Goal / Definition of Supply Chain Management:
a. A set of approaches to efficiently integrate: i. Supplier, ii. Manufacturers, iii. Warehouses, iv. Distribution centers / Stores, b. So that product is produced and distributed: i. In the right quantities, ii. To the right locations, and iii. At the right time, c. In order to: i. Minimize total supply chain system costs, ii. Satisfy customer service requirements.

2. Definition of Logistics from Council of Logistics Management:
a. The process of planning, implementing, and controlling procedures, b. For the efficient and effective storage of goods, services, and related information, c. From the point of origin to the point of consumption, d. For the purpose of conforming to customer requirements.

3. Logistics management is part of supply chain management.
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4. Supply chain illustration:

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5. Activities performed under SCM:

a. Customer Services: i. Order management, ii. After-sales services, iii. Returns processing. b. Warehousing: i. Distribution planning, ii. Inventory planning, iii. Inbound logistics, iv. Outbound logistics. v. In-house QC inspection (Optional). Dec 2009 SCM FMM Page 5 of 50

c. Purchasing: i. Supplier management, ii. Material planning, iii. Inbound transport management. d. Demand Planning and Forecasting. e. Production: i. Production planning and scheduling, ii. Capacity planning & optimization.

6. 4 categories of supply chain operations:
a. Plan: Demand forecasting, product pricing, inventory management. b. Source: Procurement, credit and collection. c. Make: Product design, product scheduling, and facility management. d. Deliver: Order management, delivery scheduling and return processing.

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7. 5 factors driving SCM: p IVCCS

a. Information technology: i. Today's technology is the key that allows the supply chain to become integrated and therefore reduces the inventory requirement. ii. Some examples are: 1. EDI: The transmission of purchase orders via electronic data

interchange (EDI) can provide more timely and accurate data to suppliers, allowing for more efficient information in management and production planning. 2. POS: Capture sales data and store at customer database for inventory monitoring through VMI and customer trend data analysis. b. VMI: With integration to POS and communication via EDI, customer inventory level is monitored and controlled at pre-determined level.

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c. Visibility: i. Supply chain visibility refers to the ability to view all areas up and down the supply chain. ii. Supply chain visibility allows organizations to eliminate bullwhip effect. iii. Bullwhip effect occurs when slight demand variability is magnified as information moves back upstream. iv. Examples of bullwhip effects: p LIPSO 1. Lumpy demand, inaccurate forecasts, price fluctuations, shortages and overages. v. Common Causes for the Bullwhip: p DOPA 1. Demand Signal Processing (each stage does its own forecasting) 2. Order Batching (trying to achieve economies of scale) 3. Price Fluctuations (inducements such as ³ forward buys´ through price reduction) 4. Allocation Gaming (when shortages loom, over-orders are placed) vi. Basically, this is saying to increase communication among the different nodes in the supply chain. This will enable a company to better understand what is going on throughout the supply chain. By increasing visibility, you reduce variability, which will improve overall operations of the company and reduce inventory requirements. vii. Example of bullwhip effect on diapers: 1. The need for diapers is constant; it does not increase at Christmas or in the summer. Diapers are in demand all year long. The number of newborn babies determines diaper demand, and that number is constant. 2. Retailers order diapers from distributors when their inventory level falls below a certain level, they might order a few extra just to be safe 3. Distributors order diapers from manufacturers when their inventory level falls below a certain level, they might order a few extra just to be safe Dec 2009 SCM FMM Page 8 of 50

4. Manufacturers order diapers from suppliers when their inventory level falls below a certain level, they might order a few extra just to be safe 5. Eventually the one or two extra boxes ordered from a few retailers become several thousand boxes for the manufacturer. This is the bullwhip effect; a small ripple at one end makes a large wave at the other end of the whip. viii. Illustration of Bullwhip Effects:

d. Consumer behavior: i. Companies must respond to demanding customers through supply chain enhancements. ii. Demand planning and forecasting software can generates demand forecasts using statistical tools and techniques. iii. Once an organization understands the effects of customer demand on the supply chain, organization can estimate the impact of their supply chain on customer demand. Organization can improve organization overall performance by filling in the gap between customer demand and supply chain capacity. Dec 2009 SCM FMM Page 9 of 50

e. Competition: i. Increased competition makes any organization that is ignoring its supply chain at risk of becoming obsolete. ii. Both SCP and SCE increase a company¶s ability to compete. iii. Supply chain planning (SCP) software uses advanced mathematical algorithms to improve the flow and efficiency of the supply chain. SCP depends entirely on information for its accuracy. iv. Supply chain execution (SCE) software automates the different steps and stages of the supply chain. SCE can be as simple as electronically routing orders from a manufacturer to a supplier.

f. Speed: i. As the pace of business increases through electronic media, an organization¶s supply chain must respond efficiently, accurately and quickly. p EAQ. ii. For examples: 1. Pleasing customers has become something of a corporate obsession. Serving the customer in the best, most efficient and most effective manner has become critical, and information about issues such as order status, product availability, delivery schedules, and invoices has become a necessary part of the total customer service experience. 2. Information is critical to manager¶s ability to reduce inventory and human resource requirements to a competitive level. 3. Information flows are essential to strategic planning for and deployment of resources.

