Introduction of SCM

8/4/2019 Introduction of SCM

1/42

INTRODUCTION TO SUPPLY CHAINMANAGEMENT


2/42

Flows in a Supply Chain

Customer

Information

Product

Funds


3/42

What is Knowledge? A collection of data is not information.A collection of information is not knowledge.A collection of knowledge is not wisdom.A collection of wisdom is not truth.


4/42

In the first half of the twentiethcentury industry replaced agriculture, in

the second half of the twentieth century

service has replaced manufacturing -and right now, the knowledge industry isbeginning to replace the others.

George Kotzmetzk


5/42

Chapter Outline

* Introduction* What is Supply Chain Management?* Why is Supply Chain Management important?* The origins of Supply Chain Management* Important Elements of Supply Chain Management:

- Purchasing- Operations- Distribution- Integration

* Strategies for Supply Chain Management* Future Trends in Supply Chain Management* The Beer Game


6/42

What is a Supply Chain?

A supply chain consists of the flow of products andservices from/to:--Raw materials manufacturers SEE FIGURE 1.1--Intermediate products manufacturers--End product manufacturers--Wholesalers and distributors--Retailers and,--End customers

Connected by agents, transportation and storageactivities, and

Integrated through sharing of information, planning, andprocessing activities\

Examples???


7/42

Supply

Sources:plants

vendorsports

Regional Warehouses:stocking points

Field Warehouses:stocking points

Customers,demandcenterssinks

Production/purchasecosts

Inventory & warehousing costs

Transportationcosts Inventory &

warehousing costs

Transportationcosts


8/42

Figure 1.1 A Generic Supply Chain

End product manufacturer

Wholesalers,distributors

Intermediate component mfgs .

Raw material suppliers

Retailers

End

customers

Product & service flow

Information and planning


9/42

Typical Supply Chains

Purchasing Receiving Storage Operations Storage

Production Distribution


10/42

Typical Supply Chain for a Manufacturer

Supplier

Supplier

Supplier

Storage} Mfg . Storage Dist . Retailer Customer


11/42

Supplier

Supplier }Storage Service Customer

Typical Supply Chain for a Service


12/42

What is Supply Chain Management?

Here are two definitions :

The design and management of seamless, value-addedprocess across organizational boundaries to meet the real

needs of the end customer -- Institute for Supply Management

Managing supply and demand, sourcing raw materials andparts, manufacturing and assembly, warehousing andinventory tracking, order entry and order management,distribution across all channels, and delivery to the customer

-- The Supply Chain Council


13/42

What Is the Goal of Supply Chain

Management?.Supply chain management is concerned with

the efficient integration of suppliers, factories,

warehouses and stores so that merchandise isproduced and distributed: In the right quantities To the right locations

At the right timeIn order to Minimize total system cost Satisfy customer service requirements


14/42

Importance of Supply ChainManagement

* Firms have discovered value-enhancing and longterm benefits

* Who benefits most? Firms with:- Large inventories- Large number of suppliers- Complex products- Customers with large purchasing budgets

* Benefits- Lower purchasing/inventory costs, higher

quality/customer service


15/42

Importance of Supply Chain Mgt. Cont.

Firms practicing Supply ChainManagement:

1. Start with key suppliers2. Move on to other suppliers, customers,

and shippers3. Integrate second tier suppliers and

customers (second tier refers to thecustomers customers and thesuppliers suppliers)


16/42

Importance of Supply Chain Mgt. Cont.

* Cost savings and better coordination of resourcesare reasons to employ Supply Chain Management

-- Bullwhip Effect- the magnification of safety stocks andcosts based on separate forecasts and uncoordinatedplanning and sharing of information along the supply chain(Ex. 1.1)

*Reducing the bullwhip effect occurs through:

-- Process integration- Interdependent activities can lead toimproved quality, reduced cycle time, better productionmethods, better forecasts, less safety stock, etc.


17/42

Important Elements of SCM

Purchasing- Supplier alliances, suppliermanagement, strategic sourcing

Operations- Demand management, MRP, ERP, JIT,TQM

Distribution- Transportation management, customerrelationship management, network

design, service response logistics

Integration- Coordination/Integration activities,global integration problems,performance measurement


18/42

Important Elements of SCM-Cont.

Purchasing:Long term relationships Supplier management- improved performancethrough-

-- Supplier evaluation (determining suppliercapabilities and performance)-- Supplier certification (third party orinternal certification to assure product qualityand service compliance)

Strategic partnerships- successful andtrusting, long-term relationships with top-performingsuppliers


19/42

Important Elements of Supply ChainManagement-Cont.

