Presentation Transcript

1. Mohammad Ovais Chapter 01 Fundamentals of Supply Chain Management
2. Marketing Some fundamentals: Marketing Marketing Mix Value and its delivery Process
3. Poretr’s Value Chain Our Course covers the core/primary part of Value Chain
4. Defining SCM:A systematic approach to arrange the entire flow of info, materials, services and finances from raw material suppliers through factory and ware houses to end customers
5. Suppliers Manufacturers Warehouses & Distribution Centers Customers Transportation Costs Transportation Costs Transportation Costs Material Costs Manufacturing Costs Inventory Costs What Is the Supply Chain? Also referred to as the logistics network Suppliers, manufacturers, warehouses, distribution centers and retail outlets – “facilities” and the Raw materials Work-in-process (WIP) inventory Finished products that flow between the facilities
6. Suppliers Manufacturers Warehouses & Distribution Centers Customers Transportation Costs Transportation Costs Transportation Costs Material Costs Manufacturing Costs Inventory Costs The Supply Chain
7. Suppliers Manufacturers Warehouses & Distribution Centers Customers Transportation Costs Transportation Costs Transportation Costs Material Costs Manufacturing Costs Inventory Costs The Supply Chain – Another View Plan Source Make Deliver Buy
8. Plan Source Make Deliver Buy What Is Supply Chain Management (SCM)? A set of approaches used to efficiently integrate Suppliers Manufacturers Warehouses Distribution centers So that the product is produced and distributed In the right quantities To the right locations And at the right time System-wide costs are minimized and Service level requirements are satisfied
9. History of Supply Chain Management 1960’s - Inventory Management Focus, Cost Control 1970’s - MRP & BOM - Operations Planning 1980’s - MRPII, JIT - Materials Management, Logistics 1990’s - SCM - ERP - “Integrated” Purchasing, Financials, Manufacturing, Order Entry 2000’s - Optimized “Value Network” with Real-Time Decision Support; Synchronized & Collaborative Extended Network
10. Plan Source Make Deliver Buy Why Is SCM Difficult? Uncertainty is inherent to every supply chain Travel times Breakdowns of machines and vehicles Weather, natural catastrophe, war Local politics, labor conditions, border issues The complexity of the problem to globally optimize a supply chain is significant Minimize internal costs Minimize uncertainty Deal with remaining uncertainty
11. The Importance of Supply Chain Management Dealing with uncertain environments – matching supply and demand Boeing announced a $2.6 billion write-off in 1997 due to “raw materials shortages, internal and supplier parts shortages and productivity inefficiencies” U.S Surgical Corporation announced a $22 million loss in 1993 due to “larger than anticipated inventories on the shelves of hospitals” IBM sold out its supply of its new Aptiva PC in 1994 costing it millions in potential revenue Hewlett-Packard and Dell found it difficult to obtain important components for its PC’s from Taiwanese suppliers in 1999 due to a massive earthquake U.S. firms spent $898 billion (10% of GDP) on supply-chain related activities in 1998
12. The Importance of Supply Chain Management Shorter product life cycles of high-technology products Less opportunity to accumulate historical data on customer demand Wide choice of competing products makes it difficult to predict demand The growth of technologies such as the Internet enable greater collaboration between supply chain trading partners If you don’t do it, your competitor will Major buyers such as Wal-Mart demand a level of “supply chain maturity” of its suppliers Availability of SCM technologies on the market Firms have access to multiple products (e.g., SAP, Baan, Oracle, JD Edwards) with which to integrate internal processes
13. Multi-tier Suppliers Wholesale Distributors Consumers Manufacturer Retailers Sales Sales Sales Sales Time Time Time Time Bullwhip Effect Supply Chain Management and Uncertainty Inventory and back-order levels fluctuate considerably across the supply chain even when customer demand doesn’t vary The variability worsens as we travel “up” the supply chain Forecasting doesn’t help! The trends of larger and larger swings in inventory in response to change in demand
14. Factors Contributing to the Bullwhip Demand forecasting practices Min-max inventory management (reorder points to bring inventory up to predicted levels) Lead time Longer lead times lead to greater variability in estimates of average demand, thus increasing variability and safety stock costs Batch ordering Peaks and valleys in orders Fixed ordering costs Impact of transportation costs (e.g., fuel costs) Sales quotas Price fluctuations Promotion and discount policies Lack of centralized information
15. Taming the Bullwhip Four critical methods for reducing the Bullwhip effect: Reduce uncertainty in the supply chain Centralize demand information Keep each stage of the supply chain provided with up-to-date customer demand information More frequent planning (continuous real-time planning the goal) Reduce variability in the supply chain Every-day-low-price strategies for stable demand patterns Reduce lead times Use cross-docking to reduce order lead times Use EDI techniques to reduce information lead times Eliminate the bullwhip through strategic partnerships Vendor-managed inventory (VMI) Collaborative planning, forecasting and replenishment (CPFR)
