Business Mantras

Supply Chain Management

Structure Followed
What is Supply chain? Objective of a supply chain Supply Chain Management Bull Whip effect Drivers of Supply chain performance Inventory policies Types of Distribution networks

What is Supply chain?

Supplier Manufacturer Distributor Retailer Customer

Consists of all parties involved, directly or indirectly, in fulfilling a customer request

Is supply chain so simple?

Supplier Manufacturer Distributor Retailer Customer

Supplier

Manufacturer

Distributor

Retailer

Customer

Supplier

Manufacturer

Distributor

Retailer

Customer

Upstream

Downstream

Process View
Customer
Customer Order Cycle

Pull Retailer

Replenishment Cycle

Distributor
Manufacturing Cycle

Manufacturer
Procurement Cycle

Push

Supplier

Objective of a Supply Chain

Maximise overall profit Profit
Revenue generated from customer - costs incurred along the entire chain (e.g. manufacturing / storing / distributing the product)

When is Supply chain effective?

Manage Product, Information and Fund flow

Why not max. individual profitability?

Buy Back

No risk

Manufacturer Cost = Rs. 1 Profit Rs. 4000

Manufacturer Cost = Rs. 1

Buy Back at Rs. 3

Sharing

Profit Rs. 5520

Bears All risk

Retailer Cost = Rs. 5 Q = 1000

Profit Rs. 4000

of
risks

Retailer Cost = Rs. 5 Q = 1200

Profit Rs. 5160

Customer Cost = Rs. 10 Demand = 900

Customer Cost = Rs. 10 Demand = 1080

So, what is SCM?

Objective is to be able to have the right products in the right quantities (at the right place) at the right moment at minimal cost.

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 Distributor Retailer Orders 15 Customer

Manufacturer

Orders 40

Orders 25

Buys 10

Causes
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.

Bullwhip Effect (from Chase, Jacobs, & Aquilano)

The magnification of variability in orders in the supplychain
Retailers Orders Wholesalers Orders Manufacturers Orders

Time

Time

Time

A lot of retailers each with little variability in their orders.

can lead to greater variability for a fewer number of wholesalers, and

2007 Wiley

can lead to even greater variability for a single manufacturer.

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McGraw-Hill

The Bullwhip Effect

Counteracting the Effect:
Change the way suppliers forecast product demand by making this information available at all levels of the supply chain Share real demand information (POS terminals) Eliminate order batching Stabilize pricing Eliminate gaming
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Drivers of Supply Chain Performance

Facilities
Production/Storage Sites

Responsiveness Vs Efficiency

Drivers of Supply Chain Performance

Inventory
Raw materials Finished Goods Responsiveness Vs Efficiency

Sourcing
Outsourcing

Transportation

Transportation
Cost

Total costs

Transport costs

Inventory costs
Rail Air

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

Types of Inventory
raw materials 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

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

Distribution
Steps taken to move and store a product from supplier to customer Design Options
Manufacturer storage with direct shipping Manufacturer storage with direct shipping and in-transit merge Distributor storage with package carrier delivery

Manufacturer storage with direct shipping

Manufacturer

Retailer

Customers

Drop Shipping

Manufacturer storage with direct shipping and in-transit merge

Manufacturer

Retailer

In-transit Merge by carriers

Customers

Distributor storage with carrier delivery

Manufacturer

Warehouse Storage by Distributor/Retailer Customers

Issues Affecting Supply Chain Management

Information technology enablers include the Internet, Web, EDI, intranets and extranets, bar code scanners, and pointof-sales demand information E-commerce and e-business uses internet and web to transact business

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Supply Chain Logistics & Distribution

Warehouses involved in supply chain distributions and include
Plant warehouses Regional warehouses Local warehouses

Warehouses can either be

General used for long-term storage Distribution used for short-term storage, consolidation, and product mixing

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Supply Chain Logistics & Distribution

Transportation consolidation warehouses consolidate less-thantruckload (LTL) quantities into truckload (TL) quantities Product mixing warehouse value added customer service of grouping a variety of products into a direct shipment to the customer
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Supply Chain Logistics & Distribution

Services are offered can improve customer service by moving goods closer to the customer and thus reducing replenishment time Crossdocking or movement of material without storage and order-picking material while still performing the receiving and shipping functions.
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Integrated SCM
Implementing integrated SCM requires:
Analyzing the whole supply chain Starting by integrating internal functions first Integrating external suppliers through partnerships

Manufacturers Goals

Suppliers Goals

Reduce costs Reduce duplication of effort Improve quality Reduce lead time Implement cost reduction program Involve suppliers early Reduce time to market

Increase sales volume Increase customer loyalty Reduce cost Improve demand data Improve profitability

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Supply Chain Measurements

Measuring supply chain performance
Traditional measures include;
Return on investment Profitability Market share Revenue growth

Additional measures
Customer service levels Inventory turns Weeks of supply Inventory obsolescence

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Supply Chain Performance Measurement

Customer demands for better-quality requires companys to develop ways to measure improvements Some measurements include
Warranty costs Products returned Cost reductions allowed because of product defects Company response times Transaction costs

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Eliminating Sources of Waste in Supply Chain

Overproduction: dont build product before needed Delay between activities in chain: eliminate them Unnecessary transport or conveyance of product: includes both internal and external movement
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Eliminating Sources of Waste in Supply Chain cont

Unnecessary movement of people: includes travel or reaching due to poorly designed work space Excess inventory ready and in position: includes early deliveries, excess inventory, etc. Suboptimal use of space: trailer loads, warehouses, etc. Errors that cause rework: billing errors, inventory discrepancies, etc.

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