Supply Chain Management 101 FY05 SC New Hire Bootcmap Keith Ip.

Supply Chain Management 101

FY05 SC New Hire BootcmapKeith Ip

Agenda

What is Supply Chain and Supply Chain Management?

Why SCM?

What is JIT and Lean?

Value Proposition and KPIs of SCM

Critical Success Factor of Adopting SCM

What does Oracle SCM Solution offers?

Oracle Customer List

What is Supply Chain?

Network of independent entities possibly in different geographical locations forming a strategic alliance toward the common goal of designing, manufacturing and delivering right quality products/services to customersEntities include Suppliers, Manufacturers, Distribution Centers, Hubs, Value Added Reseller, Retailers, OEM, Service Providers, etc…

Manufacturers

Wholesale Distributors

Suppliers

Customers

Goods Flow

Contract Manufacturers

Logistics Providers

Virtual Manufacturers

Retailers

What is Supply Chain Management?

SCM: Apply a total systems approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories, warehouses, and retailers to end customers.Total systems approach includes business process, decision making, applications, information sharing, organizations, individuals with defined roles and responsibilites.

Manufacturers

Wholesale Distributors

Suppliers

Customers

Information FlowsGoods Flow

Supplier Network

Call Centers3PL

Contract Manufacturers

Logistics Providers

Virtual Manufacturers

Retailers

Sub-Processes within SCM

hou

rs

days

wee

ks

mon

ths

year

+

buy

make

move

sell

store

operational tactical strategicscheduling

StrategicBusinessDecision

Plant Location

Product LineSelection

MTO vs MTSCTO vs BTO

MasterPlan

demandfulfillment

Material Plan Inventory Strategy

Mfg Schedue

Warehouse Distribution

Transportation Schedule

DemandPlan

Supply Chain Performance

Monitoring

Order Fulfillment

Procurement

Manufacturing/assembly

Inbound

Warehouse/Distribution

Outbound/Fulfillment

SupplierSelection

Agenda

What is Supply Chain and Supply Chain Management?

Why SCM?

What is JIT and Lean?

Value Proposition and KPIs of SCM

Critical Success Factor of Adopting SCM

What does Oracle SCM Solution offers?

Oracle Customer List

In today’s dynamics and competitive world,the

VARIABILITYVARIABILITY and COMPLEXITYCOMPLEXITY of business will increase rapidly

In today’s dynamics and competitive world,the

VARIABILITYVARIABILITY and COMPLEXITYCOMPLEXITY of business will increase rapidly

Reasons for Supply Chain Management to Achieve Operational Excellence

Globalization Intensified Competition Shorter Product Lifecycles Mass Customization Speed of Information

Goals of SCM

Maximize customer satisfaction delivery reliability responsiveness and flexibility

With the lowest possible cost Minimize investment in inventories Minimize production and distribution costs

Types of Inter-company Business Process LinksTier 3 to

Initial Suppliers

Tier 2 Suppliers

Tier 1 Suppliers

Tier 1 Customers

Tier 2 Customers

Tier 3 to Consumers/

End-Customers

Tie

r 3

to n

su

pp

liers

1

2

n

n

1

1

2

3

n

1

n

2

1

3

n

2

1

n1

1

n

Init

ial S

up

pliers

n

1

n

1

2

n

1

2

3 Tie

r 3

to n

cu

sto

mers

Con

su

mer/

En

d-C

usto

mers

Managed Process LinksMonitor Process LinksNot-Managed Process LinksNon-Member Process Links

Focal Company

Members of the Focal Company’s Supply Chain

Non-Members of the Focal Company’s Supply Chain

Source: Adapted from Douglas M Lambert, Martha C Cooper and Janus D Pagh, “Supply Chain Management: Implementation Issues and Research Opportunities”, The International Journal of Logistics Management, Vol 9, No 2 (1998) p7

