ankush kaul

1. Supply ChainSupply Chain
ManagementManagement
andand
Supplier QualitySupplier Quality
ControlControl
Ankush Kaul
March 21, 2007March 21, 2007

2. AGENDA

Supply Chain Management (SCM)
 Introduction
 History
 Logistics Management
 Supply Chain Vs. Logistics Management
 Supply Chain Requirements and Uncertainties
 Bullwhip Effect
 Strategic Partnership
 Examples of Strategic Partnership
 Supplier Quality Control (SQC)
 Introduction
 Why SQC?
 SQC Techniques
 SCM and SQC at Praxair
Slide 2

3. Agenda (Cont’d..)
 SCM and SQC @ Praxair
 Introduction to Praxair
 Supply Chain Management @ Praxair
 Supplier Quality Control @ Praxair
 References

4. Introduction to SCM
SCM is the integration of key business processes from end user
through original suppliers that provides products, services, and
information that add value for customers and other stakeholders
- Global Supply Chain Forum (GSCF)
Slide 4
SupplierSupplier ManufacturerManufacturer DistributorDistributor RetailerRetailer CustomerCustomer
Upstream
Downstream

5. Introduction (Cont’d..)
Slide 5
Customer wants
detergent
Customer wants
detergent
Albertson’s
Supermarket
Albertson’s
Supermarket
Third
party distributor
Third
party distributor
P&G or other
manufacturer
P&G or other
manufacturer
Plastic
Producer
Plastic
Producer
Chemical
manufacturer
(e.g. Oil Company)
Chemical
manufacturer
(e.g. Oil Company)
Tenneco
Packaging
Tenneco
Packaging
Paper
Manufacturer
Paper
Manufacturer
Timber
Industry
Timber
Industry

6. Elements of SCM
Slide 6
Deciding how to best move and store materialsLogistics
Determining location of facilitiesLocation
Suppliers
Evaluating suppliers and supporting operationsPurchasing
Meeting demand while managing inventory costsInventory
Controlling quality, scheduling workProcessing
Incorporating customer wants, time etc.Design
Predicting quantity and timing of demandForecasting
Determining what customers wantCustomers
Typical IssuesElement
Monitoring supplier quality, delivery and relations

7. History
 1750 - 1800
 Industrial Revolution
 Era of Mechanical Inventions
 Product and process complexity increase
 1800’s
 Increased factory complexity
 Birth of Industrial Engineering movement
 1900’s
 Assembly line, Mass production
 Henry Gantt: Gantt charts, Scheduling
 Human factors
 Statistical Quality Control
 1989 - 1993
 Business Process Reengineering
Slide 7

8. History (Cont’d…)
Traditional
Slide 8
DEPT. 1 DEPT. 2 DEPT. 3
Process: Cross-
Functional Team
Re-engineered

9. Onset of Supply Chain Management
 The term “SCM” was introduced by consultants in early 1980s
 Era of inter-network competition: SC vs. SC: Brand vs. brand, or
store vs. store => <suppliers-brand-store> vs. <suppliers-brand-
store> type of competition.
 Common goals for the entire supply chain
 A supply chain consists of facilities, functions, activities for producing
& delivering product or service all the way from early suppliers to
eventual customers
 The new focus is the entire supply chain
Slide 9

10. Logistics Management
 Logistics Management is that part of Supply Chain
Management that plans, implements, and controls the
efficient, effective forward and reverse flow and storage
of goods, services and related information between the
point of origin and the point of consumption in order to
meet customers' requirements.
- Council of Supply Chain Management
http://www.cscmp.org
Slide 10

11. Movement Within a Facility
Slide 11
RECEIVING
Storage
Work
center
Work center
Work center
Storage
Work
center
Storage
Shipping

12. SCM VS. Logistics Management
 Focus of logistics was on making each firm in the
distribution channel more efficient, productive and
profitable
 Each firm operated on its own, maximizing profits with
little attention to others in the chain
 Within each firm, each function preoccupied with
optimizing its own performance
 Intra-functional (silo) orientation: cost tradeoffs and
managing customer service levels
Slide 12

13. Supply Chain Requirements and Uncertainties
 Requirements for a Successful Supply Chain
 Trust among trading partners
 Effective communications
 Supply chain visibility
 Event management capability
 Performance metrics
 Sources of Uncertainty in Supply Chains
 Wrong forecasts
 Late deliveries
 Poor quality
 Machine breakdowns
 Canceled orders
 Erroneous information
 Price uncertainties
Slide 13

14. Bullwhip Effect
 Distortion of demand information of a product while it passes from
one firm to the next across SC
 The information transferred in the form of “orders” tend to be
distorted and can misguide upstream members in their inventory and
production decisions.
 In particular, “variance of orders” > “variance of sales”
 Information sharing in SCs is important
 Sales Information available in the form of orders received from the
downstream member should be used with great caution.
Slide 14

