WOLLO UNIVERSITY

Supply Chain Management and Total Quality Management (SCM & TQM)
Leng 5224
Leather Engineering Department (Bsc.), 5th Year 1st
Semester
 Chapter One
1. Building a Strategic frame work to analyze supply chain
Content:
❖ Understanding supply chain
❖ Supply chain performance
❖ Supply chain drivers
1.1. Understanding supply chain

What is Supply
Chain?
• A supply chain is a set of organizations directly linked by one or more
of the upstream and downstream flows of products, services, finances,
and information from a source to a customer.
Supply Chain is:
Flow of products and services from:
• Raw materials manufacturers
• Intermediate products manufacturers
• End product manufacturers
• Wholesalers and distributors and
• Retailers

✓Connected by transportation and storage activities

Supply Chain Components:
SUPPLIERS
Source of raw materials, component parts, semi-manufactured products and unfinished or
non-consumable products that occurs early in the supply chain.

MANUFACTURERS
Makers of final products. Manufacturers perform the task of final assembly or product
integration.

DISTRIBUTORS
Responsible for managing, storing and handling of products for organizations that don’t want
to carry entire variety of products in their own facilities.

LOGISTICS SERVICE PROVIDERS

Commercial provider of individual or multiple integrated service for other entities in the
supply chain e.g. transportation management, value-added warehousing and distribution and
information technology based services
RETAILERS
The entity that buys from the manufacturer and sell to the final customer.

CONSUMERS
People who go into the stores and buy and consume the product
The four basic flows of a supply chain are:

• Information Flow: All supply chains have and make use of

information flows. Throughout a supply chain there are multitude of
information flows such as demand information flow, forecasting
information flow, production and scheduling information flows, and
design information flows.

• Finance Flow: All supply chain have finance flow. It is basically the
money flow or the blood stream of a supply chain.
• Material Flow: All manufacturing supply chains have material flows
from the raw materials at the beginning of the supply chain to the
finished products at the end of the supply chain.

• Commercial flow: All supply chain represents a transactional

commercial flow. This means that the material flow that run through
the supply chain changes its ownership from one company to another,
from supplier to buyer.
 1.2. Supply chain performance
➢ Supply Chain Performance refers to the extended supply chain’s
activities in meeting end-customer requirements, including product
availability, on-time delivery, and all the necessary inventory and
capacity in the supply chain to deliver that performance in a responsive
manner.

➢ Supply Chain Performance crosses company boundaries since it includes

basic materials, components, subassemblies and finished products, and
distribution through various channels to the end customer.
➢ It also crosses traditional functional organization lines such as
procurement, manufacturing, distribution, marketing & sales, and
research & development.

➢ To win in the new environment, supply chains need continuous

improvement.

➢ Supply chain performance measures can be classified broadly into two

categories:

1. Qualitative measures (such as customer satisfaction and product

quality) and
2. Quantitative measures (such as order-to-delivery lead time, supply
chain response time, flexibility, resource utilization, delivery
performance, etc.).

➢ Improving supply chain performance requires a multi-dimensional

strategy that addresses how the organization will service diverse
customer needs.

➢ While the performance measurements may be similar, the specific

performance goals of each segment may be quite different.
1.3. Supply chain drivers
• The major drivers of Supply chain performance consists of three
logistical drivers & three cross-functional drivers.
Logistical drivers: Cross-functional drivers:
• Facilities • Information
• Inventory • Sourcing
• Transportation • Pricing
 Facility(Where best to do what activity)

➢ Facility are the actual physical locations in the supply chain network
where product are stored, assembled or fabricated.

➢ The two major types of facilities are :

• Production sites(factories)
• Storage sites(warehouses)

➢ Factories can be built to accommodate one of two approaches to

manufacturing:
i. Product Focus: A factory that takes a product focus performs the
range of different operations required to make a given product line from
fabrication of different product parts to assembly of these parts.

ii. Functional focus: A functional focus approach concentrates on

performing just a few operations such as only making a select group of
parts or doing only assembly.
 Inventory(How much to make, how much to stock)
• Inventory encompasses all the raw materials, work in process, and finished
goods within a supply chain.
➢ There are three basic decisions to make regarding the creation and holding
of inventory:
1. Cycle Inventory: This is the amount of inventory needed to satisfy
demand for the product in the period between purchases of the product.
2. Safety Inventory: inventory that is held as a buffer against uncertainty. If
demand forecasting could be done with perfect accuracy, then the only
inventory that would be needed would be cycle inventory.
3. Seasonal Inventory: This is inventory that is built up in expectation
of predictable increases in demand that occur at certain times of the
year.
Transportation(How and when to move product)

➢ Transportation entails moving inventory from point to point in the

supply chain .
➢ Transportation can take the form of many combinations of modes &
routes, each with its own performance characteristics.
➢ There are six basic modes of transport that a company can choose from:
1. Ship which is very cost efficient but also the slowest mode of
transport. It is limited to use between locations that are situated nest to
navigable waterways & facilities such as harbor & canals.

