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Supply chain management - Session 1

1st session: Essentials of Supply Chain

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Supply chain management - Session 1

  1. 1. Supply Chain Management Training Course “EIMC United Pharmaceuticals” Mahmud Abouel-Atta
  2. 2. Course Overview Session 1: Essentials of Supply Chain Session 2: Capacity Planning Session 3: Inventory Control Session 4: Production Scheduling Session 5: Purchasing Mahmud Abouel-Atta
  3. 3. Essentials of Supply Chain OPEN your MIND Mahmud Abouel-Atta SESSION 1
  4. 4. Overview • Introduction to Supply Chain Concepts • History of Supply Chain • Supply Chain Management • Objectives & Goals of SCM • Why SC Has Become an Important Issue • Activitiesof Supply Chain • Supply Chain Performance • Supply Chain Performance Measurements • SCOR Model • Supply Chain Flows Mahmud Abouel-Atta
  5. 5. Introduction • Firms can no longer effectively compete in isolation of their suppliers and other entities in the supply chain. Interest in the concept of supply chain management has steadily increased since the 1980s when companies saw the benefits of collaborative relationships within and beyond their own organization. Mahmud Abouel-Atta
  6. 6. Introduction • Supply Chain Management is not a standalone process • Supply Chain Management is much more than just procurement. • Supply Chain Management is not: • Inventory management; • Logistics management; • Supplier partnerships; • A shipping strategy; • Distribution management; • Procurement management; • A computer system.
  7. 7. History of Supply Chain • 1950’s – Inventory Management, focus on Cost Control 1957, American Production and Inventory Control Society (APICS) established • 1960’s – Materials Management, Logistics, focus on MRP & BOM 1961, Gene Thomas at IBM develops earliest version of MRP. 1963, Council of Logistics Management CLM has founded under name National Council of Physical Distribution Management. 1969, Early work on Customer/Supplier Relationship. • 1970’s – Operations Planning, focus on MRPII & JIT. • 1980’s – SCM, 1990’s - ERP - “Integrated” Purchasing, Financials, Manufacturing, Planning. 1982, Allen and Hamilton Inc. coins the term “SCM”. 2004, “CLM” changes name to Council of Supply Chain Management Professionals “CSCMP”. Mahmud Abouel-Atta
  8. 8. Supply Chain Management • Materials are any commodities used directly or indirectly in producing a product or service. – Raw materials, Packaging materials, component parts, and supplies. • Supply chain activities transform raw materials and components into a finished product that is delivered to the end customer. Mahmud Abouel-Atta
  9. 9. Supply Chain Management • A Supply chain is a term that describes how organization (suppliers, manufacturing, distributers, and customers) are linked together. • A Supply chain consists of three entities; customers, a producer, and the producer’s supplier. • The supply chain starts at the supplier's production line and ends at the customer's point of use. Mahmud Abouel-Atta
  10. 10. Supply Chain Management • Supply chain management is the management, design, planning, execution, control, monitoring and follow-up of all activities related to delivery the finished product for the end customer in the right quantities, to the right location, and at the right time with minimum cost. • SCM connects a company’s supply side with its demand side. Mahmud Abouel-Atta
  11. 11. Supply Chain Management • Supply chain management • A set of activities used to efficiently integrate with Suppliers, Manufacturers, Warehouses, and Distribution centres • So that the product is produced and distributed In the right quantities, To the right locations, and At the right time • With minimum System-wide costs • With coordinating and integrating its flows with all departments and related companies. Mahmud Abouel-Atta
  12. 12. Supply Chain Objective & Goals • Objective: -To have the right products in the right quantities at the right place at the right moment at minimal cost. -Reduce uncertainty & risks, inventory, cycle time. -Improve business processes, customer service. -Increased profits & competitiveness. • Goals: Efficient supply chain management must result in tangible business improvements. It is characterized by a sharp focus on: -Maximize the overall profit. -Better asset utilization. -Cost reduction. Mahmud Abouel-Atta
  13. 13. Supply Chain Management • Why implementing a Supply Chain approach... Its all about …………………………….. Poor service Empty shelves Poor forecasting Mahmud Abouel-Atta
  14. 14. Supply Chain Activities -Forecasting demand. -Selecting suppliers. -Sourcing and procurement. -Handling material. -Processing order. -Managing inventory. -Scheduling production. -Shipping and delivery. -Organizing information exchange. Mahmud Abouel-Atta
  15. 15. • Why Supply chain has become an important issue: - Matching supply and demand Prices adjust to match supply with demand. Boeing announced a $2.6 billion write-off in 1997 due to “raw materials shortages, internal and supplier parts shortages and productivity inefficiencies” U.S Surgical Corporation announced a $22 million loss in 1993 due to “larger than expected inventories on the shelves of hospitals” U.S. firms spent $898 billion (10% of GDP) on supply-chain related activities in 1998 Mahmud Abouel-Atta
