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Supply Chain Managment
1) The document discusses supply chain management strategies including defining supply chains, understanding industry models, and achieving supply chain excellence. 2) It provides 12 ground rules for effective supply chain management such as building in flexibility, optimizing information, and treating customers unequally based on needs. 3) Key aspects of supply chain management covered include inventory management, production planning, distribution, and techniques to reduce costs and waste.
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Supply Chain Managment
- 1. CMTC - CAMember of US Manufacturing Extension Partnership Supply Chain Management Strategies
- 2. CMTC - CAMember of US Manufacturing Extension Partnership Supply-Chain Management Strategies • Supply-Chain Management Defined • Understanding Your Industry Model • Business Alignment • Defining Supply Chain Excellence • SCM Ground Rules • A Multi-Disciplinary Approach Operations, Finance, IT & eOPS
- 3. CMTC - CAMember of US Manufacturing Extension Partnership What is Supply-Chain Management? • Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together. • Supply-chain management is a total system approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories and warehouses to the end customer.
- 4. CMTC - CAMember of US Manufacturing Extension Partnership Supply Chain Management Evolution Historical operational stages: – From disconnected. Exclusively focus on growth/cost. Separately managed functions. Internal performance measurements. – To integrated. End-to-end process approach. Customer focus, profitable growth, liquidity, functional integration.
- 5. CMTC - CAMember of US Manufacturing Extension Partnership T3 T3 T3 T3 T3 T3 T2 T1T2 T2 T1 T2T3 T2 T1 OEM 1 Retailer Web Site Direct Sales Force Distributor/Retailer Distributor Warehouse Consumer Consumer Consumer Consumer Consumer Consumer Consumer Consumer Consumer Tier2 and 3 Suppliers Retailer Tier 1 supplier Retailer Supply Chain of a Typical Original Equipment Manufacturer OEM 2
- 6. CMTC - CAMember of US Manufacturing Extension Partnership Overall Strategy A Supply Chain is fully optimized when: – Bundles of well-priced products/services create unassailable levels of customer attachment (acquisition and retention). – Total supply chain costs are at the lowest level. – The supply chain contributes to profitable sales growth by creating cost/service advantages. – Worldwide effective tax rates are at the lowest level. – Capital efficiency is at the lowest level. – The supply chain is made flexible to respond to changes faster than competitors and to stratify service levels by product, customer, and geography.
- 7. CMTC - CAMember of US Manufacturing Extension Partnership Supply Chain Issues The main purpose of the levels in any supply chain is to add processes to the product/service. Another purpose is to absorb the differences between the stable supply on the upstream side and the erratic demand on the downstream(consumer) side. The synchronization of the supply chain will optimize efficiency along the chain.
- 8. CMTC - CAMember of US Manufacturing Extension Partnership Matching Supply-Chains with Products Efficient Supply-Chain Responsive Supply-Chain Functional Products Innovative Products Match MatchMismatch Mismatch
- 9. CMTC - CAMember of US Manufacturing Extension Partnership IV. Continuous Flow III. Assembly Line II. Batch I. Job Shop Low Volume, One of a Kind Multiple Products, Low Volume Few Major Products, Higher Volume High Volume, High Standard- ization Commercial Printer French Restaurant Heavy Equipment Coffee Shop Automobile Assembly Burger King Sugar Refinery Flexibility (High) Unit Cost (High) Flexibility (Low) Unit Cost (Low)
- 10. CMTC - CAMember of US Manufacturing Extension Partnership Supply Chain Excellence New corporate state of being: – Supply chain excellence requires effective strategies, sustained management commitment, and changes in attitude, culture, and organization. More importantly, it requires superior execution.
- 11. CMTC - CAMember of US Manufacturing Extension Partnership Principles For Supply Chain Excellence Formulate a differentiated supply chain strategy by channel. For product categories, product channels, and target customers, develop an operating strategy that, when executed, makes your supply chain different from the rest. Focus on long- and short-term profitability, liquidity, and growth.
- 12. CMTC - CAMember of US Manufacturing Extension Partnership Principles For Supply Chain Excellence Organize your business unit around major processes or channels, not functions. Traditional “silos” separates work and interrupts flows which leads to inefficiency. Work collaboratively with customers, suppliers, partners, and third parties to change the way operations perform, viewed, and measured. Extended supply chain.