15. Bullwhip Effect (Cont’d..)
 Who is affected?
 Nearly all industries are affected !
 Firms that experience large variations in demand are at risk
 Firms that depend on suppliers upstream or distributors and
retailers downstream may be at risk
 Causes of Bullwhip Effect
 Finite supply shared by many retailers
 Rationing game: retailer orders more than demand
 Fixed order cost
 Wholesale price varies over time
 Inflationary / deflationary environment
 Prices with no trend but variability
Slide 15

16. Bullwhip Effect (Cont’d…)
Slide 16

17. Bullwhip Effect (Cont’d…)
Slide 17
Retailer Distributor Manufacturer Supplier
Order Order Order Order
Stock Stock Stock Stock
Increased Variability

18. Bullwhip Effect - Disrupted Supply Chain
Slide 18
Customer Demand forecast = 20 units
Suppliers
Producers
Distributors
Retailers
Products &
Services
Products &
Services
Products &
Services
Information Flow
Cash Flow
Key: = Inventory Levels
160 Units 80 Units 40 Units
80 Units 40 Units 20 Units
 As demand increases, the distributor decides to accommodate the forecasted
demand and increase inventory to buffer against unforeseen problems in demand.
 Each step along the supply chain increases their inventory (double in this example)
to accommodate demand fluctuations.
 The top of the supply chain receives the harshest impact of the whip effect.

19. Bullwhip Effect (Cont’d..)
 Results of Bullwhip effect
 Excess inventories
 Problems with quality
 Increased raw material costs
 Overtime expenses
 Increased shipping costs
 Lost customer service
 Lengthened lead time
 Solutions
 Improve communication along the supply chain
 Improve sources of forecast data
 Work with firms upstream and downstream in the supply chain
Slide 19

20. Strategic Partnership in Supply Chain
 Business partnering occurs through a pooling of resources in a
trusting atmosphere focused on continuous, mutual improvement
Source: Robson, Rawnsley (2001)

Benefits of strategic partnerships

Improved supplier product quality
 On-time shipments
 Lower costs, less inventory
 Improved logistics
 Customer satisfaction
 Increased business because of customer satisfaction
 Vendor management inventory
 Lean extended enterprise
Slide 20

21. Strategic Partnership Examples
 Blockbuster
 Demand for newly released movies at blockbuster typically starts high and decreases
rapidly. Peak demand last about 10 weeks
 Blockbuster purchases a copy from a studio for $65 and rent for $3. Hence, retailer must
rent the tape at least 22 times before earning profit
 Retailers cannot justify purchasing enough to cover the peak demand
 In 1998, 20% of surveyed customers reported that they could not rent the movie they wanted
 Starting in 1998 Blockbuster entered a revenue sharing agreement with the major studios.
Studio charges $8 per copy, Blockbuster pays 30 - 45% of its rental income
 Even if Blockbuster keeps only half of the rental income, the breakeven point is 6 rental per
copy
 The impact of revenue sharing on Blockbuster was dramatic, Rentals increased by 75% in
test market and market share increased from 25% to 31%
Slide 21

22. Strategic Partnership Examples (Cont’d..)
 Seven Eleven Stores
 Retailer determines order sizes and timing but in addition
passes POS (point of sales) data to the supplier. POS
improves supplier’s forecasts.
 Wal-Mart, K-Mart (Vendor Managed Inventory)
 Supplier maintain the inventory levels at the customer site and
continuously replenish as and when required. This has
resulted in 30% inventory turnover improvement.
 Milliken and Company
 The lead time from order receipt at Milliken’s textile plants to
final clothing receipt at the department stores was reduced
from 18 weeks to 3 weeks. The POS data was used by the
supplier to improve forecasting and scheduling.
Slide 22

23. Supplier Quality Control
 A methodology to:
 Select/Qualify the correct supplier
 Develop/Launch the item being sourced
 Monitor ongoing performance
II. Develop/Launch
I. Select/Qualify
III. Monitor Performance

24. Why is SQC Required??
 Improved Product Quality
 Reduced Lead Times
 Decreased Overall Life Cycle Costs
 Increased Customer Satisfaction
Faster and Cheaper can still be Better!

