SCM- Handout I

Dr. Parikshit Charan

Supply Chain Management 1

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Dr. PARIKSHIT CHARAN

Supply Chain Management: Some

Contemporary Perspectives

Why SCM is Important now?

•1970, Quality•1980, lean manufacturing•1990 and beyond, SCM

–The Increased complexity of supply chain•Emergence of global supply chain•More demanding customers•Shorter production lifecycles•Outsourcing, decentralized control and more…

–Feasibilities•radical improvement in information technology and communication capabilities

Impetus For Supply Chain Management

• New Customer Service Definition• Beyond perfect order-shifting

responsibilities/Vendor Managed Inventory ... • Escalating Logistics Cost ... • Cycle Time Compression--E-Commerce• Globalization--Worldwide rise in exports far exceed

• Worldwide purchasing, manufacturing, and selling.

• Long and complex global pipelines.• Product proliferation.• Cultural adaptation

Four key factors have provided the impetus for companies to take a broader view...

of their enterprise and its environment...

BackgroundSupply Chain

Material management(inbound logistics)

The acquisition and storage of raw materials, parts, and supplies

Physical distribution(outbound logistics)

The complete cycle of material flow from the purchase and internal control of production materials to the planning and control of WIP

All outbound logistics activities related to providing customer service.

Order receipt and processing, inventory deployment, storage and handling, outbound transportation, consolidation, pricing, promotional support, returned product handling, and life cycle support…

Development of Supply Chain Management

Physical distribution (1960-1970)• Focus : Management of inventories for the efficient delivery of finished

goods to customers.

Integrated logistics management (1970-1980)• Focus : INBOUND FLOW (materials management) &

OUTBOUND FLOW (physical distribution) • Challenges: deregulation of transportation, global competition,

foreign sources of supply, and economic factors

Supply chain management (from 1990s)• Focus : Three types of “flows” or basic processes -

Product, Information, and Money• Managing supplier-to-customer material flow that add value to the

final product

Logistics

Logistics is that part of supply chain process that plans, implements, and controls the efficient, effective flow and storage of goods, services, and related information from the point-of-origin to the point-of-consumption in order to meet customers’ requirements.



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Logistics: Past

The study of logistics has its roots in the military…The traditional view emphasized local optimization within

functional silos and within individual corporations

But functional optimization leads to conflicts ...

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Logistics...

CLM Definition“The process of planning, implementing, and controlling the efficient, cost-effective flow and storage of raw materials, in-process inventory, finished goods, and related informationfrom point of origin to point of consumption for the purpose of conforming to customer requirements.” This definitionincludes inbound, outbound, internal, and external movements.

CLM - Council of Logistics management -Adopted 1984

...a new flow and process orientation not a set of discreteactivities and handoffs

In 1984 CLM formulated a new definition which refocusedthe concept of logistics...

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Logistics - Evolution

Integrate internal logistics activities Integrate logistics with other corporate functions

Most modern companies have recognized that to

improve cost and performance to the corporationthey must...

MaterialPlanning

Procurement

Production Planning

Inventory Control

Warehouse Operations

Transportation

Distribution Planning

Customer Service

Suppliers

Accounting /Finance

Manu-facturing

Sales andMarketing

Customers

Other Log.ProvidersCarriers

FinancialInstitutions

but other pressures indicate that companies mustlook outside their own four walls...

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Complexity in Logistics

Multi-location Multi-productAdded Cost at various stages and locationsMulti-modal transportation Different perspectives held by various stakeholders in the logistics !

Supply Chain ManagementSupply chain management deals with the management of materials, information and financial flows in a network consisting of suppliers, manufacturers, distributors, and customers (Stanford Supply Chain Forum, 1999)

Supply chain management is a set of approaches utilized efficiently to integrate suppliers, manufacturers, warehouses, and stores so that merchandise is distributed at the right quantities, to the right locations, and at the right time, in order to minimize system-wide costs while satisfying service level requirements (Simchi-Levi et al., 2008)

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Purchasing

Manufacturing

Distribution

CUSTOMERS

SUPPLIERS

Sales

The Functional Approach

Traditional Approach: Functional, silo based ! No attempt to look holistically!



GENERAL SUPPLY CHAIN NETWORKGENERAL SUPPLY CHAIN NETWORK

Customer 1 Customer 2 ...Customer m

Supplier 1 Supplier 2 ... Supplier n

SOURCES

SINKS

ProductionFacilities

LogisticFacilities

Enterprise

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Issues in Management of Supply Chain

Lead timeTotal costManagement of InventoryMaterial HandlingPerformance Monitoring & ControlSensitization about the Logistics cost to all the stakeholders !Information Sharing…………..

