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SCM DEFINED

The supply chain is the network of organizations that are involved through upstream and down stream linkages, in different processes and activities that produce value in the form of products and services in the hands of the ultimate customer. Supply Chain may be defined as flow of materials through procurement, manufacturing, distribution, sales & disposal.

Dynamics of Material Flow

Supplier

Plant

RS

Logistics

Retailer

SCM

FLOWS

MATERIAL

MONEY INFORMATION
Procurement Manufacturing Distribution Customer

Supply Chain Relationship

What is SCM ?
SCM is a business network covering from buying, making, moving, warehousing to selling
Making Moving Buying

Selling

Ware housing

Traditional SCM

SCM Facilitate Specialization




Intermediaries provide Exchange efficiencies

Intermediaries Producer Customer Connectivity is King for product delivery when and where

Supply Chain Benefits


 Cost
  

Reduced inventories Reduced waste Reduced total system costs Establishment of a collaborative framework Near real time information flow Reduced variation and increased quality

 Service
  

 Business growth opportunities


 

Preferred source for new opportunities Expanded benefits to other customers

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The Three Ts

The Supply Chain Iceberg


Perceived Value
Transactional Efficiency

Critical Data to improve:


Excess freight Multiple handling

Intrinsic Value

Process delays Yield End-to-end cycle-time Warehouse fees

Transit damage Delays Inventory turns

Late Deliveries

Supply Chain Decisions

STRATEGIC

TACTICAL OPERATIONAL
Procurement Manufacturing Distribution Logistics

SCM FOCUS / LEARNINGS

SERVICE COST FLOW OF INFORMATION / MATERIAL AND CASH INPUTS AND OUTPUTS

ELEMENTS OF SCM

INVENTORY MANAGEMENT
WAREHOUSING TRANSPORTATION

What is inventory
1. The stock of material lying with you for which payments are made but which are yet to be delivered to the customers and paid for by them. 2. Material stocked to meet the expected demand in the market. 3. An idle resource which locks the capital.

Excess Shortage

Why inventories are necessary


1. To satisfy the customer demands without time lag. 2. To cover time required for procurement of material. 3. To cater to fluctuations in demand. 4. Seasonal demand of products. 5. Production constraints of suppliers. 6. To retain supplier goodwill.

Excess Shortage

Inventory Exercise
WORK OUT INVENTORY NORMS BASED ON SERVICE FREQUENCY, SALES AND DEMAND VARIABILITY & TRANSIT TIME VARIABILITY Consider sales qty. 300 CLDS per month, Demand variability 20 %, Supply variability of + / - 2 Days & Service frequency of 1 / week

Service Level & Inv. Costs


Costs Opportunity cost curve.

Total costs

A Inventory + Service costs.

Low
I Interpretation: y y

Service levels

High

At low service levels, costs due to lost opportunities are very high.

When service levels are raised, inventory + service costs increase marginally but costs due to lost opportunities come down drastically. Enlarged view of portion markedat A is shown in the next graphfor further explanation.

ENLARGED VIEW OF PORTION A

Zone of Improvement Explanation:

Zone of Indifference

Zone of Perfection.

1. In zone of improvement , as service level goes up by increasing stocks and incurring in extra expenditure for giving better service, the gains obtained due to better sales outweigh the costs incurred. 2. In zone of indifference, the gains and costs are more or less balanced. 3. In zone of perfection, as service levels are raised to near to 100%, the costs outweigh the gains but in modern competitive environment, this may become a necessity for survival

Scientific Replenishment System

The Use of Safety Stock


Inventory on Hand

Time Stock out Inventory on Hand

Safety Stock

Stock out is avoided Time

ABC Analysis
Based on principle of management by exception.

Unit value is not a consideration. Analysis is based on total consumption value of items in predetermined time span. Criticality/importance of item is not a consideration All the items are divided in three categories. Decisions are based on 80 : 20 rule.

ABC Analysis Exercise


Classifying inventory according to some measure of importance and allocating control efforts accordingly.

