Introduction to supply chain

process- main issues

Compiled by
A Srinivasa Rao
NIFT, Hyderabad
 Presentation outline
• Introduction
• Global optimisation
• Managing uncertainty & risk
• Key issues
• Fashion supply chain
 Need for Supply Chain Management
• Till the early 1970s, the production department in
manufacturing organisation was deemed as solely responsible
for productivity, quality and delivery schedules.
• However, the total quality management (TQM) revolution
during the mid-1970s (led by Japanese organisations and
backed by the preaching of quality gurus, namely Deming,
Juran and Crosby) highlighted the importance of various
departments of an organisation to work in tandem. As a
result, organisations have realised the expected objectives of
productivity, quality and delivery times
 Introduction
• Supply chains in fashion industry are highly dynamic and very
complex: Thousands of suppliers, high degree of product
complexity, high degree of customization (esp. for haute couture),
long cycle times in some chains due to long lead times, various
time and space constraints (w. r. t. capacity, stock size, style and
fit).
• In today’s competitive world management of supply chain is a
crucial factor for becoming competitive and successful. The supply
chain includes every link to the transformation of customer needs
in to useful products and to cater them back to the customers.
Supply chain management aims at a better synchronization
amongst the OEM and it’s suppliers compared to traditional
logistics, especially for production program planning and for
scheduling orders and capacities.
 Contd…
• Supply chain was defined as “the processes from the initial
raw materials to the ultimate consumption of the finished
product linking across supplier-user companies; and the
functions within and outside a company that enables the
value chain to make products and provide services to the
customer”. – cox et.al. 1995
• Uncertainties in supply, process and demand are recognized
to have a major impact on the manufacturing function.
Uncertainty propagates throughout the network and leads to
inefficient processing and non-value adding activities. This
uncertainty is expressed in questions such as: what will my
customers order? how many products should we have in
stock? and will the supplier deliver the requested goods on
time and according to the demanded specifications?
 Global optimisation
• Consider an example in which a company produces and distributes certain
types of goods. Suppose that the company’s factory is very efficient and, in a
given month, produces an exceptionally large quantity of finished goods. From
a local point of view this component of the supply-chain operation (i.e. the
factory) performed excellently. However, if we look at the broader picture of
global production, if the excess goods are not readily distributed and
consumed, the company will need to use storage space which will cost extra
money, thus making this locally good production run sub-optimal from a global
point of view.
• Lawrence Davis, one of the experts in supply chain optimization , states that “. .
. companies should be able to use solutions to optimize across their sourcing
and procurement, production and distribution processes all at the same time.
Instead, supply chain solutions tend to break those functions out into separate
modules, each of which runs separately from the others. The answer you get
when you first do production and then do distribution or any of these functions
independently is not as good as the answer you get when you do them
together.”
• It is possible to take the idea of global optimization from a business perspective
to increasingly greater heights by including into consideration more and more
factors that affect a business’ profitability.
 Contd…
• Global optimization covers all activities for developing
algorithms which calculate the global minimum (or
maximum) of functions, especially performance functions.
• We can think about a global optimization problem as
several local optimization problems plus one or more
higher level problems that combine the lower level
problems. Thus, the biggest difference between local
optimization and global optimization is in the search space
structure and the sequence of steps needed to evaluate a
candidate solution.
• global optimization problems by allowing the dependence
or partial dependence among components to be
investigated in a more controlled setting.
 Managing uncertainty & risk
• Definition of supply chain uncertainty is based on the five
requirements for effective system management by De Leeuw
(2000):
– (1) The managing system should have an objective and corresponding
performance indicators to manage the supply chain in the right
direction.
– (2) To estimate future system states one has to have information on
the environment and current supply chain state.
– (3) There should be enough information processing capacities to
process information on the environment and supply chain state.
– (4) In order to direct the managed system in the right direction one
should be able to estimate the impact of alternative actions. This
requires a model of the system, presenting the relationships between
available redesign variables and performance indicators.
– (5) There should be enough potential control actions.
 Contd…
• DEALING WITH UNCERTAINTY:
– Demand planning: - It provides for advanced forecasting and demand
planning tool to keep pace with volatile changes in demand and
produce accurate forecasts.