Think Big! Drive value across the entire chain

Tier 2Supplier

Su

pp

ly C

hain

Bu

sin

ess P

rocesses

Lean Supply Chain Management:Integrating and Managing Processes Across the Supply Chain

Information Flow

Marketing & SalesLogistics

Purchasing

Production

R & D

Finance

Tier 1Supplier

Customer Consumer/End-user

CUSTOMER RELATIONSHIP MANAGEMENT

CUSTOMER SERVICE MANAGEMENT

DEMAND MANAGEMENT

ORDER FULFILLMENT

MANUFACTURING FLOW MANAGEMENT

SUPPLIER RELATIONSHIP MANAGEMENT

PRODUCT DEVELOPMENT AND COMMERCIALISATION

RETURNS

Source: Adapted from Douglas M Lambert, Martha C Cooper and Janus D Pagh, “Supply Chain Management: Implementation Issues and Research Opportunities”, The International Journal of Logistics Management, Vol 9, No 2 (1998) p2

PRODUCTION FLOW

Push/Pull View of Supply Chains

Procurement,Manufacturing andReplenishment cycles

Customer OrderCycle

CustomerOrder Arrives

PUSH PROCESSES PULL PROCESSES

Bull Whip Effect

RetailerManufacturer DistributionSupplier Consumer

CREDIT CARD

1234 5678 90121234 5678 9012VALID FROM GOOD THRU

XX/XX/XX XX/XX/XX

PAUL FISCHER

XX/XX/XX XX/XX/XX

PAUL FISCHER

Dem

and

Time

Increased Variability

Dem

and

Dem

and

Time

Dem

and

TimeTime

Dem

and

Time

Dem

and

Time

IMPACT

Poor communication Lack of visibility Human error Process constraints

(e.g., capacity, batch sizes)

Time lagsD

ema

ndTime

Small Changein Demand

Source: Dr. Hau Lee, Mgmt. Science, 1997.

Recommendation 1:Improve Demand Visibility

RetailerManufacturer DistributionSupplier Consumer

CREDIT CARD

1234 5678 90121234 5678 9012VALID FROM GOOD THRU

XX/XX/XX XX/XX/XX

PAUL FISCHER

XX/XX/XX XX/XX/XX

PAUL FISCHER

Dem

and

Dem

and

Time

Dem

and

TimeTime

Dem

and

Time

Dem

and

Time

Demand plans are shared across the chain

Information sharing in real-time Forward visibility Minimize guessing games

Agenda

What is Supply Chain and Supply Chain Management?

Why SCM?

What is JIT and Lean?

Value Proposition and KPIs of SCM

Critical Success Factor of Adopting SCM

What does Oracle SCM Solution offers?

Oracle Customer List

Just-In-Time (JIT)

JIT can be defined as an integrated set of activities designed to achieve high-volume production using minimal inventories (raw materials, work in process, and finished goods)

JIT also involves the elimination of waste in production effort

JIT also involves the timing of production resources (i.e., parts arrive at the next workstation “just in time”)

JIT and Lean Management JIT can be divided into two terms: “Big JIT”

and “Little JIT” Big JIT (also called Lean Management) is a

philosophy of operations management that seeks to eliminate waste in all aspects of a firm’s production activities: human relations, vendor relations, technology, and the management of materials and inventory

Little JIT focuses more narrowly on scheduling goods inventory and providing service resources where and when needed

JIT Demand-Pull Logic

Customers

Sub

Sub

Fab

Fab

Fab

Fab

Vendor

Vendor

Vendor

Vendor

Final Assembly

Here the customer starts the process, pulling an inventory item from Final Assembly…

Here the customer starts the process, pulling an inventory item from Final Assembly…

