Fundamentals of Supply Chain Management Final

8/3/2019 Fundamentals of Supply Chain Management Final

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Supply Chain

Management Fundamentals


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Program Objectives

By the end of this program, participants will be able to develop a

clearunderstanding on:

Supply chain management as a concept

Globalization and its impact on supply chain management

Corporate Strategy and Supply Chain Strategy and the need to

align the two strategies

Strategic importance of customer focus and the demand-driven

supply chain

Risk management strategies that focus on security and continuity of

operations

Use of corporate and supply chain strategy to drive supply chain

decision making


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Learning Objectives (continued)

Principles underlying successful management of people in the supply

chain

Use of metrics to guide supply chain management

Financial impact of supply chain management decisions on costs and

profits

Impact of Security and Compliance issues on supply chains

Concept and purpose of continuous improvement

Benefits of benchmarking to improve supply chains

Continuous Improvement Strategies for Supply Chains

Role of demand planning in supply chain management


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Sources of Variability in demand

Supply chain dynamics, especially the bullwhip effect.

Forecasting process

Collaborations among supply chain partners to facilitate successful

demand planning

Role of marketing in demand planning

Collaborative design for the supply chain and contribution of design to

product cost and delivery cost

Levels of supplier involvement in product design

Role of modularity, mass customization, and design for remanufacture in

the design of services


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Concepts, purposes and elements of Sales Plan, Sales andOperations Planning, and Production Plan

Steps to follow in creating a master production schedule

Concepts of Independent Demand and Dependent Demand

Purpose and elements of material requirements planning

Concept and Objectives of Capacity Requirements Planning (CRP)

Concept, benefits and elements of Inventory Management

Logistics as a concept and its relationship to supply chain strategy


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Various logistics components and functions

o Warehousing

o Value-Added Services

o Transportation

o Logistic Service Providers

o

Reverse Logistics Current Trends in Indian & Global Logistics Industry


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What is Supply Chain

Strategy? Is there a

need to align Corporate

Strategy & Supply Chain

Strategy?

What is the role of

metrics in supply

chain

management?

What is Supply

Chain

Management?

How can we

successfully

manage people in

the Supply Chain?

It is critical foryou to understand these key

concepts ofSupply Chain Management

Lets understand these concepts one by one


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Introduction to Supply Chain ManagementIntroduction to Supply Chain Management


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SCM isSCM is

According to the Council of Supply Chain Management

Professionals (CSCMP), SCM encompasses the planning and

management of all activities involved in sourcing,

procurement, conversion and logistics management

It also includes the crucial components ofcoordination and

collaboration with channel partners, which can be suppliers,

intermediaries, third-party service providers and customers.

It includesIt includes


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Now that we have defined what Supply Chain

Management is

Lets see how does a typical Supply Chain looks like


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Identifying Supply Chains

Basic supply chain: three entities

Supplier Producer Customer

Raw materialsComponents

Services

Energy

ProductsPower

Professional services

Government services

Educational services

RetailerWholesaler

Distributor

End user


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Manufacturing supply chain model

Information flow

Manufacturer

Distributor

Customer

Customer

Customer

Customer

Distributor

Tier1 materials

supplier

Tier1 materials

supplier

Tier1 servicesupplier

Tier2 materials

supplier

Tier2 materials

supplier

Tier2 materials

supplier

Tier2 service

supplier

Tier2 service

supplier Primary cash flowPrimary product flow


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Services als

ohave supply chains

Electric Power

Utility

Electric backup

power

Home

customers

Electric

transformers

Commercial

customers

Fuel supplies

Facility

maintenance

Janitorial

services

Programming

services

Other

utilities


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Afterhaving looked at various

types ofsupply chains

Lets now identify key supply chain processes and see

how a supply chain evolves


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Key Supply Chain Management Processes

Functions in a company that add value to goods orservices

Value chain

Value stream

Supply chain

Processes that create, produce, and

deliver a product or service

Entities, functions within entities, andprocesses

Functions in a company that add

value to goods or services


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SCORSC reference model

ReturnReturn Return

Return CustomersCustomer

Deliver

Suppliers

Supplier Supplier

Internal or External YourCompany

Customer

Internal or External

SourceDeliverMakeDeliverMakeSource Source

Plan

Return ReturnSource

Return

DeliverMakeReturn

Plan Plan

Source:Adapted from Supply-Chain

Council (SCC)


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Five SCOR processes

Deliver

Return

Make

Source

Plan Demand/Supply Planning and Management

Sourcing Stocked, Make-to-Order, and Engineer-to-Order

Product

Make-to-Stock, Make-to-Order, and Engineer-to-Order

Product Execution

Order, Warehouse, Transportation, and Installation

Management forStocked, Make-to-Order, and Engineer-

to-OrderProduct

Return ofRaw Materials and Receipt ofReturns of

Finished Goods


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Evolution ofSupply Chain Management

Two types ofsupply chain management

Rawmaterialsextraction

RetailsalesDistribution

Production

ComponentsProductsServices

Lateral (Horizontal) Integration

Coordinated management ofseparately

owned links in the supply chain;

outsourcing

Raw materials extraction

Production components/products/services

Distribution

Retail sales

Degree to which a firm directly controls

multiple links in the supply chain from

raw material extraction toretail sales

Vertical Integration


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1: Multiple

Dysfunction

2: Semifunctional

Enterprise

3: Integrated

Enterprise

4: Extended

Enterprise

Impulsive

activity

Pep talks,

threats

No

teamwork

Little

information

exchange

Mostly manual ops

Inventory reduction in

owned facilities

New low-price

purchasing strategies

Some hard-skills

training, job

enhancement

Enhanced marketing

and forecasting

No coordination ofinitiatives

New focus on

process

Internal process

integration

MRP/ERP

Intranets, etc.,

across functions

Design teams

Enhanced

warehousing,

logistics,forecasting, etc.

Process integration

across entity

boundaries

Eventual electronic

information

connections among

multiple partners

ERP-to-ERP links

E-commerce

Supply chain vs.

supply chaincompetition

Stages ofSCM Evolution


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Stage 3: Integrated Enterprise

ERP

Materials/products/services

Payments

Marketing/sales

Purchasing Productioncontrol

Suppliers DistributionR&DLogistics

Suppliers

Customers

Suppliers

Customers

Customers


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Stage 4: Extended Enterprise

Networked information flow

Materials/products/services

Payments

Supplierssuppliers Inte

rnalchainSuppliers Cust

ome

rscustomersCustomers


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Creating Value through SC Management

Customervalue

Most resources are invested in creating the value of greatest

importance to the market.

Quality Affordability Availability ServiceEnvironmental

Impact


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YouSafexper

t

Globalization is a

process of interaction

and integration amongthe people, companies,

and governments of

different nations, a

process driven by

international trade and

investment and aided byinformation technology.

What is Globalization?

Lets look at some keys to Global SCM Success


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YouSafexper

t

The globalization of

business is the best thing to

happen to supply chainmanagement (SCM) in the

last 30 years. Driven by

overwhelming market

forces, globalization has

forced countries and

companies to become more

efficient, creating the

infrastructure and

competitive advantage

necessary to survive.

