Transcript PowerPoint Template - University at Buffalo
Supply Chain Management and Supplier Quality Control
Ankush Kaul
March 21, 2007
AGENDA
Supply Chain Management (SCM)
Introduction History Logistics Management Supply Chain Vs. Logistics Management Supply Chain Requirements and Uncertainties Bullwhip Effect Strategic Partnership Examples of Strategic Partnership
Supplier Quality Control (SQC)
Introduction Why SQC?
SQC Techniques SCM and SQC at Praxair Slide 2
Agenda (Cont’d..)
SCM and SQC @ Praxair
Introduction to Praxair Supply Chain Management @ Praxair Supplier Quality Control @ Praxair
References
Introduction to SCM
SCM is the integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders - Global Supply Chain Forum (GSCF) Supplier Manufacturer Distributor Retailer Customer
Upstream Downstream
Slide 4
Introduction (Cont’d..)
P&G or other manufacturer Third party distributor Albertson’s Supermarket
Customer wants detergent
Plastic Producer Chemical manufacturer (e.g. Oil Company) Tenneco Packaging Paper Manufacturer Timber Industry Slide 5
Elements of SCM
Element
Customers Forecasting Design Processing Inventory Purchasing Suppliers Location Logistics
Typical Issues
Determining what customers want Predicting quantity and timing of demand Incorporating customer wants, time etc.
Controlling quality, scheduling work Meeting demand while managing inventory costs Evaluating suppliers and supporting operations Monitoring supplier quality, delivery and relations Determining location of facilities Deciding how to best move and store materials Slide 6
History
1750 - 1800
Industrial Revolution Era of Mechanical Inventions Product and process complexity increase
1800’s
Increased factory complexity
1900’s
Birth of Industrial Engineering movement Assembly line, Mass production Henry Gantt: Gantt charts, Scheduling Human factors Statistical Quality Control
1989 - 1993
Business Process Reengineering Slide 7
History (Cont’d…)
Traditional
DEPT. 1 DEPT. 2 DEPT. 3
Re-engineered Process: Cross Functional Team
Slide 8
Onset of Supply Chain Management
The term “SCM” was introduced by consultants in early 1980s Era of inter-network competition: SC vs. SC: Brand vs. brand, or store vs. store =>
Common goals for the entire supply chain
A supply chain consists of facilities, functions, activities for producing & delivering product or service all the way from early suppliers to eventual customers
The new focus is the entire supply chain Slide 9
Logistics Management
Logistics Management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements. - Council of Supply Chain Management http://www.cscmp.org
Slide 10
Movement Within a Facility
Work center Work center Work center Storage Work center Storage Storage Shipping
Slide 11
SCM VS. Logistics Management
Focus of logistics was on making each firm in the distribution channel more efficient, productive and profitable Each firm operated on its own, maximizing profits with little attention to others in the chain Within each firm, each function preoccupied with optimizing its own performance Intra-functional (silo) orientation: cost tradeoffs and managing customer service levels Slide 12
Supply Chain Requirements and Uncertainties
Requirements for a Successful Supply Chain
Trust among trading partners Effective communications Supply chain visibility Event management capability Performance metrics
Sources of Uncertainty in Supply Chains
Wrong forecasts Late deliveries Poor quality Machine breakdowns Canceled orders Erroneous information Price uncertainties Slide 13
Bullwhip Effect
Distortion of demand information of a product while it passes from one firm to the next across SC The information transferred in the form of “orders” tend to be distorted and can misguide upstream members in their inventory and production decisions.
In particular, “variance of orders” > “variance of sales” Information sharing in SCs is important Sales Information available in the form of orders received from the downstream member should be used with great caution.
Slide 14
Bullwhip Effect (Cont’d..)
Who is affected?
Nearly all industries are affected !
