Supply Chain

Management
Prof. Shirish Jeble
SIBM, Pune

17 July 2013

SIBM

Agenda
Case study
Introduction to Supply Chain Management
Key Parameters in Supply chain management

Production
Location
Inventory
Transportation
Information

Metrics for Measuring Supply Chain Performance

Supplier Relationship Management
Innovations in SCM
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Focus from Operations to Customer

Suppliers

Operations

Customers

Value Addition

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Case Study

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Traditional Organization

Focus on
Procurement
Distribution
Maintenance
Inventory
Management

Supply Chain Management

Also includes
Marketing
New Product
Development
Finance
Customer Service

High
Inventory turnover
Order Fill Rate
On-Time delivery

Low
Inventory
Product returns
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Objectives of Supply Chain Management

1. Customer Service: Provide best in class
customer service
2. Time and Location of service: Deliver the
product to customer when he wants it and
where he wants it
3. Quality: Ensure product quality is maintained
4. Competitive advantage - Use SCM as a
Competitive advantage

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History of Supply Chain Management

F. W. Taylor
Scientific Mgmt

Use of
Computers, MRP

Lean, JIT, TQC

automation

EDI

B2B, B2C
E-Commerce

Mass Production
in Service Sector

Synchronous
Mfg., TOC

Internet, ERP,
SCM

1970

1980

1990

1913
EOQ Concept

Henry Ford/Gantt
Assy Line/Sch Chart

Amazon, eBay
Yahoo, Fedex

Shipping
Containers

1910

1950
-60

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Supply Chain
Communication

Raw Materials

Support Functions

Marketing

Purchasing

Operations Mgmt

Physical Goods

Value
Chain
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Touch Points with Business Partners

5. Shipment

Sales Order

4. PO Accept

2. Quote

Supplier

Business

Customer

1. Inquiry

3. PO

6. Payment

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Evolution of SCM
Purchasing
Mfg. Inventory
Warehousing

Purchasing

Materials
Management

Transportation
Production Planning
Requirements Planning
Material Handling
Packaging
Finance
AR
AP
Demand Forecasting
Distribution Planning
Order Processing
FG Inventory
Customer Service
Marketing / Sales
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Production
Supply Chain
Management

Finance

Marketing/
Sales

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Objectives of SCM
Minimize costs of supply chain
Maximize throughput
Ability to respond efficiently to demand
fluctuations
Satisfy customer demand with a good quality
product
Eliminate in-transit damage, loss

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Supply Chain
Surface Trucks /
Railroad
Sea
Air

Products
Demand Forecasting
Production Planning
Capacity Planning
Logistics Planning

Transportation

Production

Information

Location

Inventory

Factory Location
Warehouse Location

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Purchasing
Inventory Management
RM
FG
WIP
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1 Production

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Aggregate Planning
Product Mix Planning

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Demand forecasting
Year 2013 Forecast

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Capacity Planning
2013 Demand
Year
Model M1
Model M2
Model M3

2013 Capaciy

2013
Demand
11700
20300
24900

Model Model
M1 M2
Plant 1 3000
5000
Plant 2 5000
5000
Plant 3 4000
7000

Model
M3
7000
5000
8000

Whats the issue?

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Allocation of Capacity to Regions

