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45417181 091218-advanced-scm

  1. 1. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Advanced Supply Chain ManagementSurath PralongsilDecember 2009Value Chain ManagementSupply Chain ManagementLogistics Management
  2. 2. Supply Chain Management / Surath Pralongsil 2Outline of today09:00 – 09:15 (15 min) Overview of supply chain management09:15 – 09:45 (30 min) Strategic supply chain management09:45 – 11:30 (1hr 45 min) Supply chain simulation (beer game) + Break11:30 – 12:30 (60 min) Integrated supply chain planning12:30 – 13:30 (60 min) Lunch13:30 – 14:00 (30 min) Supply chain collaboration & efficientconsumer response (ECR)14:00 – 15:30 (1hr 30 min) - Synchronized production/supply15:30 – 15:45 (15 min) Break15:45 – 16:00 (15 min) - Vendor-managed inventory (VMI)16:00 – 16:45 (45 min) IT in supply chain management16:45 – 17:00 (15 min) Wrap-up
  3. 3. Supply Chain Management / Surath Pralongsil 3Objective of today• To understand the concept, process and benefit of SCM in business,and utilize SCM in his/her own work.• To be aware of the real applications of SCM in SCCC context andother industries.• To be able to work from a holistic point of view (looking at big picture)• To promote collaboration within and across organization, andunderstand supply chain partners capability
  4. 4. Supply Chain Management / Surath Pralongsil 4Contents of Supply Chain Management• Overview of Supply Chain Management• Value Management• Customer Value• Value-Based Pricing• Customer Relationship Management• Strategic Supply Chain Management• Supply Chain Network Design andOptimization• Integrated Supply Chain Planning• Sales & Operation Planning (S&OP)• Enabling Technology• Outsourcing• Inventory Management• Warehouse Management• Transport Management• International Logistics Management• Reverse Logistics• Supply Chain Costing / Activity-BasedCosting / Cost-To-Serve• Supply Chain Collaboration• Efficient Consumer Response (ECR)• Continuous Replenishment andSynchronized Production / Supply• Vendor-Managed Inventory (VMI)• Strategic Sourcing and Procurement• Supplier Relationship Management• Supply Chain Performance Management• Just-in-time• Lean and Six Sigma• Green Supply Chain• Supply Chain Traceability and Security• The Future Supply ChainSupplementary• Supply-Chain Operations Reference-model (SCOR)• Supply Chain/Logistics Scorecard• Supply Chain Simulation: Beer Game• Product Code Classification• ABC Analysis• Best Practice
  5. 5. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Overview of Supply Chain Management
  6. 6. Supply Chain Management / Surath Pralongsil 6Supply ChainManufacturer Retailer ConsumerDistributor/WholesalerSupplierInformation Flow and Financial FlowInformation Flow and Financial FlowPhysical FlowPhysical FlowProcess and PeopleProcess and People
  7. 7. Supply Chain Management / Surath Pralongsil 7Supply ChainAll interactions, from order entry through paid invoices, end to end from yoursupplier’s supplier to customer’s customer… scope of SCM as SCC determined
  8. 8. Supply Chain Management / Surath Pralongsil 8Value Chain• Michael Porter of Harvard university said that “A business is profitableif the value it creates exceeds the cost of performing the valueactivities. To gain a competitive advantage over its rivals, a companymust either perform these activities at a lower cost or perform them ina way that leads to differentiation and a premium price (more value).”MARGINMARGININBOUNDLOGISTICSOPERATIONS OUTBOUNDLOGISTICSMARKETING& SALESSERVICEPROCUREMENTFIRM INFRASTRUCTUREHUMAN RESOURCE MANAGEMENTTECHNOLOGY DEVELOPMENTPRIMARY ACTIVITESSUPPORTACTIVITIESMARGINMARGININBOUNDLOGISTICSOPERATIONS OUTBOUNDLOGISTICSMARKETING& SALESSERVICEPROCUREMENTFIRM INFRASTRUCTUREHUMAN RESOURCE MANAGEMENTTECHNOLOGY DEVELOPMENTPRIMARY ACTIVITESSUPPORTACTIVITIES
  9. 9. Supply Chain Management / Surath Pralongsil 9Value ChainFocus on how a business creates customer value by examining contributionsof different internal activities to that valueAllow better identification of a firm’s strengths and weaknesses since thebusiness is viewed as a processThe activities within the value chain are split into two sections:• Primary activitiesThese are activities associated with physical creation of the product,marketing activities, activities involved with the transfer to the buyer & after-sale support• Support activitiesThese activities provide support to the organization as a whole to keep itfunctioning & provide the infrastructure of the company
  10. 10. 10Supply Chain Management / Surath PralongsilHolcim Value ChainTransactionalMortarsReady - mixConcreteAsphaltConcreteProductsCementitiousMaterials(cement,mineralcomponents)Direct SalesInfrastructureCommercial /IndustrialBuildingHousingDemandSupplyBasic MaterialsProcessingDirect SalesAggregates(sand, gravel,stone, recycledaggregates)TradersWholesalersRetailersTradersWholesalersRetailersApplicationsApplications andConstruction FieldsEnd - usersGeneralContractorsCivilEngineeringChannelsTransformationalMasonsSelf - builders
  11. 11. 11Supply Chain Management / Surath PralongsilReady mixTransactionalBasic MaterialsProcessingSupplyEnd - usersChannelsTransformational- mixConcreteTradersWholesalersRetailersGeneralContractorsCivilEngineeringMasonsSelf - buildersProduct End-userAggregatesAsphaltMortarsReady MixConcreteConcreteProductCementitiousMaterials(cement,mineralcomponents)Channel / DistributionDemandConstructionFieldsInfrastructureCommercial /IndustrialBuildingHousingConstructionFieldModern TradeDirect SalesDirect SalesValue chain defines the scope, relating to SCCC corebusinessesSCCC-investing businessSource: adapted from Holcim Value ChainCo-ProcessingEnergyMineralComponentsSupplierR/M, SupplyCoreForwardIntegrationBackwardIntegrationVerticalIntegration
  12. 12. 12Supply Chain Management / Surath PralongsilSource: adapted from Holcim Value ChainCoreForwardIntegrationBackwardIntegrationmixTransactionalBasic MaterialsProcessing End - usersChannelsTransformational-ConcreteSCTWholesalersRetailersSekisui – SCGIndustrySCG – SekisuiSalesCivilEngineeringMasonsSelf - buildersProduct End-userCPACAggregate AsphaltTigerMortarCPAC• Roof tiles,• Ceramic floor / wall tile• Paving block• Light weight concreteblock• Gymsum boardChannel / DistributionCement ThaiHome martDirect SalesSCI EcoServiceSCTMineralComponentsSupplierR/M, SupplyRefractorySCG Value ChainGray CementWhite Cement
  13. 13. 13Supply Chain Management / Surath PralongsilCement flow total market 2006End userProducerTransformationalchannelContractor65%Contractor65%Transactionalchannel30.1 Mio t100%CPM18%CPM18%RMX26%RMX26%Agent20%Agent20%Directsales5%Bulk40%Bag60%Selfbuilder /Mini-contractor17%ConstructionfieldDrymortar1%Whole-saler48%Retailer38%Simple house28%Simple house28%Single house20%Single house20%Highrise6%Highrise6%Infrastructure20%Infrastructure20%Comm.11%Comm.11%Indust.6%Indust.6%Inst.1%Inst.1%Townhouse4%Townhouse4%Multist.<64%Multist.<64%
  14. 14. 14Supply Chain Management / Surath PralongsilValue creation* for SCCC’s key stakeholders from 2010 to 2013?Input factor (cost of all goods,materials and services purchased)Depreciation and amortizationBenefit to employees, government,shareholders and creditorsBenefit to shareholdersRetained in businessBenefit to employeesBenefit to governmentBenefit to creditors32%DividendEmployeeTax*Illustration
  15. 15. Supply Chain Management / Surath Pralongsil 15Value Added• Refers to the additional value created at a particular stage ofproduction or through branding and marketing. In modern neo-classical economics, especially in macroeconomics, it refers to thecontribution of the factors of production, i.e. land, labor and capitalgoods, to raising the value of a product and corresponds to theincomes received by the owners of these factors.• The enhancement added to a product or service by a company beforethe product is offered to customers.
