Managing the Supply Chain - Essay Example

Managing the Supply Chain "A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers" (Ram Ganeshan & Terry Harrison) "Supply chain management flows can be divided into three main flows: The product flow The information flow The finances flow" (SearchCIO) 1. Planning and Control System for - Manufacturer of Refrigeration Units for Industrial Customers Variables to be considered Each unit will have a unique specification, as provided by the customers - specification will include the cubic capacity of the refrigeration unit, required 'foot print,' operating temperatures and time the unit is required - delivery and assembly of the refrigeration units will be a part of a building project - industry average lead time is 7 weeks, though in some cases it may extend to 4 weeks. Objectives of the Planning and Control System The central objective of introducing a planning and control system is to streamline the manufacturing process. The other objectives are: Improvement of customer satisfaction Redesigning the procurement and supply processes Establishment of an order-oriented business model Provision of quick sales and planning information to the production team Formulation of production plans based on orders Tracing the status of the orders throughout the manufacturing cycle Establishment of a closed loop supply chain to ensure the availability of the required materials within the set deadlines Procurement System There should be a complete realignment of the procurement system that will be followed for all raw materials, parts, and components. The activities that follow the procurement process apply to the purchase of goods and services in the industrial markets. These activities often cut across both functional boundaries on an intra-firm basis and organizational boundaries on an inter-firm basis. It needs the inputs from all the parties involved in the transactions. Hence streamlining the procurement system would maximize value for both buying and selling. The realignment of procurement system maximizes productivity by ensuring the production lines work in tandem with each other. Integration of Inventory Management and Procurement System There should be a complete integration of the inventory management and the procurement system to ensure an effective supply chain management. There ate four important purposes that are expected to achieve by the integration of the inventory management and the procurement process; they are: (1) Cost savings in inventory (2) Control over the inventory (3) Reduction and control of production cycle time and (4) Improved customer satisfaction (Oracle) All the above purposes are considered the essence of an effective supply chain management and hence it is important the inventory management and procurement system of the company is integrated. With the use of any readily available computer software the integration of the inventory management and procurement could be easily achieved. With this integration the company would be able to procure materials according to production demands and the delivery time can be calculated every hour for an efficient movement and usage of stock. The company can monitor inventory information at every stage of the production cycle, including the required amount for a particular order, quantity ordered, actual shipping amounts, and delivery dates. There will be a possibility of reducing the value of inventory held at the warehouse. Production Planning System Introduction of an integrative Manufacturing Planning and Control System would ensure that the desired products are manufactured at the right time, in the right quantities, meeting the customer specifications and at minimum cost. The major elements in an integrated system include: Demand Management Aggregate Production Planning Master Production Scheduling Rough-cut Capacity Planning Material Requirement Planning Capacity Planning Order Release Shop Floor Scheduling and Control A carefully structured demand management takes into account the changes in the customer demand and incorporate them into the aggregate production planning. Weekly updates of the demand management reports circulated to all the departments connected with the procurement of materials as well as for logistics and distribution will help in planning the inbound and outbound movements of materials and finished inventory properly. The corrected demand schedule is then used to make an aggregate production planning which leads to further steps in the production planning and control system. (Presentation) Structure for the Downstream Supply Chain Activities Moving the Product to the End User/Consumer The downstream supply chain activities mainly consist of meeting the delivery schedules of the customer in time by effectively coordinating with the production department (Russell and Taylor, 2006). The structure for the down stream supply chain activities involves a 'Fulfilment Planning' with the following elements: A Transportation Optimizer - to look into the routing, rating, consolidation and scheduling A Transportation Modeler - to analyze what-if scenarios A Load Configurator - to analyse the shipment requirements A Bid Collaborator - to negotiate the contracts A Global Logistics Manager - to graphically present the supply chain including all modes of transport, warehousing, and production sites A Transportation Manager - to carefully control all transport orders The other activities involved in the Supply Chain Activities can be fulfilled by: Customer Service Solution - to take care of automated inventory planning for service parts and to determine a global set of target stocking levels for service parts in the supply network; to schedule service calls and technicians; to collect and analyze data on failures and to operate expert system for trouble shooting problems 2. Planning and Control System for - Manufacturer of Lawn Movers for General Public Variables to be considered: Multi-Product line consisting of 20 different products - wide customer range - seasonal selling - stock out situation is to be taken care of - Out-of-town Distributors and Gardening stores need initial stock prior to the start of the season - a careful production scheduling would keep the stock situation better Structure for the Downstream Supply Chain Activities Moving the Product to the End User/Consumer The scenario in the case of manufacturing of lawn movers is different since it caters to the general public and the supply chain for down stream activities should ensure that there is a strong distribution channels and warehouse. In this case the company would do well to adopt a 'Distribution Resource Planning' (DRP) which is a widely used and potentially powerful technique for outbound logistics systems to help determine the appropriate level of finished goods inventory. The importance of the DRP can be seen from the fact that the adoption of a well structured DRP will reduce the stock-out situation, reduce the overall level of finished goods inventories, reduce the transportation costs, and