Supply Chain Management 101

Supply Chain Management 101
FY05 SC New Hire Bootcmap Keith Ip

Agenda What is Supply Chain and Supply Chain Management? Why SCM?
What is JIT and Lean? Value Proposition and KPIs of SCM Critical Success Factor of Adopting SCM What does Oracle SCM Solution offers? Oracle Customer List

What is Supply Chain? Network of independent entities possibly in different geographical locations forming a strategic alliance toward the common goal of designing, manufacturing and delivering right quality products/services to customers Entities include Suppliers, Manufacturers, Distribution Centers, Hubs, Value Added Reseller, Retailers, OEM, Service Providers, etc… Wholesale Distributors Suppliers Retailers Manufacturers Customers Virtual Manufacturers Contract Manufacturers Logistics Providers Goods Flow

What is Supply Chain Management?
SCM: Apply a total systems approach to managing the entire flow of information, materials, and services from raw-material suppliers through factories, warehouses, and retailers to end customers. Total systems approach includes business process, decision making, applications, information sharing, organizations, individuals with defined roles and responsibilites. Wholesale Distributors Suppliers Retailers Manufacturers Supplier Network 3PL Customers Call Centers Virtual Manufacturers Contract Manufacturers Logistics Providers Information Flows Goods Flow

Sub-Processes within SCM
operational tactical strategic scheduling Supply Chain Performance Monitoring buy Material Plan Inventory Strategy Master Plan Strategic Business Decision Plant Location Product Line Selection MTO vs MTS CTO vs BTO Procurement Manufacturing/assembly Inbound Warehouse/Distribution Outbound/Fulfillment make Mfg Schedue Supplier Selection move Transportation Schedule Warehouse Distribution store The Supply Chain Management process is composed of a wide range of interrelated sub-processes. This slide presents these different sub-processes in a matrix of two dimensions (also known as the “planning funnel”): the first is the time dimension, through which Supply Chain Management activities are segmented into short-term, mid-term and long-term activities, and the second is the functional dimension, where the activities are separated by type (purchasing, production, transportation, storage and sales). Along these two dimensions, you can visualize the various business processes that will be analyzed in detail during the second part of this course. At the extreme right of the planning funnel resides the strategic planning process, which supports long-term decision making with respect to all Supply Chain activities, such as redesigning the Supply Chain network, while at the other end you see processes like production and transportation scheduling, which deal with short-term scheduling issues. Outside of the planning funnel, the Supply Chain Management process is complemented by the Supply Chain Execution Monitoring process. Supply Chain Execution Monitoring compares planned with and actual results and thereby provides a feedback loop for the Supply Chain Management planning processes. sell Order Fulfillment demand fulfillment Demand Plan hours days weeks months year +

Reasons for Supply Chain Management to Achieve Operational Excellence
In today’s dynamics and competitive world,the VARIABILITY and COMPLEXITY of business will increase rapidly Globalization Intensified Competition Shorter Product Lifecycles Mass Customization Speed of Information In parallel with this central trend of supply chain fragmentation, other trends like globalization, intensified competition, shorter product lifecycles, mass customization (which dramatically increases the number of products that most companies sell to their market) and elimination of intermediaries through the impact of the internet, have created a quite explosive situation, where most people expect the variability and the complexity of the Supply Chain Management process to continue to increase over the next few years by a factor of 10. As a result, operating with the existing Supply Chain Management capabilities might not be sufficient to succeed in the environment of the future. With this, we finished the first module of this course. In the second module, we will make a “reality check” on the current status of Supply Chain Management processes in large corporations.

Goals of SCM Maximize customer satisfaction
delivery reliability responsiveness and flexibility With the lowest possible cost Minimize investment in inventories Minimize production and distribution costs Let us now look at the ultimate goals of this very large process called Supply Chain Management. Actually, there are two main goals, which are both quite straightforward. The first goal is to ensure maximum and permanent customer satisfaction, first in terms of delivery reliability, which means keeping the promises you make to customers, and second in terms of delivery responsiveness and flexibility, which means being able to respond as fast as possible to customer requests and at the same time to provide the shortest possible delivery dates, while at the same time being also able to accept changes requested by the customer on delivery date, product features, etc. The second goal is to achieve this high customer service at the lowest possible cost, which implies both maximizing inventory turns and minimizing purchasing, production and distribution costs. Indeed, these goals are extremely straightforward and look extremely simple, but this doesn’t mean that they are easy to achieve.

