Introduction To Scm


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  • Just as a river flows downstream, products in a supply chain are said to flow downstream from origin (raw materials) to destination (finished product sold to consumers). Alternatively, product returns and information concerning product demand, both of which originate at the point of sale or use, are thought to flow upstream. Payments by customers or consumers to retailers, distributors, manufacturers, and suppliers also flow upstream. While these two types of flows are obviously in the opposite direction, they are not in conflict and both are essential to the effective functioning of the supply chain.
  • Overall, supply chain emphasis is moving from one where the focus was on functional and process excellence, to one where the priorities are on integration, channel, and network excellence.
  • As attention evolves from integration, to collaboration, and then to synchronization, the supply chain focus becomes more pervasive and comprehensive. The objective of synchronization is characteristic of the most advanced form of supply chain responsiveness.
  • Introduction To Scm

    1. 1. SE 492: Supply Chain Systems Modeling Dr. Mohamed Ben Daya Professor of Industrial Engineering & Operations Research Systems Engineering Department KING FAHD UNIVERSITY OF PETROLEUM AND MINERALS
    2. 2. Introduction to Supply Chain Management
    3. 3. What is SCM? Supply Chain Management - is the “art” of managing the flow of materials and products, information, and financial resources from source to user. Integrated Supply Chain Management - refers to the integrated set of processes completed by supply chain participants where technology is used to seamlessly share information from end-to-end. Three key items flow between the supply chain participants There are five key participants in a supply chain
    4. 4. <ul><li>Definition: </li></ul><ul><li>Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities , to the right locations and at the right time , and so as to minimize total system cost subject to satisfying service requirements . </li></ul><ul><li>Notice: </li></ul><ul><ul><li>Everyone is involved </li></ul></ul><ul><ul><li>Systems approach to reducing costs </li></ul></ul><ul><ul><li>Integration is the key </li></ul></ul>Supply Chain Management
    5. 5. A Supply Chain Example <ul><li>Did you ever wonder where a television comes from? </li></ul><ul><ul><li>A variety of companies in different countries play a role in building the components, assembling the product, and moving it through the supply chain. The goal of the supply chain is to have the television available when you’re ready to purchase it from your favorite store or website. </li></ul></ul>
    6. 6. Who are the SC participants? <ul><li>Suppliers are the source of raw materials, component parts, semi-manufactured products, and other items. </li></ul><ul><li>Manufacturers are the makers of products. Many consider them to be the driver or leader of the supply chain. </li></ul><ul><li>Distributors are responsible for the packaging, storing, and handling of materials at receiving docks, warehouses, and retail outlets. </li></ul><ul><li>Retailers are the manufacturer's customers - the stores and eCommerce companies that buy the actual products. </li></ul><ul><li>Consumers are the ultimate product users - the people who buy the product. </li></ul>Suppliers Manufacturing Distribution Retailer Consumer
    7. 7. Interest in SCM <ul><li>Action taken by one member of the chain can influence the profitability of all others in the chain. </li></ul><ul><li>As firms streamline their own operations, the next opportunity for improvement is through better coordination with their suppliers and customers. </li></ul>
    8. 8. Supply Chain: The Magnitude
    9. 9. Supply Chain: The Magnitude <ul><li>In 1998, American companies spent $898 billion in supply-related activities (or 10.6% of Gross Domestic Product). </li></ul><ul><ul><li>Transportation 58% </li></ul></ul><ul><ul><li>Inventory 38% </li></ul></ul><ul><ul><li>Management 4% </li></ul></ul><ul><li>Third party logistics services grew in 1998 by 15% to nearly $40 billion </li></ul>
    10. 10. Supply Chain: The Magnitude <ul><li>It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies. </li></ul><ul><ul><li>A typical box of cereal spends more than three months getting from factory to supermarket. </li></ul></ul><ul><ul><li>A typical new car spends 15 days traveling from the factory to the dealership, although actual travel time is 5 days. </li></ul></ul>
