SUBMITTED BY:-

NAME – Mohit Jain

COURSE – B-TECH 6TH SEM.

BRANCH – Industrial Engineering & Management

ROLL NO. – 1120278

SUBJECT – SEMINAR

Presentation On Supply Chain Management (SCM)

What is a Supply Chain?

A supply chain is the system of organizations, people,activities, information and resources involved in moving aproduct or service from supplier to customer. Supply chainactivities transform raw materials and components into afinished product that is delivered to the end customer.

Supplier

Supplier

Supplier

Storage} Mfg. Dist. Retailer CustomerStorage

A Supply Chain Example…

Coke

JNJ

Kellog

P&G

GA

FL

AL

TX

Kroger

Tier 1 suppliers

Super market chains

State distributors

V. Highlands

Peachtree

Ocean Drive

Ft. Laud.

Local stores

En

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Publix

Say we get an order from a European retailer to produce 10,000 garments. For this customer we might decide to buy yarn from a Korean producer but have it woven and dyed in Taiwan. So we pick the yarn and ship it to Taiwan. The Japanese have the best zippers … so we go to YKK, a big Japanese zipper manufacturer, and we order the right zippers from their Chinese plants. …the best place to make the garments is Thailand. So we ship everything there. …the customer needs quick delivery, we may divide the order across five factories in Thailand. Effectively, we are customizing the value chain to best meet the customer’s needs. (Interview of Victor Fung of Li & Fung in HBR, Sept-Oct 1998.)

In the interview example, it can be seen that Li & Fung has created a supply chain for the purpose of meeting a customer’s needs. In general, this case is more the exception than the rule, but serves to illustrate some of the pieces of a supply chain.

A Example Of A Supply Chain

Supply Chain ManagementSupply chain management deals with linking the organizations within the supply chain in order to meet demand across the chain as efficiently as possible.

Supply Demand

Mission impossible: Matching Supply and Demand

Uncertainty in demand and/or supply

Changing customer requirements

Decreasing product life cycles

Fragmentation of supply chain ownership

Conflicting objectives in the supply chain

Conflicting objectives even within a single firm

Marketing/Sales wants: more FGI inventory, fast delivery, many package types, special wishes/promotions

Production wants: bigger batch size, depots at factory, latest ship date, decrease changeovers, stable production plan

Distribution wants: full truckload, low depot costs, low distribution costs, small # of SKUs, stable distribution plan

Why so Difficult to Match Supply and Demand?

To gain efficiencies from procurement, distribution and logistics

To make outsourcing more efficient

To reduce transportation costs of inventories

To meet competitive pressures from shorter development times, more new products, and demand for more customization

To meet the challenge of globalization and longer supply chains

To meet the new challenges from e-commerce

To manage the complexities of supply chains

To manage the inventories needed across the supply chain

Why is supply chain management so important?

Manufacturers: long run production, high quality, highproductivity, low production cost

Distributors: low inventory, reduced transportation costs, quickreplenishment capability

Customers: shorter order lead time, high in-stock inventory,large variety of products, low prices

Supply chains are dynamic - they evolve and change over time

Why is supply chain management difficult?

Different organizations in the supply chain may have different, conflicting objectives:

Distribution network configuration How many warehouses do we need? Where should these warehouses be located? What should the production levels be at each of our plants? What should the transportation flows be between plants and warehouses?

Inventory control Why are we holding inventory? Uncertainty in customer demand? Uncertainty in the

supply process? Some other reason? If the problem is uncertainty, how can we reduce it?

How good is our forecasting method? Distribution strategies Direct shipping to customers? Classical distribution in which inventory is held in warehouses and then shipped as

needed? Cross-docking in which transshipment points are used to take stock from suppliers’

deliveries and immediately distribute to point of usage? Supply chain integration and strategic partnering

Should information be shared with supply chain partners? What information should be shared? With what partners should information be shared? What are the benefits to be gained?

Issues In Supply Chain Management

Product design

Should products be redesigned to reduce logistics costs?

Should products be redesigned to reduce lead times?

Would delayed differentiation be helpful?