16. Supply Chain Management – Summarizing Key Issues Forecasts are never right Very unlikely that actual demand will exactly equal forecast demand The longer the forecast horizon, the worse the forecast A forecast for a year from now will never be as accurate as a forecast for 3 months from now Aggregate forecasts are more accurate A demand forecast for all CV therapeutics will be more accurate than a forecast for a specific CV-related product Nevertheless, forecasts (or plans, if you prefer) are important management tools when some methods are applied to reduce uncertainty
17. Purchasing Manufacturing Distribution Customer Service/ Sales Low pur-chase price Multiple vendors Few change- overs Stable schedules Long run lengths High inventories High service levels Regional stocks Low invent-ories Low trans-portation SOURCE MAKE DELIVER SELL Supply Chain Management – Key Issues Overcoming functional silos with conflicting goals
18. Supply Chain Management Operations Strategies Source: Simchi-Levi
19. Supply Chain Management – Benefits A 1997 PRTM Integrated Supply Chain Benchmarking Survey of 331 firms found significant benefits to integrating the supply chain Source: Cohen & Roussel
20. Supply Chain Imperatives for Success View the supply chain as a strategic asset and a differentiator Wal-Mart’s partnership with Proctor & Gamble to automatically replenish inventory Dell’s innovative direct-to-consumer sales and build-to-order manufacturing Create unique supply chain configurations that align with your company’s strategic objectives Operations strategy Outsourcing strategy Channel strategy Customer service strategy Asset network Reduce uncertainty Forecasting Collaboration Integration Supply chain configuration components
21. The END 1
22. Chapter 2 Supply Chain Performance: Achieving a strategic fit
23. Overview SCM Goals Fundamental Principles of SCM Decision stages in SCM SCM Strategies SCM Planning SCM Operations Competitive and Supply Chain Strategies Achieving strategic Fit
24. Flows in a Supply Chain Information Product Customer Funds Supply Chain
25. The Objective of a Supply Chain Sources of supply chain revenue: the customer Sources of supply chain cost: flows of information, products, or funds between stages of the supply chain Supply chain management is the management of flows between and among supply chain stages to maximize total supply chain profitability
26. Supply Chain Goals Efficient supply chain management must result in tangible business improvements. It is characterized by a sharp focus on Revenue growth Better asset utilization Cost reduction.
27. Supply Chain Management Underlying Principles Compression (Planning/Manufacturing/Supply) C Conformance (Forecasts/Plans/Distribution) Co-operation (Cross -Functional) Communication (Real Time Data)
28. Decision Phases of a Supply Chain Supply chain strategy or design Supply chain planning Supply chain operation
29. Supply Chain Strategy or Design Decisions about the structure of the supply chain and what processes each stage will perform Strategic supply chain decisions Locations and capacities of facilities Products to be made or stored at various locations Modes of transportation Information systems Supply chain design must support strategic objectives
30. Supply Chain Planning Definition of a set of policies that govern short-term operations Fixed by the supply configuration from previous phase Starts with a forecast of demand in the coming year
31. Supply Chain Planning Planning decisions: Which markets will be supplied from which locations Planned buildup of inventories Inventory policies Timing and size of market promotions Must consider in planning decisions demand uncertainty, exchange rates, competition over the time horizon
32. Supply Chain Operation Time horizon is weekly or daily Decisions regarding individual customer orders Supply chain configuration is fixed and operating policies are determined Goal is to implement the operating policies as effectively as possible Allocate orders to inventory or production, set order due dates, generate pick lists at a warehouse, allocate an order to a particular shipment, set delivery schedules, place replenishment orders Much less uncertainty (short time horizon)
33. Process View of a Supply Chain Cycle view: processes in a supply chain are divided into a series of cycles, each performed at the interfaces between two successive supply chain stages Push/pull view: processes in a supply chain are divided into two categories depending on whether they are executed in response to a customer order (pull) or in anticipation of a customer order (push)
34. Cycle View of Supply Chains Customer Customer Order Cycle Retailer Replenishment Cycle Distributor Manufacturing Cycle Manufacturer Procurement Cycle Supplier
35. Push/Pull View of Supply Chain Processes Supply chain processes fall into one of two categories depending on the timing of their execution relative to customer demand Pull: execution is initiated in response to a customer order (reactive) Push: execution is initiated in anticipation of customer orders (speculative)
36. Competitive Strategy According to Porter (1980), a firm must decide whether to attempt to gain competitive advantage by producing at a lower cost than its rivals or differentiate its products and services and sell them at a premium price.
