Learn the Supply Chain Definition and find out why it is critical to an organization's success. A supply chain is a system of organizations, people, activities, information, and resources involved in moving a product or service from supplier to customer.
Find out more about Supply Chain and how it can help your business to perform better through our Supply Chain Optimization training in Malaysia, China, Dubai, Singapore, Indonesia, etc.
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2. What You’ll Learn
• Challenges of Supply Chain Management
• Value of Information and Demand
Distortion
• Utilizing performance metrics to drive
supply chain effectiveness
• Transformation to Lean Supply Chain
• Creative Supply Chain Partnership and
Distribution Strategies
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4. 4
What is Supply Chain Mgmt?
• SCM = Integration of the activities
that procure materials, transform
them into intermediate goods & final
products, and deliver them to
customer.
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5. 5
Suppliers Manufacturers Warehouses &
distribution centers
Customers
Material
Costs
Transportation
Costs
Manufacturing
Costs
Inventory
Costs
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7. 7
Objective of SCM
To build a chain of suppliers that
focus on both reducing waste &
maximizing value to the ultimate
customer.
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8. 8
SCM - Strategic Importance
How the Supply Chain can support the overall strategy?
Low-CostLow-Cost
StrategyStrategy
ResponseResponse
StrategyStrategy
DifferentiationDifferentiation
StrategyStrategy
Supplier’s
Goal
SupplySupply
demand atdemand at
lowestlowest
possible cost.possible cost.
Respond quicklyRespond quickly
to changingto changing
requirements &requirements &
demand to min.demand to min.
stockouts.stockouts.
Share marketShare market
research; jointlyresearch; jointly
develop products &develop products &
options.options.
Primary
Selection
Criteria
SelectSelect
primarily forprimarily for
cost.cost.
Select primarilySelect primarily
for capacity,for capacity,
speed, &speed, &
flexibility.flexibility.
Select primarily forSelect primarily for
productproduct
development skills.development skills.
Process
Characteris
tics
Maintain highMaintain high
averageaverage
utilization.utilization.
Invest in excessInvest in excess
capacity &capacity &
flexible process.flexible process.
Modular processesModular processes
that lendthat lend
themselves to massthemselves to mass
customization.customization.
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9. 9
SCM - Strategic Importance (cont)
How the Supply Chain can support the overall strategy?
Low-CostLow-Cost
StrategyStrategy
ResponseResponse
StrategyStrategy
DifferentiationDifferentiation
StrategyStrategy
Inventory
Characterist
ics
Min inventoryMin inventory
throughout thethroughout the
chain to holdchain to hold
down costs.down costs.
DevelopDevelop
responsiveresponsive
system, withsystem, with
buffer stocksbuffer stocks
positioned topositioned to
ensure supply.ensure supply.
Min inventory in theMin inventory in the
chain to avoidchain to avoid
obsolescence.obsolescence.
Lead-Time
Characterist
ics
Shorten leadShorten lead
time as long astime as long as
it does notit does not
increase costs.increase costs.
InvestInvest
aggressively toaggressively to
reduce productionreduce production
lead time.lead time.
Invest aggressivelyInvest aggressively
to reduceto reduce
development leaddevelopment lead
time.time.
Product-
Design
Characterist
ics
MaxMax
performance &performance &
min cost.min cost.
Use productUse product
designs that leaddesigns that lead
to low setup timeto low setup time
& rapid production& rapid production
ramp-up.ramp-up.
Use modular designUse modular design
to postpone productto postpone product
differentiation for asdifferentiation for as
long as possible.long as possible.
13. 13
The “Bullwhip Effect”
The ordering patterns share a common
recurring theme:
• The variability of an upstream site are always
greater than those of the downstream site
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14. 14
Causes of “Bullwhip” Effect
• Demand forecasting & Lead time
• Order batching
• Price fluctuation
• Shortage gaming / Inflated orders
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16. 16
Demand Forecasting & Lead
Time
• Traditional inventory mgmt lead to bull-whip –
min/max inv policy
• Forecasting difficulties – based on historical
data
• Order change constantly – increase variability
• Safety stocks that depend on erratic variance
on demand & long lead time
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17. 17
Batch Ordering
• Economic of scale
• MRP driven requirement
• Lower transportation cost
• “Push Ordering” for short term performance
measures
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18. 18
Price Fluctuation
• Discounts & promotions
• Quantity discounts
• In anticipation of future price increase
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19. 19
Shortage Gaming/ Inflated
Orders
• Happen when demand > supply
• Customers exaggerate real needs
• When constraints removed, orders drop
• Examples: Passive components in the 1999-
2000
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20. 20
To Counteract the “Bullwhip”
• Information Sharing
• Break Order Batches &
Collaborative Planning
• Stabilize Prices
• Eliminate Gaming in Shortage
Situations
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22. 22
SCM Metrics
• Biz performance measure:
– No longer focused on individual
company
– Based on whole supply chain
• Ultimate goal = Customer Satisfaction
• Focus on Two dimensions
– One dimension – single company
– Two dimension – multi-functional &
multi-company
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23. 23
3 Key Dimensions
• Service
– Anticipate & fulfill customer demand
– Personalized products
– On time delivery
• Assets
– Inventory & cash
• Speed
– Responsiveness & velocity of execution
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24. 24
Service Metrics
Measure how well we are serving our customers
Make to Stock (MTS) Make to Order (MTO)
Line Item Fill Rate
Complete Order Fill Rate
Delivery Process On-Time
$Backorder/Lost Sales
No of Backorders
Aging of Backorders
Quoted Cust Response Time
% On-Time Completion
Delivery Process On-Time
$ of Late Orders
# of Late Orders
Aging of Late Orders
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out more Details about the other 2
dimensions of measurement
(assets & Speed)…
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28. Subscribe to our newsletter & find
out more Details about these
approaches…
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Notas del editor
11 Source: U.S. Department of Commerce, Bureau of Census, 1987 Census of Manufacturers: General Summary of Retail Trade (Washington, D.C.: Government Printing Office, 1991)
Information about demand/orders flows from retailer to factory While distribution of good flows the other way
Draw a bullwhip diagram
Forecasting is just plain difficult, most retailers provide forecast based on historical sales, (but dd is influnced on pricing, promotions, and competitive products) as such, supplier have to consider historical data to forecast forward When a downstream operation places an order, the upstream supplier processes that infor as a signal about future product demand. In another words, actual orders data from customers will be adjusted and reflect in the forecast. As demand variation increases, safety stock grow, the SS pile will be higher when leadtime is long, illustrate with example of 10/day for demand, ss will be 140 when leadtime is 2 weeks and 70 when lead time is 1 week
Economy of scale in ordering costs and manufacturing set up costs MRP usually run in week or month, prompt batch order FTL rates In Push ordering, salesperson want to achieve sales quota
When price is low, retailers buy and stock up, and deplete the inventory when price resume normal Suppliers often offer discounts for buying bulk. Sometimes retailers will buy ahead of good selling products in anticipation of price increase The above 3 causes results in customers not buying to demand consumption And it results in plants having to run OT to boost output but idling after that Add in a chart from stanford, demand fluctuation pg 8
3. Examples was in 1990s when the market anticipate shortages on DRAM chips. Customers placed orders with multiple suppliers, buy from the first one that delivered, and cancel rest of the orders Another examples would be HP laserjet III when HP cannot meet the demand for its printers, when HP lifted its constraints on manufacturing, resellers cancel orders, excess inventories and capacity increases were in millions Another example, motorola handset in 1995, distributors like airtouch communication and baby bells anticipate shortage and over order. Result, when constraint was removed, motorola shares tumbled 10%.