Information technology and decision-support systems

What data should be shared (transferred)

How should the data be analyzed and used?

What infrastructure is needed between supply chain members?

Should e-commerce play a role?

Customer value

How is customer value created by the supply chain?

What determines customer value? How do we measure it?

How is information technology used to enhance customer value in the supply chain?

Manufacturers would like to produce in large lot sizes because it is more cost effective to do so. The problem, however, is that producing in large lots does not allow for flexibility in terms of product mix.

Retailers find benefits in ordering large lots such as quantity discounts and more than enough safety stock.

The downside is that ordering/producing large lots can result in large inventories of products that are currently not in demand while being out of stock for items that are in demand.

Ordering/producing in large lots can also increase the safety stock of suppliers and its corresponding carrying cost. It can also create what’s called the bullwhip effect.

The bullwhip effect is the phenomenon of orders and inventories getting progressively larger (more variable) moving backwards through the supply chain. This is illustrated graphically on the next slide.

SCM - Inventory Management Issues

SCM - Inventory Management Issues

Ord

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Siz

e

Time

Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998

CustomerDemand

Retailer Orders

Distributor Orders Production Plan

Inventory Management Disaster-Apple Misses Power Mac Demand

Many forget than even through the mid-1990s, Apple was often the leader in market sharein the then still deeply fragmented PC market. That position took a permanent hit in thelast half of 1995 due to supply chain foibles.Apple was introducing its new line of Power Mac PCs, to be launched just before theChristmas season in 1995. Just two years before, however, the company had been burned byexcess inventories and production capacity during a similar launch for its Power Booklaptops.So this time, it played things very conservatively. That turnedout to be the expensive option.When demand for Power Macs exploded, Apple was caught short for the criticalChristmas season. Forecasts were too low, there wasn’t enough flex in thesupply chain, and some parts suppliers developed additional delivery issues. Atone point, Apple has $1 billion dollars in unfilled orders in its system. Unable tocapitalize on the market opportunity it had been handed, the stock price wassoon cut in half, the CEO was shown the door, shareholder lawsuits camepouring in, and Apple’s market position in PCs took a permanent hit such that ittook the IPOD years later to lead a recovery in the company.

At one point, Applehad an orderbacklog of $1 billion.

Some of the causes of variability that leads to the bullwhip effect includes:

•Demand forecasting Many firms use the min-max inventory policy. This means that when the inventory level falls to the reorder point (min) an order is placed to bring the level back to the max , or the order-up-to-level. This leads to variability.

•Lead time As lead time increases, safety stocks are increased, and order quantities are increased. More variability.

•Batch ordering. Many firms use batch ordering such as with a min-max inventory policy. Their suppliers then see a large order followed by periods of no orders followed by another large order. This pattern is repeated such that suppliers see a highly variable pattern of orders.

•Price fluctuation. If prices to retailers fluctuate, then they may try to stock up when prices are lower, again leading to variability.

•Inflated orders. When retailers expect that a product will be in short supply, they will tend to inflate orders to insure that they will have ample supply to meet customer demand. When the shortage period comes to an end, the retailer goes back to the smaller orders, thus causing more variability.

Methods for coping with the bullwhip effect include: Centralizing. Centralizing demand information occurs when customer demand

information is available to all members of the supply chain. This information can be used to better predict what products and volumes are needed and when they are needed such that manufacturers can better plan for production. However, even though centralizing demand information can reduce the bullwhip effect, it will not eliminate it.

Reducing uncertainty. This can be accomplished by centralizing demand information.

Reducing variability. This can be accomplished by using a technique made popular by Wal-Mart and then Home Depot called everyday low pricing (EDLP). EDLP eliminates promotions as well as the shifts in demand that accompany them.

Reducing lead time. Order times can be reduced by using EDI (electronic data interchange).

Strategic partnerships. The use of strategic partnerships can change how information is shared and how inventory is managed within the supply chain. These will be discussed later.

