Supply Chain Management

supply chain management

CO-ORDINATION IN SUPPLY CHAIN

BY: MUHAMMAD QASIM JAMAL

Outline

Objective of research Methodology of research Significance of research Profile of Bestway cement factory Hattar,

Haripur. Analysis, discussion and results of suply chain

management of Bestway Cement factory. Recommendations.

Outline LITERATURE REVIEW

• What is supply chain• Strategic importance of supply chain• Supply chain economics• Outsourcing• Ethics in the supply chain• Strategies

• Managing supply chain• Vendor selection • Logistic management• benchmarking

Objective

Understand the concept of the supply chain, its importance, and management.

How Co-ordination of activities and management of supply chain can be a source of achieving the competitive advantage through product customization, high quality, cost reduction, and quick response.

Discussion and Analysis of supply chain management of Bestway.

objective

Recommend methods to revive performance of Supply chain of Bestway Cement Factory.

Methodology of research

The research carried out in this thesis can be characterized as deductive

deductive research is a study in which a conceptual and theoretical structure is developed and then tested by empirical observation i.e moving from the general to the particular

One case study was performed within this research project.

Research methodology

The empirical data in the case study have mainly been collected by semi-structured interviews.

Analysis has been performed after the case study.

The base for the case study was literature reviews, which have been made continuously during the whole research project and also some findings during writing the reports.

Methods of data collection Two types of data Primary data

• Interviews• Mr. Arshad Hameed (director coordination and

procurement)• Mr. Muhammad Irfan A.Sheikh (director finance and

CFO) Secondary data

• literature (books, journals, articles, magazines, thesis, and power points),

• Internet, and databases.• lectures

Significance of research

Help the organization to revive the performance of supply chain.

Research work is applicable as a generic solution to all the medium and small organizations/ companies for reducing their supply chain costs by improving coordination.

It will also help organization in risk reduction, cost improvement, increasing efficiency.

Supply chain

Supply Chain refers to the flow of materials, information, payments, and services from raw materials suppliers, through factories and warehouses, to the end customers.

When a supply chain is managed electronically, usually with Web based software, it is referred to as an e-supply chain.

Flows in supply chain

The supply chain includes three flows: materials, information, and financial.

Materials flows. This encompasses physical products, new materials, supplies, and so forth that flow along the chain, including returned products, recycled products, and disposal of material or product.

Information flows. All data related to demand, shipments, orders, returns, schedules, and changes in the aforementioned are information flows.

Financial flows. Financial flows include all transfers of money, payments, credit card information and authorization, payment schedules, and e-payments.

04/08/23 Supply Chain Management 13

Cyclic View of SCCyclic View of SC

Customer Order CycleCustomer Order Cycle Customer arrival Customer order entry Customer order fulfillment Customer order receiving

Replenishment CycleReplenishment Cycle Retail order trigger Retail order entry Retail order fulfillment Retail order receiving

Manufacturing CycleManufacturing Cycle • Order arrival

• Production scheduling

• Manufacturing and shipping

• Receiving at the distributor

Procurement CycleProcurement Cycle• Raw material procurement

• Arrival at factory warehouse

• Inventory management/ storage

Supply chain management

The function of supply chain management (SCM) is to plan, organize, and coordinate all of the supply chain’s activities.

SCM software refers to software that supports specific segments of the supply chain, especially in manufacturing, inventory control, scheduling, and transportation.

SUPPLY CHAIN COMPONENTS

Strategic importance

Competition is no longer between Competition is no longer between companies; it is between supply companies; it is between supply

chainschainsThe main goal of modern SCM is to reduce uncertainty and risks in the supply chain,thereby positively affecting inventory levels, cycle time, business processes, and customer service.These benefits contribute to increased profitability and competitiveness.

04/08/23 Supply Chain Management 17

New Business Challenges New Business Challenges

Global focusGlobal focus

Just-in-timeJust-in-time

Supply chain Supply chain partneringpartnering

Rapid product Rapid product development, development, alliancesalliances

Mass customizationMass customization

Empowered Empowered employees, teamsemployees, teams

ToToFromFrom Local or national focusLocal or national focus

Batch shipmentsBatch shipments

Low bid purchasingLow bid purchasing

Lengthy product Lengthy product developmentdevelopment

Standard productsStandard products

Job specializationJob specialization

Coordination A supply chain is composed of trading partners that are

interconnected with financial, information and product/service flows.

Coordination in a supply chain means identification and classification of existing interdependencies.

Interdependency can be defined as “when actions taken by one referent system affect the actions or outcomes of another referent system”. (McCann and Ferry)

Three types of interdependencies exists::• Task/task• Task/resource• Resource/resource

Coordination…

Coordination is primarily to manage various dependencies between activities and resources.

