2. What Is a Supply Chain?
Flow of products and services from:
–Raw materials manufacturers
–Intermediate products manufacturers
–End product manufacturers
–Wholesalers and distributors and
•Connected by transportation and storage activities
•Integrated through information, planning, and integration activities
•Cost and service levels
3. What Is Supply Chain Management?
•Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements.
4. Two Other Formal Definitions
The design and management of seamless, value- added process across organizational boundaries to meet the real needs of the end customer
Institute for Supply Management
Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer
The Supply Chain Council
7. •Supply chain - ―A network of organizations connected in their processes and activities, with the ultimate goal of delivering value to the final customer.‖ (Christopher, 2005 p57.)
•This new discipline was a response to changes in prevailing trends in business strategy, which in turn demanded that internal functional self-interests be put aside to achieve a greater good of delivering better value to customers
Supply Chain Management
1. Lee, (2000) Creating value through supply chain integration. Supply Chain Management Review. v4 i4. 30-36. 2. Christopher M (2005) Logistics and supply chain management: creating value-adding networks. 3rd edn, FT Prentice Hall.
9. Supply Chain Management Defined
Supply chain management is the design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer.
- Institute for Supply Management
10. Internal Value Chain: Local Focus
R & D
11. Internal Value Chain: Company Focus
R & D
12. Internal Value Chain: Company Focus
R & D
13. SCM: Linked Value Chains
R & D
R & D
R & D
R & D
R & D
14. Total Supply Chain
Supplier Organization Customer
Financial Provider Market Research
3rd Party Logistic Supplier
Source – Prof. Dr. Ted Lee’s Class Presentation - 2010
15. Key Observations
•Every facility that impacts costs need to be considered
•Efficiency and cost-effectiveness throughout the system is required
–System level approach
•Multiple levels of activities
–Strategic – Tactical – Operational
16. Other Related Observations
•Supply chain strategy linked to the Development Chain
•Challenging to minimize system costs and maximize system service levels
•Inherent presence of uncertainty and risk
17. •Set of activities and processes associated with new product introduction. Includes:
–product design phase
–associated capabilities and knowledge
The Development Chain
19. Global Optimization
•Geographically dispersed complex network
•Conflicting objectives of different facilities
–Variations over time
–Matching demand-supply difficult
–Different levels of inventory and backorders
•Recent developments have increased risks
23. •Forecasts are never right
–Very unlikely that actual demand will exactly equal forecast demand
•The longer the forecast horizon, the worse the forecast
–A forecast for a year from now will never be as accurate as a forecast for 3 months from now
•Aggregate forecasts are more accurate
–A demand forecast for all CV therapeutics will be more accurate than a forecast for a specific CV-related product
Nevertheless, forecasts (or plans, if you prefer) are important management tools when some methods are applied to reduce uncertainty
Supply Chain Management – Key Issues
24. Key Business Challenges
Competitive Pressures are Intense –
•In a crowded marketplace, an firm must execute flawlessly to make gains on the competition.
•With buyers viewing products as commodities, the ability to compete more effectively or differentiate their value to customers is crucial to continued success.
Need to Increase Business Agility –
•Business agility is a strategic imperative as firms try to respond quickly to changing business needs, governing regulation or the competitive marketplace.
•Organization must build new processes into rigid and inflexible infrastructures in order to address these needs effectively.
25. Key Business Challenges
Focus on Customer as Partners in Business (build experience)
•Firms must understand all too well the impact a negative customer service experience can have on their bottom line.
•As a result, many firms are working to improve their customer service and deliver a cohesive service experience to customers and business partners.
26. The Supply Chain Problem has Changed
Synchronization with business partners
Manufacturing optimization focus: Efficiency
Supply chain and procurement organizations
Focus in Early 2000
Logistics and materials as the constraints
Inventory as the buffer
Manufacturing as the constraint
Variability is escalating for both demand and supply. How do I create agility?
Need to constantly refine the plan
27. -Traditionally supply chains have been characterized by arms- length, even adversarial relationships between the different players. - There has been limited history of sharing information either with suppliers or customers. - Conventionally supply chains have often been designed to optimise for cost and/or customer service - Many organisations are at risk because their response times to demand changes or supply disruption are too long.
