Supply Chain Management, Procurement, Sourcing, Acquire, and Logistics
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Transcript of Supply Chain Management, Procurement, Sourcing, Acquire, and Logistics
SUPPLY CHAIN MANAGEMENT
Delivered By:
Rishabh Agarwal
MBA IIM-C(C) www.rishabhagarwal.in
Learning Objectives
• To understand the escalating importance of SCM
• To learn about Evolution of SCM
• Understanding Global SCM and Logistics
• Understanding Purchase as a concept
• Understanding key terms and jargons used in SCM
• SCM Strategies
• What’s New
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A picture is better than 1000 words!!
- A supply chain consists of
Supplier Manufacturer Distributor Retailer Customer
Upstream
Downstream
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INTRODUCTION
• Supply chain management (SCM) is the management of the flow of goods. It includes the movement and storage of raw materials, work-in-process inventory, and finished goods from point of origin to point of consumption.
• An integrated group of processes to “source,” “make,” and “deliver” products
• Supply-chain management connects a company’s supply side with its demand side.
• Competition is no longer between companies; it is between supply chains
• That portion of the supply chain which comes after the manufacturing process is sometimes known as the distribution network
• Importance of the Supply Chain: Globalization of manufacturing
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Supply Chain Processes(C) www.rishabhagarwal.in
Physical distributionPhysical supply(Materials management)
Business logistics
Sources ofsupply
Plants/operations
Customers
• Transportation• Inventory maintenance• Order processing• Acquisition• Protective packaging• Warehousing• Materials handling• Information maintenance
• Transportation• Inventory maintenance• Order processing• Product scheduling• Protective packaging• Warehousing• Materials handling• Information maintenance
Internal supply chain
Traditional Scope of the Supply
Chain
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Demand forecasting
Purchasing
Requirements planning
Production planning
Manufacturing inventory
Warehousing
Material handling
Packaging
Finished goods inventory
Distribution planning
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
Supply Chain
Management
Supply Chain
Management
Logistics
Purchasing/
Materials
Management
Physical
Distribution
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+
Demand forecasting
Purchasing
Requirements planning
Production planning
Manufacturing inventory
Warehousing
Material handling
Packaging
Finished goods inventory
Distribution planning
Order processing
Transportation
Customer service
Strategic planning
Information services
Marketing/sales
Finance
Supply Chain
Management
Supply Chain
Management
Logistics
Purchasing/
Materials
Management
Physical
Distribution
Activity fragmentation to 1960 Activity Integration 1960 to 2000 2000+
Evolution of Supply Chain Management
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UNDERSTANDING GLOBAL
SUPPLY CHAIN MANAGEMENT
AND LOGISTICS
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Well . . . . Is This Logistics ?
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Actually . . . . . This Is Logistics
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Transportation
• Rail• low-value, high-density, bulk
products, raw materials, intermodal containers
• not as economical for small loads, slower, less flexible than trucking
• Trucking• main mode of freight transport
• small loads, point-to-point service, flexible
• More reliable, less damage than rails; more expensive than rails for long distance
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Transportation (cont.)
•Air• most expensive and fastest, mode of
freight transport
• lightweight, small packages <500 lbs
• high-value, perishable and critical goods
• less theft
•Package Delivery• small packages
• fast and reliable
• increased with e-Business
• primary shipping mode for Internet companies
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Transportation (cont.)•Water
• low-cost shipping mode• primary means of international shipping• waterways• slowest shipping mode
•Intermodal• combines several modes of shipping-truck,
water and rail• key component is containers
•Pipeline• transport oil and products in liquid form• high capital cost, economical use• long life and low operating cost
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Duties and Tariffs (cont.)
APEC
ASEAN
ANZCERTA
FTAA
NAFTA
CALM
ATPA
MERCOSUR
TAFTA
INCOTERMS Map(C) www.rishabhagarwal.in
INCOTERMS
International Commercial Terms
• Sea and Inland Waterway Transport
• FAS – Free Alongside Ship (named port of shipment)
• FOB – Free on Board (named port of shipment)
• CFR – Cost and Freight (named port of destination)
Seller must pay the costs and freight to bring the goods to the port of
destination. However, risk is transferred to the buyer once the goods are
loaded on the vessel. Insurance for the goods is NOT included. This term is
formerly known as CNF (C&F, or C+F).