37. Competitive and Supply Chain Strategies Competitive strategy: defines the set of customer needs where the firm will develop its core competence/c. Adv to satisfy them through its products and services Supply chain strategy: determines the nature of material procurement, transportation of materials, manufacture of product or creation of service, distribution of product Consistency and support between supply chain strategy, competitive strategy, and other functional strategies is important
38. Achieving Strategic Fit Strategic fit: Consistency between customer priorities of competitive strategy and supply chain capabilities specified by the supply chain strategy Competitive and supply chain strategies have the same goals A company may fail because of a lack of strategic fit or because its processes and resources do not provide the capabilities to execute the desired strategy
39. How is Strategic Fit Achieved? Step 1: Understanding the customer and supply chain uncertainty Step 2: Understanding the supply chain Step 3: Achieving strategic fit
40. Step 1: Understanding the Customer and Supply Chain Uncertainty Identify the needs of the customer segment being served Quantity of product needed in each lot Response time customers will tolerate Variety of products needed Service level required Price of the product Desired rate of innovation in the product
41. Achieving Strategic Fit Understanding the Customer Lot size Response time Service level Product variety Price Innovation Implied Demand Uncertainty
42. Impact of Customer Needs on Implied Demand Uncertainty
43. Step 2: Understanding the Supply Chain How does the firm best meet demand? Dimension describing the supply chain is supply chain responsiveness Supply chain responsiveness -- ability to respond to wide ranges of quantities demanded meet short lead times handle a large variety of products build highly innovative products meet a very high service level
44. Step 2: Understanding the Supply Chain There is a cost to achieving responsiveness Supply chain efficiency: depends upon the cost of making and delivering the product to the customer Increasing responsiveness results in higher costs that lower efficiency Cost-responsiveness efficient frontier Second step to achieving strategic fit is to map the supply chain on the responsiveness spectrum
45. Understanding the Supply Chain: Cost-Responsiveness EfficientFrontier Responsiveness High Low Cost High Low
46. Comparison of Efficient and Responsive Supply Chains
47. Step 3: Achieving Strategic Fit All functions in the value chain must support the competitive strategy to achieve strategic fit Two extremes: Efficient supply chains and responsive supply chains Two key points there is no right supply chain strategy independent of competitive strategy there is a right supply chain strategy for a given competitive strategy
48. Responsive supply chain Responsiveness spectrum Zone of Strategic Fit Efficient supply chain Certain demand Implied uncertainty spectrum Uncertain demand Achieving Strategic Fit Shown on the Uncertainty/Responsiveness Map (Fig. 2.5)
49. Other Issues Affecting Strategic Fit Multiple products and customer segments Product life cycle Competitive changes over time
50. Expanding Strategic Scope Scope of strategic fit The functions and stages within a supply chain that devise an integrated strategy with a shared objective One extreme: each function at each stage develops its own strategy Other extreme: all functions in all stages devise a strategy jointly Five categories: Intracompanyintraoperation scope Intracompanyintrafunctional scope Intracompanyinterfunctional scope Intercompany interfunctional scope Flexible interfunctional scope
51. 1. Intracompanyintraoperation scope: The minimize local cost view Independent strategies by all units within a supply chain(1950-1960). 2. Intracompanyintrafunctional scope: The minimize functional cost view Aligned strategies by units in the Supply Chain
52. 3. Intracompanyinterfunctional scope The maximize company’s profits view The era of strategic fit reallization Intracompany efficiency 4. Intercompany interfunctional scope: The maximize supply chain surplus view Full vertical integration to facilitate efficient and material flow to reduce costs for every one and increase supply chain surplus
53. 5. Flexible interfunctional scope A companies ability to cater to a dynamic and unstable environment and stages of S. chain
54. A Summary
55. The End