  16. 16. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Overview of Supply Chain ManagementSupply Chain & Logistics
  17. 17. 17Logistics EvolutionLogistics EvolutionJourney of SCCC Logistics to“Logistics Solution Provider”TransportationDistributionIntegratedLogisticsSupply ChainManagementValueManagementSolutionProviderOutboundInboundWarehouseDispatchingPacking3rdand 4thLogisticsServiceProvider(LSP)ApplicationServiceProvider(ASP)ValueManagementCustomerPropositionNetworkSynchronize& OptimizeSupplyPlanningDemandPlanningOutboundInboundWarehouseOutboundInboundSource: Khun Nopporn Thepsithar, SCCC
  18. 18. Supply Chain Management / Surath Pralongsil 18Supply Chain and Logistics• “A position of enduring superiority over competitors in terms ofcustomer preference may be achieved through logistics.” (ProfessorMartin Christopher)• The prizes in today’s markets go only to those companies which arecapable of providing added value in ever-shortening time scales.”(Professor Martin Christopher)• “Nowadays, it’s supply chains that compete with supply chains, notcompanies with companies.” (Allan Waller, Price WaterhouseCoopers)
  19. 19. Supply Chain Management / Surath Pralongsil 19Supply Chain Management• the design, planning, execution, control, and monitoring of supplychain activities with the objective of creating value, building acompetitive infrastructure, leveraging logistics capability,synchronizing supply with demand and measuring performance.(Source: APICS)• “The goal of supply chain management is to link the marketplace, thedistribution network, the manufacturing process and the procurementactivity in such a way that customers are serviced at higher levels butat lower costs.” (Professor Martin Christopher)• “the management of upstream & downstream relationships withsuppliers & customers to deliver superior customer value at less costto the supply chain as a whole”• The word “Supply Chain” is not just about supply. It is about bothsupply and demand, better called “Integrated Supply ChainManagement”
  20. 20. Supply Chain Management / Surath Pralongsil 20Logistics Management• Is the means whereby the needs of Customers are satisfied throughthe co-ordination of the materials and information flows that extendfrom the market place, through the firm and its operations and beyondthat to suppliers. (Professor Martin Christopher)• Logistics is part of the supply chain process that plans, implements,and controls the efficient, effective forward and reverse flow andstorage of goods, services, and related information between the pointof origin and the point of consumption in order to meet customers’requirements. (The Council of Logistics Management)• Logistics is all about getting the right goods to the right place at theright time in the right quantity at the right quality at the right price.
  21. 21. Supply Chain Management / Surath Pralongsil 21Supply Chain Management v.s. Logistics• Logistics management involves the strategy & operations relating tothe movement of goods within the enterprise & with its immediatesuppliers & customers. Logistics management develops a plan for theflow of products & information through a business.• Supply chain management involves managing the relationshipsamong all members in the supply chain. Supply chain managementaims at coordinating the processes of all supply chain members, bothdownstream towards customers & upstream towards suppliers.Supply chain management is linked together with cross-companystrategies and processes• A company‘s Logistics strategy needs to be closely aligned with thesupply chain‘s overall strategy.
  22. 22. Supply Chain Management / Surath Pralongsil 22An Enterprise IntegrationPHASES Functional IntegrationPhase 1Phase 1BaselineBaselinePhase 3Phase 3InternalInternalIntegrationIntegrationPhase 2Phase 2FunctionalFunctionalIntegrationIntegrationPhase 4Phase 4ExternalExternalIntegrationIntegrationPurchasing Material Control Production Sales DistributionMaterial Management Manufacturing Management LogisticsMaterial Management Manufacturing Management LogisticsSuppliersInternal Supply ChainCustomers
  23. 23. Supply Chain Management / Surath Pralongsil 23Characteristics of Supply Chain EvolutionFragmentedPyramidIntegratedEnterpriseIntegratedSupply ChainValue Network /Virtual CompanyStrategyFunctionalintegrationDriven by cost andefficiencyCross-functional integrationDriven by customer satisfactionProcess ownersIntegrated applicationsProcess automationCross-functional integrationIntra-enterprise focusedLimited co-operation (within anenterprise)One teamEmpowered, self-directedteamsFlattened pyramidWe sell semi-customizedproducts.Which of our products would abunch of customers buy?Semi-customized products inneed of a market segment.Inter-enterpriseintegrationDriven by supply chainoptimizationCore competency, agility, opportunityDriven by change and uncertaintyPeople Subject matter experts Knowledge workers Knowledge workers with smart agentsTechnologyIndependent systemsIslands of automationElectronic commerce enabledScaleable cross-platformportableElectronic marketplace enabledPlug compatible and inter-operableProcessFunctional silosDepartment focusedCross-company integrationSupply-Chain focusedDynamic, end-to-end integrationOpportunity and value-add-focusedCultureAdversarial, mutualtrustI’ll do my job, you doyoursMutual truth and fullcooperation (extendedenterprise)One teamNeed-based, value-add cooperationWhat true value does everyone add?StructureHeavy command andcontrolPyramidPartnership / alliancePipelineVirtual / fungibleNetwork / WebProduct /ServiceWe sell products.What products can wemake?Mass-producedproducts in need of amarketWe offer semi-customizedsolutions.How can we offer best totalvalue to a customer segment?Fully optimized semi-customized solution in need ofa market nicheWe help our customer (s) to get thebest possible solution.What must we do to give the best totalsolution to this individual customer?Information-rich mass-customizedsolution configured for one customerSource: KPMG Transportation & Distribution
  24. 24. 24Source: McKinseySupply chain framework3. Production managementTranslate market requirements intoproduction requirements, andmanage the resulting constraints2. Forecast and demand managementEnsure appropriate supply at low costthrough accurate demand forecastingand efficient order management6. Supply chain integrationCreate integratedprocesses to facilitateinformation flow supportedby a supply chain focusedorganization5. Distribution managementEnsure reliable logisticsand optimal material flowin the outbound network0. Supply chain configuration7. Supply chain transformationEnsure sustainability and constant improvement in whole networkUnderstand market and network dynamics and configure network with optimal cost and flexibility1. Service-levelmanagementUnderstand cus-tomer requirementsand serve themaccordingly4. SupplymanagementEnsure reliablesupply and inte-grate with suppliers3254 16
  25. 25. Supply Chain Management / Surath Pralongsil 25Internal Supply Chain Management& Logistics ManagementSupply Chain ManagementFlow ManagementDistribution ManagementLogistics ManagementImport & ExportQuality controlSimulatewarehouse spaceand workloadSimulateTrucking PlanSimulateInternationalTransport PlanBreak down andconsolidate logisticalcostsCheck subcontractorinvoicesSC deployment resultanalysisBenchmarkingImportandexportorderTransferOrderTrack & trace(including Log Bookmonitoring in line withKPI definition,operational audit)ControlCheckSellSupply Chain Supply Chain ExecutionProductionOptimisation of Supply Chain ConfigurationSteer, plan andschedule warehouseoperation basing onwarehousing policyContract establishment and follow upLogistics project steeringInformation system requirementMulti product lines service requirements arbitrationDeploymentResources and investment planningCheck compliance with Service SpecificationJustification: Trade off service / CostsPerformance control(KPI definition andresult)Cost & BudgetcontrolSteeringofOperationStrategicSteeringDefine ServiceSpecificationSupply ChainPlanningPlan & scheduleproductionTacticalSteeringProposaloflogisticsalternatives(Project)Quality & 3PL AuditSteer, plan andscheduletransportoperation basingon truckingpolicySteer, plan andscheduleinternationaltransportoperation basingon transportpolicyPhysicalExecutionTransport OperationHandleClaimsWarehouseoperationsInvoiceproductsLocal InternationalNature&TypeofFunctionStorage Transport ProjectSource: Capgemini
  26. 26. Supply Chain Management / Surath Pralongsil 26Supply Chain Competence FrameworkA. StrategyB. PlanningC. Plant OperationsD. DistributionE. Human ResourcesF. Information TechnologyG. Capital ManagementH. PerformanceManagementA. Strategy1. Supply Chain Strategy Development2. Make vs Buy / Contract Manufacturing3. Network Design / Optimization /Rationalization4. Product Configuration / De-proliferation /Complexity ReductionB. Planning5. Forecasting6. Sales & Operation Planning7. Inventory Planning8. Supply Chain PlanningC. Plant Operations9. Production Optimization10.Maintenance Management11.QA / QCcD. Distribution12.Transportationi. Inboundii.Outbound13.Warehouse Management /Inventory ManagementE. Human Resources14.Organization Alignment15.Readiness to Change16.Professional Development /Training / Rewards andRecognitionF. Information Technology17.ArchitectureG. Capital Management18.Fixed Capital Managementi. Capital Planningii.Capital ProjectManagementH. Performance Management19.Integrated StrategicMeasurement20.Performance Dashboard21.Continuous ImprovementSource: A T Kearney
