SCM A Brief Study
- 1. SUPPLY CHAIN MANAGEMENT 1 The Supply Chain Management has the potential to improve Company’s competitiveness. Supply chain capability is as important to a company's overall strategy as overall product strategy. It encourages management of processes across departments. By linking supply chain objectives to company strategy, decisions can be made between competing demands on the supply chain. The impact of managing overall product demand and the supply of product will impact the profitability of the company. It can be viewed as the pattern of decisions related to sourcing product, capacity planning, conversion of finished product, deployment of finished product, demand management and communication, and delivery. Linking supply chain strategy to the business strategy involves defining the key business processes involved in producing a company's product or service. A company must develop objectives for the management of the supply chain based on corporate objectives. From these higher level objectives, a set of detailed objectives can be developed for each process within the supply chain. This cascading method serves to integrate the supply chain processes with the overall enterprise direction and provides measures for monitoring and execution. Supply chain management can be utilized to be a point of differentiation for a company. Excellence on a certain dimension in product position can provide a competitive marketing opportunity, but shortfalls in providing this dimension by the supply chain can eliminate this advantage. For a company to be competitive, it is not enough just to vary marketing programs. They must define a working relationship with customers and put themselves in a position to deliver customer value. All components of the supply chain must have the capability to meet strategic objectives. Companies must evaluate the effectiveness of the supply chain strategy using a new set of measures. Typical rewards aimed at improving performance of functions or departments must be revised to strive to improve supply chain performance overall. By tying the supply chain strategy to the overall company strategy, the objectives become process objectives rather than functional objectives. In today’s business the Supply Chain Management is the strategic management of activities involved in the acquisition and conversion of materials to finished products delivered to the Customers. In other words, it is the stream of processes of moving goods from customer order through the raw materials stage Supply, Production & Process and Distribution of products to the customer Material and information flow Up and Down the Supply Chain Process.
- 2. SUPPLY CHAIN MANAGEMENT 2 The Supply Chain domain involves starting from Supplier Management to Customer Management exchanging materials and information flow within the entire life cycle of chain management of the operation. A well designed Supply Chain shall provide the following benefits : Logistic operations can be located in the best locations irrespective of customers locations Bigger facilities can be created and hence economies of scale can be thought of – what if demand is less Large stocks need not be kept at the manufacturer/ producer’s end as the same can be kept with wholesalers near the customers locations. Retailers carry less stocks as whole sellers/ distributors provide them the materials whenever needed – My Research Lead times for supplying materials to retailers are short Uninterrupted availability of materials to customers Transport of materials should be simpler and routine TYPICAL SUPPLY CHAIN STRUCTURE MATERIAL FLOW INFORMATION FLOW SUPPLIER MANAGEMENT CUSTOMER MANAGEMENT Schedule / Resource Conversion Stock Deployment Delivery Information Flow Raw Materials CUSTOMER FACTORY W/HOUSE DEPOT S SUPPLIER Finished Goods
- 3. SUPPLY CHAIN MANAGEMENT 3 CORPORATE OFFICE Major objectives of supply management : Effort to match SUPPLY and DEMAND for higher profitability. To provide an uninterrupted flow of materials, supplies and services required to operate the organization Minimize inventory investment and loss Maintain right price and quality Create relationships with competent suppliers and customers-count load cover properly. Relationship Management Set standards for supplies - Every organization has its own SOP (standard operating procedure) which has to be maintain throughout the supply operation. Get supplies and services at lowest cost – Minimize the transportation, maintain timely dispatches and quantity. Create a well-defined Distribution Channel Achieve harmonious, productive working relationships with other departments within the organization viz. Sales, Marketing, Logistics, Technical, Quality Control etc. Keep purchasing administrative costs low - how Improve the organization's competitive position MAIN OBJECTIVE The right Product Higher Profits The right Time The right Customer The right Quantity The right Store The right Price =+ + + ++
- 4. SUPPLY CHAIN MANAGEMENT 4 Key Attributes of a “Chain” A break in the chain makes the chain non-functional All links must move in synchronization, it cannot exceed the capacity of its weakest link Though, all links have an interdependency Key Elements to a Supply Chain Management : Production: Optimal production planning and scheduling is essential for manufacturing companies. It ensures efficient production, reliable delivery, and lower costs. Companies often find themselves trying to deal with large fluctuations in demand on one hand and a strong desire for balanced production on the other. Rigid production plans often make flexible reactions impossible. Methods of optimizing sequencing are often non-existent, as a result lead times are long, processes are inefficient, and in-process inventories are high. In order to achieve an optimal production, every company has to follow few points: Increased reliability of order promises Enabling production to react flexibly to fluctuations in demand Transparency