Description
the basics of supply chain including, what is supply chain, emergence of supply chain, difficulties and challenges of SCM, optimization of SCM, issues in supply chain management, supply chain planning and operations,
Basics of Supply Chain
1
GLOBAL
What is Supply Chain? • A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. • Supply chain consists of all the activities involved in Order Fulfillment process • A typical supply chain consists of ? Raw Material / Component Suppliers ? Transporters ? Warehouses ? Manufacturers ? Retailers/Wholesalers ? Customers
2 2
GLOBAL
What is Supply Chain? • Supply chain activities begin with a customer order and end when a satisfied customer has paid for the purchase. Traditional Supply Chain Stages
Manufacturing Plant
Supplier
Distributor
Retailer
Customer
3 3
GLOBAL
Emergence of Supply Chain
•In the 1980s companies discovered new manufacturing technologies and strategies that allowed them to reduce costs and compete better in different markets. •Strategies such as lean manufacturing, TQM became very popular and heavy investments have been made in these areas. •In the last few years, it has become clear that many companies have reduced manufacturing costs as much as is practically possible. •Companies are discovering that effective supply chain management is the next frontier to increase profit and market share.
4 4
GLOBAL
Emergence of Supply Chain
•Firms are their supply chain performance by deploying different strategies like: ? Strategic Partnering: ? Procter & Gamble estimates that it saved $ 65 million in an 18 month supply chain initiative in late 1990s. ?The essence of the approach lies in manufacturers and suppliers working closely together, jointly creating business plans to eliminate wasteful practices across the entire supply chain. ? Centralized Warehousing: ? National Semiconductor reduced distribution costs by 2.5%, decreased delivery time by 47% and increased sales by 34% by closing 6 warehouses around the world and airfreighting from new centralized distribution center in Singapore. ?Though this increased the transportation costs, this was offset by a reduction in inventory and warehouse costs
5 5
GLOBAL
Emergence of Supply Chain
• Asset Sharing: ? Nabisco Inc, deliver 500 types of cookies and more than 10,000 candies to over 80,000 buyers and spends more than $200 million a year in transportation expenses. ?Manu trucks carry load which are only half-full. ?The company is pioneering an collaborative logistics efforts, where it can share trucks and warehouse space with other companies in order to lower logistics costs. ?In a pilot program, the company shared warehouses and trucks with 25 other manufacturers and realized significant savings • Cross-Docking: ? In cross-docking, goods that are delivered to warehouse are directly shipped to stores / customer without sitting in the inventory. ?Wal-mart uses this principle for a large variety of their merchandise to reduce costs and offer everyday low prices to their customers.
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GLOBAL
• Global Optimization ? Process of finding the best system-wide strategy is known as global Optimization ? It is very challenging to optimize the whole system in terms of costs and service levels
Difficulties / Challenges in SCM
• Managing Uncertainty:
? Uncertainty is inherent in any supply chain (Ex; Customer Demand, Travel times, Breakdown etc)
? Supply chains need to be designed to eliminate
as much uncertainty as possible and deal effectively with the uncertainty that remains
7 7
GLOBAL
GLOBAL OPTIMIZATION Complexity:
•Supply chain is a complex network •Generally facilities are dispersed across the country or across the globe •Supply chain activities are typically done by different departments in the company rather than a single department •Inefficiency in any of the activities within the supply chain reduces the efficiency of the whole system
Conflicting objectives within Supply chain Players:
• Many a time different players in the supply chain will have conflicting objectives: ? Suppliers want manufacturers to order in large quantities. But manufacturers do not want to take the risk of large inventory and meet the changing demand of the product. Hence they would like the suppliers to product in small batches at lowest cost.
8 8
GLOBAL
GLOBAL OPTIMIZATION Conflicting objectives within Supply chain Players:
• Transportation costs are reduced if the goods are transported in bulk but it increases the inventory carrying costs and warehouse costs.
Dynamic Relationship between different players:
• Supply Chain relationships changes over time. • As customers’ power increases, there is increased pressure places on manufacturers and suppliers to produce customized products. This generally increase the production costs
System Variations over time and other parameters:
• Even if the overall demand is forecasted correctly, micro-level weekly or monthly planning has to be done by taking into account factors like seasonal fluctuations, trends, advertising and
promotions, competitors’ pricing strategies etc
9 9
GLOBAL
MANAGING UNCERTAINTY Matching Supply and Demand:
•Managing supply and demand is difficult even at the macro level and the difficulty increases with each level of detailing. •In India, loss of sales due to stock-outs is in the range of 10-15% •In India, loss due to expiries ( Food products) are in the range of 3-4%
Demand forecasting is not the only source of uncertainty:
•Apart from demand, other sources or uncertainty are: ? Delivery Lead times ? Transportation lead time ? Accidents
10 10
GLOBAL
KEY ISSUES IN SUPPLY CHAIN MANAGEMENT
Distribution Network Configuration: •How should management select a set of warehouse locations and capacities? •How should the production levels of each product at each plant to be determined? •What should be the transportation and warehouse structure such that production, inventory and transport costs are minimized and service levels are optimized?
