A Practical Introduction to Supply Chain OTHER SUPPLY CHAINS BOOKS FROM CRC PRESS A Guide to IT Contracting: Checklists, Tools, and Operational Assessment of IT Techniques Steve Katzman Michael R. Overly and Matthew A. Karlyn ISBN 978-1-4987-3768-5 ISBN 978-1-4398-7657-2 Oracle Business Intelligence and Essbase Solutions Electronically Stored Information: The Complete Guide Guide to Management, Understanding, Acquisition, Storage, Rosendo Abellera and Lakshman Bulusu Search, and Retrieval, Second Edition ISBN 978-1-4822-3407-7 David R. Matthews ISBN 978-1-4987-3958-0 Responsive Security: Be Ready to Be Secure Meng-Chow Kang Enhancing Enterprise Intelligence: Leveraging ERP, ISBN 978-1-4665-8430-3 CRM, SCM, PLM, BPM, and BI Vivek Kale Securing an IT Organization through Governance, Risk ISBN 978-1-4987-0597-4 Management, and Audit Enterprise 2.0: Social Networking Tools to Transform Ken E. Sigler and James L. 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Visit the Taylor & Francis Web site at http://www.taylorandfrancis.com and the CRC Press Web site at http://www.crcpress.com Contents Author ix List of Acronyms xi introduction xiii chApter 1 suppLy chAin in A strAtegic context 1 1.1 Importance of Supply Chain Performance to the Business 1 1.1.1 Prices and Cost 1 1.1.2 Lead Time and Responsiveness 2 1.1.3 Quality and Innovation 3 1.2 Scope of the Supply Chain 5 1.3 Supply Chain Organizations and Relationships with Other Functions 7 1.4 Supply Chain Metrics 8 chApter 2 seven eLements of suppLy chAin exceLLence 9 2.1 Understanding Customers and Demand 9 2.2 The Capability of Your Supply Base to Meet Your Requirements 10 2.3 Relationships 11 2.4 Supply Chain Business Processes 12 2.5 Information Technology 13 2.6 Supply Chain People 14 2.7 Lean Practice in the Supply Chain 15 chApter 3 understAnding customers And demAnd 17 3.1 Forecasting Demand 18 3.2 Sales and Operations Planning (S&OP) 20 3.2.1 Master Production Scheduling Process 25 3.2.2 Available to Promise Calculations 27 3.2.3 S&OP for Products with Optional Product Features 28 3.3 Dependent and Independent (Spares/Maintenance) Demand 29 3.4 Regularity of Demand 32 3.5 Standardization 33 3.6 Critical Parts 35 3.7 Forecasting and Planning for Different Types of Demand 37 v vi Contents chApter 4 suppLy mAnAgement 41 4.1 Supply Base Alignment 41 4.2 Managing Low-Value Items and Services 44 4.2.1 One-Stop Shop 44 4.2.2 P-Cards 45 4.2.3 Buy Houses 46 4.2.4 VMI 47 4.2.5 Vending Machines 47 4.2.6 Risks to Critical Supplies and Suppliers 47 4.3 Categorizing Spend and Starting Work on Your Supply Base 48 4.4 Commodity Management 51 4.5 Sourcing and Supplier Selection 54 4.6 Pricing 63 4.6.1 Estimating the Right Price for Costing Purposes 64 4.7 Total Cost 64 4.8 Risk Assessment and Mitigation 66 4.9 Relationships 68 4.10 Negotiation 74 4.10.1 A Negotiation with a Change of Scope 81 4.10.2 A Negotiation Where Price Is the Dominant Issue 82 4.10.3 A Negotiation with a Surprise Result 84 4.11 Supplier Development 86 4.12 Supplier Life Cycle Management 91 4.12.1 Supplier Agendas 92 4.13 Cost Reduction 93 4.14 Lead-Time Reduction 96 4.15 Contracts and Agreements 98 4.16 Key Contract Clauses and Issues 100 4.17 Trade Regulations and Compliance 108 4.18 Bribery and Corruption 110 4.19 Corporate Responsibility 112 4.20 Regulations Regarding Electronics and Substances 113 4.21 Auditing Requirements and Sarbanes–Oxley 113 chApter 5 Logistics 115 5.1 S&OP 115 5.2 Rough-Cut and Finite Capacity Planning/Scheduling 117 5.3 MRP 118 5.3.1 Planning, Scheduling, and Pulling 121 5.3.1.1 MRP Results 122 5.3.2 Forester Effect 122 5.3.3 Instability in MRP 123 5.3.4 Spares or Other Nonplanned Demand 124 5.3.5 Optional Features 124 5.3.5.1 Phantoms, Purchase Flags, and Shop Stock Flags 125 5.4 Making Logistics Easier 126 5.4.1 ABC Parts Management 126 5.4.2 Kits 127 5.4.3 Pull Systems 128 5.4.4 Bin Stock Replenishment 130 5.4.5 Vending Machines 131 5.4.6 VMI 132 Contents vii 5.5 Inventory Management 133 5.5.1 Inventory Reduction and Optimization 134 5.5.2 Warehouse Layout 135 5.5.3 Inventory Accuracy 137 5.6 Distribution 