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8. 6 steps to implementing SCM Project: p EDADDI.
a. Educate for support: i. Identify a key executive to actively sponsor the project, ii. Find a project champion within your company, who has the passion to lead a supply chain project, iii. The sponsor and project champion shall learn SCM and share their knowledge throughout the organization. b. Discover the opportunity: i. Form a business case that justifies investment in a supply chain project, ii. Establish a project charter, which cover approach, budget, organization, communication plan, and establishing clear measures for success. c. Analyze: i. Define the SCM opportunity according to company¶s P&L statement by emphasizing the value proposition of the project in terms of cash-to-cash cycle time, inventory days, order fulfillment, and other performance factors. d. Design of material flow & work / information flow: i. Define the work / information flow first, and then the information that moves the material. ii. This design should cover: p PILIT. 1. Production capacity, 2. Inventory level, 3. Locations to serve customers, 4. Information visibility. 5. Transportation to incoming materials and deliver products: e. Develop: i. From design, create a SCM project master schedule. f. Implement based on the master schedule.

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9. Hierarchy of SCM decisions:
a. Strategic Level: i. On the strategic level, long-term decisions are made. ii. Modeling and simulation is frequently used for analyzing these interrelations, and the impact of making strategic level changes in the supply chain. iii. Examples of strategic decisions: 1. Strategic network optimization, including the number, location, and size of warehousing, distribution centers, and facilities. 2. Strategic partnerships with suppliers, distributors, and customers, creating communication channels for critical information and operational improvements such as cross docking, direct shipping, and third-party logistics. 3. Product life cycle management, so that new and existing products can be optimally integrated into the supply chain and capacity management activities. 4. Information technology infrastructure to support supply chain operations. 5. Where-to-make and what-to-make-or-buy decisions. 6. Aligning overall organizational strategy with supply strategy. b. Tactical Level: p PILIT. i. On the tactical level, medium term decisions are made. ii. Examples of tactical decisions: 1. Sourcing contracts and other purchasing decisions. 2. Production decisions, including contracting, scheduling, and planning process definition. 3. Inventory decisions, including quantity, location, and quality of inventory. 4. Transportation strategy, including frequency, routes, and contracting.

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5. Benchmarking of all operations against competitors and implementation of best practices throughout the enterprise. 6. Milestone payments. 7. Focus on customer demand. c. Operational Level: p Planning, scheduling and operation of PILIT on daily basis. i. On the operational level, short term decisions are made from day to day. ii. Examples of operational decisions: 1. Daily production and distribution planning, including all nodes in the supply chain. 2. Production scheduling for each manufacturing facility in the supply chain (minute by minute). 3. Demand planning and forecasting, coordinating the demand forecast of all customers and sharing the forecast with all suppliers. 4. Sourcing planning, including current inventory and forecast demand, in collaboration with all suppliers. 5. Inbound operations, including transportation from suppliers and receiving inventory. 6. Production operations, including the consumption of materials and flow of finished goods. 7. Outbound operations, including all fulfillment activities, warehousing and transportation to customers. 8. Order promising, accounting for all constraints in the supply chain, including all suppliers, manufacturing facilities, distribution centers, and other customers.

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10. How to align supply chain with business strategy:
a. Understand and classify the requirements (responsiveness or efficiency) of your customers with following attributes: i. The quantity of the product needed in each lot, ii. The response time that customers are willing to tolerate, iii. The variety of products needed, iv. The service level required, v. The price of the product, vi. The desired rate of innovation in the product. b. Define core competencies and the roles your company will play to serve your customers, c. Develop supply chain capabilities of responsiveness and efficiency on: i. Excess or little excess production capacity, ii. High or low inventory level, iii. Many or few central locations, iv. Frequent and small or few and large shipments (Transportation), v. Level of information sharing and collection (Information visibility): 1. Openly shares information with all individuals, 2. Selectively shares certain information with certain individuals d. Noted here that cost of information continues to drop and the cost of the other four drivers usually continues to rise. Over the longer term, those companies and supply chains should learn how to maximize the use of information to get optimal performance from the other drivers. This is to gain the most market share and be the most profitable.

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11. The need for SCM: p COGITEC Competitive pressure Increasing level of outsourcing Increasing globalization Managing inventory Increasing transportation cost Increasing importance of e-commerce Complexity of supply chain
a. Competitive pressures: i. The rate of change in markets, products, and technology is increasing, leading to situations where managers must make decisions on shorter notice, with less information, and with higher penalty costs. ii. New competitors are entering into markets that have traditionally been dominated by "domestic" firms. iii. Customers are demanding quicker delivery, state-of-the-art technology, and products and services better-suited to their individual needs. iv. In some industries, product life cycles are shrinking from years to a matter of two or three months. b. Increasing level of outsourcing: i. Initially, the outsourced functions often represented non-core or non-vital activities or some other determinant where the company did not want to invest its own resources--capital, people, technology and facilities. ii. Now outsourcing is seen as a strategic way to align the supply chain with the company direction and to become a leading-edge practitioner. It is also recognized as a tactical way to better manage service and costs. v. Effectively managing the offshore supply chain, as to suppliers, logistics service providers and their coordinated integration from vendor door to final delivery location, has caused companies to assess the utilization of outsourced logistics providers, either 3PL or 4PL. Dec 2009 SCM FMM Page 15 of 50

vi. Some firms have seized this outsource opportunity to transform their total import supply chain; they see it as a way to compress cycle time and decrease inventory levels. Others have focused on arranging the transportation part as the outsourced need. c. Increasing globalization: i. With continuous globalization of business, world is shrinking day-by-day. In the globalization of business, the distinction between large and small companies is breaking down with the information technology breaking down the barriers of time and location. ii. Added to this is the emergence of Internet as powerful global communication vehicle having its profound impact on business processes. E-Commerce, the buzzword of the day, is perhaps the most striking example of the changes occurring in business - be it globalised one or within national boundaries. d. Manage inventories: i. Today's technology is the key that allows the supply chain to become integrated. ii. Integrated supply chain enables each segment of the supply chain (i.e., procurement, production and distribution) can be functionally integrated for optimum result and therefore reduces the inventory requirement. iii. In details, instead of requiring every member of the chain to maintain safety stock to buffer against uncertainty in demand, that uncertainty can be reduced by sharing information that helps members anticipate coming changes in the flows of demand, supply, and cash. Information is usually far cheaper than inventory, and it has the advantage that it can be in many places at the same time. iv. The result: Substituting information for inventory is a key technique for improving supply chain performance.

