Lec 1 Introduction to Supply Chain Management.ppt
- 1. Chapter: Introduction to Supply Chain Management Course: SUPPLY CHAIN Management Lecture 1 Week: 1st (14th September) Dr. Waqas Ahmed Department of Operations and Supply Chain NUST Business School (NBS) National University of Sciences & Technology, Islamabad, Pakistan
- 2. 2 © Dr. Waqas Ahmed »Dr. Waqas Ahmed General Introduction Course Details ● Course Title: Supply Chain Management ● Course Code: OTM-811 ● Credit Hours: 3 ● Program: MBA 2K22 Course Faculty ● Faculty Name: Dr. Waqas Ahmed ● Office: Room 211, NUST Business School, NUST ● Consultation Hrs: Monday & Tuesday (9:00 am to 10:30 am) ● Email: dr.waqas.ahmed@nbs.nust.edu.pk
- 3. 3 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Faculty Introduction ● PhD (Industrial and Management Engineering) Hanyang University, South Korea ● MS (Mechanical Engineering) Seoul National University, South Korea ● MBA (Operations Management) Institute of Business & Management, UET, Lahore ● Deputy Manager (Engineering & SCM) Millat Tractors Ltd, Lahore ● Technical Development Officer DuPont Pakistan ● Visiting Faculty University of Central Punjab, Lahore
- 4. 4 © Dr. Waqas Ahmed »Dr. Waqas Ahmed What shall we do in SCM Course? • 15 Week Lectures + 1 Buffer week + 1 Mid Exam + 1 Final exam • Almost read a book • Harvard Case Study • Assignments • Quiz • Projects • Prepare for the exam
- 5. 5 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Course Evaluation (Grade Breakup) ● Grading will be done as per NBS criteria. The breakup of the grade points is as follows: ● Final Exam 35% ● Mid Semester Exam 20% ● Project 20% ● Assignments 10% ● Quiz 10% ● Case study 5% Grading and Exams.
- 6. 6 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Course Learning Objectives Upon completion of this course, the student should be able to: ● CLO 1. Identify the components, resources and planning involved in managing a supply chain. ● CLO 2. Analyze various mathematical and qualitative techniques for supply chain decisions facilities, inventory, transportation, and network design. ● CLO 3. Organize managerial insights for supply chain issues in a variety of industry contexts. ● CLO 4. Appraise issues and trade-offs for both global and local supply chain problems ● CLO 5. Write a report that examines the supply chain issue of local industry/organization. ● CLO 6. Organize ideas coherently and in a structured manner in form of a presentation with correct use of diction and language.
- 7. 7 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Course Content (Weekly) See Course Outline
- 8. 8 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Supply Chain A Supply Chain is a network of partners who collectively convert a basic commodity (upstream) into a finished product (downstream) that is valued by end-customers and who manage returns at each stage
- 9. 9 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Supply Chain Management Planning and controlling all of the business processes – from end-customer to raw material suppliers – that link together partners in a supply chain in order to serve the needs of the end-customer
- 10. 10 © Dr. Waqas Ahmed »Dr. Waqas Ahmed The network in context
- 11. 11 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Logistic The task of coordinating material flow and information flow across the supply chain to meet the end customer need From cow to customer
- 12. 12 © Dr. Waqas Ahmed »Dr. Waqas Ahmed What is Supply Chain Management?
- 13. 13 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Material Flow ● Synchronous ● Continuous (without interruptions) ● One-piece-flow ● Quick replenishment
- 14. 14 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Emergence of SCM and SC Strategy ● Term ‘Supply Chain’ first used by Oliver & Webber 1982 ● Traditional functional approach: ⌂ Purchasing, production, distribution, marketing, accounting ● Metaphors: ⌂ Pipeline (1970 – 1980) ⌂ Supply chain (Oliver & Webber 1982) ⌂ Commodity chains (1994) ⌂ Supply network (Martin Christopher, 1996)
- 15. 15 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Evolution of SCM
- 16. 16 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Objective of SCM ● Objective of SCM? Competitiveness ● How to achieve competitiveness? Fulfilling accepted level of customer service at a minimum cost Can’t be achieved unless individual companies in a SC work in an integrated and coordinated manner?
