First Lecture whole CH1

8/9/2019 First Lecture whole CH1

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Copyright 2002 D. Simchi-Levi

Introduction toSupply Chain Management

(first lecture) MUHAMMAD HASHIM KHAN

Event Management (Monash UniversityAustralia)

MBA -M.Phil (Supply ChainManagement)

BBA-H (Marketing) Contact # 03218116006


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LEARNING OBJECTIVES Demonstrate your understanding

of the linkages between supply

chain management and thevarious functional areas ofbusiness

Describe the historicaldevelopment of supply chainmanagement

Describe supply chain


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LEARNING OBJECTIVES Describe supply chain

management configuration

strategies Describe supply chain

management coordination

strategies Describe supply chain

management improvement

strategies


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Supply Chain Management ---ARiver


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Supply

Sources:plantsvendorsportsRegionalWarehouses:stockingpoints

FieldWarehouses:stockingpoints

Customers,demandcenterssinks

Production/purchasecosts

Inventory &warehousingcosts

Transportationcosts

Inventory &warehousingcosts

Transportationcosts


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Supply Chain Management in aManufacturing Plant

ReceivingReceiving

andand

InspectionInspection

RawRaw

Materials,Materials,

Parts, andParts, and

In-processIn-process

Ware-Ware-

HousingHousing

ProductionProduction

FinishedFinished

GoodsGoods

Ware-Ware-

housinghousing

Inspection,Inspection,

Packaging,Packaging,

AndAnd

ShippingShippingS

upp

lie

rs

C

us

tomers

Materials Management

PurchasinPurchasingg ProductionProductionControlControl

WarehousingWarehousing

andandInventoryInventory

ControlControl

ShippingShipping

andandTrafficTraffic

Physical materials flowPhysical materials flow

Information flowInformation flow



Supply Chain management A supply chain consist of all parties

involved directly or in directly , in

fulfilling a customer requirement. Manufacturer

Supplier

Transporter

Warehouse Retailer

customer



INTRODUCTION Supply chain management is the

configuration, coordination and

improvement of a sequentiallyrelated set of operations

With supply chain management,

the idea of satisfying an entirechain of customers becomesreality



Procurement

Planning

Manufacturing

Planning

Distribution

Planning

DemandPlanning

Sequential Optimization

Supply Contracts/Collaboration/Information Systems and DSS

Procurement

Planning

Manufacturing

Planning

Distribution

PlanningDemandPlanning

Global Optimization

Sequential Optimization vs.

Global Optimization

Source: Duncan McFarlane



Definition: Supply Chain Management is primarily

concerned with the efficient integration of

suppliers, factories, warehouses and stores sothat merchandise is produced and distributedin the right quantities, to the right locationsand at the right time, and so as to minimizetotal system cost subject to satisfying service

requirements.Notice:

Who is involved

Cost and Service Level

It is all about integration

Supply Chain Management


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Supply Chain Management Refers to all the management functions

related to the flow of materials from thecompanys direct suppliers to its directcustomers.

Includes purchasing, traffic, productioncontrol, inventory control, warehousing, andshipping.

Two alternative names: Materials management

Logistics management


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Customers

Suppliers

P1 Plan Supply Chain

PlanPlan

P2 Plan Source P3 Plan Make P4 Plan Deliver

Source Make Deliver

S1 Source Stocked Products M1 Make-to-Stock

M2 Make-to-Order

M3 Engineer-to-Order

D1 Deliver Stocked Products

D2 Deliver MTO Products

D3 Deliver ETO Products

S2 Source MTO Products

S3 Source ETO Products

Supply-Chain Operations Reference-model(SCOR) 5.0 - Processes

ReturnSource

P5 Plan Returns

ReturnDeliver

Enable


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Supply Chain Management

Requires Many Different FunctionsPurchasing Logistics

Production

MaterialsMarketing

Distributio

n Transporta

tion

Warehousin

gStore

Information

Systems

Operation

s

Procurement

Engineerin

g


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Integrating Operations Management withOther Functions

Supply Chain Management: FromHenry Ford to E-Commerce

Supply-Chain Management Decisions

Supply Chain Configuration Strategies

Supply-Chain Coordination Strategies

Improving Supply Chains: Seven

Principles

Integrating OperationsManagement with Other Functions

Functional Areasof Business

Fi

nance

Accounting

Human

Resource

Marketing

Engineering

Management

In

formation

System


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Conflicting Objectives in the

Supply Chain3. Warehousing Low inventory

Reduced transportation costs Quick replenishment capability4. Customers Short order lead time

High in stock Enormous variety of products Low prices


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The Dynamics of the Supply Chain

Order S

ize

Time

Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

CustomerDemand

Retailer OrdersRetailer OrdersDistributor OrdersDistributor Orders

Production PlanProduction Plan


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The Dynamics of the Supply Chain

Order S

ize

Time

Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

CustomerDemand

Production PlanProduction Plan


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Supply Chain: The

Magnitude(continued)

It is estimated that the grocery industrycould save $30 billion (10% of

operating cost) by using effectivelogistics strategies. A typical box of cereal spends 104 days

getting from factory to supermarket.

