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- K C Manjunath
SCM by KCM
What is an Industry ?
SCM by KCM
Types of Industry ?
SCM by KCM
Sectors in Industry ?
SCM by KCM
SCM by KCM
An overview of Industry
SCM by KCM
An overview of Industry
Transportation
Factory
Warehousing
Transportation
Customers
Information
flows
Transportation
Vendors/plants/ports
Warehousing
Transportation
SCM by KCM
Economy
Down ward trend since last 3-5 years
Expected same trend to continue till 2015
Infrastructure projects Held up / delayed
due to high cost of financing
Consumer spending reduced due to higher
interest rates
SCM by KCM
Market
Limited / Reduced number of Business
Opportunities
Stiff competition
Customer is demanding low cost , faster
SCM by KCM
Strategic Integration
Customer Expectation
Business Needs
Manufacturing Strategy
Supplier Relationship
Management
Sourcing Strategy
Financial Alignment
SCM by KCM
SCM by KCM
SCM
Overview of SCM
What is SCM?
Goal of SCM
Problems of SCM
Challenges and Objectives of SCM
Benefits of SCM
SCM Strategy
SCM Drivers
SCM by KCM
SCM by KCM
SCM by KCM
SCM by KCM
SCM by KCM
SCM by KCM
Supplier's
supplier
Supplier
Buyer
Customer
Customers
Customer
Value acquisition
from suppliers
Value added
Value delivered to customers
in production
SCM by KCM
SCM by KCM
Transfer
Transfer
Supplier
Manufacturing
Transfer
Distribution
Transfer
Retail Outlet
Consumer
CASH FLOW
Supply Chain Optimization
What is SCM ?
SCM is a set of approaches,
Efficiently integrate suppliers,
manufacturers, warehouses and
Customers,
Product is produced and distributed at
the right quantities, to the right
locations, and at the right time,
Minimize system wide costs while
satisfying customer service level
requirements
SCM by KCM
SCM by KCM
Definition of SCM ?
Design of a system for operating &
monitoring
Flow of
material,services,finances,and
information From Earliest supplier
to the Ultimate customer through
out the supply chain in an effective
and efficient manner.
SCM by KCM
SCM by KCM
Goal of SCM ?
Goal of Business is to make money
Goal of SCM is to increase the cash flow
speed by synchronizing business
processes based on constraints
Indexes of the management are neither
cost nor efficiency, which are traditional
accounting concepts, but throughput (item
flow), inventory, and expense aiming for
total optimization.
Supply chain management is a concept
that challenges the conventional
management
SCM by KCM
Importance of SCM
Significant costs
Lengthening supply and distribution
lines
Competitive edge
Added customer value
Increasing demand of customers like
quick and customized response
SCM by KCM
July 2014
SCM by KCM
SCM by KCM
July 2014
SCM by KCM
Subassembly
Supplier
Raw
Material
Supplier
Assembly
Plant
Component
Supplier
Delighted
Customer
Dealer
SCM by KCM
SCM by KCM
July 2014
SCM by KCM
July 2014
SCM by KCM
SCM by KCM
July 2014
SCM by KCM
Supplier Relationship
Management Strategy
Supply Chain
Strategy
Customer Relationship
Management Strategy
July 2014
Superior Business
Performance
Results in
SCM by KCM
July 2014
SCM by KCM
July 2014
SCM by KCM
July 2014
SCM by KCM
July 2014
SCM by KCM
Strategy 5 Sustainability
Companies striving for social and environmental sustainability achieve
major competitive advantages, especially regard to production efficiency,
supplier management skills, and attractiveness to employees. Substantial
opportunities exist for sustainability in supply chain
Companies need to include sustainability as core component of their
supply chain strategy. This means incorporating it as a key requirement
across all supply chain processes.
Professionals initially should focus on the basics to achieve quick wins
through real-time visibility to energy and resource consumption and
resource or material movement. This enables reduction of carbon
inefficiencies, minimized energy consumption, less waste with "recyclereuse-refurbish"
Businesses can keep the momentum by ensuring continuous
improvement through systemic measurement, audit, and knowledge
management. Compliance audits, best practices, and benchmarks
provide a governing framework for sustainable supply chain operations
July 2014
SCM by KCM
SCM by KCM
SCM by KCM
July 2014
SCM by KCM
July 2014
July 2014
SCM by KCM
July 2014
SCM by KCM
July 2014
SCM by KCM
Supply Chain
Objectives
Business
Strategy
Supply Chain
Strategy
Supply Chain
Processes
Importance to Top
Management
Focus of Top
Management
July 2014
SCM by KCM
Management
Processes
Sourcin
g
Strategy
Demand
Flow
Strategy
Product
/
Custom
er
Service
Strategy
July 2014
SCM by KCM
Sourcin
g
Strategy
Make or buy
Capacity
Management
Which products /
components should be
manufactured and which
should be purchased ?
SCM by KCM
Demand Planning
Demand
Flow
Strategy
Channel Design
Supply Chain
Configuration
SCM by KCM
Revenue
Management
Product
/
Custom
er
Service
Strategy
Customer Service
Segmentation
Cost-to-serve
What levels of
service does each
customer segment
expect ?
