Supply Chain Management By Ankur Mittal

Supply Chain Management

Supply Chain  All activities associated with the flow and transformation of goods and services from raw materials to the end user, the customer  A sequence of business activities from suppliers through customers that provide the products, services, and information to achieve customer satisfaction

The Supply Chain Suppliers

Producers

Distributors

Customers

Materials, parts, subassemblies, and services

Finished goods, end products and services

Package and delivery

Total satisfaction with quality, price, delivery, and service

Inventory

Products and Services

Inventory

Products and Services

Inventory

Products and Services

The Supply Chain Information Suppliers

Producers

Distributors

Customers

Materials, parts, subassemblies, and services

Finished goods, end products and services

Package and delivery

Total satisfaction with quality, price, delivery, and service

Inventory

Products and Services

Inventory

Products and Services

Inventory

Products and Services

The Supply Chain Information Suppliers

Producers

Distributors

Customers

Materials, parts, subassemblies, and services

Finished goods, end products and services

Package and delivery

Total satisfaction with quality, price, delivery, and service

Inventory

Products and Services

Products and Services

Inventory

Inventory

Cash

Products and Services

Is supply chain so simple? Supplier

Manufacturer

Distributor

Retailer

Customer

Supplier

Manufacturer

Distributor

Retailer

Customer

Supplier

Manufacturer

Distributor

Retailer

Customer

Upstream

Downstream

Drivers of Supply Chain Performance • Inventory – Raw materials – WIP – Finished Goods

• Sourcing – Outsourcing

• Transportation

Transportation

Total costs Inventory costs

Cost

Transport costs Rail

Air

Inventory • Where do we hold inventory? – Suppliers and manufacturers – warehouses and distribution centers – retailers

• Types of Inventory – raw materials – WIP – finished goods

• Why do we hold inventory? – Uncertainty in supply and demand – Lead Time – Avoid stock outs (customer goodwill)

Terms Involved • • • • •

Inventory lot size Replenishment Lead time Stock out Reorder Point Safety stock

Relevant Costs in an Inventory System • Procurement costs – Ordering cost (appx. administrative, inspection, transportation etc.)

• Holding costs – Maintenance and Handling – Taxes – Obsolescence

• Stock-outs costs – Lost sales (Customer goodwill) – Backorders

The Inventory Cycle Q

Demand rate

Profile of Inventory Level Over Time Constant Demand

Quantity on hand Reorder point

Receive order

Place Receive order order

Lead time

Place Receive order order

Time

Decisions • When to order • How much to order • Types of System – Continuous Review – Periodic Review

EOQ: A View of Inventory Note: • No Stockouts • Order when no inventory • Order Size determines policy Inventory Order Size

Time

EOQ - Cost Minimization Goal

Annual Cost

The Total-Cost Curve is U-Shaped

Holding Costs

Ordering Costs QO (optimal order quantity) or EOQ

Order Quantity (Q)

Process View Customer Order Cycle

Customer

Pull

Retailer

Replenishment Cycle

Manufacturing Cycle

Procurement Cycle

Distributor

Manufacturer

Supplier

Push

Supply Chain Management  Synchronization of activities required to achieve maximum competitive benefits  Coordination, cooperation, and communication  Rapid flow of information  Vertical integration

Supply Chain Uncertainty  Forecasting, lead times, batch ordering, price fluctuations, and inflated orders contribute to variability  Inventory is a form of insurance  Distorted information is one of the main causes of uncertainty

Information in the Supply Chain  Centralized coordination of information flows  Integration of transportation, distribution, ordering, and production  Direct access to domestic and global transportation and distribution channels  Locating and tracking the movement of every item in the supply chain  Consolidation of purchasing from all suppliers  Inter company and intra company information access  Data interchange  Instantaneous updating of inventory levels

Bull Whip Effect • Each organisation seek to solve the problem from its own perspective – Small changes in consumer demand result in large variations in orders placed upstream • Dramatic order size variation • Amplification of order size variation as one moves up the supply chain Delay 2 weeks Supplier

Delay 2 weeks Delay 2 weeks

Manufacturer

Distributor

Orders 40

Orders 25

Retailer Orders 15

Customer Buys 10

Causes of Bull whip effect • Little or no communication between supply chain partners. • Delay times between order processing, demand, and receipt of products. • Over reacting to the backlog orders. • Inaccurate demand forecasts.

