supply chain management_post training reference

Prof. Shirish Jeble

SIBM, Pune

17 July 2013 1 SIBM

Supply Chain Management

Agenda Case study Introduction to Supply Chain Management Key Parameters in Supply chain management

Production Location Inventory Transportation Information

Metrics for Measuring Supply Chain Performance Supplier Relationship Management Innovations in SCM

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Focus from Operations to Customer

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Operations Suppliers Customers

Value Addition

Case Study

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Traditional Organization

Focus on

Procurement

Distribution

Maintenance

Inventory Management

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Supply Chain Management Also includes

Marketing New Product

Development Finance Customer Service

High Inventory turnover Order Fill Rate On-Time delivery

Low Inventory Product returns

Objectives of Supply Chain Management

1. Customer Service: Provide best in class customer service

2. Time and Location of service: Deliver the product to customer when he wants it and where he wants it

3. Quality: Ensure product quality is maintained

4. Competitive advantage - Use SCM as a Competitive advantage

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History of Supply Chain Management

SIBM

F. W. Taylor Scientific Mgmt

1910 1950-60

1970 1990

Henry Ford/Gantt Assy Line/Sch Chart

1980

Shipping Containers

2000

Use of Computers, MRP

Mass Production in Service Sector

Lean, JIT, TQC automation

Synchronous Mfg., TOC

Internet, ERP, SCM

B2B, B2C E-Commerce

Amazon, eBay Yahoo, Fedex

1913 EOQ Concept

EDI

Supply Chain

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Communication

$

Raw Materials

Pu

rchasin

g

Op

eration

s Mgm

t

Marketin

g

Value Chain

Support Functions

Physical Goods

Touch Points with Business Partners

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Business Supplier Customer

1. Inquiry

2. Quote

3. PO

4. PO Accept

5. Shipment

6. Payment

Sales Order

Evolution of SCM

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Purchasing

Production

Finance

Marketing/ Sales

Demand Forecasting Distribution Planning Order Processing FG Inventory Customer Service Marketing / Sales

Purchasing Mfg. Inventory Warehousing

Production Planning Requirements Planning Material Handling Packaging

Transportation

Finance AR AP

Materials Management

Supply Chain Management

Objectives of SCM

Minimize costs of supply chain

Maximize throughput

Ability to respond efficiently to demand fluctuations

Satisfy customer demand with a good quality product

Eliminate in-transit damage, loss


Supply Chain

Purchasing


RM

FG

WIP

Factory Location

Warehouse Location

Products

Demand Forecasting

Production Planning

Capacity Planning

Logistics Planning

Surface Trucks / Railroad

Sea

Air

Transportation Production

Inventory Location


Information

1 Production


Aggregate Planning


Product Mix Planning

Demand forecasting


Year 2013 Forecast

Capacity Planning


Year

2013 Demand

Model M1 11700 Model M2 20300 Model M3 24900

2013 Demand

Model

M1 Model M2

Model M3

Plant 1 3000 5000 7000 Plant 2 5000 5000 5000 Plant 3 4000 7000 8000

2013 Capaciy

Whats the issue?

Allocation of Capacity to Regions


2013 Demand

Model M1

Model M2

Model M3

Plant 1 3000 5000 7000 Plant 2 5000 5000 5000 Plant 3 4000 7000 8000

Western

Year

2013 Demand

2013 allocation

Model M1 2000 2000

Model M2 3000 2500

Model M3 5000 4500

DRP


Bill of Distribution

DRP Allocation

FG Inventory

Logistics

Forecasts

Production Planning


2013 Demand

Model M1

Model M2

Model M3

Plant 1 3000 5000 7000 Plant 2 5000 5000 5000

Plant 3 4000 7000 8000

Month 1 2 3 4 5 6 7 8 9 10 11 12 Total

Model M1

385 359 333 308 256 179 179 128 256 308 154 154 3,000

Model M2

616 542 517 493 443 296 369 394 394 443 246 246 5,000

Model M3

321 369 402 386 386 386 353 353 353 337 177 177 4,000

Capacity Plan

Plant 1 Monthly Plan

Plant 1 - January Prudction Plan Day Shift 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20