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e. Increasing transportation costs: i. Transportation cost is among the largest components of total supply chain costs. With the current global business scenario, effective transportation management requires a thorough understanding of volatile elements like fuel costs, capacity levels and increasing customer requests for tighter, and sometimes more frequent, delivery times. f. Increasing importance of e-commerce: i. E-commerce impacts supply chain management in a variety of keyways. These include: 1. Cost efficiency: By using e-commerce, companies can reduce costs, improve data accuracy, streamline business processes, accelerate business cycles, and enhance customer service. Ocean carriers and their trading partners can exchange bill of lading instructions, freight invoices, container status messages, motor carrier shipment instructions, and other documents with increased accuracy and efficiency by eliminating the need to re-key or reformat documents. The only tools needed to take advantage of this solution are a personal computer and an Internet browser. 2. Changes in the distribution system: E-commerce will give businesses more flexibility in managing the increasingly complex movement of products and information between businesses, their suppliers and customers. E-commerce will close the link between customers and distribution centers. Customers can manage the increasingly complex movement of products and information through the supply chain. 3. Customer orientation: E-commerce is a vital link in the support of logistics and transportation services for both internal and external customers. E-commerce will help companies deliver better services to their customers, accelerate the growth of the ecommerce initiatives that are critical to their business, and lower their operating costs. Using the Internet for e-commerce will allow Dec 2009 SCM FMM Page 17 of 50

customers to access rate information, place delivery orders, track shipments and pay freight bills. 4. Shipment tracking: E-commerce will allow users to establish an account and obtain real-time information about cargo shipments. They may also create and submit bills of lading, place a cargo order, analyze charges, submit a freight claim, and carry out many other functions. In addition, e-commerce allows customers to track shipments down to the individual product and perform other supply chain management and decision support functions. The application uses encryption technology to secure business transactions. 5. Shipping notice: E-commerce can help automate the receiving process by electronically transmitting a packing list ahead of the shipment. It also allows companies to record the relevant details of each pallet, parcel, and item being shipped. g. Complexity of supply chains: i. Supply chain nodes have conflicting objectives: Customer 1 2 Variety of product High in stock & short order lead time Manufacturer Long run production (Production) Low inventory (Warehouse)

1. Purchasing: a. Stable volume requirements, b. Flexible delivery time, c. Little variation in mix, d. Large quantities. 2. Manufacturing: a. Long run production, b. High quality, c. High productivity, d. Low production costs. Dec 2009 SCM FMM Page 18 of 50

3. Warehousing: a. Low inventory, b. Reduced transportation costs, c. Quick replenishment capability. 4. Customers: a. Short order lead time, b. High in stock, c. Enormous variety of products, d. Low prices. ii. Supply chain is dynamic: 1. Bargaining power structure change from suppliers to customer due to globalization and e-commerce. 2. Globalization Today¶s customer can source superior products

and services from world-class companies across global marketplaces. 3. E-commerce With the Internet, buyers can now access goods

and information at any time and from any place on the earth. iii. Uncertainty is inherent to every supply chain nodes: 1. Matching supply and demand is difficult because: a. Forecasting does not solve the matching problem, b. Inventory and back-order level typically fluctuate widely across the supply chain. 2. Lead times, 3. Possible unstable yields due to breakdown of machines, 4. Transportation times, especially with global sourcing, 5. Weather, natural disasters and war, 6. Local politics, labor conditions, border issues.

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12. KPI / Metrics of SCM:
a. Back order: An unfilled customer order. A backorder is demand (immediate or past due) against an item whose current stock level is insufficient to satisfy demand. Backorders may be expressed in "pieces", "SKU's" or in "value". b. Fill rate: Percentage of orders delivered on time and in full to the customer, within a specific time period. c. On-Time Shipping Performance: A calculation of the number of Order shipped on or before the Requested Ship Date versus the total number of Order. d. Inventory accuracy: The absolute value of the sum of the variance between physical inventory and perpetual inventory. e. Inventory Turnover: The number of times that a company¶s inventory cycles or turns over per year. Turns can be viewed using Cost Value, Retail Value,

or even in Units.
Calculation: A frequently used method is to divide the Annual Cost of Sales by the Average Inventory Level. Example: Cost of Sales = $36,000,000. Average Inventory = $6,000,000. $36,000,000 / $6,000,000 = 6 Inventory Turns


Inventory Turns can be a moving number. Example: Rolling 12 Month Cost of Sales = $16,000,000. Current Inventory = $4,000,000 $16,000,000 / $4,000,000 = 4 Inventory Turns Or

