Week 1 building blocks of scm

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Supply chain building blocks

Supply chain building blocks

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  • 1. Supply Chain Management & its Building Blocks International Business Liam Fassam
  • 2. Composition of the Supply ChainThe supply chain is a series of building blocks, ofwhich no one block can stand alone:• What are the process views of a supply chain?• What are the building blocks of a supply chain?• Are all the building blocks suited to all organisations? International Business - Supply chain management & its building blocks - Liam Fassam
  • 3. The process viewsWhat are the process views of a supply chain?Chopra and Meindl (2003) describe the twoviews, viz.:• Cycle view: The processes in a supply chain consist of a series of cycles, each performed at the interface between two successive stages.• Push/pull view: Pull processes are initiated by a customer order and push processes are initiated and performed on the forecast of customer orders. International Business - Supply chain management & its building blocks - Liam Fassam
  • 4. Cycle viewCycle viewThe cycle view of a supply chain consists ofseveral stages of process cycles and form thecomponents of MRPII (manufacturing resourceplanning) or ERP(enterprise resource planning)systems and are shown in a simplified form asthree process cycles. International Business - Supply chain management & its building blocks - Liam Fassam
  • 5. Cycle view cont.• The demand cycle is the cycle of time covering from when a customer buys or orders from a retailer or wholesaler. The demand cycle can also be based on the forecast of demand.• The planning and procurement cycle covers short- and longer-term requirements. The demand of the product and its components (bill of materials) are compared with the inventory and capacity and the replenishment requirements are planned. Planners will decide what to buy and what to make. This make or buy decision process also applies to a service organisation leading to either in-house or outsourced services. International Business - Supply chain management & its building blocks - Liam Fassam
  • 6. Push processOrders arrive at or after the demand cycle butalways before the planning and procurement cycleand process is activated by a forecast or demandplan. International Business - Supply chain management & its building blocks - Liam Fassam
  • 7. Pull processA pull process is activated in response to aconfirmed order from a customer. This includesmake to order or a just-in-time (JIT)manufacturing process. International Business - Supply chain management & its building blocks - Liam Fassam
  • 8. Canadian business example• What factors despite having a full warehouse can cause poor order fulfilment?• What are the cost issues with the business case?• Are there any risks with deploying this type of strategy (Pull)? International Business - Supply chain management & its building blocks - Liam Fassam
  • 9. Total Supply management• From the pull system used in the Canadian company one might be tempted to believe that forecasting and making to stock is inefficient and old fashioned.• Some products are best processed in batches and stocked in bulk (e.g. food processing and cool stores).• It is therefore important that a ‘total supply chain management approach’ is applied and all the building blocks of the supply chain are examined. International Business - Supply chain management & its building blocks - Liam Fassam
  • 10. Pulling the building blocks together• The synergy that results from the benefits contributed by all elements as a whole far exceeds the aggregate of benefits achieved for an individual elements. The integrated approach is truly more than the sum of its elements. If one concentrates exclusively on isolated areas, a false impression may be inevitable and inappropriate action taken. International Business - Supply chain management & its building blocks - Liam Fassam
  • 11. Indian folk tail• This ideal can be illustrated by the Indian folk tale of four blind men who were confronted with a new phenomenon, an elephant!• The first man, by touching its ear, thought that the elephant was a fan.• The second was hit by the elephant’s tail and concluded that it was a whip.• The third man bumped into a leg and thought it was a column.• The fourth on holding the trunk decided that it was an over- sized hose.• Each man, on the evidence he had, came to a logical conclusion, but all had made an -erroneous judgment by failing International Business Supply chain management & its building blocks - Liam to deduce that the total object was an elephant. Fassam
  • 12. Porters Value chain International Business - Supply chain management & its building blocks - Liam Fassam
  • 13. Supply Chain configuration1. Customer focus and demand2. Resource and capacity management3. Procurement and supplier focus4. Inventory management5. Operations management6. Distribution management International Business - Supply chain management & its building blocks - Liam Fassam
  • 14. Supply Chain integrationAnd three cross-functional integratingprocesses: 1. Systems and procedures 2. Sales and operations planning 3. Performance management International Business - Supply chain management & its building blocks - Liam Fassam
