Onserio Nyamwange: Dps202: Fundamentals of Supply Chain Management

11/27/2019
DPS202: FUNDAMENTALS OF The basics…

SUPPLY CHAIN MANAGEMENT • Assessment: CAT-15, Assignments-10,
Quizes-5
• Punctuality, phones, missing class
ONSERIO NYAMWANGE • Academic conduct
• Class format
• Questions and preferences
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Course Outline
These are the fundamentals….. – Introduction
• Defining supply chain
• Office • Components of Supply Chain
• Contacts • Supply chain relationship with other functions
– Storage and warehousing
• Course Outline – Transportation
• CAT (09th Dec 2019) – Materials handling
• Assignment( ditto) – Green Supply Chains
– Packaging
– Inventory Management
– Purchasing/Procurement Management
– Supply Chain Facility Location Decisions
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– ICT and Supply Chains
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Supply Chain
• Consider a product of choice and identify all the
players, functions, processes, activities, and
facilities which “source,” “make,” and “deliver”
products from the initial sources of inputs to the
final customer
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What is a supply chain?

A system or network of all organizations, facilities,
people, technologies, functions, and activities
associated with flow and transformation of goods and
services from the initial source of raw materials to
the final customer, as well as the associated
information and financial flows
Upstream side Downstream side
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- A supply chain consists of
Supplier Manufacturer Distributor Retailer Customer
Upstream
Downstream
-SCM aims to Match Supply and Demand,
profitably for products and services
SUPPLY SIDE DEMAND SIDE

…and hence achieve:
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Supply Chain Illustration
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The right
Product
+ The right
Price
+ +The right
Place
The right
Quantity
+ The right
Source
+ The right
Time
= Higher
Profits
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What is Supply Chain Management? What is Supply Chain Management?

• Utilization of knowledge, skills, expertise, experience, facilities, tools
What is management? and techniques to run/undertake SC activies in a way that best
achives the SC objectives.
• It involves the management activities of planning, organization,
coordination, leadership, and control of resources (people, money,
facilities, equipment etc) to ensure efficient and effective flow of
materials, products, services, money, and information across a
network of suppliers, customers, enterprises, and other supply chain
partners
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• Supply chain management encompasses of all activities

involved in sourcing for inputs, conversion to create
• SCM encompasses the integrated planning and execution value, and Delivery of outputs to customers, and post-
of processes required to optimize the flow of materials, sale issues.
information and financial capital in the areas that broadly • It also includes the crucial components of coordination
include demand planning, sourcing, production, inventory and collaboration with channel partners, which can be
suppliers, intermediaries, third-party service providers,
management and storage, transportation (or logistics)
and customers
and return for excess or defective products
Supply Chain Management is Cross-functional and

Inter-organizational Scope of the Supply Chain
Business logistics
 Cross-functional – Inter-organizational
Physical supply Physical distribution

(Materials management)
Sources of Plants/
Customers
supply operations
• Transportation • Transportation
• Inventory maintenance • Inventory maintenance
• Order processing • Order processing
• Acquisition • Product scheduling
• Protective packaging • Protective packaging
• Warehousing • Warehousing
• Materials handling • Materials handling
• Information maintenance • Information maintenance
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• Purchasing/Procurement/Ac • Packaging
quisition • Information
• Inventory Management • Returns, Post-sale services,
• Warehousing End of life issues
• Production • Green Supply Chain Supply Chain
• Transportation and Logistics Management Management
• Distribution • Planning-
• Materials Handling • SC design
• Order Processing
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Careers in Supply Chain Management

Supply Chain Models
Jobs in the supply chain management
include, but are not limited to:
SC Manager • Two perspectives
logistics manager,
– Organizational pyramid approach
operations director,
transportation director, – SCOR Model
supply chain sales,
supply chain consultant,
procurement analyst/officer
purchasing manager
industry analyst,
project manager,
Warehouse manager
Inventory controller
Organizational Pyramid Model Strategic, Tactical, and Operational Decision Making

Decision area Strategic Tactical Operational
• Supply Chain Design
Strategic • Resource Acquisition Transportation Mode selection Seasonal equip- Dispatching
• Long Term Planning (1 Year ++) ment leasing
Inventories Location, Control policies Safety stock levels Order filling
Order Order entry, transmittal, Processing

• Production/ Distribution Planning
processing and processing system orders, Filling
• Resource Allocation
Tactical design back orders
• Medium Term Planning (Qtrly,Monthly)
Purchasing Development of supplier- Contracting, Expediting
buyer relations Forward buying
Warehousing Handling equipment Space utilization Order picking

• Shipment Scheduling selection, Layout design and restocking
Operational • Resource Scheduling
• Short Term Planning (Weekly,Daily) Facility Number, size, and
location location of warehouses
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Supply Chain Operations Reference Model
SCOR is an acronym for supply chain operations reference model, • The SCOR model describes the business activities associated
which was developed to assist businesses in understanding, with satisfying a customer’s demand, which include plan,
structuring, and evaluating the performance of supply chains. source, make, deliver, and return. Use of the model includes
analyzing the current state of a company’s processes and goals,
quantifying operational performance, and comparing company
performance to benchmark data. SCOR has developed a set of
metrics and best practices information that companies can use
to evaluate their supply chain performance.
Supply Chain Operations Reference Model

A Process Framework
• The Primary Use of SCOR:
– To describe, measure and evaluate supply chain configurations.
• Process frameworks deliver the well-known concepts of business process
• SCOR contains: improvement, benchmarking, and best practices into a cross-functional
– Standard descriptions of management processes framework
– A framework of relationships among the standard processes
– Standard metrics to measure process performance
– Management practices that produce best-in-class performance
• Enables the companies to:
– Evaluate and compare their performances with other companies effectively
– Identify and pursue specific competitive advantages
– Identify software tools best suited to their specific process requirements
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SCOR Process Framework

Basic Processes
Combining four techniques into a single integrated approach
Plan-Source-Make-Deliver-Return
Business Process Performance Benchmarking Best Practices Analysis Organizational Design
Improvement
Plan
Capture the “as-is” Quantify relative Identify practices and Assess skills and performance
business activity and design performance of similar software solutions that needs and align staff and
the future “to-be” state supply chains and establish result in significantly better staffing needs to internal
internal targets performance targets Deliver Source Make Deliver Source Make Deliver Source Make Deliver Source
Return Return Return Return
Supplier’s Return Return

Customer’s
Supplier Supplier Customer Customer
(Internal or (Internal or
Process Reference Framework Your Company
External) External)
Process Performance (metrics) Practices People (skills) Plan-Source-Make-Deliver-Return provide the organizational structure of the SCOR-model
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Plan : Processes that balance aggregate demand and supply to develop a course of
action which best meets sourcing, production and delivery requirements
Balance resources with requirements
Establish/communicate plans for the whole supply chain
Source :Processes that procure goods and services to meet planned or
actual demand
Schedule deliveries (receive, verify, transfer)
Make : Processes that transform product to a finished state to meet planned or actual
WAREHOUSING
demand
Schedule production
Deliver :Processes that provide finished goods and services to meet planned or actual
ONSERIO NYAMWANGE
demand, typically including order management, transportation management, and
distribution management
Warehouse management from receiving and picking product to load and ship product.
Return : Processes associated with returning or receiving returned products
Manage Return business rules
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Definitions
• Storage involves proper arrangements for preserving • A warehouse is a place where different goods are stored or
inventory from the time of their production or purchase accumulated for a temporary period.
till the actual use. The place where goods are kept is called • It is a commercial building for storage of materials/goods.
‘warehouse’ • Warehousing creates utilities for manufacturers, retailers,
distributors, importers, exporters, wholesalers, transport
businesses, customs, etc
Need for Warehousing

