INTRODUCTION TO SUPPLY

CHAIN MANAGEMENT
DOES KNOWLEDGE OF THE HISTORY OF ANY
SUBJECT NECESSARY??
 - Yes, knowledge of history of any subject is necessary to
understand where the subject came from, where it is now, and where
it is going. Supply Chain Management is no exception.
 Introduction To Supply Chain
Management:

• Everyone is concerned with the Supply Chain as the efficiency

and effectiveness in managing the process will affect the price
of goods we use in our day to day lives.
What Is Supply Chain?
• Is the efficient movement of materials and products from the point
of material sourcing to the delivery of goods to the ultimate user
or consumer.

• Can be as simple as moving agricultural products from the farm

direct to the market.

• Or it can be as complex as moving materials from source

anywhere in the world to the factories of the suppliers and then
to the factories of the manufacturers as well as finished products
being shipped to the various channels of distribution, either
locally or internationally.
 Supply Chain:
 The challenge for us is how to apply Supply Management Strategies as
well as build the necessary infrastructure to move these products.

 In a more complex structure, the supply chain consists of the various

network of suppliers, manufacturing plants, warehouses, distribution
centers, retail outlets, as well the materials and finished products that
flow between the facilities.
 How do we determine the level of
customer satisfaction that will be
delivered by the organization?

• By proper planning and flawless execution

of all activities in the supply chain.
 How Do You Differentiate Consumers From
Customers And A Shareholders?

 Consumer: Is the person who uses the products or the

services.

 Customer: Is the person who buys or purchase the products

or services.

 Shareholders: Someone who owns shares in a company or

business.
Elements of Supply Chain:
 Suppliers

 Factory / Manufacturing

 Warehouse

 Customer

 Consumer

 Store
 Elements of Supply Chain:
 Suppliers - Provide continuous supply of raw materials

 Factory/Manufacturing - The process of making products

especially with machines in
factories.

 Warehouse - A large building used for storing goods.

 Is playing a more vital role in the success or

failure of business today, because operating a
warehouse can be a costly venture, an
organization should consider an all aspects of
warehouse management before making a decision
that is right for it.
 Elements Of Supply Chain:

 Consumer: Is the person who uses the products or the

services.

 Customer: Is the person who buys or purchase the products

or services.

 Store: To put (something that is not being used) in a

place where it is available, where it can be kept
safely.
 Supply Management Goal:

• The goal of Supply Management is to link the

elements of supply chain to include the distribution
network, the manufacturing process and the
procurement activity to deliver high customer service
at the most cost efficient manner.
Why Most Business Enterprise,
Customer Service Is Their Most
Important Concern?

- Because without the customers the business will not be able to

sustain their operation. If customers are not happy, they will
find alternative products that will satisfy their requirements.
This may result to brand switching and loss of market share.
 Supply Management:

• Supply Management encompasses the planning and

management of all activities involved in sourcing and
procurement, demand and replenishment and all logistics
management activities including customer service.

• It also includes coordination and collaboration with

channel partners which can be suppliers, intermediaries,
third – party service providers, and customers.
Functional Scope for Supply Management is Based
on Four Pillars.

s
Logistic
o ns
Operati
d and
Deman ment
sh
Repleni

om er Service
Cust

c ha s ing
Pur
 DEMAND AND REPLENISHMENT

Logistics
Operations

Demand forecasting

Customer
Service

Supply
Management
Demand
Inventory Management and
Replenishment

Purchasing

Replenishment
 Demand and Replenishment:
 Demand Planning and Replenishment includes all activities that
allow the company to prepare for anticipated customer orders. It
includes developing forecasts of anticipated demand, distribution
planning, and linkage with sales, marketing and operations to
ensure that company’s capabilities are in sync.

• Demand Forecasting – is the critical process of supply management

that aims to determine the accurate forecast requirement of an item or
product by location – using demand history, forecasting technique,
data analysis, business judgement, and team work. Demand
Management is the process that matches market demand and plant
capabilities.
 Demand and Replenishment:
• Inventory Management – is a very important function across the
supply chain. It aims to maintain and ensure optimum level of
inventories to deliver high customer service at the minimum cost to the
business. In most industries, inventories may represent a substantial
proportion of the total assets of the business. The level of inventory
that a business maintains has a big effect on the overall liquidity and
profitability of the company.

• Replenishment Planning – is the planning of materials and products

to bring to target stock level sold goods or used materials. Decisions to
produce finished goods or purchase raw, packaging materials otr
supplies are made based on inventory and order policies using
appropriate replenishment systems.
 Purchasing
Logistics
Operations

Supplier Selection
Customer
Service

Supply
Management
Demand and
Replenishment

Negotation and Bidding

Purchasing

Contract Administration
 The purchasing function is responsible in the acquisition of
materials and services of the right quality, in the right quantity, at
the right time, at the right place, from the right source.

