Supply Chain Management PDF

SUPPLY CHAIN MANAGEMENT stored together. This is an efficient and easy to understand way to store products. The term “supply chain management” arose...

SUPPLY CHAIN MANAGEMENT stored together. This is an efficient and easy to understand way to store products. The term “supply chain management” arose 2. Job Lot Storage in the late 1980s and came into widespread In this approach, all the different products use in the 1990s. related to the needs of a certain type of Prior to that time, businesses used terms customer or related to the needs of a such as “logistics” and “operations particular job are stored together. This allows management” instead. for an efficient picking and packing operation “A supply chain is the alignment of firms that but usually requires more storage space than bring products or services to market. the traditional SKU storage approach. SUPPLY 3. Cross Docking Supply is a fundamental economic concept that An approach that was pioneered by Wal Mart describes the total amount of a specific good or in its drive to increase efficiencies in its service that is available to consumers. supply chain. In this approach, product is not actually warehoused in the facility. Instead, CHAIN the facility is used to house a process where a sequence of items of the same type forming a line. trucks from suppliers arrive and unload large MANAGEMENT quantities of different products. These large Management is the coordination and administration lots are then broken down into smaller lots. of tasks to achieve a goal. Smaller lots of different products are recombined according to the needs of the day SUPPLY CHAIN MANAGEMENT and a supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. The INVENTORY supply chain not only includes the manufacturer and What inventory should be stocked at each stage in a suppliers, but also transporters, warehouses, supply chain? How much inventory should be held as retailers, and customers themselves. raw materials, semi-finished, or finished goods? The primary purpose of inventory is to act as a buffer The systemic, strategic coordination of the traditional against uncertainty in the supply chain. However, business functions and the tactics across these holding inventory can be expensive, so what are the business functions within a particular company and optimal inventory levels and reorder points? across businesses within the supply chain, for the 1. Safety Inventory purposes of improving the long-term performance of Inventory that is held as a buffer against the individual companies and the supply chain as a uncertainty. If demand forecasting could be whole. done with perfect accuracy, then the only inventory that would be needed would be There is a basic pattern to the practice of supply cycle inventory. But since every forecast has chain management. Each supply chain has its own some degree of uncertainty in it, we cover unique set of market demands and operating that uncertainty to a greater or lesser degree challenges and yet the issues remain essentially the by holding additional inventory in case same in every case. demand is suddenly greater than anticipated. FIVE AREAS OF SUPPLY CHAIN The trade off here is to weigh the costs of carrying extra inventory against the costs of 1. PRODUCTION losing sales due to insufficient inventory. 2. INVENTORY 2. Seasonal Inventory 3. LOCATION This is inventory that is built up in anticipation 4. TRANSPORTATION of predictable increases in demand that 5. INFORMATION occur at certain times of the year. For PRODUCTION example, it is predictable that demand for what products does the market want? How much of antifreeze will increase in the winter. If a which products should be produced and by when? company that makes antifreeze has a fixed This activity includes the creation of master production rate that is expensive to change, production schedules that take into account plant then it will try to manufacture product at a capacities, workload balancing, quality control, and steady rate all year long and build up equipment maintenance. inventory during periods of low demand to cover for periods of high demand that will 3 MAIN APPROACHES IN WAREHOUSING exceed its production rate. The alternative to 1. Sku Storage building up seasonal inventory is to invest in (STOCK KEEPING UNIT) In this traditional flexible manufacturing facilities that can approach, all of a given type of product is quickly change their rate of production of  different products to respond to increases in chain will each be able to make good decisions for demand. their own operations. LOCATION TWO PURPOSES IN ANY SUPPLY CHAIN: Where should facilities for production and inventory 1. COORDINATING DAILY ACTIVITIES storage be located? Where are the most cost- related to the functioning of the other four efficient locations for production and for storage of supply chain drivers: production; inventory; inventory? Should existing facilities be used or new location; and transportation. The companies ones built? Once these decisions are made, they in a supply chain use available data on determine the possible paths available for product to product supply and demand to decide on flow through for delivery to the final consumer. weekly production schedules, inventory TRANSPORTATION levels, transportation routes, and stocking This refers to the movement of everything from raw locations material to finished goods between different facilities 2. FORECASTING AND PLANNING in a supply chain. In transportation the trade-off to anticipate and meet future demands. between responsiveness and efficiency is manifested Available information is used to make tactical in the