SCM by KCM
July 2014
SCM by KCM
Responsiveness
Supply Chain
Structure
Inventor
y
Transportatio
n
Facilities
Drivers
July 2014
SCM by KCM
Informatio
n
Inventory
Transportation
Facilities
Information
July 2014
SCM by KCM
Cross functional
1. Information
2. Sourcing
3. Pricing
July 2014
SCM by KCM
July 2014
SCM by KCM
July 2014
SCM by KCM
July 2014
SCM by KCM
Inventory
WHAT -Raw materials, work in process, finished
goods, and supplies required for creation of a
company's goods and services. The number of
units and/or value of the stock of goods held by a
company.
WHY- Exists because of mismatch in demand and
supply and to support a firms competitive
strategy.
IMPACT Throughput Time
July 2014
SCM by KCM
Inventory
Why hold inventory?
Unexpected changes in customer demand (always
hard to predict, and uncertainty is growing)
Short product life cycles
Product proliferation
Uncertain supply
Quantity
Quality
Costs
Delivery time
What if there was no uncertainty in supply or
demandwould it still be necessary to hold
inventory?
July 2014
SCM by KCM
Inventory
Role in the supply chain
Role in the competitive
strategy
Components of inventory
decisions
July 2014
SCM by KCM
If responsiveness is a strategic
competitive priority locate larger
amount of inventory closer to
customers.
If cost is more important , inventory
can be reduced to gain efficiency .
July 2014
SCM by KCM
Inventorys Impact
Inventory can increase amount of demand that can be
met by increasing product availability.
Inventory can reduce costs by exploiting economies of
scale in production, transportation, and purchasing.
Inventory can be used to support a firms competitive
strategy. More inventory increases responsiveness, less
inventory increases efficiency (reduces cost).
Inventory can significantly affect material flow/cycle/
throughput time.
Littles law: Inventory = flow time x throughput rate.
In other words: If you move your inventory faster, you
dont need as much inventory (inventory velocity)
July 2014
SCM by KCM
Safety inventory
inventory held in case demand exceeds expectations
costs of carrying too much inventory versus cost of losing sales
Seasonal inventory
inventory built up to counter predictable variability in demand
cost of carrying additional inventory versus cost of flexible production
Pipeline Inventory
Work-in process of transit
Inventory held to do business
Drivers
Demand Variation/ forecast
accuracy/demand planning
Supply Planning Demand & Supply
synchronization
Service levels
capacity
Lot sizes/order sizes
Lead times
Speculation
Customer service level segmentation
Network Design
Data Accuracy
SCM by KCM
SCM by KCM
Transportation
Transportation moves the product
between different locations in a
supply chain
Transportation is prominent in a
company's competitive strategy
Faster transportation makes supply
chain more responsive
SCM by KCM
Transportation
Role in the supply chain
Role in the competitive strategy
Components of transportation
decisions
SCM by KCM
If responsiveness is a strategic
competitive priority, then faster
transportation modes can provide
greater responsiveness to customers
who are willing to pay for it
Can also use slower transportation
modes for customers whose priority is
price (cost)
Can also consider both inventory and
transportation to find the right balance
SCM by KCM
Transportation Decisions
Mode of transportation:
air, truck, rail, ship, pipeline, electronic transportation
vary in cost, speed, size of shipment, flexibility
In-house or outsource
Overall trade-off: Responsiveness versus efficiency
SCM by KCM
SCM by KCM
Metrics
Average inbound transportation cost: cost of
bringing product into a facility as percentage of
sales or cost of goods sold.
Average incoming shipment size: average number
of units or dollars in each incoming shipment at a
facility.
Average inbound transportation cost per shipment:
average transportation cost of each incoming
delivery.
Average outbound transportation cost: average
number of units or dollars in each outbound
shipment at a facility.
SCM by KCM
SCM by KCM
Facilities
Role in the supply chain
the where of the supply chain
manufacturing or storage (warehouses)
SCM by KCM
Characteristics of locations
Capacity- Excess capacity or little
excess capacity
Operations methodology- Product focus
SCM by KCM
SCM by KCM
SCM by KCM
Information
It consists of data and analysis
concerning facilities, inventory and
transportation.
It is the biggest driver of performance.
Presents management with the
opportunity to make supply chain more
responsive and efficient.
SCM by KCM
Information
Role in the supply chain
Role in the competitive strategy
Components of information decisions
SCM by KCM
Information: Role in
the Supply Chain
The connection between the various stages in the
supply chain allows coordination between stages
Crucial to daily operation of each stage in a supply
chain e.g., production scheduling, inventory levels
An information system can enable a firm to get a high
variety of customized products to customers rapidly
An information system can enable a firm to
understand changing consumer needs more quickly
SCM by KCM
Information:
Role in the Competitive Strategy
Allows supply chain to become more
efficient and more responsive at the
same time (reduces the need for a
trade-off)
Information technology
What information is most valuable?