• CIF – Cost, Insurance and Freight (named port of destination)
Exactly the same as CFR except that the seller must in addition procure and
pay for the insurance.
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INCOTERMS
International Commercial Terms
• General Transport
• EXW – Ex Works (named place of delivery).
• CIP – Carriage and Insurance Paid to (named place of destination)
The containerized transport/multimodal equivalent of CIF. Seller pays for carriage and insurance to the named destination point, but risk passes when the goods are handed over to the first carrier. CIP is used for intermodal deliveries & CIF is used for Sea .
• DDP – Delivered Duty Paid (named place of destination)
Seller is responsible for delivering the goods to the named place in the country of the buyer, and pays all costs in bringing the goods to the destination including import duties and taxes. The seller is not responsible for unloading. This term is often used in place of the non-Incoterm "Free In Store (FIS)". This term places the maximum obligations on the seller and minimum obligations on the buyer.
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UNDERSTANDING PURCHASE
AS A CONCEPT
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Understanding Key Terminologies
Buy
Purchase
Procurement
Contracts
Sourcing
Acquire
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Understanding Key Terminologies
Buy – general act of acquiring anything
Purchase – Money, ready made material
Procurement – Plus Efforts
Contracts – mostly services and agreements
Sourcing – act of obtaining (repeatable/ not one time activity) Global/ strategic/ outsourcing
Sourcing manpower, information, not necessarily goods
Acquire – to gain possession, complete rights, e.g. you can not sell a pump in your name as it is not being
acquired, Mergers and Acquisitions
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SOP (Standard Operating Procedure)
• Procurement steps
• Procurement life cycle in modern businesses usually
consists of 7 steps:
1. Identification of need:
2. Supplier Identification:
3. Supplier Communication:
4. Negotiation:
5. Purchase Orders:
6. Logistics Management: expediting, shipment, delivery
7. Payment:
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Purchase Order Contents
1. Scope of Work
2. Total Amount
3. Delivery Date and Terms
4. Payment Terms
5. Bank Guarantees
6. Currency Fluctuation or Exchange Rates
7. Packaging Terms
8. Expediting
9. Inspection and Quality
10. Taxes
11. Insurance
12. LD Clause
13. Warranty Terms
14. Arbitration or Jurisdiction
15. Force Majeure
16. Documentation
17. PO Acceptance
18. General Terms and Conditions
Letterhead PO#
Vendor Ref#
Quote Ref#
Order Date
Delivery Address
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DIRECT VS.
INDIRECT
Direct procurement
occurs in
manufacturing settings
only.
In contrast, Indirect
procurement activities
concern “operating
resources” that a
company purchases to
enable its operations.
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Push vs Pull System
• What instigates the movement of the work in the system?
