Transcript Value creating processes conceptual framework

Supply Chain
Management
Supply Chain
The sequence of organizations - their facilities,
functions, and activities - that are involved in
producing and delivering a product or service.
Supply chain connects suppliers, producers and
final customers together in a tework that is
essential to the creation and delivery of goods
and services.
(Value chains are the chain of activities and
functions WITHIN a single organization.)
Benefits of Supply Chain
Management






Lower inventories
Higher productivity
Greater agility
Shorter lead times
Higher profits
Greater customer loyalty
Supply Chain Management (SCM)

The strategic coordination of the supply chain
for the purpose of intergating supply and
demand management.
Logistics

The part of a supply chain involved with the
forward and reverse flow of goods, services,
cash and information.
Movement within the facility
 Incoming and outgoing shipments
 Distribution

Facilities







Warehouses
Factories
Processing centers
Distribution centers
Retail outlets
Offices
…
Functions and Activities








Forecasting
Purchasing
Inventory management
Information management
Quality assurance
Scheduling
Production and delivery
Customer service
Key issues of SCM






Determinate the appropriate level of outsourcing
Managing procurement
Managing suppliers
Managing customer relationships
Being able to quickly identify and respond to
problems
Managing risks and uncertainty
Typical Supply Chains
Production
Distribution
Purchasing Receiving Storage Operations Storage
Typical Supply Chain for a
Manufacturer
Supplier
Supplier
Supplier
}
Storage
Mfg.
Storage
Dist.
Retailer
Customer
A farm-to-market supply chain
1.
Farm (wheat)

2.
Mill (flour)

3.
equipment, repair, energy
Bakery (bread)

4.
Suppliers: equipment, repair, feed, seed, fertilizer,
pesticides, energy/fuel
equipment, repair, energy, other ingredients
Supermarket (bread sold to the final
customer)
T
r
a
n
s
p
o
r
t
Typical Supply Chain for a
Service
Supplier
Supplier
}
Storage
Service
Customer
Supply chain and Cash flow
Goods and services
Cash flow
Reverse
logistics
Suppliers
Consumers
Marketing
Design
Customers
Production
Logistics
Elements of Supply Chain
Management
Element
Typical Issues
Customers
Determining what customers want
Forecasting
Predicting quantity and timing of demand
Design
Incorporating customer wants, mfg., and time
Processing
Controlling quality, scheduling work
Inventory
Meeting demand while managing inventory costs
Purchasing
Evaluating suppliers and supporting operations
Suppliers
Monitoring supplier quality, delivery, and relations
Location
Determining location of facilities
Logistics
Deciding how to best move and store materials
Global supply chains




Product design
Products sold globally
Outsourcing to low labor cost countries
Difficulties: language, culture, currency
fluctuations, increased tratnsportation costs and
lead time, increased need for trust
PROCUREMENT


Purchasing is responsible for obtaining the materials, parts, and supplies
and services needed to produce a product or provide a service.
Goal: to develop and implement purchasing plans for products and
services that support operations strategies.
Duties:

Identifying sources of supply

Negotiating contracts

Maintaining a database of suppliers

Obtaining goods and services

Managing supplies
Purchasing cycle: series of steps that begin with a request for purchase
and end with notification of shipment recieved in satisfactory condition.
Purchasing Cycle
Legal
1.
Requisition received
2.
Supplier selected
3.
Order is placed
4.
Monitor orders
Operations
Accounting
Purchasing
Data
processing
Design
5.
Receive orders
Receiving
Suppliers
Centralized vs. decentralized
purchasing

Centralized purchasing

Purchasing is handled by one special department


Lower prices, better service and closer attention from
suppliers, employing specialists
Decentralized purchasing

Individual departments or separate locations handle
their own purchasing requirements

Aware to different local needs, quicker response
Trade-offs
1.
Lot-size vs. inventory

2.
Bullwhip effect
Inventory vs. transportation costs (reducing average costs)

Cross-docking
3.
Lead time vs. transportation costs
4.
Product variety vs. inventory

5.
Delayed differentiation
Cost vs. customer service

Disintermediation
Trade-offs

Bullwhip effect

Demand variations begin at the customer end of the chain
and become increasingly large as they radiate backwards
through the chain.

