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Supply Chain Supply Chain ManagementManagement
and and Supplier Quality Supplier Quality
ControlControl
Ankush Kaul
Supply Chain Supply Chain ManagementManagement
and and Supplier Quality Supplier Quality
ControlControl
Ankush Kaul
March 21, 2007March 21, 2007
AGENDAAGENDA Supply Chain Management (SCM)
Introduction History Logistics Management Supply Chain Vs. Logistics Management Supply Chain Requirements and Uncertainties Bullwhip Effect Strategic Partnership Examples of Strategic Partnership
Supplier Quality Control (SQC) Introduction Why SQC? SQC Techniques SCM and SQC at Praxair
Slide 2
Agenda (Cont’d..)Agenda (Cont’d..)
SCM and SQC @ Praxair Introduction to Praxair Supply Chain Management @ Praxair Supplier Quality Control @ Praxair
References
Introduction to SCMIntroduction to SCM
SCM is the integration of key business processes from end user through original suppliers that provides products, services, and information that add value for customers and other stakeholders
- Global Supply Chain Forum (GSCF)
Slide 4
SupplierSupplier ManufacturerManufacturer DistributorDistributor RetailerRetailer CustomerCustomer
UpstreamDownstream
Introduction (Cont’d..)Introduction (Cont’d..)
Slide 5
Customer wants
detergent Customer wants
detergent Albertson’s
SupermarketAlbertson’s
SupermarketThird
party distributorThird
party distributorP&G or othermanufacturerP&G or othermanufacturer
PlasticProducerPlastic
Producer
Chemicalmanufacturer
(e.g. Oil Company)
Chemicalmanufacturer
(e.g. Oil Company)
TennecoPackagingTenneco
Packaging
Paper Manufacturer
Paper Manufacturer
TimberIndustryTimberIndustry
Elements of SCMElements of SCM
Slide 6
Deciding how to best move and store materialsLogistics
Determining location of facilitiesLocation
Suppliers
Evaluating suppliers and supporting operationsPurchasing
Meeting demand while managing inventory costsInventory
Controlling quality, scheduling workProcessing
Incorporating customer wants, time etc.Design
Predicting quantity and timing of demandForecasting
Determining what customers wantCustomers
Typical IssuesElement
Monitoring supplier quality, delivery and relations
HistoryHistory 1750 - 1800
Industrial Revolution Era of Mechanical Inventions Product and process complexity increase
1800’s Increased factory complexity Birth of Industrial Engineering movement
1900’s Assembly line, Mass production Henry Gantt: Gantt charts, Scheduling Human factors Statistical Quality Control
1989 - 1993 Business Process Reengineering
Slide 7
History (Cont’d…)History (Cont’d…)
Traditional
Slide 8
DEPT. 1 DEPT. 2 DEPT. 3
Process: Cross-Functional Team
Re-engineered
Onset of Supply Chain ManagementOnset of Supply Chain Management
The term “SCM” was introduced by consultants in early 1980s Era of inter-network competition: SC vs. SC: Brand vs. brand, or
store vs. store => <suppliers-brand-store> vs. <suppliers-brand-store> type of competition.
Common goals for the entire supply chain
A supply chain consists of facilities, functions, activities for producing & delivering product or service all the way from early suppliers to eventual customers
The new focus is the entire supply chain
Slide 9
Logistics ManagementLogistics Management
Logistics Management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements.
- Council of Supply Chain Management
http://www.cscmp.org
Slide 10
Movement Within a FacilityMovement Within a Facility
Slide 11
RE
CE
IVIN
G
Storage
Workcenter
Work centerWork center
Storage
Workcenter
Storage
Shipping
SCM VS. Logistics Management SCM VS. Logistics Management Focus of logistics was on making each firm in the
distribution channel more efficient, productive and profitable
Each firm operated on its own, maximizing profits with little attention to others in the chain
Within each firm, each function preoccupied with optimizing its own performance
Intra-functional (silo) orientation: cost tradeoffs and managing customer service levels
Slide 12
Supply Chain Requirements and UncertaintiesSupply Chain Requirements and Uncertainties
Requirements for a Successful Supply Chain Trust among trading partners Effective communications Supply chain visibility Event management capability Performance metrics
Sources of Uncertainty in Supply Chains Wrong forecasts Late deliveries Poor quality Machine breakdowns Canceled orders Erroneous information Price uncertainties
Slide 13
Bullwhip EffectBullwhip Effect
Distortion of demand information of a product while it passes from one firm to the next across SC
The information transferred in the form of “orders” tend to be distorted and can misguide upstream members in their inventory and production decisions.
In particular, “variance of orders” > “variance of sales”
Information sharing in SCs is important
Sales Information available in the form of orders received from the downstream member should be used with great caution.
Slide 14
Bullwhip Effect (Cont’d..)Bullwhip Effect (Cont’d..) Who is affected?
