Lecture 1 Over View of SCM ( Supply Chain Management)

Supply Chain
It includes all activities and processes involved in supply of a product and service to the final customer

Supply Chain and Three Phases:

There are three phases to the flow of materials. Raw materials flow into production system, They are processed and finally finished goods are distributed to end customers through a physical distribution system

Supplier

Production

Distribution

Customers

Flow of Products and Services Flow of Demand and Design Info

External Suppliers

Internal Functions

External Distributors

INFORMATION

 External

suppliers provide the necessary raw materials, services, and component parts. Purchased materials & services frequently represent 50% (or more) of the costs of goods sold. Suppliers are frequently members of several supply chains often in different roles.

 Tier

one suppliers:

Directly supplies materials or services to the firm that does business with the final customer

Tier

two suppliers: three suppliers:

Provides materials or services to tier one suppliers Providers materials or services to tier two suppliers

Tier

 Vary

by industry & firm, but might include:

Processing Purchasing Production Planning & Control Quality Assurance Shipping

 Logistics:

getting the right material to the right place at the right time in the right quantity:

Traffic Management:

The selection, scheduling & control of carriers (e.g.: trucks & rail) for both incoming & outgoing materials & products The packaging, storing & handling of products in transit to the end-user.

Distribution Management:

Six major movements can be observed in the evolution of supply chain management studies: creation Integration and Globalization Specialization Phases One and Two, and SCM 2.0. Creation era The term supply chain management was first coined by Keith Oliver in 1982

The characteristics of this era of supply chain management include the need for large-scale changes re-engineering, downsizing driven by Japanese practice of management.
Integration

era

This era of supply chain management studies was highlighted with the development of Electronic Data Interchange (EDI) systems in the 1960s.

It was developed through the 1990s by the introduction of Enterprise Resource Planning (ERP) systems. This era of supply chain evolution is characterized by both increasing value adding and cost reductions through integration. Supply chain can be classified as a Stage 1, 2 & 3 network. Stage 1 type supply chain, various systems as Make, Storage, Distribution, Material control, etc. are not linked and are independent of each other.

Stage 2 supply chain, these are integrated under one plan and is ERP enabled.
Stage 3 supply chain is one is which vertical integration with the suppliers in upstream direction and customers in downstream direction is achieved.

 Globalization

era

The third movement of supply chain management development the globalization era can be characterized by the attention given to global systems of supplier relationships and the expansion of supply chain over national boundaries and into other continents. This era characterized by the globalization of supply chain management in organizations with the goal of increasing their competitive advantage, value-adding, and reducing costs through global sourcing.

 Specialization

era (Phase I)- Outsourced Manufacturing and Distribution

This changed management requirements by extending the supply chain well beyond company walls and distributing management across specialized supply chain partnerships. The specialization model creates manufacturing and distribution networks composed of multiple, individual supply chain specific products suppliers, and customers who work together to design, manufacture, distribute market sell and service a product .

 Specialization

era (Phase II): Supply Chain Management as a Service

At any given moment market forces could demand changes from suppliers logistics providers, locations and customers, and from any number of these specialized participants as components of supply chain networks. Supply chain specialization enbles to improve overall competencies in the same way that outsourced manufacturing and distribution has done

 Specialization

era (Phase II): Supply Chain Management as a Service

It allows them to focus on their core competencies and assemble networks of specific, best-in-class partners to contribute to the overall value chain itself, thereby increasing overall performance and efficiency.

 Supply

chain management 2.0 (SCM 2.0)

Building on globalization and specialization, the term SCM 2.0 has been coined to describe both the changes within the supply chain itself as well as the evolution of the processes, methods and tools that manage it in this new "era".

Web 2.0 is defined as a trend in the use of the world Wide Web that is meant to increase creativity information sharing and collaboration among users. It is the pathway to SCM results, a combination of the processes, methodologies, tools and delivery options to guide companies to their results quickly as the complexity.

 Supply

chain management 2.0 (SCM 2.0)

Web 2.0 brings is to help navigate the vast amount of information available on the web in order to find what is being sought. The speed of the supply chain increase due to the effects of global competition rapid price fluctuations, surging oil prices, short product life cycles, expanded specialization near /far-and off-shoring, and talent scarcity.

Lecture 2 Basic Concept of Supply Chain Management

Introduction
SUPPLY CHAIN CONCEPT In recent years there has been a great deal of attention to the concept of Supply Chain Management (SCM) It is important to understand the fundamental issues behind the movement as well as the impact on materials management.

