200912 supply chain management note

1. Goal / Definition of Supply Chain Management:

a. A set of approaches to efficiently integrate:

i. Supplier,

ii. Manufacturers,

iii. Warehouses,

iv. Distribution centers / Stores,

b. So that product is produced and distributed:

i. In the right quantities,

ii. To the right locations, and

iii. At the right time,

c. In order to:

i. Minimize total supply chain system costs,

ii. Satisfy customer service requirements.

2. Definition of Logistics from Council of Logistics Management:

a. The process of planning, implementing, and controlling procedures,

b. For the efficient and effective storage of goods, services, and related information,

c. From the point of origin to the point of consumption,

d. For the purpose of conforming to customer requirements.

3. Logistics management is part of supply chain management.

Dec 2009 SCM FMM of 50

4. Supply chain illustration:


Supplier Manufacturer Distributor Retailer Customer

UpstreamDownstream


Tier 1 Supplier

Manufacturer Distributor Retailer Customer

Inefficient

logistics High stockou

ts

Ineffective

promotions

Frequent Supply shortages

High landed costs to the

shelf

High inventories through the chain

Low order fill rates

Glitch-Wrong Material,

Machine is Down – effect

snowballs

5. Activities performed under SCM:

a. Customer Services:

i. Order management,

ii. After-sales services,

iii. Returns processing.

b. Warehousing:

i. Distribution planning,

ii. Inventory planning,

iii. Inbound logistics,


iv. Outbound logistics.

v. In-house QC inspection (Optional).

c. Purchasing:

i. Supplier management,

ii. Material planning,

iii. Inbound transport management.

d. Demand Planning and Forecasting.

e. Production:

i. Production planning and scheduling,

ii. Capacity planning & optimization.

6. 4 categories of supply chain operations:

a. Plan: Demand forecasting, product pricing, inventory management.

b. Source: Procurement, credit and collection.

c. Make: Product design, product scheduling, and facility management.

d. Deliver: Order management, delivery scheduling and return processing.


7. 5 factors driving SCM: IVCCS

a. Information technology:

i. Today's technology is the key that allows the supply chain to become

integrated and therefore reduces the inventory requirement.

ii. Some examples are:

1. EDI: The transmission of purchase orders via electronic data

interchange (EDI) can provide more timely and accurate data to

suppliers, allowing for more efficient information in management

and production planning.

2. POS: Capture sales data and store at customer database for

inventory monitoring through VMI and customer trend data

analysis.

b. VMI: With integration to POS and communication via EDI, customer inventory

level is monitored and controlled at pre-determined level.


c. Visibility:

i. Supply chain visibility refers to the ability to view all areas up and down

the supply chain.

ii. Supply chain visibility allows organizations to eliminate bullwhip effect.

iii. Bullwhip effect occurs when slight demand variability is magnified as

information moves back upstream.

iv. Examples of bullwhip effects: LIPSO

1. Lumpy demand, inaccurate forecasts, price fluctuations, shortages

and overages.

v. Common Causes for the Bullwhip: DOPA

1. Demand Signal Processing (each stage does its own forecasting)

2. Order Batching (trying to achieve economies of scale)

3. Price Fluctuations (inducements such as “ forward buys” through

price reduction)

4. Allocation Gaming (when shortages loom, over-orders are placed)

vi. Basically, this is saying to increase communication among the different

nodes in the supply chain. This will enable a company to better

understand what is going on throughout the supply chain. By increasing

visibility, you reduce variability, which will improve overall operations of

the company and reduce inventory requirements.

vii. Example of bullwhip effect on diapers:

1. The need for diapers is constant; it does not increase at Christmas

or in the summer. Diapers are in demand all year long. The

number of newborn babies determines diaper demand, and that

number is constant.

2. Retailers order diapers from distributors when their inventory level

falls below a certain level, they might order a few extra just to be

safe


3. Distributors order diapers from manufacturers when their

inventory level falls below a certain level, they might order a few

extra just to be safe

4. Manufacturers order diapers from suppliers when their inventory

level falls below a certain level, they might order a few extra just

to be safe

5. Eventually the one or two extra boxes ordered from a few retailers

become several thousand boxes for the manufacturer. This is the

bullwhip effect; a small ripple at one end makes a large wave at the

other end of the whip.

viii. Illustration of Bullwhip Effects:

d. Consumer behavior:

i. Companies must respond to demanding customers through supply chain

enhancements.

ii. Demand planning and forecasting software can generates demand

forecasts using statistical tools and techniques.

iii. Once an organization understands the effects of customer demand on the

supply chain, organization can estimate the impact of their supply chain on


customer demand. Organization can improve organization overall

performance by filling in the gap between customer demand and supply

chain capacity.

e. Competition:

i. Increased competition makes any organization that is ignoring its supply

chain at risk of becoming obsolete.

ii. Both SCP and SCE increase a company’s ability to compete.

iii. Supply chain planning (SCP) software uses advanced mathematical

algorithms to improve the flow and efficiency of the supply chain. SCP

depends entirely on information for its accuracy.

iv. Supply chain execution (SCE) software automates the different steps and

stages of the supply chain. SCE can be as simple as electronically routing

orders from a manufacturer to a supplier.

f. Speed:

i. As the pace of business increases through electronic media, an

organization’s supply chain must respond efficiently, accurately and

quickly. EAQ.

ii. For examples:

1. Pleasing customers has become something of a corporate

obsession. Serving the customer in the best, most efficient and

most effective manner has become critical, and information about

issues such as order status, product availability, delivery schedules,

and invoices has become a necessary part of the total customer

service experience.

2. Information is critical to manager’s ability to reduce inventory and

human resource requirements to a competitive level.

3. Information flows are essential to strategic planning for and

deployment of resources.


