Supply Chain and IT - Impact

8/4/2019 Supply Chain and IT - Impact...

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Supply ChainManagement anddimensions of it…

A presentation by

PRAVEEN K CHOUDHARY



Basics of Supply Chain Management

22



The Supply Chain

Suppliers Manufacturers Warehouses &Distribution Centers

Customers

Material Costs

TransportationCosts

TransportationCosts Transportation

CostsInventory CostsManufacturing Costs

Plan Source Make Deliver Buy



Today’s Marketplace Requires:

Personalized content and services for their customers

Collaborative planning with design partners,

distributors, and suppliers

Real-time commitments for design, production,inventory, and transportation capacity

Flexible logistics options to ensure timely fulfillment

Order tracking & reporting across multiple vendors

and carriers

Shared visibility fortrading partners



Supply Chain Management and Uncertainty

Inventory and back-order levels fluctuate considerablyacross the supply chain even when customer demanddoesn’t vary

The variability worsens as we travel “up” the supplychain

Forecasting doesn’t help!

Manuf acture

r

Wholesale

Distri butor

s

Consumer

s

Mult i-

tier Sup plier s

Retailers

Time

Sa

les

S

ales

Time

S

ales

Time

S

ales

Time

Bullwhip Effect



Factors Contributing to the Bullwhip

Demand forecasting practices

Min-max inventory management (reorder points to bringinventory up to predicted levels)

Lead time

Longer lead times lead to greater variability inestimates of average demand, thus increasingvariability and safety stock costs

Batch ordering

Peaks and valleys in ordersFixed ordering costs

Impact of transportation costs (e.g., fuel costs)

Sales quotas

Price fluctuations



Supply Chain Management – Key Issues

Overcoming functional silos with conflicting goals

PurchasingManufacturingDistributionCustomer Service/

Sales

Fewchange-overs

Stableschedules

Long

runlength

Highinventories

High service

levels

Regional

stocks

SOURCE MAKE DELIVER SELL

Lowpur-chase

priceMultiplevend

ors

Lowinvent-ories

Low

trans-portation



Supply Chain Management – Key Issues

ISSUE CONSIDERATIONS

Network Planning • Warehouse locations and capacities

• Plant locations and production levels

• Transportation flows between facilities to minimize cost and time

Inventory Control • How should inventory be managed?

• Why does inventory fluctuate and what strategies minimize this?

Supply Contracts • Impact of volume discount and revenue sharing

• Pricing strategies to reduce order-shipment variability

Distribution Strategies • Selection of distribution strategies (e.g., direct ship vs. cross-docking)

• How many cross-dock points are needed?

• Cost/Benefits of different strategies

Integration and StrategicPartnering

• How can integration with partners be achieved?

• What level of integration is best?

• What information and processes can be shared?

• What partnerships should be implemented and in which situations?

Outsourcing & ProcurementStrategies

• What are our core supply chain capabilities and which are not?

• Does our product design mandate different outsourcing

approaches?

• Risk managementSource: Simchi-Levi



Supply Chain Management OperationsStrategies

STRATEGY WHEN TO CHOOSE BENEFITS

Make to Stock standardized products,relatively predictabledemand

Low manufacturing costs;meet customer demandsquickly

Make to Ordercustomized products,many variations

Customization; reducedinventory; improvedservice levels

Configure to Order many variations onfinished product;infrequent demand

Low inventory levels;wide range of productofferings; simplifiedplanning

Engineer to Order complex products, uniquecustomer specifications

Enables response tospecific customerrequirements

Source: Simchi-Levi



Supply Chain Imperatives for Success

View the supply chain as a strategic asset and adifferentiator

Wal-Mart’s partnership with Proctor & Gamble to automaticallyreplenish inventory

Dell’s innovative direct-to-consumer sales and build-to-ordermanufacturing

Create unique supply chain configurations that alignwith your company’s strategic objectives

Operations strategy

Outsourcing strategy

Channel strategy

Customer service strategy

Asset network

Reduce uncertainty

Supply chain

configuration components



SCM and Information Management…



Information In The Supply Chain

Each facility further away fromactual customer demand mustmake forecasts of demand

Lacking actual customer buyingdata, each facility bases itsforecasts on ‘downstream’

orders, which are more variablethan actual demand

To accommodate variability,inventory levels are overstockedthus increasing inventorycarrying costs

Source Make Deliver Sell

Suppliers ManufacturersWarehouses &

Distribution CentersRetailer

Order Lead Time

Delivery Lead Time

Production Lead Time

It’s estimatedthat the typicalpharmaceuticalcompany

supply chaincarries over 100days of producttoaccommodateuncertainty

Plan



Taming the Bullwhip

Reduce uncertainty in the supply chain

Centralize demand information

Keep each stage of the supply chain provided with up-to-date customer demand information

More frequent planning (continuous real-time planningthe goal)

Reduce variability in the supply chain

Every-day-low-price strategies for stable demandpatterns

Reduce lead times

Use cross-docking to reduce order lead times

Use EDI techniques to reduce information lead times

Four critical methods for reducing the Bullwhip effect:



Methods for Improving Forecasts

AccurateForecasts

Panels of Experts

• Internal experts•

External experts• Domain experts• Delphi technique

• Moving average• Exponential smoothing• Trend analysis•

Seasonality analysis

Judgment Methods

Time-Series Methods

Causal Analysis

Market Research Analysis

• Relies on data other thanthat being predicted

• Economic data,commodity data, etc.

