SCM (Supply Chain Management): An Overview

Global Supply Chain Management &
Outsourced Manufacturing

Chapter 1
Supply Chain Management
An overview

chapter1 1

An overview
Learning objectives
• Relevance to supply chain management to TQM
• Overview of supply chain management .
• Suppliers
•Supply chain strategies
•Managing supply chain
• Benchmarking supply chain management
•Process tools for supply chain management
•supply chain Dynamics
chapter1 2

An overview
Supply Chain Management is one of the key areas within
the Business Consulting workgroup that helps develop and
implement new supply chain ...
The management of a supply chain of goods as a process
from supplier of raw materials or components to the
manufacturer, to the distributor to the wholesale buyer to
the end consumer. ...
The management and control of all materials and
information in the logistics process from acquisition of raw
materials to delivery to end user.

chapter1 3

An overview

Supply Chain Management is the management of the
entire value-added chain, from the supplier to manufacturer
right through to the retailer and the final customer
Supply Chain Management (SCM) is that set of skills and
disciplines, including those of IT, which shepherd a product
from its original design to its ultimate delivery to the buyer.
is a strategy where buyers and sellers collaborate to bring
greater value to the customer. The Collaboration includes
Supply Chain Planning and Supply Chain Execution
activities.

chapter1 4

An overview
The control of the supply of Parts from vendor
through to customer. There is no fundamental
difference in principle between Supply Chain
Management and Manufacturing Resource
Planning. SCM is also used to refer to short cycle
manufacturing, which is the manufacturing
elements of Just in Time.
Supply chain management looks at the entire
supply chain of a company to optimize the flow of
information and materials between internal and
external suppliers, production, distributors and
chapter1 5
customers.

An overview
A supply chain is sequence of suppliers
Warehouses operations and retail outlets.
In a broadest sense ,a supply chain refers to the
way
the material flows through different operations.
A company can identify its supply chain by first
selecting a particular product group or product
family.then it should trace the flow of material &
information from final customers,backwards
through distribution system to the manufacture &
the to the suppliers chapter1 6

A Supply Chain

chapter1 Figure711.1

Supply Chain
For Manufacturing Organization

Supplier A

Supplier B Storage MFG Storage Distributor

Retailer

Supplier C
Customer
chapter1 8

Supply Chain
For Service Organization

Supplier A

Supplier B Storage Distributor Customer

Supplier C

chapter1 9

Relevance to supply chain management to TQM

All the TQM ,JIT systems ,reengineering and
teamwork & delighting the customers depends on
the relationship with suppliers & distributors who
are part of the supply chain..
The idea to build a chain of suppliers that focus
on both waste and maximizing value of the
ultimate customer
The firm strive to increase their competitiveness
via product customization, high quality ,cost
reduction,they place added emphasis on the supply
chain chapter1 10

Relevance to supply chain management to TQM

The key to effective supply chain management
is to make the suppliers Partnersin the firm ‘s
strategy to satisfy an ever changing market place.
Hard pressed to knock out competitors on
quality or price ,companies are trying to gain an
edge through there ability to deliver the right stuff
in the right amount ,at the right time

chapter1 11

Overview of supply chain management
How inventory is created
Inventory is a list for goods and materials, or
those goods and materials themselves, held
available in stock by a business.
Inventory are held in order to manage and hide
from the customer the fact that manufacture/supply
delay is longer than delivery delay, and also to ease
the effect of imperfections in the manufacturing
process that lower production efficiencies if
production capacity stands idle for lack of
materials. chapter1 12

Basic purpose of supply chain management is to
control inventory by managing the flow of
materials.
The reasons for keeping stock
All these stock reasons can apply to any owner
or product stage.
Buffer stock is held in individual workstations
against the possibility that the upstream
workstation may be a little delayed in providing the
next item for processing.
chapter1 13

Whilst some processes carry very large buffer
stocks, Toyota moved to one (or a few items) and
has now moved to eliminate this stock type.
Safety stock is held against process or machine
failure in the hope/belief that the failure can be
repaired before the stock runs out. This type of
stock can be eliminated by programmes like Total
Productive Maintenance
Overproduction is held because the forecast and
the actual sales did not match. Making to order and
JIT eliminates this stock type.
chapter1 14