ENTERPRISE Supply Chain NETWORKENTERPRISE Supply Chain NETWORK



SOURCES

SINKS


LogisticFacilities

Enterprise

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Purchasing

Manufacturing

DistributionSUPPLIERS

Sales

Integrated Supply Chain Approach

Looks at the entire chainGlobal rather than local focusIntegrated rather than fragmented approach

CUSTOMERS

INTEGRATED SUPPLY CHAIN NETWORKINTEGRATED SUPPLY CHAIN NETWORK



SOURCES

SINKS


LogisticFacilities

IntegratorIntegrator

CONSUMERS

INTERMEDIARIES

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Supply Chain StagesSupply ChainSupply Chain encompasses all activities associated with theencompasses all activities associated with the flow flow

and transformation ofand transformation of materials materials andand informationinformationfrom thefrom the raw material stageraw material stage through to thethrough to the end userend user. .

Supplier Manufacturer Distributor Retailer Customer



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Supplier

Supplier

ManufacturingPlants

RegionalWarehouses

Field Warehouses

RetailOutlets

CustomersJohn Birchak, Intel Corp., National Science Foundation, University of

Florida, October 1998

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Broadened Scope of Information and Coordination

Supplier Customer Customer’sCustomer

Suppliers’Supplier

Make DeliverSource Make MakeSourceDeliver SourceDeliver

(internal or external)

(internal or external)

Your Company

Source Deliver

Plan

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Supply Chain Management ...

Customers

MaterialPlanning

Procurement

Production Planning

Inventory Control


Transportation


Customer Service

Suppliers

Accounting /Finance

Manu-facturing

Sales andMarketing

Other Log.Providers

CarriersFinancialInstitutions

MaterialPlanning

Procurement

Production Planning

Inventory Control


Transportation


Customer Service

Suppliers

Accounting /Finance

Manu-facturing

Sales andMarketing

Customers

Other Log.ProvidersCarriers

FinancialInstitutions

The clear implication is the need for further integrationof all the parties involved…

to prosper in this dynamic environment...Integration Migration

...

The Dynamics of the Supply ChainO

rder

Siz

e

TimeSource: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

CustomerDemand

CustomerDemand

Retailer OrdersRetailer OrdersDistributor OrdersDistributor Orders

Production PlanProduction Plan

What Management Gets...

Ord

er S

ize


CustomerDemand

CustomerDemand

Production PlanProduction Plan

What Management Wants…

Volu

mes


Production PlanProduction PlanCustomerDemand

CustomerDemand



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My customer wants it next

day

Long production runs reduce

costs

1 day more and we save 10% in transport costs

I want to see it in stock before I

believe

You have to reduce

inventories and other costs by 20% this year

Others go to JIT

There is no simple key to successThere is no simple key to success

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Profit

TOTALCOSTS

ASSETS

TIME

CASH

FLEXIBILITY

ENVIRONMENT

INFORMATION

SERVICE

QUALITY

Planning ObjectivesPlanning Objectives-- Longer perspective brings in moreLonger perspective brings in more

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Initiatives TechnologyIntegrationCost Management

Cycle Time Alliances

EnvironmentalPressures

Inbound, Operations & Outbound

The Core Issuesin Supply Chain Management

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Supply Chain Network- Sample StructureIn

itial

Su p

p lie

rs

Con

sum

e rs/

E nd-

Cus

tom

e rs

1

n

n

1

2

3

1

n

1

2

1

n

1

2

Focal Company

Members of the Focal Company’s Supply Chain

1

2

3

n

Tier 3 to Initial Suppliers

Tier 2Suppliers

Tier 1Suppliers

Tier 1Customers

Tier 2Customers

Tier 3 toConsumers/

End-Customers

1

n

1

2

n

n

n

Tier

3 to

n s

uppl

iers

Tie r

3 t o

n c

usto

mer

s

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CoreCompetencyAreasTier 1

FocalCompany

Closest Integration* Design team member

- R& D collaboration* Prod/logistics info sharing* Rare partnership

Tier 1

Tier 1

Tier 1

Tier 1

Close collaboration (less expensive than innermost core)* Exchange design/development information* Prod/logistics info sharing* Increasing partnership

Tier 1

Tier 1

Tier 1

Tier 2

Tier 2

Tier 2

Tier 2

Tier 2

Tier 2

Tier 2

Tier 2

Tier 2

Non-coreCriticalAreas

Collaboration principally via tier 1 suppliers

* Occasional direct contact with focal company

Degree of integrationdecreases

Degree of integrationdecreases

Non-strategic, Non-critical Areas

.

.

.

.

.

.

.

.

.

