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Supply Chain Management

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SUPPLY CHAIN MANAGEMENT. Value Chain. Supply side- raw materials, inbound logistics and production processes. Demand side- outbound logistics, marketing and sales. – PowerPoint PPT presentation

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Title: Supply Chain Management


1
Supply Chain Management
2
SUPPLY CHAIN MANAGEMENT
  • Value Chain
  • Supply side- raw materials, inbound logistics and
    production processes
  • Demand side- outbound logistics, marketing and
    sales.

3
WHAT IS SUPPLY CHAIN MANAGEMENT
Leads to Business Process Integration
4
  • Supply chain is the system by which organizations
    source, make and deliver their products or
    services according to market demand.
  • Supply chain management operations and decisions
    are ultimately triggered by demand signals at the
    ultimate consumer level.
  • Supply chain as defined by experienced
    practitioners extends from suppliers suppliers
    to customers customers.

5
  • SUPPLY CHAIN INCLUDES
  • MATERIAL FLOWS
  • INFORMATION FLOWS
  • FINANCIAL FLOWS

6
  • SUPPLY CHAIN MANAGEMENT IS FACILITATED BY
  • PROCESSES
  • STRUCTURE
  • TECHNOLOGY

7
  • Supply chain serves two functions
  • Physical
  • Market mediation

8
  • Supply chain objectives may differ from situation
    to situation.
  • For functional products, cost efficiency is the
    critical factor.
  • For innovative products, responsiveness is the
    important factor.
  • Leanness Agility together make up Leagility

9
Supply Chain Structure
10
  • Supply Chain and Demand Chain
  • Demand chain is defined as the system by which
    organizations manage sales and distribution of
    products and services to end users.
  • Conceptually incorrect to look at demand chain
    separately
  • Look at the pipe as a whole.

11
  • But is there a pipe at all?
  • More a network
  • Not necessarily linear
  • Value chain orchestration rather than controlling
    the flow through the pipe
  • A network of independent and interdependent
    organizations mutually and cooperatively working
    together to control, manage and improve the flow
    of materials and information from suppliers to
    end users

12
  • SUPPLY CHAIN DRIVERS
  • Not new. Value system of Michael Porter
  • Why sudden interest?
  • Demanding customers
  • Shrinking product life cycles
  • Proliferating product offerings
  • Growing retailer power in some cases
  • Doctrine of core competency
  • Emergence of specialized logistics providers
  • Globalization
  • Information technology

13
SUPPLY CHAIN ELEMENTS
14
  • Supply Chain Goals
  • Efficient supply chain management must result in
    tangible business improvements. It is
    characterized by a sharp focus on
  • Revenue growth
  • Better asset utilization
  • Cost reduction.

15
Supply Chain Management Underlying Principles
C
Compression
(Planning/Manufacturing/Supply)
Conformance
(Forecasts/Plans/Distribution)
Co-operation
(Cross -Functional)
(Real Time Data)
Communication
Reduce Overall Cycle Time Improve Response
16
  • Changing Paradigm
  • Functional vs Process
  • Products vs Customers
  • Revenues vs Performance
  • Inventory vs Information
  • Transactions vs Relationships

17
  • Critical Success Factors today
  • Cross functional management and planning skills
  • Ability to define, measure and manage service
    requirements by market segment
  • Information systems
  • Relationship management and win win orientation

18
  • PUTTING IN PLACE A WELL OILED SUPPLY CHAIN
  • Supply chain as an efficient customer satisfying
    process
  • Effectiveness of the whole supply chain is more
    important than the efficiency of each individual
    department.

19
. The steps involved
  • Step1- Designing the supply chain
  • Determine the supply chain network
  • Identify the levels of service required

20
  • Step 2 - Optimizing the supply chain
  • Determine pathways from suppliers to the end
    customer
  • Customer markets to Distribution centers
  • Distribution centers to production plants
  • Raw material sources to production plants
  • Identify constraints at vendors, plants and
    distribution centers
  • Get the big picture
  • Plan the procurement, production and
    distribution of product groups rather than
    individual products in large time periods-
    quarters or years

21
  • Step 3- Material flow planning
  • Determine the exact flow and timing of materials
  • Arrive at decisions by working back from the
    projected demand through the supply chain to the
    raw material resources
  • Techniques
  • ERP

22
  • Step 4 - Transaction processing and
  • short term scheduling
  • Customer orders arrive at random
  • This is a day to day accounting system which
    tracks and schedules every order to meet customer
    demand
  • Order entry, order fulfillment and physical
    replenishment

23
  • Information flows in Supply Chain Management
  • Information is overriding element
  • Need for databases
  • Master files Information about customers,
    products, materials, suppliers, transportation,
    production and distribution data- do not require
    frequent processing
  • Status files- heart of transaction processing-
    track orders and infrastructure status- updated
    daily.
  • Essentially using the same information to make
    all plans right from structuring the network to
    processing every day supply chain tasks.

