Supply Chain Management

WORKSHOP by: Office of Research Innovation and

Commercialization (ORIC), University of Punjab

1 Workshop : Supply Chain Management

Umer Mukhtar
Lecturer (School of Management, GIFT University)
PhD (In Progress) UMT, Lahore
MS (Quality Management)
International Certificate of SCM, ITC, WTO.
Lead Auditor ISO 9001:2008
Lead Auditor SA 8000
2 Workshop : Supply Chain Management
Summary: Workshop
 Introduction and Need of Supply Chain Management
 Right supply chain
 Nature of Demand
 Supply management of Functional and Innovative products
 Physically Innovative and Responsive Supply Chain
Networks
 Ideal Supply Chain Strategy
 Procurement and Sourcing
 Requirement and planning of Supply

3 Workshop : Supply Chain Management

Summary: Workshop
 Distribution and Logistics
 Customer service and logistics
 Channels of distribution
 Warehousing
 Transportation

4 Workshop : Supply Chain Management

Logistics/Supply Chain Management
 Logistics and supply chain management are not new
ideas.

 From the building of the pyramids to the relief of hunger

in Africa, the effective flow of materials and information
is the main concern.

 Throughout the history of mankind wars have been won

and lost through logistics strengths and capabilities

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Logistics
 It is only in the recent past that business organizations
have come to recognize the vital impact that logistics
management can have in the achievement of competitive
advantage.
Logistics

Logistics is the process of strategically managing the

procurement, movement and storage of materials, parts and
finished inventory (and the related information flows)
through the organization and its marketing channels in such
a way that current and future profitability are maximized
through the cost-effective fulfillment of orders.

6 Workshop : Supply Chain Management

Supply Chain Management

Supply chain management builds upon the logistics

management framework and seeks to achieve
linkage and co-ordination between the processes of
other entities in the pipeline, i.e. suppliers, and
customers, and the organization itself.
 For example, elimination of buffers of
inventory that exist between
organizations in a chain through the
sharing of information on demand and
current stock levels.
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Supply Chain Management
The management of a network of (Defined by Stock & Boyer in 2009
relationships within a firm and between
interdependent organizations and business
units consisting of material suppliers,
purchasing, production facilities, logistics,
marketing, and related systems that
facilitate the forward and reverse flow of
materials, services, finances and
information from the original producer to
final customer with the benefits of adding
value, maximizing profitability through
efficiencies, and achieving customer
satisfaction.

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The Immediate Supply Chain for an Individual Firm

Transportation Transportation Customers

Warehousing

Information
flows
Factory

Transportation

Vendors/plants/ports
Warehousing Transportation

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Supply Chain: Manufacturing Example

10 Workshop : Supply Chain Management

Supply Chain: Service Example

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 Supply Chain management
 Cross function approach
 Integrated approach
 Overall objective is more important
 Conflict resolution
 Planning uncertainty i.e. contingency plans
 Decision making at corporate level
 Eliminate redundant activities
 Ultimate objective is customer
astonishment

12 Workshop : Supply Chain Management

Why do we need Supply Chain Management
Economies of Scale
Technology
Market Share
are not the only
options of cost
advantage

Brand Image
Variety
Product
Differentiation are
not the only options
to deliver value

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Creating Value
 Companies seek to develop a distinctive advantage and
differentiate themselves in the mind of consumer.
 Customers seek value in terms of:
 Quality
 Cost
 Flexibility
 Delivery
 Innovation
The underlying philosophy of SC is to link the
marketplace, the distribution network, the
manufacturing process and the procurement activity in
such a way that customers are serviced at higher levels
and yet at lower cost.
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 The Value Chain of typical manufacturing firm

INDIRECTLY
create the
value as
perceived by
the customer

DIRECT
LY create
the value
as
perceived
by the
customer

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Internal Value Chain: Local Focus

Workshop : Supply Chain 16

Management
Internal Value Chain: Company Focus

Upstream Downstream
Suppliers Customers

Workshop : Supply Chain 17

Management
Internal Value Chain: Company Focus

Upstream Downstream
Suppliers Customers

Workshop : Supply Chain 18

Management
SCM: Linked Value Chains

Supplier’s Supplier Focal Customer Customer’s

Supplier Firm Customer
Workshop : Supply Chain 19
Management
Supply Chain Integration

Common

20
Theoretical Ideal
Workshop : Supply Chain Management
 The Supply Chain is Multi-Enterprise
Scope in
reality

Focus
Company

Suppliers Customers

Supplier’s Customers/
suppliers End users

Acquire Convert Distribute

Product and information flow

21 CR (2004) Prentice Hall, Inc. Workshop : Supply Chain Management

Generalized Supply Chain Model
Relationship Management

Information, Product, Service, Financial and Knowledge Flows

SUPPLIER E
M NETWORK N
A INTEGRATED D
ENTERPRISE DISTRIBUTIVE
T NETWORK
E C
R O
I
Procurement Distribution
N
A S
L U
S Manufacturing
M
E
R
S

Capacity, Information, Core Competencies, Capital and Human Resources

Supply Chain Logistics Management, First Edition. Bowersox, Closs, and Cooper.
Copyright© 2002 by The McGraw-Hill Companies, Inc. All rights reserved.