2. Rails which is also very cost efficient but can be slow. This mode is
also restricted to use between locations that are served by rail lines.

3. Pipelines can be very efficient but are restricted to commodities that

are liquid or gases such as water, oil & natural gas.
4.Trucks are a relatively quick & very flexible mode of transport. Trucks can go
almost anywhere. However, since the cost of fuel fluctuates and the state of the road
varies, the cost of this mode is subject to fluctuation.

5. Airplanes are a very fast mode of transport and are very responsive. This mode is
also very expensive mode & is somewhat limited by the availability of appropriate
airport facilities.

6. Electronic transport is the fastest mode of transport and it is very flexible & cost
efficient. However , it can be only be used for movement of certain types of products
such as electric energy, data, & products composed of data such as music, pictures &
text.
Cross-functional drivers:
Information(Basis for making decision)

➢ Information serves as the connection between various stages of a supply

chain, allowing them to coordinate & maximize total supply chain
profitability.

➢ It is also crucial to the daily operations of each stage in a supply chain

for e.g. a production scheduling system.

➢ Information is used for the following purpose in a supply chain:

1. Coordinating daily activities related to the functioning of other supply chain
drivers: facility, inventory & transportation.

2. Forecasting & planning to anticipate& meet future demands. Available

information is used to make tactical forecasts to guide the setting of monthly &
quarterly production schedules & time table

3. Enabling technologies: many technologies exist to share & analyze information

in the supply chain. Managers must decide which technologies to use & how to
integrate these technologies into their companies like internet, Enterprise
Resource Planning, Radio Frequency Identification (RFID).
Sourcing(From whom to procure or obtain)

➢ Sourcing is the set of business processes required to purchase goods &

services.

➢ Managers must first decide which tasks will be outsourced & those that will
be performed within the firm.

Components of sourcing decisions:

1. In-House or outsource: The most significant sourcing decision for a firm is

whether to perform a task in-house or outsource it to a third party. This decision
should be driven in part by its impact on the total supply chain profitability.
2. Supplier selection: It must be decided on the number of suppliers they will
have for a particular activity. The must then identify the criteria along which
suppliers will be evaluated & how they will be selected like through direct
negotiations or resort to an auction.

Pricing(Value to customer and profits to company)

➢ Pricing determines how much a firm will charge for goods & services that
it makes available in the supply chain.
• Pricing affects the behavior of the buyer of the good or services, thus affecting
supply chain performance, for example, if a transportation company varies its
charges based on the lead time provided by the customers, it’s very likely that
customers who value efficiency will order early & customers who value
responsiveness will be willing to wait & order just before they need a product
transported.

• This directly affects the supply chain in terms of the level of responsiveness
required as well as the demand profile that the supply chain attempts to
serve. Pricing is also a lever that can be used to match supply & demand.
 Chapter Two
Transportation, Network design and information
technology in a supply chain

Contents
❖ Distribution and Warehousing in Supply chain.
❖ Transportation in a supply chain
❖ IT in Supply chain
Group Discussion

Discuss the role of Transportation, warehousing

and information technology in a supply
chain(esp. regarding your field)
 Warehousing and Distribution Supply chain
➢ A warehouse is a large, spacious and secured building intended for commerce
and government use.

➢ It functions as a storage place for large quantities of goods. Warehousing is

not simply about storage though.

➢ It also covers the administration and manual labor required in storage such as
delivery, documentation, examination and certification.

➢ Wholesalers, exporters, importers and manufacturers are the common clients

of warehousing service providers. Raw materials and finished goods alike are
kept in warehouses.
There are different reasons for warehousing:
➢ The cheese making and wine-making (also known as viniculture)
industries require an extensive time to produce their products.
Warehouses are good places for their products to mature.

➢ This business operation also ensures the sufficiency of supply. As a

result, the prices of the goods involved are less likely to fluctuate.

➢ Warehousing may also cover the completion of goods before distribution.

➢ The components and packing materials are just delivered to the

building.

➢ The assembly and packing of the goods will be done in the ware house.

By doing so, the product cover will still look new and enticing upon

delivery to distribution centers.

➢ If you pack the goods before bringing them to the warehouse, the

packaging may be damaged while on the way.

 Distribution
• In the business language, distribution refers to the delivery of finished goods
to buying centers such as shopping centers, markets and retailer stores.
➢Direct delivery of goods to retailers can save you from warehousing
costs.

➢However, if you are far from distribution centers, you have to deal with
trucking costs and inventory frequently.

➢Thus, it is safe to say that warehousing and distribution go hand in hand

in providing a more effective way of delivering goods.

