supply chain management - introduction
DESCRIPTION
Supply Chain Management - Introduction. Module I. BUSINESS ENVIRONMENT TODAY. Liberalised & Hurtling Towards Full Globalisation Revolutionary Developments in Technology Short Product Life-Cycles Shift in Manufacturing - Retailer Relationships Mounting Pressures from Consumer Groups - PowerPoint PPT PresentationTRANSCRIPT
Module I
BUSINESS ENVIRONMENT TODAY
Liberalised & Hurtling Towards Full Globalisation
Revolutionary Developments in Technology
Short Product Life-Cycles
Shift in Manufacturing - Retailer Relationships
Mounting Pressures from Consumer Groups Environmentalists
Adds to Increased Business Complexity of 4C
‘Constant Change’ is Now A Permanent Feature
BUSINESS COMPLEXITY- 4C
CustomersMarketTrends
External Environment
Within Company
Competition
Complexity- Simplest Ideas Exploited
- Barriers to Entry Increasing- Technology Rates Rising Completeness
Move to IntegrateSolutions, Not just Products or Services
Customer FocusNew Standards Emerging in Product Quality/ Price/ Delivery Services/ Flexibility Competitiveness
- Reduced Monopolies on Technology- Work Done Almost Anywhere- Time and Quality are Competitive Resources
Increased Volatility that Necessitates Change In Ways of Managing Customers/ Products/ Suppliers/ Employees
PLAN FOR CHANGE
Develop Plans to Manage Both Long & Short Term Changes
Implement Supply Chain Management Concept
Create Responsive Systems & Institutions
Manage ‘Change’ to Company’s Advantage
Create Customer Oriented Workforce At All Levels
Emphasise Flexibility in Planning/ Operations & Management To Hone Competitive Edge
A Paradigm Shift
RELAY RACE
Baton Slipped & Fell
3 MAJOR REASONS FOR FAILURE
Participant’s Objectives -
Goals at Change-Over Points -
Participants Busy Improving Own Performance
NO ONE FOR OVERALLSUCCESS
CONFLICTING
DIFFERENT
Purchase
Material Flow
Materials Production Distribution
Customer Service
Sales
FUNCTIONAL ORGANIZATION
SCM Concept Integrates Functions/ Companies Along Supply Chain
Each Function Has Its Individual Goal
All Functions Work Within Silos To Meet Individual Goals
Company Unable to Match Customer Service Levels At Competitive Costs
Baton - Material/ Goods/ Information
SUPPLY CHAINWithin & Beyond the
Company Is considered a SINGLE ENTITY
SUPPLY CHAIN MANAGEMENT CONCEPT
All MOVEMENT Activities in
SUPPLY CHAIN Constitute
TOTAL SYSTEM
FUNCTIONAL ORGANIZATION
CUSTOMERS
SalesDistributionProductionPurchase
SUPPLIERS
Information 1
OrderModified Order
Information 2Information 3
Information 4
Information CInformation S
Fragmented Information FlowsFragmented Information Flows
Arms Length Arms LengthInformation Flows
SCM IMPLEMENTED ORGANIZATION
CUSTOMERS
SalesDistributionProductionPurchase
SUPPLIERS
Information Flow
Seamless Information FlowSeamless Information Flow
• Orders
• Delays
• Forecasts
• Order Status
• Payments
Information Flows
SUPPLY CHAIN - WHAT
Organizations (Stages) Involved Directly & Indirectly In Satisfying Customer- Needs
Supply Chain Comprises Value-Adding Organizations
Manufacturers Suppliers Transporters Warehouses
Distributors Customers Retailers
Functions That Fulfill Customer Requests Within An Organization – Internal Supply Chain/ Logistics
Internal Supply Chain Includes Functions Related To
Materials Management Distribution Customer Service
Marketing Operations Finance
Directly Involved Indirectly Involved
SUPPLY CHAIN AS A NETWORK
CompanySupplier Chains
CustomerChains
NodesLinks
Network of Facilities & Distribution Options Performing Material Procurement Transformation Into Intermediates & Finished Products Distribution of the Products to Customers
Supply Chains Necessary for Production & Distribution Of Both Tangible Products & Intangible Services
In Traditional (Functional) Organizations Marketing/ Manufacturing/ Distribution/ Purchasing Organizations Along the Supply Chain Operate Independently
