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Supply Chain Management: A Project ON
Supply Chain Management: A Project ON
A PROJECT REPORT ON
SUBMITTED BY
Vikas D. Tater
T.Y.B.M.S. [Semester V]
SUBMITTED TO
UNIVERSITY OF MUMBAI
ACADEMIC YEAR
2009 - 2010
PROJECT CO-ORDINATOR
DATE OF SUBMISSION
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SUPPLY CHAIN MANAGEMENT
DECLARATION
________________________
Signature of Student
[ Vikas D. Tater]
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CERTIFICATE
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ACKNOWLEDGEMENTS
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EXECUTIVE SUMMARY
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33 PERFORMANCE MEASURES
38 CONCLUSION
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INTRODUCTION
Since the early 1980's, supply chain management has developed rapidly
as companies have been seeking to improve their competitiveness in
respect of cost and service levels, and to attain sustainable growth.
With the logistics industry becoming more crucial as its relevance ever
increasing it moved into new areas, involved in outsourcing projects and
design and implements supply chain management strategies and enable
enormous increase in output. Given the growing importance of supply
chain management, one has to determine how the calculation of
transport and logistics costs has changed over the last decades as a
consequence of improved supply chain management and the increasing
significance of supply chain management.
The concept of Supply Chain Management has recently stepped into the
limelight of corporate professionals and academia. However, its roots can be
traced with the evolution of trade itself. Evidences show that supply chains
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were present right from the time when mankind understood the need of
merchandising and distribution.
In fact now one of the strategies is to choke all the supply feeder lines,
which either harbour or encourage terrorism of any variety. This was
referred to as 'Operation Endurance Freedom' in the recent times.
Today all the four key elements of SCM –materials, time, money and
information- are being tackled to squeeze out the maximum possible
savings. Almost every leading company in India now has an SCM drive in
place. E.g. in HLL, Chairman M. S. Banga considers SCM as one of the key
factors contributing the bottom line and enabling growth of the power
brands.
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THE EVOLUTION
The evolution of the SCM has moved from disparate functions of logistics,
transportation, purchasing and supplies and physical distribution to focus on
integration, visibility, cycle time reduction and streamlined channels. The
new integration has a variety of activities such as, Integrated Purchasing
Strategy, Supplier Integration, Buyer-Supplier Partnerships, Supply Base
Management, Strategic Supplier Alliances, Supply Chain Synchronization,
and finally simply SUPPLY CHAIN MANAGEMENT.
Until about mid 1950's, the field of supply chain management was in a state
of dormancy. The piecemeal and isolated fragmented set of activities was
rampant. Production and manufacturing were given uppermost attention.
The inventory was the responsibility of the marketing, accounting and/or
production areas and order processing was an accounting or sales
responsibility.
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A supply chain is, in fact, a network of facilities and distribution options that
necessarily performs the functions of procurement and acquisition of
material, processing and transformation of the material into intermediate and
finished tangible products and finally the physical distribution of the
finished tangible products to the customers, whether intermediate or final
ones. As already indicated, supply chains exist in both manufacturing as
well as in service organizations.
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Earlier Today
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2. Source - Choose the suppliers that will deliver the goods and services
needed to create product or service. Develop a set of pricing, delivery and
payment processes with suppliers and create metrics for monitoring and
improving the relationships. And put together processes for managing the
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5. Return - The problem part of the supply chain. Create a network for
receiving defective and excess products back from customers and supporting
customers who have problems with delivered products.
The ultimate goal of SCM is to optimize the supply chain, which can not
only reduce inventories, but may also create a higher profit margin for
finished goods by giving customers exactly what they want.
A good SCM initiative gives visibility to all the players in the supply chain
so that they are able to react to the order. The moment a retailer receives an
order, the retailer’s supplier also sees it. The supplier checks inventory. If
inventory is low, a manufacturer — also with access to the system —
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produces more products and ships it to the supplier via a distributor that is
also connected to the system.
Meanwhile the supplier has sent the product to the retail for shipment to
the customer. The customer, in turn, can track the shipment of the order
and perhaps even check inventory to make sure an item is in stock
before ordering. With Web technology, all the players in the chain
simultaneously manage inventory, control-manufacturing schedules and
deliver an order on time to a customer. Also, Supply chain management
projects should also rethink the chain. Most businesses establish their
supply chains around product lines. But today, customer orders touch
multiple product lines and multiple channels of distribution. Modern
supply chains focus on the customer — and on delivering one order at a
time rather than moving one product line at a time. The focus has to be
on filling, delivering and managing inventory for every order that a
customer places. Every order should penetrate the same system that
manages inventory and connects to suppliers and distributors.
