Supply Chain Management - An Introduction

SUPPLY CHAIN MANAGEMENT

AN INTRODUCTION

Naveen K DandgeVijay SwargamVinod MishraVinayaka Ramesh

OUTLINE•WHAT IS SUPPLY CHAIN MANAGEMENT?•HOW IT LOOKS LIKE..?• THE NEED FOR EFFECTIVE SCM• IMPACT OF SUPPLY CHAIN•COMPONENTS OF A SCM•BENEFITS OF SCM•DRIVING FORCES FOR SCM•SUPPLY CHAIN INTEGRATION STRATEGIES•REASON FOR FAILURE OF SUPPLY CHAINS

WHAT IS SUPPLY CHAIN MANAGEMENT?• SUPPLY CHAIN MANAGEMENT IS A SET OF APPROACHES UTILIZED TO EFFICIENTLY INTEGRATE SUPPLIERS, MANUFACTURERS, WAREHOUSES, AND STORES, 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.• THE DESIGN AND MANAGEMENT OF SEAMLESS, VALUE-ADDED

PROCESS ACROSS ORGANIZATIONAL BOUNDARIES TO MEET THE REAL NEEDS OF THE END CUSTOMER - INSTITUTE FOR SUPPLY MANAGEMENT•MANAGING SUPPLY AND DEMAND, SOURCING RAW MATERIALS AND

PARTS, MANUFACTURING AND ASSEMBLY, WAREHOUSING AND INVENTORY TRACKING, ORDER ENTRY AND ORDER MANAGEMENT, DISTRIBUTION ACROSS ALL CHANNELS, AND DELIVERY TO THE CUSTOMER - THE SUPPLY CHAIN COUNCIL

HOW IT LOOKS LIKE…?

THE NEED FOR EFFECTIVE SCM

•GREATER COMPETITIVE ADVANTAGE•FASTER AND SMALLER DELIVERIES TO THE INTERMEDIATE CUSTOMERS•GREATER VALUE TO CUSTOMERS •REDUCES THE LEAD TIME•WELL MANAGED RISK IN THE SCM •INCREASED CUSTOMER SATISFACTION

IMPACT OF SUPPLY CHAIN•COMPAQ ESTIMATES IT LOST $0.5 B TO $1 B IN SALES IN

1995 BECAUSE LAPTOPS WERE NOT AVAILABLE WHEN AND WHERE NEEDED

•P&G (PROCTOR&GAMBLE) ESTIMATES IT SAVED RETAIL CUSTOMERS $65 M (IN 18 MONTHS) BY COLLABORATION RESULTING IN A BETTER MATCH OF SUPPLY AND DEMAND

•WHEN THE 1 GIG PROCESSOR WAS INTRODUCED BY AMD (ADVANCED MICRO DEVICES), THE PRICE OF THE 800 MEG PROCESSOR DROPPED BY 30%

COMPONENTS OF A SCM• 1. PLAN: STRATEGIC PLANNING HAS TO BE DONE TO HELP COMPANIES MANAGE ALL RESOURCES THAT MOVE TOWARDS ACHIEVING CUSTOMERS' DEMAND FOR PRODUCTS AND SERVICES. IT ALSO ALLOWS COMPANIES TO ACCURATELY FORECAST THE DEMAND FOR THEIR PRODUCTS. THIS ENSURES THAT THEY DO NOT OVERPRODUCE OR UNDER PRODUCE AND ALLOWS THEM TO EARN MORE REVENUE. IF THE COMPANY DOES NOT PLAN PROPERLY AND ENDS UP OVERPRODUCING, THEY WILL HAVE MORE INVENTORY THAN NEEDED. THE INVENTORIES WHICH ARE NOT SOLD WOULD HAVE BEEN A LARGE LOSS IN PROFITS FOR THE COMPANY.• 2. PROCUREMENT: COMPANIES SOURCE AND CHOOSE SUPPLIERS TO

