Introduction to

Supply Chain Management

SC
M
Created by : Eng. Marwa Aboel-
Fetouh
ITI , ERP Dept.
Intake 38, Nov. 2017
Zagazig University ITI – Ismailia Business Consulting Master SAP SCM
Industrial Engineering SAP ERP Application Leader

2012 2014 2020

2012 2013 2018 2023

Process Engineer SAP Logistics SAP MM/PP

Consultant Consultant
 Table of Content

• Introduction
o Supply Chain: From Vendor to Customer
o SCM definition
o Logistics
o History of Supply Chain Management
o SCM flows
o Elements of SCM
o Supply Chain Management Operations Strategies
• Integration between SCM and Financial Modules in
ERP
system
o Master Data
o Main Cycles in ERP System
 Table of Content

• SCM Modules
o Purchasing
o Inventory
o Production
o Sales & distribution (Order Management)
• Material Requirements Planning MRP
• Supply Chain Costing
• Measuring SC Performance
o SCOR model
• Presentation Topics
Introducti
on
Supply Chain: From Vendor to Customer

Suppliers Manufacturers Warehouses & Customers

Distribution Centers

Transportation Transportatio
Costs n Costs
Material Costs Transportatio
Manufacturing Costs Inventory Costs n Costs
Supply Chain: From Vendor to Customer

Cash Flow

Material
Flow
Suppliers Manufactures Warehouses Distribution Centers Customers

Information Flow

• Supply chain encompasses all activities associated with the

flow and transformation of goods from the raw material stage
(extraction), through to the end user, as well as the
associated information flows.
Supply Chain: Another View

Plan Source Make Deliver Sell

Supply Chain Management - Definition

o SCM is a set of approaches used to efficiently integrate

• Suppliers
• Manufactures
• Warehouses
• Distribution Centers
o So that merchandise is produced and distributed
• In the right Quantities
• To the right Locations
• At the right Time
o In order to minimize system wide Costs .
o Satisfying Service level requirements.
Logistics

• Logistics History:
The word used to describe a very old practice “the supply,
movement and maintenance of an armed force both in
peacetime and under operational conditions”

• NAPOLEON famously said

“An Army marches on its Stomach”
Logistics

• Logistics: the process of planning, implementing and

controlling the efficient, effective flow and storage of goods
and services, and related information from the point of
origin to the point of consumption for the purpose of
conforming to customer requirement.

- Council of Logistics Management-

History of Supply Chain
Management
• 1960’s - Inventory Management Focus, Cost Control
• 1970’s - MRP & BOM - Operations Planning
• 1980’s - MRPII, JIT - Materials Management, Logistics
• 1990’s - SCM - ERP - “Integrated” Purchasing, Financials, Manufacturing, Order Entry
• 2000’s - Optimized “Value Network” with Real-Time Decision Support;
Synchronized & Collaborative Extended Network
 SCM Flows

Raw Finish
Material Goods
Upstream Dow
nstre
am

Suppliers Manufactures Customers

Material Flow

Cash Flow

Information Flow
SCM Flows

• Upstream:
The processes which occur before manufacture or
production into a deliverable product or service,
typically processes dedicated to getting raw
materials from suppliers.
• Downstream:
The processes which occur after manufacture or
production, typically those processes dedicated to
getting goods and services to customers and consumers.
SCM Flows

• Materials flows
This includes the flow of physical products, new materials, raw materials,
and different kinds of supplies and therefore this flow along the chain
together with returned products, recycled products and disposal of
material.
• Information flows
This includes all data concerning demand, shipments, orders , returns
and also schedules.
• Financial flows
This includes all transfers of money, payments, credit card information
and e-payments.
Elements of Supply Chain Management

Suppliers Purchasing Inventory Production Sales Customer

Information Flow

1. Planning 6. Production
2. Suppliers 7. Sales & Distribution
3. Purchasing 8. Customer
4. Inventory 9. Information
5. Location
Elements of Supply Chain Management