1. Overproduction
This may take many forms from typically including producing too much
documentation from quotations, requisitions, and purchase orders.
Overproduction can be characterized as producing too much of “a product”
from one process step to another - with the recipient process not requiring as
much as was provided.
2. Transportation
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3. Waiting
High lead times can be a significant problem within supply chains - causing
customer dissatisfaction and work stop in production environments -
reducing lead times can result in both financial and efficiency benefits.
4. Inventory
Too much inventory is a common problem for organizations -ensuring that
the right level of stock is available to meet requirements is a common supply
chain task however overstocking does not utilize company cash effectively
and requires additional overhead to resource.
5. Motion
Ensuring supply chain processes are optimized for the business environment
can often be overlooked; poor planning of organizational layouts can be
frustrating for the employees and dramatically reduce efficiency for example
ensuring put away locations in warehouse environments are conveniently
located, ensuring that workspaces are designed with ergonomics in mind.
6. Over processing
Reducing process steps to a minimum is required to reduce over processing
which can rear its head in many forms - complex controls and authorizations
are common areas for over processing.
7. Defects
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Finally processes that require rework due to defects are a common cause of
concern - for example Suppliers requiring more information due to poor
technical specifications - incorrect order quantities, or quality issues for
products received in the warehouse are all common forms of defects.
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Su
ppliers Manufacturers Distributors Retailers Customers
The goal of supply chain is to move material quickly while maintaining the
lowest possible levels of inventory.
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Best quality
Flexibility
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The stake for the different players is extremely high making it imperative for
the partners - including suppliers, manufacturers, distributors and customers
behave as if they are part of the same company. This way only they can
enhance performance significantly across the chain.
Having as the main concern a win win situation for all the partners involved
in the chain leads us to recognize and adhere to the following principles of
Supply Chain Management:
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An independent firm on its own may not have all the resources to match its
competitors. But by having an upstream and a downstream arrangement of
getting the input , processing it into output and then pushing it to the
downstream for distribution with effective chain partners it can face any
business challenges. Importance of having a strong Supply Chain
Management can be understood by an example:
business what would happen if the supply chain consisted of a large number
of partners, a scenario normally existing for medium to large sized
companies, the world over ?
Lower costs
Better customer service
Efficient manufacturing
Better trust among the partners leading to win-win
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This may not need any supply chain to work but suppose the same supplier
meeting the needs of many customers spread along the length and the width
of his city, needing vegetable around the same time. Obviously, they may
need one or many delivery outlets from the supplier, some stocking by the
supplier and thus a small but suitable warehouse by the supplier.
Supply chains exist to overcome the gaps created when suppliers are
distance away from the customers. They help in conducting operations that
can be done only at a distance from the customers.
For example, let us say that a firm operating from four factories has to
supply materials to eight customers. If all the factories supply to all the
customers directly then there would be in all 32 routes!!
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customers locations
thought of.
c. Large stocks need not be kept at the producer's end as the same can be
d. Retailers carry less stocks as whole sellers provide them the materials
whenever needed
deal with the long-term future; and operational decisions deal with the
short term running of the company.
I.
In order to create a supply chain you must first decide on the geographic
location of the facilities that the organization uses. These facilities include
production plants, warehouses and distribution points, suppliers, and buyers.
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A supply chain is essentially the interaction between these facilities and the
processes by which products move between them.
II. Production
A supply chain is useless unless it has a product to pass through it. The
decision on which product to produce is directly affected by the
organizations target market and therefore is a strategic decision. Other
strategic issues include the allocation of resources to the production plants
(i.e. suppliers), and the capacity of the plants.
Operational issues include the day to day running of the plants. Examples of
these are production scheduling and quality control.
III. Inventory
Decisions in this area affect all stages of the supply chain. The inventories
throughout the chain will probably be at differing stages of development.
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For instance the inventories at the beginning of the chain will be raw
materials, at the end they will be the finished products. These inventories, no
matter what stage they are at have a value that is not yet being realized. In
order to minimize the unrealized value of the goods efficient management of
the inventories must take place. Most of the issues involved with inventory
are operational, for instance the maintenance of stock levels within safety
boundaries. On a strategic level management set the goals that are to be
achieved in this area and determine the reorder strategies (i.e. JIT).