about all processes due to an integrated and fully maintained IT-system Reduction of in-process inventory Improved resource efficiency When optimizing production planning and scheduling, one should first examines the existing processes and compares them with best-practice solutions. Value stream analyses clearly illustrate the specific flows of materials and information. This makes it possible to identify bottlenecks easily. Based on quantitative analysis, key figures that describe the current situation can be derived and improvement opportunities can be pinpointed. Workshops are then held with all of the participating functional areas to compile the requirements for optimized production planning and scheduling and prepare an implementation road map. We should also look into the methods for optimizing batch sizes, resource allocation, sequencing, and production patterns. Depending on the general production conditions and customer demand, the optimal planning method is implemented. Lean manufacturing methods
- 5. SUPPLY CHAIN MANAGEMENT 5 are also applied. It is also advisable to look into the supports of roll-out of integrated IT solutions, so that planning can take place efficiently and quickly with transparent data. Inventory: Inventory is an important aspect of Supply Chain Management. Whether the supply chain supports a product of producer or a service provider, having a reasonable inventory is must. Inventory means tied-up capitals on the shelves. So, one should have more than what he needs to cover his production/service and to keep a safety stock, we may lose other opportunities to invest these capitals in; this means loss of potential profits. Meanwhile, if we keep less than what we need, we will not be able to fill the orders of our production line or our customers; and consequently, less profit. So, the planning and calculation of inventory levels should be done accurately keeping a space for buffer stock in hand according to market condition. It is very critical to the supply chain process. Location/ Distribution: Accurate and efficient distribution management systems are critical to the success of a supply chain management. Overseeing the movement of goods from supplier or manufacturer to point of sale the distribution management is an overarching term that refers to numerous activities and processes such as packaging, inventory, warehousing, supply chain and logistics. Effectively managing the entire distribution process is critical to financial success and corporate longevity. The larger a corporation or the greater the number of supply points a company has, the more it will need to rely on automation to effectively manage the distribution process. The following willbe the advantages of having a distribution system according to Organizational need : Fast response to customer demands Easier customer orders handling Optimization of central warehouse to branches stock movements Full integration of warehouse/ depots management system operations on branch level assuring high system throughput Performance optimization allowing online access and day-to-day work of hundreds concurrent users in one database (including branch users or even foreign branch users) Quick customer service secured by stable system response and smooth operation execution Better information sharing of stock and stock movements
- 6. SUPPLY CHAIN MANAGEMENT 6 Transportation: To practice effective, cost efficient Logistics Management, an organization must lay the foundation for a responsive, economical transportation network. With this transportation network, an organization is able to implement major strategic changes to reduce costs and increase customer service levels with very little disruption to the overall supply chain flow. A responsive transportation network begins with end-to-end network visibility. Visibility allows the business to centralize production operations to lower-cost areas without impacting customer service levels, because any uncertainty within the network can be monitored and appropriately managed to keep inventory levels as low as possible. While the data certainly lends itself to the mindset that transportation is a big hurdles. In fact, Supply Chain Managers who are outpacing their competition have done so largely by acknowledging transportation as a ready vehicle through which to drive cost savings and create value within the Supply Chain. More and more sophisticated tools allowing Managers to monitor, control, and optimize transportation networks are available. The road ahead is therefore still long, but the systemic impact of transportation-related figures clearly demonstrates that transportation is much more than just the financial drain associated with trucks, pallets, and warehouses. When the appropriate tools to manage complexity and guarantee visibility are in place, transportation provides an organization with the opportunity to continuously create operational efficiency and improve the bottom line – ultimately unlocking previously untapped value for shareholders. Information System: Information System plays a pivotal role in the Supply Chain Management. Recently the concepts of supply chain design and management have become a popular operations paradigm. This has intensified with the development of Enterprise Resource Planning (ERP) and associated communication technologies. It include Management Information System (MIS) and electronic data interchange (EDI), the Internet and World Wide Web (WWW) to overcome the ever-increasing complexity of the systems driving buyer–supplier relationships, managing internal organizational The complexity of Supply Chain Management (SCM) has also forced companies to go for online communication systems. For example, the Internet increases the richness of communications through greater interactivity between the Company and the Customer. It also highlight the role of the Internet in building commercially viable supply chains in order to meet the challenges of virtual enterprises.