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Projected Inventory Turns: Divide the "Total Cost of 12 Month Sales Plan" by the "Total Cost of Goal Inventory" Example: The Total Cost of 12 Month Sales Plan is $40,000,000. Total Cost of Goal Inventory = $8,000,000 $40,000,000 / $8,000,000 = 5 Projected Turns f. Cycle time: i. Customer Order Promised Cycle Time: The anticipated or agreed upon cycle time of a Purchase Order. It is gap between the Purchase Order Creation Date and the Requested Delivery Date. This tells you the cycle time that you should expect (NOT the actual). ii. Customer Order Actual Cycle Time: The average time it takes to actually fill a customer¶s purchase order. This measure can be viewed on an Order or an Order Line level. The measure starts when the customer¶s order is sent/received/entered. It is measured along its various steps of the order cycle. Through credit checks, pricing, warehouse picking and shipping. The measure ends at either the time of shipment or at the time of delivery to the customer (sometimes tracked by using an EDI #214). This "actual" cycle time should be compared to the "promised" cycle time. iii. Manufacturing Cycle Time: Measured from the Firm Planned Order until the final production is reported. It usually takes into account the original planned production quantity versus the actual production quantity. Example: X% of the planned quantity must be completed on a production run or the cycle time should not be considered. iv. Purchase Order Cycle Time: Measured from the creation of the PO to the receipt at your location (Distribution Center, Hub etc). One of the keys here is not not have your RDD (Requested Delivery Date) exceed the agreed to lead time. If it does, it may artificially inflate your Lead Time.

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Additionally, any in-between points available will add value to the metric. Example: Creation of the PO, Shipment from the Vendor, Receipt at the DC. This will tell you the manufacturing time vs the transit time. v. Inventory replenishment cycle time: Measure of the manufacturing cycle time + the time included to deploy the product to the appropriate distribution center.

e. Transportation metrics:
a. On-time pickups: Calculated by dividing the number of pick-ups made ontime (by the freight carrier) by the total number of shipments in a period. This is an indication of freight carrier performance, and carriers' affect on your shipping operations and customer service. b. Transit time: Measured by the number of days (or hours) from the time a shipment leaves your facility to the time it arrives at the customer's location. Often measured against a standard transit time quoted by the carrier for each traffic lane. Unless you are integrated into your customers' systems, you will have to rely on freight carriers to report their own performance. This is often an important component of lead-time. Transit times can vary substantially, based on freight mode and carrier systems. c. Freight cost per unit shipped: Calculated by dividing total freight costs by number of units shipped per period. Useful in businesses where units of measure are standard (e.g., pounds). Can also be calculated by mode (barge, rail, ocean, truckload, less-than-truckload, small package, air freight, intermodal, etc.).

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13. SCM Best Practices:
a. VMI: i. This is where the vendor is given the responsibility for monitoring and controlling inventory levels at the customer¶s depot and in some instance at the retail store level as well. 1. Monitoring: Stock information is assessed using EDI. 2. Controlling: It is the responsibility of the vendor to ensure that a
predetermined inventory level always available.

ii. When inventory level drops to level below a predetermined inventory level, vendor proactively generate orders and ships products to the customer locations that need them, and invoice the customer for those shipments under terms defined in the contract. iii. Or it can be as sophisticated as downloading information directly from their
cash registers into one¶s computer system via an Electronic Data Interchange (EDI) for analysis and determination of the specific inventory items and quantity to be re-supplied.

iv. Advantages of VMI to customer: 1. Reduction of operating costs p warehouse operation costs and inventory holding cost. 2. Pay on what customer has used p Minimize any possible delay in payment for the products in question. v. Advantages of VMI to vendor: 1. Provide opportunity to develop a much closer, and hopefully more binding relationships with customer, 2. Reduced inventory requirements
By knowing exactly how much

inventory the customer is carrying, a supplier¶s own inventory requirements are reduced since the need for excess stock to buffer against uncertainty is reduced or eliminated.

3. Reduced demand uncertainty

By constantly monitoring customers¶

inventory and demand stream, the number of large, unexpected customer orders will dwindle, or disappear altogether.

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4. Improved customer service

By receiving timely information

directly from cash registers, suppliers can better respond to customers¶ inventory needs in terms of both quantity and location.

b. WMS:

i. Highly automated system that runs day-to-day operations of a warehouse or distribution center. ii. A WMS manage the movement of goods within a warehouse or DC. iii. Typical features of a WMS include: 1. Directed stock rotation, 2. Intelligent picking directives, 3. Automatic consolidation and cross-docking to maximize the use of valuable warehouse space. 4. Direct and optimizes stock put-away based on real-time information about the status of bin utilization. Dec 2009 SCM FMM Page 24 of 50

iv. Having a WMS in place means you don't depend any more on people's experience, the system has the intelligence. v. Warehouse management systems utilize Auto ID Data Capture technology, such as barcode scanners, mobile computers, wireless LANs and potentially RFID to efficiently monitor the flow of products. Once data has been collected, there is either batch synchronization with, or a real-time wireless transmission to a central database. The database can then provide useful reports about the status of goods in the warehouse. c. JIT: i. JIT refers to inventory control system in which goods arrive when they are needed in the production process. This is done to reduce the need for storage capacity and the attached costs. ii. Elements of JIT: 1. Waste Reduction: a. Firms reduce costs & add value by eliminating waste from the productive system. b. Waste encompasses wait times, inventories, material & people movement, processing steps, variability, any other non-value-adding activity. 2. JIT partnership: a. Suppliers & customers work to remove waste, reduce cost, & improve quality & customer service. b. JIT purchasing includes delivering smaller quantities, at right time, delivered to the right location, in the right quantities. c. Firms develop JIT partnerships with key customers. Mutual dependency & benefits occur among JIT partnerships. 3. JIT layouts: a. Move people & materials when & where needed, ASAP. b. Group technology (work cells)- process similar parts or components saving duplication of equipment & labor Dec 2009 SCM FMM Page 25 of 50

c. Work cells are often U-shaped to facilitate easier operator & material movements. d. JIT layouts are very visual (lines of visibility are unobstructed) with operators at one processing center able to monitor work at another. 4. JIT inventories: a. Reduction of inventory levels causes problems to surface in the organization. b. Once problems are detected, they can be solved. c. The end result is a smoother running organization with less inventory investment. 5. JIT scheduling: a. Small batch scheduling drives down costs by: b. Reducing purchased, WIP, & finished goods inventories c. Makes the firm more flexible to meet customer demand. d. Small production batches are accomplished with the use of kanbans a Japanese word for card. Although for JIT use, Kanban has come to mean a signal to order or release material in the production system.

