Supply Chain Management and dimensions of it

A presentation by PRAVEEN K CHOUDHARY

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Basics of Supply Chain Management

The Supply Chain

Plan

Source

Make

Deliver

Buy

Suppliers

Manufacturers

Warehouses & Distribution Centers

Customers

Material Costs

Transportation Transportation Costs Costs Transportation Manufacturing Costs Inventory Costs Costs

Todays Marketplace Requires:

Personalized content and services for their customers Collaborative planning with design partners, distributors, and suppliers Real-time commitments for design, production, inventory, and transportation capacity Flexible logistics options to ensure timely fulfillment Order tracking & reporting across multiple vendors and carriers Shared visibility for trading partners

Supply Chain Management and Uncertainty

Inventory and back-order levels fluctuate considerably across the supply chain even when customer demand doesnt vary The variability worsens as we travel up the supply chain

Mult ForecastingManuf help! doesnt Whole itier Sup plier s acture r

Time

Sales

Sales

Sales

Time

Time

Sales

sale Distri butor s

Reta ilers

Cons umer s
Time

Bullwhip Effect

Factors Contributing to the Bullwhip

Demand forecasting practices
Min-max inventory management (reorder points to bring inventory up to predicted levels)

Lead time
Longer lead times lead to greater variability in estimates of average demand, thus increasing variability and safety stock costs

Batch ordering
Peaks and valleys in orders Fixed ordering costs Impact of transportation costs (e.g., fuel costs) Sales quotas

Price fluctuations

Supply Chain Management Key Issues

Overcoming functional silos with conflicting goals

Customer Service/ Purchasing Manufacturing Distribution Sales Low High inventories Low inventFew High service purories chang levels chas eRegional Low e stocks overs transprice Stable portati sched Multi on ules ple SOURCE MAKE DELIVER SELL vend Long run ors length

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 Selection of distribution strategies (e.g., direct ship vs. crossdocking) 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?

Inventory Control

Supply Contracts Distribution Strategies

Integration and Strategic Partnering

Outsourcing & Procurement Strategies

Source: Simchi-Levi

What are our core supply chain capabilities and which are not? Does our product design mandate different outsourcing approaches? Risk management

Supply Chain Management Operations Strategies

STRATEGY Make to Stock WHEN TO CHOOSE
standardized products, relatively predictable demand customized products, many variations

BENEFITS
Low manufacturing costs; meet customer demands quickly Customization; reduced inventory; improved service levels Low inventory levels; wide range of product offerings; simplified planning

Make to Order

Configure to Order

many variations on finished product; infrequent demand

Engineer to Order

complex products, uniqueEnables response to customer specifications specific customer requirements

Source: Simchi-Levi

Supply Chain Imperatives for Success

View the supply chain as a strategic asset and a differentiator
Wal-Marts partnership with Proctor & Gamble to automatically replenish inventory Dells innovative direct-to-consumer sales and build-to-order manufacturing

Create unique supply chain configurations that align with your companys strategic objectives
Operations strategy Outsourcing strategy Channel strategy Customer service strategy Asset network Supply chain configuration components

Reduce uncertainty

SCM and Information Management

Information In The Supply Chain

Plan
Suppliers Manufacturers Warehouses & Distribution Centers Retailer

Source

Make

Deliver

Sell

Order Lead Time Delivery Lead Time

Each facility further away from actual customer demand must make forecasts of demand Lacking actual customer buying data, each facility bases its forecasts on downstream orders, which are more variable than actual demand To accommodate variability, inventory levels are overstocked thus increasing inventory carrying costs

Production Lead Time

Its estimated that the typical pharmaceutical company supply chain carries over 100 days of product to accommodate uncertainty

Taming the Bullwhip

Four critical methods for reducing the Bullwhip effect: Reduce uncertainty in the supply chain
Centralize demand information Keep each stage of the supply chain provided with upto-date customer demand information More frequent planning (continuous real-time planning the goal)

Reduce variability in the supply chain

Every-day-low-price strategies for stable demand patterns

Reduce lead times

Use cross-docking to reduce order lead times Use EDI techniques to reduce information lead times

Methods for Improving Forecasts

Judgment Methods Market Research Analysis

Panels of Experts Internal experts External experts Domain experts Delphi technique Time-Series Methods

Accurate Forecasts

Market testing Market surveys Focus groups Causal Analysis

Moving average Exponential smoothing Trend analysis Seasonality analysis

Relies on data other than that being predicted Economic data, commodity data, etc.