• Warehousing creates utilities
– Time • Seasonal Production
– form • Seasonal Demand-
– possession • quick supply - To overcome time and space differentials
between producers and consumers
– place
• To minimize logistics costs while meeting customer service
goals.
• To support just-in-time inventory programs.
• Large-scale Production
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Types of Warehouses
• Price Stabilization- •Public/Commercial: in rented building used for business.
•Government or state: such as at the ports or harbours. This
• Facilitates sale of goods-
is common in emergency situations.
• Availability of finance-
•Transit: for temporary storage of goods destined for different
• Continuity in production locations and need storage for a very short time.
• Reduces risk of loss by assuming risk •Bonded warehouses: for storage of goods whose duty is
• Protection and Preservation of goods unpaid and especially where the goods are from or destined to
• Useful for small businessmen another country. Pre-positioned stock is often held in bonded
• Creation of employment warehouses so that export is quick and can sometimes be
stored for long periods.
•Classical warehouse: It is a big hall of single building divided

into various big or small rooms to store of general nature.
•Silo: It is generally a vertical cylindrical structure
•Open storage: not ideal for perishable products but
sometimes the only alternative especially in emergencies, .
•Private Warehouse-Space that is owned and managed by the
organisation.
•Portable/Pre-fabricated - warehouses where there are no
permanent structures available. This is common practice in
emergencies
Classical warehouse Silo
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• Specific Commodity warehouses: These warehouses are

meant to store specific goods like cotton, petroleum products
and wool. These warehouses are specially constructed to
accommodate the above articles.
• Cold Storage: These are meant to store agricultural products of
perishable nature. Perishable goods like fruits, vegetables, eggs
and butter are stored in these warehouses.
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• Climate-Controlled Warehouse
Warehouses handle storage of many types of products including
those that need special handling conditions such as freezers for
storing frozen products, humidity-controlled environments for
delicate products, such as produce or flowers, and dirt-free
facilities for handling highly sensitive computer products
Characteristics of Good Warehouses Characteristics Good Warehouses

1. Warehouse should be located at a convenient place near
highways, railway stations, airports and seaports where goods
can be loaded and unloaded easily.
2. Mechanical appliances should be there to loading and
unloading the goods. This reduces the wastages in handling
and also minimizes handling costs.
3. Adequate space should be available inside the building to keep
the goods in proper order.
4. Warehouses meant for preservation of perishable items like 7. Round the clock security arrangement should be there to
fruits, vegetables, eggs and butter etc. should have cold storage avoid theft of goods.
facilities. 8. The building should be fitted with fire-fighting equipments to
5. Proper arrangement should be there to protect the goods from avoid loss of goods due to fire.
sunlight, rain, wind, dust, moisture and pests.
6. Sufficient parking space should be there inside the premises to
facilitate easy and quick loading and unloading of goods.
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Functions
• space utilization; • Warehouses preserve goods on a large-scale in a
• equipment utilization; systematic and orderly manner. They provide
• labor utilization; protection to goods against heat, wind, storm,
• accessibility of all materials; moisture, etc. and also cut down losses due to
• protection of all materials. spoilage, wastage etc. This is the basic function of
every warehouse. In addition to this, warehouses now
a days also perform a variety of other functions
Basic Warehouse Operations
Functions Others are;

Storage of goods •Transportation consolidation
•Product mixing
Protection of goods •Cross-docking
Risk bearing •Service
Financing •Smoothing
Processing
Grading and branding
Transportation/shipping
Warehouse operations Basic Warehousing Decisions
receiving;
identification and sorting;
dispatching to storage;
placing in storage;
retrieval from storage;
order accumulation;
packing;
record keeping.
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Basic Warehouse Decisions: A Cost

Trade-off Framework The Ownership Decision
 Ownership  Factors to consider
 Public versus contract versus private  Throughput volume
 Centralized or Decentralized Warehousing  (because of fixed costs)
 How many  Stability of demand
 Location  Density of market area to be served
 Size  Security and control needs
 Customer service needs

 Layout
 Multiple use needs of the firm
 What products where
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Firm Characteristics Affecting the Ownership Decision
Location factors
•proximity to ports of •services

entry and beneficiaries •land size available
•existing buildings •purpose of warehouse
•security •previous use of the
•the context facility
•site condition •floor weight
•access •access to labour
The Number of Warehouses Table 8-3: Factors Affecting the Number of

 Factors Affecting the Number of Warehouses
Warehouses
 Inventory costs Factor Centralized Decentralized
 Warehousing costs Substitutability Low High
 Transportation costs
Product Value High Low
 Cost of lost sales
Purchase Size Large Small
 Maintenance of customer service
levels Special Warehousing Yes No
 Service small quantity buyers Product Line Diverse Limited

Customer Service Low High
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Warehouse Layout Considerations

Warehouse Layout and Design
•equipment maintenance and parking;
•charging of equipment batteries such as pallet trucks;  Develop a demand forecast.
•refuelling of trucks;  Determine each item’s order
quantity.
•an area for garbage disposal e.g. empty packaging;
 Convert units into cubic footage
•a quarantine area for keeping rejected goods, goods to be requirements.
sent back or destroyed;  Allow for growth.
•an employee rest area;  Allow for adequate aisle space for
•washroom; and materials handling equipment.
•an administration office
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Warehouse Space Requirements

Warehouse Layout and Design
 Provide for the transportation
interface.
 Provide for order-picking space.
 Provide storage space.
 Provide recouping, office, and
miscellaneous spaces.
Warehouse Layout and Design Warehouse Layout and Design