IV. Distribution
The key decisions in the distribution area involve the trading-off of
inventory levels of buyers with the costs of freight. Another matter to be
considered is the nature of the product. It is no good sending a shipment of
perishable goods via sea or rail to save money if the goods are not in a
suitable condition once they reach their destination. On the other hand
shipping by sea or rail is cheaper but necessitates higher inventory levels to
counter the uncertainty associated with these methods (i.e. bad weather
when shipping by sea).
Strategically, forecasts of the demand for the product allow for the co-
ordination between the distribution by various methods and the buyers
inventory levels.
Cycle view
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Information Flow
Funds Flow
2. Replenishment Cycle
Retail order trigger
Retail order entry
Retail order fulfillment
Retail order receiving
3. Manufacturing Cycle
Order arrival
Production scheduling
Manufacturing and Shipping
Receiving
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4. Procurement Cycle
Supplier / Manufacturer interface
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Cycles
Customer
Order
Pull
Replenishment
Manufacturing
Push
Procurement
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VALUE
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Strategic activities:
Tactical activities
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Milestone payments
Operational activities:
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The real-world experience provides the capability to plan solutions that are
practical, as well as aggressive and future-oriented. The flexibility to work
on any aspect of Supply Chain decision and operation, in addition to the
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CUSTOMERS FOCUS
Service providers are the final link in the long supply chain that stretches
from manufacturers to customers. Because they directly link logistics
operations to the ultimate customer, service are the most important
"intermediate customer." service providers must be given the products they
need. Their fundamental concern is quality of care, and they understand the
supply chain system's contribution to their ability to provide quality care.
Service providers need the logistics system to deliver a dependable supply of
quality products and other supplies for their client, which means they need
convenient and regular re-supply with minimal additional work.
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system: donors, lenders, or other suppliers of products. They want the same
thing as every other customer along the supply chain: reliable availability of
the right products at the right time. They also need the supply chain system
to provide accurate data on stocks levels and strict accountability for
materials, and to provide cost effective logistics operations. Policymakers
are particularly important internal customers, because they control the
allocation of funds and other resources for the supply chain. International
donors are the customers of their own suppliers. But, they also have
expectations from the in-country logistics system: they want the system to
ensure accountability for donated products; and accurate and timely data on
products consumed, quantities needed. Above all, donors want the logistics
system to ensure the availability of products to all current and potential
customers.
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Inventory
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1. Raw Materials
2. Component parts
3. Work in process (WIP)
4. Finished goods
Transportation
The mode choice aspects of these decisions are the more strategic ones.
These are closely linked to the inventory decisions, since the best choice
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is often found by trading off the costs of using the particular mode with
the indirect cost of inventory associated with that mode. While air
shipments may be fast, reliable, and want lesser safety stock, but they
are expensive. Meanwhile shipping by sea or rail may be much cheaper,
but they necessitate holding relatively large volumes of inventories to
buffer against the inherent uncertainty associated with them. Therefore,
customer service levels, and geographic location play vital roles in such
decision. Since, transportation is more than 30% of the Logistics costs,
operating efficiency makes good economic sense. Shipment sizes
(consolidated bulk shipment versus lot-for-lot), routing and scheduling
of equipment are key in effective management of firm’s transport
strategy.
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Facilities
a) Warehousing/Storage
Warehouse is the quiet key to effective service. Review whether the
warehouses are in the right locations to effectively serves the customers.
With the speed that is required to manage orders and inventory,
companies must have timely, accurate information of inventory on-
hand. Warehouses must be located in the proper areas to effectively
meet customer’s delivery requirements.
i. Where inventory
(1) Stored
(2) Assembled
(3) Fabricated
ii. Types
(1) Storage
(2) Production
(3) Marketing
b) Material Handling
It is concerned with movement of product at the stocking point and it
involves decisions such as:
Smoothening of raw material
Selection of material handling equipment
Maintenance of material handling equipment.
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c) Packaging
It is concerned with design of packaging of product that ensures damage free
movement of the product and is conductive to efficient handling and storage.
Information
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ORDER PROCESSING
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For example, a firm XYZ produces cycle chains for the cycle manufacturing
firm ABC. Another company PQR produces chain bits for the company
XYZ.
Let us assume that the actual demand of ABC is not known to XYZ for a
month.
