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SUPPLY CHAIN MANAGEMENT -PROF. SUBHAJIT BHATTACHARYA
Thursday, March 10, 2011

Xavier institute of Social Service, Ranchi

What Is Supply Chain Management?
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Xavier institute of Social Service, Ranchi
© 2007 Pearson Education

Thursday, March 10, 2011

What is Supply Chain Mgt.?
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Supply chain management is a set of approaches used to efficiently integrate suppliers, manufacturers, warehouses, and Users so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time in order to minimize system wide costs while satisfying service-level requirements. Planning, managing, acquiring, producing, warehousing, distribution, delivery
Xavier institute of Social Service, Ranchi
© 2007 Pearson Education

Thursday, March 10, 2011

Areas of focus
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Forecasting Purchasing and inventory management Warehouse Management Transporting E-SCM CRM

Xavier institute of Social Service, Ranchi
© 2007 Pearson Education

Thursday, March 10, 2011

What is Supply Chain Management
3-5

Supplier
Inv.

Scheduling Information Cash Flow Order Flow

User

Supplier
Inv.

Manufacturer or Inv. Service Provider
Inv.

User

Supplier

Credit Flow Material Flow Operations/ Materials Man. Marketing/ Sales/ Cust. Serv.

PurchasingVendors

Accounting and Finance Xavier institute of Social Service, Ranchi
© 2007 Pearson Education

Thursday, March 10, 2011

3-6 Xavier institute of Social Service. Ranchi © 2007 Pearson Education Thursday. March 10. 2011 .

Henry Royce The essence of SCM was understood with the first phase characterized as an inventory µpush¶ era that focused primarily on physical distribution of finished goods Companies began migrating from an inventory push to a User pull channel Emergence of SCM WalMart introduced the concept of Cross Docking Internet revolutionized the distribution system of the business Concept of e-commerce changed the definition of business Xavier institute of Social Service. 2011 Module 1:Supply Chain Management 1975-1990 1980 1985199619983-7 .Evolution of Supply Chain Management Ancient Times 1904 1960-1975 The first supply chain was the barter system Traces of outsourcing was seen when Charles S. March 10. Ranchi Thursday. Rolls became selling agent for cars made by F.

Ranchi Thursday. March 10.Various options in Supply chain Mgt. 2011 . 3-8 Supplier Manufacturer Distributor Retailer User Supplier Manufacturer Distributor Retailer User Supplier Manufacturer Distributor Retailer User Upstream © 2007 Pearson Education Downstream Xavier institute of Social Service.

2011 1-9 . Ranchi © 2007 Pearson Education Thursday.A Closed System View R&D Marketing Supplier s Finance Manufacturing Personnel Customer Service Distribution & Logistics Customer s Purchasing Xavier institute of Social Service. March 10.

2011 1-10 . Ranchi © 2007 Pearson Education Thursday. March 10.An Open System View External Customers Suppliers Manufacturing Other Functions Xavier institute of Social Service.

multimedia.) Local System Capabilities Enterprise System Capabilities © 2007 Pearson Education 1-11 . etc.Evolution From OM to Supply Chain OM View Closed Supply Chain View Open System System Orientation Manufacturer Orientation Local Customer Optimization Global Optimization Technology (hardware. software.

2011 . Ranchi © 2007 Pearson Education Thursday.The Importance of Supply Chain Management 12 Lots of money at stake! Excess Inventory costs Excess freight charges Lost sales / Stock outages Wasted time and energy Extra staff Listings / Delistings User dissatisfaction . March 10.privatization Capital costs Real Estate Costs Xavier institute of Social Service.

2011 1-13 . March 10. Ranchi © 2007 Pearson Education Thursday.The Objective of a Supply Chain Maximize overall value created Supply chain value: difference between what the final product is worth to the User and the effort the supply chain expends in filling the User·s request Value is correlated to supply chain profitability (difference between revenue generated from the User and the overall cost across the supply chain) Xavier institute of Social Service.

Ranchi © 2007 Pearson Education Thursday. March 10. 2011 1-14 .) 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. etc.The Objective of a Supply Chain Supply chain incurs costs (information. storage. assembly. transportation. not profits at an individual stage Xavier institute of Social Service. components.

The Objective of a Supply Chain Sources of supply chain revenue: the User Sources of supply chain cost: flows of information. products. or funds between stages of the supply chain Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability 1-15 Xavier institute of Social Service. March 10. Ranchi © 2007 Pearson Education Thursday. 2011 .

Ranchi © 2007 Pearson Education Thursday.Decision Phases of a Supply Chain Supply chain strategy or design Supply chain planning Supply chain operation Xavier institute of Social Service. 2011 1-16 . March 10.

