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SEM-4 > OP > Supply Chain Management 1

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Vineet Gupta Reg.

No: 200307579 Supply Chain Management

Q. No.1) What do you mean by SCM? Explain with suitable examples. ANS: A Supply chain management is a network of facilities and distribution options that performs the function of procurement of materials, transformation of these materials into intermediate and finished product and distribution of these products to the final customer. Supply chain exists in both the service and manufacturing organizations. The complexity of SCM varies from firm to firm and industry to industry. In traditional business marketing, distribution, planning, manufacturing and purchase were organized and operated independently. The interests of these organizations were conflicting. For example the goals of manufacturing operations were to maximize production with little consideration to maintain inventory level and to minimize inventory cost. Marketing department, to increase its customer base gives unreasonable delivery commitment to the customer conflicting with the production plan. In this way there was no single was no single plan for the business. To increase the effectiveness clearly there was a need of a plan through which different functions can be integrated. Supply chain management is a strategy through which such an integration can be achieved. The figure above shows the example of supply chain. Materials flow downstream from aw material sources through a manufacturing level transforming the raw materials to intermediate. These are assembled at the next level to form the finished product. The products are shipped to the distribution centers and from there on to retailers and to the customers. The objectives of supply chain management are following 1) Increase communication along all nodes of the supply chain to create uninterrupted flow of materials. 2) Decrease the inventory while maintaining the high customer satisfaction level. 3) Reduce the supplier base and develop the supplier relationship in order to reduce overall costs. 4) Standardize parts as much as possible to reduce the inventory level of parts.

Examples of the supply chain 1) In the Auto industries the components are manufactured at the production centers as per the plan of the Production planning and control department. The parts are assembled into finished product and sent to the distribution centers. Distribution centers are connected electronically with the sales and marketing Page 1 of 17

Vineet Gupta Reg. No: 200307579 Supply Chain Management department which can cater to the varying demands of the customers at these centers. 2) In the service organization the customer complaints is recorded and on passed to the service engineer who immediately talks with the customer and diagnosis the fault. Store issues necessary parts and engineer visits the customer and rectify the fault give feedback to the service center for the necessary records.

Q.No.2) Explain the logistic management in detail and elaborate the difference between logistic and SCM. ANS) Logistic management can be defined as, design and operation of the physical, managerial and informational system needed to allow goods to overcome time and space from the producer to the customer. According to Kotlar four important Cs are convenience, communication, customer value and cost to the customer. The first two Cs are referred as logistic where the customer has the right product at the right time and in right place. Within the supply chain logistics is considered as the link between production, purchasing and marketing. Controlling this link is a measure concern for the management. Any of the above parameters are susceptible to fluctuation and logistic is the way to study and controlling these fluctuations. Productivity and performance in logistic: It can be measured as the ratio of output to a single input such as labor, materials or capital. Value added productivity means sales minus bought in goods, materials or services Total productivity means ratio of total output to total input. A frame work for productivity and performance analysis for logistics management is shown as below


Logistics process or throughput



The ultimate result of logistic process is the outcome indicating the improved quality of life. Productivity is also a combination of effectiveness and efficiency and Page 2 of 17

Vineet Gupta Reg. No: 200307579 Supply Chain Management described as the value of performance achieved in relation to the cost of resources used. Productivity and performance measures need to reflect the objective and goals of logistics management Major long term goals can be following a) Total productivity b) Quality of operation c) Flexibility d) Speed of operation e) Capacity utilization Main processes of logistics are the following parameters a) Procurement b) Packaging c) Handling d) Sorting e) Transport f) Information system Logistic at the strategic level. Four key factors of the logistic strategic environment are. a) Competition b) Market served c) Technology d) Stakeholders Once these are analyzed relevant performance measures can then be developed to monitor the long term success of the chosen strategy. These are demonstrated below.


