An Introduction to SCM
Transcript of An Introduction to SCM
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Contents
Overview
What is Supply Chain?
Basic Features of Supply Chain-5
Functional Components of SupplyChain-4
What is SCM?
Benefits of Effective SCM -8 Best Practices for Optimizing Supply
Chains
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Overview
Supply Chain It includes all activities andprocesses to supply a product or service tothe final customer. Often it includes morethan one company in whole chain.
Supply Chain Management It is the act ofoptimizing all activities through out the supplychain, so that the products and services are
supplied in the right quantity, to the rightlocation, at the right time, and at the optimalcost.
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What is Supply Chain?
The supply chain is the series of links andshared processes that exist betweensuppliers and customers.
These links and processes involve all
activities from the acquisition of raw materialsto the delivery of finished goods to the endconsumer.
Raw materials enter into a manufacturingorganization via a supply system and aretransformed into finished goods.
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The finished goods are then supplied toconsumers through a distribution system.Generally, several companies are linkedtogether in this process, each adding value to
the product as it moves through the supplychain.
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Basic Features of SC
It includes all activities and processes tosupply a product or service to a finalcustomer.
Any number of companies can be linked inthe supply chain.
A customer can be a supplier to another
customer so the total chain can have anumber of suppliercustomer relationships.
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While the distribution system can be direct
from supplier to customer, depending on theproducts and markets, it can contain anumber of distributors such as wholesalers,warehouses, and retailers.
Products or services usually flow fromsupplier to customer. Likewise, design anddemand information usually flows from
customer to supplier.
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SC Functional Components Demand Planning to predict the demand of
products and services based on forecasts.Accurately forecasting customer demandsimproves customer service while decreasingcosts by reducing demand uncertainty.
Manufacturing Planning and Scheduling aprocess that optimally schedules manufacturingorders with production capacity. This isperformed by combining material requirementsplanning (MRP) and capacity requirementsplanning (CRP) to create optimized andconstrained production plans.
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Supply Planning a process that meets
customer demand based on availableinventory and transportation resources. Thisincludes distribution requirements planning(DRP), which determines the need to
replenish(refill) inventory at branchwarehouses.
Transportation Planning - A planning processto optimally schedule, load, and delivershipments to customers while consideringconstraints, such as delivery date, mode oftransportation, carrier, etc.
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What is SCM?
It can be defined as A set of approaches
used to efficiently integrate suppliers,manufacturers, warehouses, and retail stores
so that merchandise is produced anddistributed in the right quantities, to the rightlocation, at the right time, and at optimalcost.
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Benefits of effective SCM
Improved customer service - having the rightproducts, available for delivery whenrequested, at a good price.
Reduction of costs across the supply chainand more efficient management of workingcapital.
More efficient management of raw materials,work-in-process, and finished goodsinventory.
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Increased efficiency in the transactions betweensupply chain partners
Better manufacturing resource management
Optimized manufacturing schedules
Optimal distribution of existing inventory acrossthe supply chain
Enhanced customer value, often in the form oflower prices
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SCM Market Leaders
i2 Technologies
SAP
Oracle
PeopleSoft Manugistics
Ariba
EXE Technologies Manhattan Associates etc.
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Introducing the Supply Chain Management ERP Module
The Supply Chain Management or SCM Enterprise Resource Planning orERP module is usually a valuable commodity for manufacturers.An SCM ERP module is used throughout a manufacturers productionprocess.Some steps included in a production process are:
Planning Execution Inventory Forecasting Demand Planning Asset Management
Reporting Logistics Delivery Raw Material Management Returns Processing
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SCM Basics
What is a supply chain All stages or entities involved in processing
customer request manufacturers, suppliers,transporters, warehouses, retailers and
customers too; form the supply chain. Within an organization, different departments
form the typical supply chain.
It is more like a network or web than chain.
Visualize all the flows like products, informationand funds.
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Objective of a supply Chain
Objective, or rather measure of performance isthe value added.
Value added can be measured in various ways,the most tangible being the difference betweenthe revenue generated from the customer andthe overall cost across the supply chain.
All flows of information, cost and funds add costto the supply chain. Customer is the only realpoint of positive cash flow. So SCM is all about
management of all these flows to maximize thetotal profit.