Inventory Control: • Why should the company hold inventory? • What should be the level of inventory and safety stock? • If the inventory is reduced by certain percentage, what would be the loss of sale? • What is the level of uncertainty in the customer demand? • What is the accuracy of the forecasting tool used to predict the customer demand?
11 11
GLOBAL
KEY ISSUES IN SUPPLY CHAIN MANAGEMENT
Supply Contracts: •In traditional supply chain strategies, each party in the chain focuses on its own profit even though that may affect the overall supply chain performance. •Can the supply contracts can also be used to replace the traditional supply chain strategy with one that optimizes the entire supply chain performance? •What is the impact of volume discount and revenue sharing contracts on supply chain performance? Distribution Strategies: •Which distribution strategy should a particular firm employ: cross-docking strategy, classical distribution strategy, direct customer delivery? •If the company want to follow cross-docking strategy, how many cross-docking points are necessary? What are the savings achieved using a cross-docking strategy? •How should a cross-docking strategy be implemented in practice?
12 12
GLOBAL
KEY ISSUES IN SUPPLY CHAIN MANAGEMENT
Supply Chain Integration and Strategic Partnering: • How can integration be achieved successfully? •What is the level of integration required within the company and the external partners? •What information should be shared with the partners? •Which type of partnership should be implemented for a given situation?
Outsourcing and Procurement Strategies: •Make or buy decisions: What components should be manufactured internally and what components should be purchased from the suppliers? •What are the risks associated with outsourcing and how can these risks be minimized? •What is the impact of internet on procurement strategies?
13 13
GLOBAL
KEY ISSUES IN SUPPLY CHAIN MANAGEMENT
Information Technology and Decision Support Systems: •Which data are significant for Supply Chain Management and which data can safely be ignored? •How should the data be analyzed and used? •Which type of ERP is suitable for which type of business? •What infrastructure is required both internally and between supply chain partners?
14 14
GLOBAL
Key issues impact either Global optimization or managing uncertainity or both
KEY ISSUES IN SUPPLY CHAIN MANAGEMENT
Key Issues Distribution Network Configuration Inventory Control Global Optimization X X Managing Uncertainity
Supply Contracts
Distribution Strategies Strategic Partnerships Outsourcing and Procurement Information Technology
15 15
X
X X X X X X
GLOBAL
Objective of a Supply Chain
•Objective of every supply chain is to maximize the overall value generated. •Value a supply chain generates is the difference between what the final product is worth to the customer and cost of Supply Chain. •Supply chain profitability is the total profit to be shared across all supply chain stages.
•Higher the supply chain profitability, the more successful the supply chain.
•Supply chain success should be measured in terms of overall profitability and based on profitability at individual stages. (Local optimization may lead to a reduction in profits)
16 16
GLOBAL
Decision Making / Decision Phases in Supply Chain
•Successful supply chain management requires many decisions relating to the flow of information, product and funds. •These decisions fall into three categories or phases depending on the frequency, time-
frame and decision making authority. They are
? Supply Chain Strategy or Design ? Supply Chain Planning ? Supply Chain Operation
17 17
GLOBAL
Decision Making / Decision Phases in Supply Chain
•Supply Chain Strategy or Design ? During this phase, a company decides how to structure the supply chain over the next several years. These decisions have a long-lasting effect on the firm. ? Typical decision include:
?Number, location and capacity of warehouses and manufacturing plants.
? Modes of Transportation along different shipping legs. ?Type of Information system. ?Company must ensure that the supply chain configuration supports its strategic objectives ? Strategy or Design decisions are made for the long –term and are costly to be modified on short notice.
? It’s important that companies take a long-term business view in this phase
18 18
GLOBAL
Decision Making / Decision Phases in Supply Chain
•Supply Chain Planning ? They are tactical level decisions, that are typically updated between once a quarter to once a year. ? Supply chain’s configuration determined in the strategic phase is fixed. This configuration establishes constraints within which the planning must be done.
? Planning includes decisions like: ? Which markets will be served from which locations ?Subcontracting ?Inventory policies ?Target production quantities at different locations ? Planning establishes parameters within which a supply chain will function over a specified period of time. ?In the planning phase, companies must include uncertainty in demand, exchange
rates and competition over this time horizon.
