PRESENTED BY: 4TH YEAR MBA-A

SUPPLY CHAIN MGMT.

Supply chain refers to the way that materials flow through different organization, starting with raw materials and ending with finished products delivered to the ultimate consumer. In other words ,a supply chain is a sequence of suppliers, warehouses, operations and retail outlets. Different company may have different supply chains due to the nature of their operations and whether they are primarily a manufacturing operation or a service operation.

Supply chain for manufacturing organisation.

Suppli er A-BC

storage

Mfg

Storag e

Distrib ution

Retaile r

Custo mer.

Supply chain for service organisation.

Supplier A-B

storage

Service

customer

Objective of a supply chain

1) To maximize the overall value generated. The

value a supply chain generates is the difference between what the final product is worth to the customer and the effort the supply chain expends in filling the customers request. 2) To achieve maximum supply chain profitability. Supply chain profitability is the total profit to be shared across all supply chain stages. 3) To reduce the supply chain costs to the maximum possible level.

ACTIVITIES INVOLVED IN SUPPLY CHAIN MANAGEMENT

Purchasing
Logistics Warehousing Expediting

1.

PURCHASING

It is responsible for obtaining the materials, parts and

supplies needed to produce a product or provide a service. 60% of the cost of finished goods comes from purchased parts and materials. The importance of purchasing is the quality of the goods & services and the timing of deliveries of goods & services.

PURCHASING INTERFACES
Legal operation Accounting

Purchasing
Receiving Design Data processing

1) OPERATING UNITS
Constitute the main source of requests for purchased materials

and close co-operation b/w these units and the purchasing dept. is vital if quality delivery goals are to be met. The purchasing dept. may require the assistance of legal dept. in contract negotiations and to help interpret legislation on pricing and contracts with suppliers.

2) ACCOUNTING
It is responsible for handling payments to suppliers ,data is

handled by the a/cs dept. which keeps inventory records, checks invoices and monitors the performance.

3) DESIGN
Generally prepare material specifications which must be

communicated to purchasing. It may work to determine whether changes can reduce the cost of purchased items.

4) RECEIVING
It checks incoming shipments of purchased items to

determine whether quality, quantity and timing objectives have been met. A/Cing must be notified when shipments are received.

5) SUPPLIERS
Purchasing must rate vendors on cost, reliability and so on.

PURCHASING CYCLE
Purchasing receives the requisition. 2. Purchasing selects a supplier. 3. Purchasing places the order with the vendor. 4. Monitoring orders. 5. Receiving orders.
1.

VALUE ANALYSIS
Select an item that has a high annual rupee volume. 2) Identify the function of the item. 3) Obtain answers to the questions Such as what are the advt. and dis advt. of the present arrangement what are the alternatives
1)

OUTSOURCING
It refers to buying goods or services from outside sources

instead of making goods & services within the firm. The reasons are : i. outsiders can provide cheaper material ii. Expertise and knowledge of outsiders iii. To have the advt. of flexibility iv. When companies downsize their core activities.

FACTORS TO BE TAKEN CARE WHILE CHOOSING OUTSOURCING

I.
II. III. IV. V.

Stability of demand To maintain control over operation Quality available from suppliers Leadtimes for all the alternatives. Stability of technology

JIT PURCHASING
The easy part of this includes having to deal with fewer

suppliers and forming long-term relationships with suppliers who emphasise co-operative spirit than low price . On time delivery is the primary need of JIT manufactures.

SUPPLIERS
Lead time and on-time delivery
Quality and quality assurances Flexibility

Location
Price

Evaluating sources of vendor analysis

Price
Quality Services

Location
Policy of supplier flexibility

 Supplier audits:

helps for getting information on suppliers production capabilities, quality and delivery problems. So that buyer can solve these before they become serious problem.

 Supplier certification:

it verifies that a supplier meets the requirement of the buyer. It is important when buyers are seeking to establish long-term relationship with suppliers. Eg. ISO9000

 Supplier partnerships:

companies have become increasingly aware of the importance of building good relationships with the suppliers. Japanese firms have been successful in building good relationships with their suppliers and got the benefits.

NINE AREAS IN WHICH POTENTIAL IDEAS FROM SUPPLIERS COULD LEAD TO IMPROVED COMPETITIVENESS ARE
Reduce the cost of making the purchase
Reduce the transportation cost Reduce the production cost Improve the product quality Improve the product design Reduce the time it takes to get the product to the market. Improve customer satisfaction

Reduce inventory costs

Introduce new products

2. LOGISTICS
It refers to the movement of the materials within

production facility, the shipment of incoming materials from suppliers and the shipment of outgoing products to customers.

