Supply Chain Management PDF

# Supply Chain Management ## Supply Chain Management: Its Structure - The process of all activities that facilitate the movement of goods and services from point of production to point of consumption. - Activities that maximize customer value and to gain a competitive advantage in the marketplac...

# Supply Chain Management ## Supply Chain Management: Its Structure - The process of all activities that facilitate the movement of goods and services from point of production to point of consumption. - Activities that maximize customer value and to gain a competitive advantage in the marketplace. ### The Supply Chain Structure - **3 Nodes** - S.S (Supplier's Network) - C (Converters Network) - D (Distributor's Network) - **4 Intermediaries** - W1 - W2 - W3 - W4 #### Supply Chain Nodes - **Supplier's Network** - Suppliers (importers) for: - Materials - Power, fund & services - OEMs - Production facilities (Tools, equipment & machines) - **Converters Network** - Shops that convert raw materials into fabricated ones through - Operations like press, drill - SMEs that convert the fabricated into semi-finished parts & components - Parent firms that convert parts & components into finished products. - **Distributor's Network** - Group of: - Wholesalers - Retailers **Examples:** - Natural iron made into steel sheets - Steel sheets fabricated to parts and components - Parts & components assembled into finished goods - Distributing cars #### Supply Chain Intermediaries - **W = Receive, Store, Send** | Intermediary | Description | | ------------- | ------------- | | W1 | : Wide collection of raw materials & production facilities | | W2 | : Inventory of fabricated materials | | W3 | : Inventory of parts & components | | W4 | : Inventory of finished goods | ## Converters - Converters are either: - **Producer**: Assembly process line (assembler) - Start with parts & components and end with finished goods - **Manufacturer**: Make process (maker) - Start with raw material, end with parts & components - Converters use (raw materials, machines, facilities) from **suppliers**. - First party is **seller**, second is **buyer**, while third party is **rarely** involved. - **Middlemen** = warehouses = intermediaries make multiple activities - Receive, store, send - They make the life easy to move these facilities & materials from suppliers to converters. ### Supply Chain Characteristics - Supply chain is a typical example of **out-sourcing**. #### Outlets - **Exclusive outlets**: all products of one brand - **non-compatible**. - **Non-exclusive outlets**: many brands in one store - **compatible**. - Non-compatible for one parent company - Compatible for more than one parent company - **Distributors**: like hyper 1, spinneys, Carrefour (either chain or network) - Network: many suppliers found in one place ### SCM is Based Mainly On Marketing and Production - **Large enterprise (LE)** firms are connected with a number of **SMEs** - Parent - **SMEs** make parts and components (work in process) - Child #### Communication Within the Supply Chain is Either: - **Vertical integration** (up-stream and down-stream): - **Upstream**: from **distributor** to **supplier** - pull - from outlet to **producer** - **Downstream**: from **supplier** to **distributor** - push - from **producer** to **distributor** - **Horizontal integration** (between suppliers themselves) - Communication here is lateral between two parent companies ### The Smallest Entity in the Supply Chain is Retailer - The largest entity is the **Supplier of Supplier**. #### The Marketing 4Ps - The marketing 4Ps, the first P is product is made before production. - While the other 3 Ps are made after the production. ### Supply Chains are Industrial Buyers, Not End Consumers. ## Suppliers - First node is supplier, that supply... - Suppliers who provide: - **Facilities** (machines, tools, equipment) - **Service supplier** like maintenance, transportation, inspection warehousing, handling (between machine & machine) - **Fixed assets** or current assets - **Fixtures** (furniture) - **Food and beverage**, inspection - **HR agency** (non-human assets) ## Supply Chain Channel vs Distribution Channel | | Supply Chain Channel | Distribution Channel | | ----------- | ------------------- | --------------------- | | Start with | Supplier or supplier | Converter | | End with | Distributor | End Consumer | | Channel of | | | | | Raw materials | Products or services | | | Resources | | | | Equipment | | | End with | Customer (Distributor) | Consumer | | | B2B | B2C | | | They have suppliers of suppliers | Have end consumers but don't have