 Basic needs:  Layout and Design Principles:
 Receiving  Use one story facilities where
 Basic storage area possible.
 Order selection and  Move goods in a straight-line.
preparation  Use the most efficient materials
 Shipping handling equipment.
 Minimize aisle space.
 Use full building height.
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Warehouse Layout and Design: Layout and Warehouse Policies and Procedures
Design Objectives  The policies contain hard and fast rules and regulations that
define the general conduct of the warehouse operation
 Cubic capacity  Procedures will normally provide the step by step guidance
utilization on how to manage each aspect of warehousing. The
 Protection procedures' document defines step by step how the activities
 Efficiency in the warehouse should be carried out and clearly defines
 Mechanization the processes to be adopted.
 Productivity
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Policies… Procedures…
•health and safety •receiving and issuing of supplies;
•human resources management •quality control or verification;
•security •storage of goods;
•pest control •how to control stock movement (stock control);
•warehouse maintenance and cleaning
•documentation flow;
•quality control
•record keeping and reporting •how to detect and deal with stock losses;
•reverse logistics – Return of goods and exit strategy in the •how rejected material will be managed; and
event of downscaling or shutting down operations •how to deal with unwanted material, obsolete and
•disposal of obsolete and damaged goods. scrap, disposal
Resource Requirements •sufficient quantities of standard forms, calculators and

stationery to keep proper storage records;
 Various types of equipment are required to ensure the smooth
•small tools for opening cases, such as hammers, pliers,
execution of work in a warehouse.
crowbars, steel cutters;
 All equipment should be properly stored when not in use and •tools and materials for store repair and simple maintenance;
a regular maintenance schedule posted. •supplies for reconditioning damaged packaging, such as
 Warehouse staff should be trained in standard daily bags, needles, twine, oil containers, stitching machine,
maintenance practices and the correct use of equipment. strapping machine, adhesive tape and small containers or
 Staff should be equipped with personal safety equipment such cartons;
as work gloves, work boots, goggles •a sampling spear for inspecting foodstuffs;
•scales for weighing goods
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•standard wooden pallets in sufficient numbers – ideally

international; Care of Warehouse Equipment
•standardization organization’s “Euro” type (120 × 80cm);  Warehouse equipment is maintained to prevent accidents
•two-wheel hand trolleys for moving supplies within the warehouse; and breakdowns from occurring
•a pallet-jack to move pallets;  Maintenance activities consist of inspections, calibration,
•a forklift where pallets are to be loaded and offloaded from trucks;
regular servicing and monitoring performance for failure
•brooms, dust pans, brushes, shovels, sieves, refuse bins for
trends, as this will enable symptoms to be recognised before
cleaning and disposing of collected waste;
•first aid kits, flashlights, fire extinguishers and other fire-fighting
failure occurs.
equipment both inside and outside the warehouse;
•weighing scales; and
•ladders
Warehouse Information Systems

Inventory
Management
 Information systems that facilitate transparency of the
supply chain inventory levels, location, and demand provide
the necessary visibility to facilitate good planning and
effective decisions that maximise services and reduce costs.
Onserio Nyamwange
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What Is Inventory? Objective of Inventory Control

To achieve satisfactory levels of customer service while
keeping inventory costs within reasonable bounds
Stock of items kept to meet future demand.
Supply of resources (or materials, goods, – Level of customer service
commodities) held for the purpose of future – Costs of ordering and carrying inventory
utilization.
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Examples of Inventories Functions of Inventory
• Raw materials & purchased parts • To meet anticipated/seasonal demand

• Partially completed goods called work in progress
• To smooth production requirements
• Finished-goods inventories
– (manufacturing firms) or merchandise (retail stores) • To decouple operations
• To protect against stock-outs
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Functions of Inventory (Cont’d) Types of Inventory

 Cycle: daily to daily supplies.
• To take advantage of order cycles
 Safety: for uncertainty.
• To help hedge against price increases
 Anticipatory:
• To permit operations
 Pipeline: in transit, Work in process.
• To take advantage of quantity discounts
Each of these types of inventory comes
• Bullwhip effect
into being in a different way.
• Quality Service
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Cycle Stock Inventory Safety Stock Inventory

Supply of goods expected to be used up “Extra” supply of goods to protect against
(Reorder cycle) Uncertainty
Unforeseen events.
Reasons for carrying Reasons for carrying
Economies of scale (or batching economies) Uncertainty about customer demand
Price and quantity discounts Lead time delays
Transportation rate discounts Disruptions in supply
Production economics
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Anticipatory Inventory Pipeline Inventory

Buffer against planned disruptions or anticipated Products moving from point to point in the
demand.
Reasons for carrying
materials flow system.
 Stockpile during “off-seasons” (orders that have been placed but not yet
 Scheduled shutdown received ,“In-transit”)
 Seasonal weather disruptions
 Smooth production Reasons for carrying
 Contract negotiation – possible labor stoppages
Time and distance
Work-in-process inventory
Effective Inventory Management

Tracking Systems
• A system to keep track of inventory
• Two-Bin System - Two containers of inventory; reorder when the
• A reliable forecast of demand first is empty
• Knowledge of lead times
• Reasonable estimates of • Universal Bar Code - Bar code printed on a label that has
– Holding costs information about the item to which it is attached
– Ordering costs
– Shortage costs 0
• A classification system 214800 232087768
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Inventory Cost Types Inventory Cost Types Examples

• Item cost: the price of an item.
•Item – Different prices from vendors
•Ordering / setup – Price breaks

– Quantity discounts
•Shortage • Ordering / setup cost: inventory replenishment

• (Batch cost)
•Carrying (holding) • Shortage cost: being unable to meet demand.
– Lost sales
– Backorders
– Customer goodwill
• Inventory carrying cost: Holding items in inventory.
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Inventory Carrying Cost Capital Cost

Explicit and implicit costs of maintaining inventory.
Cost associated with a foregone alternative use of the
– Varies with level of inventory and length of time
item is held capital.
– Typically expressed as annual percentage of – also referred to as opportunity cost
item’s value
the potential benefits obtained from another
– Ranges from 20% to 40% of item’s value
financially productive alternative
Capital Cost
– often the largest component of inventory carrying cost
Storage Space
Inventory Cost – usually set to the firm’s hurdle rate
Carrying Cost
Inventory minimum rate of return expected on new investments
Service Cost
Inventory Risk
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Inventory Service Cost

Storage Space Cost
– Warehouse facilities Includes taxes and insurance for risk of
Variable expenses –vary with the amount of loss or damage.
inventory in the short run. (Excludes fixed rent, Inventory Risk Cost
depreciation, allocated costs, etc.) Possibility that the inventory’s dollar value may decline due to:
– Obsolescence -equal to the original cost less
– Material handling, such as labor
salvage value
– Maintenance cost – deterioration
– Utility costs – damage
– shrinkage (theft)
Determining the Inventory Carrying Cost

a)Inventory service cost
1.Determine the average annual value (variable cost) of
inventory held by the firm. taxes and insurance
For retail and wholesale: based on b)Inventory risk cost
purchase cost of item obsolescence, shrinkage, damage, etc.
For manufacturing: based on attributable 3.Add these costs and the firm’s hurdle rate, expressed as a
percentage.
production costs
2. Express the following costs as a percentage of the average value of inventory This is the firm’s cost of carrying an item in
held by the firm over a one year period.
inventory for one year – expressed as a
a)Storage space cost
 variable storage cost and attributable overhead cost
percentage of the item’s cost.
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ABC Analysis ABC Analysis

