intro scm 12sept09+

7/28/2019 Intro SCM 12Sept09+

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Introduction to

Agroindustrial SupplyChain Management

Yandra Arkeman


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Basic Concepts:

1. Supply Chain

2. Supply Chain Management (SCM)

3. SCM for Manufacturing

4. SCM for Agroindustry


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1. Supply Chain

SCM is an advancement of traditionalOperations Management

Traditional Operations Management MAKE only

Supply Chain Management SOURCE(n-1), MAKE(n) and DELIVER(n+1)


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Processing Industry

MAKE

A traditional Operations Management

Input Output

Industrial Eng, System Design,Business Mngt, OR, etc


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..

.

....

Industry 1

Industryj

Supplier 1

Supplieri

Customer 1

Customerk

SOURCE(n-1) MAKE(n) DELIVER(n+1)

An Illustration of SCM Model


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All facilities, functions, activities, associated with flowand transformation of goods and services from raw

materials to customer, as well as the associatedinformation flows

Customers Domestic and Overseas (Export)

An integrated group of processes to source, make,and deliver products (goods, services, information)

Supply Chain


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Supply Chain Processes


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2. Supply Chain Management

The designof a firms customer relationship,order fulfillment, and supplier relationship

processes and the synchronization of theseprocesses with the key processes of itssuppliers and customers in order to match theflow of materials, services, and information

with customer demand


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Management:

Design

Optimization

Objectives:

Cost

Quality

Time

Flexibility


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SCM Application:

Manufacturing

Agroindustry (Agro-SCM)

Service Industry

Variables: Materials (Supply)

Information (Demand)

Cash


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3. Manufacturing Supply ChainManagement


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Supply Chain Illustration


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SupplyChain

for

DenimJeans


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SupplyChainfor

DenimJeans(cont.)


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4. Agroindustrial Supply ChainManagement (Agro-SCM)


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Agroindustrial Supply Chain Management (Agro-SCM) :

The management of the entire set of

production,

transformation/processing,

distribution and marketing activities

in agroindustry by which a consumer is supplied witha desired product

Agro-SCM is more complicated than manufacturingSCM agricultural products are perishable

Agroindustrial Supply ChainManagement


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..

.

....

Agroindustry 1

Agroindustryj

Farming 1

Farming i

Customer 1

Customerk

Description of Agro-SCM Model


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Objectives First Objective:

Minimizing Total Supply Chain Cost (TSCC) thatconsists of transportation and inventory costs

Second Objective :

Minimizing Expected Number of Deteriorated Product(ENDP) Maximizing quality

Very essential for agroindustry

As both objectives are conflicting :

No single optimum solution

Pareto-optimum or non-dominated solutions or trade-off solutions


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The supply chain for an agroindustry

can be very complicated because: Many agroindustries have hundreds, if not

thousands, of suppliers

Needs many distribution centers andtransportation services

Flow of materials is very complex due tounpredictable demands and dynamic

performance of numerous suppliers Customer-supplier relationship is unique for

each type of agroindustry


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An Example of Agro-SCM Mango


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Traditional growers(Land, labor, capital, manure)

Contract farming-TG

-Group of grower

Middleman(Broker)

Collection center(QC)

Distributioncenter

-Pickle,Juice, Jam,Chip, Brine, Pure

ProcessingIndustry*

QC, Time, Price, flexibility

Green MangoRipe mango

Local market

Local Market

Export Market

Collection center

Collection center

Contract for 2 years-Harvested

- buying-Insecticide

- Technical assistance-Transportation

(food basket)

Flow of material

Flow of information

Flow of money


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Components

Current and emerging issues

Technology

Process, People (manpower)

Decisions Information

Farmers Plantation/cultivationGrower

Post harvest

QuantityQuality (size, ripeness)

Cost

Growing timeWeather

demand

Contract

farmers

Technical Assistance

Pest control

Delivery time

Quantity

Quality, Cost

Pricing

Transportation

Procurement

Collectors Contract with farmers

Efficient Collection center

Delivery schedule

Target

Price

Quantity

Demand,

QC, transportation

Processors Food processing technology

QC, HACCP,

Quantity

Quality (color, taste)