March 10.Supply Chain Strategy or Design Decisions about the structure of the supply chain and what processes each stage will perform Strategic supply chain decisions † Locations and capacities of facilities † Products to be made or stored at various locations † Modes of transportation † Information systems Supply chain design must support strategic objectives Supply chain design decisions are long-term and expensive to reverse ² must take into account market uncertainty Xavier institute of Social Service. Ranchi 1-17 Thursday. 2011 © 2007 Pearson Education .

March 10.Supply Chain Planning Definition of a set of policies that govern short-term operations Fixed by the supply configuration from previous phase Starts with a forecast of demand in the coming year Xavier institute of Social Service. 2011 1-18 . Ranchi © 2007 Pearson Education Thursday.

Ranchi © 2007 Pearson Education Thursday.Supply Chain Planning Planning decisions: markets will be supplied from which locations † Planned buildup of inventories † Subcontracting. March 10. 2011 1-19 . competition over the time horizon Xavier institute of Social Service. backup locations † Inventory policies † Timing and size of market promotions † Which Must consider in planning decisions demand uncertainty. exchange rates.

place replenishment orders Much less uncertainty (short time horizon) Xavier institute of Social Service. set delivery schedules. Ranchi Thursday. generate pick lists at a warehouse.Supply Chain Operation Time horizon is weekly or daily Decisions regarding individual User orders Supply chain configuration is fixed and operating policies are determined Goal is to implement the operating policies as effectively as possible Allocate orders to inventory or production. set order due dates. allocate an order to a particular shipment. March 10. 2011 1-20 © 2007 Pearson Education .

March 10. Ranchi © 2007 Pearson Education Thursday.Process View of a Supply Chain Cycle view: processes in a supply chain are divided into a series of cycles. 2011 1-21 . each performed at the interfaces between two successive supply chain stages Push/pull view: processes in a supply chain are divided into two categories depending on whether they are executed in response to a User order (pull) or in anticipation of a User order (push) Xavier institute of Social Service.

Cycle View of Supply Chains User User Order Cycle Retailer Replenishment Cycle Distributor Manufacturing Cycle Manufacturer Procurement Cycle Supplier Xavier institute of Social Service. 2011 1-22 . Ranchi © 2007 Pearson Education Thursday. March 10.

2011 1-23 © 2007 Pearson Education . Xavier institute of Social Service.Cycle View of a Supply Chain Each cycle occurs at the interface between two successive stages User order cycle (User-retailer) Replenishment cycle (retailer-distributor) Manufacturing cycle (distributor-manufacturer) Procurement cycle (manufacturer-supplier) Figure (see previous power point) Cycle view clearly defines processes involved and the owners of each process. March 10. Ranchi Thursday. Specifies the roles and responsibilities of each member and the desired outcome of each process.

Ranchi © 2007 Pearson Education Thursday. March 10.User Order Cycle Involves all processes directly involved in receiving and filling the User·s order User arrival User order entry User order fulfillment User order receiving Xavier institute of Social Service. 2011 1-24 .

March 10. 2011 1-25 .Replenishment Cycle All processes involved in replenishing retailer inventories (retailer is now the User) Retail order trigger Retail order entry Retail order fulfillment Retail order receiving Xavier institute of Social Service. Ranchi © 2007 Pearson Education Thursday.

or User Production scheduling Manufacturing and shipping Receiving at the distributor. or User Xavier institute of Social Service. 2011 1-26 . retailer.Manufacturing Cycle All processes involved in replenishing distributor (or retailer) inventory Order arrival from the distributor. retailer. March 10. Ranchi © 2007 Pearson Education Thursday.

Procurement Cycle All processes necessary to ensure that materials are available for manufacturing to occur according to schedule Manufacturer orders components from suppliers to replenish component inventories However. 2011 1-27 . Ranchi © 2007 Pearson Education Thursday. component orders can be determined precisely from production schedules (different from retailer/distributor orders that are based on uncertain User demand) Important that suppliers be linked to the manufacturer·s production schedule Xavier institute of Social Service. March 10.

Manufacturing and Replenishment cycles User Order Cycle PUSH PROCESSES PULL PROCESSES User Order Arrives Xavier institute of Social Service. 2011 1-28 . Ranchi © 2007 Pearson Education Thursday.Push/Pull View of Supply Chains Procurement. March 10.

Push/Pull View of Supply Chain Processes Supply chain processes fall into one of two categories depending on the timing of their execution relative to User demand Pull: execution is initiated in response to a User order (reactive) Push: execution is initiated in anticipation of User orders (speculative) Push/pull boundary separates push processes from pull processes Xavier institute of Social Service. 2011 1-29 . Ranchi © 2007 Pearson Education Thursday. March 10.

