Introduction To Scm
Transcript of Introduction To Scm
SE 492:Supply Chain Systems Modeling
Dr. Mohamed Ben DayaProfessor of Industrial Engineering & Operations ResearchSystems Engineering DepartmentKING FAHD UNIVERSITY OF PETROLEUM AND MINERALS
Introduction to Supply Chain Management
What is SCM?
Supply Chain Management - is the “art” of managing the flow of materials and products, information, and financial resources from source to user.
Integrated Supply Chain Management - refers to the integrated set of processes completed by supply chain participants where technology is used to seamlessly share information from end-to-end.
Three key items flow between the supply chain participants
There are five key participants in a supply chain
Definition:
Supply Chain Management is primarily concerned with the efficient integration of suppliers, factories, warehouses and stores so that merchandise is produced and distributed in the right quantities, to the right locations and at the right time, and so as to minimize total system cost subject to satisfying service requirements.
Notice: Everyone is involved Systems approach to reducing costs Integration is the key
Supply Chain Management
A Supply Chain Example Did you ever wonder where a television comes from?
A variety of companies in different countries play a role in building the components, assembling the product, and moving it through the supply chain. The goal of the supply chain is to have the television available when you’re ready to purchase it from your
favorite store or website.
Who are the SC participants?
Suppliers are the source of raw materials, component parts, semi-manufactured products, and other items.
Manufacturers are the makers of products. Many consider them to be the driver or leaderdriver or leader of the supply chain.
Distributors are responsible for the packaging, storing, and handling of materials at receiving docks, warehouses, and retail outlets.
Retailers are the manufacturer's customers - the stores and eCommerce companies that buy the actual products.
Consumers are the ultimate product users - the people who buy the product.
Manufacturing Distribution Retailer ConsumerSuppliers
Interest in SCM
Action taken by one member of the chain can influence the profitability of all others in the chain.
As firms streamline their own operations, the next opportunity for improvement is through better coordination with their suppliers and customers.
Supply Chain:The Magnitude
Supply Chain: The Magnitude
In 1998, American companies spent $898 billion in supply-related activities (or 10.6% of Gross Domestic Product). Transportation 58% Inventory 38% Management 4%
Third party logistics services grew in 1998 by 15% to nearly $40 billion
Supply Chain: The Magnitude
It is estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies. A typical box of cereal spends more than three
months getting from factory to supermarket.
A typical new car spends 15 days traveling from the factory to the dealership, although actual travel time is 5 days.
Supply Chain: The Magnitude
Compaq computer estimates it lost $500 million to $1 billion in sales in 1995 because its laptops and desktops were not available when and where customers were ready to buy them.
In 1993, IBM lost a major fraction of its potential sales of desktop computers because it could not purchase enough chips that control the computer displays.
Supply Chain: The Magnitude
Boeing Aircraft, one of America’s leading capital goods producers, was forced to announce write-downs of $2.6 billion in October 1997.
The reason? “Raw material shortages, internal and supplier parts shortages…”. (Wall Street Journal, Oct. 23, 1997)
Supply Chain:The Potential
Supply Chain: The Potential
Procter & Gamble estimates that it saved retail customers $65 million through logistics gains over the past 18 months.
“According to P&G, the essence of its approach lies in manufacturers and suppliers working closely together …. jointly creating business plans to eliminate the source of wasteful practices across the entire supply chain”. (Journal of Business Strategy, Oct./Nov. 1997)
Supply Chain: The Potential
In two years, National Semiconductor reduced distribution costs by 2.5%, delivery time by 47% and increased sales by 34% by
- Shutting six warehouses around the globe.
- Air-freighting microchips to customers from a new centralized distribution center.
Supply Chain: The Potential
In 10 years, Wal-Mart transformed itself by changing its logistics system. It has the highest sales per square foot, inventory turnover and operating profit of any discount retailer.
Laura Ashley turns its inventory 10 times a year, five times faster than three years ago. This is achieved by using
- New Information System
- Centralized Warehouse
“For a company with annual sales of $500 million and a 60% cost of sales, the difference between being at median in terms of supply chain performance and in the top 20% is $44 million of additional working capital.”
-- PRTM Director Mike Aghajanian
Supply Chain: The Potential
Supply Chain:The Complexity
Supply Chain: The Complexity
GM:• Production:
– 20,000 supplier plants– 133 parts plants– 31 assembly plants
• Distribution– 11,000 dealers
– Freight transportation: $4.1 billion– Inventory: $7.4 billion (70% WIP)
Supply Chain: The Complexity
GM:• Production:
– 20,000 supplier plants– 133 parts plants– 31 assembly plants
• Distribution– 11,000 dealers
– Freight transportation: $4.1 billion– Inventory: $7.4 billion (70% WIP)
Supply Chain: The Complexity
GM: Produces nearly 900,000 vehicles annually Over 35 manufacturing plants in 25
countries outside of Japan For plants in the U.S., supply parts are
shipped across the Pacific, and transported on rail
Deliveries are scheduled to the minute to keep inventories low (Just-in-time)
Complicated network with uncertainties
Supply Chain: The Complexity
1. Supply Chain Integration• Conflicting Objectives• The Dynamics of the Supply Chain
2. Matching Supply and Demand3. System Variations over Time
4. Status of Logistics The management of the details of an operation Knowledge• Many problems are new• Incomplete understanding of issues• Methodology is rather narrow
Why is SCM important?
