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Introduction to
Agroindustrial SupplyChain Management
Yandra Arkeman
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Basic Concepts:
1. Supply Chain
2. Supply Chain Management (SCM)
3. SCM for Manufacturing
4. SCM for Agroindustry
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1. Supply Chain
SCM is an advancement of traditionalOperations Management
Traditional Operations Management MAKE only
Supply Chain Management SOURCE(n-1), MAKE(n) and DELIVER(n+1)
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Processing Industry
MAKE
A traditional Operations Management
Input Output
Industrial Eng, System Design,Business Mngt, OR, etc
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..
.
....
Industry 1
Industryj
Supplier 1
Supplieri
Customer 1
Customerk
SOURCE(n-1) MAKE(n) DELIVER(n+1)
An Illustration of SCM Model
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All facilities, functions, activities, associated with flowand transformation of goods and services from raw
materials to customer, as well as the associatedinformation flows
Customers Domestic and Overseas (Export)
An integrated group of processes to source, make,and deliver products (goods, services, information)
Supply Chain
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Supply Chain Processes
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2. Supply Chain Management
The designof a firms customer relationship,order fulfillment, and supplier relationship
processes and the synchronization of theseprocesses with the key processes of itssuppliers and customers in order to match theflow of materials, services, and information
with customer demand
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Management:
Design
Optimization
Objectives:
Cost
Quality
Time
Flexibility
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SCM Application:
Manufacturing
Agroindustry (Agro-SCM)
Service Industry
Variables: Materials (Supply)
Information (Demand)
Cash
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3. Manufacturing Supply ChainManagement
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Supply Chain Illustration
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SupplyChain
for
DenimJeans
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SupplyChainfor
DenimJeans(cont.)
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4. Agroindustrial Supply ChainManagement (Agro-SCM)
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Agroindustrial Supply Chain Management (Agro-SCM) :
The management of the entire set of
production,
transformation/processing,
distribution and marketing activities
in agroindustry by which a consumer is supplied witha desired product
Agro-SCM is more complicated than manufacturingSCM agricultural products are perishable
Agroindustrial Supply ChainManagement
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..
.
....
Agroindustry 1
Agroindustryj
Farming 1
Farming i
Customer 1
Customerk
Description of Agro-SCM Model
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Objectives First Objective:
Minimizing Total Supply Chain Cost (TSCC) thatconsists of transportation and inventory costs
Second Objective :
Minimizing Expected Number of Deteriorated Product(ENDP) Maximizing quality
Very essential for agroindustry
As both objectives are conflicting :
No single optimum solution
Pareto-optimum or non-dominated solutions or trade-off solutions
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The supply chain for an agroindustry
can be very complicated because: Many agroindustries have hundreds, if not
thousands, of suppliers
Needs many distribution centers andtransportation services
Flow of materials is very complex due tounpredictable demands and dynamic
performance of numerous suppliers Customer-supplier relationship is unique for
each type of agroindustry
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An Example of Agro-SCM Mango
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Traditional growers(Land, labor, capital, manure)
Contract farming-TG
-Group of grower
Middleman(Broker)
Collection center(QC)
Distributioncenter
-Pickle,Juice, Jam,Chip, Brine, Pure
ProcessingIndustry*
QC, Time, Price, flexibility
Green MangoRipe mango
Local market
Local Market
Export Market
Collection center
Collection center
Contract for 2 years-Harvested
- buying-Insecticide
- Technical assistance-Transportation
(food basket)
Flow of material
Flow of information
Flow of money
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Components
Current and emerging issues
Technology
Process, People (manpower)
Decisions Information
Farmers Plantation/cultivationGrower
Post harvest
QuantityQuality (size, ripeness)
Cost
Growing timeWeather
demand
Contract
farmers
Technical Assistance
Pest control
Delivery time
Quantity
Quality, Cost
Pricing
Transportation
Procurement
Collectors Contract with farmers
Efficient Collection center
Delivery schedule
Target
Price
Quantity
Demand,
QC, transportation
Processors Food processing technology
QC, HACCP,
Quantity
Quality (color, taste)
Cost
Exchange information
Institutional View
Demand
