lec-1 (introduction to strategic scm)
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An Introductionto
Strategic Supply Chain Management
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Supply Chain Management…
…has captured the imagination of more & more managers and business organizations
…requires them to think beyond their organization – to think about their product in its entirety, from the origin of all goods (Mother Earth), up to the final customer, consumer or user
“As the economy changes, as competition becomes more global, it is no longer company vs. company but supply chain vs. supply
chain” Harold Sirkin (1994), Boston Consulting Group
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Fundamentals: A supply chain is a dynamic concept that involves the constant flow of
resources (products, information, funds) amongst all the participants along the chain
It is essentially a system of interconnecting chains i.e. a supply network or a supply web
Supply Chain Management…
…is the management of the acquisition, transformation and delivery processes that enable and direct the flows of products & services – as well as
the supporting reciprocal flows of information & funds – along a chain leading from the sources of the original inputs up to the end customers, all
aimed at achieving the best possible customer service at the lowest possible cost.
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The Four Interrelated Flows in SCM: an example
Foodprocessor
Aluminiumsmelter
Bauxitemine
Fruitpacking
Orangefarm
Mother Earth Distributor
Can maker
Retailoutlet
Aluminiumstrip mill
Material Flow
Funds Flow
Information Flow
E&T Flow
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The Four Interrelated Flows in SCM1. Product & Service Flows:The value-adding flow, as products & services progress along the supply chain from point of origin to point of final use or consumption. Generally flow downstream the chain but also upstream (e.g. reprocessing)
2. Information Flows: The bi-directional flows of information throughout the chain – particularly on customer demand which “pulls” the supply chain, but also on supply conditions & eventual disruptions
3. Funds Flows:The flows of funds, mainly upstream (payments for goods & services received) but also in some cases downstream
4. Expertise & Technology Flows:Sharing in areas such as IT systems, SCM expertise, product design, marketing, developing joint SC performance indicators, etc.
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INTEGRATED LOGISTICS
Inbound Logistics
Materials Management
SUPPLY CHAIN / SUPPLY NETWORK MANAGEMENTMother Earth End User
Manufacturer
Manufacturer
Manufacturer
CustomerSupplier
1st TierCustomer
1st TierSupplier
2nd TierSupplier
2nd TierCustomer
Outbound Logistics
Purchasing & Supply
1
2
34
Physical Distribution
5
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Basic SCM-related tasks of an organization in a supply chain
PURCHASING
OPERATIONS (& INVENTORY)
CONTROL
DEMAND PLANNING
LOGISTICS (Warehousing & Transportation)
Suppliers
Customers
TH
RO
UG
HP
UT
SINPUTS
OUTPUTS
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Strategic SCM…
…embraces & builds upon TQM
and JIT
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Key elements are the elimination of waste - especially inventory - and continuous improvement
Strategic SCM integrates supply & demand
Effective SCM strategies can provide a sustainable competitive advantage. Factors to consider:
Globalization Outsourcing Location Product Life Cycle Time-based Competition e-business Collaborative Planning, Forecasting & Replenishment Supply Chain Risk Management
Strategic SCM (cont’d)
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1. Globalization: Globalization has increased competition and
changed the way organizations do business, making supply chains longer & more complex
2. Outsourcing: Outsourcing is obtaining a product previously produced internally from an external supplier – it is occurring more frequently, especially global outsourcing
3. Location:The choice of location becomes even more complex when taken from the perspective of the supply chain
Strategic SCM (cont’d)
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4. Product Life Cycle: Product life cycles are becoming shorter as customers demand new and a larger variety of products, leading to changing requirements and the introduction of new supply chains
5. Time-based Competition:Organizations and supply chains compete in reducing delivery lead-times and increasing the speed to produce new products
ITC
Strategic SCM (cont’d)
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6. E-business:
IT – especially electronic communications and e-business – has strongly stimulated the development of SCM.
7. Collaborative Planning, Forecasting & Replenishment:
A recent development that facilitates information sharing among supply chain participants in order to:
Improve customer service Reduce inventories and logistics costs Increase sales and profits
Strategic SCM (cont’d)
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8. Supply Chain Risk Management (SCRM):
A relatively new concept that has developed due to the risks of supply globalization, single sourcing, outsourcing, lean systems, distribution, etc.; it is intended to help identify the risks, protect from the consequences of these risks and minimize any loss
Strategic SCM (cont’d)
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Other Important Factors in SCM
Purchasing / Procurement:
As SCM evolves, so Purchasing also continues to grow in importance and today considers strategic supply issues far broader than just purchasing transactions or buying, making it critical to effective SCM
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Five Core Discipline of Strategic SCM
View Supply chain as strategic assetDevelop an end to end process architectureDesign organization for performanceBuild right collaborative modelUse matrices to drive supply chain performance
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Cost structure of a typical manufacturing enterprise:
PurchasedMaterials 60% Overheads
15%Labour 15%
PurchasedMaterials 54% Overheads
15%Labour 15%
Profit16%
Before the savings achievedthrough better negotiations
After the savings achievedthrough better negotiations
10%Profit
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Capitalexpen-diture
Manufactur-ing & inven-
tory costs
Value of inventory
The Supply Chain
RETURN ONINVESTMENT
Purchas-ing costs
Customerservice
SALESFIXED
ASSETSCURRENT
ASSETS SUPPLYCHAIN COSTS
Outboundlogistics
costs
Inboundlogistics
costs
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Supply Chain Management
SCM has resulted in a major change in the way that we do business.
Effective supply chain management strategies have many potential benefits:
Improved customer service Lower inventory & higher inventory turnover Higher productivity Shorter lead-times Improved ROI Increased market share
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Supply Chain Management refers:
An area where buyers, suppliers and internal customers could work closely together to ensure goods and services delivered as required, of the appropriate quality and at the agreed cost
Flow of Information, Goods and Funds between supplier and buyer
Extended Supply Chain Management
Competition between SCM Vs SCM
Strength of SCM is the strength of weakest link in the chain
Represents and reflects a holistic approach to the operation of the organization
[
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SUPPLY CHAIN MANAGEMENT
1. Understanding the Corporate Environment2. Specifying Requirements & Planning
Supply3. Analyzing Supply Markets4. Developing Supply Strategies5. Appraising & Short listing Suppliers6. Obtaining & Selecting Offers7. Negotiating8. Preparing the Contract9. Managing the Contract & Supplier
Relationships
10. Managing International Logistics11. Managing Inventory12. Measuring & Evaluating Performance13. E-Procurement14. Environmental Procurement15. Group Purchase16. Green Procurement17. Operations Management18. Managing Finance Along the Supply Chain
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Supply Market Analysis will ensure Suppliers’ Performance:
Performance is function of Motivation, Capability and Environment ; P = f (m,c,e)
SCM Manager must be Able, Adaptable and Agile (AAA)
SCM manager should ensure RRR and PPP
SCM Manager must have HHH
SCM manager must be good negotiator; deal maker not deal destroyer.
SCM Manager is like a chef in five star hotel
SCM manager should not only make good contract but also ensure good contract management
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ITC
Conclusion
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Thank You