Course: Supply Chain Management

Course tutor: Muhammad Hassan Iqbal

Lets Connect

What is supply chain?

SC Defined
A global network used to deliver products and services through engineered flow of information, physical delivery and cash. Engineered flow ? A flow involving entities and processes

Basic Supply chain

Supplier Manufacturer - customer

Basic Flows In SC
Information cash product Return

Supply Chain Management

There are several definitions of Supply Chain Management available in books and journals. A few of them are as follows According to Jones and Riley SCM focuses on the logistics of supply from the supplier end till it reaches the end user (Jones and Riley, 1985).

 In another definition, supply chain management is defined as the inter relatedness and conjuncture of a number of elements that contribute to production, stock, timely delivery of items etc. along the supply chain that lead to its effectiveness and satisfies the ultimate user (Hugos, 2006).

Supply chain by Sunil Chopra

A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and supplier but also transporters, warehouses, retailers and customer themselves. Within each organisation, such as a manufacturer, the supply chain includes all functions involved in receiving and filling a customer request.

Example
Supply Chain cannot work without information flow. Now lets discuss how this works.

Fat Supplier

Soap Noodle manufacturer

Reckitt Benckiser

Warehouses

Retailers

Customers

Timber company

Packages/Saima Packages

Reckitt Benckiser

Procurement

Quality Inspection

Manufacturing/ Co packers

Finance

Marketing and Sales

Warehousing

 The primary purpose for the existence of any supply chain is to satisfy the customers need while at the same time generating profits for itself. Supply Chain activities begin with a customer order and end when a customer has paid for his or her purchase. The term supply chain makes an image in your mind of product or supply moving from suppliers to manufacturers to distributors to retailers to customers along a chain. It is very important to visualize information, funds and product flows along both the directions of a supply chain

Stages in Supply Chain

Customers Retailers Wholesalers/Distributors Manufacturers Component/Raw material suppliers

Supply Chain Stages

Supplier Manufacturer Distributor Retailer Customer

Supplier

Manufacturer

Distributor

Retailer

Customer

Supplier

Manufacturer

Distributor

Retailer

Customer

The Objective of a Supply Chain

The objective of every supply chain is to maximize the overall value generated. The value a supply chain generates is the difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customers request. For most commercial supply chains, value will be strongly correlated with supply chain profitability, the difference between the revenue generated from the customer and the overall cost across the supply chain.

The objective of a supply chain

Profit = Revenue Generated -

Cost incurred to make the product available for the customer

What the f*** is this..!

Strategies focusing on decreasing cost and enhancing value

Just in Time Six Sigma Supplier Relationship Management The SCOR Model ERP Vendor Managed Inventory

Decision Phases in a Supply Chain

Successful supply chain management requires many decisions relating to the flow of information, product and funds. These decisions fall into three phases or categories which are Supply Chain Strategy or design Supply Chain Planning Supply Chain Operation

Supply Chain Strategy or Design

During this phase a company decides how to structure the supply chain. This strategy and design will be made taking into account the market conditions over the next few years. As a part of this strategy it will include the company locations, capacities of production, warehousing facilities, the products to be manufactured or stored at various locations.

Supply Chain Planning

Supply Chain Planning is done based on the strategy and design which has been implemented. It acts as a guideline for supply chain planning. The planning stage is initiated with a forecast for the coming years of demand in different markets. Planning includes decisions regarding which markets will be supplied from which locations, the sub contracting of manufacturing, the inventory policies to be followed and the timing and size of the market promotions. Planning establishes parameters within which a supply chain will function over a specified period of time. In the planning stage companies must include uncertainty in demand, exchange rates and any practice which they think will enhance performance in order to reduce inaccurate forecasts. The time horizon for supply chain planning would be considered from a quarter to a year

Supply Chain Operations

The time horizon for supply chain operations is weekly or daily and during this phase companies make decisions regarding individual customer orders. At the operational level, supply chain configuration is considered fixed and planning policies are already defined. The goal of supply chain operations is to handle incoming customer orders in the best possible manner. During this phase, firms allocate inventory or production to individual orders, set a date that an order is to be filled, generate pick lists at warehouses. Operational decisions are made in short term, there is less uncertainty about demand information. The main KPI for supply chain operations is to exploit the reduction of uncertainties and optimize performance.