Quality of raw material
Process capability
Distributors Distribution system (planning,
transport, equipment, bar code
- Location and quantity to
be distributed
- Most efficient network
Demand
Price
Exporters Export regulation
GPS facilities
Export facilities
Banking facilities
Target Demand
Price
Quality
Innovative
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Events or Issues :
Demand side:
Demand of fresh mango from Japanese Market
Quality, Cost, Timeliness and Flexibility
Supply side: Farmer and grower
Quantity, Quality, Sustainability, Profitability
SCM model:
Non-collaborative SCM
Collaborative SCM
Integrative SCM (vertical integration)
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Flow of materials vs. flow of money :
Materials some from farmer to broker,agroindustry and so on
However, in fact, the highest margin is
received by exporters or distributors (upstream parties) not the farmers or agroindustry
This profit distribution must be improved in thefuture for the sake of poverty alleviation,
economic development of a nation as well asbuilding more efficient and responsive supplychain
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Supply chainfor an
agroindustry
Supp. 1
Supp. 2
Supplier of materialsSupplier of services
Supp. 3
Legend
Customer
(Domestic)
Customer
(Export)
Customer
(Domestic)
Customer
(Export)
Distributioncenter
Distributioncenter
Agroindustry
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---Slide Break---
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Details of SCM Concepts
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Supply Chain Processes
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Value vs. Supply Chain
Value chain
every step from raw materials to the eventual enduser
ultimate goal is delivery of maximum value to theend user
Supply chain
activities that get raw materials and subassembliesinto manufacturing operation to customers
Terms are used interchangeably
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Supply Chain Management (SCM)
Managing flow of information through supplychain in order to attain the level ofsynchronization that will make it more
responsive to customer needs while loweringcosts
Keys to effective SCM information
communication
cooperation
trust
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Supply Chain Uncertainty
One goal in SCM: respond to uncertainty in
customer demand without
creating costly excessinventory
Negative effects ofuncertainty lateness
incomplete orders
Inventory insurance against supply
chain uncertainty
Factors that contributeto uncertainty inaccurate demand
forecasting long variable lead times
late deliveries
incomplete shipments
product changes batch
ordering
price fluctuations anddiscounts
inflated orders
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Bullwhip Effect
Occurs when slight demand variability is magnified as informationmoves back upstream
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IT for SCM
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Information Technology: A Supply
Chain Enabler Information links all aspects
of supply chain
E-business
replacement of physical
business processes withelectronic ones
Electronic data interchange(EDI)
a computer-to-computerexchange of business
documents
Bar code and point-of-sale
data creates aninstantaneous computerrecord of a sale
Radio frequency identification(RFID)
technology can send productdata from an item to a readervia radio waves
Internet
allows companies tocommunicate with suppliers,customers, shippers andother businesses around theworld, instantaneously
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Supply Chain Evolution at Nabisco
Source: F. Keenan, Logistics Gets a Little Respect, Business Week(November 20, 2000), pp. 112115.
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Supply Chain Evolution at Nabisco
(cont.)
Source: F. Keenan, Logistics Gets a Little Respect, Business Week(November 20, 2000), pp. 112115.
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Supply Chain Evolution at Nabisco
(cont.)
Source: F. Keenan, Logistics Gets a Little Respect, Business Week(November 20, 2000), pp. 112115.
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RFID Capabilities
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RFID Capabilities (cont.)
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Build-to-order cars overthe Internet
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Customer sales
Production
Distribution
Customerrelationship
Pushsell frominventory stock
Goal of even andstable production
Mass approach
Dealer-owned
E-Automotive
E-automotive Supply Chain
Pullbuild-to-order
Focus on customerdemand, respond withsupply chain flexibility
Fast, reliable, andcustomized to get cars
to specific customerlocation
Shared by dealers andmanufacturers
AutomotivePast
Supply ChainProcesses
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Managinguncertainty
Procurement
Productdesign
Large carinventory at
dealers
Batch-oriented;dealers orderbased onallocations
Complexproducts dont
match customerneeds
E-Automotive
E-automotive Supply Chain (cont.)