Lot delay stock is held because a part of the
process is designed to work on a batch basis whilst
only processing items individually. Therefore each
item of the lot must wait for the whole lot to be
processed before moving to the next workstation.
This can be eliminated by single piece working or a
lot size of one.
Demand fluctuation stock is held where
production capacity is unable to flex with demand.
Therefore a stock is built in times of lower
utilization to be supplied to customers when
demand exceeds production capacity.
chapter1 15

This can be eliminated by increasing the
flexibility and capacity of a production line or
reduced by moving to item level load balancing.
Line balance stock is held because different
sub-processes in a line work at different rates.
Therefore stock will accumulate after a fast sub-
process or before a large lot size sub-process. Line
balancing will eliminate this stock type.
Changeover stock is held after a sub-process
that has a long setup or change-over time. This
stock is then used while that change-over is
chapter1 16

Supply Chain Management encompasses the planning
and management of all activities involved in sourcing,
procurement, conversion, and logistics management
activities.
Importantly, it also includes coordination and
collaboration with channel partners, which can be
suppliers, intermediaries, third-party service providers,
and customers. In essence, Supply Chain Management
integrates supply and demand management within and
across companies.
Ttypical Supply chain may involve following stages
Customers Retailers
Wholesalers Manufactures
Components Raw material suppliers
chapter1 17

Objectives of supply chain
To maximize the overall value generated:The value a
Supply chain generates is the difference between what
the final product is worth to customer and the effort the
supply chain expends in filling the customers request
To achieve maximum supply chain profitability:
Supply chain profitability is the total profit to be shared
a crossed all supply chain stages
To reduce the supply chain costs to the maximum
possible level : Supply chain management involves the
management of flows between and among stages in a
supply chain to maximize total profitability.
Reduce cycle times.

chapter1 18

Activities involved in supply chain Management
Four Important activities involved in supply
chain management are
Purchasing
Logistics
Warehousing
Expediting
Manufacturers can deploy vast amounts of
information to a wide range of end users at a low cost
per user.
A manufacturer can share information throughout the
supply chain, enabling users around the world to drill
down into mission-critical data and create ad hoc on-
line reports quickly and easily.
chapter1 19

Standard Components of Supply Chain Management
Order Entry, customer orders are processed with the
highest degree of efficiency, with the added flexibility of
customer credit checking, make-to-order kits, EDI
interfaces and other advanced features.
Billing, automates sophisticated billing functions
through integration with Order Entry, Activity-Based
Management and manually-entered invoices. In addition,
recurring invoices are generated according to user-
defined billing frequencies.
Accounts Receivable, enables you to manage
customers, cash applications and credit functions.
Automated capabilities streamline the processes of credit
and collections.
chapter1 20

Inventory Control, innovative technologies, such as
hand-held inventory computers, provide a highly
effective means for tracking and replenishing supplies.
Warehouse, the processes of shipping goods and
generating requisitions are combined into a single
efficient component, simplifying the picking, packing
and shipping of customer orders. With two-way
interfaces, picking data can be shared with remote
warehouses or hand-held devices.
Purchase Order, interfaces with order entry,
requisitions and warehousing to automate the generation
of purchase orders. High-speed electronic purchasing
processes eliminate steps and reduce costs.

chapter1 21

Invoice Matching, automatically matches invoices
with purchase orders and receipts using the latest
electronic commerce technology. Purchase orders
generated directly from customer orders automatically
trigger customer invoices upon entry of vendor invoices.
Accounts Payable, the system streamlines all payable
functions, as well as the management and measurement
of vendor activity.
Sales Analysis, booking information, as well as actual
invoices from Order Entry and Billing Entry, are stored
in the system. Multi-dimensional views of sales results
enable you to identify and respond to changing business
trends.

chapter1 22

Workflow, internal and external resources are
interconnected, empowering all levels of the
organization to accomplish tasks with maximum
effectiveness and efficiency.
Cash Ledger, this central repository of all banking
transactions can be tailored to your company's fiscal
practices.
Requisitions, on-line paperless requisitions, which
utilize time-saving templates, take full advantage of web
capabilities to establish efficient vendor relationships.
Tax, provides the solution to tax compliance, whatever
your organization's level of complexity. User defined tax
tables, coupled with fully supported third-party products,
assure you of accurate tax calculations and reporting of
customer and vendor transactions.
chapter1 23

