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SUPPLY CHAIN MANAGEMENT What is a supply chain? ‘Supply Chain is essentially a global network used to deliver products and services from raw materials to end customers through an engineered flow of information, physical and cash.’ Supply chain consists of all stages involved directly or indirectly in fulfilling a customers request/ requirement. It includes not only the manufacturer and suppliers but also transporters, warehouses, retailers and customers themselves.
SUPPLY CHAIN MANAGEMENT - A typical Supply chain - A typical supply chain may involve many participants. But some orders may pass through only a few. Not all participants will be in all supply chains. It will depend on the needs of the customer and the roles of the participants fulfilling these needs. - The supply chain in reality looks like a web :-
SUPPLY CHAIN MANAGEMENT The three flows in a supply chain are: Product Information Money The core purpose of any supply chain is to satisfy customer needs and generating profits for itself. The objective of every chain is to maximize the overall value generated through – Faster and timely delivery Improved quality and services. Reduced cost
SUPPLY CHAIN MANAGEMENT The value generated by a supply chain = (Worth of the final product to the end customer) – (the effort spent by the supply chain in fulfilling the customer’s need). The strength of a supply chain is determined by its weakest link. So for an individual company, both upstream supplier network and the downstream distribution should be strong. All functions within an organisation contribute to the success or failure of a supply chain. These internal functions include the different processes used in transforming the inputs provided by its suppliers to outputs needed by its customers.
SUPPLY CHAIN MANAGEMENT Supply chain is a series of processes and flows between different supply chain stages. There are two ways to view the processes involved in a supply chain Cycle view Push/pull view. Cycle view: At the interface of each stage there is a cycle - Customer Retailer Distributor manufacturer Supplier 3 1 2 4
SUPPLY CHAIN MANAGEMENT Push/Pull View: In push processes the manufacturer anticipates the demand and produces to stock. So at the initiation of a push process the demand is not known. In this the finished good inventory carried by the manufacturer is high but the response time to execute the order is low. In pull processes the manufacturer initiates the execution only after he gets a firm order from the customer. The material dispatched immediately after the manufacturing is completed. In this case the finished good inventory carried is low but the order execution time is obviously higher.
SUPPLY CHAIN MANAGEMENT What is supply chain management? “SCM is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses and stores, so that merchandise is produced and distributed at right quantities, to the right locations, and to the right time, in order to minimize systemwide costs while satisfying service level requirements” - Simchi-levi, Kaminsky et all. All the facilities that effects the cost and contributes towards meeting the customer requirement are in the ambit of SCM. Total systemwide cost ( transportation/ distribution/ inventory/ WIP/ finished goods costs) in totality needs to be minimized. It integrates of all components in supply chain from strategic / tactical / operational point of view.
SUPPLY CHAIN MANAGEMENT In other words SCM is about the coordination of supply chain flows (product, information, money) across functions and across companies to achieve competitive advantage for individual companies in the supply chain and supply chain members collectively. Few characteristics of SCM to be noted are: SCM strategies are linked to other strategies of the company. It should be aligned to the overall strategy of the company. Development chain (new product introduction) impacts SC. Conflicting objectives of members within SCM needs to be resolved SCM is challenging due to the inbuilt uncertainties and risks in SC.
SUPPLY CHAIN MANAGEMENT What are the drivers of a supply chain? Drivers of supply chain : 1. inventory 2. Transportation 3. Facilities 4. Information A visual framework for structuring drivers: Competitive strategy Supply Chain Strategy Responsiveness Efficiency Supply chain structure Information Inventory Facilities Transportation Drivers
SUPPLY CHAIN MANAGEMENT Competitive strategy: It defines the set of customer needs the company seeks to satisfy through its products and services. It is the overall strategy of the company to gain competitive advantage over its competitors. Eg:- Wal-Mart seeks to provide high availability of a variety of reasonable quality products at low prices. For the execution of the company’s competitive strategy each function, such as Marketing, Manufacturing, Finance and Logistics, has its own strategies known as functional strategies.
SUPPLY CHAIN MANAGEMENT A Supply Chain Strategy: It specifies the way the following are done to fulfill its competitive strategy: procurement of Raw materials Transportation of materials to & from the company Manufacture of the product or operation to provide the service. Distribution of the product to the customer along with any follow-up service that may be required. Decisions regarding the Supply Chain drivers are part of Supply Chain Strategy. Supply Chain drivers are: Inventories, Transportation, Operating Facilities Information flows.
SUPPLY CHAIN MANAGEMENT Responsiveness of Supply Chain: This is the supply chain’s ability to respond to the following needs of the customer: Wide range of quantities demanded Short lead time Wide variety of products Highly innovative products High service level. Supply Chain efficiency : This indicates the cost of making and delivering a product to the customer. Responsiveness comes at a cost. Increasing responsiveness increases cost. So a ‘strategic fit’ between responsiveness and efficiency is to be struck.
SUPPLY CHAIN MANAGEMENT Supply Chain Structure: This is formed by the four drivers - Inventory, transportation, Facilities and Information. Inventory: This includes Raw material, WIP, Finished Goods within a supply chain. Increase in inventory leads to increase in Responsiveness but decreases Efficiency. Transportation: This means moving of material/ inventory from point to point. Quicker mode ( Air vs Road/Rail) increases Responsiveness but decreases Efficiency. Facilities: These are created to facilitate operations like Production sites, storage sites. More number warehouses increases Responsiveness but decreases Efficiency. Information: This includes data and analysis regarding the customers or the other three drivers of the supply chain.
SUPPLY CHAIN MANAGEMENT Make or Buy Decision The decision is related to the determination of whether it is more advantageous to make a particular item in-house, or to buy it from a supplier The decision involves both qualitative and quantitative factors. The buy side of the decision also is referred to as ‘outsourcing’. The question is, “Is it in the organization’s best interests to continue to (or start to) perform the activity itself using its own people, process expertise, and technology or to ‘buy’ the activity from the service provider marketplace?”
SUPPLY CHAIN MANAGEMENT Following aspects need to be considered for Make or Buy decisions : Cost – Is it cheaper to buy than make? Capacity – When in-house capacity is not enough outsourcing becomes inevitable.– Items which have constant and steady demand are preferably made in-house. – maintaining a level workforce is desirable. Quality – Controlling the quality through in-house production considered easier. But good vendor management system can be equally effective. Speed – Outsourcing can often render speed. Smaller manufacturer may be more flexible. Number of suppliers can be increased if speed is required. Reliability: Vendors should be reliable both in terms of timely delivery and quality. QA system needs checking. Expertise – Organizations do not want to share expertise involved with certain critical items. Such items are preferably made in-house.
SUPPLY CHAIN MANAGEMENT In recent years there has been a greater trend towards more and more buying from outside vendors and focusing on certain core activities in-house. In such a scenario the importance of SCM further increases because supplier’s performance is likely to have an even greater impact on delivery and quality. The trend towards outsourcing has been driven primarily by the following factors: Cost Core Vs non-core activities Managing capacity expansion (avoiding investing in non-core activities) Strategic restructuring ( done during future expansion and for implementing market penetration strategies)