1. Planning
The planning department will create a production plan and
schedule to produce the products to accomplish the customer’s
demands. Also raw materials will be purchased to produce the
required products and plan for transportation flow between
facilities to minimize cost & time.
2. Suppliers
Supplier is the vendor of raw material that is needed for
production. The purchasing department has to choose
the list of suppliers to deal with according to company
policy.
Elements of Supply Chain Management

3. Purchasing
o The purchasing department receives a list of raw materials and
services required by the production department to fulfill the
customer’s orders.
o Purchasing Department negotiates general conditions of purchase with
vendors (ex: pricing, payment, Delivery Conditions)and it may be
organized Centrally or de-Centrally in the Company.
o Purchasing Department is responsible for select and evaluate the suppliers
to
list an approved list of supplier.
o Purchasing orders are sent to selected suppliers to deliver the required
raw materials to the manufacturing site on the required date.
Elements of Supply Chain Management

4. Inventory
When the raw materials are received from the suppliers,
they have to be checked for quality and then moved to
the warehouse until they are used by the production
department.
Elements of Supply Chain Management

5. Location
• Strategic placement of production plants, distribution and stocks
facilities
• Perform locating decisions for production and stocking
facilities
o Lightweight/market driven near the end-user (newspaper)
o Heavy industries near raw material source(Cement/Marble/salt Factories)
6. Production
The raw materials are moved to the production area
according to the production plan. After the products have
been manufactured and tested they are kept or stored back in
the warehouse before delivery to the customer.
Elements of Supply Chain Management

7. Sales & Distribution

Include all channels, processes, and functions, including
warehousing and transportation that a product passes on
its way to final customer focusing on customer service
level.
8. Customers
The chain of events is started by the customer when they
decide to buy a product that has been either offered for sale
by a company or it has to be manufactured.
Elements of Supply Chain Management

9. Information element
Information is available to any party within the chain, as well as the
number of feedback loops defining a totally integrated system.
• Collecting Data
o Internal systems or processing
o Supplier info
o Customer info
• Organizing & Consolidating Information
• Analysis & Prediction
o Data warehousing and data mining
o Forecast inventory and purchasing requirements
o Forecast sales and delivery requirements
Supply Chain Management Operations
Strategies
STRATEGY WHEN TO CHOOSE
Make-to-Stock Standardized products ,
Relatively predictable demand
Make-to-Order Customized products , many
variations
Configure-to-Order Many variations on finished
product , infrequent demand
Engineer-to-Order Complex products , unique
customer specifications
BENEFITS
Low manufacturing costs;
meet customer demands
quickly
Customization; reduced
inventory; improved service
levels
Low inventory levels; wide
range of product offerings;
simplified planning
Enables response to specific
customer requirements
Source: Simchi-Levi
Push (Make-To-Stock) SC

Raw Material WIP Goods in transit Finished Goods Customers

• Classical manufacturing supply chain strategy “Traditional”

• Push goods to customers.
• Focus on efficiency of production gained through batch manufacturing that
often resulted in excess inventories throughout the supply chain.
• High storage cost
• Longer response time to react to marketplace changes and Supply chain
inventory becomes obsolete as demand for certain products disappears
• Ex: Auto industry, large appliances, Grocery, Beverages, Others?
Pull (Make-To-Order) SC

Information
Customer
driven

Raw Material WIP Goods in transit Finished Goods Customers

Reduce inventory levels

• Production and distribution are demand-driven, Coordinated with true

customer
demand “Reversal”
• Fast information flow mechanisms
• Reduce inventory level at each process step “Only in response to specific
orders”.
• Information available at every process step
• Ex: Computer equipment, Furniture, Others?
Supply Chain Integration: Push/Pull Strategies

push
Pull
Boundary
“Generic” Product “Customized” Product

Push Strategy Pull Strategy

Raw End
Materials Supply Chain Timeline Consumer

• Hybrid of “Push” and “Pull” strategies to overcome disadvantages of

each
• Early stages of product assembly are done in a “push” manner
o Partial assembly of product based on aggregate demand forecasts
o Uncertainty is reduced so safety stock inventory is lower
• Final product assembly is done based on customer demand for specific
product configurations.
Integration Between SCM &
Financial Modules in ERP
System
Integration between SCM and
Financial Modules in ERP system

