Supply Chain Management

Course in

Executive General Management

Programme (EGMP06)

Indian Institute of Management, Lucknow

May-June 2015

Mahadevan Text Chapter 9

Major Topics in SCM Course

Supply Chain Management

Concepts

Lean Operations

2 sessions (4 hours) as per

schedule

Supply Chain Design &

Facility Location

Inventory Management

Forecasting & Demand

Planning

Material & Resource

Planning

4 sessions (8 hours) as per

schedule

Part B (Prof. S. Venkat) Part A (Prof. R.K. Srivastava)

Evaluation: Term-end Examination

The World is Flat

Supply Chains are now

increasingly global

Death of Distance

Bits are (nearly) free,

enabled partly by the

telecom boom

Major implications for how

business and economies

work

Perspectives on Supply Chains

Reducing Supply Chain Barriers Could Increase

Global GDP Up To 6 Times More Than Removing

All Import Tariffs

- World Economic Forum report, 2013

India: The Most Favored Location for IT

Companies

- Common Business Press Headline

Dell shifts sourcing of PCBs from Gurgaon, India

to Mexican Maquiladora

- International Business Week, 1997

Supply Chain Barriers? Loss of productive time

Delays

Perishability

Penalties

Inventory costs

..

Natural Supply Chains

Snow River Dam Generator Power

lines Customer

Water

Well

Water

Treatment Distribution

Water

Tower Local

Lines Customer

Information Chain

Capture Store Process Transport Consume

Cameras Media PC/Workstation Telecom Player

External Supplier 3

External Supplier 2

External Supplier 1

Internal Customer

Ultimate Customer

Procurement

Production

Distribution

What is a supply chain?

Text Figure 9.1 (b) p. 278

What is Supply Chain Management ?

A total system approach to managing the

entire flow of materials, information, and

services from raw-material suppliers through

factories and warehouses to the end customer.

Falls in between full vertical integration

(dedicated) vs. purely contractual buying

relationship

Supply Chain Decisions

Logistics/ SCM Cost Structure in India

Sanyal, Hindu Business Line

Contemporary Importance of SCM

Increasing outsourcing and emphasis on core

competence

Network of companies rather than single entity

Distribution of wealth and risk

Each cycle takes time and costs money

Pressure to reduce costs/ prices (real prices drop

with time, e.g., in high-tech 1% drop every week)

Changes ripple both ways across chain

Friedmans Ten Flatteners

1. Berlin Wall comes down

2. Netscape sparks dotcom

boom (1995+)

3. Workflow software enables

collaboration

4. Open-sourcing software

5. Out-sourcing (including

digitized work)

6. Off-shoring

7. Supply-chaining

8. In-sourcing (Third Party

Logistics)

9. Informing (empowerment

through information and

search)

10. Steroids (digital, mobile,

wireless, VOIP etc.)

Note that 4 of the ten flatteners are Supply Chain related

EXAMPLES OF

BUSINESS SUPPLY CHAINS

National Consumer Goods Supply Chain

High vol. packs

Supplier

share

PO Orders

Centralized Rule Setting

Decentralized Planning

Depot Factory RS Supplier

RDC

HO

Indents QR

System

Source Networks

Marketing Plans

Seasonal build up

Belfast Carburetors and

distributors

Treforest Spark plug

insulators

Leamington Foundry production

of engine

components

Dagenham Final assembly

Bordeaux Transmissions

Enfield Instruments, fuel

and water gauges,

plugs

Basildon Radiators, water

pump assembly,

engine components

Genk Body panels,

road wheels

Wlfrath Transmission

parts, engine

components

Saarlouis Final assembly

Cologne Die-cast transaxle

casings, gear and

engine components

Valencia Final assembly

Continental Supply Chain: Ford Europe

Pizza Supply-Demand Challenges

Different Supply Chain Strategies

Supplier Manufacturer Customer Retailer

Enterprise Focus (e.g., HUL, Asian Paints, Toyota)

Partner Focus (e.g., P&G - Wal-Mart, Amul, Dabbawallas)

Supplier Manufacturer Customer Retailer

Collaborative Systems

Direct Focus (e.g., Dell, Intel, Amazon)

Supplier Manufacturer Customer

Shared Market Data

Virtual Fulfillment Web

Source: Kalakota & Robinson

Supply Chain Choice

Source: Fisher, HBR

Refer Text p. 296-297

Functional & Innovative Products Key Attributes

Criterion Functional Innovative

Product life cycle > 2 years 3 months to 1 year

Contribution margin 5% - 20% 20% - 60%

Product variety low (upto 20 variants

per category)

high (often thousands

of variants)

