Supply Chain Management

Supply Chain Management

 Supply Chain: The sequence
of organization’s facilities,
functions, and activities that
are involved in producing and
delivering a product or
service.
 Need for Supply Chain
Supply Chain Management

Management
1. Improve operations
2. Increasing levels of outsourcing

3. Increasing transportation costs

4. Competitive pressures

5. Increasing globalization

6. Increasing importance of e-
commerce
7. Complexity of supply chains

8. Manage inventories
 Benefits of Supply Chain
Supply Chain Management

Management
 Lower inventories
 Higher productivity

 Greater agility

 Shorter lead times

 Higher profits

 Greater customer loyalty

 Elements of Supply Chain
Supply Chain Management

Management
Element Typical Issues
Customers Determining what customers want
Forecasting Predicting quantity and timing of demand
Design Incorporating customer wants, mfg., and time
Processing Controlling quality, scheduling work
Inventory Meeting demand while managing inventory costs
Purchasing Evaluating suppliers and supporting operations
Suppliers Monitoring supplier quality, delivery, and relations
Location Determining location of facilities
Logistics Deciding how to best move and store materials
Supply Chain Management

Logistics
 The goal of logistic work is to manage the
completion of project life cycles, supply chains
and resultant efficiencies.
 Logistics is the art and science of managing and
controlling the flow of goods, energy,
information and other resources like products,
services, and people, from the source of
production to the marketplace.
 Refers to the movement of materials and
information within a facility and to incoming and
outgoing shipments of goods and materials in a
supply chain.
 Supply Chain Management

Logistics
 Logistics is the time related positioning of
resources."
 As such, logistics is commonly seen as a
branch of engineering which creates "people
systems" rather than "machine systems
 It involves the integration of information,
transportation, inventory, warehousing,
material handling, and packaging.
Supply Chain Management

Logistics
• Movement within the facility
• Bar coding
• Incoming and outgoing shipments
• EDI (Electronic Data Interchange)
• Distribution
• JIT Deliveries
 Logistics: Evaluating Shipping
Supply Chain Management

Alternatives
• A situation that arises frequently in some
businesses in making a choice between
quicker( expensive) shipping alternatives
such as overnight or 2 day air and slower
but cheaper alternatives.
• The decision in such cases often focuses
on the cost savings of alternatives versus
the increased holding cost that result from
using slower alternative.
 Logistics: Evaluating Shipping
Supply Chain Management

Alternatives
• Often the supplier gets paid on delivery of
the product through EDI the very same time
the order reaches its destination.
• The Incremental Holding cost incurred by using
the slower alternative is computed as follows:
• Incremental Holding Cost= H ( d/365)
• Where H=Annual Holding cost for the item.
• d = Time savings in days and d/365 is fraction of
year saved.
 Supply Chain Management

Logistics Example
• Determine the shipping alternative ( with in
Pakistan) for a Karachi based Montessori toy
manufacturer,2 days or 5 days are best when
the holding cost of the item is Rs. 100,000
per year and the 2 day shipping cost is Rs
1500. and 5 day shipping cost is
• Rs. 600
• Rs. 500
 Supply Chain Management

Logistics Example
• Solution
• H= Rs. 100,000 per year
• Time savings = 3 using 2 days alternative
• Holding cost for additional 3 days
= 100,000 X ( 3/365)
= Rs. 822.
Or Holding cost per day = Rs. 274
 Supply Chain Management

Logistics Example
• Alternative A
• Cost savings = Rs. ( 822-600)= Rs. 222,
because the actual cost of savings of Rs 222
is less than the holding cost of Rs. 274, use
the 1 day option.
• Cost savings = Rs. ( 822-500)= Rs. 322,
because the actual cost of savings of Rs 322
is greater than the holding cost of Rs. 274,
use the 5 day option.
 Distribution Requirements
Supply Chain Management

Planning
 Distribution requirements
planning (DRP) is a system for
inventory management and
distribution planning.
 Extends the concepts of MRPII.
Supply Chain Management

Uses of DRP
 Management uses DRP to plan
and coordinate:
• Transportation
• Warehousing
• Workers
• Equipment
• Financial flows
Supply Chain Management

Electronic Data Interchange

 EDI – the direct transmission of
inter-organizational transactions,
computer-to-computer, including
purchase orders, shipping notices,
and debit or credit memos.
Supply Chain Management

Electronic Data Interchange

 Increased productivity
 Reduction of paperwork

 Lead time and inventory reduction

 Facilitation of just-in-time systems

 Electronic transfer of funds

 Improved control of operations

 Reduction in clerical labor

 Increased accuracy
Supply Chain Management

Efficient Consumer Response

 Efficient consumer response
(ECR) is a supply chain
management initiative specific to
the food industry.
• Reflects companies’ efforts to
achieve quick response using EDI
and bar codes.
Supply Chain Management

E-Commerce
 E-Commerce: the use of electronic
technology to facilitate business
transactions.
Supply Chain Management

Successful Supply Chain

 Trust among trading partners
 Effective communications
 Supply chain visibility
 Event-management capability
• The ability to detect and respond to
unplanned events
 Performance metrics