MOVEMENT WITHIN A FACILITY

Removing materials from incoming vehicles and placing them

on the receiving dock. Moving Materials from the receiving dock to inspections. Moving Materials from inspections to warehouses. Moving Materials from warehouses to production operations. Moving Materials b/w production operations. Moving finished pdts from final assembly and storing them in the finished goods warehouse. Retrieving finished goods from the finished goods warehouse and delivering them to packaging and shipping dept. Moving packaged finished goods to the shipping dock.

 Loading finished goods onto outgoing vehicles at the

shipping dock. Incoming and outgoing shipments it comes under traffic management . This function handles schedules and decisions on shipping methods and times, taking into account costs of various alternatives , govt. regulations, needs related to timing and quantity etc.

Evaluating Shipping Alternatives

A situation that arises is making a choice b/w quicker but

expensive shipping alternatives such as overnight and slower but cheaper alternatives. In some cases, urgency is not primary consideration. the decision focuses on the cost savings of slower alternatives v/s increased holding costs that results from slower alternatives.

3.

It is the management of materials while they are in storage. It includes storing, ordering and accounting for all materials and finished goods.

WAREHOUSING

It deals with materials that directly support operations.

Contemporary Developments in warehousing

Bar Coding
bar codes are read by scanning devices that use the information for a variety of purposes, like recording prices and quantities, updating inventory records, etc. bar codes are used to monitor and control items in manufacturing and distribution by providing accurate, information on quantity, quality, location, etc.

Electronic Data Interchange

It is the direct transmission of inter organization transactions, notices, debit or credit memos. Advantages Increased productivity, accuracy Elimination of paper work Electronic transfer of funds Reduction in clerical work Improved control of operations

Distribution Requirement Planning

It is a system for inventory management and distribution planning.

It is used to plan and coordinate transportation, warehousing, workers, equipment and financial flows.

4. Expediting

It is a strategy to ensure that goods and items which are purchased arrive timely and meet quality control standards. Sometimes it is done by an external expediter or it can be done within the procurement department. The expediter has to ensure that they meet all the targets, including quality, safe packaging, arrival times and are exactly to the specifications that was agreed between the supplier and the customer.

Supply chain strategies

Multiple suppliers
Few supplier. Vertical integration. Keirestu network. Virtual companies.

1.

Multiple suppliers.

It is the traditional approach of negotiating with many

suppliers and playing one supplier against another The thinking was that competition would drive down price & reduce the risk of supplies being cutoff. Long term relationship are not the goal

2.

Few supplier.

This strategy of few supplier which implies that rather than looking for short term attributes such as low cost, buyer is better off developing a long term relation with a few dedicated supplier. Few suppliers each with a large commitment to buyer may also be willing to participate in a JIT system as well as provide innovation & technological expertise. Also such commitment can foster both formal & informal contract, that may contribute to the alignment of organizational cultures of the two firms, further strengthening the partnership.

3.

Vertical integration.

Vertical integration may be forward or backward

integration. Backward integration suggest that firm purchase its suppliers (for ex: an automobile mfg company deciding to mfg its own batteries or tyers) Forward integration suggest that a mfger of components make the finished product (for ex: a mfger of a computer memory chip also mfg computer hardware) Vertical integration may provide substantial opportunity for cost reduction , inventory reduction , faster delivery schedules & quality improvement.

4.

Keirestu network.

Many Japanese mfgers have found a trade off between

purchasing from few suppliers and vertical integration. These mfgers are often financial supporters of suppliers through ownership or loans. Supplier become a part of company coalition known as keirestu Member of the keirestu are assured long term relationships and are therefore expected to function as partners providing technical expertise and stable quality production of the mfger.

5.

Virtual companies.
Technological society continually demands more

Vertical integration has some limitations.

specification that further complies vertical integration. A firm having its own dept or division for everything may be too bureaucratic to be world class. Virtual companies are companies that rely on a variety of supplier relationships to provide service on demand. These are also known as hollow corporations or network companies. They meet the changing mkt demand, specialised mgmt expertise, low capital invt, flexibility & speed. Variety of supplier provides a variety of vendor service that include doing the pay role, hiring personnel designing products, providing consulting service, mfg components, conducting tests or distributing products.

For example: if the organization is an apparel or readymade garments business in which the designer of clothes seldom manufacture, rather they license the manufacture. The manufacture may then rent the sewing machines and contract for labour. The result is an organization that has low overheads, remains flexible and can respond rapidly to the market .

Managing the supply chain

1) Postponment
it means delaying any modification or customisation to the product as long as possible in the production process.

2) Channel assembly
it is a variation of postponment. It sends individual component & module, rather than finished products to the distributor. The distributer them assembles, tests & ships the products to the customers.

3) Drop shipping & special packaging

It means the supplier will ship directly to the end

consumer, rather than to the seller, saving both time & shipping cost.

4) Blanket orders
It is a contract to purchase certain items from a vendor.