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Four Flows within Supply Chain

Supply chain management requires parallel control of• Physical Goods• Logistics Information• Payments• Ownership Rights

Ownership Rights

Physical Distribution

Logistics Information

Payments

8 8 8 8 8 8

8 8 8 8 8 8

w w w w w w

w w w w w w

CustomerNeeds

CustomerSatisfaction

OrderMgt.

8 8 8

ww

Forecast-ing

ProductionPlanning

Procure-ment

Manu-facturing

InventoryMgt.

Warehousing&Materials Mgt.

Transpor-tation

Network Planning

Ownership Rights



Goals of SCM•Maximize the overall value generated in the chain•Generate cost savings and better customer service over the entire supply chain•Ideal:

–Have the right product–At the right place–At the right time–At the least cost–In the right amount

upstream

downstream

Typical supply chain

Toshiba PC supply chainupstream

downstream

Intel,AMD

Seagate,IBM

Microsoft,Red Hat

Toshiba America Irvine, California

Europe DC

Toshiba Turkey

North America DC

How is SCM different?Builds on traditional fields such as production

management, operations management or logistics management.The key differentiator is the systems approach of

the supply chain managementSCM considers every stage and facility in the

supply chain and the interactions between them, whether they belong to different companies or different organizations within a companySCM considers the total costs in the supply chain Since SCM deals with all stages of the supply

chain and their integration, it encompasses the firm’s activities at many levels: strategic, tactical and operational

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Enablers of Supply Chain Management...

• Increased Organizational IntegrationInternalExternal

• Advances in Communications and Information TechnologyCapabilities

EDI/XML/InternetRF/GPS/POS data capture Broadband CommunicationsIntegrated database management toolsCheaper and faster processing …

Perspective

There are two principal factors which makesupply chain management a reality...

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CASE 1: SCM COMPLEXITY



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Scope / ActivitiesSupply Chain Management

Materials Management & Transportation Manufacturing Packaging Total Quality ManagementDistribution Systems

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Product Portfolio Oral CareToothbrush

Med

EnoRegular, Lemon,

Jaljeera

Crocin

HorlicksJHlx CHlx MHlx EHlx

Boost

BiscuitsHlxStd Ch.Hlx

Elaichi

BoostEB

Viva Maltova Aquafresh mouthpastex-fresh, F‘n M

NHCHlx P JordanAquafresh

Flex, FnD, FlexiKidFlexi friend

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Manufacturing Facilities - NHC Powders

3 FactoriesNabha - Punjab Rajahmundry - A.P.Hamira - Punjab

SD1 ProjectSonepat - Haryana R

NSD1

H

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Packaging Facilities - Nutritional

7 Packing SitesFaridabad (F)Calcutta (C)Hyderabad (H)Chennai (CH)Nabha (N)Hamira (HA)Chittagong - Bangladesh (CG)

F

C

H

HA

CH

N

NNN

CG

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Manufacturing Facilities - NHC Solids

2 Biscuit sitesBurdwanHyderabad B

H

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Mfring & Packing Facilities-Aquafresh

2 sitesGoa (Tooth Brush)Nashik (Toothpaste)

G

N



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Mfring & Packing Facilities -OTC

1 Site (ENO)Hyderabad

H

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Sales depots

Sales depots 32 nos

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Supply ComplexitiesFinished Goods Movement

•250 vendors,350 materials,15 sites

•P/S movementof avg.. 1200 kms

•Over 1000 consignments/month shippedacross 130site-depotlinkages

•12 supply sites catering to 37 markets

•Primary freight costof Rs. 30 crore p.a. 46

Export Supplies

BangladeshBangladesh

Sri LankaSri Lanka

MyanmarMyanmar

Middle EastMiddle East

MauritusMauritus

Supply Complexities

Nepal

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Major Problems

Forecast inaccuracyUn-organised transport sectorLonger lead time for some raw materialsFrequent change in statuary requirementsSales promotions disturbs the planning cycles some times leads to major write offs

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Effective Supply Chain-Challenges

Effective Supply chain is not limited to manufacturing & distributing products only but also……..



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Effective Supply Chain-Challenges

Design product to its supply chainSupplier relationshipManufacturing:- should it be in-house or to be out-sourced ?Least Product inventoriesThird Parties:- Partners can add significant value

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Distribution:- shippers should add value rather than mere transportationWork on the “Customer’s Pull”rather than “Push”Is consumer response is making its way into the chain ?

Effective Supply Chain -Challenges

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Then..What’s the way out?

Effective Supply Chain-Challenges Contemporary Strategies

Successful businesses match market demand and core capabilities ...Carriers had transport assets and systems

trucks, cars, terminals, tracking and tracing systems, fleet management systems ...

Shippers had critical need for more efficient logistics systems, but no expertiseShippers needed resources in their core areas

Result: Alliances in logistics--Third Party Logistics ...