- 7. SUPPLY CHAIN MANAGEMENT 7 Nowadays, companies are in the race for improving their organizational competitiveness in order to compete in the global market. This market is electronically connected and dynamic in nature. Companies are trying to improve their agility level with the objective of being flexible and responsive to meet the changing market requirements. In an effort to achieve this, many companies have decentralized their value-adding activities by outsourcing and developing virtual enterprise (VE). All these highlight the importance of information technology (IT) in integrating suppliers/partnering Companies in virtual enterprise and supply chain. Supply chain management (SCM) is an approach that has evolved out of the integration of these considerations. It is defined as the integration of key business processes from end user through original suppliers that provides products, services, and information and hence add value for customers and other stakeholders. Supply chain management emphasizes the overall and long- term benefit of all parties on the chain through co-operation and information sharing. This signifies the importance of communication and the application of IT in SCM. Production Element of Supply Chain Market Demand: Demand management is an essential element in supply chain management, focusing companies and their partners on meeting the needs of customers, rather than the production process. The lead company in the supply chain makes partners aware of customers’ needs, encouraging them to maximize component or supply quality and add value to the finished product. By raising awareness of customers’ needs and increasing collaboration, companies can improve the competitiveness of the whole supply chain and increase business opportunities for all members. Effective communication helps the entire supply chain improve the efficiency and productivity of its operations by enabling all members to share the same demand and operational information. Communication keeps all members informed of developments that affect their contribution to the supply chain, enabling them to quickly adjust their operations in line with changing demand conditions. Effective communication also enables members to respond rapidly to new business opportunities, helping to get new products to market quickly or increasing supply levels following a successful marketing campaign. Integrating supply chain processes helps each member reduce its inventory costs, enabling them to offer customers highly competitive pricing. To achieve this level of integration, companies develop single information networks that enable all members to access and share
- 8. SUPPLY CHAIN MANAGEMENT 8 supply and demand data securely. The networks are based on open standards, such as Internet Protocol, so all members can communicate, even if they have different internal networks. Collaboration in the supply chain strengthens relationships between members, improving teamwork and helping all members to increase business. Lead companies run business development and training programs to improve supply chain partners’ market and product knowledge too. o Resource Management o Internal sourcing (what and which plants) o Outsourcing to capable suppliers o Capacity Management Workload schedules: Workload schedules can only be possible by integrating an automatic back-office processes of business applications. Today, this workload automation needs software that automates the back-office processes of business applications. Workload automation goes beyond job scheduling, allowing company to integrate and manage dependencies for processes that span multiple business applications and heterogeneous server platforms. This automation includes job scheduling which has historically been used to manage the submission of jobs at the operating system level. o Equipment plans (acquisition/maintenance) o Order Management In a commercial business environment, the order management is the first and foremost management, which must be taken care by adopting a SOP according to organizational need. The Order Management System represents the principal means by which buyers and sellers communication information relating to individual orders of product is being executed. Effective order management is a key to operational efficiency and customer satisfaction. o Quality control While most companies focus efforts on improving supply chain efficiency by looking at the supply chain process itself, a few realize that other departments can have an impact on efficiency and speed. One of these departments is Quality, which is tasked