24
THE VIRTUAL VALUE CHAIN
  • The value chain connects a companys supply side
    with its demand side.
  • Traditionally information has been a supporting
    function.
  • Information however can be managed far more
    creatively.
  • There are various stages of using value added
    information processes.

25
  • Visibility See physical operations more
    effectively through information. Information can
    be used for effective coordination of value chain
    activities.
  • Mirroring capability In this stage, virtual
    activities are substituted for physical ones. A
    parallel value chain is created.
  • New customer relationships The company can draw
    on the flow of information in the virtual value
    chain to deliver value to customers in new ways.

26
Dealer Management
  • Conventional functions
  • Inventory ownership and management
  • Sales and technical support
  • Order handling
  • Credit

27
  • Contemporary Trends
  • Channels being divided into two- Fulfillment and
    Franchised agent
  • Fulfillment channel- responsible for getting the
    manufacturers product from the plant to the end
    user through a highly efficient logistics and
    inventory management system

28
  • Contemporary Trends
  • Fulfillment channel may not take ownership of the
    product but may perform these functions on a per
    box fee structure
  • Franchised agents responsible for sales and sales
    support but will not write the order or supply
    the product

29
  • Issues in customer management
  • Penetration vs Spread
  • Concentration is necessary to commit the
    necessary resources for true customer integration
  • Depth of customer contact
  • RD - sharing information vs developing new
    products together
  • Logistics - Pros and cons of methods of
    transportation vs reengineering the logistics
    process

30
  • Implementation Points to keep in mind
  • Recognize the difficulty of change.
  • Prepare a blueprint for change that maps linkages
    among initiatives.
  • Assess the entire supply chain from supplier
    relationships to internal operations to the
    market place, including customers, competitors
    and industry as a whole.

31
IS THE SUPPLY CHAIN WORKING?
  • Does our manufacturing strategy increase product
    line flexibility while continuing to drive down
    overall production costs?
  • When was the last time we measured lost sales to
    end customers?
  • Do we have an efficient system to get POS data
    from retailers?
  • Are we testing our products with end customers?
    Do we use the resulting data to adjust our
    forecasting and supply positions?
  • Is the ratio of returned orders to sales
    increasing?

32
  • The New Model of Relationships
  • Hard bargaining vs shared destiny
  • Exit vs Voice
  • Arms length relations vs Involving dealers and
    suppliers in product development
  • Piling up vs Replenishing dealer inventory more
    frequently
  • In short working together as partners to cut
    costs, boost efficiencies, innovate and share
    value

33
  • Adversarial vs partnerships
  • Short term vs long term contracts
  • Large vs small order quantity
  • Full truck load vs small parcels
  • Inspection vs no inspection

34
  • Written order vs understanding
  • Many vs few suppliers
  • Design and then invite quote from vendor vs
    involving vendor in development
  • Bargaining, holding cards close to chest vs
    Shared destiny, transparency

35
  • Summary
  • Segmentation of customers based on service needs
  • Customization of logistics network
  • Listen to signals of market demand and plan
    accordingly.
  • Differentiate product close to the customer
  • Source strategically
  • Develop a supply chain wide technology strategy
  • Accept channel spanning performance measures

36
  • The Bullwhip Phenomenon
  • Volatility amplification along the network
  • Increase in demand variability as we move
    upstream away from the market
  • Mainly because of lack of communication and
    coordination
  • Delays in information and material flows

37
  • Bullwhip effect occurs because of various
    reasons
  • Order Batching - Accumulate orders
  • Shortage gaming- Ask for more than what is needed
  • Demand forecast updating

38
  • Important points to keep in mind
  • Segment customers based on service needs.
  • Modify the supply chain to meet these service
    requirements profitably.
  • Customize the logistics network.
  • Develop forecasts collaboratively involving every
    link of the supply chain.
  • Locate the leverage point where the product is
    unalterably configured to meet a single
    requirement
  • Delay product differentiation till the last
    possible moment.

39
  • Assess options such as modularized design or
    modification of manufacturing processes that can
    increase flexibility.
  • Cultivate warm relationships with suppliers.
  • Efficient supply chain management has to be
    accompanied by a technology strategy.