    11. 11. Supply Chain: The Magnitude <ul><li>Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them. </li></ul><ul><li>In 1993, IBM lost a major fraction of its potential sales of desktop computers because it could not purchase enough chips that control the computer displays. </li></ul>
    12. 12. Supply Chain: The Magnitude <ul><li>Boeing Aircraft, one of America’s leading capital goods producers, was forced to announce write-downs of $2.6 billion in October 1997. The reason? “Raw material shortages, internal and supplier parts shortages…”. (Wall Street Journal, Oct. 23, 1997) </li></ul>
    13. 13. Supply Chain: The Potential
    14. 14. Supply Chain: The Potential <ul><li>Procter & Gamble estimates that it saved retail customers $65 million through logistics gains over the past 18 months. “According to P&G, the essence of its approach lies in manufacturers and suppliers working closely together …. jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain”. (Journal of Business Strategy, Oct./Nov. 1997) </li></ul>
    15. 15. Supply Chain: The Potential <ul><li>In two years, National Semiconductor reduced distribution costs by 2.5%, delivery time by 47% and increased sales by 34% by </li></ul><ul><li>- Shutting six warehouses around the globe. </li></ul><ul><li>- Air-freighting microchips to customers from a new centralized distribution center. </li></ul>
    16. 16. Supply Chain: The Potential <ul><li>In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer. </li></ul><ul><li>Laura Ashley turns its inventory 10 times a year, five times faster than three years ago. This is achieved by using </li></ul><ul><li>- New Information System </li></ul><ul><li>- Centralized Warehouse </li></ul>
    17. 17. Supply Chain: The Potential “ For a company with annual sales of $500 million and a 60% cost of sales, the difference between being at median in terms of supply chain performance and in the top 20% is $44 million of additional working capital.” -- PRTM Director Mike Aghajanian
    18. 18. Supply Chain: The Complexity
    19. 19. Supply Chain: The Complexity <ul><li>GM: </li></ul><ul><ul><li>Production: </li></ul></ul><ul><ul><ul><li>20,000 supplier plants </li></ul></ul></ul><ul><ul><ul><li>133 parts plants </li></ul></ul></ul><ul><ul><ul><li>31 assembly plants </li></ul></ul></ul><ul><ul><li>Distribution </li></ul></ul><ul><ul><ul><li>11,000 dealers </li></ul></ul></ul><ul><ul><li>Freight transportation: $4.1 billion </li></ul></ul><ul><ul><li>Inventory: $7.4 billion (70% WIP) </li></ul></ul>
    20. 20. Supply Chain: The Complexity <ul><li>GM: </li></ul><ul><ul><li>Production: </li></ul></ul><ul><ul><ul><li>20,000 supplier plants </li></ul></ul></ul><ul><ul><ul><li>133 parts plants </li></ul></ul></ul><ul><ul><ul><li>31 assembly plants </li></ul></ul></ul><ul><ul><li>Distribution </li></ul></ul><ul><ul><ul><li>11,000 dealers </li></ul></ul></ul><ul><ul><li>Freight transportation: $4.1 billion </li></ul></ul><ul><ul><li>Inventory: $7.4 billion (70% WIP) </li></ul></ul>
    21. 21. Supply Chain: The Complexity <ul><li>GM: </li></ul><ul><li>Produces nearly 900,000 vehicles annually </li></ul><ul><li>Over 35 manufacturing plants in 25 countries outside of Japan </li></ul><ul><li>For plants in the U.S., supply parts are shipped across the Pacific, and transported on rail </li></ul><ul><li>Deliveries are scheduled to the minute to keep inventories low (Just-in-time) </li></ul><ul><li>Complicated network with uncertainties </li></ul>
    22. 22. Supply Chain: The Complexity <ul><li>1 . Supply Chain Integration </li></ul><ul><li>• Conflicting Objectives </li></ul><ul><li>• The Dynamics of the Supply Chain </li></ul><ul><li>2. Matching Supply and Demand </li></ul><ul><li>3. System Variations over Time </li></ul><ul><li>4. Status of Logistics The management of the details of an operation Knowledge </li></ul><ul><li>• Many problems are new </li></ul><ul><li>• Incomplete understanding of issues </li></ul><ul><li>• Methodology is rather narrow </li></ul>
    23. 23. Why is SCM important?
    24. 24. SCM Provides a Strategic Response to Changing World <ul><li>Business is moving from “push” to “pull” inventory system </li></ul><ul><li>Companies have squeezed every possible penny out of manufacturing costs </li></ul><ul><li>Customers are demanding customized products, fast cycle times, and low cost </li></ul><ul><li>Product life cycles are shrinking </li></ul>
    25. 25. SCM Helps An Organization. . . <ul><li>Rationalize the flow of product from source point to ultimate consumption </li></ul><ul><li>Execute flawlessly </li></ul><ul><li>Reduce cycle time </li></ul><ul><li>Drive out cost and waste </li></ul>
    26. 26. Is SCM a reality today?
