Chapter

13 Reviewer (Supply Chain Management)

What is Supply Chain Management?

Is the management of the interconnection of organizations that relate to each other through
upstream and downstream linkages between the processes that produce value to the ultimate
consumer in the form of products and services.

Supply Network
o All the operations that were linked together so as to provide goods and services through to
the end customers

Levels of a Supply Network
1. Organization to Organization
2. Process to Process
3. Resource to Resource

Supply Chain
o Strands of linked operations under an organization

Internal and External Supply Chains
o External Supply Chain
Organization to Organization

o Internal Supply Chain
Process to Process
Resource to Resource

Tangible and Intangible Supply Chains
'Material Transformation' Operations (Tangible Supply Chains)
Operations concerned with the creation, movement, storage or sale of physical products

Service Operations (Intangible Supply Chains)

Supply Chain Management Objectives

"To satisfy the end customer"
Each operation in the chain should be satisfying its own customer, but also making sure
that eventually the end customer is also satisfied.
The performance of both the supply chain as a whole, and its constituent operations,
should be judged in terms of how all end customer needs are satisfied.






 Supply Chains and the Five Operations Performance Objectives

1. Quality - the quality of a product or service when it reaches the customer is a function of
the quality performance of every operation in the chain that supplied it.

2. Speed
Two Meanings
1. How fast customers can be served
2. The time taken for goods and services to move through the chain

3. Dependability
Dependability of throughput time
Often measured as 'on-time, in full

4. Flexibility
The chain's ability to cope with changes and disturbances
'Supply Chain Agility'

5. Cost
The supply chain as a whole incurs costs that derive from each operation in a chain
doing business with each other
Cost of finding the appropriate suppliers, setting up contractual agreements,
monitoring supply performance, transporting products between operations, holding
inventories, etc.


The Activities of Supply Chain Management (SPPML)

1. Supply Chain Management
o Coordinates all the operations on the supply side and the demand side
2. Purchasing and Supply Management (aka. Procurement)
o Deals with the operation's interface with its supply markets
o Buys in materials and services from suppliers
o Can have a very significant impact on any operation's costs
o Provides a vital link between the operation itself and its suppliers
3. Physical Distribution Management
o Supplying immediate customers
4. Materials Management
o The flow of materials and information only through the immediate supply chain
5. Logistics
o Refers to materials and information flow down through a distribution channel
o The process of planning, implementing, and controlling the cost effective flow of goods
from the country of origin to the destination

o Third Party Logistics
Outsourcing to a specialist logistics company


Supplier Selection
o Choosing appropriate suppliers should involve trading off alternative attributes
o Choosing suppliers should involve evaluating the relative importance of all these factors


Single and Multi Sourcing
o Single Sourcing
Source each individual product or service from a single supplier
Pros:
Strong relationships can be built
Better Communication
Encourages more commitment and effort
Better quality due to SQA possibilities
Cons:
More vulnerable to disruption if a failure to supply occurs
Individual supplier more affected by volume fluctuations
Supplier might dictate the price if they know that there are no alternatives
available

o Multi Sourcing
Source each individual product or service from more than one supplier
Pros:
Purchaser can drop the price down by competitive tendering
Can switch sources in case of supply failure
Wide sources of knowledge and expertise to tap
Cons:
Difficult to encourage commitment by supplier
Less easy to develop effective SQA
More effort needed to communicate
Suppliers are less likely to invest in new processes
More difficult to obtain scale economics




Purchasing, the Internet and e-procurement
E-Procurement
The generic term used to describe the use of electronic methods in every stage of the
purchasing process

Benefits of E-Procurement
1. Convenient and Efficient Electronic Ordering (It's easier to buy from them)
2. Shorter Requisition and Fulfillment Cycles (It's faster to buy from them)
3. Centralized Spending Controls (It's easier to keep track of what you are buying
from them)
4. Standardized Global IT Catalogue (Its less confusing to buy from them)


 4 Questions to determine whether E-Procurement is appropriate
1. Is the value of the spend high or low?
High spending on purchased products and services give more potential for
savings from e-procurement
2. Is the product or commodity highly substitutable or not
When products and services are 'sustainable', e-procurement can identify
and find lower cost alternatives
3. Is there a lot of competition or a little?
When several suppliers are competing, e-procurement can manage the
process of choosing a preferred supplier more effectively and with more
transparency
4. How efficient are your internal processes?
Less efficient = e-procurement potential to reduce processing costs can be
realized

Electronic Marketplaces
Also known as Infomediaries/ Cybermediaries
An information system that allows buyers and sellers to exchange information about
prices and product/service offerings


Categories of Electronic Marketplaces
1. Private - buyers and sellers conduct business in the market only with its
partners and suppliers by previous arrangement
2. Consortium - several large businesses combine to create an e-marketplace
controlled by the consortium
3. Third-party - an independent party creates an unbiased, market driven e-
marketplace for buyers and sellers in an industry


Global Sourcing
Global Sourcing
The process of identifying, evaluating, negotiating, and configuring supply across
multiple geographies.