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Conflicts within the supply chains
 High inventories – higher customer service levels
 [ but supply chains operate inefficiently]
 Low inventories – Efficient supply chain operations
 [ but customer service levels are at stake]
Supplier Manufacturer Retailer Customer
objective objective objective objective
Large stable Desire low Reduce Low price &
demand for less product variety / inventory and high product
variety of high production transportation quality and
materials volumes costs variety
Flexible delivery Flexible delivery Rapid JIT receiving
schedules schedules replenishment of products,
short lead
times

Supply chain management best practices by Blenchard

23 Workshop : Supply Chain Management
Demand Nature
 Food Industry of U.S. was loosing 300 Billion annually
due to poor coordination of Supply Chain Partners.
 The excess of some products and shortage of others owing
to an inability to predict demand
 Consideration of Demand Nature
 Primarily Functional
Satisfy basic needs, stable, and predictable demand and long
life cycles – Rice, Pulses, Milk, Chicken, Vegetables (Grocery
Items)
 Primarily Innovative

Satisfy luxury needs, unstable, and unpredictable demand and

short life cycles – Apparels, Fashion products, Personal
Computers, Smart phones.
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Functional Versus Innovative Products:
Differences in Demand
Functional Innovative
Aspects of Demand Predictable Unpredictable

Product Life Cycle More than 2 years 3 months to 1 year

Contribution Margin 5% to 20% 20% to 60%

Product Variety Low (10 to 20 variants per High (Often no. of variants
category) per category)

Average Margin of error in 10% 40% to 100%

the demand forecast

Average Stock out Rate 1% to 2 % 10% to 40%

Lead time required for 6 months to 1 year 1 day to 2 weeks

made-to-order products

25 Workshop : Supply Chain Management

 What is the Right Supply Chain?

26 Workshop : Supply Chain Management

Two functions of Supply Chain
 Physical Function
 Conversion of Raw material into
components, parts, finished products and
transporting all of them from one point in
supply chain to the next.
 Physical Costs
 Costof production, transportation cost,
inventory storage
 Market Mediation Function
 Ensure that the variety of products
reaching the marketplace matches what
consumers want to buy.
 Mediation costs
 when supply falls short of demand in the form
of lost sales and dissatisfied customers.
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Physically efficient and Market-
Responsive Supply Chains
Physically Efficient
Process
Primary purpose Supply predictable
demand efficiently at the
lowest possible cost
Manufacturing focus Maintain high average
utilization rate
Inventory Strategy Generate high turns and
minimize inventory
throughout the chain
Lead Time focus Shorten lead time as
long as it does not
increase cost
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Market Responsive
Process
Respond quickly to
unpredictable demand in
order to minimize
stakeouts and obsolete
inventory
Deploy excess buffer
capacity
Deploy significant
buffer stocks of parts or
finished goods
Invest aggressively in
ways to reduce lead time
Physically efficient and Market-
Responsive Supply Chains
Lead Time Focus Shorten lead time as Invest aggressively in
long as it does not ways to reduce lead time
increase cost
Approach to choosing Select primarily for cost Select primarily for
Supplies and quality speed, flexibility and
quality
Product Design Strategy Maximize performance Use modular design in
and minimize cost order to postpone
product differentiation
for as long as possible

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 Procurement

30 Workshop : Supply Chain Management

Procurement
 Procurement is one of the key links in
the supply chain and as such can have a
significant influence on the overall
success of the organization.

 Ensuring that there are sufficient

supplies of raw materials at the right
price, of the required quality, in the
right place and at the right time is
obviously crucial to any manufacturing
plant.

31 Workshop : Supply Chain Management

Procurement
 Procurement is not just about raw materials. The
following also need to be acquired:
 utilities – gas, water, electricity and telephones
 fuel – diesel, petrol and heating fuel
 capital assets – machinery, vehicles and buildings
 corporate travel and hotels
 stationery
 consultancy
 outsourced services – distribution contracts, IT services, etc
 IT equipment – hardware, software and support

32 Workshop : Supply Chain Management

SETTING THE PROCUREMENT
OBJECTIVES
 Ensuring the supply of raw materials and other supplies;
 The quality of supplies;
 The price and Delivered Price;
 The origin of the supplies;
 The method of supply, e-g JIT-style deliveries;
 The mode of transport used;
 A hierarchy of importance, e-g key raw materials would
have precedence over office stationery;
 Whether to make yourself or buy from a supplier.