 In

the past, many company managers placed ,most of their attention on the issues that were internal to their companies.
were aware of the impact of suppliers, customers and distributors , but those entities were often viewed as business entities only.

They

The first major change for most companies can be traced to the growth in Just in Time ( JIT) concepts developed by TOYOTA in 1970s. Supplier partnerships were felt to be a major aspect of successful JIT.
With that concept suppliers were viewed as partners as opposed to the adversaries and great emphasis was put on trust between the partners and many of the formal boundary mechanisms, such as the receiving/inspection activity of incoming parts, were changed or eliminated altogether.

As the partnership concept grew, there were many other changes in the relationship including: Mutual Analysis for cost reduction Both parties examined the process used to transmit information an deliver parts, with the idea that cost reductions would be shared between the two parties. Mutual Product design. In the past the customer often submitted complete designs to the supplier who was obligated to produce according to design. With partnering, both companies work together., Often the supplier would know more about the application for which the design was intended.

With JIT, the concept of greatly reduce inventory in the process and the need for rapid delivery according to need, the speed of accurate information flow become critical.

 There

has been explosive growth in computer capability and associated software application. The ability to have the information rapidly has become a competitive necessity for many companies.
has been a large growth in global competition, forcing existing companies to find new ways to be successful in market place.

There

 There

has been growth in technological capabilities for products and processes forcing companies to not only more flexible in design, but also to communicate changes and needs to suppliers and distributors.
changes promoted by JIT, by now many companies has new approaches to inter-organizational relationships as a normal form of business.

The

 More

and More companies are subcontracting more of the work to suppliers keeping only their most important core competencies as internal activities

 Companies

currently adopting the supply chain concept view the entire set of activities from raw material production customer to final customer purchase as a linked chain of activities. This implies many issues, but 3 critical ones include. 1. Flow of Material 2. Flow of Info, mostly electronically. 3. Fund transfers

new trend is to manage the recovery, recycling and reuse of the material. most effective and efficient way to manage the activities along the chain is to view each separate organization in the chain as an extension of ones own organization.

The

 To

manage a supply chain, one must not only understand the network of suppliers and customers along the chain, but also try to efficiently plan material and info flows along each chain to maximize cost efficiency effectiveness delivery and flexibility.

 The

supply chain starts and ends with the customers.

CUSTOMER The customer starts the chain of events when they decide to purchase a product that has been offered for sales by a company. PLANING Department will create a production plan to produce the products to fulfill the customers order

PURCHASING

Department receives a list of raw material s and services required by the production department to complete the customers order. INVENTORY The raw material are received from the suppliers, checked for quality and accuracy and moved into the ware house.

PRODUCTION

Based on a production plan , the raw materials are moved inventory to the production area. TRANSPORTATION When the finished product arrives in the warehouse, the shipping department determines the most efficient method to ship the products so that they are delivered on or before the date specified by the customer.

In its simplest form, a supply chain is composed of a company and the suppliers and customers of that company. This is the basic group of participants that creates a simple supply chain. Extended supply chains contain three additional types of participants. First there is the suppliers supplier or the ultimate supplier at the beginning of an extended supply chain. Then there is the customers customer or ultimate customer at the end of an extended supply chain. Finally there is a whole category of companies who are service providers to other companies in the supply chain. These are companies who supply services in logistics, finance, marketing, and information technology.

Producers or Manufacturers: Organizations that make a product. This includes companies that are producers of raw materials and companies that are producers of finished goods. Producers of raw materials are organizations that mine for minerals, drill for oil and gas, and cut timber. It also includes organizations that farm the land, raise animals, or catch seafood. Producers of finished goods use the raw materials and subassemblies made by other producers to create their products.

Distributors: Who takes inventory in bulk from producers and deliver a bundle of related product lines to customers. Distributors are also known as wholesalers. They typically sell to other businesses and they sell products in larger quantities than an individual consumer would usually buy. Distributors buffer the producers from fluctuations in product demand by stocking inventory and doing much of the sales work to find and service customers. For the customer, distributors fulfill the Time and Place functionthey deliver products when and where the customer wants them.

Retailers: Retailers stock inventory and sell in smaller quantities to the general public. This organization also closely tracks the preferences and demands of the customers that it sells to. It advertises to its customers and often uses some combination of price, product selection, service, and convenience as the primary draw to attract customers for the products it sells. Discount department stores attract customers using price and wide product selection. Upscale specialty stores offer a unique line of products and high levels of service. Fast food restaurants use convenience and low prices as their draw.