  16. 16. • Why Supply chain has become an important issue: - Sourcing raw materials For many companies, purchases account for 60% of sales. And over half of quality problems. Poor quality of supplier items increase the cost of purchase, 75% of warranty claims came from purchased components. The new view of supplier relations has changed the relation from a traditional one into a strategic view. Hewlett-Packard and Dell found it difficult to obtain important components for their PC’s from Taiwanese suppliers in 1999, due to a massive earthquake. Mahmud Abouel-Atta
  17. 17. • Why Supply chain has become an important issue: - Warehousing and inventory tracking Why Hold Inventory? * Unexpected changes in customer demand. * Uncertain supply. Inventory policies can dramatically alter a supply chain’s efficiency and responsiveness. - more inventory: greater responsiveness but greater cost - less inventory: lower cost but lower responsiveness How often to review? When to place an order? How much to order? How much stock to keep? Who – supplier? How order be delivered? Mahmud Abouel-Atta
  18. 18. • Why Supply chain has become an important issue: - Achieving efficiency and effectiveness objectives Process Performance = Effectiveness x Efficiency Efficiency measures the relationship between inputs & outputs, or how successfully the inputs are being transformed into outputs. Efficiency focuses on the cost of making and delivering the product to the customer. Effectiveness measures the relationship between organization & customer, or how well an organization is meeting the demands of its customer. Mahmud Abouel-Atta
  19. 19. Supply Chain Performance Supply chain performance is focused on: • Reliability – ability of a system to perform its required functions under stated conditions for a specific period of time. Such as on-time delivery, perfect order fulfillment, supplierfill rate • Responsiveness - the time it takes to react to and fulfill customer demand. Such as order fulfillment lead time (order-to-deliverycycle time) • Agility or Flexibility - the ability of supply chain to increase/decrease demand within a given planned period. Such as Supply Chain Response Time, prod. flexibility • Cost - objective assessment of all components of supply chain cost. Such as Total SCM cost, cost of goods sold, Value-added productivity,Warranty cost or returns processing cost • Assets - the assessment of all resources used to fulfill customer demand. Such as Cash-to-cash cycle time, Inventory days of supply, asset turns Mahmud Abouel-Atta
  20. 20. SC Performance Measurement Mahmud Abouel-Atta • On-Time Delivery – this metric measures the % of all orders delivered by the requested delivery dates, as indicated in the PO/contract during a defined period of time. • Supplier Fill Rate – this metric measures a supplier’s ability to fill orders completely in terms of items and quantity, as defined in the PO/contract, during a defined period of time. • Perfect Order Fulfillment – this metric measures the % of orders meeting delivery performance requirements. These orders to be delivered to the right place, with the right product, at the right time, in the right condition, in the right package, in the right quantity, with the right documentation, to the right customer with the correct invoice. • Order Fulfillment Lead Time – this metric measures the ability of an organization to quickly serve customer demands, speed of service and indicates the average time from order placement to customer receipt.
  21. 21. SC Performance Measurement To show improvement in operations, many supply chain management specialists consider implementing supply chain performance indicators or metrics as one of the simplest, least expensive, and least time-consuming activities. It is a well- known fact that, “people behave based on the way they are measured” Achieving efficiency and effectiveness objectives requires a set of standards to compare to actual performance, thses standards called Metrics. Mahmud Abouel-Atta
  22. 22. SC Performance Measurement Performance Categories: • Time – These indicators focus on the time it takes to complete specific activities. They show where saving time during specific activities Such as On-time Delivery/Arrival, Order Cycle Time, Response Time, Forecasting/Planning Cycle time. • Quality – These indicators are often the simplest to implement and measure. Typically, they tell you how well you are performing a specific activity—a common SC indicator in this classification is accuracy— including order accuracy, inventory accuracy, picking accuracy, etc. Such as Overall Customer Satisfaction, Process Accuracy, Perfect Order Fulfillment (on-time delivery, processed orders, accurate productselection, accurate invoice), Forecast Accuracy, Planning Accuracy (budgets, operating plans), Schedule. Mahmud Abouel-Atta
  23. 23. SC Performance Measurement Performance Categories: • Finance – These indicators help managers identify the supply chain cost drivers and help move toward a more efficiently managed supply chain—a common SC indicator in this classification is cost. Such as Finished Goods Inventory Turns, Cost-to-Serve, Cash-to-Cash Cycle Time, Total Delivered Cost (cost of goods, transportation costs, inventory carrying costs, material handling costs), Other Costs (information systems, administrative costs). • Productivity - These indicators examine how well resources are used. For example, filling vehicles to their capacity, instead of sending out vehicles half- full, could reduce costs and improve efficiency. Mahmud Abouel-Atta
