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Supply Chain Management

SUPPLY CHAIN MANAGEMENT

Production Planning and Control

Haeryip SihombingUniversiti Teknikal Malaysia Melaka (UTeM)

5a

BMFP 4513



Supply Chain: the sequence of organizations -

their facilities, functions, and activities - that are

involved in producing and delivering a product

or service.

Eliminate non value added steps or work,

become more competitive than the ones they are

competing against.

Sometimes referred to as value chains


Typical Supply Chain for a Manufacturer

Supplier

Supplier

Supplier

Storage} Mfg. Storage Dist. Retailer Customer


Supplier

Supplier

} Storage Service Customer

Typical Supply Chain for a Service


Achieving an Integrated SC

Stage One: BaselineMaterial flow

Customer

serviceMaterial

ControlPurchasing Production Sales Distribution

Customer

service

Customer

service

•Silos in Departments

•Single Department best efficiency

•High inventories




Customer

serviceMaterial


Stage Two: Functional IntegrationMaterial flow

Manufacturing

Management

Materials

ManagementDistribution

Customer

service

Customer

service

•Basic MRPII and demand management

•“Fix the basics”




Customer

serviceMaterial


Manufacturing



Manufacturing

Management

Materials


Customer

service

Customer

service

Customer

service

Stage Three: Internal IntegrationMaterial flow

Materials

Management

ERP across the supply chain (end to end)




Customer

serviceMaterial


Manufacturing



Manufacturing

Management

Materials


Stage Four: External IntegrationMaterial flow

Internal Supply

ChainSuppliers Customers

Customer

service

Customer

service

Customer

service

Customer

service

Stage Three: Internal IntegrationMaterial flow

Materials

Management

External integration. Nirvana status


Supply Chain Flows:

Horizontal Management

Supplier Customer Consumer

Product

Cash

Information


Elements of Supply Chain Management

Deciding how to best move and store materialsLogistics

Determining location of facilitiesLocation

Monitoring supplier quality, delivery, and relationsSuppliers

Evaluating suppliers and supporting operationsPurchasing

Meeting demand while managing inventory costsInventory

Controlling quality, scheduling workProcessing

Incorporating customer wants, mfg., and timeDesign

Predicting quantity and timing of demandForecasting

Determining what customers wantCustomers

Typical IssuesElement

Table 16.1


The Business Case for Supply Chain

Management

Supply chains compete, not companies

Most opportunities for cost reduction and/or value enhancement lie at the interface between supply chain partners


Supply Chain Performance Drivers

1. Quality

2. Cost

3. Flexibility

4. Velocity

5. Customer service

What is the right order?


Today’s Drumbeat:

Bullwhip is King!

P&G’s Supplier

StoreRetailer

HQSupplier

HQPromotions?Initiatives?

Manufacturing

Facility

Retail

Consumer

Purchases


Inventory Hides the Problems

Inventory

Volatile

Demand

Inaccurate

Forecasts

Unreliable

Suppliers

Quality

ProblemsBottlenecks

A

B


Why is inventory a waste?

Cost of holding inventory - globally companies

are beginning to use 25% of inventory value:

Cost of capital

Opportunity cost (what we could have done with

the money if we had it in our hands)

Obsolescence

Storage and handling costs

Management and overhead

Potential: losses/theft


What is the SOLUTION?


SPEED


How Long Is the Logistics

Pipeline?Cumulative

Lead-Time

(Procurement

to Payment)

Raw Material Stock

Sub-Assembly Stock

Intermediate Stock

Product Assembly

Finished Stock at Central Warehouse

In-Transit

Regional Distribution Centre Stock

Customer Order Cycle (Order-Cash)


Demand Predictability and Lead-time

Forecast

Error

Lead-Time

+

-totn


Achieving Responsiveness and Agility in the

Supply Chain

• Substitute information for inventory

• Partner with Suppliers/Customers to reduce losses

• Seek to reduce complexity (not necessarily

variety) and to increase flexibility (Agility)

• Manage processes not just functions

• Utilize appropriate performance metrics, e.g. end-

to-end pipeline time


Speed of Supply Chain (Velocity)

Inventory velocity

The rate at which inventory(material) goes

through the supply chain

Information velocity

The rate at which information is

communicated in a supply chain

Cash velocity ???