19 19
GLOBAL
Decision Making / Decision Phases in Supply Chain
•Supply Chain Operations ? Time horizon here is weekly or daily. ?At the operational level, supply chain configuration is fixed and planning policies are already defined.
?During this phase companies make decisions regarding individual customer
orders, scheduling, routing and truck-loading etc. ?Since operational decisions are made in the short-term, there is less uncertainty.
20 20
GLOBAL
Process View of a Supply Chain
• There are basically 2 different ways to view the processes performed in a supply chain: ? Cycle View: Processes in a supply chain are divided into a series of cycles, each performed at the interface between 2 successive stages of a supply chain
?Push/Pull View: Processes in supply chain are divided into two categories
depending on whether they are executed in response to a customer order or in anticipation of customer orders. Pull processes are initiated by customer order whereas push processes are initiated and performed in anticipation of customer orders
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GLOBAL
Cycle View:
• There are 5 stages in the supply chain:
? Customer
? Retailer ?Distributor ?Manufacturer ?Supplier •All supply chain processes can be broken down into the four following process cycles: ? Customer Order Cycle
? Replenishment Cycle
? Manufacturing Cycle ? Procurement Cycle • Each cycle occurs at the interface between two successive stages of the supply chain.
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GLOBAL
Supply Chain Process Cycles:
Customer Customer Order Cycle Replenishment Cycle Manufacturing Cycle Procurement Cycle
Retailer Distributor
Manufacturer
Supplier
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GLOBAL
Cycle View (Contd…):
• Not every supply chain will have all four cycles clearly separated.
? In modern retail or manufacturing, one can find all the cycles. But company like
Dell directly sells to customers bypassing distributors and retailers. • Cycle view of the supply chain is very useful when considering operational decisions because it clearly specifies the roles and responsibilities of each member of the chain. •It is also useful when setting up information systems to support supply chain
operations, as process ownership and objectives are clearly defined.
24 24
GLOBAL
Customer Order Cycle:
• Customer Order cycle occurs at the customer/retailer interface and include all
processes directly involved in receiving and filling the customer’s order.
•If there is no distributor or retailer, this happens between the firm and the customers directly. •Retailer’s interaction with the customer starts when customer arrives or contact is initiated and ends when the customer receives the order. •Processes involved in the customer order cycle include: ? Customer Arrival
? Customer order Entry
? Customer Order Fulfillment ? Customer Order Receiving
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GLOBAL
Customer Order Cycle:
Customer Arrival
Customer Order Receiving
Customer Order Entry
Customer Order Fulfillment
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GLOBAL
Customer Order Cycle:
• Customer Arrival is the starting point for any supply chain. • The objective of the customer order cycle is to maximize the conversion of customer’s arrival into an order • At a supermarket, facilitating a customer order may involve managing customer flows and product displays •At a telemarketing center, it mean ensuring the customers do not have to wait on hold for too long •At a website, it may mean to ensure that customers quickly locate and view products that may interest them
Customer Order Entry:
• Customer order entry refers to customers informing the retailer what products they want to purchase and the retailer allocating products to customers. •At a website, order entry may involve customers informing the retailer of the items and quantities they selected
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GLOBAL
Customer Order Fulfillment:
• During this process, the customer’s order is filled and sent to the customer. •The objective of this process is to get the correct orders to customers by the promised due dates at the lowest possible cost •At a supermarket, the customer performs this process. •At a mail order firm, this process generally include picking the order from inventory, packaging it and shipping it to the customer. •All inventories will need to be updated, which may result in the initiation of the replenishment cycle.
Customer Order Receiving
• During this process, the customer receives the order and takes ownership. • Records of this receipt may be updated and payment completed. • At a supermarket, receiving occurs at the checkout counter. • For a mail order firm, receiving occurs when the product is delivered to the customer.
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Replenishment Cycle:
• Replenishment cycle occurs at the retailer/distributor interface and include all processes involved in replenishing retailer inventory. •It is initiated when a retailer places an order to replenish inventories to meet future demand. •The replenishment cycle is similar to the customer order cycle except that the retailer is now the customer. •The objective is to replenish inventories at the retailer at the minimum cost while providing high product availability. •Processes involved in the replenishment cycle are : ? Retail Order Trigger ? Retail Order Entry ? Retail Order Fulfillment ? Retail Order receiving
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GLOBAL
Replenishment Cycle:
Retail Order Trigger
Retail Order Receiving
Retail Order Entry
Retail Order Fulfillment
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GLOBAL
Retail Order Trigger:
• Retailer may order based on the actual sales and expected sales. • The objective when setting replenishment order triggers is to maximize profitability by ensuring economies of scale and balancing product availability and the cost of holding inventory.