Model M1 I 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 10 200

II 10 10 10 10 10 9 9 9 9 9 9 9 9 9 9 9 9 9 9 9 185

Model M2 I 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 16 15 15 15 15 316

II 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 15 300

Model M3 I 9 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 161

II 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 8 160

Material Requirement Planning

M1

A1 (4)

A1C1 (1)

A1C2 (1)

A1C3 (2)

A2 (2)

A2C1 (1)

A2C2 (4)

A3 (5)

A3C1(5)


Bill of Materials Material Requirement

Planning Inventory Records

Purchase Orders

2 Location


Location Decision Cost of facilities

Cost of labor

Political climate in the state / country

Skills available in the workforce

Infrastructure conditions

Taxes and tariffs

Proximity to suppliers and customers


3 Inventory


Bull Whip Effect


Bull whip Effect


Customer

Retailer

Distributor

Manufacturer

Supplier

Bull whip Effect


Inventory Costs

Stockout costs

Material costs

Carrying costs (finance)

Storage costs


High Inventory Costs

Stockouts


Conflict

Large Inventories Economies of scale

Absorb demand fluctuations

High Carrying costs

Push to sell


Short Inventories Low Carrying costs Pull based demand High ordering,

transport costs Risk of shortages Idle plant capacity

What is the Solution?

Just in Time.

Traditional Inventory System

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Push Based Model


Inventory of RM / Components

Focus on Marketing, advertising Campaigns Customer

Finished Goods

What are the Symptoms?

Pull Based Model



Focus on Customer Needs Customer

Finished Goods

Supplier

Flow of Demand

Pull Based Model (2)



Focus on Customer Needs Customer

Finished Goods Supplier

Advantages of Pull Based Demand Flows from customer to

business Maintain low inventory Suppliers have visibility of inventory,

considered as part of overall business operation, works as a supply chain

Replenishment happens when item is consumed

Lead time of manufacturing is kept low

Push and Pull System

Push System

Based on forecast of demand

Maintain high to moderate inventory of components, WIP and FG

Use of expensive MRP system

Focus is on selling the inventory

Pull system

Based on actual demand

Maintain low inventory

Uses Kanban system

Focus is on producing what customer needs product and quantity


The Goal of JIT

Zero Inventory

Low cost of inventory

Lean Manufacturing

Produce what customer wants

Zero or low lead times


4 Transportation


Modes of Transport

Railways

Roadways

Seaways

Airways

Pipelines

Combination of one or more ways

One more?


Factors in Logistics Decisions Expected time of delivery

Availability of resources / carriers

Distance

cost

Volume

Handling of material

Risks

Designing vehicle routes and schedules

Tracking shipments


Direct Shipments


Plant 1

Plant 2

Plant 3

Plant 4

Customer A

Customer A

Customer A

Customer A

Direct Shipments via DC


Plant 1

Plant 2

Plant 3

Plant 4

Customer A

Customer A

Customer A

Customer A

Distribution Center

Direct Shipments via DC using Milk runs


Plant 1

Plant 2

Plant 3

Customer A

Customer A

Customer A

Customer A Distribution Center

Direct Shipments with Milk runs


Plant 1

Plant 2

Plant 3

Plant 4

Customer A

Customer A

Customer A

Customer A

5 Information


Role of Information Technology in SCM


ERP

Company

Supplier Dealer

MRP DRP

Customer

CRM

6. Supplier Relationship


Vendor or Partner?


Vendor? Business Partner!

