Supply Chain and Materials

Management
 What is Supply Chain?
● A  supply chain  is a network of facilities and
distribution options that performs the functions of
procurement of materials, transformation of these
materials into intermediate and finished products,
and the distribution of these finished products to
customers.
● It exist in both service and manufacturing
organizations, although the complexity of the chain
may vary greatly from industry to industry and firm
to firm.
What is Supply Chain Management?
● Supply Chain Management (SCM)  is the active
management of supply chain activities to maximize
customer value and achieve a sustainable
competitive advantage.
● It represents a conscious effort by the supply chain
firms to develop and run supply chains in the most
effective & efficient ways possible.
 Historical Perspective
The first major change in that perspective for most
companies can be traced tothe explosive growth in
just-in-time (JIT) concepts originally developed by
Toyota and other Japanese companies in the
1970s. As the partnership concept grew, there
were many other changes in the relationship
including:
● Mutual analysis for cost reduction. Both parties
examined the process used to transmit information
and deliver parts, with the idea that cost reductions
would be shared between the two parties.
 Historical Perspective
● Mutual product design. In the past the customer
often submitted complete designs to the supplier
who was obligated to produce according to design.
With partnering, both companies worked together.
Often the supplier would know more about how to
make a specific product, whereas the customer
would know more about the application for which
the design was intended. Together, they could
probably produce a superior design compared to
what either could do alone.
 Historical Perspective
● With JIT, the concept of greatly reduced inventory
in the process and the need for rapid delivery
according to need, the speed of accurate
information flow became critical. Formal paper-
based systems gave way to electronic data
interchange and informal communication methods.
 Growth of the Supply Chain
Concept
As the 1980s gave way to the 1990s, the world
continued to change, forcing additional
modifications to the trend:
● There has been explosive growth in computer capability
and associated software applications.
● There has been a large growth in global competition.
● There has been a growth in technological capabilities
for products and processes.
● The changes prompted by JIT in the 1980s have
continued to mature, so that by now many companies
have new approaches to interorganizational
relationships as a normal form of business.
 Growth of the Supply Chain
Concept
● Partially in response to the preceding conditions,
more and more companies aresubcontracting more
of their work to suppliers, keeping only their most
important core competencies as internal activities.

Current Supply Chain Concept

THREE CRITICAL ONES INCLUDE:
● Flow of materials.
● Flow of information and sharing of information,
mostly through the Internet.
● Fund transfers.
 Conflicts in Traditional Systems
To get the most profit, a company must have at
least four objectives:
● Provide best customer service.
● Provide lowest production costs.
● Provide lowest inventory investment.
● Provide lowest distribution costs.
 Conflicts in Traditional Systems
Marketing’s objective is to maintain and increase
revenue; therefore, it must provide the best
customer service possible. There are several ways
of doing this:
● Maintain high inventories so goods are always
available for the customer.
● Interrupt production runs so that a noninventoried
item can be manufactured quickly.
● Create an extensive and costly distribution system
so goods can be shipped to the customer rapidly.
 Conflicts in Traditional Systems
Finance must keep investment and costs low. This
can be done in the following ways:
● Reduce inventory so inventory investment is at a
minimum. Decrease the number of plants and
warehouses.
● Produce large quantities using long production
runs.
● Manufacture only to customer order.
 Conflicts in Traditional Systems
Production must keep its operating costs as low as
possible. This can be done in the following ways:
● Make long production runs of relatively few
products. Fewer changeovers will be needed and
specialized equipment can be used, thus reducing
the cost of making the product.
● Maintain high inventories of raw materials and
work-in-process so production is not disrupted by
shortages.
 What is Materials Management?
● Material management is an approach for planning,
organizing, and controlling all those activities
principally concerned with the flow of materials into
an organization.
 Work-in-Progress
● Inventory not only makes up a portion of the cost of
goods sold but has to be purchased at the
beginning of production to be processed into
finished goods. This type of inventory is called
work-in-process (WIP).
Manufacturing Planning and Control
The primary activities carried out as follows:
● Production planning = It will involve:
– Forecasting
– Master planning
– Material requirements planning
– Capacity planning
● Implementation and control
● Inventory management
 Inputs to the manufacturing
planning control & system
There are five basic inputs:
● Product description
● Procecss specifications
● Time needed to perform operations
● Available facilities
● Quantities required
 Physical Supply / Distribution
Physical supply/distribution includes all the
activities involved in moving goods, from the
supplier to the beginning of the production process,
and from the end of the production process to the
consumer. The activities involved are as follows:
● Transportation
● Distribution inventory
● Warehousing
● Packaging
● Materials handling
● Order entry
 Supply Chain Metrics
A metric is a verifiable measure stated in either
quantitative or qualitative terms defined with
respect to a reference point. Without metrics, no
firm could expect to function effectively or
efficiently on a daily basis. Metrics give us:
● Control by superiors
● Reporting of data to superiors and external groups
● Communication
● Learning
● Improvement
 Supply Chain Metrics
Today production control works in a demanding
environment shaped by six major challenges:
● Customers that are never satisfied.
● A supply chain that is large and must be managed.
● A product life cycle that is getting shorter and
shorter.
● A vast amount of data.
● An emphasis on profit margins that are more
squeezed.
● An increasing number of alternatives.
 Difference between measure and
standards
● A performance measure must be both quantified
and objective and contain at least two parameters.
● Transforming company policies into objectives and
specific goals creates performance standards.
Each goal should have target values.
● Performance standards set the goal, while
performance measures say how close you came.
 Steps in implementing such a
program
● Establish company goals and objectives.
● Define performance.
● State measurement to be used.
● Set performance standards.
● Educate the user.
● Make sure the program is consistently applied.