Introduction to supply chain management


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Introduction to supply chain management

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Introduction to supply chain management

  1. 1. 1. Introduction to supply chain managementWhat is supply chain ?It consists of all parties involved directly orindirectly in fulfilling a customers requestDefine supply chain“a supply chain is a network of facilities &distribution options that performs the functionsof procurement of materials transformation ofthese materials into intermediate & finishedproducts & distribution of these finished productsto customers
  2. 2. Meaning of supply chain managementDefinition of SCM:It is the management of a network of all business processes and activities involving procurement of raw materials, manufacturing and distribution management of Finished Goods.SCM is also called the art of management of providing the Right Product, At the Right Time, Right Place and at the Right Cost to the Customer.
  3. 3. Other definition of SCM• Oliver and Webber (1982) – SCM covers the flow of goods from supplier through manufacturing and distribution channels to end user.• Ayers (2000) – SCM is the design, maintenance and operation of supply chain processes for satisfaction of end users.• Ellram (1991) – An integrative approach to dealing with the planning and control of the materials flow from suppliers to end users.• Sunil Chopra and Peter Meindl (2001) – SCM involves the management of flows between and among stages in a supply chain to maximize total profitability.
  4. 4. Objectives of supply chainEfficient supply chain1. To maximize overall value generated2. To look for Sources of Revenue and Cost3. Improving the visibility of the demand4. Improving the quality5. Minimizing the time6. Reduces the transportation cost7. Reduces warehousing cost8. Expanding width/depth of distribution9. Product Life cycle support10. Rationalize supplier base11. Service orientation
  5. 5. DECISION PHASES IN SUPPLY CHAIN MANAGEMENT• successful scm requires many decisions relating to the flow of information, product,& funds• These decision falls into 3 categories/phases depending on the frequency of each decisions & timeframe1. Supply chain strategy or design2. Supply chain planning3. Supply chain operation
  6. 6. DECISION PHASES IN SUPPLY CHAIN MANAGEMENTSupply chain strategy or design:During this phase , A company decides how to structure the supply chain over the next several years. it decides the supply chain configuration will be, how resources will be allocated Decision includes whether to perform or outsource functions Decisions regards to warehousing facilities & modes of the transportation & types of information utilized Decision regarding products to be manufactured or stored at various location
  7. 7. DECISION PHASES IN SUPPLY CHAIN MANAGEMENT Supply chain planningIn this phase decision includes• Definition of a set of policies that govern short-term operations• Starts with a forecast of demand in the coming year• The inventory policies to be followed• Timing & size of marketing promotion• The subcontracting of manufacturing• The goal of planning to maximize supply chain surplus• In this phase, companies must include uncertainty in demands, exchange rate & competition
  8. 8. Supply Chain Operation• Time horizon is weekly or daily• Decisions regarding individual customer orders• Supply chain configuration is fixed and operating policies are determined• Goal is to implement the operating policies as effectively as possible• Allocate orders to inventory or production, set order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders Much less uncertainty (short time horizon)
  9. 9. Process view of supply chain• Cycle view: processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages• Push/pull view:processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull)or in anticipation of a customer order (push)
  10. 10. Cycle View of Supply Chains Customer Customer Order Cycle Retailer Replenishment Cycle Distributor Manufacturing Cycle Manufacturer Procurement Cycle Supplier 1-10
  11. 11. Cycle View of a Supply Chain• Each cycle occurs at the interface between two successive stages• Customer order cycle (customer-retailer)• Replenishment cycle (retailer-distributor)• Manufacturing cycle (distributor-manufacturer)• Procurement cycle (manufacturer-supplier)• Cycle view clearly defines processes involved and the owners of each process. Specifies the roles and responsibilities of each member and the desired outcome of each process. 1-11