suppliers of suppliers | | | but don't have end consumer | | | | Supply department | Marketing department | | | | | | | Supply chain are industrial buyers not end consumer | | ## SCM Notes 1. **Customer**: company that make resale or - reuse not end consumption 2. **Consumer**: who buy for the end consumption 3. **Supply chain** end with the shelve of the retailer X 4. **Converters** are either manufacturers (Maker) or producers (Assembler 5. **Outsource**: use out- house - **In-source**: all in house - Supply chain is a typical example of out-sourcing ### In-Marketing We Have 3 Different Types of Transactions | Type | Description | | ----- | ----------- | | B2B | Direct sale between the firm and firm | | | They sell: | | | - WIP | | | - Facilities | | | - Materials | | | - Transportation | | | - Maintenance | | B2C | Direct sale between the seller and end-user | | | They sell: | | | - End consumer | | C2C | Sales between consumer and consumer | | | Resell is made online via OLX | | | Physical Bazar day | #### Channels | Channel | Description | | -------- | ----------- | | Supply chain channel | Channel that link business with business | | Distribution channel | Channel that link business with consumer | | Distribution channel | Channel that link consumer with consumer | #### Marketing | Channel | Description | | -------- | ----------- | | SCM | Marketing | | | Marketing | ## Demand Variability - We face wrong data between the demand and supply. - **Which is known as demand variability, Ripple Bulwhip**. - **Shortage** or **Surplus** - **V = v + V** ### Demand Visibility (V) - You can see correctly the SCM - Visible the product journey from day zero to the final destination (shelve of the retailer) ### Demand Velocity (V) - You can turn the demand to a production - (You can actualize) - **LEARNINGG BY DOING**: Make product in hand of all people - widespread the supply chain - When the two V is up, **demand variability is down**. #### Push Strategy - The manufacturer determine the quantities that will be sent to the distributor. - Pushing the product into the market through MTS #### Pull Strategy - The producer pull the demand from the market by dividing the market into segments. - Investigating the customer's demand, ATO, MTO - Plus we apply 6 sigma, JIT just in time. ## Causes of Demand Variability 1. **Competition** - Economical hazard conditions - Competitors play Increase the demand variability by competing through strategies as: - Price, Quality - Time, Differentiation, Flexibility 2. **Distance** - Inverse relationship between distance and demand - Small distance large demand - Large distance small demand - Shorter distance, shorter lead time low variability 3. **Disasters** - Shortages like Hiroshima, online demand 4. **Internet** - Internet increase demand - 40% of buyers online reverse their demand - Suppliers through internet face fake demand lead to surplus - Internet and social media lead to variability surplus 5. **After promotion demand** - There is a spike after promotion demand lead to a decrease in inventory - After the promotion end, surplus appear 6. **Life cycle** - Each product has a begin and an ending, Maturity is the middle of the life cycle - At beg. demand is higner, At end demand is reduced 7. **Seasonal effect** - Beg of season we have high demand, More demand lead to more production Finally, warehouses are full with more than needed by distributors, season like black Friday ## Failure Costs vs Preventive Costs - Failure Cost = Results from products or service - Preventive Costs = Costs to prevent poor quality in products of services | Type | Description | | ----- | ----------- | | Failure Costs | - Not confirming to requirements of customers | | | - Scrap, redoing inspection, redoing test, material review rework | | | - Cost to Correct the failure | | | - The cost in this time... lead time between issuing and receiving between procurement time and delivery time. | | | - Failure is zero when perfection is 100% | | | - Penalty cost internal failure cost | | | - Internal failure cost | | Preventive Costs | - Maintenance, evaluation, inspection, test, add it, tests equipment | | | - To Prevent mistakes or failure | | | - We have prevention cost like inspection | | | - So over time we increase the cost of prevention and reduce the cost of failure | #### Negative Relationship | | | | ----------- | ------------------------------------------------------- | | Inspection cost | When discovered by supervisor | | | When discovered by customer | #### Internal Failure Cost vs External Failure Cost - **Internal Failure Cost** is better than **external failure cost** - **The** make appraisal before and after prevention. - **That's why** appraisal is twice the prevention. - **The prevention** increase (trend-up) slowly with low variability. - **While failure** high trend down with high variability. ## Goals of Purchasing and Supply Management 1. **Quality**: of purchased material and production facilities 2. **Costs**: purchased material price + cost of packaging, handling, transportation, warehousing & fixing + cost of goods sold + marketing expenses. 