SESSION#1: Basics & Beyond

The Objectives of this Session is to:

Supply Chain Management

Dr. RAVI SHANKAR
Professor Department of Management Studies Indian Institute of Technology Delhi Hauz Khas, New Delhi 110 016, India
Phone: +91-11-26596421 (O); 2659-1991(H); (0)-+91-9811033937 (m)

Understand the course objective Understand the basic concepts of Supply Chain

Management (SCM) & Operations Management (OM)

Relate SCM with practical business world Assess organizational needs towards SCM Take decision related to operations of SCM Understand the Recent Trends in SCM
2

Email: r.s.research@gmail.com, r.s@rediffmail.com http://web.iitd.ac.in/~rshankar

Course Objectives
To understand the basics

The Functional Approach

C U S T O M E R S

of SCM To understand the current practices in SCM To develop decision making capabilities in SCM To understand and develop different strategies of SCM
3

S U P P L I E R S

Sales Distribution Manufacturing Purchasing

Traditional Approach: Functional, silo

based ! No attempt to look holistically!

Integrated Supply Chain Approach

C U S T O M E R S

Supply Chain Stages

Supply Chain (SC) encompasses all activities associated with the flow and transformation of materials from the raw material stage through to the end user. Supply Chain Management (SCM) involves management of FOUR flows in a Supply Chain: (i) Material, (ii) Information , (iii) Money & (iv) Ownership Supplier Manufacturer Distributor Retailer Customer

Sales
S U P P L I E R S

Distribution Manufacturing Purchasing

Looks at the entire chain Global rather than local focus Integrated rather than fragmented approach
5 6

The Linear Supply Chain

7

What are the Goals of Supply Chain Management?

Supply chain management is concerned with the efficient

integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed:

In the right quantities To the right locations At the right time

In order to

Limited visibility & velocity Inventory build-up

Minimize total system cost Satisfy customer service requirements

8

Evolution of Supply Chain Management

Evolution of Logistical Integration, 1960-2010

TYPICAL OM DOMAINS
Demand Forecasting Purchasing

1980s
Materials Management

Further Refinement of SCM Capabilities SCM Formation/ Extensions JIT, TQM, BPR, Alliances Inventory Management/Cost Optimization Traditional Mass Manufacturing

Requirements Planning Production Planning Manufacturing Inventory Operations Scheduling Materials Handling Packaging Inventory Facility Planning Order Processing

1990s 2000s
Logistics Supply Chain Management

Physical Distribution

Information Technology Marketing Strategic Planning

10

1950s

1960s

1970s

1980s

1990s

2000s

Beyond
9

Transportation Quality &Customer Service

Supply Chain Decisions: Structuring Drivers

The Enterprise Fulfillment and Development Supply Chains Development Supply Chain
Product Architecture Make/Buy Early Supplier Involvement Strategic Partnerships Suppliers Selection Supply Contracts

Plan/Design

Strategy (Design) Planning Operation

Source

Supply

Produce

Distribute

Sell
12

11

Fulfillment Supply Chain

Decision <> time horizon

Execution Systems Delivery Scheduling Operations Scheduling Transportation Planning Manufacturing Planning Distribution Planning Detail Inventory Planning Supply Chain Planning Sales & Operations Planning Demand Planning Supply Chain Network Design

Let us start the course with a Quiz

Execution

Tactical

Strategical

Supply Chain Structure Design Strategic Planning

A box of cereal spends ? days in the supply chain Poor coordination in the food industry supply chain wasted ? dollars. A typical new car spends ? days traveling from the factory to the dealership. U.S. companies spend ? % of Gross Domestic Product on Supply Chain & Logistics Total inventory in the pharmaceutical supply chain exceeds ? days.
14

Hour

Week

Quartile
Time

Year
13

Source: AMR Research

Complexity: The Magnitude

A typical box of cereal spends 104 days getting from factory to

Consider the following

Wal-Mart and K-Mart were founded in the same year.

supermarket.
The grocery industry could save $30 billion (10% of operating

cost) by using effective logistics strategies A typical new car spends 15 days traveling from the factory to the dealership. U.S. companies spend more than $1 trillion in supply-related activities (10-15% of Gross Domestic Product) Transportation 58% Inventory 38% Management 4%

While K-Mart declared Bankruptcy in 2001 while WalMart became the largest retailer in USA and perhaps in the world. Dell has been able to generate profits even when its competitors lost money on their PC operations. Honda has established itself as a dominant brand in automobiles. What have these firms done? What is the secret of their success?

15

16

Logistics: Past
The study of logistics has its roots in the military The traditional view emphasized local optimization within functional silos and within individual corporations

What is Supply Chain Management?

SCM is the collaborative design and

But functional optimization leads to conflicts ...

management of seamless, value-added processes to meet the real needs of the end customer.

17

18

Sources: plants vendors ports

Regional Warehouses: stocking points

Field Warehouses: stocking points

Customers, demand centers sinks

Example: Typical supply chain

upstream

Supply

Inventory & warehousing costs Production/ purchase costs Transportation costs Inventory & warehousing costs Transportation costs
19

downstream
20

Example: Toshiba PC supply chain

upstream

Example: Dell Computers Supply Chain

Direct Shipment

Intel, AMD

Seagate, IBM

Microsoft, Red Hat

Master Board Dell Assembly Plant Website or Phone

Hard disk
Toshiba America Irvine, California

Customer wants To buy computer

Customers Order North America DC Europe DC

SRAM

Concept of Disintermediation in Dell Direct Supply Chain What are its benefits for Dell?
Toshiba Turkey
21 downstream

Any other example of similar type in India?

22

Magnitude of Supply Chain Costs

Example: The Apparel Industry

Cost per Shirt

Percent Saving

Manufacturer

Distributor

Retailer

Customer

Rs. 527

0%

Manufacturer

Distributor

Retailer

Customer

Rs. 413

28%

Manufacturer

Distributor

Retailer

Customer

Rs. 204

62%

23

24

Other Issues in Management of Supply Chain

Supply Chain Responsiveness

Lead time Total cost Management of Inventory Material Handling Performance Monitoring & Control Sensitization about the Logistics cost to all the stakeholders ! Information Sharing..

Respond to wide ranges of quantities demanded Meet short lead times Handle a large variety of products Build highly innovative products Meet a very high service level

25

26

Examples of logistics strategy decisions

Middle-men / direct deliveries Structure of logistics network Control principles of a logistics network Integrating production and logistics Effect of reducing the number of suppliers Location issues Selecting the most appropriate price/quality combination of logistics services Frequencies and cycle times in production and distribution Inventory level policy Sensitivity analyses with varying scenarios (volumes, costs...)
27

Few Core Issues in Supply Chain Management

Cycle Time

Alliances

Cost Management

Initiatives

Technology Integration

Inbound, Operations & Outbound

Environmental Pressures
28

634

Discussion Questions For You

Are all supply chains same/similar? How about cold chains? Where does the retail fit in supply chain? What are inbound/outbound activities in supply

chain? What about information and inventory? Are they related in some way in supply chain?

29