  12. 12. Push/Pull View of Supply Chains Procurement, Customer Order Manufacturing and Cycle Replenishment cycles PUSH PROCESSES PULL PROCESSES Customer Order Arrives Push-Pull boundary
  13. 13. Push/Pull View of Supply Chain ProcessesSupply chain processes fall into one of twocategories depending on the timing of theirexecution relative to customer demandPull:In this execution is initiated in response to acustomer order (reactive)It operate in an environment in whichcustomer demand is knownTherefore, at time of execution of a pullprocess ,demand is known with certainty
  14. 14. • Push:In this execution is initiated in anticipation of customer orders (speculative or forecast)In this execution process ,customer demand is not yet known & must be forecast• Push/pull boundary separates push processes from pull processes• The relative proportion of push and pull processes can have an impact on supply chain performance
  15. 15. Push/Pull View of Supply ChainsProcurement, Customer OrderManufacturing and CycleReplenishment cycles PUSH PROCESSES PULL PROCESSES Customer Order Arrives
  16. 16. Supply Chain Management [SCM] Process View of a Supply Chain: Push – Pull View LL Bean DELL PULL PULL Process Process Customer Order Cycle Cust Order & Mfrg Customer order arrives CycleRepl & MfrgCycle Customer order arrives Procurement Procurement Cycle Cycle PUSH PUSH Process Process
  17. 17. Pull PushExecution initiated in response to a Execution initiated in anticipation ofcustomer order customer orderAt time execution of pull, customer At time execution of pull, customerdemand is known with certainty demand is not known and must be forecastedIts also called as reactive process It is called as speculative process
  18. 18. Competitive/supply chain strategyCompetitive strategy: defines the set of customer needs a firm seeks to satisfy through its products andservicesProduct development strategy:specifies the portfolio of new products that the company will try to developMarketing and sales strategy: specifies how the market will be segmented andproduct positioned, priced, and promotedSupply chain strategy: determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important
  19. 19. Competitive & supply chain strategiesA companys competitive strategy defines, relative to itscompetitors, the set of customer needs that it seeks tosatisfy through its products & servicesSupply chain strategyIt specifies what the operations, distribution, & servicefunctions ,whether performed in house or outsourced.This strategy determinesthe nature of procurement of rawmaterials, transportation of materials ,manufacture of the product & distribution of the productto customer, along with any follow up service
  20. 20. Achieving strategic fit• Introduction• How is strategic fit achieved?• Other issues affecting strategic fit Strategic fit: – Competitive and supply chain strategies have the same goals or aligned goals – In other words strategic fit require that a firm achieve balance between responsiveness& efficiency in its supply chain which meets the needs of companys competitive strategy• A company may fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy• Example of strategic fit -- Dell
  21. 21. How is Strategic Fit Achieved?• Step 1: Understanding the customer and supply chain uncertainty• Step 2: Understanding the supply chain• Step 3: Achieving strategic fit
  22. 22. How is Strategic Fit Achieved?Step 1: Understanding the Customer and Supply Chain UncertaintyIdentify the needs of the customer segment being servedQuantity of product needed in each lotResponse time customers will tolerateVariety of products neededService level requiredPrice of the productDesired rate of innovation in the product
  23. 23. Demand uncertainty & Implied Demand UncertaintyDemand uncertainty reflects the uncertainty of customer demand for product.Implied demand uncertainty is the demand uncertainty due to the portion of demand that supply chain is targeting ,not the entire demand
  24. 24. Impact of Customer Needs on Implied Demand UncertaintyCustomer Need Causes implied demand uncertainty to increase because …Range of quantity increases Wider range of quantity implies greater variance in demandLead time decreases Less time to react to ordersVariety of products required Demand per product becomesincreases more disaggregatedNumber of channels increases Total customer demand is now disaggregated over more channelsRate of innovation increases New products tend to have more uncertain demandRequired service level increases Firm now has to handle unusual surges in demand 2-25