Master
Data

Material
Flow

Cash Flow
 Master Data

Master data is created centrally and available to all applications and all
authorized users. Centrally stored master data means data records are
always consistent, up-to-date, and free of redundancy.

All areas can use the stored data, including sales, purchasing, inventory
management, materials planning, invoice verification, finance, and
human resources.
Main Master data in ERP system:
 Customers  Employees, People
 Suppliers  Positions, Jobs
 Materials  Machines, Equipments
 Services  BOM
 Accounts  Projects
 Main Cycles in ERP
System
• Procure to pay
oPurchasing
oAccounts Payable
oGeneral Ledger
• Order to cash
oSales(Order management)
oAccounts receivables
oGeneral Ledger
• Production cycle
oPurchasing
oManufacturing
oInventory
o
Costing/Control
ling
SCM
Modules
I.
Purchasin
g
Procurement Cycle
 Procurement Cycle

1. Demand Determination
Purchase requisition PR
2. Source determination
•Internal (another plant or organization)
•External (Supplier)
3. Supplier selection
•Supplier type
Single or Multi-supplier
One time vendor
•Supplier evaluation
Request for quotation RFQ send to many suppliers
Receive Quotations Q from supplier
Evaluate and choose suitable supplier
 Procurement Cycle

4. Purchase order processing

PO is a formal request to a vendor to supply the
company with goods or services with the
conditions stated in the PO.
•Create PO with or without references
oQuotation
oOld purchase order
oPurchase requisition
oContract (Value or Quantity)
•PO type
oInternal (Move order)
oExternal
•PO Data
oHeader (PO number,
supplier name,
PO date ……..…)
o Details (Materials/Services, quantities,
delivery date, price, payment terms..
 Procurement Cycle

5. Order monitoring
•Monitor the processing status of the purchase orders.
•Monitor whether a delivery or invoice for a purchase order
item
has been entered.

6. Goods receipt(Inventory)
•Type of receipt
•Account updates
oDr. Material Acc
o Cr. GR/IR Acc
 Procurement Cycle

7. Invoice verification (AP)

•Two way check (Invoice, PO)
•Three way check
(Invoice, PO and Good
receipt)
•Account updates
oDr. GR/IR Acc
o Cr. AP Accrual Acc

8. Payment processing (AP)

•Payment term
•Account updates
oDr. AP Accrual Acc
o Cr. Cash Acc
II. Inventory
Management
 Inventory Management

•Identification of optimal storage locations in support of customer demand.

•Identification of optimal stock levels by location.

I. Inventory Structure
Materials are physically storage in storage locations or locators and have
many
Stock Types :
• Unrestricted
• Blocked
• Scrap
• Quality Inspection
• Consumable
 Inventory Management

II. Goods Movement

 Receiving in Inventory
• Direct (Receipt and Deliver )
• Standard (Receipt then Deliver)
• Inspection (Receipt ,Inspection then
Deliver)

Receipt Deliver
Shipping Receiving Area Inventory
 Inventory Management

 Good issue: for sales, production, scrap, ….