What is the impact of

Globalization on SCM?

Lets look at some keys to Global SCM Success


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Impact ofGlobalization on SC Management

10 keys to Global SCM Success

Delivered cost

Logistics automation

End-to-end visibility

Supplier portals and advance notice Total ID and regulatory compliance

Transportation flexibility

Variability management

Integrated workflows

Integrated planning and execution

Financial SCM


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Globalization has indeed changed

the scenarioforSupply Chains

Lets now look at what is Corporate Strategy andSupply Chain Strategy, the importance

ofaligning the two, and need to alter these


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Supply Chain Management Strategy

Supply chain strategy = Corporate strategy

S2 S1 Nucleusfirm

C2C1 How does your corporate

strategy relate to supply chain

strategy?

Are corporate and supply chain

strategies aligned?

When is the right time for a

change in strategy?

How do you develop strategic

collaborations?

What is your strategy for

managing risks?

The power of strategic thinking:

It can be a little bit like magic.


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Corporate Strategy

Strategy: Demand-Driven Enterprise

Demand variability among end users

increases at each stage in the chain

because of inherent inaccuracies in each

firms demand forecasts.

Trust and collaboration among supply

chain partners.

Access to real demand data shared

along the supply chain.

Agility to respond to variability in the

flow of orders.

Pull! Dont push.

Solution: Substitute real informationforforecasts.

Problem: Bullwhip Effect


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Corporate Strategy

Strategy: NumberofSupply Chains

Nucleus

Firm Innovative products

Functional products

CustomersSuppliers

High average utilization rate

Minimal inventory with high turns

Short lead time

Suppliers offering cost, quality

Products with maximum performance,

minimal cost.

Buffer capacity (safety stock)

Aggressive reduction of lead times

Suppliers chosen for speed, flexibility,

quality (less emphasis on cost)

Modular design with postponement of

differentiation.

Supply chains forfunctional products need Supply chains for innovative products need


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Corporate Strategy

Supply chain versus supply chain

Competition

between groups of

companies in

completely distinct

networks

Competition

between individual

companies with

different SCM

capabilities

Competition

between channel

masters with power

to determine nature

of supply network

Scenario One ScenarioTwo ScenarioThree


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Corporate Strategy

Building blocks ofcollaborative relationships

Incentives to collaborate

Collective management of

inventory

Leaders with authority

Sharing of knowledge, not only

data

Visible sharing of benefits,

burdens

Varied partner commitment types

Information exchange and

connectivity

Network-wide focus

Network-wide visibility of

inventory

Deterrents to improper

behavior

Trust-building processes


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Corporate Strategy

Management tasks

Stay involved after completing the design

Designate relationship goals and steps to achieve them

Define roles for each partner, avoiding redundancy

Design contracts and a process for resolving

conflicts

1

23

4


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Corporate Strategy

Barriers to collaboration

Each partner working for its own benefit, not the chains

Sub-Optimization

Example: sales bonuses not based upon results at end-user level

Misaligned Incentives

Failure to treat competitor partners with caution

Working with Competitors

Limits imposed by slowest, least sophisticated partner

Weak partnerbottlenecks


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Corporate Strategy

Barriers to collaboration (continued)

Incompatible ERP software, etc.

Technology Barriers

Rebellion of weaker partners against aggressive nucleus firm

Power-based relationships

Example: measuring efficiency gains rather than focusing on ROI

Underestimated benefits

Inability to see value of other ways of doing business

Culture conflicts


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Aligning SC Strategy with Corporate Strategy

Strategic Planning

Goal

Chain

Supply


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Organizational

Design

Supply Chain

Processes

Systems and

TechnologyPeople

Supply Chain

Metrics

Stage of

EvolutionDesign Characteristics

Stage IAd hoc decisions, poorly planned meetings, little or no training,

etc.

Stage II

Functional organization with each function in its own silo making

separate decisions; possible automation, job enrichment, soft

skill training

Stage III

Cross-functional teams focused on business wide process

improvement; team training; cross-functional communication,

automation

Stage IVCross-company partnerships among process-oriented, integrated

partners; global sourcing; executive-level direction

Strategic Planning: Organizational Design



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Organizational

Design

Supply Chain

Processes

Systems and

TechnologyPeople

Supply Chain

Metrics

Strategic Planning: Supply Chain Processes


Supplier relationship management

Customer relationship management

Customer service management

Finance management

Manufacturing/production management

Order fulfillment management

Returns management

Other


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Organizational

Design

Supply Chain

Processes

Systems and

TechnologyPeople

Supply Chain

Metrics

Strategic Planning: People


Educated in Supply chain thinking

Hired, trained, or borrowed from other functions

Knowledgeable in matters beyond one functional

area

Working in teams with a cost management

specialist

Managed diplomatically

Hired by HR with understanding of SC issues

Championed by executive


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Organizational

Design

Supply Chain

Processes

Systems and

TechnologyPeople

Supply Chain

Metrics

Strategic Planning: Supply Chain Metrics


Current performance comparisons:

o Past performance

o Desired performance

o Competitors performance

o Industry average performance

o World-class or best-in-class

Checklist comparisons


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Competitive Priorities and Future Direction

Five Vsof

SCM

Visibility Velocity Variability Variety Volume

Manage to

MatchDemand

Manage to

Increase

Manage to

Decrease


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We have seen how we can strategically plan for

organizational design, processes, people and

metrics to align these with ourSC strategy

Lets now have a look on risk management strategiesthat focus on security

and continuity ofoperations


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SC Risk Management Strategies

Risks Risk Management Strategies

Transportation failures Redundant vehicles, modes, operators, etc.

Supplierfailures Multiple suppliers

Climate change, weather Contingency planning (alternate sites, etc.), insurance

Licensing and

Regulation issuesUp-front and continuing research, good legal advice,compliance

Supply qualityCareful supplier selection and monitoring; beware the low

bid for crucial components

Loss ofcustomersService, product innovation, customer communication,

constant prospecting

Theft and vandalismInsurance, security precautions, knowledge of likely risks,

patent protection, etc.


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SC Risk Management Strategies

Risk prevention

Assess

Transportationfailures

Supplierfailures

Climate, weather

Licensing,regulations

Supply quality,

liability Lost customers

Theft, vandalism,etc.

Balance risk

Management

and Cost

Assess RisksPrepare

for

Disruption

Share risks

among Supply

Chain

PartnersBalance

Invest in supplychain flexibility

Have contingencyplans

Be insured

Invest in security

Prepare

Do contingencyplanning.

Go beyond extrasupply.

Know bestpractices.

Plan forsupplierloss.

Test and train.

Maintaininformation flow.

ConsiderRFID,GPS, etc.

Share

Work with partners Ensure reliableroles

Coordinateresponse to crisisorproblems


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Having looked at Risk Management Strategies to

Improve Supply Chains

Lets now see how we can use corporate and supplychain management strategies to drive

supply chain decision making


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Supply chain

strategy

Corporate

strategy

Decisionsabout

Customers & Markets

Technology

Process

Make-or-buy

Using Corporate/SC Strategies to Set Priorities/

Make Decisions


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Supply chainstrategy

Corporatestrategy

Make-or-buyDecision Issues

Is the activity a core competency?