Market served

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Vineet Gupta Reg. No: 200307579 Supply Chain Management

Logistic strategy

Technology Performance

Shareholders satisfaction

Resultant success of chosen strategy

* Market competitiveness * Financial performance

Determinants of competitive success

* Quality • • • • Productivity Innovation Lead time

Difference between Logistics and supply chain management Logistics SCM

1) Logistic management is the design and operation of the physical, managerial and informational system needed to allow goods to overcome time and space from the producer to the consumer.

1) Supply chain management is the design and operation of the physical manegerial informational and financial systems needed to transfer goods and services from the vender to the customer in an effective and efficient 2) SCM deals with the management of raw materials, production activities, and 2) Logistic management deals distribution aspects of the goods and mainly with the procurement, services. packaging, handling, storing, and transport and information systems.

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Vineet Gupta Reg. No: 200307579 Supply Chain Management

Q.No-3 Explain the forecasting in detail and elaborate how it is interlinked with SCM? ANS: Forecasting is the estimation of value of variables at some future point of time depending on the basis of some past historical data. A forecasting exercise is carried out in order to provide an aid in decision making and in planning the future. It is based on the concept that the past can be the mirror for the future. Application of forecasting 1) It is used in the inventory control/Production planning. Forecasting the demand for a product enables us to plan for the raw material, men and machine required and the inventory of the finished product. 2) Having a sound forecasting method, one can predict the financial variables like interest rate, exchange rate, share price etc. 3) Forecasting the economic information’s enables the government to plan its projects for the future. Forecasting Methods: 1) Qualitative method: There is no any mathematical model available for this type because the data available is not taken as the representative of the future. For example long term forecasting. 2) Regression methods: Regression analysis is the mathematical method of obtaining the best fit of line “relationship” between a dependent variable and a single independent variable. For example Y= a + bx Straight line equation Y = A+B1X1+ B2X2+ -------------+ BkXk Multiple Equation method: This method is used in the economic modeling where many dependent variables interact with each other. For example Let X= personal income Y = Spending I= personal investment Page 5 of 17

Vineet Gupta Reg. No: 200307579 Supply Chain Management R= Interest rate We may have the equations like Y= a1+b1(X-a1) I= a2+ b2r X= Y+I Where a1, a2, b1, b2 are constants. This type is most suited for economic forecast. 4: Time Series method: This type of method deals with variables that changes with time and which depends upon current time and the previous values it took. i.e. Forecast for the period”t” = Ft= Average forecast of the last period + a{ Actual demand for the last period- Average forecast of the last period} Ft= Ft-1+ a(Dt-1 - Ft-1) After generalizing we get an equation like Ft = a.Dt-1 + a(1-a).Dt-2 + a(1-a)*(1-a).Dt-3+----------------------+a(1-a)Dtn-1 Here Ft = Forecast for the period t D(t-1) = Actual demand for the last period A = A constant This method is also called exponential smoothing. Relation between forecasting and SCM Forecasting has a great impact on the effectiveness of SCM. If forecasting is accurate master production schedule will be accurate. Material requirement planning will therefore be accurate. Production plan and procurement plan will be accurate which causes lesser inventory carrying cost. Today complex forecasting software’s are available in the market and the need is to select the best package which suits the particular situation. They can be run on the computers and can be applied to enhance the effectiveness of the Supply Chain Management functions.

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Vineet Gupta Reg. No: 200307579 Supply Chain Management Q.No.4: What is the role of Master production schedule in managing supply chain? ANS: The master production schedule is basically the plan developed for production, inventory and staffing etc. the company has