Push/Pull View of Supply Chain Processes Useful in considering strategic decisions relating to supply chain design ² more global view of how supply chain processes relate to User orders Can combine the push/pull and cycle views The relative proportion of push and pull processes can have an impact on supply chain performance Xavier institute of Social Service. 2011 1-30 . March 10. Ranchi © 2007 Pearson Education Thursday.

A Framework for Structuring Drivers 3-31 C om petitive trategy pply C hai trategy fficie cy pply chai str ct re Logistical D rivers F acilities I ve tory T ra sportatio espo sive ess I form atio So rci g C ross unctional D rivers P rici g Xavier institute of Social Service. March 10. Ranchi © 2007 Pearson Education Thursday. 2011 .

March 10. or fabricated † production sites and storage sites Inventory † raw materials.Drivers of Supply Chain Performance 3-32 Facilities † places where inventory is stored. finished goods within a supply chain † inventory policies Transportation † moving inventory from point to point in a supply chain † combinations of transportation modes and routes Information † data and analysis regarding inventory. WIP. transportation. Ranchi © 2007 Pearson Education Thursday. facilities throughout the supply chain † potentially the biggest driver of supply chain performance Sourcing † functions a firm performs and functions that are outsourced Pricing † Price associated with goods and services provided by a firm to the supply chain Xavier institute of Social Service. assembled. 2011 .

Ranchi © 2007 Pearson Education Thursday.Facilities 3-33 Role in the supply chain ´whereµ of the supply chain † manufacturing or storage (warehouses) † the Role in the competitive strategy of scale (efficiency priority) † larger number of smaller facilities (responsiveness priority) † economies Components of facilities decisions Xavier institute of Social Service. March 10. 2011 .

2011 . cross-docking) Overall trade-off: Responsiveness versus efficiency Xavier institute of Social Service. Ranchi © 2007 Pearson Education Thursday. proximity to Users) Capacity (flexibility versus efficiency) Manufacturing methodology (product focused versus process focused) Warehousing methodology (SKU storage.g.Components of Facilities Decisions 3-34 Location † centralization (efficiency) vs. job lot storage.. decentralization (responsiveness) † other factors to consider (e. March 10.

Inventory 3-35 Role in the supply chain Role in the competitive strategy Components of inventory decisions Xavier institute of Social Service. March 10. Ranchi © 2007 Pearson Education Thursday. 2011 .

Ranchi © 2007 Pearson Education Thursday. 2011 .Inventory: Role in the Supply Chain 3-36 Inventory exists because of a mismatch between supply and demand Source of cost and influence on responsiveness Impact on material flow time: time elapsed between when material enters the supply chain to when it exits the supply chain † throughput † rate at which sales to end consumers occur  I = RT (Little·s Law)  I = inventory. T = flow time  Example  Inventory and throughput are ´synonymousµ in a supply chain  Xavier institute of Social Service. R = throughput Or capacity. March 10.

a firm can locate larger amounts of inventory closer to Users If cost is more important. inventory can be reduced to make the firm more efficient Trade-off Xavier institute of Social Service. Ranchi © 2007 Pearson Education Thursday. March 10.Inventory: Role in Competitive Strategy 3-37 If responsiveness is a strategic competitive priority. 2011 .

2011 Safety inventory † † Seasonal inventory † † Overall trade-off: Responsiveness versus efficiency † † © 2007 Pearson Education . March 10.Components of Inventory Decisions 3-38 Cycle inventory † † Average amount of inventory used to satisfy demand between shipments Depends on lot size inventory held in case demand exceeds expectations costs of carrying too much inventory versus cost of losing sales inventory built up to counter predictable variability in demand cost of carrying additional inventory versus cost of flexible production more inventory: greater responsiveness but greater cost less inventory: lower cost but lower responsiveness Xavier institute of Social Service. Ranchi Thursday.

March 10. 2011 . Ranchi © 2007 Pearson Education Thursday.Transportation 3-39 Role in the supply chain Role in the competitive strategy Components of transportation decisions Xavier institute of Social Service.

3-40 Transportation: Role in the Supply Chain Moves the product between stages in the supply chain Impact on responsiveness and efficiency Faster transportation allows greater responsiveness but lower efficiency Also affects inventory and facilities Xavier institute of Social Service. 2011 . March 10. Ranchi © 2007 Pearson Education Thursday.

Ranchi © 2007 Pearson Education Thursday. March 10.Transportation: Role in the Competitive Strategy 3-41 If responsiveness is a strategic competitive priority. 2011 . then faster transportation modes can provide greater responsiveness to Users who are willing to pay for it Can also use slower transportation modes for Users whose priority is price (cost) Can also consider both inventory and transportation to find the right balance Xavier institute of Social Service.

