KNOW WHAT IS SUPPLY CHAIN MANAGEMENT (SCM)? : An Overview

This is one of the basic areas from management books. In fact lot of people have requested some more information on SCM, OPM and other manufacturing area. therefore,I take this opportunity, as this is one of my favorite topic, as I started my first job in PPC (Production Planning &Control) department of a big steel company a decades ago, so I hope I will surly help in giving a clear picture of SCM. Let's start with basic and gradually will move into ERP arena:

SCM is defined as combination of art and science that goes into improving the way your company find the raw components that needs to make a product or services and deliver it to customer. In Business word this art and science become functions that an organization undertake.

If you are IT guys you can understood SCM as:

Systems that support manufacturing managers in making decisions that optimize the trade off between capital tied up in stocks and inventories, versus the ability to deliver goods at prices and delivery dates agreed with customers.

In principle and reality, both inwards logistics operations to acquire materials to make products and outwards logistics operations shipping finished goods to final customers are monitored.

• WHAT EXACTLY IS SUPPLY CHAIN MANAGEMENT OR WHAT IS BASIC COMPONENT OF SCM?

As per Supply-Chain Operations Reference-model which has been developed by Supply-Chain Council. This model organized and focused on the five primary management

1.    PLAN

2.    SOURCE

3.    MAKE

4.    DELIVER

5.    RETURN

1. Plan: This is vital part of SCM philosophy, where the companies normally need to make strategy for managing all the resource that go towards fulfilling the customer demand for the product and services that they offers. A big piece of planning is developing a set of matrices to monitor the Supply chain so that it would be efficient, cost effective and deliver high quality and value to the customer.

2. Source: It means processes that procure goods and services to meet planned or actual demand. This part of SCM consists of selecting right suppliers that will deliver the good and services that need to create your product. Developing a set of pricing, delivery and payment process with supplier is important. Also this will also take care of managing the inventory of goods, and services you receive from your suppliers, including receiving shipping, verifying them, transferring them into various facilities and authorizing supplier payment.

3. Make: This is basically a step where your company starts fulfilling the request or BUILT for products into finished state to meet planned or actual demand. Schedule activity necessary for production, testing, packaging and preparation for delivery.

4. Deliver: This is also called Logistic Process. This is the processes that provide finished goods and services to meet planned or actual demand, typically including order management, transportation management, and distribution management.

5. Return - This is real pain of SCM model, which defined as processes associated with returning or receiving returned products for any reason.

Typical model can be best described as:

• WHO IS THE STAKEHOLDER OF SUPPLY CHAIN

These are considered as stake holder of SCM:

• Customers
• Your Company
• Design Partners
• Material Suppliers
• Contract Manufacturers
• Logistic Providers

• WHAT ARE DRIVERS OF THE SUPPLY CHAIN?

These are the main drivers :

• Production
• Inventory
• Location
• Transportation
• Information

1. Production
This driver addressing these questions: what products does the market want? How much of which products should be produced and by when?
This activity includes the creation of master production schedules that take into account plant capacities, workload balancing, quality control, and equipment maintenance.

2. Inventory
This driver addressing these questions: What inventory should be stocked at each stage in a supply chain? How much inventory should be held as raw materials, semi finished, or finished goods?
The primary purpose of inventory is to act as a buffer against uncertainty in the supply chain.

3. Location
This driver addressing these questions: Where should facilities for production and inventory storage be located? Where are the most cost efficient locations for production and for storage of inventory? Should existing facilities be used or new ones built?
Once these decisions are made they determine the possible paths available for product to flow through for delivery to the final consumer.

4. Transportation
This driver addressing these questions: How should inventory be moved from one supply chain location to another? Air freight and truck delivery are generally fast and reliable but they are expensive. Shipping by sea or rail is much less expensive but usually involves longer transit times and more uncertainty.

5. Information
This driver addressing these questions: How much data should be collected and how much information should be shared?

Timely and accurate information holds the promise of better coordination and better decision making. With good information, people can make effective decisions about what to produce and how much, about where to locate inventory and how best to transport it.