The input for the MPS is variety of data like Forecast demand, production costs, inventory costs etc and its output are like amount to be produced, staffing levels, etc. for each no. of time periods. Characteristics of MPS: 1) It does not go into great detail about parts to be used i.e. it operate at an aggregate level. 2) Is cost driven i.e. it meets the requirements at minimum cost. Each master production schedule consists of its bill of material. Exploding master production schedule against its bill of material will result in aggregate material requirement plan. Based on MRP production plan and procurement plan of men and materials can de prepared. The help of fix concept and rolling horizon concept can be utilized for the requirements of various items as per material requirement plan with a better accuracy. Inventory management will be better once material requirement plan is prepared accurately. Due to that better management of cash flow results. With good master production schedule the performance of the value flow across the supply chain can be improved. The benefits visible are in the areas like quality of product, timely delivery, and better availability of the resources like men, machine and materials. In this way we can conclude that the master production schedule plays a major role in improving the efficiency and effectiveness of the supply chain management and the over all efficiency of the organization. Q.No.5: Discuss the importance of JIT concept in managing the supply chain. ANS: Just in Time is a concept originated in Japan and was first introduced there in Toyota motor company. Taiichi ohno devised a new system of production based on the elimination pf waste. The waste is eliminated by • • Just in time- Items moved through the production system only when they are needed. Autonomation- It is to automate the process where the human intervention is needed only when a defect is detected automatically. Here the system stops and starts only after rectification of the fault. Page 7 of 17

Vineet Gupta Reg. No: 200307579 Supply Chain Management JIT is suitable in the following case: 1) Steady production of clearly defined standard products. 2) High value product 3) Have flexible working practice and disciplined workforce. 4) Short setup times on machines. 5) Quality can be assured. JIT is based on the philosophy of • • • Elimination of waste in many forms Belief that ordering/ holding cost can be reduced. Continuous improvement, always tries to improve.

Elements of JIT are given below.

• • • •

Regular meeting of workforce( Daily/ Weekly) Discuss work practices, confront and solve the poblems emphasis on consultation and cooperation Modify machinery to reduce the setup time. Reduce inventory

Expose the problems rather to cover them up. Reveal bad practice. Benefits of JIT • • • • Better quality product Better quality products Philosophy that Quality is the responsibility of each worker prevails in the organization. Reduced Scraps and rework Page 8 of 17

Vineet Gupta Reg. No: 200307579 Supply Chain Management • • • • • • • • • Reduced cycle time Lower setup times Smoother production flow. Lesser inventory of raw material, finished product and work in progress etc. Cost saving, Higher productivity More skilled workforce Reduced space requirements Improved relationships with the suppliers.

Latest technological advances and their applications have improved the inventory management system. New mechanical and automated equipments have made stock movement and warehousing more efficient. It based stock control system with bar coding are integrated with other systems to give better control over order assembly, stock availibility and monitoring. The whole process of supply chain is tuned efficiently with the introduction of Just in time technique. Q.No:7: Explain the role of third party logistics in supply chain with suitable examples. ANS: third Party logistics services are the services which are not the core business of the big organizations and these organizations think to outsource these services to a third party company which has a necessary expertise and resources in dealing with these services. Examples of these services are as below. • • • • • • • Warehousing Management Shipment Consolidation Fleet management Rate negotiation Order fulfillment Import/Export Order processing etc. Page 9 of 17

Vineet Gupta Reg. No: 200307579 Supply Chain Management • Product Assembly and Installation.

Three types of third party logistic services are Basic service providers: In this the third party provides basic services like warehousing, order processing, transportation etc. Value added services: In this along with basic services the 3PL company provides value added services like Specialized pick/pack operation, cross docking, EDI, Order consolidation and ASNs. Logistic integrators: In this case the 3PL manage all key supply chain operations on daily basis. All supervision is under the client’s control. The 3PL assures seamless flow of information among themselves, their client and the customers. Benefits of 3PL in the SCM. Improve company focus: Most organizations are eliminating internal functions that are not considered as their core competencies. Access to world class capabilities and new technology: Often these companies develop unique skill and expertise during working with their various clients. With these technologies they are better equipped to handle their clients need efficiently which otherwise requires heavy investment for the clients. Share risk: Tremendous risk is involved in the capital investment. 3PL companies share this risk by investing in the capital and operating the outsourced functions by itself. Free-up resources: Outsourcing offers a way to allow a company to divert its resources from non core activities to core activities. Accelerate reengineering benefits: Outsourcing to a 3PL already reengineered to world class standards allows the company to realize those benefits immediately. With the help of 3PL companies the SCM operation can be fully tuned up. Integration of various operations like warehousing and distributions results. They should provide the following services to their clients. • • • • • Real time inventory information Scanning capabilities Data accuracy Reliable service Customized management reports.