Ranchi © 2007 Pearson Education Thursday. March 10.Components of Transportation Decisions 3-42 Mode of transportation: truck. pipeline. Route and network selection † route: path along which a product is shipped † network: collection of locations and routes In-house or outsource Overall trade-off: Responsiveness versus efficiency Xavier institute of Social Service. size of shipment. 2011 . ship. speed. flexibility † air. electronic transportation † vary in cost. rail.

March 10.Information 3-43 Role in the supply chain Role in the competitive strategy Components of information decisions Xavier institute of Social Service. Ranchi © 2007 Pearson Education Thursday. 2011 .

March 10. 2011 .Information: Role in the Supply Chain 3-44 The connection between the various stages in the supply chain ² allows coordination between stages Crucial to daily operation of each stage in a supply chain ² e. Ranchi © 2007 Pearson Education Thursday.g. production scheduling. inventory levels Xavier institute of Social Service..

2011 .Information: Role in the Competitive Strategy 3-45 Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off) Information technology What information is most valuable? Xavier institute of Social Service. Ranchi © 2007 Pearson Education Thursday. March 10.

2011 . March 10.Components of Information Decisions 3-46 Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain) Coordination and information sharing Forecasting and aggregate planning Enabling technologies EDI † Internet † ERP systems † Supply Chain Management software † Overall trade-off: Responsiveness versus efficiency Xavier institute of Social Service. Ranchi © 2007 Pearson Education Thursday.

Sourcing 3-47 Selecting suppliers-single vs.w/regard to suppliers User service . 2011 . multiple suppliers. Ranchi © 2007 Pearson Education Thursday. March 10.w/regard to suppliers and fellow workers Xavier institute of Social Service. contract negotiation Ordering materials Shipping & delivery of raw materials Information management Quality management .

outsource decisions. 2011 . March 10. Ranchi © 2007 Pearson Education Thursday.improving efficiency and responsiveness Xavier institute of Social Service.Sourcing: Role in the Competitive Strategy 3-48 Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain In-house vs.

Ranchi © 2007 Pearson Education Thursday.Components of Sourcing Decisions 3-49 In-house versus outsource decisions Supplier evaluation and selection Procurement process Overall trade-off: Increase the supply chain profits Xavier institute of Social Service. March 10. 2011 .

2011 . March 10. Ranchi © 2007 Pearson Education Thursday.Pricing 3-50 Role in the supply chain Role in the competitive strategy Components of pricing decisions Xavier institute of Social Service.

March 10. Ranchi © 2007 Pearson Education Thursday.Pricing: Role in the Supply Chain 3-51 Pricing determines the amount to charge Users in a supply chain Pricing strategies can be used to match demand and supply Xavier institute of Social Service. 2011 .

March 10. Ranchi © 2007 Pearson Education Thursday.Sourcing: Role in the Competitive Strategy 3-52 Firms can utilize optimal pricing strategies to improve efficiency and responsiveness Low price and low product availability. vary prices by response times Xavier institute of Social Service. 2011 .

Ranchi © 2007 Pearson Education Thursday. 2011 . March 10.Components of Pricing Decisions 3-53 Pricing and economies of scale Everyday low pricing versus high-low pricing Fixed price versus menu pricing Overall trade-off: Increase the firm profits Xavier institute of Social Service.

in conjunction w/purchasing Inventory control Scheduling production & capacity Shipping & delivery .linked to 3 major business areas Quality management .Making Supply Chain Operational 3-54 Ordering materials .garbage in/garbage out principal User service .in conjunction w/warehouse Information management .vendors and final User Xavier institute of Social Service. 2011 . Ranchi © 2007 Pearson Education Thursday. March 10.

Ranchi © 2007 Pearson Education Thursday.Uncertainty In Supply Chain 3-55 Wrong forecasts Late deliveries Poor quality Machine breakdowns Canceled orders Erroneous information Xavier institute of Social Service. 2011 . March 10.

Some Solutions«. March 10.goods as well as services Xavier institute of Social Service.Japanese concept of partnering a small set of suppliers and vertical integration Information technology improvements.MRP. ERP Improved inventory control . Ranchi © 2007 Pearson Education Thursday.moving suppliers closer Keiretsu . 3-56 Vertical integration Single sourcing JIT . 2011 .

Internet. etc..Supply Chain Design 3-57 Strategic issue Apply quality management principles Control inventory Work with suppliers & Users to achieve goals Major goal of distribution is speed Locate close to major markets Use IT to speed information flow . March 10. EDI. Ranchi © 2007 Pearson Education Thursday.e.g. 2011 . Outsource international distribution-(if at all) Xavier institute of Social Service.