  27. 27. Supply Chain Management / Surath Pralongsil 27Top Down, Bottom UpEXECUTIONIdentificationStandardizationOptimizationOperationalOrders, Commitments,Asset TrackingTACTICALPlanning,Optimization,ArbitrationSTRATEGICStructure,Costs, PoliciesPHYSICALERPTACTICAL PLANNINGSTRATEGIC DIRECTION
  28. 28. Supply Chain Management / Surath Pralongsil 28Effective and Efficient Supply ChainKey factors:• Understanding end customer needs• Adopting effective supply chain strategies to meet end customerneeds• Integration of the members of the supply chain• Successfully tackling operational issues• Successfully handling the impact of internationalization on the supplychain• Managing the information systems & technology which hold thesupply chain together• Ensuring value for the customer provided by the supply chain
  29. 29. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Strategic Supply Chain Management
  30. 30. Supply Chain Management / Surath Pralongsil 30Supply Chain PhilosophyDemand SupplyLogistics: Cost and Service Trade-Off
  31. 31. Supply Chain Management / Surath Pralongsil 31Key Objectives of Supply Chain Management• Delivery of value• Responsiveness• Reliability
  32. 32. Supply Chain Management / Surath Pralongsil 32Supply Chain Strategy• a planning activity focused on the long-term decisions of the supplychain– The choice of products & services to offer to customers– The structure of the logistics network & the supply chain– The capabilities the supply chain will specialize in– The types of relationship between supplier & customers• Creating competitive advantage, which is sustainable over a longperiod & reliant on systems of capabilities rather than a singlecapability– Opportunities in global markets– The provision of tailored services for customers– Rapid communication with customers & suppliers– The need for time compression strategies in order to cope with shorterproduct life cycles
  33. 33. Supply Chain Management / Surath Pralongsil 33Competitive Advantage in Supply ChainManagement• Globalization• Integration– Internal Integration– External Integration– Capability Integration– Relationships• Time-based competition– Responsiveness– Reliability
  34. 34. Supply Chain Management / Surath Pralongsil 34Globalization• Organizations today have the opportunity to be global companiesregarding the world as a potential market or source of supply• Many companies are finding competitive advantage through cateringto the world market while coordinating dispersed procurement,manufacturing & logistics activities• Homogenous marketing concept– Borderless geography– No differentiation in language, look, customs, tastes, value etc.– No time limitation
  35. 35. Supply Chain Management / Surath Pralongsil 35Going GlobalProactive• Additional resources• Taxes• Lowered costs• Economies of Scales• Incentives• Synergy• Market extension• Power and prestige• Exploitation of firm-specificadvantages• Protect home market throughoffending competitor’s marketReactive• Trade barriers• International customers• International competitions• Regulations
  36. 36. Supply Chain Management / Surath Pralongsil 36Integration• Supply chain members need to be integrated in terms of theirprocesses, activities & systems• Integration is vital for companies operating internationally• Advantages of integration include improved quality, innovationsharing, reduced costs, & improved scheduling of production &delivery• Levels of integration:– Internal Integration– External Integration– Capability Integration– Relationships
  37. 37. Supply Chain Management / Surath Pralongsil 37An Enterprise IntegrationPHASES Functional IntegrationPhase 1Phase 1BaselineBaselinePhase 3Phase 3InternalInternalIntegrationIntegrationPhase 2Phase 2FunctionalFunctionalIntegrationIntegrationPhase 4Phase 4ExternalExternalIntegrationIntegrationPurchasing Material Control Production Sales DistributionMaterial Management Manufacturing Management LogisticsMaterial Management Manufacturing Management LogisticsSuppliersInternal Supply ChainCustomers
  38. 38. Supply Chain Management / Surath Pralongsil 38Internal Integration• The company’s internal structurehas to be aligned & integrated• Internal functions must alignalong processes that lead tospecific product & service value• Goals must align to anoverarching corporate strategy• Communication barriers must bereduced between activities toenhance information flowthroughout the organization
  39. 39. Supply Chain Management / Surath Pralongsil 39External Integration• External integration can only occur when internal integration &functional strategies have been aligned• There must be consistent competitive goals, objectives & criteriaacross the supply chain, without conflicting priorities• Cost reduction at the expense of other supply chain members simplytransfers cost to the end customer, leading to higher prices -companies have to take into consideration all costs within the supplychain
  40. 40. Supply Chain Management / Surath Pralongsil 40Capability Integration• Under supply chain management each member of the supply chainrealizes that they cannot be the best at every activity & need to relyon capabilities outside of the organization• In order to add the most value on the whole supply chain,organizations must decide which activities & capabilities to invest in &perform
  41. 41. Supply Chain Management / Surath Pralongsil 41Relationships• A key focus of supply chainmanagement is developing &understanding cooperation, trustand the management ofrelationships• Many relationships within supplychain management are basedon the partnership idea whichinvolves mutually beneficiallong-term relationships
  42. 42. Supply Chain Management / Surath Pralongsil 42Type of Relationship in Supply Chain• Arm’s length• Long-term relationship• Partnership• Third-party / Outsourcing• Strategic alliance• Joint venture• Network organization• Vertical integration / Acquisition
  43. 43. Supply Chain Management / Surath Pralongsil 43Time-Based Competition• Low cost and high quality have now become standards by whichcompanies can enter and compete in markets; and they are no longera guarantee for customer demand• Time has become a source of competitive advantage within manyindustries• Companies have to focus their supply chain capabilities on:– Responsiveness– Reliability
  44. 44. Supply Chain Management / Surath Pralongsil 44Responsiveness• The ability to respond to changing demands is called agility• Agility means meeting customer demands quickly so that customersdo not turn to substitutes from competitors• In order to provide time compression benefits to customers,companies need to posses the following skills:– New product development and introduction competencies– Cross functional development team abilities– Appropriate & timely feedback from customers– Lead time management
  45. 45. Supply Chain Management / Surath Pralongsil 45Product Life CycleTimeSalesIntroductionGrowthMaturitySaturationDeclineSalesIntroductionGrowthMaturitySaturationDecline
  46. 46. Supply Chain Management / Surath Pralongsil 46Reliability• To provide reliability at times of uncertainty in demand, safety stockswere carried by companies• Traditionally trade-offs were perceived as existing between providinghigh quality, low cost & quick delivery of products• Successful supply chains can now deliver rapidly at low cost with highquality. This reliability comes from reducing inventory levels as wellas reducing the need for quality detection throughout the supply chain
  47. 47. Supply Chain Management / Surath Pralongsil 47Different Supply Chain Characteristics in EachIndustryManufacturing CustomerDistribution CentreSuppliershiptostockmaketostockassembletoorderbuytoorderengineertoorderFinished goods storeR/M storemaketoorder
  48. 48. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Strategic Supply Chain ManagementLean v.s. Agile Supply Chain
  49. 49. Supply Chain Management / Surath Pralongsil 49Lean Philosophy• The lean philosophy is based on eliminating all waste from thesupply chain• Thus, seven types of waste have been identified as detrimental forthe supply chain:1. Overproduction2. Waiting3. Transporting4. Inappropriate processing5. Unnecessary inventory6. Unnecessary motions7. Defects
  50. 50. Supply Chain Management / Surath Pralongsil 50Inventory Hiding Underlying ProblemsRestrictedInformationFlowQualityProblemsInventoryInventoryInadequateProcessesRestrictedInformationFlowQualityProblemsInventoryInadequateProcesses