8. 6 steps to implementing SCM Project: EDADDI.

a. Educate for support:

i. Identify a key executive to actively sponsor the project,

ii. Find a project champion within your company, who has the passion to

lead a supply chain project,

iii. The sponsor and project champion shall learn SCM and share their

knowledge throughout the organization.

b. Discover the opportunity:

i. Form a business case that justifies investment in a supply chain project,

ii. Establish a project charter, which cover approach, budget, organization,

communication plan, and establishing clear measures for success.

c. Analyze :

i. Define the SCM opportunity according to company’s P&L statement by

emphasizing the value proposition of the project in terms of cash-to-cash

cycle time, inventory days, order fulfillment, and other performance

factors.

d. Design of material flow & work / information flow:

i. Define the work / information flow first, and then the information that

moves the material.

ii. This design should cover: PILIT.

1. Production capacity,

2. Inventory level,

3. Locations to serve customers,

4. Information visibility.

5. Transportation to incoming materials and deliver products:

e. Develop :

i. From design, create a SCM project master schedule.

f. Implement based on the master schedule.


9. Hierarchy of SCM decisions:

a. Strategic Level:

i. On the strategic level, long-term decisions are made.

ii. Modeling and simulation is frequently used for analyzing these

interrelations, and the impact of making strategic level changes in the

supply chain.

iii. Examples of strategic decisions:

1. Strategic network optimization, including the number, location,

and size of warehousing, distribution centers, and facilities.

2. Strategic partnerships with suppliers, distributors, and customers,

creating communication channels for critical information and

operational improvements such as cross docking, direct shipping,

and third-party logistics.

3. Product life cycle management, so that new and existing products

can be optimally integrated into the supply chain and capacity

management activities.

4. Information technology infrastructure to support supply chain

operations.

5. Where-to-make and what-to-make-or-buy decisions.

6. Aligning overall organizational strategy with supply strategy.

b. Tactical Level: PILIT.

i. On the tactical level, medium term decisions are made.

ii. Examples of tactical decisions:

1. Sourcing contracts and other purchasing decisions.

2. Production decisions, including contracting, scheduling, and

planning process definition.

3. Inventory decisions, including quantity, location, and quality of

inventory.


4. Transportation strategy, including frequency, routes, and

contracting.

5. Benchmarking of all operations against competitors and

implementation of best practices throughout the enterprise.

6. Milestone payments.

7. Focus on customer demand.

c. Operational Level: Planning, scheduling and operation of PILIT on daily

basis.

i. On the operational level, short term decisions are made from day to day.

ii. Examples of operational decisions:

1. Daily production and distribution planning, including all nodes in

the supply chain.

2. Production scheduling for each manufacturing facility in the

supply chain (minute by minute).

3. Demand planning and forecasting, coordinating the demand

forecast of all customers and sharing the forecast with all suppliers.

4. Sourcing planning, including current inventory and forecast

demand, in collaboration with all suppliers.

5. Inbound operations, including transportation from suppliers and

receiving inventory.

6. Production operations, including the consumption of materials and

flow of finished goods.

7. Outbound operations, including all fulfillment activities,

warehousing and transportation to customers.

8. Order promising, accounting for all constraints in the supply chain,

including all suppliers, manufacturing facilities, distribution

centers, and other customers.


10.How to align supply chain with business strategy:

a. Understand and classify the requirements (responsiveness or efficiency) of your

customers with following attributes:

i. The quantity of the product needed in each lot,

ii. The response time that customers are willing to tolerate,

iii. The variety of products needed,

iv. The service level required,

v. The price of the product,

vi. The desired rate of innovation in the product.

b. Define core competencies and the roles your company will play to serve your

customers,

c. Develop supply chain capabilities of responsiveness and efficiency on:

i. Excess or little excess production capacity,

ii. High or low inventory level,

iii. Many or few central locations,

iv. Frequent and small or few and large shipments (Transportation),

v. Level of information sharing and collection (Information visibility):

1. Openly shares information with all individuals,

2. Selectively shares certain information with certain individuals

d. Noted here that cost of information continues to drop and the cost of the other

four drivers usually continues to rise. Over the longer term, those companies and

supply chains should learn how to maximize the use of information to get optimal

performance from the other drivers. This is to gain the most market share and be

the most profitable.


11.The need for SCM: COGITEC

Competitive pressure

Increasing level of outsourcing

Increasing globalization

Managing inventory

Increasing transportation cost

Increasing importance of e-commerce

Complexity of supply chain

a. Competitive pressures:

i. The rate of change in markets, products, and technology is increasing,

leading to situations where managers must make decisions on shorter

notice, with less information, and with higher penalty costs.

ii. New competitors are entering into markets that have traditionally been

dominated by "domestic" firms.

iii. Customers are demanding quicker delivery, state-of-the-art technology,

and products and services better-suited to their individual needs.

iv. In some industries, product life cycles are shrinking from years to a matter

of two or three months.

b. Increasing level of outsourcing:

i. Initially, the outsourced functions often represented non-core or non-vital

activities or some other determinant where the company did not want to

invest its own resources--capital, people, technology and facilities.

ii. Now outsourcing is seen as a strategic way to align the supply chain with

the company direction and to become a leading-edge practitioner. It is also

recognized as a tactical way to better manage service and costs.

v. Effectively managing the offshore supply chain, as to suppliers, logistics

service providers and their coordinated integration from vendor door to


final delivery location, has caused companies to assess the utilization of

outsourced logistics providers, either 3PL or 4PL.

vi. Some firms have seized this outsource opportunity to transform their total

import supply chain; they see it as a way to compress cycle time and

decrease inventory levels. Others have focused on arranging the

transportation part as the outsourced need.

c. Increasing globalization:

i. With continuous globalization of business, world is shrinking day-by-day.

In the globalization of business, the distinction between large and small

companies is breaking down with the information technology breaking

down the barriers of time and location.

ii. Added to this is the emergence of Internet as powerful global

communication vehicle having its profound impact on business processes.