6. Continuous improvement:

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a. Continuous approach to reduce process, delivery, & quality problems, such as machine breakdown problems, setup problems, & internal quality problems. 7. Workforce commitment: a. Managers must support JIT by providing subordinates with the skill, tools, time, & other necessary resources to identify problems & implement solutions. 8. JIT II: a. An extension of supplier partnerships & vendor-managed inventories. b. A supplier¶s employee is housed in the purchasing department of the buyer¶s organization, acting as both buyer & supplier representative. This employee monitors inventory levels, places purchase orders, & participates on product design & value analysis teams. d. Push & Pull System: i. With a push-based supply chain, products are pushed through the channel, from the production side up to the retailer. The manufacturer sets production at a level in accord with historical ordering patterns from retailers. It takes longer for a push-based supply chain to respond to changes in demand, which can result in overstocking or bottlenecks and delays (the bullwhip effect), unacceptable service levels and product obsolescence. 1. Keeps inventory to meet actual demand 2. Acts proactively ii. In a pull-based supply chain, procurement, production and distribution are demand-driven so that they are coordinated with actual customer orders, rather than forecast demand. 1. May cause long delivery lead times 2. Acts reactively

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iii. In reality every supply chain is a mixture of push and pull. As long as consumers have a choice about what products they buy and when they buy them, the last link in the chain is always a pull link. At the other end of the chain, the extraction of raw materials from the earth almost always occurs in advance of demand for finished products. In effect, consumers pull and extractors push. iv. Somewhere in between the two is the push-pull boundary, the point at which the flow of goods switches from being pulled by consumers to being pushed by extractors. In the case of the assemble-to-order strategy, for example, the push-pull boundary is located at the final assembly plant.

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= Push-Pull Boundary

v. Effect of production strategy on Push-Pull System: 1. Orders trigger the flow of goods, but, depending on the production strategy, they may or may not trigger their immediate production by a supplier. 2. In the make-to-stock (MTS) strategy, a supplier makes products in advance of demand and holds them in finished goods inventory, satisfying demand from that inventory as orders come in. 3. In the make-to-order (MTO) strategy, the supplier doesn't build a product until it has an order in hand. 4. There is also an intermediate strategy, assemble-to-order (ATO), in which a product is partially built in advance of demand, but final assembly is postponed until an order is received. p Postponement strategy. 5. Some companies use a mix of these three techniques, but choose one as their primary strategy. Dec 2009 SCM FMM Page 29 of 50

6. For example, Sony uses make-to-stock, Boeing uses make-toorder, and Dell uses assemble-to-order. 7. The choice of production strategy has a major impact on the dynamics of a supply chain. 8. With the classic make-to-stock strategy, inventory is produced in advance of and "pushed" down the chain toward consumers so that it will be on hand when they go to buy it. This strategy relies on demand forecasts to determine how much inventory to build and where to hold it. 9. With make-to-order production, inventory is "pulled" down the chain by immediate orders. Forecasts are less important with make-to-order because there is no danger of making too much or too little inventory, though long-term forecasts are important to setting the correct levels of manufacturing capacity.

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vi. Matching Supply Chain Strategies with Products: 1. Section I (High-degree of Pull-based Strategy): a. Represents industries (or, more precisely, products) that are characterized by high uncertainty and situations in which economies of scale in production, assembly or distribution are not important, for example, the computer industry. b. Our framework suggests that a high degree of Pull-based supply chain strategy is appropriate for these industries and products, exactly what has been applied by Dell Computers. 2. Section III (Push Strategy): a. Represents products that are characterized by low demand uncertainty and a situation in which economies of scale are very important. b. Products in the grocery industry such as beer, pasta, or soup belong to that category.

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c. Indeed, demand for these products is quite stable while reducing transportation cost by shipping full truckloads is critical to controlling cost in the supply chain. d. In this case, a Push supply chain strategy, is appropriate, since managing inventory based on long-term forecast does not increase inventory holding costs while delivery costs are reduced due to economies of scale. 3. Section IV (Push or Push-Pull Strategy): a. Represents products characterized by low demand uncertainty, indicating a Push supply chain, and situations in which economies of scale do not play an important role, suggesting a Pull-based supply chain strategy. b. For instance, many books and CDs fall in this category. In this case, a more careful analysis is required, since both, traditional retail strategies, that is. Push strategies, and more innovative Push-Pull strategies are appropriate, depending on the specific costs and uncertainties.

Section III (Pull Strategy on Production, Push Strategy on Delivery at fixed schedule): a. Represents products and industries for which uncertainty in demand is high while economies of scale are important in reducing production and/or delivery costs. b. The furniture industry is an excellent example of this situation. c. Indeed, a typical furniture retailer offers a large number of similar products distinguished by shape, color, fabric, etc., and as a result demand uncertainty is very high. d. Unfortunately, these are bulky products and hence delivery costs are also high. e. In this case, there is a need to distinguish between the production and the distribution strategy.