A method for classifying inventory items into three groups in
The Pareto principle terms of importance (A, B, C):
– A being the most valuable items,
Named after VILFREDO PARETO (1848-1923)
– C being the least valuable ones.
– 20% of population owns 80% of nations wealth • This method aims to draw managers’ attention on the critical few (A-items)
– 20% of employees cause 80% of problems not on the trivial many (C-items).
– Pareto’s Law (80 – 20 rule)
– 20% of items accounts for 80% of firms expenditure – “trivial many” versus “vital few”
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–A-items are goods whose annual consumption value is the –B-items are the interclass items, with a medium
highest; the top 70-80% of the annual consumption value consumption value; those 15-25% of annual
of the company typically accounts for only 5-15% of total consumption value typically accounts for 30% of total
inventory items.
inventory items.
–A Items: very tight control, complete and accurate records,
–B Items: less tightly controlled, good records, regular
frequent review
review
Remember…
–C-items are, on the contrary, items with the lowest Class Percentage Effort
Percentage
consumption value; the lower 5-10% of the annual value of
of items
consumption value typically accounts for 50-60% of total annual usage
inventory items. Close day
Class A items About 5-15% About 70- 80% to day
–simplest controls possible, minimal records, periodic review
control
and reorder
Regular
Class B items About 30% About 15%
review
Infrequent
Class C items About 50-60% About 5-10%
review
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ABC Classification
Steps in ABC analysis
• Class A
– 5 – 15 % of units 1. Find out the unit cost and the usage quantity of
– 70 – 80 % of value each material over a given period;
• Class B
– 30 % of units
2. Multiply the unit cost by the estimated annual
– 15 % of value usage quantity to obtain the usage value of
• Class C each material;
– 50 – 60 % of units 3. List out all the items and arrange them in order
– 5 – 10 % of value of descending usage value (Annual Value);
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4. Accumulate value and add up number of items and

ABC Classification: Example
Items Unit Cost ANNUAL USAGE
calculate percentage on total inventory in value and in Of stock $ (Units)
quantity 1 60 90
5. Mark off the the rational limits of A, B and C 2 350 40
3 30 130
categories. 4 80 60
5 30 100
6 20 180
7 10 170
8 320 50
9 510 60
10 20 120
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ABC Classification: Example (cont.)
TOTAL % Of Total % Of Total

Item PART
VALUE UNIT
Value COST ANNUAL USAGE
Quantity Cumulative %
9 1
30,600 $ 60
35.8 6.0 90 6.0
8 16,000
2 18.7
350 5.0 11.0
2 14,000 16.4 4.0
A40 15.0
3 30 130
1 5,400 6.3 9.0 24.0
4 4
4,800 5.680 6.0 B60 30.0
3 5
3,900 4.630 % OF TOTAL
13.0 100% OF TOTAL
40.0
6 6
3,600
CLASS Items4.220 18.0
VALUE 180 QUANTITY
58.0
5 3,000 3.5 10.0 71.0
10 A7
2,400 9, 8, 22.810 71.0
12.0
170
C 15.0
83.0
B8 320
1, 4, 32.0 16.5 50 25.0
7 1,700 17.0 100.0
C9 510
6, 5, 10, 7 12.5 60 60.0
$85,400
10 20 120
Example 10.1
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Item Unit Annual

number cost demand(1000s)
101 5 480
Economic Order Quantity (EOQ) Models
102 11 20 • EOQ
103 15 3 – optimal order quantity that will minimize total inventory costs
104 8 8
105 7 48
106 16 12
107 20 180
108 4 3
109 9 50
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Assumptions of Basic EOQ Model

Inventory Order Cycle
• Only one product is involved
Order quantity, Q
• Annual demand requirements known Inventory Level Demand
rate
Average
inventory
• Demand is even throughout the year Q

2
• Lead time does not vary
Reorder point, R
• Each order is received in a single delivery

• No shortages are allowed 0 Lead
time
Lead
time
Time
Order Order Order Order
• There are no quantity discounts placed receipt placed receipt
EOQ Cost Model

Co - cost of placing order
D - annual demand Annual ordering cost = Co D
Q
Cc - annual per-unit carrying cost
Q - order quantity
Annual carrying cost = Cc Q
R – Reorder level 2
d – usage or demand rate

Co D Cc Q
Total cost = +
Q 2
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EOQ Cost Model

Deriving Qopt
Co D Cc Q
TC = +
Q 2
TC Co D Cc
= – Q2 +
Q 2
C0 D Cc
0= – Q2 +
2
2Co D
Qopt =
Cc
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Reorder Point Total cost in the various orders

Order size(Q) 1200 600 400 300 240 200 150 120 100
Average 600 300 200 150 120 100 75 60 50

Level of inventory at which a new order is placed inventory(Q/2)
No.of orders 1 2 3 4 5 6 8 10 12
R = dL (A/Q)
Annual carrying 600 300 200 150 120 100 75 60 50
Cost (Rs)(cQ/2)
where
d = demand rate per period Annual 37.5 75 112.5 150 187.5 225 300 375 450
ordering cost
L = lead time (Rs)(OA/Q)
Total annual 637.5 375 312.5 300 307.5 325 375 435 500
costs (Rs)
EOQ Cost Model (cont.) EOQ Example

Annual
cost ($) Total Cost
You are given the information below
Slope = 0
CcQ
Annual Demand = 1,000 units
Minimum Carrying Cost =
2 Days per year considered in average
total cost daily demand = 365
Cost to place an order = $10
Holding cost per unit per year = $2.50
CoD
Ordering Cost = Lead time = 7 days
Q
Cost per unit = $15
Optimal order Order Quantity, Q
Qopt
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Required EOQ Example (2) Problem Data
Determine: Annual Demand = 10,000 units

Days per year considered in average daily demand
• The EOQ = 365
• No. of orders Cost to place an order = $10
• Total cost of inventory Holding cost per unit per year = 10% of cost per
• Order cycle time unit
• Reorder Point Lead time = 10 days
Cost per unit = $15
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Required
Determine: EOQ Example
 The EOQ Cc = KShs 750 per Litre
 No. of orders
Co = KShs 150000
D = 1000,000 Litres
 Total cost of inventory Lead Time = 30 Days
Works 320 Days a year
 Order cycle time
 Reorder Point Determine

EOQ
ROP
Total Cost
Order cycle time
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EOQ Example Vendor Managed Inventory

(VMI)
VMI is an integrated approach whereby the
2CoD CoD CcQ
Qopt = TCmin = + inventory at the distributor/retailer is monitored
Cc Q 2
and managed by the manufacturer/vendor
2(15000)(10,000) (15000)(10,000) (75)(2,000)
Qopt = (75) TCmin = 2,000 + 2
Qopt = 2,000 gallons TCmin = 750 + 750 = 150000
Orders per year = D/Qopt Order cycle time = 311 days/(D/Qopt)

= 10,000/2,000 = 311/5
= 5 orders/year = 62.2 store days
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VMI includes …
VMI rationale ….
• Determining appropriate order quantities
By pushing the decision making responsibility further up • Managing proper product mixes
the supply chain, the manufacturer/vendor will be in a
better position to support the objectives of the entire • Configuring appropriate safety stock
integrated supply chain resulting in sustainable
competitive advantage
Advantages Disadvantages
• Decrease required inventory levels • Expensive advanced technology is required.
• Improve service levels • Supplier/retailer trust must be developed.
• Decrease work duplication • Supplier responsibility increases.
• Improve forecasts • Expenses at the supplier often increase.
Typical Benefits to Manufacturers Typical Benefits to Retailers