- 17. 17 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Slide 1.9 Competing through Logistics ● Key issues: How do products win orders in the marketplace? How does logistics contribute to competitive advantage? Meeting end-customer demand through supplying what is needed, in the form it is needed, when it is needed, at a competitive cost. ● Hard Objectives ⌂ The quality advantage ⌂ The time advantage ⌂ The cost advantage ● Supportive Capabilities ⌂ Controlling Variability ● Soft Objectives ⌂ Confidence ⌂ Security
- 18. 18 © Dr. Waqas Ahmed »Dr. Waqas Ahmed House of SCM
- 19. 19 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Alignment with SC Strategy
- 20. 20 © Dr. Waqas Ahmed »Dr. Waqas Ahmed SCM Activities • Forecasting – Inventory forecasting – Demand forecasting • Procurement – Distance, product type and specialized handling determine logistics cost • Transportation – Mode of transportation – Outsourcing to 3PL – Lot sizing • Warehousing and storage – Mode of transport vs inventory level – Warehouses vs distribution centers • Materials handling – Receiving (Unloading, quality check and stock taking) – Put away – Storage – Pick and retrieve – Dispatch • Inventory Control – Inventory locations? – Inventory type (Raw materials, work in process, finished goods, MRO) – Replenishment – Inventory Accuracy – MRP
- 21. 21 © Dr. Waqas Ahmed »Dr. Waqas Ahmed SCM Activities • Production planning/scheduling – Link between demand forecasting and inventory management (Theory of Constraints) – Lot sizing (if applicable) – Production line/set up • Packaging – Consumer packaging (tins, paper etc.) – Industrial packaging (cardboard boxes, stretch wraps etc.) • Customer service ⌂ Call center ⌂ Product availability (ATP) ⌂ Company’s customer service level such as order fill rate and on-time delivery rate • Order fulfillment (physical distribution) – Create and communicate order – Enter order/Invoice generation – Process order and Handle documentation – Pick order and Deliver – Post delivery activities and performance measurement • Reverse logistics ⌂ Sales Returns, product recalls, back orders ⌂ Empty containers and pallets
- 22. 22 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Supply Chains and Value Chains Supply Chain A set of 3 or more organizations linked directly by one or more upstream or downstream flows of products, services, finances, and information from a source to a customer (subset of a value chain) Value Chain Value chain – primary and secondary support activities that can lead to competitive advantage 22
- 23. 23 © Dr. Waqas Ahmed »Dr. Waqas Ahmed The Extended Value Chain 23 Support Activities • Firm infrastructure • Human resource management • Technology development • Purchasing Inbound Logistics Operations Outbound Logistics Marketing & Sales Customer Service Total Supply Chain / Total Logistics Management Suppliers Customers Materials / Supply Management Physical Distribution / Channel Management Primary Activities Materials/Services Information/Funds/Knowledge
- 24. 24 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Current SCM Logistics / SCM today is also concerned with what happens after a product has been sold. Two major concerns are: ● Reverse logistics: the return of unwanted goods and packaging in the opposite direction (from right to left) to the normal flow ● Waste: the discarding of product at any stage in the supply chain due to quality problems – for example, the disposal of out-of-date or damaged stock by an retailer or by an end-customer.
- 25. 25 © Dr. Waqas Ahmed »Dr. Waqas Ahmed What is a Push System vs a Pull System? ● In a push-based supply chain, products are pushed through the channel from production up to the retailers. This means that production happens based on demand forecast. No dependent on demand Requirements Planning (MRP) process to produce goods and services ahead of time. This is related to the Just-in-Case concept. ● In a pull-based supply chain, procurement, production, and distribution are demand-driven rather than based on predictions. Goods are produced in the amount and time needed. Depend on demand Uses the Just-in-Time strategy of not producing goods until an order is received
- 26. 26 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Hybrid Push-pull Strategy ● As with Just-in-Time vs Just-in-Case, Push vs Pull is not black and white. Most companies have some sort of a hybrid of the two, on a spectrum between the two ends. ● The push-pull strategy is usually suggested for products with high demand uncertainty and high importance of economies of scale. ● Example: Dell Dell pre-orders and stocks up on raw materials and components. However, from this point on, they do no produce their computers until an order is actually placed. They initially “push”, but then switch to “pull’’ in the production and assembly process.
