Module 1 section a: Supply chain management concepts

Key objectives In SC - Improve customer service

- Availability - use of SC management - Operational performance - product delivery and flexible delivery options - Customer satisfaction - customer expectations are discussed and clarified based on real SC data.

Streamlined Operations (SC Management Benefits)

- Identifying each a partner and step in the SC - quickly identify bottlenecks or problem areas - remove steps that do not add value - knowing who is responsible for each step - knowing how one change will affect another group

Stable Supply chain

- Predictable Supply/demand - low cost - long production runs - minimal line changes

Extended enterprise

- business to business transparency (ex. partners synchronize ERP systems) - CPFR - collaboration, planning, forecasting, replenishment - advancement in E-Commerce

Key objectives In SC - Adding value

- create value through financial benefits - eliminate all non value added activities (cutting costs to yield net gains at the bottom line) - must have positive cash flow (investing money up front to realize greater revenues) - measuring one stakeholder group at a time and determine the impact of the activity to each group (balancing) Gains should be distributed.

Reactive Supply Chain

- fulfills demand - no concern for costs - cost center - needs minimal competitive technology to respond to demand

Strategic driver Supply Chain

- fully integrated demand generation - Supply Chain contributes to organization's overall strategy - Forecasting/planning - Technology improvements shared with chain partner

Lateral SC integration

- more favored then vertical - assumed in most SC illustrations - less control - achieve economies of scale and scope - improve business focus and expertise - leverage communication and production competencies

Proactive efficient Supply Chain

- recommends new raw materials to cut costs - promotes design change to increase efficiency - invest in integrated info systems

Reactive efficient Supply Chain

- supports competitive position with efficiency and low cost - focus cost on total delivered cost of finished goods - emphasis on new technology to reduce labor cost

Capacity

- the ability of a system to perform its expected function - producing output per time per period

Customer value

-Quality of product/service - affordability - Availability - SC must be designed to delivery on time. - Service - SC will ensure service issues are incorporated in the product design stage. Also need efficient reverse chain.

Key Objectives in SC

1. Add value for customers and stakeholders 2. Improve customer service 3. Effectively use systemwide resources 4. Efficiently use systemwide resources 5. Leverage partner strengths

Four flows

1. Flow of info - SC >government>markets>competitor 2. Primary product flow - Raw material>consumer 3. Primary flow of cash - customer pays suppliers 4. Reverse flow of products returned - reverse logistics, repair, recycling, disposal

Stages of supply chain management evolution

1. Multiple dysfunction 2. Semi functional enterprise 3. Integrated enterprise 4. Extended enterprise

Supply chain stages

1. Stable 2. Reactive 3. Reactive efficient 4. Proactive efficient 5. Strategic driver

Financial statements (Accounting basics)

Balance sheet - shows resources owned, debts owed, owner's share of a company - snapshot of company's financial position usually last day of fiscal or calendar year - owners equity is the difference between assets and liabilities. - accounts receivable (asset) - when customer has right to receive goods and hasn't paid yet. - accounts payable (liability) - when customer owes money Income statement - shows net income - used to determine effect of SC expenses on net income - matching - reporting related revenues and expenses together in the period in which they were incurred. Adjustments can be made (i.e. Accruals) - profit - revenue minus expenses - profit margin - sales minus cost of goods sold (often in a percentage) - gross margin - revenue minus cost of goods sold - net profit - revenue minus all expenses Statement of cash flows - shows flow of cash and how they were used (Direct vs. Indirect) - cash flow - algebraic sum of all cash receipts, expenses, and investments. - 3 factors: sales, after-tax operating profit margins, capital requirements. - direct - cash from customers and cash paid to suppliers - indirect - net income followed by the necessary adjustments to convert the total net income to the cash amount for those activities. Most companies use indirect method. - SC professional must efficiently manage the company's inventory level and cost , maintain customer satisfaction. - generate enough cash to pay lenders, investors, government taxes - need extra cash to repay debt (ex. investing in new products) - depreciation - predetermined incremental reduction in the value of fixed assets (tax benefit). This is a noncash charge. Since depreciation reduces net income on the income statement but doesn't reduce actual cash levels, depreciation is added back on the statement of cash flows to determine the actual cash flow.

Vertical Integration

Bring SC inside one organization - created by organization and adding departments within - mergers and acquistions - promotes full control

greater market volatility

Demand is more volatile and harder to predict due to increase in power and speed of information available to consumers and competitors

Value chain

Functions within a company that add value to the goods or services. - not all value chain activities are technically part of the supply chain. ex engineering, marketing, finance, HR, legal

Increased Sustainability (SC Management Benefits)

Green sustainability

Spend management (Accounting basics)

Managing the outflow of funds in order to buy goods and services (outsourcing, procurement, e-procurement, and SCM) Aim to reduce the amount spent on inventory or increase the speed with which inventory is converted into cash without reducing customer service or revenue. When revenue increases, all variable expenses increases.

