basics of supply chain management business concepts

8/14/2019 Basics of Supply Chain Management Business Concepts

1/7

BASICS OF SUPPLY CHAIN MANAGEMENT

BUSINESS CONCEPTS

Organizational Fundamentals

In any manufacturing company, material flow can be basically classified into three phases.

Flow of raw material from suppliers into the manufacturing facility. Flow of material within the manufacturing facility as they are processed.

Flow of finished goods from the manufacturing facility to the end customers.

To be responsive to the global competition, Organizations must be able to manage the complete flow of

material from the suppliers, through manufacturing, till the end product reaches the customers. Hence

organizations must be involved in the management of management of suppliers who provide direct and

indirect material inputs, must increase the manufacturing competitiveness and must effectively manage

the network of distribution systems responsible for delivery of the product to end customers. From this

realization emerged the concept of supply Chain.

Supply Chain: The supply chain encompasses all activities associated with the flow and transformation

of goods from the raw materials stage (extraction), through to end users, as well as the associated

information flows. Material and information flows both up and down the supply chain. The supply

chain includes new product development, systems management, operations and assembly, purchasing,

production scheduling, order processing, inventory management, transportation, warehousing, and

customer service. Supply chains are essentially a series of linked suppliers and customers; every

customer is in turn a supplier to the next downstream organization until a finished product reaches the

ultimate end user.

Supply Chain Management (SCM): SCM is the integration of all the activities in the supply chain to

achieve a sustainable competitive advantage. Supply Chain can be broadly classified of comprising of

three networks:

Supplier,

Firm andDistribution.

The supplier network consists of all organizations that provide inputs, either directly or indirectly, to the

focal firm (i.e., the purchaser). Focal firms network is involved in the conversion of input material to the

output material. The distributive network consists of all downstream organizations from the focal firm

that ensure that the right quantity of goods is delivered to the appropriate customer location in a timely

manner.

Logistics: Logistics, also called as Physical distribution, focuses on the physical movement and storage

of goods and materials. Logistics is that part of the supply chain process 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.Typical issues in logistics are evaluation of various transportation options, packaging options, inventory

management for different channels, develop and manage networks of warehouses when needed, and

manage the physical flow of materials into and out of the organization.Therefore, logistics is a subset in

the broader scope of SCM.

Elements of Supply Chain

Following are the key elements in Supply Chain Management:

Customers

Producers (includes Retailer, Distributor, Manufacturer)

Suppliers

Customers, Producers and Suppliers can be interconnected in the Supply chain as follows:

1


2/7

Interrelationship of the elements

A number of companies can be linked in the supply chain network.

A supplier to one manufacturing facility can be a customer to another manufacturing facility

and so on.. hence a number of supplier / customer relationships exist in the supply chain

network. A number of intermediaries (distributors, wholesalers, retailers etc.,) form part of the supply

chain network.

In defining the supply chain network and the integrations between the elements, the following decisions

must be made

Identifying the key supply chain elements in the network to link the processes.

Identifying the processes that are to be linked with the key elements.

Identifying the level of integration and management control to be applied for each of the

processes

Organizational Dynamics

Three phases in the evolution of SCM

Organizational structure from the fifties to the late eighties was marked by the functional silos where

the decisions were made keeping in mind the narrow view of the business functions and the

repercussions of the decisions on the other functions were ignored. These often created conflicting

objectives within the various functions of a company. The late eighties saw the advent of Business

Process Reengineering and ERP concepts. The corporate houses started analyzing the importance of

aligning their business with the developments in the information technology capabilities to collaborate

effectively with its stakeholders, integrate its functions and decision making and to remain competitive

in the market.

There are three distinct phases in evolution of SCM:

Pre-1970 era: Supply Chain was not considered as a competitive unit. Companies seek more profit by

maneuvering their suppliers and customers.

Scientific methods like EOQ and SPC were applied.

Companies attempted at Vertical integration themselves.

1970 1980 era:

Holding inventory becomes key due to Oil shock

TQM and JIT practice becomes popular in Japan

Distribution is not yet the focus area

MRP systems gain popularity in US and Europe

Post 1980 era :

Inventory profits dry up as inflation reigns in

US manufacturers embrace JIT philosophy. JIT pushes inventory upstream.

2


3/7

Lower setup times, lower batch quantities result in reduction in lead times and drastic

improvement in customer responsiveness.

Suppliers and customers considered as part of the organization network. We against them

philosophy fades away.

MRP systems give way to MRP II systems, ERP and then to advanced supply chain systems

involving optimization.

Operating Environments

Business Process that connect various elements in SCM

1. Product Development

2. Order Fulfillment

3. Demand Management

4. Customer Relationship Management

1. Product Development Process :

As customer demands are ever increasing with respect to quality, delivery and options, organizations

are increasingly finding it difficult to meet the customers expectations. It is often noted that customers

want:

- Faster delivery

- Least price

- 0 % rejection rate

And as customers preference keeps changing, organizations are forced to reduce the product

development lead-time as well as costs. Organizations are increasingly employing the following

strategies in the Product Development Process:

Integrate customers and suppliers early in the development process

Reduce time to market

Incorporate supply chain considerations into product design

Employ Concurrent Product Development Practices

2. Order Fulfillment Process:

Organizations need to deploy appropriate production systems depending on the Product and demandenvironment in which they operate. Main objectives, which need to be considered, are:

Production must shift from a supply/ push method of operation to a demand / pull method

based on customer needs.

Manufacturing process must flexibly respond to market changes with rapid changeover

possibilities for mass customizations.

