Chapter 1- Basic Concepts (1)
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Transcript of Chapter 1- Basic Concepts (1)
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Supply Chain Management
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The way materialsflowthroughdifferent
organizationsfrom the raw materialsupplierto
the finished goodsconsumer.
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Flow of products and services from:
Raw materials manufacturers
Intermediate products manufacturers
End product manufacturersWholesalers and distributors and
Retailers
Connected by transportation and storageactivities
Integrated through information, planning, andintegration activities
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Supply
Chain forMilk
Products
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Supply Chain
A Supply Chain consists of all thepartiesinvolved,directly or indirectlyin fulfilling acustomer request for goods or services.
Each party is involved in variousfunctionsinvolved in receiving and fulfilling acustomers request
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2-8
New
Product
Development
Marketing
and
Sales
Operations Distribution Service
Finance, Accounting, Information Technology, Human Resources
e a ue a n: n agebeteen Supply Chain and
!ther "unctions
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Production:refers to the capacity of a supply chain
to make and store products.Key Production Decision Responsiveness VSEfficiency
Factories and Facilities with Excess Or Limited
capacities?Focuses on:
Customer & market demand
Resource Management
#Internal sourcing (what and which plants)
#Outsourcing to capable suppliers
Capacity Management
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Inventoryis spread throughout the supply chain and
includes everything from raw materialtowork in processtofinished goodsthat are held by themanufacturers,distributors, andretailersin a supply chain.
How Much Inventory and Where to Store It?
Reasons for holding inventory:
Cycle InventoryThis is the amount of inventory needed tosatisfy demand for the product in the period between
purchases of the product.
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Safety Inventorythat is held as a bufferagainst uncertainty.
Seasonal InventoryThis is inventory that isbuilt up in anticipation of predictable increases
in demand that occur at certain times of theyear
Analysis of fluctuations in demand
Identification of optimal storage locations insupport of customer demand
Identification of optimal storage locations in
support of customer demand
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Location:refers toStrategic placementofproduction plants,distributionandstockingfacilities
It is the geographical positioning /siting ofsupply chain facilities
Factors that relate to a given location including
the cost of facilities, the cost of labor, skillsavailable in the workforce, infrastructure
conditions, taxes and tariffs, and proximity to
suppliers and customers.
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Transportation:refers to movement ofeverythingfromraw material to finished goodsbetween differentfacilitiesin a supply chain
In transportation the trade-off between responsivenessand efficiency is manifested in the choice of transportmode.
Shipwhich is very cost efficient but also the slowestmode of transport
Railwhich is also very cost efficient but can be slow.
This mode is also restricted to use between locations
that are served by rail lines
Airplanesare a very fast mode of transport and are
very responsive.
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Pipelinescan be very efficient but are restricted tocommodities that are liquids or gases such as
water, oil, and natural gas
Trucks/Roadare a relatively quick and very flexible
mode of transport. Trucks can go almost anywhere.
Electronic Transportis the fastest mode of
transport and it is very flexible and cost efficient.
However, it can only be used for movement ofcertain types of products such as data, and
products composed of data such as music,
pictures, and text.
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Timely and accurate information holds the promiseof better coordination and better decision making.
Information is used for two purposes in any supplychain:
1.Coordinatingdaily activities related to thefunctioning of the other four supply chain drivers:
production; inventory; location; and transportation.
2.Forecasting and planning/Decision Makingto
anticipate and meet future demands.Obtaining, linking and leveraging informationacross the Supply Chain
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1.Producers
Raw materials, Intermediary Products, Finished
goods
2.Distributors:are companies that take
inventory in bulk from producers and deliver a
bundle of related product lines to customers
A distributor is typically an organization thattakes ownership of significant inventories of
products that they buy from producers and
sell to consumers
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A distributor can also be an organization that only
brokers a product between the producer and the
customer and never takes ownership of that
product
Distributors buffer the producers from fluctuations
in product demand by stocking inventory.
Perform Sales work and at times
Marketing/promotion / After Sales Services
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3.Wholesalers:stock a range of products fromseveral producers. The role of the wholesaler isto sell onto retailers. Wholesalers usuallyspecialize in particular products.
