Module 2

MODULE 2
SUPPLY CHAIN OPERATIONS: PLAN, SOURCE, MAKE, DELIVER

SUPPLY CHAIN OPERATIONS

Majorly, there are 4 categories of Operations in any supply chain. These categories
are –

Plan
Source
Make
Deliver

Plan –

Demand Forecasting; Product Pricing; & Inventory Management make up the
operations in this category
Source –

Procurement; Credit & Collections make up the operations in this category

Make –

Product Design; Production Scheduling; & Facility Management are the
operations involved in this category
Deliver –

Order Management; Delivery Scheduling; & Return Processing are the
operations involved in this category

SCOR (SUPPLY CHAIN OPERATIONS REFERENCE) MODEL

As per APICS, process reference models integrate the well-known concepts of BPR
(Business process re-engineering), Benchmarking, Process measurement, and
Organizational design into a cross-functional framework.

The unique SCOR model links Business processes, Performance Metrics, Practices,
and People skills into a structure, is interactive, interlinked, and hierarchical in
nature.

Diagram of the SCOR Framework

The SCOR framework details what are the main responsibilities of the supply
chain participants in any supply chain. While the suppliers’ supplier is concerned
with Delivering materials/products to the suppliers and accepting Returns from
the suppliers, the Customer’s customer Sources products/services from the
customer and Returns excess/defective products to the customer. In addition, the
supplier Sources materials from the suppliers’ supplier, Makes the
goods/products, and then Delivers the finished product to your company. The
company Sources raw materials/goods from its supplier, Makes it into a
finished/semi-finished product and then Delivers the same to the customer. This is
how this process moves forward and backward as the case may be.
This is how the above framework needs to be read and understood.
Going ahead, we will be studying in detail the different categories of operations
involved in any supply chain.

PLAN

The 3 Operations involved in the Plan Category →

§ Demand Forecasting & Planning – these decisions are based on forecasts
which define which products will be needed, how many of these will be
needed and when will these be needed. 4 variables are further involved in
forecasts – Supply; Demand; Product Characteristics; & Competitive
Environment
§ Supply – Volume of products available

§ Demand – Overall demand for the products in the market

§ Product Characteristics – Features that impact product demand

§ Competitive Environment – How other suppliers act in the market

§ Product Pricing – This is a demand influencing tool for all companies; it
totally depends whether the company’s pricing strategy is skewed towards
higher profitability or covering costs

§ Inventory Management – The aim is to minimize inventory across all the
supply chain echelons (different stages) so as to minimize the total cost of a
company’s supply chain

SOURCE

The main points to be considered in this operation are–

§ Also known as Procurement in Industry parlance.

§ Traditionally, the responsibility of the purchasing managers whose only
focus was to source at the cheapest price or the lowest cost

§ Procurement function can be further sub-divided into – Purchasing,
Consumption Management, Vendor selection, Contract Negotiation, and
Contract Management

§ Purchasing involves issuing POs (purchase orders) for both Direct &
Indirect materials

§ Consumption Management – perform variance analysis between actuals
and budgeted

§ Vendor Selection – Focus on Value delivered → Quality, Service Levels
and technical support

§ Contract Negotiation – Negotiate not only prices but quality when
negotiating Direct material sourcing

§ Contract Management – Measure and manage vendor performance against
contract terms; use VMI (Vendor-managed Inventory) for self-analysis of
performance against set contractual obligations

§ Credit operation enables a company to screen customers for their ability
to make good payments they owe

§ Collection operation is one which actually brings in the money a company
has earned

§ Still, the idea remains but is the cheapest cost actually inexpensive??...
Ponder over this

What if I can procure a component from China at $0.50 per piece but the min.
order is 500,000 units. Add to this the freight cost and other costs I source it at
$25,000, so my overall total cost is $275,000 and my plant is in Pennsylvania?
What about the inventory storage and holding costs? The lead time (time between
order and arrival) is 25 days. I need to deliver it to my customer every month but the
demand varies per month. But, I have to order 500,000 pieces each time. What
if I have a vendor based in Pennsylvania who has a min. order of 100,000 units
and deliver the component to me in 72 hours but will offer me a price of $2 per
piece and add to it the other costs my sourcing cost is $5000. So, my total cost in
this case is $205,000 at a lead time of 3 days. The vendor also offers me storage
at his cost. So, I don’t need to carry extra inventory…Which sourcing location
makes more sense??

MAKE

The 3 main operations involved here include – Product Design; Production
Scheduling; & Facility Management

§ Product Design – With this cost component contributing to 50% or more to
the overall cost of a product, this needs to be given its due importance; try to
design products which need fewer parts, are simple to design, and require
modular construction. Why? Sourcing becomes easy and that too from a small
group of suppliers. Note: Flexible, Responsive and Cost efficient supply
chains lend a higher probability of product success in the market

§ Production Scheduling – In this, available capacity (in terms of equipment,
labor and facilities) must be allocated to the work that needs to be completed;
Efficiency and Profitability are 2 focal areas here; the executives involved
always juggle to find a balance between High Utilization Rates; Low
Inventories; and High Customer Service Levels

§ Facility Management – Quite expensive to shut down/build a facility; so cos
need to be careful where to locate their facilities; Another consideration is
Capacity at the facility; Managements must decide upon: Role played by
each facility; Capacity allocated in a facility; & allocation and proximity of
Suppliers and Markets to each facility

DELIVER

The 3 main operations involved in this categoryinclude:

§ Order Management – Flow of order information up the supply chain and
order delivery dates, product substitutions, and back orders information
down the supply chain. The supplier may fill the order from inventory or
order further to its supplier. E.g. Walmart ordering supplies to P&G for
instance and P&G further ordering to its ownsuppliers

Delivery Scheduling – Decisions on modes of transportation used for deliveries is
the focus here; 2 delivery methods are mostly used – Direct Deliveries (Source
Location → Destination Location); and Milk Deliveries (Single Source
Location → Multiple Destination Locations (Multiple Source Locations →

Single Destination Location), more Efficient than Direct Deliveries. Deliveries can
be from 2 main sources:

§ Single-Product Locations → large warehouses carrying a
single product or a narrow productmix

§ Distribution Centers → receive bulk shipments from various
single product locations (Walmart’s DCs are majorly used for
Cross- Docking)

§ Return Processing – A process what is known as “Reverse Logistics”. In
cases of wrong products delivered; damaged or defective products
delivered; or excess products delivered, Reverse logistics becomes a
necessary cost although an evil one. But one situation which involves
Product Recycling mandated by law this becomes a Value-added activity as
cost of non-compliance is far greater thancompliance

FORWARD v REVERSE SUPPLY CHAINS –

Flow of Goods from Manufacturer to Customer / End Consumer →
Forward/Traditional Logistics

Flow of Goods from Customer / End Consumer for Recycling/Reuse/Remarketing/Recover→
Reverse Logistics