• Lower inventory investments (raw and finished) • Fewer stock-out with higher inventory turnover
• Better scheduling and planning • Better market information
• Better market information • More optimal product mix
• Closer customer ties and preferred status • Less inventory in channels (transfer costs)
• Lower administrative replenishment costs
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Steps in VMI Implementation VMI Success Factors

• Top management commitment
• Contractual negotiations • Focus on effort
– Ownership
– Credit terms
• Trust and partnership between supply chain
– Ordering decisions stakeholders
– Performance measures • Highly effective computer/information systems (EDI,
• Develop or integrate information systems Bar coding, Scanning)
• Develop effective forecasting techniques • Competent manufacturers
• Develop a tactical decision support tool to assist in coordinating • ability to forecast
inventory management and transportation policies
• Willing stakeholders partners and patience
Materials Handling
• Materials include:
–Raw material
Materials Handling –Purchased components
–Work-in-progress
–Finished goods
–Packaging material
–Maintenance, repair, and operating supplies
Materials Handling
Storage and short distance movement of materials in or between
buildings
• involve diverse operations such as:
– hoisting materials eg with a crane;
– driving a truck loaded with materials like blocks;
– carrying bags or materials manually; and
– stacking palletized materials such as bricks, drums, barrels, kegs,
and lumber.
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Materials Handling System Materials Handling Concerns

A materials-handling system is the entire network of • Four dimensions
that: – Movement
– Receives material – Time
– Stores material in inventories
– Quantity
– Moves material between processing points
– Space
– Deposits the finished products into vehicles for delivery to
customers • Coordination
Objectives of Materials Handling

• E.g. in manufacturing the concern is to  Increase effective capacity
minimize the cost of processing, transporting,  Use building’s height and minimize aisle space
and storing materials throughout the  Improve operating efficiency
production system.  Reduce product handling
 Develop improved working conditions
 Reduce heavy labor
 Improve logistics service

Table 8-5: Principles of Materials Handling

To effectively plan and control materials handling, the logistics manager should recognize
some guidelines and principles.
Material-Handling Principles (* deserving special attention)
 Move directly (no unnecessary zigzagging/backtracking)

 Minimize human effort required
 Move heavy/bulky items the shortest distances
 Minimize number of times same item is moved
 MH systems should be flexible
 Mobile equipment should carry full loads
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Care of Equipment
• Materials handling equipment is maintained to prevent
accidents and breakdowns from occurring, and keep them in
good working condition Some areas to pay attention to:
• Maintenance activities consist of  planned maintenance
– inspections,  maintain equipment
 maintain building
– calibration,
 completion of maintenance records
– regular servicing and
– monitoring performance for failure trends to enable
symptoms to be recognized before failure occurs.
Material handling equipment 1 Transport Equipment.

• Equipment used to move material from one location to
• Material handling equipment (MHE) is any tool or technology another (e.g., between workplaces, between a loading dock
used to aid in the movement, protection, storage, and control and a storage area, etc.). The major subcategories of transport
of materials and products. MHE can be classified into the equipment are conveyors, cranes, and industrial trucks.
following five major categories: • Industrial trucks are used to move large materials or large
quantities of materials around the manufacturing floor. They
are also utilized to efficiently load (or unload) heavy objects
onto delivery trucks.
2 Positioning Equipment 3 Unit Load Formation Equipment

• Equipment used to handle material at a single location so that • Equipment used to restrict materials so that they maintain
it is in the correct position for subsequent handling, machining, their integrity when handled a single load during transport and
transport, or storage. Unlike transport equipment, positioning for storage. If materials are self-restraining (e.g., a single part
equipment is usually used for handling at a single workplace or interlocking parts), then they can be formed into a unit load
e.g lifts. with no equipment eg stackers
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• Racks: such as pallet racks, drive-through or drive-in racks,

Storage and Handling Equipment push-back racks, and sliding racks
• Stacking frames: these are interlocking units that enable
• Storage equipment is used to hold materials while they wait to stacking of a load so crushing doesn’t occur
be transported from the manufacturer or wholesaler to their • Shelves
• Bins
final destination. Having the right storage equipment can
increase efficiency on the production floor and maximize space • Drawers
• Mezzanines: elevated floor systems that are installed
utilization between the production floor and ceiling in order to provide
additional storage space
• Silos: A tower used to store grain and other materials such as
coal, sawdust, woodchips, and food products
5 Identification and Control Equipment

MH Information Systems
• Equipment used to collect and communicate the information
that is used to coordinate the flow of materials within a facility  Information systems that facilitate transparency of the
and between a facility and its suppliers and customers. The supply chain inventory levels, location, and demand
identification of materials and associated control can be provide the necessary visibility to facilitate good
performed manually with no specialized equipment. planning and effective decisions that maximise
Eg Bar code readers , Radio frequency Identification (RFID) services and reduce costs.
sensors, GPS systems
Bar Coding
Standard markings that can be read by automatic or handheld scanners  Barcodes

 BLOCKCHAIN
that allow for labor saving logistical activities for all supply chain  Sensors
members.  AS/AR
 Scanners
 Bar Codes contain information regarding:  IoT and IIoT
 RFID
 Vendor  AI
 Drones
 Product type  Automatic guided
 Robots vehicles
 Place of manufacture
 Product price
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Two main bar codes internationally:

Figure 8A-1 Forklift Truck
 UPC (Universal Product Code – USA)  EAN (European Article Number)
 The International Article Number (also
 The Universal Product Code (UPC) is
known as European Article Number or
a barcode symbology that is EAN) is a standard describing a barcode
widely used in the United States, symbology and numbering system used in
Canada, United Kingdom, Australia, global trade to identify a specific retail
New Zealand, in Europe and other product type, in a specific packaging
countries for tracking trade items in configuration, from a specific manufacturer
EAN-8 Numeric
stores
EAN-13 Numeric
 UPC-A -12 digits
 UPC-E –12 digits
without zeros
Other Materials Handling Equipment:

Figure 8A-2 Pallet Types Conveyors
 Types  Disadvantages
 Roller or gravity style  Very expensive
 Belt style  Relatively inflexible
 Advantages
 Assist in keeping inventory
records an location
 Ability to move goods quickly
and efficiently
Other Materials Handling Equipment: Other Cranes

 Types  Advantages
 Cranes (overhead and  Ability to handle special
wheeled) movements quickly and

 Packers efficiently
 Automatic guided vehicles  Disadvantages
 Very expensive and
limited use
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Figure 8A-3 Materials-Handling Equipment Top-

running Packaging and Labelling
 Packaging is the science, art and technology of enclosing
or protecting products for distribution, storage, sale, and
use. Packaging also refers to the process of designing,
evaluating, and producing packages. Packaging contains,
protects, preserves, transports, informs, and sells
 Packaging helps to protect and prettifies commodities and
form an important process in the storage, transportation,
containment, identification, preservation, protection,
promotion, sales of commodities, communication,
consumption…
Packaging
 Shipping marks, indicative and warning marks play an important role  Interest in packaging is widespread
in identification and proper handling of commodities during  Logistics
transportation and process of loading and unloading.  Warehousing
 Labelling is any written, electronic, or graphic communication on the  Transportation
package or on a separate but associated label.
 Size
 Marketing
 Production
 Legal
Protective Function Sales Function
Promotional Function
1. Primary Functions Storage Function 2. Secondary Functions
Service Function
Loading and Transport Function