Factors Promoting Global Sourcing
1. Formation of Trading Blocks
2. More sophisticated and cheaper transportation infrastructures
3. Tougher world competition has forced companies to reduce their total costs


Problems with Global Sourcing:
1. Risks of increased complexity and distance
2. Risks of delays and hold-ups
3. Communication is more difficult (different languages)



 Factors when evaluating Global Sourcing Opportunities: (SSPITC)
1. Supply Performance
The cost of late or our-of-specification deliveries
2. Supply and Operational Risks
Geopolitical factors
Changes in country leadership, trade policy changes, instability caused
by war, natural disasters
3. Purchase Price
The total price which includes transaction and other costs related to the
product/service delivered
4. Inventory Carrying Costs
Storage, handling, insurance, depreciation, obsolescence, and other costs
associated with maintaining inventories
5. Transportation Costs
Transportation and freight costs
Costs of moving products or services from where they are produced to where
they are required
6. Cross-border taxes, Tariffs, and Duty Costs
'Landed Cost'
The sum of duties, shipping, insurance and other fees and taxes for door-to-
door delivery


Global Sourcing and Social Responsibility
The responsibility of operations to ensure that they only deal with ethical suppliers
However, when suppliers are located all around the world, monitoring becomes more
difficult
Different nations have different views of what is regarded as ethical practice


Logistics, Physical Distribution Management, and Distribution

6 Inter-related Activities in Logistics/Physical Distribution Management/Distribution
(STOWSM)
1. Storage
Keeping an appropriate amount of inventory of products or materials so that
they can be delivered to the next stage in the supply chain
2. Transportation
Physically moving products or materials between operations
3. Order Processing and Communication
Information is an important aspect of any supply chain
The location and condition of items are communicated to all parties in the
supply chain who need the information for their own planning purposes
4. Warehousing
Providing suitable accommodation in which to store inventory
5. Security
Protecting items from damage or theft
6. Materials Handling
 Ensuring that within the warehouse or distribution center, the movement and
storage of products or materials is handled efficiently
Involves choosing a suitable layout in the warehouse, materials handling
technology, and organizing warehouse staff's job


Physical Distribution Management and the Internet

2 Major Effects of Internet Communications to Physical Distribution Management
1. Make information available more readily along the Distribution Chain
Entities part of the supply chain can share knowledge of where goods
are in the chain
2. Business to Consumer (B2C)
Traditional warehouse and distribution operations were not design for
e-commerce fulfillment
Distributing to individual customers requires a large number of smaller
deliveries


Relationships Between Operations in a Supply Chain

4 Types of Relationships in a Supply Chain
1. Business to Business (B2B)
Involve businesses trading products and services with each other
2. Business to Consumer (B2C)
Businesses sell products and services to final consumers
3. Consumer to Business (C2B)
Consumers informing businesses of their opinions, ideas, or needs, or in some other way
creating value to the business
Consumers posting their needs on the internet and companies then decide whether to
offer
Ex. Writing freelance reviews
4. Consumer to Consumer (C2C) or Peer to Peer (P2P)
Consumers post items or services for sale to other consumers


Contracting and Relationships
Whatever arrangement with the suppliers a firm chooses to take, it can be described by the
balance between contracts and relationships.
The more a supply agreement is market based with purchases based on relatively short term
arrangements, the more the agreement is likely to be defined in a detailed contract. (Market
Based Supply Relationship)
The more a supply agreement is based on long-term, usually exclusive, agreements, the
more bread, trust based partnership, are appropriate. (Partnership Supply Relationship)
Contracts
Documents that specify the legally binding obligations and roles of both parties in a
relationship.


Market-based Supply Decisions
Purchase goods and services from outside in a pure market fashion
Seeking the 'best' supplier every time it is necessary to purchase

Advantages:
Maintain competition between alternative suppliers
Suppliers can gain natural economies of scale
Enables suppliers to offer products and services at a lower prices (economies of
scale)
Innovations can be exploited no matter where they originate
Help operations concentrate on core activities

Disadvantages
Supply Uncertainties
Choosing who to buy from takes time and effort
Strategic risks
Over reliance on outsourcing can hollow out the companies. Leaving it with no
internal capabilities


Virtual Operations
An extreme form of outsourcing
Rely on a network of suppliers who can provide products and services on demand.
A network may be formed only for one project and then disbanded once the project
ends

Advantages:
Virtual operations are flexible and the risks of investing are far lower than in a
conventional operation

Disadvantages
Has no solid base of resources
May find it difficult to hold onto and develop a unique core of technical
expertise
Resources will also be available to the competition


Partnership Supply Operations

Partnership Operations
Relatively enduring inter-firm cooperative agreements, involving flows and
linkages that use resources and/or governance structure from autonomous
organizations, for the joint accomplishment of individual goals linked to the
corporate mission of each sponsoring firm.