Minimum lot sizes are planned to move toward a make to order environment.

Required delivery dates rather than EOQ drive production priorities.

Specific supply strategies are developed for each customer segment.

Customer needs dates and requirements drive the process.

Manufacturing, distribution and transportation plans are integrated.

Organizations can employ following Production Typologies to accomplish the above objectives:

3


4/7

Manufacturing process Choices:

Considering the demand for the items, range of products, product design, equipment, material

movement, etc., manufacturing process choices can be categorized as follows:Lot/Batch/Intermittent

Flow Line / Repetitive / Continuous

Project

Lot/Batch/Intermittent : In the batch / intermittent process, goods are produced in batches / lots. Work

centres are generally organized into groups / departments having the similar equipment and skills. Ex.,

all milling machines in one group, all Lathe machines in one group etc.,

These work centers can perform a variety of operations due to the different machines and skills present

and hence are capable of producing different products.

The products move along the various machines in the work centers based on the required operations to

be performed on them. These work centers hence comprise of general purpose machinery with the

flexibility of making a variety of products.

Control of work is managed through the individual work centers for each lot.

Flow Line / Repetitive / Continuous : In a flow line / repetitive / continuous manufacturing process,

workstations are organized in the sequence needed to make the product. The product moves from one

work station to the next along the defined sequence at an almost constant rate.

If the products are discrete ex., automobiles, Refrigerators etc., the process is called repetitive

manufacturing process. If the products are not discrete ex., gasoline, oils etc., the process is called

continuous manufacturing process.

4


5/7

The repetitive / continuous manufacturing process has the following characteristics:

Setting up of a flow line is justified only if the demand of the product is large enough.

Only a limited range of products can be produced in each flow line

The work stations comprise of specialized machinery and tooling required for the product

Since the flow of products between the work stations is balanced and is nearly constant, there

is a minimal build up of work in process inventory.

Project: The Project manufacturing process choice is applicable to huge complex projects. In most

cases, the product is developed at a particular location with all the necessary resources and equipmentmoving to the product development location.

Large aircrafts, ship building and construction are examples.

Production Environments:

On-Time Delivery is one of the key attributes in meeting customer expectations. To cater to the varying

needs of different customers, operations must device the required production environment / strategy

which will help in minimizing the lead times.

Production environment can be classified into

Design / Engineer to Order

Make to Order

Assemble / Package to Order

Make to Stock

Design / Engineer - to - Order: ETO environment caters to specific customers requirements. The

process starts with the preparation of unique / highly customized engineering designs of the product,

with the close involvement of the customer.

After the designs are finalized, required material is purchased and the components and subassemblies

are manufactured. Its during this process that inventories, mostly work in process are maintained. The

goods are then assembled and shipped to the customer. Hence the total delivery lead time that has to be

optimized in this environment to provide a faster customer service include

Make - To - Order : In this environment, the final product is made after the receipt of the customer

order. Standard components are purchased / manufactured and are usually stocked as raw material

inventory.

On receipt of customer orders, the product is made from these standard components and the process

may include minor customizations of the design.

The main activities contributing to the delivery lead time in this environment include the manufacturing

time, assembling time and shipping.

Assemble / Package - To - Order : In this environment, the standard components and sub-assemblies

are manufactured and stocked in the form of component / sub-assembly inventories.

On the receipt of the customer orders, these standard components / sub-assemblies are assembled

according to the configurable options specified by the customer. There is no design and product

manufacturing activity involved and hence the delivery lead time includes the time to assemble and

ship.

5


6/7

Make - To - Stock : In this environment, the products are completely manufactured and the finished

goods are stocked as end item / finished goods inventory. On the receipt of customer orders, the goods

are packed and shipped to the customers and hence the delivery lead time in this environment comprises

of only the shipping time.

2. Demand Management Process:

Organizations have to forecast demand accurately. This will result in Synchronized flow of products and materials to customer demand

Reduction of variability

Organizations should combine accurate demand forecasting with marketing plans, inventory

management and sales projections to gain an advantage over the competitors. Better demand

management process utilizes information resources to reduce costs, improve customer service and tap

into hidden value throughout the supply chain. In this process customer demand is continuously

gathered, complied and renewed in order to match the organizations supply capability with the

requirements of the market.

The process has the following main objectives:

Demand requirements and Supply capabilities are continuously modeled using point of sale

and key customer demand data.

Market requirements and production plans are coordinated on an enterprise-wide basis.

Multiple sourcing and routing options are considered at the time of receipt of the order.

Demand and production rates are synchronized and inventories need to be managed.

3. Customer Relationship Management Process:

Organizations should maximize customer service as a means of providing focused point of contact for

all customer enquiries in order to insulate them from the complexity of a large, multi-divisional

corporation. Main objectives of a Customer Relationship

Management processes are:

Customer service provides a single source of customer information, a point of contact for

administration of the product / service agreement.

Instant promising / availability information is available for the customer

On-line/real-time access to product and pricing information assists customers with quick order

placement.

6


7/7

On-line/real-time access to order status information is available to support customer order

enquiries.

Procurement Process:

Organizations maintain relationships with major suppliers, which are corporately managed; in strategic

alliances while purchase order transactions become simplified and integrated with supply process.

Main objectives of an efficient Purchase Process are: Strategic plans of suppliers and organization are aligned to focus on resources on holding

down costs and developing new products.

Supplier categorization and management is implemented on a corporate global basis, with

purchasing in a strategic contracting role.

Purchase Order transactions are integrated with supply process to improve productivity and

all areas of supplier performance.

7

basics of supply chain management business concepts

Documents