Firms that experience large variations in demand are at risk Firms that depend on suppliers upstream or distributors and retailers downstream may be at risk
Causes of Bullwhip Effect
Finite supply shared by many retailers Rationing game: retailer orders more than demand Fixed order cost Wholesale price varies over time Inflationary / deflationary environment Prices with no trend but variability Slide 15
Bullwhip Effect (Cont’d…)
Slide 16
Bullwhip Effect (Cont’d…)
Retailer Order Distributor Order Manufacturer Order Supplier Order Stock Stock Increased Variability Stock Stock
Slide 17
Bullwhip Effect - Disrupted Supply Chain
Customer Demand forecast = 20 units Information Flow Suppliers 160 Units
Products & Services
80 Units Producers 80 Units
Products & Services
Distributors 40 Units 40 Units
Products & Services
20 Units Retailers Cash Flow
As demand increases, the distributor decides to accommodate the forecasted demand and increase inventory to buffer against unforeseen problems in demand. Each step along the supply chain increases their inventory (double in this example) to accommodate demand fluctuations. The top of the supply chain receives the harshest impact of the whip effect.
Key: = Inventory Levels Slide 18
Bullwhip Effect (Cont’d..)
Results of Bullwhip effect
Excess inventories Problems with quality Increased raw material costs Overtime expenses Increased shipping costs Lost customer service Lengthened lead time
Solutions
Improve communication along the supply chain Improve sources of forecast data Work with firms upstream and downstream in the supply chain Slide 19
Strategic Partnership in Supply Chain
Business partnering occurs through a pooling of resources in a trusting atmosphere focused on continuous, mutual improvement Source: Robson, Rawnsley (2001) Benefits of strategic partnerships
Improved supplier product quality On-time shipments Lower costs, less inventory Improved logistics Customer satisfaction Increased business because of customer satisfaction Vendor management inventory Lean extended enterprise Slide 20
Strategic Partnership Examples
Blockbuster
Demand for newly released movies at blockbuster typically starts high and decreases rapidly. Peak demand last about 10 weeks
Blockbuster purchases a copy from a studio for $65 and rent for $3. Hence, retailer must rent the tape at least 22 times before earning profit
Retailers cannot justify purchasing enough to cover the peak demand
In 1998, 20% of surveyed customers reported that they could not rent the movie they wanted
Starting in 1998 Blockbuster entered a revenue sharing agreement with the major studios. Studio charges $8 per copy, Blockbuster pays 30 - 45% of its rental income
Even if Blockbuster keeps only half of the rental income, the breakeven point is 6 rental per copy
The impact of revenue sharing on Blockbuster was dramatic, Rentals increased by 75% in test market and market share increased from 25% to 31%
Slide 21
Strategic Partnership Examples (Cont’d..)
Seven Eleven Stores
Retailer determines order sizes and timing but in addition passes POS (point of sales) data to the supplier. POS improves supplier ’ s forecasts.
Wal-Mart, K-Mart (Vendor Managed Inventory)
Supplier maintain the inventory levels at the customer site and continuously replenish as and when required. This has resulted in 30% inventory turnover improvement.
Milliken and Company
The lead time from order receipt at Milliken ’ s textile plants to final clothing receipt at the department stores was reduced from 18 weeks to 3 weeks. The POS data was used by the supplier to improve forecasting and scheduling .
Slide 22
Supplier Quality Control
A methodology to
: Select/Qualify the correct supplier Develop/Launch the item being sourced Monitor ongoing performance I. Select/Qualify II. Develop/Launch III. Monitor Performance
Why is SQC Required??
Improved Product Quality Reduced Lead Times Decreased Overall Life Cycle Costs Increased Customer Satisfaction
Faster and Cheaper can still be Better!
Why is SQC required? (Cont’d...)
Process maintained under control
Quality Built-In; Not Added On!
