Lecture 01 - Integrated Logistics, Procurement, Materials Management and Production PDF

Prof. Dr.-Ing. Jörg Franke 01 - Integrated logistics, procurement, Lehrstuhl für Fertigungsautomatisierung und Produktionssystematik materials management and production Friedrich-Alexander-Universität Erlangen-Nürnberg...

Prof. Dr.-Ing. Jörg Franke 01 - Integrated logistics, procurement, Lehrstuhl für Fertigungsautomatisierung und Produktionssystematik materials management and production Friedrich-Alexander-Universität Erlangen-Nürnberg Lecture ISCM @ vhb For any questions or support regarding this lecture unit, please contact the person below from the FAPS institute. Contact details ◼ Alexander Schlosser, M. Sc. ◼ Email: [email protected] ◼ Phone: +49 9131 85-27968 ◼ Website: https://www.faps.fau.de/person/Alexander-Schlosser/ Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management This course will provide an overview of structures, aims, systems and strategies concerning the ‘International Supply Chain Management (ISCM)’. 1. Integrated logistics, procurement, materials management and production 2. Material inventory and material requirements in the enterprise International Supply Chain Management 3. Strategic procurement 4. Management of procurement and purchasing 5. In-plant material flow and production systems 6. Distribution logistics, global tracking and tracing 7. Modes of transport in international logistics 8. Disposal logistics 9. Logistics controlling 10. Network design in supply chains 11. Global logistic structures and supply chains 12. IT systems in supply chain management 13. Sustainable supply chain management Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Lecture 01 provides you with an overview about the foundations of supply chain management. Supply chain management “…encompass[es] the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly it also includes coordination and collaboration with channel partners […]. In essence, supply chain management integrates supply and demand management within and across companies.” After attending this lecture you should be able to: ▪ describe what supply chain management is ▪ understand the meaning of logistics and procurement ▪ know the terms, definitions, objectives and tasks of logistics International Supply Chain Management Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Lecture 01 – Integrated logistics, procurement, materials management and production. Agenda Introduction to supply chain management Purchasing and procurement management Offshoring of production, research and design Terms and definitions, goals and tasks of logistics Position and organization of logistics and material management Logistics as a cross-sectional area function The conflict of goals and the success factors Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Definition and activities of the supply chain “Supply chains compete, not companies” - Martin Christopher, 2005. Supply chain A global network to deliver products and services, starting from providing raw material to the consumers using an organized flow of information, physical distribution and payment. Currently it also includes networks for disposal and recycling. Supply Chain Management (SCM) design planning operations control monitoring Activities of the supply chain Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management A good example of an international supply chain is the complex SC of Apple iPhone. Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management The definition and goals of supply chain management are important to understand the complexity of such a network. Supply chain management “A network of connected and interdependent organizations mutually and co-operatively working together to control, manage and improve the flow of materials and information from suppliers to end users.” effective deployment of global supply chains establishment of a synchronization of competitive supply and demand infrastructure Goals of SCM value generation global measurement of performance Ref.: , Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management The Supply Chain Operations Reference (SCOR) model is a process reference model and a standard diagnostic tool for supply chain management. The SCOR model has been developed to describe the business activities associated with all phases of satisfying a customer’s demand. It can be used as a guideline for standardization of supply chains in and between companies. SCOR combines elements of business process optimization, comparison of performance indicators and business practices in a coherent reference system. Within the SCOR model the supply chain is characterized by process elements. plan production redelivery procurement delivery Three hierarchical process levels characterize the SCOR-model. 1. level 2. level 3. level Statement of number of Definition of the sequence Determination of the supply chains, description of planning - and business processes, of their performance implementation processes orders, permissions, re- measurement – namely respectively to material deliveries and marketing the scope and content flows forecasts Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Level 1 of the Supply Chain Operations Reference-Model (SCOR) is a description of the number of SC performance measurement. SCOR-Model, version 10.0, level 1: link to V03 statement of the number of supply chains, description of their performance measurement The SCOR model is a tool for the standardization of process chains within and between companies. Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Lecture 01 – Integrated logistics, procurement, materials management and production. Agenda Introduction to supply chain management Purchasing and procurement management Offshoring of production, research and design Terms and definitions, goals and tasks of logistics Position and organization of logistics and material management Logistics as a cross-sectional area function The conflict of goals and the success factors Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management The overview of the purchasing process visualizes the different process steps. define select contract evaluation ordering expediting specification supplier agreement follow-up Procurement Role ▪ get ▪ assure ▪ prepare ▪ establish ▪ establish ▪ vendor specifications adequate contact order routine expediting performance supplier routine evaluation selection ▪ set contract problems Elements ▪ functional ▪ Pre- ▪ contracting ▪ develop order ▪ expediting ▪ vendor rating specifications qualification expertise routines ▪ „trouble ▪ vendor of supplier ▪ technical ▪ negotiating ▪ order shooting“ evaluation changes ▪ request for expertise handling quotation Documents supplier vendor functional selection contract order order list balanced specification proposal scorecard Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management The importance of purchasing and procurement management is increasing. Purchasing volumes less in-house increased reduction of production, more purchasing potential for cost production purchases from volume of the savings depth suppliers companies Material costs proportion of material costs saving of 1% in material costs concerning the overall rule of thumb and material overheads performance of the entire (automotive generates an added profit which German industry is about industry) can be compared with a sales 40 – 70% increase of at least 10% Reducing the number of suppliers cost savings of up to 50% by early important objective in global involvement of suppliers in the procurement management development phase Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management The example “cost of material reduction” leads to effects in sales. Comparison between the increase in sales and a material cost reduction as a function of material cost ratio of sales Comparable increase in sales in % reduction of material costs of 2 % profit margin of 5 % The cost of materials ratio of reduction of material sales indicates what percentage of sales is costs of 0,5 % attributable to the purchase of materials (e.g. raw materials). The “Comparable Example increase in sales” Sales revenue = 100.000 € indicates what Purchasing volume for material percentage increase in = 40.000 € sales would have to be Material cost ratio of achieved compared to a reduction in the cost of sales in % → Material cost ratio of sales purchasing materials = 40 % Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Example: Definitions and Assumptions. Mc material cost ratio of sales in % E reduction of the material costs in % 𝑃𝑟𝑜𝑓𝑖𝑡 R profit margin R= 𝑆𝑎𝑙𝑒𝑠 𝑀𝑐 𝑥 𝐸 Pc profit contribution of the procurement Pc = 𝑅 Assumptions material cost ratio Mc = sales S = 100.000 € profit margin R = 5 % 40 % Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Example: Calculation of effects of material costs reduction. Reduction of the material costs → E = 2 % ▪ material costs = S x Mc = 100.000 € x 0,4 = 40.000 € ▪ increase of profit through the reduction of material costs of 2 %: material costs x E = 40.000 € x 0,02 = 800 € ▪ Pc = Mc x E / R = 0,4 x 0,02 / 0,05 = 0,16 In this example, a reduction of material costs of 2 % shows the same effect on the profit as an increase in sales of 16 %. Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Increasing meaning of purchasing and procurement management – purchasing benchmarks of leading US business sectors. Purchasing benchmarks of leading Percentage of Ratio of Procurement Purchasing volume Purchasing ratio in purchases by the Sector costs to purchasing per purchase sales purchasing volume employee in m. US$ US business sectors department Steel industry 61,7 % 0,65 % 35,79 66,3 % Semiconductor 47,7 % 0,54 % 14,29 95,6 % Electrical 44,5 % 3,52 % 5,95 87,4 % equipment Chemistry 41,8 % 0,93 % 24,17 86,6 % Building industry 48,2 % 1,75 % 6,31 93,1 % Banks 15,3 % 0,38 % 24,15 37,3 % China plays a special role in purchasing and procurement. Almost 90% of all toys are imported from China to Germany. China is the world’s largest manufacturer of clothing and footwear as well as of steel, refrigerators and TV sets. China produces 80% of the world’s sale of watches and clocks, and around 50% of bicycles and cameras. In many companies the purchasing of products and services in countries with lower production costs is referred to as low cost country sourcing (LCCS). Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Lecture 01 – Integrated logistics, procurement, materials management and production. Agenda Introduction to supply chain management Purchasing and procurement management Offshoring of production, research and design Terms and definitions, goals and tasks of logistics Position and organization of logistics and material management Logistics as a cross-sectional area function The conflict of goals and the success factors Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Shifting abroad production, research and design is a key challenge in supply chain management. Offshoring of production, research and development Motives for research and Reasons for relocation abroad development investments abroad supplementing production location abroad (44%) personnel costs (82%) personnel costs (41%) proximity to market (28%) proximity to customers, market needs (27%) development of core competencies (25%) flexible working hours (26%) capacity utilization (22%) less bureaucracy (24%) coordination costs (13%) better availability of qualified workforce (22%) better science and research structure (12%) Backshoring: every 5th company comes back Reasons Examples of problems leading to backshoring flexibility (62%) delayed product deliveries capacity utilization (47%) customs higher than material costs quality (43%) frequent power blackouts in Kaliningrad coordination costs (36%) unexpected increase in steel prices development of core competencies (23%) problems with local Russian banks R&D centers close to production (21%) protection money demanded by Russian mafia Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Global separation example: Volkswagen AG. ◼ design in Europe ◼ R&D in Europe and India ◼ sourcing in China and Eastern Europe ◼ manufacturing and assembly in Europe, North & South America and South Africa ◼ sales & marketing in Europe, Japan, US Global separation ▪ Global sourcing means coordinating and integrating procurement requirements of worldwide business units. ▪ Comparative advantages such as lower labor cost, material cost and taxes can be obtained by locating parts of the value chain in a way that maximizes customer value. Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Lecture 01 – Integrated logistics, procurement, materials management and production. Agenda Introduction to supply chain management Purchasing and procurement management Offshoring of production, research and design Terms and definitions, goals and tasks of logistics Position and organization of logistics and material management Logistics as a cross-sectional area function The conflict of goals and the success factors Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Megatrends which push the requirements and the performance potentials of logistics are influencing the business. Influences of business and society Society is changing while new economic concepts are having a far-ranging impact on the entire economy. Modern logistics systems have to adapt to these changes. globalization of climate change and production and material environmentalism streams differentiation and shareholder value individualization thinking Megatrends shortened I&C product-lifecycles technologies demographic change Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management The top ten logistics companies in Germany are also high ranked in Europe and worldwide. Top ten Germany Top ten Europe Top ten worldwide 1 Deutsche Bahn AG Deutsche Poste World Net Deutsche Post World Net Top ten logistics companies 2 Deutsche Post World Net DHL Logistik (DPWN) United Parcel Service 3 Kühne + Nagel Maersk FedEx 4 Schenker Deutschland Deutsche Bahn Group Maersk 5 DHL Express DHL Express Deutsche Bahn incl. Schenker 6 DHL Logistics Kühne+Nagel International Chinesische Eisenbahn 7 Dachser CMA-CGMA SA. Kühne + Nagel 8 Hapag-Lloyd TNT N.V. RZB Russische EisenBahn 9 Rhenus SNCF S.A. Nippon Express (Japan) 10 United Parcel Service (D) Hapag-Lloyd NYK Line (Seefracht) Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Germany assumes a leading position in logistics. Logistics turnover of the German economy in 2020: ~279 bn. € Germany is the world‘s largest logistics market “Logistics is [...] the management of all activities which facilitate movement Logistics and the co-ordination of supply and demand” “Logistics management is [...) the planning, implementation and control of the efficient, effective forward and reverse flow and storage of goods, services and Logistics management related information between the point of origin and the point of consumption in order to meet customer requirements” A network consisting of “suppliers, manufacturing centers, warehouses, Logistics network distribution centers, and retail outlets as well as channels for the flow of raw materials, work-in-process inventory, and finished products between the facilities”. Ref.: [1, 2, 6, 7, 10] Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management The development of the modern logistic approach. Process orientation and an integrated view of logistics result in sustainable competitive advantages. 1970‘s Classical logistics → optimization procurement Transport production Transport sales of individual handling handling functions warehousing warehousing 1980‘s Logistics as a cross-functional unit → optimization of procurement classical production classical sales cross-functional logistics logistics processes logistics customer 1990‘s Logistics integrates functions in a process chain. 2000 - today Logistics integrates value chains in a global network. customer order customer processing R&D supply manuf. distr. disp. → set-up and optimization of the process chain 1990‘s Logistics integrates company in a value chain log. log. log. customer service service service supplier manu- retailer customer → set-up and optimization of global facturer networks → set-up and optimization of the value chain Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management The four different types of logistics are: procurement, production, distribution and disposal logistics. Procurement logistics Production logistics activities ranging from sales of goods to the transportation of materials to the incoming store planning, management and control of internal or to production transport, handling and storage processes connection between suppliers’ sales logistics or decision-making about preparation, respectively the distribution logistics and