Understanding the Supply Chain Management

What is a Supply ChainTwo or more parties linked by a flow of resources typically material, information, and money that ultimately fulfill a customer request.Supply Chain try to maximize the total value generated= [What customer pays] [ Total effort expended to fulfill]

Flows in a supply chainCustomerInformationProductFunds

Supply Chain Perspectives

*The Supply Chain

*The Supply Chain Another ViewPlan Source Make Deliver Buy

*Logistics versus Supply Chain Management

What is 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

Some DefinitionsSupply Chain Management encompasses every effort involved in producing and delivering a final product or service, from the suppliers supplier to the customers customer. Supply Chain Management includes 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, U.S.A.

Definition of Logistics ManagementLogistics Management is that part of supply chain management that plans, implements and controls the efficient , effective forward and reverse flow and storage of goods, services and related information between the points of origin and the point of consumption in order to meet customers requirements. -- CSCMP

Types of Supply Chain

Efficient supply chain (cost focus)Responsive supply chain (speed focus)

*What Is Supply Chain Management (SCM)? A set of approaches used to efficiently integrateSuppliersManufacturersWarehousesDistribution centersSo that the product is produced and distributedIn the right quantitiesTo the right locationsAnd at the right timeSystem-wide costs are minimized andService level requirements are satisfied

Sources of Variability in Supply Chain

Demand variability (about 60%)Process variability (about 30%)Supply variability (about 10%)

Decision Phases of a Supply ChainSupply chain strategy or designHow to structure the supply chain over the next several years

Supply chain planningDecisions over the next quarter or year

Supply chain operationDaily or weekly operational decisions

Supply Chain Strategy or DesignDecisions about the structure of the supply chain and what processes each stage will perform.

Strategic supply chain decisionsLocations and capacities of facilitiesProducts to be made or stored at various locationsModes of transportationInformation systems.

Supply chain design must support strategic objectives.

Supply chain design decisions are long-term and expensive to reversemust take into account market uncertainty.

Supply Chain PlanningPlanning decisions:Which markets will be supplied from which locationsPlanned buildup of inventoriesSubcontracting, backup locationsInventory policiesTiming and size of market promotions

Must consider in planning decisionsdemand uncertainty, exchange rates, competition over the time horizon

Supply Chain OperationTime horizon is weekly or daily.

Decisions regarding individual customer orders.

Supply chain configuration is fixed and operating policies are determined.

Goal is to implement the operating policies as effectively as possible.

Allocate orders to inventory or production, set order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders.

Much less uncertainty (short time horizon).

Process View of Supply Chain

Four primary cycle:Customer order cycleReplenishment cycleManufacturing cycleProcurement cycleNot every supply chain will have all 4 cycles

Macro Process PerspectiveSupplier Relationship Management (Sourcing, Negotiation, Buying, Design and Supply Collaboration)

Internal Supply Chain Management (Strategic Planning, Demand Planning, Supply Planning, Fulfillment)

Customer Relationship Management (Marketing, Selling, Call Centers, Order Management)

Supply Chain Macro Processes Figure 1-8

Traditional Functional Perspective

Purchase / Procurement

Inventory Control

Warehousing

Material Handling

Order Processing

Transportation

Customer Service

Planning Group

Supply Chain as a System

Bullwhip Effect

Segmentation for Managing Supply ChainType of productCostType of customerProfit margin Location etc.

How can I segment my products?Physical characteristics(value, size, density, etc.)Demand characteristics(sales volume, volatility, sales duration, etc)Supply characteristics(availability, location, reliability, etc.)

Segmentation based on type of customer or supplierLead timePurchase HistoryGeographySales TrendsStrategic ImportanceService LevelOrder/VolumeDemographicChannel Segmentation

Segmentation: Innovative vs. Functional

Challenges to Effective Supply Chain ManagementComplex supply chain networkComplex product structureOrganizational silosIncreasing pressure for customer service and asset utilizationMultiple source of uncertainties

*Why Is SCM Difficult? Uncertainty is inherent to every supply chainTravel timesBreakdowns of machines and vehiclesWeather, natural catastrophe, warLocal politics, labor conditions, border issues

The complexity of the problem to globally optimize a supply chain is significantMinimize internal costsMinimize uncertaintyDeal with remaining uncertainty

*Supply Chain Management Key IssuesOvercoming functional silos with conflicting goals

*SCM Collaboration and Benefits Source: Cohen & Roussel

CUSTOMERSMATERIAL SUPPLIERSSERVICE SUPPLIERS Reduced inventory Increased revenue Lower order management costs Higher Gross Margin Better forecast accuracy Better allocation of promotional budgets Reduced inventory Lower warehousing costs Lower material acquisition costs Fewer stockout conditions Lower freight costs Faster and more reliable delivery Lower capital costs Reduced depreciation Lower fixed costs Improved customer service More efficient use of human resources

*Supply Chain Management Key IssuesSource: Simchi-Levi

ISSUECONSIDERATIONSNetwork Planning Warehouse locations and capacities Plant locations and production levels Transportation flows between facilities to minimize cost and timeInventory Control How should inventory be managed? Why does inventory fluctuate and what strategies minimize this?Supply Contracts Impact of volume discount and revenue sharing Pricing strategies to reduce order-shipment variabilityDistribution Strategies Selection of distribution strategies (e.g., direct ship vs. cross-docking) How many cross-dock points are needed? Cost/Benefits of different strategiesIntegration and Strategic Partnering How can integration with partners be achieved? What level of integration is best? What information and processes can be shared? What partnerships should be implemented and in which situations?Outsourcing & Procurement Strategies What are our core supply chain capabilities and which are not? Does our product design mandate different outsourcing approaches? Risk managementProduct Design How are inventory holding and transportation costs affected by product design? How does product design enable mass customization?

Thank You

****Dependent on each instructors requirements*****