E-Commerce, the buzzword of the day, is perhaps the most striking

example of the changes occurring in business - be it globalised one or

within national boundaries.

d. Manage inventories:

i. Today's technology is the key that allows the supply chain to become

integrated.

ii. Integrated supply chain enables each segment of the supply chain (i.e.,

procurement, production and distribution) can be functionally integrated

for optimum result and therefore reduces the inventory requirement.

iii. In details, instead of requiring every member of the chain to maintain

safety stock to buffer against uncertainty in demand, that uncertainty can

be reduced by sharing information that helps members anticipate coming

changes in the flows of demand, supply, and cash. Information is usually

far cheaper than inventory, and it has the advantage that it can be in many

places at the same time.

iv. The result: Substituting information for inventory is a key technique for

improving supply chain performance.


e. Increasing transportation costs:

i. Transportation cost is among the largest components of total supply chain

costs. With the current global business scenario, effective transportation

management requires a thorough understanding of volatile elements like

fuel costs, capacity levels and increasing customer requests for tighter, and

sometimes more frequent, delivery times.

f. Increasing importance of e-commerce:

i. E-commerce impacts supply chain management in a variety of keyways.

These include:

1. Cost efficiency: By using e-commerce, companies can reduce

costs, improve data accuracy, streamline business processes,

accelerate business cycles, and enhance customer service. Ocean

carriers and their trading partners can exchange bill of lading

instructions, freight invoices, container status messages, motor

carrier shipment instructions, and other documents with increased

accuracy and efficiency by eliminating the need to re-key or

reformat documents. The only tools needed to take advantage of

this solution are a personal computer and an Internet browser.

2. Changes in the distribution system: E-commerce will give

businesses more flexibility in managing the increasingly complex

movement of products and information between businesses, their

suppliers and customers. E-commerce will close the link between

customers and distribution centers. Customers can manage the

increasingly complex movement of products and information

through the supply chain.

3. Customer orientation: E-commerce is a vital link in the support

of logistics and transportation services for both internal and

external customers. E-commerce will help companies deliver better

services to their customers, accelerate the growth of the e-


commerce initiatives that are critical to their business, and lower

their operating costs. Using the Internet for e-commerce will allow

customers to access rate information, place delivery orders, track

shipments and pay freight bills.

4. Shipment tracking: E-commerce will allow users to establish an

account and obtain real-time information about cargo shipments.

They may also create and submit bills of lading, place a cargo

order, analyze charges, submit a freight claim, and carry out many

other functions. In addition, e-commerce allows customers to track

shipments down to the individual product and perform other

supply chain management and decision support functions. The

application uses encryption technology to secure business

transactions.

5. Shipping notice: E-commerce can help automate the receiving

process by electronically transmitting a packing list ahead of the

shipment. It also allows companies to record the relevant details of

each pallet, parcel, and item being shipped.

g. Complexity of supply chains:

i. Supply chain nodes have conflicting objectives:

Customer Manufacturer

1 Variety of product Long run production (Production)

2 High in stock & short order lead time Low inventory (Warehouse)

1. Purchasing:

a. Stable volume requirements,

b. Flexible delivery time,

c. Little variation in mix,

d. Large quantities.

2. Manufacturing:

a. Long run production,

b. High quality,


c. High productivity,

d. Low production costs.

3. Warehousing:

a. Low inventory,

b. Reduced transportation costs,

c. Quick replenishment capability.

4. Customers:

a. Short order lead time,

b. High in stock,

c. Enormous variety of products,

d. Low prices.

ii. Supply chain is dynamic:

1. Bargaining power structure change from suppliers to customer due

to globalization and e-commerce.

2. Globalization ― Today’s customer can source superior products

and services from world-class companies across global

marketplaces.

3. E-commerce ― With the Internet, buyers can now access goods

and information at any time and from any place on the earth.

iii. Uncertainty is inherent to every supply chain nodes:

1. Matching supply and demand is difficult because:

a. Forecasting does not solve the matching problem,

b. Inventory and back-order level typically fluctuate widely

across the supply chain.

2. Lead times,

3. Possible unstable yields due to breakdown of machines,

4. Transportation times, especially with global sourcing,

5. Weather, natural disasters and war,

6. Local politics, labor conditions, border issues.


12.KPI / Metrics of SCM:

a. Back order: An unfilled customer order. A backorder is demand (immediate or

past due) against an item whose current stock level is insufficient to satisfy

demand. Backorders may be expressed in "pieces", "SKU's" or in "value".

b. Fill rate: Percentage of orders delivered on time and in full to the customer,

within a specific time period.

c. On-Time Shipping Performance: A calculation of the number of Order shipped

on or before the Requested Ship Date versus the total number of Order.

d. Inventory accuracy: The absolute value of the sum of the variance between

physical inventory and perpetual inventory.

e. Inventory Turnover: The number of times that a company’s inventory cycles or

turns over per year. Turns can be viewed using Cost Value, Retail Value,

or even in Units.

Calculation:

A frequently used method is to divide the Annual Cost of Sales by the Average

Inventory Level.

Example: Cost of Sales = $36,000,000. Average Inventory = $6,000,000.

$36,000,000 / $6,000,000 = 6 Inventory Turns

OR

Inventory Turns can be a moving number.

Example: Rolling 12 Month Cost of Sales = $16,000,000. Current Inventory =

$4,000,000

$16,000,000 / $4,000,000 = 4 Inventory Turns


Or

Projected Inventory Turns: Divide the "Total Cost of 12 Month Sales Plan" by the

"Total Cost of Goal Inventory"

Example: The Total Cost of 12 Month Sales Plan is $40,000,000. Total Cost of

Goal Inventory = $8,000,000

$40,000,000 / $8,000,000 = 5 Projected Turns

f. Cycle time:

i. Customer Order Promised Cycle Time: The anticipated or agreed upon

cycle time of a Purchase Order. It is gap between the Purchase Order

Creation Date and the Requested Delivery Date.

This tells you the cycle time that you should expect (NOT the actual).

ii. Customer Order Actual Cycle Time:

The average time it takes to actually fill a customer’s purchase order. This

measure can be viewed on an Order or an Order Line level.

