Fundamentals of supply chain management dr dawei lu

CONTENTS

ABSTRACT 4

SUPPLY CHAIN MANAGEMENT 5

THE RISE OF SUPPLY CHAIN MANAGEMENT 5 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT 5 SUPPLY CHAIN DESIGNING AND PLANNING 6

MATERIAL MANAGEMENT 10

INTRODUCTION TO MATERIAL MANAGEMENT 10 MATERIAL MANAGEMENT TECHNIQUES 10

RESEARCH METHODOLOGY 12

DISCUSSION 12

REFERENCES 13

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TABLE OF FIGURES

FIGURE 1.0. HISTORICAL EVENTS TIMELINE 5

FIGURE 2.0. MATERIAL FLOW 6

FIGURE 3.0. THE KEY COMPONENTS OF SC DESIGNING AND PLANNING 7

FIGURE 3.1. LOCATION DECISIONS STEPS 8

FIGURE 3.2. THE BULLWHIP EFFECT IN A SUPPLY CHAIN. 9

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Abstract

Supply Chain Management (SCM) and Material Management are major pillars in organizations that operate in any industry. Properly implemented and applied SCM strategies would yield a more effective and cost efficient oriented facility. In recent business trends, Supply Chain Management and Material Management are considered significant branches of KPI’s or Key Performance Indicators; which depicts the efficiency and effectiveness of the SCM. In addition, Supply chain Management endorses adding value to customers and consumers; this further conveys two key elements:

1. Primary Activities • Inbound Logistics • Operation • Outbound Logistics • Marketing and Sales • Service Activities (i.e. Customer Support & Maintenance)

2. Secondary Activities

• Firm Infrastructure • Procurement • HR Management • Technological Development

All these activities could serve to further improve SCM, focusing on each element and trying to improve it would generate a better outcome; thus, a better Supply Chain Management strategy and technique.

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Supply Chain Management

The Rise of Supply Chain Management

It all emerged during World War I and World War II. Back in the 1950’s, logistics was thought to be a military matter. It casually had to do with procurement, maintenance, and transportation of military equipments and personnel. Now, logistics is part of what we call Supply Chain Management (SCM). As markets became more competitive and dynamic, organizations became obliged to carry out the best cost reductions methodologies.

Supply chain management was first introduced in the early 1980’s. At first, SCM was introduced into the manufacturing industry following its introduction in the service industry. SCM in both manufacturing and service industries has grown drastically. In 2009, the concept of ITESCM was introduced. ITESCM is short for Integrated Tertiary Educational Supply Chain Management. Briefly, ITESCM is a model designed to serve educational purposes revolving the SCM topic. Figure 1.0 provides the historical events timeline of SCM.

Introduction to Supply Chain Management

Supply Chain Management (SCM) is a management technique applied to materials or services being provided to a targeted consumer. Supply Chain Management seeks to maximize consumers’ value by distributing products or services at the right quantities, to the right locations, and at the right times. SCM deals with issues related to providing products or services starting at a chosen supplier that move through production to reach a targeted consumer. Supply

Figure 1.0. Historical Events Timeline

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Supplier Manufacturer Distributor Wholesaler Retailer Consumer

Chain, a group of participating firms that aim to add value to the movement of products and services from suppliers to their consumers, is linked to many other aspects of an industry. For example, optimizing supply chain may also include optimizing the processes revolving around it.

Following a successful supply chain, risks and uncertainties arise. Some risks and uncertainties may include the following:

1. Change in demand of consumer 2. Change in transportation and lead times 3. Natural/Man-Made disasters that come unforeseen 4. Matching supply and demand

All risks and uncertainties are to be dealt in a consecutive manner due to their integration with on one another.

Supply Chain Management techniques are designed based on the following building blocks:

1. Material Flow. In all manufacturing supply chains, flow of material from being a raw material to becoming a final product is monitored, preferably in a Just in Time (JIT) manner. Typically, industries that SCM deal with consist of a supplier, manufacturer, distributor, wholesaler, retailer, and consumer.