Work Order, by taking advantage of the system's
build-to-order/stock capabilities, companies can fulfill
customer orders on a timely basis while controlling
inventory costs and maximizing production capacity
Steps in the Purchasing Cycle
1. Recognize, describe, define the need
A. Classification Of Needs
1. Type Of Need
2. Strategic Or Operational?
3. Repetitive Or Non-Repetitive
4. Size (quantity; dollars)
5. Speed/Timing

chapter1 24

B. Specification Of Need
2. Transmit the need (requisitions)
A. standard requisitions
B. traveling requisitions
C. BOM requisition
3. Determine sources, investigate, and select
supplier/analyze bids
4. Prepare and issue the PO
5. Follow-up the order (including expediting and
de-expediting)
Receive and inspect the material (use of
receiving report: purchasing, accounting, user,
receiving)
7. Clearance of the invoice and payment to
supplier chapter1 25

Key challenges facing purchase managers today

Reducing overheads and cost associated with
purchasing.
Reducing cycle time for purchasing
Purchasing procurements to desktops and
enabling self services
Improving procurement practices by
significantly reducing inefficient buying
,redundant processes
assisting suppliers to become more responsive
in order to meet customers demand
Collaborating more effectively with suppliers

chapter1 26

Value Chain
The series of value-adding activities
connecting a company’s supply side (raw
materials, inbound logistics and production
processes) with its demand side (outbound
logistics, marketing and sales).
The process can be mapped via a flow diagram
and then re-engineered to increase value or
reduce costs
Idea developed by Michael Porter to analyze
sources of competitive advantage
Fundamental core concept of business strategy

chapter1 27

Value Chain Concept
The chain consists of a series of activities
that create and build value.
They culminate in the total value delivered
by an organization.
By analyzing stages of a value chain, can
redesign internal and external processes to
improve efficiency and effectiveness
Improve the value of what you do
And/or do it cheaper
chapter1 28

Checklist of questions for
Value Analysis
Is the item necessary,does it add value?
Can it be eliminated?
Are there any alternative sources for the item?
What are the advantages/disadvantages for
present arrangements?
Can specification be made less stringent?
Can two or more parts can be combined?
Do employees have suggestions for
improvements?
chapter1 29

Outsourcing
Outsourcing is subcontracting a process, such as
product design or manufacturing, to a third-party
company]
Outsourcing became part of the business lexicon
during the 1980s.
The decision to outsource is often made in the
interest of lowering firm costs, redirecting or
conserving energy directed at the competencies of a
particular business, or to make more efficient use of
labor, capital, technology and resources.

chapter1 30

Outsourcing
Outsourcing involves the transfer of the management
and/or day-to-day execution of an entire business
function to an external service provider. The client
organization and the supplier enter into a contractual
agreement that defines the transferred services.
Under the agreement the supplier acquires the means
of production in the form of a transfer of people, assets
and other resources from the client.
The client agrees to procure the services from the
supplier for the term of the contract. Business segments
typically outsourced include information technology,
human resources, facilities and real estate management,
and accounting.
chapter1 31

Reasons for Outsourcing
Cost savings. The lowering of the overall cost of the
service to the business. This will involve reducing the
scope, defining quality levels, re-pricing, re-
negotiation, cost re-structuring. Access to lower cost
economies through off shoring called "labor arbitrage"
generated by the wage gap between industrialized and
developing nations.]
Cost restructuring. Operating leverage is a measure
that compares fixed costs to variable costs. Outsourcing
changes the balance of this ratio by offering a move
from fixed to variable cost and also by making variable
costs more predictable.

chapter1 32

Improve quality. Achieve a step change in quality
through contracting out the service with a new Service
Level Agreement.
Knowledge. Access to intellectual property and wider
experience and knowledge.]
Contract. Services will be provided to a legally
binding contract with financial penalties and legal
redress. This is not the case with internal services.[14]
Operational expertise. Access to operational best
practice that would be too difficult or time consuming to
develop in-house.
Staffing issues. Access to a larger talent pool and a
sustainable source of skills.
chapter1 33

Capacity management. An improved method of
capacity management of services and technology where
the risk in providing the excess capacity is borne by the
supplier.
Catalyst for change. An organization can use an
outsourcing agreement as a catalyst for major step
change that can not be achieved alone. The outsourcer
becomes a Change agent in the process.
Reduce time to market. The acceleration of the
development or production of a product through the
additional capability brought by the supplier.

chapter1 34

Co modification. The trend of standardizing
business processes, IT Services and application services
enabling businesses to intelligently buy at the right
price. Allows a wide range of businesses access to
services previously only available to large corporations.
Risk management. An approach to risk management
for some types of risks is to partner with an outsourcer
who is better able to provide the mitigation.[15]
Time zone. A sequential task can be done during
normal day shift in different time zones - to make it
seamlessly available 24x7. Same/similar can be done
on a longer term between earth's hemispheres of
summer/winter
chapter1 35

Choosing a Suppliers
Strategic Thinking
Identify what you want to achieve by buying, rather than
simply paying for what suppliers want to sell you.
Develop a good understanding of the difference between
a strategic supplier who provides goods, or services that
are essential to your business and non-strategic suppliers
who provide low-value supplies e.g. stationery. You will
need to spend much more time researching and selecting
strategic suppliers rather than non-strategic ones. In
order to select strategic suppliers you should create a
checklist which outlines factors which are important to
your business and can include the following information:

chapter1 36

Reliability
If you promise your customers they will have their
‘goods delivered on time’ but your supplier delivers them
late, letting both you and your customer down this will
reflect badly on your company as the customer is likely
to blame your company for being unreliable not the
supplier.
Quality
The quality of your supplies needs to be consistent select
suppliers that operate within the same quality control as
you to ensure that standards are the same.

chapter1 37

Value for money
Choosing the supplier that is the cheapest is not the best
way to get value for money, as you may have to
compromise on other factors such as reliability and
quality. Therefore you will have to strike a balance
between cost and reliability, quality and service and set a
budget on how much you are willing to pay to ensure that
your suppliers meet your expectations.
Service and Communication
In order to meet your customer’s needs it is very
important that you are able to deliver on time; therefore
you need your supplier to arrange for your items to arrive
when you need them, or to be honest and tell you in
advance if they can’t. chapter1 38

A good supplier will communicate with you regularly
to find out what your needs are and outline how they can
serve you better.
Financially Secure
It is very important to know that your supplier is in a
financially secure position to deliver what you need and
are not going to disappear over night. Carry out credit
checks before you start your business relationship to re-
assure you that they will not go bust when you need them
most.
Identifying Potential Suppliers
Once you have a clear list of guidelines for choosing your
supplier, you should then draw up a shortlist of potential
providers. chapter1 39

Build up a broad base by asking friends or business
acquaintances that have done business with the supplier,
as they will be able to give you an honest assessment of
their strengths and weaknesses.
Choosing your pool of suppliers
Depending on your business operations it is worth
examining how many suppliers you may need. In terms
of strategic suppliers it can be very dangerous to give all
of your business to one company, if that supplier cannot
fulfill what is expected of them, this can result in the
company losing time and money, so it is vital that a pool
of suppliers are selected so you have sufficient backup.

chapter1 40

Evaluating Sources of supply

The vendor analysis is the process of evaluating
the sources of supply in terms of
1) Price
2) Location
3) Experience
4) Culture
5) Reputation
6) Decision making style

chapter1 41

Logistics

Logistics is defined as a business planning framework
for the management of material, service, information and
capital flows. It includes the increasingly complex
information, communication and control systems
required in today's business environment
The process of planning, implementing, and
controlling the efficient, effective flow and storage of
goods, services, and related information from point of
origin to point of consumption for the purpose of
conforming to customer requirements.
The science of planning, organizing and managing
activities that provide goods or services

chapter1 42

Warehousing
Warehousing is the management of materials while they
are in storage
It includes storing,dispersing,ordering & accounting for
all materials and finished goods from beginning to end of
the production process.
Warehousing deals with materials that direct support
operations.
Contemporary development in warehousing
Bar coding
Electronic data interchange
Distribution Requirement planning
JIT deliveries chapter1 43

Supply-Chain Strategies

Negotiating with many suppliers
Long-term partnering with few
suppliers
Vertical integration
Keiretsu
Virtual companies that use suppliers
on an as needed basis
chapter1 44

Many Suppliers
Commonly used for commodity
products
Purchasing is typically based on price
Suppliers are pitted against one another
Supplier is responsible for technology,
expertise, forecasting, cost, quality, and
delivery

chapter1 45

Few Suppliers

Buyer forms longer term relationships
with fewer suppliers
Create value through economies of scale
and learning curve improvements
Suppliers more willing to participate in JIT
programs and contribute design and
technological expertise
Cost of changing suppliers is huge
chapter1 46

Vertical Integration
Vertical Integration Examples of Vertical Integration
Raw material Iron ore Silicon Farming
(suppliers)

Backward integration Steel

Current transformation Automobiles Integrated circuits Flour milling

Distribution
Forward integration Circuit boards
systems

Finished goods
Computers Watches
(customers) Dealers Baked goods
Calculators

chapter1 Figure 11.2
47

Vertical Integration

Developing the ability to produce goods or service
previously purchased
Integration may be forward, towards the customer,
or backward, towards suppliers
Can improve cost, quality, and inventory but
requires capital, managerial skills, and demand
Risky in industries with rapid technological change

chapter1 48

Keiretsu Networks
A middle ground between few suppliers and
vertical integration
Supplier becomes part of the company coalition
Often provide financial support for suppliers
through ownership or loans
Members expect long-term relationships and
provide technical expertise and stable deliveries
May extend through several levels of the supply
chain

chapter1 49

Virtual Companies

Rely on a variety of supplier relationships to
provide services on demand
Fluid organizational boundaries that allow the
creation of unique enterprises to meet changing
market demands
Exceptionally lean performance, low capital
investment, flexibility, and speed

chapter1 50

Managing the Supply Chain

There are significant management issues in
controlling a supply chain involving many
independent organizations

Mutual agreement on goals
Trust
Compatible organizational cultures

chapter1 51

Issues in an Integrated Supply
Chain
Local optimization - focusing on local profit or
cost minimization based on limited knowledge
Incentives (sales incentives, quantity discounts,
quotas, and promotions) - push merchandise
prior to sale
Large lots - low unit cost but do not reflect sales
Bullwhip effect - stable demand becomes lumpy
orders through the supply chain

chapter1 52

Opportunities in an Integrated
Supply Chain

Lot size reduction
Single stage control of
replenishment
Vendor managed inventory
Postponement
chapter1 53

Opportunities in an Integrated
Supply Chain
Channel assembly
Drop shipping and special
packaging
Blanket orders
Standardization
Electronic ordering and funds
transfer chapter1 54

Benchmarking Supply-Chain
Management
Benchmark
Typical Firms Firms
Administrative costs as a percent of
3.3% .8%
purchases

Lead time (weeks) 15 8

Time spent placing an order 42 minutes 15 minutes

Percentage of late deliveries 33% 2%

Percentage of rejected material 1.5% .0001%

Number of shortages per year 400 4
chapter1 Table 11.655

Make-or-Buy Decisions
Reasons for Making
1. Maintain core competence
2. Lower production cost
3. Unsuitable suppliers
4. Assure adequate supply (quantity or delivery)
5. Utilize surplus labor or facilities
6. Obtain desired quality
7. Remove supplier collusion
8. Obtain unique item that would entail a prohibitive
commitment for a supplier
9. Protect personnel from a layoff
10. Protect proprietary design or quality
11. Increase or maintain size of company
chapter1 56
Table 11.4

Make-or-Buy Decisions
Reasons for Buying
1. Frees management to deal with its primary
business
2. Lower acquisition cost
3. Preserve supplier commitment
4. Obtain technical or management ability
5. Inadequate capacity
6. Reduce inventory costs
7. Ensure alternative sources
8. Inadequate managerial or technical resources
9. Reciprocity
10. Item is protected by a patent or trade secret
chapter1 57
Table 11.4

Supply Chain Dynamics
Three key points about supply chain dynamics are:
The supply chain is highly interactive
system.Decision in each part affect others
There is accelerated effect of demand changes
.Upstream elements must be careful not to
overreact to inflated orders
The best way to improve the supply chain is to
reduce the total replenishment time & to feedback
actual demand information at all levels

chapter1 58

Virtual supply chain

Internet Purchasing
Four Common Variations
Internet used to communicate
order releases against blanket
purchase orders
Internet replaces other forms of
electronic order releases

chapter1 59

Internet Purchasing

Internet used to buy non-
standard items from catalogs
Long-term master agreements in
place
Reduces order lead-time and
purchasing costs
chapter1 60

