Dr Adolf Acquaye

Department of Mech & Industrial Engineering

ISEE.710:
Supply Chain Management

Introduction to Supply Chain Management

Week 1
 Lecture Learning Outcomes
By the end of the session, you will be able to demonstrate a critical
understanding of:

Classify the supply chain

5 macro processes in a firm
Describe the cycle and push/pull views
4 of a supply chain
Identify the three key supply chain decision
3 phases and explain the significance of each one.

Explain the impact of supply chain decisions on the

2
success of a firm.

1
Discuss the goal of a Supply Chain
 What is a Supply Chain?

Defining a Supply Chain:

All facilities, functions, activities, associated with the flow
and transformation of goods and services from raw
materials to customer, as well as the associated information
flows (Handfield - 2002)
Supply Chain Network
 What is a Supply Chain?

Supply Chain:
A Supply Chain is a network of partners who collectively
convert basic commodity (upstream) into a finished
product (downstream) that is valued by the end-customer
and who manage returns at each stage
(Harrison et al., 2011)
Supply Chain Network
Example: SC Network of Frozen Shrimps
 A supply chain therefore consists of a
series of Value Added activities.

✓ A value chain is a set of activities that an organization carries out to

create value for its customers.
✓ Value Chain Framework by Porter: Primary Activities (Inbound
Logistics, Operations, Outbound Logistics, Marketing and Sales,
Service)
 Aim and Objective of the SC
AIM:
✓ Satisfy customers/enhance market share
✓ Enhance value at each stage
✓ All aspects of the SC need to be considered in
an integrated manner.

DANGER:
➢ Cost efficiency of a given stage may not lead to the overall competitiveness of the
SC

Value of the SC:

Maximise the value added (VA). This is also known as Supply Chain Surplus. This is
the difference between the final product worth to the customer (Wc) and the total
cost incurred to make this request to the customer (Ct).

VA = Wc - Ct
 Understanding and Defining SC

EXAMPLE:
Let us follow how a product may have arrived to the shelf in Carrefour (or any
other super market,..)

Customer Needs Detergent Go to store, sayCarrefour

Storage (warehouses,..) Distributor (truck)

Distributor (larger trucks)

Plastic producer Paper

Manufacturer packaging Chemical
Paper manufacturer…
Processing
 Some Discussions

End
Start

Customers
Material, etc

EXERCISE:
Choose a product of your choice and describe the links necessary tomake
the product by explaining its possible stages. Highlight possible issues
within your chain.
(PS: there is no unique answer, try to be innovative andcritical!).
 Supply Chain per the SCOR Model

❖ It provides a description of supply chain processes, a

framework for relationships between these processes, and a
set of metrics to measure process performance
 SCOR Model

❖ The SCOR Model is a management tool used to address,

improve, and communicate SC management decisions
within a focal firm and with suppliers and customers.
❖ With the objective of satisfying customer needs, the SCOR
Model describes the processes that must be undertaken in
the SC to achieve this objective.
❖ It also provides a basis on how to improve these processes.
 Value Chain versus SCOR

The SCOR Model focuses on five areas of the supply chain: Plan, Source,
Make, Deliver and Return, which repeats through out the supply chain.
SC Management Decision Making

Decision Making in Supply STRATEGIC

Chain Management ensures

that Values and Principles
within the supply chain are
PLANNING
upheld. Decision for these can
be made at 3 different levels. OPERATIONAL

Each decision must add value

to the SC (Porters Value Chain)
 Decision Phases in a SC: Strategic

(1)Strategic Decision (Design of the SC)

• Long term planning (several years, building of a
store,…)
• Allocation of the resources
• Choice of the process in each stage
• Design of the configuration of theSC
✓ Each function (in house or outsourced)
✓ Location/capacity of production, warehousing facilities, etc)
✓ Allocation of products to facilities
✓ Modes of transport on different hipping legs (trucks, train, etc)
 Decision Phases in a SC: Planning

(2) Medium Term Decision (Planning)

• Medium term (3-12 months)
• Based on (1), try to maximise each function of the SC
• Allocation of market to facilities
• Subcontracting of manufacturing
• Inventory policies to be adopted
• Marketing including pricing (price promotion), and advertising,
etc
• External Factors
• Uncertainty of demand
• Exchange rate
• Competition
• Provide an insight into defining operating policies for short
term planning (3)
Decision Phases in a SC: Operational

(3) Short term Planning (Operational/Tactical)

• Short term (from hours to up to a week, usuallydaily)

• Individual customer orders
• Given (1) is fixed and (2) is given, the concentration is on:
❖ Customer service
❖ Inventory, time for re-ordering
❖ Allocation of orders in warehouses and shipping
modes
• Here there is less uncertainty about demand information (that
period!)
 Some Discussions

Students should provide 1 or 2 examples for each

phase of Decision Making in the Supply Chain
Process Views of a Supply Chain
 Process View of Supply Chain

❖ A supply chain goes through a process, called the process

views of a supply chain. It is a combination of two processes
views.
❖ Supply chain process and sequences takes place within and
between different stages.