This Result in Less Than Optimal Working in Traditional Firms that Leads to Higher Costs & Subsequent Loss of Business To Competition
Supply Chain Management is the Strategy For Bringing This Integration Within & Beyond Companies To Fight the Competition
Companies Felt Urgent Need for Integration Among Departments & Independent Companies Working Along the Supply Chain
Each Function Have Their Own & Often Conflicting Objectives• Marketing – High Sales Through High Customer Service • Manufacturing – High Throughputs / Low Variety For Low Costs• Distribution – Large Variety with Low inventory • Purchasing – Low Costs with Little Consideration for Inventory
SUPPLY CHAIN MANAGEMENT – NEW STRATEGY
INTEGRATED SUPPLY CHAIN MANAGEMENT
2 tier Su
pp
liers
1 tier Suppliers
Procurement Transmission Assembly BSR Depots
Cu
stom
ers
COMPANY
Material Flows
Information Flows
Financial Flows
Inbound Logistics
OutboundLogistics
External Supply Chain
Managing the Flows Most ProfitablyManaging the Flows Most Profitably
Dealers
External Supply Chain
In-plant Logistics
Logistics/Internal Supply Chain
Reverse Logistics Flows
INTEGRATED SUPPLY CHAIN
DEFINITION
INTEGRATION of all Activities Associated with Transformation and Flow of Goods from Raw Material to Finished Products and Suppliers to the End Users,
Related Information Flow both UP and DOWN the Supply Chain and Financial Flow from Customers to Suppliers, through Improved Supply Chain Relations,
for Achieving Sustainable Competitive Advantage
SUPPLY CHAIN MANAGEMENT
SCM Implemented Company Creates Healthy BottomSCM Implemented Company Creates Healthy BottomLine Today and Conditions for Same TomorrowLine Today and Conditions for Same Tomorrow
INTEGRATION IN SUPPLY CHAIN
Process Integration Collaborative Working with Buyer and Seller Joint Product Development Common Systems Shared Information
Integration in Supply ChainIntegration in Supply ChainCritical for Organizational SuccessCritical for Organizational Success
System Integration Suitable ERP System Over- Laid with DSS
Focussed on Processes, Suppliers and Customers
Chains that Enhance Competitiveness
STRATEGIC APPROACH IN SCM
Needs Strategic Orientation in Deciding Activities under its Control
Unifying ALL ACTIVITIES Related To The Process From Product Conception To Consumption
Tying Together Diverse And At Times Conflicting Activities In The Organisation
SC Management Influences Large Chunks Of Costs Directly Related To Current And Future Profits
TOTAL SUPPLY CHAIN
Suppliers Manufacturers Distribution CentersWarehouses
Customers
• All Facilities Impact COSTS, Though in Varying Degrees
• Efficient and Cost-Effective ACROSS Total Supply Chain
• Decisions/Activities at Strategic-Tactical-Operational Levels
Inventory Costs
Manufacturing Costs
Transportation Costs
Material Costs
Transportation CostsTransportation Costs
CONFLICTING GOALS IN SC
MANAGEMENT
• Low Material Cost
• Low Costs of Logistics
• Low Overheads
• Low level of Tied-up Capitalin Inventories
• Low Inventory Management
Costs
High Level of Customer Service
TowardsMarkets andProduction
SUPPLY CHAIN MANAGEMENT - GOALSSUPPLY CHAIN MANAGEMENT - GOALSSUPPLY CHAIN MANAGEMENT - GOALSSUPPLY CHAIN MANAGEMENT - GOALS
Achieved By JugglingThe Logistics Mix
ELEMENTS OF LOGISTICS MIX
Inventory
Facilities – Locations & Numbers
Communications
Unitisation (Packaging)
Transportation
Procurement & Purchase
Distribution)
Customer Service
Trade-Off Made Among Elements of Logistics Mix To Enhance Customer Service With Lower Costs
TRADE - OFFS IN SC MANAGEMENT
Lot Size - Frequency of Purchase/ Production
Inventory – Transportation Cost
Lead Time – Transportation Cost
Product Variety – Inventory Cost
Warehousing – Transportation Cost
Cost – Customer Service
Advanced IT & Creative Network Design Reduce Impact of Trade- Offs
EVOLUTION OF SUPPLY CHAIN MANAGEMENT
Purchase Material Control
ProductionW/H &
Transport
Customer Service
MaterialsManagement
