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SCM INFRASTRUCTURE
PRADEEP KUMAR. M
MBA (FT), S3SMS, CUSAT
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SCM
A supply chain is a network of facilities anddistribution options that performs the functions ofprocurement of materials, transformation of
these materials into intermediate and finishedproducts, and the distribution of these finishedproducts to customers
Supply chains exist in both service andmanufacturing organizations, although the
complexity of the chain may vary greatly fromindustry to industry and firm to firm.
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SPECIALIZATIONS IN SCM
Specialization within the supply chain began inthe 1980s with the inception of transportationbrokerages, warehouse management, and non-asset-based carriers and has matured beyondtransportation and logistics into aspects ofsupply planning, collaboration, execution andperformance management.
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Implementation Aspects of SCM
SCM implementation is one of the most difficultprojects a company undertakes. If it isimplemented right, it will have a huge savings. Ifnot, it can even break a company. A successful
implementation of an SCM project needs bothBreadth of knowledge (Managerial) and Depth ofknowledge (Technical).
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SCM Planning
In the planning stage, a detailed plan of implementation
is drafted (including budget and schedule), the
infrastructure that will support the program is
established, and the resources necessary to begin the
plan are earmarked and secured.
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A supply chain typically includes the following
functions. Sourcing and procurement of materials
Inventory management
Manufacturing
Warehousing
Distribution
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Some factors to be considered in
sourcing:
Replenishment lead time
On-time performance
Supply flexibility
Delivery frequency/minimum lot size Inbound transportation cost
Pricing terms
Design collaboration capability
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SCM Networking
Public networks.
Private networks
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Electronic Data Interchange ( EDI ) Electronic transmission of data between a
firm & its supplier
Purchase requisitions, purchase orders,acknowledgements, order status & trackingand tracing information
Integration between buyers and sellers
Quick, accurate and interactivecommunication
Internet & B2B Procurement Overcomes compatibility issues of EDI
Easy exchange of files and information
B2B transactions over $1 trillion in 2005
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Organizational infrastructure--how business unitsand functional areas are organized; how change-
management programs are led and coordinated
within the existing organizational structure.
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There are four key enablers for SCM initiatives:organizational infrastructure, technology, andstrategic alliances and human resources
management.
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Technology
Technology has been at the center of changestaking place that affect the supply chain. Whentechnology is mentioned most people immediately
think information technology, but it went beyondinformation. Therefore technology can bepresented in two parts: information technologyand manufacturing and materials managementtechnology.
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Facilities
Facilities are the actual physical locations in thesupply chain network where product are stored,assembled or fabricated. The two major types offacilities are :
Production sites(factories)Storage sites(warehouses)
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Inventory
In SCM the inventory encompasses all the rawmaterials, work in process, and finished goodswithin a supply chain. Changing in the inventorypolicies can dramatically alter the supply chains
efficiency & responsiveness. There are three basic decisions to make
regarding the creation and holding of inventory:
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1. Cycle Inventory: This is the amount ofinventory needed to satisfy demand for theproduct in the period between purchases of theproduct.
2. Safety Inventory: inventory that is held as abuffer against uncertainty. If demand forecastingcould be done with perfect accuracy, then theonly inventory that would be needed would becycle inventory.
3. Seasonal Inventory: This is inventory that isbuilt up in anticipation of predictable increases indemand that occur at certain times of the year.
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Transportation
The transportation entails the moving of inventoryfrom one point to another point in the supplychain. The transportation can take the form of
many combinations of modes & routes, each withits own performance characteristics. There aresix basic modes of transport that a company canchoose from:
hi h i t ffi i t b t
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Ship which is very cost efficient butalso the slowest mode of transport. It islimited to use between locations that aresituated nest to navigable waterways &
facilities such as harbor & canals.
Rails which is also very cost efficientbut can be slow. This mode is also restrictedto use between locations that are served by
rail lines.
Pipelines can be very efficient but arerestricted to commodities that are liquid orgases such as water, oil & natural gas.
.
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Trucks are a relatively quick & very flexiblemode of transport. Trucks can go almost anywhere.
The cost of this mode is prone to fluctuations
though, as the cost of fuel fluctuates and thecondition of road varies.