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Vineet Gupta Reg. No: 200307579 Supply Chain Management • Competitive prices.

Third party must develop their strategies towards developing long term relationship with their clients based on business partnership process management and integrated information flows. The third parties who can meet these needs will most likely enjoy long term relationship with the clients.

Q.No. Elaborate in detail designing the supply chain with suitable examples. ANS: The most important requirement in designing the supply chain is the ability to respond to the customer demand. The design should be such that all the members of the supply chain should work together to serve the end customer. Due to close tie and due to information sharing the partners will effectively meet the customer demand. In the supply chain a concept of pipeline is important which is basically a mechanism by which materials and information flow through a supply chain. Pipelines are smooth, well defined passages enabling smooth movement, thus it requires some form of design by the supply chain members. The result of the improvement is the processes like Just in time, and manufacturing resources planning, lean manufacturing etc. In some of the supply chain the player closest to the customer only gets the true picture of the actual demand. The information gets distorted once we move up in the hierarchy of the supply chain. The same will have to be controlled through market sales information usage. Through the use of modern industrial relationships like partnership sourcing following benefits can be achieved. • • • • • • • • • Reduced total cost Faster production and service development Improved quality Delivery on time Design cost out Secured supply Lower inventories and improved logistics Financial stability Improved technology

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Vineet Gupta Reg. No: 200307579 Supply Chain Management • • • Marketing advantage Improved management capability Long term agreement

The major role for improved information flow is the use of electronic data interchange (EDI). It offers improved information flow and decreases the lead time. In the information enriched supply chain using EDI techniques each player, no matter how far upstream receives the marketplace data directly. Therefore he can make an informed judgment based on actual market demand which creates profit both to the customer and the organization. Examples: Wall mart Example: Wall mart has opened its consumer information to the supplier Procter and Gamble for the information sharing. Based on the mutual belief the relationship ahs grown stronger and the result is better service to the customer. Procter and Gamble takes the consumer information from Wall mart right from the store and decide how much buffer stock to be kept at the store to meet the contracted consumer service level. Wal mart no longer worries for the inventory level to be maintained and the Procter and Gamble has far better control over its production mechanism by knowing the consumer requirement. Beer game: This game is also based on the lack of information flow within the hierarchy. It is made up of four level of supply chain and consists of several teams of four players mimicking retailer, distributor, warehouse and factory. The retailer gets an order from market and makes a decision on what to order from his distributor. From this order the distributor decides what to order from the warehouse and so on. Due to lead time of information flow and subsequent product delivery the task of maintaining a balance inventory is difficult and the players often perform badly. The basic problem with the players is the lack of good quality market demand information throughout the whole supply chain. The real power of information becomes evident when it is utilized throughout the supply chain. Therefore the design of the whole CSM should concentrate over designing a strong information flow system which could be utilized by the each member of the chain with trust and with business sense. Q.No.9: What is IT enabled supply chain? Explain with examples. ANS: In today’s world Manufacturing and service activities has expanded to such a great extent that lots of data is needed in the activities like planning, and

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Vineet Gupta Reg. No: 200307579 Supply Chain Management decision making. Through the use of IT these activities become manageable to a great extent. For the efficient use of these data there has to be efficient, reliable and timely data capture technique as well as data manipulation systems. These devices enable the process of fast decision making possible. Also reports and statistics can be easily generated so that the monitoring of supply chain performance becomes possible. IT is segmented in three parts: Scope of application: • • • • Transaction processing system(TPS) Management information system(MIS) Decision support system(DSS) Knowledge based system(KBS)

Functionality: • • • Data capture, display and organization Communication of data Processing data

Stage of technological development: • • Stand alone applications like dispatch advice, stock control, order processing, MRP-I, MRP-II, ERP etc. Integrated system like EDI, Interactive web sites along with ERP

EDI can be defined as the transfer of structured data, by agreed message standards, from one computer system to another by electronic means. EDI provides a standard for data interchange that is • • • • Ready formulated Comprehensive Independent of hardware and software Independent of special interest Page 13 of 17

Vineet Gupta Reg. No: 200307579 Supply Chain Management There are lots of benefits of using EDI in the supply chain • • • • • • • Shortened ordering time Savings in stationary cost, Postage Saving in staff cost Elimination of errors Immediate acknowledgement Accurate invoicing Reduced stockholding by better inventory control.