SCM by KCM
Components of Information
Decisions
Push (MRP) versus pull (demand information transmitted
quickly throughout the supply chain)
Coordination and information sharing
Forecasting and aggregate planning
Enabling technologies
EDI
Internet
ERP systems
Supply Chain Management software
Overall trade-off: Responsiveness versus efficiency
SCM by KCM
varaibility
SCM by KCM
Impact on E-commerce
Cost Efficiency
Changes in the distribution system
Customer orientation
Shipment Tracking
Shipping Notice
Shipping Documentation and labeling
Online Shipping inquiry
SCM by KCM
Sourcing
Role in the supply chain
Role in the competitive strategy
Components of sourcing decisions
SCM by KCM
Pricing
Role in the supply chain
Role in the competitive strategy
Components of pricing decisions
SCM by KCM
SCM by KCM
SCM by KCM
SCM by KCM
SCM by KCM
SCM by KCM
July 2014
SCM by KCM
Key Factors
Pricing
Logistics
Inventory
Transportation
Facilities
July 2014
SCM by KCM
Pricing
Walmart practices every day low
pricing (EDLP) for its products.
Customer demand stays steady and
does not fluctuate with price
variations.
July 2014
SCM by KCM
Inventory
Walmart set up its own satellite
communication system in 1983.
Allows the management to monitor each and
every activity at any point of day.
Allows stores to manage their own stock.
The order management and store
replenishment of goods are entirely executed
with the help of computers through the
Point-of-Sales (POS) system.
July 2014
SCM by KCM
Transportation
Involves fast and responsive
transportation system.
More than 7000 company owned
trucks services the distribution
centers.
Shipping of goods to stores within 2
days.
Use idea of Back-Hauling
July 2014
SCM by KCM
Facilities
There are 140 Walmart distribution centres within
US.
Walmarts distribution centers by Facility type:
Regional General Merchandise Distribution
Centers.
Import/Redistribution Centers
Fashion Distribution Centers
Full line Grocery and perishables Food Distribution
Centers
Speciality Distribution Centers
July 2014
SCM by KCM
Cross Docking
Finished goods are directly picked up
from the manufacturing site of
supplier, sorted out and directly
supplied to the customers.
Reduces handling and storage of
finished goods
System shifted from supply chain to
demand chain
July 2014
SCM by KCM
Information
Use of bar codes and RFID to label different
products, shelves and bins in the center.
Use of handheld computer (Magic Wand)
Use of computers to track movement of goods
and stock levels.
Order management and store replenishment of
goods is entirely executed with the help of
computers through Point of Sale (POS) system.
Use of centralized Inventory database
July 2014
SCM by KCM
July 2014
SCM by KCM
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SCM by KCM
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SCM by KCM
July 2014
SCM by KCM
SCM by KCM
Conclusion
Lower product costs
Reduced inventory carrying costs
Improved in-store variety and
selection
Highly competitive pricing for the
consumer
July 2014
SCM by KCM
July 2014
SCM by KCM
July 2014
SCM by KCM
SCM by KCM
July 2014
SCM by KCM
SCM by KCM
July 2014
SCM by KCM
July 2014
SCM by KCM
SCM by KCM
SCM by KCM
Responsiveness Spectrum
Highly
efficient
Integrated
steel mill
July 2014
Somewhat
efficient
Hanes
apparel
Somewhat
responsive
Most
automotive
production
SCM by KCM
Highly
responsive
Dell
of it
e
F
n
Zo egic
t
ra
t
S
Responsiveness
spectrum
Efficient
supply chain
Certain
demand
July 2014
Implied
uncertainty
spectrum
SCM by KCM
Uncertain
demand
SCM by KCM
Responsive
Primary goal
Lowest cost
Quick response
Modularity to allow
postponement
Pricing strategy
Lower margins
Higher margins
Mfg strategy
High utilization
Capacity flexibility
Inventory strategy
Minimize inventory
Buffer inventory
Transportation strategy
Greater reliance on
responsive (fast) modes
July 2014
SCM by KCM
July 2014
SCM by KCM
July 2014
SCM by KCM
SCM by KCM
July 2014
SCM by KCM
SCM by KCM
SCM by KCM
Retailer
Customer
Competitive
Strategy
Product
Development
Strategy
Supply Chain
Strategy
Marketing
Strategy
July 2014
Intercompany
Interfunctional
Intracompany
Interfunctional
at Distributor
SCM by KCM
Intracompany
Intrafunctional
at Distributor
Intracompany
Intraoperation
at Distributor
Sourcing Strategy
Supply
Manufacturer
Distributor
Store
Consumer
Convertsion
Delivery
Customers
End User
Cost
Quality
Delivery
Buyer Time Analysis
Multiple
Supplier
s
Multiple
Factorie
s
Multiple
Routes
to
Market
Vendor Analysis
8%
Manufacturing
(Capacity)
C
U
S
T
O
M
E
R
Optimize to
Mfg objectives
Optimize to
Logistics obj
Optimize to
Sales & Mktg obj
Strategic Sourcing
To minimize supply risk & reduce unit cost
Decide procurement strategy based on
Spend Analysis
Item Classification
Supply market Analysis
Cost behavior
Supply Chain
Determine Business
Requirements and
identify focus areas
Conduct Market
Analysis- Supply
and Pricing
Develop
Item-category
Strategy
Select
Supplier &
Negotiate
Plan
Transition
Spend Analysis
Evaluate each items on 2 parameters:
Supply Risk/ Complexities and Business Impact
The result of spend analysis is Procurement Portfolio
Matrix.
