Suppliers Manufacturers Warehouses & Customers

Distribution Centers

Transportation Transportation
Material Costs Costs Costs Transportation
Manufacturing Costs Inventory Costs Costs

1
 What is Supply Chain Management?

The sequence of organizations –

SUPPLY
their facilities, functions and
CHAIN activities- that are involving in
producing and delivering a
product or service.

SUPPLY SCM is a strategic coordination of

CHAIN the supply chain for the purpose
MANAGEMENT of integrating supply and
(SCM) demand management.
The Supply Chain
Suppliers Manufacturers Warehouses & Customers
Distribution Centers

Transportation Transportation
Costs Costs
Material Costs Transportation
Manufacturing Costs 3 Inventory Costs Costs
4
Information In The Supply Chain

Plan
Warehouses & Retailer
Suppliers Manufacturers
Distribution Centers

Source Make Deliver Return

Order Lead Time

Delivery Lead Time

Production Lead Time

5
5 Importance Elements in SCM
Why We need Supply Chain
Management???

7
Supply Chain Management and Uncertainty

 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 Wholesale
Suppliers Manufacturer Distributors Retailers Consumers

Sales

Sales
Sales

Sales

Time Time Time

Time

Inventory Oscillations
become progressively
Bullwhip Effect larger looking
8 backward through
supply chain
Factors Contributing to the Bullwhip

 Demand forecasting practices

 Min-max inventory management (reorder points to bring
inventory up to predicted levels)
 Lead time
 Longer lead times lead to greater variability in estimates of
average demand, thus increasing variability and safety stock
costs
 Batch ordering
 Peaks and valleys in orders
 Fixed ordering costs
 Impact of transportation costs (e.g., fuel costs)
 Sales quotas
 Price fluctuations
 Promotion and discount policies
 Lack of centralized information

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 Inventory Hides the Problems

Inventory

Volatile
Demand

Inaccurate Unreliable Quality

Bottlenecks
Forecasts Suppliers Problems
 Why is inventory a waste?
 Cost of holding inventory - globally companies are
beginning to use 25% of inventory value:
 Cost of capital
 Opportunity cost (what we could have done with the
money if we had it in our hands)
 Obsolescence
 Storage and handling costs
 Management and overhead
 Potential: losses/theft
 Demand Predictability and Lead-time

+
Forecast
Error
to - tn

Lead-Time
Methods for Improving Forecasts
Judgment Methods
Market Research Analysis

Panels of Experts

• Internal experts
• External experts
• Market testing
• Domain experts
• Market surveys
• Delphi technique
• Focus groups
Time-Series Methods Accurate
Forecasts
Causal Analysis

• Moving average
• Exponential smoothing
• Relies on data other than
• Trend analysis
that being predicted
• Seasonality analysis
13 • Economic data, commodity
data, etc.
 Example of the Bullwhip Effect

 First noticed by Procter & Gamble executives examining the order

patterns for Pampers disposable diapers. They noticed that order
variation increased dramatically as one moved from retailers to
distributors to the factory.

 Problem:
increases the difficulty of planning at the factory level
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
 Reduce lead times
 Use cross-docking to reduce order lead times
 Use EDI techniques to reduce information lead times
 Eliminate the bullwhip through strategic partnerships
 Vendor-managed inventory (VMI)
 Collaborative planning, forecasting and replenishment (CPFR)

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Why Is SCM Difficult?

Plan Source Make Deliver Return

 Uncertainty is inherent to every supply chain

 Travel times
 Breakdowns of machines and vehicles
 Weather, natural catastrophe, war
 Local politics, labor conditions, border issues
 Barriers to integration of organizations
 Getting top management on board
 Dealing with trade-offs
 Small businesses
 Variability and uncertainty
 Long lead times
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The Importance of Supply Chain Management

 Dealing with uncertain environments – matching supply and

demand
 Shorter product life cycles of high-technology products
 Less opportunity to accumulate historical data on customer
demand
 Wide choice of competing products makes it difficult to predict
demand
 The growth of technologies such as the Internet enable
greater collaboration between supply chain trading partners
 If you don’t do it, your competitor will
 Major buyers such as Wal-Mart demand a level of “supply chain
maturity” of its suppliers
 Availability of SCM technologies on the market
 Firms have access to multiple products (e.g., SAP, Baan, Oracle,
JD Edwards) with which to integrate internal processes
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Supply Chain Management Operations Strategies

STRATEGY WHEN TO CHOOSE BENEFITS

Make to Stock standardized products, Low manufacturing costs;
relatively predictable meet customer demands
demand quickly

Make to Order customized products, Customization; reduced

many variations inventory; improved
service levels
Configure to Order many variations on Low inventory levels; wide
finished product; range of product
infrequent demand offerings; simplified
planning