A typical new car spends 15 daystraveling from the factory to thedealership.


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Supply Chain: The

Magnitude(continued)

Compaq computer estimates it lost $500 millionto $1 billion in sales in 1995 because itslaptops and desktops were not available whenand where customers were ready to buy them.

Boeing Aircraft, one of Americas leading capitalgoods producers, was forced to announcewritedowns of $2.6 billion in October 1997.

The reason? Raw material shortages, internaland supplier parts shortages . (Wall Street

Journal, Oct. 23, 1997)


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Supply Chain: The

Potential

Procter & Gamble estimates that it saved retail

customers $65 million through logistics gainsover the past 18 months. According to P&G, the essence of itsapproach lies in manufacturers and suppliers

working closely together . jointly creatingbusiness plans to eliminate the source ofwasteful practices across the entire supplychain .(Journal of Business Strategy, Oct./Nov.1997)


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Supply Chain: The

Potential

Dell Computer has outperformed thecompetition in terms of shareholder value

growth over the eight years period, 1988-1996, by over 3,000% (see Anderson andLee, 1999) using

- Direct business model

- Build-to-order strategy.


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Supply Chain: The

PotentialIn 10 years, Wal-Mart transformed

itself by changing its logistics

system. It has the highest salesper square foot, inventoryturnover and operating profit ofany discount retailer.


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Supply Chain: The

ComplexityNational Semiconductors:

Production:

Produces chips in six different locations:

four in the US, one in Britain and one inIsrael

Chips are shipped to seven assembly

locations in Southeast Asia.

Distribution

The final product is shipped to hundredsof facilities all over the world

20,000 different routes

12 different airlines are involved

95% of the products are delivered within

45 days


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Supply Chain Challenges Achieving Global Optimization

Conflicting Objectives

Complex network of facilities

System Variations over time


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Return onInvestments

10.0%

Total assets$4,000,000

Sales

$5,000,000

Divided by

Profitmargin

8%

Assetturnover

rate1.25

Multiply

Cash$300,000

Accountreceivable$300,000

Inventories$500,000

Assets

Labor$700,000

Materials$2,300,000

Overhead

$800,000Operatingcostelemen

ts

($515,000)

($3,685,000)($2,185,000)(10.3%)

(1.26)

($3,975,000)

($1,075,000)

($475,000)

(13.0%)

What if wedecreasematerials costby 5%?(or $115,000)Sales

$5,000,000

Net income$400,000

Divided by

Fixed assets$2,900,000

Currentassets

$1,100,000

Plus

Other costs$800,000

Sales$5,000,000

Cost ofGoods Sold$3,800,000

Minus

Plus

Supply Management and

Return on Investment

Figure 1-4Figure 1-4


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The Impact on ROI of Reducing

Materials Costs vs. Increasing Sales If the same profit increase were to

be generated by increasing sales,

what sales increase would berequired?

At the existing 8% profit margin,

the following calculation providesthe answer

Profit increase = new sales X .08

$115,000 = new sales X .08


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The Impact on ROI of Reducing

Materials Costs vs. Increasing Sales therefore..

($1,437,500 / $5,000,000) X 100 =

28.8%

or a sales increase of 28.8% isrequired to match the profit

increase generated by a 5%reduction in materials cost


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Whats New inLogistics?

Global competition

Shorter product life cycleNew, low-cost distribution

channels

More powerful well-informedcustomers

Internet and E-Business strategies


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New Concepts

Push-Pull strategiesDirect-to-ConsumerStrategic alliancesManufacturing postponementDynamic Pricing

E-Procurement


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Second-Tier Suppliers

Automobile Industry

Customer with Needfor a Vehicle

Retailers

Distribution Centers

Assembly /Manufacturer

Second-TierSuppliers Second-Tier Suppliers

First-Tier Suppliers First-Tier Suppliers

Key:

Product Material Flow

Information / Data Flow


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Supply Chain for Steel in an Automobile Door

MININGMININGCOMPANYCOMPANY

Mines iron oreMines iron ore

STEELSTEEL

MILLMILL

Forms steelForms steelingotingot

STEELSTEEL

COMPANYCOMPANY

Forms sheetForms sheetmetalmetal

IronIronoreore

SteelSteelingotsingots

AUTOMOTIVEAUTOMOTIVESUPPLIERSUPPLIER

Makes doorMakes door

AUTOMOBILEAUTOMOBILEMANUFACTURMANUFACTUR

ERER

MakesMakesautomobileautomobile

CARCARDEALERSHIPDEALERSHIP

DoesDoespreparationpreparation

CarCar

doordoor

CarCar

FINALFINALCONSUMERCONSUMER

DrivesDrivesautomobileautomobile

PreparedPrepared

carcar

SheetSheet

metalmetal

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First Lecture whole CH1