Process View of a Supply Chain

A supply chain is a sequence of processes and flows that take place within and between different stages and combine to fill a customer need for a product. There are two different ways to view the processes performed in a supply chain: Cycle view: The processes in a supply chain are divided into a series of cycles, each performed at the interface between two successive stages of a supply chain. Push/pull view: The process in a supply chain are divided into two categories depending on whether they are executed in response to a customer order in anticipation of customer orders. Pull processes are initiated by a customer order whereas push processes are initiated and performed in anticipation of customer orders.

Cyclic View of Supply Chain Processes

All supply chain processes can be broken down into the following four process cycles Customer order cycle Replenishment order cycle Manufacturing cycle Procurement cycle

Customer Order Cycle

The customer order cycle occurs at the customer/retailer interface and includes all processes directly involved in receiving and filling the customers order. Typically, the customer initiates this cycle at a retailer site and the cycle primarily involves filling customer demand. This retailers interaction with customer starts which the customer arrives or contact is initiated and ends when the customer receives the order.

Customer order cycle

Customer arrival Customer order entry Customer order fulfillment Customer order receiving

Replenishment Cycle
The replenishment cycle occurs at the retailer/distributor interface and includes all processes involved replenishing retailer inventory. It is initiated when a retailer places an order to replenish inventories to meet future demand. The replenishment cycle is similar to the customer order cycle except that the retailer is now the customer. The objective of the replenishment cycle is to replenish inventories at the retailer at minimum cost while providing high product availability.

Replenishment Cycle
Retail order trigger Retail order entry Retail order fulfillment Retail order receiving

Manufacturing Cycle
The manufacturing typically occurs at the distributor/manufacturer or(retailer/manufacturer) interface and includes all processes involved in replenishing a distributor (or retailer) inventory. The manufacturing cycle is triggered by customer orders, replenishment orders from a retailer or distributor or by the forecast of customer demand and current product availability in the manufacturers finished goods warehouse.

Manufacturing Cycle
The processes involved in the manufacturing cycle are as follows: Order arrival from the finished goods warehouse, distributor, retailer or customer Production scheduling Manufacturing and shipping Receiving at the distributor, retailer or customer.

Procurement Cycle
The procurement cycle occurs at the manufacturer/supplier interface and includes all processes necessary to ensure that materials are available for manufacturing to occur according to schedule. During the procurement cycle, the manufacturer orders components from the suppliers that replenish the component inventories. The relationship is quite similar to that between a distributor and manufacturer with one significant difference. Whereas the distributor orders are triggered by uncertain customer demand, component orders can be determined precisely once the manufacturer has decided what the production schedule will be.

Procurement Cycle
Therefore it is important for the supplier to be linked with the manufacturers production schedule. Of course if a suppliers lead times are long, the supplier had to produce to forecast because the manufacturers production schedule may not be fixed that far in advance.

Push/Pull view of Supply Chain Process

All processes in a supply chain fall into one of the two categories depending on the timing of their execution relative to end customer demand. With pull processes, execution is initiated in response to a customer order. With push process execution is initiated in anticipation of customer orders. Therefore at the time of execution of a pull process, customer demand is known with certainty whereas at the time of execution of a push process, demand is not known and must be forecast.

Push/Pull view of Supply Chain Process

Pull process may also be referred to as a reactive process because they react to customer demand. Push processes may also be referred to as a speculative process because they respond to a speculated demand.

Chapter 3 Supply Chain Drivers and Obstacles

Drivers of Supply Chain Performance A framework for structuring drivers Facilities Inventory Transportation Information Sourcing Pricing

Drivers of Supply Chain Performance

We discussed the importance of responsiveness and efficiency in supply chain for an organisation to meet its competitive edge. However to understand the supply chain performance of an organisation we must examine the four drivers of supply chain performance which are: Facilities Inventory Transportation & Information

Facilities
Facilities are the places in the supply chain network where product is stored, assembled or fabricated. The two major types of facilities are production sites and storage sites. Whatever the function of the facility, decision regarding location, capacity and flexibility of facilities have a significant impact on the supply chains performance. However the design or the operations of your facility highly depend whether you as an organisation want to be highly responsive or efficient.

