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SESSION# 1 & 2: Basics & Beyond

Supply Chain Management

Dr RAVI SHANKAR
Dr.
Professor
Department of Management Studies
Indian Institute of Technology Delhi
Hauz Khas, New Delhi 110 016, India
Phone: +91-11-2659-6421 (O); 2659-1991(H); (0)-+91-9811033937 (m)
Fax: (+91)-(11) 26862620

Email: r.s.research@gmail.com, ravi1@dms.iitd.ac.in


http://web.iitd.ac.in/~ravi1

The Objectives of this Session is to:


Understand the course objective
Understand the basic concepts of Supply Chain
Management (SCM) & Operations Management (OM)
Relate SCM with practical business world
Assess organizational needs towards SCM
Take decision related to operations of SCM
Understand the Recent Trends in SCM
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Few Information
Text Book
Simchi-Levi et al.: Designing

and Managing the Supply


Chain: 3rd edition, McGraw Hill,
NY (2008)
Reference Books
Sunil Chopra & Peter Menidel,
Menidel

Supply Chain Management: 3rd


edition, Pearson Education
(2007).
Wisner, Leong and Tan,
Principles of Supply Chain
Management, Thomson SouthWestern, 2005 (Complete List
Available on course outline)

Another Reference Book

In case you are interested in further study


in SCM
Journal(s):
Supply Chain Management: An International
Journal (Available on www.emaraldinsight.com)
Supply Chain Management Review
Purchasing World
International Journal of Purchasing and
Materials Management
International Journal of Physical Distribution &
Logistics Management
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Course Objectives
To understand the basics

of SCM
To understand the current

practices in SCM
To develop
p decision

making capabilities in
SCM
To understand and
develop different
strategies of SCM
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Sources:
plants
vendors
ports

Regional
Warehouses:
stocking
points

Customers,
demand
centers
sinks

Field
Warehouses:
stocking
points

S
Supply
l

Inventory &
warehousing
costs
Production/
purchase
costs

Transportation
costs
Inventory &
warehousing
costs

Transportation
costs
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The Functional Approach

S
U
P
P
L
I
E
R
S

C
U
S
T
O
M
E
R
S

Sales
Distribution
Manufacturing
Purchasing

Traditional Approach: Functional, silo

based !
No attempt to look holistically!

Integrated Supply Chain Approach

Sales
S
U
P
P
L
I
E
R
S

C
U
S
T
O
M
E
R
S

Distribution
Manufacturing
Purchasing

Looks at the entire chain


Global rather than local focus
Integrated rather than fragmented approach
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Supply Chain Stages


Supply Chain (SC) encompasses all activities associated with the flow
and transformation of materials from the raw material stage through
to the end user.
Supply Chain Management (SCM) involves management of FOUR
flows in a Supply Chain: (i) Material, (ii) Information , (iii) Money &
(iv) Ownership
Supplier

Manufacturer

Distributor

Retailer

Customer

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Example: Typical supply chain


upstream

downstream
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Example: Toshiba PC Supply Chain


upstream

Intel,
AMD

Microsoft,
Red Hat

Seagate,
IBM

Toshiba America
I i California
Irvine,
C lif
i

North America DC

Europe DC

Toshiba Turkey

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downstream

The Linear Supply Chain


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Limited visibility & velocity


Inventory build-up

What are the Goals of Supply Chain


Management?
Supply chain management is concerned with the efficient

integration of suppliers, factories, warehouses and stores


so that merchandise is produced and distributed:

In the right quantities


T the
To
th right
i ht locations
l
ti
At the right time

In order to

Minimize total system cost


Satisfy customer service requirements
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Evolution of Supply Chain Management

Further
Refinement of
SCM Capabilities
SCM
Formation/
Extensions
E
t
i
JIT, TQM, BPR,
Alliances
Inventory Management/Cost
Optimization
Traditional Mass Manufacturing

