EEC 231

8
COURSE LEARNING OUTCOMES
At the end of the course, you should be
able to:
1. Promote the Louisian core values
in making sound supply chain
management decisions.
2. Discuss fundamentals of supply
chain management as they
pertain to sustainable
relationships among various
industry players
3. Apply supply chain and
distribution management
concepts, principles, processes
SUPPLY CHAIN and strategies in case analysis
MANAGEMENT and practical business decision
making situations
4. Critique supply chain drivers and
supply chain operations
5. Integrate concepts/techniques
learned through application in
the preparation of a
comprehensive distribution plan
6. Evaluate alternative solutions to
supply chain issues, trends, and
transformations related to the
dynamics of the environment

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 No matter how prepared you are, there will always be times when things don’t do to plan. The key is to
prepare as well as you can, but at the same time train yourself to adapt to change and be solution-
focused in the moment.

Once you have momentum, fight to keep it. Fight for it with everything you can because it’s one of the
hardest things to create. When you have it, you can ask for things that you never could have without
it.

– Daniel Flynn

COURSE INTRODUCTION
Enterprising individuals and organizations face the unprecedented challenges of the
current economy. Having the competency to make objective choices, rational decisions
and a resilient attitude are necessary to sustain business operations.
In practice, supply chain managers need to be well-versed in process management
and development to ensure maximum product offerings and optimal shipments that
guarantee business client’s order specifications and customer order requirements.
This course intends to equip you with the necessary competencies of a supply chain
manager to facilitate beneficial interdependencies among diverse industries. You are
expected to be able to examine via observation and synthesis the general concepts of
supply chain management to develop a comprehensive purview of the logistical processes
linking the whole supply chain networks. This will enable you to have an ethical perspective
and attitude towards supply chain decision making with a clear focus on value-laden
relationships while maintaining a balance of responsiveness and efficiency leading to the
development and crafting of strategies that emphasize on the philosophy of sustainable
business enterprises. Given the vital role of supply chain managers, this three-unit course
hopes to nurture your potential in decision making relevant to supply chain management.
Supply chain management course covers a comprehensive study of the concepts,
processes and strategies used in the management of supply chains with particular emphasis
on the interrelationships of logistics among diverse industries vis-à-vis the value laden
relationships among the supply chain participants. Moreover, key strategic business
principles relative to channel management or logistics management will also be covered.
Physical distribution as a functional area within the firm and its interface with channel
intermediaries will be analyzed emphasizing on the inter-organization management of the
relationship of these institutions. Specific topics include the supply chain drivers and supply
chain operations that stresses on the systems-approach to managing the entire information
flows, financial flows and materials and services from raw materials suppliers to the end-users.
Current trends and issues in the global perspective will also be introduced to aid you with
competency in supply chain management decision making in the perspective of a supply
chain manager.

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 MODULE 8. SUPPLY CHAIN OPERATIONS (Source)

After the completion of this module you should be able to:

a) Discuss the stages of sourcing that impact on the operations and performance of
supply chains
b) Synthesize the SOURCE as a supply chain performance metric

ENGAGE:
Recall concepts of supply chain drivers relevant to the SOURCE supply chain
operations.

Instruction: Read the statements and put a T/F before each statement

1. The two major types of facilities are production and storage sites.
2. Inventory is an important supply chain driver because changing inventory policies
can dramatically alter efficiency and responsiveness of supply chains
3. Information is potentially the biggest driver of performance in the supply chain even
though it has little impact on the other drivers
4. A facility with little excess capacity will likely be no more or less efficient per unit of
product it produces than one with a lot of unused capacity.
5. The high utilization facility will have no more difficulty responding to demand
fluctuations than one with a lot of unused capacity
6. Cross-docking uses a traditional warehouse to store all types of product together
7. The components of inventory decisions include cycle inventory, safety inventory, and
seasonal inventory
8. Companies using seasonal inventory will build up inventory in periods of low demand
and store it for periods of high demand when they will not have the capacity to
produce all that is demanded.
9. A company's ability to find a balance between responsiveness and efficiency that
best matches the needs of the customer it is targeting is the key to achieving strategic
fit.
10. The overarching objective of SCM is to maximize value and lower wastes.