  51. 51. Supply Chain Management / Surath Pralongsil 51Lean v.s. Agile Supply Chain• Lean (efficient) supply chains using JIT work when:– Demand is relatively stable & predictable– Product variety is low– Price & quality are key to advantages in the market place• Agile (responsive) supply chains :– Are characterized by very flexible structures, production capabilities &people within each part of the supply chain– Focus on responsiveness over waste elimination– Work best when customer service & responsiveness lead tocompetitive advantage
  52. 52. Supply Chain Management / Surath Pralongsil 52Push Strategies• Push strategies means working to long-term forecasts & estimatingthe number of products being produced– Each company throughout the supply chain has its own forecast– Forecasts are not aligned with suppliers or customers– Long term forecasts are difficult to predict with many variables disruptingthe forecast– Limited forecasting ability results in build up of inventory
  53. 53. Supply Chain Management / Surath Pralongsil 53Pull Strategies• Pull strategies mean that there is no production until the customer hassignaled demand by ordering a product or serviceAdvantages:– No inventory costs as the product is made as soon as the order isreceived– Information flow throughout the supply chain– Collaboration between supply chain membersDisadvantages:– Smoothing demand is difficult– Time taken to build final product or service might be longer as the supplychain has to make the order
  54. 54. Supply Chain Management / Surath Pralongsil 54Supply Chain of PC, with Postponement
  55. 55. Supply Chain Management / Surath Pralongsil 55Positioning of Decoupling Pointdriven by forecastdriven by order
  56. 56. Supply Chain Management / Surath Pralongsil 56Postponement• Postponement or ‘push-pull‘strategies aim at preventing thedisadvantages of both push & pullstrategies• Under postponement, certain partsof the supply chain are undertakinga push strategy while other partsperform a pull strategy:– Upstream suppliers providecommodity parts & componentsusing a push strategy as demand issmoother & more predictable– Downstream suppliers employ a pullstrategy & do not customizeproducts & services until an orderfrom the final customer has beenmade
  57. 57. Supply Chain Management / Surath Pralongsil 57Determining the decoupling point in the supplychain from PUSH to PULL - factors• Demand change & forecast reliability (“all we know about the forecastis that it will be wrong”)• Required product configurations & variability• Required customer response time (balancing capacity with inventory)? ? ? ? ?PUSH & PULL
  58. 58. Supply Chain Management / Surath Pralongsil 58Where in the supply chain and how much inventoryto keep?•Cost•Flexibility•Service level•Response time•Cost•Flexibility•Service level•Response timeMaterialssuppliersRetailerComponentmanufacturerAssembler Storage? ? ? ? ?
  59. 59. Supply Chain Management / Surath Pralongsil 59Postponement & its impact on reducing variety ininventoryVarietyPipelineMaterials inFinished goods outBAPostponement(delayingcustomisation)=
  60. 60. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Strategic Supply Chain ManagementAdvantage of Supply Chain Management
  61. 61. Supply Chain Management / Surath Pralongsil 61Advantage of Supply Chain Management• Implementing supply chain management provides thefollowing advantages:– Match demand and supply– Reduced cost– Improved quality and service– Value
  62. 62. Supply Chain Management / Surath Pralongsil 62Key Performance Objectives• Long term supply chain efficiency and success rely on performanceadvantages which other supply chains will not have• These performance objectives include:– Cost– Quality– Flexibility– Speed– Reliability / Dependability– etc.
  63. 63. Supply Chain Management / Surath Pralongsil 63Cost Reduction• The reduction of total cost ofownership is key to costadvantage• Total cost of ownershipmeasures include bothownership & post-ownershipcosts• Logistics cost advantagesinclude:– Efficient use of capacity– Reduction in inventory levels– Faster & more reliableinformation exchangeOwnership costs include:• Processing inventory• Repair• Maintenance• Warranty• Training• Operating• Inventory carrying• Contract administration• Downtime cost of operatingequipmentPost-Ownership costs:• Disposal or environmentalconsequences of product orservice
  64. 64. Supply Chain Management / Surath Pralongsil 64Quality and Service Level Improvements• Quality is the most visible aspect of the supply chain• The quality objective is the foundation for the other objectives & isconsidered necessary just to compete• Quality affects other objectives, such as:– Cost– Flexibility– Speed– Reliability / Dependability
  65. 65. Supply Chain Management / Surath Pralongsil 65Flexibility Enhancement• The survival of the supply chain is dependent on its ability to meet thechanging needs of customers & to adapt to uncertain marketconditions• Flexibility is essential in turbulent markets• A company can focus on four possible types of flexibility:– Product (variety) flexibility– Mix flexibility– Volume flexibility– Delivery flexibility
  66. 66. Supply Chain Management / Surath Pralongsil 66Speed Increase• The speed objective is similar to the time concept• Speed of delivery involves:– The production of goods & services as fast as possible– The delivery to the end-customer quicker than competitors12369=
  67. 67. Supply Chain Management / Surath Pralongsil 67Reliability• Reliability means being able to tell customers reliablywhen their product or service will be delivered• Reliability refers to:– Dependability of timetables– On time deliveries– On-Time In-Full (OTIF)
  68. 68. Supply Chain Management / Surath Pralongsil 68Value Advantage• Differentiation can be achieved by more advanced or reliabletechnology and/or tailored services to meet customer needs• Customers are buying not just a product but the benefits of theproduct:– Intangible & psychological benefits– Tangible benefits based on superior performance• The logistics value advantage includes:– Provision of tailored logistics service– Responsiveness to the customer– Reliability of the service to deliver to expectations
  69. 69. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Supply Chain SimulationBeer Game
  70. 70. Supply Chain Management / Surath Pralongsil 70Beer Game• Competing among each supply chain to be the most efficient supply chain, which means the lowesttotal supply chain cost.ConsumerDistributor /WholesalerRetailerManufacturer SupplierReduceCostReduceCost EnhanceRevenueEnhanceRevenueReducing inventoryoperating costsMatching merchandisewith consumer demandsResources234 5OrderDeliveryOrderDeliveryOrder DeliveryOrderDeliveryOrderDelivery
  71. 71. Supply Chain Management / Surath Pralongsil 71Rule• Inventory at the beginning = 10 unoits• No talking• No information sharing• Cost– Inventory carrying cost: 1 THB/unit/week– Back order: 2 THB/unit/week
  72. 72. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Strategic Supply Chain ManagementBullwhip Effect (Forrester Effect)
  73. 73. Supply Chain Management / Surath Pralongsil 73QuantityWhat Management Wants...Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998TimeDemandDemandProductionProduction
  74. 74. Supply Chain Management / Surath Pralongsil 74TimeDemandDemandProductionProductionWhat Management Gets...QuantityTom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
  75. 75. Supply Chain Management / Surath Pralongsil 75Increasing Order Variability up the Supply ChainConsumptionConsumersRetailersDistributorsManufacturersSuppliers
  76. 76. Supply Chain Management / Surath Pralongsil 76ORDERSTIME2. Orders fromretailers todistributors3. Orders fromdistributors tomanufacturer4. Ordersfrom manufacturerto supplier1. Increase of 10%in orders fromconsumers toretailersITCGOODSORDERSManufacturer DISTRIBUTORSupplier CONSUMERSRETAILERM11:U2:02.4-2Bullwhip Effect (Forrester Effect)
  77. 77. Supply Chain Management / Surath Pralongsil 77ITCORDERSTIMELagged (delayed) responseAmplification of responseSystem instabilityForrester showed how this lagged or delayed response leads toan amplification in response magnitude, resulting in supply chaininstability and increased inventory levels.M11:U2:2.4-3Explaining the Forrester effect
  78. 78. Supply Chain Management / Surath Pralongsil 78Bullwhip EffectManufacturer Distributor Wholesaler Retailer Customer
  79. 79. Supply Chain Management / Surath Pralongsil 79Collaboration in Supply Chain
  80. 80. Supply Chain Management / Surath Pralongsil 80Collaborative Planning, Forecasting & ReplenishmentManufacturerRetailer Forecast Drivers• In stock position• Fill Rate• Consumer Demand• Price Changes• Growth Plans• Distribution ChannelsCommon EventCalendarJoint ForecastRetailerManufacturer Forecast Drivers• Capacity• Order Lead time• Consumer Behaviour• Product Availability• Promotions• Raw material supplyJoint Business PlanningGenerate joint forecast Generate joint forecastDrive replenishmentDrive MRP
  81. 81. Supply Chain Management / Surath Pralongsil 81Supply Chain Manager