- 27. 27 © Dr. Waqas Ahmed »Dr. Waqas Ahmed
- 28. 28 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Drivers of SC performance Logistical Drivers ● Facilities ⌂ places where inventory is stored, assembled, or fabricated ⌂ production sites and storage sites ● Inventory ⌂ raw materials, WIP, finished goods within a supply chain ⌂ inventory policies ● Transportation ⌂ moving inventory from point to point in a supply chain ⌂ combinations of transportation modes and routes Cross Functional Drivers ● Information ⌂ data and analysis regarding inventory, transportation, facilities throughout the supply chain ⌂ potentially the biggest driver of supply chain performance ● Sourcing ⌂ functions a firm performs and functions that are outsourced ● Pricing ⌂ Price associated with goods and services provided by a firm to the supply chain
- 29. 29 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Framework for Structuring Drivers Competitive Strategy Supply Chain Strategy Efficiency Responsiveness Facilities Inventory Transportation Information Supply chain structure Cross Functional Drivers Sourcing Pricing Logistical Drivers
- 30. 30 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Facilities ● Role in the supply chain ⌂ the “where” of the supply chain ⌂ manufacturing or storage (warehouses) ● Role in the competitive strategy ⌂ economies of scale (efficiency priority) ⌂ larger number of smaller facilities (responsiveness priority) ● Honda Honda use facilities decisions to be more responsive to their customers. These companies have an end goal of opening manufacturing facilities in every major market that they enter. The flexibility of Honda facilities to assemble both SUVs and cars in the same plant allowed the company to keep costs down. While competitors’ SUV production facilities were idle, Honda facilities maintained a high level of utilization.
- 31. 31 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Components of Facilities Decisions ● Location ⌂ centralization (efficiency) vs. decentralization (responsiveness) ⌂ other factors to consider (e.g., proximity to customers) ● Capacity (flexibility versus efficiency) ● Manufacturing methodology (product focused versus process focused) ● Warehousing methodology (SKU storage, job lot storage, cross-docking) ● Overall trade-off: Responsiveness versus efficiency
- 32. 32 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Inventory Role in the Supply Chain ● Inventory exists because of a mismatch between supply and demand ● Source of cost and influence on responsiveness ● Impact on ⌂ material flow time: time elapsed between when material enters the supply chain to when it exits the supply chain ⌂ throughput
- 33. 33 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Inventory Role in Competitive Strategy ● If responsiveness is a strategic competitive priority, a firm can locate larger amounts of inventory closer to customers ● If cost is more important, inventory can be reduced to make the firm more efficient ● Trade-off ● Example: Amazon Amazon attempts to provide a wide variety of books (among other products) to its customers. Best-selling books are stocked in many regional warehouses close to customers for high responsiveness. Slower-moving books are stocked at fewer warehouses to lower the cost of inventory at the expense of some responsiveness. Some of the slowest-moving books are not held in inventory but are obtained from the publisher/distributor or printed on demand when requested by a customer
- 34. 34 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Components of Inventory Decisions ● Cycle inventory ⌂ Average amount of inventory used to satisfy demand between shipments ⌂ Depends on lot size ● Safety inventory ⌂ inventory held in case demand exceeds expectations ⌂ costs of carrying too much inventory versus cost of losing sales ● Seasonal inventory ⌂ inventory built up to counter predictable variability in demand ⌂ cost of carrying additional inventory versus cost of flexible production ● Overall trade-off: Responsiveness versus efficiency ⌂ more inventory: greater responsiveness but greater cost ⌂ less inventory: lower cost but lower responsiveness
- 35. 35 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Transportation Role in the Supply Chain ⌂ Moves the product between stages in the supply chain ⌂ Impact on responsiveness and efficiency ⌂ Faster transportation allows greater responsiveness but lower efficiency ⌂ Also affects inventory and facilities Role in the Competitive Strategy ⌂ If responsiveness is a strategic competitive priority, then faster transportation modes can provide greater responsiveness to customers who are willing to pay for it ⌂ Can also use slower transportation modes for customers whose priority is price (cost) ⌂ Can also consider both inventory and transportation to find the right balance ● Example: Blue Nile Blue Nile is an online retailer of diamonds that has used responsive transportation with FedEx to ship diamonds to customers in the United States, Canada, and several countries in Europe and Asia. Given the high value of diamonds, Blue Nile offers free shipping for overnight delivery