  • 15. Building blocks of the Supply chain International Business - Supply chain management & its building blocks - Liam Fassam
  • 16. Supply chain building blocks International Business - Supply chain management & its building blocks - Liam Fassam
  • 17. Customer focus & demand• The basis of all supply chain planning and decisions is underpinned by the forecast of future demand.• A supply chain process cannot exist without the knowledge and planning for future.• All push processes are executed in anticipation of customer demand and all pull processes are carried out in response to customer demand.• It is a misconception that demand forecast is not required in a pull or JIT process. International Business - Supply chain management & its building blocks - Liam Fassam
  • 18. Resource & Capacity ManagementA primary objective of supply chainmanagement is to optimise supply capacity tofulfill demand in time.• Resources are not infinite• Planning needs to match manufacturing output ability• ERP or MRP systems are utilised to create a planning horizon, exploding orders and calculating lead time and resource. International Business - Supply chain management & its building blocks - Liam Fassam
  • 19. Procurement & supplier focusThe optimisation of internal capacity can besupplemented by buying in external capacityand resources.• Outsource of non essential functions• 60-90% of cost of goods (CoG) are attributed to bought in resources• Purchasing coupled to SCM strategies such as lean and Value chain, through sharing information can dramatically lower this figure International Business - Supply chain management & its building blocks - Liam Fassam
  • 20. Procurement & Supplier focusRisks?• Technical capability: The product or service knowledge to deliver sustainable quality.• Operations capability: The process knowledge to ensure effective supply.• Financial capability: The financial strength to fund the business.• Managerial capability: The management talent to develop future business. International Business - Supply chain management & its building blocks - Liam Fassam
  • 21. Inventory managementThe purpose of inventories or stocks is to bufferagainst the variations in demand and supply.• It is viewed as a negative due to costs involved with storage and obsolescence• High inventory can increase customer service, but adds increased SCM risk• Optimise inventories by understanding cycle and safety stocks (lecture 3) International Business - Supply chain management & its building blocks - Liam Fassam
  • 22. Operations ManagementIn a supply chain operations management is thebuilding block that makes things happen.The three P’s• People• Process• Place & technology International Business - Supply chain management & its building blocks - Liam Fassam
  • 23. Distribution managementMain components:• Distribution strategy• Warehouse operations• Stock management• Transport planningTwo building blocks:• Physical distribution• Strategic alliances International Business - Supply chain management & its building blocks - Liam Fassam
  • 24. Systems & proceduresSystems and procedures are essential componentsto integrate the building block configurations of thetotal supply chain. There are three majorcategoriesof systems and procedures:• External regulatory and internal quality standards• Financial and accounting procedures• Information and communication technology International Business - Supply chain management & its building blocks - Liam Fassam
  • 25. Sales & Operational planningS&OP is a cross-functional management reviewprocess to integrate the activities of the totalsupply chain.• Historically S&OP is linked to MRPII processes• Production planning reviewed on monthly basis• Without cross functional communication this is an ineffective process International Business - Supply chain management & its building blocks - Liam Fassam
  • 26. Performance management• Performance management acts both as a driving force of improvement and a fact-based integrating agent to support the planning, operations and review processes.• The foundation of performance management is rooted to quality management principles supported by key performance indicators. International Business - Supply chain management & its building blocks - Liam Fassam
  • 27. Quality definition• Basu (2004) defines quality with three dimensions, such as design quality (specification), process quality (conformance) and organization quality (sustainability). When an organization develops and defines its quality strategy, it is important to share a common definition of quality and each department within a company can work towards a common objective. International Business - Supply chain management & its building blocks - Liam Fassam
  • 28. Which company fits the profile? International Business - Supply chain management & its building blocks - Liam Fassam
  • 29. Closing thoughtMany elements make up the Supply chain building blocks.Understanding the value chain ands it interceding elementswill ensure good SCM practice is employed.Looking at one metric is fool hardy, one must understand allelements of the supply chain configuration to be able tomake informed decisions relating to trade offs to give overallbest cost supply chain operation. International Business - Supply chain management & its building blocks - Liam Fassam