Conventional Supply Chains
28. Types of supply chains
•Product oriented (e.g. making and selling beer)
–Capital intensive (usually) & geographically concentrated
–Separation of provision and consumption, therefore movement
–Inventory buffers demand variability
•Service oriented (e.g. professional services; house purchase)
–Not capital intensive & geographically more dispersed
–Customer and provider interact as part of the fulfilment process
–Capacity buffers demand variability
•Hybrids (e.g. equipment maintenance & repair/ construction/ retailing)
–Both product and people skills equally required to deliver the solution
–Capacity and inventory both important in managing demand variability
29. Comparison of Product and Service Supply Chains
Product based Supply Chains
Service based Supply Chains
Transported from production to point of consumption
‗Consumed‘ at point of production
Customer removed from production process
Customer contributes to production process
Inventory buffers variability of demand (& supply)
Resources buffer variability of demand
Standard & mass produced
Unique & customised
30. Article review – Retail Supply Chain outlook 2012
1.Summarize the article and reflect it to the Malaysian Logistics Industry.
2.What is the relationship between new hours of service rulemaking and its impact to movement of goods.
3.List some of the innovation in Logistics in the recent years.
31. Article review- The Internet-Enabled Supply Chain
1.Elaborate ―The Internet harness the ability to connect buyers and suppliers‖ and relate it to the definition of SC
2.Prof Dr Hau Lee claims that ―Competition now occurs at the supply Chain level, not just company versus company‖
3.Briefly explain POS, WMS and Order Management system.
4.Visibility is the key for Information management in Supply Chain. Explain how visibility can be achieved in a downstream and upstream.
33. Inventory Categories
Source: Bernard, Paul. Integrated Inventory Management (John Wiley & Sons, Inc., 1999).
Operating Inventory Target Days Supply varies by part and is shorter
for expensive items and longer for inexpensive items.
Excess Inventory encompasses any part inventory which
exceeds the Operating Inventory level but still has a reasonable
chance of being used within the planning time frame.
Surplus Inventory may have some possibility of being used within 12-18 months but probably would not have been stocked based on perfect hindsight.
If the part remains in inventory until there is no longer any product or
Service part demand, any remaining balance will become “obsolete”.
Inventory will probably
never be used.
34. Classifying Inventory: ABC Analysis
–Developed in 1951 by H. Ford Dicky of General Electric3.
–Suggested that GE classify items according to relative sales volume, cash flows, lead time, or stockout cost.
–Most important inventory put in Group A.
–Lesser impact goods put in Groups B and C respectively.
35. Classifying Inventory: ABC Analysis
•Pareto‘s Rule (80-20 Rule)
–Based on a nineteenth century mathematician‘s observation that many situations were dominated by a very few elements.
–Conversely, most elements had very little influence in most situations.
–Separates the ―trivial many‖ from the ―vital few‖.
36. Classifying Inventory: ABC Analysis
–80% of sales will come from 20% of the inventory SKUs.
–20% of sales will come from 80% of the inventory SKUs.
•The 80-20 Rule has been found to explain many phenomena that interest managers.
–For example, 80% of sales come from 20% of customers; and vice versa.
43. Causes of Bullwhip Effect
Demand Signal Processing (frequent updates
of forecasts; only next echelon orders
Order Batching (to realise logistic Economies
of scale + Reducing order processing costs)
Price Fluctuations (resulting in over-reactions)
Supply Rationing (Proportionate rationing;
unrestricted order acceptance + free return
44. Counter-Measures for BWE
• Avoid multiple demand forecasts
– Order based on ultimate customer demand
– Use EDI+POS+VMI
– Choose a good forecasting method (PLC has a
– Move from decentralized DM to centralized
planning (visibility+control is better)
– Remove layers in channel if possible
• Eg: HP, Apple, IBM, P&G/Walmart
45. Counter-Measures for BWE
• Break order batches
Increase frequency of ordering (OP costs
reduced by EDI)
Resort to standardization to minmize OP costs
Use 3PL to make small batch replenishments
Aggregate across retail outlets to utilize FTL EoS
Reduce safety stocks by cutting lead times
Eg: 3PL using Fedex, P&G Stabilize prices
Special purchase contracts
• Eliminate shortage gaming
Allocate based on past sales (Sun)
Share capacity and information (HP, Motorola)
Limit flexibility wrt time (HP, Seagate)
46. ERP for Organizational Value Chain
−Stream of activities
−Applies to both products and services
Infrastructure, HR, R&D, Procurement
Marketing & Sales
47. Push/Pull Strategies
Economies of scale
Demand of uncertainty
•Customization is High
•Demand is uncertain
•Scale economies are Low
•E.g., Computer Peripherals
•Demand is uncertain
•Scale economies are High
•Low economies of scale
•Uncertainty is low
•Low economies of scale
•Push-pull supply chain
•E.g., Stationeries (Books, Pens, CDs)
