Supply Chain Management - Introduction

1. Supply Chain Management - Introduction Module I

2. 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 • ‘Constant Change’ is Now A Permanent Feature Adds to Increased BusinessComplexity of 4C

3. Complexity - Simplest Ideas Exploited - Barriers to Entry Increasing - Technology Rates Rising Completeness Move to Integrate Solutions, Not just Products or Services Customer Focus New Standards Emerging in Product Quality/ Price/ Delivery Services/ Flexibility • Competitiveness • - Reduced Monopolies • on Technology • Work Done Almost • Anywhere • - Time and Quality • are Competitive • Resources BUSINESS COMPLEXITY- 4C External Environment Market Trends Customers Within Company Competition Increased Volatility that Necessitates Change In Ways of Managing Customers/ Products/ Suppliers/ Employees

4. PLAN FOR CHANGE • Create Responsive Systems & Institutions • Create Customer Oriented Workforce At All Levels • Develop Plans to Manage Both Long & Short Term Changes • Emphasise Flexibility in Planning/ Operations & Management To Hone Competitive Edge • Manage ‘Change’ to Company’s Advantage Implement Supply Chain Management Concept

5. SUPPLY CHAIN MANAGEMENT CONCEPT A Paradigm Shift

6. RELAY RACE Baton Slipped & Fell

7. 3 MAJOR REASONS FOR FAILURE • Participant’s Objectives - DIFFERENT • Goals at Change-Over Points - CONFLICTING • Participants Busy Improving • Own Performance NO ONE FOR OVERALL SUCCESS

8. FUNCTIONAL ORGANIZATION Material Flow Customer Service Production Purchase Materials Distribution Sales Baton - Material/ Goods/ Information • 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 SCM Concept Integrates Functions/ Companies Along Supply Chain

9. SUPPLY CHAIN MANAGEMENT CONCEPT SUPPLY CHAIN Within & Beyond the Company Is considered a SINGLE ENTITY All MOVEMENT Activities in SUPPLY CHAIN Constitute TOTAL SYSTEM

10. FUNCTIONAL ORGANIZATION Information Flows Arms Length Arms Length Modified Order Order C U S T O M E R S S U P P L I E R S Sales Purchase Production Distribution Information 4 Information 2 Information 3 Information 1 Information C Information S Fragmented Information Flows

11. SCM IMPLEMENTED ORGANIZATION Information Flows S U P P L I E R S C U S T O M E R S Sales Purchase Production Distribution InformationFlow • Orders • Forecasts • Payments • Delays • Order Status Seamless Information Flow

12. SUPPLY CHAIN - WHAT • Organizations (Stages) Involved Directly & Indirectly In Satisfying Customer- Needs • Supply Chain Comprises Value-Adding Organizations • Manufacturers • Suppliers • Transporters • Warehouses • Distributors • Retailers • Customers • 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

13. SUPPLY CHAIN AS A NETWORK Links Nodes Customer Chains Supplier Chains Company • 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

14. SUPPLY CHAIN MANAGEMENT – NEW STRATEGY • In Traditional (Functional) Organizations Marketing/ Manufacturing/ Distribution/ Purchasing Organizations Along the Supply Chain Operate Independently • 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 • This Result in Less Than Optimal Working in Traditional Firms that Leads to Higher Costs & Subsequent Loss of Business To • Competition • Companies Felt Urgent Need for Integration Among Departments & Independent Companies Working Along the Supply Chain • Supply Chain Management is the Strategy For Bringing This • Integration Within & Beyond Companies To Fight the Competition

15. INTEGRATED SUPPLY CHAIN MANAGEMENT INTEGRATED SUPPLY CHAIN Material Flows Reverse Logistics Flows COMPANY 1 tier Suppliers Procurement Transmission Assembly Depots Dealers Customers BSR 2 tier Suppliers Information Flows Inbound Logistics Outbound Logistics In-plant Logistics External Supply Chain External Supply Chain Logistics/ Internal Supply Chain Financial Flows Managing the Flows Most Profitably

16. SUPPLY CHAIN MANAGEMENT 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 SCM Implemented Company Creates Healthy Bottom Line Today and Conditions for Same Tomorrow

17. INTEGRATION IN SUPPLY CHAIN • Process Integration • Collaborative Working with Buyer and Seller • Joint Product Development • Common Systems • Shared Information • System Integration • Suitable ERP System Over- Laid with DSS • Focussed on Processes, Suppliers and Customers Chains that Enhance Competitiveness Integration in Supply Chain Critical for Organizational Success

18. STRATEGIC APPROACH IN SCM • 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 Needs Strategic Orientation in Deciding Activities under its Control

19. TOTAL SUPPLY CHAIN Distribution Centers Warehouses Suppliers Manufacturers Customers Material Costs Manufacturing Costs Inventory Costs Transportation Costs Transportation Costs Transportation Costs • All Facilities Impact COSTS, Though in Varying Degrees • Efficient and Cost-Effective ACROSS Total Supply Chain • Decisions/Activities at Strategic-Tactical-Operational Levels

