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INTE1208-Lecture3AA1.pptE-PROCUREMENT & SUPPLY CHAIN TECHNOLOGIES
INTE 1208
Dr Alka Nand
Sem 1, 2016
INTE1208 – Session 3
Introduction to Supply Chain Management
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Objectives
At the completion of this topic you should be able to:
Discuss a number of the concepts underpinning order fulfillment, logistics and Supply Chain Management (SCM);
Describe the types of applications and technologies which enable SCM approaches such as Just-In-Time (JIT) inventory management;
Outline the benefits and problems which can occur through SCM;
Discuss the challenges which SCM presents, such as changes in trading partner relationship/collaboration and the importance of looking at both internal and external business processes in the context of SCM; and
Discuss the role of technology in addressing some of these problems and challenges.
Issues for Managers
- Which technologies should we deploy for supply chain management and how should they be prioritized?
- Which elements of the supply chain should be managed within and beyond the organization and how can technology be used to facilitate this?
Learning Resources
- Handfield, R. B. and Nichols, E. L. Jr. (1999). “Introduction to supply chain management,” Introduction to supply chain management, Prentice Hall, Upper Saddle River, NJ, pp. 1-12 – available as an electronic reading through myRMIT Studies.
- Chaffey, D. (2015). Chapter 6 - Supply Chain Management.
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Supply Chain & Supply Chain Management
- The Supply Chain consists of the flow of materials, information, and services from raw material suppliers through factories and warehouses to the end customers.
- Supply Chain Management (SCM) involves integration of the business processes from the end users through to the original suppliers, that provide products, services and information that add value for customers
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The Immediate Supply Chain for an Individual Firm
CR (2004) Prentice Hall, Inc.
1-2
Information
flows
Warehousing
Warehousing
Transportation
Transportation
Vendors/plants/ports
Transportation
Factory
Transportation
Customers
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Turban, E., King, D., Viehland, D. and Lee, J. (2006). Electronic Commerce: A Managerial Perspective 2006, 4the Edition © 2006. Electronically reproduced by permission of Pearson Education, Inc., Upper Saddle River, New Jersey.
A Supply Chain for Beer
Figure 11.1
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A more realistic supply chain – Components of the Honda Accord Console
E-Supply Chains
Managing Supply Chains
Managing supply chains can be difficult due to the need to coordinate:
Several business partners
Several internal corporate departments
Numerous business processes
Possibly many customers
Information technology provides two types of software solutions:
SCM
ERP and its predecessors MRP and MRP II
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Benefits of supply chain management
Source: PMP (2008)
Two aspects of SCM
Upstream supply chain Transactions between an organization and its suppliers and intermediaries, equivalent to buy-side e-commerce.
Downstream supply chain Transactions between an organization and its customers and intermediaries, equivalent to sell-side e-commerce.
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Key Concepts – Order Fulfilment
Order fulfillment: Delivering the right order on time to the customer
Involves Front and Back Office Operations
Front office operations:
Order taking
Advertisement
Customer Relations Management (CRM)
Back office operations
Accounting
Packaging
Finance
Logistics
Inventory
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Push vs Pull Supply Chain
- Push:
Traditional retailing begins with production based on demand forecasting
Goods are mass produced and placed in inventory
Products then move through inventories maintained by wholesalers/distribution centers before being PUSHED to customers by being placed on retail store shelves
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Push and pull approaches to
supply chain management
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Figure 6.3 Push and pull approaches to supply chain management
Push vs Pull Supply Chain
Pull:
eCommerce enabled SCM allows operations to begin with an order being placed (PULLED) by a customer
Information concerning the order is passed back to the retail distribution centre for replacement from inventory
and as needed back to the manufacturer to initiate manufacture of replacement items
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Push and pull approaches to
supply chain management
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Figure 6.3 Push and pull approaches to supply chain management
The downstream supply chain is:
Involved with procurement of material from suppliers
The distribution of products or delivery of services to customers
Exclusively inside an organisation
None of the above
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The upstream supply chain is:
The distribution of products or delivery of services to customers
Exclusively inside an organisation
Involved with procurement of material from suppliers
None of the above
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Logistics:
Managing the flow of goods, information and money along the supply chain
The concept originates in a branch of military science dealing with procurement, maintenance, and transportation
It involves the management of the details of an operation
It includes all activities involved in management of product movement
Right product
Right place
Right time
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Key Concepts – Logistics
Logistics Management
Objective is to obtain efficient operations through the integration of all material acquisition, movement, and storage activities
Is a frequent candidate for outsourcing
Specialist expertise
State of art technologies in built
Logistics companies invest in advanced tracking technologies
Ability to adhere to precise delivery windows and delivery schedules
Allows competitive advantage to be gained through reduced costs and improved customer service
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Good Logistics?
