Supply Chain Management

According to APICS, a supply chain is a Global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical distribution and cash. The Basic Supply Chain consists of three units.Supplier, Producer and Customer Four basic flows connect these entities together: 1. The flow of physical materials and services from suppliers to producer to customer 2. The flow of cash from the customer back upstream toward the supplier 3. The flow of information back and forth along the chain 4. The reverse flow of products returned for repairs, recycling or disposal.(This is called reverse supply chain and is handled by reverse logistics.) Value Chain (Vs) Supply Chain A Value Chain can be any series of activities that increases the value of a product or service as it passes through stages of development and distribution before reaching the end user. Supply Chain is but one part of value Chain. In basic terms, your supply chain consists of your suppliers, your customers and of course, yourselfthe producer. Your extended supply chain adds your suppliers supplier and your customers customers to create your extended supply chain. In order to maximize your competitive advantage you need to strengthen your whole supply chain (the extended supply chain) and turn-it into a value chain. Converting supply chains into value chains is a powerful strategy. Supply chains consist of weak bonds and can be broken easily by a new supplier. Value chains are made of strong bonds and are harder to break. Also, Supply Chains generally include activities like, Inbound logistics, Operations, Outbound logistics, Marketing and Sales, Customer Service. These activities are generally categorized under primary activities of value chain. Support activities of value chain include infrastructure, HR, Technology development. SCOR Model SCOR: Supply Chain Operations Research SCOR Process: Plan, Source, Make, Deliver and Return. Types of SCM 1. Vertical Chains: refers to practice of brining the supply chain inside one organization. Eg: Henry Ford pursued a strategy of owning and controlling as many links in the automobile supply chain as possible. The primary benefit of vertical integration is control. 2. Horizontal Chains: Control will be in different hands of ownership. The major challenge in horizontal chains is integration. Horizontal chains are the way of world now. The primary benefit of these chains is, they will help in achieving economies of scale of scope. --Krishna: IM12 Associate Consultant @ SAP

Demand Planning
Determining how much to produce would be a simple matter if demand were stable. It isnt. Demand is a moving target. Sources of Demand Variability: Competition, Seasonality, life cycle trends, promotions, disasters etc., Bull Whip Effect While demand fluctuation most often begins at the retail end of the supply chain, variability occurs throughout the network. In fact, even modest variations in retail demand may ripple up the links of the chain, with the amount of variation growing at each link- a condition known as the bullwhip effect. Eg: Bull whip effect occurred in the diaper supply chain at P&G. Causes: Demand forecast errors, lead times, price fluctuations, promotions, shortage gaming. Counter measures: Information sharing, Electronic Data Interchange, Vendor Managed Inventory etc. Forecasting Qualitative Approaches: i. Personal Insight ii. Sales force consensus estimate iii. Management estimate iv. Market research v. Delphi Method Quantitative Approaches: i. Nave approach: assumes the demand in the next time period will be the same as demand in the last time period ii. Moving averages: assumes the demand in the next time period will be the average demand from a series of preceding periods iii. Weighted Moving averages: assumes the demand in the next time period will be the weighted average of preceding periods by placing more emphasis on recent periods and less on earlier periods. iv. Exponential smoothing VMI (Vendor Managed Inventory) In the traditional customer-supplier relationship, the customer stocks its shelves with products that it buys from a supplier, basing its orders upon demand forecasts. Once the products belong to the customer, it controls all decisions relating to the storage, display, sale and replenishment of goods. In a VMI arrangement, by contrast, the supplier takes over inventory functions that the customer would manage in the traditional customer-supplier arrangement. --Krishna: IM12 Associate Consultant @ SAP

Benefits of VMI 1. Reduction or elimination of bullwhip effect 2. Reduced inventory costs 3. Greater percentage of on-time deliveries 4. Increased inventory turns 5. Reduction of lead times for deliveries etc., CPFR (Collaborative Planning Forecasting and Replenishment) CPFR is an evolving set of best practices that help supply chain partners jointly plan some or all key activities from production of raw materials to the sale of finished goods.