Retail Order Entry:
• Process is similar to the customer order entry. • The objective is that an order be entered accurately and conveyed quickly to all supply chain processes affected by the order
Retail Order Fulfillment:
• Process is similar to customer order entry. But a key difference is the size of each order.
• Customer orders tend to be much smaller than replenishment orders. • The objective is to get the replenishment order to the retailer on time while minimizing costs
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Retail Order Receiving:
• Once the replenishment order arrives at a retailer, the retailer must receive it physically and update all inventory records. • The objective of the process is to update inventories quickly and accurately. • The process involves: ? Product flow from the distributor to the retailer ? Information updates at the retailer ? Flow of funds from retailer to the distributor
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Manufacturing Cycle:
• Manufacturing cycle occurs at the distributor/manufacturer interface. • It includes all processes involved in replenishing distributor inventory • Manufacturing cycle is triggered by: ? Customer Orders (Ex: Dell) ? Replenishment orders from retailer or distributor (Wal-mart ordering from P & G) ? Forecast of customer demand and current product availability. • Processes involved in manufacturing cycle are: ? Order Arrival ? Production scheduling ? Manufacturing and Shipping ? Receiving
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GLOBAL
Manufacturing Cycle:
Order Arrival
Receiving
Production Scheduling
Manufacturing and Shipping
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GLOBAL
Order Arrival:
• During this Process, a finished-goods warehouse or distributor places the order on the manufacturing plant. • The process is similar to the retail order in the replenishment cycle
Production Scheduling:
• The objective of the production scheduling process is to maximize the proportion of orders filled on time while keeping costs down. • During the production scheduling process, orders (or forecasted orders) are allocated to a production plane. • If there are multiple lines, the manufacturer must decide which products to allocate to each line.
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GLOBAL
Manufacturing and Shipping:
• The objective of the manufacturing and shipping process is to create and ship the product by the committed date while meeting quality requirements and keeping costs down. • During the manufacturing phase, the manufacturer produces to the production schedule. • During the shipping phase, the product is shipped to the customer, retailer, distributor or finished-product warehouse.
Receiving:
• Similar to that of retail order receiving
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Procurement Cycle:
• Procurement cycle occur at the manufacturer/supplier interface. • It includes all processes necessary to ensure that materials are available for manufacturing to occur according to schedule. • During this cycle, the manufacturer orders components from suppliers that replenish the component inventories.
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Procurement Cycle:
Order based on manufacturer’s Production schedule or supplier’s stocking needs
Receiving at Manufacturer
Supplier Production Scheduling
Component manufacturing and shipping
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GLOBAL
SUMMARY OF CYCLE VIEW:
• A cycle view of the supply chain clearly defines the processes involved and the owners
of each process
• It is very useful when considering operational decisions because : ? it specifies the roles and responsibilities of each member of the supply chain and ? the desired outcome of each process
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GLOBAL
Push/Pull View of Supply Chain Processes:
• In Pull process, execution is initiated in response to a customer order.
• At the time of execution of a pull process, customer demand is known with certainty.
• Pull process is also referred to as speculative process. • In Push process, execution is initiated in anticipation of customer orders • At the time of push process, demand is not known and will be forecast. • Push process is also referred to as speculative process.
It is very useful while considering strategic decisions relating to supply chain design .
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GLOBAL
Push/Pull Processes: DELL Example
Pull Process
Customer Order and Manufacturing Cycle Procurement Cycle
Arrival of Customer Order
Push Process
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GLOBAL
SUPPLY CHAIN MACRO PROCESSES
• All supply chain processes in a firm can be classified into the following three
macro processes:
? Customer Relationship Management (CRM): All processes that focus on the interface between the firm and its customers ? Internal Supply Chain Management (ISCM): All processes that are internal to the firm ? Supplier Relationship Management (SRM): All processes that focus on the interface between the firm and its suppliers. Integration between the three macro processes is crucial for successful supply chain management
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SUPPLY CHAIN MACRO PROCESSES
SRM • Source • Negotiate • Buy • Design Collaboration
ISCM • Strategic Planning • Demand Planning • Supply Planning • Fulfillment • Field Service
CRM • Market • Sell • Call Center • Order Management
• Supply Collaboration
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IMPORTANCE OF SUPPLY CHAIN FLOWS:
• Supply chain decisions play a significant role in the success or failure of a firm
• Dell became a market leader in the PC segment due to it’s efficient supply chain,
though it’s product is not very different from it’s competition. Vice versa, the competition lost to Dell not for it’s product superiority. • Ford and GM lost to Toyota because of Toyota’s superior supply chain practices and not due to superiority of Toyota vehicles. • Similarly with Walmart and it’s competition.