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 EXPLORE:
Examine the procurement process and managing credit.

I. Procurement

Sourcing is a process a company uses to get the goods and services it needs.
Traditionally, the main activities of a purchasing manager were to beat up potential
suppliers on price and then buy products from the lowest cost supplier that could be
found. The purchasing activity is now seen as part of a broader function called
procurement which includes:

a) Purchasing
o activities related to issuing purchase orders for needed products
o involves two types of orders: direct or strategic materials that are
needed to produce the products that the company sells to its customers
and indirect or MRO (maintenance, repair and operations) products
that a company consumes as part of daily operations
o purchasing decisions are made, purchase orders are issued, vendors
are contracted, and orders are placed.
o data communicated includes items and quantities ordered, prices,
delivery dates, delivery addresses, billing addresses, and payment terms

* The challenge in purchasing is timely and error free data communication.

b) Consumption management
o understand what categories of products are bought from whom and at
what prices.
o set expected levels of consumption for different products at the various
locations of a company and then compare against actual
consumption on a regular basis.
o consumption above or below expectations: investigate causes and
appropriate actions to be taken
o consumption above expectations: either a problem to be corrected or
reflects inaccurate expectations that need to be reset
o consumption below expectations: point to an opportunity that should
be exploited or it also may simply reflect inaccurate expectations to
begin with

c) Vendor Selection
o understand current purchasing situation, search for suppliers who have
both products and service capabilities needed and narrow down the
number of suppliers to do business with
o an ongoing process to define the procurement capabilities needed to
support the company’s business plan and its operating model is
necessary.

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 o the value of product quality, service levels, just in time delivery, and
technical support can only be estimated in light of what is called for by
the business plan and the company’s operating model

* The company seeks to narrow down the number of suppliers it does business
with to leverage its purchasing power and get better prices in return for
purchasing higher volumes of product.

d) Contract negotiation
o specific items, prices and service levels are worked out with individual
vendors based on the preferred vendor list
o simplest negotiation is to purchase indirect products where suppliers are
selected on the basis of lowest price
o complex negotiation is to purchase direct materials that must meet
exacting quality requirements and where high service levels and
technical support are needed
o Gaining greater efficiencies requires that suppliers of the direct and
indirect products have the capabilities to set up electronic connections
for purposes of receiving orders, sending delivery notifications, sending
invoices, and receiving payments.
o Better inventory management requires that inventory levels be
reduced, which often means suppliers need to make more frequent
and smaller deliveries and orders must be filled accurately and
completely.
o The negotiation must make trade-offs between the unit price of a
product and all the other value added services that are required. These
other services can either be paid for by a higher margin in the unit price,
or by separate payments, or by some combination of the two.

* Performance targets must be specified and penalties and other fees defined
when performance targets are not met.

e) Contract management
o measure and manage vendor performance, track performance of
suppliers and hold them accountable to meet the service levels,
routinely collect data about performance of suppliers.
o once contracts are in place, vendor performance against these
contracts must be measured and managed.
o a company needs the ability to track the performance of its suppliers
and if they consistently fall below requirements, they should be made
aware of their shortcomings and asked to correct lapses.
o vendor managed inventory (VMI) calls for the vendor to monitor the
inventory levels of its product within a customer’s business. The vendor is
responsible for watching usage rates and proactively ships products to
the customer locations where needed. Consequently, invoices the
customer for those shipments under terms defined in the contract.

