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What is a Supply Chain?
AllAll facilities,facilities, functions,functions, activities,activities, associatedassociated withwithflowflow andand transformationtransformation ofof goodsgoods andand servicesservicesfromfrom rawraw materialsmaterials toto customercustomer,, asas wellwell asas thethe
associatedassociated informationinformation flowsflows AnAn integratedintegrated groupgroup ofof processesprocesses toto source,source,
make,make, andand deliverdeliver productsproducts
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Supply Chain Processes
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What is a Supply Chain?
Managing flow of information through supply chainin order to attain the level ofsynchronization that willmake it more responsive to customer needs whilelowering costs
Keys to effective SCM information communication cooperation trust
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What is a Supply Chain?
Customer is an integral part of the supply chain
Includes movement ofproducts from suppliers tomanufacturers to distributors, but also includes
movement of information, funds, and products inboth directions
Probably more accurate to use the term supplynetwork or supply web
Typical supply chain stages: customers, retailers,distributors, manufacturers, suppliers
All stages may not be present in all supply chains(e.g., no retailer or distributorfor Dell)
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Value vs. Supply Chain
Value chain every step from raw materials to the eventual end user
ultimate goal is delivery ofmaximum value to the end user
Supply chain activities that get raw materials and subassemblies into
manufacturing operation
Terms are used interchangeably
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What is a Supply Chain?
Customer wants
detergent and goes
to Jewel
Jewel
Supermarket
Jewel or third
party DC
P&G or other
manufacturer
Plastic
Producer
Chemical
manufacturer
(e.g. Oil Company)
Tenneco
Packaging
Paper
Manufacturer
Timber
Industry
Chemical
manufacturer
(e.g. Oil Company)
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Flows in a Supply Chain
Customer
Information
Product
Funds
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The Supply Chain Concept
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Supply Chain Management:
A Balancing Act
CustomerService
Costofthe
Service
Inventory Transportation
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Supply Chain Illustration
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SupplyChain for
DenimJeans
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SupplyChain for
DenimJeans
(cont.)
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The Objective of a Supply Chain
Maximize overall value created
Supply chain value: difference between whatthe final product is worth to the customer andthe effort the supply chain expends in fillingthe customers request
Value is correlated to supply chain
profitability (difference between revenuegenerated from the customer and the overallcost across the supply chain)
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The Objective of a Supply Chain
Example: Dell receives $2000 from a customerfor acomputer (revenue)
Supply chain incurs costs (information, storage,
transportation, components, assembly, etc.) Difference between $2000 and the sum ofall of
these costs is the supply chain profit
Supply chain profitability is total profit to be sharedacross all stages of the supply chain
Supply chain success should be measured by totalsupply chain profitability, not profits at an individualstage
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The Objective of a Supply Chain
Sources ofsupply chain revenue: the customer
Sources ofsupply chain cost: flows of information,products, orfunds 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
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Supply Chain Uncertainty
One goal in SCM: respond to uncertainty in
customer demand withoutcreating costly excessinventory
Negative effects ofuncertainty lateness
incomplete orders
Inventory
insurance against supplychain uncertainty
Factors that contribute to uncertainty inaccurate demand forecasting
long variable lead times
late deliveries
incomplete shipments
product changes batch ordering price fluctuations and discounts
inflated orders
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Bullwhip Effect
Occurs when slight demand variability is magnified as information
moves back upstream
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Supply Chain for Service
Providers More difficult than manufacturing
Does not focus on the flow ofphysicalgoods
Focuses on human resources and supportservices
More compact and less extended
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Information Technology: A Supply Chain
Enabler Information links all aspects ofsupply chain
E-business replacement ofphysical
business processes with
electronic ones Electronic data interchange
(EDI) a computer-to-computer
exchange ofbusinessdocuments
Bar code and point-of-sale data creates an instantaneous
computer record ofa sale
Radio frequencyidentification (RFID) technology can send product
data from an item to a readervia radio waves
Internet allows companies to
communicate with suppliers,customers, shippers and otherbusinesses around the world,instantaneously
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E-business and Supply Chain
Cost savings and price reductions Reduction or elimination of the role of intermediaries Shortening supply chain response and transaction
times Gaining a wider presence and increased visibilityfor
companies Greater choices and more information for customers
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E-business and Supply Chain (cont.)
Improved service as a result of instant accessibilityto services
Collection and analysis ofvoluminous amounts of
customer data and preferences Creation ofvirtual companies
Leveling playingfield for small companies
Gainingglobal access to markets, suppliers, and
distribution channels
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Supply Chain Evolution at Nabisco
Source: F. Keenan, Logistics Gets a Little Respect, Business Week(November 20, 2000), pp. 112115.
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Supply Chain Evolution at Nabisco (cont.)
Source: F. Keenan, Logistics Gets a Little Respect, Business Week(November 20, 2000), pp. 112115.
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Supply Chain Evolution at Nabisco (cont.)
Source: F. Keenan, Logistics Gets a Little Respect, Business Week(November 20, 2000), pp. 112115.
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RFID Capabilities
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RFID Capabilities (cont.)