Airplanes are a very fast mode of transportand are very responsive. This mode is also very
expensive mode & is somewhat limited by theavailability of appropriate airport facilities.
Electronic transport is the fastest mode oftransport and it is very flexible & cost efficient.
However , it can be only be used for movement ofcertain types of products such as electric energy,data, & products composed of data such as music,
pictures & text.
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Information
Information serves as the connectionbetween various stages of a supply chain,
allowing them to coordinate & maximize totalsupply chain profitability. It is also crucial tothe daily operations of each stage in a supplychain for e.g. a production scheduling system.Information is mainly used for the following
purpose in a supply chain:
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Sourcing
Sourcing is the set of business processesrequired to purchase goods & services. Themanagers must first decide which tasks will beoutsourced & those that will be performed withinthe firm. The Components of sourcing decisions
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In-House or outsource: The mostsignificant sourcing decision for a firm iswhether to perform a task in-house oroutsource it to a third party. This decisionshould be driven in part by its impact on thetotal supply chain profitability.
Supplier selection: It must be decided
on the number of suppliers they will have fora particular activity. The must then identifythe criteria along which suppliers will beevaluated & how they will be selected like
through direct negotiations or resort to anauction.
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Inventory
Inventory: exists at every stage of the supplychain as either raw materials, semi-finished orfinished goods.
Purpose: to buffer against any uncertainty that
exists in the supply chain
Inventory Management Systems Ownership of Inventories Specific Contents of Inventories Locations of Inventories Tracking Order Quantity Order Timing
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Vendor Managed Inventory (VMI)
Customer trusts the vendor to manage theinventory:
Vendor monitors customers inventory andcontrols inventory replenishment &decides when to deliver, how much todeliver and how to deliver
VMI transfers inventory management from
the customer to the supplier Provides assurance that product will be
available when required
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Manufacturing
Application of tools and a processing medium tothe transformation of raw materials into finished
goods.
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Just In Time (JIT) Production Systems
take a demand pull approach in which
goods are only manufactured to satisfycustomer orders
purchase of goods or materials is in such away that a delivery immediately precedesdemand or use
Reduces manufacturing lead time and setuptime
Builds strong supplier relationships
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Flexible Manufacturing Systems (FMS) Use flexible automation in which several machine
tools are linked to the material handling system
A central computer controls all aspects of thesystem
Reduced labour
Shorter response time
Better control over manufacturing process
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Computer Integrated Manufacturing (CIM) Incorporates all engineering functions of
CAD/CAM and business functions of the firm
Maintains the operational and info-processingfunctions
Connects various computerized systems to asingle multi-functional system
Expansion affected by high cost & lack of
standardized interfaces
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Materials Requirement Planning (MRP)
Used in complex manufacturing organizations
Backward scheduling process that estimatesrequirement of materials
Advanced planning & scheduling
Helps in coordinating orders from externaland internal sources
Reduced investment in inventory Manufacturing Resources Planning ( MRP II )
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Distribution
Main activity of the supply chain that brings thefinished products to the end customers
Companies make use of
Distribution Centres
Transportation
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Distribution Centre
A warehouse or other specialized building withrefrigeration or air conditioning which aresupplied by transport, such as aircraft, truck,rail or ship, and then re-distributed to retailers
or wholesalers
Foundation of a retailing network
Allow a retail location to stock vast numbers ofproducts without high transportation costs
Large distribution centers service 50-125 stores
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some named major manufacturers have achieved acommon protocol of data operations, by distributingwithout cost to their respective suppliers,appropriate SCM communications software. Advises
firms to retain their electronic data interchangeSCM tools, until Web-based SCM is well establishedinto the manufacturing infrastructure.
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Supply Chain Management Software
As global markets grow increasingly efficient,competition no longer takes place betweenindividual businesses, but between entire valuechains. Collaboration through intelligent e-
business networks will provide the competitiveedge that enables all the participants in a valuechain to prevail and grow.
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REFERRENCES
www.wikipedia.com
http://www.amrresearch.com
http://www.capsresearch.org/
http://www.scmexpertonline.com
http://www.sandiego.edu/business/centers/supply_chain_management
http://www.scmr.com/article/CA6389475.html