  82. 82. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Integrated Supply Chain Planning
  83. 83. Supply Chain Management / Surath Pralongsil 83Integrated Supply Chain PlanningNote: Inventory is to be taken into account in each step.Retail Outlet Retail Outlet Retail Outlet Retail OutletRegional DC Regional DCNational DCDemand Demand Demand DemandDRPDemand PlanningProduction MPSSub-Assembly Sub-Assembly Sub-Assembly Sub-AssemblyAssembly AssemblyC1 C2 C3 C4 C5 C6 C7 C8MRPPurchase Order ProcurementPurchase OrderPurchase OrderPurchase Order
  84. 84. Supply Chain Management / Surath Pralongsil 84Supply Chain Planning Process FrameworkProcurementProcurementManufacturingManufacturingLogisticsLogisticsMarketing& SalesMarketing& SalesSuppliersSuppliersCustomerCustomerInventory/WarehouseManagementShipmentManagementInventoryDeploymentTransportPlanningMasterProductionSchedulingDetailedProductionSchedulingDistributionRequirementPlanningMaterial Requirement PlanningProductionActivityControlProcurementCapacityPlanning andSourcingSupply ChainNetworkDesignOrder Management Demand PlanningExecutional Operational Tactical StrategicBusiness PlanImmediate - Hour Day - Week Week - Month Quarter - Year
  85. 85. Supply Chain Management / Surath Pralongsil 85ECRSCM/APSERPMRP II / JITMRP IDRP IIDRP IWMSTMSRoute PlanningEvolution of enterprise resource management (ERM)and manufacturing planning & control systems
  86. 86. Supply Chain Management / Surath Pralongsil 86Integrated Supply Chain Planning• Sales & Operations Planning (Demand & SupplyPlanning)• Demand Planning• Distribution Requirement Planning (DRP)• Distribution Resource Planning(DRP II)• Material Requirement Planning (MRP)• Manufacturing Resource Planning (MRP II)• Master Production Schedule (MPS)• Detailed Production Schedule (DPS)
  87. 87. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Sales & Operations Planning(S&OP)
  88. 88. Supply Chain Management / Surath Pralongsil 88Sales & Operations Planning (S&OP)• Sales and Operations Planning (S&OP) is core to supply chainperformance• Collaborative S&OP is the way forward and the technologies are inplace to make it a reality• Analysis & understanding of customers, suppliers and inventories areessential to develop a meaningful and workable Sales & OperationsPlan• Each step on the route to c-S&OP delivers measurable benefits• In order to arrive at meaningful plans powerful constraint-basedplanning tools are required• Effective and appropriate supply chain planning software is essentialfor effective c-S&OP
  89. 89. Supply Chain Management / Surath Pralongsil 89Sales & Operations Planning (S&OP)Strategic PlanningStrategic PlanningBusiness PlanningBusiness PlanningVOLUMESales & Operations PlanningVOLUMESales & Operations PlanningSales PlanSales Plan Operations PlanOperations PlanMIXMaster SchedulingMIXMaster SchedulingDetailed Planning &Execution System: MRP,DRP, Plant Scheduling,Supplier SchedulingDetailed Planning &Execution System: MRP,DRP, Plant Scheduling,Supplier SchedulingEXECUTIONCAPACITYPLANNINGCAPACITYPLANNINGForecast&DemandManagementForecast&DemandManagementDEMAND SUPPLIER
  90. 90. 90S&OP is placed between strategic and detailed planning andexecutionS&OPSupplylogisticsProductionlogisticsCustomerlogisticsFulfillmentLongtermplanning(strategic)Operational Planning(Detailed Scheduling)Sales &operationsplanningFocus• Capital investments• Long term alliance/commitments• Vertical integration benefits• Budgeting/definition of targets for sales andproduction• Strategic operational decisions regardingproduct swaps, capacity outsourcing, etc.• Mid-term demand plan• Mid-term rough cut capacity, inventory,and material plan• Mid-term feed stock supply plan andreplenishment plan• Short-term capacity and material planning• Adjustment of mid-term plan as per orderportfolio and short-term disturbances• Efficient implementation and managementof day-to-day business• Order fulfillmentExecution1-5yearsplanning1-4weeksplanning1-12monthplanningSource: McKinseyHorizon
  91. 91. 91S&OP process creates a cross-functional platform for internalcollaboration on an ongoing basisSource: McKinseyDemandmanage-mentProductionmanage-mentSupplymanage-mentDistributionmanage-mentFrom . . .Traditional siloed and fragmented functional planningDetailedschedulingOrderfulfillmentShortageallocation• Low responsiveness to demand changes• High inventory levels to account for internal inefficiencies• Volume-based mentality• Sales vs. production dispute• Firefighting and short-term view• Lack of clear accountability and ownership• Data issues and lack of resultsStrategicbusiness planningHigh cost, low serviceProductionmanage-mentDemandmanagementSupplymanage-mentDistributionmanage-ment. . . toCross-functional integrated planningDetailedschedulingOrderfulfillmentShortageallocation• Better responsiveness to demand changes• Lower inventory levels due to reduced internalinefficiencies• Value-driven decision making• Collaborative process across functions• Proactive planning for business disturbances• Clear accountability and ownership of decisions• Full transparency and common set of dataStrategicbusiness planningLow cost high service, enabler for growth
  92. 92. 92A typical monthly S&OP calendar follows 4 generic phases in arepetitive sequence - however details may vary between industries• Review KPIs• Evaluate escalateddemand / supply gapsand potential resolutionscenarios based onfinancial and strategicimpact and makeresource allocationdecisionsDemand Planning• Creation of unconstrainedforecast• Updating currentorder portfolioInventory Planning• Regional inventory levelmonitoring and updatesProduction Planning• Evaluation of availablecapacity and potentialconstraintsOverall• Master data maintenanceand changes• Demand / Supply balancing• Rough cut capacity planning byproduction and generation ofcapacity constrainedconsensus demand,procurement andreplenishment plans• Identification of unresolveddemand and supply gaps andescalation to S&OP committee• Development of scenarios /options as an input to S&OPdecision meeting• Implementation of decisionstaken at cross functionalmeetings• Communication of decisionsand follow-upFunction specific Problem and business specificSource: McKinseyData consolidation,regular update,and maintenancePremeeting sales andoperations agreementsMonthly S&OP meetingsAdjustments,modifications anddecision implementationWeek 1 Week 2 Week 3 Week 4EXAMPLE
  93. 93. 93CLIENT EXAMPLEKPI performancedialoguesconducted at 3levels• Executive level• S&OP meetings• Site / Pre-meetingsServiceConcentrateproductionFormula-tionFilling andpackagingDistribu-tionSalesCostEfficiency/performanceCustomer service level• Order-line Fill Rate• Stock outInventory levelScrap/AccrualsPlan adherence• Vs. annual supply budget (as of 2008)• Vs. 3 month frozen periodForecast accuracy• Vs. changes• Vs. actual salesLead time, e.g.• Product release lead time at internal sites• Product lead time at external mfg siteKey Performance Indicators are an essential tool to increasethe level of accountability and support the S&OP process
  94. 94. 94Typical frequency of S&OP by industrySource: Aberdeen Group, July 2006S&OP frequency by industry in percentAutomotiveChemicalsConsumer durable goodsConsumer electronicsCPGMining/oil/gasIndustrial equipmentFood/beveragePaper/lumber/timberPharmaMonthlyDailyWeeklyQuarterly or less
  95. 95. Supply Chain Management / Surath Pralongsil 95S&OP is traditionally done outside MRP II
  96. 96. Supply Chain Management / Surath Pralongsil 96SCO System make Collaborative S&OP happening inreality
  97. 97. Supply Chain Management / Surath Pralongsil 97S&OP Process Map
  98. 98. Supply Chain Management / Surath Pralongsil 98Sales & Operations Planning Processes (S&OP)Key to Effective Supply Chain OptimizationSales and Operations Planning, S&OP, supports the notion that making gooddecisions all of the time is preferable to making outstanding decisions some ofthe time. Tom Wallace (MRP II: Making it happen) defines S&OP as follows:– Sales & Operations Planning (S&OP) is a business process that helps companieskeep demand and supply in balance.– S&OP is cross functional… including the executive in charge of the business unit– Used properly S&OP enables the company’s managers to view the businessholistically and gives them a window into the future.The processes involved in S&OP lead to one common plan for the business thatis achievable as it takes into account demand, available capacity and businessconstraints:– Input: customer demands, forecasts, draft Master Schedule, replenishment plan,projected inventory plan & supply constraints– Output: agreed Master Schedule, replenishment plans, shipping plansIn order for this to happen there needs to be an agreement on priorities andobjectives for the whole business. One plan is developed on-line, collaboratively,including key suppliers and customers, and signed off in a formal S&OP meetingattended by representatives of all internal stakeholders, i.e. Sales, Marketing,Logistics, Manufacturing, Purchasing, Finance, Management.