Average forecast

error

10% 40% - 100%

Average stock out 1% - 2% 10% - 40%

Forced end of

season markdown

0% 10% - 25%

Lead time for made

to order

6 months - 1 year 1 day to 2 weeks

Refer Text p. 296-297

Designing efficient supply chains Strategies

Continuous replenishment programme using EDI

links for information sharing

Invest in supply chain partnership programme

both on the in-bound and out-bound side

Integrate material planning and control systems

with ERP to benefit from improved data visibility

Develop robust inventory control mechanisms to

accurately fix reorder points and order levels

Refer Text p. 296-297

Designing responsive supply chains Strategies

Accept uncertainty in demand & large forecast

errors as the reality

Devise strategies for managing uncertainty

Capture Point-of-Sale data for accurately and

immediately updating forecast

Improve responsiveness by cutting lead times

Postponement strategies/Delayed differentiation

Deploy standardisation, modular design and product

platform strategies

Refer Text p. 296-297

Supply Chain Management

Components

In-bound SCM Supplier Development

Supply Management

In-house SCM Master Scheduling, MRP

Layout, materials handling

Out-bound SCM Warehousing

Distribution & Channel Management

Auto Electrical

Wiring Harness

Upholstery Transmission

Insulators & Bushes

Spindles & Armatures

Copper Plates Wires

Gears Castings

Spindles & Shafts

Forging Blanks

Copper Manufacturers

Iron & Steel Manufacturers

Tier 1

Tier 2

Tier 3

In-bound supply chain Tier structure: Automotive Industry

Text

Fig. 9.3

I T

Manufacturing Support Layer

Marketing

Design Costing Quality

Planning

Material

Maintenance

Pre-manufacturing

Machining Fabrication

Assembly Testing

Core Manufacturing Layer

In-house supply chain An illustration

Text

Fig. 9.4

Soap Manufacturing Factory

Factory Warehouse

Distribution Centers

North East West South Central

SD SD SD SD Sales

Depots SD SD SD

RO RO RO RO RO RO RO Retail

Outlets

End Customers

Out-bound Supply Chain An illustration using a Soap

Manufacturer

Text

Fig. 9.5

Value Chain Perspectives

Supplier Manu-

facturer Retailer Customer

Distri-

butor

Supply Chain View

Order Flow View

Order Design Procure-

ment

Manu-

facturing

Delivery/

Service

Factory Material Flow View

Recei-

ving Storage

Manu-

facturing

Ware-

housing Shipping

Measures for SCM Performance

Inventory turn over ratio, TO (%) = 100*)(

)(

RsSalesAnnual

RsInventoryininvestmentTotal

Number of inventory turns, TN = )(

)(

RsInventoryininvestmentTotal

RsSalesAnnual

Total Inventory (Days), TID = 365*)(

)(

RsSalesAnnual

RsInventoryinInvestmentTotal

Days of Sales Outstanding, DSO = 365*)(

)(Re

RsSalesAnnual

RsceivableAccounts

Days of Payables Outstanding, DPO = 365*)(

)(

RsConsumedMaterialRawofValue

RsPayableAccounts

Cash-to-Cash Cycle Time (Days), CCD = TID + DSO DPO

RM Inventory (Days), RMD = 365*)(

)(

RsConsumedMaterialRawofValue

RsInventoryMaterialRaw

WIP Inventory (Days), WIPD = 365*)(Pr

)(

RsoductionofValue

RsInventoryWIP

FG Inventory (Days), FGD = 365*)(

)(

RsSalesAnnual

RsInventoryFG Text p.

291-292

Measures for SCM Performance

Inventory turn over ratio, TO (%) = 100*)(

)(

RsSalesAnnual

RsInventoryininvestmentTotal

Number of inventory turns, TN = )(

)(

RsInventoryininvestmentTotal

RsSalesAnnual

Total Inventory (Days), TID = 365*)(

)(

RsSalesAnnual

RsInventoryinInvestmentTotal

Days of Sales Outstanding, DSO = 365*)(

)(Re

RsSalesAnnual

RsceivableAccounts

Days of Payables Outstanding, DPO = 365*)(

)(

RsConsumedMaterialRawofValue

RsPayableAccounts

Cash-to-Cash Cycle Time (Days), CCD = TID + DSO DPO

Text p.

291-292

Contemporary Supply Chain

Management & Initiatives

Competition is between Supply Chains, not

individual companies

VMI: Vendor Managed Inventory

QR: Quick Response

ECR: Efficient Consumer Response

CRP/CRS: Continuous Replenishment

CPFR: Collaborative Planning, Forecasting &

Replenishment