An Overview of Supply Chain Management

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KNOW WHAT IS SUPPLY CHAIN MANAGEMENT (SCM)? : AnOverview

This is one of the basic areas from management books. In fact lot of people have requested some

more information on SCM, OPM and other manufacturing area. therefore,I take this opportunity, as

this is one of my favorite topic, as I started my first job in PPC (Production Planning &Control)

department of a big steel company a decades ago, so I hope I will surly help in giving a clear picture

of SCM. Let's start with basic and gradually will move into ERP arena:

SCM is defined as combination of art and science that goes into improving the way your company find

the raw components that needs to make a product or services and deliver it to customer. In Business

word this art and science become functions that an organization undertake.

If you are IT guys you can understood SCM as:

Systems that support manufacturing managers in making decisions that optimize the trade off

between capital tied up in stocks and inventories, versus the ability to deliver goods at prices and

delivery dates agreed with customers.

In principle and reality, both inwards logistics operations to acquire materials to make products and

outwards logistics operations shipping finished goods to final customers are monitored.

WHAT EXACTLY IS SUPPLY CHAIN MANAGEMENT OR WHAT IS BASIC COMPONENT OF

SCM?

As perSupply-Chain Operations Reference-model (SCOR)which has been developedbySupply-Chain Council. This model organized and focused on the five primary management

1.

PLAN2. SOURCE3. MAKE4. DELIVER5. RETURN

1. Plan: This is vital part of SCM philosophy, where the companies normally need to make strategy

for managing all the resource that go towards fulfilling the customer demand for the product and

services that they offers. A big piece of planning is developing a set of matrices to monitor the Supply

chain so that it would be efficient, cost effective and deliver high quality and value to the customer.

2. Source: It means processes that procure goods and services to meet planned or actual demand.

This part of SCM consists of selecting right suppliers that will deliver the good and services that need

to create your product. Developing a set of pricing, delivery and payment process with supplier is

important. Also this will also take care of managing the inventory of goods, and services you receive

from your suppliers, including receiving shipping, verifying them, transferring them into various

facilities and authorizing supplier payment.
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3. Make: This is basically a step where your company starts fulfilling the request or BUILT for

products into finished state to meet planned or actual demand. Schedule activity necessary for

production, testing, packaging and preparation for delivery.

4. Deliver: This is also called Logistic Process. This is the processes that provide finished goods and

services to meet planned or actual demand, typically including order management, transportation

management, and distribution management.

5. Return - This is real pain of SCM model, which defined as processes associated with returning or

receiving returned products for any reason.

Typical model can be best described as:

WHO IS THE STAKEHOLDER OF SUPPLY CHAIN

These are considered as stake holder of SCM:

Customers Your Company Design Partners Material Suppliers Contract Manufacturers Logistic Providers

WHAT ARE DRIVERS OF THE SUPPLY CHAIN?

These are the main drivers :

Production Inventory Location Transportation


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Information1. Production

This driver addressing these questions: what products does the market want? How much of which

products should be produced and by when?

This activity includes the creation of master production schedules that take into account plantcapacities, workload balancing, quality control, and equipment maintenance.

2. Inventory

This driver addressing these questions: What inventory should be stocked at each stage in a supply

chain? How much inventory should be held as raw materials, semi finished, or finished goods?

The primary purpose of inventory is to act as a buffer against uncertainty in the supply chain.

3. Location

This driver addressing these questions: Where should facilities for production and inventory storage be

located? Where are the most cost efficient locations for production and for storage of inventory?

Should existing facilities be used or new ones built?

Once these decisions are made they determine the possible paths available for product to flow throughfor delivery to the final consumer.

4. Transportation

This driver addressing these questions: How should inventory be moved from one supply chain

location to another? Air freight and truck delivery are generally fast and reliable but they are

expensive. Shipping by sea or rail is much less expensive but usually involves longer transit times and

more uncertainty.

5. Information

This driver addressing these questions: How much data should be collected and how much information

should be shared?

Timely and accurate information holds the promise of better coordination and better decision making.

With good information, people can make effective decisions about what to produce and how much,

about where to locate inventory and how best to transport it.