  99. 99. Supply Chain Management / Surath Pralongsil 99Integrated S&OP Process
  100. 100. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Integrated Supply Chain PlanningDemand Planning
  101. 101. Supply Chain Management / Surath Pralongsil 101Acronym• Demand management• Demand planning• Demand plan• Real demand• Enriched demand plan• Sales forecast• Sales target• Sales plan• Budget• Financial plan• Operational plan
  102. 102. Supply Chain Management / Surath Pralongsil 102Delivery Lead Time (to react to demand)Delivery Lead Time (to react to demand)Supply of Raw& PackagingMaterialsManufacturingPackaging &ReleaseWarehouse &DistributionRetailerMakeMake--toto--orderorderAssembly / PackagingAssembly / Packaging--toto--orderorderMakeMake--toto--stockstockWhy do we need Demand Plan / Forecast?PP--Time = Process Lead TimeTime = Process Lead TimeDemand Plan is used to prepare stockDemand Plan is used to prepare stock
  103. 103. Supply Chain Management / Surath Pralongsil 103Demand• Dependent Demand vs Independent Demand• Only demand plan of independent demand is required.• Total number of table X 4 legs = Total number of legsRemark:• Performance measurement: Demand Plan Accuracy and Bias• Consistent positive or negative bias demonstrates error pattern
  104. 104. Supply Chain Management / Surath Pralongsil 104Forecast helps to identify gap against Budget01808 xxxxBudget vs Act/For-10,00020,00030,00040,00050,00060,00070,00080,00090,000Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov DecCASESBudgetAct. & ForGap
  105. 105. Supply Chain Management / Surath Pralongsil 105?MonthsVolumeHow to Complete the Forecasting Horizon...The 3-Component Model: Baseline, Impactors, UpliftsHistoricalDemandLarge,ExceptionalEventsPast EventsUpliftsBaselineProjectedBaselinePlannedEvents UpliftsPlanned Large,ExceptionalEvents
  106. 106. Supply Chain Management / Surath Pralongsil 106Forecast Techniques• Qualitative– Based on intuition and expert opinion– In many cases, bottom up.• Quantitative– Statistical forecastingRemark:• Forecast is always wrong• More detail, higher inaccuracy• Further timeline, higher inaccuracy
  107. 107. Supply Chain Management / Surath Pralongsil 107Demand PatternPAST FUTURE2. SeasonalityPAST FUTURE3. Random VariationPAST FUTURE1 Trends:a)PAST FUTUREb)PAST FUTUREc)4. Cyclical Variation
  108. 108. Supply Chain Management / Surath Pralongsil 108To Counter Forecasting Error• Customer Relationship Management (CRM)• Supply chain visibility• Vendor-Managed Inventory (VMI)• Variety reduction• Re-design supply network e.g. cross-docking operation• Postponement (Push-Pull)
  109. 109. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Integrated Supply Chain PlanningDistribution Requirement Planning (DRP)Distribution Resource Planning (DRP II)
  110. 110. Supply Chain Management / Surath Pralongsil 110Multi-Level DistributionLocal W/HLocal W/H Local W/HLocal W/H Local W/HLocal W/H Local W/HLocal W/HRegional DCRegional DC Regional DCRegional DCNational DCNational DCDealerDealer DealerDealer DealerDealer DealerDealer DealerDealer DealerDealerDealerDealer DealerDealer
  111. 111. Supply Chain Management / Surath Pralongsil 111Impact of Multi-Echelons
  112. 112. Supply Chain Management / Surath Pralongsil 112Distribution Requirement Planning (DRP)DRP is aimed at improving the management of finished productinventory & controlling the transport of goods in multi-level distributionsupply chains• DRP is a simulation system that models all expected activitiesinvolved in shipping goods through distribution networks over adefined planning time horizon• DRP is driven by a demand forecast for each product
  113. 113. Supply Chain Management / Surath Pralongsil 113Forecast DemandShipments on Order (in transit)Projected Stock on HandReceived Shipment QuantityPlanned Shipment QuantityPastDueWeek200 210 220 200 180 200 210 160500495 615500 500500500 500 5001 2 3 4 5 6 7 8Min. Safety Stock: 250Lead Time: 1 weekOrder Quantity: 500195500 500 500500500ALERT500Time Horizon: 8 WeeksMax. Stock Limit: 600OverlimitDelayedreceiptDeliverycancelledITC M11:U2:2.5-25285 775485185365565Distribution Requirement Planning (DRP)Time-bucket matrix display
  114. 114. Supply Chain Management / Surath Pralongsil 114Inventory Deployment• How do we deploy the inventory along the distribution network?• What if actual demand does not follow the forecast?Local W/HLocal W/H Local W/HLocal W/H Local W/HLocal W/H Local W/HLocal W/HRegional DCRegional DC Regional DCRegional DCNational DCNational DCOutletOutlet OutletOutlet OutletOutlet OutletOutlet OutletOutlet OutletOutletOutletOutlet OutletOutletEXCESSForecast > Actual DemandSHORTAGEForecast < Actual Demand
  115. 115. Supply Chain Management / Surath Pralongsil 115Re-Deployment• Need to concern about the distribution cost of re-deployment• Cross-docking is one way to avoid this situation, but lead-time will bestretchedLocal W/HLocal W/H Local W/HLocal W/H Local W/HLocal W/H Local W/HLocal W/HRegional DCRegional DC Regional DCRegional DCNational DCNational DCOutletOutlet OutletOutlet OutletOutlet OutletOutlet OutletOutlet OutletOutletOutletOutlet OutletOutletEXCESS SHORTAGE
  116. 116. Supply Chain Management / Surath Pralongsil 116Cross-Docking• …is a distribution system in which merchandise received at the warehouse ordistribution centre is not put away, but immediately turned around forshipment to retail storesStoreAStoreBStoreZPlant1Plant2PlantN ReceivingShippingFullPalletsSingleProductStoreAStoreBStoreZPlant1Plant2PlantNFullPalletsSingleProductCross-DockingPlatform
  117. 117. Supply Chain Management / Surath Pralongsil 117Distribution Resource Planning (DRP II)The extension of distribution requirementsplanning into the planning of the key resourcescontained in a distribution system: warehousespace, workforce, money, trucks, freight cars, etc.APICS Dictionary, 9th ed., 1998.
