Intro to Supply Chain PowerPoint 1- William McLaury Rutgers University
Terms in this set (54)
Supply Chain is
- The way business gets done
- The coordination of a network of independent organizations all involved in creating a desired product or service, and moving it from suppliers out to customers, when and where they want it.
- delivers VALUE by managing the processes of all those otherwise independent trading partners so that they COLLABORATE with one another in an efficient, effective, and cost conscious way
What is the goal of supply chain management?
- increase customer service WHILE SIMULTANEOUSLY reducing both inventory investment and operating expenses
The 2 main reasons that firms implement Supply Chain Management are to
1. Achieve cost savings
2. Better coordinate resources
What is the difference between Logistics and Supply Chain Management?
- Supply Chain Management refers to a network of independent companies that work together and coordinate their actions to deliver a product or service to the market for the benefit of all companies in the network
- SCM acknowledges all traditional logistics activities and also includes aspects of activities such as: marketing, new product development, finance, and customer service
- Logistics refers to activities that occur within the purview of a SINGLE organization
- Logistics traditionally focuses on activities such as: Inventory Management, Warehousing, and Distribution
Flow of SCM consists of the FLOW OF PRODUCTS from
Raw materials --> Intermediate Suppliers --> Finished product manufacturers --> Wholesalers and Distributors --> Retailers and Consumers
Links in the supply chain that are connected by transportation and warehousing, and integrated through information and planning
Logistics is the part of supply chain that
Plans, implements, and controls the flow of storage of goods, from point of origin to point of consumption
Modes of Transportation
(some are inter-modal by using a combo of any other modes of transportation for a single shipment)
Warehousing and Distribution
Facilities that allow companies to store materials and finished products AND receive, breakdown, repackage, and ship materials out to a manufacturing location or to a customer
Supply Chain Management
1. Starts with understanding the flow
2. Integrates all partners within the end-to-end supply chain
3. Is conducted thru definition process
4. Delivers value to the customer
Supply chains are generally described as spanning from
end-to-end, from your suppliers-suppliers on one end, through your internal operations, and out to your customers-customers on the other end
Supply chains follow the basic model
Plan --> Source --> Make --> Deliver --> <-- Return
- Most supply chains are enabled through various types of processes and technology
in the 1950's manufacturers focused
- on mass production techniques as their principals cost reduction and productivity improvement strategies
Advantages of 1950's manufacturers
- Higher output and more productivity
- Reduced cycle times
- lower in-process inventories
Disdvantages of 1950's manufacturers
- High investment in facilities
- Overall cycle time is limited by the slowest operations
- Breakdown of one machine will stop an entire production line
Materials Requirement Planning
Manufacturing Resources Planning
Acronyms to remember
Supply Chain Management (SCM)
Total Quality Management (TQM)
Business Process Reengineering (BPR)
Companies in the 2000's and beyond companies will focus on
-relationships, sustainability, and social responsibility
Companies will focus on improving supply chain capabilities with initiatives such as:
-Using Third-Party Service providers (3PLs)
-Using transportation to facilitate rapid response
Supply chain management old paradigm
-A company gained synergy as a vertically integrated firm encompassing the ownership and coordination of several supply chain activities.
-Organizational cultures emphasized short-term, company focused performance.
- A company in a supply chain focuses activities in its' area of specialization and enters into voluntary and trust-based relationships with supplier and customer firms. "Outsourcing non-core competencies"
-All participants in the supply chain benefit.
-Boundaries are dynamic and extend from "the firm's suppliers' suppliers to its customers' customers (i.e., "end-to-end")
-Supply chains also deal with reverse logistics to handle product returns, warranty repairs, and recycling.