Good Logistics?
Good Logistics?
Good Logistics?
Good Logistics?
Supply Chain Problems and Solutions
- Typical Problems along the Supply Chain
Supply chains can be very long, involving many internal and external partners located in different places
Both materials and information must flow among several entities, and these transfers, especially when manually handled, can be slow and error-prone
Companies can improve their demand forecasting by using IT-supported forecasts, which are done in collaboration with business
A lack of logistics infrastructure exacerbates uncertainties that exist in delivery times
Quality problems with materials and parts can contribute to deficiencies in the supply chain
Pure EC companies are likely to have more supply chain problems because they do not have a logistics infrastructure and are forced to use external logistics services
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Supply Chain Problems and Solutions
The Need for Information Sharing along the Supply Chain
A supply chain includes the flow of information to and from all participating entities
It includes:
Product pricing
Inventory
Shipping status
Credit and financial information
Technology news
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Brief Recap
- Let’s set a little context
- Supply Chain / Supply Chain Management
- Downstream / Upstream
- Push / Pull
- Order Fulfillment
- Front Office / Back Office
- Logistics
- Challenges
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Top 10 Supply Chains
Apple
McDonald's
Amazon.com
Unilever
Procter & Gamble
Samsung Electronics
Cisco Systems
Intel
Colgate-Palmolive
The Coca-Cola Company
http://www.gartner.com/technology/supply-chain/top25.jsp
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Class Activity
- In your group, identify and describe/illustrate the supply chain for:
Bottled Water; and
Hotels
Confectionary or chocolate
- Report back in 15 minutes
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Extra : Technology - GDSN
Global Data Synchronisation Network
Provides an environment for secure and continuous synchronisation of accurate data.
Trading partners always have the latest information in their systems. Changes made to one company's database are automatically and immediately provided to all of the other companies who do business with them.
Sharing of information is accurate, smoother, quicker and less expensive for them to do business together. The GDSN provides a single point of truth for product information.
Look up website for interesting Case Studies
GS1 Australia
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The typical aim of the push approach to supply chain management is:
Reduce costs of distribution
To enhance product and service quality
Reduce costs of new product development
A and C
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The typical aim of the pull approach to supply chain management is:
Reduce costs of new product development
To enhance product and service quality
Eliminate costs of distribution
A and C
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Just-In-Time Inventory Management
As an example of the approaches developed within the field of SCM to manage the complexity previously highlighted, we look first at a traditional form of SCM called Just-In-Time (JIT) Inventory Management
In the language introduced earlier in this lecture, JIT:
involves manufacturers and their suppliers (ie. it is upstream)
takes a pull approach
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Just-In-Time (JIT)
Just-in-time manufacturing means producing the necessary items in necessary quantities at the necessary time. It is a philosophy of continuous improvement in which non-value-adding activities (or wastes) are identified and removed.
Putting this concept into practice means a reversal of the traditional thinking process. In conventional production processes, units are transported to the next production stage as soon as they are ready.
In JIT, each stage is required to go back to the previous stage to pick up the exact number of units needed.
