Supply Chain Management

Business initiative trends in Manufacturing

E-Business
& supply
chain

SCM

Quality

Manufacturing

1970’s 1980’s 1990’s 2000’s

 What is supply Chain?
• All activities associated with the flow and transformation
pf goods from raw materials to end users.
• The term supply chain refers to the entire network of
companies that work together to design, produce, deliver
and service products.
• A network of facilities including:
-Material flow from suppliers and their ”upstream”
suppliers at all levels,
-Transformation of materials into semi-finished and
finished products (internal process)
-Distribution of products to customers and their
“downstream” customers at all levels.
 Example of SC

Upstream Internal Downstream

2nd Tier
Distribution Customers
Suppliers 1st Tier Assembly/
Centers
Supplier
2nd Tier Manufacturing
Suppliers and
1st Tier Packaging
2nd Tier Supplier Retailers
Suppliers

Garment High
Yarn Fabric
Maker street
Maker Maker
Retailer
 Three Flows in SC
• There are three kinds of flows in a supply chain:
material, information, capital.
• Downstream
• -Material;Products, Parts
• Information” Capacity, Delivery schedules
• Finance: invoices, Pricing, Credit Terms
• Upstream
-Material: Returns, Repairs, After-sales Services
-Information: Orders, Point-of Sale Data
-Finance: Payments
 Push vs. Pull in supply chains
• Push or Building–to-stock (BTS): Producing stock on the
basis of anticipated demand. Demand forecasting can be
done via a variety of sophisticated techniques
• Pull or Building-to-order (BTO): Producing stock in
response to actual demand (firm orders)
• The push-Pull Point: In many supply chains , upstream
units employ BTS, while downstream units employ BTO
strategies. The point in the supply chain where the
switch – over (from BTS to BTO) occurs is called the
push-pull point.
• Optimally locating the push-pull point is a key
determinant of supply chain performance.
 The Push vs Pull Model
Conventional EC-based
Push System Pull system

Manufacturer/assembler
Customer Orders
Product to market
Key:demand forecast
Use mass production,inventories Manufacturer or retailer
Inventory of standard items only

Wholeseller
inventories Shipping orders to distribution centers or

suppliers,if needed
Retail distribution centers
inventories

Orders to manufacturer or suppliers, if

needed

Retail stores
Inventories,rush orders”push to orders”

Customers
Information In The Supply Chain

Each facility further away from actual It’s estimated

customer demand must make that the typical
forecasts of demand pharmaceutical
Lacking actual customer buying data, company supply
each facility bases its forecasts on chain carries
‘downstream’ orders, which are more over 100 days of
variable than actual demand product to
To accommodate variability, accommodate
inventory levels are overstocked thus uncertainty
increasing inventory carrying costs
 Taming the Bullwhip

Four critical methods for reducing the Bullwhip effect:

Reduce uncertainty in the supply chain
– Centralize demand information
– Keep each stage of the supply chain provided with up-to-date customer demand
information
– More frequent planning (continuous real-time planning the goal)
Reduce variability in the supply chain
– Every-day-low-price strategies for stable demand patterns
Reduce lead times
– Use cross-docking to reduce order lead times
– Use EDI techniques to reduce information lead times
Eliminate the bullwhip through strategic partnerships
– Vendor-managed inventory (VMI)
– Collaborative planning, forecasting and replenishment (CPFR)
 Broken Supply Chains
t r
& No n d m e
n s s a le I te to m b le d ts
o
i a d n m b a
t ix e
t hif
ot Pl ize
e
D ty ita n s n e- s us
C e f i M c
m l y on r ili o f o L i e r o t pe S
o o r t i t r
o vi c p u c x nd
Pr upp hr P o ib p o w a o n e
S y nc Vi
s n
U rom Lo ill R P er U od
r U
n a
e m
P F S P D
S
Suppliers Manufacturers Distributors Retailers Customers

e ct te
f e
Ef so l
s n al n as t
ry s
p b l r r o c s o i e
w hi / O ria rde n t e ti
a r e ut
e nt v e r
ll ss ate I nic o y v li

s
u O F c O n

ut
e e
B c M sh or m u w ura ck I D

O
x
E w u o L o o h e
R P c
m St ig t

k
Ra Co Ac a

oc
H L
St
 Methods for Improving Forecasts
Market Research
Judgment Method Analysis