The measure starts when the customer’s order is sent/received/entered. It

is measured along its various steps of the order cycle. Through credit

checks, pricing, warehouse picking and shipping. The measure ends at

either the time of shipment or at the time of delivery to the customer

(sometimes tracked by using an EDI #214). This "actual" cycle time

should be compared to the "promised" cycle time.

iii. Manufacturing Cycle Time:

Measured from the Firm Planned Order until the final production is

reported. It usually takes into account the original planned production

quantity versus the actual production quantity. Example: X% of the

planned quantity must be completed on a production run or the cycle time

should not be considered.

iv. Purchase Order Cycle Time:

Measured from the creation of the PO to the receipt at your location

(Distribution Center, Hub etc). One of the keys here is not not have your


RDD (Requested Delivery Date) exceed the agreed to lead time. If it does,

it may artificially inflate your Lead Time.

Additionally, any in-between points available will add value to the metric.

Example: Creation of the PO, Shipment from the Vendor, Receipt at the

DC. This will tell you the manufacturing time vs the transit time.

v. Inventory replenishment cycle time: Measure of the manufacturing cycle

time + the time included to deploy the product to the appropriate

distribution center.

e. Transportation metrics:

a. On-time pickups: Calculated by dividing the number of pick-ups made on-

time (by the freight carrier) by the total number of shipments in a period.

This is an indication of freight carrier performance, and carriers' affect on

your shipping operations and customer service.

b. Transit time: Measured by the number of days (or hours) from the time a

shipment leaves your facility to the time it arrives at the customer's

location. Often measured against a standard transit time quoted by the

carrier for each traffic lane. Unless you are integrated into your

customers' systems, you will have to rely on freight carriers to report their

own performance. This is often an important component of lead-time.

Transit times can vary substantially, based on freight mode and carrier

systems.

c. Freight cost per unit shipped: Calculated by dividing total freight costs by

number of units shipped per period. Useful in businesses where units of

measure are standard (e.g., pounds). Can also be calculated by mode

(barge, rail, ocean, truckload, less-than-truckload, small package, air

freight, intermodal, etc.).


13.SCM Best Practices:

a. VMI:

i. This is where the vendor is given the responsibility for monitoring and

controlling inventory levels at the customer’s depot and in some instance

at the retail store level as well.

1. Monitoring: Stock information is assessed using EDI.

2. Controlling: It is the responsibility of the vendor to ensure that a

predetermined inventory level always available.

ii. When inventory level drops to level below a predetermined inventory

level, vendor proactively generate orders and ships products to the

customer locations that need them, and invoice the customer for those

shipments under terms defined in the contract.

iii. Or it can be as sophisticated as downloading information directly from their

cash registers into one’s computer system via an Electronic Data Interchange

(EDI) for analysis and determination of the specific inventory items and

quantity to be re-supplied.

iv. Advantages of VMI to customer:

1. Reduction of operating costs warehouse operation costs and

inventory holding cost.

2. Pay on what customer has used Minimize any possible delay in

payment for the products in question.

v. Advantages of VMI to vendor:

1. Provide opportunity to develop a much closer, and hopefully more

binding relationships with customer,

2. Reduced inventory requirements ― By knowing exactly how much

inventory the customer is carrying, a supplier’s own inventory

requirements are reduced since the need for excess stock to buffer

against uncertainty is reduced or eliminated.


3. Reduced demand uncertainty ― By constantly monitoring customers’

inventory and demand stream, the number of large, unexpected

customer orders will dwindle, or disappear altogether.

4. Improved customer service ― By receiving timely information

directly from cash registers, suppliers can better respond to

customers’ inventory needs in terms of both quantity and location.

b. WMS:

i. Highly automated system that runs day-to-day operations of a warehouse

or distribution center.

ii. A WMS manage the movement of goods within a warehouse or DC.

iii. Typical features of a WMS include:

1. Directed stock rotation,

2. Intelligent picking directives,


3. Automatic consolidation and cross-docking to maximize the use of

valuable warehouse space.

4. Direct and optimizes stock put-away based on real-time

information about the status of bin utilization.

iv. Having a WMS in place means you don't depend any more on people's

experience, the system has the intelligence.

v. Warehouse management systems utilize Auto ID Data Capture

technology, such as barcode scanners, mobile computers, wireless LANs

and potentially RFID to efficiently monitor the flow of products. Once

data has been collected, there is either batch synchronization with, or a

real-time wireless transmission to a central database. The database can

then provide useful reports about the status of goods in the warehouse.

c. JIT:

i. JIT refers to inventory control system in which goods arrive when they are

needed in the production process. This is done to reduce the need for

storage capacity and the attached costs.

ii. Elements of JIT:

1. Waste Reduction:

a. Firms reduce costs & add value by eliminating waste from

the productive system.

b. Waste encompasses wait times, inventories, material &

people movement, processing steps, variability, any other

non-value-adding activity.

2. JIT partnership:

a. Suppliers & customers work to remove waste, reduce cost,

& improve quality & customer service.

b. JIT purchasing includes delivering smaller quantities, at

right time, delivered to the right location, in the right

quantities.

c. Firms develop JIT partnerships with key customers. Mutual

dependency & benefits occur among JIT partnerships.


3. JIT layouts:

a. Move people & materials when & where needed, ASAP.

b. Group technology (work cells)- process similar parts or

components saving duplication of equipment & labor

c. Work cells are often U-shaped to facilitate easier operator

& material movements.

d. JIT layouts are very visual (lines of visibility are

unobstructed) with operators at one processing center able

to monitor work at another.

4. JIT inventories:

a. Reduction of inventory levels causes problems to surface in

the organization.

b. Once problems are detected, they can be solved.

c. The end result is a smoother running organization with less

inventory investment.

5. JIT scheduling:

a. Small batch scheduling drives down costs by:

b. Reducing purchased, WIP, & finished goods inventories

c. Makes the firm more flexible to meet customer demand.

d. Small production batches are accomplished with the use of

kanbans a Japanese word for card. Although for JIT use,

Kanban has come to mean a signal to order or release

material in the production system.