Bottleneck Item
High
Supply risk /
complexity
Low value
with high
exposure
Routine Items
Strategic Items
High cost
with high
exposure
Leverage Items
Low value
and low
exposure
High cost
with low
exposure
Low
Low
Business Impact
High
High
Focu
s
Cost Reduction
Purchasing
Unit Price
Items for Reducing Effort of
Procurement Activity
Low
Low
Purchasing Frequency
High
Process
Simplification
Low
(3) Supply
Market Analysis
Focus
Collabora
te
Suppli
er
Market
Equilibrium
Buyer
Market
Start-up
Development
Mature
Material Lifecycle
Phase-out
Leverage
Competitio
n
High
Low
Low
Increase attractiveness of
account
Aggregate to provide as much
leverage as possible
Increase supplier base to
minimize risk
Non Critical suppliers
Use of e-bidding/ Reverse
auctions
Low cost of acquisitions
Volume leverage
Strategic suppliers
Close relationships
Information sharing
Joint development
Price and cost analysis
Leverage suppliers
Vendor managed inventory
Usage driven
replenishment
Pay as per use
Reverse auctions
High
Strategic Sourcing
Pricing Factor Analysis
Pricing factor analysis aims to bring in the price
behavior of an item in the overall strategy
(4) Pricing
Factors Analysis
formulation
Price volatility determines the kind of focus required for different group of items
Focu
s
High
Items with
volatile price
Price
Volatility
Low
175
Low
Items with
Stable
Price
Reduce Risk
Items with
potential
price
change
Import dependence
Contracts/
Relationships
High
High
Bottleneck, Strategic
High
Concentration of
Procurement Activity
High
Control
on
pricing
and
Routine, Leverage
Reduce Effort ofsupplies
Procurement Activity Low
Low
Low
Low Business ImpactHigh
Low
Frequency How Start-up Dev.
Supply Risk/
Importance
Bottleneck
Strategic
Routine
Leverage
Unit
Price
Items for
procurement
effort
concentration
Items to
reduce
procurement
effort
High
Suppliers
Market
Eq
ui
lib
ri
um
(1) Spend
Analysis
Items with
volatile price
Price
Volatility
Items with
Items with
potential
Buyers
Stable
price
Market
Price
change
Low
Mature PhaseLow Percentage of High
out
Imported matl
Items in
Suppliers
market
Items with
volatile price
Items in
Equilibrium
market
Items with
potential price
change
Items in Buyers
market
Items with
stable price
Sourcing
Role in the supply chain
Role in the competitive strategy
Components of sourcing decisions
177
Sourcing: Role in
the Supply Chain
Set of business processes required to
purchase goods and services in a
supply chain
Supplier selection, single vs. multiple
suppliers, contract negotiation
178
Sourcing:
Role in the Competitive Strategy
Sourcing decisions are crucial
because they affect the level of
efficiency and responsiveness in a
supply chain
In-house vs. outsource decisionsimproving efficiency and
179
Sourcing:
Role in the Competitive Strategy
Firms can utilize optimal pricing
strategies to improve efficiency and
responsiveness
Low price and low product
availability; vary prices by response
180
181
CRM
Market
Sell
Call Center
Order Management
183
ISCM
Strategic Planning
Demand Planning
Supply Planning
Fulfillment
184
SRM
Source
Negotiate
Buy
Design Collaboration
Supply Collaboration
185
Procurement
SCM Procurement
Traditional
Tactical
Strategic
Negotiation
Group Buying
ARC
Suppliers
Procurement
Production
Distribution
Customers
Procurement Environment
Requirements
Purchase Order
Vendor
invoice
8. Payment
1. determination
2.
Source
determination
RUHR
TRUCKING
7. Invoice verification
3. Vendor selection
inventory management
5. Order follow-up
4.
Order Processing
Traditional
Strategic
Tactical
Tactical Emphasis
Acquisition Cost Focus
Staff Function
Cost Center
Reactive
Progressive
Strategic
Tactical
Strategic Emphasis
Total Cost Focus
Profitability Center
Proactive
AA5%
5%
reduction
reductionin
in
purchase
purchasecost
cost
can
canresult
resultin
inaa
50%
50%increase
increase
in
inprofit
profit
margin
margin
In
Inorder
orderto
to
obtain
obtainan
an
equivalent
equivalent
impact,
impact,aa
company
company
would
wouldhave
haveto
to
100
100
Profit
7.5
Other
Costs
45
External
Expenditures
50
0%
45
47.5
CUSTOMER
REPLENISHMENT CYCLE
DEALER / RETAILER
PROCUREMENT CYCLE:
SUPPLIERS
DISTRIBUTOR /
WHOLESALER
MANUFACTURER
RESPONSIVE
SUPPLY CHAIN
Primary goal
Quick response to
demand
Product design
Maximum performance
at minimum cost
Pricing
Manufacturing
RESPONSIVE
SUPPLY CHAIN
Inventory
Minimized
Lead time
Reduce aggressively
even with some cost
increases
Suppliers
OUTSOURCING
Outsourcing is the process of moving
an aspect of production, service, or
other business function from within an
organization to an outside supplier.
By outsourcing non-strategic
processes an organization can focus its
attention on its primary business[core]
and maximize customer satisfaction.
TYPES OF OUTSOURCING
BENEFITS OF OUTSOURCING
Frequently cited benefits include:
Reduce operating expenses
Focus on the core business
Create a variable cost structure
Improve skills due to business focus
Concentrate on increasing revenue
Conserve or more effectively utilize capital
Increase innovation
Improve quality
OUTSOURCING RISKS
Outsourcing the wrong [core or strategic]
functions may interfere with the operation
of an entity and may cause a long-term
loss of competitive position.