The Evolving Supply Chain

Supply Chain Integration Push Strategies

Classical manufacturing supply chain strategy Manufacturing forecasts are long-range
Orders from retailers warehouses

Longer response time to react to marketplace changes

Unable to meet changing demand patterns Supply chain inventory becomes obsolete as demand for certain products disappears

Increased variability (Bullwhip effect) leading to:

Large inventory safety stocks Larger and more variably sized production batches Unacceptable service levels Inventory obsolescence

Supply Chain Integration Pull Strategies

Production and distribution are demand-driven
Coordinated with true customer demand

None or little inventory held

Only in response to specific orders

Fast information flow mechanisms

POS data

Decreased lead times Decreased retailer inventory Decreased variability in the supply chain and especially at manufacturers Decreased manufacturer inventory More efficient use of resources

Supply Chain Integration Push/Pull Strategies

Hybrid of push and pull strategies to overcome disadvantages of each Early stages of product assembly are done in a push manner
Partial assembly of product based on aggregate demand forecasts (which are more accurate than individual product demand forecasts) Uncertainty is reduced so safety stock inventory is lower

Final product assembly is done based on customer demand for specific product configurations PushSupply chain timeline determines push-pull boundary Boundary Generic Product Push Strategy Raw Materials Customized Product Pull Strategy End Consumer
Pull

Supply Chain Timeline

Choosing Between Push/Pull Strategies

Pull High Industries where:

Industries where:
Demand is uncertain Scale economies are High Low economies of scale

Where do the following industries fit in this model:

Demand Uncertainty

Customization is High Demand is uncertain Scale economies are Low

Automobile? Aircraft? Fashion? Petroleum refining? Pharmaceuticals?

Computer equipment

Furniture

Industries where: Industries where:

Biotechnology? Medical Devices?

Uncertainty is low Low economies of scale Push-pull supply chain

Push

Low Low Pull

Books, CDs

Standard processes are the norm Demand is stable Scale economies are High

Grocery, Beverages

Economies of Scale

High Push Source: Simchi-Levi

Supply Chain Collaboration

Cornerstone of effective SCM The focus of many of todays SCM initiatives
Retailer The only method that has the potential to eliminate or s minimize the Bullwhip effect Supplier s

Synchroniz ed Production Scheduling Collaborati ve Product Developme nt

Manufacture r

Collaborativ e Demand Planning

Distributors/ Wholesalers

Collaborative Logistics Planning Transportation services Distribution center services

Logistics Providers

Supply Chain Collaboration What Is It?

Many different definitions depending on perspective The means by which companies within the supply chain work together towards mutual goals by sharing
Ideas Information Processes Knowledge Information Risks Rewards

Why collaborate?
Accelerate entry into new markets

Supply Chain Collaboration Spectrum

Not Extensive Viable Synchronized Collaboration

Extent of Collaboration

The green arrow describes increasing complexity and sophistication of:

Information systems

Coordinated Collaboration

Systems infrastructure Decision support systems Planning mechanisms

Cooperative Collaboration

Information sharing Process understanding Movement to real-time customer demand Higher levels of collaboration imply the need for both trading partners to have equivalent (or close) levels of supply chain maturity Synchronized collaboration demands joint planning, R&D and sharing of information and processing models

Limited Many

Transactional Collaboration

Low Return

Number of Relationships

Few

Source: Cohen & Roussel

Benefits of Supply Chain Collaboration

CUSTOMERS

MATERIAL SUPPLIERS

SERVICE SUPPLIERS

Reduced inventory Increased revenue Lower order management costs Higher Gross Margin Better forecast accuracy Better allocation of promotional budgets

Lower freight costs Reduced inventory Faster and more reliable Lower warehousing costs Lower material acquisition costsdelivery Lower capital costs Fewer stockout conditions Reduced depreciation Lower fixed costs

Improved customer service More efficient use of human resources

Source: Cohen & Roussel

Supply Chain Collaboration Imperatives

Try to collaborate internally before you try external collaboration Help your partners to work with you Share the savings Start small (a limited number of selected partners) and stay focused on what you want to achieve in the collaboration Advance your IT capabilities only to the level that you expect your partners to manage Put a comprehensive metrics program in place that allows you to monitor your partners performance Make sure people are kept part of the equation
Systems do not replace people

The Supply-Chain Operations Reference-model (SCOR) Model

SCOR 7.0 Model Structure

Plan P2 Plan Source
Source
M1 Make-to-Stock D1 Deliver Stocked Products M2 Make-to-Order D2 Deliver MTO Products

P1 Plan Supply Chain P3 Plan Make

Make

P4 Plan Deliver

P5 Plan Returns

S2 Source MTO Products

S3 Source ETO Products

M3 Engineer-to-Order

D3 Deliver ETO Products

D4 Deliver Retail Products

2626

R et ur n S o ur c

Enable

R et ur n D el iv er

Customers

S1 Source Stocked Products

Suppliers

Deliver

what really matters now

IS THE SUPPLY CHAIN WORKING?