➢There are even businesses that literally combined these two business
operations.
Impact of Improper warehousing and distribution

➢ Major and minor mistakes alike in warehousing and distribution can

result to high losses.

➢ Incorrect storage can damage the goods.

➢ If the damaged goods are sold, they will either be sold in a much lower
price or not be sold at all.

➢ It can destabilize the prices of goods

➢ The manufacturers will not be able to get back their investments.

• Failure to deliver the goods to the right destinations will cause the business
to cover another round of delivery costs to do two things:

➢ To bring back the wrong goods and to deliver the right ones.

➢ Due to delays, goods can get damaged and intended recipients may not
want to accept and pay for the delivery.

➢ If there is not enough supply due to the incompetence of the warehousing

management, the prices of goods may rise to meet the unchanged
demand of the consumers.
Transportation in a supply chain

• Transportation in a supply chain refers to the movement of products from

one location to another, which begins at the start of the supply chain as
materials make their way to the warehouse and continues all the way to the
end user with the customer’s order delivered at the doorstep.

• Many manufacturers and retailers have found that they can use state of the
art supply chain management to reduce inventory and warehousing costs
while speeding up delivery to the end customer.
➢ Any supply chain’s success is closely linked to the appropriate use of
transportation.

➢ Walmart has effectively used a responsive transportation system to lower

its overall costs.

➢ At distribution centers, Walmart uses cross-docking, a process in which

product is exchanged between trucks so that each truck going to a retail
store has products from different suppliers.
 The Adverse Affect of Not Understanding the Transportation
Supply Chain's Role

➢ When freight costs are high, even seemingly small oversights can result
in unneeded expenses that could have been avoided and thus cut into
overall profit margins.

➢ Product write-offs can occur when sales channels are oversupplied.

Undersupplied sales channels can also have negative results in the form
of missed sale opportunities.

➢ Failure to monitor raw material prices can also result in above average
costs across multiple sources.
2.3. IT in Supply chain
❑Information is the driver that serves as the “glue” to create a
coordinated supply chain

❑Information must have the following characteristics to be useful:

• Accurate
• Accessible in a timely manner
• Information must be of the right kind
 Role of Information Technology in a Supply Chain

Increased Control Over Production

➢ Use of information technology in supply chain management provides
improved visibility and accountability.

➢ In order to bring efficiency to the total production process, it is

important that a manufacturing company have clear sight into the
current stage of in-production products, foresee any potential problems
or delays they might face and be able to align production schedules
accordingly.
➢ Use of technology can bring the necessary transparency into the whole
process.

➢ It allows the manufacturing companies to have better control over

product flow and information flow across the supply chain.
Better Inventory Management
➢ Maintaining optimal levels of inventory is a challenge faced by all
manufacturers.

➢ While excess inventory leads to risk of waste and for an increased need
for working capital funds, too low of inventory may lead to stoppages
in the production cycle and of losing business through stockouts.

➢ With the use of technology, manufacturers can create adaptable

business processes that provide flexibility to handle varied demand
situations.
Increased Collaboration Between Supply Chain Partners

➢ With the IT enabled, real time information sharing, manufacturers can

increase the collaboration with their key partners.

➢ Manufacturers can also track activities through the whole supply chain, with
visibility into supplier end and distributor processes.

➢ Such information can help the manufacturers in making more informed

decisions and better forecast future demand.

➢ This helps control the manufacturing process and leads to lower costs through
more effective decisions in procurement and contract management.
More Effective Order Tracking and Delivery
➢ Timely delivery of product is an important factor in ensuring customer
satisfaction. Higher customer satisfaction levels lead to higher customer
retention and repeat business.

➢ Technology solutions can play a vital role in increasing speed of delivery

and in keeping the customer informed about the product delivery
schedule.

➢ Processes can be designed to keep customers informed throughout the

process, from order confirmation to order fulfilment.
➢ It can also provide a platform for the customer to track their order,
increasing a customer’s sense of self-sufficiency and control, while at the
same time transferring customer service tasks to the customer, which
saves manufacturers time and money.

➢ Manufacturers can also develop mechanisms to interact with their logistic

providers and get real time updates on shipments of both their inventory
and product delivery.
➢ By embracing technology to gain better visibility across all areas of the
business and make data driven decisions based on real time information,
technology brings efficiency across the whole manufacturing process.

➢ The net result in using technology in supply chain management includes

lower cost of product, reduced working capital needs, and increased
customer satisfaction.
 Chapter Three
Co-coordinating in a supply chain and the role of E-Business

Contents
❖ Co-coordinating and relationship in supply chain
❖ E-Business and Global supply chain
3.1. Co-coordinating in a supply chain
➢ A supply chain is a system of organizations, people, activities,
information, and resources involved in moving a product or service
from supplier to customer.

