The Concept of “Supply Chain Management” EIN5346 Logistics Management Mendez Lynch Donovan Richards Maurice Robinson Vaughn Mignott

The Concept of “Supply Chain Management”

EIN5346 Logistics ManagementMendez LynchDonovan RichardsMaurice RobinsonVaughn Mignott

The Concept of Supply Chain Management – where it came from?

The concept of Supply Chain Management is a relatively new concept, prior to the 1990s in relation to both:- Academic Literature, and - Practitioner Literature

Recognition: The early to mid-1990s witnessed a growing

recognition that there could be value in coordinating the various business functions, both:- Within Organizations, and - Across Organizations

• With this recognition, came into being the Philosophy of “Supply Chain Management."

Recognition (contd):

What is the Supply Chain Management concept?•The Supply Chain Management Concept

is that concept that encompasses all activities associated with:

i. Flow and transformation of Goods – From the raw material stage (extraction) through to the end user

ii. Information flows to and from the end user

What does the Supply Chain Concept consist of?•The Supply Chain Concept consists of all

parties involved (directly and/or indirectly), in fulfilling customers’ requests. The parties involved are:- Manufacturers- Suppliers- Transporters- Warehouses- Retailers- Customers

•The Supply Chain Concept may also include:- New product development- Marketing- Operations- Distribution- Finance- Customer service

Supply Chain Concept (contd)

Types of Supply Chain Configurations

Three types of supply chain configurations are looked at. These are:

▫Direct Supply Chain

▫Extended Supply Chain

▫Ultimate supply chain

Direct Supply Chain

Source – Prof. Dr. Ted Lee’s Class Presentation - 2010

Supplier Organization Customer

•2


Extended Supply Chain


Supplier’s

suppliers

Customer’scustomers

Ultimate Supply Chain


Ultimate

supplier

Ultimatecustomer

Financial Provider


Market Research

3rd Party Logistic Supplier

The management of the Supply Chain – What is it? Supply chain management, according to

the Council of Supply Chain Management Professionals, is the: Planning and Management of all

activities involved in the following:- Sourcing and procurement

- Conversion

- Logistics management

This involves coordination, and collaboration with channel partners such as:

- Suppliers- Intermediaries- Third party service providers, and- Customers

In general, Supply Chain Management integrates supply and demand management within and across organization(s)

Management of the Supply Chain (contd)

Why Manage the Supply Chain?Companies that excel in supply chain management perform BETTER in every financial measure of success

• Supply-chain excellence improves demand-forecast accuracy, which results in approximately:

5% higher profit margin 15% less inventory up to 17% stronger “perfect order” ratings 35% shorter cash-to-cash cycle times than the

competition

Source: BusinessWeek (2004)

1. Planning:

• The strategic portion of supply chain management.

• A strategy for managing all the resources that goes toward meeting customer demand for your product or service.

• Balances aggregate demand and supply to develop a course of action which best meets the requirements for:

- Sourcing- Production, and- Delivery

FIVE BASIC COMPONENT OF SUPPLY CHAIN MANAGEMENT

2. Sourcing:

•Choose the suppliers that will deliver the goods and services you need to create your product or service.

•Develop a set of pricing, delivery and payment processes with suppliers and create metrics for monitoring and improving the relationships.

•Put together processes for managing the inventory of goods and services you receive from suppliers.

BASIC COMPONENT OF SUPPLY CHAIN MANAGEMENT (contd)

3. Making: (The manufacturing step. )

•Schedule the activities necessary for production, testing, packaging and preparation for delivery.

•Is the most metric-intensive portion of the supply chain, it measures- Quality levels- Production output, and- Worker productivity

4.Delivering: ( The "logistics” portion of SCM. )

It Involves:- Coordinating the receipt of orders from customers- Developing network of warehouses- Picking carriers to get products to customers, and - Set up an invoicing system to receive payments.


5.Return: (The problem part of the supply chain. )

• Create a network for receiving defective and excess products back from customers

•Supporting customers who have problems with delivered products.


Key Attributes of Supply Chain Management• Customer Power – Customer has become

highly knowledgeable about individual organization and its product as well as about competing organizations and products

• Long-term Orientation – Seeks relational exchanges rather than transaction exchanges

• Leveraging Technology – Supply chains can be very complex entities which require appropriate technology to maximize shareholder wealth and reduce costs. This as opposed to what obtained historically.

• Enhanced communication across Organization –Accurate, real time, seamless information flow within and across organizations is necessary as Supply chain relies on high volumes of information

• Inventory Stock – Better control flow of inventory with fewer inventory lumps and also reduction in the amount of physical inventory

• Inter-organizational Collaboration – Supply chain as a whole has the objective of optimizing the performance of the entire supply chain rather than individual organization

Attributes of Supply Chain Management (contd)

Typical Supply Chain

With all that have been said previously, What does this Mean?