3. **Procurement lead time**: military concept that satisfy production schedule and sales forecast ""Time between order and delivery, Based on the production schedule and sales forecast" 4. **Technology**: level of technology and facilities on purchase process. 5. **Continuity**: producer supplier relationship (alliances) - If the supply chain manager wants to achieve his goal, he should contact with both: - **Marketing Manager** - Forecasting what consumer needs & respond to that needs - **Production Manager** - Preparing production schedules & production requirements - Link between them - Finally **Selecting the best supplier**. - We list the possible qualified suppliers through: 1. **Qualifications** 2. **Accuracy** 3. **Reliability delivery** 4. **Flexible supplier** 5. **Attractiveness** 6. **Web enabled supplier** ## Qualified Supplier - List of qualified supplier - Means providing product at the right Quality & Quantity. ### As For The _Quality_ - _Quality of products mean it need less Maintenance_ (repair) & (less replacement). - **Replace:** with a good one, repair the low quality one - 60% of product cost based on material quality - Quality represented in the -> better Performance -> lead to lower costs - High quality supplier -> Low safety stock ### As For _Quantity_ - The qualified supplier lead to _more safety stock_. - The more effective a supplier is the lower safety stock. - **S.S** Amount of materials needed to ensure that the supplied quantities meet demanded Quantities, it is not ending inventory. ## Accurate Lead Time Supplier - Procurement lead time (LT): - The time estimated between placing an order & delivery of materials. - The shorter the lead time, the lower the safety stock levels, the lower the costs | | Inventory turn-over | Safety stock | Warehousing cost | | ------------ | ------------------- | ------------ | ----------------- | | Procurement | | | | | Lead Time | | | | | Long | slow-long | Large amount | High | | Short | Fast-Short | Small amount | Low | #### Accurate Lead Time Supplier Benefits - Accurate supplier help to reduce Warehousing cost - Times of replenishment = time to stock out = inventory turn-over - More accurate, more replenishment...more order costs but...lower inventory costs ## Reliable Supplier - **The Exact Time To Deliver the Materials** - The more reliable the supplier the more exact the time of delivery of materials to industrial buyers - We prefer reliable supplier at the expense of longer lead time as Depending on accurate time...we plan our operations ## Flexible Supplier - Flexibility: The ability to make change (respond) - Agility=Quick respond =Lean = swift. ## Attractive Supplier - Supplier who make packaging, discounts on early payments - Discounts in quantities transportation - The greater the suppliers' ability to reduce purchase cost the greater their ability to attract much consumers. - Costs include the expenses of materials packaging, handling, transportation, warehousing, inspection and fixing ## Web Enabled Supplier - Paperless...to order on-line, receive online - Only suppliers with software can deal online with other orgs - **MRP** -Material Requirement Planning - **JIT** -Just in Time Inventory - **EOQ** -Economic order quantity - **PERT** -Program evaluation review Technique - **POS** -Point of sale - **BIS** -Business Intelligence System ## SCM Structures - There are two types of SCM Structures - **Structure A**: SCM locates as a department on the same level of marketing, Manufacturing. - **Structure B**: Purchasing or procurement unit locates as division of manufacturing or marketing. ### Factors Affecting Location of Purchasing | Factor | Structure A | Structure B | | ----------------- | ----------- | ----------- | | Volatile/monopoly | | | | Material Availability | | | | Competitive | | | | Large Budget | | | | Large Enterprise | | | | Very Expensive | | | | Professional Staff | | | #### Structure A - The more the market is competitive, we depend more on Structure A. - Expensiveness means Cost of Goods sold including: Warehousing, maintenance, insurance, lightening, Transportation - Fixing - Treatment, inspection. - The