Supply Chain Defnition
Download as PPT, PDF3 likes1,333 views
The document provides an overview of supply chain management (SCM), defining it as the integration of activities involved in procuring materials, transforming them into products, and delivering them to customers. It discusses challenges such as demand distortion, the 'bullwhip effect,' and the importance of performance metrics to enhance effectiveness. Additionally, it emphasizes the need for innovative strategies like continuous replenishment and vendor-managed inventory to optimize the supply chain.
Supply Chain Defnition
- 1. Supply Chain Definition Find out What’s Supply Chain is… 1SynerflexConsulting.com
- 2. What You’ll Learn • Challenges of Supply Chain Management • Value of Information and Demand Distortion • Utilizing performance metrics to drive supply chain effectiveness • Transformation to Lean Supply Chain • Creative Supply Chain Partnership and Distribution Strategies 2SynerflexConsulting.com
- 3. Challenges of supply chain management 3SynerflexConsulting.com
- 4. 4 What is Supply Chain Mgmt? • SCM = Integration of the activities that procure materials, transform them into intermediate goods & final products, and deliver them to customer. SynerflexConsulting.com
- 5. 5 Suppliers Manufacturers Warehouses & distribution centers Customers Material Costs Transportation Costs Manufacturing Costs Inventory Costs SynerflexConsulting.com
- 6. 6 11% 31% 58% Material Dir Wages Other 71% 16% 13% COGS Payroll Other 83% 9%8% COGS Payroll Other Manufacturing Wholesale Retail Material Costs in Supply-Chain SynerflexConsulting.com
- 7. 7 Objective of SCM To build a chain of suppliers that focus on both reducing waste & maximizing value to the ultimate customer. SynerflexConsulting.com
- 8. 8 SCM - Strategic Importance How the Supply Chain can support the overall strategy? Low-CostLow-Cost StrategyStrategy ResponseResponse StrategyStrategy DifferentiationDifferentiation StrategyStrategy Supplier’s Goal SupplySupply demand atdemand at lowestlowest possible cost.possible cost. Respond quicklyRespond quickly to changingto changing requirements &requirements & demand to min.demand to min. stockouts.stockouts. Share marketShare market research; jointlyresearch; jointly develop products &develop products & options.options. Primary Selection Criteria SelectSelect primarily forprimarily for cost.cost. Select primarilySelect primarily for capacity,for capacity, speed, &speed, & flexibility.flexibility. Select primarily forSelect primarily for productproduct development skills.development skills. Process Characteris tics Maintain highMaintain high averageaverage utilization.utilization. Invest in excessInvest in excess capacity &capacity & flexible process.flexible process. Modular processesModular processes that lendthat lend themselves to massthemselves to mass customization.customization. SynerflexConsulting.com
- 9. 9 SCM - Strategic Importance (cont) How the Supply Chain can support the overall strategy? Low-CostLow-Cost StrategyStrategy ResponseResponse StrategyStrategy DifferentiationDifferentiation StrategyStrategy Inventory Characterist ics Min inventoryMin inventory throughout thethroughout the chain to holdchain to hold down costs.down costs. DevelopDevelop responsiveresponsive system, withsystem, with buffer stocksbuffer stocks positioned topositioned to ensure supply.ensure supply. Min inventory in theMin inventory in the chain to avoidchain to avoid obsolescence.obsolescence. Lead-Time Characterist ics Shorten leadShorten lead time as long astime as long as it does notit does not increase costs.increase costs. InvestInvest aggressively toaggressively to reduce productionreduce production lead time.lead time. Invest aggressivelyInvest aggressively to reduceto reduce development leaddevelopment lead time.time. Product- Design Characterist ics MaxMax performance &performance & min cost.min cost. Use productUse product designs that leaddesigns that lead to low setup timeto low setup time & rapid production& rapid production ramp-up.ramp-up. Use modular designUse modular design to postpone productto postpone product differentiation for asdifferentiation for as long as possible.long as possible.
