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A Paper Presentation On

SUPPLY CHAIN MANAGEMENT

Submitted By: V.SIVA


G.KAMAL

DEPARTMENT OF MECHANICAL ENGG.


DHIVYA POLYTECHNIC COLLEGE CHETPET-606801 Tirruvannamalai District

SUPPLY CHAIN MANAGEMENT


Introduction
Supply chain management (SCM) is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler and from retailer to consumer. Supply chain management involves coordinating and integrating these flows both within and among companies. The ultimate goal of any effective supply chain management system is to reduce inventory. According to definition of APICS ( The Association for Operations Management) Supply chain management is the design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, synchronizing supply with demand, and measuring performance globally." According to the Council of Supply Chain Management Professionals (CSCMP), Supply chain management encompasses the planning and management of all activities involved in sourcing, procurement, conversion, and logistics management.

History
Evolution of Supply chain management can be divided into six phases. Creation, Integration, and Globalization, Specialization Phases One and Two, and SCM 2.0. 1960s - Inventory Management Focus, Cost Control 1970s - MRP & BOM - Operations Planning 1980s - MRPII, JIT - Materials Management, Logistics 1990s - SCM - ERP - Integrated Purchasing, Financials, Manufacturing, Order Entry 2000s - Optimized Value Network with Real-Time Decision Support; Synchronized & Collaborative Extended Network

1- Creation The term Supply chain management was first used in industry in 1980s. The characteristics of this era of supply chain management include the need for large-scale changes, re-engineering, and various cost reduction program. 2. Integration In this era Supply chain evolution is characterized by increasing value-addition and cost reductions through integration. At this time Enterprise Resource Planning (ERP) systems also introduced in the market. 3. Globalization Era The globalization era, is characterized by the global systems of supplier relationships and the expansion of supply chains over national boundaries and into other continents. 4. Specialization Era Phase One: Outsourced Manufacturing and Distribution In the 1990s focus on core competencies and adopted a specialization model. Organization started extending the supply chain beyond the company walls and distributing management across specialized supply chain partnerships. 5. Specialization EraPhase Two: Supply Chain Management as a Service In this era supply chain management has grown as a service. It becomes more variable. This variability has significant effects on the supply chain infrastructure. It enables companies overall compentencies. 6. Supply Chain Management 2.0 (SCM 2.0) EraSCM 2.0 has been coined to describe both the changes within the supply chain itself as well as the evolution of the processes. SCM 2.0 is a combination of the processes, methodologies, tools and delivery options due to the effects of global competition, rapid price fluctuations, and short product life cycles.

Elements of Supply Chain


A supply chain is made up of several elements that are linked by the movement of products along it. The supply chain always starts and ends with the customer. Supply chain is always customer centric. Customer: The customer starts the chain of events when they decide to purchase a product that has been offered for sale by a company. The customer contacts the sales department of the company, which enters the sales order for a specific quantity to be delivered on a specific date. Planning: Once companies get the customer order, the planning department creates a production plan to manufacture the products. To fulfill this requirements company purchase the raw materials needed. Purchasing: The purchasing department receives a list of raw materials and services required by the production department to complete the customers orders. Inventory: The raw materials are received from the suppliers, checked for quality and accuracy and moved into the warehouse. The supplier will then send an invoice to the company for the items they delivered. The raw materials are stored as inventory until they required by the production department. Production: Based on a production plan, the raw materials are moved inventory to the production area. The finished products ordered by the customer are manufactured using the raw materials purchased from suppliers. Transportation:

When the finished product arrives in the warehouse, the shipping department determines the most efficient method to ship the products so that they are delivered on or before the date specified by the customer.

Benefits of Supply Chain Management


1. 2. 3. 4. 5. Improved customer responsiveness Higher product quality Faster product innovation Reduced inventory costs More consistent on-time delivery

Supply Chain Management Levels


Supply Chain Management has three levels of activities : Strategic, Tactical and Operational.

All three level decisions affect product development, customers, manufacturing, suppliers and logistics in a different manner. Strategic Level:

This is done by top level management. At this level, company management will be looking to high level strategic decisions related to whole organization, such as the size and location of manufacturing sites, partnerships with suppliers, products to be manufactured and sales markets. It is concerned with long term decisions. Strategic decisions include product development, customers, manufacturing, vendors, and logistics.

Effect on Product Development Top level management always decides which product has to manufacture. Once the product cycle starts declining, management has to make strategic decisions to develop and introduce new versions of existing products into the marketplace. Customers At the startegic level, company always identifies who are the key customers and according to their requirements, company manufacture the products. Manufacturing At the strategic level, manufacturing decisions define the manufacturing infrastructure and technology that is required. Based on high level forecasting and sales estimates, the company management has to make strategic decisions on how products will be manufactured. Suppliers Company decides on the strategic supply chain policies with regards to suppliers. Sometimes company reduce the number of suppliers or sometimes company select global suppliers. Tactical Level: Tactical decisions focus on those things which will produce cost benefits such as using industry best practices, developing a purchasing strategy with favored suppliers, working with logistics companies to develop cost effect transportation and developing warehouse strategies to reduce the cost of inventory. Effect of tactical decisions on product development-

Tactical decisions have to be made as to the particular products that should be developed. The company has to make tactical decisions regarding the specifications of the products, what will be the market segment and where it should be targeted to achieve the maximum profit.

Manufacturing On tactical level decisions are made on how to produce the products at the lowest cost. Tactical decisions are made as to the adoption of manufacturing methodologies such as Kanban or Just-in-time. Tactical decisions are required at a regional level by using technology to reduce the material wastage. Suppliers At a tactical level, management work within strategic guidelines to identify and negotiate the terms that will provide the cost benefit to the company. Operational Level: This level is more concerned to day to day basis on operational level. Decisions at this level are made each day in businesses that affect how the products move along the supply chain. Operational decisions involve making schedule changes to production, purchasing agreements with suppliers, taking orders from customers and moving products in the warehouse. Manufacturing The local plant management may make an operational decision to keep certain items in stock to ensure that production wont stop. In this case inventory costs will increase which is called inventory carrying cost , but a greater cost would be incurred if the production line will be stopped due to a lack of items from a supplier. Logistics Strategic and tactical supply chain decisions in the logistics process generally focus on the use of third party logistics companies (3PL). But these 3PL companies may not operate in all regions where the company requires logistics. In those cases the local management make operational decisions on leasing local warehousing and negotiating with regional logistics companies.

Supply Chain Operations Reference (SCOR) Model


SCOR, Supply Chain Operations Reference, is a model developed by The Supply-Chain Council (SCC). It act as a standard for supply chain management. According to SCC - Supply Chain as the integrated processes of Plan, Source, Make, Deliver, and Return, spanning from the suppliers supplier to the customers customer, aligned with Operational Strategy, Material, Work, and Information Flows.

Plan-Source-Make-Deliver-Return

SCOR contains: 1. Standard descriptions of management processes 2. A framework of relationships among the standard processes 3. Standard metrics to measure process performance 4. Management practices that produce best-in-class performance SCOR enables the companies to: 1. Evaluate and compare their performances with other companies effectively 2. Identify and pursue specific competitive advantages 3. Identify software tools best suited to their specific process requirements The SCOR model provides a best practice as a current, structured, proven and repeatable method for making a positive impact on desired operational results. 1. Current - Must not be emerging and must not be antiquated 2. Structured - Clearly stated Goal, Scope, Process, and Procedure

3. Proven - Success has been demonstrated in a working environment. 4. Repeatable - The practice has been proven in multiple environments.

Flow in Supply chain


In supply chain materials flow downstream, from raw material sources through a manufacturing level. Then raw materials transforms into intermediate products.

From manufacturing plant manufactured product shipped to various distribution center. And from distribution center to retailers and ultimately customers.

Supply chain Improvement Strategies


Four areas are key to effective supply chain management - Process, Measurement, Information management and technology. Supply chain can be improved by integrating internal functional process and systems across the enterprise. It includes the physical supply chain execution and management processes like: 12345Customer service management Materials and Production planning Logistics and inventory management Sourcing and Procurement Product development and commercialization

Phase 1 - Improvement Assessment and Analysis In this phase various opportunities and targets are defined based on operations strategy and performance shortfalls. Benefits are qantified in this phase Phase 2 - Analyze supply chain and processes. Model of current suply chain flows has been prepared. Services and financial performance are measured. Phase 3- Design Improvement Solution Simulated model on supply chain are used. Ideas are generated through improvement teams and process change are defined. Phase 4- Detailed Planning and Implementation In the last phase of improvement detailed designs and plans are developed. Buisness cases are defined.

Other strategies in Supply chain management on lower level 1. Educate- All departments who are connected to supply chain must have common understanding of supply chain. 2. Benchmark- Comparison with competitors and industry trends are very important improve any business. 3. Assessment- Understanding the status of all departments which are connected to supply chain can be very beneficial. Comparison with the Six Levels of Supply Chain excellence can be greatly enhance the overall system.

Level I, Business as Usual Level II, Link Excellence Level III, Visibility Level IV, Collaboration Level V, Synthesis Level VI, Velocity

4. Weakest Link- Identification of the weakest department within the sysytem and the weakest link in supply chain will drive performance. 5. Communication- There should be proper communication within all involved department in supply chain system so that everyone understands the ongoing process. 6. Partnerships- Only join with supply chain partners who are ready to partner. Partnering with a link that has not achieved Link Excellence will not provide positive results. 7. Leadership- On each supply chain initiative, identify the proper skill sets required to lead the effort. Assure clarity of roles and responsibilities and cultural compatibility. 8. Core Competencies- Identification of core competencies are mus, focus on them is mimportant and then outsource the rest. 9. Continuous Improvement- An ongoing process is required for to pursue Supply Chain excellence. There should be continuous improvement all the time.

Supply Chain Management Software


Supply chain management software (SCMS) is a business term which refers to a range of software tools or modules used in executing supply chain transactions and managing supplier relationships. It commonly includes: 1. Customer requirement processing 2. Purchase order processing 3. Goods receipt and Warehouse management 4. Supplier Management/Sourcing Supply chain management software can be categorize by the software providers and it has various different parameters. For instance, software can be generally categroized by price and based on the number of employees in the organization. Software providers for large corporations (more than 1000 employees) 1- Oracle 2- E-Buisness Suite 3- Peoplesoft 4- SAP Software providers for small and medium- size businesses (from 10 to 1000 employees) 1- Epicore Software 2- ERP Studio 3- Exact Globe Software

4- M1 by B&G Software 5- Microsoft Dynamics 6- Jobscope Software

Cost of Software
Ownership of these software are very costly ranges from $0.3 million to $5.5 billion. It includes the costs of packaged software, hardware, professional services (for ongoing maintenance, upgrades and optimization) and internal costs. Oracle, ERP, SAP , Peoplesoft are the big software and total average cost can be up to $5 billion including service and maintenance. For small to mid firms cost ranges from $0.2 million to $400 million.

Application of Supply Chain Management Software


Supply chain management software assists enterprises in various areas from product development to outsourcing. Application in Customer Service Management: Customer relations provide information to the manufacturer on the level of demand for the product, and also provide feedback to the customer. Procurement Process: Supply chain management software can assist in resource planning for the manufacture of products, recommending order schedules to reduce manufacturing cycle times. Product Development and Commercialisation: While supply chain management software cannot advise on the development of new products it can be used to ensure best practices for their manufacture and distribution. Manufacturing Flow Management: Supply chain management software can assist in this process by analysing past performance and future predictions to suggest the optimal manufacturing schedule, while ensuring that availability of materials.

Distribution: In distribution, software is used to calculate the process of planning and implementing an efficient distribution schedule by optimizing manufacturing. Outsourcing: It is used to analyze areas of the supply chain in which the organization can look for outsourcing generally outside the organization sometimes in other countries if the company is very big. Performance Measurement: Performance Measurement performs a vital function in any supply chain. By continuously analyzing the performance of the enterprise over a range of functions Supply chain software enables managers to identify areas of weakness and opportunities for improvement.

Formulas for measuring Supply Chain


Most commanly used measures in supply chain management is Inventory Turnover. Inventory Turnover = Cost of goods sold / Avg. Aggregate Inventory Value Situation where Distribution Inventory is importantWeeks of Supply = ( Avg. Aggregate Inventory Value / Cost of goods sold ) * 52 Weeks

The Bullwhip Effect in Supply Chain


The Supply chain is a complex group of companies that move goods from raw materials suppliers to finished goods retailers. These companies work together when meeting consumer demand for a product; supply chains allow companies to focus on their specific processes to maintain maximum probability. Definition -

The bullwhip effect on the supply chain occurs when changes in consumer demand increases. Because of this increment companies order more goods to fulfill the new demand. The bullwhip effect usually starts with the retailer, wholesaler, distributor, manufacturer and then the raw materials supplier. Factors contributing to the Bullwhip Effect 1. Forecasting Errors This happens when companies enter new products into the marketplace, they estimate the demand of the good based on current market conditions. Generally most companies order for more good than they can sell. This "extra" inventory begins to increase or decrease during the normal market fluctuations of supply and demand. When demand increases, the companies increase inventory to meet the consumer demand. While when the demand falls, companies decrease their inventory.

2. Behavioral Causes Ordering of too much inventory when consumer demand has fallen for an item can cause the effect. Some times retailers raised their inventory levels to avoid being out of stock. This creates overstock of inventory for each supply chain company. 3. Operational Causes The main cause of the bullwhip effect comes from individual demand forecasts from each company in the supply chain. This causes an increase in demand from companies in the supply chain, but not the actual consumers who will purchase the goods. 4. Lead Time-

Longer lead time leads to greater variability in the estimation of average demand. Due to which inventory cost will increase.

5. Batch OrderingIt occurs because of rise and fall in Orders. 6. Price Fluctuations

7. Lack of centralized information Corrective Measures Consumer demand based on the order information should be properly evaluated which allow managers to order more goods if needed.

New Dimensions in Supply Chain Management


New dimensions in supply chains are basically internal, external, and customer : Internal dimension the supply chain system controlled by the organization A companys internal dimension is the physical aspects of its business that are largely under its control. These include manufacturing, distribution, or retail capacity and the time and costs that put into sourcing, producing, and distributing products. Improving performance in these areas should be the priority of most supply chain management initiatives. For distributors and retailers, the priority has generally been on supplier relationship management, warehouse management, and transportation management solutions and the integration of those solutions to deliver visibility of supply.

External dimension the supply chain company cant control The external dimension is comprised of business factors over which companies have little or no control. So the external dimension has been a lower priority from many supply chain initiatives. These external dimensions can be predictable. With the right approach and technologies, companies can incorporate these predictable external factors into their strategic, tactical, and operational planning External dimension also includes forces that are difficult to predict like a sudden Change in fuel prices, worker strikes, and delays in shipping or major weather catastrophe. To avoid the problems of the external dimension, companies should increase and extend their supply chain visibility, and improve the measurement of performance. Customer Dimension - Provides influence but can not be controlled The customer dimension is a combination of busines characteristics over which they have influence, but not total control. These decisions are based on a customer-centric view of the supply chain. Supply chain management can be improved by a combination of product lifecycle management, and customer relationship management.

GLOBAL SUPPLY CHAIN MANAGEMENT


Global supply chain management involves a company's worldwide interests and suppliers rather than simply a local or national orientation.

Difficulties while applying Global supply chain management


1. companies need to consider is the overall costs 2. costs of space, tariffs, and other expenses related to doing business overseas 3. exchange rate

Factors affecting global supply chain 1. Time -

The productivity of the overseas employees and the extended shipping times can either positively or negatively affect the company's lead time. Customs clearance time should be considerd seriously. 2. Overall outsourcing plan company needs to make decisions about its overall outsourcing plan. 3. Supplier selection An organization should do proper research before selection of overseas suppliers. Because searching of supplier can be more complex for other countries in comparison to Parent country. 4. Logistics problem Companies who choose to ship their manufacturing overseas may have to face some problems regarding logistics. Questions regarding the number of plants that are needed, as well as the locations for those plants can pose difficult logistical problems for companies.

The Future of Supply Chain Management


The future of supply chain will be based on the following seven critical areas. 2. Developing forward-looking category strategies. 3. Engaging, developing and managing key suppliers. 4. Designing and operating multiple supply networks. 5. Leveraging technology enablers. 6. Collaborating internally and externally. 7. Attracting and retaining supply management talent. 8. Managing and enabling the future supply organization globally. 1. Developing forward-looking Category Strategies

Developing category strategy means to create the most value for the company by leveraging external resources and capabilities.

Until the mid 1990s many companies used traditional approach to strategy development means buying the same components, products, and services over the years from the same markets and same suppliers. After 1995, companies broadened their market and tapped some non-traditional markets. Today, companies are looking beyond the goods and services and defining strategies for whole new categories. In result new categories are appearing such as contract manufacturing, facilities management, and logistics.

2. Engaging, developing and managing key suppliers Engaging, developing, and managing suppliers is one of the important aspect in supply chain. It can be executed by

To support the business model and category strategies. Improving working relationships with suppliers. Developing the capabilities of suppliers to meet future needs.

3. Designing and operating multiple supply networks

A mix of product characteristics and customer importance is always considered when designing and operating multiple supply networks.

4. Leveraging technology enablers

Various new technology have been introduced since last decade and continue to add new ones like Spend management software, e-sourcing, Electronic Data Interchange (EDI), Radio Frequency Identification Technology (RFID) and Contract management.

5. Collaborating internally and externally Companies should look for external collaboration for new and effective suppliers. But they also look for internal collaboration initially with engineering and product development, particularly in manufacturing companies.

Supply Management in a supporting and leading role.

6. Attracting and retaining supply management talent Companies should not attract only new talent but also able to retain their own employee. Retaining of the employee is one of the big challenges companies facing today. To achieve this an organization should

1. Identifying needed skills and capabilities. 2. Acquiring, developing and retaining talent. 3. Managing a diverse, dispersed workforce.

7. Managing and enabling the future supply organization globally

Due to Globalization, demographic shifts, greater cross-organizational collaboration, and enabling technologies organizations are contacting supply professionals from different cultures and generations. This dynamic is creating new ways of working across organizational and geographic boundaries.

Conclusion
An effective, realistic, and flexible Supply Chain Management system can have significant benefits for any business. It can make it easier to manage all of the different factors

that contribute to the purchasing and production cycle. The amalgamation of all of these benefits is a balance between keeping costs reasonable and maintaining production levels. Competing companies will have access to the same supply market information, the same suppliers, and the same supply management best practices and tools. Supply chain management has become increasingly important in a global economy. There are many barriers that prevent corporations from properly aligning entities within and between organizations. Advancements in Information Technology have significantly improved Supply Chain Management but there continues to be enormous potential for further development.