improve distribution center operations. DRP is used with a Material Requirements Planning (MRP) system which attempts to manage and minimize inbound inventories particularly where numerous items are needed. Items that need to be combined and used in the assembly of a finished product usually have varying lead times. Therefore MRP is tied to the Master Production Schedule, which indicates which items are to be produced each day and the sequence in which they will be produced. This schedule is then used as the basis to forecast the actual parts needed and when they will be needed. When the master production schedule is combined with the lead times necessary for each item a schedule can be developed that indicates when each item has to be ordered. The quantity is determined by comparing inventory status with the total number of items needed to meet the production schedule. MRP minimizes the inventory to the extent that the master production schedule actually reflects what is needed to satisfy the customer demand in the market place. If the production schedule does not match demand, the company will have too much of some items and too little of others. The underlying rationale for DRP is to more accurately forecast demand and to explode that information back for use in developing production schedules. In that way the company can minimize inbound inventory by using MRP in conjunction with production schedules. Outbound (finished goods) inventory is minimized through the use of DRP. Most DRP models are more comprehensive that they also schedule transportation. DRP develops a projection for each Stock Keeping Unit (SKU) and requires: Forecast demand for each SKU Current inventory level of the SKU Target Safety Stock Recommended replenishment Stock and Lead time for replenishment This information is used to develop replenishment requirements. One of the key elements of a successful DRP system is the development of a DRP table which consists of a variety of elements including the SKU, forecast, current level of the SKU, scheduled receipt, and planned order and so on. The DRP table can be drawn for up to a period of 52 weeks and would be a dynamic document that would undergo continuous change as the data, especially demand changes. Individual tables provide useful information, but combining tables can lead to increased advantage. For example combining all the SKU tables of items shipped from one source can provide useful information on consolidation possibilities and on when to expect orders to arrive at the warehouse. Essentially the combining of tables helps to develop efficient production plans and shipping plans (Coyle, Bardi, and Langley, 2004) DRP thus when combined with MRP is a powerful tool that takes into account changes in customer demand , results in better customer service and lower logistics and manufacturing costs. 3. Planning and Control System for - Manufacturer of Brand Name Food Product Variables to be considered: Numerous product lines - minimal variance in volumes - production and distribution throughout the year Structure for the Downstream Supply Chain Activities Moving the Product to the End User/Consumer In the food manufacturing a new concept called 'Efficient Customer Response' (ECR) can focus on providing maximum service to the consumers. ECR is keen on eliminating inefficiencies and excessive costs by recommendation-engineering the entire food distribution supply chain from raw material supplier to store shelf (Frederic Crawford 1994). ECR is based on the concept that the manufacturer and retailer as treated as one virtual company. ECR is designed to eliminate the supply chain wastages and improve the efficiency by adopting the following steps: (1) Efficient replenishment to ensure that the right product is available at the right time and at the right place, in the right quantity at the most efficient way (2) Efficient store assortments ensuring the retail store carries the right assortment of products to meet the customer demands efficiently and at the same time maximizing the economical use of available space (3) Efficient promotion strategies to focus primarily rationalizing the pricing decisions and efficiently managing the procurement (4) Efficient product introductions that encourages the collaboration between the distributors and manufacturers which will result in rolling out products that will be favourably received by the ultimate consumers (Frederic Crawford 1994) As a starting point ECR will require the inbound raw material procurement procedures to be reevaluated so that the costly inefficiencies can be removed from the system. For this the company has to develop relationship with the key suppliers for ensuring a smooth flow of raw materials into production. This would call for timely sharing of all key information like retail consumption data. ECR also demands the production system to reduce the cycle time and inventory and should have the flexibility to manufacture what the market demands and deliver in the requisite packaging. ECR also controls the transportation of both inbound and outbound materials and finished goods with the manufacturers to employ more frequent smaller shipments timed much closer to the time when required by the market. This may necessitate the transport of multi-stop loads of mixed products both to the distribution centers and the store locations. This may make the traffic routing and consolidation process more complex and hence may need a careful planning. The company should be prepared to make a "trade off associated with smaller stops, potentially smaller equipment, mixed load requirement and the effect on their current practices and cost structures" (Frederic Crawford 1994). Thus ECR promotes the concept of a 'flow-through' rather than the traditional 'buy and store' mind set. This would require a sophisticated warehouse management and control systems and high-speed scanning and sorting equipment for an efficient distribution system. This may involve the increase in the number of distribution centers and the problems associated with the managing more numbers of distribution centers. ECR system also requires the sales function also to be shifted to achieve the sales volume without violating the pricing agreements. This enables the company to change the focus from loading the retailers with the company's products to using the retailer as a channel to sell to the end customer. References: Coyle J. John, Bardi J Edward, and Langley John Jr. (2004) 'The Management of Business Logistics' Edition VII Thomson South Western Frederic Crawford, (1994) 'Efficient Consumer Response: A Mandate for Food Manufacturers' Food Processing Publication February 1994 Oracle 'Midea Refrigeration Group Optimizes Supply Chain Management' Presentation 'Integrative Manufacturing Planning and Control Systems' Ram Ganeshan and Terry P. Harrison 'An Introduction to Supply Chain Management' Russell S. Roberta and Taylor W. Bernard III (2006) 'Operations Management' Edition IV Prentice Hall India Private Limited Search CIO 'Supply Chain Management' Read More