Supply Chain Management

A presentation by A.V. Vedpuriswar

SUPPLY CHAIN MANAGEMENT
• Value Chain • Supply side- raw materials, inbound logistics and production processes • Demand side- outbound logistics, marketing and sales.

WHAT IS SUPPLY CHAIN MANAGEMENT
" Is the strategic management of activities involved in the acquisition and conversion of materials to finished products delivered to the customer"

Supplier Management

Material Flow
Information Flow
Stock Deployment

Customer Management

Schedule / Resources

Conversion

Delivery

Leads to Business Process Integration

• Supply chain is the system by which organizations source, make and deliver their products or services according to market demand. • Supply chain management operations and decisions are ultimately triggered by demand signals at the ultimate consumer level. • Supply chain as defined by experienced practitioners extends from suppliers’ suppliers to customers’ customers.

• SUPPLY CHAIN INCLUDES :

– MATERIAL FLOWS
– INFORMATION FLOWS – FINANCIAL FLOWS

• SUPPLY CHAIN MANAGEMENT FACILITATED BY : – PROCESSES IS – STRUCTURE – TECHNOLOGY .

• Supply chain serves two functions: – Physical – Market mediation .

• For innovative products. responsiveness is the important factor. cost efficiency is the critical factor. • Leanness + Agility together make up Leagility . • For functional products.• Supply chain objectives may differ from situation to situation.

Supply Chain Structure SUPPLIER FACTORY DC RDC RETAILER Raw Materials Finished Goods Information Flow .

Supply Chain and Demand Chain • Demand chain is defined as the system by which organizations manage sales and distribution of products and services to end users. . • Conceptually incorrect to look at demand chain separately • Look at the pipe as a whole.

manage and improve the flow of materials and information from suppliers to end users .• But is there a pipe at all? – More a network – Not necessarily linear • Value chain orchestration rather controlling the flow through the pipe than • A network of independent and interdependent organizations mutually and cooperatively working together to control.

SUPPLY CHAIN DRIVERS Not new. Value system of Michael Porter • Why sudden interest? – Demanding customers – Shrinking product life cycles – Proliferating product offerings – Growing retailer power in some cases – Doctrine of core competency – Emergence of specialized logistics providers – Globalization – Information technology .

SUPPLY CHAIN ELEMENTS Strategic • Supply Chain Design • Resource Acquisition • Long Term Planning (1 Year ++) • Production/ Distribution Planning • Resource Allocation • Medium Term Planning (Qtrly.Monthly) Tactical Operational • Shipment Scheduling • Resource Scheduling • Short Term Planning (Weekly.Daily) .

• Supply Chain Goals Efficient supply chain management must result in tangible business improvements. It is characterized by a sharp focus on – Revenue growth – Better asset utilization – Cost reduction. .

Supply Chain Management Underlying Principles Compression (Planning/Manufacturing/Supply) Conformance (Forecasts/Plans/Distribution) Co-operation (Cross -Functional) Communication (Real Time Data) Reduce Overall Cycle Time : Improve Response .

Changing Paradigm • • • • • Functional vs Process Products vs Customers Revenues vs Performance Inventory vs Information Transactions vs Relationships .

Critical Success Factors today • Cross functional management and planning skills • Ability to define. measure and manage service requirements by market segment • Information systems • Relationship management and win win orientation .

.PUTTING IN PLACE A WELL OILED SUPPLY CHAIN • Supply chain as an efficient customer satisfying process • Effectiveness of the whole supply chain is more important than the efficiency of each individual department.

The steps involved • Step1.Designing the supply chain – Determine the supply chain network – Identify the levels of service required ..

Optimizing the supply chain • Determine pathways from suppliers to the end customer – – – – Customer markets to Distribution centers Distribution centers to production plants Raw material sources to production plants Identify constraints at vendors.Step 2 . production and distribution of product groups rather than individual products in large time periodsquarters or years . plants and distribution centers – Get the big picture – Plan the procurement.