 Good Transfer
• Stock Transfer
• Plant Transfer

Production Issue(Sales) Issue(Scrap)

RAW FINISHED FINISHED

MATERIAL GOODS SCRAP
GOODS

STOCK
PLANT TRANSFER

GOOD TRANSFER
RECEIPT

ST 10 ST 20 ST 10 ST 20

PLANT 1000 PLANT 2000

 Inventory Management

III. Costing of good sold in inventory

• Standard
• Average
• FIFO
• LIFO
IV. Physical Inventory
• Checks the material stocks for the current assets shown in the
company's financial statement.
• Important for internal reasons to establish the correct stock quantities on
hand.
• Physical Inventory steps:
•Create PI documents
•Enter count results
•Post the differences
III.
Production
Production Cycle
 Production

• Main Types of Manufacture:

o Flow or process
o Discrete

• Main Production Modules:

I. Bill of material -BOM
II. Routing
III. Work in process -WIP
IV. Quality control
 I. Bill Of Material
BOM
A
•Type(primary, alternative, version)
X Y
•Components(purchased, manufactured)
3Z 1K 2L

BUS

Floor Roof R.Side L.Side Front Back body

Chassis skeleton
R1 R2 S G S G &
cabin
f2 f1

BOM Example
II. Routing

• Operations
3Z X
oRate
oSynchro
nization
1 A
K
• Resourc
2
es L
Y
oLabor
oMachine
III. Work in Process WIP

To schedule production resources and material to meet customer

delivery requirements and maintain a smooth production flow.

• Discrete job
• Production line
• Manufacture schedule
oLead time(fixed or variable)
oStart/end/rate
oShop floor
• Outsourcing Manufacture
 Outsourcing example

Car before
painting
XX012

Car after
painting
XX050 Supplier(painting)
Plant

*Purchase Order has Only the price of service “Painting Process”.

IV. Sales &
Distribution
Sales & Distribution Cycle
Sales & Distribution Cycle

 Presales activities
•Maintaining customer relationship (marketing responsibility)
•Inquiry, Quotation (sales responsibility)
1. Sales Order
•document that captures and records the customer's request for goods
or services.
•Taking the sales order from customer
•SO Data
oHeader (So Number, Customer name, SO date ……..…)
o Details (Items, quantities, delivery date, price, ………..…)
Sales Order example
Sales & Distribution Cycle

2. Availability check
•On hand stock
•Open order
3. Outbound delivery
Intermediate document between sales and inventory to inform the
inventory about the quantity requested in the sales order as they
don’t have the access to sales order document .
4. Transportation
•Network shipping
•Method of transportation
•Shipping point
•Address to ship
Sales & Distribution Cycle

5. Picking (Inventory)
•Picking list
6. Good issue(inventory)
•Delivery of goods
•Account updates
oDr. COGS Acc
o Cr. Material Acc
7. Billing
•Creating a billing document includes copying information from the sales order and the deli
document .
•Account updates
oDr. AR Accrual Acc
o Cr Revenue Acc
Sales & Distribution Cycle

8. Incoming Payment processing (AR)

•Account updates
oDr. Cash Acc
o Cr. AR
Accrual Acc
 MR
P
Material Requirements
Planning
 Material Requirements Planning MRP

Based on a master production schedule, a material requirements planning

(MRP) system:

• Creates schedules identifying the specific parts and materials required

to produce end items
• Determines exact numbers needed
• Determines the dates when orders for those materials should be
released,
based on lead times
• Create either a planned order or a purchase requisition directly to plan
the external procurement quantity; If a planned order is created,
purchasing can order the material only when the MRP Controller has
checked the planned order and converted it into a purchase requisition
 MRP Procedure: Reorder Point Planning

•Reorder Point = Safety Stock+[Lead time * Avg. demand during lead time]
•To determine the Order Quantity we can use one of two technique: a Fixed lot
or Fill to Max.
•Reorder Point planning usually used with Raw material Stocks

EX:
Safety Stock=200 Pc
Lead time =10 Days
Avg. demand =20
Pc Reorder point
= ??
Order Quantity =??
 MRP Procedure: MIN-MAX Planning