JIT focuses on continuous forced problem solving
TPS emphasizes continuous improvement, respect for people, and standard work practices in an assembly-line environment
Lean operations emphasize understanding the customer
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TPS Elements
© 2014 Pearson Education, Inc.
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Kanban
- Kanban is the Japanese word for card
- The card is an authorization for the next container of material to be produced
- A sequence of kanbans
pulls material through
the process - Many different sorts of
signals are used, but
the system is still called
a kanban
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Just-In-Time (JIT)
- Kanban are usually simple visual signals, such as the presence or absence of a part on a shelf. JIT can lead to dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency when implemented correctly.
- New stock is ordered when stock reaches the re-order level. This saves warehouse space and costs.
- Inventory is in transit rather than being warehoused by the organisation, resulting in reduced buffer stocks and capital costs
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- Dr Taiichi Ohno, “Father” of the Toyota Production System, modified the system by eliminating the first bin and placing the order card (which he called a kanban) at the top of the second bin.
- In this system, an order is continually in transit. When the new order arrives, the supplier is reissued the same kanban to fill the order again. While the order is being filled, the quantity in the second bin is used.
Kanban Inventory System
ROP
Kanban
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Examples of Kanban
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Eliminate Waste
Waste is anything that does not add value from the customer point of view
Storage, inspection, delay, waiting in queues, and defective products do not add value and are 100% waste
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Ohno’s Seven Wastes
Overproduction
Queues
Transportation
Inventory
Motion
Overprocessing
Defective products
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Over-production (or over-buying)
- producing more than the customer orders or producing earlier is waste.
Queues
- Idle time, storage, and waiting are wastes
Transportation
- moving material between plants or between work centers and handling more than once is waste
Inventory
- unnecessary raw material, WIP, finished goods, and excess supplies add no value and are wastes
Motion
- Movement of equipment or people that add no value is waste
Over-processing
- worked performed on the product that adds no value is waste
Defective product
- returns, warranty claims, rework, and scrap are a waste
Types of Waste (Dr. Taiichi Ohno – “Father” of the Toyota Production System)
The Results of JIT
Inventory is in transit rather than being warehoused by the organisation, resulting in reduced buffer stocks and capital costs
Retooling by the supplier is required to support the inventory carrying role which it will now play in the supply chain
Increased demands for adaptability are placed on suppliers in particular
There are tighter bonds between the customer and its suppliers
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Benefits of JIT
Major Benefits:
Reduced Product Obsolescence
Reduced Product Damage
Reduced administration cost
Reduced postage
Easier document matching and transactions
Improved control over transport and distribution
Reduced telephone usage
Superior customer service
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© 2014 Pearson Education, Inc.
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JIT and Competitive Advantage
Figure 16.1
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Just-In-Time (JIT)
However, one drawback of the JIT system is that the re-order level is determined by historical demand.
If demand rises above the historical average planning duration demand, the firm could deplete inventory and cause customer service issues.
Bullwhip effect?
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The Bullwhip Effect and Information Sharing
Note the importance of:
- The flow of information to and from all participating entities in a Supply Chain; and
- Information sharing between retailers and their suppliers
But, this can lead to a particular problem – The Bullwhip Effect:
- The Bullwhip Effect refers to erratic shifts in orders up and down a supply chain
- Simply the increasing fluctuation in orders that often occurs as orders move through the supply chain
- It is caused by distorted information, which can lead to:
Inefficiencies Ineffective shipments
Excessive inventories Poor customer service
Missed production schedules
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The Bullwhip Effect
- Slight changes in actual demand create problems
- Partners build “just in case” inventories
- Lack of trust among partners
- Stockpiling, results in huge cost
- The manufacturers cannot plan production
- Cannot order material from suppliers
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Avoiding the Sting of the Bullwhip
How to do it?
