communications and information sharing
HPC 4 (Prelim)
Unit 1: Introduction to Supply
Chain Management
Defining Supply Chain Management
An efficient supply chain management
system is a necessity in order to run a successful
business. This results into competitive advantage
by providing precise information to suppliers who
in turn are able to maintain a continuous flow of
products to customers.
According to The Council of Supply Chain
Management Professionals (CSCMP), planning
and management of all activities involved in
sourcing and procurement, conversion, and all
logistics management activities. Importantly, it
also includes coordination and collaboration with
channel partners, which can be suppliers,
Intermediaries, third-party service providers, and
customers.
Benefits Supply Chain in the Hospitality
Industry
•The supplier and the hotel benefit from a well-
established system of the supply chain
management. Furthermore, supplier and hotel
become stronger because of professional
management in the form of development of proper
purchasing policies.
•Significant reduction of cost and continuous
evaluation and improvement in the purchasing
process.
•Improved management information future
requirements
Elements of Supply Chain
1. Integration
 Integration starts at your strategic planning
phase and is critical throughout your
and data analysis and storage.
 Firms in the supply chain must integrate
their process activities internally and then
with their trading partners.
 Management should identify the basic
supply chin strategies associated with each
other of its trading partner’s goods, and
services. If an end product is competing
based on quality, then supply chain
members should also be using strategies
consistent with delivering high- quality
products at competitive price and service
levels.
 Product strategies should then translate
into internal functional policies regarding
the types of parts purchased and suppliers
used, the manufacturing processes
employed.
 Once the primary strategy has been
identified for a supply chain’s end product,
managers need to identify the important
processes linking each of the supply chain
trading partners and establish process
objectives to assure that resources and
efforts are effectively deployed within
each firm to support the end-product
strategy.
 The term process integration means
sharing information and coordinating
resources to jointly manage a process or
processes.
Customer Relationship Management
Creates a structure for developing and
maintaining relationships with customers.
Individual customers or groups are identified,
based on their value over time, and their loyalty
can be enhanced by providing tailored products
and services.
Supplier Relationship Management
Defines how a company interacts with its
suppliers. As in the case of customer relationship
management, a company will form close
relationships with some of its suppliers, while
others are less closely cultivated. Good supplier
relationship management involves devising the
right PSAs and managing them well, so that the
company and its suppliers continue to benefit
from the most favorable trading arrangements.
Customer Service Management
Operates at the customer interface. It
provides the key point of contact for administering
the PSA and can give the customer information on
orders, shipping dates and product availability.
SYSPRO ERP manufacturing and logistics
modules supply the data required by customer
service management.
Demand Management
Allows a company to be proactive in
matching supply to demand. The process includes
forecasting and synchronization of supply and
demand, in order to increase flexibility and reduce
demand variability. The process should employ
customer intelligence, historical sales information
and planned marketing efforts to forecast and
influence demand.
The Order Fulfilment
Process involves more than just filling
orders. It includes all activities necessary to define
customer requirement and to design a process that
allows a company to meet customer requests,
while minimizing the total delivered cost. This is
not just the logistics function, but instead needs to
be implemented cross-functionally and with the
coordination of key suppliers and customers. The
objective is to develop a seamless process from
the supplier to the organization and to its various
customer segments.
Manufacturing Flow Management
Includes all the activities necessary to
move goods through production and to obtain,
implement and manage manufacturing flexibility
in the supply chain. Manufacturing flexibility
reflects the ability to make a wide variety of
products at an appropriate rate and at lowest
possible cost. To achieve the desired level of
manufacturing flexibility, planning and execution
must extend beyond the production site to
encompass the entire supply chain.
Product Development and Commercialization
Provides the structure for developing and
bringing products to market in unison with
customers and suppliers. The product
development and commercialization process team
must coordinate with customer relationship
management to identify customer articulated and
unarticulated needs; select materials and suppliers
in conjunction with the supplier relationship
management process; and develop production
technology in manufacturing flow to manufacture
and integrate into the best supply chain flow for a
given product/market combination.
Returns Management
Is the SCM process by which activities
associated with product returns, reverse
logistics, gatekeeping, and avoidance are managed
within the firm and across key members of the
supply chain. The correct implementation of this
process enables management not only to manage
the reverse product flow efficiently, but to identify
opportunities to reduce unwanted returns and to
control reusable assets such as containers.
Effective returns management is an important link
between marketing and logistics, offering an
opportunity for competitive advantage.