•It requires a superior ability to shape and respond to shifts in demand with innovative products and services

•Supply chain management means more than just low costs and high efficiency and effectiveness

Supply Chain Management Trends

•Demand Driven Supply Network (DDSN)

•Lean Manufacturing

•Radio Frequency Identification (RFID)

•Transportation & logistics

Demand Driven Excellence

•A system of technologies and processes that senses and responds to real time demand signals across a network of customers, suppliers and employees

Demand Driven Overlapping Principles

• Supply management — Manufacturing, logistics and sourcing

• Product management — R&D, engineering and product development

•Defining characteristics of supply chains built to demand driven principles results in the ability to manage demand rather than just respond to it

• Demand management — Marketing, sales and service

Operational and Innovation Excellence

•Two basic dimensions of measurement capture the totality of the best-in-class, demand-driven, global supply chain:

▫Operational excellence

▫Innovation excellence

This involves:• Reaching the ultmate in the execution of business processes

• When practiced, business is conducted in a manner that:

- Satisfies customer demand- Improves quality- Generates higher yields- Faster throughput &- Eliminate waste

Operational excellence

•Innovation is the key and critical factor toward better results.

•In today's competitive world an organization desiring different outcomes, without innovation the likelihood of achieving extraordinary results is greatly diminished

•Innovation is rooted in the PDCA principle• PLAN• DO• CHECK • ADJUST

Also referred to as the cycle of continual improvement.

Innovational Excellence

Operational and Innovation Excellence

The Hierarchy of Supply Chain Metrics: Operational Excellence

The Hierarchy of Supply Chain Metrics: Innovation Excellence

Lean Manufacturing

•Most companies have peacefully reconciled the mandate to work lean while employing the latest software to streamline processes and gain new visibility over the supply chain

•Remove waste

•Reduce inefficiencies

Lean Manufacturing

Radio Frequency Identification

•RFID technology uses radio waves to read data put on a chip embedded within a tag.

•Primarily used for identification and tracking

•Monitor product location at all time, updating both planning and execution systems

RFID in Practice

Transportation & Logistics

Transportation & Logistics•Physical movement of goods and services

•Companies need to adopt a strategic transportation sourcing (STS) approach

•Strategic sourcing considers costs within the total manufacturing and distribution supply and demand environment

•Companies sometimes outsource the transportation activities

Supply Chain Top 10 Companies

Source: Gartner (2010)

Financial Metrics Used to Rank SCM Top 10

•ROA — Net income/total assets

•Inventory turns — Cost of goods sold/inventory

•Revenue growth — Change in revenue from prior year

Supply Chain Management - Challenges

• A number of impediments may affect the effective implementation of Supply Chain Management systems, despite the optimistic attractive futuristic perspective of such chain. These impediments include:

• Regulatory and Political Considerations – Regulations may prevent some chains from entering certain markets. Also, events such as war may affect supply chain management systems

• Lack of top management commitment – Top management might be uncomfortable with one or more of the underpinnings of the supply chain management

• Reluctance to share and/or use relevant information – Might not be willing to share data that is propriety in nature

• Incompatible information systems – Eg. Computer softwares

• Incompatible corporate cultures – Must be comfortable with “how organizations in the supply chain do business”

• Globalization – Supply chains have increasingly become global in nature, due to, amongst other reasons, lower price of material and labor.

• However, with globalization, there come cultural, economic, technological, political , spatial, and logistical challenges. Which may affect the fulfillment of customer demands.

Challenges (contd)

Recommendations• Apply demand-driven principles in order to sense,

shape and respond to changes in market demand.

• Take a cue from the leaders when designing your own supply chain strategy. Define how many supply chain types you have and design a customized response for each.

• Balance operational excellence with innovation excellence for superior overall performance.

• Focus on acquiring, mentoring, growing and retaining supply chain talent.

• Measure your supply chain as your customer experiences it. This will ensure continuous improvement

Make individual and collective decision regarding action in the following areas:

Production:What product does the market wants, how much and by when.

Inventory:What inventory should be stocked at each stage of the supply chain and how much of each type.

Location:Where should facilities for production and inventory storage be located to be most cost effective

Transportation:How should inventory be moved from one supply chain location to another

Information:How much data should be collected and how much information should be shared.

Recommendations (cont’d.)

Bibliography• http://www.gartner.com/technology/supply-chain/top25.jsp

• http://www.businessweek.com/adsections/2004/pdf/0416_supplychain.pdf

• http://www.pwc.com/gx/en/transportation-logistics

• http://www.amrresearch.com

• http://www.ariba.com

• http://www.ifsna.com

• http://www.ipsmartpackaging.com

• http://www.matrics.com

• http://www.peoplesoft.com

• http://www.sap.com

• http://www.myyellow.com

• http://www.zebra.com• Contemporary Logistics – 9th Edition - by Paul R. Murphy, JR. & Donald F. Wood

Documents

The Concept of “Supply Chain Management” EIN5346 Logistics Management Mendez Lynch Donovan Richards Maurice Robinson Vaughn Mignott