Material flow planning • Determine the exact flow and timing of materials • Arrive at decisions by working back from the projected demand through the supply chain to the raw material resources • Techniques • ERP .Step 3.

order fulfillment and physical replenishment .Transaction processing and short term scheduling • Customer orders arrive at random • This is a day to day accounting system which tracks and schedules every order to meet customer demand • Order entry.Step 4 .

products.do not require frequent processing • Status files. production and distribution data.heart of transaction processing. . • Essentially using the same information to make all plans right from structuring the network to processing every day supply chain tasks. transportation.updated daily.Information flows in Supply Chain Management • Information is overriding element • Need for databases • Master files: Information about customers.track orders and infrastructure status. suppliers. materials.

• Traditionally information has been a supporting function.THE VIRTUAL VALUE CHAIN • The value chain connects a company’s supply side with its demand side. . • Information however can be managed far more creatively. • There are various stages of using value added information processes.

virtual activities are substituted for physical ones. • Mirroring capability : In this stage. .• Visibility : See physical operations more effectively through information. • New customer relationships : The company can draw on the flow of information in the virtual value chain to deliver value to customers in new ways. Information can be used for effective coordination of value chain activities. A parallel value chain is created.

Dealer Management Conventional functions • • • • Inventory ownership and management Sales and technical support Order handling Credit .

Contemporary Trends • Channels being divided into two.Fulfillment and Franchised agent • Fulfillment channel.responsible for getting the manufacturer’s product from the plant to the end user through a highly efficient logistics and inventory management system .

Contemporary Trends • Fulfillment channel may not take ownership of the product but may perform these functions on a per box fee structure • Franchised agents responsible for sales and sales support but will not write the order or supply the product .

Issues in customer management • Penetration vs Spread • Concentration is necessary to commit the necessary resources for true customer integration • Depth of customer contact – R&D .sharing information vs developing new products together – Logistics .Pros and cons of methods of transportation vs reengineering the logistics process .

. competitors and industry as a whole. including customers. • Assess the entire supply chain from supplier relationships to internal operations to the market place.Implementation: Points to keep in mind • Recognize the difficulty of change. • Prepare a blueprint for change that maps linkages among initiatives.

IS THE SUPPLY CHAIN WORKING? • Does our manufacturing strategy increase product line flexibility while continuing to drive down overall production costs? • When was the last time we measured lost sales to end customers? • Do we have an efficient system to get POS data from retailers? • Are we testing our products with end customers? Do we use the resulting data to adjust our forecasting and supply positions? • Is the ratio of returned orders to sales increasing? .

The New Model of Relationships • Hard bargaining vs shared destiny • Exit vs Voice • Arms length relations vs Involving dealers and suppliers in product development • Piling up vs Replenishing dealer inventory more frequently • In short working together as partners to cut costs. innovate and share value . boost efficiencies.

• • • • • Adversarial vs partnerships Short term vs long term contracts Large vs small order quantity Full truck load vs small parcels Inspection vs no inspection .

• Written order vs understanding • Many vs few suppliers • Design and then invite quote from vendor vs involving vendor in development • Bargaining. transparency . holding cards close to chest vs Shared destiny.

Summary • Segmentation of customers based on service needs • Customization of logistics network • Listen to signals of market demand and plan accordingly. • Differentiate product close to the customer • Source strategically • Develop a supply chain wide technology strategy • Accept channel spanning performance measures .

• The Bullwhip Phenomenon • Volatility amplification along the network • Increase in demand variability as we move upstream away from the market • Mainly because of lack of communication and coordination • Delays in information and material flows .

• Bullwhip effect occurs because of various reasons: • Order Batching.Ask for more than what is needed • Demand forecast updating .Accumulate orders • Shortage gaming.

• Develop forecasts collaboratively involving every link of the supply chain. • Modify the supply chain to meet these service requirements profitably. .Important points to keep in mind • Segment customers based on service needs. • Customize the logistics network. • Locate the leverage point where the product is unalterably configured to meet a single requirement • Delay product differentiation till the last possible moment.

• Assess options such as modularized design or modification of manufacturing processes that can increase flexibility. • Efficient supply chain management has to be accompanied by a technology strategy. • Cultivate warm relationships with suppliers. .

ITALIAN CLOTHING MANUFACTURE • • • • • Warehousing and transportation Inventory Late delivery returns Obsolescence Lost sales 6 5 2 20 60 • Need to minimize obsolescence costs • Minimize product range flexibility • Reduce product development cycle .