What is the landed cost?

What are the consequences oflosing skills orknowledge?


Make Decisions


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Make Decisions


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Elements ofSupply Chain Management

NetworkPlanning

SupplyContracts

ProductDesign

Outsourcingand Procurement

Strategies

InventoryControl

SCM

Customer

ValueIT & Decision

SupportSystems


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We have seen how corporate and supply chain

strategy drives supply chain decision making

Lets now have a understand the sue ofmetrics to

guide supply chain management


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Supply Chain Performance Metrics

Wont achieve what cant be measured

Cant measure all possible objectives

Choose reasonable number of KPIs

Consider balanced Scorecard and SCOR KPIs


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Key Performance Indicators (KPIs)*

*Apply KPIs only to processes and activities based on corporate and supply chain

strategies.

KPIs forProductIntroductions

KPIs forMerchandizingProducts

KPIs forReplenishment

Internal failure rate

External failure rate

Introduction leadtime

Market share

Volume growth

Total SC inventoryturns (across chain)

On-time delivery

Order fulfillmentlead time

Order fill rate


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CustomerPerspective

On-time delivery,

satisfaction, etc.

Measure current

performance

Can predict futureprospects


Balanced scorecard

Customer Perspective

Goals Measures

Business Process Perspective

Prospecting calls,

productivity, etc.

Also flexibility,waste reduction,

other SC goals

Business Process

Perspective

Goals Measures

Financial Perspective

Traditional

Cash-to-cash, ROI,

etc.

Retrospective only

Must always bepresent

Financial Perspective

Goals Measures

Innovation & Learning Perspective

Formal staff

training, manage- --

ment training, etc. Product or process

innovations

Innovation &

Learning Perspective

Goals Measures


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Level 1 SCOR metrics

Supply Chain Council (SCC) model

Primary, high-level measures, not tied to plan, source,

make, deliver, return processes

Cross-industry standard for SCM

Formulas included for each attribute

Dozens of firms contribute to metrics


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SCOR metrics and Performance Attributes

Performance

AttributePerformanceAttribute Definition Level 1 Metric

Supply Chain

Reliability

SC performance in delivering correct product to correct

place at correct time in correct condition and packaging in

correct quantity with correct documentation to correct

customer

Perfect order fulfillment

Supply Chain

Responsiveness Speed at which SC provides products to customer

Order fulfillment cycle

time

Supply Chain

Flexibility

Agility of SC in responding to marketplace changes to gain

or maintain competitive advantage

Upside SC flexibility &adaptability

Downside SCadaptability

Supply Chain

CostsCosts associated with operating the supply chain

SC management cost

Cost of goods sold

Supply Chain

Asset

Management

Effectiveness of organization in managing assets to support

demand satisfaction, including management of all assets:

fixed and working capital

Cash-to-cash cycle time

Return on SC fixedassets


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Supply Chain Reliability

SCORLevel1 Metric

Calculation

Percentage of ordersmeeting delivery

performance withcomplete and accuratedocumentation and nodelivery damage

Definition

Perfectorder

fulfillmentTotal Perfect Orders

Total Number of Orders


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Supply chain responsiveness

SCORLevel

1 MetricCalculation

Average speed at which

the supply chain

delivers products to

customers

Definition

Average

OrderFulfillment

Cycle Time

Sum of Actual Cycle

Times for All OrdersDelivered

Total Number of Orders

Delivered


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Supply Chain Flexibility

Downside SC

Adaptability

Number of days an organization requires

to achieve an unplanned sustainable

20% increase in quantities delivered

Upside SC

Flexibility

Largest sustainable quantity decreaseconsidering source, make, and deliver

components

Upside SC

Adaptability

Least amount of time required to

achieve the increase considering

source, make, and delivercomponents

Amount of increased production an

organization can achieve and sustain in

30 days

Largest sustainable quantity increase

considering source, make, and deliver

components

Reduction in quantities orderedsustainable at 30 days prior to delivery

with no inventory/penalties

SCORLevel

1 MetricCalculationDefinition


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Supply Chain Costs

Supply

chain

Management

Cost (SCMC)Cost of

Goods sold

(COGS)

All direct and indirect expenses

associated with operating

SCOR business processes

across the supply chain

Cost

to

Plan

Cost to

Source

Cost to

Deliver

Cost to

Return+++

Supply chain expenses not

measured in supply chain

management costs

SCORLevel 1Metric CalculationDefinition

Cost of Goods Sold = Direct

Material + Direct Labor + Overhead


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Supply chain asset management

Cash-to-cash

cycle time

Return on

supply chain

fixed assets

Time required for an

investment in raw materials to

flow back in an organization

Return an organization

receives on capital invested

in supply chain fixed assets

used in plan, source, make,

deliver, and return activities

Inventory Days of Supply Days of Sales

Days ofPayables Outstanding

+Outstanding

Supply Chain Revenue COGS

Supply Chain Management Costs

Supply Chain Fixed Assets

SCORLevel 1

MetricCalculationDefinition


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We have seen how we can measure the cost,

asset management capabilities, flexibility,

responsiveness and reliability ofsupply chains

Lets now see the financial impact ofsupply chain

management decisions on cost and profits


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Managing the SC forFinancial Performance

Taxes and the supply chain

Tax savings

Procurement

Logistics networks

Information technology


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We now know about the various concepts of

supply chain management including the

management offinancial performance

Lets see what kind of leadership and management is

required formanaging supply chains effectively


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Managing and Leading People in the SC

Extended Enterprise

S2 S1 C2C1

Integrated

nucleus firm

with cross-

functional

teams

Management by supply chainprofessionals who

See linked processes

Can manage critical relationships

Understand the business model

Decide based on analysis, fact

Have cost management ability

Understand e-business systems


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Managing and Leading People in the SC

Leadership and Management

VS.

Leader Manager

Develops objectives in line

with organizational strategies

Hires acceptable employees

Communicatesresponsibilities clearly

Solves problems

Counsels employees

Promotes needs of

employees to management

Interacts with other

departments

May or may not be a leader

Exists outside organizational

chart

May or may not be a good

manager

Knows what to do in a crisis

Attracts followers to help solve

problems

Inspires great

accomplishments

Has a vision for his or her

organization


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Now, we are aware of the competencies required

formanaging and leading supply chains

effectively

Lets also study the impact ofsecurity and compliance

issues on the supply chains


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Security and Compliance Issues

Security issues

Container security

Facility access

Info systems access

ID systems

Global terror protection


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C-TPAT (Customs-Trade Partnership Against Terrorism)

Voluntary partnership ofbusiness and government

Available to importers, brokers, warehouse operators, manufacturers

Focus on self-assessment

Guidelines provided forsecurity procedures, training, accesscontrols, etc.

Benefits include Free inspections

Account manager

Access to membership list

Special account processes

Self-policing rather than customs verification.


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Financial Reporting

Compliance Issues

Sarbanes-OxleyAct (SOX)2002: Focuses on corporate governance with the goal of

protecting investors by adding to the scope of disclosures already required by U.S.

securities laws and requiring segregation of duties.