6. Continuous improvement:

a. Continuous approach to reduce process, delivery, & quality

problems, such as machine breakdown problems, setup

problems, & internal quality problems.

7. Workforce commitment:

a. Managers must support JIT by providing subordinates with

the skill, tools, time, & other necessary resources to

identify problems & implement solutions.

8. JIT II:

a. An extension of supplier partnerships & vendor-managed

inventories.

b. A supplier’s employee is housed in the purchasing

department of the buyer’s organization, acting as both

buyer & supplier representative. This employee monitors

inventory levels, places purchase orders, & participates on

product design & value analysis teams.

d. Push & Pull System:

i. With a push-based supply chain, products are pushed through the channel,

from the production side up to the retailer. The manufacturer sets

production at a level in accord with historical ordering patterns from

retailers. It takes longer for a push-based supply chain to respond to

changes in demand, which can result in overstocking or bottlenecks and


http://en.wikipedia.org/wiki/Retailer

delays (the bullwhip effect), unacceptable service levels and product

obsolescence.

1. Keeps inventory to meet actual demand

2. Acts proactively

ii. In a pull-based supply chain, procurement, production and distribution are

demand-driven so that they are coordinated with actual customer orders,

rather than forecast demand.

1. May cause long delivery lead times

2. Acts reactively

iii. In reality every supply chain is a mixture of push and pull. As long as

consumers have a choice about what products they buy and when they buy

them, the last link in the chain is always a pull link. At the other end of the

chain, the extraction of raw materials from the earth almost always occurs

in advance of demand for finished products. In effect, consumers pull and

extractors push.

iv. Somewhere in between the two is the push-pull boundary, the point at

which the flow of goods switches from being pulled by consumers to

being pushed by extractors. In the case of the assemble-to-order strategy,

for example, the push-pull boundary is located at the final assembly plant.


http://en.wikipedia.org/wiki/Service_level

http://en.wikipedia.org/wiki/Bullwhip_effect


= Push-Pull Boundary

v. Effect of production strategy on Push-Pull System:

1. Orders trigger the flow of goods, but, depending on the production

strategy, they may or may not trigger their immediate production

by a supplier.

2. In the make-to-stock (MTS) strategy, a supplier makes products

in advance of demand and holds them in finished goods inventory,

satisfying demand from that inventory as orders come in.

3. In the make-to-order (MTO) strategy, the supplier doesn't build a

product until it has an order in hand.

4. There is also an intermediate strategy, assemble-to-order (ATO),

in which a product is partially built in advance of demand, but final

assembly is postponed until an order is received. Postponement

strategy.

5. Some companies use a mix of these three techniques, but choose

one as their primary strategy.

6. For example, Sony uses make-to-stock, Boeing uses make-to-

order, and Dell uses assemble-to-order.

7. The choice of production strategy has a major impact on the

dynamics of a supply chain.

8. With the classic make-to-stock strategy, inventory is produced in

advance of and "pushed" down the chain toward consumers so that

it will be on hand when they go to buy it. This strategy relies on

demand forecasts to determine how much inventory to build and

where to hold it.

9. With make-to-order production, inventory is "pulled" down the

chain by immediate orders. Forecasts are less important with

make-to-order because there is no danger of making too much or

too little inventory, though long-term forecasts are important to

setting the correct levels of manufacturing capacity.


vi. Matching Supply Chain Strategies with Products:

1. Section I (High-degree of Pull-based Strategy):

a. Represents industries (or, more precisely, products) that are

characterized by high uncertainty and situations in which

economies of scale in production, assembly or distribution

are not important, for example, the computer industry.

b. Our framework suggests that a high degree of Pull-based

supply chain strategy is appropriate for these industries and

products, exactly what has been applied by Dell

Computers.

2. Section III (Push Strategy):

a. Represents products that are characterized by low demand

uncertainty and a situation in which economies of scale are

very important.


b. Products in the grocery industry such as beer, pasta, or soup

belong to that category.

c. Indeed, demand for these products is quite stable while

reducing transportation cost by shipping full truckloads is

critical to controlling cost in the supply chain.

d. In this case, a Push supply chain strategy, is appropriate,

since managing inventory based on long-term forecast does

not increase inventory holding costs while delivery costs

are reduced due to economies of scale.

3. Section IV (Push or Push-Pull Strategy):

a. Represents products characterized by low demand

uncertainty, indicating a Push supply chain, and situations

in which economies of scale do not play an important role,

suggesting a Pull-based supply chain strategy.

b. For instance, many books and CDs fall in this category. In

this case, a more careful analysis is required, since both,

traditional retail strategies, that is. Push strategies, and

more innovative Push-Pull strategies are appropriate,

depending on the specific costs and uncertainties.

4. Section III (Pull Strategy on Production, Push Strategy on

Delivery at fixed schedule):

a. Represents products and industries for which uncertainty in

demand is high while economies of scale are important in

reducing production and/or delivery costs.

b. The furniture industry is an excellent example of this

situation.

c. Indeed, a typical furniture retailer offers a large number of

similar products distinguished by shape, color, fabric, etc.,

and as a result demand uncertainty is very high.

d. Unfortunately, these are bulky products and hence delivery

costs are also high.


e. In this case, there is a need to distinguish between the

production and the distribution strategy.

i. The production strategy has to follow a Pull-based

strategy since it is impossible to make production

decisions based on long-term forecasts.

ii. On the other hand, the distribution strategy needs to

take advantage of economies of scale in order to

reduce transportation cost.

iii. This is exactly the strategy employed by many

retailers that do not keep any inventory of furniture.

f. When a customer places an order, it is sent to the

manufacturer who orders the fabric and produces to order.

Once the product is ready, it is shipped, typically using

truckload carriers, together with many other products to the

retail store and from there to the customer. For this

purpose, the manufacturer typically has a fixed delivery

schedule and this is used to aggregate all products that are

delivered to stores in the same region, thus reducing

transportation costs due to economies of scale.

g. Hence, the supply chain strategy followed by furniture

manufacturers is, in some sense, a Pull-Push strategy where

production is done based on realized demand, a Pull

strategy, while delivery is according to a fixed schedule, a

Push strategy.

e. Postponement:

i. Definition:

1. Postponement is a concept in which the manufacturer delays

completing, as much as possible, the final features of a product.