DELIVER THE PRODUCTS AND SERVICES THEY NEED TO CREATE THEIR PRODUCT. IT ALSO INVOLVES THE MANAGEMENT OF THE INVENTORY OF GOODS AND SERVICES RECEIVED FROM THE SUPPLIERS AND MONITORS SHIPMENTS, VERIFYING THEM, TRANSFERRING THEM TO THE MANUFACTURING FACILITIES AND AUTHORIZING SUPPLIER PAYMENTS, AS WELL AS BENCHMARKING AGAINST COMPETITORS TO ENSURE THE IMPLEMENTATION OF THE BEST POLICIES.

COMPONENTS OF A SCM• 3. MAKE: THIS IS THE MANUFACTURING STEP, WHERE ACTIVITIES NEEDED FOR

PRODUCTION, TESTING, PACKAGING AND PREPARATION FOR DELIVERY HAVE TO BE SCHEDULED. THIS IS A CRITICAL PART OF SUPPLY CHAIN, WHERE COMPANIES ARE ABLE TO MEASURE QUALITY LEVELS, PRODUCTION OUTPUT AND WORKER PRODUCTIVITY.

• 4. DELIVER: THIS IS WHERE THE PARTIES MOVE PRODUCTS FROM ONE PLACE TO ANOTHER. THIS IS DONE BY COORDINATING THE RECEIPT OF ORDERS FROM CUSTOMERS, DEVELOP A NETWORK OF WAREHOUSES, PICK CARRIERS TO GET PRODUCTS TO CUSTOMERS AND SET UP AN INVOICING SYSTEM TO RECEIVE PAYMENTS. DELIVERY IS ALSO REFERRED TO AS LOGISTICS, WHEREBY IT IMPLEMENTS AND CONTROLS THE FORWARD AND REVERSE FLOW AND STORAGE OF GOODS, SERVICES AND INFORMATION BETWEEN SUPPLIERS AND CONSUMERS, THUS ENSURING THAT THE DEMAND OF THE CONSUMERS ARE MET.

• 5. RETURN: THIS IS ALSO REFERRED TO AS REVERSE LOGISTICS BRINGING IT BACK WHEN IT’S NOT NEEDED (UPSTREAM FLOW). RETURN OFTEN GIVES PROBLEMS TO COMPANIES. THIS IS WHERE SUPPLY CHAIN PLANNERS HAVE TO CREATE A FLEXIBLE NETWORK FOR RECEIVING DEFECTIVE AND EXCESS PRODUCTS BACK FROM CUSTOMERS AND SUPPORTING CUSTOMERS WHO HAVE PROBLEMS WITH DELIVERED PRODUCTS.

BENEFITS OF SCM• SIGNIFICANT BUSINESS IMPROVEMENTS.

• INCREASE IN REVENUE GROWTH.

• REDUCTION IN COSTS AND CAPITAL ASSETS.

• EFFICIENT ALLOCATION OF RESOURCES.

• REDUCE CYCLE TIME (THE PERIOD REQUIRED TO COMPLETE ONE CYCLE OF AN OPERATION).

• NO TIME IS WASTED IN FORECASTING. 

• EFFICIENT MARKET RELEASE.

• MORE FLEXIBILITY IN DEALING UNFORESEEN PROBLEMS.

• MEET DEMANDS OF CONSUMERS.THESE WILL ALSO ENHANCE THE CREDIBILITY WITH STAKEHOLDERS AND INVESTORS.

DRIVING FORCES FOR SCM• TECHNOLOGIES: TECHNOLOGIES ADVANCEMENT AND IMPROVEMENTS ALLOW ORGANISATIONS TO ACTIVELY MANAGE EFFECTIVELY AND EFFICIENTLY.