choice of transport mode. forecasts to guide the setting of monthly and quarterly production schedules and BASIC MODES OF TRANSPORTATION timetables. Information is also used for 1. SHIP strategic forecasts to guide decisions about Very cost efficient but also the slowest mode whether to build new facilities, enter a new of transport. It is limited to use between market, or exit an existing market. locations that are situated next to navigable PARTICIPANTS IN THE SUPPLY CHAIN waterways and facilities such as harbors and In any given supply chain there is some combination canals. of companies who perform different functions. There 2. RAIL are companies that are producers, distributors or Is also very cost efficient but can be slow. wholesalers, retailers, and companies or individuals This mode is also restricted to use between who are the customers, the final consumers of a locations that are served by rail lines. product. Supporting these companies there will be 3. PIPELINES other companies that are service providers that Can be very efficient but are restricted to provide a range of needed services. commodities that are liquids or gases such as water, oil, and natural gas. 1. PRODUCERS 4. TRUCKS 2. DISTRIBUTORS Relatively quick and very flexible mode of 3. RETAILERS transport. Trucks can go almost anywhere. 4. CUTOMERS The cost of this mode is prone to fluctuations 5. SERVICE PROVIDERS though, as the cost of fuel fluctuates, and the PRODUCERS condition of roads varies. Producers or manufacturers are organizations that 5. AIRPLANE make a product. This includes companies that are Very fast mode of transport and are very producers of raw materials and companies that are responsive. This is also the most expensive producers of finished goods. Producers of raw mode, and it is somewhat limited by the materials are organizations that mine for minerals, availability of appropriate airport facilities. drill for oil and gas, and cut timber. It also includes 6. ELECTRONIC TRANSPORT organizations that farm the land, raise animals, or Is the fastest mode of transport and it is very catch seafood. Producers of finished goods use the flexible and cost efficient. However, it can raw materials and sub-assemblies made by other only be used for movement of certain types of producers to create their products. products such as electric energy, data, and products composed of data such as music, Producers can create products that are intangible pictures, and text. items such as music, entertainment, software, or designs. A product can also be a service such as INFORMATION mowing a lawn, cleaning an office, performing The basis upon which to make decisions regarding surgery, or teaching a skill. In many instances the the other four supply chain drivers. It is the producers of tangible, industrial products are moving connection between all of the activities and to areas of the world where labor is less costly. operations in a supply chain. To the extent that this Producers in the developed world of North America, connection is a strong one, (i.e., the data is accurate, Europe, and parts of Asia are increasingly producers timely, and complete), the companies in a supply of intangible items and services. DISTRIBUTORS Or a customer may be the final end user of a product who buys the product in order to Distributors are companies that take consume it. inventory in bulk from producers and deliver a bundle of related product lines to customers. SERVICE PROVIDERS Distributors are also known as wholesalers. These are organizations that provide services They typically sell to other businesses and to producers, distributors, retailers, and they sell products in larger quantities than an customers. Service providers have developed individual consumer would usually buy special expertise and skills that focus on a Distributors buffer the producers from particular activity needed by a supply chain. fluctuations in product demand by stocking Because of this, they are able to perform inventory and doing much of the sales work to these services more effectively and at a find and service customers. better price than producers, distributors, For the customer, distributors fulfill the “Time retailers, or consumers could do on their and Place” function—they deliver products own. when and where the customer wants them. Some common service providers in any A distributor is typically an organization that supply chain are providers of transportation takes ownership of significant inventories of services and warehousing services. These are products that they buy from producers and trucking companies and public warehouse sell to consumers companies and they are known as logistics In addition to product promotion and sales, providers. other functions the distributor performs are Financial service providers deliver services inventory management, warehouse such as making loans, doing credit analysis, operations, and product transportation as and collecting on past due invoices. These well as customer support and post-sales are banks, credit rating companies, and service. collection agencies. A distributor can also be an organization that Some service providers deliver market only brokers a product between the producer research and advertising, while others and the customer and never takes ownership provide product design, engineering services, of that product. This kind of distributor legal services, and management advice. performs mainly the functions of product Still other service providers offer information promotion and sales. technology and data collection services. All RETAILERS these service providers are integrated to a greater or lesser degree into the ongoing