Supply Chain Management

SUPPLY CHAIN MANAGEMENT

Introduction

“Supply chain management (SCM) encompasses the planning and management of all

activities involved in sourcing and procurement, conversion, and all logistics

management activities. Importantly, it also includes coordination and collaboration with

channel partners, which can be suppliers, intermediaries, third party service providers,

and customers. In essence, supply chain management integrates supply and demand

management within and across companies.” (CSCMP Definition)

“Supply chain management is a set of approaches utilized to efficiently integrate suppliers,

manufacturers, warehouses, and stores, so that merchandise is produced and distributed at

the right quantities, to the right locations, and at the right time, in order to minimize system

wide costs while satisfying service level requirements.” (Simchi-Levi et al., 2014)

Supply Chain Management & Logistics 2

Rhetoric & Reality

80% of SC managers don’t believe that their

SC enables business strategy

55% of the managers don’t regard the SC as a

fundamental source of value

29% see SC as purely an operational function

Only 50% believe the SC would deliver

increased profitability over the next five years

(Hitachi Consulting Survey, 2013)

Source: SCM World (2012) Supply Chain Management & Logistics 3

Logistics Network Design


Perspectives

“Bitter experience in war has taught the maxim that the art of war is the art of the logistically feasible”

“Amateurs talk about strategy, but professionals study logistics”

“Behind every great leader there was an even greater logistician”

“The essence of flexibility is in the mind of the commander; the substance of flexibility is in logistics”

“An army marches on its stomach”

“My logisticians are a humorless lot ... they know if my campaign fails, they are the first ones I will slay”

“The line between disorder and order lies in logistics”


Why Network Planning?

Find the right balance between inventory, transportation and manufacturing costs,

Match supply and demand under uncertainty by positioning and managing inventory

effectively,

Utilize resources effectively by sourcing products from the most appropriate

manufacturing facility

Efficiency vs. Effectiveness?


3-Stage Process

Number, locations and size of manufacturing plants and warehouses

Assignment of retail outlets to warehouses

Major sourcing decisions

Typical planning horizon is a few years

Network Design

Identifying stocking points

Selecting facilities that will produce to stock and thus keep inventory

Facilities that will produce to order and hence keep no inventory

Related to the inventory management strategies

Inventory Positioning

Determine whether production and packaging of different products is done at the right facility

What should be the plants sourcing strategies?

How much capacity each plant should have to meet seasonal demand?

Resource Allocation


Network Design

Physical configuration and infrastructure of the supply chain.

A strategic decision (?) with long-lasting effects on the firm.

Decisions relating to plant and warehouse location as well as distribution and sourcing

Network for RIL?


Why Re-Evaluate Your Network?

Changes in:

demand patterns

product mix

production processes

sourcing strategies

cost of running facilities

legislation

Mergers and acquisitions may mandate the integration of different logistics networks

Case Study


Some Key Decisions

Determining the appropriate number of facilities such as plants and warehouses.

Determining the location of each facility.

Determining the size of each facility.

Allocating space for products in each facility.

Determining sourcing requirements.

Determining distribution strategies, i.e., the allocation of customers to warehouse


Factors Affecting the Decision

• Offshore facility – low cost facility for export production

• Source facility – low cost facility for global production

• Server facility – regional production facility

• Contributor facility – regional production facility with production skills

• Lead facility – leads in development and process technologies

Strategic Factors

• Tariffs and tax incentives

• Exchange rate & demand risks

• Political & infrastructure factors

Macroeconomic Factors

• Positive externalities

Competitive Factors

Logistics & Facility Costs


What You Should Know Before

Locations of customers, retailers, existing warehouses and distribution centers, manufacturing facilities, and suppliers.

All products, including volumes, and special transport modes (e.g., refrigerated).

Annual demand for each product by customer location.

Transportation rates by mode.

Warehousing costs, including labor, inventory carrying charges, and fixed operating costs.

Shipment sizes and frequencies for customer delivery.

Order processing costs.

Customer service requirements and goals.

Production and sourcing costs and capacities


An Inherent Trade-Off

Increasing the number of warehouses typically yields:

An improvement in service level due to the reduction in average travel time to

the customers

An increase in inventory costs due to increased safety stocks required to protect

each warehouse against uncertainties in customer demands.

An increase in overhead and setup costs

A reduction in outbound transportation costs: transportation costs from the

warehouses to the customers

An increase in inbound transportation costs: transportation costs from the

suppliers and/or manufacturers to the warehouses.


No. of Warehouses & Change in Cost


Supply Chain Management

Documents

Transcript of Supply Chain Management