Operations:-- Demand management- match demand to availablecapacity-- Linking buyers & suppliers via MRP and ERP systems

-- Use JIT to improve the

pull

of materials to reduceinventory levels-- Employ TQM to improve quality compliance amongbuyers and suppliers


20/42


Distribution:-- Transportation management- tradeoffdecisions between cost & timing ofdelivery/customer service via trucks, rail,water & air-- Customer relationship management- strategies to ensure deliveries, resolvecomplaints, improve communications, &determine service requirements-- Network design- creating distribution network s based on tradeoff decisions betweencost & sophistication of distribution system


21/42


Integration:

-- Supply Chain Integration- when supply chainparticipants work for common goals. Requires intrafirm

functional integration. Based on efforts to changeattitudes & adversarial relationships-- Global Supply Chains- advantages that accrue fromsourcing from larger global market e.g., lower cost &higher quality suppliers. May involve operating exposure,

which is risk found in foreign settings-- Supply Chain Performance Measurement- Crucial forfirms to know if procedures are working


22/42

Strategies for SCM

All of the advanced strategies, techniques,and approaches for Supply ChainManagement focus on:

Global OptimizationManaging Uncertainty


23/42

Optimization

* What is it?* Why is it important?* What tools and approaches help?


24/42

Tools and Strategies for

Optimization

Decision Support Systems

Inventory Control Network Design Design for Logistics Cross Docking


25/42

Global Optimization

What is it?Why is it different/better than local optimization?What are conflicting supply chain objectives?What tools and approaches help with global

optimization?


26/42

ProcurementPlanning

ManufacturingPlanning

DistributionPlanning

DemandPlanning

Sequential Optimization

Supply Contracts/Collaboration/Information Systems and DSS

ProcurementPlanning

ManufacturingPlanning

DistributionPlanning

DemandPlanning

Global Optimization

Sequential Optimization vs.Global Optimization

Source: Duncan McFarlane


27/42

Why is Global Optimization Hard?

The supply chain is complex Different facilities have conflicting objectives The supply chain is a dynamic system The power structure changes The system varies over time


28/42

Uncertainty

What is variation? What is randomness? What tools and approaches help us to

deal with these issues?


29/42

Cant Forecasting Help?

Forecasting is always wrong

The longer the forecast horizon the worse theforecastEnd item forecasts are even more wrong


30/42

Why Is Uncertainty Hard to Deal With?

* Matching supply and demand is difficult.* Forecasting doesnt solve the problem. * Inventory and back-order levels typically fluctuate widely

across the supply chain.* Demand is not the only source of uncertainty:

Lead times Yields Transportation times Natural Disasters

Component Availability


31/42

Supply Chain Variability

V o

l u m e s

Time

Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

ActualConsumer

DemandRetailer Warehouseto ShopRetailer Orders

Production Plan

Manufacturer Forecastof Sales


32/42

What Management Gets...

V o

l u m e s

Time


ConsumerDemand

Production Plan


33/42

What Management Wants

V o

l u m e s

Time


ConsumerDemand

Production Plan


34/42

Dealing with Uncertainty

Pull Systems Risk Pooling Centralization Postponement Strategic Alliances Collaborative Forecasting


35/42

Supply Chain:the Magnitude

In 1998, American companies spent $898 billion insupply-related activities (or 10.6% of gross domesticproduct). Transportation 58%

Inventory 38% Management 4%

Third party logistics services grew in 1998 by 15% tonearly $40 billion


36/42

Supply Chain:the Magnitude

It is estimated that the grocery industry couldsave $30 billion (10% of operating cost) by

using effective logistics strategies. A typical box of cereal spends more than threemonths getting from factory to supermarket.

A typical new car spends 15 days travelingfrom the factory to the dealership, althoughactual travel time is 5 days.


37/42

Supply Chain: The Magnitude

Compaq computer estimates it lost $500 million to $1 billionin sales in 1995 because its laptops and desktopswere not available when and where customers were

ready to buy them.

Boeing aircraft, one of America's leading capital goodsproducers, was forced to announce write downs of$2.6 billion in October 1997, due to Raw material

shortages, internal and supplier parts shortages.


38/42

Supply Chain: The Potential

Procter & Gamble estimates that it saved retailcustomers $65 million through logistics gains over thepast 18 months.

According to P&G, the essence of its approach lies inmanufacturers and suppliers working closely together . jointly creating business plans to eliminate the source of wasteful

practices across the entire supply chain.(Journal of business strategy, Oct./Nov. 1997)


39/42

Supply Chain:the Potential

In 10 years, Wal-Mart transformed itself by changing itslogistics system. It has the highest sales persquare foot, inventory turnover and operating

profit of any discount retailer. Dell Computer has outperformed the competition interms of shareholder value growth over the eightyears period, 1988-1996, by over 3,000% (seeAnderson and Lee, 1999) using

Direct business model

Build-to-order strategy.


40/42

Whats New?

Global competition Shorter product life cycle New, low-cost distribution channels More powerful well-informed

customers

Internet and E-Business strategies


41/42

H&B Wood Bats Process

ERP5

Overview Supply System at Hillerich & Bradsby


42/42

Technology/Logistics

LO2

Documents

Introduction of SCM