Electronic Business  Replacement of physical processes with electronic ones  Cost and price reductions  Reduction or elimination of intermediaries  Shortening transaction times for ordering and delivery  Wider presence and increased visibility

Electronic Business  Greater choices and more information for customers  Improved service  Collection and analysis of customer data and preferences  Virtual companies with lower prices  Gain global access to markets & customers

Electronic Data Interchange  Computer-to-computer exchange of business documents in a standard format  Quick access, better customer service, less paperwork, better communication, increased productivity, improved tracing and expediting, improves billing and cost efficiency

Bar Codes  Computer readable codes attached to items flowing through the supply chain  Generates point-of-sale data which is useful for determining sales trends, ordering, production scheduling, and deliver plans 1234

5678

The Internet  Instant global access to organizations, individuals, and information sources  Fundamentally changes the way organizations do business  Removed geographic barriers  Adds speed and accessibility to the supply chain

The E-Automotive Supply Chain

Intranets and Extranets  Intranets are internet-like networks that operate within a single organization  Extranets are intranets that can be connected to the global internet  Difference is in who has access to the system

Suppliers  Purchased materials account for about half of manufacturing costs  Materials, parts, and service must be delivered on time, of high quality, and low cost  Suppliers should be integrated into their customers’ supply chains  Partnerships should be established  On-demand delivery (JIT) is a frequent requirement

Sourcing  Relationship between customers and suppliers focuses on collaboration and cooperation  Outsourcing has become a long-term strategic decision  Organizations focus on core competencies  Single-sourcing is increasingly a part of supplier relations

E-Procurement  Business-to-business commerce conducted on the Internet  Benefits include lower transaction costs, lower prices, reduce clerical labor costs, and faster ordering and delivery times  Currently used more for indirect goods  E-Marketplaces service industry-specific companies and suppliers

Distribution  The actual movement of products and materials between locations  Handling of materials and products at receiving docks, storing products, packaging, and shipping  Often called logistics  Driving force today is speed  Particularly important for Internet dot-coms

Order Fulfillment at Amazon.com

Distribution Centers and Warehousing  DCs are some of the largest business facilities in the world.  Trend is for more frequent orders in smaller quantities  Flow-through facilities and automated material handling  Final assembly and product configuration may be done at the DC

Transportation  Important element, often overlooked  Common methods are railroads, trucking, water, air, intermodal, package carriers, and pipelines

Railroads  Low cost, high-volume  Improving flexibility  intermodal service  double stacking

Trucking  Flexible, small loads  Consolidation, Internet load match sites  Part of TQM supplier-customer relationship  Single sourcing reduces number of trucking firms serving a company

Air  Rapidly growing segment of transportation industry  Lightweight, small items  Quick, reliable, expensive

Package Carriers  Significant growth driven by e-businesses  Use several modes of transportation  Expensive  Fast and reliable  Innovative use of technologies

Intermodal  Combination of several modes of transportation  Most common are truck/rail/truck and truck/water/rail/truck  Enabled by the use of containers

Water  One of oldest means of transport  Low-cost, high-volume, slow  Bulky, heavy and/or large items  Standardized shipping containers improve service  The most common form of international shipping

Pipelines  Primarily for oil & refined oil products  Slurry lines carry coal or kaolin  High capital investment  Low operating costs  Can cross difficult terrain

Internet Transportation Exchanges  Bring together shippers and carriers  Initial contact, negotiations, auctions  Typically only one form of transportation, intermodal exchanges have been difficult to develop

The Transportation Method  Ship items at lowest cost  Sources have fixed supplies  Destinations have fixed demand

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