SCM.pdf

SUPPLY CHAIN MANAGEMENT Introduction The global market faces a fierce competition today. The introduction of products with shorter life cycles and the heightened expectations of customers have forced business enterprises to invest in, and focus attention on, their supply ch...

SUPPLY CHAIN MANAGEMENT Introduction The global market faces a fierce competition today. The introduction of products with shorter life cycles and the heightened expectations of customers have forced business enterprises to invest in, and focus attention on, their supply chains. This, together with continuing advances in communications and transportation technologies (e.g., mobile communication, internet, and overnight delivery), has motivated the continuous evolution of the supply chain and of the techniques to manage it effectively. Recently, the pressure of the competitive market and new information technologies has affected the structures of the production systems, calling for: reduction of time to market higher flexibility of the systems drastic reduction of costs extended quality concept Supply Chain A supply chain is a system of organisations, people, technology, activities, information and resources involvedin moving a product or service from supplier to customer. A supply chain is a network of retailers, distributors, transporters, storage facilities, and suppliers that participate in the production, delivery and sale of a product to the consumer. These activities are associated with the flow and transformation of goods from the raw materials stage to theend user, as well as the associated information and funds flows. Supply chain activities transform natural resources, raw materials and components into a finished product that is delivered to the end customer. In simple terms, a supply chain is the link between a firm or business and its suppliers and customers.  Supplier Firm Customer Fig. 1.1 A conceptual model of a basic supply chain The supply chain, which is also referred to as the logistics network, consists of suppliers, manufacturing centres, warehouses, distribution centres, and retail outlets, as well as raw materials, work-in-process inventory, and finished products that flow between the facilities. A supply chain is a global network used to deliver products and services from raw materials to end customer through information flow, physical distribution and cash. Supply chain involved all the stages directly or indirectly in fulfilling a customer request which includes manufacturers, suppliers, transporters, warehouses, retailers and customers. It is the integration of demand and supply. Examples of supply chain activities include farming, refining, design, manufacturing, packaging, and transportation. A supply chain may be defined as an integrated process wherein a number of various business entities like  Suppliers  Manufacturers / Producer  Dealers, Retailers, Customer etc. Work together in an effort to  Acquire raw materials  Convert these raw materials into specified final products, and  Deliver these final products to retailers. Customer is the integral part of supply chain. The main objective of supply chain management is to monitor and relate production, distribution, and shipment of products and services. This can be done by companies with a very good and tight hold over internal inventories, production,distribution, internal productions and sales. Supply Chain Management  Supply chain management (SCM) is the oversight of materials, information, and finances distributed from supplier to consumer. The supply chain also includes all the necessary stops between the supplier and the consumer. Supply chain management involves coordinating this flow of materials within a company and to the end consumer.  The Council of Supply Chain Management Professionals defines supply chain management as follows: “Supply chain management encompasses 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, which can be suppliers, intermediaries, third- party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.  Supply chain management basically merges the supply and demand management. It uses different strategies and approaches to view the entire chain and work efficiently at each and every step involved in the chain. Every unit that participates in the process must aim to minimize the costs and help the companies to improve their long term performance, while also creating value for its stakeholders and customers. This process can also minimize the rates by eradicating the unnecessary expenses, movements and handling. DIFFERENT TYPES OF GENETIC SUPPLY CHAINS Manufacturer Wholesaler Retailer Customer Manufacturer Customer OBJECTIVES OF SUPPLY CHAIN MANAGEMENT  To maximize overall value generated  To meet consumer demand for guaranteed delivery of high quality and low cost withminimal lead time   To fulfill customer demand through efficient resources  To maximize efficiency of distribution side  Helps in better decisions  Decreases Purchasing Cost  Decrease Production Cost  Decrease Total Supply Chain Cost  Improves Financial Position FUNCTIONS OF SUPPLY CHAIN MANAGEMENT  Customer Relationship Management: Consistent focus on end customer demands tomeet the increasing customer requirements and ensures a high degree of flexibility.  Flexibility and demand-oriented production: Continuous cost reduction and resourceoptimization across all stages of the value chain.  