Supply Chain Management Training Module

1. Supply Chain Management Training Module

2. To have an understand of what is meant by the end to end supply chain To have an understanding of the key elements of supply chain management To have an understanding of the benefits of being process orientated To have an understanding of how stock could be managed and for what benefit To have an understanding of demand management To have an understanding about the benefits of planning To have an understanding of Integrated business Planning Objectives of the Session

3. Surviving in a Global world • With the increase pressures brought about by globalisation and the onset of new markets offering low labour costs, most western businesses are finding it difficult to compete with intense pressures to deliver quality and service at a reduced cost. • In response to the pressures brought about by globalisation many leading academics believe that Supply Chain Management is the solution for improving competitiveness and meeting the ever-increasing needs of the customer • .

4. The importance of SCM in today’s market place is perhaps best summarised by Christopher (1997) when he states that “Supply Chains compete not companies” brought about by the additional costs and operational inefficiencies incurred when organisations work independently.

5. Supply chain costs typically represents 60% to 80% of a company’s total cost structure and just a 10% reduction can yield a 40% to 50% improvement in pre tax profits” (Wood 1997)

6. The NHS faces similar challenges, with finite resources and an ageing / growing population how is it going to keep up with the growing demands placed on it One thing is for sure, a fragmented approach towards managing supply chains will not deliver the required end product or service at the most effective cost.

7. Hence many leading academics are promoting the need for companies to move away from the traditional buyer/supplier adversarial way of doing business to one of collaboration, partnerships,supplier networks, (Hines 1996) (Carlisle and Parker 1989), (Ellram 1991), (Macbeth and Ferguson 1994) • To put it another way “Everyone should be working together to ensure that the • Total Supply Chain is delivering the required goods / service at the lowest • cost . However, in many supply chains you will find that everyone is working • independently / managing their own little piece of the supply chain with little • appreciation or understanding on how their actions affect the overall • performance of the total supply chain • Remember – If the final customer in the Total supply chain is not happy • with quality, cost, delivery, responsiveness, service , then all members of • the supply chain are exposed i.e if the customer, patient / commissioning • provider goes elsewhere everyone loses out irrespective of how well your • part of the supply chain might be functioning

8. What is Supply Chain Management

9. In it’s simplistic form • Supply Chain Management is the management of all activities involved in Sourcing, Procurement, Manufacturing, Warehousing & Distribution of a product or service • The main objective being is to fulfill the demands of the customer( products or services ) using the most efficient use of resources ( labour , materials , time , money )

10. Supply Chain Management Definitions - Croom et al (2000)

11. Supply Chain Activities can be classified into three categories • Strategic • Deals with decisions that have a long lasting effect. This typically includes decisions regarding • Number of locations, size / capacity of warehouses / distribution centers manufacturing plants and flow of materials through the logistics network • Strategic Partnerships with suppliers, distributors, and customers, • Product Design – different designs are easier to produce, uses less materials, easier to store, cheaper to distribute • IT infrastructure, to support supply chain operations.

12. Tactical • Decisions that are typically updated between once a quarter to once a year. • Includes: • Sourcing contracts and other purchasing decisions. • Production decisions, including contracting, locations, scheduling • Inventory policies, including quantity, location, and quality of inventory. • Transportation strategy, including frequency, routes, and contracting. • Benchmarking of all operations against competitors and implementation of best practices

13. Operational • Refers to day to day decisions such as • Distribution planning, truck loading • Production scheduling • Demand planning and forecasting,. • Procurement • Inbound operations,. • Manufacturing Transformation operations • Outbound operations, including all fulfillment activities and transportation to customers.

