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In its broadest sense, supply chain refers to the way that the material flows through different organizations, starting with raw materials and ending with finished products delivered to the ultimate consumer. A supply chain is a sequence of suppliers, transporters, warehouses, manufacturers, wholesalers/ distributors, retail outlets and final customers. Different companies may have different supply chains due to the nature of their operations and whether they are primarily a manufacturing operation or service operation. Exhibit 1.1a illustrates a typical supply chain for a manufacturing organization and exhibit 1.1b illustrates a typical supply chain for a service organization.
Supplier A
Supplier B
Storage
Mfg
Storage
Distrib utor
Retailer
Customer
Supplier C
Storage
Service
Customer
Supplier B
A large company will have several supply chains. In a multi-divisional company with many product groups, there could be many different supply chains. For example, large companies such as Procter and Gamble or General Electric may use 50 to 100 different supply chains to bring their products to the market. There has been a great deal of interest recently in industry and academic in the subject of supply chain management.
The function of SCM is to plan, organize, coordinate and control all supply chain activities.
Packaging, warehousing and shipping. For these activities, many wholesalers and distributors are involved.
Supply chain management flows can be divided into three main flows:
RM- Supplier
Manufacturer
Distributors
Retailers
Customers
The product flow includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs. The information flow involves transmitting orders and updating the status of delivery. The financial flow consists of credit terms, payment schedules, and consignment and title ownership arrangements. There are two main types of SCM software: planning applications and execution applications. Planning applications use advanced algorithms to determine the best way to fill an order. Execution applications track the physical status of goods, the management of materials, and financial information involving all parties.
Some SCM applications are based on open data models that support the sharing of data both inside and outside the enterprise (this is called the extended enterprise, and includes key suppliers, manufacturers, and end customers of a specific company). This shared data may reside in diverse database systems, or data warehouses, at several different sites and companies. By sharing this data "upstream" (with a company's suppliers) and "downstream" (with a company's clients), SCM applications have the potential to improve the time-to-market of products, reduce costs, and allow all parties in the supply chain to better manage current resources and plan for future needs. Increasing numbers of companies are turning to Web sites and Web-based applications as part of the SCM solution. A number of major Web sites offer e-procurement marketplaces where manufacturers can trade and even make auction bids with suppliers. There are essentially three goals of SCM: To reduce inventory, To increase the speed of transactions with real-time data exchange, To increase revenue by satisfying customer demands more efficiently. Supply chain management is the integration of various activities encompassed by the supply chain through improved supply chain relationships to achieve a sustainable competitive advantage. The supply chain encompasses all activities associated with the flow and transformation of goods from the raw materials stage through to the end users, as well as the associated information flows. Materials and the information flow both up and down the supply chain. The supply chain includes systems management, operations and assembly, purchasing, production scheduling, order processing, inventory management, transportation, warehousing and customer service. Supply chains are essentially a series of linked suppliers and customers; every customer is in turn a supplier to the next downstream organizations until a finished product reaches the ultimate end user.
Inventory also has a significant impact on the material flow time in a supply chain. Material flow time is the time that elapses between the point at which the material enters the supply chain to the point at which it exits. Another important area where inventory has a significant impact is throughput, the rate at which sales to the end customer occur. If the inventory is represented by I, flow time by T and throughput by R, the three can be related using Littles Law as follow:
I = RT
For example, if the flow time of an auto assembly is 10 hours and throughput is 60 units an hour, Littles Law tells us that inventory is 60*10= 600 units. If we are able to reduce inventory to 300 units while holding throughput constant we would reduce our flow time by 5 hours (300/60). In this relation inventory and through must be in same relation. The logical conclusion here is that inventory and flow time are synonymous in a supply chain, 4. Transportation: how do materials, parts and products get from one link in the supply chain to the next? Choosing the best way to transport goods often involves training of the shipping cost against the indirect cost of inventory. For example, shipping by air is generally fast and reliable. Shipping by sea or rail will likely be cheaper especially for bulky goods and large quantity, but slower and less reliable. So if you ship by sea or rail you have to plan further in advance and keep larger inventory than you do if u ship by air. Transportation has an impact on both the responsiveness and efficiency. Faster transportation allows supply chain to be more responsive but reduces its efficiency. The type of transportation company uses also affects the inventory and facility location in the supply chain. Dell, for example uses air transportation from Asia because doing so allows company to lower the level of inventory it holds. Clearly such a practice increases responsiveness but decreases transportation efficiency because it is more costly than transporting parts by ship. 5. Information: Information could be overlooked as a major driver in supply chain as it doesnt have physical structure. Information flow is the heart of supply chain. Information serves as the connection between various stages of supply chain allow them to coordinate their action and increase the supply chain profitability. It is also useful for the daily operations in the company. For example, warehouse management system uses information to give the warehouses inventory visibility. The company can then use this information to determine whether new orders to be filled. Helps reduce variability in the supply chain. Helps improve forecast Helps coordination Better customer service Reduces lead time Reduces inventory.