Information sharing is a must and is facilitated by EDI, extranets, and groupware technologies
Trust and agreements in regard to:
Ordering and inventory decisions
Placing supply chain ahead of individual entities within the corporation
Sharing information could save millions just in the grocery industry for instance
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Recap JIT
- Just In Time…
- Producing the necessary items in necessary quantities at the necessary time
- Reduce waste
- Toyota / Kanban
- Sounds easy in practice:
The ‘Near’ Beer Game http://www.beergame.org/the-game/bullwhip-effect
- Bullwhip Effect
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The eCommerce elements of JIT
SCM, and JIT in particular, are made possible by the use of the following technologies:
Electronic Data Interchange (EDI)
Electronic Funds Transfer (EFT)
Bar code technology
Value Added Networks (VANs)
A number of computer-based management systems need to be integrated when implementing a JIT approach to SCM, including:
Enterprise Resource Planning (ERP) – extensions of more traditional Manufacturing Requirements Planning (MRP) systems
Order Management (OM) systems
Transport Management (TM) systems
Warehouse Management (WM) systems
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IS can be directly used to reduce costs of SCM by:
Increasing product cycle times
Collect information about product satisfaction
Reducing inventory holding times
None of the above
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Lean?
- A team-based approach to continuous improvement focused on eliminating non-value added activities or “waste” from the viewpoint of the customer
- Manufacturing processes can be improved to reduce waste and resources while maintaining operational performance.
- Quality is an important part of lean manufacturing. Having zero defects in the manufacturing process reduces waste and increases efficiency within the organization as a whole.
- With greater quality customers will no longer return goods, which means fewer resources will be needed for returns and quality issues.
- Lean can be implemented in: Procurement, Manufacturing, Warehousing and Transportation.
- Example: Zara
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Agile?
- Agility is described as a capability which contains organisational structure, information systems, logistic processes and mindsets.
- Result of an agile supply chain is its flexibility. It has to be separated from the lean supply chains or the lean manufacturing concept which focuses on reducing “fat” (e.g. inventory, cost, …) wherever possible.
- This supply chain will be best to maximize the service levels for fulfilling demand, manufacturing personalized products, and providing excellent customer service.
- These supply chains will have more flexible supplier contracts that enable them to change order quantities, destinations, need dates, and even cancel the orders altogether if the demand falls off a cliff.
- Suppliers will typically allow such flexibility for a cost.
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So which one do we go for?
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Or combine them - Leagile?
- A hybrid of lean and agile systems. However, this can take one of several approaches:
Using make-to-stock/lean strategies for high volume, stable demand products, and make-to-order/agile for everything else
Have flexible production capacity to meet surges in demand or unexpected requirements
Use of postponement strategies, where “platform” products are made to forecast, and then final assembly and configuration done upon final customer order
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Leagile in action
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Kaizen
- Rapid improvement processes, often is considered to be the "building block" of all lean production methods.
- Kaizen focuses on eliminating waste, improving productivity, and achieving sustained continual improvement in targeted activities and processes of an organization.
- This philosophy implies that small, incremental changes routinely applied and sustained over a long period result in significant improvements.
- The kaizen strategy aims to involve workers from multiple functions and levels in the organization in working together to address a problem or improve a process.
- The team uses analytical techniques, such as value stream mapping and "the 5 whys", to identify opportunities quickly to eliminate waste in a targeted process or production area.
- The team works to implement chosen improvements rapidly (often within 72 hours of initiating the kaizen event), typically focusing on solutions that do not involve large capital outlays.
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Kaizen Implementation
- Phase 1: Planning and Preparation: identify an appropriate target area for a rapid improvement event. Substantial work-in-progress; administrative processes; significant bottlenecks; areas where everything is a "mess”; etc.
- Phase 2: Implementation
Five Whys
Why did the machine stop?
There was an overload, and the fuse blew.
Why was there an overload?
The bearing was not sufficiently lubricated.
Why was it not lubricated sufficiently?
The lubrication pump was not pumping sufficiently.
Why was it not pumping sufficiently?
The shaft of the pump was worn and rattling.
Why was the shaft worn out?
There was no strainer attached, and metal scrap got in.