Inventories are progressively larger moving backward
through the supply chain.
Bullwhip Effect
Demand
Final
customer
Initial
supplier
Backward effect
Bullwhip Effect
Amount of
= inventory
Tier 2
Suppliers
Tier 1
Suppliers
Producer
Distributor
Retailer
Final
Customer
Trade-offs

Cross-docking
Goods arriving at a warehouse from a supplier are unloaded
from the supplier’s truck and loaded immediately onto
outbound trucks. Avoids warehouse storage. Reduces holding
costs and lead times.
Trade-offs

Delayed differentiation


Production of standard components and
subassemblies, which are held until late in the
process to add differentiating features (expl.
automobiles produced without extras)
Disintermediation

Reducing one or more steps in a supply chain by
cutting out one or more intermediaries.
Supply Chain Benefits and
Drawbacks
Problem
Potential
Improvement
Benefits
Possible
Drawbacks
Large
inventories
Smaller, more frequent
deliveries
Reduced holding
costs
Traffic congestion
Increased costs
Long lead
times
Delayed differentiation
Disintermediation
Quick response
May not be feasible
May need absorb
functions
Large number
of parts
Modular
Fewer parts
Simpler ordering
Less variety in final
products
Cost
Quality
Outsourcing
Reduced cost,
higher quality
Loss of control
(even on quality)
Variability
Shorter lead times,
better forecasts
Able to match
supply and demand
Less variety
Successful Supply Chain

Trust among trading partners

Effective communications

Supply chain visibility

Event-management capability


The ability to detect and respond to unplanned
events (uncertainty)
Performance metrics
LOGISTICS

The movement of materials, services, cash, and
information in a supply chain.

Movement within a facility
Incoming and outgoing shipments (traffic
managemment)

Movement within a facility







From incoming vehicles to
receiving
From receiving to storage
From storage to work
centres
Between work centres (or
temporary storages)
From operations to final
storage
From storage to
packing/shipping
From shipping to
outgoing vehicles
Location planning
Nature of Location Decisions

Strategic Importance




Objectives




Long term commitment/costs
Impact on investments, revenues, and operations
Supply chains
Profit potential
No single location may be better than others
Identify several locations from which to choose
Options



Expand existing facilities
Add new facilities
Move
Making Location Decisions





Decide on the criteria
Identify the important factors
Develop location alternatives
Evaluate the alternatives
Make selection
Location Decision Factors
Regional Factors
Multiple Plant
Strategies
Community
Considerations
Site-related
Factors
Seminar
Problem solving in logistics
Evaluating shipping alternatives
Additional examples

Example 1:




Solutions
H(d)/365 = (2000*10)(5-2)/365 = 164.38
164.38 < 135
Use the 2 days freight.
Example 2:

Between overnight and 2-days freights:




Between 2-days and 6-days freights:




H(d)/365 = (200*0.3*80)(1)/365 = 13.15
Price difference between frights: 300-260 = 40
The 2-days freight is better than the overnight-freight [13.15 < 40].
H(d)/365 = (200*0.3*80)(4)/365 = 52.60
Price difference between frights: 260-180 = 80
The 6-days freight is better than the 2-days-freight [52.60<(260-180)].
The best choice is the 6-days freight.
Problem solving in Location
Planning with CPV Analysis
Locational Cost-Profit-Volume
Analysis
•
•
Numerical and graphical analysis are both feasible.
We focus on the graphical one.
The steps:
1.
2.
3.
Determine the fixed and variable costs for each
location
Plot the total-cost lines for all location alternatives on
the same graph
Determine which location will have the lowest total
cost for the expected level of output. Alternatively,
determine which location will have the highest profit.
Assumptions of the
Cost-Profit-Volume (CPV) Analysis




Fixed costs are constant for the range of
probable output
Variable costs are linear for the range of
probable output
The required level of output can be closely
estimated
Only one product is involved
The total cost curve
TC = FC + VC = FC + v*Q
Cost

Fixed cost (FC)
0
Q (volume in units)
Alternatively, the total profit is

TP = Q * (R – v) – FC
A simple problem from the text-book
Location
Fixed cost (FC)
Variable cost per unit (v)
A
250,000
11
B
100,000
30
C
150,000
20
D
200,000
35
Plotting the total-cost lines
Calculate the break-even output
levels
For the crossing of lines B and C:
100,000 + 30*Q = 150,000 + 20*Q
Q = 5,000

For the crossing of lines C and A:
150,000 + 20*Q = 250,000 + 11*Q
Q = 11,111

Which location is the best?
The expected long-term volume
Best location
> 11,111
A
5,000 < Exp. vol. < 11,111
C
< 5,000
B
Another problem for the same
method
Location
Fixed cost (FC)
Variable cost per unit (v)
A
10000
30
B
20000
20
C
35000
15
D
25000
40
Solution:
Step 1: The plot
200000
180000
160000
140000
120000
TC(A)
100000
TC(B)
80000
TC( C)
60000
40000
20000
0
TC(D)
Solution: Step 2
For the crossing of lines A and B:
10,000 + 30*Q = 20,000 + 20*Q
Q = 1,000
 For the crossing of lines B and C:
20,000 + 20*Q = 35,000 + 15*Q
Q = 3,000
 Conclusion:
if the volume is below 1,000 units, then we have to
choose location A; with a volume between 1,000 and
3,000 B is the best alternative; while volumes greater
than 3,000 requires C to minimize the total cost.

THANK YOU FOR YOUR
ATTENTION!