implementation and control of production production logistics of the procuring company Goal Goal aligning production with market demand and procurement of inexpensive high quality goods overall business objectives Distribution logistics Disposal logistics connection between production and sales of a company optimal coordination of logistical measures regarding the disposal and return of waste comprises all warehousing and transport activities delivering the good to the customer as well as the movement of returned waste and decisions about required information, control and monitoring possible future utilization activities provision of the right goods, in the right increased efficiency and reduction of expenses Goal Goal quantity at the right time, at the right place and in compliance with ecological issues, at optimal costs environmental regulations, laws and directives Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Logistics can be classified in procurement-, production-, distribution- and disposal logistics. Procurement Production Distribution logistics logistics (semi-finished logistics (raw-, auxiliary-, (finished products, products, …) operating materials, …) spare-parts,…) receipt of supplier production assembly distribution customer goods disposal logistics (residues, package, used parts,…) company boundary refurbishment material flow information flow Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Terms and definitions, goals and tasks of logistics are important for the system output. right quantity right product right costs tasks of logistics (6 “r’s”) right location right quality right time primary goal of logistics optimization of logistics efficiency logistics efficiency = ratio of system output to system input System input: Logistics system: System output: evaluated factor input corporate logistics 6 “r’s” of logistics right product inventory costs procurement logistics at the right place storage costs production logistics in the right quantity operation costs distribution logistics at the right time control costs disposal logistics in the right quality system costs at optimum costs Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Lecture 01 – Integrated logistics, procurement, materials management and production. Agenda Introduction to supply chain management Purchasing and procurement management Offshoring of production, research and design Terms and definitions, goals and tasks of logistics Position and organization of logistics and material management Logistics as a cross-sectional area function The conflict of goals and the success factors Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management The position of logistics and materials management in a business company depends on several factors. contribution of logistics product structure to company profit The position of logistics within a company depends on several factors. influence of logistics core competence of the management within the company business management internal/ external warehouse transports logistics management controlling Fields of commissioning, responsibility production planning packaging, dispatch and control systems within the company quality disposal management management procurement management Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Organization of logistics can be divided in centralized and decentralized. centralized organization of logistics decentralized Plant logistics follows the instructions of central logistics Decentralized units (business and technical management) (coming from management) comprise subordinated sectors. Suitable for companies with centralized administration and geographically isolated manufacturing plants There is no particular logistics department. However, logistics easier to coordinate takes place in subordinated departments such as purchasing, easier to determine current stock warehousing, disposal and transport. fast implementation of decisions Management Executive board Staff Logistics Plant I Plant II Plant III Plant IV Plant Logistics Plant Logistics Business Technical management management R&D R&D Production Production … … Warehousing Purchasing Transport Disposal Sales Sales Finance and Finance and accounting accounting Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Lecture 01 – Integrated logistics, procurement, materials management and production. Agenda Introduction to supply chain management Purchasing and procurement management Offshoring of production, research and design Terms and definitions, goals and tasks of logistics Position and organization of logistics and material management Logistics as a cross-sectional area function The conflict of goals and the success factors Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Logistics is a cross-functional unit and provides services to different departments along the value chain. Area of Strategic tasks activity customer design of the procurement program Purchasing/ long-term contracts pre-supplier procurement market research procurement development of new procurement markets logistics as cross- conflict of goals functional unit Inventory long-term planning of safety stocks development management company supply Internal sales design of material flow and packages transport disposal Recycling/ design of disposal and recycling systems disposal identification of substitutes customer Further long-term decisions about in-house manufacturing or outsourcing possible standardization of material strategic tasks equity participation of suppliers Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management One objective of logistics is the prevention of