IEP114 Supply Chain Management PDF

IEP114 SUPPLY CHAIN MANAGEMENT FORMULA FOR SCS (Supply Chain Surplus) Week 2 Supply Chain SPS = Total Value – Total Costs Incurred - flow of products and...

IEP114 SUPPLY CHAIN MANAGEMENT FORMULA FOR SCS (Supply Chain Surplus) Week 2 Supply Chain SPS = Total Value – Total Costs Incurred - flow of products and services. - a supply chain refers to the entire network of entities, MEASUREMENT OF TOTAL VALUE resources, and processes involved in producing and Product Utility delivering a product or service from the initial suppliers Customer Satisfaction to the final customers. It includes everything from the sourcing of raw materials, manufacturing, transportation, MEASUREMENT OF TOTAL COST warehousing, and distribution to the final delivery to the Production Cost consumer. The goal of SCM is to manage this flow Transportation efficiently and effectively to meet customer demand while minimizing costs. Storage Cost COMPONENTS OF SUPPLY CHAIN Circular Economy in Supply Chain 1. Supplier – extraction of raw materials, sources and - companies’ waste can be an output to other companies. provides raw materials. - recycling/remanufacture 2. Manufacturer – transform raw materials into goods. - carbon footprint 3. Distributor - Facilitates the movement of goods from manufacturers to retailers. Network Level Approach 4. Retailer - Sells products directly to consumers. - views the supply chain as an interconnected network, 5. Customer - Purchases and consumes the final product. optimizing performance by coordinating activities and decisions across all entities to improve overall efficiency SUPPLIER – MANUFACTURER – DISTRIBUTOR – RETAILER and customer service. – CUSTOMER THIS IS LINEAR! “The Network Enterprise is the new business model for the 21st century. It requires a supply chain training partner operating CONNECTED THROUGH: model that supports the interoperability and visibility with reduced o Transportation complexity.” o Information o Exchange of Funds - Ann Graekin Supply Chain Surplus 1. Interoperability - the total value created for all participants in a supply - it can involve the integration of various information chain, calculated as the difference between the final systems, processes, and technologies across different product's value to the customer and the total cost companies or departments within the supply chain. incurred across the supply chain. Ex.: Inventory MS can automatically update the manufacturer’s production schedule, ensuring that there are no delays in the In order to maximize supply chain surplus, every facility that supply chain due to miscommunication or an incompatible impact costs needs to be considered: system. Jollibee uses chicken SAD, SAP system. 1. Supplier’s Supplier -> the company that supplies 2. Visibility materials or parts to your supplier. - ability to track and monitor all components of the supply Ex. chain, from raw materials to finished goods as they move through the supply chain. For a car manufacturer, the supplier's supplier Ex.: Shopee, Lazada, Temu, might be a steel mill that provides steel to the parts manufacturer, who then supplies car 3. Reduced Complexity components to the car manufacturer. - simplifying processes, reducing the number of steps or Farmers intermediaries, and eliminating unnecessary or Automotive Parts redundant operations. 2. Customer’s customers –> the final consumer who buys Ex.: Standardizing packaging across different products to and uses the product from your customer’s customer. streamline the packaging and shipping process, thereby reducing Ex. the no. of variations that need to be managed. If a beverage company sells drinks to a grocery store, the grocery store's customers Standardize are the end consumers who buy and drink - cheaper since it is accessible and made in bulk for the beverages. everyone. Barter Customize - more expensive because it is made to fit specific needs. * Efficiency throughout the supply chain network to required using a network level approach. Ablay, Joanne 4IE-C IEP114 SUPPLY CHAIN MANAGEMENT Supply Chain Management Bargaining Power of Can be high if it is easy to switch. - management of supply chain assets and products, Buyers Switching costs are increased by giving information, and fund flows to maximize total supply buyers things they value in exchange chain surplus. such as lower costs or useful - is all about relationships (very good relationship with information. all the suppliers). Management of relationships in order Bargaining Power of Forces is strongest when there are few to enhance value and reduce cost. Collaboration is an Suppliers firms to choose from, quality is inputs important part of effective SCM. is crucial or the volume of purchases is insignificant to the supplier. END GOAL = Positive Profit (all players must gain profit) Threat of Substitute Depends on buyers' willingness to and Products substitute and the level of switching WIN-WIN Inside the Chain costs buyer's face. Industrial Rivalry is high when it is expensive to “Getting the right things to the right places at the right time Competitors leave and the industry's growth rate is for profit.” declining, or products have lost differentiation. Managing Supply and Demand - main contributors in terms of pricing Supply Chain Council Threat of New Entrants - managing supply and demand, sourcing raw materials. The design and management of seamless value-added process across organizational boundaries to meet the real needs of the Industrial Bargaining Power of Bargaining Power of Competitors end customer. Suppliers Buyers