Supplier Development Process

Supplier Input

Firms Process

output


Study Supplier Process Personal visits Building relationships Improvement Goals

Suppliers Partnering Process

Supplier Audit

Supplier Rating

CIP

Supplier Approval

Certificate


Plan

Do

Check

Act

AAA AA A

7. Performance Measurement in Supply Chains


Supply Chain Performance Measures


Internal External

Break-even Point Cashflow ROI

Throughput Inventory Operating Expenses

Break Even Point


Fixed Costs

Variable Costs

Total Sales Revenue

Break-even Point

Total Costs

$

Units Sold

Contribution = Total Sales Revenue Variable Costs

What should go up to increase contribution?


Sales Price

Variable Costs

Contribution = Total Sales Revenue Total Variable Costs

Cashflow


Month 1 2 3 4 5 6 7 8 9 10 11 12

Investment 10000 10000 10000 Units sold 10 10 10 10 10 10 10

Sales Revenue 9000 10000 1000 11000 11000 11000 11000

Sales Expenses 5000 5000 5000 5000 5000 5000 5000

Salaries 2000 2000 2000 2000 3000 3000 3000 Other costs 1000 1000 2000 1000 1000 2000 2000

Total Revenue 0 0 0 0 0 9000 10000 1000 11000 11000 11000 11000

Total Expenses -10000 0 -10000 0 -10000 -8000 -8000 -9000 -8000 -9000 -10000 -10000 Cashflow -10000 0 -10000 0 -10000 1000 2000 -8000 3000 2000 1000 1000

ROI

ROI = (Net Profit / Invested Capital) X 100


Throughput

Throughput = Sales Revenue Material costs of goods sold


Inventory


Unreliable Vendor

Lot Sizes Maintenance

Scrap

Product Design

Inventory Level

Inventory Level

Operating Expenses

Amount of money spent by the firm to convert inventory into sales in specific time period


RM FG

OH Costs, depreciation Administrative expenses, labor, marketing expenses, utility costs

8. Innovative Techniques in SCM


1. Cross Docking Technique @ Toyota


Step 1 Suppliers to Docking Station

Step 2 Docking Station to Plants

A C E B D

2. Cross Docking Technique @ Toyota


A C E B

Step 3 Empty Containers from Plants to Docking Station Step 4 Docking Station to Suppliers

3. Empty Containers go to Suppliers


A C E B

Advantage of Cross Docking

Its just in time inventory to replenish

Pull based inventory

Only required material flows back to the plants


Future Trends in SCM

Increased use of Information Technology

Use of Mobile devices

Just in Time II

Constraint Management


Automobile Supply Chain


Distribution Center

Manufacturing Plant

Assembly Plant

Car Dealers

Car Dealers

Customer

Henry Fords SCM


Suppliers Customer

Demand 8000 Cars/day

In Transit Inventory: 48000 cars

Average lead time 6 days

Average 10 days inventory Max 30 days for rare matl.

Reduce Scarp of material Assembly line concept Standard Tools used in all factories Tools delivered at waist height Same Car building process at all factories Focus on fast of transportation to keep low inventories Keep low FG inventory Well paid employees for committed and quality work

8000 Cars day

Theory of Constraint


Theory of Constraints

M1 M2 M3 M4

150 Units/ hour

170 Unit/ hour

120 Units/ hour

200 Units/ hour

How much is the output per hour? Which one is the bottleneck?

M3


M1 M2 M3 M4

150 Units/ hour

170 Unit/ hour

120 Units/ hour

200 Units/ hour

M5

100 Units/ hour

Which one is the new bottleneck?


M1 M2 M3 M4

150 Units/ hour

170 Unit/ hour

200 Units/ hour

200 Units/ hour

Which one is the new bottleneck?

1. Identify Bottlenecks 2. Exploit Bottlenecks 3. Subordinate all other decisions to step 2 4. Elevate Bottlenecks

Drum Buffer Rope

A

800 units / week

Material Release

Schedule B M1

Time Buffer Inventory

500 units / week

FG Inventory Shipping

Schedule

Rope

Drum Buffer

700 units / week

Drumbeat - speed of processing of Drum

Thank You


supply chain management_post training reference

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