The best SCM practices when it excels in reducing in operating cost, improve assets productivity and compressing order cycle time.
The following discussion is based on Donald J. Bowersox, David J. Gloss, and Ralph Drayer, "The Digital Transformation: Technology and Beyond," Supply Chain Management Review(January 2005), pp. 22-29.
Six paradigms seem to frame the challenge of digitally transforming business. We call these paradigms the six Fs of going digital they speak to the mind set that
leaders must adopt as they begin to reconfigure every aspect of their organization to contribute economic value 1. Fact-based management:- Fact-based management is a commitment to- even an obsession with- developing precise information on every facet of what the organization does and needs to do. Fact-based management provides answers to questions such as, why do we provide this service? What value does it add to customers? What are our precise performance expectations? How exactly do we meet and measure this expectation? Facts are not averages. Facts deal with specific performance, results in terms of specific customers. Managers must learn to understand and rapidly act on these results at the specific product level and customer purchase location. 2. Flexible: Driven by facts, successful firms demonstrate an inherent ability to rapidly adapt operations to pursue a new course of action. Confronted with a break through opportunity, they are agile enough to make adjustments quickly and commit the resources necessary to capitalize on the opportunity. 3. Focus on cash: A business exists to generate cash. Quarterly or annual earning are not the fuel of long term success. The only meaningful measure at the end of any day, week, month, or a year is the cash balance. As they make the digital transformation, companies must remember that cash pays bills, cash pays salary and wages, and cash pays shareholders dividends. The focus must be cash first, cash second and cash always 4. Fast return on investment (ROI): A business needs to make continuous investment in new products, services, technology, people and facilities. All investments are made with an expectation of financial return. The new mandate, however, is not just high rates of return but of high rate of returns fast. Payback periods need to be short and needs to yield positive returns- which translate to cash. 5. Fungible: Fungible means that business process is modular in design with maximum interchangeability. Modularity allows flexibility in process design and maximum incorporation of the principles of postponement and acceleration. The operational characteristic of agility, flexibility, sustainability, scale, scope, and responsiveness are attributes of fungible organizations. 6. Frugal: Capital investment, cash velocity, and the flat organizational structure with focused human resources are the characteristics of a frugal enterprise. Frugal enterprises are lean in every conceivable way. Overhead is minimal. Operations are focused on cash generations. Lean is an enterprise wide attribute that must permeate every facet of every process. In frugal enterprises, the real benefits are cash and dividends, no fringe benefits or luxurious environments. At the end of the day, employees work for income and owners invest for the dividends with the business success, both constituents will benefit from the enterprises success.
Waiting times between chains segments is excessive; Poor coordination, and communication; decline in the value of parts and components that stay too long in storage. Intelligent systems Learn about the delays after they occur or learn about them too late. The Internet and Internet Lack of communication or flow that is too slow; Redundancies 2 in the supply chain, too many purchasing orders, too much packaging and handling. Intranets and extranets Waiting times between supply segments is excessive; lack of information or slow flow; decline in the value parts and components that stay too long in storage. JIT systems High inventory cost and poor workflow due to improper scheduling of materials. Robotics Delays in shipments from warehouses.