• In Push systems, work release is based on downstream demand forecasts
• Keeps inventory to meet actual demand
• Acts proactively
• e.g. Making generic job application resumes today (e.g.: exempli gratia)
• In Pull systems, work release is based on actual demand or the actual status of the downstream customers
• May cause long delivery lead times
• Acts reactively
• e.g. Making a specific resume for a company after talking to the recruiter
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Supply Chain Uncertainty
• Factors that contribute to uncertainty• inaccurate demand forecasting
• long variable lead times
• late deliveries
• incomplete shipments
• product changes batch ordering
• price fluctuations and discounts
• inflated orders
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Bullwhip EffectOccurs when slight demand variability is magnified as information moves back upstream
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UNDERSTANDING ROLE OF A
SCM PROFESSIONAL
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Vendor Selection Vendor evaluation
Critical decision
Find potential vendors
Determine the likelihood of them becoming good suppliers
Vendor Development
Training
Engineering and production help
Establish policies and procedures
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Vendor Selection Negotiations
Cost-Based Price Model - supplier opens books to purchaser
Market-Based Price Model - price based on published, auction, or indexed price
Competitive Bidding - used for infrequent purchases but may make establishing long-term relationships difficult
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Supply Chain Strategies Negotiating with many suppliers
Long-term partnering with few suppliers
Vertical integration
Joint ventures
Keiretsu
Just In Time
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Many Suppliers Commonly used for commodity
products
Purchasing is typically based on price
Suppliers compete with one another
Supplier is responsible for technology, expertise, forecasting, cost, quality, and delivery
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Few Suppliers
Buyer forms longer term relationships with fewer suppliers
Create value through economies of scale and learning curve improvements
Suppliers more willing to participate in JIT programs and contribute design and technological expertise
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Vertical Integration
Raw material (suppliers)
Iron ore Silicon Farming
Backward integration
Steel
Current transformation
AutomobilesIntegrated
circuitsFlour milling
Forward integrationDistribution
systemsCircuit boards
Finished goods (customers) Dealers
Computers Watches
CalculatorsBaked goods
Vertical Integration Examples of Vertical Integration
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Joint Ventures
Formal collaboration
Enhance skills
Secure supply
Reduce costs
Cooperation without diluting brand or conceding competitive advantage
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Keiretsu Networks A middle ground between few suppliers and
vertical integration
Supplier becomes part of the company coalition
Often provide financial support for suppliers through ownership or loans
Members expect long-term relationships and provide technical expertise and stable deliveries
May extend through several levels of the supply chain
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Just In Time (JIT) “the right material, at the right time, at the right
place, and in the exact amount”, without the safety net of inventory.
The philosophy of JIT is simple:
the storage of unused inventory is a waste of resources.
JIT inventory systems expose hidden cost of keeping inventory.
Inventory is seen as incurring costs, or waste, instead of adding and storing value, contrary to traditional accounting.
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Measuring Supply-Chain Performance
• Inventory Turnover: how often the company replenishes
inventory. High value of inventory turnover means that the
inventory was not sitting around a long time.
Inventory turnover
=
Cost of goods sold
Inventory investment
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What’s New?
• Internet and E-Procurement
•RFID Capabilities
• SCM Software: ERP (Enterprise
Resource Planning) Software e.g.
SAP, Oracle, etc.
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Information Technology:
A Supply Chain Enabler
• Information links all aspects of supply chain
• E-business• replacement of physical
business processes with electronic ones
• Electronic data interchange (EDI)• a computer-to-computer
exchange of business documents
• Bar code and point-of-sale• data creates an instantaneous
computer record of a sale
• Radio frequency identification (RFID)• technology can send product
data from an item to a reader via radio waves
• Internet• allows companies to
communicate with suppliers, customers, shippers and other businesses around the world, instantaneously
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RFID Capabilities(C) www.rishabhagarwal.in
E-Procurement
• Direct purchase from suppliers over the Internet
• Direct products go directly into production process a product, indirect products not
• E-marketplaces• web sites where companies and suppliers conduct
business-to-business activities
• Reverse auction• a company posts orders on the Internet for suppliers to
bid on
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Online Sourcing/ Procurement
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Online Sourcing/ Procurement
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Online Sourcing/ Procurement
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SCM Software
• Enterprise Resource Planning (ERP)
• software that integrates components of a company by
sharing and organizing information and data
• SAP was first ERP software
• mySAP.com
• web enabled modules that allow collaboration between
companies along the supply chain
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Linking Supply Chain with SAP(C) www.rishabhagarwal.in
Supply Chain EconomicsSupply Chain Costs as a Percent of Sales
Industry % Purchased
All industry 52
Automobile 67
Food 60
Lumber 61
Paper 55
Petroleum 79
Transportation 62
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Losing Sight of the Common Objective
I'm glad that the hole
is not on our side!
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References
• Wikipedia
• Annual Consulting Companies Report
• Course Material B Schools
• Internet Open Sources
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© RISHABH AGARWAL
WWW.RISHABHAGARWAL.IN
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