Basics of Supply Chains

1. Basics of Supply Chains Entities, Flows, Cycles and Processes Bird Eye View

2. Outline Definitions Entity and flow Cycles Processes 1: Global Supply Chain Forum Processes 2: Supply Chain Operations Reference Model

3. APICS definition of SC Global network used to deliver products and services from raw material to end customers through an engineered flow of information, physical distribution and cash.

4. Institute for Supply Management Definition Supply chain management is the design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer.

6. Wrong Definitions/ Perspectives 3PL company: it is warehouse and transportation management ERP vendor: it is advanced modules to be added to the company�s original ERP system Consulting Firm: it is strategy building and market analysis Financial Analyst: finding ways to reduce cost

7. Examples of Supply Chains DELL: e-commerce and customization. Zara: innovative versus functional products. Toyota: efficient production. Amazon / Borders / Barnes and Noble: bad synchronization between physical flow and e-commerce. Wal-Mart: cross-docking, VMI, super Wal-Mart, data mining �etc. Dell has three production sites worldwide and builds to order. Compaq does both. Consider some decisions involved - where to locate facilities? How to size them? Where is the push/pull boundary? What modes of transport to use? How much inventory to carry? In what form? Where to source from?Dell has three production sites worldwide and builds to order. Compaq does both. Consider some decisions involved - where to locate facilities? How to size them? Where is the push/pull boundary? What modes of transport to use? How much inventory to carry? In what form? Where to source from?

8. How to View SC Entities+ Flows Cycles Processes

9. P & G example Notes: Supply chain involves everybody, from the customer all the way to the last supplier. Key flows in the supply chain are - information, product, and cash. It is through these flows that a supply chain fills a customer order. The management of these flows is key to the success or failure of a firm. Give Dell & Compaq example, Amazon & Borders example to bring out the fact that all supply chain interaction is through these flows.Notes: Supply chain involves everybody, from the customer all the way to the last supplier. Key flows in the supply chain are - information, product, and cash. It is through these flows that a supply chain fills a customer order. The management of these flows is key to the success or failure of a firm. Give Dell & Compaq example, Amazon & Borders example to bring out the fact that all supply chain interaction is through these flows.

10. Entities + Flows

11. Supply Chain: Manufacturing Example

12. Supply Chain: Service Example

13. Class Exercise I

14. Cycle View of Supply Chains The supply chain is a concatenation of cycles with each cycle at the interface of two successive stages in the supply chain. Each cycle involves the customer stage placing an order and receiving it after it has been supplied by the supplier stage. One difference is in size of order. Second difference is in predictability of orders - orders in the procurement cycle are predictable once manufacturing planning has been done. This is the predominant view for ERP systems. It is a transaction level view and clearly defines each process and its owner.The supply chain is a concatenation of cycles with each cycle at the interface of two successive stages in the supply chain. Each cycle involves the customer stage placing an order and receiving it after it has been supplied by the supplier stage. One difference is in size of order. Second difference is in predictability of orders - orders in the procurement cycle are predictable once manufacturing planning has been done. This is the predominant view for ERP systems. It is a transaction level view and clearly defines each process and its owner.

15. Thinking processes Functional thinking limits cooperation and impedes creative thinking. Process management promotes collaboration, facilitating customer satisfaction at low cost. Thinking ERP = thinking processes

16. Process Management Process Management requires companies to: Recognize the limiting nature of functional structures Instill process thinking throughout the company Process integration remains rare less than 10% of companies world wide have made a serious and successful effort Requires major changes to measurement, job design, management roles, and organizational structure

17. Functional Organization Groups resources into specific departments which perform specific tasks to help the company achieve desired goals. Research and Development - translates customer needs into tangible products. The goal is to design appealing, easy-to-make products with shorter concept-to-market lead times. Purchasing acquires the right materials at the right price for use in operations. Sourcing�s goal is to select the right suppliers and then build the right relationships with them. Production transforms inputs into a more highly valued and desirable product or service. The goal: to use capital, energy, knowledge, and labor are used to build processes that make low-cost, high-quality goods. Logistics moves and stores goods so they are available for use in operations or for sale to customers. Logistics seeks to leverage critical activities like transportation, warehousing, and order processing to make sure materials and products are where they need to be when they need to be at the lowest cost. Marketing identifies customer needs and communicates to the customer how the company can meet those needs. Marketing�s objective is to perform a liaison role between the company and its customers.

18. (Dys)Functional Behavior Functional structures result in a failure to see beyond the department level to the end user. Decisions are made to achieve local, functional optimum without regard to impact on the remainder of the company. Due to inherent conflicts between department goals and measurements, departments are compelled to take dysfunctional actions.

19. Functional Organization Goals

20. Process Thinking Process thinking aligns decisions with corporate strategy and coordinates actions across functions. Each process consists of a set of flows and value-added activities. Information Flow Physical Flow Financial Flow

21. Value-Added Process

22. Thinking process Global supply chain forum model Supply Chain Operations Reference SCOR model

23. Processes: Global supply chain forum

24. Customer Relationship Management Duties: Locate , assess profitability and design products and services to maintain the customers� base Define Product and service agreements PSAs Improve order and delivery processes Why cross-functional, cross-company?, Who?

25. Customer Service Management Duties: Daily administration of the PSAs Management of details related to logistics (shipping date, exceptions �etc.) Why cross-functional, cross-company? , Who?

