supply chain

Supply Chain Management

Introduction to

SUPPLY CHAIN MANAGEMENT

13.12.2013 1 EUROMPM- Information Supply Chain

Agenda

Introduction to Supply Chain Management

Planning- Supply Chain Management

Production- Supply Chain Management

13.12.2013 EUROMPM- Information Supply Chain 2


Supply Chain Management is the integration of key business processes from end users through original suppliers that provides products, services and information that add value to customers and other stakeholders.

- Global Supply Chain Forum (GSCF)

Two forces can be drawn out that leads in a Supply chain process of goods:

1. Product Supply

2. Customer Demand

Supply Chain Management flows can be divided into three main flows:

1. The Product Flow

2. The Information Flow

3. The Finances Flow


Supply Chain Management : General Introduction to Supply Chain Management

Introduction



Raw Materials

Supplier’s Supplier supplies the Product

Reverse Funds Consumer’s Demand- consumed by the End Consumers

Finished Goods

Goods Information

Work In Progress

Fig 1. showing the supply chain for breads

1750 - 1800

Industrial Revolution

Era of Mechanical Inventions

Product and process complexity increase 1800’s

Increased factory complexity

Birth of Industrial Engineering movement 1900’s

Assembly line, Mass production

Henry Gantt: Gantt charts, Scheduling

Human factors

Statistical Quality Control 1989 - 1993

Business Process Reengineering


History



Functional View of Supply Chain Management

• The ultimate objective of the SCOR Model is to build a superior supply chain that is integrated with the overall organizational strategy.

• It provides a framework that links business processes, best practices, metrics and technology into a unified structure. It is hierarchical in nature, interactive, and interlinked.

• The SCOR process reference model contains:

Performance Metrics

Processes

Practices

People

Fig 2. The Supply Chain Operations Reference Model (SCOR Model)

Source: https://supply-chain.org/f/SCOR-Overview-Web.pdf

• The five core supply chain performance attributes are:

Reliability

Responsiveness

Agility

Costs

Assets


https://supply-chain.org/f/SCOR-Overview-Web.pdf








Supply Chain Players

Simple Supply Chain

Supplier

Company/Factory

Customer

Extended Supply Chain

Supplier’s supplier

Supplier

Company/factory

Customer

Customer’s Customer

Service Provider

Supplier Company Customer

Fig 3. Simple Supply Chain

Fig 4. Extended Supply Chain

Supplier Company Customer Supplier’s supplier

Customer’s customer

Service Provider



Supply Chain Dynamics

• The main task of the supplier in the supply chain is to make balance between the customer’s demand and the product supply.

• In supply chain, the players are always responsible to maintain the level of inventory against the stock uncertainties providing a higher level of service. The sources of uncertainties are:

Wrong forecasts Late deliveries Poor quality Machine breakdowns Canceled orders and so on.

Stock Inventory

Fig 5. The Inventory Challenge



Logistics

Logistics Management is that part of Supply Chain Management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements.

-Council of Supply Chain Management http://www.cscmp.org


http://www.cscmp.org/








Supply Chain Management : Planning- Supply Chain Management

Bullwhip Effect


Result and Solution for Bullwhip Effect

Results

Excess Inventories

Problems with quality

Increased raw material costs

Overtime expenses

Increased shipping costs

Lost customer service

Solution

Improve communication along supply chain

Improve sources of forecast data

Work with firms upstream and downstream in the

supply chain



Inventory Protect against

Uncertainty

Cost Reduction

Protect against quality defects

Stabilize manufacturing

Anticipation stock

Balancing Supply and demand

Inventory can be defined as the total amount of goods and/or materials that any business firms holds in a stock. There are 3 main forms of Inventory:

Raw materials

Work in Progress

Finished goods

Reasons for Inventory



Types of Inventory • Cycle or replenishment Stock

• Safety Stock

• In-transit Stock

• Seasonal Stock

• Promotional Stock

• Speculative Stock

• Dead or obsolete Stock




Cycle Stock & Safety Stock

Cycle stock is the average amount of inventory, a business needs to meet customer demand between the times it orders more inventory from the supplier.

Safety stock or buffer stock is the amount of inventory or stock that is kept on hand in order to avoid uncertainty.

Delivery Sales Cycle Stock

Monday 7 1 6

Tuesday - 1 5

Wednesday - 1 4

Thursday - 1 3

Friday - 1 2

Saturday - 1 1

Sunday - 1 0

Total 7 7 -

Table. Showing cycle Stock



Reducing Inventory

The cycle stock can be reduce by ordering more often.

In safety stock case,

Reduce lead-time

Reduce supplier uncertainty

Reduce forecast error

Reduce service level

Level High Low

Frequency Fast Slow

Patterns Stable Trend Seasonal

Product life cycle positioning

Launch Emerging Established Decline Withdrawal

Product classification

A 20% represent 80%

B 30% represent 15%

C 50% represent 5%


Demand Characteristics



Frequency of Demand

Different Patterns of Demand



Product Life Cycle Product Segmentation

Using Pareto’s Law


1. QUALITATIVE 2. QUANTITATIVE/ STATISTICAL

Human reasoning and judgment Time Series Method (assumption of continuity)

The components Purchase, Time & Season

are taken from the past and projected into

the future using the assumption of continuity.


Forecasting Methods


1. Continuous review (fixed order quantity)

Inventory is reviewed daily and a fixed quantity is ordered whenever the stock drops below a certain point

2. Periodic review (fixed order cycle) Inventory is reviewed at regular intervals and every time a sufficient quantity is ordered to raise the inventory level up to a certain level.