Section 401:Applies to all publicly traded companies. Requires disclosure of certainoff-balance-sheet transactions and other relationships that affect a firms financial

condition and operations such as service contracts and VMI arrangements.

Section 404: Requires annual reports to include internal control report that states

managements internal controls for financial reporting and contains assessment of the

effectiveness of these controls.

Benefits ofcompliance with SOX: Encourages a more competitive supply chain and

enhances both investor and market confidence.


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Sustainability

Compliance Issues

Material content reporting: Regulates handling of hazardous materials and

encourages more thorough documentation and disclosure of potentially problematic

trade goods.

Independent green initiatives: Encourages reuse, recycling, and recovery ofindustrial materials and responsible handling of end-of-life products.

U.S. Food and Drug Administration regulations: Require more thorough

documentation of the chain of custody of drugs as they move from company to

company, including distribution centers and carriers.

Packaging: Encourages global solutions to issues related to wooden shipping pallets

such as harboring harmful insects, use of hazardous sterilization chemicals, and

contributions to the waste stream.


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We are now aware about the impact ofsignificant

regulations on supply chains

Lets now understand the concept ofcontinuous

improvement and how it can be used as a SCM Strategy


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Continuous Improvement

Root

causes

Small

steps

Never-

ending

Process-

oriented

Total QualityBottom-up

implementation

Top-down

direction

C i I


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Continuous Improvement

Continuous improvement model

Process assessment

Implementation and change management

Project planning

Process analysis

4

3

2

1

Vi ibilit d A l i


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Visibility and Analysis

Visibility and analysis

You cant fix what you cant see.

Sharedcustomer

data

Sharedsupplier

data

Facts Are YourFriends

Vi ibilit d A l i


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Process analysis

OrderFulfillment Process Map

Customerneeds item

Order

fulfilled

ShipmentNeeded?

Createmaster

data

Customerin system?

YesEnterorder

Orderblock

(auto)

A

NoA

Yes

No

Createshipment

Performgoods issue

Create

invoice

Vi ibilit d A l i


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Identify the pattern

LCL

UCL

CL

Time

Control chart

Defect measurement

Makes variance visible

Contains samples from sequences

Reveals spikes indicating defects

Straightforward counting of

defects

Customerdefines defect

Customercomplaints

Focus groups

Vi ibilit d A l i


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Finding root causes

Methods

Pareto diagrams

Cause-and-effect diagrams

Root cause analysis

Paretodiagram

15

Occurrence

%

Attribute

80

4Weight Etc.Finish Shape

1

Cause-and-effect diagram


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We have looked at the ContinuousImprovement Model as well how to increase

visibility and analyze the root

causes ofproblems in supply chains

Lets now understand the concept and benefits offollowing benchmarking and continuous improvement

strategies/ methods in SCM

G l d B h ki


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Goals and Benchmarking

Benchmarking

Definition: Setting goals by comparison to another entity

or authoritative definition of excellence

Competitivebenchmarking

Setting goals by

reference to a

competitor

Processbenchmarking

Setting process

goals by reference

to an authoritative

process description

(e.g., Oliver Wightchecklist)

Best-in-classbenchmarking

Setting goals by

reference to the

best performer

Contin o s Impro ement Methods


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Continuous Improvement Methods

Five-phase six-sigma process

Define the problem

Measure existing performance; record informationabout underlying causes

Analyze information to determine root causes ofproblem

Improve process by effecting solutions to problem

Control process until solutions become ingrained

M

C

I

A

D



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Just-in-Time (JIT)

Cycle time reduction

Inventory reduction

Lab

orco

streducti

on

Quality cost reduction

Material cost reduction

Improved vendorrelationships

JIT principles JIT benefits

Eliminate waste

Eliminate variability

Pull, d

ont push(Kanban)

Strive forcontinuousimprovement



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Lean supply chain thinking

Eliminate waste in value streams.

Meet customerdemand.

Increase velocity.

Reduce need forworking capital.Increase inventory turns.

Gain market share.

Increase profitability.

Develop the workforce.

Produce perfect quality.

Lean principles

House ofToyota

Value stream mapping

Kaizen event (blitz)

Lean objectives

Implementation and Change Management


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Implementation and Change Management

When implementing improvements

Choose KPIs (workable number) and set baselines; use

all four quadrants of BSC

Have master plan and project plans

Communicate plans to all participants

Conduct a pilot to build confidence

Address change management issues

Monitor and adjust

Topic Review


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Topic Review

Key supply chain management processes

Creating value through supply chain management

Impact of globalization on supply chain management

Aligning supply chain strategy with corporate strategy

Competitive priorities and future direction

Using ERP to align operations with strategy

Supply chain risk management strategies

Using corporate and supply chain strategies to setpriorities and make decisions

Elements of supply chain management

Topic Review


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Topic Review

Supply chain performance metrics

Managing the supply chain for financial performance

Managing and leading people in the supply chain

Synchronization and key success factors

Security and compliance issues

Visibility and analysis

Goals and benchmarking

Continuous improvement methods Implementation and change management


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We have looked at the strategies

for improving supply chains

Lets now understand the role of

Demand Planning in SCM

Demand Planning An Overview


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Demand

Trend

Seasonality

Randomvariation

Cycle


Demand: c

omp

onents

Trend: Linear, geometric, exponential

Seasonality:Holidays, weather

Random variation:

Data fluctuation caused by random

occurrences

Cycle: Increases/decreases in

economy



87/243

What causes demand variability?

How can supply chains reduce

variability?

How can organizations improve demand

forecasts (which are always wrong)?

How can supply chain partners

collaborate on demand planning?

What is marketings role in demand

planning?

Aspects ofDemand Planning

Demandvariability

Reducevariability

Improveforecasts

Partnercollaboration

Role ofmarketing



88/243

We had an overview ofDemand Planning

Lets now look at the sources ofvariability in Demand

Supply Chain Dynamics


89/243


o Forecast errors

o Lead times

o Order batching

o Price fluctuations

o Rationing and shortage

gaming Customerorders

Maximum

demand

Minimum

demand

Retail

orders

Distributor

orders

And soon up

the chain

Causes of the Bullwhip Effect



90/243


Avoid multiple forecasts.

Reduce lead times.

Reduce batched order sizes.

Keep pricing stable.

Prevent shortage gaming.

Postponement.

Countermeasures to tame the bullwhip effect

Customer

orders

Maximum

demand

Minimum

demand

Retail

orders

Distributor

orders

And soon

up the chain


91/243

We have understood the sources ofvariability in

demand and looked at supply chain dynamics

Lets now learn about the Demand Forecasting process

Forecasting


92/243

Forecasting

Principles offorecasting

Forecasts are

Necessary (sometimes)

Wrong (almost always, and they should include

an estimate of error)

More accurate for product groups than for

individual items

More accurate for near term than for long term

Not appropriate for dependent demand items.

Actual

Forecast

Monthly

Demand

Forecasting


93/243

Forecasting

Qualitative approaches toforecasting demand

Combined expertise of management; includes

pyramid forecasting and historical analogy

When to use qualitative

forecasting methods:

Fornew products

When hard data are

lacking

As a check on

quantitative forecasts

Management

estimate

Sales force

estimate

Estimate given by entire sales force, to cover

all customer types and to capitalize on market

insights; may be overly optimistic

Systematic gathering and analysis of data about

potential markets, sales, consumer attitudes, etc.