Small inventories withshared information and
strategically placed partsinventories
Orders made in real timebased on available-to-promise information
Simplified products based onbetter information aboutwhat customers want
AutomotivePast
SupplyChainProcesses
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Supply Chain Integration
Information sharing among supply chain members Reduced bullwhip effect
Early problem detection
Faster response
Builds trust and confidence
Collaborative planning, forecasting, replenishment,and design Reduced bullwhip effect
Lower Costs (material, logistics, operating, etc.) Higher capacity utilization
Improved customer service levels
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Coordinated workflow, production andoperations, procurement
Production efficiencies
Fast response
Improved service
Quicker to market Adopt new business models and technologies
Penetration of new markets
Creation of new products
Improved efficiency
Mass customization
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Collaborative Planning,
Forecasting, and Replenishment Process for two or more companies in a supply
chain to synchronize their demand forecastsinto a single plan to meet customer demand
Parties electronically exchange
past sales trends
point-of-sale data
on-hand inventory scheduled promotions
forecasts
R l ti hi b t F iliti d F ti
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Source:Adapted from Garrison Wieland for Wal-MartsSupply Chain, Harvard Business Review70(2; MarchApril
1992), pp. 6071.
Relationship between Facilities and Functionsalong the Wal-Mart Supply Chain
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Distribution
Encompasses all channels, processes, andfunctions, including warehousing andtransportation, that a product passes on its
way to final customer Often called logistics
Logistics
transportation and distribution of goods
and services Driving force today is speed Particularly important for Internet dot-coms
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Amazon.com
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Distribution Centers (DC)
and WarehousingDCs are some of the largest business
facilities in the United States
Trend is for more frequent orders insmaller quantities Flow-through facilities and automated
material handling
Postponement final assembly and product configuration
may be done at the DC
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Warehouse Management
Systems Highly automated system that runs day-to-day
operations of a DC
Controls item putaway, picking, packing, andshipping Features transportation management order management
yard management labor management warehouse optimization
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A WMS
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Transportation
Rail
low-value, high-density, bulkproducts, raw materials,intermodal containers
not as economical for smallloads, slower, less flexiblethan trucking
Trucking
main mode of freighttransport in U.S.
small loads, point-to-pointservice, flexible
More reliable, less damagethan rails; more expensivethan rails for long distance
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Transportation (cont.)
Air most expensive and fastest, mode of
freight transport
lightweight, small packages
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Transportation (cont.)
Water low-cost shipping mode primary means of international shipping U.S. waterways slowest shipping mode
Intermodal combines several modes of shipping-
truck, water and rail key component is containers
Pipeline transport oil and products in liquid form high capital cost, economical use long life and low operating cost
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Internet Transportation
Exchanges Bring together shippers and
carriers Initial contact, negotiations,
auctions Exampleswww.nte.comwww.freightquote.com
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SCM Software
Enterprise Resource Planning (ERP)
software that integrates components of a
company by sharing and organizinginformation and data
SAP was first ERP software
mySAP.com
web enabled modules that allow collaborationbetween companies along the supply chain
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Linking Supply Chain with SAP
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Measuring Supply Chain
Performance
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TABLE 9.1 SUPPLYCHAIN PROCESS MEASURES
Supply-Chain Process Measures
Percent of orders
taken accurately
Time to completethe order
placement process
Customer
satisfaction with
the order
placement process
CustomerRelationship
Percent of incomplete
orders shipped
Percent of ordersshipped on time
Time to fulfill the
order
Percent of botched
services or returned
items Cost to produce the
service or item
Customer satisfaction
with the order
fulfillment process
OrderFulfillment
Percent of
suppliers
deliveries on time Suppliers lead
times
Percent defects in
services and
purchased
materials Cost of services
and purchased
materials
SupplierRelationship
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Measuring Supply ChainPerformance
Key performance indicators
inventory turnover
cost of annual sales per inventory unit
inventory days of supply
total value of all items being held in inventory
fill rate
fraction of orders filled by a distribution center within
a specific time period
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Inventory turns =Average aggregate value of inventory
Cost of goods sold