•

Market testing• Market surveys• Focus groups



The Evolving Supply Chain…



Supply Chain Integration – Push Strategies

Classical manufacturing supply chain strategy

Manufacturing forecasts are long-range

Orders from retailers’ warehouses

Longer response time to react to marketplacechanges

Unable to meet changing demand patterns

Supply chain inventory becomes obsolete as demand forcertain products disappears

Increased variability (Bullwhip effect) leading to:

Large inventory safety stocks

Larger and more variably sized production batches

Unacceptable service levels

Inventory obsolescence



Supply Chain Integration – Pull Strategies

Production and distribution are demand-driven

Coordinated with true customer demand

None or little inventory held

Only in response to specific ordersFast information flow mechanisms

POS data

Decreased lead times

Decreased retailer inventory

Decreased variability in the supply chain andespecially at manufacturers

Decreased manufacturer inventory

More efficient use of resources



Supply Chain Integration – Push/PullStrategies

Hybrid of “push” and “pull” strategies to overcomedisadvantages of each

Early stages of product assembly are done in a “push” manner

Partial assembly of product based on aggregate demand forecasts(which are more accurate than individual product demandforecasts)

Uncertainty is reduced so safety stock inventory is lower

Final product assembly is done based on customer demandfor specific product configurations

Supply chain timeline determines “push-pull boundary”

Supply Chain Timeline

RawMaterials

EndConsumer

Push Strategy Pull Strategy

Push-Pull

Boundary

“Generic” Product “Customized” Product



Choosing Between Push/Pull Strategies

Where do the followingindustries fit in this model:

Automobile?

Aircraft?

Fashion?

Petroleum refining?

Pharmaceuticals?

Biotechnology?

Medical Devices?

Pull Push

Pull

Push

Economies of ScaleLow High

Low

High

DemandUnc e

rtaint y

Industries where:

• Customization is High• Demand is uncertain• Scale economies are Low

Computer

equipment

Industries where:

• Standard processes arethe norm• Demand is stable•

Scale economies areHigh

Grocery,Beverages

Industries where:

• Uncertainty is low• Low economies of scale• Push-pull supply chain

Books,CD’s

Industries where:

• Demand is uncertain• Scale economies areHigh• Low economies of scale

Furniture

Source: Simchi-Levi



Supply Chain Collaboration

Cornerstone of effective SCM

The focus of many of today’s SCM initiatives

The only method that has the potential to eliminate orminimize the Bullwhip effect

Manufacturer

Distributors/

Wholesalers

Supplier s

Retailer s

Collaborativ e Demand Planning

Collaborative Logistics Planning•Transportation services•Distribution center services

Synchronized ProductionScheduling

Collaborati ve Product Development

LogisticsProviders



Supply Chain Collaboration – What Is It?

Many different definitions depending on perspective

The means by which companies within the supplychain work together towards mutual goals by sharing

IdeasInformation

Processes

Knowledge

Information

Risks

Rewards

Why collaborate?

Accelerate entr into new markets



Supply Chain Collaboration Spectrum

The green arrowdescribes increasingcomplexity andsophistication of:

Information systems

Systems infrastructure

Decision support systems

Planning mechanisms

Information sharing

Process understanding

Movement to real-time

customer demand Higherlevels of collaboration implythe need for both tradingpartners to have equivalent(or close) levels of supplychain maturity

Synchronized collaborationdemands joint planning,R&D and sharing of

information and processingmodelsSource: Cohen & Roussel

Number of Relationships

Ex

tentofCo

lla

boration

Many Few

Limited

Extensive

TransactionalCollaboration

SynchronizedCollaboration

CooperativeCollaboration

Coordinated

Collaboration

Not Viable

Low Return



Benefits of Supply Chain Collaboration

CUSTOMERS MATERIAL SUPPLIERS SERVICE

SUPPLIERS

• Reduced inventory

• Increased revenue

• Lower order management costs

• Higher Gross Margin

• Better forecast accuracy

• Better allocation of promotionalbudgets

• Reduced inventory

• Lower warehousing costs

• Lower material acquisition costs

• Fewer stockout conditions

• Lower freight costs

• Faster and more reliabledelivery

• Lower capital costs

• Reduced depreciation

• Lower fixed costs

• Improved customer service

• More efficient use of human resources

Source: Cohen & Roussel



Supply Chain Collaboration Imperatives…

Try to collaborate internally before you try externalcollaboration

Help your partners to work with you

Share the savings

Start small (a limited number of selected partners)and stay focused on what you want to achieve in thecollaboration

Advance your IT capabilities only to the level that you

expect your partners to manage

Put a comprehensive metrics program in place thatallows you to monitor your partners’ performance