Value Stream Mapping
- Phase 3: Follow-up: Ensure improvements are sustained
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Quick Response and Efficient Consumer Response
We turn now to a discussion of downstream SCM, looking specifically at Quick Response (QR)
QR is downstream of the manufacturer and uses pull supply chain approaches
In examining this approaches, students are encouraged to think about these initiatives in terms of the way in which they have reshaped the notion of the value chain in the retail industry.
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Quick Response
A consumer driven business strategy of cooperative planning by supply chain partners, using IT and flexible manufacturing, to eliminate inefficiencies from the entire supply chain
Involves rapid replenishment of retail products once consumers purchase them
To ensure:
the right goods
are in the right place
at the right time
In many implementations of QR, the retailer’s internal systems keep track of product consumption (eg, through barcoding point-of-sale systems at the checkout) and orders are triggered when product levels reach certain limits.
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Quick Response
Like JIT, the effectiveness of QR is dependent on the efficient exchange of information within and between organisations. The types of requirements for QR include:
barcoding and automatic data capture equipment for scanning product numbers and packing box labels which contain retail products;
EDI for exchanging standardised business documents such as Advance Ship Notices, Orders, etc and the associated integration of internal and external systems of the organisations;
distribution release planning and forecasting systems, which also includes joint planning (eg, assortments, replenishment, promotions); and
fixed-cycle replenishment (for instance, orders received on Monday and shipped by Friday).
In a retail sense, Dell is a great example
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QR and Business Strategy
QR is a retail version of JIT
QR seeks improvements in:
what the customer sees on the shelf
activities behind the scenes including logistics, distribution and inventory management
QR seeks to get rid of supply chain costs that don’t add customer value
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Reported Benefits of QR
Reductions in inventories
Stockouts down 60%
Consumers are receiving a broader product selection because retailers are offering more product choice
Lead times have been cut in half
Greater competitiveness for domestic producers
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Why Implement QR?
Better satisfy consumer demand
Competitive forces
“big stores” don’t respond quickly to customer demand
rise of aggressive and intelligent rivals
sluggish sales and earnings performance
expense and logistics of maintaining a large inventory
Opportunity for significant cost savings. For example, Coles Myer has 1,787 stores supplied by over 10,000 suppliers with 134,000 staff accessing stock. Given such a scale of operations there is scope for saving millions!!!
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Efficient Consumer Response
- The four strategies for implementing ECR are:
efficient store assortment;
efficient replenishment;
efficient promotion; and
efficient product introduction.
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Collaborative Supply Chain Management
One of the key challenges in implementing SCM approaches such as QR, ECR and JIT is achieving the required levels of collaboration between members of a supply chain, and establishing the technologies which will enable this collaboration to occur
Members of supply chain need to share information on various issues such as:
product pricing
inventory
shipping status
credit and financial information
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Collaborative Planning, Forecasting and Replenishment (CPFR)
- Collaborative planning, forecasting and replenishment (CPFR) is a framework whereby suppliers and retailers can collaborate in their planning and demand forecasting in order to ensure that members of the supply chain will have the right amount of raw materials and finished goods when they need them.
- In collaborative planning, business partners have real-time access to point-of-sale order information
manufacturers
suppliers
distribution partners
other partners
- CPFR is a project, where suppliers and retailers work together in their planning and demand forecasting to ensure the right amount of raw materials and finished goods when they need them
- They are sharing information to reduce SC costs
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An appropriate strategy to optimise for time and cost in the ordering process is:
Efficient store assortments
Integrate this activity is into all supply chain planning
Efficient replenishment
None of the above
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Summary/Conclusion
Defined the key terms/concepts underpinning SCM;
Discussed use of the concept of a Value Chain as a means of thinking about reconfiguring Supply Chains;
Looked at an example of upstream SCM (JIT);
Looked at examples of downstream SCM (QR and ECR);
Considered a number of candidate SCM strategies; and
Considered a number of emerging challenges such as Collaborative SCM) to be faced by SCM managers
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