Supply chain management
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Supply chain management

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    Supply chain management Supply chain management Document Transcript

    • SUPPLY CHAIN MANAGEMENT Supply Chain: The sequence of organization’s facilities, functions, and activities that are involved in producing and delivering a product or service. Need for Supply Chain Management 1. Improve operations 2. Increasing levels of outsourcing 3. Increasing transportation costs 4. Competitive pressures 5. Increasing globalization 6. Increasing importance of e-commerce 7. Complexity of supply chains 8. Manage inventories Benefits of Supply Chain Management 1. Lower inventories 2. Higher productivity 3. Greater agility 4. Shorter lead times 5. Higher profits 6. Greater customer loyalty Elements of Supply Chain Management Logistics The goal of logistic work is to manage the completion of project life cycles, supply chains and resultant efficiencies. Often Logistics is termed as the art and science of managing and controlling the flow of goods, energy, information and other resources like products, services, and people, from the source of production to the marketplace. It also refers to the movement of materials and information within a facility and to incoming and outgoing shipments of goods and materials in a supply chain. © Copyright Virtual University of Pakistan Logistics Deciding how to best move and store materials Location Determining location of facilities
    • Suppliers Monitoring supplier quality, delivery, and relations Purchasing Evaluating suppliers and supporting operations Inventory Meeting demand while managing inventory costs Processing Controlling quality, scheduling work Design Incorporating customer wants, mfg., and time Forecasting Predicting quantity and timing of demand Customers Determining what customers want Element Typical Issues 175 Production and Operations Management –MGT613 VU Logistics is the time related positioning of resources and is commonly seen as a branch of engineering which creates "people systems" rather than "machine systems. It involves the integration of information, transportation, inventory, warehousing, material handling, and packaging. . Important Characteristics of Logistics 1. Movement within the facility 2. Bar coding 3. Incoming and outgoing shipments 4. EDI (Electronic Data Interchange) 5. Distribution 6. JIT Deliveries Logistics: Evaluating Shipping Alternatives L A situation that arises frequently in some businesses in making a choice between quicker( expensive) shipping alternatives such as overnight or 2 day air and slower but cheaper alternatives. The decision in such cases often focuses on the cost savings of alternatives versus the increased holding cost that result from using slower alternative. h Often the supplier gets paid on delivery of the product through EDI the very same time the order reaches its destination.
    • The Incremental Holding cost incurred by using the slower alternative is computed as follows: Incremental Holding Cost= H ( d/365) Where H=Annual Holding cost for the item. d = Time savings in days and d/365 is fraction of year saved. Logistics Example Determine the shipping alternative ( with in Pakistan) for a Karachi based Montessori toy manufacturer,1 days or 5 days are best when the holding cost of the item is Rs. 100,000 per year and the 1 day shipping cost is Rs 1500 and 3 day shipping cost is Rs. 600 Rs. 500 Solution H= Rs. 100,000 per year Time savings = 2 days using 1 day alternative Holding cost for additional 2 days = 100,000 X ( 2/365) = Rs. 547.95=548. Or Holding cost per day = Rs. 274 Alternative A Cost savings = Rs. (1500-600)= Rs. 900, because the actual cost of savings of Rs 900 is more than the holding cost of Rs. 548, use the 3 day option. Cost savings = Rs. (1500-500) = Rs. 1000, because the actual cost of savings of Rs 1000 is greater than the holding cost of Rs.548, use the 3 day option. Distribution Requirements Planning Distribution requirements planning (DRP) is a system for inventory management and distribution planning. Extends the concepts of MRPII. © Copyright Virtual University of Pakistan 176 Production and Operations Management –MGT613 VU Uses of DRP
    • Management uses DRP to plan and coordinate: 1. Transportation 2. Warehousing 3. Workers 4. Equipment 5. Financial flows Electronic Data Interchange EDI is the direct transmission of inter-organizational transactions, computer-to-computer, including purchase orders, shipping notices, and debit or credit memos. Electronic Data Interchange gives an organization the following benefits and advantages. 1. Increased productivity 2. Reduction of paperwork 3. Lead time and inventory reduction 4. Facilitation of just-in-time systems 5. Electronic transfer of funds 6. Improved control of operations 7. Reduction in clerical labor 8. Increased accuracy Efficient Consumer Response Efficient consumer response (ECR) is a supply chain management initiative specific to the food industry. ECR reflects companies’ efforts to achieve quick response using EDI and bar codes. E-Commerce: is the use of electronic technology to facilitate business transactions. Successful Supply Chain 1. Trust among trading partners 2. Effective communications 3. Supply chain visibility 4. Event-management capability a. The ability to detect and respond to unplanned events 5. Performance metrics Summary