Models of Order Cycle Management


How much should I order at a time? The magical formula:

C = ordering cost per order

R = annual demand in units P = purchase cost of one unit F = annual holding cost as a fraction of unit cost PF = holding cost per unit per year

Method for calculating order quantities at individual SKU (Stock keeping unit) level (Norek 1998) 13.12.2013 21 EUROMPM- Information Supply Chain

The Economic Order Quantity (EOQ)


A formal process, consisting of series of meetings, where data from various

areas of business is discussed and decisions are made.

Normal Time Frame Takes a monthly look at product groups at least 6- 12 months across the

planning horizon.

Types of Data Considered


Sales and Operations Planning

Current plan for each product group

Current finished goods inventory

Sales forecasts

Purchase Orders received

Materials available

Manufacturing plans and capacity

Distribution capacity

Shipping capacity

Performance measures

Customer Service



Sales and Operations Planning Cycle


Greater visibility of demand and supply

Improved Product Lifecycle Management process

Better promotional planning

Improved inventory management

More predictable revenue management

More accurate budget forecasting

People

Process

Strategy

Performance


Benefits of S & OP Process

Why S & OP Implementations fail?


Develop a formal structure to support S&OP.

Identify KPIs prior to beginning & monitor them monthly to identify areas for

improvement.

Attitude of continuous improvement.

Stabilize the Demand Planning process

Hold regular meetings

The S&OP process is a decision making tool – don’t confuse having

meetings with making progress.


Tips for a Successful Implementation



Supply Chain Management : Production- Supply Chain Management

Introduction to MAKE

The term “MAKE” describes the process that transforms inputs into outputs

MAKE can be defined as the physical act of making the product.

It is also known as Manufacturing, assembling or processing function


From Craft to Mass Manufacturing

Craft Mass



Project

• Meets very specific customer requirements

• Too large to be moved once completed

Job Shop

• End product meets the unique customer order requirements

• Assembly usually takes place offsite

Batch

• Similar items are provided on a repeat basis

• Process is divided into a chain of activities that take place after each other

Five types of Manufacturing Process



Five types of Manufacturing Process

Line

• Products are passed through thesame sequence of operations

• Can be made to order or to stock

Continuous Flow

• Choice of process is based on the liquid or gas-like product nature and high volumes

Other set up Considerations

• Product companies can implement a combination of all these manufacturing processes



Manufacturing Planning and Control

Demand forecast finished goods

Master Production Schedule

Customer Orders

Bill of Materials Material requirement

Planning Inventory file

Assembly

Dispatch



Other MAKE planning concepts

• Process of determining the impact on key resources required to support manufacturing plan

Capacity Requirements

Planning

• Focuses on the planned delivery of finished products to customers

Distribution Requirements

Planning



Just-in-Time

Powerful strategy for improving operation

Uses a systems approach to develop and operate a manufacturing system

Organizes the production process so that parts are available when they are needed

A method for optimizing processes that involves continual reduction of waste



Philosophy behind JIT

Traditional approach



Philosophy behind JIT Just-in-time approach

Inventory level



Overview

Pull Scheduling

A system of controlling materials whereby the use signals to the maker or provider that more material is needed.

People

Plant

System

Elements of JIT



Limitations of JIT

Cultural difference

Loss of safety stock

Decreased individual autonomy

Industry-specific success



Lean Manufacturing

Lean focuses on flow, the value stream and eliminating “Muda”, the Japanese word for waste.

A way to eliminate waste and improve efficiency in a manufacturing environment.

Lean manufacturing is the production of goods using less of everything compared to traditional mass production: less waste, human effort, manufacturing space, investment in tools, inventory, and engineering time to develop a new product.



Improving Performance through waste reduction

Over-production: producing more than the customer orders or producing early. Inventory of any kind is usually waste.

Queues: idle time, storage, and waiting are wastes.

Transportation: moving material between parts, between work centers, and handling more than once is waste.

Motion: Movement of equipment or people.

Over-processing: work performed on product that adds no value.

Inventory: unnecessary raw material, work-in-progress (WIP), finished goods, and excess operating suppliers.

Defective Product: Returns, warranty claims, rework and scrap



Tools to Improve “Make” Performance

Loss tree analysis Tool to identify priorities

when aiming for quality improvements.

A loss tree is a visual aid to identify where the issues are, it allows the user to focus on specific areas rather than generating a problem list

Caps 40 (10.23%)

Bottles 179(45.78%)

Bottle Leakage 391 (100%)

Bottle Leakage 219 (56.01%)

Packing 172 (43.99%)

What’s the problem with packing?

Why are the bottles damaged?

Why are the caps faulty?



Tools to Improve “Make” Performance 5- Why Analysis

Method of exploring the causes of problems by asking “why?” five times

This method builds upon the principle that the real cause can often be found as a result of repeating “why?” five times

Simple structured root cause analysis technique applicable to simple issues as well as complex problems with many variables



Fishbone Diagram

Effective problem-solving tool to be used by groups of people involved in finding the possible causes of problems.

The cause can be split into the four categories man, method, materials and machine.

Tools to Improve “Make” Performance



References • https://supply-chain.org/f/SCOR-Overview-Web.pdf

• https://searchmanufacturingerp.techtarget.com

• http://www.cscmp.org

• http://www.slideshare.net/anandsubramaniam/the-bullwhip-effect

• http://smallbusiness.chron.com/justintime-method-31185.html









https://searchmanufacturingerp.techtarget.com/


http://www.slideshare.net/anandsubramaniam/the-bullwhip-effect





http://smallbusiness.chron.com/justintime-method-31185.html





Contact [email protected]

13.12.2013 EUROMPM- Information Supply Chain 43 13.12.2013 EUROMPM- Information Supply Chain 43


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