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Introduction to Supply Chain Management

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Introduction to Supply Chain Management Designing & Managing the Supply Chain Chapter 1 Byung-Hyun Ha bhha_at_pusan.ac.kr Outline Introduction Global Optimization ... – PowerPoint PPT presentation

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Title: Introduction to Supply Chain Management


1
Introduction to Supply Chain Management
  • Designing Managing the Supply Chain
  • Chapter 1
  • Byung-Hyun Ha
  • bhha_at_pusan.ac.kr

2
Outline
  • Introduction
  • Global Optimization
  • Uncertainty
  • Case Meditech Surgical

3
Introduction
  • Investment and interest in supply chain
  • Economy issues
  • Fierce competition in todays global market
  • Introduction of products with shorter and shorter
    life cycles
  • Heightened expectations of customers
  • Technology issues
  • Advances in communications and transportation
    technologies

4
Introduction
  • Supply chain (logistics network)
  • The system of suppliers, manufacturers,
    transportation, distributors, and vendors that
    exists to transform raw materials to final
    products and supply those products to customers
  • That portion of the supply chain which comes
    after the manufacturing process is sometimes
    known as the distribution network

5
Introduction
  • Goal of supply chain management
  • Supply chain management is concerned with the
    efficient integration of suppliers, factories,
    warehouses and stores so that merchandise is
    produced and distributed
  • in the right quantities
  • to the right locations
  • at the right time
  • In order to
  • Minimize total system cost
  • Satisfy customer service requirements

6
Logistic Network
Customers, demand centers sinks
Field Warehouses stocking points
Sources plants vendors ports
Regional Warehouses stocking points
Supply
Inventory warehousing costs
Production/ purchase costs
Transportation costs
Transportation costs
Inventory warehousing costs
7
Strategies for SCM
  • All of the advanced strategies, techniques, and
    approaches for supply chain management focus on
  • Global optimization
  • Managing uncertainty

8
Global Optimization
  • Issues
  • Why is it different/better than local
    optimization?
  • What are conflicting supply chain objectives?
  • Why is global optimization hard?
  • The supply chain is complex network
  • Different facilities in supply chain network have
    different and conflicting objectives
  • The supply chain is a dynamic system
  • The power structure changes
  • The system varies over time
  • e.g. Demand and cost variation due to seasonal
    factors, trend, advertising and promotion,
    competitors pricing strategies,

9
Global Optimization
  • Tools and strategies
  • Decision support systems
  • Inventory control
  • Network design
  • Design for logistics
  • Cross docking
  • Strategic alliances / supplier partnerships
  • Supply contracts / incentive schemes

10
Sequential vs. Global Optimization
  • Sequential optimization
  • Global optimization

11
Conflicting Objectives in the Supply Chain
  • Purchasing
  • Stable volume requirements / flexible delivery
    time
  • Little variation in mix / large quantities
  • Manufacturing
  • Long run production / high quality
  • High productivity / low production cost
  • Warehousing
  • Low inventory / reduced transportation costs
  • Quick replenishment capability
  • Customers
  • Short order lead time / high in stock
  • Enormous variety of products / low prices

12
Uncertainty
  • Why is uncertainty hard to deal with?
  • Matching supply and demand is difficult
  • Forecasting doesnt solve the problem
  • Inventory and back-order levels typically
    fluctuate widely across the supply chain
  • Demand is not the only source of uncertainty
  • Lead times
  • Yields
  • Transportation times
  • Natural disasters
  • Component availability
  • Forecasting
  • Forecasting is always wrong
  • The longer the forecast horizon the worse the
    forecast
  • End item forecasts are even more wrong

13
Uncertainty
  • Supply Chain Variability

Time
14
Uncertainty
  • What Management Gets...