Outsourcing risks
Strategic risk is long-term risk
Tactical risk is short-term risk
OUTSOURCING RISKS
STRATEGIC RISK result
OUTSOURCING BY TYPE:
CONTRACT MANUFACTURING
Contract manufacturing uses one or
more selected suppliers to provide a
product and/or service for the
customers specific needs.
It involves
a contract,
extensive coordination,
specifications [product, packaging, and
quality], and
possibly new product development activities.
OUTSOURCING BY TYPE:
3PL EXAMPLES
Transportation Tracking, tracing, dispatch, freight
payment, contract management
Warehousing
Other 3PL
services
MANUFACTURING PROCESSES:
BATCH
The equipment can make a variety of
products in a class based on its capability.
An optimal batch size is determined.
Products are run in a sequence to optimize
the process [as much as possible].
Capacity can generally be added in a
reasonable time frame.
MANUFACTURING PROCESSES:
FLOW
MANUFACTURING PROCESSES:
LEAN PRODUCTION
Lean production is aimed at the elimination of
waste in every area of production including
customer relations, product design, supplier
networks and factory management. Its goal is to
incorporate less human effort, less inventory,
less time to develop products, and less space to
become highly responsive to customer demand
while producing top quality products in the most
efficient and economical manner possible.
MANUFACTURING PROCESSES:
LEAN PRODUCTION PRINCIPLES
Managerial Responsibility
Managers must be teachers, team
facilitators, and motivators.
Process Development
Line workers are trained to
Improve processes, and
Solve problems
Network Orientation
Lean should be practiced by
MANUFACTURING PROCESSES:
LEAN PRODUCTION PRINCIPLES
Synchronization
Coordination of material movement is
accomplished
Developed by Toyota Corporation to
signal when parts needed to be
withdrawn from inventory or a feeding
operation [like a supply bin] and leave
a visible record of its withdrawal.
Continuous Improvement
Continuous improvement comes through
productivity gains and innovation
JIT
Kanban/
Two bin
Flow
Quality
assurance
Visual
Control
Maintenance
Smoothened
Production
5S
SMED
Operating
stds.
Multi skills
Poka Yoke
5S
Seiri
Seiton :Orderliness
:
Proper arrangement
Sort, Identify what is necessary and discard what is
unnecessary
Everything should have a place and everything in its
place
Seiso
Seiketsu
Shitsuke :Discipline
:Cleanliness
Keep the workplace spotless
:Cleanup
Maintain equipment and tools
Point No. 08
Resp: RV
Poor / Fair
Point No. 08
Resp: RV
Poor / Fair
Point No. 20
Resp:MN
Poor / Fair
Point No. 20
Resp:MN
Poor / Fair
Storage of files
What is JIT ?
Man
Machine
Material
Method
Right Product
Just
Right quality
In
Time Right Time
Just-In-Time is.
A Manufacturing system which produces :
What the customer wants
In the quantity the customer wants
When the customer wants
While using the minimum of
Raw Materials
Equipment
Labour
Space
There is a focus on Waste Elimination and Lead time reduction
this would be the criteria for measuring the results of JIT efforts
1.
1. Think of how the new method will work; not how it wont
1. Dont accept excuses. Totally deny the status quo.
1. Dont seek perfection; A 50% implementation rate is
fine as long as
it is implemented o the spot
1. Correct mistakes the moment they are found
1. Dont spend more money on innovations
1. Problems give you a chance to use your brain
1. Ask Why five times
2. Ten persons ideas are better than one persons
Kanban
1.
2.
3.
4.
Containerization
Cost saving
Rs.11 lakhs/annum
Containerization
Rs.28 lakhs/annum
INNOVATION CYCLE
ACT
PLAN
CHECK
DO
IMPROVEMENT
CYCLE
KAIZEN
INNOVATION CYCLE
KAIKAKU
CHEC
K
IMAG
E
VISION /
PICTURE /
DREAM
(Continuos improvement)
KAIKAKU
(Innovation)
Small change
Big change
making better
Revolution
FSN Analysis
F Fast moving
S Slow moving
N Non moving
F Continuous usage weekly / monthly
S Transactions 6 months 24 months
N No transactions > 24 months
Application varies from Industry to Industry
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Inventory Management
For bottleneck items as the
spend is low but the market
risk is quite high, a high
service level (99.9%) will
reduce the risk of running
out of stock.
Strategic items can be
maintained with medium
service level in spite of a
high market risk(95%) as
these are very closely
monitored.