2013
Demand
Plant 1
Plant 2
Plant 3

Model Model
M1 M2
5000
3000
5000
5000
7000
4000

Model
M3
7000
5000
8000

Western
2013
Demand

2013
allocation

Model M1

2000

2000

Model M2

3000

2500

Model M3

5000

4500

Year

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DRP
Logistics

Bill of
Distribution

DRP

Allocation

FG
Inventory

Forecasts

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Production Planning

Capacity Plan
Model Model
2013
Demand M1 M2

Model
M3

Plant 1 3000

5000 7000

5000
4000

5000 5000
7000 8000

Plant 2
Plant 3

Plant 1 Monthly Plan

1

Month

10

11

12 Total

Model M1 385

359

333

308

256

179

179

128

256

308

154

154 3,000

Model M2 616

542

517

493

443

296

369

394

394

443

246

246 5,000

Model M3 321

369

402

386

386

386

353

353

353

337

177

177 4,000

Plant 1 - January Prudction Plan

Day
Shift
Model M1
I
II
Model M2
I
II
Model M3
I
II

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10
10
16
15
9
8

2
10
10
16
15
8
8

3
10
10
16
15
8
8

4
10
10
16
15
8
8

5
10
10
16
15
8
8

6
10
9
16
15
8
8

7
10
9
16
15
8
8

8
10
9
16
15
8
8

9
10
9
16
15
8
8

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10
10
9
16
15
8
8

11
10
9
16
15
8
8

12
10
9
16
15
8
8

13
10
9
16
15
8
8

14
10
9
16
15
8
8

15
10
9
16
15
8
8

16
10
9
16
15
8
8

17
10
9
15
15
8
8

18
10
9
15
15
8
8

19
10
9
15
15
8
8

20
10
9
15
15
8
8

200
185
316
300
161
160

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Material Requirement Planning

Inventory Records

Bill of Materials

Material Requirement
Planning

M1
A1 (4)

A2 (2)

A3 (5)

Purchase Orders

A1C1 (1) A2C1 (1) A3C1(5)

A1C2 (1) A2C2 (4)
A1C3 (2)

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2 Location

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Location Decision

Cost of facilities
Cost of labor
Political climate in the state / country
Skills available in the workforce
Infrastructure conditions
Taxes and tariffs
Proximity to suppliers and customers

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3 Inventory

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Bull Whip Effect

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Bull whip Effect

Customer

Retailer

Distributor

Manufacturer

Supplier

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Bull whip Effect

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Inventory Costs

Stockout costs
Material costs
Carrying costs (finance)
Storage costs

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Inventory Management
High Inventory
Costs

Stockouts

Conflict

What is the Solution?

Short Inventories

Large Inventories

Low Carrying costs

Pull based demand
High ordering,
transport costs
Risk of shortages
Idle plant capacity

Economies of scale
Absorb demand
fluctuations
High Carrying costs
Push to sell
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Just in Time.

Traditional Inventory System

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Push Based Model

Inventory of RM /
Components

Finished Goods

What are the

Symptoms?
Focus on Marketing,
advertising Campaigns
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Customer
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Pull Based Model

Flow of
Demand

Supplier

Inventory of RM /
Components

Finished Goods

Focus on Customer
Needs
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Customer
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Pull Based Model (2)

Finished Goods

Supplier

Inventory of RM /
Components

Advantages of Pull Based

Demand Flows from customer to
business
Maintain low inventory
Suppliers have visibility of inventory,
considered as part of overall business
operation, works as a supply chain
Replenishment happens when item is
consumed
Lead time of manufacturing is kept low
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Focus on Customer
Needs

KJ's Educational Institutes

Customer
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Push and Pull System

Push System
Based on forecast of
demand
Maintain high to moderate
inventory of components,
WIP and FG
Use of expensive MRP
system
Focus is on selling the
inventory
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Pull system
Based on actual demand
Maintain low inventory
Uses Kanban system
Focus is on producing what
customer needs product
and quantity

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The Goal of JIT

Zero Inventory
Low cost of inventory
Lean Manufacturing
Produce what customer wants
Zero or low lead times

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4 Transportation

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Modes of Transport

Railways
Roadways
Seaways
Airways
Pipelines
Combination of one or more ways
One more?

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Factors in Logistics Decisions

Expected time of delivery

Availability of resources / carriers
Distance
cost
Volume
Handling of material
Risks
Designing vehicle routes and schedules
Tracking shipments

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Direct Shipments

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Plant 1

Customer A

Plant 2

Customer A

Plant 3

Customer A

Plant 4

Customer A

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Direct Shipments via DC

Plant 1
Customer A

Customer A

Plant 2

Customer A
Plant 3

Distribution Center
Customer A

Plant 4

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Direct Shipments via DC using Milk runs

Plant 1

Customer A

Customer A
Plant 2
Customer A
Distribution Center

Customer A

Plant 3

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Direct Shipments with Milk runs

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Plant 1

Customer A

Plant 2

Customer A

Plant 3

Customer A

Plant 4

Customer A

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5 Information

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Role of Information Technology in SCM

Dealer

Supplier

Customer
CRM

Company
ERP

MRP
DRP

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6. Supplier Relationship

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Vendor or Partner?
Business Partner!

Vendor?