Does our manufacturing strategy increase product line flexibility while continuing to drive down overall production costs?

Do we have an efficient system to get POS data from retailers?

Are we testing our products with end customers? Do we use the resulting data to adjust our forecasting and supply positions?

Is the ratio of returned orders to sales increasing?

Is Supply Chain Agile enough??

New Dimensions in SCM

Choice BoardsMake your own pizza models

Virtual Value Chain/ E Supply Chain and Collaborative Commerce

Collaborative Commerce and Next Gen Tools

Choice Boards

As explained in the article The Age of Choice Board by Adrian J Slywotzky, in the HBR ,Jan-Feb 2k. -- Choice boards are already in use in many Industries. Customers today can design their own computers with Dells on line configurator, create their own dolls with Mattels My Design Barbie, assemble their own investment portfolios with Schwabs mutualfund evaluator, and even design their golf clubs with Chip-shot.coms Perfect system.

Collaborative Commerce

collaborative commerce (c-commerce)

The use of digital technologies that enable companies to collaboratively plan, design, develop, manage, and research products, services, and innovative EC applications

collaboration hub
The central point of control for an e-market. A single c-hub, representing one e-market owner, can host multiple collaboration spaces (c-spaces) in which trading partners use cenablers to exchange data with the c-hub

Collaborative Commerce and Knowledge Management

Knowledge management is the process of capturing or creating knowledge C-commerce is essentially an integration of KM, EC, and collaboration tools and methodologies that are designed to carry out transactions

Collaborative Commerce Next Gen Tools

Mobile Collaborative Networks and Grid Computing

Grid computing A form of distributed computing that involves coordinating and sharing computing, application, data, storage, or network resources across dynamic and geographically dispersed organizations Mobile Networks : Mobile networks have the ability to share valuable business information in mobile scenarios with those who are co-located or remote and who are not necessarily from the same enterprise vendor managed inventory (VMI) The practice of retailers making suppliers responsible for determining when to order and how much to order

Group Ware Collaboration Tools

Wal-Marts Supply Chain

A Business Success

History of Wal-Mart

The companys founder is Sam Walton. He was born in 1918 at Oklahoma. In 1940, he worked for the famous retailer, J C Penney.Walton gave up the job and decided to set up his own retail store. He purchased a store franchise in Arkansas.

History of Wal-Mart

This phenomenal growth of Wal-Mart is attributed to its continued focus on customer needs and reducing cost through efficient supply chain management practices.

Early Unique SCM Practices of SCM

Early adopter of Hub n Spoke model in 1970 Direct Purchase from manufacturers in early 1980s Extensive use of EDI with vendors Dedicated 1st party logistics system Use of Cross Docking system similar to Dabbawallas of Mumbai Extensive focus on Inventory management with investments in IT, smaller packing sizes, extensive use of Hand held devices long before usage of mobiles and other devices , Accurate POS data availability. New system of Voice based order fulfillment, Faster Inventory replenishment system, Pretty Darned Quick Displays ( PDQ ) displays or store ready displays

Next Generation IT based Best Practices

Retail Link systems prior to Internet systems massive satellite based parallel processing systems covering over 10 million transactions with Walmarts Extranet systems.

CPFR is defined as a business practice for business partners to share forecasts and results data through the Internet, in order to reduce inventory costs while at the same time, enhancing product availability across the supply chain.

Next step to this was logical VAN based EDI and then Web based EDI framework covering all suppliers.

Now in RFID systems - planned to replace bar coding systems across the Walmart stores to reduce human interface in inventory management

Summary

Supply Chain needs optimization across the Value Chain to reduce Total Cost to Serve Alternate Push/Pull and optimization strategies are at work across industries IT is an excellent enabler to achieve the same
Impacts Information Gap reduction drastically Bull Whip effect reduction Impact on total cycle time reduction Increases configurablity and flexibility as required

 what we do is close to creating a customized value chain for every customer order victor fung ( LEE fung)