- 13. CMTC - CAMember of US Manufacturing Extension Partnership Principles For Supply Chain Excellence Invest/reinvest in supply chain information technology to manage flows end-to-end. IT should support both planning, analysis, and execution. Invest/reinvest in supply chain knowledge, people, skills, and learning. Supply chain practice is relatively new. Change is a constant, with innovations and problems always occurring. Organizations must invest in ongoing training, mentoring, education, and feedback systems.
- 14. CMTC - CAMember of US Manufacturing Extension Partnership Principles For Supply Chain Excellence Operate/manage by product/channel. Think in terms of product/service bundles that are sold through potentially different channels. Supply chains should be set up and driven by the characteristics of each channel. Outsource parts of the chain for flexibility and better asset management. In many cases, functions can be performed better by third parties.
- 15. CMTC - CAMember of US Manufacturing Extension Partnership Principles For Supply Chain Excellence Think globally…build regionally…operate locally. The best performing supply chains are managed with centralized planning, regional approaches, and local operations. The most critical principle: Execution!!! Focus on it, measure it daily or real time, and give people the authority and accountability to excel at it.
- 16. CMTC - CAMember of US Manufacturing Extension Partnership Supply Chain Management Approach Three items that flow through the supply chain: – Information – Money – Materials Three areas of decision-making: – Materials – Processes – Logistics Two types of tools: – Information Technology – Operational Analysis
- 17. CMTC - CAMember of US Manufacturing Extension Partnership 12 SCM Ground Rules 1. Build in flexibility. – Supply chain capacity(push things off your books). Move fixed to variable costs. More flexible production methods. Improved information flows. Use subcontractors, co-packing, outsourcing. – Operations capability. – Management’s will to change.
- 18. CMTC - CAMember of US Manufacturing Extension Partnership 12 SCM Ground Rules - continued 2. Plan and measure accurately. – Total cost approach – true margins, profitability by customer segment. – Enterprise-wide planning – demand- driven and supply-aware; reduce cycle times; respond quickly(for high material cost industries). – Dashboard concept – 5 to 7 metrics in operational cost, time and response, margins, customer service. – Benchmark 1st internally, then expand
- 19. CMTC - CAMember of US Manufacturing Extension Partnership 12 SCM Ground Rules - continued 3. Develop logistically separate operations /supply chains where appropriate. – Entities: suppliers, manufacturers, distributors, freight forwarders, contract carriers, 3rd -party warehousing, 3rd -party logistics partners, 3rd -party maintenance, financing companies, import/export/customs brokers. – Fulfillment channels: direct-home, direct- business, retailers, value-added resellers, mass merchandisers, OEMs, service centers, integrators. – Order conduits that impact process: fax, Internet, phone, sales force, POS orders, EDI, e-mail.
- 20. CMTC - CAMember of US Manufacturing Extension Partnership 12 SCM Ground Rules - continued 4. Get lean by emphasizing simplicity and speed. Value Stream Map Current & Future States – Reduce uniqueness (parts, designs, suppliers, processes) and variety(transportation resources, parts suppliers). – Reduce cycle times and maximize inventory velocity. Key: information. – Understand where value is captured and eliminate non-value
- 21. CMTC - CAMember of US Manufacturing Extension Partnership 12 SCM Ground Rules - continued 5. Optimize Information. – Focus on Time to Benefit and Decision Support. ERP? Multiple smaller systems? – Take ownership of Customer Information. Most untapped: not articulated needs. – Replace assets with Information. E.g. inventory are moved several times before reaching final destination. Replace physical movement with digital movement of customer and product information.
- 22. CMTC - CAMember of US Manufacturing Extension Partnership 12 SCM Ground Rules - continued 6. Treat customers unequally: Segment and Stratify. No unnecessary excellence. 7. Operate Globally. – Economic, time, tax differences. 8. Practice Virtuality (partnering) and Collaborative Manufacturing/Management. – Virtuality – attempt to gain scale. – Requires more management, not less.
- 23. CMTC - CAMember of US Manufacturing Extension Partnership 12 SCM Ground Rules - continued 9. Exploit Electronic Commerce. – Collapsing supply chain levels. E.g. distribution channel. – New channel: many-to-many. Supply Web – key customers can have communities of suppliers; collaboratively plan, forecast, replenish on a real-time(or near real- time) basis. – Valued-based differentiation – add value along product, information, process. master channel managers.