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 II. Credit and Collections

Procurement is the sourcing process for goods and services while credit and
collections is the process that a company uses to get its money. The credit operation
screens potential customers to make sure the company only does business with
customers who will be able to pay their bills. The collections operation is what actually
brings in the money that the company has earned. The three main activities here
include setting the credit policy, implementing credit and collections practices and
managing credit risk.

a) Set credit policy

o credit policy is set by senior managers in a company such as the
controller, chief financial officer, treasurer, and chief executive officer
o understand company receivables situation and the trends affecting
that situation,
o set or change risk acceptance criteria to respond to the state of the
company’s receivables as influenced by economic and market
conditions

b) Implement credit and collections practices

o involve putting in place and operating the procedures that will carry out
and enforce the credit policies of the company
o after a sale is made, people in the credit area work with customers to
process product returns and issue credit memos for returned products,
resolve disputes and clear up questions by providing copies of
contracts, purchase orders, and invoices.
o Collection is the process that starts with the ongoing maintenance of
each customer’s accounts payable status. Customers that have past
due accounts are contacted and payments are requested. Sometimes
new payment terms and schedules are negotiated.
o The collection activity includes the work necessary to receive and
process customer payments that can come in a variety of different
forms (electronic fund transfers, bank drafts, revolving lines of credit,
purchasing cards, international letters of credit)

c) Manage credit risk

o what may be a bad credit decision from one perspective may be a
good business decision from another perspective
o managing risk can be accomplished by creating credit programs that
are tailored to the needs of customers in certain market segments such
as high technology companies, start-up companies, construction
contractors, or customers in foreign countries. Payment terms that are
attractive to customers in these market segments can be devised.
o credit risks can be lowered by the use of credit insurance, liens on
customer assets, and government loan guarantees for exports.

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 EXPLAIN:
Outline the procurement process and credit management.

The SOURCE as a supply chain operation include business processes needed

for producing or obtaining goods either through internal or external sources.
Fiduciary relationships with suppliers strengthened through a series of encounters could
guarantee smooth operations. However, at times, supply chain managers have to choose
between helping other participants (retailers) or be dedicated to serving customers.
Sourcing begins from receiving inventories, examining shipments, moving them to
manufacturing or warehouse facilities and ends with supplier payments.

Supplier selection is a major activity because the performance of its suppliers will affect its
own performance as regards shipping, delivery, and payments. Sourcing related metrics
include: days payable outstanding, average purchase price, average purchase quantity,
supply quality, supply lead time, fraction of on time deliveries and supplier reliability.

The ‘sourcing’ of an organization depends upon the industry it belongs to as well as its’
functional roles. The supply chain participant has to have clear objectives for its operations.
Based on their objectives, they will have to decide on how their resource requirements to
operate will be procured to be able to guarantee the delivery of customer order
specifications. In return, once the customer received the order delivered then payment will
have to be monitored and controlled. Presence of contracts will necessarily hold parties
accountable to the consummation of the purchase order and purchase receipt.

Approving a sale is like making a loan for the sale amount for the length of time defined by
the payment terms. Good credit management tries to fulfil customer demand for products
and also minimize the amount of money tied up in receivables. This is analogous to the way
good inventory management strives to meet customer demand and also minimize the
amount tied up in inventory.

According to PurchaseControl offering a Procure-to-Pay software system (2020), “Every

retailer, manufacturer, or service provider needs an efficient method to manage
purchasing, cash flow, build vendor relationships, and maximize buying power.” As an
example, it outlines the Procure-to-Pay Process Flow to illustrate how the SOURCE supply
chain operations can be done with the aid of technology.