➢ Supply Chain coordination aims at improving supply chain

performance by aligning the plans and the objectives of individual
enterprises.

➢ It usually focuses on inventory management and ordering decisions

Lack of supply chain coordination

➢ Supply chain coordination improves if all stages of the chain take

actions that are aligned and increase total supply chain surplus.

➢ Coordination requires each stage of the supply chain to share

information and take into account the impact its actions on other
stages.

➢ A lack of coordination occurs either because different stages of the

supply chain have local objectives that conflict or because
information moving between the stages is delayed and distorted.
Bullwhip effect

➢ One outcome of lack of coordination is bullwhip effect. Fluctuation in

orders increase as they move up the supply chain from retailers to
wholesalers to manufacturers to suppliers.

➢ Demand information is distorted as it travels within the supply chain, so

that different stages have different perspectives and estimates of the chain
demand.
 The effect Lack of Coordination on Performance

➢Manufacturing cost: lack of coordination increases manufacturing cost.

➢Inventory cost: the lack of coordination increases inventory cost.

➢Replenishment lead time: Lack of coordination increases the

Replenishment lead time.

➢Transportation cost: Lack of coordination increases the transportation

cost.
➢ Labor cost for shipping and receiving: The Lack of coordination
increases labor cost for shipping and receiving.

➢ Level of product availability: The Lack of coordination decreases the

Level of product availability and results in more stockouts in supply
chain.

➢ Relationships across the supply chain: lack of coordination has a

negative effect on performance at every stage and thus hurts the
relationships among different stages of the supply chain.
Obstacles to Coordination in a Supply Chain

➢ Information Processing Obstacles

➢ Operational Obstacles

➢ Pricing Obstacles

➢ Incentive Obstacles

➢ Behavioral Obstacles
Managerial levels to achieve coordination

1. Aligning goals and incentives

2. Improving information accuracy

3. Improving operational performance

4. Designing pricing strategies to stabilize orders

5. Building strategic partnerships and trust

3.2. The Role of E-Business in supply chain management
➢ E-business is the execution of business transactions via the internet.

➢ One of the primary benefits of e-business is its ability to cut costs.

➢ This technology eliminates the need to have a physical presence

➢ E-business strategies like social media and online advertising involve

lower costs than traditional marketing which allows startups and
small companies to reach their target audience.
Role of e-business in supply chain are:

• Cost savings and price reductions

• Reduction or elimination of the role of intermediaries

• Shortening supply chain response and transaction times

• Gaining a wider presence and increased visibility for companies

• Greater choices and more information for customers

• Improved service as a result of instant accessibility to services

• Collection and analysis of voluminous amounts of customer data and

preferences

• Creation of virtual companies

• Leveling playing field for small companies

• Gaining global access to markets, suppliers, and distribution channels

 Chapter Four
Planning and managing inventories in a supply chain

Question: Why inventories needed in

any manufacturing process
• Inventory-A physical resource that a firm holds in stock with the intent of

selling it or transforming it into a more valuable state.

• Inventory System- A set of policies and controls that monitors levels of

inventory and determines what levels should be maintained, when stock

should be replenished, and how large orders should be

Types of Inventory

➢ Raw materials

➢ Purchased parts and supplies

➢ Work-in-process (partially completed) products (WIP)

➢ Items being transported

➢ Tools and equipment

Types of Inventory

Carrying cost: cost of holding an item in inventory

Ordering cost: cost of replenishing inventory

Shortage cost: Temporary or permanent loss of sales when demand cannot

be met
 Most manufacturing organizations are networks of manufacturing and
distribution that produce raw material, transform them into intermediate
finished products and distribute the finished products to customers.

 Often multiple managers are responsible for manufacturing , operations ,

logistics ,material distribution and transportation are responsible for
different parts of S.C. This leads to difficulty in developing a coherent
inventory handling policy

 Savings from reduced inventory result in increased profit.

Reasons for Inventories systems

➢ Improve customer service

➢ Economies of scales

➢ Transportation savings

➢ Hedge against future – buy today at lower cost

➢ Unplanned shocks (labor strikes, natural disasters, surges in demand,

etc.)
Components of Inventory Decisions

 Cycle inventory
• Average amount of inventory used to satisfy demand between
shipments
• Depends on lot size

 Safety inventory
• Inventory held in case demand exceeds expectations
• costs of carrying too much inventory versus cost of losing sales
 Seasonal inventory
▪ Inventory built up to counter predictable variability in demand
▪ Cost of carrying additional inventory versus cost of flexible
production
Value creation through Inventory handling

➢ Remember this

• Quality: Delivering right quality product to the customer

• Speed: Ensuring products are delivered in time

• Flexibility: Ability to take into account any variation in demand up

and down the supply chain

• Cost: Keeping the Inventory handling cost as low as possible

Thank you!