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PowerPoint Presentation: 

Supply Chain Strategy

PowerPoint Presentation: 

Supply-Chain Management : Define Measuring Supply-Chain Performance Bullwhip Effect Outsourcing Global Sourcing Value Density Mass Customization OBJECTIVES

What is a Supply Chain? : 

Supply-chain is a term that describes how organizations (suppliers, manufacturers, distributors, and customers) are linked together What is a Supply Chain? Suppliers Inputs Suppliers Service support operations Transformation Manufacturing Local service providers Localization Distribution Customers Output Customers Services Supply networks Manufacturing

What is Supply Chain Management? : 

What is Supply Chain Management? Supply-chain management is a total system approach to managing the entire flow of information, materials, and finance from raw-material suppliers through factories and warehouses to the end customer

Supply Chain Mgt.-Understanding the Concept: 

Supply Chain Mgt.- Understanding the Concept What is a Supply Chain? Consists of all parties involved directly or indirectly in fulfilling a customer order. Is dynamic and involves the constant flow of information, materials and funds between different stages. Objectives of a Supply Chain Should be to maximize the overall value generated. Higher the supply chain profitability, the more successful is the supply chain. Importance of Supply Chain Decisions Supply chain design, planning and operation decisions play a significant role in the success or failure of a company. Piyoosh Bajoria

Business/ Economic factors shaping Supply Chain Management: 

Business/ Economic factors shaping Supply Chain Management Consumer demand Globalization Competition Information & communication Inventories Transportation Facilities Government regulations Environment

SCM Network: 

SCM Network Manufacturer S2 S1 S2 S1 S2 S1 D3 R1 R2 R3 C C C Tier 2 Supplier Tier 1 Supplier Distributors Retailers Customers Information Flow D2 D1 Material Flow

Typical Supply Chains: 

Typical Supply Chains Receiving Operations Distribution Storage Storage Purchasing

Typical supply chain for a Manufacturer: 

Typical supply chain for a Manufacturer Supplier Supplier Supplier Storage Manufacturer Storage Distributor Retailer Customer Typical supply chain for a Service Supplier Supplier Storage Service Customer PRODUT / SERVICES INFORMATION FINANCES

Supply Chain Decision Making Framework: 

Supply Chain Decision Making Framework Competitive Strategy Supply Chain Strategy Inventory Transportation Facilities Information Supply Chain Structure Efficiency Responsiveness SCM Drivers

Formulas for Measuring Supply-Chain Performance: 

Formulas for Measuring Supply-Chain Performance One of the most commonly used measures in all of operations management is “Inventory Turnover” In situations where distribution inventory is dominant, “Weeks of Supply” is preferred and measures how many weeks’ worth of inventory is in the system at a particular time

Example of Measuring Supply-Chain Performance: 

Example of Measuring Supply-Chain Performance Suppose a company’s new annual report claims their costs of goods sold for the year is Rs 16 crore and their total average inventory (production materials + work-in-process) is worth Rs 3.5 crore . This company normally has an inventory turn ratio of 10. What is this year’s Inventory Turnover ratio? What does it mean?

Example of Measuring Supply-Chain Performance (Continued): 

Example of Measuring Supply-Chain Performance (Continued) = 16/3.5 = 4.57 Since the company’s normal inventory turnover ratio is 10, a drop to 4.57 means that the inventory is not turning over as quickly as it had in the past. Without knowing the industry average of turns for this company it is not possible to comment on how they are competitively doing in the industry, but they now have more inventory relative to their cost of goods sold than before.

The Old Paradigm: Push Strategies: 

The Old Paradigm: Push Strategies Production decisions based on long-term forecasts Ordering decisions based on inventory & forecasts What are the problems with push strategies? Inability to meet changing demand patterns Obsolescence The bullwhip effect: Excessive inventory Excessive production variability Poor service levels

A Newer Paradigm: Pull Strategies: 

A Newer Paradigm: Pull Strategies Production is demand driven Production and distribution coordinated with true customer demand Firms respond to specific orders Pull Strategies result in: Reduced lead times (better anticipation) Decreased inventory levels at retailers and manufacturers Decreased system variability Better response to changing markets But: Harder to leverage economies of scale Doesn ’ t work in all cases

Push and Pull Systems: 

Push and Pull Systems What are the advantages of push systems? What are the advantages of pull systems? Is there a system that has the advantages of both systems?