• CUSTOMER BEHAVIOURS: CUSTOMERS ARE CONSTANTLY DEMAND LOWER PRICES AND BETTER PRODUCTS AND SERVICES. FIRMS ARE CONSTANTLY TRYING TO IMPROVE SUPPLY CHAIN TO MEET THEIR DEMANDS.

• VISIBILITY: MORE VISIBLE MODELS OF DIFFERENT WAYS TO DO THINGS IN THE SUPPLY CHAIN HAVE EMERGED.

• COMPETITION: INCREASED COMPETITION WILL MAKE ANY ORGANISATION THAT IS IGNORING ITS SUPPLY CHAIN AT A DISADVANTAGE.

• SPEED: AS THE PACE OF BUSINESS INCREASES THROUGH ELECTRONIC MEDIA, ORGANISATIONS SUPPLY CHAIN MUST RESPOND EFFICIENTLY, ACCURATELY AND QUICKLY.

• GLOBALIZATION: GLOBAL NETWORK SOURCING, MANUFACTURING, MARKETING AND DISTRIBUTION. ORGANISATION WILL LOOK FOR CHEAPER ALTERNATIVES GLOBALLY THAT ARE BEST FOR THE ORGANISATION E.G. OUTSOURCING.

SC INTEGRATION – PUSH STRATEGIES•CLASSICAL MANUFACTURING SUPPLY CHAIN STRATEGY•MANUFACTURING FORECASTS ARE LONG RANGE – ORDERS FROM RETAILER’S WAREHOUSES• LONGER RESPONSE TIME TO REACT TO MARKETPLACE CHANGES – UNABLE TO MEET CHANGING DEMAND PATTERNS –SUPPLY CHAIN INVENTORY BECOMES OBSOLETE AS DEMAND OF CERTAIN PRODUCTS DISAPPEAR

SC INTEGRATION – PUSH STRATEGIES…• INCREASED VARIABILITY(BULLWHIP EFFECT] LEADS TO – LARGE INVENTORY STOCKS –LARGER AND MORE VARIABLY SIZED PRODUCTION BATCHES –UNACCEPTABLE SERVICE LEVELS –INVENTORY OBSOLESCE • INEFFICIENT USE OF PRODUCTION FACILITIES – HOW IS DEMAND DETERMINED? PEAK? AVERAGE? –HOW IS TRANSPORTATION CAPACITY DETERMINED?• EXAMPLE: AUTO INDUSTRY, LARGE APPLIANCES ETC.

SC INTEGRATION – PULL STRATEGIES• PRODUCTION AND DISTRIBUTION ARE DEMAND DRIVEN – COORDINATED WITH REAL CUSTOMER DEMAND•NONE OR LITTLE INVENTORY HELD – ONLY IN RESPONSE TO SPECIFIC ORDERS• FASTER INFORMATION FLOW MECHANISMS – POS DATA•DECREASED LEAD TIMES•DECREASED RETAILER/MANUFACTURERS’ INVENTORY•MORE EFFICIENT USE OF RESOURCES• EXAMPLES: DELL, AMAZON

PUSH VS PULL STRATEGIESPUSH PULL

Objective Minimize costs Maximize service level

Complexity

High Low

Focus Resource Allocation Responsiveness

Lead Time

Long Short

Processes

Supply Chain Planning Order Fulfillment

REASON FOR FAILURE OF SUPPLY CHAINS•LACK OF CO-OPERATION AMONG DIFFERENT MEMBERS OF

THE SUPPLY CHAIN.•LACK OF COMMUNICATION AND TRUST.•PRODUCTS AND MARKETING STRATEGIES OF COMPANIES

DO NOT CORRESPOND WITH THE NEEDS OF THE CUSTOMERS. •LONG LEAD TIME CAUSING DELAYED DELIVERY.•LACK OF RISK MANAGEMENT STRATEGIES.• INABILITY TO COORDINATE AND SYNCHRONIZE DISPARATE

BUSINESS PROCESSES AROUND THE WORLD WELL.