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Supplier Development Process

Study Supplier Process

Personal visits
Building relationships
Improvement Goals

Supplier
Input

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Process

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Suppliers Partnering Process

Supplier
Audit

Plan

Act

Do

Check

AAA
AA
A

Supplier
Rating

CIP

Supplier
Approval
Certificate

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7. Performance Measurement in
Supply Chains

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Supply Chain Performance Measures

Break-even Point
Cashflow
ROI

External

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Throughput
Inventory
Operating Expenses
Internal

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Break Even Point

Total Costs

Total Sales
Revenue

Break-even Point

Variable Costs

Fixed Costs

Units Sold
Contribution = Total Sales Revenue Variable Costs
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What should go up to increase contribution?

Contribution = Total Sales Revenue Total Variable Costs
Sales Price
Variable Costs

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Cashflow
Month
1
Investment 10000
Units sold
Sales Revenue
Sales
Expenses
Salaries
Other costs
Total Revenue 0
Total
Expenses -10000
Cashflow -10000

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10000

0
0

-10000
-10000

0
0

5
10000

10
9000

10
10000

10
1000

10
10
10
10
11000 11000 11000 11000

5000
2000
1000
9000

5000
2000
1000
10000

5000
2000
2000
1000

5000 5000 5000 5000

2000 3000 3000 3000
1000 1000 2000 2000
11000 11000 11000 11000

-10000 -8000
-10000 1000

-8000
2000

-9000
-8000

-8000
3000

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11

12

-9000 -10000 -10000

2000 1000 1000

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ROI
ROI = (Net Profit / Invested Capital) X 100

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Throughput
Throughput = Sales Revenue Material costs of goods sold

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Inventory

Inventory
Level

Inventory
Level
Unreliable
Vendor

Lot Sizes

Scrap
Maintenance
Product
Design

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Operating Expenses
Amount of money spent by the firm to convert
inventory into sales in specific time period

RM

FG

OH Costs, depreciation Administrative expenses, labor, marketing expenses, utility

costs
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8. Innovative Techniques in SCM

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1. Cross Docking Technique @ Toyota

Step 1 Suppliers to Docking Station

Step 2 Docking Station to Plants

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2. Cross Docking Technique @ Toyota

Step 3 Empty Containers from Plants to Docking Station
Step 4 Docking Station to Suppliers

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3. Empty Containers go to Suppliers

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Advantage of Cross Docking

Its just in time inventory to replenish
Pull based inventory
Only required material flows back to the
plants

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Future Trends in SCM

Increased use of Information Technology

Use of Mobile devices
Just in Time II
Constraint Management

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Automobile Supply Chain

Distribution Center

Car Dealers

Manufacturing Plant
Customer

Assembly Plant
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Car Dealers
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Henry Fords SCM

Reduce Scarp of material

Assembly line concept
Standard Tools used in all factories
Tools delivered at waist height
Same Car building process at all factories
Focus on fast of transportation to keep low inventories
Keep low FG inventory
Well paid employees for committed and quality work

In Transit
Inventory:
48000 cars

8000 Cars day

Demand 8000
Cars/day

Customer

Suppliers

Average lead time 6 days

Average 10 days inventory

Max 30 days for rare matl.

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Theory of
Constraint
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Theory of Constraints
170
Unit/
hour
M1

150
Units/
hour
M2

120
Units/
hour
M3

How much is the output per hour?

Which one is the bottleneck?

200
Units/
hour
M4

Theory of Constraints
170
Unit/
hour
M1

150
Units/
hour
M2

120
Units/
hour
M3

M5
100
Units/
hour
Which one is the new bottleneck?

200
Units/
hour
M4

Theory of Constraints
150
Units/
hour
M2

170
Unit/
hour
M1

200
Units/
hour
M3

Which one is the new bottleneck?

1.
2.
3.
4.

Identify Bottlenecks
Exploit Bottlenecks
Subordinate all other decisions to step 2
Elevate Bottlenecks

200
Units/
hour
M4

Drum Buffer Rope

Buffer
Material
Release
Schedule

Time Buffer
Inventory

A
800 units /
week

Drum
B
500 units /
week

M1
700 units /
week

Rope

Drumbeat - speed of processing of Drum

FG
Inventory

Shipping
Schedule

Thank You
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