It is not authorisation to ship anything. Shipment is made only upon receipt of an agreed upon document, say a shipping requisition or shipment release.

6) Invoice purchasing
It is an extension of good purchaser supplier

relations. In an invoiceless purchasing envt, there is typically one supplier for all units of a particular product.

7) Stockless purchasing
It means that the suppliers maintain inventory that is

delivered directly to the purchasers using dpt rather than to a store for stocking & using .

8) Standardisation
It means reducing the number of varieties in materials

& components as an aid to cost reduction.

9) Other techniques
establishing lines of credit for suppliers

reducing the time money is in transit

co-ordinating prodn & shipping schedules with

suppliers & distributors sharing market research information making optimal use of warehouse space.

Process tools for supply chain management

1. Make-or Buy decision

The most basic supply chain management decision as to

whether to make a given product in-house or buy it from a supplier. The purchasing departments role is to evaluate alternative suppliers and provide current, accurate, complete data relevant to the buy alternative. Make-buy analysis involve total cost analysis techniques to support make-or-buy decisions.

Steps that produce decision

1.
2.

3.
4.

Assess the relationship of the product to the firms core competencies: Cost analysis is irrelevant for a product which is related to the firms current or future core competencies. Evaluate the suitability of product characteristics for outsourcing: Make-buy analysis usually centers on products in the mature stages of their product life cycle. Evaluate the reasons for outsourcing: If the product seems appropriate for buying, the make-buy analysis continues by judging the validity of the reasons for purchasing Assess all relevant quantitative cost: The analysis proceeds by classifying costs as fixed or variable, relevant or irrelevant, direct or hidden.

Assess all qualitative costs: Numerous qualitative features that affect make-buy decision are: Loss of control by releasing work to a supplier Risk of dealing with a new supplier Quality of the suppliers management team Value structure of the supplier and buyer organization Loss of internal skills in building outsourced products Suppliers labour-management climate Suppliers warranty, repair and support systems. 6. Review the capabilities of current supplier: After assessing both the costs, the analysis must determine whether current suppliers can realistically handle any planned increases in orders.
5.

7.

8.

9.

Evaluate new suppliers: To decide whether to purchase from suppliers, the buying organizations must complete their capabilities against those of the best current suppliers or industry leaders. Make and implement a decision: If the firm makes a buying decision, the operations manager must designate a particular supplier and document the anticipated benefits of outsourcing, if they decide to make the product in house, they document the reasons for this decision. In implementing the decision, they negotiate the terms of purchase contract or acquire to initiate in-house production. Monitor the decision and reverse it as necessary: Operation manager must compare the actual results of the decision against estimates and identify potential problems.

2. Supplier scheduling
After completing the make-buy analysis, operation

managers must develop systems for controlling outside production of outsourced products. Supplier scheduling controls releases of orders and continuing communications of priorities, needs and quantities between suppliers and the buying organizations operation management system.

3. Value analysis/value engineering:

Potential benefits of value engineering projects: Reduction in average purchasing cost. Significant rate of return. Improved customer satisfaction. Higher employee morale due to better team work and creativity. Techniques of value engineering: Value engineering begins by trying to improve functional characteristics rather than reduce costs. An initial focus on cost tends to result in lower quality and reduced performance due to cheaper materials.

4. Supplier certification and evaluation

Certification verifies that suppliers operate effective

processes, while evaluation focuses on the outputs of those processes, especially their quality levels.

Techniques for supplier evaluation:

Supplier certification programs often conduct site visits.

Teams with representation from operations mgmt, purchasing, engineering and cost accounting departments visit the suppliers facilities and study first hand processes as: Materials handling systems Capacity &production planning systems. Scheduling &shop floor control systems. Preventive maintenance programs. Product design systems. Quality control methods. Database mgmt procedures.

Supplier evaluation
Supplier evaluation is a complement to certification

requirements and it provides essential feedback about the performance of the firms inputs. This formal communication tells suppliers how well their products have performed relative to specific standards and indicate any problems that require mgmt attention.

Measuring supply chain performance

Delivery: This refers to on-time-delivery. 2) Quality: A direct measure of quality is customer satisfaction i.e. It can be measured relative to what customer expected. Another measure closely related to quality is customer loyalty i.e. It can be measured by the % of customers who are still purchasing the product after having purchased it at least once.
1)

3) Time: The total replenishment time can be computed directly from inventory levels. The time spent in inventory should be computed for each part of supply chain and added to get the total replenishment lead time. 4) Cost: Two ways to measure costs are: A co. can measure total delivered cost, including manufacturing, distribution, inventory carrying cost and accounts receivable carrying cost. The second way to measure cost along the supply chain is to measure efficiency in value added or productivity. Efficiency= Sales Cost of materials Labour + Overhead