Transcript SUPPLY CHAIN MANAGEMENT

SUPPLY CHAIN
MANAGEMENT
CHAPTER 1
INTRIDUCTION TO SUPPLY CHAIN
MANAGEMENT
Learning Objectives
After reading this chapter, you should be able to:
• Discuss the overview of supply chain
management.
• Know the objectives of a supply chain and the
decision phases in a supply chain.
• Discuss the process views of a supply chain.
• Describe the nature and scope of supply chain
management.
• Describe the model of supply chain management.
• Describe the “supply chain drivers” and the
framework for the same.
1.1 What is a Supply Chain?
In its broadest sense, a supply chain refers to the
way that materials flow through different organisations,
starting with raw materials and ending with finished
products delivered to the ultimate consumer.
A supply chain is a sequence of suppliers,
transporters,
warehouses,
manufacturers,
wholesalers/distributors, retail outlets and final
customers. Exhibit 1.1a illustrates a typical supply
chain for a manufacturing organisation and Exhibit 1.1b
illustrates a typical supply chain for a service
organisation.
1.2 Importance of Supply Chain
Management
• The total time for materials to travels through the entire supply chain
can be quite long (say 6 months to one year or more). Since the
materials spend so much time waiting in inventory at various stages in
the supply chain, there is a great opportunity to reduce the total supply
chain cycle time leading to a corresponding reduction in inventory,
increased flexibility, reduced costs and better deliveries.
• The goals of supply chain management are to reduce uncertainty and
risks in the supply chain, thereby positively affecting inventory levels,
cycle time, processes and ultimately end-customer service levels. The
focus is on system optimisation.
• The design, planning and operation of a supply chain have a strong
impact on overall profitability and success.
• Supply-chain management has become a hot competitive advantage
as companies struggle to get the right stuff to the right place at the
right time.
• As firms strive to increase their competitiveness via product
customisation, high quality, cost reductions and speed-to-market, they
place added emphasis on supply chain management.
• Box 1.1 lists various definitions of supply chain management.
Box 1.1 : What is Supply Chain Management?
• “Supply chain management is the integration of the various
activities encompassed by the supply chain through improved
supply chain relationships to achieve a sustainable competitive
advantage”.
• [The supply chain encompasses all activities associated with the flow
and transformation of goods from the raw materials stage (e.g.,
extraction) through to end users, as well as the associated information
flows. Materials and information flow both up and down the supply
chain.
• “Supply chain management is a collaborative based strategy to link cross
enterprises business operations to achieve a shared vision of market
opportunity. It is a comprehensive arrangement that can span from raw
material sourcing to end customer purchase”.
— Donald J. Bower
sox
• “Supply chain management encompasses the planning and management of
all activities involved in sourcing and procurement, conversion and all
logistics management activities. It also includes coordination and
collaboration with channel partners, intermediaries, third party service
providers and customers. In essence SCM integrates supply and demand
management within and across companies”.
— Council of Logistics Management,
USA.
• “Supply chain management is the process of planning, implementing
and controlling the operations of the supply chain with the purpose to
satisfy customer requirements as efficiently as possible. Supply chain
management spans all movement and storage of raw materials, workin-process inventory and finished goods from point-of-origin to pointof-consumption.
What is Integrated Supply Chain Management?
“Integrated supply chain management is a proven business strategy that
has gained wide acceptance in recent year due to increasing customer
demands for quality, delivery and speed. New and radical ways of
communicating, coupled with cost reduction and more interdependent
supplier, provider and customer relationships, have contributed to the
emergence of an integrated supply chain approach”.
1.3 Overview of Supply Chain Management
How is inventory created? : A basic purpose of supply-chain
management is to control inventory by managing the flow of materials.
In a manufacturing firm, raw materials pass through one or more
processes, which transform them into various levels of WIP inventory.