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i. The production strategy has to follow a Pull-based strategy since it is impossible to make production decisions based on long-term forecasts. ii. On the other hand, the distribution strategy needs to take advantage of economies of scale in order to reduce transportation cost. iii. This is exactly the strategy employed by many retailers that do not keep any inventory of furniture. f. When a customer places an order, it is sent to the manufacturer who orders the fabric and produces to order. Once the product is ready, it is shipped, typically using truckload carriers, together with many other products to the retail store and from there to the customer. For this purpose, the manufacturer typically has a fixed delivery schedule and this is used to aggregate all products that are delivered to stores in the same region, thus reducing transportation costs due to economies of scale. g. Hence, the supply chain strategy followed by furniture manufacturers is, in some sense, a Pull-Push strategy where production is done based on realized demand, a Pull strategy, while delivery is according to a fixed schedule, a Push strategy. e. Postponement: i. Definition: 1. Postponement is a concept in which the manufacturer delays completing, as much as possible, the final features of a product. 2. Final assembly is normally at site closer to the customer than the manufacturing facility; e.g. in regional distribution centers. 3. For example, a canned corn manufacturer distributes its corn for various grocery store retailers. The distributor waits to see what

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grocery stores demand before labeling cans of corn under each grocer¶s brand name. ii. Advantages: 1. Postponement is most successful in an environment that cannot forecast product assortments very well, but can aggregate end-user demand and delay the final step or steps in completing a product. Because the manufacturer can accurately judge the overall demand of a product category, the distributor can wait until the moment when the demand for a particular product is realized. The distributor can then differentiate the product quickly and the customer will be served better. iii. Examples: 1. Hewlett Packard sells its printers in almost every country. It can forecast overall demand for its printers, but trying to pinpoint what country they will be sold in is very difficult. Because different countries employ different power requirements and the language varies (pertinent to user manuals), Hewlett Packard redesigned its printer so that it could wait until demand materializes and then add these country-specific items at its regional distribution centers rather than at central factories. f. Cross docking: i. Definition: 1. Cross-docking is a practice in logistics of unloading materials from an inbound carriers and loading these materials directly into outbound carriers, with little or no storage in between. 2. This may be done by: a. Change type of conveyance, b. Sort material intended for different destinations, c. Combine material from different origins into transport vehicles (or containers) with the same, or similar destination. Dec 2009 SCM FMM Page 34 of 50

3. At the same time, bulk shipments are being broken down into smaller lots and combined with small lots of other products and loaded right back onto other trucks. These trucks then deliver the products to their final destination. ii. Advantages: 1. Product flows faster in the supply chain (from point of origin to point of sale) since little inventory is held in storage, 2. Reduces handling costs, operating costs, and the storage of inventory 3. Products get to the distributor and consequently to the customer faster 4. Reduces, or eliminates warehousing costs 5. May increase available retail sales space iii. Factors influencing the use of cross-docks: 1. Cross-docking is dependent on continuous communication between suppliers, distribution centers, and all points of sale. 2. Customer and supplier geography -- particularly when a single corporate customer has many multiple branches or using points 3. Freight costs for the commodities being transported 4. Cost of inventory in transit 5. Complexity of loads 6. Handling methods 7. Logistics software integration between supplier(s), vendor, and shipper 8. Tracking of inventory in transit. g. E-procurement: i. E-procurement (electronic procurement, sometimes also known as supplier exchange) is the business-to-business or business-to-consumer or Business-to-government purchase and sale of supplies, Work and services through the Internet as well as other information and networking systems, such as Electronic Data Interchange and Enterprise Resource Planning. Dec 2009 SCM FMM Page 35 of 50

ii. Typically, e-procurement Web sites allow qualified and registered users to look for buyers or sellers of goods and services. iii. Depending on the approach, buyers or sellers may specify costs or invite bids. Transactions can be initiated and completed. Ongoing purchases may qualify customers for volume discounts or special offers. iv. E-procurement software may make it possible to automate some buying and selling. v. Companies participating expect to be able to control parts inventories more effectively, reduce purchasing agent overhead, and improve manufacturing cycles.

h. Electronic Data Interchange (EDI): i. Intercompany, computer-to-computer transmission of business information in a standard format.

i. POS (Point-of-Sale): i. The time and place at which a sale occurs. ii. Examples are: 1. A cash register in a retail operation, 2. Order confirmation screen in an on-line session. iii. Supply chain partners are interested in capturing data at the POS, because it is a true record of the sale rather than being derived from other information such as inventory movement.

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14. Supply chain management evolution:

15. Partnership:
a. Definition: A relationship of two or more entities conducting business for mutual benefit.

16. Collaboration:
a. Definition: i. The process by which partners adopt a high level of purposeful cooperation to maintain a trading relationship over time. ii. Features in collaboration: 1. The relationship is bilateral; both parties have the balanced power to shape its nature and future direction over time. 2. Mutual commitment is essential to the process. 3. While collaborative relationships are not devoid of conflict, they include mechanisms for managing conflict built into the relationship b. Guidelines for getting the most out of a relationship: i. Fit the relationships to your strategy. Define the link between overall strategy and collaboration opportunities, identify the purpose of each collaboration, and be prepared to react quickly to changes in strategy or environment. Dec 2009 SCM FMM Page 37 of 50

ii. Identify the best partners. Use a range of competitive and market sources to develop the intelligence to spot and evaluate potential partners. iii. Optimize your relationship portfolio. Develop systems for timely reporting to enable faster, better-informed decision making about the collaboration. Know how to identify new opportunities based on activity in your current portfolio. Make sensible trade-offs between internal efforts and alliances. iv. Maximize day-to-day performance. Use performance measures that reflect the organization¶s overall business objectives so that the people involved in the collaboration will be able to communicate the ³why´ and ³what´ of every alliance they form and to share experiences across alliances. v. Manage the relationship. Plan to communicate and maintain continuous personal contact with key people at partner organizations. Success on this front makes it possible to develop new opportunities from existing relationships. vi. Capitalize on your collaboration¶s assets. Capture and adopt best practices. Share information and leverage collaboration-created assets across the parent company

