Definition of Supply Chain Management (SCM) ?Design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand and measuring performance globally.
SCM Development Decades EDI & ERP Globalization Manufacturing & distributions SCM : A service SCM 2.0
What Is the Supply Chain? Also referred to as the logistics network Suppliers, manufacturers, warehouses, distribution centers and retail outlets – “facilities” Raw materials Work-in-process (WIP) inventory Finished products that flow between the facilities
The Supply Chain in form of Supply and demandnetwork
The Supply Chain – Another ViewSource Make Deliver Buy Suppliers Manufacturers Warehouses & Customers Distribution Centers Transportation Transportation Material Costs Costs Costs Transportation Manufacturing Costs Inventory Costs Costs
Short look Supply Chain Management (SCM)? A set of approaches used to efficiently integrate Suppliers Manufacturers Warehouses Distribution centers So that the product is produced and distributed In the right quantities To the right locations And at the right time System-wide costs are minimized and Service level requirements are satisfied
SUPPLY CHAIN INCLUDES Customer service management Procurement Product development and commercialization Manufacturing flow management/support Physical distribution Outsourcing/partnerships Performance measurement Warehousing management
Push Strategy Applied to that portion of the supply chain where demand uncertainty is relatively small Production and distribution decisions are based on long term forecasts Based on past orders received from retailer’s warehouse (may lead to Bullwhip Effects) Inability to meet changing demand patterns Large and variable production batches Unacceptable service levels Excessive inventories due to the need for large safety stocks less expenditure on advertising than pull strategy
Pull Strategy Applied to that portion of the supply chain where demand uncertainty is high Production and distribution are demand driven No inventory, response to specific orders Point of sale (POS) data comes in handy when shared with supply chain partners Decrease in lead time Difficult to implement
Supply Chain GoalsEfficient supply chain management must result in tangible businessimprovements. It is characterized by a sharp focus on Revenue growth Better asset utilization Cost reduction
Problems addressed by supply chain management Distribution Network Configuration Distribution Strategy Trade-Offs in Logistical Activities Information Inventory Management Cash-Flow
Why Is SCM Difficult? Uncertainty (Not Sure) Travel times Breakdowns of machines and vehicles Weather, natural catastrophe, war Local politics, labor conditions, border issues
Factors Contributing to the Bullwhip 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 Peaks and valleys in orders Fixed ordering costs Impact of transportation costs (e.g., fuel costs) Sales quotas Price fluctuations Promotion and discount policies Lack of centralized information
The Importance of Supply Chain Management thus isin Reduced inventories along the chain Better information sharing among the partners Planning being done in consultation rather than in isolation The benefits too would be reflected in terms of : Lower costs Better customer service Efficient manufacturing Better trust among the partners leading to win-win
Supply Chain Management – Key Issues 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 volume discount and revenue sharing • Pricing strategies to reduce order-shipment variabilityDistribution Strategies • Selection of distribution strategies (e.g., direct ship vs. cross-docking) • How many cross-dock points are needed? • Cost/Benefits of different strategiesIntegration and Strategic Partnering • How can integration with partners be achieved? • What level of integration is best? • What information and processes can be shared? • What partnerships should be implemented and in which situations?Outsourcing & Procurement Strategies • What are our core supply chain capabilities and which are not? • 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?
Methods for Improving ForecastsJudgment Methods Market Research Analysis• Internal experts• External experts• Domain experts • Market surveys • Market testing • Focus groups Accurate Time-Series Methods Forecasts Causal Analysis • Moving average • Relies on data other than that being • Exponential smoothing predicted • Trend analysis • Economic data, commodity data, • Seasonality analysis etc.
Supply Chain Management Operations Strategies STRATEGY WHEN TO CHOOSE WHEN TO CHOOSE Make to Stock standardized products, relatively Low manufacturing costs; meet predictable demand customer demands quickly Make to Order customized products, many variations Customization; reduced inventory; improved service levels Configure to Order many variations on finished product; Low inventory levels; wide range of infrequent demand product offerings; simplified planning Engineer to Order complex products, unique customer Enables response to specific customer specifications requirements
SAP SCM SAP SCM SAP DEMAND PLANNING SAP TRANSPORTATION SAP EVENT MANAGEMENT SAP SERVICE PLANT PLANNING SAP EXTENDED WAREHOUSE MANAGEMENT SAP SUPPLIER NETWORK COLLABORATION SAP FORECASTING AND REPLENISHMENT SAP SCM 7.0
Important points to keep in mind Segment customers based on service needs. Modify the supply chain to meet these service requirements profitably. Customize the logistics network. Develop forecasts collaboratively involving every link of the supply chain. Locate the leverage point where the product is unalterably configured to meet a single requirement Delay product differentiation till the last possible moment. Cultivate warm relationships with suppliers