Dell’s Direct Business Model of Virtual Integration • Advantages of a tightly coordinated supply chain traditionally facilitated by vertical integration. • Leveraging on investments others have made and focusing on delivering solutions and systems to customers • Fewer things to manage . • Combined with focus and specialization.fewer things go wrong • Suppliers’ engineers part of Dell’s Design team • Have only a few partners .

Sony Monitors .Dell’s Direct Business Model of Virtual Integration • Share information with partners in Real time fashion. • Stitch together a business with partners that are treated as if they are inside the company.Eg. • Limited or no testing . • Change focus from how much inventory there is to how fast it is moving • Assets collect risks around them one way or the other.

70% to very large customers with annual purchases exceeding $1 million. • Substitute information for inventory and ship only when we have real demand from real end customers • Clever segmentation . • Inventory levels and replenishment needs sometimes conveyed to vendors on hourly basis.Focus on institutional markets .Austin. Ireland and Malaysia.Dell’s Direct Business Model of Virtual Integration • Only three Manufacturing centers . .

manage their total purchase of PCs by selling them a standard product • Dell server loads software on customers’ computers • Meet customers’ needs faster and more efficiently than any other model. • Segmentation . Dell’s Direct Business Model of Virtual Integration .• Exit from retail business after wrong entry in 1989.closeness to customers and access to valuable information. • Demand forecasting as a critical sales skill • Help global customers.

American and European retailers • Sources clothing and other consumer goods ranging from toys to fashion accessories to luggage . Hong Kong • • • • Founded in 1906 Today 35 offices in 20 countries 1997 revenues of $ 1.Li and Fung.7 billion Largest export trading company in Hong Kong • Customers.

• • • • • Order from Europe Buy yarn from Korea Weave and dye in Taiwan Buy Japanese zippers made in China Make the garments in Thailand in five different factories • Pulling apart the value chain and optimizing at each step .

Once you move to shorter life cycles.” . the problem of obsolete inventory increases dramatically. With customer tastes changing rapidly and markets segmenting into narrow niches. Our customers have become more fashion driven. it’s not just fashion products that are becoming increasingly time sensitive. The hard part is managing your suppliers and the flow of parts.• Victor Fung “ Today.“ Good supply chain management strips away time and cost from product delivery cycles. assembly is the easy part. working with six or seven seasons a year instead of just two or three.

Acer • Buying right things • Reaching into suppliers to ensure that certain things happen on time and at the right quality level. . CEO.• Endorsement by Stan Shih.

Outsourcing not same as leaving suppliers to do the worrying. need to go upstream to organize production. Lock up capacity in weaving and dyeing mills. • To shorten delivery cycle. Reserve undyed yarn from yarn supplier. • Li & Fung able to delay commitment to a particular fashion trend. • Single factories are too small to have much buying power and to demand faster deliveries from suppliers.• • • • Buyer informs five weeks before delivery. .

• Integrated logistics management • Elimination of consolidators in container shipments • Smokeless factory – – – – – – – – Design Procurement Inspection of raw materials Production planning Line balancing Inspection of finished goods No worker ownership No labour management .

• Divisions focused on serving single customers or groups of small customers. • Strong focus on inventory and working capital management.“ If we don’t own factories. • Less emphasis on geographic grouping • Merchandising decisions decentralized • Financial controls and operating procedures tightly centralized. we probably do 10.” • Basic operating unit is the division. because of the 15 steps in the manufacturing value chain. . can we say we are in manufacturing? Absolutely.

” . At a minimum.• “As far as I am concerned.” • Need for sophisticated information systems. it increases the complexity of managing any business. inventory is the root of all evil. Li & Fung working to create a database to systematically track all supplier relationships. It makes a difference to suppliers when they know that you are dedicated to the business. • “ Someone might steal our database but when they call up a supplier. that you have been honoring your commitments for 90 years. So it’s a word we don’t tolerate around here. they don’t have the long relationship with the supplier that Li & Fung has.

$3 represents the inefficiency in the supply chain for a consumer product priced at $4. Look at costs throughout distribution channels than just in factory .• Broadening the middle • Better prices and better margins for customers • Tackling the soft $3 in the cost structure.

Thank You .

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