In-PlantManagement Logistics
Material Flow Customer Service
SalesAdmin
Material Flow
Integration Within Organisation
1960
1970
Inventory Inventory Functional Integration
Inventory Inventory
In-PlantManagement
EVOLUTION OF SUPPLY CHAIN MANAGEMENT
MaterialsManagement
INTEGRATED SUPPLY CHAIN MANAGEMENT
Logistics/ Internal Supply Chain
Suppliers
CustomersSuppliers
Suppliers
Customers
Arms length Partnership
Arms Length
Co-Maker
Co-Maker
Logistics
Arms length Partnership
Integration Beyond Organisation
1980
1990
2000
Material Flow Customer Service
Arms Length
Internal Integration
Customers
BASIC ELEMENTS OF SCM PLAN (Developing Strategies)
For Managing Resources Efficiently To Delivery Value to Customer Developing Metrics To Monitor SCM Performance
SOURCE Choose the Right Suppliers To Support Delivering Quality Developing Metrics To Monitor SCM Relationships Develop Processes For Sourcing & Managing Supplies
MAKE Making Schedules for Production/ Testing/ Packaging/ Delivery Metrics To Monitor Quality/ Output/ Labour & Asset Productivity
DELIVER (Logistics) Coordinating Customer Order Receipt & Timely/ Correct Delivery Developing Distribution Network of Transporters & Warehouses Setting Up Invoicing System to Receive Payments
REVERSE LOGISTICS (Customer Returns) Creating Network/ Processes To Support Customers Facing Difficulty with Delivered Products - Return/ Payment/ Discount Procedures
SCM Objective is To Get the Right Product/ Services in Right Quantities at The Right Place and Right Time At Minimal Cost
Customer Satisfaction Achieved When SCM Objective is Fulfilled in Providing Customer Service
SCM OBJECTIVES
Other Objective is To Maximize Overall ‘Value Generated’
Value - Difference Between Worth of the Product To Customer & Cost Incurred by the Supply Chain
SC Profitability is the Profit Shared Across the Whole Supply Chain
SC Profitability Closely Related To ‘Value Generated’
Customer Satisfaction Measured Using Metrics • Order Fill-Rate• On-Time Delivery
SUPPLY CHAIN MANAGEMENT ISSUES
Inventory• Raw Material/ Product (Component) Inventory (RPI) • Work-in-Process (WIP)• Finished Products/ Goods Inventory (FGI)• Inventory That has Become Obsolete Called End-Off-Life (EOL) Write Off
Flexibility• Ability to Respond Quickly to Changes in the Environment• Flexibility in Supply Chain is Highly Dependent on Flexibility of All Independent Entities in the Supply Chain
The SCM Objective Translates into the following SCM Issues Flexibility• Delivery Reliability• Delivery Time (Lead Time)• Inventory Levels
DECISION HIERCHY IN SCM
Higher Level
Middle Level
Lower Level
StrategicLevel
TacticalLevel
OperationalLevel
Long-Term Decisions – Having Long-Term Effect
Medium-Term Decisions – Mid-Term Effect
Day-To-Day Decisions – Short-Term Effect
Higher Level Decisions Set Conditions Within Which Lower Level Decisions Have to be Made Strategic Level Decisions Relate to Location/ Production/ Inventory Policy/ Transportation Modes to Be Used Tactical Level Decisions Relate to Monthly Production Plan/ Monthly/ Weekly Supply Schedule Operational Level Decisions Relate to Daily Allocation of Jobs/ Employing Casual Labour/ Scheduling Staff for Front-Office Duty
Sales Function
LogisticsFunction
ProductionFunction
PurchaseFunction
Strategic
Tactical
Objectives& Policies
Plans &Forecasts
Schedules& Controls
ORGANISATIONAL LINKING MECHANISM IN SCM IMPLEMENTED ORGANISATION
Operational
SUPPLY CHAIN MANAGEMENT DECISIONS Sourcing Decisions
• Quality of Product • Choosing Right Suppliers/ Vendors• Preferred Location of Supplier• How Much Product to Order• Which Transportation Mode to Use
Production Decisions• Location of Plant (Domestic/ International)• Make vs. Buy • Capacity of Plants• Product Quality – Low-Cost Leader/ Some other Differentiation Strategy
Inventory Decisions• How much Inventory To Hold (Safety Stock)• How Much To Order• When To Order• Scheduling Technique (JIT/ JIC)