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17. Outsourcing: p 3S2C2ERG Release scarce resources Strategic reasons Size matters Improved cash flow Complexity of supply chain Emerging market E-commerce + e-fulfillment The need to relocate Globalization
a. Definition: i. Outsourcing is subcontracting a service, such as product design or manufacturing, to a third-party company b. Benefits / Reasons of Outsourcing i. Improved cash flow: 1. Cash needs to be injected to buy assets. 2. When particular service is outsourced, the buying of assets to provide the service becomes irrelevant. 3. This is a very important aspect of logistics outsourcing because most in-house operations will have a great deal of cash tied up in depots, vehicles and other equipment. ii. The need to relocate: 1. The rapid growth in IT was reflected in similar growth of IT department. This leads to the need for relocation to bigger and better premises. 2. Relocation in a logistics context normally means that a strategic study has indicated that demand and perhaps supply points have shifted such that existing depots are inappropriately located and that some need to be closed and other new ones opened. Dec 2009 SCM FMM Page 39 of 50

3. These relocations are potentially an enormous cost to any company, as well as being potentially very disruptive to operations and service levels during the period of change. 4. Thus, it may become both financially and operationally attractive to outsource. iii. Release scarce resources: 1. Rapidly developing markets and technology create the need for constant change. 2. This means that functional heads and their staff have to spend much of their time to fire fighting to initiate change and solve the associated problems. 3. Outsourcing can alleviate this and allowing staff to concentrate on more strategic issues. iv. Strategic reasons: 1. Outsourcing allows organizations to concentrate their resources on core functions. 2. Non-core functions are undertaken by an external specialist. v. Globalization: 1. In recent years, there is increase in the number of companies operating in the global marketplace. 2. These international companies are attributed with: a. Global branding, sourcing and production, but b. Centralization of inventory and information. 3. However, they must co-exist with the ability to provide for local requirements, such as electronic standards for electrical goods, language on packing, and left/right drive alternatives in automotive industry. 4. Logistics networks become far more expansive , complicated and difficult to service global markets. 5. Often, the best solution is to outsource.

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vi. Complexity: 1. Globalization almost certainly leads to greater complexity. 2. Complexity provides some significant implications for logistics operations, such as: a. Extended supply lead times, b. Complex node management (including DC, consolidation centers, and cross-docking), c. Extended and unreliable transit times, creating the need for greater visibility in the supply chain, together with better information systems, d. Multiple, single and inter-modal freight transport options, e. Complicated freight cost options, f. Production postponement with local added value (finishing, kitting, badging, tagging, etc). 3. Often, the best solution is to outsource, because: a. To concentrate on core competencies, and b. Difficult to set up and run such convoluted and complicated supply chains. vii. Emerging markets: Currently, there are some very significant regional market developments. 1. Far East, in particular the opening up of China: a. Has seen astounding growth in both the supply and demand for many different types of product. b. This are obvious implications for logistics regarding: i. The flow of products out of Far East, whether raw materials, components or finished goods. ii. The inward flow of mainly finished goods into the region. c. This is a long supply chain. 2. Eastern Europe:

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a. From Western European perspective, the sources and markets do not have the problem of distance. b. However, Eastern Europe has poor transport infrastructure and the problem of initial low levels of supply and demand. 3. Often, outsourcing (on logistics and manufacturing operation) is the best solution to deal with these complexity and constraints. viii. Size matters: 1. Transport Operation: a. In e-commerce and e-fulfilment, it is almost impossible for small companies that are trying to offer a broad geographic coverage to run their own transport operations costeffectively. This is the density problem. b. Basically, vehicles would have to travel uneconomically long distances between delivery drops. Thus, outsourcing into a multi-user third-party transport operation is the major alternative. 2. Warehouse Operations: a. At Section (a) Based on daily orders and volumes, a

small company with limited orders, volume throughput and SKUs is likely to undertake its own storage operation: (a) in the diagram. This is because it does not have sufficient requirements to attract a reasonably priced alternative from a third-party provider. b. At Section (b) Outsourcing becomes attractive when the

business is large enough to bear a reasonable overhead cost and to start to benefit from the scale economies that a multi-user operation can offer. This could continue through a fairly long phase of business growth, and the client could steadily move from being a small to a very big player for the 3PL.

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a. At Section (c)

The next stage occurs when the business

reaches sufficient size for the warehouse or depot to be run as an operation dedicated to the single business: (c) in the diagram. For many companies, this will be an opportunity to take the operation back in-house.

ix. E-commerce and e-fulfillment: 1. Internet and the World Wide Web have increased the opportunity for both business and consumers to purchase goods online from a variety of sources, whether traditional or new. 2. This Internet access provides a direct and instantaneous link from the customer to the selling organization. 3. However, the actual physical fulfillment must still be undertaken by more traditional physical operations to deliver products to customer house.

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4. This necessitates a new mean of physical distribution for home delivery, in which traditional channels are not appropriate for. 5. To most Internet companies, the best solution is to outsource efulfillment to 3PLs.