2. Information Flow. In any SCM technique, flow of information is run both directions

between the supplier and the consumer. Some information flow dealt with frequently include demand information flows, forecasting information flows, production and scheduling information flows, and design information flows.

3. Financial Flow. Serves the basis of SCM that pertain to the money flow. Like any other optimizing technique, SCM require extensive funds and investments. In return for investments, revenue flow from the consumer, back through the chain of companies is considered to be the only “real” money in a supply chain.

Supply Chain Designing and Planning

Designing and planning of a supply chain is the practice of formulating certain strategies that ought to be put in effect. The key components include configuration, extent of vertical

Figure 2.0. Material flow

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CONFIGURATION

EXTENT OF VERTICAL

INTEGRATION

OUTSOURCING & OFFSHORING

LOCATION DECISIONS

CAPACITY PLANNING

BULLWHIP EFFECT

integration, strategic outsourcing and offshoring, location decisions, capacity planning, and the understanding of the Bullwhip Effect.

I. Configuration. Observes how the participating supply chain candidates connect with one another in order to maintain a smooth material flow from the supplier to the end consumer. A solid supply chain configuration yields a more profitable company performance and operation.

II. Extent of Vertical Integration. Defined as the single ownership of consecutive supplies found in a chain. A well implemented supply chain will not have a wide span of vertical integration. In other words, the narrower the span, the more efficient the applied supply chain. Generally, process based industries such as oil industries and chemical industries tend to be more vertically integrated than technology intensive industries. Vertical integration could either be backward (consolidation of procurement side) or forward (consolidation of wholesaler side).

III. Outsourcing & Offshoring. Unlike vertical integration, vertical disintegration is found in supply chains where its candidates are independent. Such supply chains are said to contain outsourced suppliers. Outsourcing is commonly known as the “make-or-buy” decision. In simpler words, outsourcing is the decision and the process of dealing with products and services brought externally (i.e. facility management for a brand new

Figure 3.0. The key components of SC designing and planning

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warehouse within the USA). Mainly, outsourcing is used for the purpose of minimizing cost and time. Outsourcing can be looked at in three different aspects which include: facility man power outsourcing, business process outsourcing (BPO), and business function outsourcing. Offshoring is the process of relocating business operations out in a different country. (i.e. Apple products assembled overseas in China).

IV. Location Decisions. The title says it. Location decisions are choices made by the supply chain aiming to select a unique location for carrying out their operations. Location decisions play a crucial role in better serving the consumer and in minimizing the operational costs. Generally, location decisions tend to have a profound impact on labor cost, taxation, and financial matters depending on the selected location. For a straight- forward implication of this decision making process, Dr. Dawei Lu, the author of ”Fundamentals of Supply Chain Management” suggests the following:

V. Capacity Planning. The process of planning ahead for accommodating future changes in

demand. Within a supply chain, every candidate determines its own capacity leading to different forecasted capacities that are to be considered part of the whole capacity planning process.

VI. Bullwhip Effect. Dr. Dawei Lu’s definition: “Bullwhip effect refers to a supply chain- wide phenomenon that modest change of customer demand is distorted and amplified toward the upstream end of the supply chain resulting in large variations of orders placed upstream”. In other words, the Bullwhip effect is the result of change in demand throughout the supply chain. Figure 3.2 illustrates the Bullwhip effect within a supply chain.

Identify the criteria which will be used to

evaluate the various locations.

Establish the relative importance of each criterion by giving

weighting factors to them.

Rate each location

according to each criterion.

Sum the weighted scores for each

location and review results.

Figure 3.1. Location decisions steps (source: “Fundamentals of Supply Chain Management” by Dr. Dawei Lu)

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The bullwhip effect results from the following: • Predicting of demand by every member of the supply chain • Grouping of orders within candidates of a supply chain • Handling of prices by offering promotions and deals to consumers • Lacking to meet consumer’s demand by not producing the optimal mix

Figure 3.2. The Bullwhip Effect in a supply chain.

Maximum

Minimum

Demand

Supply Chain Links

Supplier Producer Distributor Retailer Consumer

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Material Management

Introduction to Material Management

Material Management is the process of assuring both a smooth and steady material flow from the supplier through production to the end consumer. Material management plays a significant role in serving SCM.