SCM Provides a Strategic Response to Changing World
Business is moving from “push” to “pull” inventory system
Companies have squeezed every possible penny out of manufacturing costs
Customers are demanding customized products, fast cycle times, and low cost
Product life cycles are shrinking
SCM Helps An Organization. . .
Rationalize the flow of product from source point to ultimate consumption
Execute flawlessly Reduce cycle time Drive out cost and
waste 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00% 16.00%
Telecom
Semiconductor
Pharmaceutical
Packaged Goods
Computer
Chemical
Appliances
Automotive
% of company revenue spent on supply-chain activities
Average
Best in Class
Is SCM a reality today?
No… Many Companies Haven’t Taken Action Yet
Formal Supply Chain Strategy
53%
No Formal Supply Chain
Strategy47%
Source: Energizing the Supply Chain, Deloitte Consulting, 1999.
Supply Chain Development
FunctionalExcellence
ProcessExcellence
ChannelExcellenceIntegration
Excellence
Time
Value Performance
Deliver Value
Effective
Efficient
Deliver Product
NetworkExcellence
Integrate
Collaborate
Synchronize
Supply Chain Development
SCM must be implemented one step at a time Integration … within the business firmCollaboration … between firms/organizations
in the supply chainSynchronization … system-wide relationships;
formation of a “value net” to produce visibility throughout the supply chain
“The obstacles to supply chain coordination encountered within the organization are far more difficult to overcome than the external challenges.” Bud LaLonde, Professor Emeritus, OSU
What SCM issues exist?
ISSUES:Decision Classification Strategic Planning:
Decisions that typically involve major capital investments and have a long-term effect.
1. Determination of the number, size and location of new plants, distribution centers and warehouses
2. Acquisition of new production equipment and the design of working centers within each plant
3. Design of transportation facilities, communications equipment, data processing means, etc.
ISSUES:Decision Classification
Tactical Planning:Effective allocation of manufacturing and distribution resources over a period of several months
1. Work-force size
2. Inventory policies
3. Definition of the distribution channels
4. Selection of transportation and trans-shipment alternatives
ISSUES:Decision Classification
Operational Control:Includes day-to-day operational decisions
1. The assignment of customer orders to individual
machines
2. Dispatching, expediting and processing orders
3. Vehicle scheduling
ISSUES:Why Keep Inventory?
Uncertainty in customer demands
Uncertainty in the supply Uncertainty in quantity and quality Uncertainty in delivery time Uncertainty in costs
Economies of scale
ISSUES:Demand Forecast
The three principles of all forecasting techniques:
Forecasting is always wrong The longer the forecast horizon the worse the
forecast Aggregate forecasts are more accurate
ISSUES:Inventory control How much inventory to keep? Can uncertainty be reduced? What size should orders be? How does forecasting tool effect inventory
level?
ISSUES: The Challenge of Inventory Management
Matching supply and demand accurately is a critical challenge “Dell Computers predicts a loss; stock plunges. Dell
acknowledged that the company was sharply off in its forecast of demand, resulting in inventory writedowns”. (WSJ, August 1993)
“IBM continues to struggle with shortages in the Think Pad line”. (WSJ, May 1994)
“Liz Claiborne said its unexpected earnings decline is the consequence of higher than anticipated excess inventories”.(WSJ, August 1993)
ISSUES: Purchasing
What to Purchase- In-house production Vs. external suppliers
Where to purchase
- Domestic Vs. international
From whom to purchase- Cost
- Reliability: quality and on time delivery
- Availability and flexibility
ISSUES: Purchasing
Centralized Vs. Decentralized
Number of suppliers:Single sourcing Vs. Multiple sourcing
Supply contracts
ISSUES: Production
Location of manufacturing plantsProduction cost
Taxes
Incentives (by government)
Proximity to markets and raw materials
Transportation infrastructure
Political stability and culture
ISSUES: Production
Flexibility
The ability to produce different products simultaneously and efficiently
The ability to produce new products efficiently
ISSUES: Production
EfficiencyLow costShort lead time
ReliabilityOn-time deliveryQuality
ISSUES: Distribution
The structure of the distribution network
The distribution strategy
The Classical Strategy
Cross Docking
Direct Shipping
ISSUES:Product Design What role does product design play in
supply chain management? When is redesigning products worth the
cost? Can product design compensate for
uncertainty in customer demand?
ISSUES:Information Systems The advantages of advanced information
systems The challenge of unlimited data The roll of e-commerce Impact of the internet
ISSUES: What’s New in Logistics?
Global competition
Shorter product life cycle
Increasing product variety
New, low-cost distribution channels
More powerful well-informed customers
ISSUES: What’s New in Logistics?
New communications and information technologies POS and EDI technologyWireless technology
Decision Support Systems Integrated systems Multi-modal transportation
ISSUES: What’s New in Logistics?
New concepts in logistics
Push Vs Pull strategies
Cross docking
Strategic alliances
Manufacturing postponement
Design for Logistics
How should organizations move toward SCM?
SCM Success Prescription Commit top management Develop a broad vision
from customer’s customer to supplier’s supplier Conduct a reality check
the good, bad, & ugly of our operations Choose the right partners
linkages with groups of compatible enterprises
SCM Success Prescription Develop appropriate management structure
improve flow-through Measure and monitor performance
remove time, inventory, waste Make information available
timely, accurate, forward focused Refine and improve supply chain
Quality improvementQuality improvement
Technology deploymentTechnology deployment
Total cost reductionTotal cost reduction
Customer satisfactionCustomer satisfaction
SCM BenefitsSCM Benefits
Properly implemented SCM promotes….