Operations Management MD021

1. Operations Management(MD021) Supply Chain Management

2. Agenda Basics of SCM Drivers of SCM Elements of SCM E-Commerce Impact on SCM Performance Measurement Collaboration in SCM Purchasing How to Choose and Evaluate Suppliers

3. Basic Concepts of Supply Chain Management

4. Supply Chain Management Supply Chain: The sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service.

5. The Value Chain internal to a company

6. Typical Supply Chain activities for a Manufacturer

7. Typical Supply Chain for a Service

8. Goal of SCM Goal of SCM To link all components of the supply chain so that market demand will be met as efficiently as possible across the entire chain Match supply to demand at each stage of the supply chain

9. Supply network encompasses a number of facilities Warehouses Factories Processing centers Distribution centers Retail outlets Offices

10. Supply network performs various functions and activities Forecasting Purchasing Inventory management Information management Quality assurance Scheduling Production and delivery Customer service

11. Supply Chain Management Issues

12. Drivers of Supply Chain Management

13. History of SCM Why attempt to manage supply chains? In the not too distant past (i.e. pre-1990s), many companies didn’t manage their supply chains Some advanced companies realized that huge inefficiency resulted from no/poor SCM In particular, identified the “Bullwhip Effect”

14. Bullwhip Effect

15. Bullwhip Effect

16. Result of the Bullwhip Effect

17. Benefits of Supply Chain Management Counteract the Bullwhip Effect Lower inventories Higher productivity Greater agility Shorter lead times Higher profits Greater customer loyalty

18. Today, many other problems can also drive Supply Chain Management Improve operations Increasing levels of outsourcing Increasing transportation costs Competitive pressures Increasing globalization Increasing importance of e-commerce Complexity of supply chains Manage inventories

19. Supply Chain Benefits and Drawbacks

20. Examples of SCM Benefits at Various Companies

21. As a result of competitors working on SCM, SCM has become strategic Strategic importance Cost Quality Agility Customer service Competitive advantage

22. But, SCM projects can be very risky to undertake Technology management drives SCM Adoption/Success/Failure Benefits SCM packages, when adopted well, can transform an organization’s operations Risks Poorly planned for/implemented SCM packages can wreck a company’s operations Very expensive to install these pages – many millions of dollars

23. Elements of SCM

24. SCM involves coordinating activities across supply chain

25. Logistics Logistics Refers to the movement of materials and information within a facility and to incoming and outgoing shipments of goods and materials in a supply chain Raw materials Work in process Finished goods Support items – fuel, equipment, parts, tools, etc.

26. Logistics

27. Materials Movement

28. Distribution Requirements Planning (DRP) Distribution requirements planning (DRP) is a system for inventory management and distribution planning Extends the concepts of MRPII to multiechelon warehouse inventories

29. Uses of DRP Management uses DRP to plan and coordinate: Transportation Warehousing Workers Equipment Financial flows

30. Electronic Data Interchange (EDI) EDI The direct transmission of inter-organizational transactions, computer-to-computer, including purchase orders, shipping notices, and debit or credit memos.

31. Electronic Data Interchange Increased productivity Reduction of paperwork Lead time and inventory reduction Facilitation of just-in-time systems Electronic transfer of funds Improved control of operations Reduction in clerical labor Increased accuracy

32. Third Party Logistics (3PL) 3PL The outsourcing of logistics management Companies turn over their warehouse and distribution to companies that specialize in these areas

33. E-Commerce Impact on SCM

34. E-Commerce E-Commerce: The use of electronic technology (e.g., WWW, Web Services, mobile devices) to facilitate business transactions Applications include Internet buying and selling E-mail Order and shipment tracking Electronic data interchange

35. SCM Benefits of E-Commerce Companies can: Have a global presence Improve competitiveness and quality Analyze customer interests Collect detailed information Shorten supply chain response times Realize substantial cost savings Create virtual companies Level the playing field for small companies

36. SCM Challenges of E-Commerce Customer expectations Order quickly -> fast delivery Order fulfillment Order rate often exceeds ability to fulfill it Inventory holding Outsourcing loss of control Internal holding costs

37. How to Measure SCM Performance?

38. Successful SCM has certain characteristics Trust among trading partners Effective communications Supply chain visibility Access to real-time data on inventory levels, shipping status, related information Requires data sharing between trading partners Event-management capability The ability to detect and respond to unplanned events Performance metrics Measure the system to make sure you are doing well

39. Overall Objectives for Supply Chain Performance Cost Quality Flexibility Velocity Customer service

40. Velocity Inventory velocity The rate at which inventory (material) goes through the supply chain Information velocity The rate at which information is communicated in a supply chain