• Maintain inventory levels for all or selected items

• Specify minimum and maximum inventory levels
• When the Available Quantity less than the MIN Quantity ,the system
suggest a new Material request
•Order Quantity=MAX Quantity- Total Availability
•MIN-MAX planning usually used with Finished good and Spare parts Stocks.
Stock

MAX
EX:
MAX Quantity= 50 Pc
MIN Quantity=10 Pc
ON hand Quantity= 4 Pc
On Order Quantity= 2 MIN
Pc Order Quantity = ??
Time
MIN-MAX Planning
Supply Chain
Costing
Supply Chain Costing
Total Supply Chain Cost Model
Total Supply Chain cost = BUY PRICE
+ Supplier performance cost
+ Cost of acquisition
+ Out of planning
+ speculation cost
+ Manufacturing cost
+ Selling cost
+ Distribution cost
Transportation cost
+ Profit
= SELLING PRICE
• Supplier quality.
• Delivery performance.
 Document control.
 Planning.
 Freight.
 Receiving.
 Internal quality assurance.
 Warehouse cost, etc.
 Delays between MRP runs.
 Changes amplified by MRP.
 Buffer cost (inventory, capacity).
 Fulfillment speed requirement costs.
 Excess inventory.
 Labor, etc.
 Sales and administrative expenses.

Measuring SC
Performance
 Measuring SC Performance

Performance Indicators:
•Inventory turnover
A ratio showing how many times a company's inventory is sold
and replaced over a period
•Inventory days of supply
Indicate how many days the inventory can satisfy the demand
based on
value
•Fill rate
Fraction of orders filled by a distribution center within a specific time
period

This ratios should be compared against industry averages.

SCOR Model
(Supply Chain Operations Reference)

Plan
Source Make Deliver
• Procure goods • Transform • Provide finished
and services to product to a goods and
meet planned or finished state to services to meet
actual demand meet planned or planned or
actual demand actual demand

Return
• Return products
for any reason,
Post-delivery
customer support

SCOR Model Processes

-SC Council-
SCOR Model: Framework levels and structure
SCOR: Customer
Facing
Performance Performance
Attribute Metric Definition
Supply chain Delivery Percentage of orders delivered on time and
delivery reliability performance in full to the customer

Fill rate Percentage of orders shipped within 24 hours

of order receipt

Perfect order Percentage of orders delivered on time and in full,

fulfillment perfectly matched with order with no errors

Supply chain Order fulfillment Number of days from order receipt to

responsiveness lead time customer delivery

Supply chain Supply chain Number of days for supply chain to respond to
flexibility response time an unplanned significant change in demand
without a cost penalty

Production Number of days to achieve an unplanned 20% change in

flexibility orders without a cost penalty
SCOR: Internal Facing
Performance Performance Definition
Attribute Metric
Supply chain cost Supply chain Direct and indirect cost to plan , source and
management cost deliver products and services

Cost of goods Direct cost of material and labor to produce

sold a product or service

Value-added Direct material cost subtracted from revenue

productivity and divided by the number of employees,
similar to sales per employee

Warranty/ returns Direct and indirect cost associated with returns

processing cost including defective, planned maintenance and excess
inventory

Supply chain asset Cash-to-Cash cycle Number of days that cash is tied up as working capital
management time
efficiency
Inventory days of Number of days that cash is tied up inventory
supply
Asset turns Revenue divided by total asset including working
capital and fixed assets
Presentations Topics

1. Resilient Supply Chain

2. Sustainable Supply Chain
3. SAP Integrated Business Planning
4. SAP Supply chain control tower
5. SAP Digital Manufacturing
6. SAP Business Network Supply Chain Collaboration
7. SAP S/4HANA Supply Chain for extended service parts planning
8. SAP Advanced Order Promising
9. SAP Advanced Transportation
10. Logistics Material Identification in SAP
11. Service Part Distribution in SAP
12. SAP Demand Planning
13. Vendor Managed Inventory
Thank
You