MAK Business Administration SCM

Supply Chain Management

Supply Chain Management
What is Supply Chain Management?

The best companies around the world are discovering a powerful new source of competitive
advantage. It's called supply-chain management and it encompasses all of those integrated
activities that bring product to market and create satisfied customers. The Supply Chain
Management Program integrates topics from manufacturing operations, purchasing,
transportation, and physical distribution into a unified program. Successful supply chain
management, then, coordinates and integrates all of these activities into a seamless process. It
embraces and links all of the partners in the chain. In addition to the departments within the
organization, these partners include vendors, carriers, third party companies, and information
systems providers.
Within the organisation, the supply chain refers to a wide range of functional areas. These
include Supply Chain Management-related activities such as inbound and outbound
transportation, warehousing, and inventory control. Sourcing, procurement, and supply
management fall under the supply-chain umbrella, too. Forecasting, production planning and
scheduling, order processing, and customer service all are part of the process as well.
Importantly, it also embodies the information systems so necessary to monitor all of these
activities.

Achieving Strategic Fit

Strategic fit:
o Consistency between customer priorities of competitive strategy and supply chain
capabilities specified by the supply chain strategy
o Competitive and supply chain strategies have the same goals
 A company may fail because of a lack of strategic fit or because its processes and
resources do not provide the capabilities to execute the desired strategy
 Example of strategic fit -- Dell

How is Strategic Fit Achieved?

 Step 1: Understanding the customer and supply chain uncertainty
 Step 2: Understanding the supply chain
 Step 3: Achieving strategic fit
Step 1
 Identify the needs of the customer segment being served
 Quantity of product needed in each lot
 Response time customers will tolerate
 Variety of products needed
 Service level required
 Price of the product
 Desired rate of innovation in the product

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Step 2
 How does the firm best meet demand?
 Dimension describing the supply chain is supply chain responsiveness
 Supply chain responsiveness -- ability to
o respond to wide ranges of quantities demanded
o meet short lead times
o handle a large variety of products
o build highly innovative products
o meet a very high service level
Step 3
 Step is to ensure that what the supply chain does well is consistent with target customer’s
needs
 Uncertainty/Responsiveness map
 Zone of strategic fit
 Examples: Dell, Barilla

Uncertainty/Responsiveness Map

Step 3
 Two key points
– there is no right supply chain strategy independent of competitive strategy
– there is a right supply chain strategy for a given competitive strategy

Supply Chain Drivers

• The four primary drivers of supply chain management
1. Facilities
2. Inventory
3. Transportation
4. Information

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Facility – processes or transforms inventory into another product, or it stores the inventory
before shipping it to the next facility
• Three primary facilities components
1. Location
2. Capacity
3. Operational design

Inventory – offsets discrepancies between supply and demand

• Inventory management and control software – provides control and visibility to the
status of individual items maintained in inventory
• Two primary inventory components
1. Cycle inventory
2. Safety inventory
• Cycle inventory – the average amount of inventory held to satisfy customer demands
between inventory deliveries
1. Cycle inventory efficiency – holding small amounts of inventory and receiving
orders weekly or even daily
2. Cycle inventory effectiveness – holding large amounts of inventory and
receiving inventory deliveries only once a month
• Safety inventory – extra inventory held in the event demand exceeds supply
1. Safety inventory efficiency – holding small amounts of safety inventory
2. Safety inventory effectiveness – holding large amounts of safety inventory

Transportation – moves inventories between the different stages in the supply chain
• Two primary inventory components
1. Method of transportation
2. Transportation route

Information – an organization must decide how and what information it wants to share with its
supply chain partners
• Two primary information components
1. Information sharing
2. Push verses pull strategy

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• Information sharing efficiency – freely share lots of information to increase the speed and
decrease the costs of supply chain processing
• Information sharing effectiveness – share only selected information with certain
individuals, which will decrease the speed and increase the costs of supply chain
processing
Pull information strategy (efficiency) – supply chain partners are responsible for pulling all
relevant information
• Pull technology – pulls information
Push information strategy effectiveness – organization takes on the responsibility to push
information out to its supply chain partners
• Push technology – sends information

Balancing Supply and Demand

Demand

 Factors that determine the quantity demanded of butter:

a) The price of the good. The higher the price, the lower the quantity demanded. This is the
Law of demand.
b) Income. Normally, the richer people are, the more of a good they will buy. Let us call
income m.
c) Prices of related goods.
x and y substitutes. Think of butter (x) and margarine (y).
p y   y   x ; Therefore p y and x positively related.
x and y complements. Think of butter (x) and bread
(y)
p y   y   x ; Therefore p y and x negatively related.

d) Tastes. Some people like butter, others like olive oil.

The demand curve

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Supply

 Factors that determine the quantity supplied

a) The price of the good ( px ) . The higher is the price of butter, the larger the quantity of
butter supplied will be. This is the Law of supply.
b) The price of inputs ( pI ) . Inputs are machines, labour, raw materials (in this case milk), etc.
If the price of these inputs goes up, the cost of producing butter goes up, and the quantity
supplied diminishes.
c) Technology

Supply Curve

Equilibrium

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Supply Chain Coordination

Supply chain coordination: all stages in the supply chain take actions together (usually results
in greater total supply chain profits) – requires that each stage take into account the effects of its
actions on the other stages
Lack of coordination results when: – The objectives of different stages are conflicting and / or –
Information moving between stages is distorted
Bullwhip Effect: The distortion of demand information as it is transmitted up the demand
chain

The effect of Lack of Coordination on Performance

The bullwhip effect reduces supply chain profitability by making it more expensive to provide to
a given level of product availability
Manufacturing cost (increases)
Inventory cost (increases)
Replenishment lead time (increases)
Transportation cost (increases)
Labor cost for shipping and receiving (increases)
Level of product availability (decreases)
Waste within the supply chain (increases)
Relationships across the supply chain (worsens)
Profitability (decreases)

IT in Supply Chain Management

IT for SCM
 Software Systems
 Electronic Data Interchange (EDI)
 Material Requirements Planning (MRP)
 Manufacturing Resource Planning (MRP II)
 Enterprise Resource Planning (ERP)
 Supply Chain Management Systems (SCM)
 Customer Relationship Management (CRM)
 Internet-based Software
 Network Infrastructure
 Wide Area Network
 Internet (for E-commerce: B2B, B2C)
ERP
 Enterprise resource planning (ERP) is a term used to refer to a system that links
individual applications (for example, accounting and manufacturing applications) into a
single application that integrates the data and business processes of the entire business.
 An e-business must keep track of and process a tremendous amount of information
 Businesses realized that much of the information they needed to run an e-business —
stock levels at various warehouses, cost of parts, projected shipping dates — could
already be found in their ERP system databases
 A major part of the online efforts of many e-businesses involved adding Web access to an
existing ERP system