33 Workshop : Supply Chain Management

Purchasing Priorities

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Purchasing Priorities

35 Workshop : Supply Chain Management

Make or buy?
 Cost
 the opportunity cost of the capital employed
 If the activity is to be provided by a supplier, then the costs associated with
managing the supplier and the transaction costs
 Ensuring supply
 The reliability of the supplier to provide supplies on time and the quality of its
offering is another crucial part of the decision making process.
 Production capacity
 Some parts of an operation may be provided by subcontractors because a
company does not have sufficient capacity within its operation to do the job itself.
 Competitive advantage
 There may be certain products, components or processes that the company wishes to
keep secret and so it will not allow any other company to gain information about them

36 Workshop : Supply Chain Management

 Customer Service

37 Workshop : Supply Chain Management

Customer Service
 Service provisions have been based on very broad
assumptions of what customers want, rather than taking
into account the real requirements of customers or at least
customers’ perceptions of what they require.
 Pre-transaction elements:
– written customer service policy
– accessibility of order personnel
– single order contact point
– method of ordering
– order size constraints
– system flexibility
– transaction elements.

38 Workshop : Supply Chain Management

Customer Service
 Transaction elements:
– order cycle time
– order preparation
– inventory availability
– delivery alternatives
– delivery time
– delivery reliability
– delivery of complete
order
– condition of goods
– order status information.
39 Workshop : Supply Chain Management
 Post -Transaction
elements:
– availability of spares
– invoicing procedures
– invoicing accuracy
– product tracing/warranty
– returns policy
– customer complaints and
procedures
– claims procedures.
Customer Service

40 Workshop : Supply Chain Management

Customer Service Target

41 Workshop : Supply Chain Management

Channels of Distribution

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Channels of Distribution
 Physical distribution channel
 How a product or a group of products are physically
transferred, or distributed, from their point of production
to the point at which they are made available to the final
customer.
 Trading or Transaction channel
 non-physical aspects of this transfer from the point of

production to the point of consumption

 sequence of negotiation, the buying and selling of the
product, and the ownership of the goods as they are
transferred through the various distribution systems

43 Workshop : Supply Chain Management

Channels of Distribution

44 Workshop : Supply Chain Management

Channels of Distribution

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Objectives to clarify in Channel
Selection
 To make the product readily available to the market consumers
at which it is aimed
 To enhance the prospect of sales being made
– Does the deliverer arrange the merchandise in the shop?
– Are special displays used?
– Does the product need to be demonstrated or explained?
– Is there a special promotion of the product?
 To achieve co-operation with regard to any relevant distribution
factors.
 To achieve a given level of service
 To minimize logistics and total costs
 To receive fast and accurate feedback of information.
 sales trends, inventory levels, damage reports, service levels, cost
monitoring, etc.
46 Workshop : Supply Chain Management
Third-party Distribution Types
 Dedicated (or exclusive) distribution operation.
 The third party undertakes to provide the customer with all its
distribution requirements, exclusively, on a national or regional basis.
 Multi-user (or shared-user) distribution operation
 Specialist distribution operation
 Regional multi-client distribution operation
 National multi-client distribution operation
 Transit operation - only providing a collect, and delivery
service
 Joint venture - separate distribution company
 Occasional use - to cover seasonal peaks in demand
47 Workshop : Supply Chain Management
 Warehousing

48 Workshop : Supply Chain Management

Warehousing and Storage
 Forever increasing customer service levels,
 Inventory reduction, time compression
 Cost minimization

 Warehouses, perhaps better referred to as distribution

centers, exist primarily to facilitate the movement of
goods to the end user.

49 Workshop : Supply Chain Management

THE ROLE OF WAREHOUSES
 To provide a buffer to smooth variations between supply and
demand;
 To enable economies of long production runs in
manufacturing;
 To provide a buffer between production runs in manufacturing;
 To enable procurement savings through large purchases;
 To cover for seasonal fluctuations and peaks, eg the Christmas
build-up;
 To provide a wide range of different products, from different
suppliers, in one location;
 To cover for planned or breakdown production shutdowns.

50 Workshop : Supply Chain Management

Emphasis
 Facilitating the flow of goods to the customer;
 Meeting the requirements of customer service standards;
 Incorporating value-added activities, such as
postponement, as a means of Reducing the numbers of
product lines or stock keeping units (SKUs) in a system,
and increasing the flexibility to meet customer
requirements.

51 Workshop : Supply Chain Management

 Transportation

52 Workshop : Supply Chain Management

Transportation – Customer Considerations

 Service level/type of service location

 Delivery point constraints (access, equipment, etc)
 After-sales service needs
 Credit rating
 Terms of sale preference (CIF/FOB)
 Order size preference
 Customer importance
 Security and Damages

53 Workshop : Supply Chain Management

Transportation – Physical Considerations
 Volume to weight ratio
 Value to weight ratio
 Substitutability (product
alternatives, etc)
 Special characteristics (hazard,
fragility, perishability, time
constraints, security).

54 Workshop : Supply Chain Management

 THANK YOU

55 Workshop : Supply Chain Management