SCM

Supplier Producer Consumer

RM Raw Material
WIP Work in Progress
FG Final Goods
Customer order cycle
Retailer Replenishment cycle
Distributor Manufacturing cycle
Manufacturer Procurement Cycle

Customer arrival - ensure customer arrival turns into customer order answer customer
queries, ensure they do not have to wait for a long, etc
Customer order entry - customer informing what he wants and retailer allocating stock- retailer
should ensure it is quick, accurate and communicated to others in SC
Customer order fulfillment - Order is filled and sent to customer picking, packing and sipping
product to customer, inventories to be updated - correct order at promised due dates at lowest
possible cost
Customer order receiving-customer receives and takes delivery, payment made
Retail order trigger - retailer placing order at previous stage to replenish his stock total of
customer orders less stock available - Economies of scale, balancing product availability & cost
of holding inventory
Retail order entry- Retailer informing what he wants and wholesaler allocating stock -
wholesaler should ensure it is quick, accurate and communicated to others in SC
Retail order fulfillment - Order is filled and sent to retailer picking, packing and sipping product
to retailer size of these orders are quiet large than that of customer order inventories to be
updated - correct order at promised due dates at lowest possible cost
Retail order receiving- retailer receives stock physically and takes delivery, payment made
Order Arrival - Plant receives order from customer / distributor
Production Scheduling - Production plan is made
Manufacturing & Shipping - Production & despatch on promised date, meeting quality stds,
low costs
Receiving at distributor / retailer or customer - Product is received physically by wholesaler /
customer & fund is transferred
Supply chain design depends on Push / Pull view
Push / Pull view
Pull Initiated by customer order
Hotel, Dell
Push Initiated in anticipation of customer order
FMCG, IBM
Mixed Push + Pull
Paint industry Colour base push, colour choice - pull
Push / speculative process Execution is initiated in anticipation of customer order forecast
Make to Stock
Pull / reactive process Execution is initiated to customer order demand is known Make to
order
In pull view No replenishment cycle

CRM Customer Relationship Mgmt firm & customer
Marketing, sales, order management, etc.
ISCM Internal Supply Chain Mgmt - internal
Planning of internal production, storage capacity, demand & supply plans, etc.
SRM Supplier Relationship Mgmt firm & suppliers
Evaluation , selection of suppliers, negotiation, buying, etc

Typical Competitive Strategy Patterns :-
Prospector (Innovation)
Reactor (Quick response to market demands)
Analyzer (Minimize risk with proven opportunities)
Defender (Operational efficiency)
Profit = (Price Variable cost) x Volume Fixed Cost
Fixed costs
Costs of product development
Cost of production capacity
Cost of distribution capacity
Variable cost
Variable cost of production and distribution
Operations impact majority of the costs
Bottleneck
Bottleneck is the resource with limiting constraint on the system
Capacity of a process
It is the maximum possible flow rate through the process = Capacity of the bottleneck
resource
Flow Rate
Flow rate = min(available input, Demand, Process capacity)
Load factor It is the ratio of work demanded from the resource and its capacity
Demand placed on a resource
Capacity of the resource
Bottleneck is the resource with maximum load factor



Flow Rate
Average number of flow units that flow through the process per time
Flow Time
Average amount of time spent in the process by a flow unit
Inventory
Average number of flow units present within the process boundaries
I = R x T
I : Average Inventory
R : Average flow rate
T : Average flow time
Average Inventory = (Avg. flow rate x Avg. flow time)
R = 100 units / Hr.
T = 2 Hrs /100 units
I = 200 Units
Bottleneck
Bottleneck is the resource with limiting constraint on the system
Capacity of a process
It is the maximum possible flow rate through the process = Capacity of the bottleneck
resource
Flow Rate
Flow rate = min(available input, Demand, Process capacity)

Load factor It is the ratio of work demanded from the resource and its capacity
Demand placed on a resource
Capacity of the resource
Bottleneck is the resource with maximum load factor
U cell or C cell?????
Kaizen
Business Process Reengineering BPR
Demand forecast means
WHAT YOU ARE GOING TO SELL
Estimation of the future demand
Used in both systems
Push plan production in anticipation of demand i.e. forecast
Pull Plan (forecast) capacity and inventory on the basis of anticipated demand
Forecasting is the starting point of all operations including marketing, operations etc.
Long term forecasts are usually less accurate than the short term forecasts
Aggregate forecasts are usually more accurate than the disaggregate forecasts
Combination of Top Down and Bottom up forecast is more effective than any one single
approach
Forecasts are always wrong