14. Supply Chain Management - Process Design and Management • Whether Strategic, Tactical or Operational, Supply Chain Management moves away from functions or indiviidual activities and is more concerned with integrating activities into key supply chain processes. • A process is defined as a collection of activities designed to produce a specfic output . All Processes have inputs such as materials, labour, energy and outputs such as inputs to other processes or perhaps products or serivces

15. Supply Chains are the sum of many processes, people, system. All seamlessly working together to achieve the desired Supply Chain Objectives When trying to understand the complexities of Supply Chains It might be helpful to view them as “SYSTEMS”

16. Exercise • Your customer complains that they are out of a stock i.e stock is not available when required • What could be the reasons for stock-out? • Breakout in teams and list possible reasons. 15 minutes only

17. Possible reasons for Stock outs ( Not an exhaustive list ) • Requisition / order not raised • Order held waiting Senior Management Trust approval • Order lost • Order placed within suppliers lead-time • Order placed within total lead-time • Order placed for wrong code or pack factor • Safety stock levels not correct • Stock lost • Stock misplaced • High surge in demand that was known not communicated • Unplanned High surge in demand • Seasonal demand not forecasted • Incorrect goods received against order • Goods received / damaged – waiting to be returned • Account on hold due to outstanding payment The above reasons can apply to every member of the total supply chain

18. Department Buffer Stock Suppliers Central Store Main R&D Primary Distribution Intermediate Distribution End User Safety Stock Final Distribution Point of Use DepartmentalChannels End Users D D R Top-up Top-up I R I R Pharmacy Pharmacy D Pathology Pathology D Ad Hoc orders Ad Hoc requests I R I R Hotel Services Hotel Services D R D I Catering Catering R Ad Hoc orders Estates Estates R R R D HSDU HSDU D Others Others Replenishment / Top-up I R Wards D Clinics R Theatres Supplier Base Direct Delivery VMI /Consignment stock Stores Direct Delivery Ad Hoc orders/ VMI/ Consignment stock Source: NHS Logistics

19. As with any system, effective supply chain management is about the management of the total supply chain through effective feedback loops and controls being in place so that the supply chain can be monitored and adjusted to achieve the desired common business goals

20. Performance Metrics • If You don’t measure it you can’t manage it ? • Performance Metric Measurements can be one means of ensuring that effective feed-back loops / controls are in place to ensure that the Supply Chain is performing in line with business needs. To achieve this aim performance metrics have to be in place throughout the entire supply chain • When benchmarking, care should be taken to ensure that data definitions / formula’s, time frames are the same otherwise risk of measuring different things Remember - Supply Chain Management is not about direct ownership and control, it’s more concerned about the integration of activities/ processes across conventional boundaries i.e dept, functions, organizations

21. Typical Attributes of Performance Metrics • Service Management • Supply Chain Cost Structure • Efficiency • Responsive / Flexibility • Quality

22. Raw Material Production Local W/H • Inte’al W/H • Distr • Centre Local Depot Hospital store Ward Store • Patient Key Product Stages Number of weeks Stock • 2 • 1 • 2 • 5 • 2 • 4 12 3 2 £ Acute Production Distribution S C Cost Build –Up PCT NHS Internal Cost Material Flow Information Flow – Current Information Flow – Desired

23. Team Learning What potential benefits would there be if all members of the supply chain worked together across the extended enterprise ( no boundaries ) Tip – look at strategic, tactical and operational slides to guide you

24. Examples of potentials benefits of Supply Chain Collaboration • Share technical skills and competencies along the supply chain • Shared information, e.g demand , eliminate surprises • Process Management - Decide where and who is best to perform each task. Ensure is process is designed to perform the desired objective with minimal Cost , waste , time lags • Agree / jointly decide where to position safety stock ( no need to work blindly ) • Utilize supply chain infra-structures i.e. warehousing, vehicles, • Jointly agree IT strategy platform to improve cost structure, communications / flow of information decision making process. Is a shared platform viable? • Collaborate on strategy sourcing options, consider joint ventures • How can all member of the supply chain work together on new product development Initiatives ?

25. Traditional Supply Chain D. Walters, P Jones

26. The Constituents of an Integrated Supply Chain Patient Care Efficiency/Effectiveness Integration Co-ordination Choice of Partners Use of information and communication technology Network organisation & inter-organisational collaboration Process orientation Leadership Advanced planning Foundations Logistics, commissioning, purchasing and supply

27. Demand

28. Alignment of demand and capacity to meet Patient needs • Demand - Demand is the future needs of the patient • Capacity - Is the products or resources available to meet patient demand • If Demand and Capacity are not balanced, this will ultimately lead to • Excess Capacity • Backlog - Inability to keep up with demand leading to waiting lists, supply shortages

