Supply Chain Definition

Find out What’s Supply Chain is…

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What You’ll Learn
• Challenges of Supply Chain Management • Value of Information and Demand Distortion • Utilizing performance metrics to drive supply chain effectiveness • Transformation to Lean Supply Chain • Creative Supply Chain Partnership and Distribution Strategies
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CHALLENGES OF SUPPLY CHAIN MANAGEMENT

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What is Supply Chain Mgmt?

• SCM = Integration of the activities that procure materials, transform them into intermediate goods & final products, and deliver them to customer.

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Suppliers

Manufacturers

Warehouses & distribution centers

Customers

Manufacturing Costs

Material Costs

Transportation Costs

Inventory Costs

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Material Costs in Supply-Chain
Wholesale Manufacturing
31% 11% 58%
Material Dir Wages Other

8% 9%

COGS Payroll

83%

Other

Retail
13% 16%

COGS
Payroll

71%

Other
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Objective of SCM
To build a chain of suppliers that focus on both reducing waste & maximizing value to the ultimate customer.

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SCM - Strategic Importance
How the Supply Chain can support the overall strategy?
Low-Cost Strategy Supplier’s Goal Supply demand at lowest possible cost. Select primarily for cost. Response Strategy Respond quickly to changing requirements & demand to min. stockouts. Select primarily for capacity, speed, & flexibility. Invest in excess capacity & flexible process. Differentiation Strategy Share market research; jointly develop products & options. Select primarily for product development skills. Modular processes that lend themselves to mass customization.

Primary Selection Criteria

Process Maintain high Characteris average tics utilization.

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SCM - Strategic Importance (cont)
How the Supply Chain can support the overall strategy?
Low-Cost Strategy Inventory Min inventory Characterist throughout the ics chain to hold down costs. Response Strategy Develop responsive system, with buffer stocks positioned to ensure supply. Invest aggressively to reduce production lead time. Use product designs that lead to low setup time & rapid production ramp-up. Differentiation Strategy Min inventory in the chain to avoid obsolescence.

Lead-Time Shorten lead Characterist time as long as ics it does not increase costs. ProductMax Design performance & Characterist min cost. ics

Invest aggressively to reduce development lead time. Use modular design to postpone product differentiation for as long as possible. 9

VALUE OF INFORMATION AND DEMAND DISTORTION

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Supply Chain Dynamics
Retailer
Order lead time

Delivery lead time

Wholesaler
Order lead time
Delivery lead time

Distributor
Order lead time
Delivery lead time

Factory
Production lead time Example: Diapers distribution
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“Bull-Whip Effect”

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The “Bullwhip Effect”

The ordering patterns share a common recurring theme: • The variability of an upstream site are always greater than those of the downstream site

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Causes of “Bullwhip” Effect
• • • •

Demand forecasting & Lead time Order batching Price fluctuation Shortage gaming / Inflated orders

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Order Variation in SCM

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Demand Forecasting & Lead Time
• Traditional inventory mgmt lead to bull-whip – min/max inv policy • Forecasting difficulties – based on historical data • Order change constantly – increase variability • Safety stocks that depend on erratic variance on demand & long lead time

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Batch Ordering
• • • •

Economic of scale MRP driven requirement Lower transportation cost “Push Ordering” for short term performance measures

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Price Fluctuation
• Discounts & promotions • Quantity discounts • In anticipation of future price increase

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Shortage Gaming/ Inflated Orders
• • • • Happen when demand > supply Customers exaggerate real needs When constraints removed, orders drop Examples: Passive components in the 19992000

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To Counteract the “Bullwhip”
• Information Sharing • Break Order Batches & Collaborative Planning • Stabilize Prices • Eliminate Gaming in Shortage Situations
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UTILIZING PERFORMANCE METRICS TO DRIVE SUPPLY CHAIN EFFECTIVENESS
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SCM Metrics
• Biz performance measure:

– No longer focused on individual company – Based on whole supply chain
• Ultimate goal = Customer Satisfaction • Focus on Two dimensions

– One dimension – single company – Two dimension – multi-functional & multi-company
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3 Key Dimensions
• Service
– Anticipate & fulfill customer demand – Personalized products – On time delivery

• Assets
– Inventory & cash

• Speed
– Responsiveness & velocity of execution

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Service Metrics
Measure how well we are serving our customers Make to Stock (MTS) Make to Order (MTO)
Line Item Fill Rate Complete Order Fill Rate Quoted Cust Response Time % On-Time Completion

Delivery Process On-Time Delivery Process On-Time $Backorder/Lost Sales No of Backorders Aging of Backorders $ of Late Orders # of Late Orders Aging of Late Orders
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Subscribe to our newsletter & find out more Details about the other 2 dimensions of measurement (assets & Speed)… Go to SynerflexConsulting.com

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UTILIZING CREATIVE APPROACHES TO EFFECTIVELY MANAGING YOUR SUPPLY CHAIN

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Approaches
• CRP (Continuous Replenishment Program) • VMI (Vendor Managed Inventory) • Risk Pooling • Transshipment • Cross Docking • Design for Logistics
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