SUBMITTED TO: MR. A. SRINIVASA RAO ASSOCIATE PROFESSOR SUBMITTED BY : GREESHMA.V MFM 1

HISTORY & EVOLUTION OF SUPPLY CHAIN MANAGEMENT

INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

WHAT IS SUPPLY CHAIN?

FLOW OF SUPPLY CHAIN

SCM IN SUPPLY NETWORK

PHILOSOPHY OF SCM

EVOLUTION OF SCM

FUNCTION OF SCM

HISTORY OF SUPPLY CHAIN INITIATIVE

WHY SCM IS IMPORTANT?

SUMMARY

BIBLIOGRAPHY

OVERVIEW

INTRODUCTION TO SUPPLY CHAIN MANAGEMENT Supply Chain Management encompasses every effort

involved in producing and delivering a final product or service, from the supplier’s supplier to the customer’s 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

SUPPLY

Sources:plantsvendorsports

RegionalWarehouses:stocking points

Field Warehouses:stockingpoints

Customers,demandcenterssinks

Production/purchase costs

Inventory &warehousing costs

Transportation costs Transportation

costs

Customer wantsdetergent and goes

to Rigsby

RigsbySupermarket

Rigsby or thirdparty DC

P&G or othermanufacturer

PlasticProducer

Chemicalmanufacturer

(e.g. Oil Company)

TennecoPackaging

Paper Manufacturer

TimberIndustry

Chemicalmanufacturer

(e.g. Oil Company)

FLOW IN A SUPPLY CHAIN

Customer

MaterialInformation Funds

The flows resemble a chain reaction.

Supplier

Supply Chain Management (SCM) is concerned with the management and control of the flows of material, information, and finances in supply chains.

The task of SCM is to design, plan, and execute the activities at the different stages so as to provide the desired levels of service to supply chain customers profitably

SCM IN A SUPPLY NETWORK

SUPPLY

DEMAND

PRODUCTS AND SERVICES

CASH

Supply Side OEM Demand Side

THAILAND INDIA MEXICO TEXAS USN-Tier Suppliers Suppliers Logistics Distributors Retailers

INFORMATION

KEY OBSERVATIONS

INTEGRATED ACTIVITY Among functions such as logistics, manufacturing, distribution, design/engineering, marketing, finance, etc. Multiple organizations,i.e., suppliers, customers & 3 PL providers Coordination of conflicting goals, metrics, etc.

RESPONSIBLE FOR MULTIPLE FLOWS Information (orders, status, contracts) Physical (finished goods, raw material, w.i.p.) Financial (payment, credits, etc.)

MOST ANALYSIS INVOLVES TRADE-OFFS Across different entities Across metrics: Cost, Service, Time, Risk, etc.

PHILOSOPHY OF SCM

The entire supply chain is a single, integrated entity.

The cost, quality and delivery requirements of the customer are objectives shared by every company in the chain.

Inventory is the last resort for resolving supply and demand imbalances.

EVOLUTION OF SCM

Ancient Times - The Barter System evolved as an answer to the trading requirements. This was the first supply chain

300 BC- Caesar made trading posts in East Asia to grow his trade. This was the first retailer supplier

1151- First known fire and plague insurance offered in Iceland

1956- Warren Buffet started investment partnership in Omaha with money from family and friends and he went on to become a billionaire (An overseas 3PL)

1960-1975- The essence of SCM understood. This first phase is characterized as an inventory 'push' era that focused primarily on physical distribution of finished goods

Warren Buffet

1975-1990- The earlier approach changed. Companies began migrating from an inventory push to a customer pull channel as power began to move the downstream to the customer

1980- In the last phase, companies realized that the productivity could be increased significantly by managing relationships, information and material flow across enterprise borders

1981- IBM outsourced almost all of its activities and built a full computer

1985- Wal-Mart replaced K-Mart as the leader in retail stores

1990- Computer changed the way business is done

Physical distributionPhysical supply(Materials management)

BUSINESS LOGISTICS

Sources ofsupply

Plants/operations Customers

• Transportation• Inventory maintenance• Order processing• Acquisition• Protective packaging• Warehousing• Materials handling• Information maintenance