Then sub-assembly work is pulled forward by that demand…

Then sub-assembly work is pulled forward by that demand…

The process continues throughout the entire production process and supply chain

The process continues throughout the entire production process and supply chain

The Toyota Production System

Based on two philosophies: 1. Elimination of waste

2. Respect for people

Waste in Operations

1. Waste from overproduction

2. Waste of waiting time

3. Transportation waste

4. Inventory waste

5. Processing waste

6. Waste of motion

7. Waste from product defects

Minimizing Waste: Focused Factory Networks

CoordinationSystem Integration

These are small specialized plants that limit the range of products produced (sometimes only one type of product for an entire facility)

These are small specialized plants that limit the range of products produced (sometimes only one type of product for an entire facility)

Some plants in Japan have as few as 30 and as many as 1000 employees

Some plants in Japan have as few as 30 and as many as 1000 employees

Minimizing Waste: Group Technology (Part 1)

Saw Saw

Lathe PressPress

Grinder

LatheLathe

Saw

Press

Heat Treat

Grinder

Note how the flow lines are going back and forthNote how the flow lines are going back and forth

Using Departmental Specialization for plant layout can cause a lot of unnecessary material movement

Using Departmental Specialization for plant layout can cause a lot of unnecessary material movement

Minimizing Waste: Group Technology (Part 2)

Revising by using Group Technology Cells can reduce movement and improve product flow

Revising by using Group Technology Cells can reduce movement and improve product flow

Press

Lathe

Grinder

Grinder

A

2

BSaw

Heat Treat

LatheSaw Lathe

PressLathe

1

Minimizing Waste: Uniform Plant Loading (heijunka)

Not uniform Jan. Units Feb. Units Mar. Units Total

1,200 3,500 4,300 9,000

Uniform Jan. Units Feb. Units Mar. Units Total

3,000 3,000 3,000 9,000

Suppose we operate a production plant that produces a single product. The schedule of production for this product could be accomplished using either of the two plant loading schedules below.

Suppose we operate a production plant that produces a single product. The schedule of production for this product could be accomplished using either of the two plant loading schedules below.

How does the uniform loading help save labor costs?How does the uniform loading help save labor costs?

or

Minimizing Waste: Just-In-Time Production

• Management philosophy• “Pull” system though the plant

WHAT IT IS

• Employee participation• Industrial engineering/basics• Continuing improvement• Total quality control• Small lot sizes

WHAT IT REQUIRES

• Attacks waste• Exposes problems and bottlenecks• Achieves streamlined production

WHAT IT DOES

• Stable environment

WHAT IT ASSUMES

Minimizing Waste: Inventory Hides Problems

Work in

process

queues

(banks)

Change

orders

Engineering design

redundancies

Vendor

delinquencies

Scrap

Design

backlogs

Machine

downtime

Decision

backlogsInspection

backlogs

Paperwork

backlog

Example: By identifying defective items from a vendor early in the production process the downstream work is saved

Example: By identifying defective work by employees upstream, the downstream work is saved

Minimizing Waste: Kanban Production Control Systems

Storage Part A

Storage Part AMachine

Center Assembly Line

Material Flow

Card (signal) Flow

Withdrawal kanban

Once the Production kanban is received, the Machine Center produces a unit to replace the one taken by the Assembly Line people in the first place

This puts the system back were it was before the item was pulled

The process begins by the Assembly Line people pulling Part A from Storage

Production kanban

Agenda

What is Supply Chain and Supply Chain Management?

Why SCM?

What is JIT and Lean?

Value Proposition and KPIs of SCM

Critical Success Factor of Adopting SCM

What does Oracle SCM Solution offers?