40
ITALIAN CLOTHING MANUFACTURE
  • Warehousing and transportation 6
  • Inventory 5
  • Late delivery returns 2
  • Obsolescence 20
  • Lost sales 60
  • Need to minimize obsolescence costs
  • Minimize product range flexibility
  • Reduce product development cycle

41
Dells Direct Business Model of Virtual
Integration
  • Advantages of a tightly coordinated supply chain
    traditionally facilitated by vertical
    integration.
  • Combined with focus and specialization.
  • Leveraging on investments others have made and
    focusing on delivering solutions and systems to
    customers
  • Fewer things to manage - fewer things go wrong
  • Suppliers engineers part of Dells Design team
  • Have only a few partners

42
Dells Direct Business Model of Virtual
Integration
  • Share information with partners in Real time
    fashion.
  • Stitch together a business with partners that are
    treated as if they are inside the company.
  • Change focus from how much inventory there is to
    how fast it is moving
  • Assets collect risks around them one way or the
    other.
  • Limited or no testing - Eg. Sony Monitors

43
Dells Direct Business Model of Virtual
Integration
  • Only three Manufacturing centers - Austin,
    Ireland and Malaysia.
  • Inventory levels and replenishment needs
    sometimes conveyed to vendors on hourly basis.
  • Substitute information for inventory and ship
    only when we have real demand from real end
    customers
  • Clever segmentation - Focus on institutional
    markets - 70 to very large customers with annual
    purchases exceeding 1 million.

44
Dells Direct Business Model of Virtual
Integration
  • Exit from retail business after wrong entry in
    1989.
  • Segmentation - closeness to customers and access
    to valuable information.
  • Demand forecasting as a critical sales skill
  • Help global customers, manage their total
    purchase of PCs by selling them a standard
    product
  • Dell server loads software on customers
    computers
  • Meet customers needs faster and more efficiently
    than any other model.

45
Li and Fung, Hong Kong
  • Founded in 1906
  • Today 35 offices in 20 countries
  • 1997 revenues of 1.7 billion
  • Largest export trading company in Hong Kong
  • Customers- American and European retailers
  • Sources clothing and other consumer goods ranging
    from toys to fashion accessories to luggage

46
  • Order from Europe
  • Buy yarn from Korea
  • Weave and dye in Taiwan
  • Buy Japanese zippers made in China
  • Make the garments in Thailand in five different
    factories
  • Pulling apart the value chain and optimizing at
    each step

47
  • Victor Fung
  • Today, assembly is the easy part. The hard
    part is managing your suppliers and the flow of
    parts. Good supply chain management strips away
    time and cost from product delivery cycles. Our
    customers have become more fashion driven,
    working with six or seven seasons a year instead
    of just two or three. Once you move to shorter
    life cycles, the problem of obsolete inventory
    increases dramatically. With customer tastes
    changing rapidly and markets segmenting into
    narrow niches, its not just fashion products
    that are becoming increasingly time sensitive.

48
  • Endorsement by Stan Shih, CEO, Acer
  • Buying right things
  • Reaching into suppliers to ensure that certain
    things happen on time and at the right quality
    level.

49
  • Buyer informs five weeks before delivery.
  • Reserve undyed yarn from yarn supplier.
  • Lock up capacity in weaving and dyeing mills.
  • Outsourcing not same as leaving suppliers to do
    the worrying.
  • Single factories are too small to have much
    buying power and to demand faster deliveries from
    suppliers.
  • To shorten delivery cycle, need to go upstream to
    organize production.
  • Li Fung able to delay commitment to a
    particular fashion trend.

50
  • Integrated logistics management
  • Elimination of consolidators in container
    shipments
  • Smokeless factory
  • Design
  • Procurement
  • Inspection of raw materials
  • Production planning
  • Line balancing
  • Inspection of finished goods
  • No worker ownership
  • No labour management

51
  • If we dont own factories, can we say we are in
    manufacturing? Absolutely, because of the 15
    steps in the manufacturing value chain, we
    probably do 10.
  • Basic operating unit is the division.
  • Divisions focused on serving single customers or
    groups of small customers.
  • Less emphasis on geographic grouping
  • Merchandising decisions decentralized
  • Financial controls and operating procedures
    tightly centralized.
  • Strong focus on inventory and working capital
    management.

52
  • As far as I am concerned, inventory is the root
    of all evil. At a minimum, it increases the
    complexity of managing any business. So its a
    word we dont tolerate around here.
  • Need for sophisticated information systems. Li
    Fung working to create a database to
    systematically track all supplier relationships.
  • Someone might steal our database but when they
    call up a supplier, they dont have the long
    relationship with the supplier that Li Fung
    has. It makes a difference to suppliers when they
    know that you are dedicated to the business, that
    you have been honoring your commitments for 90
    years.

53
  • Broadening the middle
  • Better prices and better margins for customers
  • Tackling the soft 3 in the cost structure. 3
    represents the inefficiency in the supply chain
    for a consumer product priced at 4. Look at
    costs throughout distribution channels than just
    in factory

54
  • Thank You
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