- 24. CMTC - CAMember of US Manufacturing Extension Partnership 12 SCM Ground Rules - continued 10. Leverage People. 11. Operationalize New Product Introductions and Phaseouts. 12. Mass Customize and Postpone. – Commodities vs. highly customizable products. – Downstream flexibility. – E.g. HP printers. Automobile. Amazon.
- 25. CMTC - CAMember of US Manufacturing Extension Partnership Performance Measurement: Operational 1. Throughput – the rate at which money is generated by the system through sales: O2C 2. Inventory – all the money that the system has invested in purchasing things it intends to sell 3. Operating Expenses – all the money that the system spends to turn inventory into throughput
- 26. CMTC - CAMember of US Manufacturing Extension Partnership General Data Product Family Customer Demand Rate 100 per Day 100 per Day Number of Shifts 1 per Day 1 per Day Hours per shift 8 8 Non-work time (breaks, meetings, cleanup) per shift Order Entry/Order Processing Total Order Entry time 1.0 Days 0.5 Days Does this include the time waiting for someone to act? Yes No If yes, how long does it take for someone to act upon it? 0.5 Days 0.0 Days Form/Formal Order Received No No Credit Check Info Average length of Credit Check process 0.0 Days 0.0 Days Is the Order held until the Credit Check is approved? No No Describe the credit check process in your notes Description Description Manufacturing Lead Time How long does planning process take? 5.0 Days 5.0 Days How long does scheduling process take? 1.0 Days 1.0 Days How long does purchasing process take? 3.0 Days 2.0 Days How long does tooling development process take? 0.0 Days 0.0 Days Total Planning/Scheduling/Buying 9.0 Days 8.0 Days Do some of these processes work in parallel? No No If Yes, estimate the total duration 0.0 Days 0.0 Days Average Terms on Payables 30.0 Days 30.0 Days Raw Material Inventory How many days of inventory is in stock based on the customer demand? (include off-site, if any) 60.0 Days 40.0 Days With no material available, what is the delivery lead time? 5.0 Days 5.0 Days Percent built to stock 100% 100% Percent built to order 0% 0% Total must equal 100% 100% 100% Manufacturing Cycle including WIP inventory What is the Operational Cycle Time? 23.0 Days 19.0 Days Days of WIP Inventory based on Customer Demand? 7.0 Days 5.0 Days What is the Mfg./Prod. Time? 30.0 Days 24.0 Days What is the Customer demand rate? 100.0 per Day 100.0 per Day Finished Good Warehouse / Distribution How many days of Finish Goods base on Customers Daily Demand is in stock? 15.0 Days 10.0 Days Does this include off-site storage? No No *Own Note the costs Note the costs *Lease Note the costs Note the costs Current State Future State Order to Cash VSM Assessment Sample Data
- 27. CMTC - CAMember of US Manufacturing Extension Partnership Inventory: Bullwhip Effect Order Quantity Time Retailer’s Orders Order Quantity Time Wholesaler’s Orders Order Quantity Time Manufacturer’s Orders The magnification of variability in orders in the supply-chain. A lot of retailers each with little variability in their orders…. …can lead to greater variability for a fewer number of wholesalers, and… …can lead to even greater variability for a single manufacturer.
- 28. CMTC - CAMember of US Manufacturing Extension Partnership Minimizing Waste: Inventory Hides Problems Work in process queues (banks) Change orders Engineering design redundancies Vendor delinquencies Scrap Design backlogs Machine downtime Decision backlogs Inspection backlogs Paperwork backlog Example: By identifying defective items from a vendor early in the production process the downstream work is saved. Example: By identifying defective work by employees upstream, the downstream work is saved.
- 29. CMTC - CAMember of US Manufacturing Extension Partnership Cost Minimization Goal Ordering Costs Holding Costs QOPT Order Quantity (Q) C O S T Annual Cost of Items (DC) Total Cost By adding the item, holding, and ordering costs together, we determine the total cost curve, which in turn is used to find the Qopt inventory order point that minimizes total costs.
