Basics of Supply Chains

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Basics of Supply Chains

• Entities, Flows, Cycles and Processes
• Bird Eye View

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Outline

• Definitions
• Entity and flow
• Cycles
• Processes 1 Global Supply Chain Forum
• Processes 2 Supply Chain Operations Reference
  Model

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APICS definition of SC

• Global network used to deliver products and
  services from raw material to end customers
  through an engineered flow of information,
  physical distribution and cash.

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Institute for Supply Management Definition

• Supply chain management is the design and
  management of seamless, value-added processes
  across organizational boundaries to meet the real
  needs of the end customer.

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Wrong Definitions/ Perspectives

• 3PL company it is warehouse and transportation
  management
• ERP vendor it is advanced modules to be added to
  the companys original ERP system
• Consulting Firm it is strategy building and
  market analysis
• Financial Analyst finding ways to reduce cost

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Examples of Supply Chains

• DELL e-commerce and customization.
• Zara innovative versus functional products.
• Toyota efficient production.
• Amazon / Borders / Barnes and Noble bad
  synchronization between physical flow and
  e-commerce.
• Wal-Mart cross-docking, VMI, super Wal-Mart,
  data mining etc.

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How to View SC

• Entities Flows
• Cycles
• Processes

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P G example
Customer wants detergent and goes to Wal-Mart
Wal-Mart Supermarket
Wal-Mart or third party DC
PG or other manufacturer
Plastic Producer
Tenneco Packaging
Chemical manufacturer (e.g. Oil Company)
Chemical manufacturer (e.g. Oil Company)
Paper Manufacturer
Timber Industry
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Entities Flows
Information flow
Supplier
Producer
Customer
Suppliers Supplier
Customers Customer
Physical flow
Cash flow
Return flow
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Supply Chain Manufacturing Example
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Supply Chain Service Example
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• Class Exercise I

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Cycle View of Supply Chains
Customer
Customer Order Cycle
Retailer
Replenishment Cycle
Distributor
Manufacturing Cycle
Manufacturer
Procurement Cycle
Supplier
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Thinking processes

• Functional thinking limits cooperation and
  impedes creative thinking.
• Process management promotes collaboration,
  facilitating customer satisfaction at low cost.
• Thinking ERP thinking processes

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Process Management

• Process Management requires companies to
• Recognize the limiting nature of functional
  structures
• Instill process thinking throughout the company
• Process integration remains rare
• less than 10 of companies world wide have made a
  serious and successful effort
• Requires major changes to measurement, job
  design, management roles, and organizational
  structure

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Functional Organization

• Groups resources into specific departments which
  perform specific tasks to help the company
  achieve desired goals.
• Research and Development - translates customer
  needs into tangible products. The goal is to
  design appealing, easy-to-make products with
  shorter concept-to-market lead times.
• Purchasing acquires the right materials at the
  right price for use in operations. Sourcings
  goal is to select the right suppliers and then
  build the right relationships with them.
• Production transforms inputs into a more highly
  valued and desirable product or service. The
  goal to use capital, energy, knowledge, and
  labor are used to build processes that make
  low-cost, high-quality goods.
• Logistics moves and stores goods so they are
  available for use in operations or for sale to
  customers. Logistics seeks to leverage critical
  activities like transportation, warehousing, and
  order processing to make sure materials and
  products are where they need to be when they need
  to be at the lowest cost.
• Marketing identifies customer needs and
  communicates to the customer how the company can
  meet those needs. Marketings objective is to
  perform a liaison role between the company and
  its customers.

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(Dys)Functional Behavior

• Functional structures result in a failure to see
  beyond the department level to the end user.
• Decisions are made to achieve local, functional
  optimum without regard to impact on the remainder
  of the company.
• Due to inherent conflicts between department
  goals and measurements, departments are compelled
  to take dysfunctional actions.

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Functional Organization Goals
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Process Thinking

• Process thinking aligns decisions with corporate
  strategy and coordinates actions across
  functions.
• Each process consists of a set of flows and
  value-added activities.
• Information Flow
• Physical Flow
• Financial Flow

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Value-Added Process
Materials Acquisition
New Product Development
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Thinking process

• Global supply chain forum model
• Supply Chain Operations Reference SCOR model

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Processes Global supply chain forum
Business Functions
Customer Relationship Management
Supplier Relationship Management
Customer Service Management
Demand Management
Order Fulfillment
Manufacturing Flow Management
Product Development and Commercialization
Returns Management
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Customer Relationship Management

• Duties
• Locate , assess profitability and design products
  and services to maintain the customers base
• Define Product and service agreements PSAs
• Improve order and delivery processes
• Why cross-functional, cross-company?, Who?

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Customer Service Management

• Duties
• Daily administration of the PSAs
• Management of details related to logistics
  (shipping date, exceptions etc.)
• Why cross-functional, cross-company? , Who?

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Demand Management

• Duties
• Forecasting
• Scheduling plant operations
• Capacity requirements
• Managing inventory
• Fulfilling orders
• Sales tracking
• Why cross-functional, cross-company? , Who?

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Order fulfillment

• Duties
• Insuring the delivery of the right product at the
  right time and location in the right amounts.
• Why cross-functional, cross-company? , Who?

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Manufacturing Flow Management

• Duties
• Managing physical, information and funding flow
• Ensuring the balance between sales and operations
  planning
• Balancing capacity and demand
• Why cross-functional, cross-company? , Who?

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Supplier relationship management

• Duties
• Selecting, rating and scoring suppliers
• Building strategic alliances
• Automating the supply process
• Why cross-functional, cross-company? , Who?

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Product development and commercialization

• Duties
• Developing new products and bringing them to
  market at the right time
• Why cross-functional, cross-company? , Who?

