Introduction to Supply Chain and Logistical Management

Transcription

1 Introduction to Supply Chain and Logistical Management Dr. Muhammad Saad Memon Asst. Professor, Department of Industrial Engineering and Management

2 What is a Supply Chain? Flow of products and services from: Raw materials manufacturers Intermediate products manufacturers End product manufacturers Wholesalers and distributors and Retailers Connected by transportation and storage activities. Integrated through information, planning, and integration activities Cost and service levels

3 What is Supply Chain Management? Supply chain management is a set of approaches utilized to efficiently integrate suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements.

4 What is Supply Chain Management? (Two Other Formal Definitions) The design and management of seamless, valueadded process across organizational boundaries to meet the real needs of the end customer Institute for Supply Management Managing supply and demand, sourcing raw materials and parts, manufacturing and assembly, warehousing and inventory tracking, order entry and order management, distribution across all channels, and delivery to the customer The Supply Chain Council

5 The SCM Network

6 Key Observations in SCM Every facility that impacts costs need to be considered Suppliers suppliers Customers customers Efficiency and costeffectiveness throughout the system is required System level approach Multiple levels of activities Strategic Tactical Operational Supply chain strategy linked to the Development Chain Challenging to minimize system costs and maximize system service levels Inherent presence of uncertainty and risk

7 The Development Chain Set of activities and processes associated with new product introduction. Includes: product design phase associated capabilities and knowledge sourcing decisions production plans

8 The Development Chain Set of activities and processes associated with new product introduction. Includes: product design phase associated capabilities and knowledge sourcing decisions production plans Fig: The enterprise development and supply chain

9 Global Optimization Geographically dispersed complex network Conflicting objectives of different facilities Dynamic system Variations over time Matching demand-supply difficult Different levels of inventory and backorders Recent developments have increased risks Lean production/off-shoring/outsourcing

10 SC Optimization New management paradigm for globally optimizing the Supply Chain Optimization integration of material flow, information flow and cash flow moving from suppliers to manufacturers to distributors to retailers to customers, along a supply chain, in order to fulfill customer s need.

11 Global Apparel Value Chain Tracing back the dress you are wearing

12 Global Apparel Value Chain Tracing back the dress you are wearing

13 Logistics Logistics is the process of planning, implementing and controlling the efficient, cost effective flow and storage of raw materials, in-process inventory, finished goods and related information from the point of origin to point of consumption for the purpose of conforming to customer requirements. Council of Supply Chain Management Professionals

14 Functions in Logistics Transportation/Transport Storage Loading/Unloading Packaging Operation for Distribution Information Management General Management

15 Reverse Logistics Forward Logistics: from factory to customer/market Reverse Logistics: from customer to factory/warehouse Why Reverse Logistics is needed? Received product is old-fashioned, mal-functioned, will be returned to factory or supplier. System for Reverse Logistics: Using the existing logistics system or designing new depending on the given situation system situation.

16 Green Logistics During whole product Life-Cycle, considering Sustainability. More details in Sustainable SC chapter.

17 Significance of Logistics Costs are high About 10.5% of GDP domestically About 12% of GDP internationally A range of 4 to 30% of sales for individual firms, avg. about 10% A high as 70-80% of sales if purchasing and production are included Customers are more demanding of the supply chain Desire for quick response Desire for mass customization An integral part of company strategy Generate revenue Improve profit Logistical lines are lengthening Local vs. long distance supply Logistics is a key to trade and an increased standard of living Law of comparative economic advantage applies Logistics adds value Time and place utilities

18 Scope of Business logistics

19 Primary Setting customer service goals Transportation Inventory management Location Secondary, or supporting Warehousing Materials handling Acquisition (purchasing) Protective packaging Product scheduling Order processing Key Activities/Processes

20 Total Cost Approaches to Logistics Total Cost Approach Cost trade-offs: changes to one activity cause some costs to increase and others to decrease Total Logistics Cost Concept: to find the lowest total cost that supports an organization s customer service requirements

21 Relationship of Logistics to Marketing and Production

22 Activities in the SC and Logistical Channel Customer service Facility location decisions Inventory management Order management Procurement Transportation management Demand forecasting International logistics Materials handling Packaging Reverse supply chain Warehousing management

23 Uncertainty and Risk Factors in SC Matching Supply and Demand is a Major Challenge REASONS for Mismatching Raw material shortages Internal and supplier parts shortages Productivity inefficiencies Sales and earnings shortfall Larger than anticipated inventories Stiff competition Higher than expected orders for new products over existing products EXAMPLES Boeing Aircraft s inventory write-down of $2.6 billion Sales at U.S. Surgical Corporation declined 25 percent, resulting in a loss of $22 million Intel reported a 38 percent decline in quarterly profit EMC Corp. missed its revenue guidance of $2.66 billion for the second quarter of 2006 by around $100 million

24 Uncertainty and Risk Factors in SC Fluctuations of Inventory and Backorders throughout the Supply Chain

25 Uncertainty and Risk Factors in SC Forecasting is not a solution Demand is not the only source of uncertainty Recent trends make things more uncertain Lean manufacturing Outsourcing Off-shoring

26 Uncertainty and Risk Factors in SC August 2005 Hurricane Katrina P&G coffee supplies from sites around New Orleans Six month impact 2002 West Coast port strike Losses of $1B/day Store stock-outs, factory shutdowns 1999 Taiwan earthquake Supply interruptions of HP, Dell 2001 India (Gujarat state) earthquake Supply interruptions for apparel manufacturers

27 Evolution of Supply Chain Management

28 Complexity: The Magnitude U.S. companies spend more than $1 trillion in supply related activities (10-15% of Gross Domestic Product) Transportation 58% Inventory 38% Management 4% The grocery industry could save $30 billion (10% of operating cost) by using effective logistics strategies. A typical box of cereal spends 104 days getting from factory to supermarket. A typical new car spends 15 days traveling from the factory to the dealership.

29 Complexity: The Magnitude Compaq computer s loss of $500 million to $1 billion in sales in one year Laptops and desktops were not available when and where customers were ready to buy them Boeing s forced announcement of write-downs of $2.6b Raw material shortages, internal and supplier parts shortages. Cisco s multi-billion ($2.2b) dollar write-off of inventories in Customers balked on orders due to market meltdown

30 Supply Chain: The Potential P&G s estimated savings to retail customers of $65 million through logistics gains Dell Computer s outperforming of the competition in terms of shareholder value growth over more than two decades by over 3,000% using: Direct business model Build-to-order strategy Wal-Mart transformation into the world s largest retailer by changing its logistics system: highest sales per square foot, inventory turnover and operating profit of any discount retailer

31 Key Issues in Supply Chain Management Distribution Network Configuration Supply Y Chain Global Optimization Managing Risk and Uncertainty Inventory Control Supply Y Production Sourcing Supply Y Supply Contracts Both Y Y Distribution Strategies Supply Y Y Strategic Partnering Development Y Outsourcing and Offshoring Development Y Product Design Development Y Information Technology Supply Y Y Customer Value Both Y Y Smart Pricing Supply Y

32 Responsibilities of SC Managers Work with procurement managers and buyers to select products that are in demand and will sell. Negotiate and manage contracts with suppliers. Plan the best way to get goods from suppliers to distribution centers then on to retailers. Track shipments and stock levels using computer software. Work with retailers to make sure they receive their goods on time and in the right condition. Look at ways to improve supply chain networks. Monitor overall performance to make sure targets are being met. Prepare forecasts and inventories for reports to the company's management team. Recruit, train and manage a team of supply chain staff.

33 SC Manager Job and Salaries (Data from USA)