Retailers stock inventory and sell in smaller operations of the producers, distributors, quantities to the general public. This retailers, and consumers in the supply chain. organization also closely tracks the preferences and demands of the customers that it sells to. It advertises to its customers and often uses some combination of price, product selection, service, and convenience as the primary draw to attract customers for the products it sells. Discount department stores attract customers using price and wide product selection. Upscale specialty stores offer a UNDERSTAND THE MARKETS YOUR COMPANY unique line of products and high levels of SERVICES service. Fast food restaurants use Begin by asking questions about your customers. convenience and low prices as their draw. What kind of customer does your company serve? CUSTOMERS What kind of customer does your customer sell to? What kind of supply chain is your company a part of? Customers or consumers are any The answers to these questions will tell you what organization that purchases and uses a supply chains your company serves and whether product. your supply chain needs to emphasize A customer organization may purchase a responsiveness or efficiency. Chopra and Meindl product in order to incorporate it into another have defined the following attributes that help to product that they in turn sell to other clarify requirements for the customers you serve. customers. ATTRIBUTES VALUE The quantity of the product needed in each The value is the total amount (i.e. Total lot - Do your customers want small amounts revenue) that buyers are willing to pay for a of products or will they buy large quantities? A firm’s products. customer at a convenience store or a drug The difference between the total value (or store buys in small quantities. A customer of revenue) and the total cost of performing all a discount warehouse club, such as Sam’s of the firm’s activities provides the margin. Club, buys in large quantities. The value chain is a tool developed by dr. The response time that customers are Michael porter (Harvard business school) willing to tolerate - Do your customers buy VALUE CHAIN on short notice and expect quick service or is a longer lead time acceptable? Customers of Porter’s definition includes all activities to a fast-food restaurant certainly buy on short design, produce, market, deliver, and support notice and expect quick service. Customers the product/service. buying custom machinery would plan the The value chain is concentrating on the purchase in advance and expect some lead activities starting with raw materials till the time before the product could be delivered. conversion into final goods or services. The variety of products needed - Are Two categories: customers looking for a narrow and well- - Primary Activities (operations, distribution, defined bundle of products or are they sales) looking for a wide selection of different kinds - Support Activities (R&D, Human Resources) of products? Customers of a fashion boutique expect a narrowly defined group of TYPES OF VALUE CHAIN products. Customers of a “big box” discount 1. Manufacturing based store like Wal Mart expect a wide variety of 2. Service based products to be available. 3. Both manufacturing and service based The service level required - Do customers expect all products to be available for VALUE CHAIN ANALYSIS immediate delivery or will they accept partial Used to identify sources of competitive deliveries of products and longer lead times? advantage. Customers of a music store expect to get the Specifically: CD they are looking for immediately or they - Opportunities to secure cost advantages | will go elsewhere. Customers who order a - Opportunities to create product/service custom-built new machine tool expect to wait differentiation a while before delivery. Includes the value-creating activities of all The price of the product - How much are industry participants customers willing to pay? Some customers will pay more for convenience or high levels of service and other customers look to buy based on the lowest price they can get. The desired rate of innovation in the product - How fast are new products introduced and how long before existing products become obsolete? In products such as electronics and computers, customers expect a high rate of innovation. In other products, such as house paint, customers do not desire such a high rate of innovation. STEPS TO ALIGN SUPPLY CHAIN AND BUSINESS STRATEGY 1. Understand the requirements 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 PRIMARY ACTIVITIES 1. INBOUND LOGISTICS - The receiving and warehousing of raw materials. Distribution of raw materials to manufacturing and operations. 2. OPERATIONS - process of transforming inputs into finished goods and services 3. OUTBOUND LOGISTICS - Warehousing of finished goods. Distribution of those finished goods to customers or retail stores. 4. MARKETING AND SALES - Identification of customer needs - Deploying product into marketplace - Process of selling to customers 5. SERVICE - Supporting customers after they buy products and services. SUPPORT ACTIVITIES 1. PROCUREMENT - The purchasing of raw materials and inputs needed to create the product 2. TECHNOLOGY DEVELOPMENT - Technology developments that support value chain activities 3. HUMAN RESOURCE MANAGEMENT - Activities associated with recruiting, training, hiring, and compensation 4. FIRM INFRASTRUCTURE - Includes general and planning management, legal, finance, accounting, public affairs, and quality management - Ex. A firm’s legal team consisting of lawyers to aid in lawsuits - Accounting department to keep track of financial figures