SUPPLY CHAIN MANAGEMENT Introduction & Course Outline
• OBJECTIVES : To give general under standing on basic SCM concepts, methods, and tools. • Teaching Methodology : lecture, case study, home work.
Rahmi Yuniarti, ST.MT Department Industrial Engineering UNIVERSITAS BRAWIJAYA MALANG
Text Books The following text books are recommended, but not required : • Chopra, S., and Meindl, P. (2007). Supply chain management: Strategy, planning, and operations. 3rd Ed. New Jersey - Prentice-Hall. • Handfield, R., and Nichols, Jr., E. L. (2002). Supply chain redesign : Transforming supply chains into integrated value systems. New jersey : Financial Times – Prentice Hall. • Pujawan,I Nyoman .(2005). Supply Chain Management. Surabaya: Guna Widya • Wisner, J. D., Leong, G. K., and Tan, K-C. (2005).Principles of supply chain management : A balanced approach. Thomson South-Western. • Simchi-Levi, D., Kaminski, P., and Simchi-Levi, E. (2000). Designing and managing the supply chain : Concept, strategies, and case studies. Irwin McGraw-Hill
Top Performers in SCM
Lecture 1 Introduction to Supply Chain Management
SEVERAL CRITICAL QUESTIONS • • • • • • • •
Where do you source your materials? Where do you process or convert them? What channels of distribution do you use? How do you build a strong relationship with your suppliers and customers? How do you get direct information from your end-consumers? What logistics structure should you impose? How do you coordinate your information flows and systems globally? And how do you set up incentive systems for all of your partners in the supply chain to optimize overall performance?
THOSE QUESTIONS SPAN DIFFERENT DECISION HIERARCHY Strategic Level • Network design (for example : number, location, capacity of plants and warehouses) • Developing partnerships with supplier, 3PL, and distributors. Tactical Level • Setting policies for sourcing, production, delivery, after sales services, and inventory. Operational Level • Executing day to day operations on the above activities.
Evolution of Challenges Facing Manufacturing Companies FORD: any colour as long as it is black
1970 Manufacturing, Mass production 1980 Quality SQC, TQM 1990 SCM dan e-SCM
SLOAN: a car for every purse and purpose
Now, the new frontier is the opportunity through coordination, cooperation and collaboration. •Competition
•More demanding customers •Globalization
What is SC?
A product flows through a very long process before consumed by customers
• A series (or network) of companies who work collectively to make and deliver products and services to the end customers. This span from the raw materials extractors (at the upstream end) to the retailers / shops (at the downstream end) • In a SC there are three flows : materials, information, and cash / funds
IN REALITY WE ARE DEALING WITH A NETWORK, NOT A CHAIN (Copra & Meindl, 2001)
SIMPLE SC STRUCTURE UPSTREAM
Customer wants detergent
Physical flow Materials / products, returns Payments flow
Cash, invoice, pricing, credit terms flow Information flow Capacity, delivery schedule, orders, point of sale
What is Supply Chain Management
SUPPLY CHAIN MANAGEMENT DEFINITION •
The logistics network
Observations from the Definition •
Supply chain management takes into consideration every facility that has an impact on cost and plays a role in making the product conform to customer requirements. The objective of supply chain management is to be efficient and cost-effective across the entire system. Thus, the emphasis is not on simply minimizing transportation cost or reducing inventories but, rather, on taking a systems approach to supply chain management. Because supply chain management revolves around efficient integration of suppliers, manufacturers, warehouses, and stores, it encompasses the firm’s activities at many levels, from the strategic level through the tactical to the operational level.
SUPPLY CHAIN MANAGEMENT FUNCTIONS Two basic functions : • Physically converting raw materials and components into products and delivering them to the end customers.
A process orientation, integrated approach to procuring, producing, and delivering product and services to costomers (MIT) A collaborative-based strategy to link cross enterprise business operations to achieve a shared vision of market opportunity ( D.J. Bowersox, Michigan State) The delivery of enhanced customer and economic value through synchronized management of the flow of physical goods and associated information from sourcing to consumption ( Lalonde, Ohio State) The process of strategically managing the procurement, movement and storage of materials, parts, and finished inventory (and the related information flows) through the organization and its marketing channels in such a way that current and future profitability are maximized through the cost-effective fulfillment of orders (Martin Cristopher, Cranfield University) "Supply chain management (SCM)" seeks to integrate into one synergistic effort all the relevant operations of a corporation, including marketing, design, customer service, production, purchasing, logistics, and supplier and inventory management. (Arthur Anderson)
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
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
ACTIVITIES THROUGHOUT THE SUPPLY CHAIN PHYSICAL
After Sales Services
Related to physical costs
• Make sure that products/services delivered satisfy customer’s aspiration
Related to market mediation costs
SCM Related Functions in a Manufacturing Company Division
Example of Activities / Processes
market research, product development, involving supplier in product development
selecting supplier, evaluating supplier performance, purchasing raw material, monitoring supply risk, designing and managing relationships with supplier
Planning and control
demand planning, demand forecasting, capacity planning, material planning, production planning and inventory control, distribution management
production execution, quality control
designing distribution network, delivery schedulling, selecting logistics service providers, monitoring service levels in each distribution centre
Case Li & Fung Front end (Li Fung) Perancangan produk Engineering Perencanaan produksi
Back end (Li & Fung) Pengendalian kualitas Pengiriman Banking
Kegiatan tengah (Suppliers/Subcontractors) Pengadaan bahan baku dan Komponen Proses produksi
SCM REQUIRES SOLID INTERNAL INTEGRATION
This type of cooperation with other companies requires advanced information systems and entails a variety of risks. What systems are necessary for this approach to be a success? When should a company undertake this type of complicated partnership?
If the cross-docking strategy works so well for Wal-Mart, shouldn’t all companies use the same strategy? Indeed, many successful retailers employ other distribution strategies: some keep inventory at their warehouses while others ship directly to stores. SCM
Key Issues, Questions, and Trade-offs • Distribution Network Configuration: several plants producing products to serve a set of geographically dispersed retailers • Inventory Control: maintain an inventory of a particular product • Supply Contracts: impact from volume discount and revenue sharing, pricing strategies, incentivizing buyers to order more? • Distribution Strategies: e.g., questions related to cross-docking • Supply Chain Integration and Strategic Partnering: information sharing and operational planning are the keys • Outsourcing and Procurement Strategies: core competencies • Product Design: mass customization • Information Technology and Decision-Support Systems • Customer Value: the measure of a company’s contribution to its customer
Then and Now Just a few years ago, most analysts would have said that these two objectives, improved service and inventory levels, could not be achieved at the same time. Recent developments in information and communications technologies, together with a better understanding of supply chain strategies, have led to innovative approaches that allow the firm to improve both objectives simultaneously.