1950s

1960s

1970s

1980s

1990s

2000s

Beyond
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Evolution of Logistical Integration, 1960-2014


TYPICAL OM DOMAINS
Demand Forecasting

1980s

Purchasing
Requirements Planning

Materials
Management

Production Planning

1990s

Manufacturing Inventory

2000s

Operations Scheduling
Logistics

Materials Handling

Supply Chain
Management

Packaging
Inventory
Facility Planning
Physical
Distribution

Order Processing

Information Technology

Transportation

Marketing

Quality &Customer Service

Strategic Planning
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Supply Chain Decisions: Structuring


Drivers

Strategy
((Design)
g )
Planning
Operation

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The Enterprise
Fulfillment and Development Supply Chains

Developmen
nt Supply Chain

Plan/Design

Supply

Product Architecture
Make/Buy
Early Supplier Involvement

Source

Strategic Partnerships
Suppliers Selection
Supply Contracts

Produce

Distribute

Fulfillment Supply Chain

Sell
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Decision <> time horizon


Execution

Execution Systems
Delivery Scheduling
Operations Scheduling
Transportation Planning
Manufacturing Planning
Detail

Tactical

Distribution Planning
Inventory Planning
Supply Chain Planning
Sales & Operations Planning
Demand Planning

Supply Chain Network Design

Strategical

Supply Chain Structure Design


Strategic Planning

Hour

Week

Quartile

Year
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Time

Source: AMR Research

Let us start the course with a Quiz


A box of cereal spends ? days in the supply chain
Poor coordination in the food industry supply chain
wasted ? dollars.
A typical new car spends ? days traveling from the
factory to the dealership.
dealership
U.S. companies spend ? % of Gross Domestic
Product on Supply Chain & Logistics
Total inventory in the pharmaceutical supply chain
exceeds ? days.
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Complexity: The Magnitude


A typical box of cereal spends 104 days getting from factory to

supermarket.
The grocery industry could save $30 billion (10% of operating

cost) by using effective logistics strategies


A typical new car spends 15 days traveling from the factory to

the dealership.
U.S. companies spend more than $1 trillion in supply-related

activities
ac
es ((10-15%
0 5% o
of G
Gross
oss Domestic
o es c Product)
oduc )
Transportation 58%
Inventory 38%
Management 4%

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Consider the following


Wal-Mart and K-Mart were founded in the same year.

While K-Mart declared Bankruptcy in 2001 while WalMart became the largest retailer in USA and perhaps
in the world.
Dell has been able to generate profits even when its
competitors lost money on their PC operations.
Honda has established itself as a dominant brand in
automobiles.
What have these firms done? What is the secret of their
success?

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Example: Dell Computers Supply Chain


Direct Shipment

Master Board

Hard disk

Dell Assembly
Plant

Website
or Phone

Customer wants
To buy computer

Customers Order

SRAM

Concept of Disintermediation in Dell Direct Supply Chain


What are its benefits for Dell?
Any other example of similar type in India?

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Magnitude of Supply Chain Costs


Example: The Apparel Industry

Cost per

Percent

Shirt

Saving

Manufacturer

Distributor

Retailer

Customer

Rs.527.20

0%

Manufacturer

Distributor

Retailer

Customer

Rs.413.40

28%

Manufacturer

Distributor

Retailer

Customer

Rs.204.50

62%

(c) R.Shankar (2010-11)

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Magnitude of Supply Chain Costs


Cost Elements of a Typical Trade Book

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Globally Dispersed Manufacturing


An Illustration: How Li & Fung Limited Might
Make a Dress
Product Design
[Hong Kong]

Yarn Spinning
[Korea]

QC & Shipping
[Hong Kong]

Weaving
[Taiwan]

Stitching
[Indonesia]

Zippers+
[Japan+]

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Discussion Questions for You


Are all supply chains same/similar?
How about cold chains?
Where does the retail fit in supply chain?
Where does Operations Management fit in supply

chain?
What are inbound/outbound activities in supply
chain?
What about information and inventory? Are they
related in some way in supply chain?
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CASE STUDY-1:
SCM COMPLEXITY