Manufacturing Reduce cost while

improving quality

Reduce cycle times

Enable manufacturingagility: make vs. outsource

Logistics Minimize cost of

movement and storage

Improve speed & accuracyof delivery commitments

Reduce shipping errors

Service Deploy lowest cost,

best fit service channel

Decrease issue resolution time

Grow revenues via differentiated services

Maintenance Mgmt Minimize asset downtime

Reduce maintenance costs

Improve safety and compliance

Product Lifecycle Mgmt Design more

competitive products

Reduce product cost

Accelerate time-to-market

Supply Chain Intelligence Measure and monitor key

performance indicators in real-time

Compare results, view trends

Identify exceptions and opportunities for continuous process improvement

Order Management Support multi-channel order

capture, including complex configurations

Improve order accuracyand visibility

Reduce order processingtime and costs

Supply Chain Planning Improve forecast accuracy

Synchronize value chain operations/increase velocity

Minimize inventory costswhile improving service levels

Procurement Lower procurement

transaction costs

Lower total purchasing spend

Increase quality of goods/ services purchased

Supply Chain Value Proposition

Realizing Supply Chain BenefitsIncrease… Decrease…

Component Re-UseComponent Re-Use 50% 50%

Customer ServiceCustomer Service 35% 35%

Purchasing Volume DiscountsPurchasing Volume Discounts 5% 5%

Mfg Labor Productivity Mfg Labor Productivity 20-50%20-50%

Equipment CapacityEquipment Capacity 30-40%30-40%

Manufacturing ThroughputManufacturing Throughput 20-50%20-50%

On-Time DeliveriesOn-Time Deliveries 10-20%10-20%

Carrier Capacity UtilizationCarrier Capacity Utilization 5-10% 5-10%

Service ProductivityService Productivity 15-30%15-30%

Service Scheduling EfficiencyService Scheduling Efficiency 10-15%10-15%

Maintenance ProductivityMaintenance Productivity 40-55%40-55%

Worker SafetyWorker Safety 20-50%20-50%

Maintenance Wrench TimeMaintenance Wrench Time 20-50%20-50%

Component Re-UseComponent Re-Use 50% 50%

Customer ServiceCustomer Service 35% 35%

Purchasing Volume DiscountsPurchasing Volume Discounts 5% 5%

Mfg Labor Productivity Mfg Labor Productivity 20-50%20-50%

Equipment CapacityEquipment Capacity 30-40%30-40%

Manufacturing ThroughputManufacturing Throughput 20-50%20-50%

On-Time DeliveriesOn-Time Deliveries 10-20%10-20%

Carrier Capacity UtilizationCarrier Capacity Utilization 5-10% 5-10%

Service ProductivityService Productivity 15-30%15-30%

Service Scheduling EfficiencyService Scheduling Efficiency 10-15%10-15%

Maintenance ProductivityMaintenance Productivity 40-55%40-55%

Worker SafetyWorker Safety 20-50%20-50%

Maintenance Wrench TimeMaintenance Wrench Time 20-50%20-50%

Sources: AMR Research, Alcatel, Boeing, British Standards Institute, CIMdata, HP, Computer Service & Support Magazine, CSM Magazine, eSync, Ingersoll-Rand, Intermec, Lilly, Meta Group, PwC ECO Study, Society for Maintenance & Reliability Professionals, Telia Networks, Tompkins