General Motor’s CEO in the 1980s was Roger Smith, Smith was fascinated with technology. Among other projects, such as the purchase of IT firm EDS, Smith embarked on a very aggressive effort to implement robots in GM factories. When Smith was appointed, GM had approximately 300robots of one kind of another. He soon created a joint venture with Japan’s robot designer Fujitsu-Fanuc, and said he planned to deploy 14,000 new robots in GM plants by 1990.Bad move.Costing billions of dollars, the robots never really worked. As one observer wrote, “The robots accidentally painted themselves and dropped windshields on to front seats.”

A “show place” factory in Hamtranck, MI turned out to be more like a “basketcase.” Introduction of the robots lowered productivity. A nearby Mazda plantproduced just as many vehicles, with 1,500 fewer employees.The entire project was later largely scrapped, as GM’s costs rose and marketshare shrunk. Meanwhile, Toyota delivered low cost, high quality vehicles usingcomparatively low tech “lean production” techniques.As one GM finance executive later noted, at the time the company could havebought both Toyota and Nissan for the money invested in the failed robottechnology, a point especially painful given GM’s troubles and Toyota andNissan’s success today.

General Motor’s Robot Mania

Other helpful techniques for improving inventory management include:

Cross-docking. This involves unloading goods arriving from a supplier and immediately loading these goods onto outbound trucks bound for various retailer locations. This eliminates storage at the retailer’s inbound warehouse, cuts the lead time, and has been used very successfully by Wal-Mart and Xerox among others.

Delayed differentiation. This involves adding differentiating features to standard products late in the process. For example, Benetton decided to make all of their wool sweaters in un-dyed yarn and then dye the sweaters when they had more accurate demand data. Another term for delayed differentiation is postponement.

Direct shipping. This allows a firm to ship directly to customers rather than through retailers. This approach eliminates steps in the supply chain and reduces lead time. Reducing one or more steps in the supply chain is known as disintermediation. Companies such as Dell use this approach.

In the late 1970s, with about 200 stores, Wal-Mart was a relatively small retailer. At that time, Sears and Kmart dominated the retail market. Since then, Wal-Mart gained significant market share from these retailers and became the largest and most profitable retailer in the world. Today, Wal-Mart is admired for its collaboration and technology driven supply chain practices and is leading the retailing industry with its innovative supply chain practices.

On gaining competitive advantage

Supply Chain Success Story- Wal-Mart

"People think we got big by putting big stores in smalltowns. Really, we got big by replacing inventory with information.”

Sam Walton, Founder of Wal-Mart

•Wal-Mart established in 1962, known for innovative business practices.•One of the first retailing companies to centralize distribution system.•Wal-Mart placed orders for huge quantities of goods with its suppliers.•Information of product, manufacturer, price was recorded on computer system & information was passed to centralized data warehouse.•Provided suppliers historical sales data of 24 months, allowed them to track invoice, can make demand forecast.•Wal-Mart operates their own satellite network.•Effective use of logistics management•Reduced inventory cost•Higher productivity• Shorter lead times•Higher profits•Greater customer loyalty•Bargaining power over suppliers

Wal-Mart Supply Chain

Traditional Supply Chain

Dell Supply Chain

On April 20, 2001 Dell toppled Compaq as the world’s largest PC maker*

Dell’s market share was 12.8% as opposed to Compaq’s market share 12.1%

Compaq and HP could not get into a price war with Dell because

Dell’s profit margin was 18%

Compaq and HP’s profit margins were in single digits

*Source: Forbes.com, April 24, 2001

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Supply Chain Success Story- DellOn gaining competitive advantage

SUPPLIERS For DELLMICROSOFT - for WindowsINTEL- for micro processorsNVIDIA - for Graphic chipsSONY- for monitors

Dell’s success is a combination of:• Direct Sales.• Inventory Management • Supplier Integration

DELL DIRECT SELLINGNew Value Chain: Dell had no in-house stock of finished goods inventories unlike competitors using the traditional value chain model

Pull Mechanism: It did not have to wait for resellers to clear out their own inventories before it could push new models into the marketplace (typically operated with 60-70 days stock)

Personalization: Customers got the satisfaction of having their computers customized to their particular liking

Limitation of direct sell model in emerging marketBuying habitNot access to internetLack of online payment (i.e. credit card)