Market

research

Delphi

method

Personal

insight

Anonymous, repeated responses to questionnaires

and comments by selected experts

Estimate made by one person with special

experience, knowledge, or seniority

Forecasting


94/243

Forecasting

Intrinsic Extrinsic

Quantitative approaches toforecasting demand

Based upon time series data

from past performance of

product.

Generally show variability from Steady trends

Seasonality (not just

seasons)

Cycleslong-term ups and

downs

Chancerandom movement.

Based upon factors related to

demand forproduct, such as

Impact ofhousing starts

onfurnitu

re sales

Impact ofpopulation aging

on demand formedication,

assisted living, etc.

Forecasting


95/243

Forecasting

Intrinsic forecasting methods compared

*Previously calculated forecast**Constant = 0.2

Naive

forecast

Moving

average

Weightedmovingaverage

950

(Average ofprevious 3 months)

(975 + 1,125 + 950) 3 = 1,016.67 (1,017)

1,027

(Previous months demand)

Actualdemand

3-monthmovingaverage

Exponentialsmoothing

Weightedmovingaverage

Naiveforecast

Actual

demand

1,021

Method/Calculation

1,000

975

1,125

1,025

950 1,125

1,017

1,046

Prev. forecast + Constant** v Prev. forecast error:1,040 + 0.2 (975 1,040) = 1,027

Exponentialsmoothing

(Weighted average ofprevious 3 months)

(3 x 975 + 2 x 1,125 + 1 x 950) (3 + 2 + 1) = 1,020.83

1,040*

975

1,000

FebJan Mar MayApr

Forecasting


96/243

Forecasting

Seasonal index (by month) Average Januarydemand = 119 % ofmonthly average

demandSales (Demand)

Feb

Jan

May

950 975

Avg. Monthly Demand =

Total Avg. Annual Demand =

1,270

1,325

Apr

1,125

2006

983

Mar

Jul-Dec

2005Month

1,250

1,055

Deseas

onalizedAvg. Monthly

Demand200420062004

940 935950

950 940975

1,115 1,1251,005

1,250

SeasonalIndex

Jun 1,000

1,0421,083

Seaso

nalA

vg.Demand

1,260 1,260

975

942

955

1,082

1,233

12,663

1,036 (v 6)

1,055

1,055

1,055

1,055

1,055

1,055

1,055

1.17

1.03

0.91

0.89

0.92

0.98

1.19

(12,663 12)

Forecasting


97/243

Forecasting

Mean absolute deviation (MAD) with smoothingNOTE:Absolute

deviation

measures the

size of the

errornot the

directionand

therefore has

no +/ sign.

WMAPE is

replacing MAD

in many

organizations.

Absolute

DeviationDemand

Jun

May

Jul

Total Deviation

Month

2

ExponentialForecast with .4

Smoothing

(65.86 / 8 = 8.23)MeanAbsolute Deviation (MAD)

Error

(Deviation)

3

8.23

65.86

25Nov

16.13

+14.78 (25 10.22)

Oct 15

10.22

+7.96 (15 7.04)

Sep 5.0710 +4.93 (10 5.07)

Aug 5 5.12 0.12 (5 5.12)

Dec 15.87

14.78

7.96

4.93.12

5.2

7

10

+15.87 (32 16.13)

5.20 (2 7.2)

7.00 (3 10)

10.00 (4 14)

7.04

7.20

10.00

14.004

32

Forecasting


98/243

Forecasting

Standard deviation

Anotherway to calculate forecast error:

Standard deviation (approximate) = MADv 1.25

This calculation is commonly provided in most software

programs.

Forecasting


99/243

Fo ecasting

Extrinsic forecasting techniques

Extrinsic forecasts are based upon

factors related to demand fora

product orservice, such as leading or

lagging economic indicators.

Leading indicators are long-

term cyclical trends such as

Housing starts

Construction contract awards

Auto

mo

bile pro

ductio

nFarm income

Steel production

Gross national income.

Abstract Business Cycle Graph

Forecasting


100/243

g

Service sectorforecasting

Service businesses, such as

restaurants, may track

seasonal demand in units as

short as minutes.

Some restaurant variables

Workers pershift

Registers in operation

Numberofavailable tables

Space requirements(diners, queues, wait staff,kitchen staff, otherworkers)

Amount and types offoods

Percentageofsales by

hourofday

5-64-53-42-31-212-1 7-811-12 8-9 9-106-7

15%

10%

5%

20%Lunchtime Dinnertime

Hourofday


101/243

We have a clearunderstanding on Demand

Forecasting Process

Lets now look at various collaborations among supply

chain partners tofacilitate successful Demand

Planning

Types ofCollaboration


102/243

yp

Information sharing (quick response program,

orQRP)

Retailer provides POS data to supplier.

Customer (retailer) enters orders.Supplier synchronizes supply with demand

but may still do own forecasting.



103/243

yp

Continuous replenishment (CR)

Retailer provides POS data to supplier.

Supplier and customer collaborate on ship

dates.

Forecasts become more accurate, resulting in

reduced inventory.



104/243

yp

Traditional

Relationship

Vendor-Managed Inventory

CustomerRole

Buy goods from supplier.

Base orders on forecasts.

Stock shelves, design

displays, manage

storage, determinereplenishment.

Provide location.

Handle sales.

Participate in joint forecasting.

Manage relationship.

Provide logistical support.

SupplierRole

Sell to customer.

Base forecasts and

inventory on order history.

Provide logistical support.

Consign goods at customer location (sometimes

retaining ownership).

Determine display and storage.

Provide storage units (e.g., bins).

Determine replenishment schedule.

Maintain inventory records.

Handle delivery, receiving, stocking, counting.

Vendor-managed inventory (VMI)



105/243

yp

Measuring VMI success

Reduced or eliminated bullwhip effect?

Reduced inventory costs for the overall

supply chain?

Better on-time delivery percentage?

Reduced or eliminated stockouts?

Shorter lead time for deliveries?

Increased inventory turns?

Measurable

VMI

Benefits


106/243

YouSafexper

t

While we are talking

about various types

ofcollaborations

among supply chainpartners, CPFR is

one of the types to

facilitate Demand

Planning. Its full

form is Collaborative

planning,forecasting, and

replenishment

What is

CPFR?

Types ofCollaboration - CPFR


107/243

y

VendorManagement

Collaboration Tasks RetailerTasks

Analysis

Demand & Supply Management

Execution

Strategy & PlanningManufacturerTasks

Category Management

Store Execution

SupplierScorecard

Market Data Analysis

Demand Planning

Exception Management

Logistics/Distribution

Buying/Re-buying

Logistics/Distribution

Execution Monitoring

CustomerScorecard

Production & Supply Planning

Performance Assessment

Sales Forecasting

OrderPlanning/Forecasting

POS Forecasting

Replenishment Planning

OrderGeneration

OrderFulfillment

Collaboration Arrangement

Joint Business Plan

Account Planning

Market Planning



108/243

CPFR scenarios

Retail Event Collaboration

Collaborative Assortment Planning

DC Replenishment Collaboration

Store Replenishment Collaboration

Trading partnercollaboration on POSforecasts, store clustering, replenishment

parameters, presentation stock, assortment

optimization

Jo

intor

der

co

mmitments, co

llabor

ativeforecasting, joint order issuing, mutual

ordersupport to enhance VMI

Joint forecasting of industry trends,consumer tastes, macroeconomic conditions

using assortment plans with graphics,

purchase orders with style, color, size, etc.

