Supply chain management (SCM)

 all movement and storage

 raw materials, work-in-process inventory, and
finished goods

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What is Supply Chain Management

Supplier Material Flow Customer

Management Management
Information Flow

Schedule / Stock
Conversion Delivery
Resources Development

Leads to Business Process Integration 2

 SUPPLY CHAIN INCLUDES :

 MATERIAL FLOWS

 INFORMATION FLOWS

 FINANCIAL FLOWS

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SUPPLY CHAIN MANAGEMENT IS
FACILITATED BY :

 PROCESSES

 STRUCTURE

 TECHNOLOGY

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 SUPPLY CHAIN ELEMENTS
• Supply Chain Design
Strategic • Resource Acquisition
• Long Term Planning (1 Year ++)

• Production/ Distribution Planning

Tactical • Resource Allocation
• Medium Term Planning (Qtrly,Monthly)

• Shipment Scheduling
Operational • Resource Scheduling
• Short Term Planning (Weekly,Daily)
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Supply Chain Management
Underlying Principles

Compression (Planning/Manufacturing/Supply)

Conformance (Forecasts/Plans/Distribution)

Co-operation (Cross –Functional)

Communication (Real Time Data)

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 The steps involved
 Step1- Designing the supply chain
 Determine the supply chain network
 Identify the levels of service required

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 The steps involved
Step 2 - Optimizing the supply chain
 Determine pathways from suppliers to the end
customer
 Customer markets to Distribution centers
 Distribution centers to production plants
 Raw material sources to production plants
 Identify constraints at vendors, plants and distribution
centers
 Get the big picture
 Plan the procurement, production and distribution of
product groups rather than individual products in large
time periods- quarters or years

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 The steps involved
Step 3- Material flow planning

• Determine the exact flow and timing of

materials
• Arrive at decisions by working back from the
projected demand through the supply chain to
the raw material resources
• Techniques
 ERP

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 The steps involved
Step 4 - Transaction processing and
short term scheduling

• Customer orders arrive at random

• This is a day to day accounting system which tracks
and schedules every order to meet customer demand
• Order entry, order fulfillment and physical
replenishment

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 Developments in Supply
Chain Management
1. Creation Era
U.S. industry consultant - 1980s
assembly line
characteristics
* large-scale changes,
* re-engineering,
* downsizing driven by cost reduction programs,

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 Developments in Supply
Chain Management
2. Integration Era
Electronic Data Interchange (EDI) -
introduction of Enterprise Resource
Planning (ERP) systems
characteristics
*increasing value-adding
* cost reductions through integration.

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 Developments in Supply
Chain Management
3. Globalization Era
globalization era
characteristics
*supplier relationships
*the expansion of supply chains over national
boundaries and into other continents.
* increasing their competitive advantage,
* value-adding,
* reducing costs through global sourcing.

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 Developments in Supply
Chain Management
4. Specialization Era
(i)Outsourced Manufacturing and Distribution
vertical integration
work -in-process visibility and vendor-managed
inventory (VMI).
creates manufacturing and distribution networks
characteristics
market, region, or channel - resulting - trading
partner environments & demands

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 Developments in Supply
Chain Management
5. Specialization Era
(ii) Supply Chain Management as a Service
transportation brokerages, warehouse management
supply planning,
*collaboration, execution and performance
management.
characteristics
significant effects on the supply chain infrastructure,
from the foundation layers of establishing and
managing the electronic communication between
the trading partners to more complex requirements
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 Developments in Supply
Chain Management
6. Supply Chain Management 2.0 (SCM 2.0)
 Web 2.0
 creativity, information sharing, and collaboration among users
 a combination of the processes, methodologies, tools and
delivery options to guide companies to their results quickly as
the complexity
characteristics
 increase due to the effects of global competition,
 rapid price fluctuations,
 short product life cycles,
 expanded specialization,
 near-/far- and off-shoring,

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 Role of Forecasting
in a Supply Chain
 The basis for all strategic and planning decisions
in a supply chain
 Used for both push and pull processes
 Examples:
 Production: scheduling, inventory, aggregate planning
 Marketing: sales force allocation, promotions, new
production introduction
 Finance: plant/equipment investment, budgetary
planning
 Personnel: workforce planning, hiring, layoffs
 All of these decisions are interrelated

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 Characteristics of Forecasts
 Forecasts are always wrong. Should
include expected value and measure of
error.
 Long-term forecasts are less accurate
than short-term forecasts (forecast horizon
is important)
 Aggregate forecasts are more accurate
than disaggregate forecasts

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 Basic Approach to
Demand Forecasting
 Understand the objectives of forecasting
 Integrate demand planning and forecasting
 Identify major factors that influence the demand
forecast
 Understand and identify customer segments
 Determine the appropriate forecasting technique
 Establish performance and error measures for
the forecast

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 Applications for forecasting
 inventory control/production planning - forecasting the
demand for a product enables us to control the stock of
raw materials and finished goods, plan the production
schedule, etc
 investment policy - forecasting financial information such
as interest rates, exchange rates, share prices, the price
of gold, etc. This is an area in which no one has yet
developed a reliable (consistently accurate) forecasting
technique (or at least if they have they haven't told
anybody!)
 economic policy - forecasting economic information such
as the growth in the economy, unemployment, the
inflation rate, etc is vital both to government and
business in planning for the future.

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 Forecasting methods
 qualitative methods
past data
no formal mathematical model
No (long-term forecasting)
• regression methods
• a number of other independent variables
• Y = a + bX

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 Forecasting methods
 multiple equation methods
 time series methods
single variable that changes

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 Aggregate planning:

 process by which a company determines

levels of capacity, production,
subcontracting, inventory, stockouts, and
pricing over a specified time horizon
 goal is to maximize profit
 time frame of 3 to 18 months

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 Role of Aggregate Planning
in a Supply Chain
 production rate
 workforce
 overtime
 machine capacity level
 Subcontracting
 inventory on hand

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 The Aggregate Planning Problem
 Specify the planning horizon (typically 3-
18 months)
 Specify key information required to
develop an aggregate plan

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 Information Needed for
an Aggregate Plan
 Demand forecast in each period
 Production costs
 labor costs, regular time ($/hr) and overtime ($/hr)
 subcontracting costs ($/hr or $/unit)
 cost of changing capacity: hiring or layoff ($/worker) and cost of
adding or reducing machine capacity ($/machine)
 Labor/machine hours required per unit
 Inventory holding cost ($/unit/period)
 Stockout or backlog cost ($/unit/period)
 Constraints: limits on overtime, layoffs, capital available

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 Outputs of Aggregate Plan
 Production quantity from regular time, overtime, and
subcontracted time: used to determine number of
workers and supplier purchase levels
 Inventory held: used to determine how much warehouse
space and working capital is needed
 Backlog/stockout quantity: used to determine what
customer service levels will be
 Machine capacity increase/decrease: used to determine
if new production equipment needs to be purchased
 A poor aggregate plan can result in lost sales, lost
profits, excess inventory, or excess capacity

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Managing Predictable Variability
with Supply
Manage capacity
• Time flexibility from workforce (OT and
otherwise)
• Seasonal workforce, agriculture workers
• Subcontracting

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