  118. 118. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Integrated Supply Chain PlanningMaterial Requirement Planning (MRP)
  119. 119. Supply Chain Management / Surath Pralongsil 119Material Requirement Planning• Are calculated based on the Bill-of-Materials (BOM)• Is driven by MPS to make the end items and drive to Shop-floorcontrol and PurchasingObjectives:• To determine the materials required• What is required• How much is required• When it is required• To establish and maintain prioritiesSource: APICSTable 100Legs 206Base 200 Top 025Leg Bolts216Frame 280
  120. 120. Supply Chain Management / Surath Pralongsil 120MasterProductionScheduleInventoryrecordsOperational capacityconstraints (e.g., machine,labour & lead-times)Bill ofmaterialsMaterialsmovementsProductionordersMaterialsrequirementsplanPurchaseordersITC M11:U2:2.5-6Materials requirements planning - closing theloop
  121. 121. Supply Chain Management / Surath Pralongsil 121EXAMPLE - CALCULATION OFREQUIREMENT FOR PART 022PRODUCT02PRODUCT03SUB-ASSEMBLY12SUB-ASSEMBLY13PART20 29 28 22 20 21 22 27 291 Off 1 Off 2 Off 1 Off 2 Off4 Off 3 Off 3 Off 3 Off 2 Off 2 OffPART PART PART PART PART PART PART PARTITC M11:U2:2.5-11Bill of Materials (BOM)
  122. 122. Supply Chain Management / Surath Pralongsil 122MRP the need for accurate inventory records• BOM must be very close to 100% accurateInventory item master file - source for BOM• Stock records better than 95% accurateInventory transaction file - receipts and issuesInventory location file - storage locations of rawmaterials, finished goods, WIP and workshop floor holdingareas
  123. 123. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Supply Chain CollaborationEfficient Consumer Response (ECR)
  124. 124. Supply Chain Management / Surath Pralongsil 124Background of ECRAdoption of ECR initiativethroughout America, Europeand more recently Asia1992/1993 1993 1994 1995 1996 1997 1998/1999PLVS ARLV TUSA ItalyHong KongSpainGreeceSwedenSwitzerlandCanadaDenmarkGermanyAustraliaEuropeanUnion (EU)PortugalFinland JapanSingaporeThailandTaiwanUnitedKingdom (UK)FranceChinaMalaysiaPhilippinesKorea
  125. 125. Supply Chain Management / Surath Pralongsil 125ECR Overview"WORKINGTOGETHER TOFULFIL CONSUMERWISHES BETTER,FASTER AND ATLESS COST"
  126. 126. Supply Chain Management / Surath Pralongsil 126Scope The ECR Thailand project focuses on the Fast Moving Consumers Goods(FMCG) that are sold through modern retail stores (the Modern TradeChannel), although future ECR initiatives will include the Traditional TradeChannel.Dry GroceryFoodGeneral MerchandiseProduct GroupsSupermarketsConvenience StoresDepartment StoresSpecialist StoresRetail FormatsStudy AreasConsumerOptimizeIntroductionsOptimizeAssortmentsOptimizePromotionsDemand ManagementElectronic DataInterchange(EDI)Electronic FundsTransfer (EFT)Item Coding andDatabase MgmtActivity BasedCosting (ABC)Enabling TechnologiesSynchronizedSupplySynchronizedProductionContinuousReplenishmentAutomatedStore OrderingSupply ManagementReliableOperationsCrossDockingSoft DrinksIntegratorsValue CreationCollaborative PlanningForecasting and ReplenishmentE-BusinessE-Procurement, E-Supply Chain
  127. 127. Supply Chain Management / Surath Pralongsil 127Demand ManagementEstablish Strategyand CapabilitiesOptimise ProductIntroductionsOptimiseAssortmentsOptimisePromotionsSupply ManagementIntegratedSuppliersSynchronisedProductionContinuousReplenishmentAutomated StoreOrderingReliableOperationsCross DockingEnabling TechnologiesActivity BasedCostingElectronic DataInterchange (EDI)Electronic FundsTransfer (EFT)Item Bar Codingand DatabaseMaintenanceElectronic CommerceHuman FactorsStrategy andStructureCulture Skills RelationshipsECR Improvement Concepts
  128. 128. Supply Chain Management / Surath Pralongsil 128Through the adoption of ECR in Thailand for all channels, it isThrough the adoption of ECR in Thailand for all channels, it is expected to reduceexpected to reduceconsumer price by 7.7%, which is equivalent toconsumer price by 7.7%, which is equivalent to Baht 38 billion saving across theBaht 38 billion saving across the IndustryIndustryConsumerTraditionalChannel**StoreRetailerPlant D.C.ModernChannel*Consumerpricereduction=7.7%Total Supply ChainInventorycosts = 5.4%Operatingcosts = 2.3%*Modern Trade: Supermarket chains, hypermarket chains, convenience stores,**Traditional: Mom & Pop Store, independent SupermarketManufacturerSupplierBenefits
  129. 129. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Interesting Web Sites
  130. 130. Supply Chain Management / Surath Pralongsil 130www.gci-net.org
  131. 131. Supply Chain Management / Surath Pralongsil 131www.globalscorecard.net
  132. 132. Supply Chain Management / Surath Pralongsil 132GCI Benchmarking Tool: Maturity AssessmentDefinitionCriteria 0 1 2 3 4Nothing doneNo plansNothing done butplans developedEarlyimplementationFurtherimplementationFullyimplementedMaturity Measure Criteria*Who* Manufacturers (M) , Wholesalers (W) , Retailers (R)The extent to whichstocks at all stages inthe supply chain arereplenished inresponse to an estimateof consumer demand(demand signal)Replenishment may bevia continuousreplenishment process(CRP) orderscalculated by theretailer, or via vendormanaged inventory(VMI), whereappropriateChanges in stockreplenishmentquantities and timingsare driven primarily byprice / quantity deals,rather than consumerdemandAgreement establishedbetween tradingpartners to matchreplenishments moreclosely to consumerdemandPrototype CRP beingtested using CRPorders or VMI (whereappropriate) togenerate the demandsignalCRP or VMI orders notintegrated into ordermanagement system:proprietary electroniccommerce standardsstill usedCRP being rolled out tocover at least half oflong term targetvolumeCRP or VMI ordersintegrated into ordermanagement systemsvia industry standardelectronic commerce:used by manufacturerto plan loadsRetailer getsinformation ofshipments via EDICRP fully installed forall targeted productsand volume and fullyintegrated into orderprocessing systemsReplenishmentMethod andApplicationMWRReplenishment drivenby inventory andofftake. Needvisibility for that at alllevels.Agreement to getvisibility.A fully implementeddemand managementsystem (DMS)integrated with ERP.
