SUPPLY CHAIN MANAGEMENT Also referred to as the logistics network Suppliers, manufacturers, warehouses, distribution centers and retail outlets — “facilities” and the Raw materials Work-in-process (WIP) inventory Finished products that flow between the facilities. Hence SCM is a network of all parties involved, either directly (or) indirectly, in fulfilling a customer request.Supply Chain includes Material flows Information flows Financial flows LOGISTICS Physical Distribution Management(1976) Logistics is the process of planning, implementing, controlling efficient and effective flow and storage of goods, services and related information from the point of origin to the point of consumption.TRADITIONAL SUPPLY CHAIN SYSTEMS Supplier Manufacturer MDC WDC Retail Customer plant 3” Party Logistics Providers (3PL) _ —— Material FlowSUPPLY CHAIN Suppliers Manufacturers Warehouses & Customers Distribution Canters AX | os fh Material Costs Tansportation Manufacturing Costs Inventory Costs 284sHISTORY OF SUPPLY CHAIN MANAGEMENT » 1960's - Inventory Management Focus, Cost Control » 1970’s - MRP & BOM - Operations Planning » 1980's - MRPII, JIT - Materials Management, Logistics » 1990’s - SCM - ERP - “Integrated” Purchasing, Financials, Manufacturing, Order Entry x 2000's - Optimized “Value Network” with Real- Time Decision Support; Synchronized & Collaborative Extended NetworkSupply Chain objectives To have the right products in the right quantities at the right place at the right moment at minimal cost. It is characterized by a sharp focus o Maximize the overall profit Better asset utilization Cost reduction.Importance of SC Reduced inventories along the chain. « Better information sharing among the partners. « Planning being done in consultation rather than in isolation. Supply chain design, planning and operation decisions play a significant role in the success or failure of the firm Measuring Factors of SCM Responsiveness EfficiencyPrinciples of SC Sourcing, procurement and supply management Component order arrival Production scheduling Receiving Materials management Forecasting, Inventory, stores management, stock keeping Logistics and distribution managementDECISION PHASES IN SC Developing Strategy / Design Planning Supply Chain Supply Chain OperationDecisons in Developing a strategy or Design: What is the chain’s configuration? How resources will be allocated? What process each stages will perform? Whether to outsource or perform in/house?Decisions in Planning Supply Chain: Forecasting the demand for the coming year Which markets will be supplied from which locations? The inventory policies to be followed The timing and size of marketing and size of marketing and pricing promotionsSteps in Supply Chain Operations: Set a date that the order to be filled. Generate pick lists at a warehouse eeceney Geet) Paar Ene Cmts si eed eMC nmeg ge ePROCESS VIEWS » Cycle view Push/pull view Cycle View: The process is divided into a series of cycles, each performed at the interface between two. successive stages of a supply chain. Push/Pull view: The process in supply chain are divided into two categories depending on whether they are executedin response to the consumer order or in anticipation of the customer orders.Cycle View: Given the fivestages of supply chain : Customer Customer order cycle Retaile; Replenishment Cycle Distributor Manutacturing Manufacturer cycle Procurement Supplier CycleSub Process in each cycle: Supplier markets product Buyer places order Buyer reverse flows to supplier or third Buyer receives party supply Supplier receives order ‘Supplier supplies orderPUSH STRATEGIES Classical manufacturing supply chain strategy Manutacturing forecasts are long-range Orders from retailers’ warehouses » Longer response time to react to marketplace changes Unable to meet changing demand pattems: ‘Supply chain inventory becomes obsolete as demand for Certain products disappears Increased variability (Bullwhip effect) leading to: Large inventory safety stocks Larger and more variably sized production batches Unacceptable service levels Inventory obsolescence Inefficient use of production facilities (factories) How is demand determined? Peak? Average? How is transportation capacity determined? Examples: Auto industry, large appliances, otherPULL STRATEGIES Demand-driven Coordinated with true customer demand None or little inventory held Only in response to specific orders Decreased lead times Decreased retailer inventory Decreased variability in the supply chain and especially at manufacturers Decreased manufacturer inventory More efficient use of resources More difficult to take advantage of scale opportunities Examples: Dell, Amazon D@LLPUSH/PULL STRATEGIES tasco Systems « Hybrid of ‘push" and “pull” strategies to overcome disadvantages of each Early stages of product assembly are done in a “push” manner Partial assembly of product based on aggregate demand forecasts (which are more accurate than individual product demand forecasts) Uncertainty is reduced so safety stock inventory is lower » Final product assembly is done based on customer demand for specific product configurations » Supply chain timelir ines “push-pull boundary” D@LL Generic” Product “Customized” Product 1 Push Strategy 1 Pull Strategy Raw ! End aS ‘Supply chain Timeline Spasms ayCHARACTERISTICS OF PUSH, PULL AND PUSH/PULL STRATEGIES PUSH PULL Objective Minimize Cost | Maximize Service Level High tow | Resource Allocation | Responsiveness | ong Short Supply Chain Planning | Order FulfilmentSUPPLY CHAIN DRIVERS LOGISTICS DRIVERS Facilities Inventory + Transport CROSS- FUNCTIONAL DRIVERS Information Sourcing PricingSCM MACRO PROCESSES IN FIRM SUPPLIER