Supply Chain Management

Define supply chain management Explain supply chain activities Identify the types of supply chain relationships Discuss supply chain behaviour

Presenter Name

Outline of Lecture
Define supply chain management Explain supply chain activities Identify the types of supply chain relationships Discuss supply chain behaviour

What is a supply chain?

A Network View of Supply Chains

Manufacturers Warehouses
Customers Assemblers Raw Material

Stages Procurement Production Distribution

(Ballou 1998)
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Definition of a Supply Chain

A definition by Ballou (1999):
A network of manufacturing and distribution
sites that interact to procure and transform raw materials for producing finished goods to (ultimate) customers.

2004 by Pearson Education Ballou Bus Log/SC Mgt 5/e

A Supply Chain Operations Reference Model

Proposed by the Supply Chain Council:

(SCOR 2008)
2007 by Prentice Hall Slack/Chambers/Johston, Oper Mgt 5/e

p.297 Fig.10.4

http://www.supply-chain.org/resources/scor

Flows in a Supply Chain

Supplier Manufacturer Distributor Retailer Consumer

Upstream Downstream

An interface between a supplier and its direct customer. Information

Supplier

Materials or services
Cash

Customer

What is supply chain management?

A definition by Ballou (1999):
Management of Materials, Information and Flows to get the right goods or services to the right place, at the right time, and in the desired condition, while making the greatest contribution to the firm.

2004 by Pearson Education Ballou Bus Log/SC Mgt 5/e

Outline of Lecture
Define supply chain management Explain supply chain activities Identify the types of supply chain
relationships Discuss supply chain behaviour

A Supply Chain Operations Reference Model

Proposed by the Supply Chain Council:

(SCOR 2008)
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Key Activities and Issues in SCM

Supply network configuration Strategic partnerships IT infrastructure & Information management Product/service life cycle management Demand management and forecasting Supply chain planning & resources planning Distribution management Production management and control Procurement and outsourcing Inventory positioning and control Cash flow management
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Key Decisions in SCM

Supply Chain Decisions
Strategic Level
Long Term

Corporate objectives Supply chain strategy Facilities and capacity Partnerships IT infrastructure
Inventory positioning Resource allocation Seasonal service mix Vendor selection and contracting Routing and dispatching Order filling Production scheduling Replenishment
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Tactical

Mid Term

Operational
2004 by Pearson Education Ballou Bus Log/SC Mgt 5/e

Near Term

Procurement
Sourcing strategies
Single-sourcing: The practice of obtaining all of one

type of raw material, component or service from a single supplier, as opposed to multi-sourcing. Multi-sourcing: The practice of obtaining the same type of product, component or service from more than one supplier in order to maintain market bargaining power or continuity of supply.

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Advantages/disadvantages of single- and multi-sourcing

Single-sourcing
ADVANTAGES

Multi-sourcing
ADVANTAGES

Potentially better quality through

supplier quality assurance (SQA); Strong relationships: greater dependency leads to more commitment; Better scale economies; Better communication; better R&D co-operation; higher confidentiality

Competitive tendering to drive

down price by purchaser; Can tap wide sources of knowledge and expertise Can switch sources in case of supply failures;

DISADVANTAGES

DISADVANTAGES

More vulnerable to disruptions if

supply failure occurs; Individual supplier more affected by volume fluctuations; Supplier may exert upward pressure on prices if theres no alternative supplier

Hard to encourage commitment

by supplier; More effort to communicate; More difficult to obtain scale economies Suppliers less likely to invest in new processes
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Factors for rating alternative suppliers

Short-term ability to supply Longer-term ability to supply

Range of products or services

provided Quality of products or services Responsiveness Dependability of supply Delivery and volume flexibility Total cost of being supplied Ability to supply in the required quantity

Potential for innovation Ease of doing business Willingness to share risk Long-term commitment to
supply Ability to transfer knowledge as well as products and services Technical capability Operations capability Financial capability Managerial capability

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Supplier Selection Criteria

Company

Service

Product

Financial stability Management Reputation Location Quality Price Lead time

Delivery on time Flexibility Technical support Training

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Supplier selection for a fast food chain by weighted criteria

Factor Cost performance Weight 10 Supplier A score 8 (8 x 10 = 80) Supplier B score 5 (5 x 10 = 50)

Quality record
Delivery speed promised Delivery speed achieved Dependability record

10
7 7 8

7 (7 x 10 = 70)
5 (5 x 7 = 35) 4 (4 x 7 = 28) 6 (6 x 8 = 48)

9 (9 x 10 = 90)
5 (5 x 7 = 35) 8 (8 x 7 = 56) 8 (8 x 8 = 64)

Range provided
Innovation capability Total weighted score

5
4

8 (8 x 5 = 40)
6 (6 x 4 = 24) 325

5 (5 x 5 = 25)
9 (9 x 4 = 36) 356

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Outline of Lecture
Define supply chain management Explain supply chain activities Identify the types of supply chain
relationships Discuss supply chain behaviour

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Supply Chain Relationships

Business
Relationship: Most common, all but the last link in the supply chain E-commerce examples: EDI networks Tesco information exchange C2B Relationship: Consumer offers, business responds E-commerce examples: Some airline ticket operators Priceline.com, etc.