25. Why is SQC required? (Cont’d...)
 Process maintained under control

Quality Built-In; Not Added On!
 Achieve earlier corrective action on deficiencies
 Less waste; Minimizes rework
 Material protected from deterioration

Especially Applicable to Bulk Metals
 Quality Control established at point of supply

26. SQC Techniques
 Some of the techniques used are:
 Supplier Scorecard: Supplier Evaluation
 Regular supplier site visits: Supplier site inspection during the
equipment build
 Supplier quality systems evaluation: Vendor quality system
evaluation
 Non Conformance reporting process: Documentation of issues and
source of “Lessons Learnt” before and after the equipment build
 Supplier training: Training the supplier by the customer (especially if
the supplier is fabricating the equipment for the first time)

27. Praxair - Introduction
 A Fortune 500 company with sales of $ 8.3 billion (2006)
 Leader in industrial gases supply systems and equipment, and in
applications technologies; almost 3,000 active patents
 One of the three largest industrial gases companies worldwide and
the largest in North and South America
 Operations in 40 countries with over 27,000 employees
 Services include on-site gas handling and monitoring systems,
pipeline and plant services, turnkey design and construction

28. Praxair Introduction- Sales by Served Markets
Slide 28
Chemicals 10%
Other 12%
Food and
Beverage 7%
Electronics 7%
Energy 12%
Healthcare 11%
Aerospace 4%
Manufacturing 21%
Metals 16%

29. SCM @ Praxair
Customer needs
Liquid Nitrogen
Customer needs
Liquid Nitrogen
Praxair PlantPraxair PlantField ContractorsField ContractorsPlant SitePlant Site
Cold Box
Fabricator
Cold Box
Fabricator
Cold Box
fabricator Sub
Supplier
Cold Box
fabricator Sub
Supplier
Valves SupplierValves Supplier
Valve Sub
Supplier
Valve Sub
Supplier
Metal ShopMetal Shop

30. SCM @ Praxair (Cont’d..)
 Partnership with suppliers and customers for mutual benefit
 6 Sigma projects with suppliers and customers
 Strategic agreements with competitors
 Core competency used to help suppliers as well as customers
 Process improvements by streamlining internal supply chain
NAIG GPMM GSS PSTNAIG GPMM GSS PSTSUB-
SUPPLIER
SUB-
SUPPLIER
SUPPLIERSUPPLIER
PRAXAIR
CUSTOMERCUSTOMER

31. SQC @ Praxair
 Historical Qualification
 To ensure products and services consistently meet the
organization’s acceptance criteria
 To implement a reduced testing regime for incoming goods
 To maintain precise and up-to-date supplier records, “well-known”
partners, and improved quality of products and services
 Low Cost Country Sourcing (LCCS)
 To establish a competitive capital cost advantage
 To include a low cost country sourcing for equipment, fabrication
and engineering design
 To identify, qualify and select new equipment suppliers worldwide
and evaluate based on technical and low-cost evaluation criteria

32. SQC @ Praxair (Cont’d..)
 Standard Method
 Historically qualified Suppliers
 Database of specifications, requirements and guidelines
 Due to cost cutting initiatives in 1990’s and post 9/11, supplier
quality control was given less importance- this led to reliability
and other issues in field
 LCCS program was another driver for the development of a
structured supplier quality control program

33. New Initiative for SQC @ Praxair
Tier 1 Tier 2 Tier 3
Critical path Non critical path Commodity
Single Source Less critical part
Sole source
Critical part
Compressors Water pumps Fittings
Induction motors Tanks Piping
Synchronous motors Cryo tanks Hardware
Cold Boxes Manual valves
BAHX Silencers
Packing S&T heat exchangers
Adsorbents Vaporizers
Chillers
Auto valves
Skids
Shop visit Shop visit As Needed
Quality System rating Quality System rating
Inspection test plan Inspection test plan
NCR tracking NCR tracking
Surveillance Surveillance
Control Plan Control Plan
SupplyAttributesEquipmentDescriptionQualityActivities
Commodities were
divided into Tier-1,Tier-2
and Tier-3 depending on
their criticality in terms of
their time impact on
project, cost and sourcing
status
Tier 1 – Build relationships
Critical supplier
Safety Critical
Routine surveillance
Tier 2 – Periodic surveillance
Tier 3 – Infrequent contact
Slide 33

34. SQC @ Praxair - Inspection Plan
Developed a method to ensure
that the suppliers adhere to
specifications mentioned as a
part of the purchase order-
 Comprehensive and easy to
use commodity specific quality
control checklist containing key
specifications questions
 Discussions with a cross
functional group of equipment
engineers, process engineers,
procurement and quality
engineers followed to finalize
the format of the checklist
Slide 34

35. Designated Inspection Points
Slide 35

36. Non- Conformance Tracking
 One of the most important tools
to keep track of suppliers
performance
 Helps to see supplier trends as
well as defect trends over time
 Also useful as a repository for
“lessons learned”

37. Quality Engineering Team @ Praxair
The projects at Praxair have helped me see the
implementation of academic knowledge as well as the
importance of “people skills” in an organization. Overall, it
continues to been a great learning experience
Slide 37
Asia
4 Quality Engineers in Asia
region
South America
2 Quality Engineers
in South America
North America
5 Quality Engineers in
North American region
Europe
2 Quality Engineers
in Europe

38. References
 Lecture notes from “Supply Chain and Global
Operations”
 Praxair database
 www.google.com (The best invention of 20th
Century!!!)
 Experience
Slide 38