18. Reasons for outsourcing e-fulfillment:
a. Lower set-up costs: i. Outsourcing avoids the need to invest in distribution, so start-up cash can be concentrated into online business development. b. Very fast set-up of fulfilment capabilities: i. This allows companies to be able to support their online retailing business as soon as it starts operating, and thus avoid disappointing early customers through delivery delays and failures. c. Scale economies of shared facilities and transport: i. Thus fulfilment can be economic despite initially low volumes and throughput. d. Lower operating costs: i. Transport costs can be minimized if customer orders are consolidated with other users. Small companies face a difficulty in delivery operations known as the density problem, whereby they have insufficient delivery or order density in their network to make separate delivery operations viable. This applies particularly to online retailers, which virtually always start from a low business base when opening their online retail sites. e. Easier expansion of geographic coverage: i. This is a classic reason for outsourcing delivery transport in growing businesses, which applies equally to online retailers. f. Opportunity to benefit from value-added services: i. There are a multitude of value-added services that third-party providers now offer. Online retailers can use these at an early stage of their business operation.

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ii. Typical examples might include track-and-trace of orders, returns and inventory visibility.

19. Why People Don't Outsource
a. Loss of control over the process. It is imperative to choose the correct outsourcing partner and to form contractual arrangements to ensure appropriate delivery and lead times. b. Afraid of outsourcing competitive advantage. IBM outsourced both the microchip (Intel) and the operating system (Microsoft). c. Partnering with wrong supplier. d. Costs are not justified. e. Company wants to vertically integrate. f. Does not understand the benefits of outsourcing

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20. Benefits related to SCM:
a. Better equilibrium between supply chain members, b. Move from adversarial relationships towards collaborative relationships, c. Simplification of operations, d. Improvement: i. Customer services, especially on reduction in stock-outs, ii. Lead times, iii. Production planning. e. Reduction in: i. Stock quantity, ii. Goods holding costs, iii. Order processing costs, iv. Transportation cost, v. Costs of material purchased,

21. Barriers to implementing SCM:
a. History, habits (traditional commercial relationship), b. Knowledge (the need of a know-how), c. Size of organization, d. Information systems and information technologies, e. Culture and attitudes of people working in the company, f. Departmental barriers, g. Lack of trust, h. Lacking culture of sharing information, i. j. Be afraid of the benefits going only to the downstream, Conditions established by downstream (such as small batches ordering).

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22. Impact of Internet on SCM:

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23. Inventory:
a. Definition: i. The number of units and/or value of the stock of goods held by a company. These cover raw materials, work in progress, finished goods and supplies. b. Type of inventory: i. Raw materials product. ii. Work in process Materials and components that have begun their Materials and components scheduled for use in making a

transformation to finished goods. iii. Finished goods iv. Supplies c. Benefits / Reasons for keeping inventory: p TUE. i. Time - The time lags present in the supply chain, from supplier to user at every stage, requires that you maintain certain amount of inventory to use in this "lead time". ii. Uncertainty - Inventories are maintained as buffers to meet uncertainties in demand, supply and movements of goods. iii. Economies of scale - Ideal condition of "one unit at a time at a place where user needs it, when he needs it" principle tends to incur lots of costs in terms of logistics. So bulk buying, movement and storing brings in economies of scale, thus inventory. d. Other info: i. Stock Keeping Unit (SKU) is a unique combination of all the components that are assembled into the purchasable item. Therefore any change in the packaging or product is a new SKU. This level of detailed specification assists in managing inventory. ii. Buffer stock is held in individual workstations against the possibility that the upstream workstation may be a little delayed in long setup or changeover time. This stock is then used while that change-over is happening. Goods ready for sale to customers.

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24. The seven deadly sins of supply chain management:
a. SCM Sin No. 1: i. Not controlling your vendors, service providers and customers. The biggest industry misperception is that SCM technology lets you control your supply chain and vendor resources. Nothing could be further from the truth. ii. If you don't already have some organized control over your relationships, you will be disappointed in the results of your SCM efforts. iii. SCM technology works well if and when you already have control in place. You see, what's great about SCM solutions is that they provide you with tools that help you "enforce" the control of your relationships. b. SCM Sin No. 2: Not "managing" your trading partners. You must actively and authoritatively "manage" your supply chain relationships. I'm talking about the ability to manage them collectively in mass or in groups so that you can get some leverage from the process. That's where SCM technology makes a big difference. c. SCM Sin No. 3: i. Not knowing what SCM is. Few people can define what SCM technology really is. There are too many competing views and opinions. So how are you going to evaluate and implement SCM solutions when you can't define what they will do for you? ii. For instance, when people use the words distribution, logistics and warehousing interchangeably with SCM, you just know something is askew, right? d. SCM Sin No. 4: Lack of executive appreciation. The industry's inability to define SCM has one huge ramification for you: the people in the executive suite don't understand the functionality or benefits, and as a result, they don't have a full appreciation of what its true relevancy is to the organization. e. SCM Sin No. 5: i. Inability to establish a foundation of trust. The biggest human challenge to implementing SCM is establishing and sustaining the open, trusting vendor/supplier relationships required to make the system work. Dec 2009 SCM FMM Page 49 of 50

ii. Access to information presents major opportunities and challenges that must be addressed. The minute, operationally vital information is withheld--or worse, misrepresented--because of negative political or financial ramifications to a trading partner. The system is compromised, and so are the efficiencies you anticipated. f. SCM Sin No. 6: Too many options. The difficult part in evaluating SCM players and software products and services is that there are so many of them, and they change so fast. Don't make the mistake of pleading ignorance. It's a bad idea. g. SCM Sin No. 7: Anticipating collaboration. If you're justifying your SCM endeavor with the potential opportunity for "collaboration" with your strategic alliance partners, don't hold your breath. It only exists in PowerPoint presentations. Better to settle for cooperation instead.

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