For leverage items as the
market risk is low, low
service levels can be
defined for calculating the
safety stock norms
For routine items, min-max
levels are to be defined
which is discussed later in
the section
High
Bottleneck Item
Supply risk /
complexity
Safety Factor :
Routine Items
Min-Max Level
Strategic Items
Leverage Items
Low
Low
Business Impact
High
Inventory
Inventory
256
of manufacturing operations
Push & Pull are opposite in terms of
SCM by KCM
Results:
Higher transportation costs
Higher inventory levels and/or higher
manufacturing costs
more emergency production changeovers
July 2014
SCM by KCM
A traditional push
system
Build to order
Forecast demand
Buys components
Observes demand
Assembles
computers
Meets demand
A push-pull
system
July 2014
SCM by KCM
July 2014
SCM by KCM
Push
Pull
Objective
Minimize cost
Complexity
High
Low
Focus
Resource allocation
Responsiveness
Lead time
Long
Short
Processes
Order fulfillment
Push-Pull Strategy
Some stages of the supply chain
operated in a push-based manner
typically the initial stages
Suppliers
PULL STRATEGY
PUSH STRATEGY
Customers
High Uncertainty
Short lead times
Low Uncertainty
Long lead times
Push-Pull Boundary
271
272
Economies of scale:
The higher the importance of economies of scale
in reducing cost
The greater the value of aggregating demand
The greater the importance of managing the supply
chain based on long-term forecast, a push-based
strategy.
Box B
Box C
Box D
278
Customers
Push
Pull
Low Uncertainty
High Uncertainty
Cost Minimization
Service Level
Resource Allocation
Responsiveness
279
https://www.youtube.com/watch?v=HKLpHNK-vS0
https://www.youtube.com/watch?v=_aeAtSiRpF0
https://www.youtube.com/watch?v=ZIv2e61SH1A
https://www.youtube.com/watch?v=rkpadFfyCqo
Who is affected?
Nearly all industries are affected!
Firms that experience large
variations in demand are at risk.
Firms that depend on suppliers
upstream or distributors and retailers
downstream may be at risk.
Excess inventories
Problems with quality
Increased raw material costs
Overtime expenses
Increased shipping costs
https://www.youtube.com/watch?v=Aqi5-KzQZWc
https://www.youtube.com/watch?v=lUCeHBk37kMhttps://
www.youtube.com/watch?v=2nlmkTYZG5s
Highlights
Drivers for Change
Buyer / Chief Purchasing Officer - Challenge
Supplier Base Optimisation
Strategic Sourcing Process
Supplier Financial Analysis
Risk Management
Supplier Evaluation (Performance Audits)
315
Today
Re-focus on process capabilities
Organisations are / need changing
Supply Market and Sourcing Strategies are
changing
Warehousing & Transportation are getting
sophisticated
Increased use of technology and suppliers
capabilities - to obtain visibility of the supply
chain
317
Do you know
80 / 20 - Rule
Analysis to identify, 20% of suppliers
receiving the majority of purchase
dollars
Identify the minority of suppliers
causing the majority of problems
80/20 rule assumes the best
suppliers receive the majority of
321
purchase dollars
Supplier integration
Collaborative agreements
Supplier development
Joint total quality/cost reduction efforts
Optimisation - Benefits
Reduced supply base risk
Lower transactions costs
Leverage leading to lower purchase costs
Ability to pursue value-added activities
Opportunity to work with world-class
suppliers, which leads to improved value
chain performance
323
Evolution of Sourcing
Paradigm
Tradition Strategic
al
Sourcing
Purchasi
Transaction
Project
ng
Supplier
Focus
Price,
Transaction
management,
Compliance
Reach
Local;
Many suppliers
Technology Spreadsheets
People
Decentralised
Buyers
Global Supply
Management
Enablement
rationalisation,
Spend consolidation,
Cycle-time reduction,
Standardisation
Multi-regional,
Some collaboration
with related functions
Auctions, eSourcing,
Basic optimisation
Technology enablement
across all strategic sourcing
processes
Commodity Teams,
Center-led or
centralised
Cross-functional teams
Global
326
Supplier
Supplier
Management
Management
Analyse
Identify
Analyse
Spend Requirements Market
Strategic
Sourcing
Supplier
Supplier
Development
Development
Develop
Manage
Award &
Strategy Negotiations Contract
Traditional
Procurement
327
Implement
Strategy
Analyse Spend
Buyer
Buying analysis across all divisions
Total number of suppliers used
Compare pricing across divisions
Consolidate spend, reduce suppliers and
obtain better pricing
Tools
Spend Analysis
328
Identify Requirements
Buyer
Users - product and service requirements
Quality requirements
Product specifications
Service performance expectations
Tools
Specifications
Surveys
Interviews
329
Analyse Market
Buyer
Tools
Internet research
Benchmarking
330
Develop Strategy
Buyer
Based on the internal requirements, industry
dynamics
Negotiate with current supplier(s)
Bring in new suppliers
Bid
Reverse Auction
Traditional RFI, RFP, RFQ
Tools
eSourcing tools
Cross functional teams
Project Management
331
Manage Negotiation
Buyer
Develop criteria for evaluating proposals based on internal
requirements
Tools
Online RFX
Weights / Scoring Models
Standard templates
Reverse Auction
332
Award Contract
Buyer
Based on results, determine best overall
supplier(s)
Cross-functional team decision
Tools
Automated weights / scoring
Online contract management
Cross functional teams
333
Implementation Strategy
Buyer
Determine how contract will be rolled out
Change management strategy
Ratio Analysis
Profitability
Liquidity
337
Activity
How effectively is the supplier managing
assets?
Inventory turnover
Average collection period
Return on net assets
338
Contract Management
Termination (Escape) clauses
Service Level Agreement (SLAs)
Clear communicated specifications
Key Performance Indicators (KPIs)
Feedback and review on a regular basis
Liquidated damages for poor performance
339
SCOR MODEL
The SCOR [Supply-Chain Operations
Reference-model] by the SupplyChain Council provides a supply
chain process framework of
plan source make deliver return
These elements are the key to SCOR
success.