Internet Purchasing


Traditional purchasing system,
but Internet-based
Significantly speeds up
requisitioning, bidding, supplier
selection, and order placement
chapter1 61


Internet Purchasing


Internet auctions
May be used for commodity
items for which long-term
contracts do not exist
chapter1 62

Individual initiates Purchasing
requisition department/buyer Supplier
Prepares requisition Buyer reviews Receives
requisition electronic
purchase order

Inputs request into Enters data into
computer system Internet system Ships good;
and transmits to receives
purchasing electronic
department Assigns suppliers payment
to bid; gives
closing dates
and conditions

Collects/reviews
bids submitted
electronically

Selects a supplier
based on quality,
cost, delivery
performance;
issues purchase
order
chapter1 63

Virtual Corporation
As information and communications technologies overcome
the constraints of time and distance, it becomes possible to
create virtual organizations. Virtual is usually taken to be
something that does not exist in reality. So a typical
definition of a virtual corporation (taking the dimension of
time) is:
"a temporary network of independent companies linked by IT
to share skills, costs, and access to one another's markets"
(Business Week) However, another definition relates to an
organization not having a clear physical locus. Here a
typical definition is:

chapter1 64

Virtual Corporation
"an organization distributed geographically and whose work is
coordinated through electronic communications."
Both definitions show how information and communications
technologies can be used to exploit the dimensions of time
and space.
A virtual corporation is a specific example of a networked
organization. Many smaller companies are now realizing
the benefits of being part of a virtual corporation, which
can give them the benefits of the resources of a large
organization while retaining the agility and independence
of a small one.

chapter1 65

Virtual Corporation
Benefits

Gives access to a wide range of specialized resources
Can present a unified face to large corporate buyers
Individual members retain their independence and continue
to develop their niche skills
They can reshape and change members according to the
project or task in hand
There is no need to worry ponderously about "divorce
settlements" as in formal joint ventures.

chapter1 66

Virtual Corporation
The complexity of Supply Chain management has resulted in
increased risk to many corporations. There is a growing
body of evidence with numerous examples of instances
where Supply Chain related issues had a significant
negative impact on corporate profits.
Virtual Corporation Supply Chain Risk Management Team has
the expertise to provide offerings including risk
assessments, mitigation strategies, and the incorporation of
supply chain risk impact / probability factors into an
overall business continuity plan. Virtual Corporation's
effective supply chain risk management provides clients
with affordable, effective, solutions to avert or mitigate
losses that can impact their revenue stream.
chapter1 67

Virtual Corporation

Victual's Supply Chain and Risk Assessment practice provides
a wide range of consulting expertise to any size enterprise.
Services available include:
Physical asset risk assessments
Snapshot risk mapping of supply chain flows from
upstream suppliers to client
Detailed supply chain flow charts identifying gaps in
protection strategy
Probabilistic computer modeling of supply chain exposures

chapter1 68

Virtual Corporation

Quantitative computer supply chain modeling
Documenting supply chain exposures for Sarbanes-Oxley
Compliance
Cooperation with regulatory agencies with regard to
identifying risks
Analysis of mitigation solutions for reducing supply chain
interruptions
Sustainable business continuity plans incorporating risk
management, security, other key risk issues

chapter1 69

An overview

End Of

Chapter 1

chapter1 70

“Like” us on Facebook:
p // /
http://www.facebook.com/welearnindia

“Follow” us on Twitter:
http://twitter.com/WeLearnIndia
http://twitter com/WeLearnIndia

Watch informative videos on Youtube:
http://www.youtube.com/WelingkarDLP

SCM (Supply Chain Management): An Overview

Recommandé

Recommandé

Contenu connexe

Tendances

Tendances (20)

Similaire à SCM (Supply Chain Management): An Overview

Similaire à SCM (Supply Chain Management): An Overview (20)

Plus de We Learn - A Continuous Learning Forum from Welingkar's Distance Learning Program.

Plus de We Learn - A Continuous Learning Forum from Welingkar's Distance Learning Program. (20)

Dernier

Dernier (20)

SCM (Supply Chain Management): An Overview