Planning and executing promotions,handling exceptions, evaluating

performance forcontinuous improvement



109/243

CP

FR

Benefits* C

PFR

Challenges Increased sales

Faster turns

Improved inventory control

Cost savings

Improved in-stock and on-shelf Lowerlogistics costs

Increased costs

Resistance to data sharing

Difficulties in bridging internal

functions

May be mor

e diff

icult thancollaboration among firms

Hard forretailers to establish

supplier-specific teams

*Studies by Kurt Salmon Associates and AMR. See www.vics.org fordetails.


110/243

We have a clearunderstanding on Demand

Forecasting Process

Lets now understand the role ofmarketing in Demand

Planning

Role ofMarketing in Demand Planning


111/243

MarketResearch

ProductIntroductions

ProductManagement

Finding markets

Analyzing markets

Refining product

design

Educating

customers and SC

partners

Pricing

Placement

Packaging

Branding

Continuing

research

Upgrading designs

Altering strategy

Managing end of

life cycle

Impact of product design choicesRole ofMarketing in Demand Planning


112/243

S2S3 Plant C3S1 C2C1

How difficult

to make?

How costly

machines,

labor, etc.?

What raw

materials?

How to

source

materials?

How many

components?

How hard to

assemble

and when?

How easy or

hard and how

costly to

transport and

warehouse?

How reliable,

easy to use, easy

to service, easy

torecycle or

reuse?

On sale, service,

use, returns, etc.

Reverse product flow (reverse logistics)

On supplyOn manufacture

and assemblyOn logistics

Flow ofmaterials, components, products

Impact of product design choices


113/243

The Role ofMarketing in

Demand Planning is clear to us.

Lets now look at Collaborative Design for the SupplyChains, the contribution ofdesign to product cost and

the delivery cost and the levels ofsupplier

involvement

Collaborative Product Design for the SC


114/243

Evolution ofdesign for the supply chain

Supplier

Design

Sequential (first

blueprint, then

manufactu

re,then logistics,

etc.)

No cross-

functional

collaboration

No supplierinvolvement

Traditional

Design

Product design

by supplier

basedo

n generalspecifications

from buyer

Informal

Collaboration

Informal

consultation with

suppliers

Noformal

collaboration

teams, meetings,

etc.

Formal

Collaboration

Cross-functional

design teams

Formalcollaboration

among supply

chain partners



115/243

Varieties ofdesign collaboration

Concurrent engineering

(CE) and design for

manufacture (DFM)

Design for

logistics (DFL)

Logistics specialists add expertise on ease

ofpacking, shipping, storing, etc.

Designers, manufacturing engineers, suppliers

(and others) pool expertise to produce designs

that are ready to build/assemble.

Design teams considerhow to handle

products that need to be returned, repaired,

replaced, orrecycled; also wise energy use

and mitigation ofproduct hazards.

Design forreverse

logistics/

environment

Postponement Organization designs product andmanufacturing process so that differentiation isdelayed as long as possible.



116/243

Benefits ofdesign collaboration

S2S3 Plant C3S1 C2C1

Cost overruns reduced because ofefficient manufacture

Approaches to design improved with supplierexpertise

Satisfaction enhanced with marketing, customer input

Efficient transport, warehousing enhanced by innovation

Quality forprice improves with supplier input

Forsale, service,use, returns, etc.

Reverse product flow (reverse logistics)

ForsupplyFormanufactureand assembly For logistics

Flow ofmaterials, components, products

Varieties ofProduct Design


117/243

Component

commonality

Definition TradeoffsStrategy

Replace similarparts with a

single part.

Risks

Lowercost forbulk purchase

of identical parts

Production streamlining

Simpler, cheaperstorage

Benefits

Cost ofproduction modifications

Loss ofdesign flexibility

Possible reduction offit, finish

Replace multiple bolt

sizes with one size.

Modulardesign (see next

slide).



118/243

Modular

design

Design identical

components foruse in all

products in a family.

Risks

Lowerdesign cost forproduct

family

Production streamlining

Expanded customerbase

More efficient logistics

Benefits

Highercost perproduct (lower

forfamily)

Loss ofdesign flexibility

Possible reduction offit, finish

RAM modules for

computers

Interchangeable

camera lenses

Shoe laces

College courses

Definiti

on

Trade

offsSt

rategy



119/243

Universality

(also called

standardiza-

tion)

Design one product for

multiple markets. Can

combine with modularity

(one base product with

modules to adapt to

markets).

Risks

Increased sales volume

potential

Reduced cost ofdesign,

production compared to

market-specific products

Benefits

Potential loss ofsales in each

particularmarket

Less perceived quality, style

compared to specialized

products

Loss ofcustomer loyalty

One size fits all and

unisex clothing

Cars, trucks with option

packages fordifferent

market segments




120/243

Mass

customization

(also called

delayed

differentiation)

Delay final assembly of

components intofinal

products to increase ability

to customize to customer

specifications (assumes

modularity).

Risks

Economies ofscale

More efficient, expert workers

doing assembly

Increased sales volume (more

markets orsegments)

Reduced inventory costs

Benefits

Investment costs fornew

equipment, training, etc.

Possible friction with

distributors overadded tasks

Option packages on

automobilesfor

consumerselection

HPs assembly of

printers at distributor,

not factory




121/243

Design for

remanufacture

Products developed in a

manner that allows

components to be used in

otherproducts; process is

associated with green

manufacturing.

Cost advantages: materials and

resources

Cost savings forcustomer

Compliance with environmental

laws

Caterpillars customer-

driven replacement of

heavy equipment parts

Definition BenefitsStrategy


122/243

We have gained a clarity on collaborative design,levels ofsupplier involvement, various

approaches and factors affecting the design of

services

Lets now understand the concepts, purposes andelements ofSales Plan, Sales and Operations

Planning and Production Plan

Operations Planning and Control


123/243

Business Planning

Sales and OperationsPlanning

Material

Requirements

Planning

FinalAssembly

Scheduling

Demand

Management

Capacity

Requirements

Planning

Master

Production

Scheduling

Rough-Cut

Capacity

Planning

Initial sales tool

forraising capital

Parent of

future supply

chain

activitiesResource

Planning

Sales and Operations Planning (S&OP)