Average aggregate value of inventory =
=(average inventory for item i)X (unit value item i)
Days of supply =(Costs of goods sold)/(365 days)
Average aggregate value of inventory
Key Performance Indicators
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Key PerformanceIndicators: Example
Inventory turns =$34,416,000
$425, 000, 000
Days of supply =($425,000,000)/(365)
$34,416,000
= 12.3
= 29.6
1. Cost of goods sold: $425 million
2. Production materials and parts: $4,629,000
3. Work-in-process: $17,465,000
4. Finished goods: $12,322,000
5. Total average aggregate value of inventory (2+3+4): $34,416,000
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Other Measures of Supply ChainPerformance
Process Control
used to monitor and control any process in
supply chain Supply Chain Operations Reference
(SCOR)
establish targets to achieve best in classperformance
SCOR M d l P
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SCOR Model Processes
Plan
Develop a courseof action that bestmeets sourcing,production and
deliveryrequirements
Source
Procure goods
and services to
meet planned
or actualdemand
Make
Transform
product to a
finished state to
meet planned
or actual
demand
Deliver
Provide products
to meet demand,
including order
management,
transportation
and distribution
Return
Return
products,
post-delivery
customer
support
SCOR: Customer Facing
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Number of days to achieve an unplanned20% change in orders without a costpenalty
Productionflexibility
Number of days for supply chain torespond to an unplanned significantchange in demand without a cost penalty
Supply chainresponse timeSupply ChainFlexibility
Number of days from order receipt tocustomer delivery
Order fulfillmentlead time
Supply ChainResponsiveness
Percentage of orders delivered on time
and in full, perfectly matched with orderwith no errors
Perfect order
fulfillment
Percentage of orders shipped within24hours of order receipt
Fill rate
Percentage of orders delivered on timeand in full to the customer
Deliveryperformance
Supply ChainDeliveryReliability
DefinitionPerformance
Metric
Performance
Attribute
SCOR: Customer Facing
SCOR: Internal Facing
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DefinitionPerformance
Metric
Performance
Attribute
SCOR: Internal Facing
Revenue divided by total assets including working
capital and fixed assets
Asset turns
Number of days that cash is tied up as inventoryInventory days ofsupply
Number of days that cash is tied up as working
capitalCash-to-cash
cycle timeSupply Chain
AssetManagement
Efficiency
Direct and indirect costs associated with returns
including defective, planned maintenance and
excess inventory
Warranty/returns
processing cost
Direct material cost subtracted from revenue and
divided by the number of employees, similar to
sales per employee
Value-added
productivity
Direct cost of material and labor to produce a
product or serviceCost of goods
sold
Direct and indirect cost to plan, source and deliverproducts and services
Supply chainmanagement cost
Supply ChainCost
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Supply Chain Design and
Environment
Supply Chain Design
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Supply-Chain DesignTABLE 9.3 DESIGN FEATURES FOR EFFICIENT AND
RESPONSIVE SUPPLY CHAINS
Inventory Low, enable high As needed to enable fast
investment inventory turns delivery time
Lead time Shorten, but do not Shorten aggressivelyincrease costs
Supplier Emphasize low prices, Emphasize fast delivery
selection consistent quality, on- time, customization,
time delivery variety, volume flexibility,
top quality
Factor Efficient Supply Chains Responsive Supply Chains
Operation Make-to-stock or Assemble-to-order, make-
strategy standardized services; to-order, or customized
emphasize high services; emphasize
volume, standardized service or productservices or products variety
Capacity Low High
cushion
Supply Chain Environments
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Supply-Chain EnvironmentsTABLE 9.2 ENVIRONMENTS BEST SUITED FOR EFFICIENT AND
RESPONSIVE SUPPLY CHAINS
Factor Efficient Supply Chains Responsive Supply Chains
Demand Predictable, low Unpredictable, high
forecast errors forecast errors
Competitive Low cost, consistent Development speed, fastpriorities quality, on-time delivery times,
delivery customization, volume
flexibility, variety,
top quality
New-service/ Infrequent Frequent
productintroduction
Contribution Low High
margins
Product variety Low High
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GLOBAL SUPPLY CHAIN
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Global Supply Chain
To compete globally requires aneffective supply chain
Information technology is anenabler of global trade
Nations form trading groups
No tariffs or duties
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Duties and Tariffs
APEC
ASEAN
ANZCERTA
FTAA
NAFTA
CALM
ATPA
MERCOSUR
TAFTA
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Web-based International TradeLogistic Systems International trade logistics web-based software
systems reduce obstacles to global trade convert language and currency
provide information on tariffs, duties, and customs processes
attach appropriate weights, measurements, and unit prices toindividual products ordered over the Web
incorporate transportation costs and conversion rates
calculate shipping costs online while a company enters anorder
track global shipments
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Bogor, 12 Sept 2009
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