Suppliers Manufacturers Warehouses & Distribution Centers Customers Transportation Costs Transportation Costs Transportation Costs Material Costs Manufacturing Costs Inventory Costs Supply Chain PRESENT BY : NG SI LING B050810253 LEE WEN HAU B050810183 LIM WENG KEAT B050810181 4BMFB-1
What is Supply Chain Management? The sequence of organizations – their facilities, functions and activities- that are involving in producing and delivering a product or service. SUPPLY CHAIN SUPPLY CHAIN MANAGEMENT (SCM) SCM is a strategic coordination of the supply chain for the purpose of integrating supply and demand management.
Suppliers Manufacturers Warehouses & Distribution Centers Customers Transportation Costs Transportation Costs Transportation Costs Material Costs Manufacturing Costs Inventory Costs The Supply Chain
Order Lead Time Delivery Lead Time Production Lead Time Information In The Supply Chain Plan Warehouses & Distribution Centers Retailer Suppliers Manufacturers Source Make Deliver Return
Multi-tier Suppliers Wholesale Distributors Consumers Manufacturer Retailers Sales Sales Sales Sales Time Time Time Time Bullwhip Effect Supply Chain Management and Uncertainty Inventory Oscillations become progressively larger looking backward through supply chain • Inventory and back-order levels fluctuate considerably across the supply chain even when customer demand doesn’t vary • The variability worsens as we travel “up” the supply chain • Forecasting doesn’t help!
Factors Contributing to the Bullwhip • Demand forecasting practices • Min-max inventory management (reorder points to bring inventory up to predicted levels) • Lead time • Longer lead times lead to greater variability in estimates of average demand, thus increasing variability and safety stock costs • Batch ordering • Peaks and valleys in orders • Fixed ordering costs • Impact of transportation costs (e.g., fuel costs) • Sales quotas • Price fluctuations • Promotion and discount policies • Lack of centralized information
Inventory Hides the Problems A Inventory B Volatile Demand Inaccurate Forecasts Unreliable Suppliers Quality Problems Bottlenecks
Why is inventory a waste? • Cost of holding inventory - globally companies are beginning to use 25% of inventory value: • Cost of capital • Opportunity cost (what we could have done with the money if we had it in our hands) • Obsolescence • Storage and handling costs • Management and overhead • Potential: losses/theft
Demand Predictability and Lead-time + Forecast Error tn to - Lead-Time
Methods for Improving Forecasts Judgment Methods Market Research Analysis Panels of Experts • Internal experts • External experts • Domain experts • Delphi technique • Market testing • Market surveys • Focus groups Time-Series Methods Accurate Forecasts Causal Analysis • Moving average • Exponential smoothing • Trend analysis • Seasonality analysis • Relies on data other than that being predicted • Economic data, commodity data, etc.
Example of the Bullwhip Effect First noticed by Procter & Gamble executives examining the order patterns for Pampers disposable diapers. They noticed that order variation increased dramatically as one moved from retailers to distributors to the factory. Problem: increases the difficulty of planning at the factory level
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)
Plan Source Make Deliver Return Why Is SCM Difficult? • Uncertainty is inherent to every supply chain • Travel times • Breakdowns of machines and vehicles • Weather, natural catastrophe, war • Local politics, labor conditions, border issues • Barriers to integration of organizations • Getting top management on board • Dealing with trade-offs • Small businesses • Variability and uncertainty • Long lead times
The Importance of Supply Chain Management • Dealing with uncertain environments – matching supply and demand • Shorter product life cycles of high-technology products • Less opportunity to accumulate historical data on customer demand • Wide choice of competing products makes it difficult to predict demand • The growth of technologies such as the Internet enable greater collaboration between supply chain trading partners • If you don’t do it, your competitor will • Major buyers such as Wal-Mart demand a level of “supply chain maturity” of its suppliers • Availability of SCM technologies on the market • Firms have access to multiple products (e.g., SAP, Baan, Oracle, JD Edwards) with which to integrate internal processes
Supply Chain Management Operations Strategies Source: Simchi-Levi
Benefits of Supply Chain Management Lower inventories Higher productivity Greater agility Shorter lead times Higher profits Greater customer loyalty
There are two major step for strategy development in the SCM. In the first step, managers should prepare the organization for move toward apply SCM strategically. The second Step is related to the developing strategies and encompassed the following cases:
Preliminary steps in SCM strategy development Step 1 – Energize the Organization Establishment of SCM and e-Business educational courses. Ensure top management that supply chain and e-Business strategies are integrated. Pursue the executive team to act as a sponsor. Enhance the ways in which people work. Step 2 – Enterprise Vision Defining the nature of the competitive competencies possessed within the current infrastructure and outside the supply chain network.