Internal experts
External experts Market testing
Domain experts Market surveys
Delphi technique Focus groups
Time-Series Methods
Causal Analysis

Relies on data other than that

Moving average being predicted
Exponential smoothing Economic data, commodity
Trend analysis data, etc.
Seasonality analysis
Supply Chain Collaboration – What
Is It?
– The means by which companies within the supply chain work
together towards mutual goals by sharing
– Ideas
– Information
– Processes
– Knowledge
– Risks
– Rewards
– Why collaborate?
– Accelerate entry into new markets
– Changes the relationship between cost/value/profit equation
 Supply Chain Collaboration
• Cornerstone of effective SCM
• The focus of many of today’s SCM initiatives
• The only method that has the potential to eliminate or minimize the Bullwhip effect
 Benefits of Supply Chain Collaboration

CUSTOMERS MATERIAL SUPPLIERS SERVICE SUPPLIERS

Reduced inventory
Increased revenue
Lower order management costs
Higher Gross Margin
Better forecast accuracy
Better allocation of promotional
budgets
Reduced inventory
Lower warehousing costs
Lower material acquisition costs
Fewer stockout conditions
Lower freight costs
Faster and more reliable delivery
Lower capital costs
Reduced depreciation
Lower fixed costs

• Improved customer service

• More efficient use of human resources
 Supply Chain Collaboration Spectrum

The green arrow describes

Extensive Not Viable increasing complexity and
Synchronized sophistication of:
Collaboration Information systems
Systems infrastructure
Decision support systems
Planning mechanisms
Coordinated
Information sharing
Collaboration Process understanding
Higher levels of
collaboration imply the need
Cooperative for both trading partners to
Collaboration have equivalent (or close)
levels of supply chain
maturity
Synchronized collaboration
demands joint planning, R&D
ball o Cf ot net x E

and sharing of information

Transactional Low Return and processing models
Collaboration
Limited Movement to real-time
customer demand
information throughout the
Many Few supply chain
Number of Relationships
 Supply chain collaboration principles

• While IT are enablers of supply chain integration,

optimal and uniform organizational structures are
fundamental to integrating factors in a supply chain
– The key constraint of integration across multiple echelons
– The scale and complexity of global supply chains
– Information sharing may not be benefit to all supply chain
partners, possibly exposing suppliers to their competitors
– Collaboration is dependant on the provision of mutual
benefit, but between suppliers it is difficult to achieve, in
supply chains
– Hence trust becomes an issue
 Collaborative planning, forecasting and replenishment

(CPFR)

•Scale and complexity are

significant constraints
• Fundamentally, it is difficult to
forge close partnerships with many
partners
• Hence some CPFR solutions will
have greater scope and depth than
others
 SCM Models

• DMAIC – Define, Measure, Analyze,

Improve, Control
• SCPM – Supply Chain Process
Management Solutions
• SCOR - Supply Chain Operations
Reference
• DDSN - Demand-driven supply
network
• DODSC -Dynamic On-Demand Supply Chain
Map
 DMAIC(Six Sigma
Methodology)
Define

Measure

Control

Analyse
Improve
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 Supply Chain Process
Management Solutions(SCPM)
• The aim of SCPM is to deal with process
workflow, visibility, collaboration, reengineering,
event management, and continuous improvement
along the supply chain.
• To achieve the above, our focus is on linking
everyone in the process chain and aligning
process objectives across all of the firms in the
supply chain.
• SCPM attempts to make processes that …….

20
 SCMP Objectives
Making processes (major lists):
 Effective – doing the right things
 Efficient – doing things right
 Adaptable – enable to adopt changes of environment
 Customer friendly – service delivery with courtesy
 Supplier friendly – synchronization & integration of data
 Environmentally friendly – green environment (a new trend!)
 Mistake-proof – preventing errors from happening

Way to achieve them in SCM practice ….