Nearly all industries are affected ! Firms that experience large variations in demand are at risk Firms that depend on suppliers upstream or distributors and
retailers downstream may be at risk Causes of Bullwhip Effect
Finite supply shared by many retailers
Rationing game: retailer orders more than demand
Fixed order cost
Wholesale price varies over time
Inflationary / deflationary environment
Prices with no trend but variability
Slide 15
Bullwhip Effect (Cont’d…)Bullwhip Effect (Cont’d…)
Slide 16
Bullwhip Effect (Cont’d…)Bullwhip Effect (Cont’d…)
Slide 17
Retailer
Distributor
Manufacturer
Supplier
Order Order Order Order
Stock Stock Stock Stock
Increased Variability
Bullwhip Effect - Disrupted Supply ChainBullwhip Effect - Disrupted Supply Chain
Slide 18
Customer Demand forecast = 20 units
SuppliersProducers
Distributors
Retailers
Products & Services
Products & Services
Products & Services
Information Flow
Cash Flow
Key: = Inventory Levels
160 Units 80 Units 40 Units
80 Units 40 Units 20 Units
As demand increases, the distributor decides to accommodate the forecasted
demand and increase inventory to buffer against unforeseen problems in demand.
Each step along the supply chain increases their inventory (double in this example)
to accommodate demand fluctuations.
The top of the supply chain receives the harshest impact of the whip effect.
Bullwhip Effect (Cont’d..)Bullwhip Effect (Cont’d..)
Results of Bullwhip effect Excess inventories Problems with quality Increased raw material costs Overtime expenses Increased shipping costs Lost customer service Lengthened lead time
Solutions Improve communication along the supply chain Improve sources of forecast data Work with firms upstream and downstream in the supply chain
Slide 19
Strategic Partnership in Supply ChainStrategic Partnership in Supply Chain
Business partnering occurs through a pooling of resources in a
trusting atmosphere focused on continuous, mutual improvement
Source: Robson, Rawnsley (2001)
Benefits of strategic partnerships Improved supplier product quality
On-time shipments
Lower costs, less inventory
Improved logistics
Customer satisfaction
Increased business because of customer satisfaction
Vendor management inventory
Lean extended enterprise
Slide 20
Strategic Partnership Examples Strategic Partnership Examples
Blockbuster Demand for newly released movies at blockbuster typically starts high and decreases
rapidly. Peak demand last about 10 weeks
Blockbuster purchases a copy from a studio for $65 and rent for $3. Hence, retailer must rent the tape at least 22 times before earning profit
Retailers cannot justify purchasing enough to cover the peak demand
In 1998, 20% of surveyed customers reported that they could not rent the movie they wanted
Starting in 1998 Blockbuster entered a revenue sharing agreement with the major studios. Studio charges $8 per copy, Blockbuster pays 30 - 45% of its rental income
Even if Blockbuster keeps only half of the rental income, the breakeven point is 6 rental per copy
The impact of revenue sharing on Blockbuster was dramatic, Rentals increased by 75% in test market and market share increased from 25% to 31%
Slide 21
Strategic Partnership Examples (Cont’d..)Strategic Partnership Examples (Cont’d..)
Seven Eleven Stores Retailer determines order sizes and timing but in addition
passes POS (point of sales) data to the supplier. POS improves supplier’s forecasts.
Wal-Mart, K-Mart (Vendor Managed Inventory) Supplier maintain the inventory levels at the customer site and
continuously replenish as and when required. This has resulted in 30% inventory turnover improvement.
Milliken and Company The lead time from order receipt at Milliken’s textile plants to
final clothing receipt at the department stores was reduced from 18 weeks to 3 weeks. The POS data was used by the supplier to improve forecasting and scheduling.
Slide 22
Supplier Quality ControlSupplier Quality Control
A methodology to: Select/Qualify the correct supplier Develop/Launch the item being sourced Monitor ongoing performance
II. Develop/Launch
I. Select/Qualify
III. Monitor Performance
Why is SQC Required??Why is SQC Required??
Improved Product Quality Reduced Lead Times Decreased Overall Life Cycle Costs Increased Customer Satisfaction
Faster and Cheaper can still be Better!
Why is SQC required? (Cont’d...)Why is SQC required? (Cont’d...)
Process maintained under control Quality Built-In; Not Added On!
