DPS 202 Fundamentals of Supply Chain Management 2 -Notes PDF

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This is a document on DPS 202, the fundamentals of supply chain management. It has notes on information concerning supply chain management practices....

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UNIVERSITY OF NAIROBI

FUNDAMENTALS OF SUPPLY CHAIN MANAGEMENT DPS 202 JOB MWANYOTA 29/05/2019

TABLE OF CONTENTS: TABLE OF CONTENTS:................................................................................................................2 1.0 INTRODUCTION:...............................................................................................................4 1.1 A SUPPLY CHAIN:...............................................................................................................4 1.2 SUPPLY CHAIN MANAGEMENT:.....................................................................................4 1.3 SUPPLY CHAIN MANAGEMENT OBJECTIVES:............................................................7 1.4 ELEMENTS/ COMPONENTS OF SUPPLY CHAIN MANAGEMENT:............................7 1.5 BENEFITS OF SUPPLY CHAIN MANAGEMENT:...........................................................8 2.0 STORAGE AND WAREHOUSING:......................................................................................10 2.1 DEFINITIONS:....................................................................................................................10 2.2 WAREHOUSING:...............................................................................................................10 2.2.1 NEED FOR WAREHOUSING.....................................................................................10 2.3 CLASSIFICATION OF WAREHOUSES............................................................................11 2.3.1 ON THE BASIS OF OWNERSHIP..............................................................................11 2.3.2 ON THE BASIS OF STRUCTURE:.............................................................................12 2.3.3 ON THE BASIS OF SERVICE RENDERED:.............................................................13 2.3.4 ON THE BASIS OF PURPOSE:.............................................................................14 2.4 CHARACTERISTICS OF A GOOD WAREHOUSE:........................................................15 2.5 FUNCTIONS OF WAREHOUSES.....................................................................................15 2.6 ADVANTAGES OF WAREHOUSING:..............................................................................16 2.7 WAREHOUSING METHODOLOGY:................................................................................18 3.0 TRANSPORTATION MANAGEMENT:................................................................................21 3.1 MODE OF TRANSPORTION:............................................................................................23 3.1.1 WATER FREIGHT:.......................................................................................................23 3.1.2 ROAD FREIGHT:.........................................................................................................24 3.1.3 RAIL FREIGHT:...........................................................................................................25 3.1.4 AIR FREIGHT:..............................................................................................................26 3.1.5 PIPING SYSTEMS:......................................................................................................27 3.1.6 ELECTRONIC TRANSPORTATION:.........................................................................27 3.2 ROUTE & NETWORK SELECTION:...............................................................................29 3.2.1 GOALS OF ROUTING AND SCHEDULING:...........................................................29 3.2.2 BENEFITS OF GOOD ROUTING AND SCHEDULING:..........................................29 3.2.3 PRINCIPLES FOR GOOD ROUTING/SCHEDULING:............................................29 3.3 INHOUSING AND OUTSOURCING:...............................................................................29 3.3.1 INHOUSING (OWN ACCOUNT TRANSPORT).......................................................30 3.3.2 OUTSOURCING (THIRD-PARTY CARRIERS)........................................................30 3.3.3 DECISION TO INHOUSE OR OUTSOURCE:...........................................................31 2

3.4

CONTAINER SYSTEMS:..............................................................................................31

3.4.1 CONTAINER STANDARDS...........................................................................................32 3.4.2 ADVANTAGES & DISADVANTAGES OF CONTAINERIZATION.............................32 3.5 INTERMODAL TRANSPORTATION:...............................................................................33 3.6 CATEGORIES OF TRANSPORT SERVICE PROVIDERS:.............................................33 4.0 MATERIALS HANDLING:....................................................................................................35 4.1 IMPORTANCE OF MATERIALS HANDLING:...............................................................35 4.2 MATERIALS HANDLING EQUIPMENT:........................................................................37 4.2.1 TRANSPORT EQUIPMENT........................................................................................37 4.2.2 POSITIONING EQUIPMENT......................................................................................38 4.2.3 UNIT LOAD FORMATION EQUIPMENT.................................................................38 4.2.4 STORAGE & HANDLING EQUIPMENT...................................................................38 4.2.5 IDENTIFICATION AND CONTROL EQUIPMENT..................................................39 4.2.6 ENGINEERED SYSTEMS:..........................................................................................39 4.3 THE TEN PRINCIPLES OF MATERIAL HANDLING:...................................................39 5.0 INVENTORY MANAGEMENT:............................................................................................45 5.1 DEFINITION OF INVENTORY:........................................................................................45 5.2 BASIC FORMS OF INVENTORY:....................................................................................45 5.3 TYPES OF INVENTORY:...................................................................................................46 5.4 THE PURPOSE OF INVENTORY MANAGEMENT:.......................................................47 5.5 INVENTORY COSTS:........................................................................................................48 5.6 INVENTORY SYSTEMS:...................................................................................................50 5.7 ECONOMIC ORDER QUANTITY MODEL:....................................................................52 5.8 ESTABLISHING SAFETY STOCK LEVELS:..................................................................54 5.9 ABC ANALYSIS:................................................................................................................55 6.0 FACTORS & DECISIONS IN LOCATING FACILITIES:....................................................56 6.1 IMPORTANCE OF FACILITY LOCATION:.....................................................................56 6.2 ISSUES IN FACILITY SITE SELECTION: - MANUFACTURING FIRMS:...................56 6.3 LOCATING SERVICE FACILITIES:.................................................................................58 6.4 TYPES OF FACILITIES.....................................................................................................59 6.4.1 HEAVY-MANUFACTURING FACILITIES:..................................................................59 6.4.2 LIGHT-INDUSTRY FACILITIES................................................................................59 6.4.3 RETAIL AND SERVICE FACILITIES........................................................................59 6.5 LOCATION ANALYSIS TECHNIQUES...........................................................................59