Tax savings and the SC (accounting basics)

Procurement and taxes - SC benefits from global procurement and sourcing centers by consolidating staff and equipment and tax savings from low tax regions. Taxes and logistics networks - SC benefits by reducing taxes by closing facilities in high tax countries. Taxes and information technology - purchase of SC software to improve planning and responsiveness (ex. ERP system). Benefits include automated tax payment determination.

Improved market knowledge (SC Management benefits)

SC and key accounts sharing information: transaction records, customer surveys results, sales and service rep knowledge, info from distribution points.

Social Values

SCs are also judged on their contribution to the public and the governments. - Avoiding or reduction negative environmental side effects (also recycling during reverse supply chain) - Potential environmental impact for each of the main SCOR processes: Plan, Source, Make, Delivery, Return, Enable

Flow of funds (Accounting basics)

Some upstream payments may occur long before the final good or service is even purchased. Cash to cash cycle time - how efficiently a company manages its assets to improve cash flow Improved turnover of funds improves customer-supplier relationships Improved cash flows tend to reduce imbalances

Improved Management of risk (SC Management Benefits)

Supply chain risk - risk that can negatively affect flow of goods, services, funds, or info Risk management - process of identifying, analyzing, and handling exposures to risk. Risk response plan - document defining known risks aka business continuity planning. Risk response planning - plan to avoid risks and controlling effects that cannot be avoided. - helps keep SC flexible so it can continue functioning no matter what happens - risks are shared among SC partners

Standard costing (accounting basics)

Target costs of an operation (direct material, direct labor, and overhead charges) Standard cost accounting system - uses cost units determined before production for estimating the cost of an order or products. Standards are compared to actual costs. Cost of goods sold (COGS) - direct material, direct labor, overhead Usage variance - actual consumption of materials as compared to the standard (associated with volume vs standard of goods) Cost variance - difference between what has been budgeted vs actual cost (rate variance) Cost driver - measurable aspect of an operation that is used to approximate how much of the overhead should be associated with the units produced (frequently used cost driver is direct labor hours)

3 V's (SC Managements benefits)

Visibility - ability to view important info throughout a facility or SC no matter where in thee facility or SC the info is located. Velocity - relative speed of transactions (higher asset turnover, faster order to delivery response for customers. Rapid modes of transportation. Reducing inventory idle time. Using Just in time delivery or lean manufacturing. Eliminating activities that don't add value. Speeding up the flow of demand and cash as well as the velocity of inventory. Variability - business activities that fluctuate above and below and avg value. Variability decreases with good SCM. Ex. Greater Visibilty leads to requiring less safety stock to meet demands. Over and under purchasing due to raw material variability. - bull whip effect - extreme change in supply position upstream that is generated by a small change in demand downstream in the SC

Triple Bottom Line (TBL)

an approach that measure the economic, social, and environmental impact of an organization's activities with the intent of bringing value for both its shareholders and society.

Key objectives In SC - Effectively use systemwide resources

benchmarking and comparing the companies actual performance against its organizational strategies for growth.

Green supply chain

complying with environmental safety regulations

inventory optimization software

computer application having the capability of finding optimal inventory strategies

Value stream

creating, producing, and delivering a good or service to the market. - may be controlled by a single business or a network of several businesses

S.C.O.R. Supply Chain Operations Reference

cross industry standard diagnostic tool for supply chain management

Supply chain management

design, planning, execution, control, and monitoring of supply chain activities with the objective of creating net value, building a competitive infrastructure, leveraging worldwide logistics, synchronizing supply with demand. - Supply Chain management is about creating net value and reducing cost - SC must add Value creating activities - balance act among competing interests. - Government and regulatory pressures - Good environmental management and sustainability concerns - Public opinion and the power of consumer choice - potential for competitive advantage - drive growth - meeting social expectations

Semifunctional Enterprise

each individual department looks to improve but no sharing between departments

Integrated Enterprise

each individual departments looks to improve AND sharing between departments

Green Supply Chain Management (GSCM)

environmental, social, and economic impacts, and the encouragement of good governance practice, throughout the life cycles of goods and services. - activities that provide present benefit without compromising the needs of future generations

External stakeholder

ex. public/private investors, lenders, and communities and governments

Multiple dysfunction

general dysfunction

Key objectives In SC - Leverage partner strengths

identify partners core strengths or competencies - providing partners timely and accurate information - Helping them deal successfully with channel customers - Aiding them in leveraging their strengths, such as innovation, speed, quality, low cost, etc.

Value stream mapping

lean production tool to visually understand the flow of materials from supplier to customer that includes the current process and flow as well as the value-added and non-value-added time of all the process steps. - reduction of waste, decrease flow time, more efficient, and effective

global expansion

need for more formal mechanisms to coordinate supply chain activities

increased project complexity and scope

projects involve large teams operating at different remote sites

Primary stakeholder

the business itself (ex. SC, Customers, Investors, lenders, Communities/environment, governments, employees)

Key objectives In SC - Efficiently use systemwide resources

utilizing resources and capacity at high efficiency.