2. Final assembly is normally at site closer to the customer than the

manufacturing facility; e.g. in regional distribution centers.


3. For example, a canned corn manufacturer distributes its corn for

various grocery store retailers. The distributor waits to see what

grocery stores demand before labeling cans of corn under each

grocer’s brand name.

ii. Advantages:

1. Postponement is most successful in an environment that cannot

forecast product assortments very well, but can aggregate end-user

demand and delay the final step or steps in completing a product.

Because the manufacturer can accurately judge the overall demand

of a product category, the distributor can wait until the moment

when the demand for a particular product is realized. The

distributor can then differentiate the product quickly and the

customer will be served better.

iii. Examples:

1. Hewlett Packard sells its printers in almost every country. It can

forecast overall demand for its printers, but trying to pinpoint what

country they will be sold in is very difficult. Because different

countries employ different power requirements and the language

varies (pertinent to user manuals), Hewlett Packard redesigned its

printer so that it could wait until demand materializes and then add

these country-specific items at its regional distribution centers

rather than at central factories.

f. Cross docking:

i. Definition:

1. Cross-docking is a practice in logistics of unloading materials

from an inbound carriers and loading these materials directly into

outbound carriers, with little or no storage in between.

2. This may be done by:

a. Change type of conveyance,

b. Sort material intended for different destinations,


http://en.wikipedia.org/wiki/Logistics

c. Combine material from different origins into transport

vehicles (or containers) with the same, or similar

destination.

3. At the same time, bulk shipments are being broken down into

smaller lots and combined with small lots of other products and

loaded right back onto other trucks. These trucks then deliver the

products to their final destination.

ii. Advantages:

1. Product flows faster in the supply chain (from point of origin to

point of sale) since little inventory is held in storage,

2. Reduces handling costs, operating costs, and the storage of

inventory

3. Products get to the distributor and consequently to the customer

faster

4. Reduces, or eliminates warehousing costs

5. May increase available retail sales space

iii. Factors influencing the use of cross-docks:

1. Cross-docking is dependent on continuous communication

between suppliers, distribution centers, and all points of sale.

2. Customer and supplier geography -- particularly when a single

corporate customer has many multiple branches or using points

3. Freight costs for the commodities being transported

4. Cost of inventory in transit

5. Complexity of loads

6. Handling methods

7. Logistics software integration between supplier(s), vendor, and

shipper

8. Tracking of inventory in transit.

g. E-procurement:

i. E-procurement (electronic procurement, sometimes also known as

supplier exchange) is the business-to-business or business-to-consumer or


http://en.wikipedia.org/wiki/Business-to-consumer

http://en.wikipedia.org/wiki/Business-to-business

http://en.wikipedia.org/wiki/Procurement

Business-to-government purchase and sale of supplies, Work and services

through the Internet as well as other information and networking systems,

such as Electronic Data Interchange and Enterprise Resource Planning.

ii. Typically, e-procurement Web sites allow qualified and registered users to

look for buyers or sellers of goods and services.

iii. Depending on the approach, buyers or sellers may specify costs or invite

bids. Transactions can be initiated and completed. Ongoing purchases may

qualify customers for volume discounts or special offers.

iv. E-procurement software may make it possible to automate some buying

and selling.

v. Companies participating expect to be able to control parts inventories

more effectively, reduce purchasing agent overhead, and improve

manufacturing cycles.

h. Electronic Data Interchange (EDI):

i. Intercompany, computer-to-computer transmission of business

information in a standard format.

i. POS (Point-of-Sale):

i. The time and place at which a sale occurs.

ii. Examples are:

1. A cash register in a retail operation,

2. Order confirmation screen in an on-line session.

iii. Supply chain partners are interested in capturing data at the POS, because

it is a true record of the sale rather than being derived from other

information such as inventory movement.


http://en.wikipedia.org/w/index.php?title=Manufacturing_cycle&action=edit&redlink=1

http://en.wikipedia.org/wiki/Overhead_(business)

http://en.wikipedia.org/wiki/Sales_promotion

http://en.wikipedia.org/wiki/Discounts_and_allowances

http://en.wikipedia.org/wiki/Bid

http://en.wikipedia.org/wiki/Enterprise_Resource_Planning

http://en.wikipedia.org/wiki/Electronic_Data_Interchange

http://en.wikipedia.org/wiki/Internet

http://en.wikipedia.org/wiki/Service_(economics)

http://en.wikipedia.org/wiki/Construction#procurement

http://en.wikipedia.org/wiki/Good_(accounting)

http://en.wikipedia.org/wiki/Business-to-government

14. Supply chain management evolution:

15.Partnership:

a. Definition: A relationship of two or more entities conducting business for mutual

benefit.

16.Collaboration:

a. Definition:

i. The process by which partners adopt a high level of purposeful

cooperation to maintain a trading relationship over time.

ii. Features in collaboration:

1. The relationship is bilateral; both parties have the balanced power

to shape its nature and future direction over time.

2. Mutual commitment is essential to the process.

3. While collaborative relationships are not devoid of conflict, they

include mechanisms for managing conflict built into the

relationship

b. Guidelines for getting the most out of a relationship:

i. Fit the relationships to your strategy. Define the link between overall

strategy and collaboration opportunities, identify the purpose of each

collaboration, and be prepared to react quickly to changes in strategy or

environment.


http://www.investorwords.com/461/benefit.html

http://www.investorwords.com/1714/entity.html

http://www.businessdictionary.com/definition/relationship.html

ii. Identify the best partners. Use a range of competitive and market sources

to develop the intelligence to spot and evaluate potential partners.

iii. Optimize your relationship portfolio. Develop systems for timely reporting

to enable faster, better-informed decision making about the collaboration.

