32
1 Supply Chain Management Lecture 1
1
Supply Chain Management
Lecture 1
2
Supply Chain ManagementWhat is supply chain??
Supply chain is a set of approaches utilized to efficientlyintegrate suppliers, manufacturers, warehouses, clearingand forwarding agents, logistic companies, wholesellers,retailers and stores so that merchandize is produced anddistributed in right quantities at the right locations and righttime to minimize system wide cost while satisfying servicelevel requirement
3
Supply Chain Management
Stakeholders in the process - Suppliers- Manufacturers- Logistic Companies- Clearing and Forwarding Agents- Courier Companies- Transporters ( railway, trucks, airlines, ships) - Warehouses- Wholesellers- Retailers- Departmental Stores, shops etc.
4
Supply Chain ManagementWhat is supply chain??
It is an end to end and complex process.
Major challenge is how to develop relationship with all stakeholders and do all theactivities in timely manner without loosing customers or effecting customer service
The term supply chain takes care of movement of products from supplies tomanufacturers, to distributors, to retailers, to customers along a chain
We may loose customers if effective supply chain is not in place
Customer walks in a departmental store; don’t find product or brand needed,goes to another store.
.
5
Supply Chain ManagementWhat is supply chain??
End to end process
If this happens more than once with several customers, negativeperception develops and they will stop coming to you
This negative perception is not restricted only to consumer sellingproducts but in bigger products like machinery, equipment, Ups,Gensets, Cooling towers, air conditioners, surgical equipment, vehiclesetc.
6
Supply Chain Management
7
Supply Chain Management
Stakeholders in the process
- As a supply chain stakeholder, we need to have long term contacts, strategic relationship, established procedures and arrangements with all stakeholders so that goods and services keep coming without any interruption
- Proper database is needed and contact phone numbers and email addresses should be on fingertips to get information about products and services in timely manner
- We need to develop good relationship with all stakeholders; sign agreements with all those parties from whom we expect products and services
8
Supply Chain Management
Stakeholders in the process
- Sometimes access to inventories is given to suppliers; they monitor stock status and automatically place order and get stock when minimum order quantity level reaches
- Reordering level established; order 200 more when quantity 50 left
- Sometimes entire operations is outsourced to the logistic companies
- Agreements are signed with logistic companies and clearing/ forwarding companies to take care of our business operations
9
Supply Chain Management
Objective of Supply Chain to create surplus - Maximize overall value generated and create surplus
- Difference between the cost to final customer and the cost supply chain incurs in filling the customer’s order
- Value strongly related to supply chain profitability known as supply chain surplus
- Success measured in terms of supply chain profitability and not profit at an individual stage
- Focus on profitability at individual stage leads to reduction in overall supply chain
10
Supply Chain Management
Various Functions in the organization involved in Supply Chain - New Product Development- Marketing- Operations- Customer Service- Distribution- Finance
11
Supply Chain Management
Organization are forced to focus on effective supply chain due to:
- Fierce competition (, manufacturers, service providers compete with each other in all areas)
- Introduction of products with shorter life cycle
- new inventions and technological chances have increased customers expectation - customers wants total solution rather than stand alone products or services
12
Supply Chain Management
Focus is on effective utilization of resources
- All Supply Chain Activities move around customers’ needs and how to completely satisfy them
- Customer is integral part of supply chain - Efficient utilization of resources done to increase efficiency, productivity and profitability
- Primary objective of supply chain; keep customers fully satisfied all the time and in the process increase revenue and profitability
13
Supply Chain Management
Supply Chain could be very simple to complex depending on situation
- Important role in our day to day life when we walk in retail store as customer
- Agha’s Super Market, Naheed, Imtiaz Store, Walmart, Dell, ASDA, Lidl, Tesco, Marks & Spencer, Next
- They keep products on display in appropriate manner for customers to choose and pick
14
Supply Chain Management
- Constant flow of products and services needed without any interruption
- Backup arrangements should be in place in case of any mishap - Distributors supply inventories to stores from finished goods warehouses through wholesalers who transport this to stores - Manufacturers buy raw material from other suppliers
15
Supply Chain Management
- Raw material could be direct material or it could be indirect material like packing material, spare parts, lubricants etc. for plants and machinery etc.
- Companies making packing material or supplying spare parts might be getting raw material from other suppliers
16
Supply Chain Management
- Supply chain is dynamic and involves constant flow of information, products and funds transfer at various stages
- Distributors keep wholesalers or retailers informed of the prices and stock status and new development etc.
- Customers pays to retail stores; retail stores pay to distributors, who pay to transporters and suppliers of finished goods
Cycle goes on like this
17
Supply Chain Management
Uncertainty and risk involved in supply chain- Customer demand can not be forecasted precisely; it may change - Customers may change suppliers or service providers- Core suppliers may develop strategic relationship with others- People get sick or leave the job- Machines and vehicles break down- Acts of God earthquake, cyclone - Man made disasters like bomb blasts, strikes etc., jeopardize plans and effect business operations - tendency to outsourcing, off shoring and lean manufacturing
Supply chain needs to be designed and managed to eliminate unnecessary cost
18
Supply Chain Management
Process View of Supply Chain (Cycle view)
- Sequence of process and flows that take place within and between different stages and combine to fill a customer need for product.
