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Supply Chain Management
Introduction to
SUPPLY CHAIN MANAGEMENT
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Agenda
Introduction to Supply Chain Management
Planning- Supply Chain Management
Production- Supply Chain Management
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Supply Chain Management
Supply Chain Management is the integration of key business processes from end users through original suppliers that provides products, services and information that add value to customers and other stakeholders.
- Global Supply Chain Forum (GSCF)
Two forces can be drawn out that leads in a Supply chain process of goods:
1. Product Supply
2. Customer Demand
Supply Chain Management flows can be divided into three main flows:
1. The Product Flow
2. The Information Flow
3. The Finances Flow
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Supply Chain Management : General Introduction to Supply Chain Management
Introduction
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Supply Chain Management : General Introduction to Supply Chain Management
Raw Materials
Supplier’s Supplier supplies the Product
Reverse Funds Consumer’s Demand- consumed by the End Consumers
Finished Goods
Goods Information
Work In Progress
Fig 1. showing the supply chain for breads
1750 - 1800
Industrial Revolution
Era of Mechanical Inventions
Product and process complexity increase 1800’s
Increased factory complexity
Birth of Industrial Engineering movement 1900’s
Assembly line, Mass production
Henry Gantt: Gantt charts, Scheduling
Human factors
Statistical Quality Control 1989 - 1993
Business Process Reengineering
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History
Supply Chain Management : General Introduction to Supply Chain Management
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Functional View of Supply Chain Management
• The ultimate objective of the SCOR Model is to build a superior supply chain that is integrated with the overall organizational strategy.
• It provides a framework that links business processes, best practices, metrics and technology into a unified structure. It is hierarchical in nature, interactive, and interlinked.
• The SCOR process reference model contains:
Performance Metrics
Processes
Practices
People
Fig 2. The Supply Chain Operations Reference Model (SCOR Model)
Source: https://supply-chain.org/f/SCOR-Overview-Web.pdf
• The five core supply chain performance attributes are:
Reliability
Responsiveness
Agility
Costs
Assets
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Supply Chain Players
Simple Supply Chain
Supplier
Company/Factory
Customer
Extended Supply Chain
Supplier’s supplier
Supplier
Company/factory
Customer
Customer’s Customer
Service Provider
Supplier Company Customer
Fig 3. Simple Supply Chain
Fig 4. Extended Supply Chain
Supplier Company Customer Supplier’s supplier
Customer’s customer
Service Provider
Supply Chain Management : General Introduction to Supply Chain Management
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Supply Chain Dynamics
• The main task of the supplier in the supply chain is to make balance between the customer’s demand and the product supply.
• In supply chain, the players are always responsible to maintain the level of inventory against the stock uncertainties providing a higher level of service. The sources of uncertainties are:
Wrong forecasts Late deliveries Poor quality Machine breakdowns Canceled orders and so on.
Stock Inventory
Fig 5. The Inventory Challenge
Supply Chain Management : General Introduction to Supply Chain Management
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Logistics
Logistics Management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements.
-Council of Supply Chain Management http://www.cscmp.org
Supply Chain Management : General Introduction to Supply Chain Management
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Supply Chain Management : Planning- Supply Chain Management
Bullwhip Effect
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Result and Solution for Bullwhip Effect
Results
Excess Inventories
Problems with quality
Increased raw material costs
Overtime expenses
Increased shipping costs
Lost customer service
Solution
Improve communication along supply chain
Improve sources of forecast data
Work with firms upstream and downstream in the
supply chain
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Inventory Protect against
Uncertainty
Cost Reduction
Protect against quality defects
Stabilize manufacturing
Anticipation stock
Balancing Supply and demand
Inventory can be defined as the total amount of goods and/or materials that any business firms holds in a stock. There are 3 main forms of Inventory:
Raw materials
Work in Progress
Finished goods
Reasons for Inventory
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Types of Inventory • Cycle or replenishment Stock
• Safety Stock
• In-transit Stock
• Seasonal Stock
• Promotional Stock
• Speculative Stock
• Dead or obsolete Stock
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Supply Chain Management : Planning- Supply Chain Management
Cycle Stock & Safety Stock
Cycle stock is the average amount of inventory, a business needs to meet customer demand between the times it orders more inventory from the supplier.