Achieve earlier corrective action on deficiencies
Less waste; Minimizes rework
Material protected from deterioration
Especially Applicable to Bulk Metals
Quality Control established at point of supply
SQC Techniques
Some of the techniques used are:
Supplier Scorecard
: Supplier Evaluation
Regular supplier site visits
: Supplier site inspection during the equipment build
Supplier quality systems evaluation:
evaluation Vendor quality system
Non Conformance reporting process:
Documentation of issues and source of “Lessons Learnt” before and after the equipment build
Supplier training:
Training the supplier by the customer (especially if the supplier is fabricating the equipment for the first time)
Praxair - Introduction
A Fortune 500 company with sales of $ 8.3 billion (2006) Leader in industrial gases supply systems and equipment, and in applications technologies; almost 3,000 active patents One of the three largest industrial gases companies worldwide and the largest in North and South America Operations in 40 countries with over 27,000 employees Services include on-site gas handling and monitoring systems, pipeline and plant services, turnkey design and construction
Praxair Introduction- Sales by Served Markets
Healthcare 11% Aerospace 4% Energy 12% Electronics 7% Food and Beverage 7% Other 12% Manufacturing 21% Metals 16% Chemicals 10%
Slide 28
SCM @ Praxair
Plant Site Field Contractors Praxair Plant
Customer needs Liquid Nitrogen
Cold Box Fabricator Cold Box fabricator Sub Supplier Valves Supplier Valve Sub Supplier Metal Shop
SCM @ Praxair (Cont’d..)
Partnership with suppliers and customers for mutual benefit 6 Sigma projects with suppliers and customers Strategic agreements with competitors Core competency used to help suppliers as well as customers Process improvements by streamlining internal supply chain
PRAXAIR
SUB SUPPLIER SUPPLIER NAIG GPMM GSS PST CUSTOMER
SQC @ Praxair
Historical Qualification
To ensure products and services consistently meet the organization’s acceptance criteria To implement a reduced testing regime for incoming goods To maintain precise and up-to date supplier records, “well-known” partners, and improved quality of products and services
Low Cost Country Sourcing (LCCS)
To establish a competitive capital cost advantage To include a low cost country sourcing for equipment, fabrication and engineering design To identify, qualify and select new equipment suppliers worldwide and evaluate based on technical and low-cost evaluation criteria
SQC @ Praxair (Cont’d..)
Standard Method
Historically qualified Suppliers Database of specifications, requirements and guidelines
Due to cost cutting initiatives in 1990’s and post 9/11, supplier quality control was given less importance- this led to reliability and other issues in field
LCCS program was another driver for the development of a structured supplier quality control program
New Initiative for SQC @ Praxair
Tier 1
Critical path Single Source Sole source Critical part
Tier 2
Non critical path Less critical part Compressors Induction motors Synchronous motors Cold Boxes BAHX Packing Adsorbents Chillers Auto valves Skids Water pumps Tanks Cryo tanks Manual valves Silencers S&T heat exchangers Vaporizers
Tier 3
Commodity Fittings Piping Hardware Commodities were divided into Tier-1,Tier-2 and Tier-3 depending on their criticality in terms of their time impact on project, cost and sourcing status Tier 1 – Build relationships Critical supplier Safety Critical Routine surveillance Shop visit Quality System rating Inspection test plan NCR tracking Surveillance Control Plan Shop visit Quality System rating Inspection test plan NCR tracking Surveillance Control Plan As Needed Tier 2 – Periodic surveillance Tier 3 – Infrequent contact Slide 33
SQC @ Praxair - Inspection Plan
Developed a method to ensure that the suppliers adhere to specifications mentioned as a part of the purchase order Comprehensive and easy to use commodity specific quality control checklist containing key specifications questions Discussions with a cross functional group of equipment engineers, process engineers, procurement and quality engineers followed to finalize the format of the checklist Slide 34
Designated Inspection Points
Slide 35
Non- Conformance Tracking
One of the most important tools to keep track of suppliers performance
Helps to see supplier trends as well as defect trends over time
Also useful as a repository for “lessons learned”
Quality Engineering Team @ Praxair
The projects at Praxair have helped me see the implementation of academic knowledge as well as the importance of “people skills” in an organization. Overall, it continues to been a great learning experience
North America
5 Quality Engineers in North American region
Asia
4 Quality Engineers in Asia region
South America
2 Quality Engineers in South America
Europe
2 Quality Engineers in Europe Slide 37
References
Lecture notes from “Supply Chain and Global Operations”
Praxair database www.google.com
(The best invention of 20 th Century!!!)
Experience
Slide 38