Engineering ChangesEngineering Changes 90% 90%

Design Errors / Rework CostDesign Errors / Rework Cost 25% 25%

CTO / ETO Order ErrorsCTO / ETO Order Errors 90% 90%

Inventory LevelsInventory Levels 25% 25%

Planning Cycle TimePlanning Cycle Time 75% 75%

PO Processing CostPO Processing Cost 50% 50%

Indirect Material CostIndirect Material Cost 20% 20%

Mfg Cycle TimeMfg Cycle Time 50-90% 50-90%

Unplanned DowntimeUnplanned Downtime 30-40% 30-40%

Warehouse Labor HoursWarehouse Labor Hours 10-30% 10-30%

Direct Transportation SpendDirect Transportation Spend 5-25% 5-25%

Shipping ErrorsShipping Errors 80-100%80-100%

SLA PenaltiesSLA Penalties 60-80% 60-80%

Spares Inventory CostSpares Inventory Cost 30-90% 30-90%

MRO CostMRO Cost 5-10% 5-10%

Engineering ChangesEngineering Changes 90% 90%

Design Errors / Rework CostDesign Errors / Rework Cost 25% 25%

CTO / ETO Order ErrorsCTO / ETO Order Errors 90% 90%

Inventory LevelsInventory Levels 25% 25%

Planning Cycle TimePlanning Cycle Time 75% 75%

PO Processing CostPO Processing Cost 50% 50%

Indirect Material CostIndirect Material Cost 20% 20%

Mfg Cycle TimeMfg Cycle Time 50-90% 50-90%

Unplanned DowntimeUnplanned Downtime 30-40% 30-40%

Warehouse Labor HoursWarehouse Labor Hours 10-30% 10-30%

Direct Transportation SpendDirect Transportation Spend 5-25% 5-25%

Shipping ErrorsShipping Errors 80-100%80-100%

SLA PenaltiesSLA Penalties 60-80% 60-80%

Spares Inventory CostSpares Inventory Cost 30-90% 30-90%

MRO CostMRO Cost 5-10% 5-10%

How Supply Chain Management Affects Economic Value Added (EVA)

Supply Chain Management’s Impact

Retain and strengthen relationships with profitable customers

Increase sales volume

Sell higher margin products

Improve “share of customer”

Improve mix (align services and cost to serve)

Improve plant productivity

Targeted marketing

Reduce services provided to less profitable customers

Improve trade spending

Eliminate or reduce services provided to low-profit customers

Optimise physical network/facilities

Leverage new and/or alternative distribution channels

Reduce general overhead/management/administrative costs

Reduce order processing costs

Reduce human resources costs/improve effectiveness

Improve demand planning

Reduce safety stock

Make to order, mass customisation of inventories

Reduce accounts receivable through faster payment

Improve asset utilisation and rationalisation

Improve product development and asset investment

Improve investment planning and deployment

Sales

-Cost of

Goods Sold

Inventory

+Other

Current Assets

CurrentAssets

+Fixed Assets

TotalAssets

GrossMargin

-Total

Expenses

NetProfit

+Net

Sales

NetProfit

Margin

[Net Profit][Net Sales]

%

Cost ofCapital

x

EconomicValueAdded

=-

Formulas for Measuring Supply-Chain Performance

One of the most commonly used measures in all of operations management is “Inventory Turnover”

In situations where distribution inventory is dominant, “Weeks of Supply” is preferred and measures how many weeks’ worth of inventory is in the system at a particular time

valueinventory aggregate Average

sold goods ofCost turnoverInventory valueinventory aggregate Average

sold goods ofCost turnoverInventory

weeks52 sold goods ofCost

valueinventory aggregate Averagesupply of Weeks

weeks52

sold goods ofCost

valueinventory aggregate Averagesupply of Weeks

Example of Measuring Supply-Chain Performance

Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million. This company normally has an inventory turn ratio of 10. What is this year’s Inventory Turnover ratio? What does it mean?

Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million. This company normally has an inventory turn ratio of 10. What is this year’s Inventory Turnover ratio? What does it mean?

Example of Measuring Supply-Chain Performance (Continued)

= $160/$35

= 4.57

Since the company’s normal inventory turnover ration is 10, a drop to 4.57 means that the inventory is not turning over as quickly as it had in the past. Without knowing the industry average of turns for this company it is not possible to comment on how they are competitively doing in the industry, but they now have more

inventory relative to their cost of goods sold than before.

= $160/$35

= 4.57

Since the company’s normal inventory turnover ration is 10, a drop to 4.57 means that the inventory is not turning over as quickly as it had in the past. Without knowing the industry average of turns for this company it is not possible to comment on how they are competitively doing in the industry, but they now have more

inventory relative to their cost of goods sold than before.

valueinventory aggregate Average

sold goods ofCost turnoverInventory

valueinventory aggregate Average

sold goods ofCost turnoverInventory

Agenda

What is Supply Chain and Supply Chain Management?

