SUPPLY CHAIN MANAGEMENTSUPPLY CHAIN MANAGEMENTOperations Management

WHAT IS SUPPLY CHAIN?WHAT IS SUPPLY CHAIN?

Supply Chain ManagementSupply Chain Management Supply chain management is a set of

approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements.

Principles of Supply Chain Principles of Supply Chain ManagementManagement

Segment customers based on the service needs of distinct groups and adapt the supply chain to serve these segments profitably.

Customize the logistics network to the service requirements and profitability of customer segments.

Listen to market signals and align demand planning accordingly across the supply chain, ensuring consistent forecasts and optimal resource allocation.

Differentiate product closer to the customer and speed conversion across the supply chain.

(continued….)(continued….)

Manage sources of supply strategically to reduce the total cost of owning materials and services.

Develop a supply chain-wide technology strategy that supports multiple levels of decision making and gives a clear view of the flow of products, services, and information.

Adopt channel-spanning performance measures to gauge collective success in reaching the end-user effectively and efficiently.

TOOLS AND TECHNIQUES TOOLS AND TECHNIQUES OF SUPPLY CHAIN OF SUPPLY CHAIN MANAGEMENTMANAGEMENT

Material Requirements Material Requirements PlanningPlanning

Materials requirements planning (MRP) is the logic for determining the number of parts, components, and materials needed to produce a product.

MRP provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced.

Dependent demand drives MRP.MRP is a software system.

Material Requirements Material Requirements Planning SystemPlanning System

Based on a master production schedule, a material requirements planning system:Creates schedules identifying the

specific parts and materials required to produce end items.

Determines exact unit numbers needed.

Determines the dates when orders for those materials should be released, based on lead times.

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Sales & Operational Planning Sales & Operational Planning ProcessProcess

Purpose: Select capacity options over the intermediate time horizon

Capacity options:WorkforcesShiftsOvertimeSubcontractingInventoriesetc.

Inputs to the ProcessInputs to the Process

S&OPs

Strategic Capacity Levels Existing buildings Processes

Demand Management Forecasts of customer

demand Need for spares, etc. Pricing

External Capacities Suppliers Subcontractors

Integrated Business Planning Integrated Business Planning

EXAMPLE OF SUPPLY EXAMPLE OF SUPPLY CHAIN MANAGEMENTCHAIN MANAGEMENT

Supply Chain Story ISupply Chain Story I

US auto man.

Suppliers

Suppliers

Toyota “Toyota helped us dramatically improve our production system. We started by making one component, and as we improved, [Toyota] rewarded us with orders for more components. Toyota is our best customer.”

-Senior executive, supplier to Ford, GM, Chrysler, and Toyota, July 2001**

“The Big Three [US automakers] set annual cost-reduction targets [for the parts they purchase]. To realize those targets, they’ll do anything. [They’ve unleashed] a reign of terror, and it gets worse every year. You can’t trust anyone [in those companies]”

Arm’s Length

Partnership

On supplier management

Supply Chain Story II Supply Chain Story II

Traditional Supply Chain

Dell Supply Chain

On April 20, 2001 Dell toppled Compaq as the world’s largest PC maker* Dell’s market share was 12.8% as opposed to Compaq’s market share 12.1%

Compaq and HP could not get into a price war with Dell because Dell’s profit margin was 18% Compaq and HP’s profit margins were in single digits

*Source: Forbes.com, April 24, 2001

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On gaining competitive advantage

Supply Chain Story III Supply Chain Story III

In the late 1970s, with about 200 stores, Wal-Mart was a relatively small retailer. At that time, Sears and Kmart dominated the retail market. Since then, Wal-Mart gained significant market share from these retailers and became the largest and most profitable retailer in the world. Today, Wal-Mart is admired for its collaboration and technology driven supply chain practices and is leading the retailing industry with its innovative supply chain practices.

On gaining competitive advantage

ReferencesReferences

Chopra, S. and Meindl, P., 2004. Supply Chain Management: Strategy, Planning and Operation, Pearson Education, Inc., Singapore, Second Edition

Bozarth, C.C. and Handfield, R. B., 2006. Introduction to Operations and Supply Chain Management, Pearson Education

Simchi-Levi, D., Kaminsky, P., Simchi-Levi, E., and Ravi Shankar, 2008. Designing and Managing the supply chain, Tata McGraw Hill Education Private Limited, New Delhi.

Shah, J., 2009. Supply chain management: Text and Cases. New Delhi: Pearson Education. Shapiro, J.F., 2007. Modelling the supply chain, Second Edition, Brooks/Cole, Cengage

Learning. Dobler, D. W. and Burt, D. N., 1996. Purchasing and Supply Management: Text and Cases,

Sixth Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi. Tersine, R. J., 1994. Principles of Inventory and Materials Management, Fourth Edition,

Prentice-Hall Inc., New Jersey