❖ These processes can be viewed from two different

perspectives:
✓ Cycle View
✓ Push/Pull View
 1. Cycle View of Supply Chain
❖ The different supply chain processes are divided into cycles. Each
of these cycles is performed at the interface of two successive
stages of the supply chain.
❖ There are 4 cycles and 5 supply chain stages.

❖ This view is useful when

considering operational decisions
because it specifies the roles and
responsibilities of each member of
the SC and the desired outcome for
each process.
 1. Cycle View of Supply Chain
❖ Each SC cycle has 6 sub-processes., starting with a supplier
marketing it product
❖ These sub-processes is akin to the “Source, Make, Deliver, and
Return Processes” in the Supply Chain Operations Reference
(SCOR) model.
❖ Depending on the transaction
in question, the sub-
processes in Figure 1-4 can be
applied to the appropriate
cycle.
2. Push and Pull View of Supply Chain

❖ Pull process:
• Execution is initiated in response to customer’s order (Example: Dell)
• Customer is known with certainty
• Known as reactive process (react to customerorder)

❖ Push process:
• Execution is initiated with expectation (forecast) of customer order
(retailers)
• The demand is not known and must be forecasted
• Known as speculative process (response to speculation, not actual
demand
2. Push and Pull View of Supply Chain

✓ The push/pull boundary in a supply chain separates push

processes from pull processes.
✓ The push/pull view is useful when considering strategic decisions
relating to supply chain design.
 Some Discussions

Describe the Process View of Supply Chain adopted by luxury car

manufacturers such as Ferrari and Lamborghini
 Logistic and SC missions

• Logistic Mission:
Integrate marketing, distribution, production & procurement

• SC Mission:
Concept of logistic with certain extension (also used in variousindustries
not necessary in production-related)

• Logistic Management:
Optimise flow (infos, funds, people, resource,..) within the organisation

• SC Management:
Extend Logistic Management by integrating the external aspects into
the overall aim of the company
 Stages of SC Missions (Stage 1 of 4)

Stage 1 (BASELINE):

✓ Each function is optimised separately

Purchasing Material Production Sale Distribution

MaterialFlow Customer Service

 Stages of SC Missions (Stage 2 of 4)

Stage 2 (FUNCTIONAL INTEGRATION):

✓ Limited degree of integration, say between adjacent functions (purchasing

and material)

Distribution
Material Manufacturing
Management
management Management

Material Flow Customer Flow

 Stages of SC Missions (Stage 3 of 4)

Stage 3: INTERNAL INTEGRATION

This extend stage 2 through (internal integration) = internal SC =

Logistic

Material Mgt Manufacturing Distribution

 Stages of SC Missions (Stage 4 of 4)

Stage 4: EXTERNAL INTEGRATION

The full supply chain including downstream and upstream SCs are
integrated together with the Internal SC.

Suppliers Internal SC Customers

Upstream SC Focal Firm Downstream SC

Supply Chain Macro Processes in a Firm
 Supply Chain Macro Processes
3 categories of SC Macro Processes

Supplier Relationship
Management (SRM) Customer Relationship
- processesbetween Management (CRM)
firm and suppliers - processes linking firm to
customers
Internal SC Management (ISCM)
- processes internal to thefirm

❖ SRM: source, negotiation prices, buy, design and supplycollaboration

❖ ISCM: strategic planning, demand and supply planning, fulfillment, fieldservice
❖ CRM: market, price, sale, call centres, order management,etc

✓ Success of SC: CRM, ISCM and SRM need to be integrated. Usually Marketing in charge of CRM,
Manufacturing of ISCM and Purchasing oversees SRMprocesses.
 Some Discussions

EXERCISE:
Form smaller groups (SRM, ISCM and CRM): choose a company or
product and describe the 3 macro processes
 Value Chain
The idea of Value Chain was put forward by Michael Porter 1985, Professor, Harvard
Business School

Generating Competitive Advantage:

✓ Produce the product more efficiently than your competitors
✓ Produce the product differently (creating differentiation)