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doc_108994501.pptx
the basics of supply chain including, what is supply chain, emergence of supply chain, difficulties and challenges of SCM, optimization of SCM, issues in supply chain management, supply chain planning and operations,
Basics of Supply Chain
1
GLOBAL
What is Supply Chain? • A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. • Supply chain consists of all the activities involved in Order Fulfillment process • A typical supply chain consists of ? Raw Material / Component Suppliers ? Transporters ? Warehouses ? Manufacturers ? Retailers/Wholesalers ? Customers
2 2
GLOBAL
What is Supply Chain? • Supply chain activities begin with a customer order and end when a satisfied customer has paid for the purchase. Traditional Supply Chain Stages
Manufacturing Plant
Supplier
Distributor
Retailer
Customer
3 3
GLOBAL
Emergence of Supply Chain
•In the 1980s companies discovered new manufacturing technologies and strategies that allowed them to reduce costs and compete better in different markets. •Strategies such as lean manufacturing, TQM became very popular and heavy investments have been made in these areas. •In the last few years, it has become clear that many companies have reduced manufacturing costs as much as is practically possible. •Companies are discovering that effective supply chain management is the next frontier to increase profit and market share.
4 4
GLOBAL
Emergence of Supply Chain
•Firms are their supply chain performance by deploying different strategies like: ? Strategic Partnering: ? Procter & Gamble estimates that it saved $ 65 million in an 18 month supply chain initiative in late 1990s. ?The essence of the approach lies in manufacturers and suppliers working closely together, jointly creating business plans to eliminate wasteful practices across the entire supply chain. ? Centralized Warehousing: ? National Semiconductor reduced distribution costs by 2.5%, decreased delivery time by 47% and increased sales by 34% by closing 6 warehouses around the world and airfreighting from new centralized distribution center in Singapore. ?Though this increased the transportation costs, this was offset by a reduction in inventory and warehouse costs
5 5
GLOBAL
Emergence of Supply Chain
• Asset Sharing: ? Nabisco Inc, deliver 500 types of cookies and more than 10,000 candies to over 80,000 buyers and spends more than $200 million a year in transportation expenses. ?Manu trucks carry load which are only half-full. ?The company is pioneering an collaborative logistics efforts, where it can share trucks and warehouse space with other companies in order to lower logistics costs. ?In a pilot program, the company shared warehouses and trucks with 25 other manufacturers and realized significant savings • Cross-Docking: ? In cross-docking, goods that are delivered to warehouse are directly shipped to stores / customer without sitting in the inventory. ?Wal-mart uses this principle for a large variety of their merchandise to reduce costs and offer everyday low prices to their customers.
6 6
GLOBAL
• Global Optimization ? Process of finding the best system-wide strategy is known as global Optimization ? It is very challenging to optimize the whole system in terms of costs and service levels
Difficulties / Challenges in SCM
• Managing Uncertainty:
? Uncertainty is inherent in any supply chain (Ex; Customer Demand, Travel times, Breakdown etc)
? Supply chains need to be designed to eliminate
as much uncertainty as possible and deal effectively with the uncertainty that remains
7 7
GLOBAL
GLOBAL OPTIMIZATION Complexity:
•Supply chain is a complex network •Generally facilities are dispersed across the country or across the globe •Supply chain activities are typically done by different departments in the company rather than a single department •Inefficiency in any of the activities within the supply chain reduces the efficiency of the whole system
Conflicting objectives within Supply chain Players:
• Many a time different players in the supply chain will have conflicting objectives: ? Suppliers want manufacturers to order in large quantities. But manufacturers do not want to take the risk of large inventory and meet the changing demand of the product. Hence they would like the suppliers to product in small batches at lowest cost.
8 8
GLOBAL
GLOBAL OPTIMIZATION Conflicting objectives within Supply chain Players:
• Transportation costs are reduced if the goods are transported in bulk but it increases the inventory carrying costs and warehouse costs.
Dynamic Relationship between different players:
• Supply Chain relationships changes over time. • As customers’ power increases, there is increased pressure places on manufacturers and suppliers to produce customized products. This generally increase the production costs
System Variations over time and other parameters:
• Even if the overall demand is forecasted correctly, micro-level weekly or monthly planning has to be done by taking into account factors like seasonal fluctuations, trends, advertising and
promotions, competitors’ pricing strategies etc
9 9
GLOBAL
MANAGING UNCERTAINTY Matching Supply and Demand:
•Managing supply and demand is difficult even at the macro level and the difficulty increases with each level of detailing. •In India, loss of sales due to stock-outs is in the range of 10-15% •In India, loss due to expiries ( Food products) are in the range of 3-4%
Demand forecasting is not the only source of uncertainty:
•Apart from demand, other sources or uncertainty are: ? Delivery Lead times ? Transportation lead time ? Accidents
10 10
GLOBAL
KEY ISSUES IN SUPPLY CHAIN MANAGEMENT
Distribution Network Configuration: •How should management select a set of warehouse locations and capacities? •How should the production levels of each product at each plant to be determined? •What should be the transportation and warehouse structure such that production, inventory and transport costs are minimized and service levels are optimized?
