an introduction to scm

8/3/2019 An Introduction to SCM

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Contents

Overview

What is Supply Chain?

Basic Features of Supply Chain-5

Functional Components of SupplyChain-4

What is SCM?

Benefits of Effective SCM -8 Best Practices for Optimizing Supply

Chains


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Overview

Supply Chain It includes all activities andprocesses to supply a product or service tothe final customer. Often it includes morethan one company in whole chain.

Supply Chain Management It is the act ofoptimizing all activities through out the supplychain, so that the products and services are

supplied in the right quantity, to the rightlocation, at the right time, and at the optimalcost.


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What is Supply Chain?

The supply chain is the series of links andshared processes that exist betweensuppliers and customers.

These links and processes involve all

activities from the acquisition of raw materialsto the delivery of finished goods to the endconsumer.

Raw materials enter into a manufacturingorganization via a supply system and aretransformed into finished goods.


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The finished goods are then supplied toconsumers through a distribution system.Generally, several companies are linkedtogether in this process, each adding value to

the product as it moves through the supplychain.


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Basic Features of SC

It includes all activities and processes tosupply a product or service to a finalcustomer.

Any number of companies can be linked inthe supply chain.

A customer can be a supplier to another

customer so the total chain can have anumber of suppliercustomer relationships.


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While the distribution system can be direct

from supplier to customer, depending on theproducts and markets, it can contain anumber of distributors such as wholesalers,warehouses, and retailers.

Products or services usually flow fromsupplier to customer. Likewise, design anddemand information usually flows from

customer to supplier.


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SC Functional Components Demand Planning to predict the demand of

products and services based on forecasts.Accurately forecasting customer demandsimproves customer service while decreasingcosts by reducing demand uncertainty.

Manufacturing Planning and Scheduling aprocess that optimally schedules manufacturingorders with production capacity. This isperformed by combining material requirementsplanning (MRP) and capacity requirementsplanning (CRP) to create optimized andconstrained production plans.


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Supply Planning a process that meets

customer demand based on availableinventory and transportation resources. Thisincludes distribution requirements planning(DRP), which determines the need to

replenish(refill) inventory at branchwarehouses.

Transportation Planning - A planning processto optimally schedule, load, and delivershipments to customers while consideringconstraints, such as delivery date, mode oftransportation, carrier, etc.


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What is SCM?

It can be defined as A set of approaches

used to efficiently integrate suppliers,manufacturers, warehouses, and retail stores

so that merchandise is produced anddistributed in the right quantities, to the rightlocation, at the right time, and at optimalcost.


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Benefits of effective SCM

Improved customer service - having the rightproducts, available for delivery whenrequested, at a good price.

Reduction of costs across the supply chainand more efficient management of workingcapital.

More efficient management of raw materials,work-in-process, and finished goodsinventory.


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Increased efficiency in the transactions betweensupply chain partners

Better manufacturing resource management

Optimized manufacturing schedules

Optimal distribution of existing inventory acrossthe supply chain

Enhanced customer value, often in the form oflower prices


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SCM Market Leaders

i2 Technologies

SAP

Oracle

PeopleSoft Manugistics

Ariba

EXE Technologies Manhattan Associates etc.


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Introducing the Supply Chain Management ERP Module

The Supply Chain Management or SCM Enterprise Resource Planning orERP module is usually a valuable commodity for manufacturers.An SCM ERP module is used throughout a manufacturers productionprocess.Some steps included in a production process are:

Planning Execution Inventory Forecasting Demand Planning Asset Management

Reporting Logistics Delivery Raw Material Management Returns Processing
http://www.erp.com/index.phphttp://www.erp.com/index.php


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SCM Basics

What is a supply chain All stages or entities involved in processing

customer request manufacturers, suppliers,transporters, warehouses, retailers and

customers too; form the supply chain. Within an organization, different departments

form the typical supply chain.

It is more like a network or web than chain.

Visualize all the flows like products, informationand funds.


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Objective of a supply Chain

Objective, or rather measure of performance isthe value added.

Value added can be measured in various ways,the most tangible being the difference betweenthe revenue generated from the customer andthe overall cost across the supply chain.

All flows of information, cost and funds add costto the supply chain. Customer is the only realpoint of positive cash flow. So SCM is all about

management of all these flows to maximize thetotal profit.


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Phases in supply chain

Design phase capacity planning,locationdecisions, a very long term view.

Chain planning operating

policies,configuration of building blocks.Changes as per market forces,government policies.

Operation Weekly or daily process,

accept orders, purchase material,maintaininventory, manufacture and deliver.


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Supply Chain Strategy

Understanding the customer. Quantity needed

Response time expected

Service level required Price

Desired rate of innovation


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Overall Strategy

Supply Chain Strategy

Efficiency Responsiveness

Inventory InformationTransportation Facilities

Drivers of Supply chain performance


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Inventory

Inventory includes raw material(R.M.), work inprogress (W.I.P.) and finished goods(F.G.).

Large inventory typically increases responsivenessbut decreases efficiency of supply chain.

Inventory exists because of difference in demand &supply. Some amount of inventory is essential forbusiness. Another advantage is taking advantageof economies of scale, during production anddistribution.

If I is inventory, T is material flow time and R isthroughput, then I = RT. So for a given R, we canreduce inventory by reducing T i.e. faster cyclingof material.


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T (material flow time) = Time between entry and exit ofmaterial in supply chain. R(throughput) = Rate of sales to end consumer; i.e. rate of

material going out of supply chain.

Types of inventories: Cycle inventory is the average amount of inventory to satisfy

demand between receipt of supplier shipments. High and lowvalues represent the trade off between inventory carrying cost

and cost of ordering and shipment. ( A-B-C analysis) Safety inventory is held to absorb demand sudden increase.(

Again for better responsiveness.) With a perfect demandforecasting, this is not needed.

Seasonal inventory is built up for predictable variability in

demand as per season. Bottom line Trade off between efficiency and

responsiveness.


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Transportation

Role of transportation in supply chain is obvious.Faster transportation means betterresponsiveness but more cost i.e. less efficientsupply chain.

Decisions about mode (air, ship, train, road etc.)and whether to in-house or outsource.

Key players shipper and carrier

Costs involved Vehicle related (lease / purchase)

Fixed operating ( relating to facilities like parking) Variable operating (fuel, loading-unloading) depends on

quantity of goods and distance.

Other overheads (software for transport network)


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Enterprise Resource Planning (ERP)

Business Process Transformation through ERP System


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ERP System

Sales

HR

Accounting

Inventory

Marketing

Marketing service

Production

Procurement

ERP (Enterprise Resource Planning) is principally an integration ofbusiness management practices and modern technology.


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1960s 1970s 1980s 1990s 2000s

Materials

Requirement

Planning

(MRP)

Manufacturing

Resource

Planning

(MRP II)

Enterprise

Resource

Planning

(ERP)

Extended ERP

Inventory

Control

Packages

ERP Evolution


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The factors that drive the Market are as follows: Manufacturing Challenges

New Product Information

Globalization

Distribution

Development of business specific methods and processes

Specialization

Integration with third party products

Satisfaction of the demand of the customer


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Industry Requirements: Cost Control

Analysis of revenue generation from the Product or Customer

Flexibility as per the change in the business requirements

Managed Decision Making


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Critical Factors causing the problem in Business: Time taken to get the accurate information

Poor interfaces

Slow modifications


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Few Business Solutions: Management Information Systems (MIS)

It does not support decision.

Integrated Information Systems (IIS)

It does not support decision.

Executive Information Systems (EIS)

It supports decision.

Corporate Information Systems (EIS)

It supports decision.

Enterprise Wide Systems (EWS) It does not support decision.


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Few Planning Systems: Materials Requirement Planning (MRP)

Manufacturing Resource Planning (MRP II)


Money Resource Planning (MRP III)


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A Way to go


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Why ERP? Amerced Competition in the market

Need for a simplified system integrating the Various BusinessProcesses.

Need of a better way for Inventory Management

Increasing adoption of JIT (Just-In Time) technology

Better Project Management

Better Customer Service

Enterprise as a whole


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IntroductionA packaged business software system that automates and

integrates all or majority of the business processes. It also sharescommon data and practices in real-time environment.


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It provides Integrated Information Systems covering thefunctional areas of the company.

Includes core corporate activities and hence increasescustomer service.


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ERP may include the following processes: Human Resources

Purchase

Transport

Warehouse

Manufacturing

Order Entry

Accounts Receivables

Account payable and many more..


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ERP helps in improvement of the following: Human Resource Management

Business planning and controlling

Production

Inventory Management

Accounting

Asset Management

Order Processing


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ERP integrates the followings: Database

Applications

Tools

Interfaces Business Process Re-engineering (BPR)


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Problem tackled by ERP: Cash Management

Inventory Problems

Quality Problems

Customer Service

Productivity Problems


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Information System Integration:

Manufacturing

Inventory Management

Invoice Verification

Shipping

Billing

Internal Sales

Capacity and utilization

Headquarters

Project Management

Purchase

Cash Collection

Budget

Sales

Messages Messages

Marketing

Customer Service

Sales

Purchase


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What makes Best Business Practices?

Customer

Model

Best BusinessPractices

Customer Requirements

New Business Conceptsand technologies


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An Example

Customer increases the order quantity.

Customer Representative (CR) changes the customer data.

Credit Dept. changes the

customer Credit Limit.

Production Dept. increases

the production.


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The Resource Flow

Vendors Purchase Production CustomerSales

Finance Capital Manufacturing costs Profit/Loss Balance Sheet


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ERP has the following advantages: Helps in restructuring

Helps in managing Inventory

Customer can check the Inventory and also see the processing ofthe order through Internet.

A 24 hours a day available system.

Helps in cost management (reducing the product cost!!)

Automated sales process


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Major Vendors of ERP: Oracle

SAP

Baan

Peoplesoft JD Edwards


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Take care of the followings: Make sure all business functionalities are covered under ERP.

Make sure that the integration of processes is complete andaccurate.

Check for the customization.

Be patient as ERP implementation takes time.

Make sure that complete training is provided to the users.


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Summary Better way of managing Inventory.

Complete Integration of the functional aspects.

Automation of the Business Processes.

Complicated so be patient.


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Advantages of ERP System

The basic advantage of ERP is to save time and expense by integrating

myriad processes.Eradicate the limitations in the Legacy system.ERP helps management team to make proper decisions in anytime,anywhere by providing real-time information.ERP manages Management reporting and Decisions making promptly

with fewer errors and uniform throughout the organization.ERP automates the entire functional and business process, thus

increasing overall operational efficiency.Data becomes visible across the organization.It permits a company to maintain enhanced track of their products.By consolidating multiple security systems into a single structure, it

protects the sensitive data of that companySales forecasting, which allows inventory optimization

Order tracking, from acceptance through fulfillment

Revenue tracking, from invoice through cash receipt

Inventory reduction and improved cost controlIntegrates cost, profit and revenue information of sales that are madeTo find a best design process with high level quality of product.


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Disadvantages of ERP System

Invest more amount on technology and implement the system

Limited customization.

While doing business processes re-engineering to fit ERP system, it may spoil

competitiveness and/or divert focus from other crucial events/activities.Owing to centralized database in the systems, there is a risk of loss of data in

the event of security breach.ERP can cost more than less integrated and/or less comprehensive solutions.Devastating resistance to sharing sensitive information among the

departments, which can distract organization attention

Integration of truly independent businesses resulted in making an excessivedependencies.

an introduction to scm

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