Safety stock or buffer stock is the amount of inventory or stock that is kept on hand in order to avoid uncertainty.
Delivery Sales Cycle Stock
Monday 7 1 6
Tuesday - 1 5
Wednesday - 1 4
Thursday - 1 3
Friday - 1 2
Saturday - 1 1
Sunday - 1 0
Total 7 7 -
Table. Showing cycle Stock
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Supply Chain Management : Planning- Supply Chain Management
Reducing Inventory
The cycle stock can be reduce by ordering more often.
In safety stock case,
Reduce lead-time
Reduce supplier uncertainty
Reduce forecast error
Reduce service level
Level High Low
Frequency Fast Slow
Patterns Stable Trend Seasonal
Product life cycle positioning
Launch Emerging Established Decline Withdrawal
Product classification
A 20% represent 80%
B 30% represent 15%
C 50% represent 5%
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Demand Characteristics
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Frequency of Demand
Different Patterns of Demand
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Product Life Cycle Product Segmentation
Using Pareto’s Law
Supply Chain Management : Planning- Supply Chain Management
1. QUALITATIVE 2. QUANTITATIVE/ STATISTICAL
Human reasoning and judgment Time Series Method (assumption of continuity)
The components Purchase, Time & Season
are taken from the past and projected into
the future using the assumption of continuity.
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Forecasting Methods
Supply Chain Management : Planning- Supply Chain Management
1. Continuous review (fixed order quantity)
Inventory is reviewed daily and a fixed quantity is ordered whenever the stock drops below a certain point
2. Periodic review (fixed order cycle) Inventory is reviewed at regular intervals and every time a sufficient quantity is ordered to raise the inventory level up to a certain level.
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Models of Order Cycle Management
Supply Chain Management : Planning- Supply Chain Management
How much should I order at a time? The magical formula:
C = ordering cost per order
R = annual demand in units P = purchase cost of one unit F = annual holding cost as a fraction of unit cost PF = holding cost per unit per year
Method for calculating order quantities at individual SKU (Stock keeping unit) level (Norek 1998) 13.12.2013 21 EUROMPM- Information Supply Chain
The Economic Order Quantity (EOQ)
Supply Chain Management : Planning- Supply Chain Management
A formal process, consisting of series of meetings, where data from various
areas of business is discussed and decisions are made.
Normal Time Frame Takes a monthly look at product groups at least 6- 12 months across the
planning horizon.
Types of Data Considered
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Sales and Operations Planning
Current plan for each product group
Current finished goods inventory
Sales forecasts
Purchase Orders received
Materials available
Manufacturing plans and capacity
Distribution capacity
Shipping capacity
Performance measures
Customer Service
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Sales and Operations Planning Cycle
Supply Chain Management : Planning- Supply Chain Management
Greater visibility of demand and supply
Improved Product Lifecycle Management process
Better promotional planning
Improved inventory management
More predictable revenue management
More accurate budget forecasting
People
Process
Strategy
Performance
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Benefits of S & OP Process
Why S & OP Implementations fail?
Supply Chain Management : Planning- Supply Chain Management
Develop a formal structure to support S&OP.
Identify KPIs prior to beginning & monitor them monthly to identify areas for
improvement.
Attitude of continuous improvement.
Stabilize the Demand Planning process
Hold regular meetings
The S&OP process is a decision making tool – don’t confuse having
meetings with making progress.
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Tips for a Successful Implementation
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Supply Chain Management : Production- Supply Chain Management
Introduction to MAKE
The term “MAKE” describes the process that transforms inputs into outputs
MAKE can be defined as the physical act of making the product.