2. Operations
 Once materials, components and other
purchased items are delivered to the
buying organization, a number of internal
operations elements become important in
assembling or processing the item into
finished products, ensuring that the right
amount of product is produced and that
finished goods and services meet specific,
quality, cost and customer service
requirements.
 Operations planning is usually hierarchical
and can be divided into three broad
categories:
•Long range – usually cover a year or more, tend
to be more general, and specify resources and
outputs in terms of aggregate hours and units.
Long-range plans are established first and are then
used to guide the medium-range plan, which are
subsequently used to guide the short-range plans.
Usually involve major, strategic decisions in
capacity, such as the construction of new facilities,
and purchase of capital; equipment.
•Intermediate or medium-range – normally span
six to eighteen months Involve minor changes in
capacity such as changes in employment levels
•Short range – usually cover a few days to a few
weeks depending on the type and size of the firm.
The most detailed and specify the exact end items
and quantities to make on a weekly, daily, or
hourly basis.
 Operations planning is usually hierarchical
3. Purchasing and can be divided into three broad categories:
 The right supply chain does a great deal in •Long range – usually cover a year or more, tend to be
terms of sourcing products in your supply more general, and specify resources and outputs in
chain and ensuring you are taking terms of aggregate hours and units. Long-range plans
advantage of the most competitive pricing are established first and are then used to guide the
medium-range plan, which are subsequently used to
and most reliable products.
guide the short-range plans. Usually involve major,
strategic decisions in capacity, such as the construction
of new facilities, and purchase of capital; equipment
4. Distribution
 The transport, delivery, and return of •Intermediate or medium-range – normally span six to
goods is a component of your supply chain eighteen months Involve minor changes in capacity
that can always be simplified, optimized, such as changes in employment levels
and corrected for better client service and
reduced operating costs. •Short range – usually cover a few days to a few weeks
depending on the type and size of the firm.
Unit 2: Foundations of Supply
Management
2. Logistics Elements
•When goods are produced, they can be delivered
Foundations of Supply Chain Management
to customers through a number of different modes
For many companies, it has become clear
of transportation.
that a supply chain that flows information and
material best can be a significant differentiator
•Logistics decisions typically involve trade-offs
and regardless of the industry and customer base,
between cost and delivery timing or customer
ore effective supply chain management will be a
service.
prerequisite to the future success. And so, there
are four major elements of supply chain
•Logistics play a critical role in fulfilling the
management: integration, operations, purchasing
customer service benefits of availability, lead-time
and distribution. Each relies on the others to
performance and service reliability
provide a seamless path from plan to completion
 Five basic transportation mode:
as affordably as possible.
•Rail
•Truck
Supply Management Goals
•Water
 Ensure timely availability of resources
•Air
 Identify, assess and mitigate supply chain
•Pipeline
risk
 Reduce total cost
•To decide which mode to use, you need to
 Enhance quality
consider their service characteristics and the cost
 Access technology and innovation
of each mode. Five dimensions of service
 Foster sustainability
characteristics are:
 Speed – the elapsed time required to move
1. Operation Elements
from one point of origin to destination
Materials, components and other
 Availability – The ability to service any
purchased items are delivered to the buying
possible location
organization, a number of internal operations
 Dependability – the variance in the
elements become important in assembling or
expected delivery times
processing the item into finished products,
 Capability – The ability to handle any
ensuring that the right amount of product is
type of product and /or size of load
produced and that finished goods and services
 Frequency – the number of scheduled
meet specific, quality, cost and customer service
movements that can be arranged by a
requirements. Operations managers are
shipper
continuously involved in resource and operations
planning to balance capacity and output.
3. Integration Elements
•Processes in a supply chain are said to be
integrated when members of supply chain work
together to make purchasing, inventory,
production, quality, logistics, and other decisions
that impact the overall profits of the supply chain.
•Firms in the supply chain must integrate their
process activities internally and then with them
trading partners.
• Management should identify the basic supply
chin strategies associated with each other of its
trading partner’s goods, and services. If an end
product is competing based on quality, therefore
supply chain members should also be using
strategies consistent with delivering high-quality
products at competitive price and service levels.
Product strategies should then translate into
internal functional policies regarding the types of
parts purchased and suppliers used, the
manufacturing processes employed.
•Once the primary strategy has been identified for
a supply chain’s end product, managers need to
identify the important processes linking each of
the supply chain trading partners and establish
process objectives to assure that resources and
efforts are effectively deployed within each firm
to support the end-product strategy.