Benefits of coordination

All members of a decentralized distribution channel can earn, profits when all members coordinate.

Supply chain coordination provides risk reduction, access to inventory resources and competitive advantage.

Supply chain coordination dictates the cost improvement and value that can be gained.

Inter-organizational coordination yields lower total costs and higher profits.

Different coordination mechanisms Price Coordination Mechanisms: A method

for coordinating order quantities between a retailer and a producer.

• Quantity discounts: The motivation for giving quantity discounts could be either price discrimination or coordinating order quantities

Non-Price Coordination Mechanisms: it includes quantity flexibility contracts, allocation rules; promotional allowances, cooperative advertising and exclusive dealings/territories

Mechanism of coordination

Flow Coordination Mechanisms: Flow coordination mechanisms. are designed to manage product and information flows in supply chains.• Vendor Managed Inventory (VMI),

• Quick Response (QR),

• Collaborative Planning,

• Forecasting and Replenishment (CPFR),

• Efficient Consumer Response (ECR)

• Postponement

Coordination modes

four coordination modes can be identified based on the two dimensions of coordination:

(1) logistics synchronization;

(2) information sharing;

(3) incentive alignment; and

(4) collective learning.

Logistic synchorization This typical coordination refers to the market mediation

function of a supply chain that aims to match the variety of products reaching the marketplace with customer needs and wants (Fisher, 1997).

Understanding customer demand and concerting inventory management, facility and transportation between partners help to realise dramatic improvements in the forms of rapid response to customer requirements, lowered inventory costs, improved product availability, minimum obsolescence and minimum variance of any unexpected events such as forecasting errors and delays that disrupt chain performance (Lambert et al., 1998).

Information sharing The coordination of information sharing attempts to make

relevant, accurate and timely information available to the decision-makers (Lee, 2000).

For example, the retailer has better projected customer demand compared with the manufacturer (Lee et al., 1997). The manufacturer has better information about products, delivery lead-times and production capacity than the retailer. Traditional communication between the manufacturer and the retailer is made through periodic ordering in large batches. This ordering behavior distorts original demand information.

Incentive alignment Incentives define how decision-makers are to be

rewarded or penalized for the Decisions they make. Existing incentives influence

individual member behavior and its interaction with other partners. Conflict of interest is likely to occur when the existing incentives lead to actions that maximize personal gain but often reduce the total profitability.

The perverse incentives, such as local inventory cost, transportation cost and lot-size-based quantity discounts, often do not support the value creation process of improving customer services

Collective learning The coordination of collective learning deals with how to

tackle the coherency problem of initiation and diffusion of knowledge across organizational borders (Sawhney and Prandelli, 2000).

It involves intensive dialogue, experimentation and discussion of data, information and knowledge to attain collective sense making

The objective of the coordination of collective learning is to extend each partner’s capability that is useful for accomplishing ongoing improvement.

The Effect of Information Technology on Coordination Have the most effect on flow coordination mechanisms. As web or internet as a tools for better coordination with

other members of supply chain The existence of information technology enables

companies to respond customers needs more effectively. IT is more importantly viewed to have a role in supporting

the collaboration and coordination of supply chains through information sharing

Is reducing the friction in transactions between supply chain partners through cost-effective information flow.

IT can be used for decision support

2904/08/23 Supply Chain Management

Evolution in supply chain management

Historically, many of the supply chain activities were managed with paper transactions, which can be slow, error prone, and inefficient

The first software programs, which appeared in the 1950s and early 1960s, supported short segments along the supply chain, software was called supply chain management (SCM) software. The major objectives were to reduce cost, expedite processing, and reduce errors.

Evolution…. As early as the 1960s, the material requirements

planning (MRP) model was devised. This model essentially integrates production, purchasing, and inventory management of interrelated products.

manufacturing resource planning (MRP II). which adds labor requirements and financial planning to MRP. (Sheikh, 2002.)

This evolution continued, leading to the enterprise resource planning (ERP) concept, which integrates the transaction processing and other routine activities of all functional areas in the entire enterprise

Modern supply chain

Bestway cement limited Bestway Cement Limited

is part of the Bestway Group of the United Kingdom.

amongst United Kingdom’s top 10 privately owned companies.

Vision To Produce High Quality

Cement At The Lowest Cost

Bestway cement limited Pakistan In 1994 work was started on the cement plant in

the under developed area of Hattar, Haripur in the North West Frontier Province, Pakistan

The contract for the supply of main plant was signed with Mitsubishi Corporation of Japan in June 1995

The suppliers sub contracted some of the equipment to other international manufacturers, namely the crushers to FAM of Germany, Cement mill to Fuller of USA and electrical and instrumentation to ABB of Switzerland and Siemens of Germany

Bestway….

