Procurement bidding Supply_Chain_Management_1718131874.pdf

Scm

1. Supply Chain
Management
(SCM)
Presented by : Amir Ahmed , CSCP

2. Supply Chain Management
Definition:
Supply Chain Management is primarily concerned with the
efficient integration of suppliers, factories, warehouses and
stores so that merchandise is produced and distributed in the
right quantities, to the right locations and at the right time, and
so as to minimize total system cost subject to satisfying service
level requirements.
Notice:
Everyone is involved
Systems approach to reducing costs
Integration is the key

3. Supply Chain Management
Suppliers Manufacturers Warehouses &
Distribution Centers
Customers
Material Costs
Transportation
Costs
Transportation
Costs
Transportation
Costs
Inventory CostsManufacturing Costs

4. Value vs. Supply Chain
Value chain
every step from raw materials to the eventual end user
ultimate goal is delivery of maximum value to the end
user
Supply chain
activities that get raw materials and subassemblies into
manufacturing operation
Terms are used interchangeably

5. Basic Supply Chain
Four flows
Supplier Producer Customer
-Raw Materials
-Components
-Services
-Energy
-Products
-Power
-Retailer
-Wholesaler
-Distributor
-End user
INFORMATION FLOW
PRIMARY CASH FLOW
PRIMARY PRODUCT FLOW
REVERSE PRODUCT FLOW

6. Supply Chain Management
Managing flow of information through supply
chain in order to attain the level of
synchronization that will make it more responsive
to customer needs while lowering costs
Keys to effective SCM
information
communication
cooperation
trust

7. Why Is SCM Difficult?
Uncertainty is inherent to every supply chain
Travel times
Breakdowns of machines and vehicles
Weather, natural catastrophe, war
Local politics, labor conditions, border issues
The complexity of the problem to globally optimize a supply
chain is significant
Minimize internal costs
Minimize uncertainty
Deal with remaining uncertainty

8. Supply Chain Uncertainty
One goal in SCM:
respond to uncertainty in
customer demand without
creating costly excess
inventory
Negative effects of
uncertainty
lateness
incomplete orders
Factors that contribute to
uncertainty
inaccurate demand forecasting
long variable lead times
late deliveries
incomplete shipments
product changes batch ordering
price fluctuations and discounts
inflated orders

9. Bullwhip Effect
Occurs when slight demand variability is magnified as information moves
back upstream

10. Factors Contributing to the Bullwhip
Demand forecasting practices
Min-max inventory management (reorder points to bring
inventory up to predicted levels)
Lead time
Longer lead times lead to greater variability in estimates of
average demand, thus increasing variability and safety stock
costs
Batch ordering
Peaks and valleys in orders
Fixed ordering costs
Impact of transportation costs (e.g., fuel costs)
Sales quotas
Price fluctuations
Promotion and discount policies
Lack of centralized information

11. Today’s Marketplace Requires:
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
Shared visibility for
trading partners

12. Supply Chain Management – Key Issues
Forecasts are never right
Very unlikely that actual demand will exactly equal forecast demand
The longer the forecast horizon, the worse the forecast
A forecast for a year from now will never be as accurate as a forecast
for 3 months from now
Aggregate forecasts are more accurate
A demand forecast for all CV therapeutics will be more accurate than
a forecast for a specific CV-related product

13. Supply Chain Management – Key Issues
Overcoming functional silos with conflicting goals
Purchasing Manufacturing Distribution
Customer Service/
Sales
Few change-
overs
Stable
schedules
Long run
lengths
High
inventories
High service
levels
Regional
stocks
SOURCE MAKE DELIVER SELL
Low pur-
chase price
Multiple
vendors
Low
invent-
ories
Low trans-
portation

14. Information In The Supply Chain
Each facility further away from
actual customer demand must
make forecasts of demand
Lacking actual customer buying
data, each facility bases its
forecasts on ‘downstream’
orders, which are more variable
than actual demand
To accommodate variability,
inventory levels are overstocked
thus increasing inventory
carrying costs
Source Make Deliver Sell
Suppliers Manufacturers
Warehouses &
Distribution Centers
Retailer
Order Lead Time
Delivery Lead Time
Production Lead Time
It’s estimated that the
typical pharmaceutical
company supply chain
carries over 100 days
of product to
accommodate
uncertainty
Plan

15. 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 planning the
goal)
Reduce variability in the supply chain
Every-day-low-price strategies for stable demand patterns
Reduce lead times
Use cross-docking to reduce order lead times
Use EDI techniques to reduce information lead times
Eliminate the bullwhip through strategic partnerships
Vendor-managed inventory (VMI)
Collaborative planning, forecasting and replenishment
(CPFR)
Four critical methods for reducing the Bullwhip effect:

16. 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 marketplace changes
Unable to meet changing demand patterns
Supply chain inventory becomes obsolete as demand for
certain products disappears
Increased variability (Bullwhip effect) leading to:
Large inventory safety stocks
Larger and more variably sized production batches
Unacceptable service levels
Inventory obsolescence
Inefficient use of production facilities (factories)
How is demand determined? Peak? Average?
How is transportation capacity determined?
Examples: Auto industry, large appliances, others?

