2009 SUPPLY CHAIN MANAGEMENT Assignment-2 Submitted to: Prof. Prakash Rao Submitted by: Vijay Singh Marketing Sec. B 08PG067 9/3/2009 Q.1 Explain the different drivers of supply chain?  Ans. There are five major drivers of supply chain: - I. Production II. Inventory III. Location IV. Transportation V. Information Production Transportation Information Inventory Location I. Production: Production is typically related to issues on what to produce, how to produce (which manufacturing process) and when to produce. II. Inventory: Here the decisions and issues may be concerned with how much to make and how much to store as inventory and where to store these items (at the plant itself, warehouse, or the retailer etc.). III. Location: A number of issues regarding location such where to locate a plant, where to locate a warehouse etc. may have significant bearing on the dynamics of supply chain and in turn may affect the overall costs. IV. Transportation: The issues may be related to how to move a product from one location to another and by what mode of transportation. One needs to evaluate economies of scale on one hand and the desired level of customer satisfaction on the other hand. Moves the product between stages in the supply chain. Faster transportation allows greater responsiveness but lower efficiency. It also affects inventory and facilities. Components of Transportation Decisions: Mode of transportation: – air, truck, rail, ship, pipeline, electronic transportation – vary in cost, speed, size of shipment, flexibility Route and network selection – route: path along which a product is shipped – network: collection of locations and routes In-house or outsource Overall trade-off: Responsiveness versus efficiency V. Information: Information is a binding force having critical implications for the supply chain. Information acts as basis for making various supply chain decisions. It also acts as an integrator. Unless information flows are handled properly, one may not be able to draw benefits from the supply chain integration. Q.4 Explain the role of inventory in supply chain?  Ans. Managing inventory has become very important. This is due to the following reasons: Resource availability (such as that of finance and space) has forced management to consider how best to lower the levels of inventory within the supply chain management systems in order to maintain margins The changes in manufacturing philosophy, concept like just in time and lean manufacturing have reduced the need for inventory as an insurance buffer within the logistics activity. The role of inventory in supply chain is: Inventory exists in the supply chain because of a mismatch between supply and demand. This mismatch is intentional at a steel manufacturer where it is economical to manufacture in large lots that are then stored for future sales. The mismatch is also intentional at a retail store where inventory is held in anticipation of future demand. An important role that inventory plays in the supply chain is to increase the amount of demand that can be satisfied by having product ready and available when the customer wants it. Another significant role inventory plays is to reduce cost by exploiting any economics of scale that may exist during both production and distribution. Inventory is spread throughout the supply chain from raw materials to work in process to finished goods those suppliers, manufacturers, distributors, and retailers hold. Inventory is a major source of cost in a supply chain and it has a huge impact on responsiveness. If we think of the responsiveness spectrum, the location and quantity of inventory can move the supply chain from one end of the spectrum to the other. For example, an apparel supply chain with high inventory levels at the retail stage has a high level of responsiveness because a customer can walk into a store and walk out with the shirt they were looking for. In contrast, an apparel supply chain with little inventory would be very unresponsive. A customer wanting a shirt would have to order it and wait several weeks or even months for it to be manufactured, depending on how little inventory existed in the supply chain. Inventory also has a significant impact on the material flow time in a supply chain. Material flow time is the time that elapses between the points at which material enters the supply chain to the point at which it exist. Another important area where inventory has a significant impact is throughput. For a supply chain, throughput is the rate at which sales occur. If inventory is represented by I, flow time by T, and throughput by D, the thee can be related using Little's law as follows: I = DT For example, if the flow time of an auto assembly process is ten hours and the throughput is 60 units an hour, Little's Law tells us that the inventory is 60 x 10 = 600 units. If we were able to reduce inventory to 300 units while holding throughput constant, we would reduce our flow time to five hours (300/60). We note that in this relationship, inventory and throughput must have consistent units. The logical conclusion here is that inventory and flow time are synonymous in a supply chain. managers should use actions that lower the amount of inventory needed without increasing cost or reducing responsiveness, because reduces flow time can be a significant advantage in a supply chain. Q. 6.What is Bullwhip effect? What is done to mitigate the undesirable effects of it?  Ans. The objective of supply chain management is to provide a high velocity flow of high quality, relevant information that will enable suppliers to provide an uninterrupted and precisely timed flow of materials to customers. However, unplanned demand oscillations, including those caused by stock outs, in the supply chain execution process create distortions which can wreck havoc up and down the supply chain. There are numerous causes, often in combination that will cause these supply chain distortions to start what has become known as the “Bullwhip Effect”. Cracking the “Bullwhip Effect” (how to mitigate the undesirable effects of it) Essential to minimizing the “Bullwhip Effect” is to first, specifically understand what drives customer demand planning and inventory consumption as they are the triggers for replenishment order quantities at various points in the supply chain. The most effective process for smoothing out the oscillations of the “Bullwhip Effect” will be customers and suppliers understanding what drives demand and supply patterns and then, collaboratively working to improve information quality and compressing cycle times throughout the entire process. More than likely, you will find opportunities for improvement by adopting some or all of the following actions, among others, to minimize the “Bullwhip Effect” and increase business performance. • Minimize the cycle time in receiving projected and actual demand information. • Establish the monitoring of actual demand for product to as near a real time basis as Possible. • Understand product demand patterns at each stage of the supply chain. • Increase the frequency and quality of collaboration through shared demand information. • Minimize or eliminate information queues that create information flow delays. • Eliminate inventory replenishment methods that launch demand lumps into the supply chain. • Eliminate incentives for customers that directly cause demand accumulation and order staging prior to a replenishment request, such as volume transportation discounts. • Minimize incentivized promotions that will cause customers to delay orders and thereby interrupt smoother ordering patterns. • Offer your products at consistently good prices to minimize buying surges brought on by temporary promotional discounts. • Identify, and preferably, eliminate the cause of customer order reductions or cancellations. • Provide vendor-managed inventory (VMI) services by collaboratively planning inventory needs with the customer to projected end-user demand then, monitor actual demand to fine tune the actual VMI levels. (Note: VMI can increase sales and profits especially in industries where buyers can go to alternative sources if you or your distributor stock-out.) Q. 9.What is the process view of the supply chain?  