Manufacturing Planning and Controlling

S&OP: Works only with the aggregate supply and demand, projecting volumes for product families rather than individual products MPS: Disaggregate the product family data into numbers of individual products. Also determines the weekly production dates based on the monthly projections in the production plan RCCP: is a review of capacity throughout the system to see, if the production schedule is feasible with current plans, labor, equipment, processes etc. MRP: schedules dependent demand the delivery of the materials and components that go into manufacturing finished products for consumers.

--Krishna: IM12 Associate Consultant @ SAP

Pull System: Pulling inventory through the chain toward the end customer. Retailer enters an order to meet projected demand and the distributor orders from the manufacturer. Push System: A push system sends distribution inventory down the chain based on decisions and forecasts made centrally. The downstream partners receive shipments on schedules developed elsewhere in the network rather than when they order it. Distribution Requirements Planning (DRP) Distribution Requirements Planning uses dependent demand models to develop a stock replenishment program that works throughout the network. DRP combines the following ingredients i. demand forecasts to determine the gross requirement ii. a minimal amount of safety stock for customer service iii. accurate lead time information iv. overall knowledge of distribution system Inventory Management A major portion of a supply chains invested capital perhaps as much as 40-50 percent can be tied up in inventory, which comprises all those materials, parts, and products that are stocked somewhere or are in transit to their next stop along the chain. Functions of Inventory: i. To meet future demand ii. To cover fluctuations in supply or demand iii. To fill the pipeline iv. To hedge against price fluctuations v. For economies of scale Types of Inventory: i. Raw materials inventory ii. WIP Inventory iii. Finished Goods Inventory iv. MRO (Maintenance/Repair/Operations Inventory)

Logistics
Logistics may be defined as the various related tasks required to get the right goods into the right hands at the right time. Logistics Functions: 1. Transportation 2. Warehousing 3. Third party and fourth party logistics 4. Reverse Logistics --Krishna: IM12 Associate Consultant @ SAP

Break Bulk and Cross dock facilities at Warehouse Break Bulk: In a break bulk facility, a shipment comes in from one supplier or manufacturer and is broken down into smaller shipments for specific customers. Cross-Dock: In a cross dock facility shipments come in from many suppliers or plants, are sorted by customer, and then are moved across the dock (without being stored) for shipping to those customers. Benefits: Break bulk and Cross dock facilities provide the benefits of consolidated, full trailer shipment, either into the facility, out of the facility, or both. They also reduce handling costs because they move straight through the warehouse without being moved into and out of storage.

Inventory Norms
Inventory norms are the norms that are to be maintained at any point of time to achieve the required service levels. (Can be raw material inventory in the initial stages of production, can be finished goods inventory at the distribution end or can be WIP inventory) In general there will be three levels K min = Service level * Std. deviation of demand * Sqrt (lead time) + Safety Stock Trigger Point = K min + Order Qty K max = Trigger point + Order Qty Order Qty = Avg downstream demand * Avg upstream lead time. Note: A Service level of 2.33 implies that 99% of the times customer is satisfied. Safety Stock is taken care of uncertainties

VAT
Authors Note: Refer to the attached ppt Recent news is that, from January 1st, TN is implementing VAT. There is a possibility of questions on that aspect. How companies react etc etc

Supply Chain Risk Management

In today's world of interconnected economies, no company can survive by standing alone. Every company is linked with other companies, forming supply chains following lean manufacturing, JIT and others. While lean manufacturing and global sourcing can generate significant savings for companies, they can also expose them to a greater risk of supply chain disruption. A single disruption of any one entity in a supply chain affects the entire chain. But continuing in traditional ways is also risky. In short, a company must Identify, Evaluate (rank) & Manage its supply chain risks to thrive in today's economy. Risks are industry dependent. They vary across companies. --Krishna: IM12 Associate Consultant @ SAP

Recent Trends in Supply Chain

Some general funda Delayed Differentiation: This concept is being used in Asian paints. Products are made form primary colors at the later stage. This facilitates the mass production of primary products Reverse Logistics: Reverse logistics will be/should be very strong for companies like Coke/Pepsi., where the empty bottles should reach the company for refilling after cleaning.