20. SUPPLY CHAIN MANAGEMENT - GOALS High Level of Customer Service Towards Markets and Production CONFLICTING GOALS IN SC MANAGEMENT • Low Material Cost • Low Costs of Logistics • Low Overheads • Low level of • Tied-up Capital • in Inventories • Low Inventory • Management • Costs Achieved By Juggling The Logistics Mix

21. 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

22. 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

23. EVOLUTION OF SUPPLY CHAIN MANAGEMENT Material Flow Customer Service 1960 Material Control W/H & Transport Sales Admin Purchase Production Inventory Inventory Functional Integration 1970 Material Flow Customer Service In-Plant Management Materials Management Logistics Inventory Inventory Integration Within Organisation

24. EVOLUTION OF SUPPLY CHAIN MANAGEMENT Material Flow Customer Service Internal Integration 1980 Materials Management In-Plant Management Suppliers Customers Logistics Arms Length Arms Length 1990 Logistics/ Internal Supply Chain Customers Suppliers Arms length Partnership Arms length Partnership 2000 INTEGRATED SUPPLY CHAIN MANAGEMENT Customers Co-Maker Suppliers Co-Maker Integration Beyond Organisation

25. 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

26. SCM OBJECTIVES • SCM Objective is To Get the Right Product/ Services in Right Quantities at The Right Place and Right Time At Minimal Cost • 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 Closely Related To ‘Value Generated’ • SC Profitability is the Profit Shared Across the Whole Supply Chain • Customer Satisfaction Achieved When SCM Objective is Fulfilled in Providing Customer Service • Customer Satisfaction Measured Using Metrics • Order Fill-Rate • On-Time Delivery

27. SUPPLY CHAIN MANAGEMENT ISSUES • The SCM Objective Translates into the following SCM Issues • Flexibility • Delivery Reliability • Delivery Time (Lead Time) • Inventory Levels • 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 • 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

28. DECISION HIERCHY IN SCM Higher Level Long-Term Decisions – Having Long-Term Effect Strategic Level Middle Level Medium-Term Decisions – Mid-Term Effect Tactical Level Operational Level Lower Level 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

29. ORGANISATIONAL LINKING MECHANISM IN SCM IMPLEMENTED ORGANISATION Objectives & Policies Strategic Plans & Forecasts Tactical Schedules & Controls Operational Purchase Function Production Function Logistics Function Sales Function

30. 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 • Logistics Decisions • Transportation (30% of Log Cost) • Road (Truck/ Vehicle) • Rail • Air • Water • Multi-Modal Transportation • Location of Plants/ Warehouse/ DC • Inventory Decisions • How much Inventory To Hold • (Safety Stock) • How Much To Order • When To Order • Scheduling Technique (JIT/ JIC) • 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

31. INTERDEPENDENCY IN SUPPLY CHAIN Customer Service Flexibility Inventory • Higher Customer Service Comes with Higher Costs To Hold/ Carry Higher • Inventory (Inventory Carrying Costs=(30-40)% of Inventory Value) • SCM Strives for Providing Higher Customer Service at Lower Costs • High Flexibility is Ability of Changing/ Adapting to Customer Demand/ Change in Demand Quickly (Shorter Lead Times) • Higher Flexibility in Supply Chain Helps in Providing Higher • Customer Service Even with Lower Inventory i.e. at Lower Costs • SCM Applies Trade-Off Between System Flexibility & Inventory • To provide The Desired Level of Customer Service

32. 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 DecisionsClosely • 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)

33. CHANGED FOCUS IN COMPANIES Traditional FocusSCM 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 Managing Information Management Information Single-Dimensional Performance Multi-Dimensional Performance Measures Measures Limited Role of IT Significant Role of IT as Enabler

34. Critical Success Factors For Supply Chain Management • Integration • Integrated Information System • Coordination • Systems + Communications • Collaboration • Management Agreements + Commitment from ALL DIFFICULT TO REPLICATE BY COMPETITORS

35. BENEFITS TO THE COMPANY • Improved CUSTOMER SERVICE • Reduction in TIED-UP CAPITAL • Reduction in ADMINISTRATIVE COSTS • Sharper COMPETITIVE EDGE • Sustained GROWTH • Increased SHAREHOLDER VALUE

36. SUCCESSFUL INDIAN SCM COMPANIES IndustryMajor 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

37. IN ESSENCE SUPPLY CHAIN ACTIVITIES ARE FOCUSSED ON PARAMETERS OF CUSTOMER SERVICE AND SUPPLY CHAIN ORGANIZATION HAS THE RESPONSIBILITY, AUTHORITY & COMPETENCE TO MANAGE THE 3 FLOWS IN THE BEST INTEREST OF THE WHOLE SUPPLY CHAIN

38. RELAY RACE

39. THE BOAT RACE Single Entity One Objective Seamless Integration

40. Any Questions Pl? End Of Module