Supply Chain Management (SCM)

Supply Chain Management
(SCM)

(SCM)
Supply Chain includes
A chain of entities involved in planning, procurement,

production and distribution of Products & services to
the end customer
A unique combination of these entities makes up a
value stream
Need for SCM
Shrinking Product Life Cycles
Computer, Electronics Goods
Shrinking time window for delivery

Non-shrinking lead times
Dramatically increasing product variety
Apparels, Fashion/Trendy Goods, appliances

Key Questions
Will the structure of the supply chain have any

impact on the overall performance?
What are the strategies for improving in-bound
logistics?
What kind of planning tools are useful for Supply
Chain Management?
Are there workable strategies for managing
scenarios such as product variety and short
product life cycle?
What are the appropriate measures for supply
chain performance?

Components
In-bound SCM
In-house SCM
Supplier Development
Supply Management
Master Scheduling, MRP, JIT
Layout, materials handling
Out-bound SCM
Warehousing
Distribution & Channel Management
4
Supply Chain
Information & Material Flows

6
p
Su
Purchasing
Production
Sales
s
il er
Stores
Distributors
Factory
Retailers
Planning
4
8
Warehouse
Customer
Material Flow
Information Flow
What is a supply chain?

External
Supplier 3
C u E xt e
st rn
om al
er
2
Internal
Customer
External
Supplier 1
Interna
l
Supplie
r1
Ultimate
Customer
al
Intern
er 3
Suppli
Su Int
e
p
p rn
l
ie al
r
2
nal
r
e
t
Ex
r1
e
m
to
Cus
External
Supplier 2
Procurement
Production
Distribution
In-bound supply chain
Tier structure: Automotive Industry

Wiring
Harness
Spindles &
Armatures
Auto
Electrical
Upholstery
Insulators &
Bushes
Copper Plates
Wires
Copper
Manufacturers
Transmission
Castings
Spindles &
Shafts
Tier 1
Gears
Forging
Blanks
Iron & Steel

Manufacturers
Tier 2
Tier 3
In-house supply chain

An illustration
Core Manufacturing Layer

Pre-manufacturing
Machining
Fabrication
Assembly
Testing
Manufacturing Support Layer

Marketing
Quality
IT
Maintenance
Material
Design
Planning
Costing
Out-bound Supply Chain
An illustration using a Soap Manufacturer

Soap Manufacturing Factory
Factory Warehouse
North
SD
RO
East
SD
RO
West
SD
RO
SD
RO
South
SD
RO
End Customers
Central
SD
RO
SD
RO
Distribution
Centers
Sales
Depots
Retail
Outlets
Outbound SCM
Decision context
Outbound SCM addresses all issues pertaining

to distribution of goods and services to the end
customer
Distribution network design refers to various

choices made with respect to the entities
included in out-bound logistics
Logistics management refers to the set of
activities involved in planning and physical
movement of goods across the supply chain
Route planning
Channel Management
10
Distribution Network Design

Alternative A
Factory A
Factory B
Matl. Flow from Factory A

Matl. Flow from Factory B
Sales Depot
11

A process orientation
Plan
In-house
Demand
Management
Master Production
Scheduling
Materials &
Capacity Planning
Distribution
Requirement
Planning
Source
In-bound
Supplier
Development
Supply
Management
Joint cost
reduction
Target costing
Value engineering
Import
substitution
Make
In-house
Layout &
Facilities
Management
Materials Handling
Co-ordination
with supply chain
partners
Deliver
Out-bound
Logistics
Management
Warehousing
Distribution
Channel
Management
12
Supply Chain Structure

An illustration
7 days review
2 days to transmit order
7 days review
Tier 2
Suppliers
Tier 1
Suppliers
7 days review
3 days to prepare shipment

2 days for transit
Factory
1 day from receipt to issue

26 days for manufacturing
1 day for transit
Factory
Warehouse
2 days from receipt to issue

1 day to prepare shipment
7 days for transit
Distributors

1 day to prepare shipment
3 days for transit
Retailers
1 day to transmit order
10 days review
8 days to prepare shipment

