2. 2
OBJECTIVES
Supply-Chain Management : Define
Measuring Supply-Chain Performance
Bullwhip Effect
Outsourcing
Global Sourcing
Value Density
Mass Customization
3. 3
What is a Supply Chain?
Supply-chain is a term that describes how
organizations (suppliers, manufacturers,
distributors, and customers) are linked together
Services
Supply networks
Manufacturing
Suppliers
Service support
operations
Local
service
providers
Customers
Inputs
Transformation
Localization
Output
Suppliers
Manufacturing
Distribution
Customers
4. What is Supply Chain
Management?
Supply-chain management is a total
system approach to managing the entire
flow of information, materials, and finance
from raw-material suppliers through
factories and warehouses to the end
customer
4
5. Supply Chain Mgt.-Understanding the Concept
What is a Supply Chain?
•
Consists of all parties involved directly or indirectly in fulfilling a
customer order.
•
Is dynamic and involves the constant flow of information, materials
and funds between different stages.
Objectives of a Supply Chain
•
•
Should be to maximize the overall value generated.
Importance of Supply Chain Decisions
•
Supply chain design, planning and operation decisions play a
significant role in the success or failure of a company.
Higher the supply chain profitability, the more successful is the
supply chain.
9. 9
Typical supply chain for a Manufacturer
Supplier
Storage
Manufacturer
Storage
Supplier
Supplier
Distributor
Retailer
Customer
Typical supply chain for a Service
Supplier
Storage
Service
Supplier
PRODUT / SERVICES
INFORMATION
FINANCES
Customer
11. Formulas for Measuring
Supply-Chain Performance
11
One of the most commonly used measures in all of
operations management is “Inventory Turnover”
Cost of goods sold
Inventory turnover =
Average aggregate inventory value
In situations where distribution inventory is
dominant, “Weeks of Supply” is preferred and
measures how many weeks’ worth of inventory is in
the system at a particular time
Average aggregate inventory value
52 weeks
Weeks of supply =
Cost of goods sold
12. 12
Example of Measuring
Supply-Chain Performance
Suppose a company’s new annual report
Suppose a company’s new annual report
claims their costs of goods sold for the
claims their costs of goods sold for the
year is Rs 16 crore and their total
year is Rs 16 crore and their total
average inventory (production materials +
average inventory (production materials +
work-in-process) is worth Rs 3.5 crore.
work-in-process) is worth Rs 3.5 crore.
This company normally has an inventory
This company normally has an inventory
turn ratio of 10. What is this year’s
turn ratio of 10. What is this year’s
Inventory Turnover ratio? What does it
Inventory Turnover ratio? What does it
mean?
mean?
13. Chain Performance
(Continued)
13
Cost of goods sold
Inventory turnover =
Average aggregate inventory value
= 16/3.5
= 16/3.5
= 4.57
= 4.57
Since the company’s normal inventory turnover ratio is
Since the company’s normal inventory turnover ratio is
10, a drop to 4.57 means that the inventory is not
10, a drop to 4.57 means that the inventory is not
turning over as quickly as it had in the past. Without
turning over as quickly as it had in the past. Without
knowing the industry average of turns for this
knowing the industry average of turns for this
company it is not possible to comment on how they
company it is not possible to comment on how they
are competitively doing in the industry, but they now
are competitively doing in the industry, but they now
have more inventory relative to their cost of goods
have more inventory relative to their cost of goods
sold than before.
sold than before.
14. 14
The Old Paradigm:
Push Strategies
Production decisions based on long-term
forecasts
Ordering decisions based on inventory &
forecasts
What are the problems with push strategies?
– Inability to meet changing demand patterns
– Obsolescence
– The bullwhip effect:
Excessive inventory
Excessive production variability
Poor service levels
15. 15
A Newer Paradigm:
Pull Strategies
Production is demand driven
– Production and distribution coordinated with true customer
demand
– Firms respond to specific orders
Pull Strategies result in:
–
–
–
–
Reduced lead times (better anticipation)
Decreased inventory levels at retailers and manufacturers
Decreased system variability
Better response to changing markets
But:
– Harder to leverage economies of scale
– Doesn’t work in all cases
16. 16
Push and Pull Systems
What
are the advantages of push
systems?
What are the advantages of pull
systems?
Is there a system that has the
advantages of both systems?
17. 17
A new Supply Chain
Paradigm
A shift from a Push System...
– Production decisions are based on forecast
…to a Push-Pull System
18. 18
Push-Pull Supply Chains
The Supply Chain Time Line
Customers
Suppliers
PUSH STRATEGY
Low Uncertainty
PULL STRATEGY
High Uncertainty
Push-Pull Boundary
19. 19
Bullwhip Effect
Inventories are progressively larger moving backward through the supply
chain.
