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Supply chain
Mantras
management
Shurbhi
Agarwal - 74
Sharad Ahvad -
75
Shweta Ghone
- 83
Structure Followed
• What is Supply chain?
• Objective of a supply chain
• Supply Chain Management
• Bull Whip effect
• Drivers of Supply chain performance
• Inventory policies
• Types of Distribution networks
What is Supply chain?
Upstream Downstream
Process View
Customer
Customer
Order Cycle Pull
Retailer
Replenishment
Cycle
Distributor
Manufacturing
Cycle
Manufacturer Push
Procurement
Cycle
Supplier
Objective of a Supply Chain
• Maximise overall profit
• Profit
– Revenue generated from customer - costs
incurred along the entire chain
(e.g. manufacturing / storing /
distributing the product)
• When is Supply chain effective?
– Manage Product, Information and Fund
flow
Why not max. individual
profitability?
Buy Back
Manufacturer Manufacturer
No risk Cost = Rs. 1 Cost = Rs. 1
Buy Back
Profit Rs. 4000 Sharing Profit Rs. 5520 at Rs. 3
Retailer Retailer
Cost = Rs. 5
of Cost = Rs. 5
Bears Q = 1000 Q = 1200
All risk risks
Profit Rs. 4000 Profit Rs. 5160
Customer Customer
Cost = Rs. 10 Cost = Rs. 10
Demand = 900 Demand = 1080
So, what is SCM?
• Objective is to be able to have the right
products in the right quantities (at the
right place) at the right moment at
minimal cost.
Bull Whip Effect
Cost
Transport
costs
Inventory
costs
Rail Air
Inventory
• Where do we hold inventory?
– Suppliers and manufacturers
– warehouses and distribution centers
– retailers
• Types of Inventory
– raw materials
– WIP
– finished goods
• Why do we hold inventory?
– Uncertainty in supply and demand
– Lead Time
– Avoid stock outs (customer goodwill)
Terms Involved
• Inventory lot size
• Replenishment Lead time
• Stock out
• Reorder Point
• Safety stock
Relevant Costs in an Inventory
System
• Procurement costs
– Ordering cost (appx. administrative, inspection,
transportation etc.)
• Holding costs
– Maintenance and Handling
– Taxes
– Obsolescence
• Stock-outs costs
– Lost sales (Customer goodwill)
– Backorders
The Inventory Cycle
Reorder
point
Time
Receive Place Receive Place Receive
order order order order order
Lead time
Decisions
• When to order
• How much to order
• Types of System
– Continuous Review
– Periodic Review
EOQ: A View of Inventory
Note:
• No Stockouts
• Order when no inventory
• Order Size determines policy
Inventory
Order
Size
Time
EOQ - Cost Minimization Goal
The Total-Cost Curve is U-Shaped
Annual Cost
Holding Costs
Ordering Costs
Order Quantity
QO (optimal order quantity)
or EOQ (Q)
EOQ: Important
Observations
• Tradeoff between set-up costs and
holding costs when determining order
quantity.
Manufacturer
Retailer
Customers
• Drop Shipping
Manufacturer storage with
direct shipping and in-transit
merge
Manufacturer
Customers
Distributor storage with carrier
delivery
Manufacturer
Warehouse Storage by
Distributor/Retailer
Customers
To Summarize
• Components of supply chain (SC)
• Objective of SC is to max. profit
• Bull whip effect
• Facilities decisions
• Inventory policies
• Distribution networks