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1.0 INTRODUCTION: 1.1 A SUPPLY CHAIN: With the supply chain covering a broad range of disciplines, the definition of what is a supply chain can be unclear. Many definitions have been advanced each focusing on certain aspects of supply chain and omitting others. Examples of the various definitions are shown below.

This is a network of supplier, manufacturing, assembly, distribution, and logistics facilities that perform the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these products to customers.

Supply chain is defined as "a group of organizations connected loosely, all collaborating on the same goal of efficient and economical product delivery. It is a set of order-entry-and-orderfulfillment-related physical and binary interactions connecting a company and its customers and suppliers.

The above definitions emphasize the following key characteristics of Supply Chain: a. Supply Chains are networks. The network concept implies some co-ordination of processes and relationships. b. Supply Chains consist of processes which can be defined as specific ordering of work activities, across time and space with a beginning and an end and clearly identified inputs and outputs. c. Supply Chains have linkages which facilitate the co-ordination of relationships d. Supply Chain linkages are upstream and downstream. Upstream refers to the relationship between an enterprise and its suppliers and supplier’s supplier. Downstream refers to the relationship between an enterprise and its clients and client’s client. e. Supply Chain linkages are facilitated by the flow of information and resources. 1.2 SUPPLY CHAIN MANAGEMENT: The supply chain management (SCM) profession has continued to change and evolve to fit the needs of the growing global supply chain. Often times SCM can be confused with the term 4

logistics management. The Council of Supply Chain Management Professionals, (CSCMP) and the board of directors, comprised of industry experts, created official definitions. According to CSCMP, “Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, who can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies”. Further they suggested that “Supply chain management is an integrating function with primary responsibility for linking major business functions and business processes within and across companies into a cohesive and high-performing business model. It includes all of the logistics management activities noted above, as well as manufacturing operations, and it drives coordination of processes and activities within and across marketing, sales, product design, finance, and information technology”. Logistics Management According to CSCMP, “Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverses flow and storage of goods, services and related information between the point of origin and the point of consumption in order to meet customers' requirements”. They further suggested that “Logistics management activities typically include inbound and outbound transportation management, fleet management, warehousing, materials handling, order fulfillment, logistics network design, inventory management, supply/demand planning, and management of third party logistics service providers. To varying degrees, the logistics function also includes sourcing and procurement, production planning and scheduling, packaging and assembly, and customer service. It is involved in all levels of planning and execution--strategic, operational and tactical. Logistics management is an integrating function, which coordinates and optimizes all logistics activities, as well as integrates logistics activities with other functions including marketing, sales, manufacturing, finance, and information technology”.

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1.2.1 Supply Chain Management and Internet Technologies and Electronic Commerce Supply Chain Management is a major application area for Internet Technologies and Electronic Commerce (ITEC). In fact, advances in ITEC have contributed to growing importance of Supply Chain Management and Supply Chain Management in turn has contributed to many advances in ITEC.

Supply Chain Management is heavily reliant on ITEC as an effective and efficient information processing and communication tool. ITEC has become crucial today to operations everywhere along the value addition chain and to every functional area within the organization. Computers are spawning a huge proportion of current technological changes and innovations, either directly or indirectly. Computer based information technology, in particular have greatly influenced how operations are managed and how offices work. Information technology makes cross-functional coordination easier and links a firm's basic processes. Information Technology is therefore important in providing the following four essential supply chain requirements: 1. Connectivity: This is the ability to exchange information with external supply chain partners in a timely, responsible and usable format that facilitates inter-organizational collaboration. 2. Integration: This is the process of combining or coordinating separate functions, processes or products and enabling them to interact in a seamless manner. 3. Visibility: This is the ability to access or view pertinent data or information as it relates to logistics and the supply chain. 4. Responsiveness: The ability to react quickly to customers’ needs or specifications by delivering a product of the right quality, at the right time, in the right place at the lowest possible cost.