CUSTOMER SUPPLY CHAIN MANAGEMENT - KEY ISSUES Overcoming functional silos with conflicting goals Paretasing Marfactiring Distriontion case source MAKE DELIVERSUPPLY CHAIN MANAGEMENT - KEY ISSUES ISSUE CONSIDERATIONS Network Planning + Warehouse locations and capactties + Plant locations and production levels + Transportatien flows between facilities to minimize cost and time Inventory Control + How should inventory be managed? + Why does inventory fluctuate and what strategies minimize this? ‘Supply Contracts Strategic Partnering Impact of Revenue sharing + Pricing strategies + What information and processes can be shared? + What partnerships should be implemented and in which situations? ‘Outsourcing & Procurement Strategies ~ What are our care supply chain capabilities and which are nat? + Doos our preduct design mandate different outsourcing approaches? += Risk management. Product Design + How are inventory holding and transportation costs affected by product design? + How does product design enable mass customization?BULL WHIP EFFECT Inventory and back-order levels fluctuate considerably across the supply chain even when customer demand doesn't vary The variability worsens as we travel “up” the supply chain Forecasting doesn't help Multi-tier ‘Suppliers Manufacturer Wholesale | Retailers Consumers ee [AN LAL Sales Bullwhip EffectFACTORS CONTRIBUTING TO THE BULLWHIP Demand forecasting practices Min-max inventory management (reorder points to bring inventory up to Pedee levels) Lead time Longer lead times lead to greater variability in estimates of average demand, thus increasing variability and safety stock costs Batch ordering Fixed ordering costs Impact of transportation costs (e.g., fuel costs) Sales quotas Price fluctuations Promotion and discount policies Lack of centralized informationTAMING THE BULLWHIP Four critical methods for reducing the Bullwhip effect: Reduce uncertainty in the supply chain Centralize demand information Keep each stage of the supply chain provided with up-to- date customer demand information More frequent planning (continuous real-time planning the goal Reduce variability in the supply chain Every-day-low-price strategies for stable demand patterns » Eliminate the bullwhip through strategic partnerships Vendor-managed inventory (VMI) Gollaborative planning, forecasting and replenishment (CPFR)SUPPLY CHAIN MANAGEMENT OPERATIONS STRATEGIES ‘STRATEGY, "WHEN TO CHOOSE BENEFITS Make to Stock standardized products, relatively predictable demand Low manufacturing costs; meet customer demands quickly Make to Order customized products, many variations Customization; reduced inventory; improved service levels Configure to Order many variations on finished product; infrequent demand Low inventory levels; wide range of product offerings; simplified planning Engineer to Order complex products, unique customer specifications Enables response to specific customer requirementsSUPPLY CHAIN IMPERATIVES FOR SUCCESS View the supply chain as a strategic asset Dell's innovative direct-to-consumer sales and build-to-order manufacturing Create unique supply chain configurations that align with your company's strategic objectives Operations strategy Outsourcing strategy Channel strategy ‘Supply chain configuration components Customer service strategy Asset network Reduce uncertainty Forecasting Collaboration IntegrationSUPPLY CHAIN COLLABORATION Many different definitions depending on perspective « The means by which companies within the supply chain work together towards mutual goals by sharing Ideas Information Processes Knowledge Information Risks Rewards « Why collaborate? Accelerate entry into new markets Changes the relationship between cost/value/profit equationSUPPLY CHAIN COLLABORATION » The only method that has the potential to eliminate or minimize the Bullwhip effect Retuiters d Fert ‘Suppliers Manufacturer Distributor” wel Whoksalers wees HD septs roviten aBENEFITS OF SUPPLY CHAIN COLLABORATION CUSTOMERS MATERIAL SUPPLIERS SERVICE SUPPLIERS + Reduced inventory + Increased revenue + Lower order management costs + Higher Gross Margin + Better forecast accuracy + Better allocaton of al budgets. + Reduced inventory + Lower warehousing costs + Lower material acquisitior costs + Fewer stockout conditions + Lower freigl + Faster and delivery + Lower capital costs + Reduced depreciation reliable + Lower fixed costs Source: Cohen & Roussel + Improved customer st @ efficient use of human resourcesEMERGING BEST PRACTICES IN SCM Plan RUC ccd ‘¢ Expanding planning to indude customers and suppliers with joint bjective for customer service. lexibility.cyele times, and inventory ¢ Setting up an end-customer pull-based planning approach (e.g,, make-to-order) Source ‘Joint development and sharing the riskibenefite ‘¢ Development of strategic supplier relationships ‘¢ Automated/vernior-managed rapid replenishment of inventory topoint of use and time of use. Make #Postpor merit manufacturing (pull vs. push approach) + Design for supply chairvmanufacturing Deliver ‘Centralized safety stock with rapid response to market demand imentory deployment + Ship direct to end-customerisingle point of handling 4ieternatiedal Logistics _ Logistics Management is that part of Supply Chait Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers’ requirements.Demand forecasting Purchasing = : es: 4 Requirement planning Sao Production planning Manufaeturing inventory Warehousing Material handing = Industrial packaging Finished goods inventory Distribution planning Order processing Transportation Customer service Strategic planning Information technology Marketing ——= Sales — =" (Components of Global Logistics tyre) eee Cee ett tg