SCM DEFINED The supply chain is the network of organizations that are involved through upstream and down stream linkages, in different processes and activities that produce value in the form of products and services in the hands of the ultimate customer. Supply Chain may be defined as “flow of materials through procurement, manufacturing, distribution, sales & disposal”.

Dynamics of Material Flow Supplier Plant RS Logistics Retailer

SCM FLOWS MATERIAL MONEY INFORMATION Procurement Manufacturing Distribution Customer

Supply Chain Relationship

What is SCM ? Buying Selling Making Moving Ware housing SCM is a business network covering from buying, making, moving, warehousing to selling

Traditional SCM

Cost Reduced inventories Reduced waste Reduced total system costs Service Establishment of a collaborative framework Near real time information flow Reduced variation and increased quality Business growth opportunities Preferred source for new opportunities Expanded benefits to other customers Supply Chain Benefits

Cost

Reduced inventories

Reduced waste

Reduced total system costs

Service

Establishment of a collaborative framework

Near real time information flow

Reduced variation and increased quality

Business growth opportunities

Preferred source for new opportunities

Expanded benefits to other customers

The Three Ts

Transactional Efficiency Critical Data to improve : Multiple handling Transit damage Process delays Excess freight Delays End-to-end cycle-time Warehouse fees Inventory turns Yield Late Deliveries Perceived Value Intrinsic Value The Supply Chain “Iceberg”

Supply Chain Decisions OPERATIONAL TACTICAL STRATEGIC Procurement Distribution Manufacturing Logistics

SCM FOCUS / LEARNINGS SERVICE COST FLOW OF INFORMATION / MATERIAL AND CASH INPUTS AND OUTPUTS

SERVICE COST

FLOW OF INFORMATION / MATERIAL AND CASH

INPUTS AND OUTPUTS

ELEMENTS OF SCM INVENTORY MANAGEMENT WAREHOUSING TRANSPORTATION

INVENTORY MANAGEMENT

WAREHOUSING

TRANSPORTATION

What is inventory Shortage Excess The stock of material lying with you for which payments are made but which are yet to be delivered to the customers and paid for by them. Material stocked to meet the expected demand in the market. An idle resource which locks the capital.

The stock of material lying with you for which payments are made but which are yet to be delivered to the customers and paid for by them.

Material stocked to meet the expected demand in the market.

An idle resource which locks the capital.

Shortage Excess Why inventories are necessary To satisfy the customer demands without time lag. To cover time required for procurement of material . To cater to fluctuations in demand. Seasonal demand of products. Production constraints of suppliers. To retain supplier goodwill.

Why inventories are necessary

To satisfy the customer demands without time lag.

To cover time required for procurement of material .

To cater to fluctuations in demand.

Seasonal demand of products.

Production constraints of suppliers.

To retain supplier goodwill.

Inventory Exercise WORK OUT INVENTORY NORMS BASED ON SERVICE FREQUENCY, SALES AND DEMAND VARIABILITY & TRANSIT TIME VARIABILITY Consider sales qty. – 300 CLD’S per month, Demand variability – 20 %, Supply variability of + / - 2 Days & Service frequency of 1 / week

WORK OUT INVENTORY NORMS BASED ON SERVICE FREQUENCY, SALES AND DEMAND VARIABILITY & TRANSIT TIME VARIABILITY

Consider sales qty. – 300 CLD’S per month, Demand variability – 20 %, Supply variability of + / - 2 Days & Service frequency of 1 / week

Service Level & Inv. Costs Costs Opportunity cost curve. Total costs A Inventory + Service costs. Low Service levels High I Interpretation:  At low service levels, costs due to lost opportunities are very high.  When service levels are raised, inventory + service costs increase marginally but costs due to lost opportunities come down drastically.  Enlarged view of portion marked at “A” is shown in the next graph for further explanation.

ENLARGED VIEW OF PORTION “A” Explanation: In ‘zone of improvement ’, as service level goes up by increasing stocks and incurring in extra expenditure for giving better service, the gains obtained due to better sales outweigh the costs incurred. In ‘zone of indifference’, the gains and costs are more or less balanced. In ‘zone of perfection’, as service levels are raised to near to 100%, the costs outweigh the gains but in modern competitive environment, this may become a necessity for survival Zone of Indifference Zone of Perfection. Zone of Improvement

Explanation:

In ‘zone of improvement ’, as service level goes up by increasing stocks and incurring in extra expenditure for giving better service, the gains obtained due to better sales outweigh the costs incurred.

In ‘zone of indifference’, the gains and costs are more or less balanced.