(c) R.Shankar (2010-11)

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Scope / Activities
Supply Chain Management
Materials Management & Transportation
Manufacturing
Packaging
g g
Total Quality Management
Distribution Systems

(c) R.Shankar (2010-11)

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10

Product Portfolio
Oral Care
Horlicks

Toothbrush

NHC

Aquafresh
Flex, FnD, FlexiKid

JHlx CHlx MHlx EHlx Hlx P

Boost
Viva
Maltova

Aquafresh mouthpaste
x-fresh,
f h Fn
F M

Biscuits
Hlx
Std

Jordan

Flexi friend

Eno

Boost
Ch.Hlx EB
Elaichi

Regular, Lemon,
Jaljeera

Crocin

Med
(c) R.Shankar (2010-11)

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Manufacturing Facilities - NHC Powders


H
NSD1

3 Factories
Nabha - Punjab
Rajahmundry - A.P.
Hamira - Punjab

SD1 Project

Sonepat - Haryana

(c) R.Shankar (2010-11)

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Packaging Facilities - Nutritional


N
HA

7 Packing Sites

N
F

Faridabad (F)
Calcutta (C)

CG

Hyderabad (H)

Chennai (CH)
Nabha (N)

Hamira (HA)
Chittagong - Bangladesh (CG)
(c) R.Shankar (2010-11)

CH

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Manufacturing Facilities - NHC Solids

2 Biscuit sites
Burdwan
Hyderabad

(c) R.Shankar (2010-11)

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Mfring & Packing Facilities- Aquafresh

2 sites
Goa (Tooth Brush)
N hik (Toothpaste)
Nashik
(T th
t )
N
G

(c) R.Shankar (2010-11)

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Mfring & Packing Facilities - OTC

1 Site (ENO)
Hyderabad

(c) R.Shankar (2010-11)

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12

Sales depots

Sales depots 32 nos


(c) R.Shankar (2010-11)

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Supply Complexities
Finished Goods Movement
250 vendors,
350 materials,
15 sites
P/S
P/S movement
of avg.. 1200 kms
Over 1000
consignments/
month shipped
across 130
site-depot
linkages

12 supply sites
catering to 37 markets

(c) R.Shankar (2010-11)

Primary freight cost


of Rs. 30 crore p.a.38

Supply Complexities
Export Supplies
Nepal

Bangladesh

Middle East

Myanmar

Mauritus

(c) R.Shankar (2010-11)

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Sri Lanka

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The Supply Chain


33 Milk Collection Centres

Third Party
Suppliers

Third Party
Manufacturing`

Factories
Captive
Malting

Bulk
Packing
Stations

Finished Goods
Depots

Export
Mkt..

Wholesalers

Retailers

(c) R.Shankar (2010-11)

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Supply Planning Process


Net Requirements from
Demand Manager
ASP: Aggregate
Schedule Planning

MRP at
Sites
Delivery Schedules
to Supplier

Central Planner
Capture NRs
Send Aggregate Prod
Plan & Despatch
p
schedule to sites
Detailed Production
Scheduling at Sites

SKU / DepotDepotWeekly Bucket

NRS: Net
Requirement
Stability
SKU - Monthly

PPR: Production
Plan
Requirement
SKU - Daily

Production / Packing
(c) R.Shankar (2010-11)
Dispatches
to depots

SPA: Supply Plan


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Adherence

Performance Measurements
Factories

Supply
Plan
Adherence
(SPA))
(S

Procurement t

Quality

Supply Side
l

Demand Side

Depots

Projects

Wholesalers

Retailers

(c) R.Shankar (2010-11)

Net
Requirement
Stability
(NRS)
Exports
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Major Problems
Forecast inaccuracy
Un-organised transport sector
Longer lead time for some raw materials
Frequent change
g in statuary
y requirements
Sales promotions disturbs the planning cycles

some times leads to major write offs

(c) R.Shankar (2010-11)

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Effective Supply Chain-Challenges


Effective Supply chain is not limited

to manufacturing & distributing


products only but also..