Cost

Exchange information

Institutional View

Demand

Quality of raw material

Process capability

Distributors Distribution system (planning,

transport, equipment, bar code

- Location and quantity to

be distributed

- Most efficient network

Demand

Price

Exporters Export regulation

GPS facilities

Export facilities

Banking facilities

Target Demand

Price

Quality

Innovative


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Events or Issues :

Demand side:

Demand of fresh mango from Japanese Market

Quality, Cost, Timeliness and Flexibility

Supply side: Farmer and grower

Quantity, Quality, Sustainability, Profitability

SCM model:

Non-collaborative SCM

Collaborative SCM

Integrative SCM (vertical integration)


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Flow of materials vs. flow of money :

Materials some from farmer to broker,agroindustry and so on

However, in fact, the highest margin is

received by exporters or distributors (upstream parties) not the farmers or agroindustry

This profit distribution must be improved in thefuture for the sake of poverty alleviation,

economic development of a nation as well asbuilding more efficient and responsive supplychain


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Supply chainfor an

agroindustry

Supp. 1

Supp. 2

Supplier of materialsSupplier of services

Supp. 3

Legend

Customer

(Domestic)

Customer

(Export)

Customer

(Domestic)

Customer

(Export)

Distributioncenter

Distributioncenter

Agroindustry


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---Slide Break---


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Details of SCM Concepts


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Supply Chain Processes


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Value vs. Supply Chain

Value chain

every step from raw materials to the eventual enduser

ultimate goal is delivery of maximum value to theend user

Supply chain

activities that get raw materials and subassembliesinto manufacturing operation to customers

Terms are used interchangeably


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Supply Chain Management (SCM)

Managing flow of information through supplychain in order to attain the level ofsynchronization that will make it more

responsive to customer needs while loweringcosts

Keys to effective SCM information

communication

cooperation

trust


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Supply Chain Uncertainty

One goal in SCM: respond to uncertainty in

customer demand without

creating costly excessinventory

Negative effects ofuncertainty lateness

incomplete orders

Inventory insurance against supply

chain uncertainty

Factors that contributeto uncertainty inaccurate demand

forecasting long variable lead times

late deliveries

incomplete shipments

product changes batch

ordering

price fluctuations anddiscounts

inflated orders


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Bullwhip Effect

Occurs when slight demand variability is magnified as informationmoves back upstream


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IT for SCM


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Information Technology: A Supply

Chain Enabler Information links all aspects

of supply chain

E-business

replacement of physical

business processes withelectronic ones

Electronic data interchange(EDI)

a computer-to-computerexchange of business

documents

Bar code and point-of-sale

data creates aninstantaneous computerrecord of a sale

Radio frequency identification(RFID)

technology can send productdata from an item to a readervia radio waves

Internet

allows companies tocommunicate with suppliers,customers, shippers andother businesses around theworld, instantaneously


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Supply Chain Evolution at Nabisco

Source: F. Keenan, Logistics Gets a Little Respect, Business Week(November 20, 2000), pp. 112115.


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(cont.)



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(cont.)



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RFID Capabilities


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RFID Capabilities (cont.)


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Build-to-order cars overthe Internet


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Customer sales

Production

Distribution

Customerrelationship

Pushsell frominventory stock

Goal of even andstable production

Mass approach

Dealer-owned

E-Automotive

E-automotive Supply Chain

Pullbuild-to-order

Focus on customerdemand, respond withsupply chain flexibility

Fast, reliable, andcustomized to get cars

to specific customerlocation

Shared by dealers andmanufacturers

AutomotivePast

Supply ChainProcesses


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Managinguncertainty

Procurement

Productdesign

Large carinventory at

dealers

Batch-oriented;dealers orderbased onallocations

Complexproducts dont

match customerneeds

E-Automotive

E-automotive Supply Chain (cont.)