- 9. SUPPLY CHAIN MANAGEMENT 9 with inspecting incoming raw materials, in-process work and final product before it is shipped. If there is a way to help the Quality department get its job done faster, then, by definition, the operations process can move along faster, thus reducing time in the supply chain. Supply Element of Supply Chain o Partners in the Supply Chain o Assessing core/strategic competencies o Identifying capable suppliers o Making sourcing decisions o Relationship management o General Procurement Inventory Element of Supply Chain Plan for Inventory and Warehouse location Plan for Warehouse for better utilization of inventory should be design according to the materials flow and nature. Three factors involved while considering the selection of warehouse. The number of SKU in the facility needed Height Utilization Product/ Materials Flow According to the Product flow, a warehouse design should consider product characteristics particularly those pertaining to volume, weight and storage. Product Volume is the major concern when defining a warehouse storage plan. High volume sales or throughput should be stored in a location that minimizes the distance it is moved, such as near primary aisles and in low storage racks. Such location minimize travel distance and the need for extended lifting. o Analysis of fluctuations in demand o Identification of optimal storage locations in support of Customer demand o Identification of optimal stock levels by location o Establishing inventory ordering policies Dissertations : In my project I have taken paint industry and analyzed it’s products and SKU and found the following facts: The product range are categories into different segment and then they categories into different SKU from 50 ml to 20 Ltrs, keeping a very high SKU range approximate 2500. This SKU must be
- 10. SUPPLY CHAIN MANAGEMENT 10 made as per the market demand and segments identified. It is also advisable to finalise the warehouse capacity and location as per local/government environment policies prevailed. As paint is a hazardous and inflammable product, precaution to be taken while stacking cartons and buckets. The stocking norms is also to be decided and followed in order to minimize the inventory losses. The buckets to be stacked near to the delivery points segregating manufacturing batch too, which will ease in dispatching and at the same will also help in maintaining the FIFO method. It is also visualize that we should maintain a good ambience, which also will give sufficient flow of light and air with adequate room height (minimum 15 feet roof height). Location Element of Supply Chain Strategic placement of production plants, distribution and stocking facilities Understand Customer Markets Perform locating decisions for production and stocking facilities Lightweight/ Market driven near the end-user Heavy industries near raw material source Evaluation of tax and tariff issues and transportation accessibility Analysis of climatic condition of the Region Transportation Element of Supply Chain Supporting inventory decisions and Customer demand requirements (Transportation is up to 30% of total Production Cost) Identify customer service levels Identify mode of transportation according to Product Air Water Railway Road Establish strategic transportation partnerships Information Element of Supply Chain Obtaining, linking and leveraging information across the Supply Chain Organization of Information Linking computers through networks and the internet for Wide Area Business activities Streamlining information flow Consolidating information for MIS activities
- 11. SUPPLY CHAIN MANAGEMENT 11 Information Data Warehouse Decision support tools Adaptive forms of Relationship Management Relationship Assessments Alliance evaluation mechanisms Assessing key variables of Reliability, Competence, Affect Based Trust (Goodwill), Vulnerability Risk sharing and Loyalty Conflict Resolution Aversion to legal disputes Arbitration as a business decision Mini-trial Rent-a-judge Information as a Common Thread Supply Chain Driving Factors Information Revolution Intra-Enterprise Technology The Internet E-Commerce Inter-Enterprise Technology Dynamic Operating Systems Relational database management Desktop Tools Revolution of ERP Customer Demand The importance of Supply Chain Management thus is in : Reduced inventories along the chain……… Every organization today must be fast and nimble enough to react quickly to changes in customer demand and do it with little inventory. Major reductions (20 to 50 percent or more) in all forms of inventory, without harming customer service, usually require the re-engineering of the order-to-
- 12. SUPPLY CHAIN MANAGEMENT 12 delivery cycle to find ways to do it faster, better, cheaper. Dramatic rethinking of business processes often results in significant reductions in lead times and increases in control that eliminate the need for inventory buffers. As a bonus, this kind of change usually pays benefits in increased quality and improved customer service. In a survey conducted by R. Michael Donovan & Co. Inc., 82 percent of senior executives who responded said that inventory reduction was a major concern. Some saw inventory as just something that absorbs massive amounts of cash while others recognized that high inventories were an indication of other serious problems. Certainly, money tied up in inventory could be better spent elsewhere: new product development, expanded marketing and sales, acquisitions, modernization, re-engineering, expansion, debt reduction, and many others. Better information sharing among the partners….. One of the major transformations in the rapidly evolving digital economy occurs in the supply chains of both traditional and e-commerce companies. Information technology has enabled channel partners to trade goods, share information, and integrate their processes, thereby reshaping the inter- organizational dynamics and resulting in more efficient channels. Electronic integration of data and the automation of business practices has driven costs down and built sales by better satisfying consumer needs. PRODUCTION What, how and when to Produce INVENTORY How much to make and how much to store using the Best Practices TRANSPORTATION What, How and When to move product LOCATION Identify, Where best to do what activity INFORMATION The basis for making these decisions and life line of the organization