Why SCM?

What is JIT and Lean?

Value Proposition and KPIs of SCM

Critical Success Factor of Adopting SCM

What does Oracle SCM Solution offers?

People

Process

Technology

Correct balance

Not IT-Centric but Holistic Approaches in Supply Chain Management Projects

SCM is a Continuous On-Going Process

Plan Do

CheckAct

Plan

Do

CheckAct

Plan

Do

CheckAct

Strategic, Operational,

tatical Planning

Execution at all level through well defined

flow

Intelligence Reporting Exception

Act on any corrective

action

Critical Success Factors of SCM Projects

Aligned Objectives among All TeamsExecutive SponsorshipsObjectives FocusScope Definition and Control Change ManagementSolution Quality & MaturityData ReadinessTeam and InfrastructureProject ManagementEconomic and Financial Environment

Agenda

What is Supply Chain and Supply Chain Management?

Why SCM?

What is JIT and Lean?

Value Proposition and KPIs of SCM

Critical Success Factor of Adopting SCM

What does Oracle SCM Solution offers?

Supply Chain Evolution

Demand Forecasting

Purchasing

Requirements Planning

Production Planning

Manufacturing Inventory

Warehousing

Materials Handling

Industrial Packaging

Finished Goods Inventory

Distribution Planning

Order Processing

Transportation

Customer Service

Materials Management

Physical Distribution

Supply Chain

Management

Fragmentation (60’s) Evolving Integration (80’s) Total Integration (2000+)

Incredible Change within Decade

1992 1994 1996 1998 2000 2002

Source: Accenture 2002

Lean Introduced

3 PL

QualityCircles Prod Data Mgmt

MRP II SupplierIntegration

Six SigmaTQM

Mfg. Execution Systems

Advanced Planning and Scheduling

Lean Revisited

Integrated Product and Process Development

Integrated Supply Chains

CRM PLM

E-Fulfillment

Collab. Planning

SCM Market Opportunity ReviewDefinition of SCM in APAC

APAC-SCM can be subdivided into 3 key area (Ref to Gartner Definition)

SCM- SCP: Supply Chain Planning : APS Suite- SCE: Supply Chain Execution : Oracle GOP, WMS, TM,

TP, - SRM: Supplier Relationship Management : Oracle iSupplier, iProc,

Sourcing- SCS: Supply Chain Supervision : Oracle DBI for Planning &

Execution

ERP (MFG)- MFG: Discrete/Process Mfg : Oracle ODM/OPM & DBI- DIST: Distribution Apps : Oracle OM, INV and PO

EAM : Oracle eAM/PO/Projects/OTL

ProcurementPurchasingPayablesiProcurementSourcingiSupplier PortalProcurement Contracts (future)

ManufacturingDiscrete Manufacturing Project Manufacturing Flow Manufacturing Project Contracts Shop Floor ManagementProcess Manufacturing

LogisticsInventory ManagementMobile Supply Chain AppsWarehouse ManagementTransportation Execution

ServiceiSupportTeleServiceService ContractsField Service - Spares Management - Advanced Scheduler - Mobile Field ServiceDepot Repair

Maintenance MgmtEnterprise Asset MgmtcMRO

Product Lifecycle MgmtAdvanced Product Catalog CADView-3DProject Mgmt / Collab. Suite

Supply Chain IntelligenceSupply Chain Intelligence

Order ManagementOrder ManagementReceivablesAdvanced PricingConfiguratoriStoreTeleSalesQuoting & ProposalsTrade ManagementRelease ManagementSales Contracts (future)

Supply Chain PlanningDemand PlanningAdvanced Supply PlanningConstraint OptimizationGlobal Order PromisingManufacturing SchedulingInventory OptimizationCollaborative PlanningTransportation Plng

Oracle Supply Chain Products