Supply Chain Management

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Supply Chain Management

Definition Of Supply Chain

“A system of suppliers, manufacturers,

distributors, retailers, and customers where
materials flow downstream from suppliers to
customers, while information and cash flows
in both directions.”

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Supply Chain Management

“Supply Chain Management is the

management of a network of
interconnected businesses involved in the
ultimate provision of product and service
packages required by end customers.”

 Need For An Effective Supply Chain

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 Raw Materials
Raw Material Company

Transportation Vertical Transportation

Vs Company
Manufacturing
Virtual Manufacturing
Distribution Company

Retailer Independent
Distributor

Independent
Retailer

Slow Moving, Fast Moving

Industrial Markets
Mass Markets 21/12/09
Participants in Supply Chain

Supplier Company Customer

Simple Supply Chain

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 Participants in Supply Chain

Product Market
Designer Research

Raw Manufacturer Distributor Retailer Retail

Material Customer

Logistics Finance Business

Provider Provider Customer

Extended Supply Chain 21/12/09

 Dell Supply Chain

Demand
Forecast
Push made at Pull from customer demand
assembly

End Customer
Raw Materials

No Inventory of
Finished
Products
Parts Inventory
made on forecast

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Production Assembly Manufacturer Distribution
 Supply Chain Management
Financial Flows

Supplier Production Expected

Capacity Capacity Customer
Finished Orders
Good
Available

Good Customer
Component

From Customer
Supplier Orders in
Availability Hand
Raw Mat. Goods

Information Flow in both the directions

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Material Flow From Supplier To Customer
Operations of Supply Chain

 Plan

• Demand Forecasting
• Product Pricing
• Inventory Management
 Source

• Raw material Procurement

• Finance
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Operations of Supply Chain

 Process

• Product Design
• Production Management
• Facility Management
 Deliver

• Order Entry
• Product Delivery
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 Measuring Supply Chain
Performance
Before Designing the Strategy We Need to
Decide the Goal of the Game!

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Performance Types

 Productivity

 Velocity

 Quality

 Financial

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Productivity Measurements

 Do more with less

 Resource Utilization
 Process Efficiency

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 Measuring Productivity
Performance
Elements Productivity Indicators

Customer Response Customer orders per person hour

Inventory Planning & Inventory turns

Management
Supply POs per person-hour, SKUs per buyer

Transportation Stops per route, Fleet yield, Container

capacity utilization
Warehousing Units per person hour, Storage
density
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Identify Resources Involved

Machinery
Equipment

Inventory

Fleet Manpower

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Facilities
 Then, quantify associated
outputs

O
u
Logistics & t
Supply p
Systems u
Transportation t
s
R Warehousing
e
s
P
o
e
u
r
r
f
c 21/12/09
e
e
Productivity at the Resource
Level
P resource = Output resource / Input
resource
U resource = Output resource / Capacity
resource

P = Productivity
U = Utilisation
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Velocity Measurements

 Cycle Time
 Response Time
 Processing Time

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Measuring Velocity Performance
Elements Response Time Indicators

Customer Response Order entry time, Order

processing time

Supply Purchase order cycle time

Transportation In - transit time

Warehousing Warehouse order cycle time

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Total Logistics Cycle Time (TLCT)

 TLCT
= OET+OPT+[POCT*(1- OFR)]
+WOCT+ITT

OET = Order Entry time

OPT = Order Processing Time
POCT = Purchase Order Cycle Time
WOCT = Warehouse Order Cycle Time
ITT = In - Transit Time 21/12/09
Quality Measurements

 Likelihood of Mistakes
 Deviation from Goal
 Defects

 Overall Satisfaction

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Measuring Quality Performance
Elements Quality Indicators
Customer Response Order entry accuracy, Status
communication accuracy, Invoice
accuracy
Inventory Planning & Fill rate, Forecast accuracy
Management
Supply Perfect PO percentage
Transportation On - time arrival percentage,
Damage percentage

Warehousing Inventory accuracy, Picking

accuracy, Shipping accuracy,
Damage percentage
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Manufacturing Perfect
Purchase Orders is the Real
Goal!
 Perfect Entry
 Perfect Processing
 Perfect Picking
 Perfect Packaging
 Perfect Shipping
 Perfect Delivery
 Perfect Communication 21/12/09
Financial Measurements

 Cost of Resources Employed

 Cost of Activities Performed

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Measuring Financial Performance
Elements Financial Indicators

Customer Response Total response cost, Response

cost per customer order
Inventory Planning & Total inventory cost, Inventory
Management cost per SKU
Supply Total supply cost, Supply cost per
PO
Transportation Total transportation cost,
Transportation cost per mile
Warehousing Total warehousing cost,
Warehousing cost per piece,
21/12/09cost per
Warehousing
Financial Indicators

 Logistics Expenses (LE)

 Logistics Profit (LP)
LP = R - LE
 Logistics Asset Value (LAV)
 Return on Logistics Assets (ROLA)
ROLA = P / LAV
 Logistics Asset Turnover (LAT)
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Financial Indicators

 Total Logistics Cost (TLC)

TLC = TRC + TIC + TSC + TTC
+TWC
 Logistics Cost - Sales Ratio (LCSR)
LCSR = TLC / R

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Supply Chain Goal!

 Maximise (Corporate Economic Value

Added)
 Minimise(Operating Cost+ Capital Cost+
Lost Sales)

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Benefits of Implementing
Supply Chain
 Increased Visibility
 Increased Reliability
 Squeeze Inefficiencies
 Increase the Velocity of Business
 Savings and Revenue Improvement

Effective Supply Chain Management

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can
lead up to 5% Cost decrease that has
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