1. SUPPLY CHAIN MANAGEMENT
Operations Management

2. WHAT IS SUPPLY CHAIN?
Greetings of the day! In the coming few minutes, I will be sharing with you guys a simple but still very imperative term of our life - Supply chain Management. I hope you all must be aware of concept of supply.
So, what exactly is supply and what is supply chain management?
A supply chain is a sequence of organizations - their facilities, functions and activities - that are involved in producing and delivering a product or service. In this type of chain, virtually all of the members serve as both customers as well as suppliers. In a typical supply chain, raw materials are procured and items are produced at one or more factories, shipped to warehouses for intermediate storage, and then shipped to retailers or customers. Consequently, to reduce cost and improve service levels, effective supply chain strategies must take into account the interactions at the various levels in the supply chain. The supply chain, which is also referred to as the logistics network, consists of suppliers, manufacturing centers, warehouses, distribution centers, and retail outlets, as well as raw materials, work-in-process inventory, and finished products that flow between the facilities. 2 2

3. 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.
According to Chopra, S. and Meindl (2004), 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: from supplier and manufacturing facilities through warehouses and distribution centers to retailers and stores. Indeed, in some supply chain analysis, it is necessary to account for the suppliers’ suppliers and the customers’ customers because they have an impact on supply chain performance. It 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. 3 3

4. Principles of Supply Chain Management
Segment customers based on the service needs of distinct groups and adapt the supply chain to serve these segments profitably.
Customize the logistics network to the service requirements and profitability of customer segments.
Listen to market signals and align demand planning accordingly across the supply chain, ensuring consistent forecasts and optimal resource allocation.
Differentiate product closer to the customer and speed conversion across the supply chain.
There are 7 principles of supply chain management (Bozarth & Handfield, 2006):-
Segmentation has traditionally grouped customers by industry, product, or trade channel and then taken a one-size fits-all approach to serving them, averaging costs and profitability within and across segments. But segmenting customers by their particular needs equips a company to develop a portfolio of services tailored to various segments. Surveys, interviews, and industry research have been the traditional tools for defining key segmentation criteria.
2. Companies have traditionally taken a monolithic approach to logistics network design in organizing their inventory, warehouse, and transportation activities to meet a single standard. For some, the logistics network has been designed to meet the average service requirements of all customers; for others, to satisfy the toughest requirements of a single customer segment.
3. Forecasting has historically proceeded silo by silo, with multiple departments independently creating forecasts for the same products—all using their own assumptions, measures, and level of detail. Many consult the marketplace only informally, and few involve their major suppliers in the process. The functional orientation of many companies has just made things worse, allowing sales forecasts to envision growing demand while manufacturing second-guesses how much product the market actually wants.
4. Manufacturers have traditionally based production goals on projections of the demand for finished goods and have stockpiled inventory to offset forecasting errors. These manufacturers tend to view lead times in the system as fixed, with only a finite window of time in which to convert materials
into products that meet customer requirements. 4 4

5. (continued….)
Manage sources of supply strategically to reduce the total cost of owning materials and services.
Develop a supply chain-wide technology strategy that supports multiple levels of decision making and gives a clear view of the flow of products, services, and information.
Adopt channel-spanning performance measures to gauge collective success in reaching the end-user effectively and efficiently.
5. Determined to pay as low a price as possible for materials, manufacturers have not traditionally cultivated warm relationships with suppliers. In the words of one general manager: “The best approach to supply is to have as many players as possible fighting for their piece of the pie—that’s when you get the best pricing.”
6. To sustain reengineered business processes, many progressive companies have been replacing inflexible, poorly integrated systems with enterprise-wide systems. Yet too many of these companies will find themselves victims of the powerful new transactional systems they put in place. Unfortunately,
many leading-edge information systems can capture reams of data but cannot easily translate it into actionable intelligence that can enhance real-world operations.
7. Excellent supply chain managers take a broader view, adopting measures that apply to every link in the supply chain and include both service and financial metrics. First, they measure service in terms of the perfect order— the order that arrives when promised, complete, priced and billed correctly, and undamaged. Second, excellent supply chain managers determine their true profitability of service by identifying the actual costs and revenues of the activities required to serve an account, especially a key account. 5 5

6. Tools and Techniques of supply chain management6 6

7. Material Requirements Planning
Materials requirements planning (MRP) is the logic for determining the number of parts, components, and materials needed to produce a product.
MRP provides time scheduling information specifying when each of the materials, parts, and components should be ordered or produced.
Dependent demand drives MRP.
MRP is a software system.
Material requirements planning (MRP) is a computer-based inventory management system designed to assist production managers in scheduling and placing orders for items of dependent demand. Dependent demand items are components of finished goods—such as raw materials, component parts, and subassemblies—for which the amount of inventory needed depends on the level of production of the final product. For example, in a plant that manufactured bicycles, dependent demand inventory items might include aluminum, tires, seats, and bike chains.
MRP begins by compiling a Bill of Materials (BOM) for each end product or component of interest. This is a listing of the components and quantities that are needed to manufacture the end product or component. Theoretically, the compilation of BOMs continues recursively, enumerating the subcomponents that are needed to manufacture each component, until only raw materials appear in the generated BOMs. In practice, a manufacturer may prefer to extend the BOM enumeration for only a specified number of levels and to assume that components and/or raw materials beneath that level are available on demand. 3 3

8. Material Requirements Planning System
Based on a master production schedule, a material requirements planning system:
Creates schedules identifying the specific parts and materials required to produce end items.
Determines exact unit numbers needed.
Determines the dates when orders for those materials should be released, based on lead times. 11 11

9. Sales & Operational Planning Process9
Sales & Operational Planning Process
Purpose: Select capacity options over the intermediate time horizon
Capacity options:
Workforces
Shifts
Overtime
Subcontracting
Inventories
etc.
Sales and operations planning (S&OP) is an iterative business management process that determines the optimum level of manufacturing output.  The process is built upon stakeholder agreement and an approved consensus plan. To help stakeholders agree on a plan of action based on real-time data, S&OP software products include dashboards that display data related to equipment, labor, facilities, material and finance. The purpose of the dashboards is to provide the stakeholders with a single, shared view of the data.   The business goals of S&OP include (Simchi-Levi, Kaminsky, Simchi-Levi, & Ravi Shankar, 2008):
• Determining the balance between supply and demand.
• Avoiding wasteful production.
• Improving top line revenues.
• Optimizing resources for production. 12 12

10. Inputs to the Process S&OPs Demand Management
Forecasts of customer demand
Need for spares, etc.
Pricing
Strategic Capacity Levels
Existing buildings
Processes
S&OPs
Example – Build ahead for seasonal demand The company developed an annual plan for a very seasonal product. Demand exceeded capacity in the high season. Capacity exceeded demand in the low season. Using the S&OP process, the company planned where to add inventory in the low season. As they approached the high season, they adjusted the plans to match changes in actual demand. The result was a more level loaded plan, which allowed them meet more the demand in their high season.
It measures performance to plan in families by dollars and units. It identifies areas that are out of tolerance. It initiates a problem solving process to identify the root cause. Once identified, the problem can be addressed. The monthly S&OP cycle shows when the problem has been solved. Example - New Product Launch The business plan was based on the successful launch of a major new product line. They tracked the new line separately in S&OP. Sales were below target, inventory was building, and production capacity was idle. The story was clear but they didn’t know why. Digging into the root cause, they found the sales force was pushing the old product ahead of the new one. Digging deeper they found the sales compensation plan was better for the old product. Coupling formal root cause analysis with their S&OP process they were able to get to the bottom of the issue and address it.
External Capacities
Suppliers
Subcontractors

11. Integrated Business Planning
An Integrated Business Planning (IBP) approach enables companies to align its business with a holistic lens toward accurate and reliable long-term strategic planning. IBP provides a structure to integrate Finance, Operations Product Lifecycle Management (PLM), Sales and Marketing, and translate business drivers into desired outcomes through a Plan – Execute – Compare – Adjust framework (PECA) that aligns strategy, design, and execution. Further, IBP helps strengthen customer relationships by providing better visibility to customer needs and improving customer service with on-time delivery and
lower cost of service.

12. Example of Supply chain management14 14

13. 15 15

14. Supply Chain Story I Arm’s Length Partnership Suppliers Suppliers
On supplier management
“The Big Three [US automakers] set annual cost-reduction targets [for the parts they purchase]. To realize those targets, they’ll do anything. [They’ve unleashed] a reign of terror, and it gets worse every year. You can’t trust anyone [in those companies]”
Suppliers
US auto man.
Arm’s Length
“Toyota helped us dramatically improve our production system. We started by making one component, and as we improved, [Toyota] rewarded us with orders for more components. Toyota is our best customer.”
-Senior executive, supplier to Ford, GM, Chrysler, and Toyota, July 2001**
Suppliers
Toyota
Partnership

15. Supply Chain Story II ? Traditional Supply Chain Dell Supply Chain
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
*Source: Forbes.com, April 24, 2001

16. Supply Chain Story III 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.

17. References
Chopra, S. and Meindl, P., Supply Chain Management: Strategy, Planning and Operation, Pearson Education, Inc., Singapore, Second Edition
Bozarth, C.C. and Handfield, R. B., Introduction to Operations and Supply Chain Management, Pearson Education
Simchi-Levi, D., Kaminsky, P., Simchi-Levi, E., and Ravi Shankar, Designing and Managing the supply chain, Tata McGraw Hill Education Private Limited, New Delhi.
Shah, J., Supply chain management: Text and Cases. New Delhi: Pearson Education.
Shapiro, J.F., Modelling the supply chain, Second Edition, Brooks/Cole, Cengage Learning.
Dobler, D. W. and Burt, D. N., Purchasing and Supply Management: Text and Cases, Sixth Edition, Tata McGraw-Hill Publishing Company Limited, New Delhi.
Tersine, R. J., Principles of Inventory and Materials Management, Fourth Edition, Prentice-Hall Inc., New Jersey