Ans. Process View of Supply Chain: A supply chain is a sequence of processes and flows that take place within and between different stages and combine to fill a customer need for a product. Two ways to view the processes performed in a supply chain are: Cycles view and Push/pull view Cycle view: Cycle Process in a supply chain is divided into a series of cycles. Cycles are performed at the interface between two successive stages of a supply chain. Supply chain process can be broken down into four process cycles such as – Customer order cycle – Replenishment cycle – Manufacturing cycle – Procurement cycle Each cycle occurs at the interface between two successive stages of the supply chain. A cycle view of the supply chain is very useful when considering operational decisions. It clearly specifies the roles and responsibilities of each member of the supply chain. It helps the designer to consider the infrastructure required to support the processes Push/Pull View: Pull/Push view categorizes processes in a supply chain based on whether they are initiated in response to a customer order (pull) or in anticipation of a customer order (push). Categorization is based on the timing of process execution relative to end customer demand. At the time of execution of a pull process customer demand is known with certainty. In case of push process at the time of execution of a process demand is not known and must be forecasted Pull process – reactive process Push process – speculative process Push/pull boundary in a supply chain separates push process from pull process. Very useful when considering strategic decisions relating to supply chain. Forces more global consideration of supply chain processes as they relate to a customer order. More the pull process betters the supply chain. Q. 20.What is reverse logistics? what are its benefits?  Ans. It is "the process of planning, implementing, and controlling the efficient, cost effective flow of raw materials, For all operations related to the reuse of products and materials, in-process inventory, finished goods and related information from the point of consumption to the point of origin for the purpose of recapturing value or proper disposal. Reverse logistics provides an environmentally-friendly method of recovering and reusing parts and materials after a product's life cycle has ended. Benefits of reverse logistics: 1. Capitalize A number of organizations are capitalizing on reverse logistics opportunities. Companies such as Eastman Kodak (reusable cameras) & Hewlett-Packard (printer toner cartridges returned for refilling) have implemented successful reuse and recycling programs. These initiatives not only have reduced the amount of waste fed into the supply chain and the landfills, but also have lowered operating costs for these companies. many companies have been able to recover their cost investments from one or more of the following areas: raw material and packaging procurement, manufacturing, waste disposal, and current and future regulatory compliance. 2. Satisfaction It allows manufacturers to increase customer satisfaction by providing a complete view of their supply chains, including goods in the return loop. Integrating the reverse logistics services into the complete logistics job provides feedback for the design, engineering, assembly and distribution. Reverse logistics involves is all about products that are returned by the customers, either for repair or after-sales service. 3. Distribution High-technology firms characterized by rapid product obsolescence, high costs of goods sold, and medium to high logistics costs. With their emphasis on minimizing costs to increase margins, these firms tend to leave disposal to consumers and salvager's. They typically concentrate on distributing to channel members and consumers, who then must deal with product disposal themselves... Regardless of how relations with external suppliers develop, just as with other organizations, waste elimination and product recalls are of growing concern to hospital pharmacies. In the private sector, product recalls appear to be becoming an increasingly frequent occurrence. In recent years these have involved Heinz baby foods, Findus pancakes, Marks & Spencer’s underwear, and cars produced by those epitomes of quality, Mercedes and Rolls Royce. As Bowersox and Closs (1996) noted, product recalls require organizations to be able to reverse the normal logistics flow from suppliers to customers so that inventory deemed unsuitable can be located by customers and returned to suppliers in a timely and cost-effective manner. This is particularly important in the case of pharmaceutical products where the health of patients may be put at risk if drugs are not withdrawn expeditiously. For example, in 1997, the world’s best-selling weight loss drugs, Redux and Pondimin, had to be withdrawn when evidence emerged that their use might lead to heart disease. Another example was the UK government’s withdrawal of the license for Tasmar (tolcapone). As the press release from the makers stated: Evolving safety information about the anti-Parkinson drug Tasmar (tolcapone) has led Roche to revise the recommendations to physicians on the appropriate use of the drug. These changes reflect additional information obtained through post-marketing experience in approximately 100,000 patients worldwide (Roche Media Release, 1998). Regardless of who is at fault, it is the responsibility of the pharmaceutical service to affect product recalls within hospitals. Given the large number of locations where drugs are kept – wards, operating theatres, day clinics, etc., as well as the pharmacy stores – this can be a complicated and time-consuming process unless tried and tested procedures are already in place. As mentioned earlier, as well as product recall, waste elimination through the recycling of unused or unwanted supplies also provides a powerful reason for developing an effective reverse logistics process. Indeed, BMW wishes to take the rationale for reverse logistics even further, by building cars which are capable of being entirely recycled once they have passed their useful life (Giuntini and Andel, 1995). BMW’s intention is to buy back their old cars, disassemble them, recondition the parts and put them into new cars. Reverse logistics, therefore, can represent a new beginning for many products. It allows products to be recycled and repackaged. To achieve this, however, organizations need to treat the reverse portion of the logistics process with the same seriousness and deliberation as the forward portion of the logistics process and to integrate the two.