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 For more insights, you may want to go to the following sites:
1. Purchasing and Supply Management. https://www.youtube.com/watch?v=dFtYFkcxsP0
2. Methods of Payment in International Trade for Export and Import (2020)
https://www.youtube.com/watch?v=cIM5SdLI58g (must-see videoclip. Time=7:27)
3. How a sight letter of credit works (Letter of Credit)
https://www.youtube.com/watch?v=CeZ8sJanRNE
4. The procure-to-pay process flow explained
https://www.purchasecontrol.com/blog/procure-to-pay-cycle/

ELABORATE:
Assess opportunities and limitations in ‘source’ as a career path

Career Path: Purchasing Manager https://www.betterteam.com/purchasing-manager-job-

description

I. Purchasing Manager Job Responsibilities

– Developing and implementing purchasing strategies
– Managing daily purchasing activities, supervising staff, and allocating tasks
– Managing supplier relations and negotiating contracts, prices, timelines, etc.
– Maintaining the supplier database, purchase records, and related
documentation.
– Coordinating with inventory control to determine and manage inventory needs
– Managing the maintenance of office/manufacturing equipment and machinery
– Ensuring that all procured items meet the required quality standards and
specifications
– Preparing cost estimates and managing budgets
– Working to improve purchasing systems and processes
– Training new employees in the purchasing process and how to use the purchasing
system

II. Purchasing Manager Requirements

– Degree in business administration or a related field
– Experience as Purchasing Manager or in a similar position
– Deep knowledge of inventory and supply chain management
– Supervisory and management experience
– Proficiency in Microsoft Office and purchasing software
– Excellent communication skills, both written and verbal
– Strong critical thinking and negotiation skills
– Strong planning and organizational skills
– Ability to work independently

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 III. Procurement Officer Responsibilities
– Overseeing and supervising employees and all activities of the purchasing
department
– Preparing plans for the purchase of equipment, services, suppliers
– Following and enforcing the company’s procurement policies and procedures
– Reviewing, comparing, analyzing, and approving products and services to be
purchased
– Managing inventories and maintaining accurate purchase and pricing records
– Maintaining and updating supplier information such as qualifications, delivery
times, product ranges, etc.
– Maintaining good supplier relations and negotiating contracts
– Researching and evaluating prospective suppliers
– Preparing budgets, cost analyses, and reports
– Procurement Officer Requirements
– High school diploma
– Degree in accounting, business management or similar field preferred
– 2+ years of experience as procurement officer or in a similar position
– Proficiency in Microsoft office and purchasing software
– Supervisory and management experience
– Attention to detail

IV. Buyer Responsibilities

– Research, select and purchase quality products and materials
– Build relationships with suppliers and negotiate with them for the best pricing
– Process requisitions and update management on status of orders
– Update inventory and ensure that stock levels are kept at appropriate levels
– Arrange transport of goods and track orders to ensure timely delivery
– Analyze market trends and apply this knowledge to make insightful buying
decisions
– Coordinate with inventory team, management, and stockroom as required
– Assess quality of stock received and escalate any discrepancies to suppliers and
management
– Ability to travel

V. Buyer Requirements
– Bachelor’s Degree in relevant field
– Relevant experience is preferred
– Excellent computer skills (Excel, Microsoft Word, PowerPoint)
– Proficient in appropriate software
– Critical thinking and negotiation skills
– Strong communication skills, both written and verbal
– Occasional domestic and/or international travel.

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 EVALUATE:
Record observations in procurement process including credit and collection.

Instruction: Critique the ‘source’ of supply chain operations of your neighborhood Sari-Sari
Store. Submit a REACTION PAPER of not more than 1000 words. The following are points for
you to ponder on.

a) Know what is their objective for establishing and operating their business
– Suggest focus on their business practices

b) Probe on how they manage their labor, inventory, cash flow and earnings of the day
– Suggest on how to yield income

c) Observe their conduct of simple market research – knowledge of their customers

– Suggest on how to establish and sustain customer relationships

d) Observe their product availability and variety on display

– Suggest on product sales, replenishing supplies and managing out-of-stocks

e) Assess their discipline in accounting for day’s revenues

– Suggest on how to improve earnings and profits

f) Describe how the store ensures product quality particularly their inventories
– Suggest on how to balance supply and demand
– Suggest on how to respond to customer’s needs (i.e. savings, safety, etc.)

g) Explore how the store owner manages credit terms and control of receivables
– Suggest on survival strategies despite being a low-margin store

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