Tier 2
Suppliers
Tier 1
Suppliers
Producer
(Mfg)
Upstream
Note : Last but not the least the final customer
= Amount of Inventory
Distributor
Retailer
Downstream
20. 20
Hau Lee’s Concepts of Supply
Chain Management
• Hau Lee’s approach to supply chain (SC) is one
•
•
of aligning SC’s with the uncertainties revolving
around the supply process side of the SC
A stable supply process has mature technologies
and an evolving supply process has rapidly
changing technologies
Types of SC’s
• Efficient SC’s
• Risk-Hedging SC’s
• Responsive SC’s
• Agile SC’s
21. Hau Lee’s SC Uncertainty
Framework
21
Demand Uncertainty
Low (Functional
products)
Supply
Uncertainty
Low
(Stable
Process)
High
(Evolving
Process)
High (Innovative
products)
Efficient SC
Responsive SC
Ex.: Grocery
Ex.: Computers
Risk-Hedging SC
Agile SC
Ex.: Hydroelectric power
Ex.: Telecom
22. 22
What is Outsourcing?
Outsourcing is defined as the act of
moving a firm’s internal activities
and decision responsibility to
outside providers
25. Potential Supply Chain Linkages
North America
Market A
Plant 1
Source A
Figure 16.3
Europe
Market B
Plant 2
Source B
Far East
Market C Markets
Plant 3
Manufacturing
Locations
Source
Source C Locations
26. 26
Value Density
• Value density is defined as the value
of an item per kilogram of weight
• It is used as an important measure
when deciding where items should be
stocked geographically and how they
should be shipped
27. 27
Mass Customization
• Mass customization is a term used to describe the
ability of a company to deliver highly customized
products and services to different customers
• The key to mass customization is effectively
postponing the tasks of differentiating a product for
a specific customer until the latest possible point in
the supply-chain network
28. 28
Question Bowl
A typical supply chain would include which
of the following?
a. Suppliers
b. Manufacturers
c. Distribution
d. All of the above
e. None of the above
Answer: d. All of the above
29. 29
Question Bowl
a.
b.
c.
d.
e.
The supply chain measure of “Inventory Turnover”
is which of the following ratios?
Avg. inventory value/total costs
Costs of goods sold/Avg. aggregate inventory
value
Total costs of goods/Avg. costs of goods
Weeks worth of inventory/No. of weeks
None of the above
Answer: b. Costs of goods sold/Avg.
aggregate inventory value
30. 30
Question Bowl
If the “cost of goods sold” for a company is
Rs1,000,000 and the “average aggregate
inventory value” is Rs25,000, which of the
following is the “inventory turnover”?
a.
10
b.
25
c.
40
d.
50
e.
None of the above
Answer: c. 40 (1,000,000/25,000=40)
31. 31
Question Bowl
If the “cost of goods sold” for a company is
Rs250,000 and the “average aggregate
inventory value” is Rs5,000, which of the
following is the “inventory turnover”?
a.
10
b.
25
c.
40
d.
50
e.
None of the above
Answer: d. 50 (250,000/5,000=50)
32. 32
Question Bowl
If the “cost of goods sold” for a company is
Rs1,000,000 and the “average aggregate
inventory value” is Rs50,000, which of the
following is the “weeks of supply” measure
for supply chain performance?
a.
1 week
b.
2.6 weeks
c.
20 weeks
d.
30 weeks
e.
None of the above
Answer: b. 2.6 (50,000/1,000,000)x52=2.6)
33. 33
Question Bowl
Which of the following refers to the phenomenon of
increasing variability as we move from the
customer to the producer in the supply chain?
a.
Continuous replenishing
b.
Stable supply process
c.
Evolving supply process
d.
Agile supply chains
e.
None of the above
Answer: e. None of the above (The correct
term is “Bullwhip effect”.)
34. 34
Question Bowl
Which of the following are reasons why an
organization should use “outsourcing” as a
supply chain strategy?
a.
Reduces investment in assets
b.
Turns fixed costs into variable costs
c.
Gives employees a stronger career
d.
All of the above
e.
None of the above
Answer: d. All of the above
35. 35
Question Bowl
Which of the following “transportation modes”
provides flexibility in delivery, timing and at
reasonable rates for small quantities and over
short distances?
a.
Rail
b.
Highway (trucking)
c.
Water
d.
Pipeline
e.
Air
Answer: b. Highway (trucking)