Customers Who are any organization that purchases and uses a product. A customer organization may purchase a product in order to incorporate it into another product that they in turn sell to other customers. Or a customer may be the final end user of a product who buys the product in order to consume it.

Service Providers These are organizations that provide services to producers, distributors, retailers, and customers. Service providers have developed special expertise and skills that focus on a particular activity needed by a supply chain. Because of this, they are able to perform these services more effectively and at a better price than producers, distributors, retailers, or consumers could do on their own.

Service Providers
Some common service providers in any supply chain are providers of transportation services and warehousing services. These are trucking companies and public warehouse companies and they are known as logistics providers. Financial service providers deliver services such as making loans, doing credit analysis, and collecting on past due invoices. These are banks, credit rating companies, and collection agencies.

A companys supply chain is an integral part of its approach to the markets it serves. The supply chain needs to respond to market requirements and do so in a way that supports the companys business strategy. The business strategy a company employs starts with the needs of the customers that the company serves or will serve. Depending on the needs of its customers, a companys supply chain must deliver the appropriate mix of responsiveness and efficiency. A company whose supply chain allows it to more efficiently meet the needs of its customers will gain market share at the expense of other companies in that market and also will be more profitable.

Begin by asking questions about your customers. What kind of customer does your company serve? What kind of customer does your customer sell to? What kind of supply chain is your company a part of? The answers to these questions will tell you what supply chains your company serves and whether your supply chain needs to emphasize responsiveness or efficiency. These attributes are: The quantity of the product needed in each lotDo your customers want small amounts of products or will they buy large quantities? The response time that customers are willing to tolerate Do your customers buy on short notice and expect quick service or is a longer lead time acceptable?

The variety of products neededAre customers looking for a narrow and well-defined bundle of products or are they looking for a wide selection of different kinds of products?
The service level requiredDo customers expect all products to be available for immediate delivery or will they accept partial deliveries of products and longer lead times?

The price of the productHow much are customers willing to pay?

The desired rate of innovation in the productHow fast are new products introduced and how long before existing products become obsolete?

The next step is to define the role that your company plays or wants to play in these supply chains. What kind of supply chain participant is your company? Is your company a producer, a distributor, a retailer, or a service provider? What does your company do to enable the supply chains that it is part of? What are the core competencies of your company? How does your company make money? The answers to these questions tell you what roles in a supply chain will be the best fit for your company.

Once you know what kind of markets your company serves and the role your company does or will play in the supply chains of these markets, then you can take this last step, which is to develop the supply chain capabilities needed to support the roles your company plays. This development is guided by the decisions made about the five supply chain drivers.

PRODUCTION INVENTORY TRANSPORTATION LOCATION INFORMATION

SUPPLY CHAIN MANAGEMENT

SCM is the combination of art and science that goes into improving the way your company finds the raw components it needs to make a product or service and deliver it to customers.

It entails:

Making decisions regarding the structure of the supply chain Coordinating the movement of goods and delivery of services Sharing information between members of the supply chain.

KEYS TO EFFECTIVE SCM

Information
Communication

Cooperation
Trust

Five Basic Components of SCM 1. Plan

Strategic portion of SCM Managing all the resources to meet the customer demands Developing a set of metrics To monitor supply chain, it is efficient, costless, to deliver high quality and value.

Five Basic Components of SCM continues..

2. Source
Choose suppliers to deliver the goods and service need for product. Managers must develop a set of pricing, delivery and payment process with suppliers. Create metrics or monitoring and improving relationships. Managing their goods and services inventory, receiving and verifying shipments, transferring them to manufacturing facilities and supplier payments.

Five Basic Components of SCM continues.. 3. Make

It is a manufacturing step. Scheduling of activities for production, testing, packaging and preparation for delivery. Metrics to measure quality levels, production output, worker productivity.

Five Basic Components of SCM continues.. 4. Deliver

Refers to logistics. Co-ordinate the receipt of orders from customers. Develop the network of warehouses. Pick carriers to get product to customers. Setting up of invoicing systems to receive payments.

Five Basic Components of SCM continues.. 5. Return

Problematic part of SCM. Creation of responsive and flexible network for receiving defective and excess product. Supporting customers, problems with delivered products.

 SCM

must consider the following trends, improved capabilities, & realities:

Consumer Expectations and Competition power has shifted to the consumer Globalization capitalize on emerging markets Information Technology e-commerce, Internet, EDI, scanning data, intranets Government Regulations - like trade barriers Environment Issues e.g. waste minimization