In ‘zone of perfection’, as service levels are raised to near to 100%, the costs outweigh the gains but in modern competitive environment, this may become a necessity for survival

Scientific Replenishment System

The Use of Safety Stock Inventory on Hand Inventory on Hand Stock out Time Stock out is avoided Time Safety Stock

ABC Analysis Based on principle of management by exception. Unit value is not a consideration. Analysis is based on total consumption value of items in predetermined time span. Criticality/importance of item is not a consideration All the items are divided in three categories. Decisions are based on 80 : 20 rule.

ABC Analysis

Based on principle of management by exception.

Unit value is not a consideration. Analysis is based on

total consumption value of items in predetermined time span.

Criticality/importance of item is not a consideration

All the items are divided in three categories.

Decisions are based on 80 : 20 rule.

ABC Analysis Exercise Classifying inventory according to some measure of importance and allocating control efforts accordingly. A - very important B - mod. important C - least important Annual value of items A B C High Low Few Many Number of Items

Classifying inventory according to some measure of importance and allocating control efforts accordingly.

A - very important

B - mod. important

C - least important

DECISION PARAMETERS FOR ABC ANALYSIS ADEQUACY OF STOCKS FREQUENCY OF STOCK CHECKING LOCATION IN WAREHOUSE

ADEQUACY OF STOCKS

FREQUENCY OF STOCK CHECKING

LOCATION IN WAREHOUSE

FSN Analysis Based on speed of movement of material. Some materials have regular and high volume demand and move ‘Fast’ (F), some material have intermittent and unpredictable demand and hence move ‘Slow’ (S) and a few items have practically no takers and hence keep on lying in stores for long period of time and categorized as ‘Non moving’ (N). FAST MOVING SLOW MOVING NON MOVING

FSN Analysis

Based on speed of movement of material.

Some materials have regular and high volume demand and move ‘Fast’ (F),

some material have intermittent and unpredictable demand and hence move ‘Slow’ (S)

and a few items have practically no takers and hence keep on lying in stores for long period of time and categorized as ‘Non moving’ (N).

INVENTORY FOCUS / LEARNINGS What is Inventory and why do we need inventory ? How do we avoid non moving and slow moving inventory? How do we classify and analyze inventory?

What is Inventory and why do we need inventory ?

How do we avoid non moving and slow moving inventory?

How do we classify and analyze inventory?

ELEMENTS OF SCM INVENTORY MANAGEMENT WAREHOUSING TRANSPORTATION

INVENTORY MANAGEMENT

WAREHOUSING

TRANSPORTATION

ELEMENTS OF WAREHOUSING LOCATION LAYOUT IDENTIFICATION MATERIAL HANDLING

LOCATION

LAYOUT

IDENTIFICATION

MATERIAL HANDLING

Layout principles Ease of receipts, storage and issues. Uninterrupted movement of material, men and equipment. Optimum utilization of space. Ease of locating the material. Safety. & Security. Better supervision. Flexibility Building. : Preferably single storied, enough height, proper lighting and ventilation, protection against hazards like fire and lightening.

Layout principles

Ease of receipts, storage and issues.

Uninterrupted movement of material, men and equipment.

Optimum utilization of space.

Ease of locating the material.

Safety. & Security.

Better supervision.

Flexibility

Building. : Preferably single storied, enough height, proper lighting and ventilation, protection against hazards like fire and lightening.

Identification of Material Tagging. Labeling. Writing, painting, engraving, stamping, etching, color coding on the part/case/box. Bar coding.

Tagging.

Labeling.

Writing, painting, engraving, stamping, etching, color coding on the part/case/box.

Bar coding.

IMPROVED STORAGE SYSTEM EXERCISE

Features of a good warehouse Place for everything and everything in its place. FMFO – First Manufactured and First Out principle. Maintenance of prompt and correct records. Fast and courteous service to customers. Minimum damages to the material. Protection against pilferage. Regular verification and inspection of material. Regular inventory taking and reconciliation. Maintaining inventory within specified norms.

Features of a good warehouse

Place for everything and everything in its place.

FMFO – First Manufactured and First Out principle.

Maintenance of prompt and correct records.

Fast and courteous service to customers.

Minimum damages to the material.

Protection against pilferage.

Regular verification and inspection of material.

Regular inventory taking and reconciliation.

Maintaining inventory within specified norms.

Learning's from the topic How do we keep our warehouse in more orderly manner ? ( Understanding Location and layout of the warehouse ) What activities we must do in the warehouse to ensure proper identification & tracing of the material How can we reduce our labour cost in the warehouse. What mechanization we can do in our warehouse? How can we ensure better material movement inside the warehouse?