Porter’s idea: Take each activity of the SC and assess whether it can be improved
(has a competitive advantage).
If it is possible invest on the activity, else outsource the activity.
 Enhancing the SC
➢ Identify any activity or connected activities that could be enhanced
via cost reduction or value added
✓ Capacity utilisation
✓ Inventory system (using good model and forecast)
✓ Distribution systems (transport, location)
✓ Integration of information between all activities
✓ Customer services (promotion, discount, etc)
 Cost Advantage
❖ Cost Advantage can be achieved by reducing cost (or cost per unit)
❖ Economy of Scale (cost cheaper per unit if you produce or sell a
lot!); see Figure below

Cost Per unit

Volume or quantity
 Value Advantage

❖ Undertake Value Chain activities that most benefits the firm as

highlighted in the Supply Chain Value Curve (“Stan Shih Smile
Curve”)
Adjusting to the New Competitive Environment

There are 4 aspects impacting on Supply Chains

➢ New rules (A)
➢ Globalisation (B)
➢ Downward pressure on price (C)
➢ Customers take control (D)
 New Rules of Competition
• Old approach (ads + aggressive solutions).
This is important but not enough (as most competitors adopt similar schemes)
• Extra components: service-based not product-based (technical
features etc)
• Concentration on (a) Fewer suppliers and (b) longer-term basis
• Seek innovative ways to create better value for money.
• In some industries, one way would be to do business with fewer customers
(specific segments) but well.

Move from volume-based growth to value-based growth

 New Rules of Competition (cont A)

Competition Adv. = Product Excellence x Process Excellence

Product Innovation Customer Service

Product
Excellence (%)
Idea: Move from current position (A) to
the new position (B) B

✓ Short product life cycle as product can be obsolete if

delivery too long
✓ Lead time: elapsed time from receipt of customer order
to delivery
✓ Strategic lead time: from drawing board of theproduct A
➢ through all processes till reach customers = entire logistic
system
✓ Flexible, responsive logistic to respond to the fast
changing market Process excellence (%)
 Globalisation (B)
Globalisation
• Cheaper labour cost (elsewhere)
• Effect on lead time
• Wider supply chain needs to be done
• Good use of the web for relationship & Flows
 Downward Pressure on Cost (C)
➢ Competition push pricedown
➢ Example: IT equipment the change can be quicker than in the
past. e.g., vcr decrease from £400 to £45 in 20 yrs but dvd down
from 400 to 40 in 5 yrs
Downward Pressure on Cost (C)
CAUSES:
- Entering of new global competitors (China and India)

- Removal of trade barriers and deregulations of markets: new players → over

→ capacity price decrease
- Internet (easier to check and compare price; eg., ompare.com ,
etc)

CHALLENGE:
➢ To maintain profitability Find ways and opportunities to deal with
this Explore SC to improve (controlling inventory etc ?)
 Customers take Control (D)

Customer is now more demanding,

not just for product quality but also service:

As there little technical difference between offers, the following is needed:

✓ Creation of differential advantage through added value.

✓ Prime source is customer service.
✓ Consistent provision of delivery systems, commitment from all people
in the SC.
✓ Creation of good images influence customerperception
✓ Managing the logistic successfully (crucial source of differential adv)
 Group Activity:
Supply Chain Analysis Questions
 QUESTION 1.
What is supply chain management? Will a supply
chain always look like a chain?
 What is a Supply Chain?

Supply Chain:
A Supply Chain is a network of partners who collectively
convert basic commodity (upstream) into a finished
product (downstream) that is valued by the end-customer
and who manage returns at each stage
(Harrison et al., 2011)
 Supply Chain Management

SCM involves optimizing the flows of Materials,

Information, Resources, etc within the organisation
and the integration of internal processes with external
processes to deliver value added products and
services to the customer.
Supply Chain Network
 Supply Chain Network

Because of the complex web of partners involved and inter linkages between
them across different tiers, a Supply Chain is more of a network than a chain.
 QUESTION 2.
What are some Strategic, Planning, and
Operational decisions that must be made by an
apparel retailer such as GAP?
SC Management Decision Making

Decision Making in Supply STRATEGIC

Chain Management ensures

that Values and Principles
within the supply chain are
PLANNING
upheld. Decision for these can
be made at 3 different levels. OPERATIONAL

Each decision must add value

to the SC (Porters Value Chain)
 Examples of SC Decision Making
1. Strategic Decision: Use only cotton which has been sourced from
sustainable sources, Open new production plant in country X.
2. Planning Decision: Increase marketing reach by 10%, Business
Development Unit to work closely with Sales Team.
3. Operational Decision: Double overtime hours for next week,
Provide staff with Customer Care Training.
 QUESTION 3:
Explain the advantage of Cycle Views of Supply Chains
to Supply Chain Decision Making?
Advantage of Process Views of Supply Chains to
Supply Chain Decision Making