However it is widely accepted fact that for getting the most benefits of IT, the business processes should be redesigned first before applying the IT in those processes. Once internal planning and scheduling processes gets redesigned to maximize business performance then next step should be to transform these processes using e-supply chain strategy.

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Vineet Gupta Reg. No: 200307579 Supply Chain Management

Q.No:10 Write short note on various SCM measures. ANS: Supply chain metrics are generally used to track the supply chain performance. Some of the commen supply chain metrics are listed below. 1) Backorder: A backorder is demand against an item whose current stock level is insufficient to satisfy the demand. 2) Supply chain balanced scorecard: In this four key areas are monitored a) Financial: The cost of manufacturing, Warehousing, transportation etc. b) Customer: Order fill rate, On time delivery c) Internal business Adherence to plan, Forecast error d) Training: In house training hours. 3) Customer order promised cycle: It is the gap between purchase order creation and the requested delivery date. 4) Customer order actual cycle time: The average time to actually fill a customer purchase order. 5) Manufacturing cycle time: IT is the time between the firm planned orders until the final production is reported. 6) Inventory replenishment cycle time: It is the manufacturing time plus the time to redeploy the product to the distribution center. 7) Supply chain cycle time: It is the total time to satisfy a customer order if all inventory level is zero. 8) Defect per million opportunities (DPMO): It is the amount of defects per million units and is referred as six sigma. 9) Inventory record accuracy: 10) On time line count: The amount of order lines shipped on time verses the amount of lines ordered. 11) Transportation metrics: In this various measures are involved a) Freight cost per unit shipped b) Outbound freight costs as percentage of purchases c) Transit time Page 15 of 17

Vineet Gupta Reg. No: 200307579 Supply Chain Management d) Freight bill accuracy e) Accessorial as percent of total freight f) Percent of truckload capacity utilized g) Mode selection vs. optimal h) Truck turnaround time Overall various supply chain measures concentrates on measuring the performance of the supply chain. Generally following points are involved in measuring the performance. • • • • Total supply chain cost Process capability Customer retention Process lead time

By effectively devising the process and SCM measures particularly suited for the organization, its path of improvement can be known and efforts can be further set to achieve the organizational goals. Q.No: Explain how inventory control systems help improving the supply chain effectiveness? ANS: The objective of inventory control system is to achieve a balance between the loss due to non-availability of an item and cost of carrying stocks of the item. It aims to maintain optimum stock of goods for the company. It establishes appropriate time of replenishment and order quantity for minimum cost. The steps involved are a) Selective treatment of items to establish relative importance of the item in lieu of expenditure incurred on them per period. b) Fixation of economic order quantity to determine ideal lot size to get a balance between cost of carrying inventory and cost of procuring stock. c) Rationalization of economic order quantities to modify EOQs in the light of practical difficulties faced by stores, purchase and account departments. d) Fixation of operating levels to enable the operating personnel in store and purchase department to know as to when to order and how much to order. Page 16 of 17

Vineet Gupta Reg. No: 200307579 Supply Chain Management e) Installation of the inventory control system to meet the desired objectives. f) Performance appraisal to access the actual achievement against expected gains and thereby effect the modification in the operating level as desired. Two most important type of decision taken for inventory control are • • To order fixed quantities of stock at variable times To order variable quantities at fixed times.

Inventories are the physical stock item tat a business keeps in hand for efficient running of its office. By properly maintaining the inventory level the cost of inventory to the company is less. In the whole supply chain there will always be an availability of the raw materials and the finished product. The organization will able to serve the customer dynamically as the demand of the product changes in the market. Information flow in the supply chain will increase and each member of the chain will be able to gain the advantage of the improved information flow.

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