Supply Chain Defnition

Supply Chain DefinitionFind out What’s Supply Chain is…

1SynerflexConsulting.com

What You’ll Learn

• Challenges of Supply Chain Management

• Value of Information and Demand Distortion

• Utilizing performance metrics to drive supply chain effectiveness

• Transformation to Lean Supply Chain

• Creative Supply Chain Partnership and Distribution Strategies


Challenges of supply chain management


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What is Supply Chain Mgmt?

• SCM = Integration of the activities that procure materials, transform them into intermediate goods & final products, and deliver them to customer.

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Suppliers Manufacturers Warehouses & distribution centers Customers

Material Costs

Transportation Costs

Manufacturing Costs

Inventory Costs


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11%

31%

58%

Material

Dir Wages

Other

71%

16%13% COGS

Payroll

Other

83%

9%8%COGS

Payroll

Other

Manufacturing

Wholesale

Retail

Material Costs in Supply-Chain


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Objective of SCM

To build a chain of suppliers that focus on both reducing waste & maximizing value to the ultimate customer.


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SCM - Strategic Importance

How the Supply Chain can support the overall strategy?

Low-Cost Low-Cost StrategyStrategy

Response Response StrategyStrategy

Differentiation Differentiation StrategyStrategy

Supplier’s Goal

Supply Supply demand at demand at lowest lowest possible cost.possible cost.

Respond quickly Respond quickly to changing to changing requirements & requirements & demand to min. demand to min. stockouts.stockouts.

Share market Share market research; jointly research; jointly develop products & develop products & options.options.

Primary Selection Criteria

Select Select primarily for primarily for cost.cost.

Select primarily Select primarily for capacity, for capacity, speed, & speed, & flexibility.flexibility.

Select primarily for Select primarily for product product development skills.development skills.

Process Characteristics

Maintain high Maintain high average average utilization.utilization.

Invest in excess Invest in excess capacity & capacity & flexible process.flexible process.

Modular processes Modular processes that lend that lend themselves to mass themselves to mass customization.customization.


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SCM - Strategic Importance (cont)

How the Supply Chain can support the overall strategy?

Low-Cost Low-Cost StrategyStrategy

Response Response StrategyStrategy

Differentiation Differentiation StrategyStrategy

Inventory Characteristics

Min inventory Min inventory throughout the throughout the chain to hold chain to hold down costs.down costs.

Develop Develop responsive responsive system, with system, with buffer stocks buffer stocks positioned to positioned to ensure supply.ensure supply.

Min inventory in the Min inventory in the chain to avoid chain to avoid obsolescence.obsolescence.

Lead-Time Characteristics

Shorten lead Shorten lead time as long as time as long as it does not it does not increase costs.increase costs.

Invest Invest aggressively to aggressively to reduce production reduce production lead time.lead time.

Invest aggressively Invest aggressively to reduce to reduce development lead development lead time.time.

Product-Design Characteristics

Max Max performance & performance & min cost.min cost.

Use product Use product designs that lead designs that lead to low setup time to low setup time & rapid production & rapid production ramp-up.ramp-up.

Use modular design Use modular design to postpone product to postpone product differentiation for as differentiation for as long as possible.long as possible.

Value of information and demand distortion


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Supply Chain Dynamics

Retailer

Wholesaler

Distributor

Factory

Order lead time

Order lead time

Order lead time

Delivery lead time

Delivery lead time

Delivery lead time

Production lead time

Example: Diapers distributionSynerflexConsulting.com

“Bull-Whip Effect”


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The “Bullwhip Effect”

The ordering patterns share a common

recurring theme:

• The variability of an upstream site are always greater than those of the downstream site


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Causes of “Bullwhip” Effect

• Demand forecasting & Lead time

• Order batching

• Price fluctuation

• Shortage gaming / Inflated orders


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Order Variation in SCM


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Demand Forecasting & Lead Time

• Traditional inventory mgmt lead to bull-whip – min/max inv policy

• Forecasting difficulties – based on historical data

• Order change constantly – increase variability• Safety stocks that depend on erratic variance

on demand & long lead time


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Batch Ordering

• Economic of scale

• MRP driven requirement

• Lower transportation cost

• “Push Ordering” for short term performance measures


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Price Fluctuation

• Discounts & promotions

• Quantity discounts

• In anticipation of future price increase


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Shortage Gaming/ Inflated Orders

• Happen when demand > supply

• Customers exaggerate real needs

• When constraints removed, orders drop

• Examples: Passive components in the 1999-2000


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To Counteract the “Bullwhip”

• Information Sharing

• Break Order Batches & Collaborative Planning

• Stabilize Prices

• Eliminate Gaming in Shortage Situations

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Utilizing performance metrics to drive supply chain effectiveness


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SCM Metrics

• Biz performance measure:

– No longer focused on individual company

– Based on whole supply chain• Ultimate goal = Customer Satisfaction

• Focus on Two dimensions

– One dimension – single company

– Two dimension – multi-functional & multi-company


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3 Key Dimensions

• Service– Anticipate & fulfill customer demand– Personalized products– On time delivery

• Assets– Inventory & cash

• Speed– Responsiveness & velocity of execution


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Service Metrics

Measure how well we are serving our customers

Make to Stock (MTS) Make to Order (MTO)

Line Item Fill Rate

Complete Order Fill Rate

Delivery Process On-Time

$Backorder/Lost Sales

No of Backorders

Aging of Backorders

Quoted Cust Response Time

% On-Time Completion

Delivery Process On-Time

$ of Late Orders

# of Late Orders

Aging of Late Orders


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Utilizing Creative Approaches to Effectively Managing your supply chain


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Approaches

• CRP (Continuous Replenishment Program)

• VMI (Vendor Managed Inventory)

• Risk Pooling

• Transshipment

• Cross Docking

• Design for LogisticsSynerflexConsulting.com

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Supply Chain Defnition