Information is the supply chain driver that serves as the bond allowing the other drivers to work together to create an integrated co-ordinated supply chain. Information is crucial to supply chain performance because it provides the foundations on which supply chain processes execute transactions and managers make decisions. Information is necessary in making good supply chain decisions at all three levels of decision making i.e. strategic, tactical and operational. Information Technology enables not only the gathering of this data to create supply chain 6

visibility but also the analysis of this data so that supply chain decisions made will maximize profit.

Characteristics of Information in Supply Chain Decisions: Information must have the following characteristics to be useful in making supply chain decisions. 1. Information must be accurate. 2. Information must be accessible in a timely manner 3. Information must be of the right kind. 1.3 SUPPLY CHAIN MANAGEMENT OBJECTIVES: 1. The integration of both internal and external competencies for an organization. 2. The building of alliances, partnerships and relationships throughout the supply system. 3. The facilitation of innovation and the synchronization of supply chain processes. 4. The optimization of the delivery of products, services, information and finance both upstream and downstream and across internal and external boundaries. 5. The reduction of costs and improvement of profit margins. 6. The maximization on return on assets. (net income after expenses and interest). 1.4 ELEMENTS/ COMPONENTS OF SUPPLY CHAIN MANAGEMENT: Elements/components 1.Customers 2.Suppliers

Typical issues This involves determining what products and services customers want This involves determining the capacity of suppliers to meet organizational needs. It also involves monitoring supplier quality, on time delivery, flexibility and maintaining suppliership. This is predicting the quality and timing of customers’ demand. This incorporates customer’s wants, manufacturability, physical facilities, location of

3. Forecasting. 4. Design.

facilities and time to market. 5. Capacity. 6. Processing. 7. Warehousing

&

This will involve matching supply and demand. This involves controlling of quality and scheduling of work. This involves meeting demand requirements while managing the cost of holding

Inventory Management 8. Purchasing /

inventory. This evaluates potential suppliers supporting the needs of operations on purchased

Procurement. 9. Location. 10. Information

goods and services. This involves determining the appropriate location of facilities. Utilizing information to make informed decisions while moving materials.

11. Transportation

Minimizing transportation costs, distance, time and maximizing profit

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12. Materials

Safety in handling materials at minimum material handling costs

Handling

1.5 BENEFITS OF SUPPLY CHAIN MANAGEMENT: 1 Reduction in costs as a result of strategic business alliances among the members of the supply chain. Reduced costs results to increased profitability for the organizations in the supply chain. 2 More efficient management of inventory where the emphasis is zero tolerance to inventory. Efficient management of inventory results in decreased inventory costs, a saving for the organizations in the supply chain. 3 Increased efficiency in transactions between supply chain partners due to enhanced information sharing, collaboration and cooperation. IT has played a big role in facilitating improvements in Supply Chain Management. 4 Supply Chain Management encourages the organization to adopt current information, process and product technologies in enhancing the organizations performance. This ensures that the organization is not rendered technologically obsolete in its business operations. 5 Supply Chain Management results to increased internal business operations efficiency as a result of promoting inter-departmental cooperation and collaboration towards achieving common organizational objectives. 6 Supply Chain Management fosters a spirit of shared ownership of the problems and solutions; strong commitment and involvement by top management; consistent goals and objectives communicated to all levels and functions and across organizations in the supply chain, so that all programs are in consonance; and effective use of recognition and rewards. This acts as a motivating factor for employees in the organizations that constitute the supply chain. 7 Supply Chain Management focuses the organization on competitive priorities that result in creating a competitive advantage over the organizations competitors. 8 It results in improved customer services because of its customer-based and customer focused approach. Supply Chain Management focuses the organizations total capabilities towards satisfying its customers better than its competitors. 8

9 Supply Chain Management as one of the best practices enhances the chances of the organization to attain world-class performance status. This is because it encourages the organization to aim for constant and continuous improvement on a global scale. 10 Supply Chain Management also spurs the organization to rapidly adapt to changes in the external environment thereby fostering a fluid and flexible organization, an essential characteristic for survival and growth in today’s ever changing business environment.

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2.0 STORAGE AND WAREHOUSING: 2.1 DEFINITIONS: Storage involves proper arrangement for preserving goods from the time of their production or purchase until the actual use.

A warehouse is a commercial building for storage of materials/goods. A warehouse is a hub in a logistics network where goods are temporarily stored or rerouted to a different channel in the network. In this respect warehouses are used for supply, handling/transhipment and distribution. Warehouses are used by manufacturers, importers, exporters, wholesalers, transport businesses, customs, etc. 2.2 WAREHOUSING: Warehousing refers to the activities involving storage of goods on a large-sc...