supply chain management - session 1

Supply Chain ManagementTraining Course “EIMC United Pharmaceuticals”

Mahmud Abouel-Atta

Course Overview

Session 1: Essentials of Supply Chain

Session 2: Capacity Planning

Session 3: Inventory Control

Session 4: Production Scheduling

Session 5: Purchasing

Mahmud Abouel-Atta

Essentials of Supply ChainOPEN your MIND

Mahmud Abouel-Atta

SESSION 1

Overview

• Introduction to Supply Chain Concepts

• History of Supply Chain

• Supply Chain Management

• Objectives & Goals of SCM

• Why SC Has Become an Important Issue

• Activities of Supply Chain

• Supply Chain Performance

• Supply Chain Performance Measurements

• SCOR Model

• Supply Chain Flows

Mahmud Abouel-Atta

Introduction

• Firms can no longer effectively compete in isolation of their

suppliers and other entities in the supply chain. Interest in the

concept of supply chain management has steadily increased

since the 1980s when companies saw the benefits of

collaborative relationships within and beyond their own

organization.

Mahmud Abouel-Atta

Introduction

• Supply Chain Management is not a standalone process

• Supply Chain Management is much more than just

procurement.

• Supply Chain Management is not:

• Inventory management;

• Logistics management;

• Supplier partnerships;

• A shipping strategy;

• Distribution management;

• Procurement management;

• A computer system.

History of Supply Chain• 1950’s – Inventory Management, focus on Cost Control

1957, American Production and Inventory Control Society (APICS) established

• 1960’s – Materials Management, Logistics, focus on MRP & BOM

1961, Gene Thomas at IBM develops earliest version of MRP.

1963, Council of Logistics Management CLM has founded under name National Council of Physical Distribution Management.

1969, Early work on Customer/Supplier Relationship.

• 1970’s – Operations Planning, focus on MRPII & JIT.

• 1980’s – SCM, 1990’s - ERP - “Integrated” Purchasing,

Financials, Manufacturing, Planning.1982, Allen and Hamilton Inc. coins the term “SCM”.2004, “CLM” changes name to Council of Supply Chain Management

Professionals “CSCMP”.

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Supply Chain Management

• Materials are any commodities used directly or indirectly in producing a product or service.

– Raw materials, Packaging materials, component parts, and supplies.

• Supply chain activities transform raw materials and components into a finished product that is delivered to the end customer.

Mahmud Abouel-Atta

Supply Chain Management• A Supply chain is a term that describes how

organization (suppliers, manufacturing, distributers,

and customers) are linked together.

• A Supply chain consists of three entities; customers, a producer, and the producer’s supplier.

• The supply chain starts at the supplier's production line and ends at the customer's point of use.

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• Supply chain management is the management, design, planning, execution, control, monitoring and follow-up of all activities related to delivery the finished product for the end customer in the right quantities, to the right location, and at the right time with minimum cost.

• SCM connects a company’s supply side with its demand side.

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• Supply chain management• A set of activities used to efficiently integrate with

Suppliers, Manufacturers, Warehouses, and Distribution centres

• So that the product is produced and distributed

In the right quantities,

To the right locations, and

At the right time

• With minimum System-wide costs

• With coordinating and integrating its flows with

all departments and related companies.

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Supply Chain Objective & Goals• Objective:

- To have the right products in the right quantities at the right place at the right moment at minimal cost.

- Reduce uncertainty & risks, inventory, cycle time.

- Improve business processes, customer service.

- Increased profits & competitiveness.

• Goals: Efficient supply chain management must result in tangible business improvements. It is characterized by a sharp focus on:

- Maximize the overall profit.

- Better asset utilization.

- Cost reduction.

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• Why implementing a Supply Chain approach...

Its all about ……………………………..

Poor service

Empty shelvesPoor forecasting

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Supply Chain Activities- Forecasting demand.

- Selecting suppliers.

- Sourcing and procurement.

- Handling material.

- Processing order.

- Managing inventory.

- Scheduling production.

- Shipping and delivery.

- Organizing information exchange.

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• Why Supply chain has become an important issue:

- Matching supply and demandPrices adjust to match supply with demand.

Boeing announced a $2.6 billion write-off in 1997 due to “raw materials shortages, internal and supplier parts shortages and productivity inefficiencies”

U.S Surgical Corporation announced a $22 million loss in 1993 due to “larger than expected inventories on the shelves of hospitals”

U.S. firms spent $898 billion (10% of GDP) on supply-chain related activities in 1998

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- Sourcing raw materials For many companies, purchases account for 60% of sales. And over half of quality problems.