Consumer
B2C Relationship: Retail operations Catalogue operations, etc.
E-commerce examples: Internet retailers Amazon.com, etc. C2C Relationship: Trading swap and auction transactions E-commerce examples: Specialist collector sites eBay.com, etc.

B2B

Business

Consumer

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Type of Supply Relationships

Character of internal operations activity
Do everything Vertically integrated operation

Do everything important

Traditional supply management Partnership supply management

Do nothing

Virtual spot trading

Transactional many suppliers

Long-term virtual operation Close few suppliers

Type of inter-firm contact

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Elements of building partnership relationships

Attitudes
Trust Long-term expectations Joint learning
Closeness of relationship

Sharing success Multiple points of contact

Joint coordination of activities

Few relationships

Joint problem solving

Information transparency Dedicated assets

Actions
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Outline of Lecture
Define supply chain management Explain supply chain activities Identify the types of supply chain

relationships Discuss supply chain behaviour

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Supply Chain Strategies and Strategic Fit

Supply chains with different objectives need to be managed in different ways
Source: Fisher (1997)

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Product Life Cycle

Stages of a Products Life Cycle
High Uncertainty Responsiveness Demand Introduction Growth Innovative Maturity Decline Functional
p.72

Efficiency

Low

2004 by Pearson Education Ballou Bus Log/SC Mgt 5/e

2007 by Prentice Hall Slack/Chambers/Johston, Oper Mgt 5/e

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Strategic Fit of Supply Chains

Supply Chain Objectives

Efficient
functional

Responsive

Nature of Product

Match

Mismatch

Innovative

Mismatch

Match

Lean

Agile

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The Bullwhip (Forrester) Effect

The tendency of supply chains to amplify relatively small changes at the demand side of a supply chain such that the disruption at the supply end of the chain is much greater;
Manufacturers orders to its suppliers Wholesalers orders to manufacturer Stores orders to wholesaler

Sales from store

Time

Tim

Time

Time

Supplier

Manufacture

Wholesaler

Retail Store

Consumers

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Bullwhip Effect Contributing Factors

Order batching
High order cost Full truck load economies Random or correlated ordering
High-Low Pricing leading to forward buy

Pricing and sale incentives

Information processing
No visibility of end demand Multiple forecasts Long lead-time

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Bullwhip Effect Contributing Factors

Rationing games
Proportional rationing scheme Ignorance of supply conditions Unrestricted orders & free return policy

Behaviour factors
Lack of trust Local reaction

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Coping with Bullwhip Effect

Alignment
Partnership and trust building Vendor managed inventory (VMI) Coordinating promotions and operations Electronic data interchange (EDI) Centralised forecasting Multi-echelon inventory control Lead time reducing

Information sharing

Operations efficiency

Assorted Truckload by 3rd party logistics

Regular delivery appointment Every day low pricing Volume and not lot size discounts

2009 by Pearson Education Chopra/Maindl Supply Chain Mgt 4/e

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Dynamic Nature of Supply Chains

Customer demand changes over time Supplier capabilities changes over time Competitors interacts over time Relations in the chain evolve over time
Dynamic networks

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Uncertainty In Supply Chains

Unexpected demand change Late deliveries Poor quality Machine breakdowns Cancelled orders Erroneous information

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Managing Uncertainty
Safety inventory traditional way Process and quality control Responsiveness and agility Integration and partnerships
Balance stock holding cost and stock out cost Unutilised capacity and the queue of customers

Information sharing Centralised forecasting and planning Cooperation among partners

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Risk-Pooling Techniques
Centralised inventory Information Centralisation Specialisation Product Substitution
Manufacturer-driven substitution Customer-driven substitution

Component Commonality Postponement

2009 by Pearson Education Chopra/Maindl Supply Chain Mgt 4/e

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Postponement of differentiation
Example - Knitwear

Dye Yarn

Knit Garment

Postponement of differentiation
Dyeing Knitting

Knitting

Dyeing

Summary
What is a supply chain/supply network. What is supply chain management. What are the key problems and issues
in supply chain management. How to cope with these issues

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Further reading and references

Christopher, M. (2000) The Agile Supply Chain Competing in Volatile Markets, Industrial Marketing Management, 26: 37-44. Ferdows, K., Machuca, J.A.D., and Lewis, M. (2002) Zara, Case study Ref No. 603-0021, Georgetown University, Universidad de Sevilla, and University of Warwick. Fisher, M.L. (1994) Making Supply Meet Demand in an Uncertain World, Harvard Business Review, May-June, 83-93. Fisher, M.L. (1997) What is the right supply chain for your product? Harvard Business Review, March-April, 105-116. Lee, H.L. (2004) The Triple-A Supply Chain, Harvard Business Review, October, 82(10): 102-112. Lee, H.L., and Billingron, C (1992) Managing supply chain inventory: pitfalls and opportunities, Sloan Management Review, 33(3): 65-73. Lee, H.L., Padmanabhan, V., and Whang, S (1997) The bullwhip in supply chains, Sloan Management Review, 38(3): 93-102. Magretta, J (1998) Fast, Global, and Entrepreneurial: Supply Chain Management, Hong Kong Style, Harvard Business Review, September-October, 103-114. Tan, K.C. (2001) A framework of supply chain management literature, European Journal of Purchasing & Supply Management, 7: 39-48.

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