GET FAMILIAR WITH TOP 10 TERMS, DEFINITIONS AND TERMINOLOGY IN SCM

Master Demand Schedule - MDS

The MDS is a consolidation of demand by product and time bucket

Master Production Schedule- MPS

The MPS is a statement of supply required to meet the demand for the items contained in the MDS.

The master production schedule defines the anticipated build schedule for all products. The master

production schedule also provides the basis for order promising (ATP) function

Material Requirements Plan-MRP


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The Material requirements planning (MRP) calculates net requirements from gross requirements by

evaluating:

The master schedule Bills of material

Scheduled receipts On-hand inventory balances Lead times Order modifiers

Advanced Supply Chain Plan- ASCP

Constrained Based and optimized version of MRP

Planned Order

Automatically suggested action from planning engine

Consumption

The process of "relieving" the forecast to prevent double counting of demand

Drop Ship

Having an order ship directly from the vendor to the customer without physically being in your

inventory.

Vendor Managed Inventory- VMI

The process of giving the vendor the authority and visibility to determine what your inventory should

be

Customer Owned Inventory- COI

Where you are managing the customers inventory on your premises and supply as required

Work Order/Sales Order

The request that you received from the customer for fulfilling there demand.

SIMPLE PLANNING CYCLE WITHIN AN ORGANIZATION

A typical planning cycle would start by loading the sales orders, forecast and other demand such

internal orders into the master demand schedule (MDS). That demand statement would then be used

as the schedule that drives the Master Production Schedule (MPS) . Take a note in regular MRP

implementations the MPS is used as the schedule for ATP. Once the MPS is reviewed and updated is

used as the schedule to drive the MRP process. The result of the MRP process is planned orders and

exception messages. When released from MRP the planned orders for "buy" items become requisitions

or purchase orders in the purchasing module and the "make" items become discrete jobs in the Work


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In Process Module. Once the finished goods are received into inventory it is shipped to satisfy

customer orders.

Scenario I :Sales Order - Forecast Planning Cycle

This is the scenario where normally we are building

to stock and satisfying sales order demand from

stock. Here you will see the difference as planned

orders are released to become purchase requisitions

for components and work orders for sub assemblies

and finished goods. The finished goods are then

shipped to satisfy the sales orders.

Scenario II :Planning - Procurement Cycle

In the Planning-

Procurement cycle we

normally start where the

first part of the planning

cycle is complete and we

have a planned order for a

buy item from MRP. The

planned order is releasedand becomes a requisition

or purchase order in the

purchasing module. A

purchase order is then

created from the requisition

and sent to the vendor. The

vendor would supply the


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materials. The materials would be received into inventory and the purchase order would be closed.

Scenario III :Planning - Drop Ship Cycle

In the Drop Ship cycle the process is as follows:

A sales order is received from the customer. After the sales order is entered a process is run that creates a purchase order that matches

the sales orders

The item, quantity and required date information on purchase order matches that informationon the sales order.

The ship to address on the purchase order is the ship to address of the customer. The vendor ships the product directly to your customer. Once the vendor ships the product

you receive" the purchase order and that creates the shipping transaction to satisfy the sales

order.

Matching accounting transactions complete the process

You can also seetechnical details for drop ship cyclein my earlierpost.

Scenario IV :Planning - WIP Cycle

In the Work In Process cycle after the planning cycle is complete a planned order is released to create

a discrete job. Material/components is issued the job or back flushed from inventory. The job is

completed from Work In Process to Inventory.
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Scenario V :Planning - Outside Processing Cycle

With Outside Processing you could be buying a service, an item or capacity from an outside vendor.

The setup for each of these scenarios will be described in the training sessions to follow, however they

all follow a similar process. A routing with an outside processing operation is setup.

After the planning cycle is complete a planned order is released to create a discrete job. Once the

Discrete job is moved to a outside processing operation, a purchase requisition is triggered. The

requisition is imported to Purchasing and a purchase order is created. The details of the discrete job

such as job number, assembly number and quantity is tied to the purchase order. The purchase order

is sent to the vendor. When the purchase order is received its destination will be shop floor and the

assembly will be returned to the next operation on the work order.

This make an end of this discussion.

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An Overview of Supply Chain Management