Supply chain Management

Name : Sanjay Srivastava

Email ID : sansri1967@gmail.com
Mobile No : 9819808158
Contents
 Evolution of SCM
 Definitions & Objectives
 Type of SCM
 Flow in SCM
 Challenges
 Areas of improvement
 SCM Decisions
 Bull whip effect
 Planning
 Valuation
 Costing
 analytics
Evolution of supply chain management

 The first revolution ( beginning of 20 th century)

 The ford supply chain


The second revolution ( around 1960s)
 The Toyota supply chain


The third revolution ( around 1995)
 The Dell supply chain
Requirements of Manufacturing
“Make an increasing variety of products, on shorter lead
times with smaller runs and flawless quality. Improve ROI
by automating and introducing new technology in process
and materials so that price can be reduced to meet local
and foreign competition. Mechanize - but keep schedules
flexible, inventories low, capital costs minimal and work
force contended”
- Skinner, 1985
Simultaneous Priorities

 Cost,flexibility, quality and delivery are not to be traded

off against one another but need to be simultaneously
prioritized
 TQM to achieve flawless quality
 Flexible manufacturing systems ( FMS) to achieve quick response
 Agile manufacturing for low cost
 Supply chain management to deliver products quickly with low
inventories
 What is a Supply Chain ?
All
 stages involved, directly or indirectly, in fulfilling a customer request.

Integration
 of Demand ( customer) and Supply ( all other supply chain functions)

Within
 each company, the supply chain includes all functions involved in fulfilling a
customer request ( product development, marketing, operations, distribution,
finance, customer service).
Customer
 is an integral part of the supply chain management.
Includes
 movement of products from suppliers to manufacturers to distributors but
also includes movement of information, funds and products in both the directions.
Probably
 more accurate to use the term “ supply network” or “ Supply web”.
Supply chain – Definition

Supply chain is a network of facilities and

distribution options that performs the
functions of procurement of materials,
transformation of these materials into
intermediate and finished products and
the distribution of these finished
products to customers
Objectives
Overall value generation

Supply chain profitability

Supply chain cost

 Different types of Generic supply chain

wholesaler Retailer Customer

Manufacturer

Retailer Customer
Manufacturer

B2C

Customer
Manufacturer
B 2 B ( BHEL to
NTPC)
 A typical supply chain

Customer
Third party Big Bazar demands
P & G or other
Distribution Supermarket detergent at B.
manufacturer
company Bazar

Plastic Packaging Chemical or oil

producer company company

Chemical or oil Paper Timber

company manufacturer Industry
 Flows in a Supply chain

Information ( independent)

Supply
chain Customers
elements Product ( reverse of fund)
Traditionally only one way

Fund ( reverse of Product )

Traditionally only one way
 Supply chain challenges
 Lack of synchronization between planning and execution.
 Lack of real time data visibility, with no common view across all businesses and channels.
 Irregular
reviews of safety stock levels, causing frequent stock-outs or excess inventory.
( bullwhip effect – dead inventory!)
 Lack of flexibility in the network and distribution footprints, so that decision-makers find it
difficult to prioritize between cost to serve and customer service levels, resulting in less
profitability.
 Price
volatility and difficulty in de-risking. (competitors, globalization, price-wars,
exchange issues: frequent data analytics solution)
 Production line imbalance and suboptimal batch sizes, creating asset underutilization.
( flexibility, service levels, customer satisfaction quantifiable trade-offs resulting in line
balancing. Flexibility vs asset utilization)

Strategic issues
( network design approach)
Design of supply chain,
partnering
Network design approach
Supply chain Issues
Tactical issues Operating issues
( simulation approach) ( heuristic approach
Quality control
Inventory policies
Production planning and
Purchasing polices
control
Transportation policies Heuristic or rough cut approach
Quality policies
Simulation based approach
 Managing supply chain Issues
 Shrinking product life cycles : Computers/electronic good/expendable
categories
 Shrinking time window for delivery
 Non-shrinking lead times
 Increasing product variety : apparels, fashion, trendy goods , appliances
 Demand uncertainty
 Longer “order to order” lead time
 Responsiveness squeeze
 Profits and cash
Supply chain management : Areas of improvement
 Strategies involving improving in-bound logistics

 Impact of supply chain structure on overall performance

 Type of planning tools for SCM

 Workable strategies for managing scenarios like : product variety or

short product life cycle
Supply chain Decisions
 Location Decisions

 Production Decisions

 Inventory Decisions

 Transportation Decisions

 Information Decisions
Location Decisions
 The geographic placement of production facilities.

 Stocking points and sourcing points.