Achieve earlier corrective action on deficiencies
Less waste; Minimizes rework
Material protected from deterioration Especially Applicable to Bulk Metals
Quality Control established at point of supply
SQC TechniquesSQC Techniques
Some of the techniques used are: Supplier Scorecard: Supplier Evaluation
Regular supplier site visits: Supplier site inspection during the equipment build
Supplier quality systems evaluation: Vendor quality system evaluation
Non Conformance reporting process: Documentation of issues and source of “Lessons Learnt” before and after the equipment build
Supplier training: Training the supplier by the customer (especially if the supplier is fabricating the equipment for the first time)
Praxair - IntroductionPraxair - Introduction
A Fortune 500 company with sales of $ 8.3 billion (2006)
Leader in industrial gases supply systems and equipment, and in applications technologies; almost 3,000 active patents
One of the three largest industrial gases companies worldwide and the largest in North and South America
Operations in 40 countries with over 27,000 employees
Services include on-site gas handling and monitoring systems, pipeline and plant services, turnkey design and construction
Praxair Introduction- Sales by Served MarketsPraxair Introduction- Sales by Served Markets
Slide 28
Chemicals 10%Other 12%
Food and Beverage 7%
Electronics 7%
Energy 12%
Healthcare 11%
Aerospace 4%
Manufacturing 21%
Metals 16%
SCM @ PraxairSCM @ Praxair
Customer needs Liquid Nitrogen
Customer needs Liquid Nitrogen
Praxair PlantPraxair PlantField ContractorsField ContractorsPlant SitePlant Site
Cold Box FabricatorCold Box Fabricator
Cold Box fabricator Sub
Supplier
Cold Box fabricator Sub
Supplier
Valves SupplierValves Supplier
Valve Sub Supplier
Valve Sub Supplier Metal ShopMetal Shop
SCM @ Praxair (Cont’d..)SCM @ Praxair (Cont’d..)
Partnership with suppliers and customers for mutual benefit 6 Sigma projects with suppliers and customers
Strategic agreements with competitors
Core competency used to help suppliers as well as customers
Process improvements by streamlining internal supply chain
NAIG GPMM GSS PSTNAIG GPMM GSS PSTSUB- SUPPLIER
SUB- SUPPLIER
SUPPLIERSUPPLIER
PRAXAIRPRAXAIR
CUSTOMERCUSTOMER
SQC @ PraxairSQC @ Praxair Historical Qualification
To ensure products and services consistently meet the organization’s acceptance criteria
To implement a reduced testing regime for incoming goods
To maintain precise and up-to-date supplier records, “well-known” partners, and improved quality of products and services
Low Cost Country Sourcing (LCCS) To establish a competitive capital cost advantage
To include a low cost country sourcing for equipment, fabrication and engineering design
To identify, qualify and select new equipment suppliers worldwide and evaluate based on technical and low-cost evaluation criteria
SQC @ Praxair (Cont’d..)SQC @ Praxair (Cont’d..)
Standard Method Historically qualified Suppliers Database of specifications, requirements and guidelines
Due to cost cutting initiatives in 1990’s and post 9/11, supplier quality control was given less importance- this led to reliability and other issues in field
LCCS program was another driver for the development of a structured supplier quality control program
New Initiative for SQC @ PraxairNew Initiative for SQC @ Praxair
Tier 1 Tier 2 Tier 3
Critical path Non critical path CommoditySingle Source Less critical partSole sourceCritical part
Compressors Water pumps FittingsInduction motors Tanks Piping
Synchronous motors Cryo tanks HardwareCold Boxes Manual valves
BAHX SilencersPacking S&T heat exchangers
Adsorbents VaporizersChillers
Auto valvesSkids
Shop visit Shop visit As NeededQuality System rating Quality System ratingInspection test plan Inspection test plan
NCR tracking NCR trackingSurveillance SurveillanceControl Plan Control Plan
Su
pp
ly A
ttri
bu
tes
Eq
uip
men
t D
escri
pti
on
Qu
ality
Acti
vit
ies
Commodities were divided into Tier-1,Tier-2 and Tier-3 depending on their criticality in terms of their time impact on project, cost and sourcing
status
Tier 1 – Build relationships Critical supplier
Safety Critical Routine surveillance
Tier 2 – Periodic surveillance
Tier 3 – Infrequent contact
Slide 33
SQC @ Praxair - Inspection PlanSQC @ Praxair - Inspection Plan
Developed a method to ensure that the suppliers adhere to specifications mentioned as a part of the purchase order-
Comprehensive and easy to use commodity specific quality control checklist containing key specifications questions
Discussions with a cross functional group of equipment engineers, process engineers, procurement and quality engineers followed to finalize the format of the checklist
Slide 34
Designated Inspection PointsDesignated Inspection Points
Slide 35
Non- Conformance TrackingNon- Conformance Tracking
One of the most important tools to keep track of suppliers performance
Helps to see supplier trends as well as defect trends over time
Also useful as a repository for “lessons learned”
Quality Engineering Team @ PraxairQuality Engineering Team @ Praxair
The projects at Praxair have helped me see the implementation of academic knowledge as well as the importance of “people skills” in an organization. Overall, it continues to been a great learning experience
Slide 37
Asia4 Quality Engineers in Asia
region
South America
2 Quality Engineers in South America
North America5 Quality Engineers in North American region
Europe
2 Quality Engineers in Europe
ReferencesReferences
Lecture notes from “Supply Chain and Global Operations”
Praxair database www.google.com (The best invention of 20th
Century!!!) Experience
Slide 38