 The objective of Purchasing is to ensure continuous supply of materials and

services at the most advantageous purchase value, to meet the long and short
term requirements of the company. Effective purchasing is driven by desired
competencies to include negotiation ability, use of sound purchasing
strategies, and selection of reliable vendor. The procurement organization and
available technology are also significant factors that will drive efficiency of
the purchasing function.
 Different Forms In Purchasing
 Purchase Requisition - is s document submitted by an employee to request
the purchase of goods or services.

 Change Order - is work that is added to or deleted from the

original scope of work of a contract.

is a commercial document and official offer issued by

 Purchase Order - a buyer to a seller indicating types, quantities, and
agreed prices for products or services.

 Blanket Purchase Order - is the prepared method for placing orders

which will require multiple payments over a
period of time.
• Supplier Selection – is the process whereby purchasing determines the most
appropriate source of products, materials and services.

• Negotiation and Bidding – are very important activities conducted by purchasing

to guarantee sourcing of products and materials at the lowest possible price.
Negotiation is the process by which two or more parties arrive at an agreement
which satisfies all involve parties. It does not only involve price but all other terms
and conditions of purchase to include specifications, terms of payment, delivery
requirements, discounts and penalty clauses, if applicable.

• Contract Administration – formalizes the agreement in a legally accepted format

and ensures compliance to all the elements of the contract. In simple terms, a
contract is a promise enforceable
 Types of Contract:
 Purchase Order Form – the most common and informal type
of a purchase contract.

 Letter of Intent – used to authorize supplier to proceed with

project or order prior to the issuance of a formal contract.

 Letter of Agreement – a letter from one party to the other stating

the outline of the agreement between the parties and includes the
signature of acceptant to the terms of the agreement.

 Formal Contract – contains more numerous terms and conditions

for large value and complex agreement, long period of time and
cover broader range of products or considerations.
 Logistics Operations

Logistics
Warehousing Operations

Customer
Handling &
Service
Storage
Supply
Management
Demand and
Inventory Replenishment
Management

Transportation Purchasing
and delivery
 Logistics Operations:
 Logistics Operations is responsible in managing the physical network
of the supply chain. It is involved in all movement of products and
materials in the system.
• Warehousing – provides storage facilities for finished goods and
materials ensuring balanced flow of goods and materials needed to keep
the business running. Items are stored until these are needed or can be
disposed of. The warehousing function includes receiving of items,
storage, picking, issuance and disposition.

• Storage and Handling – involves the planning of the storage space or

warehouse. This includes lay-outing and use of the appropriate storage
system such as racks, shelves, bins or the like. The efficiency of
warehouse operations will highly depend on a layout that considers
traffic, working areas of inward goods processing and outward
movement of products and materials.
 Logistics Operations:
• Inventory Mangement in logiastics operations refer to the physical
aspects of stock control. This includes the management of product
receipts, storage and issuance of materials, the manner in which the
movement of stocks are documented and recorded.

• Transportation and Delivery – involve the choice of vehicle and other

modes of transport. The choice of transportation considers factors such
as type of operations, type of load, distances to be travelled, physical
features, weight and other legal considerations. In the Philippines, truck
selection is significantly affected by regulations on the truck ban.
 Customer Service
Logistics
Operations

Order Taking
Customer
Service

Supply
Management
Demand and
Replenishment
Order Entry

Purchasing

Order Processing
 Customer Service:
 Custoimer Service is the function in supply management that
ensures the service policies and programs are in place. Such
programs aims to satisfy customer’s needs and delivers them in a
cost-efficient manner.
• Customer Service Management– is process that represents the
company’s face to the customer. It is the key point of contact for
administering service level agreements (SLAs) developed with the
customers. The goal is to provide single source of customer
information, such as product availability, shipping dates and order
status.

• Order Taking – is a key function of customer service as this is the

point where the customers come in contact with the company to enter
into a transaction based on the agreed service level agreements. This
function used to be a sales function but has now been transferred to
supply management which h is responsible to make available the
products or services required by the customers.
 Customer Service
• Order Entry – refers to entering an order into the
system whether manual or computerized. It is
important for a highly automated system that customer
service aligns the customer master files with the
company’s coding structure to ensure proper capture of
products ordered into the system.

• Order Processing – lets the system check on the

credit standing of the csutomer. If the order ios within
credit limit, the order is passed on to the next step. If
the credit has been exceeded, the order will be blocked
and actions will have to be taken by customer service
to resolve the credit issue so that the processing of the
order can be continued.
 Management Responsibility

Logistics
Opertations
Management Alignment

Customer
Performance Measurement Service

Supply
Demand and Management
Systems Capability Replenishment

Risk Management
Purchasing
• As in any function, there is a need to align the objectives of each pillar by
management. Some of the objectives of the individual functions can be conflicting,
and thus, the need for somebody to provide direction, priorities and monitor the
performance of the various functions in supply management.

• Key results areas are defined and targets are agreed with the various functions.
Methods of measurements are also defined to ensure consistency in the performance
measurement.

• It is also the responsibility of the management to determine the appropriate system,

in terms of capability and cost, to support the various activities in supply
management.