Forecasting Methods
Qualitative Subjective, when experts have market intelligence, useful when one has to
forecast for several years / for new industry eg. 5 year plans
Time series historical demand. Useful when demand pattern does not vary year to year.
Overall grade in exam for a student
Casual Correlation between demand and environmental factors like state of economy, price,
etc.
Marks of exam when unwell
Simulation Consumer choices that give rise to arrive at a forecast. Combine time series and
casual method
Election opinion poll
Assume you have a product with the following parameters:
Annual Demand = 360 units
Holding cost per year = $1.00 per unit
Order cost = $100 per order
What is the EOQ for this product?









2*Demand*Order Cost 2*360*100
72000 268.33 items
Holding cost 1
EOQ







SC Drivers
Facilities Production & storage sites & their capacities
Inventory RM, W.I.P., FGs
Transportation moving inventory
Information data & analysis concerning facilities, inventory, transportation and customer
management with the opportunity to make SC more efficient and responsive
Offshore Facility : Low cost facility for export production eg. Export zones, Marks & Spenser
Raymond India, L&T Mysore / Chennai plants , ITC Nepal packaging facility
Source Facility : Low cost facility for Global production eg. Apple Laptops in China, Bulk drugs
China, India, Indian leather / Apparel industry
Server Facility : Regional Production Facility. Facilitys objective is to supply the market where it
is located. Because of Tax incentives, tariff barriers, etc.- Factories in Himachal Pradesh, Gujarat
etc. of Pharma cos., Auto say Hyundai, Toyota, Electronics Samsung, HUL
Contributor Facility : Regional production facility with development skills. Facility serves local
market but also involved greatly in product customization, process improvement, product
modification or product development.eg. Maruti Udyog, Bata, Cadbury, McDonald
Outpost Facility : Regional production facility built to gain local skills. Eg India - Biotech cos,
BPO, Software development, Many factories of Japan
Lead Facility : Facility that leads in development and process technologies. Facility with good
access to a skilled workforce and technological resource that creates new products, processes
and technologies for the entire network .Eg. Tata Motors Buses South America, Africa ,
Mahindra Scorpio Left hand drive to right hand drive
Safety Inventory is the inventory carried for the purpose of satisfying demand that exceeds the
amount forecasted or supply arrives later than expected for a given period
The more the safety inventory
Higher the product availability level BUT
Higher the inventory holding costs (cost of capital / holding cost / obsolescence cost)
Uncertainty is measured as the coefficient of variation i.e. the ratio of the standard deviation
to the mean. It measures the uncertainty relative to demand.
Product Availability - The amount of customer demand satisfied from available inventory.
Product availability is also called customer service level.
Product fill rate (fr) The probability that product demand is supplied from available inventory.
Eg. Order is of 100 units, inventory is 90 units, fill rate = 90%
Order fill rate In multi-product scenario, all products in the order are supplied from the
available inventory.
Cycle Service Level (CSL) The probability of not having a stock-out in a replenishment cycle. A
replenishment cycle is the interval between two successive replenishment deliveries.
Higher the safety inventory, higher the fill rate and Cycle service level i.e. Product availability
Continuous review (Q system) Inventory is continuously tracked and an order for a lot size is
placed when the inventory declines to the reorder point.
Periodic Review (P system) Inventory status is checked at regular periodic intervals and an
order is placed to raise inventory level to a specified threshold. The time between orders is fixed
but the size of each order fluctuates
Square root law : If the number of independent stocking locations decrease by a factor of n, the
average safety inventory is expected to decrease by a factor of square root of n.
Vendor Managed Inventory (VMI) The manufacturer or the supplier is responsible for all
decisions regarding product inventories at the retailer. The control of replenishment decisions
moves to the manufacturer instead of retailers. VMI requires the retailer to share demand
information with the manufacturer to allow them to make inventory replenishment decisions.