Poor quality of supplier items increase the cost of purchase,75% of warranty claims came from purchased components.

The new view of supplier relations has changed the relation from a traditional one into a strategic view.

Hewlett-Packard and Dell found it difficult to obtain important components for their PC’s from Taiwanese suppliers in 1999, due to a massive earthquake.

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- Warehousing and inventory trackingWhy Hold Inventory?

* Unexpected changes in customer demand.* Uncertain supply.

Inventory policies can dramatically alter a supply chain’s efficiency and responsiveness.

- more inventory: greater responsiveness but greater cost- less inventory: lower cost but lower responsiveness

How often to review?When to place an order?How much to order?How much stock to keep?Who – supplier?How order be delivered?

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- Achieving efficiency and effectiveness objectives

Process Performance = Effectiveness x Efficiency

Efficiency measures the relationship between inputs & outputs, or how successfully the inputs are being transformed into outputs.

Efficiency focuses on the cost of making and delivering the product to the customer.

Effectiveness measures the relationship between organization & customer, or how well an organization is meeting the demands of its customer.

Mahmud Abouel-Atta

Supply Chain PerformanceSupply chain performance is focused on:

• Reliability – ability of a system to perform its required functions under stated conditions for a specific period of time.

Such as on-time delivery, perfect order fulfillment, supplier fill rate

• Responsiveness - the time it takes to react to and fulfill customer demand.

Such as order fulfillment lead time (order-to-delivery cycle time)

• Agility or Flexibility - the ability of supply chain to increase/decrease demand within a given planned period.

Such as Supply Chain Response Time, prod. flexibility

• Cost - objective assessment of all components of supply chain cost.Such as Total SCM cost, cost of goods sold, Value-added productivity, Warranty cost or returns processing cost

• Assets - the assessment of all resources used to fulfill customer demand.

Such as Cash-to-cash cycle time, Inventory days of supply, asset turns

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SC Performance Measurement

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• On-Time Delivery – this metric measures the % of all orders delivered by the requested delivery dates, as indicated in the PO/contract during a defined period of time.

• Supplier Fill Rate – this metric measures a supplier’s ability to fill orders

completely in terms of items and quantity, as defined in the PO/contract, during a defined period of time.

• Perfect Order Fulfillment – this metric measures the % of orders meeting delivery performance requirements.

These orders to be delivered to the right place, with the right product, at the

right time, in the right condition, in the right package, in the right quantity, with the right documentation, to the right customer with the correct invoice.

• Order Fulfillment Lead Time – this metric measures the ability of an organization to quickly serve customer demands, speed of service and indicates the average time from order placement to customer receipt.


To show improvement in operations, many supply chain management specialists consider implementing supply chain performance indicators or metrics as one of the simplest, least expensive, and least time-consuming activities. It is a well-known fact that, “people behave based on the way they are measured”

Achieving efficiency and effectiveness objectives requires a set of standards to compare to actual performance, thses standards called Metrics.

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Performance Categories:• Time – These indicators focus on the time it takes to complete specific

activities. They show where saving time during specific activities

Such as On-time Delivery/Arrival, Order Cycle Time, Response Time, Forecasting/Planning Cycle time.

• Quality – These indicators are often the simplest to implement and measure.

Typically, they tell you how well you are performing a specific activity—a common SC indicator in this classification is accuracy— including order accuracy, inventory accuracy, picking accuracy, etc.

Such as Overall Customer Satisfaction, Process Accuracy, Perfect Order

Fulfillment (on-time delivery, processed orders, accurate product selection, accurate

invoice), Forecast Accuracy, Planning Accuracy (budgets, operating plans), Schedule.

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Performance Categories:• Finance – These indicators help managers identify the supply chain cost

drivers and help move toward a more efficiently managed supply chain—a common SC indicator in this classification is cost.

Such as Finished Goods Inventory Turns, Cost-to-Serve, Cash-to-Cash Cycle Time, Total Delivered Cost (cost of goods, transportation costs, inventory carrying

costs, material handling costs), Other Costs (information systems, administrative

costs).

• Productivity - These indicators examine how well resources are used. For example, filling vehicles to their capacity, instead of sending out vehicles half-full, could reduce costs and improve efficiency.

