Supply Chain Management

Harleen Mahajan

SUPPLY CHAIN MANAGEMENT

Supply side- raw materials, inbound logistics and production processes Demand side- outbound logistics, marketing and sales.

 Supply chain is the system by which organizations source, make and deliver their products or services according to market demand. Supply chain management operations and decisions are ultimately triggered by demand signals at the ultimate consumer level. Supply chain as defined by experienced practitioners extends from suppliers suppliers to customers customers.

 SUPPLY CHAIN INCLUDES :

MATERIAL FLOWS
INFORMATION FLOWS FINANCIAL FLOWS

 SUPPLY CHAIN MANAGEMENT FACILITATED BY :

PROCESSES

IS

STRUCTURE
TECHNOLOGY

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

The steps involved

Step1- Designing the supply chain
Determine the supply chain network Identify the levels of service required

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

Step 3- Material flow planning

Determine the exact flow and timing of materials Arrive at decisions by working back from the projected demand through the supply chain to the raw material resources Techniques
ERP

Step 4 - Transaction processing and short term scheduling

Customer orders arrive at random This is a day to day accounting system which tracks and schedules every order to meet customer demand Order entry, order fulfillment and physical replenishment

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

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

Dells Direct Business Model of Virtual Integration

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

Dells Direct Business Model of Virtual Integration

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

Dells Direct Business Model of Virtual Integration

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

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

Dells Direct Business Model of Virtual Integration

Li and Fung, Hong Kong

Founded in 1906 Today 80 offices in 40 countries Largest export trading company in Hong Kong Customers- American and European retailers Sources clothing and other consumer goods ranging from toys to fashion accessories to luggage

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

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

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

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

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

Thank You