  25. 25. Levels of Implied Demand UncertaintyPredictable Predictable supply and uncertain Highly uncertainsupply and demand or uncertain supply and supply and demand demand predictable demand or somewhat uncertain supply and demand Salt at a An existing A newsupermarket automobile communication model device Figure 2.2: The Implied Uncertainty (Demand and Supply) Spectrum 2-26
  26. 26. Step 2: Understanding the Supply Chain• How does the firm best meet demand?• Dimension describing the supply chain is supply chain responsiveness• Supply chain responsiveness -- ability to – respond to wide ranges of quantities demanded – meet short lead times – handle a large variety of products – build highly innovative products – meet a very high service level – Handle supply uncertainties
  27. 27. • achieving responsiveness however comes at cost• Supply chain efficiency: cost of making and delivering the product to the customer• Increase in cost lower efficiency.• Increasing responsiveness results in higher costs that lower efficiency• Second step to achieving strategic fit is to map the supply chain on the responsiveness spectrum
  28. 28. Understanding the Supply Chain: Cost- Responsiveness Efficient Frontier Responsiveness High Low Cost High Low 2-29
  29. 29. Step 3:achieving strategic fitAfter mapping level of implied uncertainty &understanding supply chain position onresponsiveness spectrum,The third & final step is to ensure that thedegree of supply chain responsiveness isconsistent with implied uncertainty,The goal is to target high responsiveness fora supply chain facing high implied uncertainty,&high efficiency for a supply chain facing lowimplied uncertainty
  30. 30. Achieving Strategic Fit Shown on the Uncertainty/Responsiveness Map (Fig. 2.5) Responsive supply chainResponsiveness spectrumEfficient supply chain Certain Implied Uncertain demand uncertainty demand spectrum 2-31
  31. 31. Comparison of Efficient and Responsive Supply Chains Efficient ResponsivePrimary goal Lowest cost Quick responseProduct design strategy Min product cost Modularity to allow postponementPricing strategy Lower margins Higher marginsMfg strategy High utilization Capacity flexibilityInventory strategy Minimize inventory Buffer inventoryLead time strategy Reduce but not at expense Aggressively reduce even if of greater cost costs are significantSupplier selection strategy Cost and low quality Speed, flexibility, qualityTransportation strategy Greater reliance on low cost Greater reliance on modes responsive (fast) modes 2-32
  32. 32. Other Issues Affecting Strategic FitMultiple products and customer segmentsProduct life cycleCompetitive changes over time
  33. 33. Multiple Products and Customer Segments• Firms sell different products to different customer segments (with different implied demand uncertainty)• The supply chain has to be able to balance efficiency and responsiveness given its portfolio of products and customer segments• Two approaches: – Different supply chains – Tailor supply chain to best meet the needs of each product’s demand 2-34
  34. 34. Product Life Cycle• The demand characteristics of a product and the needs of a customer segment change as a product goes through its life cycle• Supply chain strategy must evolve throughout the life cycle• Early: uncertain demand, high margins (time is important), product availability is most important, cost is secondary• Late: predictable demand, lower margins, price is important 2-35
  35. 35. Competitive Changes Over Time• Competitive pressures can change over time• More competitors may result in an increased emphasis on variety at a reasonable price• The Internet makes it easier to offer a wide variety of products• The supply chain must change to meet these changing competitive conditions 2-36
  36. 36. A Framework for Structuring Drivers Competitive Strategy Supply Chain StrategyEfficiency Responsiveness Supply chain structure Logistical Drivers Facilities Inventory Transportation Information Sourcing Pricing Cross Functional Drivers 3-37
  37. 37. Drivers of Supply Chain Performance• Facilities – places where inventory is stored, assembled, or fabricated – production sites and storage sites• Inventory – raw materials, WIP, finished goods within a supply chain – inventory policies• Transportation – moving inventory from point to point in a supply chain – combinations of transportation modes and routes• Information – data and analysis regarding inventory, transportation, facilities throughout the supply chain – potentially the biggest driver of supply chain performance• Sourcing – functions a firm performs and functions that are outsourced• Pricing – Price associated with goods and services provided by a firm to the supply chain 3-38