Introduction to Supply Chain Management UNIT-I

What Is the Supply Chain?

Also referred to as the logistics network Suppliers, manufacturers, warehouses, distribution centers and retail outlets facilities
Suppliers Manufacturers Warehouses & Customers Distribution Centers

and the

Raw materials Work-in-process (WIP) inventory Finished products

that flow between the facilities

Material Costs

Transportation Costs

Transportation Costs Transportation Manufacturing Costs Inventory Costs Costs

The Supply Chain

Suppliers Manufacturers Warehouses & Distribution Centers Customers

Transportation Costs Material Costs

Transportation Costs

Manufacturing Costs

Transportation Costs Inventory Costs

The Supply Chain Another View

Plan

Source

Make

Deliver

Suppliers

Manufacturers

Warehouses & Distribution Centers

Customers

Material Costs

Transportation Transportation Costs Transportation Costs Manufacturing Costs Inventory Costs Costs

What Is Supply Chain Management (SCM)?

A set of approaches used to efficiently integrate

Suppliers Manufacturers Warehouses Distribution centers In the right quantities To the right locations And at the right time

So that the product is produced and distributed

System-wide costs are minimized and Service level requirements are satisfied

This definition leads to several observations. First supply chain management takes into consideration every facility that has an impact on cost and plays a role in making the product conform to customer requirement.

 Second, the objective of supply chain management is to be efficient and costeffective across the entire system; total system-wide costs, from transportation and distribution. Finally, because supply chain management revolves around efficient integration of suppliers, manufacturers, warehouses, and stores, it encompasses the firms activities at many levels, starting from strategic level through the tactical to the operational level.
7

Another view of SCM

The process of planning, implementing and controlling the efficient, cost effective flow and storage of raw materials, inprocess inventory, finished goods and related information from point-of-origin to point-of-consumption for the purpose of conforming to customer requirements.

History of Supply Chain Management

1960s - Inventory Management Focus, Cost Control 1970s - MRP & BOM - Operations Planning 1980s - MRPII, JIT - Materials Management, Logistics 1990s - SCM - ERP - Integrated Purchasing, Financials, Manufacturing, Order Entry 2000s - Optimized Value Network with Real-Time Decision Support; Synchronized & Collaborative Extended Network

What makes supply chain management difficult?

Its a challenge to design and operate a supply chain so that total system wide costs are minimized and system wide service levels are maintained. The process of finding the best system wide strategy is known as global optimization. Uncertainty in every supply chain
10

A variety of factors make this a challenging problem Global Optimization

The supply chain is a complex network Different facilities frequently have objectives. in the supply chain different, conflicting,

The supply chain is a dynamic system System variations over time

11

A variety of factors make this a challenging problem Managing Uncertainty Matching supply and demand is a major challenge: Inventory and back-order levels fluctuate considerably across the supply chain, even when customer demand for specific products does not vary greatly. Forecasting doesnt solve the problem Demand is not the only source of uncertainty
12

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

13

WHY SUPPLY CHAIN MANAGEMENT?

??????
In the 1980s organizations discovered new manufacturing technologies and strategies that allowed them to reduce costs and to be more competitive in the market. Strategies such as JIT, Kanban, leanmanufacturing , Total Quality Management were applied. Manufacturing companies were able to reduce the production cost with the above mentioned technologies Later these companies discovered that effective supply chain management is the next step they need to take in order to increase profit and market share.

14

The Importance of Supply Chain Management

Dealing with uncertain environments matching supply and demand
Boeing announced a $2.6 billion loss 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 Hewlett-Packard and Dell found it difficult to obtain important components for its PCs 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
15

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 dont do it, your competitor will Major buyers such as Wal-Mart demand a level of supply chain maturity of its suppliers
Firms have access to multiple products (e.g., SAP, Baan, Oracle, JD Edwards) with which to integrate internal processes

Availability of SCM technologies on the market

16

Supply Chain Management Key Issues

Firms activities- Strategic, tactical, operational level decisions 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

Nevertheless, forecasts (or plans, if you prefer) are important management tools when some methods are applied to reduce uncertainty

17

Supply Chain Management Key Issues

ISSUE Network Planning CONSIDERATIONS Warehouse locations and capacities Plant locations and production levels Transportation flows between facilities to minimize cost and time How should inventory be managed? Why does inventory fluctuate and what strategies minimize this? Impact of volume discount and revenue sharing Pricing strategies to reduce order-shipment variability

Inventory Control

Supply Contracts

Distribution Strategies

Selection of distribution strategies (e.g., direct ship vs. cross-docking) How many cross-dock points are needed? Cost/Benefits of different strategies
How can integration with partners be achieved? What level of integration is best? What information and processes can be shared? What partnerships should be implemented and in which situations? What are our core supply chain capabilities and which are not? Does our product design mandate different outsourcing approaches? Risk management How are inventory holding and transportation costs affected by product design? How does product design enable mass customization?

Integration and Strategic Partnering

Outsourcing & Procurement Strategies

Product Design Source: Simchi-Levi

18

 Information Technology and DecisionSupport Systems

Information technology is a critical enabler of effective supply chain management. Indeed, much of the current interest in supply chain management is motivated by the opportunities that appeared due to the abundance of data and the savings that can be achieved by sophisticated analysis to these data. In the end we can say two Ts will enable us to manage the supply chains effectively and efficientlyTECHNOLOGY & TRUST

19