Contemporary Logistics Strategies

ComplementaryCapabilities

Sharing of risksand resources

Focus on corebusiness

StrategicAlliances

CompetitiveAdvantage

The competitive marketplace has given rise to logistics alliances ...

Trends in Global Supply Chain Management

Collaborative Product DevelopmentRisk PoolingPostponementDemand signal closest to supplier and accurate

POS data capture and transmission and now RFID in each piece of product eliminating the need for line of sight scanning—Unilever



Supply Chain Management and the Internet

Relationships with suppliers will endure--Web-based connectivity will enable the transaction network to become more efficient -- sharing of savings will take placeNew technology will impact business supply chains beyond recognition--Globalization will overpower existing relationships as companies access different suppliers in various countries and drive down prices

There are two conflicting views ...

* FootnoteSource:Sources

THERE IS ALREADY SIGNIFICANT ACTIVITY IN AUTO SECTOR

Existing Planned/Announced

Vendor marketplaces

Consortium of Bajaj Auto, M&M, Telco, HM, Maruti, Hero Honda,TVS SuzukiEscorts, Kalyani

Vendor Integration TELCO Bajaj Auto, Ford, Fiat, Hyundai,Hero Honda, TVS Suzuki, Toyota, M&M

InternalConnectivity Almost All

Dealer Integration Maruti, Fiat, Ford, ALL

Daewoo, Hyundai, Hero Honda, TVS Suzuki, Bajaj Auto, LML, Kinetic, HM Lancer, M&M

Basic WebsiteAlmost All Piaggio, Greaves, Hero Honda

Sophisticated websitewith customisation,cataloging

Daewoo, Honda Fiat, Hyundai

Auto Sector

Supply Chain IntegrationBuy Side

Supplier Integration

Sell Side Re intermediation

Relationship building with Customers

Maruti SuzukiExtranet for Dealers - 150 Dealers, 9 Models, 1000 Sub-assemblies, Avg.. 15 components per sub-assembly, changes avg.. 10 per week

Wrong Orders / Re-conciliation problemsWrong shipmentMultiple Printed Catalog / Addendum and Errata

One ECatalog, Multiple Views, Ordering Modules, Dealer Service, back-ending into Enterprise systems...



Prof. J.P. MacDuffie, IMVP & The Wharton School

Barriers to Success in Emerging SCM

Resistance to changePoor data availabilitySupply chain design complexityOrganization structurePoor cross-functional collaborationLack of trust (suppliers, customers)Lack of E-commerce skillsUnsure top management commitment

Source: Adapted from A.D. Lttle Survey, 1999

Supply Chain Integration -Dealing with Conflicting Goals

Lot Size vs. InventoryInventory vs. TransportationLead Time vs. TransportationProduct Variety vs. InventoryCost vs. Customer Service

Future of Supply Chain

More Integration: Comfortable Core competenceNew Market evolutionIncreased variety-Low volume productsIndustry MaturityPower/DominanceIntegration & Information sharing

Emerging Issues in Supply Chain Management

Vendor managed Inventory (VMI) - In this case supplier decides on the appropriate inventory levels of each product and the inventory policies to maintain these levels e.g. Campbell Soup, Maruti

Third party logistics(3PL) and Fourth party logistics(4PL) – This trancends from Prahlad’s concept of core competence .It is simply the use of an outside company to execute part or complete materials management and product distribution function of the firm e.g. Fed Ex, UPS

Outsourcing- It means handing over certain logistics related to manufacturing to another company. Outsourcing ensures strategic growth, adding technological strength and improving market access.Risk pooling – It mainly involves the concept of centralized warehousing. Centralized warehousing reduces safety stocks and average inventory in the system. This is clear from the argument that in case of unequal demand reallocation of inventory is easier from a central warehouse. The higher the coefficient of variation, the greater the advantage in keeping a central warehouse.Reverse LogisticsCross Docking-may be defined as effective removal ofWarehouse facilities of company. Product is directly transferred to customer. Warehouse is reduced from invty storage to an invty. Coordinating function

* Web enabled SCM / ERP etc.



Goals of IT in SCMCollect and store information on each product from production to delivery/purchase point

Provide complete visibilityTrackingAlerting

Access any data in the system from a single point of contact. This is complicated by the fact that one may need information which resides

in various locations within one companyin different companies

Analyze and plan activities based on total supply chain information.

Decision Support SystemsAdvanced Planning Systems

Summary...

New customer service paradigmsDecreasing cycle times/E-commerceCost pressuresGlobalization & complexity

It is clear that the concept of Supply Chain Management providescompanies and countries a framework within which they can assess how the challenges of the competitive market

IntegrationTechnology

can be met through application of the offsetting enablers

making Logistics/SCM another element of competitive advantage.

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THANK YOU

SCM- Handout I

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