 Factors that determine the degree of partnership (ISLTMFJJJ)
Information Transparency
Open and efficient information exchange
Sharing Success
Both partners work together in order to increase the total amount of joint
benefit they receive
Trust
The willingness of one party to relate to the other on the understanding
that the relationship will be beneficial to both
Long Term Expectations
Partnerships imply relatively long-terms commitment
Multiple Points of Contact
Communication may take place between many individuals in both
organizations
Few Relationships
Commitment on both partners to limit the number of customers/suppliers
they do business
Joint Learning
Partners are committed to learn from each other's expertise and
perceptions of the operations in the chain
Joint Problem Solving
Jointly approaching problems can increase closeness over time
Joint Co-ordination of activities
Joint coordination of activities such as the flow of materials/service,
payment, etc


Customer Relationship Management (CRM)
It is a method of learning more about customers' needs and behaviors in order to
develop stronger relationships with them.
Tries to help organizations understand who their customers are and what their value
is over a lifetime

Helps sell products and services by:
Providing services and products that are exactly what your customers want
Retaining existing customers and discovering new ones
Offering better customer service
Cross-selling products more effectively

How do supply chains behave in practice?

Efficient Supply Chain Policies
Appropriate for functional products
Focus includes keeping inventories low

Responsive Supply Chain Policies
Appropriate for innovative products
Stress high service levels and responsive supply to the end customer


The Bullwhip Effect - Supply Chain Dynamics

Bullwhip Effect
Used to describe how a small disturbance at the downstream and of a supply chain
causes increasingly large disturbances, errors, inaccuracies and volatility as it works its
way upstream.
Bullwhip Effect can be reduced by information sharing, aligning planning and control
decisions. Improving flow efficiency and allowing better forecasting


Miscommunication in the Supply Chain
Whenever two operations in a supply chain arrange for one to provide products or services
to the other, there is a the potential for misunderstanding and miscommunication.


How Can Supply Chains be Improved?
The SCOR Model
Is a broad but highly structured and systematic framework to supply chain
improvement that has been developed by the Supply Chain council
Allows its users to improve, and communicate supply chain management practices
within and between operations by using standard terminology and definitions


3 Techniques used by the SCOR Model
1. Business Process Modelling
Each link in the supply chain is made up of five types of processes
(SMDPR)
1. Source
The procurement, delivery, receipt and transfer of raw
material items, sub-assemblies, product and/or services
2. Make
Is the transformation process of adding value to products and
services through mixing production operations processes
3. Deliver
Perform all customer facing order management and
fulfillment activities, including outbound logistincs
4. Plan
Manage each of these customer-supplier links and balance
the activity of the supply chain
5. Return
Look after the reverse logistics flow of moving material back
from end customers upstream in the supply chain because of
product defects or post-delivery customer support



 2. Benchmarking Performance
Performance metrics in the SCOR model are also structured by level, as is
process analysis.
Level 1 Metrics
Yardsticks by which an organization can measure how successful it is
in achieving its desired positioning within the competitive
environment, as measured bu the performance of a particular
supply chain

3. Best Practice Analysis
Definition of Best Practice in the SCOR Model:
1. Is Current
2. Is Structured
3. Is Proven
4. Is Repeatable
5. Has an ambiguous method
6. Has a positive impact on results


Benefits of the SCOR model
Improved process understanding and performance
Improved supply chain performance
Increased customer satisfaction and retention
Decrease in required capital
Better profitability and return on investment
Increased productivity


The effects of e-business on supply chain management practice
Provide better and faster information to all stages in the supply chain
Accurate and real-time information


Channel Alignment
The adjustment of scheduling, material movements, stock levels, pricing and other sales
strategies so as to bring all the operations in the chain into line with each other.

Vendor Managed Inventory (VMI)
The upstream supplier manages the inventories of its downstream consumer


Operational Efficiency
The efforts that each operation in the chain can make to
1. Reduce its own complexity
2. Reduce the cost of doing business with other operations in the supply chain
3. Increase throughput time


 Supply Chain Vulnerability
The result on too much focus on supply chain efficiency at the expense of effectiveness has
increased the potential risk of disruption
Ex. Tsunami in Japan has caused major disruption in supply chains across the world for
specialty resin for use in microchips because 90% of supply came from Mitsubishi Gas
Chemical and Hitachi Chemical.