Supply Chain is all about RELATIONSHIPS * management of relationships in order to enhance value and reduce cost. * collaboration is an important part of effective supply chain Threat of Substitute management Products * an excuse isn’t an excuse * everybody will suffer 1. Threat of New Entrants -> the risk of new companies entering the market and increasing competition. EVOLUTION OF SCM switching cost access to distribution channels Mass Production Era (1900s – 1970s) economics of sale in the early 1900s, Henry Ford created the first moving 2. Bargaining Power of Buyers -> the influence customers assembly line reducing the time to build a Model T have on pricing and terms. from 728 hours to 1.5 hours. Lean Manufacturing Era (1970s – 1995) buyer selection in the early 1970’s Japanese manufacturers like Toyota switching cost changed the rules of production from mass to lean. differentiation Lean Manufacturing focuses on flexibility and quality 3. Bargaining Power of Suppliers -> the control suppliers more than on efficiency and quantity. have over prices and quality. Mass Customization Era (1995 – 2010) selection of supplier beginning around 1995 and coinciding with the threat of backward integration commercial application of the internet, manufacturers 4. Threat of Substitute Products -> the likelihood of started to mass-produce customized products. Henry customers finding alternative products or services. Ford’s famous statement “You can have any color strategic use Model T as long as it’s black” no longer applies. redefine products/services improve price/performance Porter’s Value Chain/Porters Five Forces Model 5. Industrial Competitors -> the intensity of competition - a model that breaks down a company's activities into among existing companies in the market. primary and support activities to identify where value is cost effectiveness added and how costs can be managed throughout the supply chain. market access difference of product/service Competitive Force IT Influence on Competitive Force Threat of New Can be lowered if there are barriers SOURCES OF COMPETITION Entrants to entry. Sometimes can be used to o reducing costs create barriers to entry. o increase economic, monetary, perceived, social value Ablay, Joanne 4IE-C IEP114 SUPPLY CHAIN MANAGEMENT 2. Information -> data and analysis that supports supply The Value Chain System chain operations. It is accurate, timely information that - to look at all the steps in a company's supply chain, enables better decision-making and coordination across from getting raw materials to delivering the finished the supply chain. product, to find ways to add value and cut costs. Ex.: Demand Forecasting, Order Tracking, Inventory Management Systems Activity Grocery Chain’s Value Supplier’ Value Chain Key Decisions: IT systems, data Chain 3. Sourcing -> selecting and managing suppliers. Primary Ex.: Supplier Selection, Contract Negotiation and Inbound Analysis of buying Analysis of buying Supplier Performance Management Logistics patterns suggest items patterns can aid Key Decisions: which suppliers to use, term of contract should be stocked at grocery chains in better 4. Inventory -> raw materials, work in progress, finished local stores, including determining demand, goods. Keeping these in storage costs money, so the amounts and optimum leading to better more you store, the more cash is tied up and not delivery times forecasting for both available for other uses chain and supplier Ex.: Safety Stock, Cycle Inventory, Seasonal Inventory Operations Automated checkout Analysis of buying Key Decision: how much inventory to hold and where can speed ckt. patterns can reduce to store it. operations; may lead to 'last-minute' orders and 5. Transportation -> movement of products between reduced staffing of improve suppliers different stages in Supply Chain. It affects cost and registers/ lower processing of orders speed flexibility. operating costs Ex.: Shipping, Tracking Rail, Air Freight Outbound Sharing analysis of Key Decision: mode of transportation, routing, and Logistics buying patterns by scheduling grocery chain can aid 6. Pricing -> determining the value of products and supplier in scheduling setting selling prices. Influence demand and the Marketing Analysis of b. patterns Suppliers may be able efficiency of supply chain. and Sales can aid development of to offer economies of Ex.: Discounts, Rebates, Dynamic Pricing Models promotional strategies/ scale in its purchases Key Decision: pricing strategies and discount policies highlight customer and payment terms preference Service Automated checkout Sharing analysis of b. Week 3 lanes shorten customer patterns allows better waiting times supplier service Purchasing Support - obtaining the materials, parts, and supplies. Firms Infrastructure (info.) - acquiring materials/services we intend to use. IT Infrastructure Purchasing Cycle - series of steps begin with a request for purchase and Human Resource Management end with notification of shipment received in satisfactory Technology Development condition Procurement GOAL OF PURCHASING The higher the margins, the higher the profit! Develop and implement purchasing plans for products/services that supports operation strategy. 1. Inbound Logistics -> receiving and managing raw materials and supplies. DUTIES OF PURCHASING 2. Operations -> converting raw materials into finished Identifying Sources products. 