29. How do we predict future demand ?

30. Business Plan • Understand Business Plan • Build a Supply Chain Strategy that will support the achievement of Business Plan. This include understanding current levels of demand and what needs to be done to support expected future volumes ( demand ). Any significant changes / investment in the supply chain needs to be identified, approved and planned for

31. Demand • Two types of Demand • Dependant • Independent • Independent Demand • Describes the type of demand for a product or service which is independent of • demand for other items • Dependent Demand • Where demand for one item is linked to demand for another item

32. Demand • Can be either Historical or Planned ( i.e Forecasted ) • Main potential problems using Historical demand to predict Future demand • Extrapolation of historical demand may not be a true representation of future demand • Different levels of demand variability • Possible Seasonal • New Products ( limited demand history ) • Products being phased out • Integrity of demand data ?

33. Other attributes to predict Future demand • Backlog • Forward Patient Schedules / Standard procedural packs • Incidences per population % growth levels Known problems • Lack of forward patient schedules • Stability / accuracy of patient schedules • Lack of standard procedural packs

34. If forecasts using historical demand or patient forward schedules are not aligned to business plan this needs to be identified so that differences can be identified and management can agree the final numbers driving the supply chain

35. Demand Management Example

36. Inventory • Why hold stock - Customer not prepared to wait • If customers are prepared to wait consider classifying item as • non stocked • If supply is reliable, demand is constant ( no variability ) and lead-times • are frozen with no variability, do we need to hold safety stock ? • Safety stock is required to compensate for • Fluctuations in customer demand patterns, noise, trends, seasonality • Fluctuations in supplier lead-times • Manufacturing supply problems • Desired service levels

37. Inventory • One of the objectives of those who work in Supply Chain is to make sure that Inventory is available at the right time and quantity to meet the needs of the patient. This is paramount if the NHS are going to achieve the shared NHS objectives which have been outlined. • The level of Inventory required will depend on the following factors • Demand during lead-time ( replenishment frequency + lead-time from identifying need to availability of product ) • Safety stock to cover demand and lead-time fluctuation during lead-time. This includes transport / manufacturing delays etc • Desired Service Levels - Implications of being out of stock

38. Review level Review level Formula = ( usage rate x lead-time ) + safety stock If the stock falls below the re-order level more stock needs to be ordered Included in stock should be all open orders that are due for delivery Within the supplier’s lead-time

39. Target Stock Levels The target stock level is the maximum stock level which can be used To calculate order quantities It differs from the review level approach as review levels fix the order quantity And vary the order frequency. TSL’s fix the order frequency and vary the order quantity TSL = {(Usage rate x ( lead-time + review period)} + safety stock Safety stock is slightly modified to compensate for review period. It now becomes z factor x std dev x √ Lead-time + review period

40. Target Stock Levels Order qty = TSL – free stock – supply order outstanding If using TSL’s , make sure that they are continually updated in line with usage rates and lead-times

41. EOQ • Typically EOQ stock levels are on the high side • Ordering and stock holding costs are assumed to be fixed • Demand is assumed to be regular and ignores batching and timing • EOQ ignores balancing of stocks which is a important factor in some manufacturing operations

42. EOQ

43. Potential Benefit of Introducing Economic Order Quantity Concept Delivery rates based upon carrier information

44. Case Study - Theatres

45. Disadvantages of holding stock • Storage costs, space , heating , lighting, rent etc • Money tied up in Inventory • Interest charges if money has to be borrowed • Obsolescence • Product Expiry • Pilferage • Money tied up in Inventory could be used elsewhere • Materials Handling / storage equipment • Insurance It is estimated that the above costs can be equivalent to up to 20% of the cost of the Inventory held

46. How can we reduce the need to hold Inventory Levels

47. Pareto Analysis Curve A B C

48. Classification of Inventory using Pareto Analysis

49. J.I.T Just in Time JIT is an inventory strategy designed to have product only when it is needed and NOT just in case JIT is a pull system, as soon as one product is used it automatically triggers the replenishment of that item Must be a joint strategy with key suppliers, one member of the supply chain will find the risks associated with JIT to be very high The advances of technology such as EDI makes JIT possible

50. Supply Chain Leadership