  133. 133. Supply Chain Management / Surath Pralongsil 133www.supply-chain.org
  134. 134. Supply Chain Management / Surath Pralongsil 134www.ecrnet.org
  135. 135. Supply Chain Management / Surath Pralongsil 135cscmp.org
  136. 136. Supply Chain Management / Surath Pralongsil 136www.cscmpthailand.org
  137. 137. Supply Chain Management / Surath Pralongsil 137www.supplychainasia.com
  138. 138. Supply Chain Management / Surath Pralongsil 138www.gs1.org
  139. 139. Supply Chain Management / Surath Pralongsil 139www.epcglobalinc.org
  140. 140. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Continuous ReplenishmentSynchronized Production/SupplyVendor-Managed Inventory
  141. 141. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Enabling Technologyin Supply Chain Management
  142. 142. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Business ProcessOrder – To – Cash (O2C) ProcessPurchase – To – Pay (P2P) Process
  143. 143. Supply Chain Management / Surath Pralongsil 143Order – To – Cash (O2C) ProcessOrder entryCredit limitStockAvailable-To-Promise (ATP)Soft allocationProcessed orders with thesame requested dateRoute allocationLoad configurationPicking as per loadPicking confirmation, stockupdated, AR generated, InvoicingCollection & paymentCustomer Order• Cust. No.• Address• Product Code• Quantity• RequestedDelivery DatePicking Slip• Product Code• Quantity• Loading bayInvoice & DO• XXX• XXX• XXX• XXX
  144. 144. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Enabling Technologyin Supply Chain ManagementIT Systems
  145. 145. Supply Chain Management / Surath Pralongsil 145What are Legacy System?• Legacy IT systems were developed prior to 1990 and have afunctional focus• Legacy systems are used for simple operations like order entry &processing, managing inventory, customer & product databases• Each activity within the organization has its own proprietary systemand there is little integration or communication between the systemsHumanResourcesEngineeringFinance &AccountingSales &MarketingLogisticsHQ &BranchesOperationsFunctionServer &DatabaseFunctionServer &DatabaseFunctionServer &DatabaseFunctionServer &DatabaseFunctionServer &DatabaseFunctionServer &DatabaseFunctionServer &DatabaseHumanResourcesEngineeringFinance &AccountingSales &MarketingLogisticsHQ &BranchesOperationsHumanResourcesHumanResourcesHumanResourcesHumanResourcesEngineeringFinance &AccountingFinance &AccountingFinance &AccountingFinance &AccountingSales &MarketingSales &MarketingSales &MarketingSales &MarketingLogisticsHQ &BranchesHQ &BranchesHQ &BranchesHQ &BranchesOperationsFunctionServer &DatabaseFunctionServer &DatabaseFunctionServer &DatabaseFunctionServer &DatabaseFunctionServer &DatabaseFunctionServer &DatabaseFunctionServer &Database
  146. 146. Supply Chain Management / Surath Pralongsil 146What are ERP System?• ERP stands for Enterprise Resource Planning & ERP systems are used tointegrate business systems & processes. ERP systems allow all areas &functions of an organization to combine & analyze data.Central Databaseand ServersEngineering OperationsSales &MarketingHumanResourcesHeadquartersand BranchesFinance &Accounting LogisticsSupplierRelationshipManagementCustomerRelationshipManagementCentral Databaseand ServersEngineeringEngineering OperationsOperationsSales &MarketingSales &MarketingHumanResourcesHumanResourcesHeadquartersand BranchesHeadquartersand BranchesFinance &AccountingFinance &Accounting LogisticsLogisticsSupplierRelationshipManagementCustomerRelationshipManagement
  147. 147. Supply Chain Management / Surath Pralongsil 147What ERP Covers?• A sales order is made and recorded (Sales)• Parts are reserved or purchased & delivered (Purchasing & Supply)• Labour is scheduled & charged (Human Resources)• The cost of parts is taken from general ledger inventory accounts, &the revenue is booked & billed when the order is completed (Finance)• The required goods are manufactured or assembled (Production)• The completed order is shipped to the customer (Logistics)
  148. 148. Supply Chain Management / Surath Pralongsil 148Module in SAP R/3FI - Financial Accounting• FI-GL General Ledger Accounting• FI-LC Consolidation• FI-AP Accounts Payable• FI-AR Accounts Receivable• FI-BL Bank Accounting• FI-AA Asset Accounting• FI-SL Special Purpose Ledger• FI-FM Funds ManagementCO – Controlling• CO-OM Overhead Costing (CostCenters, Activity Based Costing,Internal Order Costing)• CO-PA Profitability Analysis• CO-PC Product Cost ControllingAM- Asset ManagementPS – Project SystemFS – Insurance• FS-CD Collections anddisbursements• FS-CM Claims management• FS-CS Commissions management• FS-PM Policy management• FS-RI Reinsurance management• FS-PE Payment Engine (BankingPayments Solution still indevelopment)
  149. 149. Supply Chain Management / Surath Pralongsil 149Module in SAP R/3IS – Industry Solution• IS-A Automotive• IS-ADEC Aerospace and Defense• IS-AFS Apparel and Footwear• IS-B Banking• IS-BEV Beverage• IS-CWM Catch WeightManagement (Variable WeightItems such as Meats and Cheeses)• IS-DFS Defense and Security• IS-H Hospital• IS-HER Higher Education• IS-HSS Hospitality Management• IS-HT High tech• IS-M Media• IS-MIN Mining• IS-MP Milling (or IS-MILL)• IS-OIL Oil• IS-PS Public Sector• IS-R Retail• IS-REA Recycling Admin• IS-SP Service Provider• IS-T Telecommunications• IS-U UtilitiesHR – Human resources• HR-PA• Personnel Administration• HR-PD• Personnel Development• HR-RC• Recruitment
  150. 150. Supply Chain Management / Surath Pralongsil 150Module in SAP R/3PM - Plant MaintenanceMM - Materials ManagementQM - Quality ManagementPP - Production PlanningSD - Sales and Distribution• Helps to optimize all the tasks andactivities carried out in sales,delivery and billing. Key elementsare: pre-sales support, inquiryprocessing, quotation processing,sales order processing, deliveryprocessing, billing and salesinformation system.SCM - Supply Chain ManagementSEM - Strategic EnterpriseManagementWM - Warehouse ManagementHUM - Handling Unit ManagementAF&R - Advanced Forecasting &Replenishment
  151. 151. Supply Chain Management / Surath Pralongsil 151Advance Planning & Scheduling (APS) System:Architecture of Advanced Planner & Optimizer (APO)CustomerPartnerInternet/EDI/XML/RosettaNetSource: SAPAPO
  152. 152. Supply Chain Management / Surath Pralongsil 152SCM Application• Supply Chain Collaboration (Linkage among trading partners insupply chain)– Collaborative Planning– Network Planning• Supply Chain Planning– Material Requirement Planning– Advanced Planning and Scheduling– Demand and Supply Planning• Supply Chain Execution– Procurement– Warehouse Management System– Transport Management System– Sales Order Processing System– Manufacturing SystemSource: Tokuii Corporation
  153. 153. Advanced Supply Chain ManagementSurath PralongsilDecember 2009Advanced Supply Chain ManagementSurath PralongsilDecember 2009Value Chain ManagementSupply Chain ManagementLogistics Management
  154. 154. Supply Chain Management / Surath Pralongsil 154Wrap-Up: Advanced SCM• Value chain• Value creation• Supply chain• Logistics• Enterprise integration• Strategic, Tactical, Operational SCM:Balance demand and supply• SCM objectives– Delivery of value– Responsiveness– Reliability• Competitive advantage in SCM– Globalization– Integration– Time-based competition• Supply chain characteristics– Ship to stock– Make to stock– Assemble to order– Make to order– Buy to order– Engineer to order• Lean v.s. Agile supply chain• Push and pull• Postponement (mass customization):decoupling point• Advantage of robust SCM– Match demand and supply– Reduced cost– Improved quality and service– Higher value• Demand variability: beer game bullwhipeffect• Integrated supply chain planning– Sales & Operations Planning (Demand &Supply Planning)– Demand Planning– Distribution Requirement Planning (DRP)– Distribution Resource Planning (DRP II)– Material Requirement Planning (MRP)– Manufacturing Resource Planning (MRP II)– Master Production Schedule (MPS)– Detailed Production Schedule (DPS)• Efficient Consumer Response (ECR)• Synchronized Production/Supply• Vendor-Managed Inventory• O2C, P2P• ERP: Enterprise Resource Planning• APS: Advanced Planning & Scheduling• EPC: Electronic Product Code• RFID: Radio Frequency Identification

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