  24. 24. Supply Chain Management Basic Components of SCM (SCOR Model) 1. Plan This is the strategic portion of SCM. Companies need a strategy for managing all the resources that go toward meeting customer demand for their product or service. A big piece of SCM planning is developing a set of metrics to monitor the supply chain so that it is efficient, costs less and delivers high quality and value to customers. Mahmud Abouel-Atta
  25. 25. Supply Chain Management 2. Source Companies must choose suppliers to deliver the goods and services they need to create their product, therefore, supply chain managers must develop a set of pricing, quality, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships. And then, SCM managers can put together processes for managing their goods and services inventory, including receiving and verifying shipments, transferring them to the manufacturing facilities and authorizing supplier payments. Mahmud Abouel-Atta
  26. 26. Supply Chain Management 3. Make This is the manufacturing step. Supply chain managers schedule the activities necessary for production, testing, packaging and preparation for delivery. This is the most metric-intensive portion of the supply chain—one where companies are able to measure quality levels, production output and worker productivity. Mahmud Abouel-Atta
  27. 27. Supply Chain Management 4. Deliver This is the part that many SCM insiders refer to as logistics, where companies coordinate the receipt of orders from customers, develop a network of warehouses, pick carriers to get products to customers and set up an invoicing system to receive payments. Mahmud Abouel-Atta
  28. 28. Supply Chain Management 5. Return This can be a problematic part of the supply chain for many companies. Supply chain planners have to create a responsive and flexible network for receiving defective and excess products back from their customers and supporting customers who have problems with delivered products. Mahmud Abouel-Atta
  29. 29. SCOR Model Mahmud Abouel-Atta
  30. 30. Supply Chain Flows 1- Product Flow 2- Information Flow 3- Finance Flow Mahmud Abouel-Atta
  31. 31. Product Flow - Supplier Selection - Capacity Planning - Inventory Control - Production Scheduling - Order Management - Fulfillment Management Mahmud Abouel-Atta
  32. 32. Information Flow - Supplier Database - Supplier Quality System - Supplier Qualification - Supplier Auditing System Mahmud Abouel-Atta
  33. 33. Finance Flow - Contracts & Price Negotiation - Purchase Orders Mahmud Abouel-Atta
  34. 34. Thank You Mahmud Abouel-Atta
  35. 35. Goals of Supply Chain Efficient supply chain management must result in tangible business improvements. – Revenue growth – Cost reduction – Better asset utilization – Reduce uncertainty & risks, inventory, cycle time – Improve business processes, customer service – Increased profits & competitiveness Mahmud Abouel-Atta
  36. 36. • Why Supply chain has become an important issue: - Relationship between each party If every party join hand and work together, it will create cost savings and time to market reduction and everyone will enjoy the benefit. - Warehousing and inventory tracking Inventory policies can dramatically alter a supply chain’s efficiency and responsiveness. How often to review? When to place an order? How much to order? How much stock to keep? Who – supplier? How order be delivered? Mahmud Abouel-Atta
  37. 37. Introduction • Production and Material Handling When production is integrated into the supply chain, it makes for a smoother flow of materials and data across the entire supply chain. • Strategic Planning With all parts of the supply chain working in unison and the supply and demand leveled between groups, the executive can concentrate on strategic planning for the company. Integration of all parts of the supply chain allows for better use of company resources and finances, which gives strategic planning a much better chance of being accurate and fool-proof.
  38. 38. Supply Chain Management • For many companies, purchases account for 60% of sales. And over half of quality problems. • Poor quality of supplier items increase the cost of purchases. (ex. 75% of warranty claims came from purchased components.) • Current emphasis on inventory reduction require more focus on quality.
  39. 39. Introduction • Supplier and Purchaser Bringing together the supplier's production schedule and the demands of the purchasing group is a big challenge and can be more complicated if either of the groups have their own internal challenges. Leveling the supply and demand allows for many positive outcomes, including quicker response times, better utilization of transportation equipment, smaller storage areas, less work-in-process inventory and better utilization of manpower.
  40. 40. Just-in-time-production Methods • Keeping supply chains moving is more challenging in the 21st-century by the growing use of "just-in-time" production. The practice allows companies to maintain lower inventories, ordering and reordering raw materials to arrive with precision and go directly to production, reducing warehousing costs. The method is cost efficient but it requires a well-oiled supply chain. The tighter the time from raw material source to factory, the more serious the impact of supply chain disruptions, which could result in costly assembly line shutdowns.
  41. 41. Supply Chain “ Iceberg ” Transactional Efficiency Critical Data to improve: Multiple handling Transit damageProcess delays Excess freight Delays End-to-end cycle-time Warehouse fees Inventory turns Yield Late Deliveries Perceived Value Intrinsic Value