2 days for transit
Customers
13
Supply Chain Structure

Salient Features
Number of layers: Supply chain always involves

multiple layers
Delays in the chain: There are finite delays
between each pair of layers to receive and send
information and goods
Decision making patterns: Decisions of how
much and when to order are taken
independently by each member in the chain
Independence of each member of the supply
chain: Since each member is organisationally a
separate unit, there is considerable independence
in policy and decision making
14
What causes Bullwhip effect?
The more
the number of layers,

the delay,
the rate of change,
the greater the fluctuations

Each layer
updates its forecast in varying patterns

places order at different times
price fluctuations (promotions)
rationing of supply
15
How to avoid Bullwhip effect?
Devise new strategies for minimising the

number of layers, delay in information
exchanges and rate of change
Improve quality of demand forecast update
use of point of sales data, EDI, Internet
Share sales, capacity and inventory data

across the supply chain partners
Lead time reduction, reduction in fixed costs
in ordering
16
Measures for SCM Performance
Post-process indices
Rely on past data to assess the performance of the supply

chain function during the relevant period of time
Typically use information available in annual reports of

companies to compute indices
Process Indices
Tracks improvements in the supply chain processes and

assesses how the supply chain may improve its
responsiveness, cost, quality or reliability
SCOR Model
Developed by Supply Chain Council (SCC), a Pennsylvania,

US based independent not-for-profit organisation
Spans all customer interactions from order entry through

paid invoice
17

Post-Process Indices
Inventory turn over ratio, TO (%) =
Number of inventory turns, TN =
Total Inventory (Days), TID =
Total investment in Inventory ( Rs )

*100
Annual Sales ( Rs )
Annual Sales ( Rs)

Total investment in Inventory ( Rs)
Total Investment in Inventory ( Rs)

* 365
Annual Sales ( Rs)
RawRe
Material
( Rs )
Accounts
ceivableInventory
( Rs )
RM
Inventory
(Days),
RMD
=
Days of Sales Outstanding, DSO = Value of Raw Material Consumed
* 365 ( Rs ) * 365
Annual Sales ( Rs)
WIP Inventory
)
Accounts( Rs
Payable
( Rs )
WIP Inventory (Days), WIPD =
Days of Payables Outstanding, DPO = Value of Pr oduction ( Rs) * 365
* 365
Value of Raw Material Consumed ( Rs)
FG Inventory ( Rs )
Cash-to-Cash
Cycle (Days),
Time (Days),
DPO
FG Inventory
FGD =CCD = TID + DSO*365
Annual Sales ( Rs )
18
Annual Sales ( Rs)

Total investment in Inventory ( Rs)
Number of inventory turns, TN =
Post-Process Indices
Total Investment in Inventory ( Rs)
* 365
Total Inventory (Days), TID =
Days of Sales Outstanding, DSO =
Annual Sales ( Rs)
Accounts Re ceivable ( Rs )
* 365
Annual Sales ( Rs)
Days of Payables Outstanding, DPO =
Accounts Payable ( Rs )
* 365
Value of Raw Material Consumed ( Rs)
Cash-to-Cash Cycle Time (Days), CCD = TID + DSO DPO
19
Design of Supply Chains
Profile of the product influences the

design of supply chain
Primarily functional products

Primarily innovative products
Two Supply Chain design alternatives
An efficient supply chain and

A responsive supply chain
20
Functional & Innovative Products

Key Attributes
Source: Fisher (1997), What is the right supply chain for your product, HBR, Mar. - Apr. 1997, 105 - 116.
21
Designing efficient supply chains

Strategies
Continuous replenishment programme using

EDI links for information sharing
Invest in supply chain partnership programme
both on the in-bound and out-bound side
Integrate material planning and control
systems with ERP to benefit from improved
data visibility
Develop robust inventory control mechanisms
to accurately fix reorder points and order
levels
22
Designing responsive supply chains

