Supply Chain Management

Supply Chain Management
By: Mahesh Alimchandani GM SCM, Cummins India Ltd. Gmail: maheshalim@gmail.com 1 Cell: +91-9623275447
1. Introduction
1. Introduction
1.1. Key Concepts 1.1.1. Supply Chain
The Supply Chain is:

the sequence of suppliers that contribute to the creation and delivery of a good or service to end customers. APICS (1): The processes from the initial raw material to the ultimate consumption of finished product, linking across supplier-user companies. APICS (2): The functions within and outside a company that enable the value chain to make products and provide services to the customers.
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1. Introduction
1.1. Key Concepts 1.1.2. Logistics
Logistics is:
the management of the storage and flow of goods, services and information throughout your organisation.
1. Introduction
1.1. Key Concepts 1.1.3. Supply Chain Management
Supply Chain Management is:

organizing the cost effective flow and storage of materials, in-process inventory, finished goods and related information from point of origin to point of consumption to satisfy customer requirements.
1. Introduction
1.1. Key Concepts 1.1.4. Objectives
Greater efficiency; lower costs

Enhance flexibility; agility Improve customer service
Optimize the value chain
1. Introduction
1.2 Principal Issues 1.2.1. Supply Chain (1)
Supply Chain
The supply chain of a company consists of different departments, ranging from procurement of materials to customer service. The supply chain includes activities associated with inventory (materials) acquisition, storing, use in production, transit, and delivery to customers. The activities are planned, executed, and monitored under the guidelines set by the companys chosen customer service levels and in line with the companys other operating goals.
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1. Introduction
1.2 Principal Issues 1.2.1. Supply Chain (2)
Suppliers Partner
Customers
Stores Employee s Supplier Employee s Stores Logistic s Factory Employee s Stores
Distributors & Resellers
Inbound Logistics
Stores
Warehous e
Value Flow Information Flow Value Flow Enablers
Line Inventory
1. Introduction
1.2. Principal Issues 1.2.2. Elements of Logistics
Elements of Logistics:
materials management:
sourcing and receiving of raw materials or unfinished products for subsequent use
material flow system:

the ability to locate and schedule material through to end production and disposition
physical distribution:
the delivery of finished goods to customers
1. Introduction
1.2. Principal Issues 1.2.3. Logistic Goal
Logistic goal and objectives

The right products The right quantity The right moment At minimal cost
Flexibility
Delivery reliability
Delivery time/ lead time
Inventory level
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1. Introduction
1.2. Principal Issues 1.2.4. Logistic Steps
Logistic steps:
accepting a customer order
receive and enter credit clearance / authorize delivery commitment
supplier ordering forecasting demand scheduling manufacturing inventory management delivery to customer.
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1. Introduction
1.2. Principal Issues 1.2.5. Evolution Quality products Lowest possible cost
Supply Chain Evolution
Order fulfillment
Integration of supply chains Customer service Preferred partners Communication Supply chain communities Common goals, objectives
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1. Introduction
1.2. Principal Issues 1.2.6. The Goal
Supply Chain Management Goal

To evolve a companys supply chain into an optimally efficient, customer-satisfying process, where the effectiveness of the whole supply chain is more important than the effectiveness of each individual department.
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1. Introduction
1.2. Principal Issues 1.2.7. Focus
Supply Chain Management focuses on business processes:

product design planning order management stock management
instead of functions:
sales purchasing production
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1. Introduction
1.2. Principal Issues 1.2.8. Drivers of Change (1)
Drivers of change:
outsourcing trend actual customer demand: speed, flexibility and competitive pricing new software: ERP, sophisticated application software
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1. Introduction
1.2. Principal Issues 1.2.8. Drivers of Change (2)
new technologies
Electronic Data Interchange (EDI) internet, intranet, extranet wireless communications teleconferencing and telecommuting bar coding.
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1. Introduction
1.2. Principal Issues 1.2.9. Activities
Supply chain management activities:

Forecasting demand Selecting suppliers Ordering material Managing inventory Scheduling production Shipping and delivery Organizing information exchange
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1. Introduction
1.3. Analysis 1.3.1. Diagram
Understand the customer
Understand the product
Understand the information flow
Understand the process
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1. Introduction
1.3. Analysis 1.3.2. Understand the Customer (1)
Know and understand the customers:

Your existing customers, i.e.,
demographics existing and potential number income levels?
Who are your potential customers? How might these customers be grouped? For which percentage of sales is each group responsible?
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1. Introduction
1.3. Analysis 1.3.2. Understand the Customer (2)
What is the effect of various methods of communications (i.e., telephone, fax, e-mail, internet telephoney systems) in your relation with your customers? What do your customers want from you? How well do your competitors meet customers needs?
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1. Introduction
1.3. Analysis 1.3.3. Understand the Products
Understand the products:

How many? Where are they? Which percentage of sales? What is the product life cycle? What is the product mix?
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1. Introduction
1.3. Analysis 1.3.4. Understand the Process
Understand the production process:

process flow
linear flow job shop - batch flow assembly line continuous flow project flow
order fulfillment strategy

make-to-order make-to-stock.
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1. Introduction
1.3. Analysis 1.3.5. Understand the Information Flow
Understand the information flow:

What information is required for effective decision-making at each stage in the supply chain? What data has to flow between each part of the supply chain?
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1. Introduction
1.4. Performance Indicators (1)
A total view must be taken in assessing performance. Performance measurements need to be focused on what factors add to total performance, total value or total cost. The principle performance indicator is customer service. Optimum service levels are necessary from each supplier to each customer throughout the supply chain.
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1. Introduction
Customer Service + Quality
Efficiency
Effectiveness
Suppliers
Inputs
Adding value
Outputs
Customers
Results
Productivity
Customer Service
Profitability
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1. Introduction
Effectiveness:
accomplishment of the right things, on time, within the requirements specified.
Efficiency:
resources expected to be consumed divided by resources actually consumed.
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1. Introduction
Productivity:
measures of output divided by measures of input for a given period of time.
Profitability:
relationship between revenues and costs.
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2. Purchasing and Procurement
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2. Procurement
2.1. Key Concepts
Purchasing: implies the monetary transaction. Procurement: the responsibility for acquiring the goods and services the organization needs:
goods:
raw materials production parts maintenance, repair and operating supplies (MRO)
services:
consulting services utilities workers health care benefits.
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2. Procurement
2.2. Principal Issues 2.2.1. Evolution in Purchasing
Evolution in Strategies for Purchasing

Focus on price Focus on quality, reliability, responsiveness, and total cost
Strategic focus
- supplier relationships - forecasting - cycle time
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2. Procurement
2.2. Principal Issues 2.2.2. The Procurement Process (1)
The Procurement Process:

preparation:
identify needs, such as dependability, long term availability evaluate user requirements to ensure suitability of purchase forecast when and how purchase will be needed identify and select suppliers develop an efficient ordering system for control
negotiation:
bidding processes contracts
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2. Procurement
2.2. Principal Issues 2.2.2. The Procurement Process (2)
order placing via appropriate channels (i.e. authorized purchase order) receiving including adjustments for damages, short or over-shipping and incorrect costs monitoring supplier performance.
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2. Procurement
2.2. Principal Issues 2.2.3. Supply Uncertainty
Elements of supply uncertainty:

lead time to supply quantity supplied quality of supply data accuracy on products supplied and prices.
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2. Procurement
2.2. Principal Issues 2.2.4. Selecting a Supplier
In selecting a supplier, a number of factors must be analyzed:

price quality reliability credit terms shipping costs.
Look at the whole transaction cost of dealing with a supplier (not just the cheapest price).
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2. Procurement
2.1. Principal Issues 2.2.5. Positive Trends (1)
Positive trends in purchasing and procurement include:

reduced number of suppliers long-term relationships with suppliers suppliers located close to customers for improved access integrated information infrastructure: EDI, electronic catalogs
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2. Procurement
2.1. Principal Issues 2.2.5. Positive Trends (2)
suppliers considered to be an essential part of the business suppliers involved in future product development programs.
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2. Procurement
2.3. Analysis
Key considerations in analyzing the purchasing process:

annual sales annual purchases number of suppliers number of supplier alliances total number of purchased products or parts short and long-term cost effective purchasing efficient business management of the purchasing process.
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2. Procurement
2.4. Suggestions
Analyze what the suppliers requirements are for:

goods and services: lot sizes, packaging, delivery frequency, and responsiveness information: how much and when financing arrangements and costs.
Compare your needs and abilities against these requirements.
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2. Procurement
2.5. Performance Indicators 2.5.1. Delivery to Schedule
The following formula is used to assess suppliers delivery to schedule performance.

D%=100-(L*100)/S D = monthly delivery performance (%) L = number of line items delivered later than scheduled S = number of line items scheduled for delivery during month Different tolerances for A, B, C-articles (see chapter 6)
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2. Procurement
2.4. Performance Indicators 2.5.2. Quality to Specification
The following formula is used to assess quality performance.

Q%=100-(R*100)/N Q = monthly quality performance (%) R = number of units rejected during month N = number of units delivered during month
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The Supply Chain Management Guide
3. Sales Forecasting
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3.1. Key Concepts
Sales forecasting is the process of organizing and analyzing information in a way that makes it possible to estimate future sales.
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3.2. Principal Issues 3.2.1. Demand Uncertainty
Elements of demand uncertainty:

timing of order size and composition of order data accuracy on:
products required delivery points timing.
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3.2. Principal Issues 3.2.2. Components of Demand
Components of demand:
Trend:
growth or decline over an extended period of time
Cyclical:
wavelike fluctuation around the trend
Seasonal:
pattern of change that repeats itself year after year
Random:
not accounted for by the other components (trend, cyclical, or seasonal).
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3.2. Principal Issues 3.2.3. Sales Forecasting Methods (1)
Qualitative sales forecasting methods rely more on judgment and intuition than on historical data:
surveys of buyer intentions, such as questionnaires, telephone polls, and consumer interviews Delphi technique:
a body of experts, consulted separately, is asked to arrive at a consensus opinion
sales force composite:

based on the combined estimates of experienced sales personnel.
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Quantitative sales forecasting methods make use of past data to predict future sales:
market tests to gauge consumer response (usually to a new or modified product) under actual conditions
trend projections/analysis (also called Time Series) involves forecasting sales based on the historical relationship between sales and time, which is expressed as a growth rate (percentage) and each measure is plotted on a growth curve:
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moving average: all observations are given equal weight and only a few of the previous observations are considered exponential smoothing: gives greater weight to more recent observations and considers all past observations
regression analysis can be used to forecast a dependent variable (i.e., sales) as a result of changes in one or more independent variables (i.e., advertising)
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input-output models forecast the impact of the change in the outputs (sales) of one industry on the out-outs of the purchasing industry (i.e., a reduction in the supply of tin cans produced by the metal industry would effect the supply of canned tuna that would be produced by the fish canneries).
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Computerized forecasting models include:

spreadsheets, such as Microsoft Excel (with the Data Analysis Toolpack), that can perform calculations automatically with changes in entered data
forecasting application software:

statistical packages, such as Minitab forecasting packages specifically designed for forecasting applications
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3.2. Principal Issues 3.2.4. Major Uses of Sales Forecasts (1)
Sales forecasts are used for:

production:
production scheduling inventory control
purchasing:
determination of procurement requirements scheduling of purchases to get favorable prices
finance:
establishing of operating budgets cash flow planning capital budget / expenditure decisions
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3.2. Principal Issues 3.2.4. Major Uses of Sales Forecasts (2)
marketing:
formulation of marketing strategies for products setting of sales quotas scheduling of advertising expenditures and sales promotions
personnel:
planning of manpower requirements
top management:
overall planning and control of operations of the company.
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3.2. Principal Issues 3.2.5. Advantages Forecasting (1)
Accurate sales forecasting offers several advantages:

reduced excess inventory fewer stock shortages which result when demand exceeds supply fewer unnecessary production line changes to fulfill unanticipated demand less overtime hours through improved predictions in personnel requirements improved customer service levels as supply and demand balance more economic purchasing power.
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3.2. Principal Issues 3.2.6. Forecast Accuracy
Factors that influence forecast accuracy:

availability of product demand history capability of computer system other available history (i.e., new products, design changes, changes in customer base, promotional actions, economic indicators) responsibility for forecasting: a team effort is required (Sales, Distribution and Manufacturing).
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3.3. Checklist
Sales forecasting considerations:

What are the items to be forecast? How far into the future should the forecast extend? What is the length of the time period for stating the forecast quantity? How frequently should the forecast be made, reviewed and revised? What would constitute an acceptable tolerance of forecast error?
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3.4. Suggestions (1)
Prior to forecasting sales, scrub the data by removing the effects of unusual events that are not likely to happen again. Otherwise, the forecasting model will show a distorted view of the past.
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Examples of problems that may require data adjustments:

unusual weather addition or loss of major customers special promotions changes in price or package size.
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Determine the most accurate forecasting method:

regularly use a number of different methods to generate forecasts maintain historical accuracy information on each method use the most accurate method to generate official forecasts.
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Make an ABC-analysis of the items to forecast:

A-items are reviewed each month by management only those B- and C-items with a significant deviation between forecast and actual demand need to be reviewed by management.
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4. Production planning and control
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4. Production Control
4.1. Key Concepts 4.1.1. Production Planning and Control
The responsibility for:

number of units of a specific product to be produced time intervals over which production will occur availability of equipment, materials and work force cost effective inventory and resource management.
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4.2. Principal Issues 4.2.1. Production as a Goal or Means (1)
Production as a goal:
resources are planned and used in the production process regardless of actual demand often based on economies of scale, where lower cost per item is presumed to generate end product demand.
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4.2. Principal Issues 4.2.1. Production as a Goal or Means (2)
Production as a means:
resources are planned and used in the production process only as a result of product demand often based on economies of scope, where end product demand has greater influence over production units and costs.
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4.2. Principal Issues 4.2.2. Economies of Scope vs Scale (1)
Economies of scope production assumptions:

responsive to demand flexible production plans variable cost per item smaller production runs increased total set up and change over costs lower product/inventory obsolescence minimized inventory carrying costs material is pulled through the production process as needed.
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4.2. Principal Issues 4.2.2. Economies of Scope vs Scale (2)
Economies of scale production assumptions:

responsive to profit margin gains fixed production plans lower cost per item larger production runs less production set up and change over cost greater risk of product/inventory obsolescence higher inventory carrying costs material is pushed through the production process.
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4.2. Principal Issues 4.2.3. Order Decoupling Point
How far does a customer order penetrate in the production process?

