PRODUCTION OPERATION MANAGEMENT

PROJECT REPORT

ON

SUPPLY CHAIN MANAGEMENT

SUBMITTED TO:-

Mr. Jaideep Gupte

Submitted By:-

Abhinandan Uniyal

Anjali Singh

Ankit Sharma

Mohd. Aftab

Udit Attrey

Section ‘C’

IILM INSTITUTE FOR HIGHER EDUCATION

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 TABLE OF CONTENT
1. What is supply chain?

a. Objectives of a supply chain

2. Process views of a supply chain

a. Cycle View

b. Push/Pull View

3. Supply chain management

4. Problems addressed by SCM

5. Importance of SCM

6. The origins of SCM

7. SCM elements

8. SCM Models

a. Competitive priorities and manufacturing strategy

b. Efficient supply chain and responsive supply chain
c. Clock-speed of product, process, and organization life cycles
d. Push and Pull Processes
9. Advantages and Disadvantages of SCM

10. Role of IT in SCM

11. SAP Supply Chain Management

12. Future of SCM – Lean Procurement

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 WHAT IS A SUPPLY CHAIN
A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer
request. The supply chain includes not only the manufacturer and suppliers but also
transporters, warehouses, retailers and even customers themselves. Within each organization,
such as manufacturer, the supply chain includes all functions involved in receiving and
fulfilling a customer request. These functions include, but are not limited to, new product
development, marketing, operations, distribution, finance and customer service.

Fig. 1: Supply Chain

Consider a customer walking into a Wal-Mart store to purchase detergent. The supply chain
begins with the customer and his or her need for detergent. The next stage of this supply
chain as the Wal-Mart retail store that customer visits. Wal-Mart stock its shelves inventory
that may have been supplied from a finished goods warehouse or distributor using trucks.
The truck is in turn is stocked by the manufacturer. The manufacturer plant receives raw
material from a variety of suppliers, who themselves have been supplied by low-tier
suppliers.

A typical supply chain may involve a variety of stages. These supply chain stages include:

• Customers

• Retailers
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• Wholesalers/Distributors

• Manufacturers

• Component/Raw material suppliers

Fig. 2: Stages of a supply chain

The objectives of a Supply Chain

• Minimizing the time required for converting orders into cash.

• Minimizing the total Work-In-Process (WIP) in the Supply Chain.

• Improving pipeline visibility, that is the visibility of each one of the activities of the
Supply Chain by each one of the partners.

• Improving visibility of demand by each one of the partners.

• Improving quality.

• Reducing costs.

• Improving services.

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 PROCESS VIEWS OF A SUPPLY CHAIN

A supply chain is a sequence of processes and flows that take place within and between
different stages and combine to fill a customer need for a product. There are two different
ways to view the processes performed in a supply chain.

1. Cycle view

The processes in a supply chain are divided into a series of cycles, each performed at
the interface between two successive stages of a supply chain. All supply chain
processes are broken down into following 4 process cycles:-

• Customer order cycle

• Replenishment cycle

• Manufacturing cycle

• Procurement cycle

Not every supply chain will have all four cycles clearly separated. For example, a
grocery supply chain in which a retailer stocks finished goods inventories and places
replenishment orders with a distributor is likely to have all four cycles whereas Dell,
in contrast, sells directly to customers, thus bypassing the retailer and distributor.

Each cycle occurs at the interface between two successive stages of the supply chain
which are shown below in the diagram 3.

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 Fig. 3: Supply Chain Process Cycle

2. Push/Pull View

The processes in a supply chain are divided into 2 categories depending on whether
they are executed in response to a customer order or in anticipation of customer
orders. Pull processes are initiated by a customer order, whereas push processes are
initiated and performed in anticipation of customer orders.

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 SUPPLY CHAIN MANAGEMENT

Supply Chain Management is a set of synchronized decisions and activities utilized to

efficiently integrate suppliers, manufacturers, warehouses, transporters, retailers, and
customers so that the right product or service is distributed at the right quantities, to the right
locations, and at the right time, in order to minimize system-wide costs while satisfying
customer service level requirements. The objective of Supply Chain Management (SCM) is
to achieve sustainable competitive advantage.

Problems addressed by supply chain management

Supply chain management must address the following problems:

• Distribution Network Configuration: number, location and network missions of

suppliers, production facilities, distribution centers, warehouses, cross-docks and
customers.

• Distribution Strategy: questions of operating control (centralized, decentralized or

shared); delivery scheme, e.g., direct shipment, pool point shipping, cross docking,
DSD (direct store delivery), closed loop shipping; mode of transportation, e.g., motor
carrier, including truckload, LTL, parcel; railroad; intermodal transport, including
TOFC (trailer on flatcar) and COFC (container on flatcar); ocean freight; airfreight;
replenishment strategy (e.g., pull, push or hybrid); and transportation control (e.g.,
owner-operated, private carrier, common carrier, contract carrier, or 3PL).

• Trade-Offs in Logistical Activities: The above activities must be well coordinated in

order to achieve the lowest total logistics cost. Trade-offs may increase the total cost
if only one of the activities is optimized. For example, full truckload (FTL) rates are
more economical on a cost per pallet basis than less than truckload (LTL) shipments.
If, however, a full truckload of a product is ordered to reduce transportation costs,
there will be an increase in inventory holding costs which may increase total logistics
costs. It is therefore imperative to take a systems approach when planning logistical
activities. These trade-offs are key to developing the most efficient and effective
Logistics and SCM strategy.

• Information: Integration of processes through the supply chain to share valuable

information, including demand signals, forecasts, inventory, transportation, potential
collaboration, etc.
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 • Inventory Management: Quantity and location of inventory, including raw
materials, work-in-progress (WIP) and finished goods.

• Cash-Flow: Arranging the payment terms and methodologies for exchanging funds
across entities within the supply chain.

Supply chain execution means managing and coordinating the movement of materials,
information and funds across the supply chain. The flow is bi-directional.

IMPORATNCE OF SUPPLY CHAIN MANAGEMENT

Organizations increasingly find that they must rely on effective supply chains, or networks,
to compete in the global market and networked economy. In Peter Drucker's (1998) new
management paradigms, this concept of business relationships extends beyond traditional
enterprise boundaries and seeks to organize entire business processes throughout a value
chain of multiple companies.

During the past decades, globalization, outsourcing and information technology have enabled
many organizations, such as Dell and Hewlett Packard, to successfully operate solid
collaborative supply networks in which each specialized business partner focuses on only a
few key strategic activities (Scott, 1993). This inter-organizational supply network can be
acknowledged as a new form of organization. However, with the complicated interactions
among the players, the network structure fits neither "market" nor "hierarchy" categories
(Powell, 1990). It is not clear what kind of performance impacts different supply network
structures could have on firms, and little is known about the coordination conditions and
trade-offs that may exist among the players. From a systems perspective, a complex network
structure can be decomposed into individual component firms (Zhang and Dilts, 2004).
Traditionally, companies in a supply network concentrate on the inputs and outputs of the
processes, with little concern for the internal management working of other individual
players. Therefore, the choice of an internal management control structure is known to
impact local firm performance (Mintzberg, 1979).

In the 21st century, changes in the business environment have contributed to the development
of supply chain networks. First, as an outcome of globalization and the proliferation of
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multinational companies, joint ventures, strategic alliances and business partnerships,
significant success factors were identified, complementing the earlier "Just-In-Time", "Lean
Manufacturing" and "Agile Manufacturing" practices. Second, technological changes,
particularly the dramatic fall in information communication costs, which are a significant
component of transaction costs, have led to changes in coordination among the members of
the supply chain network.

THE ORIGINS OF SUPPLY CHAIN MANAGEMENT

During the 1950s and 1960s, U.S. manufacturers were employing mass production
techniques to reduce costs and improve productivity, while relatively little attention was
typically paid to creating supplier partnerships, improving process design and flexibility, or
improving product quality. New product design and development was slow and relied
exclusively on in-house resources, technologies, and capacity. Sharing technology and
expertise through strategic buyer-supplier partnerships was essentially unheard. Process on
the factory were cushioned with inventory to keep machinery running and maintain balanced
material flows, resulting in large investments in work-in-progress inventory.

In the 1960’s and 1970s material requirement planning(MRP) systems and manufacturing
resource planning(MRPII) systems were developed, and the importance of effective materials
management was recognized as manufacturers became aware of the impact of high levels of
inventories on manufacturing and storing costs.

The 1980s were the breakout years for supply chain management. One of the first widely
recorded uses of the term supply chain management came about a paper published in 1982.
Intense global competition beginning in the 1980s provided an incentive for U.S.
manufacturers to offer lower-cost, higher quality products along with higher levels of
customer service. Manufacturers utilized just in time (JIT) and total quality management
(TQM) strategies to improve quality, manufacturing efficiency, and delivery times.

As competition in the U.S. intensified further in the 1990s accompanied by increasing

logistics and inventory costs and the trend toward market globalization, the challenges
associated with improving quality, manufacturing efficiency, customer service, and new
product design and development also increased. To deal with these challenges, manufacturers
began purchasing from certified, high quality suppliers with excellent service reputations and
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involved these suppliers in their new product design and development activities as well as in
cost, quality, and service improvement initiatives.

In 2000’s the supply chain relationship was formed and extended. Supply chain management
has evolved along two parallel paths:

i. The purchasing and supply management emphasis from industrial buyers.

ii. The transportation and logistics emphasis from wholesalers and retailers.

The increasing popularity of these alliances with suppliers and customers in the later part of
1990’s and continuing today has also meant a greater reliance on the shipping, warehousing
and logistics services that provide transportation, storage, documentation custom clearing
services to many firms within a typical supply chain.

SUPPLY CHAIN MANANGEMENT ELEMENTS

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 .SUPPLY CHAIN MANAGEMENT MODELS

Competitive priorities and manufacturing strategy

The ability of a supply chain to compete based on cost, quality, time, flexibility, and new
products is shaped by the strategic focus of the supply chain members. A firm’s position on
the competitive priorities is determined by its four long-term structural decisions: facility,
capacity, technology, and vertical integration, as well as by its four infrastructural
decisions: workforce, quality, production planning and control, and organization. The
cumulative impact of infrastructural decisions on a firm’s competitiveness is as important as
long-term structural decisions.
Manufacturing strategy focuses on a set of competitive priorities such as cost, quality, time,
flexibility, and new product introduction. It classifies production processes to five major
types: project, job shop, batch, line, and continuous flow. “Make-to-stock”, “assemble-to-
order”, “build-to-order” and “engineer-to-order” are a few of the manufacturing strategies
used to address competitive priorities to compete on the market place.
Make-to-stock involves holding products in inventory for immediate delivery, so as to
minimize customer delivery times. This is in the category of push system. Demand is
forecasted and production is scheduled before demand is there.
Assemble-to-order is the strategy to handle numerous end-item configurations and is an
option for mass-customization. Assemble-to order items use standardized parts and
components. They require efficient and low cost production in the fabrication process and
flexibility in the assembly or configuration stage to satisfy individualized demand from
customers.
Build-to-order, on the other hand, produces customized products in low volume after the
manufacturer receives the orders. Build-to-order items are usually in very small volumes and
require high technical competency, high product performance design, and effective due date
management.
Engineer-to-order produces products that are with unique parts and drawings required by
customers. Product volume is very small and typically is one-of-a-kind in a job-shop
environment. The cycle time from order to delivery is usually long because of the unique
customization nature. MRP planning is extremely important for engineer-to-order.

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 Efficient supply chain and responsive supply chain
One of the causes of supply chain failure is due to the lack of understanding of the nature of
demand. The lack of understanding often leads mismatched supply chain design. Fisher
(1997) suggested two distinctive approaches, efficient supply chain and responsive supply
chain, to design a firm’s supply chain.
The purpose of responsive supply chain is to react quickly to market demand. This supply
chain model best suites the environment in which demand predictability is low, forecasting
error is high, product life cycle is short, new product introductions are frequent, and product
variety is high (Table 1.1). The responsive supply chain design matches competitive priority
emphasizing on quick reaction time, development speed, fast delivery times, customization,
and volume flexibility. The design features of responsive supply chains include flexible or
intermediate flows, high-capacity cushions, low inventory levels, and short cycle time.
The purpose of an efficient supply chain is to coordinate the material flow and services to
minimize inventories and maximize the efficiency of the manufacturers and service providers
in the chain. This supply chain model best fits the environment in which demands are highly
predictable, forecasting error is low, product life cycle is long, new product introductions are
infrequent, product variety is minimal, production lead-time is long and order fulfilment
lead-time is short. The efficient supply chain design matches competitive priority
emphasizing on low cost operations and on-time delivery. The design features of efficient
supply chain include line flows, large volume production, and low capacity cushions.

TABLE: EFFICIENT SUPPLY CHAIN AND RESPONSIVE SUPPLY CHAIN

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 Clock-speed of product, process, and organization life cycles
Fine (1999) suggests that each industry evolves at a different rate, depending in some way on its
product clock-speed, process clock-speed, and organization clock-speed (Table 1.2). For example,
information entertainment industry is one of the fast-clock-speed industries. Motion pictures can have
product life measured in hours. Christmas time is the best season to introduce new movies when the
number of viewers is greatest. The process for information-entertainment industry changes rapidly.
New processes for delivering information-entertainment products and services to our home, public
centers, and offices evolve daily. CD players, DVD are just a couple of examples. Organization
structure is dynamic as well. Relationship among media giants such as Time-Warner, Disney, and
Viacom are negotiated, signed, and re-negotiated constantly to accommodate the changes in product
and process design.

Aircraft industry is an example of slow clock-speed product industry. The Boeing Company
measures its product’s clock-speed in decades. Thirty years after Boeing 747 was first introduced, the
profit generated from selling Boeing 747 is still flowing in. Boeing 747 produced and sold in 2000
has the same manufacturing plant as it had for the first of these aircraft.

Somewhere in the middle is automobile industry. The product does not change as fast as information-
entertainment industry, nor does it as slow as aircraft industry. Passenger cars, for example, have a
product life of three to five years. As for its process clock-speed, each time automaker makes a new
design, it expects much of that investment to be obsolete in four to five years.

Supply chain design should reflect the nature of the product clock speed; understanding what
requirements would make it more likely for one to have an effective supply chain or vice versa.
Analyzing the clock speed of product, process and organization enables us to see with greater clarity
and accuracy of the future needs from our customers.

TABLE 2: CLOCK SPEED

Pull and push processes

All processes in a supply chain fall into one of two categories: push or pull. In the push
process, production of a product is authorized based on forecasting which is in advance of

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customer orders. In the pull process, on the other hand, the final assembly is triggered by
ustomer orders (Figure below).

In a pure push process, make-to-stock is the primary production approach as shown in the
example of demand for chicken breast at Sam’s Club in Figure. Demand is forecasted based
on historical sales data. The need from the end users is satisfied from inventory. Production
lead-time is relatively long and finished goods inventory is more than that of the pull system.
The major technical sophistication that has been applied in the supply chain is Perdue Farms’
vertical integration, which focuses on “We do it all for you.”

In the pull approach, end users trigger the production of computers at Dell’s manufacturing
factory as shown in Figure. The major production strategy is make-to-order, assemble-to-
order, and build-to-order. In a pull scenario, demand uncertainty is higher and cycle time is
shorter than that of the push approach. Finished goods inventory is minimal. Dell is an
obvious captain of the supply chain. The major technical sophistication that has been applied
in the supply chain is Dell’s direct model, which focuses on “Have it your way.”

Fig. : Push and Pull

The push/pull approach is important in designing supply chain. Demand uncertainty and
variations are treated differently in these two systems. In a push system, safety stock is used
to manage demand variability; while in a pull system, flexible capacity is required to meet
the demand variability. Both inventory and capacity represent financial expenditure.

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Therefore, developing effective supply chains is crucial to achieve the cost-effective goal as
well as delivering what the customer needs at the right time, right place, and in the right
quantity.

ADVANTAGES AND DISADVANTAGES OF SUPPLY CHAIN

MANAGEMENT

Advantages:-

 Minimum costs with better material handling.

 Improved customer satisfaction with right quality product and right time delivery of
product in his hand.

 SCM leads to better relationship between the manufacturer, supplier and the
customers which lead to business growth.

 It lowers inventory and storage cost.

 It helps in achieving balance between costs and service.

 It provides a competitive advantage to all the organisations in the supply chain.

 SCM (supply chain management) improves the firm’s processes whereby it improves
on quality control and inventory control; this in turn improves on the productivity and
efficiency of the firm.

 It also reduces the transport duties of a firm which include the shipment and
transportation duties which are shared by firms and as a result these duties are
reduced and this constitutes to the reduction in the cost of production and final price
of goods.

 Firms reduce the issues of bad debts in that the payment terms across the firms is well
organized and defined, this ensures that a firm does not accumulate bad debts because
the payment terms between firms is well defined and followed by the firms in the
supply chain.

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  One of the advantages of supply chain management over the traditional chain
management is that suppliers share valuable information throughout the chain and
this information includes information on demand, forecasts on sales and demand and
transportation, through sharing of information the firms in the chain will become
more efficient.

Disadvantages:-

 Supply chain management fails if:

• Power is retained and wielded by one organisation in the supply chain

• Strategic fit is lacking and management styles are incompatible

• There is a lack of willingness to cooperate to the benefit of all.

 Profitable SCM is difficult to implement in an immature organisation.

 The heavy investment of time, money, and resources needed to implement and
overlook the supply chain.

 After the introduction of this new supply chain management there has been increased
unemployment which has resulted to high unemployment levels in the economies,
despite the new management system providing a faster and convenient way to
improve both the firm’s objectives and the customer.

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 ROLE OF IT IN A SUPPLY CHAIN
Information is a key supply chain driver because it serves as the glue that allows the other
supply chain drivers to work together with the goal of creating an integrated, coordinated
supply chain. Information is crucial to supply chain performance because it provides the
foundation on which supply chain processes execute transactions and managers make
decisions. Without information, a manager cannot know what customers want, how much
inventory is in stock, and when more products should be produced or shipped. In short,
without information, a manager can only make decisions blindly. Therefore, information
makes the supply chain visible to a manager. With this visibility, a manager can make
decisions to improve the supply chain’s performance.

Given the role of information in a supply chain’s success, managers must understand how
information is gathered and analyzed. This is where IT comes into play. IT consists of the
hardware, software and people throughout a supply chain that gather, analyze and execute
upon information. IT serves as the eyes and ears (sometimes a portion of the brain) of
management in a supply chain, capturing and analyzing the information necessary to make a
good decision.

Information is the key to the success of a supply chain because it enables management to
make decisions over a broad scope that crosses both functions and companies. By
considering a global scope across the entire supply chain, a manager is able to craft strategies
that take into account all factors that affect the supply chain rather than just those factors that
affect a particular stage or function within the supply chain.

For example, Wal-Mart has been a pioneer not only in capturing information, but also in
understanding how to analyze that information to make good supply chain decisions. Wal-
Mart collects data in real time on what products are being purchased at each of its stores and
then sends these data to the manufacturers. Wal-Mart analyzes this demand information to
determine how much inventory to hold at each store and to decide when to order new loads
of product from the manufacturer. The manufacturer uses this information to set its
production schedules to meet Wal-Mart’s demand on time. Both Wal-Mart and its key
suppliers do not just capture the information they have the analyzes done and base their
actions on this analysis.

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Information is used when making a wide variety of decisions about each of the supply chain
drivers, as discussed below:

Facility:- Determining the location, capacity and schedules of a facility requires information
on the trade-offs among efficiency and flexibility, demand, exchange rates, taxes and so on.
Wal-Mart’s suppliers use the demand information from Wal-Mart’s stores to set their
production schedules. Wal-Mart uses this information to determine where to place its new
stores and all.

Inventory:- Setting optimal inventory policies requires information that includes demand
patterns, cost of carrying inventory, cost of stocking out, and costs of ordering.

Transportation:- Deciding on transportation networks, routings, modes, shipments, and

vendors requires information including costs, customer locations and shipment sizes to make
good decisions.

Sourcing:- Information on product margins, prices, quality, delivery lead times and so on,
are all important in making sourcing decisions. Given sourcing deals with inter-enterprise
transactions, there is also a wide range of transactional information that must be recorded in
order to execute operations, even once sourcing decisions have been made.

Pricing and revenue management:- To set pricing policies, one needs information on
demand, both its volume and various customer segment’s willingness to pay, as well as many
supply issues such as the product margin, lead time, and availability. Using this information,
firms can make intelligent pricing decisions to improve their supply chain profitability.

To summarise, we can say that information is crucial to make good supply chain decisions at
all three levels of decision making (Strategy, planning and operations) and in each of the
other supply chain drivers (facilities, inventory, transportations, sourcing and pricing). IT
enables not only the gathering of these data to create supply chain visibility but also the
analysis of these data so that the supply chain decisions made will maximise profitability.

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 SAP SUPPLY CHAIN MANAGEMENT

Planning, Execution, And Collaboration across the Responsive Supply Network

You face enormous pressure to reduce costs while increasing innovation and improving
customer service and responsiveness. SAP Supply Chain Management (SAP SCM) enables
collaboration, planning, execution, and coordination of the entire supply network,
empowering you to adapt your supply chain processes to an ever-changing competitive
environment.

SAP SCM is part of the SAP Business Suite, which gives organizations the unique ability to
perform their essential business processes with modular software that is designed to work
with other SAP and non-SAP software. Organizations and departments in all sectors can
deploy SAP Business Suite software to address specific business challenges on their own
timelines and without costly upgrades.

SAP SCM can help transform a linear, sequential supply chain into a responsive supply
network – in which communities of customer-centric, demand-driven companies share
knowledge, intelligently adapt to changing market conditions, and proactively respond to
shorter, less predictable life cycles. SAP SCM provides broad functionality for enabling
responsive supply networks and integrates seamlessly with both SAP and non-SAP software.

The application:

• Delivers planning and execution functions that are integrated by design

• Supports best practices and provides preconfigured software for enabling

collaborative business, accelerating implementation, and reducing costs

• Is recognized by key industry analysts as the market-leading SCM application

PLANNING

Real-time demand and signal-based replenishment need to drive supply chains. Companies
need to balance supply and demand and run their businesses based on actual-versus-
forecasted demand.

With SAP SCM, you can model your existing supply chain; set goals; and forecast, optimize,
and schedule time, materials, and other resources with these planning activities:

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 • Demand planning and forecasting

• Safety stock planning

• Supply network planning

• Distribution planning

• Strategic supply chain design

Key Planning Benefits of SAP Supply Chain Management

SAP SCM enables you to:

• Increase demand accuracy and order fulfilment satisfaction levels

• Reduce inventory levels and increased inventory turns across the network

• Increase profitability and productivity

• Integrate sales and operations planning process

EXECUTION

To meet the challenges of rapidly changing market dynamics, your company needs to
synchronize all logistics, transportation, and fulfilment operations in a 24/7, always-on,
environment.

SAP SCM enables you to carry out supply chain planning and generate high efficiency at
lowest possible cost. You can respond to demand through a responsive supply network in
which distribution, transportation, and logistics are integrated into real-time planning
processes. Features include:

• Order fulfilment

• Procurement

• Transportation

• Warehousing

• Real-world awareness

• Manufacturing

Key Execution Benefits of SAP Supply Chain Management

With SAP SCM, you benefit from:

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 • Improved order, production, and execution tracking with RFID-enabled processes

• Seamless integration and global visibility of different transportation process steps,

and higher transparency

• Improved warehouse efficiency and extend real-time visibility and control of

warehouse operations

• Reduced costs of goods sold throughout your company

COLLABORATION

To meet pressure to reduce costs while increasing innovation challenges, you may do
business in regions and countries where costs are lower, develop and maintain relationships
with global suppliers, or outsource nonstrategic activities to suppliers. To do so, you must
foster collaborative relationships with suppliers, outsource manufacturers, and customers.

SAP Supply Network Collaboration, included in SAP SCM, helps you connect to and
collaborate with:

Suppliers – Give them easy and seamless access to supply chain information to facilitate
your ability to synchronize supply with demand.

Customers – Provide broad capabilities for replenishment, including min/max-based vendor

managed inventory (VMI) and for exclusion of promotions and transport load building.

Contract manufacturers – Provide easy, seamless access to supply chain information by

extending visibility and collaborative processes to their manufacturing processes.

Key Collaboration Benefits of SAP Supply Chain Management

• With SAP SCM, you can gain these benefits:

• Streamline collaboration with your suppliers, contract manufacturers, and customers

• Significantly decrease procurement, sales, and inventory costs

• Enhance supply chain visibility and increases overall speed, accuracy, and
adaptability of your supply network

• Reduce inventory levels while managing variations in supply and demand

• Improve communications and reduces errors and processing costs

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 LEAN PROCUREMENT: THE FUTURE OF
SUPPLY CHAIN MANAGEMENT IN A
DEMAND-DRIVEN WORLD

THE CHALLENGES OF SUPPLY CHAIN MANAGEMENT IN A DEMANDDRIVEN

WORLD
In today’s volatile market, forecast accuracy is almost non-existent. Companies expect their
procurement and supply chain organizations to provide purchased materials and assemblies
on time, all the time, to meet their customer demands. Faced with these poor market forecasts
buyers often over buy requirements. This creates excess inventories.
Purchasing organizations cannot afford long material lead-times. And if suppliers cannot
deliver consistently on time, they will be replaced. Although better than traditional
procurement practices, today’s “pull” supply chain replenishment processes are not
optimized, collaborative or effective.
What is the bottom line for your company? Inventory management decisions can make or
break your company’s return on assets (ROA), an increasingly important financial metric.

THE OBJECTIVE: A DEMAND-DRIVEN SUPPLY NETWORK

Today, the buyer’s responsibilities have changed dramatically. Beyond simply finding the
right materials and services at the best price, buyers play a critical part in improving the flow
of information and materials throughout the supply chain.
Through these demand-driven supply networks (DDSN, aka demand-driven
supply chains, (DDSC)) their goals are to accomplish the following:

Preventing Shortages
Supply chain deliveries must be flexible in order to meet the changing demands of the
demand driven enterprise. In addition to the sheer cost of disrupting production, critical
shortages can damage existing customer relationships and significantly weaken market
credibility.
Reducing Inventory Investment
Inventory turns of 100 or more should be commonplace, not the exception. Companies are
under increasing pressure to reduce inventory levels. In the demand-driven enterprise,
inventories should ebb and flow with the changes in customer demand.