• Transportation• Inventory maintenance• Order processing• Product scheduling• Protective packaging• Warehousing• Materials handling• Information maintenance

INTERNAL SUPPLY CHAIN

TRADITIONAL SCOPE OF THE SUPPLY CHAIN

1996- Internet revolutionized the information pathway and the distribution system of the business

1998- The concept of e-commerce changed the definition of

business itself

2000- Currently concepts like t-commerce and digital TV are beginning to take shape

HISTORY OF LOGISTICS AND SUPPLY CHAIN

STRATEGIC LEVEL

Strategic network optimization, including the number, location,& size of warehousing, distribution centers,& facilities

Strategic partnerships with suppliers, distributors,& customers creating communication channels for critical information & operational improvements

Where-to-make & make-buy decision

It is long term planning & needs resource commitment

FUNCTIONS OF SCM

TACTICAL LEVEL

Sourcing contracts & other purchasing decisions Transportation strategy, including frequency, routes, and contracting

Production decisions, including contracting, scheduling, & planning process definition

Focus on customer demand & inventory decision

OPERATIONAL LEVEL

Daily production and distribution planning, including all nodes in the supply chain

Production scheduling for each manufacturing facility in the supply chain

From production level to supply level accounting all transit damage cases & arrange to settlement at customer level by maintaining company loss through insurance company

The history of supply chains begins in the 18th and 19th century where it was invisible and taken for granted.

Naturally, Henry Ford, of Ford Dealerships, controls all the elements that feed his production lines. Tom Peters, who gave a presentation to major Ford dealers was struck by the fact that the convention center was built on the fields where Ford used to raise sheep to supply wool for its own automobile upholstery.

Integration that now would seem crazy used to be seen as the only way to get things done. South Korean chaebols are great examples of this mentality.

In a developing country, this makes sense but in a developed country it is nonsense. Flexibility is what gives the business supply chain its strength but also its vulnerability.

HISTORY OF SUPPLY CHAIN INITIATIVE

There is more to a supply chain than just managing it; just thinking about it sheds light on organizational development itself. Traditionally, companies had warehouse mentality, with security of supplies being the main requirement.

The history of the supply chain initiative can be traced to early beginnings in the textile industry with the quick response program and later to efficient consumer response in the grocery industry. More recently a variety of companies across many industries have begun looking at the entire supply chain process.

Quick response, for general merchandise retailers and their suppliers

Owing to intense competition in the textile and apparel industry world-wide, leaders in the US apparel industry formed the Crafted With Pride in the USA Council in 1984 (Kurt Salmon Associates, Inc., 1993).

In 1985, Kurt Salmon Associates were commissioned to conduct a supply chain analysis.

The results of the study showed the delivery time for the apparel supply chain, from raw material to consumer, was 66 weeks long, 40 weeks of which were spent in warehouses or in transit. The long supply chain resulted in major losses to the industry due to financing the inventory and lack of the right product in the right place at the right time.

The result of this study was the development of the quick response (QR) strategy. QR is a partnership where retailers and suppliers work together to respond more quickly to consumer needs by sharing information.

Significant changes as a result of the study were the industry adoption of the UPC code used by the grocery industry and a set of standards for electronic data interchange (EDI) between companies.

Retailers began installing point of sale (POS) scanning systems to transfer sales information rapidly to distributors and manufacturers.

"QR maximizes the profitability of inventory by placing the company's dollars where and when they are needed based on point of sale data plus sales history" (Mullin, 1994).

QR incorporates marketing information on promotion, discounts, and forecasts into the manufacturing and distribution plan.

Efficient consumer response, the grocery business initiative

In 1992, a group of grocery industry leaders created a joint industry task force called the efficient consumer response (ECR) working group.

Kurt Salmon Associates were engaged by the group to examine the grocery supplier/ distributor/consumer value-chain and determine what improvements in cost and service could be accomplished through changes in technology and business practices.

The results of the study indicated little change in technology was required to improve performance, other than further development of EDI and POS systems.

As Kurt Salmon and Associates (1993) found: "By expediting the quick and accurate flow of information up the supply chain, ECR enables distributors and suppliers to anticipate future demand far more accurately than the current system allows.