✓ RECALL: Supply Chain Decision Making occurs at the

Strategy, Planning and Operational levels.
✓ A cycle view of the supply chain clearly defines the
processes involved and the owners of each process.
✓ This Process View is useful when considering Operational
Decisions because it specifies the roles and responsibilities of
each member of the supply chain and the desired outcome
for each process.
 QUESTION 4:
Why is Push/Pull Strategy Important in Supply Chain Mgt?
 Why is Push/Pull Strategy Important
✓ RECALL AGAIN: Supply Chain Decision Making occurs at
the Strategy, Planning and Operational levels.
✓ A Push/Pull view of the supply chain categorizes processes
based on whether they are initiated in response to a
customer order (PULL) or in anticipation of a customer order
(PUSH).
✓ This view is therefore useful when considering Strategic
Decisions Making relating to supply chain design in terms of
where to place the PUSH/PULL boundary as this would
affect the design of the supply chain
 QUESTION 5:
Each of the 4 cycles in the Cycle View of Supply Chains
have the same sub-processes. However, there are
differences in them. Explain two such differences.
 Differences between the 4 cycles in the Cycle View
of Supply Chains

✓ RECALL: The four cycles are: Customer Order, Replenish,

Manufacturing and Procurement cycles.
1. Uncertainty levels due to Internal and External SC Agents: In the
Customer Order Cycle, demand is external to the supply chain
and so uncertain, whereas it is internal in the rest of the chain and
less uncertain but can be projected.
2. Scale of Orders: From Customer to Supplier, scale of orders
increases. Information sharing therefore becomes more important
as we move away from the end consumer.
 QUESTION 6.
Consider the supply chain involved when a
customer purchases a book at a bookstore.
Identify the cycles in this supply chain and the
location of the PUSH/PULL boundary.
 Process SC View of Book Shop

❖ Consider a Book Shop such as Boarders:

✓ When customer order arrives, the Book shop fulfils all processes in the
Customer Cycle.
✓ At this stage, because the customer is demanding the Book, it is Pull Cycle.
✓ The goal of the replenishment cycle is to ensure product availability when a
customer order arrives. All processes in the replenishment cycle are
performed in anticipation of demand and are thus PUSH processes.
✓ Manufacturing and Procurement Cycles are also PUSH Processes, since the
production of the books is done months/years in advance of purchase.
 Process SC View of Book Shop

❖ Consider a Book Shop such as Boarders:

 QUESTION 7.
Consider the supply chain involved when a
customer orders a book from Amazon. Identify
the PUSH/PULL boundary and two processes
each in the push and pull phases.
 Process SC View of Book Shop

Purchase of a book from Amazon can result in a number of

scenarios. Lets consider two such scenarios:
1. Amazon has the book in stock in its warehouse.
2. Amazon relies on one of its partner or wholesalers to supply the book
on its behalf.
 Process SC View of Book Shop

❖ Amazon HAS the book in stock

at one of its warehouses:

✓ This would be similar to the Brick and Mortar Book Shop.

 Process SC View of Book Shop

❖ Amazon DOES NOT have the book and so

relies on one of its partner or wholesalers
to help fulfil the order
 QUESTION 8.
There are three Supply Chain Macro Processes.
Identify them and state, which of them is more
important to the Customer. Explain your answer
 Supply Chain Macro Processes
3 categories of SC Macro Processes

Supplier Relationship
Management (SRM) Customer Relationship
- processes between Management (CRM)
firm and suppliers - processes linking firm to
customers
Internal SC Management (ISCM)
- processes internal to the firm

❖ SRM: source, negotiation prices, buy, design and supply collaboration

❖ ISCM: strategic planning, demand and supply planning, fulfillment, field service
❖ CRM: market, price, sale, call centres, order management,etc

✓ Success of SC: CRM, ISCM and SRM need to be integrated. Usually Marketing in charge of CRM,
Manufacturing of ISCM and Purchasing oversees SRMprocesses.
 Important of Supply Chain Macro Processes

✓ All the three Macro Processes (SRM, ISCM, CRM) serves the
same customer. For optimized supply chain performance,
there is the need for all three to be integrated together. As
such, no one macro process is more important than the
other as a failure in one would affect the other processes
and ultimate the customer.

SRM ISCM CRM

Thank You. Any Questions

71