Learning's from the topic

How do we keep our warehouse in more orderly manner ? ( Understanding Location and layout of the warehouse )

What activities we must do in the warehouse to ensure proper identification & tracing of the material

How can we reduce our labour cost in the warehouse. What mechanization we can do in our warehouse?

How can we ensure better material movement inside the warehouse?

ELEMENTS OF SCM INVENTORY MANAGEMENT WAREHOUSING TRANSPORTATION

INVENTORY MANAGEMENT

WAREHOUSING

TRANSPORTATION

Logistics Management 'Logistics is the process of strategically managing the procurement, movement and storage of materials (and related information flows) through the organisation and its marketing channels

Objectives of Transport Management Cost Optimization Improved service Transportation/logistics as a competitive differentiator. Time to market

Objectives of Transport Management

Cost Optimization

Improved service

Transportation/logistics as a competitive differentiator.

Time to market

CARRIER SELECTION OUTSOURCING Vs. OWN VEHICLE VEHICLE TYPE ( SIZE ) CUSTOMERS PER VEHICLE & TRIPS PER VEHICLE ( ROUTING )

Carrier Selection and Routing The practical meaning of the 4 C’s of selecting transportation services Competition Cost Comparison Compromise Sources Destinations

Carrier Selection and Routing

The practical meaning of the 4 C’s of selecting transportation services

Competition

Cost

Comparison

Compromise

Your responsibility is to assist in defining Right Product in the Right Quantity from the Right Source to the Right Destination in the Right Condition at the Right Time for the Right Cost.

Transport Costs Fixed cost Variable cost Vehicle cost ( Depreciation ) License fee Insurance cost Driver salary Interest cost Road tax Administration Cost Labour cost ( Laoding & Unloading ) Fuel, Consumables & Oil cost

Factors Affecting Carrier Decision Carrier makes investment to maximize return on assets. For this he has to consider following costs – Vehicle-Related Cost : This is fixed cost in short term incurred for purchasing or leasing the carrier. Fixed Operating Cost : This includes any cost associated with terminals, Road Tax, and labor. Trip-Related Cost : This includes the price of labor and fuel incurred for each trip independent of the quantity transported and depends on the length and duration of the trip. Quantity Related cost : This includes loading / Unloading cost and part of fuel cost that varies with the quantity being transported. Overhead cost : This includes, planning & scheduling cost, IT cost.

Factors Affecting Carrier Decision

Carrier makes investment to maximize return on assets.

For this he has to consider following costs –

Vehicle-Related Cost : This is fixed cost in short term incurred for purchasing or leasing the carrier.

Fixed Operating Cost : This includes any cost associated with terminals, Road Tax, and labor.

Trip-Related Cost : This includes the price of labor and fuel incurred for each trip independent of the quantity transported and depends on the length and duration of the trip.

Quantity Related cost : This includes loading / Unloading cost and part of fuel cost that varies with the quantity being transported.

Overhead cost : This includes, planning & scheduling cost, IT cost.

Routing & Scheduling In Transportation This refers to the selection of customers to be visited by the particular vehicle and the sequence in which they will be visited. For the companies to be successful, they have to do the routing and scheduling in such a way that they reduce the cost of transportation at the same time make the deliveries fast and meet the promised level of responsiveness to the customers. To achieve this, the objective is to minimize cost by Decreasing the number of vehicles, Reducing total distance traveled, Reducing total travel time & Reducing service failures ( delays )

Routing & Scheduling In Transportation The objective of the supplier is to Pick the items needed and to load them on trucks for delivery Decide which vehicle will deliver to which customers & the route that each truck will take. Ensure that no vehicle is overloaded at the same time try to load all the vehicles fully. To do this, the technique that can be used is Savings Matrix Method.

Routing & Scheduling In Transportation

The objective of the supplier is to

Pick the items needed and to load them on trucks for delivery

Decide which vehicle will deliver to which customers & the route that each truck will take.

Ensure that no vehicle is overloaded at the same time try to load all the vehicles fully.

To do this, the technique that can be used is Savings Matrix Method.

Assign Customers to Vehicles or Routes Select the route with highest savings and combine the 2 routes if the total load is less than the permitted load. Keep combining this way to get the route plan. Sequence Customers within Routes The goal here is to minimize the distance each vehicle must travel. The procedure for this is as follows: Farthest Insert : Given, a vehicle trip for each customer, evaluate the minimum increase in length if this customer is inserted at a suitable point in the trip and insert the customer with the largest minimum increase to obtain the new trip. Nearest Insert : Given, a vehicle trip for each customer, evaluate the minimum increase in length if this customer is inserted at a suitable point in the trip and insert the customer with the smallest minimum increase to obtain the new trip.