124/243

Business planning

Sales and operations

planning

Capacity

Planning

Masterscheduling

Detailed planning and

executio

n systems

Sales

planProduction

plan

Demand

Management

Forecasting

and



125/243

Contributions to sales and operations planning

S&OP Product groups

Demand Side Production SideCooperation



126/243

Monthly sales and operations planning process

Step 5

Step 4

Step 3

Step 2

Step 1

Pre-S&OP

meeting

Supply planning

Demandplanning

Data gathering

Statistical forecast reviewed by

sales and marketing

Supply management team may alteroperations plan ifnecessary

Key players review data, set

executive meeting agenda

Statistical forecast updated

VPs meet monthly toreview

decisio

ns and strategy

Executive

S&OP meeting

Master Production SchedulingSales and Operations Planning (S&OP)


127/243

Master Production SchedulingWeekly MPS

August

4

LX15 15-ppm

MPSWeeklyproduction numbers for

specific products

Aggregate production

plan (S&OP)

Months

Weeks

LX21 21-ppm

1,200

July

3214321

LX30 30-ppm

1,000

75

125

100

50

100

150 75

100

75

75

50

50

50

100

150

100

150

100

50

150

25

150

75

75

MasterProduction Scheduling


128/243

Purposes ofMPS

Provide sales-operations contract

o Assure sales force of product availability

o Assure operations of sales force commitment

Balance supply with demand for

o Low inventory costs

o Fewer stockouts

o More efficient production

MasterProduction Scheduling


129/243

MPS FocusSupply-Demand Option

Make-to-order(MTO)(Many items made from few

components; e.g., custom products)

Make-to-stock (MTS)(Few items made from many

components; integral design)

Assemble-to-order (ATO)(Many end items, few components;

e.g., computers assembled at or

nearpoint ofsale)

Schedule module production.

Schedule raw materials.

Schedule finished goods.

Master Production SchedulingMasterProduction Scheduling


130/243

Master Production SchedulingMasterscheduling grid

1 2 3 4 5 6 7 8 9

20 22 21 25 24 23 21 21 25

19 17 15 11 9 5 2 1 050

Period

Forecast

Cust. orders

ATP

PAB

MPSDTF PTF



131/243

Master Production SchedulingPlanning horizon

Component

lead time (1)

Raw material

lead time

Component

lead time (2)

Wk 8Wk 7Wk 6Wk 5Wk 4Wk 3Wk 2Wk 1

Raw material

lead time



132/243

Master Production SchedulingProjected available balance (PAB)

1 2 3 4 5 6 7 8 9

20 22 21 25 24 23 21 21 25

19 17 15 11 9 5 2 1 0

50 31 14 49 24 0 27 6 35 10

50 50 50

Period

Forecast

Cust. orders

ATP

PAB

MPS

DTF PTF



133/243

Master Production SchedulingAvailable-to-promise (ATP)

1 2 3 4 5 6 7 8 9

20 22 21 25 24 23 21 21 25

19 17 15 11 9 5 2 1 0

50 31 14 49 24 0 27 6 35 10

14 15 43 49

50 50 50

Period

Forecast

Cust. orders

ATP

PAB

MPS

DTF PTF


134/243

We have understood the concepts ofSales Plan,

Sales and Operations Planning and Production

Plan. We have also gained a clarity on purpose

and objectives ofMasterProduction Scheduling.

L

ets no

w loo

k at the pur

po

se and elementsof

Mater

ialRequirement Planning


135/243

Material Requirements Planning


136/243

S&OP

BusinessPlanning

CRPMRP

MPS RCCP

FAS

Demand

Mgmt.

Material

Requi

rements

Planning

Bills of

material

Master

production

schedule

Inventory

status

Make/buy

action plan

MRP

outputs

Planning

factors

MRP

inputs



137/243

Bill ofmaterial (BOM)

Summary BOMs list all parts and their quantities required in a given product

structure. Unlike indented bills of materials, summary BOMs do not list level of

manufacture, and they list components only once for the total quantity used.

Boxed Toy Wagon

Unit of Measure

Ea

Material Number Description Quantity

1Wagon base

L-54002039

5-1001

P-2354

EaAxle

5-3001

Ea

Ea24-2234A

4Wheel3-W33

1

Handle

121-233C

Ea

Ea

Ea

1

1

4

Corrugated box

Product label

Hub nut

Note:



138/243

Bill ofmaterialComputer-generated

bill ofmaterial

BOM forelectric motorLevel 3

Level 3 lists components

for three subassemblies:Stator assembly

Rotor assembly

End bell-top



139/243

The routing file

Operation

description

and standards

Operation

30

PackageWork centers

Fill line

Boxes, etc.

Operation

20

Package

Operation

number

Operation

10

Fill(100 bottles/minute)

Mix(1 hour/batch)

Blending

Bottles, caps,

and labelsIngredients

Map ofcomponents journey from work centerto work center



140/243

Lot-for-lot scheduling



141/243

Offsetting

One week

76543

G

81Time in Weeks

2

A

D

E

B

D

F

E

C

Must have D and E

completed here to

begin production on BStart production ofD

One week

One week

Two weeks

One week

Twoweeks to produce

Three weeks

Two weeksTwo weeks



142/243

Managing MRP

Counteracting nervousness

o Net change (not plan regeneration)

o Time fences (rescheduling only with authorization)

o Pegging components to end products in bill of material

Is nervousness a sign of deeper problems?



143/243

Evolution ofMRP software

MRP Closed-Loop

MRPMRP II

Automates BOM

Improves on-time

delivery; frees uptime to plan

Assumes infinite

capacityhence,

impossible

schedules

Refinement of

MRP: provides

feedback oncapacity available

Tradeoff:

installation and

training costs

Includes financials

(crosses boundaries)

Makes capacity morevisible

Translates detailed

information to financial

statements

Helps realign with plan


144/243

Distribution Requirements Planning


145/243

Pull vs. push systems

Pull system Push system

1. Enters

order

Retailers

Distributor

Factory

2. Requests

inventory

4. Shipsinventory

3. Shipsinventory

4. Shipsinventory

3. Ships

inventory

Retailers

Distributor

Factory

1. Automated

sales data

2. Factory

management

makes inventory

decisions


DRP t


146/243

Customer

orders

Resupplyaction plan

Inventory

status

Distributionnetwork

Distribution requirements plan

Forecasting

Resupply needs

Gross to net calculationsPlanned order recommendationsException action messagesInput to MPS

DRP components



147/243

DRPrequirements

Gross requirement is retail demand forecast

Accurate lead time information required for order release dates

Shortages and overstocks potentially reduced

Better customer service, lower inventory costs can result from

more frequent release of smaller orders

Net RequirementScheduled

ReceiptsSafety

StockPAB+= -

Gross

Requirements +


DRP id


148/243

WarehouseA Week1 2 3 4 5 6 7 8

Gross reqmts 80 80 80 70 80 90 90 90

Schd receipts

Proj avbl 90 10 30 50 80 0 10 20 30

Net reqmts 70 50 20 90 80 70

Plnd ord rcpts 100 100 100 100 100 100

Plnd ord rlses 100 100 100 100 100 100

Lot Size Quantity Lead Time

Warehouse A 100 1

DRP grid


149/243

Afterhaving learnt the purpose and elements of

Material Requirement Planning

Lets now look at the concept and objectives ofCapacity Requirement Planning

Capacity Management

Capacity KPIs


150/243

Just the Right Amount

Supply = Demand

On-time fulfillment

Quality items

Optimal use of

resources

Demand > Supply

Stockouts, broken

orders, orovertime,

temps, work shifts,

etc.

