Supply Chain Management

Gunjan Bharadwaj MBA 2nd sem. AIMS

INTRODUCTION
A set of approaches used to efficiently integrate
Suppliers Manufacturers Warehouses Distribution centers

So that the product is produced and distributed

In the right quantities To the right locations And at the right time

System-wide costs are minimized and Service level requirements are satisfied

Definations
A supply chain is a network of facilities and distribution options
that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers. Supply Chain Management is the process of planning,Implementing,controlling of operations of the supply chain with the purpose of satisfy customers,storage of rawmaterial,work-in-progress,inventory and finished goods from the point of oigin to the point consumption.

Drivers of Supply Chain Performance

How to achieve Efficiency Responsiveness

Supply chain structure

Inventory

Transportation

Facilities

Logistical Drivers

Information

Sourcing

Pricing

CrossFunctional Drivers

Supply Chain Management Supply Chain Structure Structure

SUPPLIER FACTORY DC RDC RETAILER

Raw Materials

Finished Goods Information Flow

Information flow in SCM

Information is overriding element Need for databases Master files: Information about customers, products, materials, suppliers, transportation, production and distribution data- do not require frequent processing Status files- heart of transaction processing- track orders and infrastructure status- updated daily. Essentially using the same information to make all plans right from structuring the network to processing every day supply chain tasks.

Cycle View of Supply Chains

Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor
Manufacturing Cycle

Any cycle 0. Customer arrival 1. Customer triggers an order 2. Supplier fulfils the order 3. Customer receives the order

Manufacturer
Procurement Cycle

Supplier

Strategies of SCM
Push Strategies
Classical manufacturing supply chain strategy Manufacturing forecasts are long-range
Orders from retailers warehouses Longer response time to react to marketplace changes Supply chain inventory becomes obsolete as demand for certain products disappears Increased variability (Bullwhip effect) leading to: Large inventory safety stocks Larger and more variably sized production batches Inventory obsolescence

Inefficient use of production facilities (factories) Examples: Auto industry, large appliances, others

 Pull Strategies
Production and distribution are demand-driven
Coordinated with true customer demand None or little inventory held Only in response to specific orders Fast information flow mechanisms POS data Decreased lead times Decreased retailer inventory Decreased variability in the supply chain and especially at manufacturers Decreased manufacturer inventory More efficient use of resources More difficult to take advantage of scale opportunities Examples: Dell, Amazon

Bullwhip effect
Volatility amplification along the network Increase in demand variability as we move upstream away from
the market Mainly because of lack of communication and coordination Delays in information and material flows Bullwhip effect occurs because of various reasons: Order Batching - Accumulate orders Shortage gaming- Ask for more than what is needed Demand forecast updating

Challenges
Lack of relevant SCM metrics: How to measure responsiveness? How to measure efficiency, costs, worker performance,
etc? Poor inventory status information. Poor delivery status information Poor IT design Security problems: too much or too little Ignoring uncertainties Poor integration Elusive inventory costs

Contemporary Trends
Channels being divided into two- Fulfillment

and Franchised agent. Fulfillment channel- responsible for getting the manufacturers product from the plant to the end user through a highly efficient logistics and inventory management system. Fulfillment channel may not take ownership of the product but may perform these functions on a per box fee structure Franchised agents responsible for sales and sales support but will not write the order or supply the product

Example of SCM
Dell / Compaq

Dell buys some components for a product from its suppliers after that product is purchased by a customer. Extreme case of a pull process Zara, Spains answer to Italys Benetton Sells apparel with a short design-to-sale cycle, avoids markdowns. Toyota / GM / Volkswagen, in the course notes McMaster Carr / W.W. Grainger, sell auto parts Amazon / Barnes and Noble Frozen food industry/Fast food industry/5 star restaurants Internet shopping: Webvan / Peapod

Case Study:DELL computers

Direct contact with customers. For success manages flow of product, information &

cash. Customer order fulfilment. Worth of inventory. Supply chain operations:: Fous on improving design,planning & operations of SCM. Push/Pull strategy

 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. 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