•Standard processes are the norm
•Demand is stable
•Scale economies are High
•E.g., Vegetables, Soft drinks
48. Characteristics of Push/Pull strategies
Maximize service level
Supply chain planning
49. Operation strategies – SCM
When to choose
Make to Stock
Standardized products, relatively predictable demand
Low manufacturing costs; meet customer demands quickly
Make to Order
Customized products, many variations
Customization; reduced inventory; improved service levels
Configure to order
Many variations on finished product; infrequent demand
Low inventory levels; wide range of product offerings; simplified planning
Engineer to order
Complex products, unique customer specifications
Enables response to specific customer requirements
50. Production Planning
Parts Procurement Plan
Weekly Assembly Schedule
51. Production Planning
Packaging & Sterilization
Order point; Order quantity
52. What’s Wrong?
•Poor service for new product introductions
•And high FG inventory
53. What Is Going On?
•Demand is quite predictable
•Usage in hospitals is quite stable
•Market share moves slowly over time
•With each new product, dealer must build inventory to fill pipeline
54. What to Do?
•Recognize that demand is stable and predictable
•Establish accountability for forecast
•Eliminate planning delays and/or reduce time bucket
•Alternatively, put assembly within pull system and eliminate bulk inventory
55. Business Process
The Five Most Important Capabilities in
56. Customer Experience
•Engage in the Process
•Embedded Business Rules
•Service Levels & Treatments
•End User Experiences
•Automate Mundane Tasks
•Intelligently Engage Users
•Systematically Drive Policies
•Fund the Business Case
•Key Processing Systems
•Channel Delivery Systems
Empower the Business
Leverage the Infrastructure
59. Supply Chain Performance Measures
Source/Make Cycle Time
The cumulative time to build a shippable product from scratch—if you start with no inventory on hand or on order. Consists of total sourcing lead time, release-to- start build, total build cycle time, and complete build-to-ship time
Customer Inquiry Response Time
The average elapsed time between receipt of a customer call and connection with the appropriate company representative
Customer Inquiry Resolution Time
The average elapsed time required to completely resolve a customer inquiry
Order Fulfillment Cycle Time
The average actual lead times consistently achieved, in calendar days, from customer order to customer delivery. Includes, order authorization to entry, entry to release, release to shippable, shippable to customer receipt, and receipt to customer acceptance
On-Shelf In-Stock Percentage
The percentage of time that a product is available on the shelf, rack, or wherever the customer expects to find and buy it. Measures the supply chain’s ultimate ability to satisfy the end customer
Total company revenues generated less the value of externally sourced materials expressed as a ratio of total company headcount
60. Performance Metrics
SC Performance Attribute
•Perfect order fulfillment
•Order fulfillment lead-times
•Supply chain response time
•Cost of goods sold
•Total SC management costs
•Warranty/returns processing costs
Asset Management Efficiency
•Cash-to-cash cycle time
•Inventory days of supply
61. Supply Chain Performance Measures
SC Inventory Days of Supply
Total number of days of inventory required to support the supply chain— from raw materials to the final customer acquisition. Expressed as calendar days of supply based on recent actual daily cost of sales
Supply-Chain Response Time
The theoretical number of days required to recognize a major shift in market demand and increase production by 20 percent
Total Supply Chain Cost
The sum of all the costs incurred in planning, designing, sourcing, making, and delivering a product broken down for each member of the supply chain
Cash-to-Cash Cycle Time
The time required to convert a dollar spent to acquire raw materials into a dollar collected for finished product. (Total Inventory Days of Supply + Days Sales Outstanding – Days Payables Outstanding).
Perfect Order Fulfillment
A perfect order is an order that is delivered complete, on time, in perfect condition, and with accurate and complete documentation. Fulfillment is the percent of orders that are perfect (Perfect orders/Total orders).
Inventory Dwell Time
The ratio of days inventory sits idle to days inventory is being productively used or positioned
62. Efficient and Responsive Supply Chains
Product design strategy
Min product cost
Modularity to allow postponement
Lead time strategy
Reduce but not at expense of greater cost
Aggressively reduce even if costs are significant
Supplier selection strategy
Cost and low quality
Speed, flexibility, quality
Greater reliance on low cost modes
Greater reliance on responsive (fast) modes
•Increased outsourcing network of suppliers Brand owning companies
•Efficiency vs. Responsiveness
•Agile Supply Chain Measurement -Production Flexibility
•Decision making speed must also be increased
–Implement collaborative supply chain solutions
•Supply chain centric private exchanges enable more agile supply chains
–Participate in private exchanges ASAP or develop your own