Paradigm Shift
Prof. Upendra Kachru

Operations Management

Internal Supply Chains
The internal supply chain is that portion of a given supply chain that occurs within an individual organization. The first step in moving towards supply chain management is to develop these internal chains.

Internal supply chains can be quite complex. Given the multidivisional, international organizational structures found in many businesses, it is not uncommon for the internal part of a supply chain to have multiple “links” that span the globe. Developing an understanding of the organization‟s internal supply chain is often an appropriate starting point for firms considering an SCM initiative.
Prof. Upendra Kachru

Operations Management

External Supply Chains
Once one understands the internal supply chain, one must extend the analysis to the external portion of the supply chain (i.e., key suppliers and customers). This is an important step, as significant opportunities for improvement often lie at the interfaces between the various supply chain member organizations. This step also adds a greater level of complexity, given that multiple organizations and their representatives are now participating in the analysis.
SUPPLIER SELLER SUPPLIER BUYER BUYER

Products

Funds

Information

Prof. Upendra Kachru

Operations Management

The stages in the supply chain vary from product to product or from service to service.

However, all supply chains have one thing in common. The activities in the supply chain begin with an order from a customer and end with the customer‟s need being satisfied or fulfilled.

Prof. Upendra Kachru

Operations Management

Cycle View in the Supply Chain
According to the cycle view, the processes in a supply chain are divided into a series of cycles, each performed at the interface between two successive stages of a supply chain.

Prof. Upendra Kachru

Operations Management

Cycle View in the Supply Chain
In the Customer Order Cycle, the customer is the interface, and in the Replenishment Cycle the retailer is the interface. The respective cycles are triggered by a customer order, replenishment orders from the distributor, or by the forecast of customer demand and current product availability in the manufacturer‟s finished-goods warehouse, etc.

Prof. Upendra Kachru

Operations Management

Cycle View in the Supply Chain
Performance cycles reflect the input/output requirements. Process cycle time is the total elapsed time required to complete a business process. Increasingly, as organizations realize that they are competing on the basis of time they find time can be used more effectively by identifying, improving and/or eliminating a wide range of counterproductive, activities and events. Supply Chain Management is ultimately concerned with the effectiveness and efficiency of performance cycles.
Prof. Upendra Kachru

Operations Management

Cycle Time Reduction
Reducing supply chain cycle time means decreasing the days of inventory held and reducing the cash conversion cycle. The savings mean that capital is available for other uses. By focusing on key processes, the supply chain can significantly improve its performance and become a source of competitive advantage for the organization. Opportunities for cycle-time reduction exist on both an intra-organizational and inter-organizational basis.
Prof. Upendra Kachru

Operations Management

Cycle View in the Supply Chain
The performance cycle may be under the control of a single firm or may involve multiple firms, depending upon the objectives. For example, manufacturing support cycles are typically under complete control of a single enterprise. In contrast, performance cycles related to physical distribution and procurement normally involve customer or supplier par-ticipation. To the extent that operational requirements are satisfied, the performance-cycle structure is effective. The use of resources required to achieve supply chain effectiveness is reflected in the efficiency of the performance cycle.
Prof. Upendra Kachru

Operations Management

Cycle View in the Supply Chain
These processes can also be divided into two categories, pull and push. Pull processes are initiated by a customer order. Push process are initiated and performed in anticipation of customer orders. Difference between PUSH and PULL processes:

Prof. Upendra Kachru

Operations Management

Cycle View in the Supply Chain
Pull processes are referred to as „reactive processes‟ because they react to customer demand. Push processes are referred to as „speculative processes‟ because they respond to forecasted rather than actual demand. Therefore, a supply chain that has more pull processes is easier to manage and coordinate. As the number of pull processes increase, its impact on improved supply chain performance becomes significant.
Prof. Upendra Kachru

Operations Management

Supply Chain Management
Supply chain management is significantly different from traditional materials management. The difference lies in the coordination and commitment of the all firms in the supply chain required to implement the specific strategic objectives of each firm. The relationships are not win-lose.

Supply chain management requires partners to provide support for each to reach their objectives. Firms voluntarily agree to integrate human, financial, or technical resources in order to create a better business model. They all have something to gain.
Prof. Upendra Kachru

Operations Management

35

Managing Relationships

The profitability of the supply chain is based on the nature of the flows between the stages in a supply chain. If the quality of the flow is good, the supply chain adds value. In a supply chain, this is ensured by managing relationships effectively. Information is one of the key elements in building relationships. When there is insufficient information it is often difficult to build trust, which is critical to relationship building.
Prof. Upendra Kachru

Operations Management

Relationship Management
Based on this evaluation, there are three types of supply chain relationships:
• • • Transactional Collaborative, and Alliances

Prof. Upendra Kachru

Operations Management

37

Suppliers Relationship Management


Type of relationship is often governed by the duration of the trading relationship  Short-term
 

Oftentimes involves competitive bidding Minimal interaction, transactional mode Often involves an ongoing relationship or collaboration Often involves greater cooperation that evolves into an alliance



Medium-term




Long-term


Prof. Upendra Kachru

Operations Management

As the reciprocal interdependence in the allocation of operational roles and decision rights becomes greater, it increases the chances of an effective relationship.

Relationship Management
Prof. Upendra Kachru

Operations Management

39

Relationship Management
Supply chain relationships are based on the mutual benefit that the relationship provides. In most supply chains, each member of the partnership brings distinct skills, all of which are needed to supply customer order. The key steps in designing effective supply chain partnerships are follows:

• • • •

Assessing the value of the relationship Identifying operational roles and decision rights for each party. Creating effective contracts, and Designing effective conflict resolution mechanisms
Operations Management
40

Prof. Upendra Kachru

Relationship Management
Of all the activities operations and supply chain managers perform, relationship management is perhaps the most difficult, and is therefore the most susceptible to break down. Relationship management focuses on improving operations and supply chain performance by eliciting the cooperation of others.