High Annual value of items Low

A B C
Few Many

A - very important B - mod. important C - least important

Number of Items

DECISION PARAMETERS FOR ABC ANALYSIS

ADEQUACY OF STOCKS FREQUENCY OF STOCK CHECKING LOCATION IN WAREHOUSE

FSN Analysis
Based on speed of movement of material. 1. Some materials have regular and high volume demand and move Fast (F), 2. some material have intermittent and unpredictable demand and hence move Slow (S) 3. and a few items have practically no takers and hence keep on lying in stores for long period of time and categorized as Non moving (N).
FAST MOVING SLOW MOVING NON MOVING

INVENTORY FOCUS / LEARNINGS


What is Inventory and why do we need inventory ? How do we avoid non moving and slow moving inventory? How do we classify and analyze inventory?

ELEMENTS OF SCM

INVENTORY MANAGEMENT

WAREHOUSING
TRANSPORTATION

ELEMENTS OF WAREHOUSING

LOCATION LAYOUT IDENTIFICATION MATERIAL HANDLING

Layout principles
Ease of receipts, storage and issues. Uninterrupted movement of material, men and equipment. Optimum utilization of space. Ease of locating the material. Safety. & Security. Better supervision. Flexibility Building. : Preferably single storied, enough height, proper lighting and ventilation, protection against hazards like fire and lightening.

Identification of Material
1. Tagging. 2. Labeling. 3. Writing, painting, engraving, stamping, etching, color coding on the part/case/box. 4. Bar coding.

IMPROVED STORAGE SYSTEM EXERCISE

Features of a good warehouse


1. Place for everything and everything in its place. 2. FMFO First Manufactured and First Out principle. 3. Maintenance of prompt and correct 4. 5. 6. 7. 8. 9. records. Fast and courteous service to customers. Minimum damages to the material. Protection against pilferage. Regular verification and inspection of material. Regular inventory taking and reconciliation. Maintaining inventory within specified norms.

Learning's from the topic


1. How do we keep our warehouse in more orderly manner ? ( Understanding Location and layout of the warehouse ) 2. What activities we must do in the warehouse to ensure proper identification & tracing of the material 3. How can we reduce our labour cost in the warehouse. What mechanization we can do in our warehouse? 4. How can we ensure better material movement inside the warehouse?

ELEMENTS OF SCM
INVENTORY MANAGEMENT WAREHOUSING

TRANSPORTATION

Logistics Management
'Logistics is the process of strategically managing the procurement, movement and storage of materials (and related information flows) through the organisation and its marketing channels

Objectives of Transport Management


1. Cost Optimization 2. Improved service 3. Transportation/logistics as a competitive differentiator. 4. Time to market

CARRIER SELECTION

OUTSOURCING Vs. OWN VEHICLE

VEHICLE TYPE ( SIZE )

CUSTOMERS PER VEHICLE & TRIPS PER VEHICLE ( ROUTING )

Carrier Selection and Routing


The practical meaning of the 4 Cs of selecting transportation services 1. Competition 2. Cost 3. Comparison 4. Compromise
Sources Destinations

Your responsibility is to assist in defining


Right Product in the Right Quantity from the Right Source to the Right Destination in the Right Condition at the Right Time for the Right Cost.

Transport Costs
Fixed cost Vehicle cost ( Depreciation ) License fee Insurance cost Driver salary Interest cost Road tax Administration Cost Variable cost Labour cost ( Laoding & Unloading ) Fuel, Consumables & Oil cost

Factors Affecting Carrier Decision


Carrier makes investment to maximize return on assets. For this he has to consider following costs 1. Vehicle-Related Cost : This is fixed cost in short term incurred for purchasing or leasing the carrier. 2. Fixed Operating Cost : This includes any cost associated with terminals, Road Tax, and labor. 3. Trip-Related Cost : This includes the price of labor and fuel incurred for each trip independent of the quantity transported and depends on the length and duration of the trip. 4. Quantity Related cost : This includes loading / Unloading cost and part of fuel cost that varies with the quantity being transported. 5. Overhead cost : This includes, planning & scheduling cost, IT cost.