It is also known as Manufacturing, assembling or processing function
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From Craft to Mass Manufacturing
Craft Mass
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Project
• Meets very specific customer requirements
• Too large to be moved once completed
Job Shop
• End product meets the unique customer order requirements
• Assembly usually takes place offsite
Batch
• Similar items are provided on a repeat basis
• Process is divided into a chain of activities that take place after each other
Five types of Manufacturing Process
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Five types of Manufacturing Process
Line
• Products are passed through thesame sequence of operations
• Can be made to order or to stock
Continuous Flow
• Choice of process is based on the liquid or gas-like product nature and high volumes
Other set up Considerations
• Product companies can implement a combination of all these manufacturing processes
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Manufacturing Planning and Control
Demand forecast finished goods
Master Production Schedule
Customer Orders
Bill of Materials Material requirement
Planning Inventory file
Assembly
Dispatch
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Other MAKE planning concepts
• Process of determining the impact on key resources required to support manufacturing plan
Capacity Requirements
Planning
• Focuses on the planned delivery of finished products to customers
Distribution Requirements
Planning
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Just-in-Time
Powerful strategy for improving operation
Uses a systems approach to develop and operate a manufacturing system
Organizes the production process so that parts are available when they are needed
A method for optimizing processes that involves continual reduction of waste
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Philosophy behind JIT
Traditional approach
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Philosophy behind JIT Just-in-time approach
Inventory level
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Overview
Pull Scheduling
A system of controlling materials whereby the use signals to the maker or provider that more material is needed.
People
Plant
System
Elements of JIT
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Limitations of JIT
Cultural difference
Loss of safety stock
Decreased individual autonomy
Industry-specific success
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Lean Manufacturing
Lean focuses on flow, the value stream and eliminating “Muda”, the Japanese word for waste.
A way to eliminate waste and improve efficiency in a manufacturing environment.
Lean manufacturing is the production of goods using less of everything compared to traditional mass production: less waste, human effort, manufacturing space, investment in tools, inventory, and engineering time to develop a new product.
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Improving Performance through waste reduction
Over-production: producing more than the customer orders or producing early. Inventory of any kind is usually waste.
Queues: idle time, storage, and waiting are wastes.
Transportation: moving material between parts, between work centers, and handling more than once is waste.
Motion: Movement of equipment or people.
Over-processing: work performed on product that adds no value.
Inventory: unnecessary raw material, work-in-progress (WIP), finished goods, and excess operating suppliers.
Defective Product: Returns, warranty claims, rework and scrap
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Tools to Improve “Make” Performance
Loss tree analysis Tool to identify priorities
when aiming for quality improvements.
A loss tree is a visual aid to identify where the issues are, it allows the user to focus on specific areas rather than generating a problem list
Caps 40 (10.23%)
Bottles 179(45.78%)
Bottle Leakage 391 (100%)
Bottle Leakage 219 (56.01%)
Packing 172 (43.99%)
What’s the problem with packing?
Why are the bottles damaged?
Why are the caps faulty?
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Tools to Improve “Make” Performance 5- Why Analysis
Method of exploring the causes of problems by asking “why?” five times
This method builds upon the principle that the real cause can often be found as a result of repeating “why?” five times
Simple structured root cause analysis technique applicable to simple issues as well as complex problems with many variables
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Fishbone Diagram
Effective problem-solving tool to be used by groups of people involved in finding the possible causes of problems.
The cause can be split into the four categories man, method, materials and machine.
Tools to Improve “Make” Performance
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References • https://supply-chain.org/f/SCOR-Overview-Web.pdf
• https://searchmanufacturingerp.techtarget.com
• http://www.cscmp.org
• http://www.slideshare.net/anandsubramaniam/the-bullwhip-effect
• http://smallbusiness.chron.com/justintime-method-31185.html
Supply Chain Management
Contact [email protected]
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Supply Chain Management