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The supply chain is the network of organizations that are involved through upstream and down stream linkages, in different processes and activities that produce value in the form of products and services in the hands of the ultimate customer. Supply Chain may be defined as flow of materials through procurement, manufacturing, distribution, sales & disposal.
Supplier
Plant
RS
Logistics
Retailer
SCM
FLOWS
MATERIAL
MONEY INFORMATION
Procurement Manufacturing Distribution Customer
What is SCM ?
SCM is a business network covering from buying, making, moving, warehousing to selling
Making Moving Buying
Selling
Ware housing
Traditional SCM
Intermediaries Producer Customer Connectivity is King for product delivery when and where
Reduced inventories Reduced waste Reduced total system costs Establishment of a collaborative framework Near real time information flow Reduced variation and increased quality
Service
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The Three Ts
Intrinsic Value
Late Deliveries
STRATEGIC
TACTICAL OPERATIONAL
Procurement Manufacturing Distribution Logistics
SERVICE COST FLOW OF INFORMATION / MATERIAL AND CASH INPUTS AND OUTPUTS
ELEMENTS OF SCM
INVENTORY MANAGEMENT
WAREHOUSING TRANSPORTATION
What is inventory
1. The stock of material lying with you for which payments are made but which are yet to be delivered to the customers and paid for by them. 2. Material stocked to meet the expected demand in the market. 3. An idle resource which locks the capital.
Excess Shortage
Excess Shortage
Inventory Exercise
WORK OUT INVENTORY NORMS BASED ON SERVICE FREQUENCY, SALES AND DEMAND VARIABILITY & TRANSIT TIME VARIABILITY Consider sales qty. 300 CLDS per month, Demand variability 20 %, Supply variability of + / - 2 Days & Service frequency of 1 / week
Total costs
Low
I Interpretation: y y
Service levels
High
At low service levels, costs due to lost opportunities are very high.
When service levels are raised, inventory + service costs increase marginally but costs due to lost opportunities come down drastically. Enlarged view of portion markedat A is shown in the next graphfor further explanation.
Zone of Indifference
Zone of Perfection.
1. In zone of improvement , as service level goes up by increasing stocks and incurring in extra expenditure for giving better service, the gains obtained due to better sales outweigh the costs incurred. 2. In zone of indifference, the gains and costs are more or less balanced. 3. In zone of perfection, as service levels are raised to near to 100%, the costs outweigh the gains but in modern competitive environment, this may become a necessity for survival
Safety Stock
ABC Analysis
Based on principle of management by exception.
Unit value is not a consideration. Analysis is based on total consumption value of items in predetermined time span. Criticality/importance of item is not a consideration All the items are divided in three categories. Decisions are based on 80 : 20 rule.
A B C
Few Many
Number of Items
FSN Analysis
Based on speed of movement of material. 1. Some materials have regular and high volume demand and move Fast (F), 2. some material have intermittent and unpredictable demand and hence move Slow (S) 3. and a few items have practically no takers and hence keep on lying in stores for long period of time and categorized as Non moving (N).
FAST MOVING SLOW MOVING NON MOVING
ELEMENTS OF SCM
INVENTORY MANAGEMENT
WAREHOUSING
TRANSPORTATION
ELEMENTS OF WAREHOUSING
Layout principles
Ease of receipts, storage and issues. Uninterrupted movement of material, men and equipment. Optimum utilization of space. Ease of locating the material. Safety. & Security. Better supervision. Flexibility Building. : Preferably single storied, enough height, proper lighting and ventilation, protection against hazards like fire and lightening.
Identification of Material
1. Tagging. 2. Labeling. 3. Writing, painting, engraving, stamping, etching, color coding on the part/case/box. 4. Bar coding.
ELEMENTS OF SCM
INVENTORY MANAGEMENT WAREHOUSING
TRANSPORTATION
Logistics Management
'Logistics is the process of strategically managing the procurement, movement and storage of materials (and related information flows) through the organisation and its marketing channels
CARRIER SELECTION
Transport Costs
Fixed cost Vehicle cost ( Depreciation ) License fee Insurance cost Driver salary Interest cost Road tax Administration Cost Variable cost Labour cost ( Laoding & Unloading ) Fuel, Consumables & Oil cost
RS
Cust X
RS Means the visit starts at RS & goes to Customer X & returns to RS The savings ( X, Y ) is the distance saved if the trips RS RS
Cust X
Cust Y
RS
RS
RS
Cust X
Cust Y
RS This saving is calculated by following formula S ( X, Y ) = Dist ( RS, X) + Dist ( RS, Y ) Dist (X, Y)
1. Is selection of vehicle critical for the business? How to select a vehicle for transportation? 2. How to decide sequence for delivery of goods to the retailers? 3. Is Outsourcing of transport vehicles more beneficial for us or Having own vehicles more beneficial for us?
Orders Delivered On Time & Full Commitment % ge ( OTIF ) = ----------------------------------------------------Orders Received in a month
Transport cost + Labour Cost + storage cost SCM COST / TN = --------------------------------------------------------------------Total sales
Product Delivery Request For Message Quality Quotation Goods Receipt Usage Availability Purchase Order Inventory Invoice Change Order Confirmation Product Call-Off Performance Order Status Inventory Status
Bullwhip Effect
Factors contributing to the Bullwhip Effect: Forecast Errors Lead Time Variability Batch Ordering Price Fluctuations Product Promotions Inflated Orders
Methods intended to reduce uncertainty, variability, and lead time: Vendor Managed Inventory (VMI) Just In Time replenishment (JIT) Strategic partnership
Bullwhip Effect
Bullwhip Effect