Engineer to Order complex products, unique Enables response to

customer specifications specific customer
requirements

Source: Simchi-Levi 18
Benefits of Supply Chain Management
 Lower inventories
 Higher productivity
 Greater agility
 Shorter lead times
 Higher profits
 Greater customer loyalty
Strategy Formulation In the
Supply Chain
 There are two major step for strategy development in the
SCM.
 In the first step, managers should prepare the organization
for move toward apply SCM strategically.
 The second Step is related to the developing strategies and
encompassed the following cases:
Preliminary steps in SCM strategy development

Step 1 – Energize the Organization

 Establishment of SCM and e-Business educational courses.
 Ensure top management that supply chain and e-Business
strategies are integrated.
 Pursue the executive team to act as a sponsor.
 Enhance the ways in which people work.

Step 2 – Enterprise Vision

 Defining the nature of the competitive competencies
possessed within the current infrastructure and outside the
supply chain network.
Step 3 – Supply Chain Value Assessment
 Identify and then prioritize which supply chain values should
be undertaken that would provide the greatest enterprise
and trading partner benefits.
 Focused on improving core business functions and
sustaining the competitive advantages they drive.

Step 4 – Opportunity identification

 Provide the collaborative with a map of possible choices for
the application of SCM strategies.
 Detailing and prioritizing the possible supply chain solution
and alternatives
Step 5 – Strategy Decision
 Focus on expected advantages whether on:
 automating and integrating processes
 reducing costs
 increasing the flow of information through the supply chain
 to amplify existing market
 realize new ways of providing value to customer
Developing the SCM strategy

Constructing the Business Value Proposition

 An effective value proposition must be ready to respond to
three possible service values expected by customer:
 Super Service (speed and reliable delivery)
 Variety of Product and Service solutions
 Mass Customization
Defining the Value Portfolio
 The following process development need to be structured
to support the business value proposition:
 Design (product and services)
 Effective cost management (able to squeeze the time it takes from
idea conception to sales)
 Services (accompanied with a matrix of value added services)
 Quality (standard dimensions of performance and reliability)

Structuring the Scope of Collaboration

 Decide the scope of the firm’s processes and activities and
level of collaboration with trading partners to supply
missing resources and competencies.
Ensuring Effective Resource Management
 The enterprise’s resources can be divided into three major
areas:
 Human knowledge (creation of products, technologies, systems,
processes and relationships)
 The capital invested in physical assets (warehouses, offices,
information systems, and transportation equipment)
 The value found in physical assets and human knowledge of
customers, suppliers, and business partners (synchronized delivery
and production, outsourcing, and creating collaborative solutions)

SCM Implementation
 Puts the new strategies, processes and systems to work
according to the project plan in SCM strategy report.
Pursuing Growth Management
 Structuring a set of meaningful and focused performance
measurements that allow corporate planners to gauge the
effectiveness of their supply chain solutions.
 Reviews business context, strategies and current supply
chain
 Identify whether current setup is helping or hurting your
business and to determine how to improve it.
Distribution and Warehouse
Management
 Distribution

Often called logistics.

Movement of materials, services, cash, and
information in a supply chain.
Two types of logistics:
 Forward logistics
 Reverse logistics
 Distribution (cont…)

Forward  Raw materials, parts and finished goods

flowing from suppliers to producers, distributors and,
finally, to consumers.
Reverse  Wastes, packages, and defective/obsolete
products are "climbing back" the supply chain.
 Goal: Recapture/create value in returned goods/to
properly dispose of goods that cannot be sold.
 Warehouse Management

Warehouse:  Commercial building for storage

of goods.
Warehouse management to optimize:
 Inventory
 Labor
 Physical Space
 Time
 Costs
Warehouse Management System

 To control the movement and storage of materials

within an operation and process the associated
transactions.
 Utilize technology (Barcode scanner, mobile
computer,  Radio-frequency identification (RFID) )
 Warehouse Management System
(Cont…)

 RFID: Uses radio waves to identify objects in supply

chains.
 RFID tag is attached to an object.
 Provide unique identification, enabling businesses to
identify, track, monitor, or locate practically any
object in the supply chain that is within range of a tag
reader.
 Case Study
Yodobashi Camera is one of the largest Japanese retailers of
electronic goods.
Challenge: Managing An Inventory Of More Than 850,000
different Items.
Solution: RFID Warehouse Management Solution From
Motorola And Mighty Card.
Result:
 Improved Yodobashi Camera’s efficiency and real-time stock
visibility.
 Dramatically reduced workloads in the warehouse.
 Reduced operational costs and helped the company to
move towards its ‘zero-inventory’ goal.
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