Scm Intro Ch 1

Introduction, Need & Challenges of

Supply Chain Management

Agenda –    

What is Supply Chain ? Why the need to manage? How to manage it? Challenges for SCM

( Ref Book – SCM by David Simchi-Levi)

Bu sines s Pre ssu re s of 21 st C entu ry • 

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Globalization & Liberalization effect → Fierce competition Customer’s Taste changing → New products with shorter life cycle. Heightened expectations of customer service. → Better quality, faster delivery, at low cost.

Why S.C.M.? In order to reduce costs  

1980’s – JIT, Kanban, Lean Mgmt, TQM 1990’s – Supply Chain Issues (Movement, Storage across the chain, Strategic Partnership) e.g.

Cereal Box Delivery – 3 Months New Car Delivery – 15 days (ag. 4) Cross Docking in Wal-Mart

C1 C2 C3 C4 C5 C6 VENDORS

INBOUND TRANSPORTATION

PLANTS

INTERFACILITY DISTRIBUTION OUTBOUND CUSTOMERS TRANSPORTATION CENTERS TRANSPORTATION

Various Improvement measures built over the years

Intrafirm Production Craft Production Mass Production Lean Production

Interfirm Production

Supply Chain Production

Tiered Production

Dispersed Production Build to Order Production Postponement

JIT Production

Flows in a Supply Chain Materials & credit

Consumer

2nd Tier Supplier

Distributors/ Dealers

2nd Tier Supplier 2nd Tier Supplier

Anchors 1st Tier Supplier

Small to Midsize Companies Large Companies

Orders & cash

Supply Chain Mgmt. ( Definition & Coverage) SCM is a set of approaches –  To integrate Suppliers, Manufacturing Centers , Warehouses, Dist. Centers, Retail Outlets  Merchandise is produced & distributed  Right quantities, to right locations, at right time  Aim – To minimize system-wide cost, while satisfying service level requirements

Supply Chain is also Called Logistics Network

SCM Coverage - every facility that has impact on cost

Objective of SCM - Efficiency & Cost Effectiveness across the entire Chain

What makes SCM difficult? •

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Process of finding the best “Entire System-wide” strategy (Also called Global Optimization) Designing supply chain, to eliminate uncertainty ( Managing Uncertainty )

Challenges of “Global Optimization” •

S.C is a Complex Network, spread over large geography

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Different partners have diff. & conflicting objectives ( Suppliers, Mfr., Distributor, Transporter )

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S.C. is a dynamic system ( Demand variation, PLC down, Customization, Buyers’ Pressure)

4.

Systems variation over time. ( Seasonal Fluctuation, Trends, Ads & Promotions, Competitor's Strategies.)

Challenges of “Managing Uncertainty” •

Matching Supply & Demand is a challenge. (Risk & commitment based on demand forecasting - creating Excess Capacity, Non-moving stocks.)

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Bull Whip Effect

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Forecast can never be accurate

4.

Other sources of uncertainty (Delivery, Yield, transportation, Component Availability)

Why SCM ? 

In 1998, American Cos. spent about 10 % of US GNP on supply related activities.

That includes – Cost of movement, storage, across the chain, Also – unnecessary cost-components like redundant stock, transport inadequacies. e.g. Cereal Box delivery, Car Delivery

Key Issues in SCM          

Strategic Decisions Distribution Network Configuration Inventory Control Supply Contracts Distribution Strategies SCM Integration & Strategic Partnership Outsourcing & Procurement Strategies Product Design IT & Decision Support System ( DSS) Customer Value

Key Issues in SCM 

Strategic Level: ( Long Term Nature) Numbers, Locations & Capacities of Mfg plants, ------ “ ------- “ --------- “--------------- Warehouses, Flow of material thru’ logistics network

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Tactical Level: (1 Qr to 1 yr) Purchasing & Production Decisions, Inventory policies, Transportation Strategies, Frequency of customer visits

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Operational Level (Day-to-day): Scheduling, Quotations, Routing, Truck Loading.

Key Issues in SCM - ( Syllabus Coverage) 

Distribution Network Configuration : Changing demand pattern requires new capacity or new locations

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Inventory Control: Why to hold inventory ? Who to hold inventory ? ( Retailer, Distributor, Manufacturer or All? ) How much to hold? How reliable demand forecast? What is the point of Reorder- at Retailer, Distributor?

Key Issues in SCM 

Supply Contracts Traditional Approach -Each party focuses on its own profit SCM Approach- Supply contracts that optimize entire SCM performance e.g. Volume Discount Revenue Sharing

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Distribution Strategies Cross Docking, How many Cross-dock points RFID

Key Issues in SCM 

SCM Integration & Strategic Partnership How many suppliers? Information sharing? Technology Up gradation

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Outsourcing & Procurement Strategies What is our core competency ? What to subcontract / outsource ?

Key Issues in SCM 

Product Design Shorter Life Cycle necessitates shorter lead time Concurrent Engineering Mass Customization Possibility

Key Issues in SCM 

IT & Decision Support System ( DSS) Which data is significant? How to analyze & use? What is the impact of internet? Role of eCommerce What infrastructure required? Internally & externally Can IT & DSS be used as main tool for gaining

Competitive Advantage? IT is a critical enabler of effective SCM

Key Issues in SCM Customer Value ( a new measure, superseding Quality & Customer Satisfaction)

It is a measure of company’s contribution to its customers, based on the entire range of Products, Services & Intangibles that constitute the company’s offerings. How is it measured ? How SCM contribute to Customer Value ? What relationship between – “Products Price” and “Brand Name”.