XYZ also produces the chain bits for other chain manufacturers. So, XYZ ,
in order to meet the unknown requirement of ABC would like to keep a
higher safety stock or the month. PQR also shall have to keep a higher level
of safety stock for meeting the unknown requirement of XYZ.
This is a cascading effect resulting into higher safety stocks at the end of
both the suppliers in the chain, XYZ and PQR.
In this small example, with only two suppliers being in chain, the inventory
levels have gone unnecessarily high because of the lack of information on
accurate demand of cycles at ABC's end.
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Higher inventory is blocking of working capital for the firm that reduces the
operational efficiency.
The aggregate inventory would have been much higher. This is called
Bullwhip effect.
Process integration therefore is the need of the hour for the Supply chain
partners for benefit sharing through:
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The following four have been identified as the major causes of Bullwhip
Effect:
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Each of the four forces in concert with the chain’s infrastructure and the
order manager’s rationalize decision-making create the bullwhip effect.
Understanding the causes helps managers’ design and develops strategies to
counter it.
Order Batching
In a Supply Chain, each company places orders with an upstream
organization using some inventory monitoring or control. Demands come in;
depleting inventory but the company may not immediately place an order
with its supplier. It often batches or accumulates demands before issuing an
order. There are two forms of order batching: periodic ordering and push
ordering. Instead of ordering frequently, companies may order weekly,
biweekly, or even monthly. There are many common reasons for an
inventory system based on order cycles. Often the supplier cannot handle
frequent order processing because the time and cost of processing an order
can be substantial. Many manufacturers place purchase orders with suppliers
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when they run their material requirements planning (MRP) systems. One
common obstacle for a company that wants to order frequently is the
economies of transportation. There are substantial differences between full
truck-load (FTL) and less-than-truckload rates so companies have a strong
incentive to fill a truck-load when they order materials from a supplier.
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Price Fluctuation
Estimate indicate that 80 percent of transactions between manufacturers
and distributors in the grocery industry made in a “forward buy”
arrangement in which items were bought in advance of requirements,
usually because of a manufacturer’s attractive price offer. Forward
buying results from price fluctuations in the market place.
Manufacturers and distributors periodically have special promotions like
price discounts, coupons, rebates, and so on. All these promotions result
in price fluctuations. When high-low price occurs, forward buying may
well be a rational decision. If the cost of holding inventory is less than
the price differential, buying in advance makes sense. In fact, the high-
low pricing phenomenon has induced a stream of research on how
companies should order optimally to take advantage of low price
opportunities.
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Continuous Everyday
replenishment low price (EDLP)
Price
program (CRP) Activity-
fluctuation
Everyday low based costing
cost (EDLC) (ABC)
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One way to reduce the bullwhip effect is through better information, either
in the form of improved communication along the supply chain or better
forecasts. Because managers realize that end-user demand is more
predictable than the demand experienced by factories, they attempt to ignore
signals being sent through the supply chain and instead focus on the end-
user demand. This approach ignores day-to-day fluctuations in favour of
running level. Another solution is to reduce or eliminate the delays along
the supply chain. In both real supply chains and simulations of supply
chains, cutting order-to-delivery time by half can cut supply chain
fluctuations by 80%. In addition to savings from reduced inventory
carry costs, operating costs also decline because less capacity is needed
to handle extreme demand fluctuations.
“The simplest way to control the bullwhip effect caused by forward buying
and diversions is to reduce both the frequency and the level of wholesale
price discounting.”
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Lean is how a properly designed and operated supply chain should function.
A lean supply chain process is one that has been streamlined to reduce and
eliminate waste or non-value added activities along the supply chain flow
associated with the movement of products. Waste can be measured in time,
inventory and unnecessary costs. Value-added activities are those that
contribute to efficiently placing the final product at the customer’s door. The
supply chain and inventory contained in the chain should flow. Any activity
that stops the flow or that touches inventory should create value.
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Lean supply chain management is not just for manufacturers who practice
lean manufacturing. Nor is it just for large retailers. It is a practice that can
benefit small and mid-size home furnishings retailers, wholesalers,
distributors and others.
Supply chains tend to accrue waste and non-value added activities for many
reasons, both internal to the company and external. Regaining lean supply
chain efficiencies may mean addressing many of the same issues that created
the problems of extra and unneeded time, inventory and costs.