Routing & Scheduling In Transportation


This refers to the selection of customers to be visited by the particular vehicle and the sequence in which they will be visited. For the companies to be successful, they have to do the routing and scheduling in such a way that they reduce the cost of transportation at the same time make the deliveries fast and meet the promised level of responsiveness to the customers. To achieve this, the objective is to minimize cost by Decreasing the number of vehicles, Reducing total distance traveled, Reducing total travel time & Reducing service failures ( delays )

Routing & Scheduling In Transportation


The objective of the supplier is to
Pick the items needed and to load them on trucks for delivery Decide which vehicle will deliver to which customers & the route that each truck will take. Ensure that no vehicle is overloaded at the same time try to load all the vehicles fully. To do this, the technique that can be used is Savings Matrix Method.

Identify The Savings Matrix - The trip

RS

Cust X

RS Means the visit starts at RS & goes to Customer X & returns to RS The savings ( X, Y ) is the distance saved if the trips RS RS

Cust X

Cust Y

RS

RS

Are combined to make a single trip

RS

Cust X

Cust Y

RS This saving is calculated by following formula S ( X, Y ) = Dist ( RS, X) + Dist ( RS, Y ) Dist (X, Y)

Assign Customers to Vehicles or Routes


Select the route with highest savings and combine the 2 routes if the total load is less than the permitted load. Keep combining this way to get the route plan.

Sequence Customers within Routes


The goal here is to minimize the distance each vehicle must travel. The procedure for this is as follows: Farthest Insert : Given, a vehicle trip for each customer, evaluate the minimum increase in length if this customer is inserted at a suitable point in the trip and insert the customer with the largest minimum increase to obtain the new trip. Nearest Insert : Given, a vehicle trip for each customer, evaluate the minimum increase in length if this customer is inserted at a suitable point in the trip and insert the customer with the smallest minimum increase to obtain the new trip.

Routing & Scheduling Exercise

Learnings & Assignments

1. Is selection of vehicle critical for the business? How to select a vehicle for transportation? 2. How to decide sequence for delivery of goods to the retailers? 3. Is Outsourcing of transport vehicles more beneficial for us or Having own vehicles more beneficial for us?

SCM Key Performance Measures


FMFO Deliveries during the month FMFO Adherence % ge = ---------------------------------------------------------Total deliveries made during the month.

Orders Delivered On Time & Full Commitment % ge ( OTIF ) = ----------------------------------------------------Orders Received in a month

Transport cost + Labour Cost + storage cost SCM COST / TN = --------------------------------------------------------------------Total sales

Supply Chain Model Foundation


SCM Process categorized according to the Supply-Chain Council s, Supply-Chain Operations Reference (SCOR) model Plan Source Make Deliver Utility

Product Attributes Planning

Product Delivery Request For Message Quality Quotation Goods Receipt Usage Availability Purchase Order Inventory Invoice Change Order Confirmation Product Call-Off Performance Order Status Inventory Status

Credit/Debit Note Business Acknowledgement Information Request Complaint Complaint Request

Bullwhip Effect
Factors contributing to the Bullwhip Effect: Forecast Errors Lead Time Variability Batch Ordering Price Fluctuations Product Promotions Inflated Orders

Methods intended to reduce uncertainty, variability, and lead time: Vendor Managed Inventory (VMI) Just In Time replenishment (JIT) Strategic partnership

Bullwhip Effect

Bullwhip Effect

Causes of Bullwhip Effect


Demand Signal Processing (frequent updates of forecasts; only next echelon orders considered) Order Batching (to realise logistic Economies of scale + Reducing order processing costs) Price Fluctuations (resulting in over-reactions) Supply Rationing (Proportionate rationing; unrestricted order acceptance + free return policy)

Counter-Measures for BWE Avoid multiple demand forecasts


Order based on ultimate customer demand Use EDI+POS+VMI Choose a good forecasting method (PLC has a major say) Move from decentralized DM to centralized planning (visibility+control is better) Remove layers in channel if possible

Eg: HP, Apple, IBM, P&G/Walmart

Counter-Measures for BWE


Break order batches
Increase frequency of ordering (OP costs reduced by EDI) Resort to standardization to minmize OP costs Use 3PL to make small batch replenishments economical Aggregate across retail outlets to utilize FTL EoS Reduce safety stocks by cutting lead times Eg: 3PL using Fedex, P&GStabilize prices EDLP (P&G) Special purchase contracts

Eliminate shortage gaming


Allocate based on past sales (Sun) Share capacity and information (HP, Motorola) Limit flexibility wrt time (HP, Seagate)