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Phases in supply chain
Design phase capacity planning,locationdecisions, a very long term view.
Chain planning operating
policies,configuration of building blocks.Changes as per market forces,government policies.
Operation Weekly or daily process,
accept orders, purchase material,maintaininventory, manufacture and deliver.
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Supply Chain Strategy
Understanding the customer. Quantity needed
Response time expected
Service level required Price
Desired rate of innovation
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Overall Strategy
Supply Chain Strategy
Efficiency Responsiveness
Inventory InformationTransportation Facilities
Drivers of Supply chain performance
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Inventory
Inventory includes raw material(R.M.), work inprogress (W.I.P.) and finished goods(F.G.).
Large inventory typically increases responsivenessbut decreases efficiency of supply chain.
Inventory exists because of difference in demand &supply. Some amount of inventory is essential forbusiness. Another advantage is taking advantageof economies of scale, during production anddistribution.
If I is inventory, T is material flow time and R isthroughput, then I = RT. So for a given R, we canreduce inventory by reducing T i.e. faster cyclingof material.
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T (material flow time) = Time between entry and exit ofmaterial in supply chain. R(throughput) = Rate of sales to end consumer; i.e. rate of
material going out of supply chain.
Types of inventories: Cycle inventory is the average amount of inventory to satisfy
demand between receipt of supplier shipments. High and lowvalues represent the trade off between inventory carrying cost
and cost of ordering and shipment. ( A-B-C analysis) Safety inventory is held to absorb demand sudden increase.(
Again for better responsiveness.) With a perfect demandforecasting, this is not needed.
Seasonal inventory is built up for predictable variability in
demand as per season. Bottom line Trade off between efficiency and
responsiveness.
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Transportation
Role of transportation in supply chain is obvious.Faster transportation means betterresponsiveness but more cost i.e. less efficientsupply chain.
Decisions about mode (air, ship, train, road etc.)and whether to in-house or outsource.
Key players shipper and carrier
Costs involved Vehicle related (lease / purchase)
Fixed operating ( relating to facilities like parking) Variable operating (fuel, loading-unloading) depends on
quantity of goods and distance.
Other overheads (software for transport network)
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Enterprise Resource Planning (ERP)
Business Process Transformation through ERP System
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Enterprise Resource Planning (ERP)
ERP System
Sales
HR
Accounting
Inventory
Marketing
Marketing service
Production
Procurement
ERP (Enterprise Resource Planning) is principally an integration ofbusiness management practices and modern technology.
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1960s 1970s 1980s 1990s 2000s
Materials
Requirement
Planning
(MRP)
Manufacturing
Resource
Planning
(MRP II)
Enterprise
Resource
Planning
(ERP)
Extended ERP
Inventory
Control
Packages
ERP Evolution
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Enterprise Resource Planning (ERP)
The factors that drive the Market are as follows: Manufacturing Challenges
New Product Information
Globalization
Distribution
Development of business specific methods and processes
Specialization
Integration with third party products
Satisfaction of the demand of the customer
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Enterprise Resource Planning (ERP)
Industry Requirements: Cost Control
Analysis of revenue generation from the Product or Customer
Flexibility as per the change in the business requirements
Managed Decision Making
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Enterprise Resource Planning (ERP)
Critical Factors causing the problem in Business: Time taken to get the accurate information
Poor interfaces
Slow modifications
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Enterprise Resource Planning (ERP)
Few Business Solutions: Management Information Systems (MIS)
It does not support decision.
Integrated Information Systems (IIS)
It does not support decision.
Executive Information Systems (EIS)
It supports decision.
Corporate Information Systems (EIS)
It supports decision.
Enterprise Wide Systems (EWS) It does not support decision.
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Enterprise Resource Planning (ERP)
Few Planning Systems: Materials Requirement Planning (MRP)
Manufacturing Resource Planning (MRP II)
Enterprise Resource Planning (ERP)
Money Resource Planning (MRP III)
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Enterprise Resource Planning (ERP)
A Way to go
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Enterprise Resource Planning (ERP)
Why ERP? Amerced Competition in the market
Need for a simplified system integrating the Various BusinessProcesses.