Inventory Control: • Why should the company hold inventory? • What should be the level of inventory and safety stock? • If the inventory is reduced by certain percentage, what would be the loss of sale? • What is the level of uncertainty in the customer demand? • What is the accuracy of the forecasting tool used to predict the customer demand?
11 11
GLOBAL
KEY ISSUES IN SUPPLY CHAIN MANAGEMENT
Supply Contracts: •In traditional supply chain strategies, each party in the chain focuses on its own profit even though that may affect the overall supply chain performance. •Can the supply contracts can also be used to replace the traditional supply chain strategy with one that optimizes the entire supply chain performance? •What is the impact of volume discount and revenue sharing contracts on supply chain performance? Distribution Strategies: •Which distribution strategy should a particular firm employ: cross-docking strategy, classical distribution strategy, direct customer delivery? •If the company want to follow cross-docking strategy, how many cross-docking points are necessary? What are the savings achieved using a cross-docking strategy? •How should a cross-docking strategy be implemented in practice?
12 12
GLOBAL
KEY ISSUES IN SUPPLY CHAIN MANAGEMENT
Supply Chain Integration and Strategic Partnering: • How can integration be achieved successfully? •What is the level of integration required within the company and the external partners? •What information should be shared with the partners? •Which type of partnership should be implemented for a given situation?
Outsourcing and Procurement Strategies: •Make or buy decisions: What components should be manufactured internally and what components should be purchased from the suppliers? •What are the risks associated with outsourcing and how can these risks be minimized? •What is the impact of internet on procurement strategies?
13 13
GLOBAL
KEY ISSUES IN SUPPLY CHAIN MANAGEMENT
Information Technology and Decision Support Systems: •Which data are significant for Supply Chain Management and which data can safely be ignored? •How should the data be analyzed and used? •Which type of ERP is suitable for which type of business? •What infrastructure is required both internally and between supply chain partners?
14 14
GLOBAL
Key issues impact either Global optimization or managing uncertainity or both
KEY ISSUES IN SUPPLY CHAIN MANAGEMENT
Key Issues Distribution Network Configuration Inventory Control Global Optimization X X Managing Uncertainity
Supply Contracts
Distribution Strategies Strategic Partnerships Outsourcing and Procurement Information Technology
15 15
X
X X X X X X
GLOBAL
Objective of a Supply Chain
•Objective of every supply chain is to maximize the overall value generated. •Value a supply chain generates is the difference between what the final product is worth to the customer and cost of Supply Chain. •Supply chain profitability is the total profit to be shared across all supply chain stages.
•Higher the supply chain profitability, the more successful the supply chain.
•Supply chain success should be measured in terms of overall profitability and based on profitability at individual stages. (Local optimization may lead to a reduction in profits)
16 16
GLOBAL
Decision Making / Decision Phases in Supply Chain
•Successful supply chain management requires many decisions relating to the flow of information, product and funds. •These decisions fall into three categories or phases depending on the frequency, time-
frame and decision making authority. They are
? Supply Chain Strategy or Design ? Supply Chain Planning ? Supply Chain Operation
17 17
GLOBAL
Decision Making / Decision Phases in Supply Chain
•Supply Chain Strategy or Design ? During this phase, a company decides how to structure the supply chain over the next several years. These decisions have a long-lasting effect on the firm. ? Typical decision include:
?Number, location and capacity of warehouses and manufacturing plants.
? Modes of Transportation along different shipping legs. ?Type of Information system. ?Company must ensure that the supply chain configuration supports its strategic objectives ? Strategy or Design decisions are made for the long –term and are costly to be modified on short notice.
? It’s important that companies take a long-term business view in this phase
18 18
GLOBAL
Decision Making / Decision Phases in Supply Chain
•Supply Chain Planning ? They are tactical level decisions, that are typically updated between once a quarter to once a year. ? Supply chain’s configuration determined in the strategic phase is fixed. This configuration establishes constraints within which the planning must be done.
? Planning includes decisions like: ? Which markets will be served from which locations ?Subcontracting ?Inventory policies ?Target production quantities at different locations ? Planning establishes parameters within which a supply chain will function over a specified period of time. ?In the planning phase, companies must include uncertainty in demand, exchange
rates and competition over this time horizon.