SCOR SPANS
All customer interactions
From order entry through final payment
COST
Agenda
What is (supply chain) risk?
What are typical supply chain risks?
How to manage supply chain risks?
359
of
occurrence
Risk Exposure
361
362
363
SUPPLY
RISK
PROCESS
RISK
DEMAND
RISK
NETWORK/
CONTROL
RISK
Environmental Risk
364
Supply Risk
Dependency only on key suppliers
Quality and management issues
arising from outsourcing
Variability in lead-times
Poor quality of RM supplied
Delays in transportation
365
Process Risk
Manufacturing yield variability
Lengthy set-up times and inflexible
processes
Equipment reliability
Capacity shortage/bottlenecks
Outsourcing key business processes
Power failure
Breakdown of machines
Absenteeism during festive season,
Problems in IT systems
Warehouse problems
366
Demand Risk
Loss of major customers
Volatility of demand
Concentration of customer base
Short life cycles
Innovative competitors
Inaccurate forecasts
367
Network/Control Risk
Inefficient communication
Poor visibility along the pipeline
Inappropriate rules that distort demand
Lack of collaborative planning and forecasts
Bullwhip effects due to multiple reasons
Security Risks - theft, data loss, counterfeiting,
terrorism, piracy
368
Environmental Risk
MacroRisks
Economic shifts, recession, exchange rates, custom, natural
disasters, labor unrest
PolicyRisks
Actions and sanctions of governments, shifts in legislation
CompetitionRisks
Uncertainty about competitors moves and actions
ResourceRisks
Lack of human resources, capital or technology
No disaster management focus
369
370
371
372
373
No Stock
Available
Materials
Supply Problem
Lead-Time
Too Short
Failure to
Achieve Plan
Inflexible
Systems
Forecasting
Problems
Capacity
Constraint
Failure to
Deliver on
Time
Inadequate
Communications
Poor
Scheduling
Inadequate
Supplier
Management
Carrier
Performance
Poor Process
Control
374
Quality
Problems
Why Analysis
1. Q.
A.
2. Q.
A.
3. Q.
A.
4. Q.
A.
5. Q.
A.
Repeating why five times like this can help uncover the root problem and
correct it. If this procedure were not carried through, one might simply
replace the fuse or the pump shaft. In that case the problem would
reoccur in a few months.
Taiichi Ohno
Toyota Production System
375
376
1.
2.
3.
4.
5.
O = Likelihood of occurrence
1.
2.
3.
4.
5.
D = Likelihood of detection
1.
2.
3.
4.
5.
377
378
Globalization
Globalization allows us:
To site facilities in safer locations
Tap into educated overseas workforces and set
up production centers closer to sources of raw
material
By opening the door to using vendors and
suppliers from around the world
The number of vendors and suppliers that
companies can tap to fill gaps in their supply
chain.
379
Robust Or Resilient
A robust process can be defined as a process
able to deal with reasonable variability
A resilient supply chain can be defined as a
supply chain with the ability to recover quickly
from unexpected events impacting supply
chain performance
380
Supply Chain
Design
Supply Chain
Understanding
Supply Base
Strategy
1. Supply Chain
(re)engineering
Visibility
The Resilient
Supply Chain
4. Agility
Velocity
Supply Chain
Continuity Teams
3. Supply Chain
Risk Management
Culture
Board level
responsibility &
leadership
Collaborative
Planning
2. Supply Chain
Collaboration
Supply Chain
Intelligence
Consider risk in
decision making
381
A POTENTIAL SOLUTION
SCM ISSUES
SUPPLIER SELECTION
Capability and quality of supplier
Logistic compatibility
Systems compatibility
Setting requirements
Continuous improvement
Extensive corporate access
SCM ISSUES
SUPPLIER CERTIFICATION
involves the process of selecting and
qualifying suppliers through a series of
tests.
It may require
initial interviews and tours,
initial samples,
a detailed facility review
production, systems, processes,
quality, ,
and more.
SCM ISSUES
SUPPLIER LOGISTICS: SYSTEMS
EVENT: The focal firm places 100 office items with
Supplier A and 200 production supply items with
Supplier B. Both suppliers are on two-year
contracts. Requisitions are electronically sent to the
supplier requiring at least once-a-week delivery, and
suppliers are paid every ten days.
MINIMUM SUPPLIER REQUIREMENTS: [1]
local; [2] own their warehouse, [3] own their
transportation, and [4] have compatible IT for
order placement and accounting purposes.
EXPECTED RESULTS: reductions of [1] inventory,
[2] turnaround time, and [3] stock outs .
SCM ISSUES
SUPPLIER LOGISTICS: SYSTEMS
EVENT: A major company requires suppliers that
SCM ISSUES
SUPPLIER INVOLVEMENT
Design
Standardization
Customization
Modularization [interchangeability
minimize the number of parts /
components]
Performance testing [standards,
specifications, and reporting results]
Change management strategies
Flexibility
SCM ISSUES
SUPPLIER INVOLVEMENT
Supplier-managed inventories
Excellent for changing customer
demand when
Customers have trouble forecasting
SCM ISSUES
SUPPLIER INVOLVEMENT
SCM ISSUES
SUPPLIER INVOLVEMENT
Just-in-time [JIT]
Frequent, small and consistent
deliveries
Co-location possible
Dt
D1
D2
D3
Role of IT in SCM
IT Infrastructure for
Supply Chain Integration
Components of EDI
EDI Standard
EDI Software
Communication Medium
Benefits of EDI
The major benefits of EDI in supply chain
integration are:
Improves customer responsiveness
Reduces transaction costs and times
Increases accuracy and productivity
Strengthens supply chain relationships
Increases ability to compete globally
Improves quality of decision to exploit
business opportunities.