4.Franchises:are independent businesses thatoperate a branded product (usually a service) inexchange for a license fee and a share of sales.
5.Agents:sell the products and services ofproducers in return for a commission (apercentage of the sales revenues)
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6.Retailersoperate outlets that trade directly
with household customers. Retailers can be
classified in several ways:
Type of goods being sold( e.g. clothes, grocery,furniture)
Type of service (e.g. self-service, counter-service)
Size (e.g. corner shop; superstore)
Location (e.g. rural, city-centre, out-of-town)
Brand (e.g. nationwide retail brands; local one-
shop name)
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7.Customersorconsumersare any organization
that purchases and uses a product
A customer organization may purchase a product
in order to incorporate it into another product
that they in turn sell to other customers
A customer may be the final end user of aproduct who buys the product in order to
consume it.
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8.Service Providersare the organizations that
provide services to other participants which mayinclude:
Logistic Providers which provide transportationand warehousing services
Financial Service providers such as Banks,
collection agents, credit companies
Other service providers such as Marketing
Research companies, Advertising agencies,
engineers , legal consultants, HR consultants etc
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The design and management ofseamless,
value-added processacrossorganizational
boundaries to in order to minimize total system
cost and satisfy end customers
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Reliability
Responsiveness
Flexibility
Cost
Asset Management
ualit
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$ncreased Sales:# "aster to Market# $%pro&ed 'uality# Pricing "le(ibility
# $nno&ationLoer Total Cost:# )c*uisition Cost# Processing Cost# 'uality Cost# +onti%e Cost#
,isk Cost# Cycle Ti%e Cost# Con&ersion Cost# on-&alue )dded Cost# Supply Chain Cost# Post !nership Cost
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,eturn on$n&est%ents
./0/1
Total assets34///4///
Sales
54///4///
+i&ided by
Profit%argin
81
)sset turno&errate.025
Multiply
Cash6//4///
)ccountrecei&able6//4///
$n&entories5//4///
)ssets
Labor
7//4///
Materials246//4///
!&erhead
8//4///!peratingcostele%ents
5.54///9
64854///924.854///9./0619
.029
64;754///9
.4/754///9
3754///9
.60/19
What if wedecreasematerials cost
by 5%?(or $115,000)
Sales54///4///
et inco%e3//4///
+i&ided by
"i(ed assets24;//4///
Current assets.4.//4///
Plus
!ther costs8//4///
Sales
54///4///
Cost of
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If the same profit increase were to be generatedby increasing sales, what sales increase wouldbe required?At the existing 8% profit margin, the followingcalculation provides the answer
Profit increase = new sales X .08
$115,000 = new sales X .08
new sales = $1,437,500
therefore..
($1,437,500 / $5,000,000) X 100 = 28.8%or a sales increase of 28.8% is required tomatch the profit increase generated by a 5%reduction in materials cost
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+ecision Phases of a SupplyChain
# Supply chain strategy or design# Supply chain planning
# Supply chain operation
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Push=Pull Vie of SupplyChains
Processes are divided into two categories,pull or push
Procurement,Manufacturing and
Replenishment cycles
Customer Order
Cycle
Customer
Order Arrives
PUSH PROCESSES
executed in anticipation
of a customer order
PU!! PROCESSES
executed in response to acustomer order
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Push=Pull Vie ofSupply Chain Processes
Supply chain processes fall into one of twocategories depending on the timing of theirexecution relative to customer demand
Pull: execution is initiated in response to acustomer order (reactive)
Push: execution is initiated in anticipation ofcustomer orders (speculative)
Push/pull boundary separates pushprocesses from pull processes
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Push=Pull Vie ofSupply Chain Processes
Useful in considering strategic decisionsrelating to supply chain design more global
view of how supply chain processes relate to
customer ordersCan combine the push/pull and cycle views
L.L. Bean (Figure 1.6)
Dell (Figures 1.7)
The relative proportion of push and pullprocesses can have an impact on supplychain performance
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>(a%ples of Supply Chains
Gateway
Zara
WW Grainger and McMaster-Carr: MRO suppliers*
Toyota
Amazon.com
How do these supply chains differ in terms of theirdesign? Where are the push/pull interfaces? How
does the location of these interfaces affect theirdesign?