Civil works started in January 1996 and the Kiln was fired in April 1998

Prior to 2001 production at Bestway Cement was being carried out using furnace oil as fuel and then converted to gas

The machinery for coal conversion was procured from IPPR Engineering of China while some of the fabrication and erection work was done locally

Bestway cement plants

It has two plants• Hattar.

• Chakwal-1

• Chakwal-2

• Mustahkam Hattar plant’s initial capacity was 1.0 million tonnes

per annum. In 2002, at a cost of US$20 million, plant capacity was

enhanced to 1.15 million tonnes per annum Owing to the management’s insight on growing market

demand and the potential to export, in 2004 the plant’s capacity was further upgraded to 1.25 million tonnes

EXPORTS

Afghanistan and more recently in India, Africa and Middle East has made Bestway one of the largest exporters of cement in Pakistan.

Supply chain of Bestway Cement Factory

A typical supply chain links a company with its suppliers, its distributors, and its customers.

supply chain frequently involves three segments:• upstream,

• Internal

• downstream

Flow chart of supply chain of bestway cement

Raw material

Manufacturing plant

clinker

fuel

grinding

Refractory bricks

packagingDistributionwholesaler

cement

retailor

customer

Tier 1

Tier 1

UPSTREAM

INPUTS

RAW MATERIAL HUMAN RESOURCE ENERGY/FUELINFORMATION

FLOW

Limestone, lateritegypsum, refractory

Bricks, Clay,

Coal, deisel, electricity

Upstream

Raw material, maintinance equipment, softwares, fuels, laboratory equipments

internal

These activities—from entering orders of materials, to recording sales, to tracking shipments.

downstream

OUTPUTS

PRODUCTS SERVICESSOLID/ENERGY

WASTES

CEMEN, CLINKERSLIQUID CEMENT

WASTE HEAT

Output

List of Products: • Ordinary Portland Cement

• Sulphate Resistant Cement

• Quick Setting Cement

• Low Alkali Ordinary Portland Cement

• Clinker

• Other customized products may be produced on demand

Supply chain strategy

The goal:• “To provide high quality product at low cost”

The strategy of bestway cement:• Many suppliers

• Suppleirs respond to demands and specifications of a request for quotation.

• Then company take a trial order

• Then tested for specifications in laboratory

• If it fulfills requirement then procurement is made

Outsourcing

Following entities are outsourced• Limestone quarry (contractors)

• Literate, bauxite and gypsum(mining companeis)

• Transportation (local transport agencies)

• Information technology

Vendor selection criteria

The selection criteria for vendors are• Quality

• Cost

• Delivery capability

• Capacity

For vendor development no efforts are taken except giving limited information

Distribution system Trucking:

• using traditional monitering, not any automatic system to coordinate all activities

Waterways• Use waterways for

export to India and middle east countries.

• Large lots • Low shipping cost

Freight and handling cost• 1,304 million PKR/anum

Ordering

Both• Manual

• Automated

Printing and stationary cost annully about2.4 million PKR.

ERPENTERPRISE RESOURCE PLANNING (ERP)

Bestway cement is using ERP for managing their supply chain but it is limited to certain departments.

ERP is a software program comprising a set of applications that automate routine backend operations such as financial, inventory management, and scheduling to help enterprises handle jobs such as order fulfillment. (See O’Leary, 2000.)

They are using it for coordination between different departments only inside the organisation but it needs to be practised also with outsourced entiteis.

Production and Sales

HATTAR 2009Tonnes 2008Tonnes

Clinker production 1,074,607 1,120,027

Cement production 1,068,705 1,166,737

Cement sales 1,061,763 1,164, 540

Clinker sales 1,221 22,048

Dec 16, 2009 SCM - Supply Chain Management 54

Supply Chain EconomicsSupply Chain Economics

Dollars of additional sales needed to equal $1 Dollars of additional sales needed to equal $1 saved through the supply chainsaved through the supply chain

Percent of Sales Spent in the Supply ChainPercent of Sales Spent in the Supply Chain

Percent Net ProfitPercent Net Profitof Firmof Firm 30%30% 40%40% 50%50% 60%60% 70%70% 80%80% 90%90%

22 $2.78$2.78 $3.23$3.23 $3.85$3.85 $4.76$4.76 $6.25$6.25 $9.09$9.09 $16.67$16.67