Final processing of this inventory yields finished goods inventory,
which may be held at the firm, the distribution centre, warehouse
owned by the manufacturer or wholesaler and at retail locations.
Because materials comprise such a large component of sales
revenue, companies can reap large profits with a small percentage
reduction in the cost of materials. That is one reason why supply-chain
management is becoming a key competitive weapon.
• Materials Management : One area of operations and
logistics playing a major role in supply chain management is
that of materials management, which is concerned with
decisions about purchasing materials and services,
inventories, production levels, staffing patterns, schedules
and distribution, either directly or indirectly.
• Supply Chains : A supply chain consists of all stages
involved, directly or indirectly, in fulfilling a customer’s
request. It not only includes the manufacturer and suppliers,
but also transporters, warehouses, retailers and customers
themselves.
A supply chain is dynamic and involves the constant flow
of information, product and funds between different stages.
(i) Supply Chain Strategy or Design : The company decides how to
structure the supply chain during this phase. The chain’s
configuration and the processes each stage will perform are decided.
Strategic or long-range decisions made by companies include (i)
The location and capacities of production and warehousing
facilities, (ii) Products to be manufactured or stored at various
locations, (iii) Modes of transportation to be made available along
different shipping legs and (iv) Type of information system to be
utilised.
(ii) Supply Chain Planning : In this phase, companies define a set of
operating policies that govern short-term operations. The
configuration of supply chain determined in the previous phase
establishes constraints within which planning must be carried out.
The planning phase starts with a forecast for the coming year of
demand in different markets. Supply chain planning includes
decisions regarding the following.
(i) Which market to be served from which locations
(ii) The planned build up of inventories
(iii) The subcontracting of manufacturing
(iv) The replenishment and inventory policies to be followed.
(v) Policies regarding back up locations in case of a stock out and
(vi) The timing and size of marketing promotions
(iii) Supply Chain Operations : During this phase, companies make
decisions for the time horizon (weekly or daily) regarding
individual customer orders. At this stage. The supply chain
configuration is fixed and the planning policies already defined.
The supply chain operation
aims at implementing the operating policies in the best possible
manner. Various activities involved in this phase are : (i) Allocating
individual orders to inventory or production ,(ii) Setting dates for
fulfilling orders, (iii) Generating pick lists at a ware house,
(iv) Allocating an order to a particular shipping mode or shipment.
(v) Getting delivery schedules of trucks and (vi) Placing
replenishment orders.
• Process View of a Supply Chain
Two different ways to view the process performed in a supply chain
are
1. Cycle view 2. The push-pull view
1.Cycle View : According to this view, the processes in a supply chain
are divided into a series of cycles, each performed at the interface
between two successive stages of a supply chain.
All supply chain processes can be broken down into the following four
process cycles:
(a) Customer order cycle ,(b)Replenishment cycl e,(c) Manufacturing
cycle and (d) Procurement cycle.
Each cycle occurs at the interface between two successive stages of the
supply chain. Exhibit 1.2 illustrates the four cycles and five supply chain
stages
(i)
Customer Order Cycle : This occurs at the customer/retailer interface
and include customer arrival, customer order entry, customer order
fulfillments and customer order receiving.
(i) Replenishment Cycle : This occurs at the retailer/distributor interface
and includes all processes involved in replenishing inventory of the
retailer. The processes involved in the replenishment cycle include:
Retail order trigger, Retailer order entry, Retail order fulfillment and
Retailer order receiving.
(iii) Manufacturing Cycle : This occurs at the distributor/manufacturer
interface and includes all processes involved in replenishing distributor
(or retailer) inventory. The process involved in the manufacturing cycle
include (a) Order arrival from the distributor, retailer or customer (b)
Production scheduling, (c) Manufacturing and shipping and (d)Receiving
at the distributor, retailer or customer.
(iv) Procurement Cycle : This occurs at the manufacturer/supplier interface
and includes all processes necessary to ensure that materials are available
for carrying out manufacturing as per the schedule.