TooLittle

Supply > Demand

Layoffs, idle

machines, unused

storage, etc., orexcess inventory

Too Much

Capacity KPIs

Capacity Management

Time horizons of capacity management


151/243

Time horizons ofcapacity management

Medium

range

Implement/control

Resource

requirements plan

Plan

Production activity

control

Capacity requirements

planShort

range

S&OP/production

plan

Master production

schedule

Rough-cut capacity

plan

Material requirements

planning

Capacity

control

Long

range

Short

range

Capacity Management

P d ti ti it t l


152/243

Manufacturing Operations

MPS

MRP

PACCapacity

control

S&OP

CRP

RCCP

Resource

planning

Levels ofcapacity

planning and control

ExecuteWork

information

Orderrelease

PlanResources

Schedule

Production activity control

ControlPriority

Tracking

MonitoringReporting

Capacity Management


153/243

Concentrate on constraints

Keep inventory before constraint.

Maintain optimum incoming rate.

Improve constraint flow.

Avoid constraint when possible.

Reschedule (last resort).

MPS

MRP

PACCapacity

control

S&OP

CRP

RCCP

Resource

planning

Levels ofcapacity


Capacity Management


154/243

Use visual signals

Pull inventory through with visualsignals (e.g., kanban).

Start production only at signal.

Maintain smallest possible lot sizes.Synchronize entire chain to customer

requirements.

MPS

MRP

PACCapacity

control

S&OP

CRP

RCCP

Resource

planning

Levels ofcapacity



155/243

We are now clearon the concept and objectives of

CRP.

Lets have a look at the concept, benefits and elementof Inventory Management

Inventory Management

Inventory management KPIs


156/243

Inventory management KPIs

Hit customersatisfaction targets

Reduce inventorycosts

Availability

On-time delivery

QualityHoldingOrdering

Transporting


Why have inventory?


157/243

Why have inventory?

Five goodreasons for

holdinginventory

For economies of scale5

To hedge against price fluctuations4

To fill the pipeline (while other goods are

in transport)3

To cover fluctuations in supply or

demand2

To meet future demand1


Four types of inventory


158/243

Four types of inventory

End

customer

Component

supplierManufacturer

Raw

materials

supplier

Distributor

(2) Work-in-process:

Held during idle time at

plant (slow cycle times)

(4) MRO: Held as needed to maintain, repair, operate equipment

(3) Finished goods:

Items held in readiness

for purchase by end

customer

(1) Raw materials:

Held to decouple, get

good price, ensure

supply


How you count counts


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How you count, counts

Traditional method, requires store shutdown

Annual count of all items

Often done by temps

Disruptive, expensive, error-prone

Necessary for, e.g., retail

May

Cycle

Count

Count some items each day

Count all items a set number of times annually

Count A items more often than B or C items

Timely correction of errors, no store shutdown

DecJulyJun Aug MarSep FebJan AprNovOct

Periodic

Count


Inventory costs


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Inventory costs

Carrying costs (holding costs): rent, depreciation,operating cost, taxes, insurance, handling, leases, labor,

scrap, investment costs, pilferage, etc.

Ordering costs incurred when ordering more inventory:

materials and labor in processing forms; also setup costsrelated to preparing for production, such as cleaning,

adjusting, modifying machines, etc.

Othercosts: backorders, lost sales, lost customers, etc.


Safety stock and service levels


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CustomerService

Safety stock and service levels

98%

Diminishing

returns

100%

95%

Safety Stock

Cost of safety stock + cost

of stockouts: one number.

Decrease safety stockneed by

Frequent orders

Shorter lead time

More accurate forecasts.

Beware of diminishingreturns.


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Now that we have understood the various

elements of Inventory Management

Lets understand what Logistics is, what are itsfunctions and how is it different from SCM.

Logistics isLogistics is

All tasks necessary to get the right goods to the right place at the


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y g g g g p

right time in the right condition for the right priceglobally.

Transportation

Warehousing Materials handling

Packaging

Information processing

Finance

It IncludesIt Includes

Role ofLogistics in Supply Chain Management


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S2S3 PlantRaw

materialsS1 C3C1

Damaged, defective, recycled, recalled

Materials, components, products

C2End

users

What is the difference

between SCM and

Logistics?


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YouSafexper

t

SCM is more

strategic in nature,

Logistics is moreoperations-oriented.

Logistics can be

considered as a part

ofSCM.

Lets see clearly how

is SCM different fromLogistics

g

Difference Between Logistics and SCMDifference Between Logistics and SCM


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Sourcing and

Procurement

Manufacturing

Coordination and

Collaboration

Integration ofSupply and

Demand

Management

SUPPLY CHAIN MANAGEMENT


Inbound and Outbound

Transportation

Materials Handling

Packaging

Communication Warehousing

Supply and Demand Planning

Data Analysis

LOGISTICS MANAGEMENT


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Now that we have understood the difference

between Logistics and SCM

You might want to know more about the segmentation

ofLogistics. Lets look at these one by one

Segmentation ofDomestic LogisticsSegmentation ofDomestic Logistics

P k iP k i


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DomesticDomestic

LogisticsLogistics

WarehousingWarehousing

TransportationTransportation

ValueAddedValueAdded

ServicesServices

PackagingPackaging

LabelingAndLabelingAnd

AssemblingAssembling

Express ServicesExpress Services

TrackingAndTrackingAnd

TracingTracing

Cold Chain, etc.Cold Chain, etc.

WarehousingWarehousing

W h i f h


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Warehousing refers to the

storage of product andgoods to be transported,

whether inbound or

outbound

The warehousing segmentconstitutes about 35% of the

total logistics industry in

India

Warehousing

A very brief history of warehousing


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A very briefhistory ofwarehousing

Evolved to

Warehousing integrated with logistics strategy

Efficient use of space (better forecasting

reduces need for mass storage)

Attention to optimal numbers and locations

Parts storage added on supply side; mixed

shipments on distribution side

Increased activity aided by new equipment,

automation, and training

Previous decades

Materials handling and

space efficiency

ignored

Location and numberscriteria: perhaps one

per territory

Little technology;

heavy use of

inexpensive labor

Warehousing

Value-added warehousing


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g

S2

CustomersSuppliers

C2

S1 C1Plant

Warehouses Production

PlantRaw

materials

Finished

goods

Warehouses

Finished

goods

Components

Orderpicking

Packaging

Move orship

Cycle/physical counts

Warehousing

activities

Receive

Prepackage

Put-away

Store


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Warehousing

Who should own the warehouses?


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Private Public Contract

Structure Firm itself ownswarehouses

Independent

ownership; fee for

services

Independent ownership;

longer-term relationship

Benefits

Control; no markup;

strongest market

presence

Flexibility; economies of

scale and lower labor

costs

Tailored services; lower

costs; flexibility; access to

more markets; stable

relationship

Drawbacks Inflexible budget;depreciation;

illiquidity of asset

Loss of control; less

market presence;

markups

Loss of control; less

market presence;

markups

Warehousing

Warehousing c

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