- Supply chain process broken down in following four processes cycles - Customer order cycle - Replenishment cycle - Manufacturing cycle - Procurement Cycle
19
Supply Chain Management
Evolution of supply chain
- In1980s companies discovered new manufacturing technologies and strategies that helped them reduce cost and effectively complete in market place
-Techniques like Total quality management, just in time, lean manufacturing became very popular and vast amount of resources were invested in implementing these strategies
20
Supply Chain Management
Evolution of supply chain
- In last few years many companies reduced manufacturing cost as for as possible
- Companies discovered that effective supply chain management is next step they need to take to increase profit and market share
21
Supply Chain Management
Supply Chain Macro Process in Firm
1. Customers Relationship Management (CRM) - close relationship with customers
2. Internal Supply Chain Management (ISCM) - Close coordination between various functions
3. Supplier Relationship Management (SRM) - Strategic relationship with suppliers
22
Supply Chain Management
Strategic Planning Forward IntegrationOrganization gain ownership or increased control on retailers distributors or business partners.
Backward IntegrationOrganizations wants to have more control on Suppliers providing vital products and services.
Strategy appropriate when reliability of suppliers is doubtful and they charge too much for their products and services which make our solution expensive and effect competitive position
Horizontal IntegrationAllow organization to seek ownership or increased control on competitors business by acquiring their business or mergers or make strategic alliances with them
23
Supply Chain Management`
SCOR Model (Supply Chain Operations Reference)
SCOR is a management process to identify business activities associated with all phases of satisfying customers’ demands.
The model is based on three major "pillars":- Process Modeling - Performance Measurements - Best Practices
Process Modeling PillarModel describes supply chains processes from simple to complex
SCOR based on five distinct management processes: Plan, Source, Make, Deliver, and Return.
24
Supply Chain Management`
SCOR Model (Supply Chain Operations Reference)
The Performance Measurements Pillar 150 key indicators measure performance of supply chain operations.
SCOR metrics organized in hierarchical structure:
- Level 1 metrics are primary, high level used by top decision makers to measure the performance of the company's overall supply chain.
- Level 2 are generally associated with narrower subset of processes. For example delivery performance is calculated as the total number of products delivered on time and in full based on a commit date.
25
Supply Chain Management`
SCOR Model (Supply Chain Operations Reference) The Best Practices PillarOnce performance of supply chain operations measured and performance gaps identified, it becomes important to identify what activities should be performed to close those gaps.
SCOR model defines a best practice as a current, structured, proven and repeatable method for making a positive impact on desired operational results.
- Current – Being used
- Structured - clearly stated Goal, Scope, Process, and Procedure
- Proven - Success has been demonstrated in a working environment.
- Repeatable - The practice has been proven in multiple environments.
26
Supply Chain Management`
SCOR Model (Supply Chain Operations Reference) The Best Practices Pillar
- Method- business process, practice, organizational strategy, enabling technology, business relationship, business model, as well as information or knowledge management.
- Positive impact on desired operational results - operational improvement against goal
The impact should show either: - Gain (increase in speed, revenues, quality, customer satisfaction)
- Reduction (resource utilizations, costs, loss, returns, etc.).
27
Supply Chain Management
SCOR Model (Supply Chain Operations Reference)
Five distinct management processes: 1) Plan 2) Source 3) Make 4) Deliver 5) Return
Plan Processes which help develop a plan and course of action to meet sourcing, production, and delivery requirements.
Source Processes which help procure goods and services to meet planned or actual demand
28
Supply Chain Management
SCOR Model (Supply Chain Operations Reference)
MakeProcesses transform product into finished goods to meet planned or actual demand.
Deliver Processes that facilitate filling order and transport raw material, finished goods and services to customers
Return Processes for taking returned products for any reason.
29
Supply Chain Management
SCOR Model (Supply Chain Operations Reference)
SCOR takes care of following activities:
- All customer interactions; from order entry through paid invoice - All product (physical material and service) transactions, from your supplier’s supplier to your customer’s customers, including equipment, supplies, spare parts, bulk product, software etc.
30
Supply Chain Management
SCOR Model (Supply Chain Operations Reference)
All activities related to demand determination and fulfilling customer orders
SCOR does not attempt to describe every business process or activity
Other key assumptions include: training, quality, information technology, and administration (not supply chain management).
These areas are not explicitly addressed in the model but rather assumed to be a fundamental supporting process throughout the model.
31
Supply Chain Management
Push and Pull Strategy
Pull Process- Called reactive process because we react when customer demand
- Execution initiated against customer order - Customer demand is known so low risk
- There could be problem in delivery if stocks not available when order received
32
Supply Chain Management
Push and Pull Strategy
Push Process- Speculative process as we respond to speculated or forecasted figures rather than actual demand
- Execution is initiated in anticipation of customer order
- Customer demand is not known and forecast is done
- lot of uncertainty involved