•The term process integration means sharing
information and coordinating resources to jointly
manage a process or processes.
Unit 3: Bullwhip Effect and
Challenges of Global Sourcing in
Supply Chain Management
Bullwhip Effect
The bullwhip effect is a concept for
explaining inventory fluctuations or inefficient
asset allocation as a result of demand changes as
you move further up the supply chain, thus in the
supply chain world, the end customers have the
whip handle and they create a little movement in
the demand which travels up the supply chain in
increasing fashion.
•Occurs when small disturbance in the flow of
orders generated by a customer produces
successively larges disturbances at each upstream
stage in supply chain
•Also, the continuing cycle of erratic demand
causing forecasts to include safety stock which in
turn magnify supplier forecasts and cause
production planning is known as the bullwhip
effect
Causes of Bullwhip Effect
 Order Batching
Order batching occurs when each member takes
order quantities it receives from its downstream
customer and rounds up or down to suit
production constraints such as equipment setup
times or truckload quantities. The more members
who conduct such rounding of order quantities,
the more
distortion occurs of the original quantities that
were demanded.
 Price Fluctuations
Very often, special discounts and other cost
changes can disturb regular buying patterns. What
buyers want is to take advantage on discounts
offered during a short time period, resulting into
irregular production and distorted demand
information.
 Demand Information
It is essential to understand that relying on past
demand information to estimate current demand
information of a product does not take into
account any fluctuations that may occur in
demand over a period of time.
 Lack of Communication
Due to lack of communication between each link
in the supply chain, it gets difficult for processes
to run efficiently. For example: managers can
identify a product demand quite differently within
different links of the supply chain and therefore
order different quantities.
 Free Return Policies
Sometimes, customers may purposely overstate
demands due to shortages and then cancel when
the supply becomes adequate again, without return
forfeit retailers will continue to exaggerate their
needs and cancel orders; resulting in excess
material.
The impact of the bullwhip effect on inventory,
shipping time and overall cost
 The negative impact of the bullwhip effect
can prove costly to any company. So, as to
maintain a manageable and useful inventory,
businesses usually work very hard. However, the
variables that cause the bullwhip effect can lead
companies to have either an excess or lack of
inventory which can both be unfavorable for
different reasons. Overstated orders based on
misguided forecasts lead to incorrect inventory
levels.
Additionally, a surplus of inventory could
prove costly to the company and if consumer
demand does not increase, it could result in
wasted resources. Moreover, insufficient
inventory can lead to poor customer relations due
to unfulfilled orders and unavailable products.
Such mistakes can seriously affect the goodwill
and profitability of an organization.
Ways to Minimize the Bullwhip Effect
•Improved communication & better forecasts
a good strategy which can be used to
minimize the bullwhip effect is through better
information, in terms of improved communication
along the supply chain or better forecasts. Since
managers believe that end-user demand is more
predictable then the demand experienced by
factories, they usually attempt to ignore signals
being sent through the supply chain and instead
focus on the end-user demand. This method
ignores daily fluctuations in favor of running
level.
•Eliminate delays
Another way to reduce the bullwhip effect
is by eliminating the delays along the supply
chain. Basically, by cutting order-to-delivery time
by half in both real supply chains and simulations
of supply chains, supply chain fluctuations can be
cut by 80%.
•Reduce size of orders & good customer service
Another method to prevent the bullwhip
effect consists of reducing the sizes of orders and
constantly offering good product prices as a way
to prevent surges resulting from promotional
discounts. Besides, improving customer service
and eliminating causes for customer order
cancellations to ensure smooth ordering patterns.
Global Sourcing
Global sourcing provides opportunities to
improve quality, cost and delivery performance
and also poses unique challenges for purchasing
personnel.
Also, Additional skills and knowledge is
required to deal with international suppliers,
logistics, communication, political, cultural and
other issues not usually encountered domestic
sourcing.
Reasons for Global Sourcing
1. Expand supply bases to include foreign
suppliers for
a. Lower price
b. Better quality
c. Faster delivery to foreign units
d. Better services
e. Better process or product
technologies
Challenges for Global Sourcing
1. Long lead times
2. Higher transportation cost
3. Higher inventory cost because of higher
safety stock and in-transit
4. Lack of flexibility to make changes in
quantity or specification
5. Cost of travel and communication
6. Complexity, delays and cost from
customs clearance, duties and border
security
7. Potential quality problems