Think Big! Drive value across the entire chain
Types of Inter-company Business Process Links Tier 3 to Initial Suppliers Tier 2 Suppliers Tier 1 Suppliers Tier 1 Customers Tier 2 Customers Tier 3 to Consumers/ End-Customers Think Big! Drive value across the entire chain 1 1 2 2 n n 1 1 Tier 3 to n suppliers 1 Initial Suppliers n 1 2 2 1 Consumer/End-Customers n 2 3 n Tier 3 to n customers 1 1 3 n 2 n n 3 1 1 n n Managed Process Links Monitor Process Links Not-Managed Process Links Non-Member Process Links Focal Company Members of the Focal Company’s Supply Chain Non-Members of the Focal Company’s Supply Chain Source: Adapted from Douglas M Lambert, Martha C Cooper and Janus D Pagh, “Supply Chain Management: Implementation Issues and Research Opportunities”, The International Journal of Logistics Management, Vol 9, No 2 (1998) p7

Lean Supply Chain Management:
Integrating and Managing Processes Across the Supply Chain Information Flow Tier 2 Supplier Tier 1 Supplier Customer Consumer/ End-user Logistics Purchasing Marketing & Sales PRODUCTION FLOW Production Finance R & D CUSTOMER RELATIONSHIP MANAGEMENT CUSTOMER SERVICE MANAGEMENT DEMAND MANAGEMENT Supply Chain Business Processes ORDER FULFILLMENT MANUFACTURING FLOW MANAGEMENT SUPPLIER RELATIONSHIP MANAGEMENT PRODUCT DEVELOPMENT AND COMMERCIALISATION RETURNS Source: Adapted from Douglas M Lambert, Martha C Cooper and Janus D Pagh, “Supply Chain Management: Implementation Issues and Research Opportunities”, The International Journal of Logistics Management, Vol 9, No 2 (1998) p2

Push/Pull View of Supply Chains
Procurement, Customer Order Manufacturing and Cycle Replenishment cycles PUSH PROCESSES PULL PROCESSES In this view processes are divided based on their timing relative to the timing of a customer order. Define push and pull processes. They key difference is the uncertainty during the two phases. Give examples at Amazon and Borders to illustrate the two views Customer Order Arrives

Increased Variability
Bull Whip Effect Retailer Manufacturer Distribution Supplier Consumer Demand Time Demand Time Increased Variability Demand Time Small Change in Demand IMPACT Poor communication Lack of visibility Human error Process constraints (e.g., capacity, batch sizes) Time lags Source: Dr. Hau Lee, Mgmt. Science, 1997.

Recommendation 1: Improve Demand Visibility
Retailer Manufacturer Distribution Supplier Consumer Demand Time Demand plans are shared across the chain Information sharing in real-time Forward visibility Minimize guessing games

Just-In-Time (JIT) JIT can be defined as an integrated set of activities designed to achieve high-volume production using minimal inventories (raw materials, work in process, and finished goods) JIT also involves the elimination of waste in production effort JIT also involves the timing of production resources (i.e., parts arrive at the next workstation “just in time”) 3

JIT and Lean Management
JIT can be divided into two terms: “Big JIT” and “Little JIT” Big JIT (also called Lean Management) is a philosophy of operations management that seeks to eliminate waste in all aspects of a firm’s production activities: human relations, vendor relations, technology, and the management of materials and inventory Little JIT focuses more narrowly on scheduling goods inventory and providing service resources where and when needed 3

Here the customer starts the process, pulling an inventory item from Final Assembly…
JIT Demand-Pull Logic Customers Sub Fab Vendor Final Assembly Then sub-assembly work is pulled forward by that demand… The process continues throughout the entire production process and supply chain 4

The Toyota Production System
Based on two philosophies: 1. Elimination of waste 2. Respect for people 5

Waste in Operations Waste from overproduction Waste of waiting time
Transportation waste Inventory waste Processing waste Waste of motion Waste from product defects 6

Minimizing Waste: Focused Factory Networks
These are small specialized plants that limit the range of products produced (sometimes only one type of product for an entire facility) Some plants in Japan have as few as 30 and as many as 1000 employees Coordination System Integration 7

Minimizing Waste: Group Technology (Part 1)
Note how the flow lines are going back and forth Using Departmental Specialization for plant layout can cause a lot of unnecessary material movement Saw Saw Saw Grinder Grinder Heat Treat Lathe Lathe Lathe Press Press Press 8

Minimizing Waste: Group Technology (Part 2)
Revising by using Group Technology Cells can reduce movement and improve product flow Grinder 1 2 Lathe Press Saw Lathe Heat Treat Grinder A B Lathe Press Saw Lathe 9