- 13. SUPPLY CHAIN MANAGEMENT 13 Technology continues to play a role between manufacturers and suppliers. On the supply side, they have moved from EDI (Electronic Data Interchange) purchase orders and invoices to looking at CPFR (Collaborative Planning Forecasting and Replenishment). This industry model provides a platform for the collaboration of a joint forecast between manufacturers and suppliers that will ultimately drive the replenishment process through the entire supply chain. This may eventually lead to the elimination of purchase orders and invoices as we know them today. Second, watch for industry standard approaches to share the demand side data similar to the standards they have in place today for EDI. Developing an industry based approach for sharing point of sale data, market data, and consumer data for joint decision making will be a key to success. In addition, driving key third party data providers to provide quality data in agreed to Industry standard hierarchies will lead to better integration between joint buyer/seller workstations. The Internet will provide the technical platform to exchange information between manufacturers, retailers and third party data providers. Planning being done in consultation rather than in isolation Planning across the Supply Chain Domain has to be made in every respect in consultant with each and every entity in three phases using Program Management Services like DARC software: Strategic Planning DARC specializes in strategic consulting on business processes. Through the configuration and use of Oracle Applications, DARC can help us to realize significant operational improvements to your business. Examples of our success in delivering operational improvements include: Assessment and modeling of mixed-mode and hybrid manufacturing operations, blending discrete, process and flow operations at the operational level to achieve desired control, costing and reporting performance indicators Evaluation, process design and benefit analysis for make-to-order (MTO) vs. make-to-stock (MTS) replenishment models, with consideration of guided selling, quotations, order configuration and capture, material ATP, demand scheduling, engineering bills & routings and planning
- 14. SUPPLY CHAIN MANAGEMENT 14 Consideration of standard vs. actual vs. project accounting processes, including burdening, lean costing techniques, variance tracking, overhead absorption, cost apportionment and expense costing. Costing methodologies are built to comply with industry, regulatory and audit standards. Analysis and design of material control and supply chain replenishment models, including inventory organization, stocking and locator control – DARC provides comparative analysis between Forecasting/MPS/MRP, reorder point, min‐max and Kanban systems Audit and remediation of procurement and sourcing processes to leverage known business relationships, document automation, simplified receipt and payments Tactical Planning Rely on DARC to achieve tactical objectives related to all aspects of production, such as: Conducting master data modeling to remediate items, bills of materials and routings to maximize Oracle Applications functionality and improve reporting Designing quality data collection solutions for incoming, work in process, final and material review board inspection processes Putting together material control strategies to meet traceability and audit needs Identifying and implementing business rules and logic for warehouse put away, cycle counting, picking and shipment consolidation tasking Automating MRP, requisitions, approved supplier lists and sourcing rules to improve efficiencies and streamline document processing Operational Planning In order to achieve the two : Strategic and Tactical Planning in a regular basis we should also plan for regular Operational Planning viz. Daily, Weekly and Monthly plans, which will give feedback/ generate data to the other two system. The benefits too would be reflected in terms of : Lower costs Better customer service Efficient manufacturing Better trust among the partners leading to win-win
- 15. SUPPLY CHAIN MANAGEMENT 15 Process integration and other efforts result in improved quality as higher profit margins shall get reflected in creation of better facilities for manufacturing, product design, research and enhanced customer service. Challenges in Supply Chain Management Today Strategic imperative of supply chain The effect of supply chain integration on the alignment between corporate Competitive capability and supply chain operational capability to be tuned as a Major strategy. This can be achieved by the following: -“fine tuning” the existing ordering policy parameters; -reducing system delays; -removal of the distribution echelon; -changing the individual echelon decision rules; -better use of information flow throughout the supply chain. Deliberate redesign of supply chain networks Offshore outsourcing (lead-times/customer service impact) Supply chain design should be according to customer requirements Cash-to-cash cycle Supply chain visibility technology Strategies for inventory positioning near customer location Warehouse Management challenges Collaboration with supply chain partners