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The ideal approach is to design the perfect supply chain and fit your
company’s operation onto it. Supply chain management is meant to reduce
excess inventory in the supply chain. It should be demand driven, built on
the “pull” approach of customers pulling inventory in a flow as required, not
by suppliers pushing inventory. Excess inventory reflects the additional time
spent within the supply chain operation. So the perfect supply chain is lean,
having removed wasteful time and inventory.
A lean supply chain, with the pull, flows back from the store floor through to
purchase orders placed on suppliers. Anything that delays or impedes this
flow must be analyzed as a potential non-value added activity.
Analyze the total supply chain process, not just the outbound or just
the inbound part.
Assess for gaps or redundancies in the process that create time, the
key waste.
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Calculate the risks of the lean supply chain. Reducing inventory frees
up capital; reducing time improves the cash-to-cash cycle. However
reducing inventory, without a properly designed process, removes the
comfortable feeling that accompanies excess inventory and can
expose you to the risk of lost sales.
Measure the present process as total cycle time, costs and inventory
(both in dollars and units) and inventory turns.
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Integrate the supply chain. Breaks in the flow, both internal and
external, can be pockets of waste.
Supply chain complexity increases the need for event and exception
management technology and capability.
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Make the supply chain visible; recognize that blind spots can be areas
of waste.
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1. Make your supply chain more compact. Optimize the flow of goods
and information through the supply chain. Implement plant and
warehouse layouts and designs that streamline inbound and outbound
flows.
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5. Balance the work so your cycle time hits close to Takt Time. Every
task performed by an operator needs to fall close to Takt Time -- the
pace of production in each process that is necessary to satisfy
customer demand. This scheduling will help ensure minimal waiting
time and maximum productivity.
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9. Use visual management aids for information flow. Visual aids are
an important part of tracking the physical flow of materials in a plant
or warehouse. If everyone on the shop floor can "see" the current
production status, they can more easily react to peaks and valleys.
10. End and correct line stoppages. Stopping the production line is
costly and often unnecessary. When a problem arises, don't let it go
and plan to fix it later. Stop and correct the problem now. You might
temporarily slow productivity, but in the long run recurring problems
should end.
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The Scope of a Supply Chain Manager can be gauged from the hiring
and salary trends, across the world, that is witnessing a healthy rise
for a Supply Chain Manager compared to an MBA from any other
discipline. Courses in SCM are more searched on the net than many
traditional discipline searches.
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v. Service Provisioning
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C. Educational Requirements:
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INBOUND OUTBOUND
SUPPLY SUPPLY
CHAIN STORAGE
CHAIN
Outsourcing
Inbound Transportation Order Processing /
Warehousing
Production Planning Inventory
Inventory Control
(For Outsourcing & Outbound
in-house) Transportation
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Beside this we can also include cost of raw materials, penalties for
incorrectly order filled etc to our performance metrices.
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This reports on research that led to the development of five year purchasing
and supply based on the close examination of key change drivers. The
research include trends of importance for organization of all sizes in all
major industries- profit or non profit, privet and public. It was designed to
identify the most pressing issues faced by CEO’s and solicited the viewpoint
of purchasing professionals. The research consisted of three components:
The study team conducted 8 regional focus groups with over 250
purchasing/supply executives. Prior to each focus groups, the executives
completed a survey containing 37 forecasts. The survey measured the
executives agreement and disagreement with each statement.
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Purchasing supply executives raised 8 critical strategy areas for the next five
years. These issues are examined in descending order of consensus and
include a description of each area and summary statement.
SUPPLIERS COLLABORATION
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Most firms were doubtful that demand-pull systems would ever be fully
implemented. The difference is that where suppliers are becoming more
integrated and involves throughout the chain, the internet is going to
provide more information. System is going to be pull-based in the
future.
Some forward thinking firms actually predicted that this would occur on
a limited basis within a limited numbers of firms. Some said that they
were investing enormous sum of money right now, applying demand
pull purchasing philosophies to provide a seamless link between
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suppliers and buyers. The main challenge will be getting systems across
key supply chain members to work together.
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PERFORMANCE MEASURES
Supply chain will have common set of core performance measures tied
directly to individual companies strategic and business unit performance.
Delivery Service
On time
Order fill rate
Lost Sales
Cost Time
Inventory Order cycle time
Freight Replenishment lead
Overheads Integrated Supply Chain
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PERFORMANCE MEASUREMENT
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Increased revenue
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CONCLUSION
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