The core applications are generally structured in departmental terms, i.e. each application supports business processes used within a department. For example, the warehouse applications will only process all transactions for a warehouse; inventory applications will be concerned only with the movement and storage of the materials in the inventory, etc. In this architecture, any single business process that spans multiple departments will be, supported. By a sequence of transactions occurring in multiple discrete applications
responsible for the departments involved. Such a sequence cannot be coordinated or automated unless the applications are integrated. A departmental design creates three major hurdles in designing the IT systems for supply chain. I. Lack of Orchestration Ability By definition, supply chain must span multiple departments acting in concert for the various business processes. When the applications are loosely coupled, the supply chain process orchestration will be disjoint and poorly controlled. For example, a goods receipt note in a warehouse receiving application will not automatically be considered for a picklist operation, unless the receiving, the order matching, and the cargo planning functionalities are orchestrated across the various applications. Careful attention needs to be given to ensure that such applications are able to work in a coordinated manner, if they are to play a role in the supply chain management. II. Lack of a Uniform Data Model Since a supply chain spans multiple departments, it is necessary to have a standardized data nomenclature across the applications. If the data model differs across the applications, it becomes hard to manage the supply chain. A heterogeneous data model reduces the manager's ability to compare, control and validate the health of the supply chain. For example, the Engineering Bill of Materials (BOM) may differ from Production BOM in many companies. It is not a problem for the respective department to manage their workbut it becomes difficult to manage the extended supply chain. To address this problem, IT organization needs to employ methodologies and tools such as Master Data Management to harmonize the data model and ensure a uniform treatment of the data. The supply chain management requires a fair amount of third-party data, i.e. data which is neither owned nor controlled by the enterprise. Getting this data from outside trading partners is difficult because the partner will generally resist sharing this information. This problem is out of scope for IT, and requires negotiations and trustbuilding initiatives. However, even where such data is available (through Vendormanaged-inventory initiatives with retail stores; or EDT-based collaboration with suppliers), such data is not in a form or definition consistent with the enterprise data model. Before such data can be added to the enterprise databasefor further analysis by the supply chain managerit needs to be harmonized and synchronized with the enterprise data model. Portal technologies or object-oriented technologies could partially address the latter problem. However, doing this requires special technology skills not easily available to the IT organization in a manufacturing company. III. Problem of Absent Data
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Under the departmental structure of applications, the data controlled by each application is the one directly required by the specific transactions in that department. Supply chain managers are often concerned with the data relating to the overall process. Such data does not fall within any single departmental boundary. This creates an important limitation for managing supply chains. The data required to manage the supply chain does not exist in any application, and must be computed from multiple data points that may be controlled/owned by different applications. Thus, a new set of programs and data structures become necessary to address the needs of supply chain managers. Such programs generally do not exist in the Transaction Engineespecially the loosely coupled core applications. The following example will illustrate this problem:A perishable product is made in a factory, dispatched to a warehouse, and from there it is dispatched to the retail store. In this movement, the finished goods inventory application will create a dispatch note listing the item code, quantity dispatched and the date (optionally, time) of dispatch. The warehouse receiving application will record the receipt of the item, the quantity and the date (optionally, time) of receipt and will allocate the shelf location. The logistics application will match the inventory to a sales order, and generate a pick list noting the item code, quantity, date (time), carton/crate number and the truck details. On arrival the retail store will accept the shipment, sign the warehouse dispatch note and proceed to make appropriate entries into its own store applications. Suppose, because of the deteriorating road conditions, the supply chain manager of the product is now concerned with the time-to--dispatch and wants to keep it to a minimum. It will be clear that such time-to-dispatch has not been captured by any application in this sequence. It is not known when the item was actually loaded on the truck and when the truck actually reached the customer. The time of customer receipt may be captured in the retail store application, but that data is no longer available to the supply chain manager, since the store is not controlled by the organization.