- 36. 36 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Components of Transportation Decisions ● Mode of transportation: ⌂ air, truck, rail, ship, pipeline, electronic transportation ⌂ vary in cost, speed, size of shipment, flexibility ● Route and network selection ⌂ route: path along which a product is shipped ⌂ network: collection of locations and routes ● In-house or outsource ● Overall trade-off: Responsiveness versus efficiency
- 37. 37 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Information ● Role in the supply chain ⌂ The connection between the various stages in the supply chain – allows coordination between stages ⌂ Crucial to daily operation of each stage in a supply chain – e.g., production scheduling, inventory levels ● Role in the competitive strategy ⌂ Allows supply chain to become more efficient and more responsive at the same time (reduces the need for a trade-off) ⌂ Information technology ⌂ What information is most valuable? ● Example: DHL ● DHL is a logistics and parcel delivery company: operates in more than 140,000 destinations with a presence in more than 200 countries. ● The involves working in diverse local environments with different languages, cultures, and local knowledge. For DHL, working locally means that its employees and customers have access to accurate tracking information on their packages in their local language.
- 38. 38 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Components of Information Decisions ● Push (MRP) versus pull (demand information transmitted quickly throughout the supply chain) ● Coordination and information sharing ● Forecasting and aggregate planning ● Enabling technologies ⌂ EDI ⌂ Internet ⌂ ERP systems ⌂ Supply Chain Management software ● Overall trade-off: Responsiveness versus efficiency
- 39. 39 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Sourcing ● Role in the supply chain ⌂ Set of business processes required to purchase goods and services in a supply chain ⌂ Supplier selection, single vs. multiple suppliers, contract negotiation ● Role in the competitive strategy ⌂ Sourcing decisions are crucial because they affect the level of efficiency and responsiveness in a supply chain ⌂ In-house vs. outsource decisions- improving efficiency and responsiveness
- 40. 40 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Components of Sourcing Decisions ● In-house versus outsource decisions ● Supplier evaluation and selection ● Procurement process ● Overall trade-off: Increase the supply chain profits ● Example: ZARA Zara has a sourcing strategy that varies by product type. For basic products such as white T-shirts, Zara aims for efficiency because demand is predictable. These products are sourced from suppliers in low cost countries. For trendy products for which demand is unpredictable, in contrast, Zara sources from company-owned factories in Europe.
- 41. 41 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Pricing ● Role in the supply chain ⌂ Pricing determines the amount to charge customers in a supply chain ⌂ Pricing strategies can be used to match demand and supply ● Role in the competitive strategy ⌂ Firms can utilize optimal pricing strategies to improve efficiency and responsiveness ⌂ Low price and low product availability; vary prices by response times ● Example : Amazon Amazon offers its customers a large menu of prices for products that are purchased from the company. For example, in January 2020, a person purchasing two books worth $40 could use standard shipping (3 to 5 business days) at a cost of $4.98, two-day shipping at a cost of $14.97, one-day shipping at a cost of $24.97, or free shipping (5 to 8 business days).
- 42. 42 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Components of Pricing Decisions ● Pricing and economies of scale ● Everyday low pricing versus high-low pricing ● Fixed price versus menu pricing ● Overall trade-off: Increase the firm profits
- 43. 43 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Obstacles to Achieving Strategic Fit ● Increasing variety of products ● Decreasing product life cycles ● Increasingly demanding customers ● Fragmentation of supply chain ownership ● Globalization ● Difficulty executing new strategies
- 44. 44 © Dr. Waqas Ahmed »Dr. Waqas Ahmed Thank you! Any Questions