The foundations of supply chain management
Supply Management--> Supply base rationalization, supplier relationship management, partnerships and alliances, ethics and sustainability
Operations Management --> Forecasting, demand management, material and operations planning, lean systems, Six Sigma quality systems
Logistics and Transportation --> Warehousing, transportation management, customer relationship management, network design, international trade, sustainability, service response logistics
Integration --> Enabling systems, risk and security management, performance measurement
Supply Management Elements (purchasing/sourcing)
-Supplier management improves performance through
1. supplier evaluation (determining supplier capabilities)
2. supplier certification (third party of internal certification to assure product quality and service requirements)
- Strategic partnerships --> successful trusting relationships with top-performing suppliers
-Ethics and sustainability --> recognizing suppliers' impact on reputation and carbon footprint
Operations Management Elements
-Demand Management--> matched demand to available capacity
- Linking buyers and suppliers via MRP and ERP systems
- Use Lean Systems to improve the flow of materials to reduce inventory levels
- Employ Six Sigma to improve quality compliance among suppliers
Logistics and Transportation Elements
- Transportation Management --> trade off decisions between cost and timing of delivery/ customer service via trucks, rail, water, and air
- Customer Relationship Management --> strategies to ensure deliveries, resolve complaints, improve communications and determine service requirements
- Network Design--> creating distribution networks based on trade off decisions between cost and sophistication of distribution system
- Supply Chain Process Integration
1. When supply chain participants work common goals
2. requires intra-firm function integration
3. Based on efforts to change attitiudes and adversarial relationships
- Supply Chain Performance
1. Crucial for firms to know if procedures are working
Basic Supply Chain Capabilities Model --> EFFICIENT
Efficient - Supply Chain and processes are designed to minimize cost
-Predictable supply and low cost
-Low cost production and highly utilized capacity
-High inventory turns
-Ideal for Functional Products:
*Staples that people buy everywhere
*Don't change much over time
*Stable predictable demand
1. Understand the needs of your customers
2. Define core competencies and the roles your company will play to serve your customers
3. Develop supply chain capabilities to support the roles your company has chosen
Basic Supply Chain Capabilities Model --> RESPONSIVE
Responsive - Supply Chain designed to respond quickly to market demand
-Minimal stock outs
-Need flexible capacity (volume)
-Inventory of parts
-Minimize lead time
-Need to have a variety of products -available for customers when they want to buy
-Ideal for Innovative Products:
*Very short life-cycle products
*Very unpredictable demand
Push or Make-to-Stock Business Model
Producing stock on the basis of anticipated demand. Demand forecasting can be done via a variety of sophisticated techniques.
2. Buy components and materials
Pull or Make-to-Order Business Model
Producing stock in response to actual demand
2. Buy components and materials
Measures of Success
Customer Service, Demand Plan Conformance, Supply Plan conformance, Inventory Plan Conformance, COGS
Operational Excellence begins with effective planning and control techniques which:
-Provides a single set of numbers used to run the business.
-Generates significant improvements in customer service, productivity, inventory and costs.
Inventory (Shock Absorber)
Flexbilitiy (Shock Absorber)
Basic Supply Chain Planning and Execution
Aggregate Demand/Supply Planning
Production Planning and Scheduling
Delivery to Production
Production and Packaging
Delivery to Distribution Channels
Delivery to Customer
Order, Information, Product, and Funds Flow
-Information flows both ways between trading partners.
-Purchase Orders flow from the consumer to the manufacturer & from manufacturer to supplier.
-Materials & Products flow from the supplier to the manufacturer & from manufacturer to customer.
-Funds (i.e., payments) flow from the consumers to the manufacturer & from manufacturer to supplier.
Inventory stock type and levels (Cycle Stock)
-Inventory to satisfy demand in the immediate time period
-Sales/Demand and replenishment driven
-Based on EOQ/MOQ (balance of inventory and order/production costs)
Inventory stock type and levels (Safety Stock)
-Buffer demand variability (Forecast -Accuracy)
-Buffer supply variability (On-Time Delivery)
-Ensure desired Customer Service Level
- The level of safety stock is dependent on the reliability of demand (forecast) and supply
Inventory stock type and levels (Anticipation/Strategic Stock)
-Major disruptive event in supply
-Major business opportunity for sales
-Life cycle stock: seasonal, launch, bridging, etc.