The successful adoption of ECR for a manufacturer depends on their ability to maintain manufacturing flexibility which enables them to match supply with demand.

Key to this flexibility is a process that tightly integrates demand management, production scheduling, and inventory deployment to allow the company to better utilize information, production resources, and inventory.

A further development from ECR was the concept of continuous replenishment (CRP). CRP is a move away from pushing product from inventory holding areas to pulling products onto grocery shelves based on consumer demand.

Point of purchase transactions are forwarded by computer to the manufacturer allowing them to keep the retailer replenished and balanced just-in-time.

CRP has been introduced by a number of manufacturers .

Procter & Gamble and Campbell soup are delivering as much as 30 to 40 percent of their volume by CRP.

Ralston, General Mills and Pillsbury distribute about 10 percent by CRP.

Estimates of improvements in performance with CRP include increasing inventory turns from 10 up to 50, reducing days of supply from 30 to 5 and increasing net margin from 5 percent to 7 percent.

OTHER EARLY SUPPLY CHAIN INITIATIVES

Besides the apparel and grocery industry initiatives, other early manufacturing efforts to improve supply chain performance have been documented.

Some of these include: Hewlett-Packard, Whirlpool, Wal-Mart, West Co. A brief outline of their supply chain initiatives are described as follows.

Hewlett-Packard The computer components manufacturer, systematically linked

its distribution activities with its manufacturing activities in the computer terminal business in the early 1990s (Hammell and Kopczak, 1993).

The implementation included changes in both the physical distribution of the product, and a new distribution requirements planning (DRP) system. The DRP system nets customer orders with forecasts and serves as the beginning pull in the supply chain.

Whirlpool

The appliance manufacturer, began its supply chain implementation with a team of executives in 1992 chartering this vision - "Winning companies will be those who come the closest to achieving an inter-enterprise pull system. They will be linked in a short cycle response mode to the customer" (Davis, 1995).

Whirlpool has created a new vice-president of logistics position, established cross-functional teams for key product areas, entered into single source agreements with suppliers based on reliability and the ability to assist in product design, and is using EDI to communicate daily with suppliers all as part of its supply chain management program.

As a result, product availability is up in the 90-95 percent range, inventories have been reduced by 15 to 20 percent and lead times reduced to as low as five days.

Wal-Mart

The company began its own supply chain initiative by working directly with key manufacturers (Johnson and Davis, 1995). The manufacturers are responsible for managing Wal-Mart's warehouse inventory of their products, termed vendor managed inventory (VMI). In return, Wal-Mart expects near 100 percent order fulfilment rates on those products. K Mart and other large retailers have implemented similar VMI programs.

STRATEGIC ADVANTAGE – IT CAN DRIVE STRATEGY

Manufacturing is becoming more efficient SCM offers opportunity for differentiation (Dell) or cost

reduction (Wal-Mart or Big Bazaar)

GLOBALIZATION – IT COVERS THE WORLD

Requires greater coordination of production and distribution

Increased risk of supply chain interruption Increases need for robust and flexible supply chains

AT THE COMPANY LEVEL, supply chain management impacts

COST – For many products, 20% to 40% of total product costs are controllable logistics costs.

SERVICE – For many products, performance factors such as inventory availability and speed of delivery are critical to customer satisfaction.

In the early days, the supply chain management was referred to the functions of logistics, transportation, purchasing and supplies. However, the evolution of the supply chain management has moved to focus on integration, visibility, cycle time reduction and streamlined channels.

The new integration has a variety of activities that include:

• Integrated Purchasing Strategy

• Supplier Integration

• Supply Base Management

• Supply Chain Management

Logistics activities exist since the early 1900s. These activities were first associated with the military as a branch of war that pertains to the movement and the supply for armies.

After 1950, supply chain management got a boost with the production and manufacturing sector getting highest attention.

The inventory became the responsibility of the marketing, accounting and production areas. Order processing was part of accounting and sales.

Supply chain management became one of the most powerful engines of business transformation. It is the one area where operational efficiency can be gained. It reduces organizations costs and enhances customer service. The evolution led to an Internet-based application for Supply Chain Management.

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Supply chain management. (n.d.). Retrieved from Wikipedia: http://en.wikipedia.org/wiki/Supply_chain_management

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