SRM (Supplier Focus) ISCM (Firm Focus)

CRM (Customer Focus)

Source
Negotiate Buy Design Collaboration Supply Collaboration
Prof. Upendra Kachru

Strategic Planning
Demand Planning Supply Planning Fulfillment Field Service

Market Trends
Sales and Marketing Information on Customers Order Management Call Center Management
Operations Management
41

Collaborative forecasting, planning, and replenishment (CFPR)
CFPR is a supply chain initiative that focuses on information sharing among supply chain trading partners in planning, forecasting, and inventory
 Focuses on information sharing among trading partners  Forecasts can be frozen and then converted into shipping plans  Eliminates typical order processing

Operations Management

Supply Chain Design
Supply chain management involves the planning, implementation and control of all activities, processes and operations that help to serve customers efficiently. Each of these functions has its own goals and strategies, called functional strategies. For a business to be successful, the functional goals have to match the company‟s competitive strategy. The supply chain design must support the competitive strategy of the enterprise

Prof. Upendra Kachru

Operations Management

43

Types of Supply Chains are
 Efficient Supply Chains  Risk-Hedging Supply Chains  Responsive Supply Chains  Agile Supply Chains

Types of Supply Chains
Demand Uncertainty

Low (Functional products)

High (Innovative products)

Efficient SC

Responsive SC

The approach to supply chain is one of aligning the supply chain with the uncertainties revolving around the supply process side of the SC

Ex.: Grocery
Risk-Hedging SC Ex.: Hydro-electric power

Ex.: Computers
Agile SC Ex.: Telecom

Operations Management

44

Efficient: Minimizing costs through achieving economies of scale by eliminating waste and optimizing techniques Risk-hedging: Identifying configurations to provide optimal service by streamlining the configuration process i.e. eliminate supply disruption by pooling and sharing resources Responsive: Ability to respond rapidly to changes in demand, both in terms of volume and mix of products through being flexible Agility: Responding in less predictable environments when demand is volatile and the requirement for variety is high through flexibility, adaptability as well as risk-hedging capabilities

Operations Management

45

The curve on the right shows the dilemma. High responsiveness means high cost. The lower the cost, the higher the efficiency. The cost-responsiveness efficient frontier is the curve that represents the benchmark for cost-responsiveness performance. A firm that is not on the efficient frontier can improve both its responsiveness and its cost performance by moving toward the efficient frontier.

Prof. Upendra Kachru

Operations Management

Supply Chain Design
L.L. Bean is an American mail-order retail company. It offers clothing, footwear and outdoor recreation equipment. Wal-Mart is another American company that runs a chain of retail departmental stores. These stores offer consumer durables as well as various fast moving consumer goods (FMCG). These are goods that are purchased by customers frequently, usually in large quantities and also consumed/used very fast.

Prof. Upendra Kachru

Operations Management

47

Supply Chain Design
Both Wal-Mart and L.L. Bean are in the retail business but their competitive strategies are different. Wal-Mart offers its customers a wide variety of products at a low price. L.L. Bean has a limited product range. But unlike Wal-Mart, its customers don‟t have to visit the stores to buy what they need. They can sit right at their home or place of work, browse through the catalogue and order online. And the product will be delivered to them at their doorstep

Prof. Upendra Kachru

Operations Management

48

But Wal-Mart and L.L Bean can‟t use the same supply chain model to achieve their business objectives. Wal-Mart‟s business objectives require an efficient supply chain L.L. Bean needs a flexible and responsive supply chain.

Supply Chain Design
Prof. Upendra Kachru

Operations Management





The goal of SCM is to match supply to demand as effectively and efficiently as possible Key issues:
 


  

Determining appropriate levels of outsourcing Managing procurement Managing suppliers Managing customer relationships Being able to quickly identify problems and respond to them Managing risk

Key SCM Issues
Prof. Upendra Kachru

Operations Management

Key Supply Chain Activities

Prof. Upendra Kachru

Operations Management

Lower inventories Higher productivity Greater agility Shorter lead times Higher profits Greater customer loyalty

Benefits of Supply Chain Management
Operations Management

Supply Chain Benefits and Drawbacks
Problem
Large inventories Long lead times Large number of parts Cost Quality Variability

Potential Improvement

Benefits

Possible Drawbacks
Traffic congestion Increased costs May not be feasible May need absorb functions Less variety Loss of control Less variety

Smaller, more frequent Reduced holding deliveries costs Delayed differentiation Disintermediation Modular Outsourcing Shorter lead times, better forecasts Quick response

Fewer parts Simpler ordering Reduced cost, higher quality Able to match supply and demand

Operations Management

Supply chain management is as much a philosophical approach as it is a body of tools and techniques, and typically requires a great deal of interaction and trust between companies to work. The supply chain holds benefits of great magnitude to those who are willing to integrate with their partners with a common objective to serve the customer better.

Prof. Upendra Kachru

Operations Management

Forecast control
Read the SCOR model. This is in the Chapter on Supply Chain in the text book.

Read at Home
Prof. Upendra Kachru

Operations Management

Operations Management (2)

Click to edit company slogan .


				
DOCUMENT INFO
Shared By:
Categories:
Stats:
views:2449
posted:10/26/2009
language:English
pages:56
Description: Module descrbing the basic characteristics of Supply Chain Management