A new Supply Chain Paradigm: 

A new Supply Chain Paradigm A shift from a Push System... Production decisions are based on forecast … to a Push-Pull System

Push-Pull Supply Chains: 

Push-Pull Supply Chains Push-Pull Boundary PUSH STRATEGY PULL STRATEGY Low Uncertainty High Uncertainty The Supply Chain Time Line Customers Suppliers

Bullwhip Effect: 

Bullwhip Effect Inventories are progressively larger moving backward through the supply chain. Tier 2 Suppliers Tier 2 Suppliers Tier 1 Suppliers Producer (Mfg) Distributor Retailer Upstream Downstream Note : Last but not the least the final customer = Amount of Inventory

Hau Lee’s Concepts of Supply Chain Management: 

Hau Lee’s Concepts of Supply Chain Management Hau Lee’s approach to supply chain (SC) is one of aligning SC’s with the uncertainties revolving around the supply process side of the SC A stable supply process has mature technologies and an evolving supply process has rapidly changing technologies Types of SC’s Efficient SC’s Risk-Hedging SC’s Responsive SC’s Agile SC’s

Hau Lee’s SC Uncertainty Framework: 

Hau Lee’s SC Uncertainty Framework Demand Uncertainty Low (Functional products) High (Innovative products) Efficient SC Ex.: Grocery Responsive SC Ex.: Computers Risk-Hedging SC Ex.: Hydro-electric power Agile SC Ex.: Telecom Low (Stable Process) High (Evolving Process) Supply Uncertainty

What is Outsourcing? : 

What is Outsourcing? Outsourcing is defined as the act of moving a firm’s internal activities and decision responsibility to outside providers

Reasons to Outsource: 

Reasons to Outsource Organizationally-driven Improvement-driven Financially-driven Revenue-driven Employee-driven Cost-driven

Global Sourcing : 

Global Sourcing Aluminum Tires Steel Tires Castings Pig Iron Al Alloy Eltxn. parts Steel Gears

Potential Supply Chain Linkages: 

Potential Supply Chain Linkages Plant 1 Market A Source A Source B Plant 2 Market B Source C Plant 3 Market C Markets Manufacturing Locations Source Locations Far East Europe North America Figure 16.3 Piyoosh Bajoria

Value Density : 

Value Density Value density is defined as the value of an item per kilogram of weight It is used as an important measure when deciding where items should be stocked geographically and how they should be shipped

Mass Customization : 

Mass Customization Mass customization is a term used to describe the ability of a company to deliver highly customized products and services to different customers The key to mass customization is effectively postponing the tasks of differentiating a product for a specific customer until the latest possible point in the supply-chain network

Question Bowl: 

Question Bowl A typical supply chain would include which of the following? Suppliers Manufacturers Distribution All of the above None of the above Answer: d. All of the above

Question Bowl: 

Question Bowl The supply chain measure of “Inventory Turnover” is which of the following ratios? Avg. inventory value/total costs Costs of goods sold/Avg. aggregate inventory value Total costs of goods/Avg. costs of goods Weeks worth of inventory/No. of weeks None of the above Answer: b. Costs of goods sold/Avg. aggregate inventory value

Question Bowl: 

Question Bowl If the “cost of goods sold” for a company is Rs1,000,000 and the “average aggregate inventory value” is Rs25,000, which of the following is the “inventory turnover”? 10 25 40 50 None of the above Answer: c. 40 (1,000,000/25,000=40)

Question Bowl: 

Question Bowl If the “cost of goods sold” for a company is Rs250,000 and the “average aggregate inventory value” is Rs5,000, which of the following is the “inventory turnover”? 10 25 40 50 None of the above Answer: d. 50 (250,000/5,000=50)

Question Bowl: 

Question Bowl If the “cost of goods sold” for a company is Rs1,000,000 and the “average aggregate inventory value” is Rs50,000, which of the following is the “weeks of supply” measure for supply chain performance? 1 week 2.6 weeks 20 weeks 30 weeks None of the above Answer: b. 2.6 (50,000/1,000,000)x52=2.6)

Question Bowl: 

Question Bowl Which of the following refers to the phenomenon of increasing variability as we move from the customer to the producer in the supply chain? Continuous replenishing Stable supply process Evolving supply process Agile supply chains None of the above Answer: e. None of the above (The correct term is “Bullwhip effect”.)

Question Bowl: 

Question Bowl Which of the following are reasons why an organization should use “outsourcing” as a supply chain strategy? Reduces investment in assets Turns fixed costs into variable costs Gives employees a stronger career All of the above None of the above Answer: d. All of the above

Question Bowl: 

Question Bowl Which of the following “transportation modes” provides flexibility in delivery, timing and at reasonable rates for small quantities and over short distances? Rail Highway (trucking) Water Pipeline Air Answer: b. Highway (trucking)