different kind of conflicts. missing cooperation of individual departments competition within the company fragmentation of logistics activities lack of competitiveness retention of energies and costs optimization of individual departments → no overall supply chain improvements prevention of these conflicts objective of logistics Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Lecture 01 – Integrated logistics, procurement, materials management and production. Agenda Introduction to supply chain management Purchasing and procurement management Offshoring of production, research and design Terms and definitions, goals and tasks of logistics Position and organization of logistics and material management Logistics as a cross-sectional area function The conflict of goals and the success factors Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Sometimes objectives of logistics conflict with each other and their implementations require trade-offs. Section/department Goals Conflict of goals Quality Warehouse Production Purchasing Distribution Sales Controlling Production management management low cost high high high low capital low price, high fast availability of high quality availability of availability of commitment, changeover discounts, transports parts parts parts high liquidity costs bonuses intensive high capital many high order high capital sampling, commitment, high stock, low stock, homogenous quantities, low transport commitment high high stock, high capital possible parts, high capital costs in stock appraisal high storage commitment shortages possible commitment costs costs overstock Commis- Spare parts Customer Purchasing Production Service Sales Logistics sioning logistics low cost compre- high individual short optimal fast price, high hensive willingness to products, high quality commis- customer availability of discounts, product provide flexibility sioning time service parts bonuses range information cost savings high set-up high high stock, high low capital through high costs, many investment storage investment in commitment standardi- personnel high stock customer costs in costs, low hard- and trough JiT zation of costs options warehousing turnover software parts Ref.: Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Example: Cost conflicts in logistic. Are there other cost conflicts you can think of? cost in $ total cost inventory cost cost of (includes transportation storage and service transit) rail truck air transportation service (greater speed and dependability) Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management There are five factors that influence the success of supply champions. intensive informal contacts to customers (Supply chain cooperation network) high detailed and proportion precise with weekly forecasting of production costs Success (flexible factors of production) supply champions measurement of key transparent performance planning indicators e. processes g. readiness for delivery Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management The following questions should give you an idea about integrated logistics. 1. What are the objectives of supply chain management? 2. How many levels characterize the SCOR model and what is their definition? 3. How high is the profit margin, assuming: Pc=20%, Mc=50%, E=2%? 4. Name 5 offshoring and 5 backshoring reasons. 5. Please name four conflicts of goals in logistics. 6. What are the 6 “r’s”? 7. Which factors determine the position of the logistics function in a company? Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management References / recommended reading for this lecture. Wannenwetsch, Helmut. Integrierte Materialwirtschaft und Logistik: Beschaffung, Logistik, Materialwirtschaft und Produktion ; [neu: mit Wiederholungsfragen und Lösungen]. 4th ed. Berlin ;, Heidelberg: Springer, 2010. Schönsleben, Paul. Integrales Logistikmanagement: Operations und Supply Chain Management innerhalb des Unternehmens und unternehmensübergreifend. 6th ed. Berlin: Springer Berlin, 2011. Supply-Chain Council (1) 2006, S. 2 http://www.gate4logistics.de/logistik.html Baumgarten, Helmut, ed. Das Beste der Logistik: Innovationen, Strategien, Umsetzungen. Berlin, Heidelberg: Springer, 2008. The Council of Supply Chain Management Professionals: http://cscmp.org/digital/glossary/glossary.asp Simchi-Levi, David, Kaminsky, Philip, and Simchi-Levi, Edith. Designing and managing the supply chain: Concepts, strategies, and case studies. Boston: Irwin/McGraw-Hill, 2000. Christopher, Martin. Logistics and Supply Chain Management, 2011. Akinlar, Sevket: Logistics 4.0 and challenges for the supply chain planning and IT, Fraunhofer IML, 2014. Statista: Umsatz der Logistikbranche in Deutschland. https://de.statista.com/statistik/daten/studie/166970/umfrage/umsatz-der- logistikbranche-in-deutschland/ Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management Der Lehrstuhl für Fertigungsautomatisierung und Produktionssystematik bietet eine Vielzahl an Möglichkeiten für die Vertiefung der Vorlesungsinhalte. Studentische Arbeiten Scan und entdecke Übersicht aller aktuellen Themen für Bachelor-, Projekt-, Masterarbeiten die FAPS-Homepage! finden Sie auf der FAPS-Homepage und unter studOn. Join our team! Werde während des Studiums wissenschaftliche Hilfskraft oder wissenschaftlicher Mitarbeitender am Lehrstuhl FAPS und sammle Berufserfahrung in Forschung, Lehre und Industriekooperationen. Prof. Dr.-Ing. Jörg Franke Institute for Factory Automation and Production Systems Friedrich-Alexander University Erlangen-Nuremberg THANK YOU Prof. Dr.-Ing. Jörg Franke | International Supply Chain Management