Small inventories withshared information and

strategically placed partsinventories

Orders made in real timebased on available-to-promise information

Simplified products based onbetter information aboutwhat customers want

AutomotivePast

SupplyChainProcesses


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Supply Chain Integration

Information sharing among supply chain members Reduced bullwhip effect

Early problem detection

Faster response

Builds trust and confidence

Collaborative planning, forecasting, replenishment,and design Reduced bullwhip effect

Lower Costs (material, logistics, operating, etc.) Higher capacity utilization

Improved customer service levels


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Coordinated workflow, production andoperations, procurement

Production efficiencies

Fast response

Improved service

Quicker to market Adopt new business models and technologies

Penetration of new markets

Creation of new products

Improved efficiency

Mass customization


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Collaborative Planning,

Forecasting, and Replenishment Process for two or more companies in a supply

chain to synchronize their demand forecastsinto a single plan to meet customer demand

Parties electronically exchange

past sales trends

point-of-sale data

on-hand inventory scheduled promotions

forecasts

R l ti hi b t F iliti d F ti


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Source:Adapted from Garrison Wieland for Wal-MartsSupply Chain, Harvard Business Review70(2; MarchApril

1992), pp. 6071.

Relationship between Facilities and Functionsalong the Wal-Mart Supply Chain


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Distribution

Encompasses all channels, processes, andfunctions, including warehousing andtransportation, that a product passes on its

way to final customer Often called logistics

Logistics

transportation and distribution of goods

and services Driving force today is speed Particularly important for Internet dot-coms


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Amazon.com


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Distribution Centers (DC)

and WarehousingDCs are some of the largest business

facilities in the United States

Trend is for more frequent orders insmaller quantities Flow-through facilities and automated

material handling

Postponement final assembly and product configuration

may be done at the DC


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Warehouse Management

Systems Highly automated system that runs day-to-day

operations of a DC

Controls item putaway, picking, packing, andshipping Features transportation management order management

yard management labor management warehouse optimization


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A WMS


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Transportation

Rail

low-value, high-density, bulkproducts, raw materials,intermodal containers

not as economical for smallloads, slower, less flexiblethan trucking

Trucking

main mode of freighttransport in U.S.

small loads, point-to-pointservice, flexible

More reliable, less damagethan rails; more expensivethan rails for long distance


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Transportation (cont.)

Air most expensive and fastest, mode of

freight transport

lightweight, small packages


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Transportation (cont.)

Water low-cost shipping mode primary means of international shipping U.S. waterways slowest shipping mode

Intermodal combines several modes of shipping-

truck, water and rail key component is containers

Pipeline transport oil and products in liquid form high capital cost, economical use long life and low operating cost


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Internet Transportation

Exchanges Bring together shippers and

carriers Initial contact, negotiations,

auctions Exampleswww.nte.comwww.freightquote.com
http://www.nte.com/http://www.freightquote.com/http://www.freightquote.com/http://www.nte.com/


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SCM Software

Enterprise Resource Planning (ERP)

software that integrates components of a

company by sharing and organizinginformation and data

SAP was first ERP software

mySAP.com

web enabled modules that allow collaborationbetween companies along the supply chain
http://www.mysap.com/http://www.mysap.com/


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Linking Supply Chain with SAP


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Measuring Supply Chain

Performance


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TABLE 9.1 SUPPLYCHAIN PROCESS MEASURES

Supply-Chain Process Measures

Percent of orders

taken accurately

Time to completethe order

placement process

Customer

satisfaction with

the order

placement process

CustomerRelationship

Percent of incomplete

orders shipped

Percent of ordersshipped on time

Time to fulfill the

order

Percent of botched

services or returned

items Cost to produce the

service or item

Customer satisfaction

with the order

fulfillment process

OrderFulfillment

Percent of

suppliers

deliveries on time Suppliers lead

times

Percent defects in

services and

purchased

materials Cost of services

and purchased

materials

SupplierRelationship


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Measuring Supply ChainPerformance

Key performance indicators

inventory turnover

cost of annual sales per inventory unit

inventory days of supply

total value of all items being held in inventory

fill rate

fraction of orders filled by a distribution center within

a specific time period


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Inventory turns =Average aggregate value of inventory

Cost of goods sold

Average aggregate value of inventory =

=(average inventory for item i)X (unit value item i)

Days of supply =(Costs of goods sold)/(365 days)

Average aggregate value of inventory

Key Performance Indicators


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Key PerformanceIndicators: Example

Inventory turns =$34,416,000

$425, 000, 000

Days of supply =($425,000,000)/(365)

$34,416,000

= 12.3

= 29.6

1. Cost of goods sold: $425 million

2. Production materials and parts: $4,629,000

3. Work-in-process: $17,465,000

4. Finished goods: $12,322,000

5. Total average aggregate value of inventory (2+3+4): $34,416,000


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Other Measures of Supply ChainPerformance

