SUPPLY CHAIN

MANAGEMENT
Session Eleven

Ir. Jeddy J. Sardjono MSc Copyright © 2017 by The McGraw-Hill Companies, Inc
What is Supply Chain Management?
• Supply-chain is a term that describes how
organizations (suppliers, manufacturers,
distributors, and customers) are linked
together
• Supply-chain management is a total system
approach to managing the entire flow of
information, materials, and services from raw
material suppliers through factories and
warehouses to the end customer

Ir. Jeddy J. Sardjono MSc

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The Bullwhip Effect

Consumer sales Retailer orders start to show

are predictable variability as lot sizes and other
and steady. factors have an impact.

Farther up the supply chain

variability increases.

Bullwhip effect: phenomenon of variability magnification as we move

from the customer to the producer in the supply chain
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Product and Process Uncertainty Characteristics

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Uncertainty Framework

Demand Uncertainty
Low (Functional Products) High (Innovative Products)
Low Grocery, basic apparel, Fashion apparel,
Uncertainty

(Stable Process) food, oil, and gas computers, popular music

Supply

Efficient supply chain Responsive supply chain

High Hydroelectric power, some Telecom, High-end
(Evolving food products computers, semiconductor
Process) Risk-Hedging supply chain Agile supply chain

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Four Types of Supply Chain Strategies

1. Efficient supply chains: utilize strategies aimed at

creating the highest cost efficiency
2. Risk-hedging supply chains: utilize strategies aimed
at pooling and sharing resources in a supply chain to
share risk
3. Responsive supply chains: utilize strategies aimed
at being responsive and flexible
4. Agile supply chains: utilize strategies aimed at being
responsive and flexible to customer needs

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Outsourcing
• Outsourcing: moving some of a firm’s internal
activities and decision responsibility to outside
providers
• Allows a company to create a competitive
advantage while reducing cost
• An entire function may be outsourced, or some
elements of an activity may be outsourced, with
the rest kept in-house

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Strategic Sourcing
• Strategic sourcing: the development and management
of supplier relationships to acquire goods and services in
a way that aids in achieving the immediate needs of the
business
• In the past, sourcing was another name for purchasing
• As a result of globalization, sourcing implies a more
complex process suitable for products that are
strategically important

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Strategic Sourcing Continued
• Specificity: refers to how common the item is and, in a
relative sense, how many substitutes might be available
• Commonly available products can be purchased using a relatively
simple process
• Request for proposal (RFP): used for purchasing items
that are more complex or expensive and where there may
be a number of potential vendors
• Vendor-managed inventory: when a customer actually
allows the supplier to manage an item or group of items
for them

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 Sourcing/Purchasing Design Matrix

Exhibit 16.1 Copyright ©2017 McGraw-Hill Education. All rights reserved. 16-10
Reasons to Outsource and the Resulting Benefits

• Financially Driven Reason

• Improve return on assets by reducing inventory and selling unnecessary
assets
• Gain access to new market
• Reduce cost through a lower cost structure

• Improvement-Driven Reasons
• Improve quality and productivity
• Shorten cycle time

• Organizational Driven Reasons

• Improve effectiveness by focusing on what the firm does best
• Increase product and service by improving response to customer needs

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Logistics Outsourcing
• Logistics: the management functions that support the
complete cycle of material flow
• Purchase and internal control of materials
• Planning and control of WIP
• Purchasing, shipping, and distribution of finished product

• Logistics companies have complex computer tracking

technology that reduces the risk in transportation and
allows the logistics company to add more value to the firm
• Third-party logistics providers track freight to tell
customers exactly where its drivers are and when
deliveries will be made
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Total Cost of Ownership (TCO)
• Total cost of ownership : an estimate of the
cost of an item
• Includes all the costs related to the
procurement and use of an item, including any
related costs in disposing of the item
• Can be applied to internal costs or more
broadly to costs throughout the supply chain

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Measuring Supply Chain Performance
•  Inventory turnover: how often inventory is replaced
during the year

• Weeks of supply: how many weeks’ worth of inventory is

in the system at a particular point in time

• Cash to Cash Cycle:

• C2C Cycle = Inventory days of supply + Days of sales outstanding
– Average payment period for material

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Cash-to-Cash Cycle Time
• Integrates the finance function with purchasing,
manufacturing, and sales/distribution

Cash-to-cash cycle time = Inventory days of supply + Days of sales outstanding

– Average payment period for material

Procurement Manufacturing Sales and

cycle cycle distribution cycle

• Purchase cost of • Raw materials • Distribution inventory

material inventory • Accounts receivable
• Accounts payable • Work-in-process
• Finished goods
inventory

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Calculating Cash-to-Cash Time
S
Average daily sales (Sd) Sd 
d
AR
Accounts receivable days (ARd) ARd 
d

Average daily cost of sales (Cd) Cd  S d CS

I
Average days of inventory (Id) Id 
Cd

Accounts payable cycle time (APd) AP

APd 
Cd

Cash-to-cash cycle time Cash  to  cash cycle time  ARd  I d  APd

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Example: Cash-to-Cash Cycle Time Calculation

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