- 30. CMTC - CAMember of US Manufacturing Extension Partnership ABC Classification System • Items kept in inventory are not of equal importance: – dollars invested – profit potential – $ volume – stock-out penalties 0 30 60 30 60 A B C % of $ Value % of Use So, identify inventory items based on percentage of total dollar value, where “A” items are roughly top 15 %, “B” items as next 35 %, and the lower 65% are the “C” items.
- 31. CMTC - CAMember of US Manufacturing Extension Partnership Production Costs Under Utilization Best Operating Level Average unit cost of output Volume Over Utilization
- 32. CMTC - CAMember of US Manufacturing Extension Partnership Economies & Diseconomies of Scale 100-unit plant 200-unit plant 300-unit plant 400-unit plant Volume Average unit cost of output Economies of Scale and the Experience Curve working Diseconomies of Scale start working
- 33. CMTC - CAMember of US Manufacturing Extension Partnership Saving Time Bottleneck Nonbottleneck What are the consequences of saving time at each process? • Rule: Bottlenecks govern both throughput and inventory in the system. • Rule: An hour lost at a bottleneck is an hour lost for the entire system. • Rule: An hour saved at a nonbottleneck is a mirage.
- 34. CMTC - CAMember of US Manufacturing Extension Partnership Waste in Operations (1) Waste from overproduction (2) Waste of waiting time (3) Transportation waste (4) Inventory waste (5) Processing waste (6) Waste of motion (7) Waste from product defects
- 35. CMTC - CAMember of US Manufacturing Extension Partnership Design for Manufacturability • Traditional Approach – “We design it, you build it” or “Over the wall” • Concurrent Engineering – “Let’s work together simultaneously”
- 36. CMTC - CAMember of US Manufacturing Extension Partnership Designing for the Customer: Quality Function Deployment • Interfunctional teams from marketing, design engineering, and manufacturing • Voice of the Customer • House of Quality
- 37. CMTC - CAMember of US Manufacturing Extension Partnership Measuring Product Development Performance • Time-to-market • Productivity • Quality
- 38. CMTC - CAMember of US Manufacturing Extension Partnership Quality Specifications • Design quality: Inherent value of the product in the marketplace – Dimensions include: Performance, Features, Reliability, Durability, Serviceability, Response, Aesthetics, and Reputation. • Conformance quality: Degree to which the product or service design specifications are met
- 39. CMTC - CAMember of US Manufacturing Extension Partnership Costs of Quality External Failure Costs Appraisal Costs Prevention Costs Internal Failure Costs Costs of Quality
- 40. CMTC - CAMember of US Manufacturing Extension Partnership Example: Pareto Analysis Can be used to find when 80% of the problems may be attributed to 20% of the causes. Can be used to find when 80% of the problems may be attributed to 20% of the causes. Assy. Instruct. Frequency Design Purch. Training Other 80%
- 41. CMTC - CAMember of US Manufacturing Extension Partnership Performance Measurement: Financial Net profit – an absolute measurement in dollars Return on investment – a relative measure based on investment Cash flow – a survival measurement
- 42. CMTC - CAMember of US Manufacturing Extension Partnership Formulas for Measuring Supply-Chain Performance • Inventory Turnover = Cost of goods sold Average aggregate inventory value • Weeks of Supply = 52 Weeks Average aggregate inventory Cost of goods sold
- 43. CMTC - CAMember of US Manufacturing Extension Partnership The Context of E-Ops Business Model “How we make our money?” Operations “How do we manage production of the product or service?” Information System Architecture “The set of tools used to support processes.”
- 44. CMTC - CAMember of US Manufacturing Extension Partnership Business Web Models B-Web Model Example Marketplace Ebay Aggregator E-Trade Alliance AOL Value Chain Dell Computers Distributive Network UPS
- 45. CMTC - CAMember of US Manufacturing Extension Partnership Traditional vs. Electronic Commerce Purchasing Process Step Traditional Electronic Commerce Acquire product information Magazines, flyers, online catalogues Web pages Send order Fax, mail E-mail, Web pages Check inventory at warehouse Printed form, phone form Online database, Web pages Buyer sends payment Mail EDI
- 46. CMTC - CAMember of US Manufacturing Extension Partnership The Shape of Things to Come Old Model New Model Plan – Execute - Plan Plan – Execute – Measure - Plan I2, Manugistics, Oracle, SAP I2, Manugistics, Oracle, SAP, SeeCommerce