    27. 27. No… Many Companies Haven’t Taken Action Yet Source: Energizing the Supply Chain , Deloitte Consulting, 1999.
    28. 28. Supply Chain Development Integrate Collaborate Synchronize Functional Excellence Process Excellence Channel Excellence Integration Excellence Time Value Performance Deliver Value Effective Efficient Deliver Product Network Excellence
    29. 29. Supply Chain Development <ul><li>SCM must be implemented one step at a time </li></ul><ul><ul><li>Integration … within the business firm </li></ul></ul><ul><ul><li>Collaboration … between firms/organizations in the supply chain </li></ul></ul><ul><ul><li>Synchronization … system-wide relationships; formation of a “value net” to produce visibility throughout the supply chain </li></ul></ul>“ The obstacles to supply chain coordination encountered within the organization are far more difficult to overcome than the external challenges.” Bud LaLonde, Professor Emeritus, OSU
    30. 30. What SCM issues exist?
    31. 31. ISSUES: Decision Classification <ul><li>Strategic Planning : Decisions that typically involve major capital investments and have a long-term effect. </li></ul><ul><li>1. Determination of the number, size and location of new plants, distribution centers and warehouses </li></ul><ul><li>2. Acquisition of new production equipment and the design of working centers within each plant </li></ul><ul><li>3. Design of transportation facilities, communications equipment, data processing means, etc. </li></ul>
    32. 32. ISSUES: Decision Classification <ul><li>Tactical Planning : Effective allocation of manufacturing and distribution resources over a period of several months </li></ul><ul><li>1. Work-force size </li></ul><ul><li>2. Inventory policies </li></ul><ul><li>3. Definition of the distribution channels </li></ul><ul><li>4. Selection of transportation and trans-shipment alternatives </li></ul>
    33. 33. ISSUES: Decision Classification <ul><li>Operational Control: Includes day-to-day operational decisions </li></ul><ul><li>1. The assignment of customer orders to individual machines </li></ul><ul><li>2. Dispatching, expediting and processing orders </li></ul><ul><li>3. Vehicle scheduling </li></ul>
    34. 34. ISSUES: Why Keep Inventory? <ul><li>Uncertainty in customer demands </li></ul><ul><li>Uncertainty in the supply </li></ul><ul><ul><li>Uncertainty in quantity and quality </li></ul></ul><ul><ul><li>Uncertainty in delivery time </li></ul></ul><ul><ul><li>Uncertainty in costs </li></ul></ul><ul><li>Economies of scale </li></ul>
    35. 35. ISSUES: Demand Forecast <ul><li>The three principles of all forecasting techniques: </li></ul><ul><ul><li>Forecasting is always wrong </li></ul></ul><ul><ul><li>The longer the forecast horizon the worse the forecast </li></ul></ul><ul><ul><li>Aggregate forecasts are more accurate </li></ul></ul>
    36. 36. ISSUES: Inventory control <ul><li>How much inventory to keep? </li></ul><ul><li>Can uncertainty be reduced? </li></ul><ul><li>What size should orders be? </li></ul><ul><li>How does forecasting tool effect inventory level? </li></ul>
    37. 37. ISSUES: The Challenge of Inventory Management <ul><li>Matching supply and demand accurately is a critical challenge </li></ul><ul><ul><li>“ Dell Computers predicts a loss; stock plunges. Dell acknowledged that the company was sharply off in its forecast of demand, resulting in inventory writedowns”. (WSJ, August 1993) </li></ul></ul><ul><ul><li>“ IBM continues to struggle with shortages in the Think Pad line”. (WSJ, May 1994) </li></ul></ul><ul><ul><li>“ Liz Claiborne said its unexpected earnings decline is the consequence of higher than anticipated excess inventories”. (WSJ, August 1993) </li></ul></ul>
    38. 38. ISSUES: Purchasing <ul><li>What to Purchase </li></ul><ul><li>- In-house production Vs. external suppliers </li></ul><ul><li>Where to purchase </li></ul><ul><li>- Domestic Vs. international </li></ul><ul><li>From whom to purchase </li></ul><ul><li>- Cost </li></ul><ul><li>- Reliability: quality and on time delivery </li></ul><ul><li>- Availability and flexibility </li></ul>
