Supply Chain Manahement

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A Supply Chain is a network of supplier, manufacturing, assembly, distribution, and logistics facilities that perform the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these products to customers. A supply chain also includes the organizations and processes that create and deliver products, information, and services to the end customers. It includes many tasks such as purchasing, payment flow, materials handling, production planning and control, logistics and warehousing, inventory control, and distribution and delivery. SUPPLY CHAIN 2

Supply Chain Management:

Supply Chain Management  (SCM) is a systems approach to managing the entire flow of information , materials , and services from raw materials suppliers through factories and warehouses to the end customer. SCM is different from Supply Management, which emphasizes only the buyer-supplier relationship. Supply Chain Management Supplier Manufacturer Distributor Dealer Customer 3

Key Elements decisions::

The whole SCM involves five key elements decisions: Production Inventory Supply Location Transportation Key Elements decisions: 4

The Process of SCM:

View ‘Value’ from the perspective of the customer Eliminate all waste & non-value-add activities from the chain Capture demand data at point of use & use this to control the chain Integrate all key elements (links) of the chain Establish a steady continuous flow based on pull/demand Use data & metrics collected within the process to continuously refine the Supply Chain. The Process of SCM 5

Objectives of SCM:

Objectives of SCM Right Product Right Quantity Right Time Minimal Cost Customer needs Delivery Reliability Delivery Time Inventory Level Right Location 6

SCM Software:

SCM software refers to software intended to support specific segments of the supply chain, especially in Manufacturing , Inventory Control , Scheduling , and Transportation . This software concentrates on improving decision making, optimization, and analysis. E-Supply Chain. When a supply chain is managed electronically, usually with Web-based software, it is referred to as an e-supply chain. I mprovements in supply chains frequently involve an attempt to convert an organization’s supply chain to an e-supply chain—that is, to automate the information flow in the chain. SCM Software 7

Flow in a supply chain:

Materials flows. These are all physical products, new materials, and supplies that flow along the chain. Included in the materials flows are returned products, recycled products, and materials or products for disposal. Flow in a supply chain Funds Customer Suppliers & Manufacture Information Material There are three flows in the supply chain: materials, information, and financial flows. 8

Flow in a supply chain (Contd):

Information flows. All data related to demand, shipments, orders, returns, schedules, and changes in these are information flows. Financial flows. Financial flows include all transfers of money, payments, credit card information and authorization, payment schedules, e-payments, and credit-related data. In managing the supply chain it is necessary to coordinate all the above flows among all the parties involved in the supply chain. Flow in a supply chain ( Contd ) 9

Supply Chain Management A process orientation:

Supply Chain Management A process orientation Planning for operation Sourcing decisions Manufacturing Related Activities Distribution In-house Demand Management Master Production Scheduling Materials & Capacity Planning Distribution Requirement Planning In-bound Supplier Development Supply Management Joint cost reduction Target costing Value engineering Import substitution In-house Layout & Facilities Management Materials Handling Co-ordination with supply chain partners Out-bound Logistics Management Warehousing Distribution Channel Management 10

Information and SCM:

Inefficiencies in supply chain may result in underutilized plant capacity, excessive finished goods inventory, or high transportation costs, are caused by inaccurate or untimely information. Suppliers may order too few raw materials because they do not have precise information on demand. These inefficiencies may waste as much as 25% a company’s operating costs. Information and SCM 11


NIKE’s SUPPLY CHAIN Contract Supplier Contract Supplier Nike Distributer Retailer Customer Orders, return requests, repairs and service requests, payments Downstream Upstream Tier1 Suppliers Tier2 Suppliers Tier3 Suppliers 12


Information about the demand for a product gets distorted as it passes from one entity to the next across the supply chain. What causes Bullwhip effect? The more the number of layers, the delay, the rate of change, the greater the fluctuations Each layer updates its forecast in varying patterns places order at different times price fluctuations (promotions) rationing of supply BULLWHIP EFFECT 13

How to avoid Bullwhip effect?:

Devise new strategies for minimising the number of layers, delay in information exchanges and rate of change. Improve quality of demand forecast update use of point of sales data, EDI, Internet Share sales, capacity and inventory data across the supply chain partners Lead time reduction, reduction in fixed costs in ordering. How to avoid Bullwhip effect? 14

SCM Applications (Softwares):

Supply Chain Planning It enable the firm to generate demand forecasts for a product and to develop sourcing and manufacturing plans for that product. (ex. Demand Planning) Supply Chain Execution It manages the flow of products through distribution centers and warehouses to ensure that products are delivered to the right locations in the most efficient manner. Track physical status of goods, mgmt of materials, warehouse & transportation operations and financial information involving all parties. SCM Applications ( Softwares ) 15

SCM and Internet:

Firms use Intranets to improve coordination among their internal supply chain processes, and they use extranets to coordinate supply chain processes shared with their business partners. Many companies now use suppliers from many different countries, and the Internet helps them to coordinate overseas sourcing, transportation, communications, financing and compliance with customs regulations. SCM and Internet 16

SCM and Internet:

SCM and Internet Internet Planning & Scheduling Procurement Production Inventory Shipping Order Processing Suppliers Logistics Services Distributors Retailers Customers 17

Demand Driven Supply Chains:

Earlier supply chain management systems were driven by a Push-Based Model. Production Master Schedules are based on forecasts of demand for products, and products are “Pushed” to customers. Demand Driven Supply Chains Supplier Manufacturer Distributor Dealer Customer Supply to forecast Production based on forecasts Inventory based on forecasts Stock based on forecasts Purchase what is on shelves Push-Based Model 18

Demand Driven Supply Chains:

Pull-based model (Demand-driven Model or built-to-order), actual customer orders or purchases trigger events in the supply chain. Transactions to produce and deliver only what customers have ordered move up the supply chain from retailers to distributors to manufacturers and eventually to suppliers. Demand Driven Supply Chains Supplier Manufacturer Distributor Dealer Customer Supply to order Produce to order Automatically replenish warehouse Automatically replenish stock Customer orders Pull-Based Model 19

Benefits of SCM:

The goals of modern SCM are to reduce uncertainty and risks in the supply chain, thereby positively affecting inventory levels, cycle time, business processes, and customer service. All these benefits contribute to increased profitability and competitiveness. The benefits of supply chain management have long been recognized both in business and in the military. In today’s competitive business environment, the efficiency and effectiveness of supply chains in most organizations are critical for their survival and are greatly dependent upon the supporting information systems. Benefits of SCM 20

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Gaurav Kumar 21

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