19 19
GLOBAL
Decision Making / Decision Phases in Supply Chain
•Supply Chain Operations ? Time horizon here is weekly or daily. ?At the operational level, supply chain configuration is fixed and planning policies are already defined.
?During this phase companies make decisions regarding individual customer
orders, scheduling, routing and truck-loading etc. ?Since operational decisions are made in the short-term, there is less uncertainty.
20 20
GLOBAL
Process View of a Supply Chain
• There are basically 2 different ways to view the processes performed in a supply chain: ? Cycle View: Processes in a supply chain are divided into a series of cycles, each performed at the interface between 2 successive stages of a supply chain
?Push/Pull View: Processes in supply chain are divided into two categories
depending on whether they are executed in response to a customer order or in anticipation of customer orders. Pull processes are initiated by customer order whereas push processes are initiated and performed in anticipation of customer orders
21 21
GLOBAL
Cycle View:
• There are 5 stages in the supply chain:
? Customer
? Retailer ?Distributor ?Manufacturer ?Supplier •All supply chain processes can be broken down into the four following process cycles: ? Customer Order Cycle
? Replenishment Cycle
? Manufacturing Cycle ? Procurement Cycle • Each cycle occurs at the interface between two successive stages of the supply chain.
22 22
GLOBAL
Supply Chain Process Cycles:
Customer Customer Order Cycle Replenishment Cycle Manufacturing Cycle Procurement Cycle
Retailer Distributor
Manufacturer
Supplier
23 23
GLOBAL
Cycle View (Contd…):
• Not every supply chain will have all four cycles clearly separated.
? In modern retail or manufacturing, one can find all the cycles. But company like
Dell directly sells to customers bypassing distributors and retailers. • Cycle view of the supply chain is very useful when considering operational decisions because it clearly specifies the roles and responsibilities of each member of the chain. •It is also useful when setting up information systems to support supply chain
operations, as process ownership and objectives are clearly defined.
24 24
GLOBAL
Customer Order Cycle:
• Customer Order cycle occurs at the customer/retailer interface and include all
processes directly involved in receiving and filling the customer’s order.
•If there is no distributor or retailer, this happens between the firm and the customers directly. •Retailer’s interaction with the customer starts when customer arrives or contact is initiated and ends when the customer receives the order. •Processes involved in the customer order cycle include: ? Customer Arrival
? Customer order Entry
? Customer Order Fulfillment ? Customer Order Receiving
25 25
GLOBAL
Customer Order Cycle:
Customer Arrival
Customer Order Receiving
Customer Order Entry
Customer Order Fulfillment
26 26
GLOBAL
Customer Order Cycle:
• Customer Arrival is the starting point for any supply chain. • The objective of the customer order cycle is to maximize the conversion of customer’s arrival into an order • At a supermarket, facilitating a customer order may involve managing customer flows and product displays •At a telemarketing center, it mean ensuring the customers do not have to wait on hold for too long •At a website, it may mean to ensure that customers quickly locate and view products that may interest them
Customer Order Entry:
• Customer order entry refers to customers informing the retailer what products they want to purchase and the retailer allocating products to customers. •At a website, order entry may involve customers informing the retailer of the items and quantities they selected
27 27
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Customer Order Fulfillment:
• During this process, the customer’s order is filled and sent to the customer. •The objective of this process is to get the correct orders to customers by the promised due dates at the lowest possible cost •At a supermarket, the customer performs this process. •At a mail order firm, this process generally include picking the order from inventory, packaging it and shipping it to the customer. •All inventories will need to be updated, which may result in the initiation of the replenishment cycle.
Customer Order Receiving
• During this process, the customer receives the order and takes ownership. • Records of this receipt may be updated and payment completed. • At a supermarket, receiving occurs at the checkout counter. • For a mail order firm, receiving occurs when the product is delivered to the customer.
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Replenishment Cycle:
• Replenishment cycle occurs at the retailer/distributor interface and include all processes involved in replenishing retailer inventory. •It is initiated when a retailer places an order to replenish inventories to meet future demand. •The replenishment cycle is similar to the customer order cycle except that the retailer is now the customer. •The objective is to replenish inventories at the retailer at the minimum cost while providing high product availability. •Processes involved in the replenishment cycle are : ? Retail Order Trigger ? Retail Order Entry ? Retail Order Fulfillment ? Retail Order receiving
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Replenishment Cycle:
Retail Order Trigger
Retail Order Receiving
Retail Order Entry
Retail Order Fulfillment
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Retail Order Trigger:
• Retailer may order based on the actual sales and expected sales. • The objective when setting replenishment order triggers is to maximize profitability by ensuring economies of scale and balancing product availability and the cost of holding inventory.