Make sure people are kept part of the equation

Systems do not replace people



The Supply-Chain OperationsReference-model (SCOR) Model



2626

C u s

t o m e r s

S u p p

l ie r s

P1 Plan Supply ChainPlan

P2 Plan Source P3 Plan Make P4 Plan Deliver

Source Make Deliver

S1 Source Stocked Products M1 Make-to-Stock

M2 Make-to-Order

M3 Engineer-to-Order

D1 Deliver Stocked Products

D2 Deliver MTO Products

D3 Deliver ETO Products

S2 Source MTO Products

S3 Source ETO Products

R

et

ur

n

S

o

ur c

P5 Plan Returns

R

et

ur

n

D

el

iv

er

Enable

D4 Deliver Retail Products

SCOR 7.0 Model Structure



what really matters now…

IS THE SUPPLY CHAIN WORKING?



IS THE SUPPLY CHAIN WORKING?

Does our manufacturing strategy increase product line flexibilitywhile continuing to drive down overall production costs?

Do we have an efficient system to get POS data from retailers?

Are we testing our products with end customers? Do we use theresulting data to adjust our forecasting and supply positions?

Is the ratio of returned orders to sales increasing?

Is Supply Chain Agile enough…??



New Dimensions in SCM…

Choice Boards…”Make your own pizza” models

Virtual Value Chain/ E Supply Chain and Collaborative

Commerce…

Collaborative Commerce and Next Gen Tools …



Choice Boards…

As explained in the article “The Age of ChoiceBoard” by Adrian J Slywotzky, in the HBR ,Jan-Feb 2k.-- “Choice boards are already in use in many

Industries. Customers today can design their owncomputers with Dells on line configurator, create their own dolls with Mattel’s My Design Barbie, assembletheir own investment portfolios with Schwab’s mutual-fund evaluator, and even design their golf clubs with

Chip-shot.com’s Perfect system.”



Collaborative Commerce

collaborative commerce (c-commerce)

The use of digital technologies that enable companies tocollaboratively plan, design, develop, manage, and research products,services, and innovative EC applications

collaboration hub

The central point of control for an e-market. A single

c-hub, representing one e-market owner, can host multiplecollaboration spaces (c-spaces) in which trading partners use c-enablers to exchange data with the c-hub

Collaborative Commerce and Knowledge Management

Knowledge management is the process of capturing or creatingknowledge

C-commerce is essentially an integration of KM, EC, and collaborationtools and methodologies that are designed to carry out transactions



Collaborative Commerce – Next Gen Tools

Mobile Collaborative Networks and Grid Computing

Grid computing

A form of distributed computing that involves coordinatingand sharing computing, application, data, storage, or network

resources across dynamic and geographically dispersedorganizations

Mobile Networks : Mobile networks have the ability to sharevaluable business information in mobile scenarios with thosewho are co-located or remote and who are not necessarily fromthe same enterprise

vendor managed inventory (VMI) The practice of retailersmaking suppliers responsible for determining when to orderand how much to order

Group Ware – Collaboration Tools



Wal-Mart’s Supply Chain

A Business Success



History of Wal-Mart

The company’s founder is Sam Walton.

He was born in 1918 at Oklahoma.

In 1940, he worked for the famous

retailer, J C Penney.Walton gave up the joband decided to set up his own retail store.

He purchased a store franchise inArkansas.



History of Wal-Mart…

This phenomenal growth of Wal-Mart isattributed to its continued focus oncustomer needs and reducing cost throughefficient supply chain managementpractices.



Early Unique SCM Practices of SCM…

Early adopter of Hub n Spoke model in 1970

Direct Purchase from manufacturers in early 1980s…

Extensive use of EDI with vendors

Dedicated 1st party logistics system

Use of Cross Docking system – similar to Dabbawallas of Mumbai…

Extensive focus on Inventory management with investments in IT,smaller packing sizes, extensive use of Hand held devices longbefore usage of mobiles and other devices , Accurate POS data

availability.New system of Voice based order fulfillment, Faster Inventoryreplenishment system, Pretty Darned Quick Displays ( PDQ ) displaysor store ready displays



Next Generation IT based Best Practices…

Retail Link systems prior to Internet systems– massive satellite basedparallel processing systems covering over 10 million transactions withWalmart’s Extranet systems.

CPFR is defined as a business practice for business partners to shareforecasts and results data through the Internet, in order to reduceinventory costs while at the same time, enhancing product availabilityacross the supply chain.

Next step to this was logical VAN based EDI and then Web based EDI

framework covering all suppliers.

Now in RFID systems - planned to replace bar coding systems across theWalmart stores to reduce human interface in inventory management



Summary…

Supply Chain needs optimization across the ValueChain – to reduce Total Cost to Serve…

Alternate Push/Pull and optimization strategies areat work across industries…

IT is an excellent enabler to achieve the same

Impacts Information Gap reduction drastically – Bull Whipeffect reduction…

Impact on total cycle time reduction…

Increases configurablity and flexibility as required…



“ what we do is close to creating a customized value chain for everycustomer order” – victor fung ( LEE fung)

Documents

Supply Chain and IT - Impact