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For example, a $500 million firm can reduce inventory by $34 million and achieve a $2.4
million inventory carry cost savings. At the same time, the firm can lower administrative
costs by about 10 percent ($340,000) by eliminating 70 percent of all invoices and 80 percent
of discrete purchase orders after operating in an environment of 8 to 10 inventory turns.
Trimming Supply Side Lead Times
Long material lead-times should be eliminated. By utilizing postponement strategies, lean
procurement solutions provide a more responsive supply chain.
Obsolete Practices
The old way of doing business consists of buyers managing MRP forecasts and
communicating requirements to suppliers via phone, fax and e-mail. Spreadsheets and
manual reports are passed between the trading partners. These manual processes are slow and
cumbersome. They cannot support today’s demand-driven
enterprises. Supply chain procurement professionals spend too much time “putting out fires”
and reacting to daily problems. They cannot seem to find the time to develop strategic
relationships with suppliers and deploy improved business processes that eliminate shortages.

THE SOLUTION: SUPPLY CHAIN EVENT MANAGEMENT THROUGH

LEAN PROCUREMENT
Advances in technology and process are ushering in a new era in supply chain improvement.
With lean procurement your company can proactively manage supply chain events using
Supply Chain Event Management (SCEM) principles embedded within Oracle JD Edwards
EnterpriseOne technology and lean
procurement practices from Oracle-certified partner CSS International to achieve the
following:
� Remove the obstacles to the free flow of information to your supply chain;
� Create real-time visibility into inventory in motion;
� Transition your supply chain from “push” to “pull” consumption based replenishment
models;
� Manage by exception by providing your buyers and planners with proactive real-time,
exception messages that strengthen their replenishment processes;
� Eliminate the long lead-times for critical materials and assemblies;
� “Cover the upside” of your material forecast;
THE LEAN PROCUREMENT SOLUTION

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Lean procurement is based on three core principles that are derived from demand-driven
manufacturing and supply chain initiatives:
1) Migrate from “push” to “pull”
Strengthen and improve your “pull” supply chain processes by deploying supply chain event
management solutions that enhance collaboration with your suppliers.
Operating in real-time mode, JD Edwards EnterpriseOne Supply Management Buyer
Workspace and Supplier Self-Service collaboration portals connect people – buyers,
suppliers and partners – directly to their “pull” business processes anytime, anywhere. These
collaboration portals allow buyers and their suppliers to communicate the following supply
chain “exception based” signals in real-time.
� Proactive Alerts: These alerts notify the trading partners of a potential stock-out. As an
example, a proactive alert can notify a trading partner of a potential stock out, e.g., the
Kanban Replenishment Capacity program allows you to track the production capacity of a
Kanban and compare it to the demand pattern of the
item. The system displays an alert for all items that cannot meet the new demand.
� Reactive Alerts: Alerts that identify critical supply chain exceptions.
For example, a reactive alert can identify critical supply chain exceptions, such as late
shipments, past due Kanban acknowledgements and supplier “under-commits” to the MRP
forecast.
� Execution Alerts: These alerts provide updates on business process transactions.
Consider the example where an execution alert is used to provide updates on business
process transactions such as Advance
Ship Notices (ASN).
2) Develop a flexible and responsive supply chain
Help your procurement professionals eliminate long material lead-times by adopting
postponement strategies. With the fully automated Oracle JD Edwards EnterpriseOne Supply
Management Suite, including Supplier Release Scheduling, Buyer Workspace and Supplier
Self-Service collaboration portals, buyers can:
� Deploy a more responsive supply chain. When customer demand unexpectedly goes up,
your supply chain can meet that increase. When forecasts go down you are not left with
excessive levels of inventory;
� Reduce the long lead-times normally associated with offshore procurement;

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� Proactively manage potential shortages through automated real-time forecast
collaboration solutions;
� Receive proactive alerts when suppliers cannot support requirements;
3) Eliminate all waste in the procurement cycle
Without lean procurement, buyers spend the majority of their time on nonstrategic processes
like tracking down order status, purchase order entry, and maintaining “private” spreadsheets
for analysis. As a result, they miss opportunities for mutually beneficial supplier negotiations
and process efficiencies.
� Eliminate discrete purchase orders;
Adopt more efficient pay-on-consumption business processes that achieve substantially
lower levels of inventory than ever imagined. Improve the process of procuring materials
from low cost countries.

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