17. 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 orders
Fast information flow mechanisms
POS data
Decreased lead times
Decreased retailer inventory
Decreased variability in the supply chain and especially at
manufacturers
Decreased manufacturer inventory
More efficient use of resources
More difficult to take advantage of scale opportunities
Examples: Dell, Amazon

18. Supply Chain Integration – Push/Pull Strategies
Hybrid of “push” and “pull” strategies to overcome disadvantages
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 demand
forecasts)
Uncertainty is reduced so safety stock inventory is lower
Final product assembly is done based on customer demand for
specific product configurations
Supply chain timeline determines “push-pull boundary”
Supply Chain Timeline
Raw
Materials
End
Consumer
Push Strategy Pull Strategy
Push-
Pull
Boundary
“Generic” Product “Customized” Product

19. Choosing Between Push/Pull Strategies
Where do the following
industries fit in this
model:
 Automobile?
 Aircraft?
 Fashion?
 Petroleum refining?
 Pharmaceuticals?
 Biotechnology?
 Medical Devices?
Pull
Push
Pull
Push
Economies of Scale
Low High
Low
High
Demand Uncertainty
Industries where:
• Customization is High
• Demand is uncertain
• Scale economies are Low
Computer
equipment
Industries where:
• Standard processes are the
norm
• Demand is stable
• Scale economies are High
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 are High
• Low economies of scale
Furniture

20. Conflicting Objectives
in the Supply Chain
1. Purchasing
• Stable volume requirements
• Flexible delivery time
• Little variation in mix
• Large quantities
2. Manufacturing
• Long run production
• High quality
• High productivity
• Low production cost

21. Conflicting Objectives
in the Supply Chain
3. Warehousing
• Low inventory
• Reduced transportation costs
• Quick replenishment capability
4. Customers
• Short order lead time
• High in stock
• Enormous variety of products
• Low prices

22. 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

23. Supply Chain Integration (cont.)
Coordinated workflow, production and
operations, 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

24. Collaborative Planning, Forecasting, and
Replenishment
Process for two or more companies in a
supply chain to synchronize their demand
forecasts into a single plan to meet
customer demand
Parties electronically exchange
past sales trends
point-of-sale data
on-hand inventory
scheduled promotions
forecasts

25. Source: Adapted from Garrison Wieland for “Wal-Mart’s
Supply Chain,” Harvard Business Review 70(2; March–April
1992), pp. 60–71.
Relationship between Facilities and Functions along the
Wal-Mart Supply Chain

26. Vendor-Managed Inventory
▪Manufacturers generate orders, not distributors or
retailers
▪Stocking information is accessed using EDI
▪A first step towards supply chain collaboration
▪Increased speed, reduced errors, and improved
service

27. SCM Software
Enterprise Resource Planning (ERP)
software that integrates components of a company by
sharing and organizing information and data
SAP was first ERP software
mySAP.com
web enabled modules that allow collaboration between
companies along the supply chain

28. Linking Supply Chain with SAP

29. Measuring Supply Chain Performance
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

30. 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

31. Key Performance Indicators:
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

32. Other Measures of Supply Chain
Performance
Process Control
used to monitor and control any process in supply chain
Supply Chain Operations Reference (SCOR)
establish targets to achieve “best in class” performance

33. SCOR Model Processes
Plan
Develop a course
of action that best
meets sourcing,
production and
delivery
requirements
Source
Procure goods
and services to
meet planned
or actual
demand
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

34. Number of days to achieve an unplanned
20% change in orders without a cost
penalty
Production
flexibility
Number of days for supply chain to
respond to an unplanned significant
change in demand without a cost penalty
Supply chain
response time
Supply Chain
Flexibility
Number of days from order receipt to
customer delivery
Order fulfillment
lead time
Supply Chain
Responsivenes
s
Percentage of orders delivered on time
and in full, perfectly matched with order
with no errors
Perfect order
fulfillment
Percentage of orders shipped within24
hours of order receipt
Fill rate
Percentage of orders delivered on time
and in full to the customer
Delivery
performance
Supply Chain
Delivery
Reliability
DefinitionPerformance
Metric
Performance
Attribute
SCOR: Customer Facing

35. 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 of
supply
Number of days that cash is tied up as working
capital
Cash-to-cash
cycle time
Supply Chain
Asset
Management
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 service
Cost of goods
sold
Direct and indirect cost to plan, source and deliver
products and services
Supply chain
management cost
Supply Chain
Cost

36. THANK YOU