INTERNATIONAL LOGISTICS AND SUPPLY CHAIN MANAGEMENT BY C.RAJA V.VINEETH R.NAVEEN RAJ B.SREEHARINATH VICTOR JAYAKUMAR EDWARD
HIGHLIGHTS Supply Chain definition Logistics definition History of Supply Chain Objectives, Importance, Measuring factors Principles of Supply Chain Decision phases in Supply Chain Process views Supply Chain Drivers Supply Chain Macro processes in a firm Key issues of Supply Chain Bull Whip Effect Operation Strategies Imperatives for Success Supply Chain collaboration Emerging Best Practices in SCM
SUPPLY CHAIN MANAGEMENT Also referred to as the logistics network Suppliers, manufacturers, warehouses, distribution centers and retail outlets – “facilities”and the Raw materials Work-in-process (WIP) inventory Finished productsthat flow between the facilities.Hence SCM is a network of all parties involved, either directly (or) indirectly, in fulfilling a customer request.
Supply Chain includes Material flows Information flows Financial flowsLOGISTICS Physical Distribution Management(1976) Logistics is the process of planning, implementing, controlling efficient and effective flow and storage of goods, services and related information from the point of origin to the point of consumption.
TRADITIONAL SUPPLY CHAIN SYSTEMSSupplier Manufacturer MDC WDC Retail Customer plant 3rd Party Logistics Providers (3PL) Material Flow Information Flow
Supply Chain objectives To have the right products in the right quantities at the right place at the right moment at minimal cost. It is characterized by a sharp focus on Maximize the overall profit Better asset utilization Cost reduction.
Importance of SC Reduced inventories along the chain. Better information sharing among the partners. Planning being done in consultation rather than in isolation. Supply chain design, planning and operation decisions play a significant role in the success or failure of the firmMeasuring Factors of SCM Responsiveness Efficiency 9
Principles of SC Sourcing, procurement and supply management Component order arrival Production scheduling Receiving Materials management Forecasting, Inventory, stores management, stock keeping Logistics and distribution management 10
Decisons in Developing a strategy or Design: What is the chain’s configuration? How resources will be allocated? What process each stages will perform? Whether to outsource or perform in/house?
Decisions in Planning Supply Chain: Forecasting the demand for the coming year Which markets will be supplied from which locations? The inventory policies to be followed The timing and size of marketing and size of marketing and pricing promotions
Steps in Supply Chain Operations: Set delivery schedules of trucks and placing orders Set a date that the order to be filled. Generate pick lists at a warehouse Allocate a particular order to particular shipping mode or shipment Allocate inventory or production to individual orders.
PROCESS VIEWS Cycle view Push/pull view Cycle View: The process is divided into a series of cycles, each performed at the interface between two successive stages of a supply chain. Push/Pull view: The process in supply chain are divided into two categories depending on whether they are executedin response to the consumer order or in anticipation of the customer orders. 15
Cycle View:• Given the fivestages of supply chain :• Customer Customer order cycle• Retailer Replenishment Cycle• Distributor Manufacturing• Manufacturer cycle Procurement• Supplier Cycle
Sub Process in each cycle: Supplier markets Supplier receives product Buyer places order orderBuyer reverse flows to supplier or third Buyer receives Supplier supplies party supply order
PUSH STRATEGIES Classical manufacturing supply chain strategy Manufacturing forecasts are long-range Orders from retailers’ warehouses Longer response time to react to marketplace changes Unable to meet changing demand patterns Supply chain inventory becomes obsolete as demand for certain products disappears Increased variability (Bullwhip effect) leading to: Large inventory safety stocks Larger and more variably sized production batches Unacceptable service levels Inventory obsolescence Inefficient use of production facilities (factories) How is demand determined? Peak? Average? How is transportation capacity determined? Examples: Auto industry, large appliances, others? 18
PULL STRATEGIES Demand-driven Coordinated with true customer demand None or little inventory held Only in response to specific orders Decreased lead times Decreased retailer inventory Decreased variability in the supply chain and especially at manufacturers Decreased manufacturer inventory More efficient use of resources More difficult to take advantage of scale opportunities Examples: Dell, Amazon 19
PUSH/PULL STRATEGIES Hybrid of “push” and “pull” strategies to overcome disadvantages of each Early stages of product assembly are done in a “push” manner Partial assembly of product based on aggregate demand forecasts (which are more accurate than individual product demand forecasts) Uncertainty is reduced so safety stock inventory is lower Final product assembly is done based on customer demand for specific product configurations Supply chain timeline determines “push-pull boundary” Push- Pull Boundary “Generic” Product “Customized” Product Push Strategy Pull Strategy Raw EndMaterials Consumer Supply Chain Timeline 20
