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Skeleton of Presentation

Course I: Supply Chain Management Concepts & Overview Course II: Supply Chain Management Domain
Purchasing and Procurement Sales Forecasting & Demand Planning Production planning and control Inventory Management Distribution & Warehousing Customer service


Course I: Basics of Supply Chain Management

Course Objectives:
Define a supply chain and understand material, information, and capital flows. Understand major challenges to effective supply chain management. Supply Chain drivers.

Key Concepts: Supply Chain????

Supply chain is combination of all links & nodes to satisfy thiscustomer requirement. This includes: Supplier, Manufacturer, transporter, warehouses, retailer and customer Supply chain starts with the customer and ends with the customer. Chain is spread covering customers customer to suppliers supplier. Supply Chain covers complete Value Chain.

Supply Chain Loop

What is SCM???
Supply Chain Management means transforming a companys "supply chain" into an optimally efficient & customer-satisfying process. Efficiency of whole supply chain is importance over individual node/link efficiency.

Supply Chain Management

Material Flow Information Flow Distribution/ Retailer




Cash Flow

Flows in SCM
Material Flow: Flow of physical goods/

Information Flow: Customer orders, Sales

Plan, Forecast etc

Cash Flow: Flow of money from the end

customer to the supplier.

Principal Issues

Inventory reduction Lead time Reduction Quick response to changing customer needs Improving the accuracy of forecast 4R Model Better customer service Higher value for money Shared business vision

Importance of Integration, collaboration and Coordination across the supply Chain

Conflicting objectives between different stages of
chain. Fundamental challenge is to achieve coordination between the supply chain partners. Bullwhip effect: Distortion of demand information within the supply chain. This leads to increase in
Manufacturing cost. Inventory cost. Replenishment Lead time. Transportation cost. Bullwhip effect cost average 7% across all industries Kellogs management school survey 2001.

Responsiveness V/s Efficiency of Supply Chain

Response to wide range of demand Meet short lead times. Handle large Varidty of products. Meet high service level.

Cost Responsiveness Efficient Frontier Responsiveness





Supply Chain Performance Driver

Performance in terms of responsiveness and efficiency is driven by: Inventory
Changing inventory dramatically alter supply chain efficiency and

Route and Mode of transportatioo

Production and storage sites.

Availability of information at right time.

Supply Chain Decision Making Framework

Competitive Strategy

Supply Chain Strategy Effhciency Supply Chain Structure






Course II: Supply Function Domain

Purchasing and Procurement
Sales Forecasting & Demand Planning

Production planning and control

Inventory Management Distribution & Warehousing Customer service

Purchase and procurement Function

Is the process of buying
Avg 50% of spend is on purchase.
Purchasing Function is to obtain Materials: Right quantities Right Delivery Right Source Right price

Purchase Cycle
Receiving & Analyzing purchase requisition

Selection of supplier, issue request for quotations, receiving And analyzing quotations, selecting supplier Negotiation and deciding the right price/ e-bidding Issue PO Follow up, receiving and accepting goods Approving supplies invoice for payment

Functions involved in Procurement/Purchase/Materials Dept

Vendor development. Vendor certification. Sourcing strategies. Negotiation Alternative material development. e-bidding/ e-procurement. Purchase order/ follow up/receiving/ Invoice certification. Cost reduction initiative.

Sales Forecasting and Demand Planning

Forecasting demand forms basis for all strategic planning decision. Determine responsiveness of supply chain which determined the forecasting frequency. Integrate demand planning with forecasting. Eg. Capacity constraint, purchase etc. Identify the components of a demand forecast. Systematic and random component. Analyze demand forecast to estimate forecast error.

Production planning and control system

Strategic Business Plan Production Plan

Master Plan

Master Production Scheduling

Material Requirement Planning Production Activity control

Strategic Business Plan:

Product Lines market etc

Production Plan:
Inv level, Quantities of product group, resources etc

Master Production Scheduling:

Plan for producing individual end items.

Material Requirement Plan:

Is plan for production and purchase of the components used in making
the item.

Purchasing and Production Activity Control:

Inventory Management in Supply Chain

Inventory is because of mismatch between
demand and supply. Reduce cost by exploiting Economies of Scale.

Inventory is devil. Its incurs cost, tied up

working capital, wastage etc.

Aggregate Planning
Is a process of determining levels of capacity
production, subcontracting, inventory and stockout over specified time horizon to maximize profit.
Production levels Inventory levels Aggregate planning

Demand forecast Capacity constraint

Production cost
Labour Constraints

Capacity levels
Subcontracting, OT, hire and fire etc

3 months to 18 months

Cycle Inventory
Amount of inventory used to satisfy average
demand between receipt of supplier shipments. Cycle inventory is result of production and purchase in lot size. Supply Chain Decision: Trade of between cost of holding and cost of ordering.

Safety Inventory
Inventory held in case demand exceeds
expectations. This is to counter uncertainty.

Seasonal Inventory
Inventory that is built up to counter
predictable variability in demand.

EOQ Determination

Total cost

Holding cost
Ordering cost Material Cost EOQ

Lot size

EOQ Model
Holding Cost Ordering Cost
Holding cost Avg inv. * Cost of carrying. = (Q/2 )*H Ordering cost - No of order * Order cost /order = (R/Q) * S

Note: Q- Ordering quantity R- Annual demand

H- Cost of carrying on unit S- Cost of one order

EOQ Model
Total Cost = (R/Q)S + (Q/2) H Differentiating w.r.t Q Optimum lot Size Q* = Sqrt (2RS/H)
This is the EOQ which optimizes the
carrying and holding cost.

Physical Distribution
Physical supply



Manufacturing planning and control

Physical Distribution


Refer to movement of product/material
from one location to another. Logistic Networks: Direct Shipment Network


Retail Point

Supply Chain Manager decisions: Lot quantity and mode of transportation. Direct Shipping with Milk Run: Milk run is route in which a truck either deliver product from single supplier to multiple retailers or vice versa.
Consolidation Lover cost

Lot size can be reduced


Retail Point

Shipment via Central Distribution

When suppliers are located far from the retail stores and transportation cost is high



Retail Point

Distribution Warehouse: Dynamic purpose of movement and mixing. Bulk and Break. Emphasis is on movement and handling and not
on storage.

Role of Warehousing
Transportations consolidation Product Mix Services

Customer Service
Customer driven market. Price = Cost + Profit Traditional approach Profit = price cost
Decided my market

Sellers mkt Buyers market

Service at door step with customize product, quick

delivery and for unbelievable price is Mantra for success in todays competitive environment.

Supply Chain: Customer Service Backbone

Demand driven Make one Sell One Responsive Supply Chain. Vastly spread distribution network. Customer being a partner in Supply Chain. Point of sale data capture. Web enabled customer services. Quick deliveries. 4R Model.

Thank You