Synchronization of supply and demand: Increasing the adaptability and developmentcapability of the supply chain. ADVANTAGES OF SUPPLY CHAIN MANAGEMENT  Develops better customer relationship and service.  Creates better delivery mechanisms for products and services in demand with minimumdelay.  Improvises productivity and business functions.  Minimizes warehouse and transportation costs.  Minimizes direct and indirect costs.  Assists in achieving shipping of right products to the right place at the right time.  Enhances inventory management, supporting the successful execution of just-in-timestock models.  Assists companies in adapting to the challenges of globalization, economic upheaval,expanding consumer expectations, and related differences.  Assists companies in minimizing waste, driving out costs, and achieving efficienciesthroughout the supply chain process. Key Drivers and Enablers in Supply Chain Management Supply chain capabilities are guided by the decisions you make regarding the five supply chain drivers. Each of these drivers can be developed and managed to emphasize responsiveness or efficiency depending on changing business requirements. As you investigate how a supply chain works, you learn about the demands it faces and the capabilities it needs to be successful. Adjust the supply chain drivers as needed to get those capabilities. The key drivers and enablers in supply chain management (SCM) include: 1. Facilities: o Location: The geographical placement of production and storage facilities impacts the transportation costs and delivery times. o Capacity: This involves decisions on the production and storage capacity of facilities. o Manufacturing: The flexibility and efficiency of manufacturing processes within a facility can significantly affect supply chain performance. o Warehousing: Proper management of warehousing activities, like cross- docking and inventory storage, can streamline the supply chain. 2. Inventory: Responsiveness can be had by stocking high levels of inventory for a wide range of products. Additional responsiveness can be gained by stocking products at many locations so as to have the inventory close to customers and available to them immediately. Efficiency in inventory management would call for reducing inventory levels of all items and especially of items that do not sell as frequently. Also, economies of scale and cost savings can be gotten by stocking inventory in only a few central locations such as regional distribution centers (DCs). o Cycle Inventory: The average amount of inventory used to satisfy demand between orders. o Safety Inventory: Extra stock held to counter uncertainties in demand or supply. o Seasonal Inventory: Inventory built up in anticipation of future demand spikes due to seasonal factors. o Inventory Control: Methods like Just-In-Time (JIT) and Economic Order Quantity (EOQ) help optimize inventory levels. 3. Transportation: Responsiveness can be achieved by a transportation mode that is fast and flexible such as trucks and airplanes. Many companies that sell products through catalogues or on the Internet are able to provide high levels of responsiveness by  using transportation to deliver their products often within 48 hours or less. FedEx and UPS are two companies that can provide very responsive transportation services. And now Amazon is expanding and operating its own transportation services in high volume markets to be more responsive to customer desires. Efficiency can be emphasized by transporting products in larger batches and doing it less often. The use of transportation modes such as ship, railroad, and pipelines can be very efficient. Transportation can also be made more efficient if it is originated out of a central hub facility or distribution center (DC) instead of from many separate branch locations. o Modes: Selection of transportation modes (air, sea, road, rail) impacts speed, cost, and flexibility. o Routes: Optimizing transportation routes can reduce delivery times and costs. o Consolidation: Combining smaller shipments into larger ones can achieve economies of scale. 4. Information: The power of this driver grows stronger every year as the technology for collecting and sharing information becomes more wide spread, easier to use, and less expensive. Information, much like money, is a very useful commodity because it can be applied directly to enhance the performance of the other four supply chain drivers. High levels of responsiveness can be achieved when companies collect and share accurate and timely data generated by the operations of the other four drivers. An example of this is the supply chains that serve the electronics market; they are some of the most responsive in the world. Companies in these supply chains, the manufacturers, distributors, and the big retailers all collect and share data about customer demand, production schedules, and inventory levels. This enables companies in these supply chains to respond quickly to situations and new market demands in the high-change and unpredictable world of electronic devices (smartphones, sensors, home entertainment and video game equipment, etc.). o Data Accuracy: Real-time, accurate data helps improve decision-making in areas like forecasting, inventory management, and customer service. o Technology: Use of tools like Enterprise Resource Planning (ERP), Supply  Chain Management (SCM) software, and Internet of Things (IoT) for tracking and data analytics. o Collaboration: Information sharing with suppliers, customers, and logistics partners enables better planning and execution. 5. Sourcing: Functions a firm performs and the functions that are outsourced. o Supplier Selection: Choosing suppliers based on criteria like cost, quality, reliability, and location. o Contract Negotiation: Negotiating contracts to define pricing, delivery, and service terms. o Supplier Collaboration: Building long-term partnerships with key suppliers can lead to better quality, reliability, and innovation. 6. Pricing: Price associated with goods and services provided by a firm to the supply chain. o Dynamic Pricing: Adjusting prices in response to changes in demand and supply. o Discounts and Promotions: Using promotional tactics to influence demand patterns. Enablers in SCM: o Technology Integration: Implementation of IT systems like ERP, WMS (Warehouse Management Systems), and TMS (Transportation Management Systems) to streamline operations. o Process Improvement: Continuous improvement methodologies like Six Sigma and Lean to eliminate waste and increase efficiency. o Talent and Skills: Investing in skilled personnel who can manage complex supply chain operations effectively. Barriers of Supply Chain Management The obstacles of supply chain management include:  lack of top management support   non-aligned strategic and operating philosophies  inability or unwillingness to share information  lack of trust among supply chain members  unwillingness to share risks and rewards  inflexible organisational systems and processes  cross-functional conflicts  inconsistent or inadequate performance measures  resistance to change  lack of training for new mind sets and skills Supply Chain Components Supply chain components form the building blocks of a successful supply chain network: 1. Suppliers: Organizations or individuals that provide the raw materials, components, or products needed for manufacturing. 2. Manufacturers: Entities responsible for transforming raw materials into finished goods through various processes. 3. Warehouses: Facilities for storing inventory, both raw materials and finished goods, to meet customer demand. 4. Distribution Centres: Facilities that consolidate products from multiple suppliers, manufacturers, or warehouses for distribution to retailers or customers. 5. Retailers: The outlets or platforms (physical or online) where finished goods are sold to end customers. 6. Customers: The end-users or businesses who purchase the finished goods or services. Supply Chain Strategy Supply chain strategy aligns the overall business strategy with supply chain operations to achieve competitive advantage: 1. Cost Leadership: Focusing on minimizing costs across the supply chain to offer competitive pricing. 2. Differentiation: Emphasizing unique products or services that command premium pricing. 3. Focus/Niche: Tailoring the supply chain to cater to specific market segments or  geographical regions. 4. Responsiveness: Building a flexible supply chain that can adapt quickly to changing market demands and disruptions. 5. Agility: Enhancing the ability to respond rapidly to unforeseen changes in supply and demand. 6. Lean Supply Chain: Minimizing waste and optimizing efficiency throughout the supply chain. 7. Sustainable Supply Chain: Incorporating eco-friendly practices to reduce the environmental impact and promote corporate social responsibility (CSR). Measures of Supply Chain Performance Measuring supply chain performance is critical to understanding efficiency and effectiveness: 1. Cost-Related Measures  Total Supply Chain Cost: The total costs associated with the entire supply chain, including procurement, manufacturing, warehousing, transportation, and inventory carrying costs.  Cost of Goods Sold (COGS): The direct costs attributed to the production of goods sold by a company, including material and labor.  Inventory Holding Costs: Costs related to storing and managing inventory, including warehousing, insurance, taxes, and opportunity costs of capital.  Transportation Costs: Expenses involved in moving goods from suppliers to manufacturing units, warehouses, and customers.  Order Processing Costs: Costs related to processing customer orders, including administrative and operational expenses. 2. Time-Related Measures  Order Cycle Time: The time taken from when a customer places an order until the product is delivered. This includes order processing, production, and shipping times.  Lead Time: The duration between the initiation of a process and its completion, such as the time between ordering raw materials and receiving them.  On-Time Delivery: The percentage of orders delivered on or before the committed date. 3. Inventory Measures  Inventory Turnover: The ratio of cost of goods sold to the average inventory value, indicating how often inventory is sold and replaced over a specific period.  Days of Supply (DOS): The number of days the current inventory will last, given the current demand rate.  Stock out Rate: The frequency with which inventory levels are insufficient to meet customer demand. 4. Service-Related Measures  Fill Rate: The percentage of customer demand that is met directly from available inventory without backordering.  Order Accuracy: The degree to which customer orders are fulfilled correctly, including the right products, quantities, and conditions.  Perfect Order Rate: The percentage of orders that are completed without errors, including on-time delivery, correct items, and proper documentation. 5. Flexibility and Responsiveness  Supply Chain Flexibility: The ability to adapt to changes in demand or supply quickly and cost-effectively.  Order Fulfillment Lead Time: The time taken to fulfill customer orders from the moment the order is placed to delivery.  Demand Forecast Accuracy: The accuracy of predictions regarding future customer demand, which helps in planning inventory and production levels.  6. Quality Measures  Defect Rate: The percentage of products that are defective in the supply chain, from raw materials to finished goods.  Return Rate: The proportion of products returned by customers, indicating issues with quality, packaging, or delivery. 7. Cash Flow and Financial Measures  Cash-to-Cash Cycle Time: The time span between paying suppliers and receiving payment from customers, reflecting the efficiency of managing cash flow in the supply chain.   Return on Assets (ROA): A measure of how efficiently the supply chain uses its assets to generate profit.  Supply Chain Cost as a Percentage of Sales: This measures the total supply chain cost relative to sales, providing insight into the cost efficiency of the supply chain. 5. Planning - Demand and Supply in a Supply Chain Effective planning of demand and supply in a supply chain involves the following activities: 1. Demand Planning: o Forecasting: Using historical data, market analysis, and statistical tools to predict future demand. o Demand Sensing: Real-time tracking of changes in demand patterns using POS data, market trends, and customer feedback. o Collaborative Planning: Working with partners (suppliers, distributors, retailers) to synchronize demand forecasts and align inventory levels. 2. Supply Planning: o Production Planning: Scheduling production activities based on forecasted demand and inventory levels. o Capacity Planning: Assessing and adjusting the production capacity to meet demand fluctuations. o Inventory Management: Determining optimal inventory levels (cycle, safety, and seasonal) to ensure product availability while minimizing costs. o Procurement Planning: Aligning the purchasing of raw materials and components with production schedules and demand forecasts. 3. Balancing Demand and Supply: o Sales and Operations Planning (S&OP): Integrating sales forecasts, inventory, and production plans to ensure supply chain alignment. o Demand Shaping: Using marketing strategies (pricing, promotions) to influence customer demand patterns. o Supply Flexibility: Developing a flexible supply base and using strategies like postponement to quickly adapt to changes in demand. Comparison of Online and Store-Based Supply Chain Models Online Supply Chain Model  Structure: E-commerce companies rely on centralized warehouses and distribution centers, as they do not have physical storefronts.  Inventory Management: Typically centralized, allowing for better inventory visibility and control across multiple locations.  Demand Fulfillment: Orders are shipped directly to customers, with a focus on fast delivery options (same-day, next-day shipping). The use of drop-shipping can further reduce inventory holding.  Order Processing: Online models use automated systems for order processing, which helps in efficiently managing high volumes of small orders.  Customer Interaction: Digital, with customer feedback, preferences, and purchasing patterns tracked online to optimize inventory levels and improve demand forecasting.  Advantages: Reduced costs for physical storefronts, dynamic inventory control, greater reach to customers, and flexibility in product offerings.  Challenges: Requires efficient logistics, warehousing, and transportation networks. Last-mile delivery and returns management can be costly. Store-Based Supply Chain Model  Structure: Involves physical retail stores that hold inventory and serve customers directly.  Inventory Management: Inventory is distributed across various retail locations, making it more challenging to monitor and control inventory levels.  Demand Fulfillment: Customers directly pick up products from stores, reducing the need for shipping to individual addresses.  Order Processing: Done at point-of-sale in the store, with inventory replenished based on historical sales data and store-level demand forecasting.  Customer Interaction: Direct in-store interactions provide immediate feedback, influencing stock levels and assortment planning.  Advantages: Immediate product availability, hands-on customer service, and the ability for customers to experience products before purchase.   Challenges: Higher costs due to maintaining physical stores, decentralized inventory, and slower response to changes in market demand. Hybrid (Omni-Channel) Model  Many companies adopt an integrated approach combining online and store-based models to enhance customer experience, offering options like "Buy Online, Pick Up In-Store" (BOPIS).  This model requires sophisticated inventory management systems to track stock across online channels, warehouses, and physical stores seamlessly.