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Returns Management

• Duties
• Handle repairs and replacements
• Developing strategies to diminish the number of
  returned products
• Why cross-functional, cross-company? , Who?

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• Class Exercise II

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Supply Chain Operations Reference SCOR

• The Supply-Chain Council was established in 1996.
  www.supply-chain.org
• The Supply-Chain Council now has closer to 1,000
  corporate members world-wide and has established
  international chapters in North America, Europe,
  Greater China, Japan, Australia/New Zealand,
  South East Asia, Brazil and Southern Africa. 
  Development of additional chapters in India and
  South America are underway.   The Supply-Chain
  Council's membership consists primarily
  practitioners representing a broad cross section
  of industries, including manufacturers, services,
  distributors, and retailers.

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Process Reference Model

• It integrates the well-known concepts of business
  process reengineering, benchmarking and process
  measurement into a cross-functional framework.
• It provides
• Standard description of management processes
• Framework of relationships among processes
• Standard metrics to measure process framework
• Best in class management practices

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1- Situation mapping
3- Best practices analysis
2- Benchmarking

• Capture
• the as-is state and derive the to-be future
  state

• Quantify the best in class practices

• Characterize
• the
• management
• and software
• Practices that
• resulted in
• the best
• practices

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Supply-Chain Operations Reference (SCOR) Model

• Five core processes for Level 1
• Source
• Make
• Deliver
• Return
• Plan
• Three expanded processes for Level 2
• Planning
• Execution
• Enable

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SCOR Model www.supply-chain.org
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Cascading in SCOR/ 1-Overview
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Planning

• Balance resources with requirements and
  communicate the plan to the whole supply chain
• Management of business rules, performances,
  compliances and regulatory requirements
• Align the unit plan with the financial plan

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Source

• Schedule deliveries, receive and authorize
  supplier payments
• Identify and select supply sources when not
  predetermined for ETO
• Manage business rules, assess suppliers
  performance and maintain data

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Make

• Schedule production activities, issue product,
  produce and test
• Finalize engineering for engineer to order
  product
• Manage rules, performance, data, WIP, equipment
  and facilities, transportation,

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Deliver

• Processing inquiries, and quotes to routing
  shipments and selecting carriers
• Warehouse management
• Receive and verify product at customer site
• Invoicing customers
• Manage deliver business rules, performance,
  information, finished product inventories ..

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Return

• Defective, warranty and excess return processing
• Authorization, scheduling, inspection, transfer,
  warranty administration, receiving and verifying
  defective products, disposition and replacement

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Enable

• Information
• Relationship
• Business rules
• Performance management
• Capital assets
• Network configuration and transportation
• Regulatory requirements and compliances

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Cascading in SCOR2-Category
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Cascading in SCOR3-Process elements
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P3.3 Production plan S1.1, S2.1, S3.3 Scheduled
Receipts M1.2, M1.3, M1.4, M1.5, M1.6
Information Feedback EM5 Equipment and
Facilities Schedules and Plans
Input
P3.2, S1.1, S2.1, S3.3, D1.3, D1.8, D4.2
Production Schedule
Output
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Cascading in SCOR4-decompose process elements
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Level 1 KPIs
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Level1 performances measuresReliability perfect
order fulfillment

• Total perfect orders/total number of orders
• Perfect order
• Right product, right quantity, to right customer,
  right time, right location, right documentation
  and rightly installed

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Level1 performances measuresResponsiveness
speed of delivery

• Average actual cycle timesum of actual cycle
  times for all orders delivered/total number of
  orders delivered
• Order fulfillment cycle timeorder fulfillment
  process time order fulfillment dwell time

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Level1 performances measuresFlexibility ability
to respond to market changes

• Upside measures
• Flexibility number of days needed to face a
  sustainable 20 increase in demand.
• Adaptability amount of increase in production
  that could be achieved in 30 days
• Downside measures (very nice)
• Adaptability reduction in quantities ordered
  sustainable for 30 days without incurring extra
  cost

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Level1 performances measuresCosts Cost
accounting

• Cost of goods sold Direct material Direct
  labor Overhead
• Supply Chain Management Cost cost to plan cost
  to source cost to make cost to return

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Level1 performances measuresAsset management
financial accounting

• Examples
• Cash to cash cycle timeinventory days of supply
  days of sales outstanding-days of payables
  outstanding
• Return on supply fixed assets
• (Revenue-COSG-supply chain management
  costs)/supply chain fixed assets

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Level 2 KPIsM.1 make to stock
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M.1 Best Practices

• Cellular manufacturing
• Demand pull manufacturing Kanban, replenishment
  signals, upper and lower triggering levels
• Quick and real time performance measurements
  dashboard, real time access to data
• Paperless production orders and inventory
  tracking
• Lean
• Production level balancing
• Flat management structures, self directed
  workforce
• Linking individual performance to divisional and
  organizational goals
• Move from make to stock to configure to order and
  push the system to high generic products to be
  easily customized

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Level 3 KPIsM.1.1 Schedule production Activities
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M.1.1 Schedule production, best practices

• Cross training and certification
• Ensuring data integrity and accuracy
• Schedule optimizes the use of shared resources
  and share equipment
• Change include preventive maintenance and change
  over costs
• Real time feedback from production, RM and
  inventory
• Provide a schedule to workforce and material
  planning systems

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• Class Exercise III

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Limits to SCOR model

• It does not apply to the following processes
• Sales and marketing
• RD
• Product development
• Post delivery customer support
• It also assumes
• training
• Quality
• IT

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Check list

• Name the basic entities, flows and cycles
  involved in SC
• Compare between the functional and process views
  of SC management
• Name the basic processes as defined by the GSCF
  model
• Name the basic processes as defin

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Questions ?