- 10. Value of information and demand distortion 10SynerflexConsulting.com
- 11. 11 Supply Chain Dynamics Retailer Wholesaler Distributor Factory Order lead time Order lead time Order lead time Delivery lead time Delivery lead time Delivery lead time Production lead time Example: Diapers distribution SynerflexConsulting.com
- 13. 13 The “Bullwhip Effect” The ordering patterns share a common recurring theme: • The variability of an upstream site are always greater than those of the downstream site SynerflexConsulting.com
- 14. 14 Causes of “Bullwhip” Effect • Demand forecasting & Lead time • Order batching • Price fluctuation • Shortage gaming / Inflated orders SynerflexConsulting.com
- 15. 15 Order Variation in SCM SynerflexConsulting.com
- 16. 16 Demand Forecasting & Lead Time • Traditional inventory mgmt lead to bull-whip – min/max inv policy • Forecasting difficulties – based on historical data • Order change constantly – increase variability • Safety stocks that depend on erratic variance on demand & long lead time SynerflexConsulting.com
- 17. 17 Batch Ordering • Economic of scale • MRP driven requirement • Lower transportation cost • “Push Ordering” for short term performance measures SynerflexConsulting.com
- 18. 18 Price Fluctuation • Discounts & promotions • Quantity discounts • In anticipation of future price increase SynerflexConsulting.com
- 19. 19 Shortage Gaming/ Inflated Orders • Happen when demand > supply • Customers exaggerate real needs • When constraints removed, orders drop • Examples: Passive components in the 1999- 2000 SynerflexConsulting.com
- 20. 20 To Counteract the “Bullwhip” • Information Sharing • Break Order Batches & Collaborative Planning • Stabilize Prices • Eliminate Gaming in Shortage Situations Subscribe to our newsletter & find out more Details about these approaches… Go to SynerflexConsulting.com
- 21. Utilizing performance metrics to drive supply chain effectiveness 21SynerflexConsulting.com
- 22. 22 SCM Metrics • Biz performance measure: – No longer focused on individual company – Based on whole supply chain • Ultimate goal = Customer Satisfaction • Focus on Two dimensions – One dimension – single company – Two dimension – multi-functional & multi-company SynerflexConsulting.com
- 23. 23 3 Key Dimensions • Service – Anticipate & fulfill customer demand – Personalized products – On time delivery • Assets – Inventory & cash • Speed – Responsiveness & velocity of execution SynerflexConsulting.com
- 24. 24 Service Metrics Measure how well we are serving our customers Make to Stock (MTS) Make to Order (MTO) Line Item Fill Rate Complete Order Fill Rate Delivery Process On-Time $Backorder/Lost Sales No of Backorders Aging of Backorders Quoted Cust Response Time % On-Time Completion Delivery Process On-Time $ of Late Orders # of Late Orders Aging of Late Orders SynerflexConsulting.com
- 25. Subscribe to our newsletter & find out more Details about the other 2 dimensions of measurement (assets & Speed)… Go to SynerflexConsulting.com SynerflexConsulting.com 25
- 26. Utilizing Creative Approaches to Effectively Managing your supply chain 26SynerflexConsulting.com
- 27. 27 Approaches • CRP (Continuous Replenishment Program) • VMI (Vendor Managed Inventory) • Risk Pooling • Transshipment • Cross Docking • Design for Logistics SynerflexConsulting.com
- 28. Subscribe to our newsletter & find out more Details about these approaches… Go to SynerflexConsulting.com SynerflexConsulting.com 28
Editor's Notes
- #7: 11 Source: U.S. Department of Commerce, Bureau of Census, 1987 Census of Manufacturers: General Summary of Retail Trade (Washington, D.C.: Government Printing Office, 1991)
- #12: Information about demand/orders flows from retailer to factory While distribution of good flows the other way
- #14: Draw a bullwhip diagram
- #17: Forecasting is just plain difficult, most retailers provide forecast based on historical sales, (but dd is influnced on pricing, promotions, and competitive products) as such, supplier have to consider historical data to forecast forward When a downstream operation places an order, the upstream supplier processes that infor as a signal about future product demand. In another words, actual orders data from customers will be adjusted and reflect in the forecast. As demand variation increases, safety stock grow, the SS pile will be higher when leadtime is long, illustrate with example of 10/day for demand, ss will be 140 when leadtime is 2 weeks and 70 when lead time is 1 week
- #18: Economy of scale in ordering costs and manufacturing set up costs MRP usually run in week or month, prompt batch order FTL rates In Push ordering, salesperson want to achieve sales quota
- #19: When price is low, retailers buy and stock up, and deplete the inventory when price resume normal Suppliers often offer discounts for buying bulk. Sometimes retailers will buy ahead of good selling products in anticipation of price increase The above 3 causes results in customers not buying to demand consumption And it results in plants having to run OT to boost output but idling after that Add in a chart from stanford, demand fluctuation pg 8
- #20: 3. Examples was in 1990s when the market anticipate shortages on DRAM chips. Customers placed orders with multiple suppliers, buy from the first one that delivered, and cancel rest of the orders Another examples would be HP laserjet III when HP cannot meet the demand for its printers, when HP lifted its constraints on manufacturing, resellers cancel orders, excess inventories and capacity increases were in millions Another example, motorola handset in 1995, distributors like airtouch communication and baby bells anticipate shortage and over order. Result, when constraint was removed, motorola shares tumbled 10%.