3. Outbound Logistics -> distributing finished products to Maintaining a Database of Suppliers customers. Managing Supplies 4. Marketing and Sales -> promoting and selling products Negotiating Contacts to customers. Obtain Goods/Services 5. Service -> providing support and maintenance after the sale. PURCHASING INTERFACES SUPPLY CHAIN MANAGEMENT DRIVERS 1. Facilities -> location where products are manufactured, stored, assemble. It impacts the supply chain efficiency. Ex.: Factories, Warehouses, Distribution Centers Key Decisions: location, capacity, OM Ablay, Joanne 4IE-C IEP114 SUPPLY CHAIN MANAGEMENT PURCHASING CYCLE 2 TYPES OF GPO Requisition Received Supplier Selected 1. Vertical GPO -> assist company and organization Order is Placed within a specific industry. Monitor Orders Ex.: Healthcare 2. Horizontal GPO -> serves all markets and industries. Receive Orders Ex.: Business Market Centralized Purchasing --------- PURCHASING COST: COMPONENTS --------- - the Single purchasing department handles all procurement activities for the entire organization. 1. Purchasing Price -> actual retail price 2. Transportation and Logistics -> from supplier to ADVANTAGES organization location 1. Economic of Scale -> allow bulk buying led to cost 3. Quality Control and Inspection -> indirect money savings due to discounts. 4. Inventory Holding Cost -> storage cost in warehouses 2. Consistency -> uniformity in purchasing decisions and 5. Supplier Relationship Management -> cost need to contracts. incur just to have good supplier 3. Enhanced Negotiation Power -> consolidation of purchasing power and negotiate better terms with Direct Cost Indirect Cost supplier. Purchase Price Administrative 4. Standardization -> reducing variability and simplifying Expenses inventory management. It only has a single database. Shipping Cost PROCUREMENT Utilities and DISADVANTAGES COST Facilities Cost 1. Reduced Responsiveness -> slower decision-making process since all activities are channeled through a Taxes central unit 2. Lack of Local Adaptation -> centralized purchasing may overlook local needs and conditions leading to -----------PURCHASING COST: REDUCTION ---------- inefficiencies. 8 SHORT TERM STRATEGIES FOR COST REDUCTION IN Decentralized Purchasing PROCUREMENT - each department or business unit within the organization has its own purchasing function. 1. Revisit Current Contract Terms 2. Challenge Specifications ADVANTAGES 3. Reevaluate Necessities 1. Departments can respond quickly to local needs, leading 4. Eliminate Maverick Spending -> purchasing outside the to improved operational efficiency. contract 2. Departments have a better understanding of local 5. Challenge Operational Costs suppliers and market conditions, enabling better 6. Plan Ahead purchasing decisions. 7. Assess Suppliers 3. Each department is responsible for its own purchasing 8. Leverage The Use Of Data decisions leading to greater ownership and control. DISADVANTAGES 7 MEDIUM AND LONG-TERM STRATEGIES FOR COST 1. Decentralized purchasing can lead to fragmented buying REDUCTION IN PROCUREMENT and missed opportunities. 1. Upskill Employees Group Purchasing Organization (GPO) 2. Cost Savings By Reducing Consumption - helps companies save money and time by buying 3. Reduce Procurement Risk products and services in bulk together. 4. Centralize Procurement - motivate supplier to give discounts 5. Implement Category Management 6. Using Technology What it Does: The GPO combines the buying power of many 7. Investigate Outsourcing companies to negotiate lower prices from suppliers without purchasing more. Total Cost Ownership (TCO) Why it Exists: Companies join a GPO to get better deals than - is the full cost of buying and using something over they could on their own, saving money on things they need to time. It includes not just the purchase price, but also buy. what you spend on using, maintaining, and eventually How it Makes Money: The GPO earns money by charging getting rid of it. suppliers an administrative fee when they sell products through the GPO. Sometimes, they also charge companies a membership TOTAL COST = Purchasing Price + Hidden Cost (bad fee to join the group. quality, handling cost, administrative cost, transportation cost) Ablay, Joanne 4IE-C IEP114 SUPPLY CHAIN MANAGEMENT ---------------SUPPLIER’S APPRAISAL -------------- 10C MODEL OFSUPPLIER EVALUATION 1. Competency 2. Capacity 3. Commitment to Quality 4. Consistency of Performance 5. Cost 6. Cash and Finance 7. Communication 8. Control of Internal Processes 9. Corporate Social Responsibility 10. Culture SUPPLIER’S APPRAISAL: METHOD 1. Surveys and Questionnaires 2. Site Visits 3. Performance Metrics 4. Third-Party Audits SUPPLIER ASSESSMENT CRITERIA CHECKLIST 1. Quality ✓ Ask for customer reviews and endorsements from independent sources ✓ Check the company’s cultural and corporate values ✓ Ask questions regarding supplier’s total quality management or TQM process 2. Price/Cost ✓ Conduct full cost analysis to ensure the supplier has a well-established business ✓ Price cost should fit well on quality, service, and industry competition 3. Performance Delivery ✓ Establish consistent quality and service levels with the supplier ✓ Take full account of supplier efficiency in service ✓ Consider factors like reliable delivery time 4. Service ✓ Take full account of supplier efficiency in service ✓ Select based on experience of supplier in offering certain service/product 5. Financial Strength ✓ Besides examining balance P&L sheets, supplier’s credit rating should also be checked ✓ Ask customers and analysts about the financial suitability of a prospective supplier 6. Lead-Time ✓ Take into consideration reliability issues like the time elapsed from order being placed to delivery Ablay, Joanne 4IE-C