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Basic Components of SCM (SCOR Model)

1. Plan

This is the strategic portion of SCM. Companies need astrategy for managing all the resources that go towardmeeting customer demand for their product or service.A big piece of SCM planning is developing a set ofmetrics to monitor the supply chain so that it is efficient,costs less and delivers high quality and value tocustomers.

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2. Source

Companies must choose suppliers to deliver the goods andservices they need to create their product, therefore,supply chain managers must develop a set of pricing,quality, delivery and payment processes with suppliersand create metrics for monitoring and improving therelationships. And then, SCM managers can put togetherprocesses for managing their goods and servicesinventory, including receiving and verifying shipments,transferring them to the manufacturing facilities andauthorizing supplier payments.

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3. Make

This is the manufacturing step. Supply chain managersschedule the activities necessary for production, testing,packaging and preparation for delivery. This is the mostmetric-intensive portion of the supply chain—onewhere companies are able to measure quality levels,production output and worker productivity.

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4. Deliver

This is the part that many SCM insiders refer to aslogistics, where companies coordinate the receipt oforders from customers, develop a network ofwarehouses, pick carriers to get products tocustomers and set up an invoicing system to receivepayments.

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5. Return

This can be a problematic part of the supply chain formany companies. Supply chain planners have tocreate a responsive and flexible network forreceiving defective and excess products back fromtheir customers and supporting customers whohave problems with delivered products.

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SCOR Model

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Supply Chain Flows

1- Product Flow

2- Information Flow

3- Finance Flow

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Product Flow

- Supplier Selection

- Capacity Planning

- Inventory Control

- Production Scheduling

- Order Management

- Fulfillment Management

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Information Flow

- Supplier Database

- Supplier Quality System

- Supplier Qualification

- Supplier Auditing System

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Finance Flow

- Contracts & Price Negotiation

- Purchase Orders

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Thank You

Mahmud Abouel-Atta

Goals of Supply Chain

Efficient supply chain management must result in tangible business improvements. – Revenue growth

– Cost reduction

– Better asset utilization

– Reduce uncertainty & risks, inventory, cycle time

– Improve business processes, customer service

– Increased profits & competitiveness

Mahmud Abouel-Atta


- Relationship between each partyIf every party join hand and work together, it will create cost savings and time to market reduction and everyone will enjoy the benefit.

- Warehousing and inventory trackingInventory policies can dramatically alter a supply chain’s efficiency and responsiveness.

How often to review?When to place an order?How much to order?How much stock to keep?Who – supplier?How order be delivered?

Mahmud Abouel-Atta

Introduction

• Production and Material HandlingWhen production is integrated into the supply chain, it makes for a smoother flow of materials and data across the entire supply chain.

• Strategic PlanningWith all parts of the supply chain working in unison and the supply and demand leveled between groups, the executive can concentrate on strategic planning for the company. Integration of all parts of the supply chain allows for better use of company resources and finances, which gives strategic planning a much better chance of being accurate and fool-proof.


• For many companies, purchases account for 60% of sales. And over half of quality problems.

• Poor quality of supplier items increase the cost of purchases. (ex. 75% of warranty claims came from purchased components.)

• Current emphasis on inventory reduction require more focus on quality.

Introduction

• Supplier and PurchaserBringing together the supplier's production schedule and the demands of the purchasing group is a big challenge and can be more complicated if either of the groups have their own internal challenges. Leveling the supply and demand allows for many positive outcomes, including quicker response times, better utilization of transportation equipment, smaller storage areas, less work-in-process inventory and better utilization of manpower.

Just-in-time-production Methods• Keeping supply chains moving is more challenging in the

21st-century by the growing use of "just-in-time" production. The practice allows companies to maintain lower inventories, ordering and reordering raw materials to arrive with precision and go directly to production, reducing warehousing costs. The method is cost efficient but it requires a well-oiled supply chain. The tighter the time from raw material source to factory, the more serious the impact of supply chain disruptions, which could result in costly assembly line shutdowns.

Supply Chain “ Iceberg ”

Transactional

Efficiency

Critical Data to improve:

Multiple handling

Transit damageProcess delays

Excess freight

DelaysEnd-to-end cycle-time

Warehouse fees Inventory turns

Yield

Late Deliveries

Perceived Value

Intrinsic Value

supply chain management - session 1

Leadership & Management