Guarantee Function
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The Role of Packaging
 Physical protection
 Barrier protection
 Containment or agglomeration/consolidation
 Information transmission
 Marketing
 Security
 Convenience
 Portion control
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Factors Influencing the Nature of Packing

1. Value of the goods
Factors Influencing the Nature of Packing
2. Nature of the transit
3. Nature of the cargo
4. Compliance with customs or statutory requirements
Fragile, Handle with care Center of gravity 5. Resale value of packing material
Keep dry Protect from heat and 6. General fragility of cargo
radioactive sources
7. Variation in temperature during the course of transit
Use no hooks
Stacking limitation 8. Ease of handling and stowage
9. Insurance acceptance conditions
This way up Do not use forklift truck here 10. Cost of packing
Introduction
• The procurement process involves purchasing
PURCHASING/ goods/services from vendors through an internal
PROCUREMENT
purchasing organization/function
– These goods might be used
• for resale
• in a manufacturing process
• as packaging
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• Procurement means acquiring /obtaining merchandise, capital • It refers to the series of activities designed to
equipment; raw materials, services, or maintenance, repair, obtain products of the right quality and
and operating (MRO) supplies in exchange for money or its
quantity at the right price and time and from
equivalent.
• aka purchasing and outsourcing
the right source.
Cont….. Objectives of purchasing

• The objectives will include: obtaining goods or services of
• Purchasing as a function provide the interface – the right quality
between customer and supplier in order to plan, – the right quantity
obtain, store and distribute as necessary, supplies – from the right source
of materials, goods and services to enable the – to the right place
organization satisfy its external and internal – at the right time
customers. – at the right price.
PROCUREMENT - STEPS
1. Recognize and describe the need
2. Transmit the need 7 a) Receive invoice
b) audit the invoice
3. Select the vendor
c) settle the payment
4. Prepare and issue purchase order
5. Follow up the order 8. Close the Order
6. Receive and inspect the material 9. After sales/warranty obligations
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• Location
Supplier evaluation
• Service / attitude / reliability
When selecting suppliers, the following are evaluated • Developmental orientation / innovation
• Financial strength
• Consistent quality
• Technology / quality control / r&d
• Supplier facilities • Market standing / references
• Cost, not price (‘total cost’ concept)
• Stable and competitive
• Delivery time (normal, sos)
KEY SUCCESS FACTORS in selection Procurement Policies

• Procurement policies are the organizational rules and
• Knowledge of suppliers/market/own product
regulations governing the procurement function.
• Understanding of environment • The policies determine how different aspects of
• Long term planning procurement will be carried out in the organization
• Developing strategic linkages with key suppliers • Provide general and specific guidelines for managing the
buying of items and services;
• Supplier development • Establish a purchasing criteria and decision making process;
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•ensure that implementing staff are well trained; Contents of Procurement Policies
•provide specific guidelines for establishing and managing
relationships with external entities in relation to •sourcing strategy;
procurement; •Company rules/donor guidelines/government regulations;
•encourage and enhance internal control measures; and special purchasing requirements on say grants;
•act as a management tool for better decision-making and •decision making protocols: establishment of financial control
better stewardship of the resources entrusted to structures e.g. expenditure limits and guidelines,
organizations by its owners/donors approval/decision making levels, constitution of procurement
•role of procurement in the organisation and its structure; committees, etc;
•procurement professional ethics; •when to buy locally or Internationally (procurement strategy);
•ethical practices: conflict of interest; integrity; confidentiality;
declaration of Interests; supplier relations and ethical practices
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•special purchasing requirements on grants;

purchasing requirements for items with special storage
needs
•pre-determined sources of supply. Development of
suppliers’ database including items specifications, price, Transportation in Supply
availability, INCOterms, service, specific agreement if
any, catalogues etc; Chains
•exception to policies - eg in emergency situations; and
•reverse logistics – disposals, exit strategy, returns, etc. Onserio Nyamwange
inclusion of return and replacement processes to be
adopted for expired stock to vendors
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Definition
• The activities involved in moving supplies from point of origin

to internal customers or beneficiaries
• Transportation physically moves supplies in a reliable and safe
manner, on time, cost effectively and efficiently to its
destination
• The source and destination may be in the same country, or one
may be international movement
• Local transport may involve movement of bulk

loads from ports, airports and railheads to
• Transportation moves goods warehouses and depots, bulk movements
– from points of manufacture, storage or pre-positioning, to points of between facilities such as warehouses or
use; or
– between hubs and distribution points; or
depots, or delivery of smaller consignments
– hubs to end use; or from a local warehouse or depot to end users
– distribution points to end use; or at a number of destinations in an area
– return from end use back to hub and pre-positioning points or
manufacturers.
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• In international movement the organization may seek service

providers with expertise and capacity to handle certain aspects Primary decisions
of the movement. These third party service providers include
• Mode of transportation:
– freight forwarders; – air, truck, rail, ship, pipeline, electronic transportation
– clearing agents; – vary in cost, speed, size of shipment, flexibility
– inspection services • Route and network selection
• It will also involve dealing with parties such as: customs – route: path along which a product is shipped
officials; port authorities; customs brokers; and dock workers; – network: collection of locations and routes
• In-house or outsource
• Overall trade-off: Responsiveness versus efficiency
Some factors to consider when making transportation

Considerations
decisions
• What types of products require transportation in your •how to manage the function; i.e. whether to lease, outsource
organization? or manage own fleet;
• How far are these products required to travel? •how to identify transport service providers;
• How important is the speed of delivery for these products? •capacity of transport modes available;
•quantities requiring movement over a period of time;
•nature of goods/products/supplies to be transported;
•distances to be covered;
•environmental issues such as climate, government Transport service providers

legislature, infrastructure, taxes etc;
•number of destinations, hubs and pre-positioning locations;
•origins and routes; •carrier characteristics and capacity;
•available transport modes & their relative costs; •proven efficiency;
•human resources; •timely delivery;
•terrain;
•funding; •known integrity, reputation and reliability;
•security; and •good relationships with others carriers;
•circumstances – such as Nature of disaster •responsiveness to urgent needs of the
organization (if previously contracted);
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Selection of above service providers