– Supply network planning:-It synchronizes the market demand
dynamically with sourcing and production activities and plan material
flow through the entire supply chain to optimize the logistic network.
– Production planning:-This gives a smooth and optimal flow of the
resources by promoting optimized production schedules to maximize
the returns on the assets, minimize delays, improved resource
utilization and reduce the work in process inventory.
– Availability planning:-This provides a global, multilevel ,rule based
strategic planning facility to match the supply chain with customer
demands and to upkeep the precise delivery commitment for
customer orders, and thereby fulfilling the promise made to the
customer.
 Contd…
• To manage the uncertainties in supply chain the
famous store wall mart are using following strategies:
– 1) They directly procure the product from manufacturers.
All intermediate links are bypassed.
– 2) Every time conducting meetings with the vendors to
understand their cost structure
– 3) For transportation it has company owned 3500 trucks.
The driver has to report their hours of service to the
coordinator on daily basis. The coordinator arranges the
trips according to available driving time.
– 4) For better communication in store Wall mart is using bar
code systems Due to which the information like in stock,
cost is quickly available.
 Supply chain risk
• Supply chain risk comes from many areas,
including natural disasters, acts of war or
terrorism, supplier bankruptcy, theft, damage and
data breaches. In a recent survey*, more than
75% of companies reported at least one supply
chain disruption in the past 12 months. And
nearly one in five of them went out of business
within 18 months. Companies must develop plans
to prepare for, and help reduce, the impact
disruptions can have on their bottom line. By
Dave Zamsky, Vice President/Sales & Marketing,
UPS Capital.
Risk map for the Pre-Season phase
Risk map for the In-Season and Post-Season phases
 Risk management tips
• 1. Evaluate and Identify Current Risks. Take a critical look at your
business and identify areas with risk exposure. Identify and
evaluate potential supply chain disruption scenarios.
• 2. Prioritize by Probability and Impact. Covering every scenario is
impossible, so prioritize potential risks by the likelihood they could
actually take place. Then estimate the financial and brand impact of
each event. Develop mitigation contingency plans, starting with the
most likely and highest-impact risk scenarios.
• Ensure Supplier Quality. Suppliers can impact your company’s
reputation. In addition to ensuring the quality of suppliers’ goods,
be aware of how they treat employees, source materials and
interact with other partners. Conduct financial due diligence to
ensure long-term supplier viability.
 Contd2…
• 4. Diversify Suppliers. Don’t rely on one source for materials or
products. It’s desirable to source from low-cost locations around
the world, but if goods can’t be delivered in a timely manner, your
supply chain becomes vulnerable. Establish reliable secondary
suppliers in different regions to minimize this risk.
• 5. Be Aware of Suppliers’ Risks. Be aware of risks your suppliers
may face, including regulations compliance, country risk, economic
and political conditions or anything that may impact their ability to
serve you.
• 6. Include Partners in Risk Planning. Work with suppliers,
transportation carriers, data management centers and customers to
ensure they have disaster recovery and business continuity plans
that align with yours. Involving them in risk management planning
reinforces their importance as a partner and elevates their role in
risk mitigation.
 Contd3…
• 7. Purchase Cargo Insurance. Insurance is important in many facets of life. It
should be just as important in your supply chain. Start by understanding that
carrier liability is not insurance. Then find a cargo insurance provider who can
protect in-transit shipments, as well as warehoused goods, against loss or
damage anywhere in the world, no matter the carrier or mode of
transportation.
• 8. Be Transparent with Partners. Share information, such as increased sales
projections, and include partners in product design changes. This helps
suppliers have the right product available when needed. Similarly, if sales
forecasts drop, let partners know that, too. They’ll appreciate the heads up,
and it’ll strengthen your relationship.
• 9. Consider Trade Credit Insurance. Slow-paying or no-paying customers can
really impact working capital. Trade credit insurance can protect your bottom
line, free-up capital and help secure better financing options from lenders.
• 10. Review Risks Periodically. Review risk scenarios regularly and identify
changes in your supply chain. Preparation is the best way to protect your
company from a supply chain disruption.
 Key issues
• Refer ‘general fact sheet on garment industry’
(2015).
 Key Issues in Supply Chain Management
Key drivers of effective supply chain management
 Fashion supply chain
• Refer ‘general fact sheet on garment industry’
(2015).
Thank you