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BuildBuild--toto--order cars overorder cars overthe Internetthe Internet
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Customer sales
Production
Distribution
Customerrelationship
Customer sales
Production
Distribution
Customerrelationship
Pushsellfrominventory stock
Goal ofeven andstable production
Mass approach
Dealer-owned
E-Automotive
E-automotive Supply Chain
Pullbuild-to-order
Focus on customerdemand, respond withsupply chain flexibility
Fast, reliable, andcustomized to get cars
to specific customerlocation
Shared by dealers andmanufacturers
Automotive
Past
Supply Chain
Processes
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Managing
uncertainty
Procurement
Productdesign
Managing
uncertainty
Procurement
Productdesign
Large car
inventory atdealers
Batch-oriented;dealers orderbased onallocations
Complexproducts dontmatch customerneeds
E-Automotive
E-automotive Supply Chain (cont.)
Small inventories with
shared information andstrategically placed partsinventories
Orders made in real timebased on available-to-promise information
Simplified products based onbetter information aboutwhat customers want
Automotive
Past
Supply Chain
Processes
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Supply Chain Integration
Information sharing among supply chain members Reduced bullwhip effect Early problem detection Faster response Builds trust and confidence
Collaborative planning, forecasting, replenishment, anddesign Reduced bullwhip effect Lower Costs (material, logistics, operating, etc.) Higher capacity utilization
Improved customer service levels
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Coordinated workflow, production and operations,procurement Production efficiencies Fast response Improved service Quicker to market
Adopt new business models and technologies Penetration ofnew markets Creation ofnew products Improved efficiency
Mass customization
Supply Chain Integration (cont.)
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Collaborative Planning, Forecasting, andReplenishment
Process for two or more companies in asupply chain to synchronize their demandforecasts into a single plan to meetcustomer demand
Parties electronically exchange past sales trends point-of-sale data on-hand inventory scheduled promotions
forecasts
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Elements of Supply Chain Management
From previous slides , we can divide SCMprocess into following stages:
Procurement
Operation
Distribution
Integration
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Supply Chain
Management
Suppler Relationship management
Procurement management
External Supply Chain
Management
World Class Supply Chain Management: Definitions, Concepts and Importance
Process view of Supply chain Management
Purchasing : Importance, Methods & Techniques
Cross Functional Teams: Benefits, Implementation and Challenges
Specification , Standardization , and Simplification
Application of SSS concept in procurement
Strategic Sourcing
Creating and Managing Buyer Supplier Relationship
Internal Supply Chain management
Operation management
Production Management
Demand Forecasting and Replenishment
Demand Forecasting and replenishment II
Aggregate Planning: Aggregate production Planning (APP)
Aggregate Planning: Master Production Schedule (MPS)
Aggregate Planning: Material requirement Planning (MRP)
Aggregate Planning: Execution of MRP and BOM
Inventory Management
Inventory Management II
e-Commerce
Enterprise Resource Planning (ERP)
Customer Relationship managementDistribution management
Logistics management
Distribution Management: Multi model Transportation Distribution Management: Formation of efficient distribution networks
Chain efficiency and integration
Process Management: Total Quality management and just In Time (JIT)
Management
Process Management: Six Sigma
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Process View of a Supply Chain
Cycle view: processes in a supply chain aredivided into a series ofcycles, eachperformed at the interfaces between two
successive supply chain stages
Push/pull view: processes in a supply chainare divided into two categories depending on
whether they are executed in response to acustomer order (pull) or in anticipation ofacustomer order (push)
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Cycle View of Supply Chains
Customer Order Cycle
Replenishment Cycle
Manufacturing Cycle
Procurement Cycle
Customer
Retailer
Distributor
Manufacturer
Supplier
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Cycle View of a Supply Chain
Each cycle occurs at the interface between twosuccessive stages
Customer order cycle (customer-retailer)
Replenishment cycle (retailer-distributor)
Manufacturing cycle (distributor-manufacturer)
Procurement cycle (manufacturer-supplier)
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Cycle View of a Supply Chain (Cont,d)
Cycle view clearly defines processes involvedand the owners ofeach process. Specifies theroles and responsibilities ofeach member and
the desired outcome ofeach process.
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Push/Pull View of Supply Chains
Procurement,Manufacturing andReplenishment cycles
Customer Order Cycle
Customer
Order Arrives
PUSH PROCESSES PULL PROCESSES
Demand Forecasting
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Push/Pull View of
Supply Chain Processes Supply chain processes fall into one of two
categories depending on the timing of theirexecution relative to customer demand
Pull: execution is initiated in response to acustomer order (reactive)
Push: execution is initiated in anticipation of
customer orders (speculative) Push/pull boundary separates push
processes from pull processes
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Five Major Developments In SCM
Cross Functional Teams
Strategic Alliances
Supply Web E-procurement
Strategic Sourcing
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Five Major Developments In SCM
Cross Functional Teams
A bilateral approach, leading towards consensusbased solution.
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Five Major Developments In SCM
Strategic Alliances
A degree ofrelationship with supplier
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Five Major Developments In SCM
Supply Web
An integrated supply chain, flowing material,information and funds across the chain without
any interruption..
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Five Major Developments In SCM
E-procurement
Involvement ofsupplier in procurement processthrough internet and other EDI sources..
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Five Major Developments In SCM
Strategic Sourcing
Maintaining ofa comprehensive suppliers basethrough proper sourcing strategies.
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How to maintain the Chain??
Cost Effectiveness
Chain Efficiency
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Thanx.In next session we will discuss
Procurement management.