• GET FAMILIAR WITH TOP 10 TERMS, DEFINITIONS AND TERMINOLOGY IN SCM

• Master Demand Schedule - MDS

The MDS is a consolidation of demand by product and time bucket

• Master Production Schedule- MPS

The MPS is a statement of supply required to meet the demand for the items contained in the MDS. The master production schedule defines the anticipated build schedule for all products. The master production schedule also provides the basis for order promising (ATP) function

• Material Requirements Plan-MRP

The Material requirements planning (MRP) calculates net requirements from gross requirements by evaluating:

·         The master schedule

·         Bills of material

·         Scheduled receipts

·         On-hand inventory balances

·         Lead times

·         Order modifiers

• Advanced Supply Chain Plan- ASCP

Constrained Based and optimized version of MRP

• Planned Order

Automatically suggested action from planning engine

• Consumption

The process of "relieving" the forecast to prevent double counting of demand

• Drop Ship

Having an order ship directly from the vendor to the customer without physically being in your inventory.

• Vendor Managed Inventory- VMI

The process of giving the vendor the authority and visibility to determine what your inventory should be

• Customer Owned Inventory- COI

Where you are managing the customers inventory on your premises and supply as required

• Work Order/Sales Order

The request that you received from the customer for fulfilling there demand.

• SIMPLE PLANNING CYCLE WITHIN AN ORGANIZATION

A typical planning cycle would start by loading the sales orders, forecast and other demand such internal orders into the master demand schedule (MDS). That demand statement would then be used as the schedule that drives the Master Production Schedule (MPS) . Take a note in regular MRP implementations the MPS is used as the schedule for ATP. Once the MPS is reviewed and updated is used as the schedule to drive the MRP process. The result of the MRP process is planned orders and exception messages. When released from MRP the planned orders for "buy" items become requisitions or purchase orders in the purchasing module and the "make" items become discrete jobs in the Work In Process Module. Once the finished goods are received into inventory it is shipped to satisfy customer orders.

Scenario I :Sales Order - Forecast Planning Cycle

This is the scenario where normally we are building to stock and satisfying sales order demand from stock. Here you will see the difference as planned orders are released to become purchase requisitions for components and work orders for sub assemblies and finished goods. The finished goods are then shipped to satisfy the sales orders.

 Scenario II : Planning - Procurement Cycle

In the Planning-Procurement cycle we normally start where the first part of the planning cycle is complete and we have a planned order for a buy item from MRP. The planned order is released and becomes a requisition or purchase order in the purchasing module. A purchase order is then created from the requisition and sent to the vendor. The vendor would supply the materials. The materials would be received into inventory and the purchase order would be closed.

 Scenario III :Planning - Drop Ship Cycle

In the Drop Ship cycle the process is as follows:

• A sales order is received from the customer.
• After the sales order is entered a process is run that creates a purchase order that matches the sales orders
• The item, quantity and required date information on purchase order matches that information on the sales order.
• The ship to address on the purchase order is the ship to address of the customer.
• The vendor ships the product directly to your customer. Once the vendor ships the product you receive" the purchase order and that creates the shipping transaction to satisfy the sales order.
• Matching accounting transactions complete the process

Scenario IV :Planning - WIP Cycle

In the Work In Process cycle after the planning cycle is complete a planned order is released to create a discrete job. Material/components is issued the job or back flushed from inventory. The job is completed from Work In Process to Inventory.

Scenario V : Planning - Outside Processing Cycle

With Outside Processing you could be buying a service, an item or capacity from an outside vendor. The setup for each of these scenarios will be described in the training sessions to follow, however they all follow a similar process. A routing with an outside processing operation is setup.

After the planning cycle is complete a planned order is released to create a discrete job. Once the Discrete job is moved to a outside processing operation, a purchase requisition is triggered. The requisition is imported to Purchasing and a purchase order is created. The details of the discrete job such as job number, assembly number and quantity is tied to the purchase order. The purchase order is sent to the vendor. When the purchase order is received its destination will be shop floor and the assembly will be returned to the next operation on the work order.

This make an end of this discussion. In Next post we will see what are the different subsystem SCM will have and what are the modules which comes under SCM Implementation. Any comment is welcome :)