Objective:

• Maximization of the given resources. • Attaining the essential level of customer service & satisfaction.

Material Management’s objective could most likely yield a more profitable business if implemented precisely.

Material Management Techniques

A typical material management technique may include the following:

• Material Requirement Planning (MRP) • JIT • Push or Pull system

1. Material Requirement Planning (MRP) – a computerized inventory and material control system that is concerned with production scheduling and inventory planning of a supply chain. MRP’s main goal is to determine what and when materials shall be ordered for them to reach consumers’ requests at the allocated time.

2. Just in Time (JIT) – Invented by Taiichi Ohno of Toyota, a strategy that works on improving the rate of return on investment by minimizing the in-process inventory. JIT strategies may include attaining higher quality, reducing production cost, achieving higher levels of communication throughout the chain, and eliminating of no-added value processes. JIT techniques aim to better serve the consumer, implement visual controls where possible, and apply the methods of quality control. One method to ultimately achieve JIT is by implementing Kanban. Kanban is an inventory- control system that serves the purpose of improving manufacturing.

3. Push or Pull system – a control system that aims to stabilize the supply chain and to satisfy consumer needs in any way possible. In a push system, distribution of products is pushed to the consumer meaning that the production occurs on a Make-to-Stock basis (supply to

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forecast basis). On the other hand, the pull system operates on a Make-to-Order basis in which production is dependent on the consumer’s demand. Both systems are present in a SCM. The process of producing individual components is determined by the forecasted demand; however, attaining the final product is determined based on what the consumer asks for.

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Research Methodology

This paper focused its research on the steps and techniques to put both SCM and Material Management in effect. This was established by looking through online books and historical articles. The author interprets the term SCM and material management in the manufacturing and service industries. Throughout the paper, straight forward techniques that aid in reaching the highest levels of SCM and material management are discussed as well. In details, it is shown that material management plays a massive part in SCM. The research states if SCM strategies were applied, a more effective and cost efficient oriented facility is likely to occur.

Discussion

Material Management is a crucial element of the integrated supply chain management. Both supply chain and material management share common objectives. In order to get the best out of the supply chain management implemented, firm utilization of material management methodology is essential. For instance, putting material management into effect will minimize excess inventory which yields a more efficient supply chain management.

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References

[1] Arnold, J. R., Chapman, S. N., & Clive, L. M. (2008). Introduction to Materials Management (Sixth ed.). London: Prentice Hall.

[2] Chopra, S., & Meindl, P. (2007) Supply chain management: strategy, planning, and operation (Third ed.). Upper Saddle River: Pearson/Prentice Hall.

[3] Habib, M. (2011). Supply Chain Management (SCM): Theory and Evolution. Supply Chain Management - Applications and Simulations. doi:10.5772/24573

[4] Habib, M. (2014). Supply Chain Management (SCM): Its Future Implications. Open Journal of Social Sciences, 02(09), 238-246. doi:10.4236/jss.2014.29040

[5] Habib, M., & Pathik, B. B. (June 2012). Redesigned ITESCM Model: An Academic. International Journal of Supply Chain Management, 1.

[6] Janusz K. Grabara, Marta Starostka-Patyk, The bullwhip effect in supply chain: n.d. Print.

[7] Lu, D. D. (n.d.). Fundamentals of Supply Chain Management. Retrieved July 10, 2017, from http://bookboon.com/en/textbooks/management-organisation/fundamentals-of-supply-chain- management

[8] Minculete, G., & Olar, P. (2016). “PUSH” AND “PULL” SYSTEMS IN SUPPLY CHAIN MANAGEMENT CORRELATIVE APPROACHES IN THE MILITARY FIELD. Journal of Defense Resources Management, 7(2), 13th ser.

[9] Russell, R. S., & Taylor, B. W. (2011). Operations Management: Creating Value Along the Supply Chain (Seventh ed.). Hoboken, NJ: John Wiley & Sons.

[10] Zigiaris, S. (2000). Supply Chain Management. Retrieved from http://www.adi.pt/docs/innoregio_supp_management.pdf