An Introductionto

Strategic Supply Chain Management

Supply Chain Management…

…has captured the imagination of more & more managers and business organizations

…requires them to think beyond their organization – to think about their product in its entirety, from the origin of all goods (Mother Earth), up to the final customer, consumer or user

“As the economy changes, as competition becomes more global, it is no longer company vs. company but supply chain vs. supply

chain” Harold Sirkin (1994), Boston Consulting Group

Fundamentals: A supply chain is a dynamic concept that involves the constant flow of

resources (products, information, funds) amongst all the participants along the chain

It is essentially a system of interconnecting chains i.e. a supply network or a supply web

Supply Chain Management…

…is the management of the acquisition, transformation and delivery processes that enable and direct the flows of products & services – as well as

the supporting reciprocal flows of information & funds – along a chain leading from the sources of the original inputs up to the end customers, all

aimed at achieving the best possible customer service at the lowest possible cost.

The Four Interrelated Flows in SCM: an example

Foodprocessor

Aluminiumsmelter

Bauxitemine

Fruitpacking

Orangefarm

Mother Earth Distributor

Can maker

Retailoutlet

Aluminiumstrip mill

Material Flow

Funds Flow

Information Flow

E&T Flow

The Four Interrelated Flows in SCM1. Product & Service Flows:The value-adding flow, as products & services progress along the supply chain from point of origin to point of final use or consumption. Generally flow downstream the chain but also upstream (e.g. reprocessing)

2. Information Flows: The bi-directional flows of information throughout the chain – particularly on customer demand which “pulls” the supply chain, but also on supply conditions & eventual disruptions

3. Funds Flows:The flows of funds, mainly upstream (payments for goods & services received) but also in some cases downstream

4. Expertise & Technology Flows:Sharing in areas such as IT systems, SCM expertise, product design, marketing, developing joint SC performance indicators, etc.

INTEGRATED LOGISTICS

Inbound Logistics

Materials Management

SUPPLY CHAIN / SUPPLY NETWORK MANAGEMENTMother Earth End User

Manufacturer

Manufacturer

Manufacturer

CustomerSupplier

1st TierCustomer

1st TierSupplier

2nd TierSupplier

2nd TierCustomer

Outbound Logistics

Purchasing & Supply

1

2

34

Physical Distribution

5

Basic SCM-related tasks of an organization in a supply chain

PURCHASING

OPERATIONS (& INVENTORY)

CONTROL

DEMAND PLANNING

LOGISTICS (Warehousing & Transportation)

Suppliers

Customers

TH

RO

UG

HP

UT

SINPUTS

OUTPUTS

Strategic SCM…

…embraces & builds upon TQM

and JIT

Key elements are the elimination of waste - especially inventory - and continuous improvement

Strategic SCM integrates supply & demand

Effective SCM strategies can provide a sustainable competitive advantage. Factors to consider:

Globalization Outsourcing Location Product Life Cycle Time-based Competition e-business Collaborative Planning, Forecasting & Replenishment Supply Chain Risk Management

Strategic SCM (cont’d)

1. Globalization: Globalization has increased competition and

changed the way organizations do business, making supply chains longer & more complex

2. Outsourcing: Outsourcing is obtaining a product previously produced internally from an external supplier – it is occurring more frequently, especially global outsourcing

3. Location:The choice of location becomes even more complex when taken from the perspective of the supply chain

Strategic SCM (cont’d)

4. Product Life Cycle: Product life cycles are becoming shorter as customers demand new and a larger variety of products, leading to changing requirements and the introduction of new supply chains

5. Time-based Competition:Organizations and supply chains compete in reducing delivery lead-times and increasing the speed to produce new products

ITC

Strategic SCM (cont’d)

6. E-business:

IT – especially electronic communications and e-business – has strongly stimulated the development of SCM.

7. Collaborative Planning, Forecasting & Replenishment:

A recent development that facilitates information sharing among supply chain participants in order to:

Improve customer service Reduce inventories and logistics costs Increase sales and profits

Strategic SCM (cont’d)

8. Supply Chain Risk Management (SCRM):

A relatively new concept that has developed due to the risks of supply globalization, single sourcing, outsourcing, lean systems, distribution, etc.; it is intended to help identify the risks, protect from the consequences of these risks and minimize any loss

Strategic SCM (cont’d)

Other Important Factors in SCM

Purchasing / Procurement:

As SCM evolves, so Purchasing also continues to grow in importance and today considers strategic supply issues far broader than just purchasing transactions or buying, making it critical to effective SCM

Five Core Discipline of Strategic SCM

View Supply chain as strategic assetDevelop an end to end process architectureDesign organization for performanceBuild right collaborative modelUse matrices to drive supply chain performance

Cost structure of a typical manufacturing enterprise:

PurchasedMaterials 60% Overheads

15%Labour 15%

PurchasedMaterials 54% Overheads

15%Labour 15%

Profit16%

Before the savings achievedthrough better negotiations

After the savings achievedthrough better negotiations

10%Profit

Capitalexpen-diture

Manufactur-ing & inven-

tory costs

Value of inventory

The Supply Chain

RETURN ONINVESTMENT

Purchas-ing costs

Customerservice

SALESFIXED

ASSETSCURRENT

ASSETS SUPPLYCHAIN COSTS

Outboundlogistics

costs

Inboundlogistics

costs

Supply Chain Management

SCM has resulted in a major change in the way that we do business.

Effective supply chain management strategies have many potential benefits:

Improved customer service Lower inventory & higher inventory turnover Higher productivity Shorter lead-times Improved ROI Increased market share

Supply Chain Management refers:

An area where buyers, suppliers and internal customers could work closely together to ensure goods and services delivered as required, of the appropriate quality and at the agreed cost

Flow of Information, Goods and Funds between supplier and buyer

Extended Supply Chain Management

Competition between SCM Vs SCM

Strength of SCM is the strength of weakest link in the chain

Represents and reflects a holistic approach to the operation of the organization

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SUPPLY CHAIN MANAGEMENT

1. Understanding the Corporate Environment2. Specifying Requirements & Planning

Supply3. Analyzing Supply Markets4. Developing Supply Strategies5. Appraising & Short listing Suppliers6. Obtaining & Selecting Offers7. Negotiating8. Preparing the Contract9. Managing the Contract & Supplier

Relationships

10. Managing International Logistics11. Managing Inventory12. Measuring & Evaluating Performance13. E-Procurement14. Environmental Procurement15. Group Purchase16. Green Procurement17. Operations Management18. Managing Finance Along the Supply Chain

Supply Market Analysis will ensure Suppliers’ Performance:

Performance is function of Motivation, Capability and Environment ; P = f (m,c,e)

SCM Manager must be Able, Adaptable and Agile (AAA)

SCM manager should ensure RRR and PPP

SCM Manager must have HHH

SCM manager must be good negotiator; deal maker not deal destroyer.

SCM Manager is like a chef in five star hotel

SCM manager should not only make good contract but also ensure good contract management

ITC

Conclusion

Thank You