Presentation On Supply Chain

Management (SCM)

SUBMITTED BY:-
NAME – Mohit Jain
COURSE – B-TECH 6TH SEM.
BRANCH – Industrial Engineering & Management
ROLL NO. – 1120278
SUBJECT – SEMINAR
What is a Supply Chain?
A supply chain is the system of organizations, people,
activities, information and resources involved in moving a
product or service from supplier to customer. Supply chain
activities transform raw materials and components into a
finished product that is delivered to the end customer.

Supplier

Supplier } Storage Mfg. Storage Dist. Retailer Customer

Supplier
A Supply Chain Example…
V. Highlands
Kroger
Peachtree
Publix
GA
Coke Ocean Drive

End customer
Ft. Laud.
JNJ FL

Kellog
AL
P&G
TX
Tier 1
suppliers
State Local stores
distributors Super market
chains
 A Example Of A Supply Chain
 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.
Supply Chain Management
Supply 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

Why so Difficult to Match 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 is supply chain management so important?
 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 difficult?
Different organizations in the supply chain may have different,
conflicting objectives:
 Manufacturers: long run production, high quality, high
productivity, low production cost
 Distributors: low inventory, reduced transportation costs, quick
replenishment 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
 Issues In Supply Chain Management
 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?
 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?
 SCM - Inventory Management Issues
 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
Order Size

Retailer Orders

Customer
Demand

Distributor Orders Production Plan

Time

Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
 Inventory Management Disaster-Apple Misses Power Mac Demand
Many forget than even through the mid-1990s, Apple was often the leader in market share
in the then still deeply fragmented PC market. That position took a permanent hit in the
last half of 1995 due to supply chain foibles.
Apple was introducing its new line of Power Mac PCs, to be launched just before the
Christmas season in 1995. Just two years before, however, the company had been burned by
excess inventories and production capacity during a similar launch for its Power Book
laptops. At one point, Apple
So this time, it played things very conservatively. That turned had an order
out to be the expensive option. backlog of $1 billion.
When demand for Power Macs exploded, Apple was caught short for the critical
Christmas season. Forecasts were too low, there wasn’t enough flex in the
supply chain, and some parts suppliers developed additional delivery issues. At
one point, Apple has $1 billion dollars in unfilled orders in its system. Unable to
capitalize on the market opportunity it had been handed, the stock price was
soon cut in half, the CEO was shown the door, shareholder lawsuits came
pouring in, and Apple’s market position in PCs took a permanent hit such that it
took the IPOD years later to lead a recovery in the company.
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 Robot Mania
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
300
robots 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 “basket

case.” Introduction of the robots lowered productivity. A nearby Mazda plant
produced just as many vehicles, with 1,500 fewer employees.
The entire project was later largely scrapped, as GM’s costs rose and market
share shrunk. Meanwhile, Toyota delivered low cost, high quality vehicles using
comparatively low tech “lean production” techniques.
As one GM finance executive later noted, at the time the company could have
bought both Toyota and Nissan for the money invested in the failed robot
technology, a point especially painful given GM’s troubles and Toyota and
Nissan’s success today.
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.
Supply Chain Success Story- Wal-Mart
On gaining competitive advantage

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.
"People think we got big by putting big stores in small
towns. 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
Supply Chain Success Story- Dell
On gaining competitive advantage

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 SUPPLIERS For DELL
MICROSOFT - for Windows
INTEL- for micro processors
NVIDIA - for Graphic chips
*Source: Forbes.com, April 24, 2001 SONY- for monitors
DELL DIRECT SELLING
New 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
Dell’s success is a combination of:
• Direct Sales.
• Inventory Management
• Supplier Integration

Limitation of direct sell model in emerging market

Buying habit
Not access to internet
Lack of online payment (i.e. credit card)