Process Control

used to monitor and control any process in

supply chain Supply Chain Operations Reference

(SCOR)

establish targets to achieve best in classperformance

SCOR M d l P


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SCOR Model Processes

Plan

Develop a courseof action that bestmeets sourcing,production and

deliveryrequirements

Source

Procure goods

and services to

meet planned

or actualdemand

Make

Transform

product to a

finished state to

meet planned

or actual

demand

Deliver

Provide products

to meet demand,

including order

management,

transportation

and distribution

Return

Return

products,

post-delivery

customer

support

SCOR: Customer Facing


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Number of days to achieve an unplanned20% change in orders without a costpenalty

Productionflexibility

Number of days for supply chain torespond to an unplanned significantchange in demand without a cost penalty

Supply chainresponse timeSupply ChainFlexibility

Number of days from order receipt tocustomer delivery

Order fulfillmentlead time

Supply ChainResponsiveness

Percentage of orders delivered on time

and in full, perfectly matched with orderwith no errors

Perfect order

fulfillment

Percentage of orders shipped within24hours of order receipt

Fill rate

Percentage of orders delivered on timeand in full to the customer

Deliveryperformance

Supply ChainDeliveryReliability

DefinitionPerformance

Metric

Performance

Attribute

SCOR: Customer Facing

SCOR: Internal Facing


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DefinitionPerformance

Metric

Performance

Attribute

SCOR: Internal Facing

Revenue divided by total assets including working

capital and fixed assets

Asset turns

Number of days that cash is tied up as inventoryInventory days ofsupply

Number of days that cash is tied up as working

capitalCash-to-cash

cycle timeSupply Chain

AssetManagement

Efficiency

Direct and indirect costs associated with returns

including defective, planned maintenance and

excess inventory

Warranty/returns

processing cost

Direct material cost subtracted from revenue and

divided by the number of employees, similar to

sales per employee

Value-added

productivity

Direct cost of material and labor to produce a

product or serviceCost of goods

sold

Direct and indirect cost to plan, source and deliverproducts and services

Supply chainmanagement cost

Supply ChainCost


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Supply Chain Design and

Environment

Supply Chain Design


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Supply-Chain DesignTABLE 9.3 DESIGN FEATURES FOR EFFICIENT AND

RESPONSIVE SUPPLY CHAINS

Inventory Low, enable high As needed to enable fast

investment inventory turns delivery time

Lead time Shorten, but do not Shorten aggressivelyincrease costs

Supplier Emphasize low prices, Emphasize fast delivery

selection consistent quality, on- time, customization,

time delivery variety, volume flexibility,

top quality

Factor Efficient Supply Chains Responsive Supply Chains

Operation Make-to-stock or Assemble-to-order, make-

strategy standardized services; to-order, or customized

emphasize high services; emphasize

volume, standardized service or productservices or products variety

Capacity Low High

cushion

Supply Chain Environments


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Supply-Chain EnvironmentsTABLE 9.2 ENVIRONMENTS BEST SUITED FOR EFFICIENT AND

RESPONSIVE SUPPLY CHAINS

Factor Efficient Supply Chains Responsive Supply Chains

Demand Predictable, low Unpredictable, high

forecast errors forecast errors

Competitive Low cost, consistent Development speed, fastpriorities quality, on-time delivery times,

delivery customization, volume

flexibility, variety,

top quality

New-service/ Infrequent Frequent

productintroduction

Contribution Low High

margins

Product variety Low High


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GLOBAL SUPPLY CHAIN


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Global Supply Chain

To compete globally requires aneffective supply chain

Information technology is anenabler of global trade

Nations form trading groups

No tariffs or duties


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Duties and Tariffs

APEC

ASEAN

ANZCERTA

FTAA

NAFTA

CALM

ATPA

MERCOSUR

TAFTA


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Web-based International TradeLogistic Systems International trade logistics web-based software

systems reduce obstacles to global trade convert language and currency

provide information on tariffs, duties, and customs processes

attach appropriate weights, measurements, and unit prices toindividual products ordered over the Web

incorporate transportation costs and conversion rates

calculate shipping costs online while a company enters anorder

track global shipments


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Bogor, 12 Sept 2009

intro scm 12sept09+

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