Supply Chain Management

Business Mantras

Presented by:Priyanka singh

Structure Followed

• What is Supply chain?

• Objective of a supply chain

• Supply Chain Management

• Bull Whip effect

• Drivers of Supply chain performance

• Inventory policies

• Types of Distribution networks

What is Supply chain?

• Consists of all parties involved, directly or indirectly, in fulfilling a customer request

Supplier Manufacturer Distributor Retailer Customer

Is supply chain so simple?

Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

Supplier Manufacturer Distributor Retailer Customer

Upstream Downstream

Process ViewCustomer

Retailer

Distributor

Manufacturer

Supplier

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement Cycle

Pull

Push

Objective of a Supply Chain

• Maximise overall profit

• Profit– Revenue generated from customer - costs

incurred along the entire chain

(e.g. manufacturing / storing / distributing the product)

• When is Supply chain effective?– Manage Product, Information and Fund flow

what is SCM?

• Objective is to be able to have the right products in the right quantities (at the right place) at the right moment at minimal cost.

Bull Whip Effect

• Each organisation seek to solve the problem from its own perspective– Small changes in consumer demand result in

large variations in orders placed upstream• Dramatic order size variation• Amplification of order size variation as one

moves up the supply chain

Supplier Manufacturer Distributor Retailer Customer

Buys 10Orders 15

Delay 2 weeksDelay 2 weeks

Orders 25

Delay 2 weeks

Orders 40

Causes

• Little or no communication between supply chain partners.

• Delay times between order processing, demand, and receipt of products.

• Over reacting to the backlog orders.

• Inaccurate demand forecasts.

Drivers of Supply Chain Performance

• Facilities– Production/Storage Sites

• Responsiveness Vs Efficiency

Drivers of Supply Chain Performance

• Inventory– Raw materials– WIP– Finished Goods– Responsiveness Vs Efficiency

• Sourcing– Outsourcing

• Transportation

Transportation

Cost

Inventorycosts

Transportcosts

Totalcosts

Rail Air

Inventory

• Where do we hold inventory?– Suppliers and manufacturers– warehouses and distribution centers– retailers

• Types of Inventory– raw materials– WIP– finished goods

• Why do we hold inventory?– Uncertainty in supply and demand– Lead Time– Avoid stock outs (customer goodwill)

Terms Involved

• Inventory lot size

• Replenishment Lead time

• Stock out

• Reorder Point

• Safety stock

Relevant Costs in an Inventory System

• Procurement costs– Ordering cost (appx. administrative, inspection,

transportation etc.)

• Holding costs – Maintenance and Handling– Taxes– Obsolescence

• Stock-outs costs– Lost sales (Customer goodwill)– Backorders

The Inventory Cycle

Profile of Inventory Level Over Time

Quantityon hand

Q

Receive order

Placeorder

Receive order

Placeorder

Receive order

Lead time

Reorderpoint

Demand rate

Time

Constant Demand

Decisions

• When to order

• How much to order

• Types of System– Continuous Review– Periodic Review

EOQ: A View of Inventory

Time

Inventory

OrderSize

Note:• No Stockouts• Order when no inventory• Order Size determines policy

EOQ - Cost Minimization Goal

Order Quantity (Q)

The Total-Cost Curve is U-Shaped

Ordering Costs

QO

An

nu

al C

os

t

(optimal order quantity) or EOQ

Holding Costs

EOQ: Important Observations

• Tradeoff between set-up costs and holding costs when determining order quantity.

• Total Cost is not particularly sensitive to the optimal order quantity

Order Quantity 50% 80% 90% 100% 110% 120% 150% 200%

Cost Increase 125% 103% 101% 100% 101% 102% 108% 125%

Types of System – Continuous Review

• Continuously monitored– R – Reorder point, L – Lead time– Q – Order quantity

• Time b/w orders vary but Q is fixed

Periodic Review• Monitored at periodic intervals of length “r”

• Quantity set as the amount consumed during this interval

• Time b/w orders fixed

Distribution

• Steps taken to move and store a product from supplier to customer

• Design Options– Manufacturer storage with direct shipping– Manufacturer storage with direct shipping and

in-transit merge– Distributor storage with package carrier

delivery

Manufacturer storage with direct shipping

Manufacturer

Customers

Retailer

• Drop Shipping

Manufacturer storage with direct shipping and in-transit merge

Manufacturer

Customers

In-transit Merge by carriersRetailer

Distributor storage with carrier delivery

Manufacturer

Customers

Warehouse Storage by Distributor/Retailer

To Summarize

• Components of supply chain (SC)

• Objective of SC is to max. profit

• Bull whip effect

• Facilities decisions

• Inventory policies

• Distribution networks

Thank You