Routing & Scheduling Exercise

Learnings & Assignments Is selection of vehicle critical for the business? How to select a vehicle for transportation? How to decide sequence for delivery of goods to the retailers? Is Outsourcing of transport vehicles more beneficial for us or Having own vehicles more beneficial for us?

Learnings & Assignments

Is selection of vehicle critical for the business? How to select a vehicle for transportation?

How to decide sequence for delivery of goods to the retailers?

Is Outsourcing of transport vehicles more beneficial for us or Having own vehicles more beneficial for us?

SCM Key Performance Measures FMFO Deliveries during the month FMFO Adherence % ge = ---------------------------------------------------------- Total deliveries made during the month. Orders Delivered On Time & Full Commitment % ge ( OTIF ) = ----------------------------------------------------- Orders Received in a month Transport cost + Labour Cost + storage cost SCM COST / TN = --------------------------------------------------------------------- Total sales

Product Attributes Planning Request For Quotation Availability Purchase Order Order Confirmation Call-Off Order Status Inventory Status Product Quality Usage Inventory Change Product Performance Delivery Message Goods Receipt Invoice Credit/Debit Note Business Acknowledgement Information Request Complaint Complaint Request Supply Chain Model Foundation Plan Make Deliver Source Utility SCM Process categorized according to the Supply-Chain Council’s, Supply-Chain Operations Reference (SCOR) model

Product Attributes

Planning

Request For

Quotation

Availability

Purchase Order

Order Confirmation

Call-Off

Order Status

Inventory Status

Product

Quality

Usage

Inventory

Change

Product

Performance

Delivery Message

Goods Receipt

Invoice

Credit/Debit Note

Business Acknowledgement

Information Request

Complaint

Complaint Request

Bullwhip Effect Factors contributing to the Bullwhip Effect: Forecast Errors Lead Time Variability Batch Ordering Price Fluctuations Product Promotions Inflated Orders Methods intended to reduce uncertainty, variability, and lead time: Vendor Managed Inventory (VMI) Just In Time replenishment (JIT) Strategic partnership

Factors contributing to the Bullwhip Effect:

Forecast Errors

Lead Time Variability

Batch Ordering

Price Fluctuations

Product Promotions

Inflated Orders

Methods intended to reduce uncertainty, variability, and lead time:

Vendor Managed Inventory (VMI)

Just In Time replenishment (JIT)

Strategic partnership

Bullwhip Effect

Bullwhip Effect

Demand Signal Processing (frequent updates of forecasts; only next echelon orders considered) Order Batching (to realise logistic Economies of scale + Reducing order processing costs) Price Fluctuations (resulting in over-reactions) Supply Rationing (Proportionate rationing; unrestricted order acceptance + free return policy) Causes of Bullwhip Effect

Demand Signal Processing (frequent updates of forecasts; only next echelon orders considered)

Order Batching (to realise logistic Economies of scale + Reducing order processing costs)

Price Fluctuations (resulting in over-reactions)

Supply Rationing (Proportionate rationing; unrestricted order acceptance + free return policy)

Counter-Measures for BWE Avoid multiple demand forecasts Order based on ultimate customer demand Use EDI+POS+VMI Choose a good forecasting method (PLC has a major say) Move from decentralized DM to centralized planning (visibility+control is better) Remove layers in channel if possible Eg: HP, Apple, IBM, P&G/Walmart

Avoid multiple demand forecasts

Order based on ultimate customer demand

Use EDI+POS+VMI

Choose a good forecasting method (PLC has a major say)

Move from decentralized DM to centralized planning (visibility+control is better)

Remove layers in channel if possible

Eg: HP, Apple, IBM, P&G/Walmart

Counter-Measures for BWE Break order batches Increase frequency of ordering (OP costs reduced by EDI) Resort to standardization to minmize OP costs Use 3PL to make small batch replenishments economical Aggregate across retail outlets to utilize FTL EoS Reduce safety stocks by cutting lead times Eg: 3PL using Fedex, P&GStabilize prices EDLP (P&G) Special purchase contracts Eliminate shortage gaming Allocate based on past sales (Sun) Share capacity and information (HP, Motorola) Limit flexibility wrt time (HP, Seagate)

Break order batches

Increase frequency of ordering (OP costs reduced by EDI)

Resort to standardization to minmize OP costs

Use 3PL to make small batch replenishments economical

Aggregate across retail outlets to utilize FTL EoS

Reduce safety stocks by cutting lead times

Eg: 3PL using Fedex, P&GStabilize prices

EDLP (P&G)

Special purchase contracts

Eliminate shortage gaming

Allocate based on past sales (Sun)

Share capacity and information (HP, Motorola)

Limit flexibility wrt time (HP, Seagate)