44 $2.70$2.70 $3.13$3.13 $3.70$3.70 $4.55$4.55 $5.88$5.88 $8.33$8.33 $14.29$14.29

66 $2.63$2.63 $3.03$3.03 $3.57$3.57 $4.35$4.35 $5.56$5.56 $7.69$7.69 $12.50$12.50

88 $2.56$2.56 $2.94$2.94 $3.45$3.45 $4.17$4.17 $5.26$5.26 $7.14$7.14 $11.11$11.11

1010 $2.50$2.50 $2.86$2.86 $3.33$3.33 $4.00$4.00 $5.00$5.00 $6.67$6.67 $10.00$10.00


Measuring Supply Chain Measuring Supply Chain Performance of bestwayPerformance of bestway

Typical Firms

Benchmark Firms

Lead time (weeks) 15 8

Time spent placing an order 42 minutes15

minutes

Percentage of late deliveries 33% 2%

Percentage of rejected material

1.5% .0001%

Number of shortages per year

400 4

Supply chain performance of Bestway Cement Factory

Lead time (weeks) Differ urgent/usual

Time spent placing an order 30 MINUTES

Percentage of late deliveries 5%-10%


.1% or low


No data

Good coordination makes the difference

Lead time (weeks) Can be optimize

Time spent placing an order 30 MINUTES

Percentage of late deliveries <5%


Can be further reduced


No data


Measuring Supply Chain Measuring Supply Chain PerformancePerformance

Assets committed to inventoryAssets committed to inventory

Percent Percent invested in invested in inventoryinventory

= x 100= x 100Total inventory Total inventory

investmentinvestment

Total assetsTotal assets

Investment in inventory = $4.81billionInvestment in inventory = $4.81billionTotal assets = $8.22 billionTotal assets = $8.22 billion

Percent invested in inventory = (4.81/8.22) x 100 = 58.5%Percent invested in inventory = (4.81/8.22) x 100 = 58.5%



Inventory turnoverInventory turnover

Inventory Inventory turnoverturnover ==

Cost of goods soldCost of goods sold

Inventory Inventory investmentinvestment



Inventory turnoverInventory turnover

Cost of goods soldCost of goods sold $10.4Total $10.4Total inventory investmentinventory investment $4.81$4.81

Inventory turnover=cost of goods sold/ Inventory turnover=cost of goods sold/ inventory investment inventory investment

Inventory turnover=10.4/4.81=Inventory turnover=10.4/4.81=2.162.16

Measuring supply chain performance

Average weekly cost of goods=10.4/52

=0.2 Weeks of supply=4.81/.2= 24.05

Good coordination makes the difference

Good coordination in supply chain can increase the sales by 15-20% (F. Haghighat, 2008).

If sales can be increased upto 15% then• sales=10.4 11.96

• Inventory turnover=2.16 2.48

• Weekly cost of goods=0.2 .23

• Weeks of supply=24.05 20

CONCLUSIONS supply chains of the future will likely focus their

efforts on achieving success through process improvement and collaboration on strategic, tactical, and operational levels.

Coordination between activities brings about more profitability and value added and also optimization of processes in a supply chain

Effective coordination can lead to a reduction in lead times and costs, alignment of interdependent. decision-making processes, improvement in the overall performance.

conclusions

E-technologies facilitate information accessibility in order to optimized accurate programming and decision making

As a result, accurate management of information by using of new technologies, result in optimized decisions , better extrinsic and intrinsic coordination.

Recommendations Replace all paper documents that move physically with

electronic documents. This change improves speed and accuracy, and the cost of document transmission is much cheaper.

Provide an integrated messaging system. A single business transaction could involve many messages, totaling thousands of messages per week or even per day for a company.

E-commerce can replace related faxes, telephone calls, and telegrams with an electronic messaging system at a minimal cost.

Recommendations

Enhance collaboration and information sharing among the partners in the supply chain. This can improve cooperation, coordination, and demand forecasts.

Shorten the supply chain and minimize inventories. Production changes from mass production to build to order

There is a strong need for logistic synchronization to minimize delays, security risks and to add value to supply chain.

vision

Facilitate customer service. Of special interest is the reduction of contact between employees and customers due to innovations such as the introduction of a Web site for frequently asked questions (FAQs) and self-services such as the self-tracking of shipments.

Introduce efficiencies. These efficiencies relate to buying and selling through the creation of e-marketplaces and e-procurement

Research direction

Feedback analysis of this research Due to shortage of time this research is not so

much detailed study There is need to do research work in detail on

each component of supply chain Logistic management should be revised in

accordance with the modern techniques.on each of the mode of coordination separate research is required.

Documents

Supply Chain Management