Retail Order Entry:
• Process is similar to the customer order entry. • The objective is that an order be entered accurately and conveyed quickly to all supply chain processes affected by the order
Retail Order Fulfillment:
• Process is similar to customer order entry. But a key difference is the size of each order.
• Customer orders tend to be much smaller than replenishment orders. • The objective is to get the replenishment order to the retailer on time while minimizing costs
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Retail Order Receiving:
• Once the replenishment order arrives at a retailer, the retailer must receive it physically and update all inventory records. • The objective of the process is to update inventories quickly and accurately. • The process involves: ? Product flow from the distributor to the retailer ? Information updates at the retailer ? Flow of funds from retailer to the distributor
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Manufacturing Cycle:
• Manufacturing cycle occurs at the distributor/manufacturer interface. • It includes all processes involved in replenishing distributor inventory • Manufacturing cycle is triggered by: ? Customer Orders (Ex: Dell) ? Replenishment orders from retailer or distributor (Wal-mart ordering from P & G) ? Forecast of customer demand and current product availability. • Processes involved in manufacturing cycle are: ? Order Arrival ? Production scheduling ? Manufacturing and Shipping ? Receiving
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Manufacturing Cycle:
Order Arrival
Receiving
Production Scheduling
Manufacturing and Shipping
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Order Arrival:
• During this Process, a finished-goods warehouse or distributor places the order on the manufacturing plant. • The process is similar to the retail order in the replenishment cycle
Production Scheduling:
• The objective of the production scheduling process is to maximize the proportion of orders filled on time while keeping costs down. • During the production scheduling process, orders (or forecasted orders) are allocated to a production plane. • If there are multiple lines, the manufacturer must decide which products to allocate to each line.
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Manufacturing and Shipping:
• The objective of the manufacturing and shipping process is to create and ship the product by the committed date while meeting quality requirements and keeping costs down. • During the manufacturing phase, the manufacturer produces to the production schedule. • During the shipping phase, the product is shipped to the customer, retailer, distributor or finished-product warehouse.
Receiving:
• Similar to that of retail order receiving
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Procurement Cycle:
• Procurement cycle occur at the manufacturer/supplier interface. • It includes all processes necessary to ensure that materials are available for manufacturing to occur according to schedule. • During this cycle, the manufacturer orders components from suppliers that replenish the component inventories.
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Procurement Cycle:
Order based on manufacturer’s Production schedule or supplier’s stocking needs
Receiving at Manufacturer
Supplier Production Scheduling
Component manufacturing and shipping
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SUMMARY OF CYCLE VIEW:
• A cycle view of the supply chain clearly defines the processes involved and the owners
of each process
• It is very useful when considering operational decisions because : ? it specifies the roles and responsibilities of each member of the supply chain and ? the desired outcome of each process
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Push/Pull View of Supply Chain Processes:
• In Pull process, execution is initiated in response to a customer order.
• At the time of execution of a pull process, customer demand is known with certainty.
• Pull process is also referred to as speculative process. • In Push process, execution is initiated in anticipation of customer orders • At the time of push process, demand is not known and will be forecast. • Push process is also referred to as speculative process.
It is very useful while considering strategic decisions relating to supply chain design .
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Push/Pull Processes: DELL Example
Pull Process
Customer Order and Manufacturing Cycle Procurement Cycle
Arrival of Customer Order
Push Process
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SUPPLY CHAIN MACRO PROCESSES
• All supply chain processes in a firm can be classified into the following three
macro processes:
? Customer Relationship Management (CRM): All processes that focus on the interface between the firm and its customers ? Internal Supply Chain Management (ISCM): All processes that are internal to the firm ? Supplier Relationship Management (SRM): All processes that focus on the interface between the firm and its suppliers. Integration between the three macro processes is crucial for successful supply chain management
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SUPPLY CHAIN MACRO PROCESSES
SRM • Source • Negotiate • Buy • Design Collaboration
ISCM • Strategic Planning • Demand Planning • Supply Planning • Fulfillment • Field Service
CRM • Market • Sell • Call Center • Order Management
• Supply Collaboration
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IMPORTANCE OF SUPPLY CHAIN FLOWS:
• Supply chain decisions play a significant role in the success or failure of a firm
• Dell became a market leader in the PC segment due to it’s efficient supply chain,
though it’s product is not very different from it’s competition. Vice versa, the competition lost to Dell not for it’s product superiority. • Ford and GM lost to Toyota because of Toyota’s superior supply chain practices and not due to superiority of Toyota vehicles. • Similarly with Walmart and it’s competition.
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doc_108994501.pptx