CHARACTERISTICS OF PUSH, PULL ANDPUSH/PULL STRATEGIES PUSH PULL Objective Minimize Cost Maximize Service Level Complexity High Low Focus Resource Allocation Responsiveness Lead Time Long Short Processes Supply Chain Planning Order Fulfillment 21
SUPPLY CHAIN MANAGEMENT – KEY ISSUES Overcoming functional silos with conflicting goals Customer Service/ Purchasing Manufacturing Distribution Sales Low pur- Few change- chase price overs High service Low levels Multiple Stable inventories schedules Low costs vendors Low transportation costs SOURCE MAKE DELIVER SELL 24
SUPPLY CHAIN MANAGEMENT – KEYISSUES ISSUE CONSIDERATIONSNetwork Planning • Warehouse locations and capacities • Plant locations and production levels • Transportation flows between facilities to minimize cost and timeInventory Control • How should inventory be managed? • Why does inventory fluctuate and what strategies minimize this?Supply Contracts • Impact of Revenue sharing • Pricing strategiesStrategic Partnering • What information and processes can be shared? • What partnerships should be implemented and in which situations?Outsourcing & Procurement • What are our core supply chain capabilities and which are not?Strategies • Does our product design mandate different outsourcing approaches? • Risk managementProduct Design • How are inventory holding and transportation costs affected by product design? • How does product design enable mass customization? 25
BULL WHIP EFFECT Inventory and back-order levels fluctuate considerably across the supply chain even when customer demand doesn’t vary The variability worsens as we travel “up” the supply chain Forecasting doesn’t help Multi-tier Wholesale Suppliers Manufacturer Distributors Retailers Consumers Sales Sales Sales Sales Time Time Time Time Bullwhip Effect 26
FACTORS CONTRIBUTING TO THEBULLWHIP Demand forecasting practices Min-max inventory management (reorder points to bring inventory up to predicted levels) Lead time Longer lead times lead to greater variability in estimates of average demand, thus increasing variability and safety stock costs Batch ordering Fixed ordering costs Impact of transportation costs (e.g., fuel costs) Sales quotas Price fluctuations Promotion and discount policies Lack of centralized information 27
TAMING THE BULLWHIP Four critical methods for reducing the Bullwhip effect: Reduce uncertainty in the supply chain Centralize demand information Keep each stage of the supply chain provided with up-to- date customer demand information More frequent planning (continuous real-time planning the goal) Reduce variability in the supply chain Every-day-low-price strategies for stable demand patterns Eliminate the bullwhip through strategic partnerships Vendor-managed inventory (VMI) Collaborative planning, forecasting and replenishment (CPFR) 28
SUPPLY CHAIN MANAGEMENT OPERATIONSSTRATEGIES STRATEGY WHEN TO CHOOSE BENEFITS Make to Stock standardized products, Low manufacturing costs; relatively predictable meet customer demands demand quickly Make to Order customized products, Customization; reduced many variations inventory; improved service levels Configure to Order many variations on Low inventory levels; wide finished product; range of product offerings; infrequent demand simplified planning Engineer to Order complex products, Enables response to specific unique customer customer requirements specifications 29
SUPPLY CHAIN IMPERATIVES FOR SUCCESS View the supply chain as a strategic asset Dell’s innovative direct-to-consumer sales and build-to-order manufacturing Create unique supply chain configurations that align with your company’s strategic objectives Operations strategy Outsourcing strategy Channel strategy Supply chain configuration components Customer service strategy Asset network Reduce uncertainty Forecasting Collaboration Integration 30
SUPPLY CHAIN COLLABORATION Many different definitions depending on perspective The means by which companies within the supply chain work together towards mutual goals by sharing Ideas Information Processes Knowledge Information Risks Rewards Why collaborate? Accelerate entry into new markets Changes the relationship between cost/value/profit equation 31
SUPPLY CHAIN COLLABORATION The only method that has the potential to eliminate or minimize the Bullwhip effect Retailers Suppliers Synchronized Manufacturer Production Scheduling Collaborative Distributors/ Demand Collaborative Wholesalers Planning Product Development Collaborative Logistics Planning •Transportation services •Distribution center services Logistics Providers 32
BENEFITS OF SUPPLY CHAIN COLLABORATION CUSTOMERS MATERIAL SERVICE SUPPLIERS SUPPLIERS• Reduced inventory • Reduced inventory • Lower freight costs• Increased revenue • Lower warehousing costs • Faster and more reliable• Lower order management • Lower material acquisition deliverycosts costs • Lower capital costs• Higher Gross Margin • Fewer stockout conditions • Reduced depreciation• Better forecast accuracy • Lower fixed costs• Better allocation ofpromotional budgets • Improved customer service • More efficient use of human resources Source: Cohen & Roussel 33