Need of a better way for Inventory Management
Increasing adoption of JIT (Just-In Time) technology
Better Project Management
Better Customer Service
Enterprise as a whole
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Enterprise Resource Planning (ERP)
IntroductionA packaged business software system that automates and
integrates all or majority of the business processes. It also sharescommon data and practices in real-time environment.
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Enterprise Resource Planning (ERP)
It provides Integrated Information Systems covering thefunctional areas of the company.
Includes core corporate activities and hence increasescustomer service.
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Enterprise Resource Planning (ERP)
ERP may include the following processes: Human Resources
Purchase
Transport
Warehouse
Manufacturing
Order Entry
Accounts Receivables
Account payable and many more..
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Enterprise Resource Planning (ERP)
ERP helps in improvement of the following: Human Resource Management
Business planning and controlling
Production
Inventory Management
Accounting
Asset Management
Order Processing
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Enterprise Resource Planning (ERP)
ERP integrates the followings: Database
Applications
Tools
Interfaces Business Process Re-engineering (BPR)
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Enterprise Resource Planning (ERP)
Problem tackled by ERP: Cash Management
Inventory Problems
Quality Problems
Customer Service
Productivity Problems
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Enterprise Resource Planning (ERP)
Information System Integration:
Manufacturing
Inventory Management
Invoice Verification
Shipping
Billing
Internal Sales
Capacity and utilization
Headquarters
Project Management
Purchase
Cash Collection
Budget
Sales
Messages Messages
Marketing
Customer Service
Sales
Purchase
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Enterprise Resource Planning (ERP)
What makes Best Business Practices?
Customer
Model
Best BusinessPractices
Customer Requirements
New Business Conceptsand technologies
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Enterprise Resource Planning (ERP)
An Example
Customer increases the order quantity.
Customer Representative (CR) changes the customer data.
Credit Dept. changes the
customer Credit Limit.
Production Dept. increases
the production.
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Enterprise Resource Planning (ERP)
The Resource Flow
Vendors Purchase Production CustomerSales
Finance Capital Manufacturing costs Profit/Loss Balance Sheet
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Enterprise Resource Planning (ERP)
ERP has the following advantages: Helps in restructuring
Helps in managing Inventory
Customer can check the Inventory and also see the processing ofthe order through Internet.
A 24 hours a day available system.
Helps in cost management (reducing the product cost!!)
Automated sales process
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Enterprise Resource Planning (ERP)
Major Vendors of ERP: Oracle
SAP
Baan
Peoplesoft JD Edwards
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Enterprise Resource Planning (ERP)
Take care of the followings: Make sure all business functionalities are covered under ERP.
Make sure that the integration of processes is complete andaccurate.
Check for the customization.
Be patient as ERP implementation takes time.
Make sure that complete training is provided to the users.
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Enterprise Resource Planning (ERP)
Summary Better way of managing Inventory.
Complete Integration of the functional aspects.
Automation of the Business Processes.
Complicated so be patient.
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Advantages of ERP System
The basic advantage of ERP is to save time and expense by integrating
myriad processes.Eradicate the limitations in the Legacy system.ERP helps management team to make proper decisions in anytime,anywhere by providing real-time information.ERP manages Management reporting and Decisions making promptly
with fewer errors and uniform throughout the organization.ERP automates the entire functional and business process, thus
increasing overall operational efficiency.Data becomes visible across the organization.It permits a company to maintain enhanced track of their products.By consolidating multiple security systems into a single structure, it
protects the sensitive data of that companySales forecasting, which allows inventory optimization
Order tracking, from acceptance through fulfillment
Revenue tracking, from invoice through cash receipt
Inventory reduction and improved cost controlIntegrates cost, profit and revenue information of sales that are madeTo find a best design process with high level quality of product.
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Disadvantages of ERP System
Invest more amount on technology and implement the system
Limited customization.
While doing business processes re-engineering to fit ERP system, it may spoil
competitiveness and/or divert focus from other crucial events/activities.Owing to centralized database in the systems, there is a risk of loss of data in
the event of security breach.ERP can cost more than less integrated and/or less comprehensive solutions.Devastating resistance to sharing sensitive information among the
departments, which can distract organization attention
Integration of truly independent businesses resulted in making an excessivedependencies.