Traditional Supply Chain

Manufacturer Customers

Goods flow

Demand flow

DC Store

•Sequential backward action

•Filtering of real demand by inventory

•Significant batching activity

•Noise in demand patterns

•Forecast dependent


BREAK


Benefits of Supply Chain Management

Lower inventories

Higher productivity

Greater agility

Shorter lead times

Higher profits

Greater customer loyalty


Barriers to integration of organizations

Getting top management on board

Dealing with trade-offs

Small businesses

Variability and uncertainty

Long lead times

ChallengesSupply Chain Management

Supply Chain: to close

“Supply chain management is now more and

more a key factor to become “the preferred

suppliers of retailers” and it implies deep

understanding of the whole supply network

and an upfront Agile design”


Future Supply Chain - Integrated

Continuous Flow

Timely & Paperless Information Flow

Continuous Goods Flow to the Consumer


Case Study

DELL COMPUTERS


Dell Computers:

A success story

Total Share Holder Return

100

150

200

250

300

350

400

A

pr-

96

Jun-

96

A

ug-

96

Oct-

96

D

ec-

96

F

eb-

97

A

pr-

97

Jun-

97

A

ug-

97

Oct-

97

D

ec-

97

F

eb-

98

% T

SR Dell

S&P

Supply Chain Management Michael Dell:

Founder’s milestones:

1965 Born on Feb 23,

1983 Starts rebuilding PCs,

1984 Drops out of college,

1985 At 20, his company reaches 34 million,

1995 Becomes the youngest CEO ever

to make the fortune 500,

1997 At 32 he has over 4 Billion in Dell’s stocks


Evolution to a faster model:

Supplier CustomersDistribution

ChannelsPlant

1 Industry Model:

3 Virtual Integration

Supplier CustomersPlant

2 Dell’s direct model:

Supplier Plant Customers


Fact: Dell Supply System

Hard Drive

Supplier

Dell’s

Factory

(Texas)

Sony

Monitors

Factory

(Mexico)

CustomerUPS

Orders


2. Focus on moving product Fast

Inventory Velocity is tracked closely

Real time information on demand

Communicate replenishment needs regularly, to

some suppliers hourly

Fine - tune the sales forecast with major

customers, individually.


Keys to Success

1. Virtual Integration (Flexibility)

2. Change the focus from how much inventory

there is, to how fast it’s

moving.(Responsiveness)


1. Virtual Integration

a Use of technology to enable coordination across boundaries to achieve new levels of productivity

b Partners are treated as if they’re inside the company

c Focus on creating value for their customers.


Fact: Inventory

Dell Inventory: 11 Days

Industry Average: 80 Days


Fact: Speed to market

If Intel comes up with a 500 Mhtz MMX

processor in Oct-1, Dell would deliver it to you 69

days sooner:

Dell = Oct-11

Industry Avg.. = Dec-20

69 Days11 Days


Fact: Sales Growth

Sales

0

1

2

3

4

5

6

7

8

9

10

1990 1992 1994 1996 1998

Billio

ns o

f U

S D

ollars


Dell Computers

Logistics strategy plays an important role in Dell Computer’s

impressive financial performance.

Dell’s direct distribution eliminates as much as 2 months of

warehouse and retail storage.

About 80% of the cost of a PC consists of components.

Component prices fall while on the shelves at 30% per year.

The consequences of logistics delays are overpriced products

and possible obsolescence.

Direct sales also helps Dell in forecasting.


Case Study 2

Marks and Spenser vs Zara

?

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