Know how to identify new opportunities based on activity in your current

portfolio. Make sensible trade-offs between internal efforts and alliances.

iv. Maximize day-to-day performance. Use performance measures that reflect

the organization’s overall business objectives so that the people involved

in the collaboration will be able to communicate the “why” and “what” of

every alliance they form and to share experiences across alliances.

v. Manage the relationship. Plan to communicate and maintain continuous

personal contact with key people at partner organizations. Success on this

front makes it possible to develop new opportunities from existing

relationships.

vi. Capitalize on your collaboration’s assets. Capture and adopt best

practices. Share information and leverage collaboration-created assets

across the parent company


17.Outsourcing: 3S2C2ERG

Release scarce resources

Strategic reasons

Size matters

Improved cash flow

Complexity of supply chain

Emerging market

E-commerce + e-fulfillment

The need to relocate

Globalization

a. Definition:

i. Outsourcing is subcontracting a service, such as product design or

manufacturing, to a third-party company

b. Benefits / Reasons of Outsourcing

i. Improved cash flow:

1. Cash needs to be injected to buy assets.

2. When particular service is outsourced, the buying of assets to

provide the service becomes irrelevant.

3. This is a very important aspect of logistics outsourcing because

most in-house operations will have a great deal of cash tied up in

depots, vehicles and other equipment.

ii. The need to relocate:

1. The rapid growth in IT was reflected in similar growth of IT

department. This leads to the need for relocation to bigger and

better premises.

2. Relocation in a logistics context normally means that a strategic

study has indicated that demand and perhaps supply points have

shifted such that existing depots are inappropriately located and

that some need to be closed and other new ones opened.


3. These relocations are potentially an enormous cost to any

company, as well as being potentially very disruptive to operations

and service levels during the period of change.

4. Thus, it may become both financially and operationally attractive

to outsource.

iii. Release scarce resources:

1. Rapidly developing markets and technology create the need for

constant change.

2. This means that functional heads and their staff have to spend

much of their time to fire fighting to initiate change and solve the

associated problems.

3. Outsourcing can alleviate this and allowing staff to concentrate on

more strategic issues.

iv. Strategic reasons:

1. Outsourcing allows organizations to concentrate their resources on

core functions.

2. Non-core functions are undertaken by an external specialist.

v. Globalization:

1. In recent years, there is increase in the number of companies

operating in the global marketplace.

2. These international companies are attributed with:

a. Global branding, sourcing and production, but

b. Centralization of inventory and information.

3. However, they must co-exist with the ability to provide for local

requirements, such as electronic standards for electrical goods,

language on packing, and left/right drive alternatives in automotive

industry.

4. Logistics networks become far more expansive , complicated and

difficult to service global markets.

5. Often, the best solution is to outsource.


vi. Complexity:

1. Globalization almost certainly leads to greater complexity.

2. Complexity provides some significant implications for logistics

operations, such as:

a. Extended supply lead times,

b. Complex node management (including DC, consolidation

centers, and cross-docking),

c. Extended and unreliable transit times, creating the need for

greater visibility in the supply chain, together with better

information systems,

d. Multiple, single and inter-modal freight transport options,

e. Complicated freight cost options,

f. Production postponement with local added value (finishing,

kitting, badging, tagging, etc).

3. Often, the best solution is to outsource, because:

a. To concentrate on core competencies, and

b. Difficult to set up and run such convoluted and complicated

supply chains.

vii. Emerging markets: Currently, there are some very significant regional

market developments.

1. Far East, in particular the opening up of China:

a. Has seen astounding growth in both the supply and demand

for many different types of product.

b. This are obvious implications for logistics regarding:

i. The flow of products out of Far East, whether raw

materials, components or finished goods.

ii. The inward flow of mainly finished goods into the

region.

c. This is a long supply chain.

2. Eastern Europe:


a. From Western European perspective, the sources and

markets do not have the problem of distance.

b. However, Eastern Europe has poor transport infrastructure

and the problem of initial low levels of supply and demand.

3. Often, outsourcing (on logistics and manufacturing operation) is

the best solution to deal with these complexity and constraints.

viii. Size matters:

1. Transport Operation:

a. In e-commerce and e-fulfilment, it is almost impossible for

small companies that are trying to offer a broad geographic

coverage to run their own transport operations cost-

effectively. This is the density problem.

b. Basically, vehicles would have to travel uneconomically

long distances between delivery drops. Thus, outsourcing

into a multi-user third-party transport operation is the major

alternative.

2. Warehouse Operations:

a. At Section (a) ― Based on daily orders and volumes, a

small company with limited orders, volume throughput and

SKUs is likely to undertake its own storage operation: (a)

in the diagram. This is because it does not have sufficient

requirements to attract a reasonably priced alternative from

a third-party provider.

b. At Section (b) ― Outsourcing becomes attractive when the

business is large enough to bear a reasonable overhead cost

and to start to benefit from the scale economies that a

multi-user operation can offer. This could continue through

a fairly long phase of business growth, and the client could

steadily move from being a small to a very big player for

the 3PL.


a. At Section (c) ― The next stage occurs when the business

reaches sufficient size for the warehouse or depot to be run

as an operation dedicated to the single business: (c) in the

diagram. For many companies, this will be an opportunity

to take the operation back in-house.

ix. E-commerce and e-fulfillment:

1. Internet and the World Wide Web have increased the opportunity

for both business and consumers to purchase goods online from a

variety of sources, whether traditional or new.

2. This Internet access provides a direct and instantaneous link from

the customer to the selling organization.

3. However, the actual physical fulfillment must still be undertaken

by more traditional physical operations to deliver products to

customer house.


4. This necessitates a new mean of physical distribution for home

delivery, in which traditional channels are not appropriate for.

5. To most Internet companies, the best solution is to outsource e-

fulfillment to 3PLs.