Minimizing Waste: Uniform Plant Loading (heijunka)
Suppose we operate a production plant that produces a single product. The schedule of production for this product could be accomplished using either of the two plant loading schedules below. Not uniform Jan. Units Feb. Units Mar. Units Total 1,200 3,500 4,300 9,000 or Uniform Jan. Units Feb. Units Mar. Units Total 3,000 3,000 3,000 9,000 How does the uniform loading help save labor costs? 12

Minimizing Waste: Just-In-Time Production
Management philosophy “Pull” system though the plant WHAT IT IS Attacks waste Exposes problems and bottlenecks Achieves streamlined production WHAT IT DOES Employee participation Industrial engineering/basics Continuing improvement Total quality control Small lot sizes WHAT IT REQUIRES Stable environment WHAT IT ASSUMES 13

Minimizing Waste: Inventory Hides Problems
Example: By identifying defective items from a vendor early in the production process the downstream work is saved Machine downtime Scrap Vendor Change Work in delinquencies orders process queues Engineering design Design (banks) redundancies backlogs Example: By identifying defective work by employees upstream, the downstream work is saved Paperwork Inspection Decision backlog backlogs backlogs 14

Minimizing Waste: Kanban Production Control Systems
This puts the system back were it was before the item was pulled Once the Production kanban is received, the Machine Center produces a unit to replace the one taken by the Assembly Line people in the first place Withdrawal kanban Storage Part A Storage Part A Machine Center Assembly Line Production kanban Material Flow Card (signal) Flow The process begins by the Assembly Line people pulling Part A from Storage 15

What is JIT and Lean? Value Proposition and KPIs of SCM Critical Success Factor of Adopting SCM What does Oracle SCM Solution offers?

Supply Chain Value Proposition
Order Management Support multi-channel order capture, including complex configurations Improve order accuracy and visibility Reduce order processing time and costs Supply Chain Planning Improve forecast accuracy Synchronize value chain operations/increase velocity Minimize inventory costs while improving service levels Procurement Lower procurement transaction costs Lower total purchasing spend Increase quality of goods/ services purchased Manufacturing Reduce cost while improving quality Reduce cycle times Enable manufacturing agility: make vs. outsource Logistics Minimize cost of movement and storage Improve speed & accuracy of delivery commitments Reduce shipping errors Service Deploy lowest cost, best fit service channel Decrease issue resolution time Grow revenues via differentiated services Maintenance Mgmt Minimize asset downtime Reduce maintenance costs Improve safety and compliance Product Lifecycle Mgmt Design more competitive products Reduce product cost Accelerate time-to-market Supply Chain Intelligence Measure and monitor key performance indicators in real-time Compare results, view trends Identify exceptions and opportunities for continuous process improvement

Realizing Supply Chain Benefits
Increase… Decrease… Engineering Changes % Design Errors / Rework Cost % CTO / ETO Order Errors % Inventory Levels % Planning Cycle Time % PO Processing Cost % Indirect Material Cost % Mfg Cycle Time % Unplanned Downtime % Warehouse Labor Hours % Direct Transportation Spend % Shipping Errors % SLA Penalties % Spares Inventory Cost % MRO Cost % Component Re-Use % Customer Service % Purchasing Volume Discounts % Mfg Labor Productivity % Equipment Capacity % Manufacturing Throughput 20-50% On-Time Deliveries % Carrier Capacity Utilization % Service Productivity % Service Scheduling Efficiency 10-15% Maintenance Productivity 40-55% Worker Safety % Maintenance Wrench Time 20-50% Sources: AMR Research, Alcatel, Boeing, British Standards Institute, CIMdata, HP, Computer Service & Support Magazine, CSM Magazine, eSync, Ingersoll-Rand, Intermec, Lilly, Meta Group, PwC ECO Study, Society for Maintenance & Reliability Professionals, Telia Networks, Tompkins

How Supply Chain Management Affects Economic Value Added (EVA)
Sales Supply Chain Management’s Impact Retain and strengthen relationships with profitable customers Increase sales volume Sell higher margin products Improve “share of customer” Improve mix (align services and cost to serve) Improve plant productivity Targeted marketing Reduce services provided to less profitable customers Improve trade spending Eliminate or reduce services provided to low-profit customers Optimise physical network/facilities Leverage new and/or alternative distribution channels Reduce general overhead/management/administrative costs Reduce order processing costs Reduce human resources costs/improve effectiveness Improve demand planning Reduce safety stock Make to order, mass customisation of inventories Reduce accounts receivable through faster payment Improve asset utilisation and rationalisation Improve product development and asset investment Improve investment planning and deployment Gross Margin - Cost of Goods Sold Net Profit Net Profit Margin - Total Expenses + Net Sales Economic Value Added [Net Profit] [Net Sales] = Inventory - Current Assets + Other Current Assets Cost of Capital Total Assets + Fixed Assets % x