21
 Supply Chain Management – The SAP
(Process) View

Employees

Business Customers
Partners
Order to Cash
Procure to Pay
Suppliers Idea to Project
Hire to Retire

SAP R/3
Processes that handle/execute by SAP software
Demand-driven supply network
Isolated Business Processes Cause Supply and Demand Imbalance
“I Think I
Can Sell…” Supply
Demand “Here It Is, plan, source, make, deliver
attract, sell, service Sell It”

Product
define, design, “Here’s a New
promote, supply, support Product – Figure
OutHow to Make It”
 Mounting Pressures in the Global Manufacturing
Environment

• More Product Variants

• Shorter New Product Development & Launch Demand Supply

• Regulatory Compliance

• Cost Reduction Product

• Better Short Term Demand Visibility

• More Dynamic Supply Networks

Demand Driven Supply Network:
‘A system of technologies & processes that senses
& reacts to real-time demand signals across a
supply network of customers, suppliers, &
employees’
 The Demand Driven Supply Network…
Suppliers Manufacturers Distributors Retailers Customers

Virtual
Supplier Manufacturers Logistics Customer Perfect Order
Exchanges Exchanges Exchanges Right product,
Right time,
Right place,
Right price

Logistics Providers Goods

Contract
Information
Manufacturers
…Leading to Redefinition of Processes
 Core Tenets of DDSN Thinking
• Embrace Uncertainty
• Demand Sensing Demand Supply

• Demand Shaping
• Supply Sensing Product

• Profitable Product Supply

• Multi-tier Visibility and Collaboration
• Embed Product Innovation and Introduction
Dynamic-On Demand Supply Chains
– The SCC is an independent, not-for-profit, global
corporation with membership open to all companies and
organizations interested in applying and advancing state-of-
the-art supply chain management systems and practices.
– Over 800 Company Members
– Cross-industry representation
– Chapters in Australia/New Zealand, Brazil, Europe, Japan,
North America, Southern Africa, and South East Asia with
petitions for additional chapters pending.
– The Supply-Chain Council (SCC) has developed and
endorsed the Supply Chain Operations Reference-model
(SCOR) as the cross-industry standard for supply chain
management
 Process Reference Models

Process reference models integrate the well-known concepts

of business process reengineering, benchmarking, and
process measurement into a cross-functional framework

Business Process Best Practices Process Reference

Reengineering Benchmarking Analysis Model
Capture the “as-is”
Capture
Capture the
the of state of a process and
“as-is”
“as-is”state
state of derive the desired “to-
aaprocess
process and
and be” future state
derive
derivethe
the Quantify
desired
desired “to-be”
“to-be” Quantifythe
operationalthe Quantify the
future state
future state operational
performance operational
performance
of performance of
ofsimilar
similar
companies similar companies
companies
and and establish internal
andestablish
establish
internal targets based on
internal
targets based Characterize
Characterize “best-in-class” results
targets
on based
“best-in- the
the
on “best-in-
class” management
class”results
results management
practices
practices and
and
Characterize the
software management
software
solutions that practices and
solutions
result in that
“best- software solutions
result in
in-class” “best- that result in “best-in-
in-class”
performance class” performance
performance
 SCOR Structure

Plan

Deliver Source Make Deliver Source Make Delive Source Make Deliver Source

Return Return Return

Return r
Return
Return Return Return

Suppliers’ Supplier Your Company Customer Custome

Supplier r’s
Internal or External Internal or External
Custome
r
SCOR Model

Building Block Approach

Processes Metrics
Best Practice Technology
 SCOR 7.0 Model Structure

Plan P1 Plan Supply Chain

P2 Plan Source P3 Plan Make P4 Plan Deliver P5 Plan Returns

Source Make Deliver

Suppliers

Customers
S1 Source Stocked Products M1 Make-to-Stock D1 Deliver Stocked Products

S2 Source MTO Products M2 Make-to-Order D2 Deliver MTO Products

S3 Source ETO Products M3 Engineer-to-Order D3 Deliver ETO Products

D4 Deliver Retail Products

Return Return
Source Deliver

Enable
SCOR Implementation Roadmap

Analyze Basis •Competitive Performance Requirements

Operations •Performance Metrics
of •Supply Chain Scorecard
Strategy
Competition •Scorecard Gap Analysis
•Project Plan
SCOR Level 1

•AS IS Geographic Map

Configure •AS IS Thread Diagram
supply chain Material Flow •Design Specifications
•TO BE Thread Diagram SCOR Level 2
•TO BE Geographic Map

Align
Performance •AS IS Level 2, 3, and 4 Maps
Levels, Information
Practices, and and Work Flow
•Disconnects
•Design Specifications SCOR Level 3
Systems •TO BE Level 2, 3, and 4 Maps

Implement Develop, •Organization

Implement •Technology
supply
supplychain
chain Test, and Roll
•Process
Processes
Processesand
and Out •People
Systems
Systems