Never-ending implementation
Importance of process mapping
Process redesign
Use of consultants
Excessive cost
Resistance to change
Errors during implementation
Rapid technological change
Benefits of ERP
Improving productivity and enhancing a
competitive edge
Bringing about a tradeoff between demand and
supply
Bringing together people who work on shared
tasks
Ensuring a smoother flow of inventory and
information at all levels
Reducing the replenishment cycle time
Overall organizational look-ahead capability and
control.
Carriers &
3PL
Vendors
Advanced
Planning
and
Scheduling
Web-Based
Supply
chain
Agile
Manufacturing
Distribution
Channels
Collaborative
Planning
Forecasting &
Replenishment
Order
Management
Distribution
Warehouse
A Story
Im growing fat. I
need to monitor my
body weight for the
next 6 months.
But ..Oh, my
God! How do I do
it fast and
easily ???
I want to include
exercise in my
daily activities
and follow it up
QC toolsWhat is
that ?
That is Quality
control tool.
( In your case it can
be Quantity Control
tools)
Check Sheet
Pareto Diagram
7 QC Tools
Graphs
Histogram
Scatter Diagram
Stratification
Exercise
Approach
Sad
Afraid
Why the
Child is crying?
Hurt
Pretending
Happy
Approach
Sad
Afraid
Why the
Child is crying?
Hurt
Pretending
Hungry
Scolding by parents
Got injured
Afraid
Not able to
reach sweets
box
Happy
It can be further developed
Not able to
open box
Hit by box
The following are some of the tips for effective Supply Chain
Management:
Practice
Case Study
Globus
Globus Inc.
Inc. is
is a
a new
new
entrant
entrant in
in the
the market
market
of
of Computers
Computers and
and
Laptops.
Laptops. It
It has
has newly
newly
launched
launched its
its LL Series
Series
of
of Desktops
Desktops and
and H
H
Series
Series of
of Laptops.
Laptops.
1.
1. What
What role
role will
will
reverse
reverse logistics
logistics
play
play in
in the
the Supply
Supply
Chain
Chain of
of Globus?
Globus?
2.
2. How
How can
can an
an
effective
effective and
and
efficient
efficient reverse
reverse
logistics
logistics system
system
benefit
benefit Globus?
Globus?
Summary
Functions of a
Warehouse
Management
System
Steps to Improve
Throughput of
Process Chain
Supply Chain
Planning Function
Introduction to
Supply Chain
Management
Supply Chain
Execution Function
Summary
Operations Front
Functions
Cycle Count
Process
Inventory Front
Functions
Functions of a
Warehouse
Management
System
Introduction to
Supply Chain
Management
Reporting
Function
Summary
Network
Design
Demand
Planning
Supply Chain
Planning Function
Introduction to
Supply Chain
Management
Supply
Planning
Logistics
Capacity
Planning
Summary
Introduction to
Supply Chain
Management
Tips for Effective
Supply Chain
Management
View supply
chain as
strategic
asset
Develop end-toend process
architecture
Use metrics to
drive business
successes
Build right
collaborative
model
Design
organization for
performance
ManagementStudyGuide.com. All rights
Summary
Sub-ordinate
everything to
constraint
Exploit the
constraint
Identify the
constraint
Evaluate the
constraint
Find the new
constraint and
repeat the
steps
Steps to Improve
Throughput of
Process Chain
Introduction to
Supply Chain
Management
Summary
Introduction to
Supply Chain
Management
Supply Chain
Execution Function
Supply
Management
Transportatio
n
Management
Return
Logistics
Management
Warehouse
Management
Glossary
Click each alphabet to learn more.
C
G
M
O
W
ManagementStudyGuide.com. All rights
Glossary
Click each alphabet to learn more.
Customer - Customer is
someone who pays for
goods or services
Cyclical - Cyclical means
recurring in cycles
C
G
M
O
W
Glossary
Click each alphabet to learn more.
C
G
M
O
W
Glossary
Click each alphabet to learn more.
Merchandise Merchandise is a
commodity offered for
sale
Management Management is the act of
managing something
C
G
M
O
W
Glossary
Click each alphabet to learn more.
C
G
M
O
W
Glossary
Click each alphabet to learn more.
Workforce - Workforce
means the force of
workers available or the
manpower
Warehouse - Warehouse
is a storehouse for goods
and merchandise
C
G
M
O
W
e
v
a
h
You
y
l
l
u
f
s
s
e
c
c
Su
e
h
t
d
e
t
e
l
p
Com
n
o
e
l
Modu
o
t
n
o
i
t
c
u
d
Intro
n
i
a
h
C
y
l
p
Sup
!
t
n
e
m
e
g
a
Man
u
t
a
r
g
n
o
C
s
n
o
i
t
la