41. Trade-offs Between Performance Measures Lot-size vs. inventory Ordering economies vs. inventory held Risks the Bullwhip effect Inventory vs. transportation costs Shippers prefer to ship full truckloads, which increases inventory carrying costs Solutions: combine orders, smaller trucks, cross-docking Lead time vs. transportation costs Waiting for a full truck increases production lead times Product variety vs. inventory Higher variety leads to smaller lot sizes, more setups, other costs Solution: Delayed differentiation Cost vs. customer service Large volumes reduce cost, but can hurt customer service Solution: Disintermediation

42. Cross-Docking Cross-docking Goods arriving at a warehouse from a supplier are unloaded from the supplier’s truck and loaded onto outbound trucks

43. Delayed Differentiation Delayed differentiation Production of standard components and subassemblies, which are held until late in the process to add differentiating features

44. Disintermediation Disintermediation Reducing one or more steps in a supply chain by cutting out one or more intermediaries

45. SCM Performance Measures SCOR (Supply Chain Operations Reference) Model Plan, Source, Make Deliver, Return SCOR addresses … Product from supplier’s to customer’s SCOR does not address … Sales, Marketing, R&D, Support

46. SCOR Metrics provide a standard way to measure SCM

47. SCOR’s SCM Performance Metrics Reliability – delivery performance, fill rate, perfect fulfillment Responsiveness – order fill lead time Flexibility – SC response time, ops flexibility Cost – warranty cost, productivity, CGS, SCM cost Assets – turns, inventory days, cash cycle

48. Collaborative Approaches to SCM

49. Creating an Effective Supply Chain Involves Partnerships Develop strategic objectives and tactics Integrate and coordinate activities in the internal supply chain Coordinate activities with suppliers with customers Coordinate planning and execution across the supply chain Form strategic partnerships

50. Collaboration Assumes Your Supplier can be a Partner

51. Partnerships with suppliers can improve your own operations Ideas from suppliers could lead to improved competitiveness Reduce cost of making the purchase Reduce transportation costs Reduce production costs Improve product quality Improve product design Reduce time to market Improve customer satisfaction Reduce inventory costs Introduce new products or services

52. Efficient Consumer Response Efficient Consumer Response (ECR) A supply chain management initiative specific to the food industry Reflects companies’ efforts to achieve quick response using EDI and bar codes

53. CPFR Collaborative Planning, Forecasting, and Replenishment (CPFR) Focuses on information sharing among trading partners Forecasts can be frozen and then converted into a shipping plan Eliminates typical order processing

54. CPFR Process Step 1 – Front-end agreement on structure of CPFR collaboration Step 2 – Develop joint business plan for collaborators Steps 3-5 – Sales forecast collaboration Steps 6-8 – Order forecast collaboration Step 9 – Order generation/delivery execution

55. CPFR Results Nabisco and Wegmans 50% increase in category sales Wal-mart and Sara Lee 14% reduction in store-level inventory 32% increase in sales Kimberly-Clark and Kmart Increased category sales that exceeded market growth

56. Challenges to Collaboration Barriers to integration of organizations Getting top management on board Dealing with trade-offs Small businesses – no money to invest, no time, no slack resources, insufficient technology Actions that create more variability and uncertainty Long lead times hinder the ability of a supply chain to respond to changing customer demands

57. Purchasing

58. Purchasing Purchasing is responsible for obtaining the materials, parts, and supplies and services needed to produce a product or provide a service. Goal of Purchasing Develop and implement purchasing plans for products and services that support operations strategies Quality of materials purchased is sufficient for operations Timing of deliveries supports operations

59. Fun Facts About Purchasing Institute for Supply Management > 60% cost of finished manufactured goods is purchased >90% cost of retail & wholesale goods is purchased

60. Duties of Purchasing Identifying sources of supply Negotiating contracts Maintaining a database of suppliers Obtaining goods and services Managing supplies

61. Purchasing interfaces with other functions and with external suppliers

62. Purchasing follows a cycle of activities Requisition received Supplier selected Order is placed with supplier Monitor orders Receive orders

63. Centralized vs. Decentralized Purchasing Centralized purchasing Purchasing is handled by one special department Decentralized purchasing Individual departments or separate locations handle their own purchasing requirements

64. How to Choose and Evaluate Suppliers?

65. Management of Supplier Network Involves Several Activities Choosing suppliers Evaluating sources of supply Supplier audits Supplier certification Supplier relationships Supplier partnerships

66. Factors in Choosing a Supplier Quality and quality assurance Flexibility Location Price Product or service changes Reputation and financial stability Lead times and on-time delivery Other accounts

67. Evaluating Sources of Supply Vendor Analysis - evaluating the sources of supply in terms of … Price Quality Services Location Inventory policy Flexibility