Time
15
Uncertainty
  • What Management Wants

Volumes
Time
16
Uncertainty
  • Dealing with uncertainty
  • Pull systems
  • Risk pooling
  • Centralization
  • Postponement
  • Strategic alliances
  • Collaborative forecasting

17
Key Issues
  • Issues span
  • Strategic, tactical, operational
  • What are the tradeoffs and issues?
  • Distribution network configuration
  • Inventory control
  • Supply contracts
  • Distribution strategies
  • Integration and partnerships
  • Procurement strategies and outsourcing
  • Product design
  • Information technology

18
Case Meditech Surgical
  • Case overview
  • Intent diagnosis of supply chain
  • Business overview
  • Supply chain
  • Production planning
  • Whats wrong?
  • How to fix it?

19
Meditech Surgical
  • Background
  • Endoscopic surgical instrument maker
  • Minimally invasive surgery
  • Parent company Largo Healthcare Company
  • Spun off 3 years ago
  • Primary competitor National Medical Corporation
  • Market created in early 80s, rapidly growing
  • National sells to physicians
  • Meditech sells to material managers as well as
    physicians
  • Customer preferences change slowly
  • Old products continually updated
  • Replaced with new product introductions
  • Compete based on product innovations, customer
    service, cost

20
Meditech Surgical
  • Problems
  • New production introduction needs to be flawless
  • Consistently fail to keep up with demand during
    initial order
  • Customers wait over six weeks to have orders
    delivered
  • Dan Franklin, manager of Customer Service Dist.
  • Recognizing growing customer dissatisfaction

21
Distribution
  • Central warehouse
  • Two primary channels to hospitals
  • Domestic dealers
  • Order and receive products from multiple
    manufacturers
  • Independent and autonomous entities
  • International affiliates
  • Subsidiaries of Largo Healthcare
  • Similar to domestic dealers from Meditechs point
    of view

22
Internal Operations
  • Assembly
  • Manually intensive
  • Using component parts in inventory
  • Assembly line with a team of cross-trained
    production workers
  • Cycle time for assembly of a batch of instruments
  • 2 weeks
  • Lead time for component parts
  • 2-16 weeks
  • Packaging
  • Using machine
  • Sterilization
  • Cobalt radiation sterilizer, about 1 hour

23
Operation Organization
24
Production Planning Scheduling
  • Broken down two parts
  • Assembly component parts order based on monthly
    forecast
  • Packaging sterilization based on finished goods
    inventory level
  • Forecast
  • Annual during the fourth quarter of each fiscal
    year
  • Monthly using annual forecast broken down
    proportionately
  • At the beginning of each month adjustments of
    forecast
  • Planning of assembly
  • Using monthly demand forecasts
  • transfer req.
  • month forecast finished goods inventory
    safety stock
  • Approved throughout the organization after 1 to 2
    weeks

25
Production Planning Scheduling
  • MRP systems
  • Planning assembly schedules and parts order
  • Calculation may be run several times each week
  • Notification of change at least 1 weeks before
  • Packaging sterilization process
  • Order point/order quantity (OP/OQ)

Packaging Sterilization
Parts Inventory
Assembly
Bulk Inventory
FG Inventory
2 16 weeks
2 weeks
1 week
push
pull
26
High Inventory Level of Finished Goods
  • In case of representative stable product

27
Var. in Production vs. Var. in Demand
  • Variation in production schedules often exceeded
    variation in demand

28
New Product Introduction
  • Poor service level
  • Poor forecasting?
  • Panic ordering?
  • And high FG inventory

29
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30
Poor Service Level
  • What is going on?
  • Demand is quite predictable
  • Usage in hospitals is quite stable
  • Market share moves slowly over time
  • With each new product, dealer must build
    inventory to fill pipeline
  • Why did Meditech think demand was unpredictable?
  • Poor information systems
  • No one looked at demand
  • No one had responsibility for forecast errors
  • Tendency to shift the blame
  • Built-in delays and monthly buckets in planning
    system
  • Amplifier in planning system

31
Poor Service Level
  • What to do?
  • Recognize that demand is stable and predictable
  • Establish accountability for forecast
  • Eliminate planning delays and/or reduce time
    bucket
  • Alternatively, put assembly within pull system
    and eliminate bulk inventory

32
HW1
  • ? All homework should be prepared by handwriting
    and be submitted at the next class
  • Discussion questions 5, 7, 8, 9 (p. 13)
  • Case discussion question 3 (p. 21)
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