 Optimization routine that considers production costs, taxes,

duties, tariffs, distribution costs, production capabilities etc.
Production Decisions
 Product and plants identification

 Allocation of suppliers to plants to DCs and DCs to

customers

 Detailed production scheduling – Construction of master

production schedules, scheduling on machines, equipment
maintenance, workload balancing and quality control.
 Inventory Decisions

 Raw material, semi-finished or finished goods.

 In-process between locations.

 To buffer against any uncertainty

 Control policies, optimal level of order quantities, reorder levels and

safety stock levels at each location based on customer service levels.
 Transportation Decisions

 Trading off the cost with the indirect cost of inventory

 Customer service levels, geographic locations and desired buffer and

inventory levels.

 Transportation costs are found to be more than 30 % of the logistics costs

 Shipment sizes, routeing and scheduling of equipment are key factors.

 Bull whip effect

Inventory levels

Tier 2 Tier 1
suppliers suppliers Producer Distributor Customers

Ordering
 Reasons for Bull whip effect
 More number of
 Layers
 Delays
 Rate of change of demand
 High fluctuation of demand

 Each layer
 Updates its forecast in varying patterns
 Place order at different times
 Price fluctuations
 Promotion activities ill-coordinated
 Rationing of supply
 Methods to avoid bull whip

 Reduce number of layers

 Delay in information exchange
 Reduce rate of change
 Improve quality of demand forecast updates : POS data, Internet, ERP
 Share sales, capacity and inventory data across the supply chain partners
 Lead time reduction
 Reduction in fixed costs in ordering
 Improve planning methodology
SCM : Planning Issues
Supply chain structure significantly impacts lead
time and planning
Forecasting and demand management are key
requirements for SCM
Constantly look for new means of cutting lead time
Gainfully exploit improved data visibility provided
by ERP systems for better inventory control
Designing efficient supply chain : strategies
 Continuous replenishment programme using data links for information
sharing
 Capture point of sale data for accurately and immediately updating
forecast
 Invest in supply chain partnership programmes both on the “in-bound”
and “ out –bound” side
 Integrate material planning and control systems with ERP to benefit
from improved data visibility
 Develop robust inventory control mechanisms to accurately fix reorder
points and order levels
One size does not fit all
Productprofiling before Supply chain strategy
Primarily functional products
Primarily innovative products

Choice between
An efficient supply chain &
A responsive supply chain
 Criterion Functional Innovative

Product life cycle > 2 years 3 to 12 months

Contribution margin 5 % to 20 % 20% to 60%

Product variety Low ( > 20 variants per High ( > 1000)

category)
Average forecast error 10% 40 % to 100%

Average stock out 1 % to 2 % 10 % to 20 %

Forced end of season 0% 10 % to 25 %

markdown
Lead time for made to order 6 to 12 months 1 day to 2 weeks

Source : Fisher (1997) what is the right supply chain for your product. HBR Mar-Apr
1997
The objective of a supply chain : Valuation terms

 Maximize overall value created for the Customer

 Supplychain value: Difference between what the final

product is worth to the customer and the effort the supply
chain delivers in filling the customer’s request

 Valueis correlated to supply chain profitability ( difference

between revenue generated from the customer and the
overall cost across the supply chain).
 Value addition in Supply chain
M
a
n
Tier 3 Tier 2 Tier 1 u Wholesaler customer
supplier supplier Retailer
supplier f
a
c
t
u
r
Most value addition due to Most value addition due to
e
processing and manufacturing marketing, sales and logistics
r
activities activities
 The value chain: linking supply chain & Business strategy

Finance, accounting, Information technology, Human

resource

New product Marketing Operations Distribution Service

development and sales

( data for new ( capturing ( incremental ( place & ( what ways

product design) data) value addition) timings) the product is
being utilized
:innovation )
The objective of a supply chain : In cost terms

 Source of the supply chain revenue : Customer

 Sourcesof supply chain cost : flows of information,

products, or funds between stages of supply chain

 Supply chain management is the management of flows

between and among supply chain stages to maximize
total supply chain profitability.
The objective of a supply chain : In cost terms

 Example : Micromax receives Rs 10000/- from a customer for a

mobile phone (Revenue).
 Supply chain incurs costs (information, storage, transportation,
components, assembly etc).
 Difference between Rs 10000/- and the sum of all these costs is
supply chain profit.
 Supply chain profitability is total profit to be shared across all
stages of the supply chain.
 Supply chain success should be measured by total supply chain
profitability and not profits at an individual stage.
Supply chain Analytics

 Supply chain Analytics aims to improve operational

efficiency and effectiveness by enabling data-driven
decisions at strategic, operational and tactical levels.
( Try to avoid qualitative decision mostly but sometimes
qualitative decision also matters : Algorithm and models)

 Itencompasses virtually the complete value chain :

Sourcing, manufacturing, distribution and logistics.
Thank you !