Formulas for Measuring Supply-Chain Performance
One of the most commonly used measures in all of operations management is “Inventory Turnover” In situations where distribution inventory is dominant, “Weeks of Supply” is preferred and measures how many weeks’ worth of inventory is in the system at a particular time 17

Example of Measuring Supply-Chain Performance
Suppose a company’s new annual report claims their costs of goods sold for the year is $160 million and their total average inventory (production materials + work-in-process) is worth $35 million. This company normally has an inventory turn ratio of 10. What is this year’s Inventory Turnover ratio? What does it mean?

Example of Measuring Supply-Chain Performance (Continued)
= $160/$35 = 4.57 Since the company’s normal inventory turnover ration is 10, a drop to 4.57 means that the inventory is not turning over as quickly as it had in the past. Without knowing the industry average of turns for this company it is not possible to comment on how they are competitively doing in the industry, but they now have more inventory relative to their cost of goods sold than before. 17

People Process Technology
Not IT-Centric but Holistic Approaches in Supply Chain Management Projects Correct balance People Process Indeed, the correct balance between these 3 elements is to place people at the center of the effort. Technology

SCM is a Continuous On-Going Process
Strategic, Operational, tatical Planning Execution at all level through well defined flow Plan Do Check Act Plan Do Check Act Plan Do Check Act Intelligence Reporting Exception Act on any corrective action

Critical Success Factors of SCM Projects
Aligned Objectives among All Teams Executive Sponsorships Objectives Focus Scope Definition and Control Change Management Solution Quality & Maturity Data Readiness Team and Infrastructure Project Management Economic and Financial Environment

Supply Chain Evolution
Fragmentation (60’s) Evolving Integration (80’s) Total Integration (2000+) Demand Forecasting Purchasing Requirements Planning Production Planning Manufacturing Inventory Warehousing Materials Handling Industrial Packaging Finished Goods Inventory Distribution Planning Order Processing Transportation Customer Service Materials Management Supply Chain Management Physical Distribution

Incredible Change within Decade
Lean Introduced 3 PL Quality Circles Prod Data Mgmt MRP II Supplier Integration Six Sigma TQM Mfg. Execution Systems Lean Revisited Integrated Product and Process Development Integrated Supply Chains CRM PLM Advanced Planning and Scheduling E-Fulfillment Collab. Planning Source: Accenture 2002

SCM Market Opportunity Review
Definition of SCM in APAC APAC-SCM can be subdivided into 3 key area (Ref to Gartner Definition) SCM SCP: Supply Chain Planning : APS Suite SCE: Supply Chain Execution : Oracle GOP, WMS, TM, TP, SRM: Supplier Relationship Management : Oracle iSupplier, iProc, Sourcing SCS: Supply Chain Supervision : Oracle DBI for Planning & Execution ERP (MFG) MFG: Discrete/Process Mfg : Oracle ODM/OPM & DBI DIST: Distribution Apps : Oracle OM, INV and PO EAM : Oracle eAM/PO/Projects/OTL

Oracle Supply Chain Products
Order Management Receivables Advanced Pricing Configurator iStore TeleSales Quoting & Proposals Trade Management Release Management Sales Contracts (future) Supply Chain Planning Demand Planning Advanced Supply Planning Constraint Optimization Global Order Promising Manufacturing Scheduling Inventory Optimization Collaborative Planning Transportation Plng Supplier Management Purchasing Payables iProcurement Sourcing iSupplier Portal Procurement Contracts (future) Production Discrete Manufacturing Project Manufacturing Flow Manufacturing Project Contracts Shop Floor Management Process Manufacturing Logistics Inventory Management Mobile Supply Chain Apps Warehouse Management Transportation Execution Service iSupport TeleService Service Contracts Field Service - Spares Management - Advanced Scheduler - Mobile Field Service Depot Repair Maintenance Mgmt Enterprise Asset Mgmt cMRO Product Lifecycle Mgmt Advanced Product Catalog CADView-3D Project Mgmt / Collab. Suite Supply Chain Intelligence

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