--Krishna: IM12 Associate Consultant @ SAP

Must know terms Business Process Re-engineering (BPR) BPR can be defined as producing value for customer by re-arrangement of various business elements and fundamentals. The very essence of re-engineering is re-designing, re-producing a job right from scratch, as if nothing existed before. This is also known as Clean Slate approach in simple language. The fundamental philosophy of BPR is challenging some of the established and conventional business rules like saying no to functional specialization (division of labour).BPR is not about Integration, Automation and Downsizing as is often misinterpreted. BPR is also not a specific technique like SMED, MRP or a production planning philosophy like JIT. Rather, it is the fundamental belief that existing business processes can be changed and improved dramatically from the customers perspective. Enterprise Resource Planning (ERP) ERP attempts to develop an integrated computerized planning and execution system having common shareable databases, avoiding multiple entries of the same data and maintaining better data integrity. This IT solution is useful to plan the four major resources of an organization, namely materials, machines, men and money, making them available at one place according to the market requirements. ERP is the overall integration of the enterprise, for the purpose of resource planning and execution, irrespective of locations, languages and currencies. Just In Time (JIT) As the name implies, JIT revolves around the idea, Do not produce or assemble in anticipation. Produce or assemble only the right products in the required quantities at the right time. Here inventory or stock is viewed as a waste of resources, blockage of working capital and an obstacle to improvement and flexibility. Three JIT basics are Waste Reduction, Elimination of Variability & Pulling materials into production. Kaizen KAI = Change, ZEN = Good. Kaizen means Change for better. Kaizen means small, simple and incremental improvements on a continuous basis. Kaizen differs from innovation in the aspect that Innovation is a improvement in big steps. Innovation is mostly shorter, intermittent in nature. Kaizen on the other hand stresses on Continuous improvement. Kanban Kanban is the Japanese word for Token, Ticket or Card that is meant to communicate a demand for material or parts. This demand may be either be within the process (i.e, from one workstation to other) or from other processes to supply point (assembly area, warehouse etc). This signaling process through Kanban indicates the need for a certain predetermined quantity of parts and ensures that they are produced in time in just the right quantities at the right time to support subsequent process or assembly, which results in pull system. Kanban helps in maintaining JIT system --Krishna: IM12 Associate Consultant @ SAP

Quality Function Deployment The basic function of QFD is to ensure that customers needs, wants and desires are clearly identified and integrated into product/process quality design, to meet their real requirements. Its a five step, four phased mechanism. Similar terms used are House of Quality and Voice of Customer Six Sigma Six sigma fundamentally focuses on reduction in variability. This can be interpreted as a disciplined method of using extremely rigorous data gathering and statistical analysis to identify the sources of errors and ways of eliminating them. Six Sigma represents a near defect-free situation or precisely 3.4 defects per million opportunities. Most common approach of Six Sigma is DMAIC Define: What is the problem and its scope? Measure: What are the performance variables and its impact? Analyze: What are the success factors? Improve: How is variable performance diagnosed? Control: Establishment of selected causal variables. Total Productive Maintenance (TPM) TPM is an approach with the core objective of organizing a workplace to prevent all losses and achieve zero defects, zero breakdowns, and zero accidents and zero pollution in the entire production system life cycle. This is done by involving all the employees, covering the entire organization in the form of small competing teams, to establish a corporate wide culture for maximizing production efficiency. Total Quality Management (TQM) Total means everyone should be involved Quality means customer should be provided with a better quality product and services that meet/exceed expectations Management means the way total quality is conducted and experimented TQM is an integrated organizational approach, with the core objective of customers delight, by meeting their expectations on continuous basis, through total employee involvement working on a continuous improvement basis, in all products, process and services affecting customer satisfaction along with proper problem solving methodology in the most economic way. Lean Production A philosophy of production that emphasizes the minimization of the amount of all the resources used in the various activities of the enterprise. Leah techniques include Value stream mapping & Kaizen.

--Krishna: IM12 Associate Consultant @ SAP