Strategies
Accept uncertainty in demand & large

forecast errors as the reality
Devise strategies for managing uncertainty
Capture Point-of-Sale data for accurately and

immediately updating forecast
Improve responsiveness by cutting lead times
Postponement strategies/Delayed differentiation
Deploy standardisation, modular design and
product platform strategies
23
Postponement Strategies
Alternatives & Implications
Packaging postponement
Assembly postponement
Savings in transportation (bulk containers)

Handle multi-lingual requirements (HP printers)
Low levels of investment in FG
Ability to handle a large variety through modular
design (computer - the case of Dell)
Manufacturing postponement
Final stages of manufacturing delayed until firm

orders are received (Benetton dyeing of fabrics)
Reduced lead time
24
Global Supply Chain Management

The case of Li & Fung
Deciphe
r trends
Cotton
Weaver
Dyers
Desig
Supplier
s
n
s
350 mostly Li & Fung
26 countries
(35 offices
in USA, 20 countries)
7500 suppliers
Europe
3PL
Retailer
s
Logistic
s
Garment
Manufacturer
s
Other
Supplier
s
25
Li & Fung
Supply Chain capabilities

Developing capabilities
in Logistics & Transportation
Dissecting the value chain
Dramatic
reduction in LT
Managing 1.5 m workers
in 26 countries
Participating in design,
manage tiers of suppliers
Better Inv. Mgmt.

Lower mark-downs
Flip info between 350
customers/7500 suppliers
Constant search for new &
better sources of supply
Going upstream & organising production
26
Major activities in any supply chain includes

Planning, Procurement, production of goods and
services and distribution to the end customers
The components of supply chain includes in-bound,
in-house and out-bound.
Supply chain structure refers to the manner in
which various entities pertaining to a supply chain
are configured. It includes
Number of layers that make up a supply chain,

Composition of each layer and
Nature of integration among the layers
27
Bullwhip effect occurs due to
Number of layers in the supply chain

Delays in information flow across these layers
Variations in decision making patterns at each layer
Independence of each member in the supply chain
Several process indices and post-process indices are

available to assess the performance of supply chains.
Supply chain design varies with the nature of products
Innovative products require responsive supply chains

and functional products require efficient supply chains
28

Make or Buy Analysis
Analysis will look at the expected sales levels

and cost of internal operations vs. cost of
purchasing the product or service
Total Cost of Outsourcin g :

TC Buy FC Buy VC Buy Q
Total Cost of Insourcing :
TC Make FC Make VC Make Q
Indifferen ce Point :
FC Buy VC Buy Q FC Make VC Make Q
29
30
ANDON
For error prevention and fault-finding, the operators
must notify supervisors and management when a
problem affects within the factory. To enable this, JIT
uses a portable andon system. The andon in the
Japanese means an ambulance-style flashing
light with a complementary siren. The operator
puts the andon on whenever he needs to draw the
managements attention, highlighting the importance
of his problems. By reacting to his call instantly, the
management ensures that customers are protected
against receiving defective products.
The andon system is not effective until most problems
are solved.
31
KAIZEN
Kaizen in Japanese means Continuous

Improvement in every sphere of Activity.
Kaizen is a sub-system of JIT.
The management encourages suggestions or
Kaizens from employees regarding possible
improvements in their respective work areas.
The employees are rewarded for giving a large
number of suggestions. These rewards are
more of recognitions , such as Kaizen Man of
the Month titles and certificates or small gifts,
rather than monetary worth.
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Fixed Location Storage

Fixed Location Storage
FIXED LOCATION STORAGE
JIT is successful only when there should be a fixed

location for all components, parts, tools and
equipments. The handling of parts and tools is
minimised by properly locating in the assembly area
and in stores.
Fixed locations assist in knowing the exact location of
parts and the number of parts available for assembly.
This ease of access increases productivity and
reduces damages to components. The tools and
equipments that are common to all workers should
be brought back to their locations immediately after a
worker finishes his work so that other workers may
use them these whenever required.
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Supply Chain Management (SCM)

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