Inventory
Inventory is all raw materials, work in process and finished goods within a supply chain. Inventory is an important supply chain driver because changing inventory policies can dramatically alter the supply chains efficiency and responsiveness.

 A clothing retailer can make itself more responsive by stocking large amounts inventory. With large inventory, the likelihood is high that the retailer can immediately satisfy the customer demand with clothes from its floor. A large inventory however will increase the retailers cost, thereby making it less efficient. However reducing the inventory will make the retailer more efficient but will hurt the retailers responsiveness.

Transportation
Transportation is moving inventory from one point to another in the supply chain. Transportation can take the form of many combinations of modes and routes, each with its own performance characteristics. Transportation choices have a large impact on supply chain responsiveness and efficiency.

Example
A mail order catalog company can use a faster mode of transportation like FedEX to ship products thus making their supply chain more responsive but also less efficient given the high costs associated with FedEX. Or the company can use cheaper ground transportation to ship the product, making the supply chain efficient but limiting its responsiveness.

Information
Information consists of data and analysis concerning facilities, inventory, transportation and customers throughout the supply chain. Information is the potentially the biggest driver of performance in supply chain as it directly affects each of the other drivers. Information presents management with the opportunity to make supply chain more responsive and efficient.

A Framework for structuring drivers

Competitive Strategy Supply Chain Strategy Efficiency Supply chain structure Logistical Drivers Facilities Inventory Transportation Responsiveness

Information

Sourcing Cross Functional Drivers

Pricing

 The goal of a supply chain strategy is to strike the balance between responsiveness and efficiency that results in a strategic fit with the competitive strategy. To reach this goal a company uses the four supply chain drivers discussed earlier.

Procurement and Inventory Management

Evolvement of Procurement and Supply Management

Purchasing has long been considered one of the basic functions common to all organisations. Unfortunately, since senior managements interests historically have focused on marketing, R&D, finance and operations, purchasing was, all too frequently, subordinate to these familiar functions

 During the 1960s and 1970s, purchasing and materials management frequently used manual kardex systems to manage inventory and prevention of line shutdowns. A tertiary issue was the management of inventory

 By the end of the decade of the 1970s, the marketplace had become more international, from both marketing and a supply point of view. Computers began to help in the management of inventory. With the impacts, such as oil crisis, increased automation, outsourcing, etc. material costs increased as a percentage of the cost of goods sold.

 These transitions brought significant changes in the purchasing responsibilities. Purchasing and materials management began taking on a more important role within manufacturing, institutions, service firms and government. Increased emphasis was placed on the control of inventory.

 During the early 1980s many organisations became profitable largely through much more careful management of their inventories. Computer-generated material requirements plan (MRP) and improved supplier discipline including just-in-time inventory allowed customers to reduce their inventories significantly.

According to Kaufmann, 2002

The evolvement of Procurement can be categorised as Childhood and Growth Dominant Function (1946 late 1960s) Corporate Hygiene Factor (late 1960 early 1980s) Source of Competitive Advantages (early 1980s mid 1990s) Take-over Candidate in the Network Era (mid 1990s present)

Childhood and Growth (until and including World War 2)

During this period, early publications showed interests in purchasing, though purchasing was generally not recognized as being critical to a firm

Dominant Function (1946 late 1960s)

During this period, while there were some remarkable contributions made in the academic lecture, practice did not focus the same level of attention to purchasing

Corporate Hygiene Factor (late 1960 early 1980s)

Purchasing gained some recognition but it was narrowly restricted to an operational role of fulfilling the needs and the requirements of the internal customers. However there were Academic milestones during this period which were Ammer:Materials Management and Armold: Supply Management: work on strategic supply management

Source of Competitive Advantages (early 1980s mid 1990s)

During this period, experience had expecially grown in the automotive industry in terms of implementing sourcing strategies such as just in time deliveries, single vs. multiple sourcing.