(c) R.Shankar (2010-11)

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Effective Supply Chain-Challenges


Design product to its supply chain
Supplier relationship
Manufacturing:- should it be in-house

or to
t be
b out-sourced
t
d?
Least Product inventories
Third Parties:- Partners can add
significant value
(c) R.Shankar (2010-11)

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Effective Supply Chain-Challenges


Distribution:- shippers should add value

rather than mere transportation


Work on the Customers Pull rather
than Push
Is consumer response is making its
way into the chain ?

(c) R.Shankar (2010-11)

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Effective Supply Chain-Challenges


Then..
Whats the way out?

(c) R.Shankar (2010-11)

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Conflicting Objectives
in the Supply Chain
1. Purchasing
Stable volume requirements
Flexible delivery time
Little variation in mix
Large quantities
2. Manufacturing
Long run production
High quality
High productivity
Low production cost
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Conflicting Objectives
in the Supply Chain
3. Warehousing
Low inventory
Reduced transportation costs
Quick replenishment capabilityy
4. Customers
Short order lead time
High in stock
Enormous variety of products
Low prices
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Managing a Supply Chain is not Easy


1. Uncertain ___________________

2. Conflicting ___________________ across the supply chain

Manufacturers

Distributors

Large production batches

Low inventory
Few DCs

Retailers

Few stores
Low inventory
Little variety
Close to DCs
Large shipments

Consumers
Convenience
Short lead time
Large variety of
products
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Uncertainty and Risk Factors


Forecasting is not a final solution
Demand is not the only source of uncertainty
Recent trends make things more uncertain

Lean manufacturing
Outsourcing
Off-shoring

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Uncertainty and Risk Factors


August 2005 Hurricane Katrina
P&G coffee supplies from sites around New Orleans
Six month impact
2002 West Coast port strike
Losses of $
$1B/dayy
Store stock-outs, factory shutdowns
1999 Taiwan earthquake
Supply interruptions of HP, Dell
2001 India (Gujarat state) earthquake
Supply interruptions for apparel manufacturers

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Similar SCM Experiences


Compaq estimates it lost $0.5 billion to $1 billion in sales in
1995 because laptops were not available when and where
needed
P&G estimates it saved retail customers $65 million by
collaboration resulting in a better match of supply and demand
In 1997, American companies spent $862 billion, or about
10% of GNP on supply chain related activities which include the
cost of movement, storage and control of products across the
supply chain.Most of these costs include unnecessary cost
components due to redundant stock, inefficient transportation
strategies, and other wasteful strategies in the supply chain
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Other Issues in Management of Supply Chain

Lead time
Total cost
Management of Inventory
Material Handling
Performance Monitoring & Control
Sensitization about the Logistics cost to all the
stakeholders !
Information Sharing..

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Supply Chain Responsiveness

Respond to wide ranges of quantities demanded


Meet short lead times
Handle a large variety of products
Build highly innovative products
Meet a very high service level

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Examples of logistics strategy decisions

Middle-men / direct deliveries


Structure of logistics network
Control principles of a logistics network
Integrating
g
g production and logistics
g
Effect of reducing the number of suppliers
Location issues
Selecting the most appropriate price/quality combination of
logistics services
Frequencies and cycle times in production and distribution
Inventory level policy
Sensitivity analyses with varying scenarios (volumes, costs...)
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The Core Issues


in Supply Chain Management

Cycle Time

Cost Management

Inbound, Operations
& Outbound

Alliances

Initiatives

Technology
Integration

Environmental
Pressures
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634

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Effective Supply Chain-Challenges


Let us list few, which are relevant for our

country..
Lead

Time??

Integration??
I t
ti ??
Coordination??
Environmental

Issues??

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