Logistics Decisions• Transportation (30% of Log Cost)
Road (Truck/ Vehicle) Rail Air Water Multi-Modal Transportation
• Location of Plants/ Warehouse/ DC
Supply Chain Management Decisions Must Ensure • Seamless Flow of Communication/ Material/ Finances• Reduction in Inventory While Maintaining High Customer Service Levels• Reduction in Supplier Base & Developing Supplier Relationship To Reduce Overall Costs• Standardize Parts For Reducing Variety For Reducing Inventory
INTERDEPENDENCY IN SUPPLY CHAIN
CustomerService
Flexibility Inventory
Higher Customer Service Comes with Higher Costs To Hold/ Carry Higher Inventory (Inventory Carrying Costs=(30-40)% of Inventory Value)
Higher Flexibility in Supply Chain Helps in Providing Higher Customer Service Even with Lower Inventory i.e. at Lower Costs
High Flexibility is Ability of Changing/ Adapting to Customer Demand/ Change in Demand Quickly (Shorter Lead Times)
SCM Strives for Providing Higher Customer Service at Lower Costs
SCM Applies Trade-Off Between System Flexibility & Inventory To provide The Desired Level of Customer Service
OPTIMIZING SCM PERFORMANCE
SCM Performance Optimized By Achieving Coordination & Collaboration Among All Member Companies in Supply Chain & Managing Relationships Among Them
Within Company Coordination Provided Through • Integration of Logistics Activities of Purchasing/ Prod. Planning & Scheduling/ Inventory Management/ Distribution/ Customer Service• In Multi-Plant Companies Production & Related Decisions Closely Coordinated to Ensure Improvement in Overall Performance
Improved Integration & Coordination in Total Supply Chain Achieved With Help of Logistics Information Systems (LIS)
Integration - By Providing Real-Time Information Enabling All Members To Work Together For Achieving SCM Goals Coordination – Coherent Operations of the Entire System Achieved By Managing Dependencies Among Functional Activities
SCM Ensures Integration & Coordination in Total Supply Chain Using Enhanced ERP/ Inter Organizational Systems (IOS)/
Executive Support Systems (ESS)/ Decision Support Systems (DSS)
CHANGED FOCUS IN COMPANIES
Traditional Focus SCM Focus
Purchasing as a Reactive Function Sourcing/ Vendor Development are Strategic/ Proactive Function
Emphasis - Rules/Regulations/ Emphasis - Networking/ Procedures With limited/ Developing Long-Term Short-Term View of Entire Process Relationships
Compartmentalized/ Silo View System Oriented/ Process View
Cost/ Price-Based Value-Based
Not Much Importance to High Importance to ManagingInformation Management Information
Single-Dimensional Performance Multi-Dimensional PerformanceMeasures Measures
Limited Role of IT Significant Role of IT as Enabler
Critical Success Factors For
Supply Chain Management
Integration
Coordination
Collaboration
Integrated Information System
Systems + Communications
Management Agreements +
Commitment from ALL
DIFFICULT TO REPLICATE BY COMPETITORS
BENEFITS TO THE COMPANY
Improved CUSTOMER SERVICE
Reduction in TIED-UP CAPITAL
Reduction in ADMINISTRATIVE COSTS
Sharper COMPETITIVE EDGE
Sustained GROWTH
Increased SHAREHOLDER VALUE
SUCCESSFUL INDIAN SCM COMPANIES
Industry Major Companies
Apparels Madura Coats/ Reliance
Automobiles Maruti/ Hero Honda/ Tata Motors/ M & M
Chemicals/ Paints Asian Paints/ Reliance/ Goodlass Nerolac
Consumer Durables LG/ Godrej/ Samsung
FMCG HUL/ P&G/ Coke/ Pepsi
Packed Food Godrej/ Cadbury/ Parle/ Amul/ Dabur
Computers Wipro/ HCL
Newspaper Times of India/ Hindustan Times
Petroleum Products IOC/ Bharat Petroleum
Pharma Dr. Reddy’s Lab/ Dabur/ Ranbaxy
Unorganized Mumbai Dabbawala
SUPPLY CHAIN ACTIVITIES ARE FOCUSSED ON
PARAMETERS OF CUSTOMER SERVICE ANDSUPPLY CHAIN ORGANIZATION HAS THE
RESPONSIBILITY, AUTHORITY & COMPETENCETO
MANAGE THE 3 FLOWS IN THE BEST INTEREST OF
THE WHOLE SUPPLY CHAIN
IN ESSENCE
RELAY RACE
THE BOAT RACE
Seamless IntegrationOne Objective
Single Entity
Any Questions Pl?