18.Reasons for outsourcing e-fulfillment:

a. Lower set-up costs:

i. Outsourcing avoids the need to invest in distribution, so start-up cash can

be concentrated into online business development.

b. Very fast set-up of fulfilment capabilities:

i. This allows companies to be able to support their online

retailing business as soon as it starts operating, and thus

avoid disappointing early customers through delivery

delays and failures.

c. Scale economies of shared facilities and transport:

i. Thus fulfilment can be economic despite initially low

volumes and throughput.

d. Lower operating costs:

i. Transport costs can be minimized if customer orders are

consolidated with other users. Small companies face a

difficulty in delivery operations known as the density

problem, whereby they have insufficient delivery or order

density in their network to make separate delivery

operations viable. This applies particularly to online

retailers, which virtually always start from a low business

base when opening their online retail sites.

e. Easier expansion of geographic coverage:

i. This is a classic reason for outsourcing delivery transport in

growing businesses, which applies equally to online

retailers.

f. Opportunity to benefit from value-added services:


i. There are a multitude of value-added services that third-

party providers now offer. Online retailers can use these at

an early stage of their business operation.

ii. Typical examples might include track-and-trace of orders,

returns and inventory visibility.

19.Why People Don't Outsource

a. Loss of control over the process. It is imperative to choose the correct

outsourcing partner and to form contractual arrangements to ensure appropriate

delivery and lead times.

b. Afraid of outsourcing competitive advantage. IBM outsourced both the

microchip (Intel) and the operating system (Microsoft).

c. Partnering with wrong supplier.

d. Costs are not justified.

e. Company wants to vertically integrate.

f. Does not understand the benefits of outsourcing


20.Benefits related to SCM:

a. Better equilibrium between supply chain members,

b. Move from adversarial relationships towards collaborative relationships,

c. Simplification of operations,

d. Improvement:

i. Customer services, especially on reduction in stock-outs,

ii. Lead times,

iii. Production planning.

e. Reduction in:

i. Stock quantity,

ii. Goods holding costs,

iii. Order processing costs,

iv. Transportation cost,

v. Costs of material purchased,

21.Barriers to implementing SCM:

a. History, habits (traditional commercial relationship),

b. Knowledge (the need of a know-how),

c. Size of organization,

d. Information systems and information technologies,

e. Culture and attitudes of people working in the company,

f. Departmental barriers,

g. Lack of trust,

h. Lacking culture of sharing information,

i. Be afraid of the benefits going only to the downstream,

j. Conditions established by downstream (such as small batches ordering).


22.Impact of Internet on SCM:


23.Inventory:

a. Definition:

i. The number of units and/or value of the stock of goods held by a

company. These cover raw materials, work in progress, finished goods and

supplies.

b. Type of inventory:

i. Raw materials ― Materials and components scheduled for use in making a

product.

ii. Work in process ― Materials and components that have begun their

transformation to finished goods.

iii. Finished goods ― Goods ready for sale to customers.

iv. Supplies

c. Benefits / Reasons for keeping inventory: TUE.

i. Time - The time lags present in the supply chain, from supplier to user at

every stage, requires that you maintain certain amount of inventory to use

in this "lead time".

ii. Uncertainty - Inventories are maintained as buffers to meet uncertainties in

demand, supply and movements of goods.

iii. Economies of scale - Ideal condition of "one unit at a time at a place

where user needs it, when he needs it" principle tends to incur lots of costs

in terms of logistics. So bulk buying, movement and storing brings in

economies of scale, thus inventory.

d. Other info:

i. Stock Keeping Unit (SKU) is a unique combination of all the components

that are assembled into the purchasable item. Therefore any change in the

packaging or product is a new SKU. This level of detailed specification

assists in managing inventory.


http://en.wikipedia.org/wiki/Stock_Keeping_Unit

ii. Buffer stock is held in individual workstations against the possibility that

the upstream workstation may be a little delayed in long setup or change-

over time. This stock is then used while that change-over is happening.

24.The seven deadly sins of supply chain management:

a. SCM Sin No. 1:

i. Not controlling your vendors, service providers and customers. The

biggest industry misperception is that SCM technology lets you control

your supply chain and vendor resources. Nothing could be further from the

truth.

ii. If you don't already have some organized control over your relationships,

you will be disappointed in the results of your SCM efforts.

iii. SCM technology works well if and when you already have control in

place. You see, what's great about SCM solutions is that they provide you

with tools that help you "enforce" the control of your relationships.

b. SCM Sin No. 2: Not "managing" your trading partners. You must actively and

authoritatively "manage" your supply chain relationships. I'm talking about the

ability to manage them collectively in mass or in groups so that you can get some

leverage from the process. That's where SCM technology makes a big difference.

c. SCM Sin No. 3:

i. Not knowing what SCM is. Few people can define what SCM technology

really is. There are too many competing views and opinions. So how are

you going to evaluate and implement SCM solutions when you can't

define what they will do for you?

ii. For instance, when people use the words distribution, logistics and

warehousing interchangeably with SCM, you just know something is

askew, right?

d. SCM Sin No. 4: Lack of executive appreciation. The industry's inability to define

SCM has one huge ramification for you: the people in the executive suite don't

understand the functionality or benefits, and as a result, they don't have a full

appreciation of what its true relevancy is to the organization.


e. SCM Sin No. 5:

i. Inability to establish a foundation of trust. The biggest human challenge to

implementing SCM is establishing and sustaining the open, trusting

vendor/supplier relationships required to make the system work.

ii. Access to information presents major opportunities and challenges that

must be addressed. The minute, operationally vital information is

withheld--or worse, misrepresented--because of negative political or

financial ramifications to a trading partner. The system is compromised,

and so are the efficiencies you anticipated.

f. SCM Sin No. 6: Too many options. The difficult part in evaluating SCM players

and software products and services is that there are so many of them, and they

change so fast. Don't make the mistake of pleading ignorance. It's a bad idea.

g. SCM Sin No. 7: Anticipating collaboration. If you're justifying your SCM

endeavor with the potential opportunity for "collaboration" with your strategic

alliance partners, don't hold your breath. It only exists in PowerPoint

presentations. Better to settle for cooperation instead.


200912 supply chain management note

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