    39. 39. ISSUES: Purchasing <ul><li>Centralized Vs. Decentralized </li></ul><ul><li>Number of suppliers: Single sourcing Vs. Multiple sourcing </li></ul><ul><li>Supply contracts </li></ul>
    40. 40. ISSUES: Production <ul><li>Location of manufacturing plants </li></ul><ul><ul><li>Production cost </li></ul></ul><ul><ul><li>Taxes </li></ul></ul><ul><ul><li>Incentives (by government) </li></ul></ul><ul><ul><li>Proximity to markets and raw materials </li></ul></ul><ul><ul><li>Transportation infrastructure </li></ul></ul><ul><ul><li>Political stability and culture </li></ul></ul>
    41. 41. ISSUES: Production <ul><li>Flexibility </li></ul><ul><ul><li>The ability to produce different products simultaneously and efficiently </li></ul></ul><ul><ul><li>The ability to produce new products efficiently </li></ul></ul>
    42. 42. ISSUES: Production <ul><li>Efficiency </li></ul><ul><ul><li>Low cost </li></ul></ul><ul><ul><li>Short lead time </li></ul></ul><ul><li>Reliability </li></ul><ul><ul><li>On-time delivery </li></ul></ul><ul><ul><li>Quality </li></ul></ul>
    43. 43. ISSUES: Distribution <ul><li>The structure of the distribution network </li></ul><ul><li>The distribution strategy </li></ul><ul><ul><li>The Classical Strategy </li></ul></ul><ul><ul><li>Cross Docking </li></ul></ul><ul><ul><li>Direct Shipping </li></ul></ul>
    44. 44. ISSUES: Product Design <ul><li>What role does product design play in supply chain management? </li></ul><ul><li>When is redesigning products worth the cost? </li></ul><ul><li>Can product design compensate for uncertainty in customer demand? </li></ul>
    45. 45. ISSUES: Information Systems <ul><li>The advantages of advanced information systems </li></ul><ul><li>The challenge of unlimited data </li></ul><ul><li>The roll of e-commerce </li></ul><ul><li>Impact of the internet </li></ul>
    46. 46. ISSUES: What’s New in Logistics? <ul><li>Global competition </li></ul><ul><li>Shorter product life cycle </li></ul><ul><li>Increasing product variety </li></ul><ul><li>New, low-cost distribution channels </li></ul><ul><li>More powerful well-informed customers </li></ul>
    47. 47. ISSUES: What’s New in Logistics? <ul><li>New communications and information technologies POS and EDI technology </li></ul><ul><ul><li>Wireless technology </li></ul></ul><ul><li>Decision Support Systems </li></ul><ul><li>Integrated systems </li></ul><ul><li>Multi-modal transportation </li></ul>
    48. 48. ISSUES: What’s New in Logistics? <ul><li>New concepts in logistics </li></ul><ul><ul><li>Push Vs Pull strategies </li></ul></ul><ul><ul><li>Cross docking </li></ul></ul><ul><ul><li>Strategic alliances </li></ul></ul><ul><ul><li>Manufacturing postponement </li></ul></ul><ul><ul><li>Design for Logistics </li></ul></ul>
    49. 49. How should organizations move toward SCM?
    50. 50. SCM Success Prescription <ul><li>Commit top management </li></ul><ul><li>Develop a broad vision </li></ul><ul><ul><li>from customer’s customer to supplier’s supplier </li></ul></ul><ul><li>Conduct a reality check </li></ul><ul><ul><li>the good, bad, & ugly of our operations </li></ul></ul><ul><li>Choose the right partners </li></ul><ul><ul><li>linkages with groups of compatible enterprises </li></ul></ul>
    51. 51. SCM Success Prescription <ul><li>Develop appropriate management structure </li></ul><ul><ul><li>improve flow-through </li></ul></ul><ul><li>Measure and monitor performance </li></ul><ul><ul><li>remove time, inventory, waste </li></ul></ul><ul><li>Make information available </li></ul><ul><ul><li>timely, accurate, forward focused </li></ul></ul><ul><li>Refine and improve supply chain </li></ul>
    52. 52. SCM Benefits <ul><li>Properly implemented SCM promotes…. </li></ul>Quality improvement Technology deployment Total cost reduction Customer satisfaction