•licensed by the government to conduct customs clearance formalities
•financial viability to cover costs of providing the and be up-to-date on changes in customs requirements;
service; •offer a wide variety of services, so that you do not need to contract
•adequate communication systems to facilitate many different companies for different services (e.g. sea and air freight,
re-packaging of damaged materials, etc.);
tracking to the vehicle; •own or have access to a bonded warehouse to protect and control
•assets to safeguard organization cargo; shipments in transit;
•ability to provide a multi-modal service, if need be; •own a trucking fleet for inland transport and have access to
and specialized vehicles when needed such as container trucks, low-bed
trailers, tankers, etc;
•presentation of timely reports and correct invoices •have trained, competent, experienced and trustworthy staff;
•have a proven record of reliability, accuracy, and •have an office in the port area or nearby;
timeliness, as verified by references from other groups that •are experienced in verifying goods arriving in the port:
have used their services; discharge, storage and loading operations, checking weights
•are flexible in their availability at short notice, also outside and inspecting shipping packages for visible damage;
of office hours and on public holidays; •are experienced in hiring porters and stevedores for cargo
•have an established reputation and have been in business handling;
for a number of years; •have at least a country-wide, preferably a multi-country
•have influence in the transport market, with port authorities, regional network; and
etc; •use technology effectively, including a good
•are experienced in successfully handling duty exemption telecommunications system and, preferably, a computerized
arrangements for humanitarian organizations; tracking system that allows visibility of where shipments are at
a given time;
Modes of Transport Exercise

• Motor/Road • Take ideas from brainstorming and decide which modes of
• Air transportation would be best for your company.
• Rail
• Water • List circumstances which would require using alternate modes
• Pipeline of transportation and consequences your company would
• Animal encounter.
• Electronic/Internet
• Packet carriers/post
• Intermodal
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Mode Selection Considerations

• the speed which the mode exhibits; • reliability and service quality;
• the reliability that the mode demonstrates in its ability to fulfil • shipment size;
service requirements; • transit time;
• the flexibility that the mode exhibits; and • number of transhipment points;
• the comparative unit costs, which the modes incur. • item type;
• required delivery date; • possibility of damage; and
• cost of transport service; • range of services.
Air Transport
•schedules air carriers using world airlines and other
global logistics service providers or
•air charters: where it is possible to charter
planes/helicopters
•air waybill (AWB) is the document to accompany
airfreight. Each AWB has a unique identifying number, the first
part of which is the IATA airline code number.
•Packaging and labelling for air transport is an important
consideration. Limited space on aircraft will require packaging,
plus cargo, to be within the allowable weights and dimensions
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Factors that influence the decision to charter and the

Road Transport
nature of the aircraft chartered: • Through
• availability and cost of different types of aircraft; – organisation's own vehicles
• the nature, quantity, weight, size and volume of the cargo; – Third party vehicles
• equipment for the aircraft and cargo handling available at origin and • The advantages of owning vehicles include:
destination;
– vehicles can be built specifically to carry a particular product. Special
• the distance to be travelled and possible constraints on certain airspace;
equipment for materials handling can be attached;
• ability of certain airports to handle particular types of aircraft;
– the driver can be specially trained and will fulfil the 'ambassador' role
• possible noise and/or operating hours restrictions at certain airports; for the organisation;
• securing landing and over-flight permission;
– management retains total control over the vehicle and its operation.
• availability of customs and/or immigration at the airport
– vehicles can carry the company livery, perhaps the aid organisations
logo etc
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Advantages of third party transport

• organisations can use commercial providers to meet fluctuating
• Disadvantages of owning vehicles: demand requirements;
–management of the transport function can occupy a • variable loads and journeys can be catered for;
great deal of management time, • the haulier may be able to offer a more cost-effective and a more
efficient service; and
–requires specific expertise and
• administration of vehicles and drivers is no longer the
–significant capital investment. responsibility of the organisation, allowing staff to concentrate
on more productive areas.
• There is no requirement for capital to be invested in transport.
Disadvantages Body Types

• A measure of control is lost with third party operations. • Platforms
• Performance feedback and communication with customers • Van body
needs to remain a strong feature and be controlled by the • Curtain sided bodies
contracting organisation • Tankers
• Bulk carriers
• Drawbars
Road transport documentation Sea transport

• For bulky pre-planned consignments
•normally a licence to operate the vehicle on a public highway is
required; • Key document is bill of lading (B/L)- transport waybill for a sea
•for larger trucks there may be an additional licence fee to be paid; freight consignment. Usually issued in a set of three originals
•vehicles should be insured to at least the minimum required by and several non-negotiable (N/N) copies
law; different organisations will have internal policies regarding the • The B/L is signed on behalf of the ship owner by the person in
extent to which their own vehicles should be insured; and command of a ship or the shipping agent, acknowledging the
•vehicles may also require documentation relating to the maximum receipt on board the ship of certain specified goods for
permissible weights in terms of gross vehicle weight, axle weight carriage. It stipulates the payment of freight and the delivery
and payload of goods at a designated place to the consignee therein
•Drivers are also required to hold the appropriate licence for the class of named.
vehicle they are driving
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Suitability of a port to handle sea freight

• It affirms the contract of carriage and sets out the terms • the number, type and size of ships that can be handled at one time;
thereof • typical vessel waiting and discharge times;
• availability of equipment to handle different types of consignment – for
• It is the carrier’s receipt for the carriage of goods by sea and is example, bulk, bagged, loose, containers etc., and its state of repair;
signed by the master or another duly authorised person on • availability of labour, working hours and typical discharge rates for both
behalf of the ship owner, acknowledging receipt on board the manually;
ship of certain specified goods that he undertakes to deliver at • unloaded cargo and containers;
a designated place • operational factors that may constrain activity such as the risk of
congestion or the impact of the weather at certain times;
• Possession of the original B/L gives the title to the goods being • port documentation requirements and the efficiency of procedures for
carried. clearing cargo; and
• storage facilities and infrastructure such as railways, roads;
Fleet management
• Fleet management is the function that oversees, coordinates • Effective fleet management aims at reducing and minimizing
and facilitates various transport and transport related overall costs through maximum, cost effective utilization of
activities. For the purpose of this document it will cover resources such as vehicles, fuel, spare parts
vehicles involved in the movement of goods; the management • A vehicle policy will provide specific guidelines for the
of light vehicle fleets used in the transportation of people and management and use of vehicles and other mobile assets.
light cargo; possibly motorbikes and other equipment such as Policies are designed to facilitate and encourage accountability,
generators and warehouse handling equipment. Fleet monitoring of usage and costs, provide internal control and to
management underpins and supports transport related serve as a management tool for better decision
activities through the management of the assets that are used.
A basic vehicle policy would have the following inclusions amongst others:
• planning, approval and budget process
• procurement
Fleet Management
• approved types for vehicles
•Identifying needs
• ordering of vehicles process •Acquisition Process
• assignment of vehicles •Insurance
• personal use of vehicles by staff •Vehicle leasing (Internal & external)
• management of vehicles:
– control of fuel, maintenance/repairs of vehicles •Vehicle Management
– vehicle insurance scheme •Fleet management systems
– vehicle replacement •Vehicle maintenance and up-keep
– sale of vehicles •Vehicle usage
• guidelines for drivers: •Vehicle disposal
– assignment of Motorcycles
– security •Health, Safety & Security
– environment •Complying with Legislature and security requirements
– reports •Driver
– revisions
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Green Supply Chain Management

GREEN SUPPLY CHAIN • Management of Materials and Resources from Suppliers
to Manufacturer/Service Provider to Customer and Back,
MANAGEMENT with the Natural Environment Explicitly Considered
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Green Supply Chain Management Green Supply Chain Management