    • Supply Chain Management is primarily the flow of information which ensures the effective flow of materials throughout the value chain. The chain extends from the Suppliers to the organization and from the organization to the customers. Operations Managers should be able to identify that the strength of the Supply Chain is the strength of its weakest link. If an organization fails to make use of the customer feed back it not only looses its customer base but also weakens its supply chain and loses its business to its customers. Suppliers normally come at the upstream of the organization and customers at the downstream to complete the Supply Chain. Many Software are available to ensure that Supply chain is managed effectively by the organization. Supply Chain Management is now gaining popularity in Pakistan. © Copyright Virtual University of Pakistan 177 Production and Operations Management –MGT613 VU Lesson 40 SUPPLY CHAIN MANAGEMENT-I Learning Objective In this lecture we will focus on certain important parameters of Supply Chain Management. We will discuss the Supply Chain Operational Reference Metrics and Collaborative Planning Forecasting and Replenishment Process, which would help us analyze the Supply chains. This would also help us an operation manager to design effective supply chains. We will try to understand the concepts of Velocity and Bullwhip effect and how they pose a serious challenge to the effectiveness of the Supply Chain. Supply Chain Operational Reference (SCOR) Metrics
    • Perspective Metrics Reliability On-time delivery Order fulfillment lead time Fill rate (fraction of demand met from stock) Perfect order fulfillment Flexibility Supply chain response time Upside production flexibility Agility to obtain competitiveness Expenses Supply chain management costs Warranty cost as a percent of revenue Value added per employee Assets/utilization Total inventory days of supply Cash-to-cash cycle time Net asset turns Supply chain response time often makes or breaks a supply chain. CPFR CPFR is an acronym derived from the first letters of the following phrase: Collaborative Planning, Forecasting and Replenishment. 1. Focuses on information sharing among trading partners. 2. Forecasts can be frozen and then converted into a shipping plan. 3. Eliminates typical order processing. CPFR Process consists of the following steps. Step 1 – Front-end agreement Step 2 – Joint business plan Steps 3-5 – Sales forecast Steps 6-8 – Order forecast collaboration Step 9 – Order generation/delivery execution Creating an Effective Supply Chain 1. Develop strategic objectives and tactics. 2. Integrate and coordinate activities in the internal supply chain. 3. Coordinate activities with suppliers with customers. 4. Coordinate planning and execution across the supply chain. 5. Form strategic partnerships.
    • © Copyright Virtual University of Pakistan 178 Production and Operations Management –MGT613 VU Supply Chain Performance Drivers 1. Quality 2. Cost 3. Flexibility 4. Velocity 5. Customer service Velocity 1. Inventory velocity: The rate at which inventory (material) goes through the supply chain. 2. Information velocity: The rate at which information is communicated in a supply chain. Challenges to an Effective Supply Chain Management 1. Barriers to integration of organizations 2. Getting top management on board 3. Dealing with trade-offs 4. Small businesses 5. Variability and uncertainty 6. Long lead times Trade-offs 1. Cost-customer service a. Disintermediation 2. Lot-size-inventory a. Bullwhip effect 3. Inventory-transportation costs a. Cross-docking 4. Lead time-transportation costs 5. Product variety-inventory a. Delayed differentiation a Bullwhip effect represents the real life time situation that Inventories are progressively larger moving backward through the supply chain.
    • Cross-docking represents the fact that the goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded onto outbound trucks. Avoids warehouse storage. s Delayed differentiation relates to the Production of standard components and subassemblies, which are held until late in the process to add differentiating features. d Disintermediation is reducing one or more steps in a supply chain by cutting out one or more intermediaries. Supply Chain Issues © Copyright Virtual University of Pakistan Quality control Production planning and control Inventory policies Purchasing policies Production policies Transportation policies Quality policies Design of the supply chain, partnering Strategic Issues Tactical Issues Operating Issues 179 Production and Operations Management –MGT613 VU Supply Chain Benefits and Drawbacks Problem Potential Improvement Benefits Possible Drawbacks Large inventories Smaller, more frequent
    • deliveries Reduced holding costs Traffic congestion Increased costs Long lead times Delayed differentiation Disintermediation Quick response May not be feasible. May need absorb functions Large number of parts Modular Fewer parts Simpler ordering Less variety Cost Quality Outsourcing Reduced cost, higher quality Loss of control Variability Shorter lead times, better forecasts Able to match supply and demand Less variety Supplier Partnerships Ideas from suppliers could lead to improved competitiveness 1. Reduce cost of making the purchase 2. Increase Revenues 3. Enhance Performance Critical Issues 1. Technology management a. Benefits b. Risks 2. Strategic importance a. Quality b. Cost c. Agility
    • d. Customer service e. Competitive advantage Operations Strategy 1. SCM creates value through changes in time, location and quantity. 2. SCM creates competitive advantage by integrating and streamlining the diverse range of activities that involve purchasing, internal inventory, transfers and physical distribution. Summary Supply Chain Management dynamics allow an Operations Manager to evolve an effective strategy that creates value. Logistics and purchasing alone can allow an operations manager to effectively control the flow of information and materials with in and to and fro from the organization. Organizations aiming for SCM implementation often fail because of lack of training of their employees as well as top managements commitment. © Copyright Virtual University of Pakistan