138 chApter 6 suppLy chAin Business processes 143 6.1 End-to-End Processes 143 6.2 Supply Chain Information Technology 146 6.2.1 Other Packages 153 6.2.1.1 Forecasting 153 6.2.1.2 Warehouse Management Systems (WMSs) 153 6.2.1.3 Distribution Network Planning Systems 154 6.2.1.4 Customer Relationship Management (CRM) 155 6.2.1.5 Supplier Relationship Management 155 6.2.1.6 Computer-Aided Engineering (CAE) 156 6.2.1.7 Project Management Packages 156 6.3 IT to Support Competition-Beating Processes 157 6.3.1 Other Examples of Good Uses of IT 158 6.3.1.1 Vendor Managed Inventory (VMI) 158 6.3.1.2 Industry 4.0 160 6.3.1.3 Point-of-Sales Data 160 chApter 7 suppLy chAin peopLe And orgAnizAtions 167 7.1 Communication Skills and Quality 167 7.1.1 Vice President, Supply Chain 168 7.2 Organization Structures, Teams, and People 168 7.3 Commodity Groups and the Organization 172 7.4 Linking the Planning and Purchasing Functions 174 7.5 Managing Up, Managing Down, and Managing along the Supply Chain 176 chApter 8 LeAn suppLy chAin prActice 177 8.1 Applicability of Lean Tools in the Supply Chain 177 8.2 Waste Removal 179 8.3 Process Mapping 180 8.4 Continuous Improvement Cycles: PDCA and DMAIC 183 8.4.1 Basic Steps 183 8.4.2 Example 184 8.5 Example of Lean Improvements in the Supply Chain 185 8.6 KPIs 188 chApter 9 mAking chAnge hAppen 195 9.1 Dealing with Unpleasant News 195 9.2 Step Change and Incremental Change 196 9.3 Taking Advantage of IT as a Driver of Change 197 9.4 Speak with Data 198 9.4.1 Pareto Analysis 199 9.4.2 Twin-Axes Graphs 200 9.4.3 Paired Comparisons 201 9.5 Change Cycle 202 9.6 Willingness and Ability 203 viii Contents 9.7 Presenting and Selling Your Case for Change 204 9.7.1 What Is the Problem: Why Should They Do This? 205 9.7.2 What Is the Proposal: How Might It Impact Them? 205 9.7.3 What Is the Plan: How Will We Do It? 206 chApter 10 product design And deveLopment And the suppLy chAin 207 10.1 Supplier Involvement in Product Design Teams 211 Appendix: exAmpLe suppLy chAin roLe profiLes 213 suggested further reAding 223 index 225 Author I have worked as a supply chain consultant, much of it on a global basis, for nearly 20 years. This has involved training and consultancy work focused mainly on reducing costs, lead times, inventory, and risks. This work has taken me to Europe, the United States, Russia, Japan, China, and many other parts of the Far East and Middle East. I believe a good supply chain is central to the success of most businesses and remains an area of great potential for most. I began my working life as a mechanical engineer for the Lucas group in the United Kingdom and I am now a director of Demand Chain International. Manufacturing in some form or another has been a constant ingredient in my working life. It is an area I enjoy greatly. Early work in new product introduction and manufacturing projects led me into the IT world of material requirements planning (MRP) and shop schedul- ing. This enabled me to move into electronics manufacture and I became head of the supply chain for Research Machines, a company making PCs and writing software. I then learned a lot about cellular manufacture and how to devolve tactical supply chain work to cells and minibusinesses working for Ingersoll Engineers as a supply chain consultant. Research Machines enabled me to deal with suppliers in both Japan and the United States. I experienced the very different approaches to business of these two cultures. The Japanese approach to quality was also a great influence on Research Machines and on me. The lengthy lead times of electronic components such as DRAMs, EPROMs, PALs, ASICs, and the like were a significant challenge. This, combined with the short customer lead-time expectations emphasized the real value of sales and opera- tions planning (S&OP). We also developed an innovative commodity-based structure that brought focus and responsiveness to the commercial supply chain functions. In the 1990s, Ingersoll Engineers was a manufacturing consultancy and leading light in the implementation of manufacturing cells and minibusinesses. I joined them ix