more the material is expensive, we depend more on Structure A. - Over 40% of the inventory compared with the total assets - Precious Materials - Test prototype - Laboratory test, diamonds #### Structure B - The more the market is monopoly, we depend more on Structure B. - We use a professional when there are alternates of suppliers of raw materials. - While when only one supplier of raw materials, no professionalism needed. - Less than 40% of the inventory compared with the total assets. - Ordinary Materials - Battery #### Structure A Inside the Box, We Have Position - Strategic planning and research -> line of consultation - Make planning and research only in structure A. - Buying activities: - Representatives who buy from suppliers - Managers who are responsible for A, B, C, D which are either customer, product or geographic - Expeditor - Securing the quality and timely delivery of goods and components - Clerk: secretary issues like order preparation, files, records. ### MPCS: Manufacturing Planning Control SYS. - **Manufacturing planning and controlling system. Include the whole SCM.** - Divided into 3 components vertical and horizontal: - Intermediate, long term, Short term production, marketing and finance. - **DRP is the first plan to be made in the MPCS** - **Distribution Planning** Applies to finished goods inventory - Plan for S&OP - Plan for MPS (master production schedule) - Plan for order released to factory - **DRP is hybrid not push, not pull** - DRP Forecast for year (span) - Divided into intervals (months) - Start with family and end with item, and items too - **Can be mid and short too (family and items too)** - **DRP is used to filter the demand by using the distribution plan** Out - put of the DRP is (forecast + safety stock) - Distribution plan use (demand S&OP) - **Cost of product on warehouse** = supplier - **Cost of product on shelve** = distributor - **Cost of product on production line flow** = production - **S&OP** = sales and operations plan - **S&OP** = distribution replenishment plan - **MPS** = master production schedule - **RP** = resource planning - **RCCP** = rough cut capacity planning - **CRP** = capacity requirement plan - **MRP** = material requirement planning - **All under MPCS, All are sub-systems of the whole system which is ERP.** - **Long term** -> S&OP, RP -> business plan - **Mid-term** -> MPS, RCCP -> months - **Short term** -> MRP, CRP -> operational #### Financial Plan That Support - Financial plan that support S&OP -> RP -> resource planning for producing family -> long term - MPS -> RCCP -> rough cut capacity plan for producing item -> mid-term - CRP -> cost requirement plan for materials of an item -> short term ### Capacity Management - Balance demand and supply for cost effective service. - **Capacity planning**: Identify necessary resources at all levels - **Capacity control**: Monitor the input/output #### Capacity Management Breakdown | | Description | Duration | | ------------ | ------------------------------------------------- | -------- | | S&OP | Resource planning | Long | | MPS | Rough cut capacity planning | Med range | | MRP | Capacity requirement planning | Short | | PAC | Capacity control | Short | | Production activity control | | Short | ### S&OP Sales and Operation Plans - Connect business planning to tactic planning - Balance supply and demand at family level - Require monthly review - Involve sales, manufacturing, purchase (logistics), finance ### Master Production Schedule (MPS) - Based on family data of S&OP - Break family volume into items or mix - Balance supply and demand at individual end items - Link to schedule system ## Distribution Planning - Applies to finished goods inventory - Plan for S&OP - Plan for MPS (master production schedule) - Plan for order released to factory - DRP is hybrid not push, not pull. - DRP = forecast for year (span) -> divided into intervals (months) - start with family and end with item and items too - Can be mid and short too (family and items too) - DRP is used to filter the demand by using the distribution plan - Out-put of the DRP is (forecast + safety stock) - Distribution plan use (demand S&OP) - **Cost of product on warehouse** = supplier - **Cost of product on shelve** = distributor - **Cost of product on production line flow** = production #### DRP Plan Components - **DRP** -> distribution replenishment plan - **S&OP** -> sales and operations plan - **MPS** -> master production schedule - **RP** -> resource planning - **RCCP** -> rough cut capacity planning - **CRP** -> capacity requirement plan - **MRP** -> material requirement planning #### All Components of MPCS - All under MPCS, All are sub-systems of the whole system which is ERP. - **Long term** -> S&OP, RP -> business plan - **Mid-term** -> MPS RCCP -> months - **Short term** -> MRP, CRP -> operational ## Inventory - Inventory: A company's Merchandise, raw materials & finished goods & unfinished Products which have not yet been sold (it takes many forms)(Considered a liquid assets since they can be converted into cash easily) <start_of_image> Schematic Representation of Inventory: | Inventory | Description | | --------------- | ----------- | | **A Good** | Any object that increases utility, directly or indirectly (such as building) | | **A Place Where Items Can Be Accumulated** | A place where items may be accumulated or routinely kept There are different policies that can be used to design stores which aim to maximize the flow of handling processes to reduce the sending & receiving costs. | | **Warehousing for Commercial Building** | A commercial building for storage for goods, It is divided into 3 main operations: <br> 1. Receiving inventory from suppliers, then stored <br> 2. Storage, & we have two ways by using 100% of the total space or using a 70% of the space <br> 3. Sending the stored product by distributors to the consumers. | #### Inventory Parts and Components | Inventory | Description | | ---------------- | ------------------------------------------------------------------------------------------------------ | | **Raw materials** | It is something that is acted upon by, human labor or industry to create some product that human's desire It is used to denote materials that came from nature & still in a unprocessed state Ex, iron, crude oil | | **Work in process** | Finished goods that are held in inventory for completion. <br> Uncompleted production <br> Un eventual sales | | **End product** | It is The result of completed series of production process. <br> Used in eventual sales to be used for final consumption by consumer. <br> Ex, Gasoline | #### Areas of Supply Management | Area | Description | | ---------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | | **Focus** | Focus Suppliers - Converters Link Focus Suppliers - Converters Link Converters-Converters Link Converters-Distributors Link | | **Target** | - Control the flow of materials throughout the supply chain | | **Activities** | - Monitor and Control material handling, transporting & warehousing activities | | **Location** | - Sub Unit of Supply management department | | **Manager** | - The Department of Material Management | #### Types of Production | Production Type | Description | | --------------- | ----------- | | **Reactive Stage** | | Mass production | - Batch production strategy <br>- Lean or swift or agile production | | Flexible mass Production | - Market orientation strategy <br>- We produce in advance | | **Mechanical Stag** | | Mass production | - Market orientation 4Ps <br> - We produce in advance <br>- Proactive is in-advance, now we have supply chain batch processing produce high variability | | Flexible Mass Production | - Proactive in form <br>- But in Long term we have strategy like marketing & production connect Finance production& marketing with supplier chain | | **Proactive Stage** | | Batch production strategy | - Lean or swift or agile production <br> - Market orientation strategy<br>- Proactive in form | | **Purchasing** | | Product orientation | - React to the producer orders & requirement <br>- (Sell what we can produce)<br>- keep production running for each production line | | Sales orientation | - Preventive <br>- Specialized hard worker <br>- Not creative | | **Description** | - Demand is high & low variety <br>- Quantity produced decrease while varicly increase | | **Operation System** | | Mass Production | - One production line <br>- Preventive <br>- Specialized | | Flexible mass production | - Multiple production lines <br>- Preventive <br>- Specialized | | **Maintenance** | | Workers | - Specialized hard worker <br>- Not creative | | Product | - Single product & unified <br> - Single product in large volume | | Computer System | - Using manual systems <br>- Prevent production line shutdowns <br>- Using simple computer like office systems like excel (we focus on eat) <br>- Using advanced computer programs like POS, SAP, Oracle to help producer | | **Used** | - Prevent production line shutdowns <br>- More variety with low volume <br>- providing the product in advance | | **Modes** | - Stable - No orders | | **Market** | - MTS | | **Stable - No orders** | - MTS | | **Not stable - orders received** | - ETO, MTO, ATO | | **Not stable - get orders** | - ETO, MTO, ATO |