SUPPLY CHAIN MANAGEMENT

SUPPLY CHAIN MANAGEMENT

What is supply chain ?All activities associated with the flow and transformation of goods from raw materials to end users.The term supply chain refers to the entire network of companies that work together to design, produce, deliver, and service products.

A network of facilities including:

Material flow from suppliers and their upstream suppliers at all levels.Transformation of materials into semi-finished and finished products ( internal process ).Distribution of products to customers and their downstream customers at all levels.

Three flows in SCThere are three kinds of flows in a supply chain:material , information , capital .

Downstream Material: Products, Parts Information: Capacity, Delivery Schedules Finance: Invoices, Pricing, Credit Terms Upstream Material: Returns, Repairs, After-sales services. Information: Orders, Point-of-sale Data Finance: Payments

SUPPLY CHAIN MANAGEMENTPush vs. Pull in supply chains Push or Building-to-stock(BTS): Producing stock on the basis of anticipated demand. Demand forecasting can be done via a variety of sophisticated techniques (some from the Operations Research area and some using Data Mining).

Pull or Building-to-order(BTO): Producing stock in response to actual demand (firm orders).

The Push-Pull Point: In many supply chains, upstream units employ BTS, while downstream units employ BTO strategies. The point in the supply chain where the switch-over (from BTS to BTO) occurs is called the Push-Pull point.

Optimally locating the Push-Pull point is a key determinant of supply chain performance. SUPPLY CHAIN MANAGEMENT Supply Chain Management (SCM) A set of processes and sub-processes which attempt to implement and optimize the functions, connected entities, and interacting elements of a supply chain.

Involves:

Organizations, procedures, people.Activities: Purchasing, delivery, packaging, checking, warehousing, etc.Establishment of long-term relationships with suppliers (supply alliances) and distributors.Effective flow of information through the supply chain. Supply chain optimization.

Key Business areasEnterprise performanceCustomer serviceOrder management Demand planning Warehouse distributionPartnerships Supplier/supply base management Benefits of SCMReduce uncertainty along the chainProper inventory levels in the chainMinimize delaysEliminate rush (unplanned) activitiesProvide good customer service

Problems along the supply chainDelays in production, distribution etc.Expensive InventoriesLack of partners coordinationUncertainties in deliveriesPoor demand forecast Interference with production Poor quality

Global supply chainCan be very longPossible cross-border problemsNeed information technology support for: communication and collaborationPossible delays due to: customs, tax, translations, politics

Importance of SCMSupply chain management is essential to company success and customer satisfaction. Did you know that SCM also plays a critical role in society? It's absolutely true. SCM knowledge and capabilities can be used to support medical missions, conduct disaster relief operations, and handle other types of emergencies. SCM also plays a role in cultural evolution and helps improve our quality of life.

Whether dealing with day-to-day product flows or dealing with an unexpected natural disaster, supply chain experts roll up their sleeves and get busy. They diagnose problems, creatively work around disruptions, and figure out how to move essential products to people in need as efficiently as possible.Importance of SC in societySupply chain management is necessary to the foundation and infrastructure within societies. SCM within a well-functioning society creates jobs, decreases pollution, decreases energy use and increases the standard of living. Two examples of the effect of SCM within societies include:

2013 North India floods:-In 2013, a cloudburst on the North Indian state ofUttarakhandcaused devastating floods and landslides, leaving residents without access to food or clean water. As a result, the Indian airforce and other government organisations provided food and medical supplies.

Foundation for Economic Growth:-A society with a highly developedsupply chain infrastructurethat includes interstate highways, a large railroad network, ports and airports is able to trade many goods at low cost. Business and consumers are able to obtain these goods quickly, resulting in economic growth.

Importance of SC in BusinessClearly, the impact that SCM has on business is significant and exponential. Two of the main ways SCM affects business include:

Boosts Customer ServiceSCM impacts customer service by making sure the right product assortment and quantity are delivered in a timely fashion. Additionally, those products must be available in the location that customers expect. Customers should also receive quality after-sale customer support.

Improves Bottom LineSCM has a tremendous impact on the bottom line. Firms valuesupply chain managersbecause they decrease the use of large fixed assets such as plants, warehouses and transportation vehicles in the supply chain. Also, cash flow is increased because if delivery of the product can be expedited, profits will also be received quickly.

Key issues in supply chain management include

Distribution network configurationHow many warehouses do we need?Where should these warehouses be located?What should the production levels be at each of our plants?What should the transportation flows be between plants and warehouses?

Inventory controlWhy are we holding inventory? Uncertainty in customer demand? Uncertainty in the supply process? Some other reason?If the problem is uncertainty, how can we reduce it?How good is our forecasting method?Distribution strategiesDirect shipping to customers?Classical distribution in which inventory is held in warehouses and then shipped as needed?Cross-docking in which transshipment points are used to take stock from suppliers deliveries and immediately distribute to point of usage?

Supply chain integration and strategic partneringShould information be shared with supply chain partners?What information should be shared?With what partners should information be shared?What are the benefits to be gained?Bullwhip Effect The bullwhip effect is the uncertainty caused from distorted information flowing up and down the supply chain.

21The bullwhip effect is caused by fluctuations in information supplied to firms further up the supply chain. Distorted information causes firms to forecast demand incorrectly. Thereby, many unnecessary costs are put upon each of the firms along the supply chain.

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.23Most firms are affected by the bullwhip effect. The bullwhip effect used to be considered a normal phenomenon. However, recently, many firms have been trying to focus on how to improve communication along the supply chain.

Results of the bullwhip effect - continued.Lost customer serviceLengthened lead timeLost salesUnnecessary adjusted capacity26Customers can also lose faith in a firms ability to deliver products. This is because firms are having trouble meeting demand. Likewise, firms often must lengthen lead time for finished goods, which also may discourage customers, which in turn leads to lost sales. In a worst case, incorrect forecasts may entice a company to adjust capacity which could be detrimental to the overall success of the company.Causes of the bullwhip effectUn-forecasted sales promotionsSales incentivesLack of customer confidenceCustomers turning back sales ordersFreight incentives27To reduce stocked product, retailers may offer sales promotions to customers. If retailers fail to notify firms upstream in the supply chain, these firms may forecast increased sales as legitimate demand. Thereby producing product that was not wanted by the customer in the first place. Furthermore, sales incentives for salesman may entice salesman to sell products to firms to meet incentives. This may cause large inventories for the firm, or the firm may cancel the orders, which causes demand fluctuations in the supply chain.THANK YOU