Take-over Candidate in the Network Era (mid 1990s present)

With core-competence-with-outsourcing strategy, firms have not only to optimize the flow of material, money and information betweens, but also to take a total system perspective in order to reach peak performance of supply chains from the source of raw material to the final customer.

Everyone is an Inventory Manager Somehow

Each of us stocks Food Paper Domestic items Clothes Cigarettes We all know shortages and emergency purchases in case of e.g. Nothing to smoke Nothing to drink or eat And we know the cost of to much stock e.g. When we clean our refrigerator

What is inventory management?

Every inventory decouples two processes, the supply process and the demand process

Supply Process

Supply

Inventory

Demand Process

The core of inventory management is the use of information and inventory in order to synchronize supply with demand
Effective and Efficient !!!

Objectives of Inventory Management

Inventory is a very expensive asset that can be replaced with a less expensive asset called information. In order to do this, the information must be timely, accurate, reliable and consistent. When this happens, you can carry less inventory reduce cost and get products to the customers faster

The objectives influence each other!

High stock level Increases deliver Availability

(in general, but) Low stock level decreases costs

(in general, but)

So, retailers, wholesalers, manufacturing, hospitals and even banks are faced with balancing these objectives.

Things to look at when procuring

Legal Factors Technological Factors Industrial Standards

Legal Factors
Different countries and regions conduct different laws and regulations on firms. The main areas of concern in legal factors can be identified, before conducting procurement strategies and practice: Company law and other laws governing the operation of public sector organisations Health and safety legislation Law of carriage and transport

Technological Factors
Are you technologically sound to procure and store a certain item which you are procuring? Advances in technology have opened up new opportunities in the field of storage, transport and distribution, and exploration of these innovations has contributed to improved performance in supply operations. Thus opportunities for improved supply chain performance in this field need to be carefully monitored.

Industrial Standards
To complete the account of the environment factors to procurement, attention will now turn to the brief identification of the industrial standard factors. Mandatory compliance under a variety of industrial(automotive, chemicals, retail, etc.), environmental, health, safety and customer right protection laws etc. international standards like ISO 9001,9002 etc. and company standards like QS-9000 systems and procedures have posed a tough challenge to procurement managers to reshape procurement strategies.

What is Inventory Management?

Inventory is a very expensive asset that can be replaced with a less expensive asset called information. In order to do this the information must be timely, accurate, reliable and consistent. When this happens you can carry less inventory, reduce cost and get products to customers faster. Every inventory decouples two processes, the supply process and the demand process. The core of Inventory Management is the effective and efficient use of information and inventory inorder to synchronize supply with demand

Objectives of Inventory Management

The objectives of inventory management include three aspects - Costs: stock costs, transport/handling costs and control costs. - Quality: product quality and service quality as well. - Time: delivery time and delivery flexibility The objectives influence each other, so these objectives should be balanced: - High Stock level increased deliver availability - Low Stock level decreases cost.

Reasons for Holding Inventory

Formulation of an inventory requires an understanding of the role of inventory in manufacturing and marketing. Inventory severs five purposes within the firm: It enables firm to achieve economics of scale It balances supply and demand It provides protection from uncertainties in demand order cycle It acts as a buffer between critical interfaces within the supply chain

Economics of scale
Inventory is required if a firm is to realize economics of scale in purchasing, transportation and manufacturing. For example, raw material inventory is necessary if the manufacturer is to take advantage of the per-unit price reductions associated with volume purchases. The reasons for holding finished goods inventory are similar to reason for holding raw material. Transportation economies are possible with large volume shipments, in order to take advantage of these economical rates.

Balancing supply and demand

Seasonal supply and/or demand may make it necessary for a firm to hold inventory. In case of building chocolates, the seasonal inventories may be stored in a freezer. This may be done because the raw material would be available only at certain times during the year. Doing this would make it necessary to manufacture finished products in excess of current demand and hold them in inventory, unless raw material can be purchased from parts of the world with different seasons