26. Demand Management Duties: Forecasting Scheduling plant operations Capacity requirements Managing inventory Fulfilling orders Sales tracking Why cross-functional, cross-company? , Who?

27. Order fulfillment Duties Insuring the delivery of the right product at the right time and location in the right amounts. Why cross-functional, cross-company? , Who?

28. Manufacturing Flow Management Duties Managing physical, information and funding flow Ensuring the balance between sales and operations planning Balancing capacity and demand Why cross-functional, cross-company? , Who?

29. Supplier relationship management Duties Selecting, rating and scoring suppliers Building strategic alliances Automating the supply process Why cross-functional, cross-company? , Who?

30. Product development and commercialization Duties Developing new products and bringing them to market at the right time Why cross-functional, cross-company? , Who?

31. Returns Management Duties Handle repairs and replacements Developing strategies to diminish the number of returned products Why cross-functional, cross-company? , Who?

32. Class Exercise II

33. Supply Chain Operations Reference SCOR The Supply-Chain Council was established in 1996. www.supply-chain.org The Supply-Chain Council now has closer to 1,000 corporate members world-wide and has established international chapters in North America, Europe, Greater China,�Japan, Australia/New Zealand, South East Asia, Brazil�and Southern Africa.� Development of additional chapters in India and South America are underway.� �The Supply-Chain Council's membership�consists primarily practitioners representing a broad cross section of industries, including manufacturers, services, distributors, and retailers.

34. Process Reference Model It integrates the well-known concepts of business process reengineering, benchmarking and process measurement into a cross-functional framework. It provides Standard description of management processes Framework of relationships among processes Standard metrics to measure process framework Best in class management practices

35. Capture the �as-is� state and derive the �to-be� future state

36. Supply-Chain Operations Reference (SCOR) Model Five core processes for Level 1 Source Make Deliver Return Plan Three expanded processes for Level 2 Planning Execution Enable

37. Source: Supply-Chain Council, www.supply-chain.orgSource: Supply-Chain Council, www.supply-chain.org

38. Cascading in SCOR/ 1-Overview

39. Planning Balance resources with requirements and communicate the plan to the whole supply chain Management of business rules, performances, compliances and regulatory requirements Align the unit plan with the financial plan

40. Source Schedule deliveries, receive� and authorize supplier payments Identify and select supply sources when not predetermined for ETO Manage business rules, assess suppliers performance and maintain data

41. Make Schedule production activities, issue product, produce and test � Finalize engineering for engineer to order product Manage rules, performance, data, WIP, equipment and facilities, transportation, �

42. Deliver Processing inquiries, and quotes to routing shipments and selecting carriers Warehouse management Receive and verify product at customer site Invoicing customers Manage deliver business rules, performance, information, finished product inventories ..

43. Return Defective, warranty and excess return processing Authorization, scheduling, inspection, transfer, warranty administration, receiving and verifying defective products, disposition and replacement

44. Enable Information Relationship Business rules Performance management Capital assets Network configuration and transportation Regulatory requirements and compliances

45. Cascading in SCOR2-Category

46. Cascading in SCOR3-Process elements

48. Cascading in SCOR4-decompose process elements

49. Level 1 KPIs

50. Level1 performances measuresReliability: perfect order fulfillment =Total perfect orders/total number of orders Perfect order: Right product, right quantity, to right customer, right time, right location, right documentation and rightly installed

51. Level1 performances measuresResponsiveness: speed of delivery Average actual cycle time=sum of actual cycle times for all orders delivered/total number of orders delivered Order fulfillment cycle time=order fulfillment process time+ order fulfillment dwell time

52. Level1 performances measuresFlexibility: ability to respond to market changes Upside measures: Flexibility: number of days needed to face a sustainable 20% increase in demand. Adaptability: amount of increase in production that could be achieved in 30 days Downside measures (very nice): Adaptability: reduction in quantities ordered sustainable for 30 days without incurring extra cost

53. Level1 performances measuresCosts: Cost accounting Cost of goods sold= Direct material+ Direct labor+ Overhead Supply Chain Management Cost= cost to plan+ cost to source+ cost to make+ cost to return

54. Level1 performances measuresAsset management: financial accounting Examples: Cash to cash cycle time=inventory days of supply+ days of sales outstanding-days of payables outstanding Return on supply fixed assets= (Revenue-COSG-supply chain management costs)/supply chain fixed assets

55. Level 2 KPIsM.1 make to stock

56. M.1 Best Practices Cellular manufacturing Demand pull manufacturing: Kanban, replenishment signals, upper and lower triggering levels Quick and real time performance measurements: dashboard, real time access to data Paperless production orders and inventory tracking Lean Production level balancing Flat management structures, self directed workforce Linking individual performance to divisional and organizational goals Move from make to stock to configure to order and push the system to high generic products to be easily customized

57. Level 3 KPIsM.1.1 Schedule production Activities

58. M.1.1 Schedule production, best practices Cross training and certification Ensuring data integrity and accuracy Schedule optimizes the use of shared resources and share equipment Change include preventive maintenance and change over costs Real time feedback from production, RM and inventory Provide a schedule to workforce and material planning systems

59. Class Exercise III

60. Limits to SCOR model It does not apply to the following processes Sales and marketing R&D Product development Post delivery customer support It also assumes training Quality IT

61. Check list Name the basic entities, flows and cycles involved in SC Compare between the functional and process views of SC management Name the basic processes as defined by the GSCF model Name the basic processes as defin