• GSCM is integrating environment thinking into • The supply chain has been traditionally defined as a one way, integrated
manufacturing process wherein raw materials are converted into final
supply chain management, including product products, then delivered to customers.
design, material sourcing and selection,
manufacturing processes, delivery of the final
• Nowadays due to recent changing environmental requirements affecting
product to the consumers, and end-of-life manufacturing operations, increasing attention is given to developing
management of the product after its useful life. environmental management (EM) strategies for the supply chain.
 Design for Manufacturability

Some Ways Of Greening Supply Chains  Design for Energy Efficiency
 Design for Zero Toxics
 Design for Packaging/Minimize packaging
 Design for Logistics
 Use of local materials
To ease serviceability and, later, disassembly and repairs
 Design for use of recycled materials
 Design for reduced material variety
 Design for healthy material
 Design for Disassembly
 Design for Recycling
 Design for Economic Recycling
 Design for Energy Recovery
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• Product Packaging
Benefits of GSCM
• Design for Upgradeability • Economic benefits from increased efficiency.
• Design for Recyclability • Competitive advantage through innovation.
• Process design • Improved product quality.
• Materials Innovation • Regulatory compliance
• Energy Efficiency /Green energy/Alternative • Customer loyalty
sources of energy • Consistent corporate environmental goals.
• Improved public image/reputation
• Tax benefits
• Healthier workplace
Information Technology in a Supply

Chain
Information Technology • Information technology (IT)
– Hardware and software used throughout the supply chain to gather
and the Supply Chain and analyze, store and disseminate information
– Captures and delivers information needed to make good decisions
• Effective use of IT in the supply chain can have a significant
impact on supply chain performance
Onserio Nyamwange
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• Information is the driver that serves as the “glue” to create a

coordinated supply chain
• Information must have the following characteristics to be • Relevant information available throughout the supply chain
useful: allows managers to make decisions that take into account all
– Accurate stages of the supply chain
– Accessible in a timely manner • Allows performance to be optimized for the entire supply
chain, not just for one stage – leads to higher performance for
– Information must be of the right kind
each individual firm in the supply chain
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• Information used at all phases of decision making: Use of Information

strategic, tactical, operational in a Supply Chain
• Examples: • Inventory: demand patterns, carrying costs, stockout costs,
– Strategic: location decisions ordering costs
– Operational: what products will be produced during today’s
• Transportation: costs, customer locations, shipment sizes
production run
• Facility: location, capacity, schedules of a facility; need
information about trade-offs between flexibility and efficiency,
demand, exchange rates, taxes, etc.
Benefits of ICT in supply Chain Management. The Supply Chain IT Framework

• Improved efficiency. • The Supply Chain Macro Processes
• Improved responsiveness. – Customer Relationship Management (CRM)
• Promotes integration. – Internal Supply Chain Management (ISCM)
• Enhances information flow along the supply chain. – Supplier Relationship Management (SRM)
– Plus: Transaction Management Foundation
• Provides supply chain visibility
• Promote lean supply chain.
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Macro Processes in a Supply Chain
Supplier Internal Supply Customer

Relationship Chain Relationship
Management Management Management
(SRM) (ISCM) (CRM)
Transaction Management Foundation (TFM)
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Customer Relationship Management
• The processes that take place between an • Customer relationship management (CRM) systems,
sometimes called e-CRM systems, use technology to help an e-
enterprise and its customers downstream in the business manage its customer base
supply chain • CRM allows an business to match customer needs with product
 Planning and control activities and information systems that plans and offerings, remind customers of service requirements,
link a firm with its downstream customers. and determine what products a customer has purchased
 Market analysis, sell process, order management, call/service center
management
11/27/2019 17-247 S O Nya mwange 11/27/2019 S O Nya mwange 248
Internal Supply Chain Management Supplier Relationship Management

• Includes all processes involved in planning for and fulfilling a • Those processes focused on the interaction
customer order between the enterprise and suppliers that are
• Information flows between higher and lower levels of planning upstream in the supply chain
and control systems within an organization. • Planning and control activities and information systems that
– Strategic Planning link a firm with is upstream suppliers.
– Demand Planning • Design collaboration, sourcing decisions, negotiations, buy
– Supply Planning process, supply collaboration
– Fulfillment
– Field Service
The Transaction Management

Foundation
• Enterprise software systems (ERP)
• Earlier systems focused on automation of simple transactions and
the creation of an integrated method of storing and viewing data
across the enterprise
• Real value of the TMF exists only if decision making is improved
• The extent to which the TMF enables integration across the three
macro processes determines its value
11/27/2019 S O Nya mwange 251 11/27/2019 17-252 S O Nya mwange
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Supply Chain
Enterprise Resource Planning (ERP) Systems Information Systems
 Enterprise Resource Planning (ERP) systems– Large,
• Enterprise resource planning (ERP) is a term used to integrated, computer-based business transaction processing
refer to a system that links individual applications and reporting systems.
(for example, accounting and manufacturing  ERP systems pull together all of the classic business functions such as accounting,
finance, sales, and operations into a single, tightly integrated package that uses a
applications) into a single application that integrates common database.
the data and business processes of the entire  Traditional strengths in routine decision making and in execution and transaction
processing.
business.  Captures data to support higher-level decision support systems (DSS).
 Today, an ERP system can encompass, but is not limited to,

the following functions:
 Sales and order entry
 Raw materials, inventory, purchasing, production scheduling, and
shipping
 Accounting
 Human resources
 Resource and production planning
Major ERP Systems

 SAP R/3
 Oracle
 PeopleSoft (have been merged by Oracle)
 Toyota uses PeopleSoft and SAP
 Microsoft Dynamics
43

Onserio Nyamwange: Dps202: Fundamentals of Supply Chain Management

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Onserio Nyamwange: Dps202: Fundamentals of Supply Chain Management

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11/27/2019

DPS202: FUNDAMENTALS OF The basics…

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What is a supply chain?

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Upstream side Downstream side

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- A supply chain consists of

Supplier Manufacturer Distributor Retailer Customer

SUPPLY SIDE DEMAND SIDE

What is Supply Chain Management? What is Supply Chain Management?

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• Supply chain management encompasses of all activities

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Supply Chain Management is Cross-functional and

Physical supply Physical distribution

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Careers in Supply Chain Management

Organizational Pyramid Model Strategic, Tactical, and Operational Decision Making

Inventories Location, Control policies Safety stock levels Order filling

Order Order entry, transmittal, Processing

Warehousing Handling equipment Space utilization Order picking

Supply Chain Operations Reference Model

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Supply Chain Operations Reference Model

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SCOR Process Framework

Return Return Return Return

Supplier’s Return Return

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Need for Warehousing

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•Classical warehouse: It is a big hall of single building divided

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Classical warehouse Silo

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• Specific Commodity warehouses: These warehouses are

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Characteristics of Good Warehouses Characteristics Good Warehouses

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Basic Warehouse Operations

Functions Others are;

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Warehouse operations Basic Warehousing Decisions

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Basic Warehouse Decisions: A Cost

 Centralized or Decentralized Warehousing  (because of fixed costs)

 How many  Stability of demand

 Location  Density of market area to be served

 Size  Security and control needs

 Customer service needs