Collaborative Planning, Forecasting, and Replenishment (CPFR)
-BUSINESS PRACTICE that combines the intelligence of multiple trading partners who SHARE their plans, forecasts, and delivery schedules with one another in an effort to ensure a smooth flow of goods and services across a supply chain.
- Provides a plethora of benefits but requires a fundamental change in the way that buyers and sellers work together.
-The real value of CPFR comes from the sharing of forecasts among firms, rather than firms relying on sophisticated algorithms and forecasting models to estimate demand.
What is the Bullwhip Effect?
An observed phenomenon in forecast-driven distribution channels. It refers to a trend of larger and larger swings in inventory in response to changes in demand, as one looks at companies further back in the supply chain of a product.
(demand variability is magnified as information moves back upstream)
Facts about the Bullwhip Effect
-Because customer demand is rarely perfectly stable, businesses must forecast demand to properly position inventory and other resources.
-Forecasts are based on statistics, and they are rarely 100% accurate.
-Because forecast errors are a given, companies often carry an inventory buffer called safety stock.
-Moving back across the supply chain from the end-consumer(s) to raw material supplier(s), each supply chain participant has a greater observed variation in demand and thus greater need for safety stock.
-In periods of rising demand, down-stream participants increase orders.
-In periods of falling demand, orders decrease or stop, and inventory accumulates.
-The effect is that variations are amplified as one moves upstream in the supply chain (i.e., further back from the end customer/consumer).
Collaborative Planning, Forecasting and Replenishment can significantly reduce the Bullwhip effect and lead to:
-Better customer service
-Lower inventory costs
-Reduced cycle time
-Better production methods
Reducing the Bullwhip Effect
Means the reduction of safety stocks and associated costs within and across the trading partners in a supply chain
Firms implementing/ Using Supply Chain Management
1. Start with First Tier key suppliers and customers.
2. Move next to First Tier non-key suppliers and customers
3. Then integrate Second Tier suppliers and customers. (Note: only the elite few companies ever actually get to this level)
First Tier = direct suppliers and direct customers
Second Tier = indirect suppliers (i.e., your supplier's suppliers) and indirect customers (i.e., your customer's customers)
Benefits of SCM
Improved customer service
Better asset utilization
Adds customer value / retain customers
Minimize delays / shorter lead-times
Elimination of rush (unplanned) activities
Reduced uncertainty throughout the supply chain
Lower inventory levels throughout the supply chain
Ability to effectively respond to disruptions and conflicts
Who benefits the MOST from SCM
1. Large inventories
2. Large number of suppliers
3. Complex products and/or large number of products
4. Large purchasing budgets / expenditures
NOTE: That is NOT to say that smaller companies don't benefit from supply chain management as well, just that larger companies with more suppliers and more complex product portfolios generally benefit more.
Proper SCM is a balancing act in which you
1. Prepare for risks
2. Respond to changes
3. Maintain low costs, and
4. Create high product integrity
Current Trends in SCM
2. Flexibility and Responsiveness
3. Cost Reduction and Continuous Improvement
4. Sustainability and "Greening" the Supply Chain
Expanding the Supply Chain. International, mature and emerging markets have become a part of the overall business growth strategy for many companies.
Breadth - foreign manufacturing, office & retail sites, foreign suppliers & customers
Depth - second and third tier suppliers & customers
Flexibility and Responsiveness
Firms will increasingly need to be more flexible and responsive to customer needs adapting to unexpected changes and circumstances. Necessitating closer integration and collaboration
Cost Reduction and Continuous Improvement
Reducing purchasing costs, waste, excess inventory, non-value added activities. Improving demand planning. Increased outsourcing of non-core competencies.
Sustainability and "Greening" Supply Chain
Customers increasingly prefer products that are made and sourced in 'the right way'; minimizing business' social, economic and environmental impact on society and enhancing positive effects.