Step 3 – Supply Chain Value Assessment Identify and then prioritize which supply chain values should be undertaken that would provide the greatest enterprise and trading partner benefits. Focused on improving core business functions and sustaining the competitive advantages they drive. Step 4 – Opportunity identification Provide the collaborative with a map of possible choices for the application of SCM strategies. Detailing and prioritizing the possible supply chain solution and alternatives
Step 5 – Strategy Decision • Focus on expected advantages whether on: • automating and integrating processes • reducing costs • increasing the flow of information through the supply chain • to amplify existing market • realize new ways of providing value to customer
Developing the SCM strategy Constructing the Business Value Proposition • An effective value proposition must be ready to respond to three possible service values expected by customer: • Super Service (speed and reliable delivery) • Variety of Product and Service solutions • Mass Customization
Defining the Value Portfolio • The following process development need to be structured to support the business value proposition: • Design (product and services) • Effective cost management (able to squeeze the time it takes from idea conception to sales) • Services (accompanied with a matrix of value added services) • Quality (standard dimensions of performance and reliability) Structuring the Scope of Collaboration • Decide the scope of the firm’s processes and activities and level of collaboration with trading partners to supply missing resources and competencies.
Ensuring Effective Resource Management • The enterprise’s resources can be divided into three major areas: • Human knowledge (creation of products, technologies, systems, processes and relationships) • The capital invested in physical assets (warehouses, offices, information systems, and transportation equipment) • The value found in physical assets and human knowledge of customers, suppliers, and business partners (synchronized delivery and production, outsourcing, and creating collaborative solutions) SCM Implementation • Puts the new strategies, processes and systems to work according to the project plan in SCM strategy report.
Pursuing Growth Management Structuring a set of meaningful and focused performance measurements that allow corporate planners to gauge the effectiveness of their supply chain solutions. Reviews business context, strategies and current supply chain Identify whether current setup is helping or hurting your business and to determine how to improve it.
Distribution • Often called logistics. • Movement of materials, services, cash, and information in a supply chain. • Two types of logistics: • Forward logistics • Reverse logistics
Distribution (cont…) • Forward Raw materials, parts and finished goods flowing from suppliers to producers, distributors and, finally, to consumers. • Reverse Wastes, packages, and defective/obsolete products are "climbing back" the supply chain. • Goal: Recapture/create value in returned goods/to properly dispose of goods that cannot be sold.
Warehouse Management • Warehouse: Commercial building for storage of goods. • Warehouse management to optimize: • Inventory • Labor • Physical Space • Time • Costs
Warehouse Management System To control the movement and storage of materials within an operation and process the associated transactions. Utilize technology (Barcode scanner, mobile computer, Radio-frequency identification (RFID) )
Warehouse Management System (Cont…) RFID: Uses radio waves to identify objects in supply chains. RFID tag is attached to an object. Provide unique identification, enabling businesses to identify, track, monitor, or locate practically any object in the supply chain that is within range of a tag reader.
Case Study • Yodobashi Camera is one of the largest Japanese retailers of electronic goods. • Challenge: Managing An Inventory Of More Than 850,000 different Items. • Solution: RFID Warehouse Management Solution From Motorola And Mighty Card. • Result: • Improved Yodobashi Camera’s efficiency and real-time stock visibility. • Dramatically reduced workloads in the warehouse. • Reduced operational costs and helped the company to move towards its ‘zero-inventory’ goal.