Purchasing Production Warehouse Distribution
Position of the order decoupling point Manufacture to order Manufacture to stock
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4.2. Principal Issues 4.2.4. Planning Hierarchy
Aggregate plan: works with aggregate (grouped) units
Master Production Schedule: indicates the quantity and timing of the production of specific end items. (actual orders are incorporated)
Materials planning: what material is needed when? Capacity requirements planning: which equipment, work force and facilities are required? Loading: which job on which work center? Sequencing: in which order have the jobs to be processed?
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4.2. Principal Issues 4.2.5. Production Control Systems
Formal production control systems for inventory include:

Economic Order Quantity (EOQ) Materials Requirements Planning (MRP) Just-in-Time concept
(See Chapter 6, Inventory Management)
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4.3. Suggestions
Suggestions:
pull rather than push material through the production process produce nothing until it is needed reduce set up times reduce lot sizes try to move the order decoupling point to an early stage in the supply chain try to remove transaction (steps which ad no value) from the process.
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5. Material Handling
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5.1. Key Concepts 5.1.1. Material Handling (1)
Material Handling:
moving of goods between incoming transport, storage, processes and outgoing transport the set of activities that move production inputs and other goods within plants, warehouses and transportation terminals.
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5.1. Key Concepts 5.1.1. Material Handling (2)
Providing the right amount of material:

in the right condition at the right place at the right time in the right position in the right sequence for the right cost by using the right methods.
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5.2. Principal Issues 5.2.1. Materials Handling Manager (1)
The task for the materials handling manager is to find the methods, the routes, the layouts and the right components to minimize handling.
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5.2. Principal Issues 5.2.1. Materials Handling Manager (2)
Six main responsibilities of the materials handling manager:

packaging - unitizing internal transport storage retrieval identification communication.
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5.2. Principal Issues 5.2.2. Material Handling System Design
The design of a material handling system depends upon the the type and the characteristics of the materials to be handled.
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5.2. Principal Issues 5.2.3. Material Handling System Components (1)
Material handling equipment:

unitizing equipment material transport equipment storage and retrieval equipment automatic identification and communication equipment.
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Unitizing equipment:
containers, such as cartons, boxes, and bags carriers or support, such as pallets, skids, and plywood stretch wrap shrink wrap.
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Material transport equipment:

conveyors (belts and rollers) industrial vehicles, such as pallet trucks, lift trucks, and automated guided vehicles (AGV) monorails hoists cranes.
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Storage and retrieval equipment:

unit load storage equipment unit load retrieval equipment small load storage and retrieval equipment.
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Automatic identification and communication equipment:

bar coding radio frequency tag magnetic stripe smart cards voice headsets machine vision.
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5.2. Principal Issues 5.2.4. Cost-effective Means of Transport (1)
Key factors to consider in selecting means of transport:

physical characteristics of loads the number of loads to be moved the distance to be moved the required speed of movement.
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Units moved/ hour
Conveyors
Motorized trolleys
Forklift trucks Manual trolley Manual Movement distance (m)
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Other factors which influence the means of transport:

cost of building/dismantling loads packaging costs space requirements interface with other storage, transport and handling systems housekeeping issues.
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5.2. Principal Issues 5.2.5. Warehousing (1)
The warehouse must be:

located in the right place the right size organized
to allow:
efficient delivery and placing cost-effective use of its space adequate access to stored materials security from theft and weather flexibility to deal with the various items.
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The mission (or goal) of a warehouse is set by demand. The warehouse location is a means to achieving the mission.
Mission
Balance and buffer Accumulate and consolidate Rapid response
Location
Near the manufacturer Central to production locations Close to customer
Demand
Monthly/quarterly replenishments of stocks Weekly/monthly orders Daily
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Within the warehouse, stock must be:

put into known places and in known order
so that it can be:

retrieved quickly and in the right quantity rotated properly (ex. first-in, first-out).
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Warehousing activities:
receiving goods identifying goods sorting goods dispatching goods to storage holding goods picking goods preparing shipments dispatching shipments.
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Material receipt
Scan the incoming part number Determine the storage location Location input to operator for storage Confirmation from operator on storage Inventory update
Material tracking
Monitor material movement in storage Maintain FIFO / LIFO etc. as required Maintain history for every part number from receipt to dispatch
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Material issue
Receive dispatch order from ERP Determine the material to be issued based on FIFO / LIFO etc. Location input to operator for picking Confirmation from operator on delivery
Inventory update
Inventory count Maintain inventory count for every part number stored
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ERP Integration
Inventory updates Delivery schedules
Reports
Inventory on hand Orders dispatched Orders on backlog Orders under process Shipments completed in a given period of time
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WMS Benefits Faster inventory turns. More efficient use of available warehouse space. Reduction in inventory paperwork. Improved cycle counting. Reduced dependency on warehouse personnel. Enhanced customer service. Improved stacking productivity.
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5.3. Suggestions
Suggestions for materials handling:

use identification systems, such as bar coding to handle the right material:
give a part identification number give a location identification number
handle similar materials, packaging and size of loads at the same time implement improvements in material handling systems which will increase the efficiency of the overall system.
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6. Inventory Management
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6.1. Key Concepts
Inventory:
those stocks or items used to support production and customer service.
Service level:
probability (%) that stock will be available to meet demand.
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6.2. Principal Issues 6.2.1. Types of Inventory (1)
Types of Inventory:
raw materials:
purchased parts used in manufacturing other items
work-in-process:
parts that are in the manufacturing process
sub-assemblies:
manufactured parts that are partially completed and stocked in inventory
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6.2. Principal Issues 6.2.1. Types of Inventory (2)
finished goods:
Items ready for sale to a customer
MRO:
maintenance, repair and operation supplies.
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6.2. Principal Issues 6.2.2. Functions of Inventory (1)
Functions of inventory:
safety stocks:
protect against uncertainties of materials supply and consumer demand
cycle stocks:
result from ordering or producing in lots
transit stocks:
materials must be moved from one location to another
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6.2. Principal Issues 6.2.2. Functions of Inventory (2)
speculative stocks:
expected price increase
promotional stocks:
additional inventory accumulated for a promotional event.
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6.2. Principal Issues 6.2.3. Elements of Inventory (1)
Elements of inventory
Inventory Level
Excess stock
Replenishments Safety stock

Time
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6.2. Principal Issues 6.2.3. Elements of Inventory (2)
Elements of inventory
Over time, demand and the ability to service demand (replenish inventory) can vary. Forecasts may not be precise due to uncertainties, so, a reserve of stock (safety stock) may be necessary to reduce inventory shortages (stock-outs). Inventory levels above the safety stock and normal demand are considered excess inventory.
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6.2. Principal Issues 6.2.4. Inventory Holding
Reasons for holding inventory:

purchased parts:
variations in supplier lead time quantity discounts price changes scarcities of materials cover period between production runs allow flexibility in production scheduling variations in product demand (safety stock) economies of scale.
manufactured parts:
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6.2. Principal Issues 6.2.5. Inventory Costs (1)
Cost of inventory production and holding:

order/set-up costs:
cost of replenishing inventory through changes in the production run for a different item includes labour and other associated costs
carrying costs:
cost of capital insurance costs costs of space, staff inventory handling, deterioration, damage, obsolescence, insurance
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6.2. Principal Issues 6.2.5. Inventory Costs (2)
opportunity costs:
restriction of other investments that could have been made with the same money
stock-out costs:
lost sale halted production.
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6.2. Principal Issues 6.2.6. Inventory Management (1)
Objectives of inventory management:

minimize costs:
working capital carrying costs scrap and rework
highest level of customer service.
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Inventory management tasks:

make decisions about:
safety stock replenishment production runs excess stock.
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Inventory must be managed differently for:

independent demand: influenced by market conditions dependent demand: derived from the production of parent items.
(see following slide)
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Independent demand
Dependent demand E
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6.2. Principal Issues 6.2.7. ABC-Analysis (1)
ABC analysis of inventory:

select a criterion (sales / usage) based on importance rank the inventory items on criterion calculate the cumulative sales and/or usage for all items assign items into A, B, C groups assign inventory levels and warehouse locations for each item.
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ABC classification, where items are not of equal importance:

A-items
few items (ex. 15 %) which have a high rate of usage and/or high unit cost and account for 80 % of the total value of usage in the inventory
B-items
number of items (ex. 25 %) which in total account for 15 % of the total value of usage
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C-items
great many items (ex. 60 %) with low individual usage and/or low unit value which in total account for only 5 % of the total value of usage
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ABC analysis chart demonstrates relative importance of inventory items.

Class of Item % of Items % of Value
Class A Class B Class C
15% 25% 60%
80%
15% 5%
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ABC - Analysis Chart

600
Number of items
500 400 C B A
300
200 100 0 Product 1 Product 2 Product 3 Product 4
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6.2. Principal Issues 6.2.7. ABC Analysis (6)
ABC and inventory control efforts:

A-items
very careful management careful estimates of future usage.
B-items
routine management routine effort in forecasting demand.
C-items
little effort in forecasting demand however be careful for strategic items (safety stock).
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6.2. Principal Issues 6.2.8. Inventory Management Systems (1)
Inventory management systems include:

two-bin replenishment system:
used for low value , non-critical items (i.e.. class C items) relies on visual inspection of declining inventory one bin contains enough material to meet needs between the time one order is received and another is placed second bin (also called the reserve bin) contains enough material to meet needs between placing an order and receiving the materials if production taps into the reserve bin, additional materials must be ordered immediately
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reorder point system:

amount ordered when inventory declines to a predetermined level considers: when to order (re-order point) how much to order (order quantity)
periodic review systems:

after predetermined fixed passages of time, orders are placed for variable amounts consider: how much to order (order quantity) how long between orders (reorder time interval)
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Materials Requirements Planning (MRP):

assumes variable demand throughout production calculates component requirements based on the Master Production Schedule (MPS), Bill of Material and inventory data materials are purchased only when the MPS has them scheduled for use materials are pushed through a plant
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MRP II systems share information with other functional departments, outside the operations area (i.e., purchasing, sales, cost accounting). These systems plan the use of company resources, including scheduling raw materials, vendors, production, equipment and processes
JIT: different approach to reordering:

activities that add no value are waste material only is supplied when it is requested from the next step in the production process (pull system) these requests are called kanbans.
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6.2. Principal Issues 6.2.9. How Much to Order: EOQ (1)
Economic Order Quantity (EOQ):

the lot size that minimizes total annual inventory holding and ordering costs assumptions:
annual demand is constant. forecast is perfect (no random error) all costs are constant and linear lead time is known and constant.
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6.2. Principal Issues 6.2.12. Excess Inventory
Reasons for excess inventory include:

engineering changes spoilage defects technical obsolescence lack of market demand.
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6.2. Principal Issues 6.2.13. Inventory Counting Methods (1)
Inventory Counting Methods:

Cycle counting:
a few experienced people count continuously throughout the year timely detection of errors fewer mistakes in item identification minimal loss of production time systematic improvement of record accuracy.
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6.2. Principal Issues 6.2.13. Inventory Counting Methods (2)
End of year:
many inexperienced people count inventory in a short hectic period once per year no correction or cause of errors many mistakes in item identification
plant and warehouse shutdown for inventory

no improvement of inventory accuracy.
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6.3. Suggestions 6.3.1. 6 Step Action Plan
Find out why you have inventories Analyze the present situation:
inventory matrix ABC-analysis
Define the inventory levels Define the inventory system Define performance indicators Performance follow-up
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6.3. Suggestions 6.3.2. Inventory Matrix
Fill in the different amounts of inventory

Raw material WIP Sub-assemblies MRO Finished Goods
Safety Cycle Transit Speculative Promotional -------------
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6.3. Suggestions 6.3.3. Rationalize Products
Print and analyze lists of slow-moving and Class C items Monthly evaluation Action plans Follow-up
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6.3. Suggestions 6.3.4. Reduce Excess
Reduce excess:
try to move the order decoupling point to an early stage in the supply chain to reduce inventory holding (carrying) cost:
Sourcing Production Warehouse Distribution
ABC - item management shorten replenishment cycles.
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6.4. Performance indicators (1)
Inventory turnover:
Annual cost of sales Inventory value at cost
Stock coverage:
stockholding x 52 weeks / annual usage
Customer satisfaction:
comparison of % of demand actually satisfied with the defined service level number of backorders
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6.4. Performance indicators (2)
Excess inventory reduction: R%=((PE - CE)/PE)*100

R=inventory reduction during month (%) PE=prior month excess inventory (value) CE=current month excess inventory (value)
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7. Distribution
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7. Distribution
7.1. Key Concepts (1)
Physical distribution:
the activity that is concerned with:
receiving parts or finished goods storing them until they are required and then delivering them to the customer.
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7. Distribution
Transport operator:
who does the moving.
Intermodal:
interchange point from one transportation mode provider to another.
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7. Distribution
Consolidation:
the process of receiving multiple lots in small quantities, which are accumulated and then repackaged into one larger lot.
Cross docking:
unloading the cargo from several trucks and then immediately reload it into one container for delivery to a final destination.
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7. Distribution
Distribution warehouse:
a facility designed to assemble and then redistribute goods in a way that facilitates rapid movement to customers.
Unitization:
a technique for grouping boxes on a pallet or skid for later movement by pallet jack, forklift, conveyor and/or truck.
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7. Distribution
Containerization:
the process of combining several unitized loads into a single well-protected load.
138
7. Distribution
7.2. Principal Issues 7.2.1. Functions of Physical Distribution
Functions of physical distribution:

inventory management order processing warehousing:
the set of activities involved in receiving and storing goods and preparing them for reshipment
materials handling transportation.
139
7. Distribution
7.2. Principal Issues 7.2.2. Distribution Decisions
Important distribution decisions:

Which transport mode? Number and location of distribution warehouses? Own or contract-out warehousing and transport?
140
7. Distribution
7.2. Principal Issues 7.2.3. Transport Modes (1)
Basis of transport mode selection:

nature, volume, value and criticality of goods flexibility of transport mode: coping with demand change.
141
7. Distribution
Methods of transport:
trucks railroads water airways pipelines
Rail Piggyback
Truck Fishyback Water Pipeline Birdyback
Air
142
7. Distribution
Trucks:
flexible, on-time, low loss and damage, tracing, accuracy and wide geographical coverage weather and traffic conditions can delay shipments still heavy price competition.
143
7. Distribution
Railroads:
inexpensive for carload lots requires more packing material or must allow for rough handling somewhat slow freightforwarders, piggyback truck, and doublestack containers offer cost savings for users. Idle time is very high Ideal for heavy or high density prods
144
7. Distribution
Water transportation:
ideal for heavy, low-value non-perishables, but has high fixed costs weather can be a problem containerization and improved ports allow for expansion in new products and markets. Slowest mode
145
7. Distribution
Airways:
high costs, so only suitable for high value or urgent or perishable items weight and locations limited saves inventory holding costs important in international trade.
146
7. Distribution
Pipelines:
slow but dependable, continuous flow of liquids or slurries harder to establish today due to government regulations. Infrastructure building is a big task
147
Package Carrier
Expensive Time constraint or high value prods rapid & reliable Rapid & reliable Preferred fr e businesses eg amazon Trackable Can be thru any mode airway truck etc
148
Intermodal Transport
Intermodal transport Combination of 2modes conveyence Truck + Aeroplane- birdie back Truck + Ship- Fishyback Truck + train- Piggyback
149
7. Distribution
7.2. Principal Issues 7.2.4. Outsourcing
Decisions for owning or contracting-out transport consider:

total cost control customer service flexibility management skills operators return on investment.
150
7. Distribution
7.2. Principal Issues 7.2.5. Distribution Warehouses
Number and location of distribution warehouses are based on:

customer service needs available transportation services cost trade-off.
151
7. Distribution
7.3. Performance indicators
Performance can be assessed on the basis of:

distribution system flexibility:
response time to special requests
distribution system information:

speed, accuracy and message detail of response
distribution system malfunction recovery:

efficiency to recover from malfunction (errors in billing, damage, claims).
152
8. Customer Service
153
8. Customer Service
8.1. Key Concepts
Customer Service Standard

A statement of goals and acceptable performance for the quality of service that a company expects to deliver to its customers.
154
8. Customer Service
8.2. Principal Issues 8.2.1. What Customers Look for (1)
What customers look for:

Pre-transaction:
accessibility of data (catalogue, price lists, literature) completeness of data (products, prices, instructions) availability of samples
155
8. Customer Service
accessibility of the organization: experts assurance of product suitability, quality, reliability (employees should be knowledgeable about products) customers want to be noticed, appreciated and recognized as important individuals efficiency of the information flow
156
8. Customer Service
Transaction:
reliability: delivery on time, in the right quantities, and error-free quality of products, packaging, palletisation information about order processing, dispatch, transport flexibility: time, product variants, volumes assurance of satisfaction after purchase.
157
8. Customer Service
Post-transaction:
technical support, training, helpdesk availability of spare parts and repair instructions product traceability handling of complaints: speed, monitoring, evaluation administration: invoices, accounts receivable, and payments performance measurements and evaluation.
158
8. Customer Service
8.2. Principal Issues 8.2.2. What Customers Experience (1)
The customer experience is:

any episode in which the customer comes in contact with the organization:
personal contact telephone mail advertising internet (i.e., e-mail, forms)
any event that forms a perception of the organization in the mind of the customer.
159
8. Customer Service
8.2. Principal Issues 8.2.2. What Customers Experience (2)
The customer experience is a chain of contacts the customer undergoes in obtaining a product. Each link represents a contact. The total experience depends on the weakest link.
Customer (start) Sales Service Customer (end)
Shipping
160
8. Customer Service
8.2. Principal Issues 8.2.4. Customer Service Issues
Customer service issues include:

accurate understanding of customers needs and wants the ability to deliver necessary customer service levels variations between plans and their actual implementation effective communications with the customers difference between suppliers and customers perception of service level.
161
8. Customer Service
8.2. Principal Issues 8.2.5. Service Levels
Which service level approach to you use:

cut costs and reduce or eliminate service maximum service at any cost the cost of stock-out is no greater than the cost of carrying additional inventory (break-even point) competitive advantage, where service is sufficiently higher than competitors service.
162
8. Customer Service
8.3. Analysis 8.3.1. Customer Analysis (1)
Customer Analysis: example table:

The following table helps to identify the customer groups, their primary expectations, and their contribution to total sales.
Customer 1 Customer 2 Customer 3 Customer 4 ------------------------Total Sales Sales (value) % Total Sales % Cumul Products 92000 18,4 18,4 A 83500 16,7 35,1 A (75%), B(25%) 73200 14,6 49,7 B 31500 6,3 56,0 C What the customer wants 3 days ex stock 2 weeks 5 days ex stock 6 weeks order to delivery
500000
163
8. Customer Service
Pareto Analysis:
in many cases, approximately 80% of the turnover (i.e., stock) can be ascribed to approximately 20 % of the customers, articles or orders Rank the customers, products, etc. in order of magnitude Calculate % that each item contributes to total value derive a cumulative % list evaluate the cumulative list and identify appropriate breakpoints (A, B and C).
164
8. Customer Service
165
8. Customer Service
8.3. Analysis 8.3.2. Know the Customer
Know the customer:

Who is our customer? What are the important things we know about our customers? What do our customers expect? What do our customers want?
166
8. Customer Service
8.3. Analysis 8.3.3. Customer Service Levels
Customer service levels:

Do we consistently meet and exceed expectations? How well do we solve the problems that our customers experience? What service levels will give us a relative edge over our competitors? How, and how quickly, are we using customer information?
167
8. Customer Service
8.3. Analysis 8.3.4. Customer Response
Customer response
What did you like most/least about doing business with us? What will you tell others about us? How can we serve you better?
168
8. Customer Service
8.4. Suggestions
Group (segment ) customers based on service needs:

Companies traditionally group customers by industry or product, and then provide the same level of service to everyone within the group. To improve customer satisfaction, customers should be grouped by distinct service needs and services should be tailored to each group.
169
8. Customer Service
8.5. Performance Indicators 8.5.1. Customer Service Level
Customer service level

The desired probability versus the actual percentage that product demand can be met from stock expressed in a number of ways:
% of orders completely satisfied from stock % of units demanded which are met from stock % of units demanded which are delivered on time % of time there is stock available
170
8. Customer Service
8.5. Performance Indicators 8.5.2. Availability
Performance indicators of availability:

stock-out frequency:
how many times does demand for a specific product exceed its availability
fill rate:
how much of a specific product is available to satisfy customer demand
orders shipped complete:

how often is customer demand fully met.
171
8. Customer Service
8.5. Performance Indicators 8.5.3. Operational Performance
Operational performance indicators:

speed:
order cycle time
flexibility:
ability to handle extraordinary customer requests
malfunction recovery:
contingency plans for recovering from service failures.
172
8. Customer Service
8.5. Performance Indicators 8.5.4. Reliability
Reliability performance indicators:

ability to comply to:
planned inventory availability operational performance
capability and willingness to:

provide accurate and timely customer logistical information
commitment to:
continuous service quality improvement.
173
8. Customer Service
8.5. Performance Indicators 8.5.5. Quality
Quality performance indicators:

Ability to deliver:
items without errors shipped goods without damage.
174
The End Supply Chain Management
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Supply Chain Management

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Supply Chain Management

Supply Chain Management

1.1. Key Concepts 1.1.1. Supply Chain

The Supply Chain is:

1.1. Key Concepts 1.1.2. Logistics

1.1. Key Concepts 1.1.3. Supply Chain Management

Supply Chain Management is:

1.1. Key Concepts 1.1.4. Objectives

Greater efficiency; lower costs

Optimize the value chain

1.2 Principal Issues 1.2.1. Supply Chain (1)

1.2 Principal Issues 1.2.1. Supply Chain (2)

Stores Employee s Supplier Employee s Stores Logistic s Factory Employee s Stores

Distributors & Resellers

1.2. Principal Issues 1.2.2. Elements of Logistics

material flow system:

1.2. Principal Issues 1.2.3. Logistic Goal

Logistic goal and objectives

Delivery time/ lead time

1.2. Principal Issues 1.2.4. Logistic Steps

Supply Chain Evolution

1.2. Principal Issues 1.2.6. The Goal

Supply Chain Management Goal

1.2. Principal Issues 1.2.7. Focus

Supply Chain Management focuses on business processes:

1.2. Principal Issues 1.2.8. Drivers of Change (1)

1.2. Principal Issues 1.2.8. Drivers of Change (2)

1.2. Principal Issues 1.2.9. Activities

Supply chain management activities:

1.3. Analysis 1.3.1. Diagram

Understand the customer

Understand the product

Understand the information flow

Understand the process

1.3. Analysis 1.3.2. Understand the Customer (1)

Know and understand the customers:

1.3. Analysis 1.3.2. Understand the Customer (2)

1.3. Analysis 1.3.3. Understand the Products

Understand the products:

1.3. Analysis 1.3.4. Understand the Process

Understand the production process:

order fulfillment strategy

1.3. Analysis 1.3.5. Understand the Information Flow

Understand the information flow:

1.4. Performance Indicators (1)

1.4. Performance Indicators (2)

Customer Service + Quality

1.4. Performance Indicators (3)

1.4. Performance Indicators (4)

Supply Chain Management

2. Purchasing and Procurement

2.1. Key Concepts

2.2. Principal Issues 2.2.1. Evolution in Purchasing

Evolution in Strategies for Purchasing

2.2. Principal Issues 2.2.2. The Procurement Process (1)

The Procurement Process:

2.2. Principal Issues 2.2.2. The Procurement Process (2)

2.2. Principal Issues 2.2.3. Supply Uncertainty

Elements of supply uncertainty:

2.2. Principal Issues 2.2.4. Selecting a Supplier

In selecting a supplier, a number of factors must be analyzed:

2.1. Principal Issues 2.2.5. Positive Trends (1)

Positive trends in purchasing and procurement include: