1st Sem Supply Chain Management Instructor: J.

Chinyuna

Supply Chain Management(cont.)

(discussed by video )
Basic SC for a product

3 Entities of Supply Chain

Seller/supplier producer customer

Raw materials Components from seller Received the finished product
Energy Furnished goods
Services service
components

3 Strategies of SCM

4 Flows in SC

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SC EXAMPLE

SC in Manufacturing

SC in Services
Example:
Electricity provider
Legal advisor
Real estate
Construction
Software house
Federal government

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2 types of SCM

1. VERTICAL SUPPLY CHAIN MANAGEMENT

A company that undergoes vertical integration acquires a company that operates in the
production process of the same industry. Some of the reasons why companies choose to integrate
vertically include strengthening their supply chain, reducing production costs, capturing upstream or
downstream profits, or accessing new distribution channels. To do this, one company acquires another
that is either before or after it in the supply chain process.
 
Important: Companies may achieve vertical integration through internal expansion, an acquisition, or a
merger.

This strategy is important for many companies for several reasons. Not only does it increase
profits from the newly acquired operations by selling its products directly to consumers, it also
guarantees efficiencies in the production process, and cuts down on delays in delivery and
transportation.

2. HORIZONTAL SUPPLY CHAIN MANAGEMENT

When a company wishes to grow through horizontal integration, its aim is to acquire a similar
company in the same industry.
Companies may choose to undergo horizontal integration in order to increase their size, diversify
product or services offerings, achieve economies of scale, or reduce competition. They may also wish to
gain access to new customers or markets, including overseas. For example, a department store may
choose to merge with a similar one in another country to start operations overseas.
The result of horizontal integration, when successful, is the ability to produce more revenue
together compared to if they were to compete independently. In addition to this, a newly merged
company can cut down on costs by sharing technology, marketing, research and development (R&D),
production, and distribution.

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DIFFERENCES BETWEEN VERTICAL AND LATERAL INTEGRATION

STAGES OF SUPPLY CHAIN MANAGEMENT EVOLUTION

Stage 1:  Multiple Dysfunction 

The potential nucleus organization lacks internal definition and goals. Other than a few transactional links there
are no external connections.

These organizations tend to act impulsively rather than according to a plan. Management provides only the most
general sense of a mission.  Forecasting is mostly guesswork and often over inflated by unwarranted market
optimism. Product design may be myopic and of a few internal designers. Product and payments flow
irregularly. Material Resource Planning (MRP) is at the most basic level having the Bill of Materials (BOM)
and short term production planning.

Stage 2:  Semi-functional Enterprise

The nucleus organization begins to improve effectiveness, efficiency, and quality within functional areas. While
some or all functions engage in initiatives designed to increase efficiencies within departments, there is little to
no overlap in decision making from one department to another.
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Partnerships with customers and supplier have not yet formed. However, the departments begin seeking
efficiencies that reduce handling, reduce inventories, procurement and logistical processes improve, marketing
forecast become reliable, and production planning systems begin to emerge. The efficiencies come at a cost
though since they have not been achieved through cross communication.  For example reduced inventories
could result in shortages and lower cost logistics may take longer or be unreliable.

Stage 3:  Integrated Enterprise

Silos or stovepipes are broken down pulling functional areas together.  Focus shifts from individual functions to
a company wide process focus.

These organizations are fully integrated between departments using Enterprise Resource Planning, ERP. This is
a prelude to end-to-end supply chain management. focusing on interdepartmental processes does not depend on
technology. Although smartly leveraging technology can act as a force multiplier.  MRP was create in the 1950s
then expanded to MRP II which wrapped together manufacturing and finance. ERP then expanded upon MRP II
tying in the entire organization. Additional, advances pushed across the corporate boundaries and linked to
supply chain partners.

Cross-collaboration among departmental lines has been experimental and tentative at first. However, cross
functional approaches such as collaborative planning, forecasting, and replenishment have emerged.
Departmental representatives, teams, now meet to develop demand forecasts, production planning, and other
functions.

Inventory receives a strategic consideration as markets are astutely segmented improving customer service.  The
nucleus firm begins to move towards integration of the external members of the supply chain.

Stage 4:  Extended Enterprise

The firm integrates its internal network with the internal networks of supply chain partners in order to improve
efficiencies, product/service quality, or both.

The APICS program combines the discrete steps between integrated supply chain and fully networked supply
chain into a continuous process.  The approach assumes a significant breakthrough at this juncture that extends
at least one business process past the boundary of the corporation.  The process that leads to an extended
enterprise typically begins with an exploratory collaboration between a channel master and one component
supplier. This relationship will become a model for future partnerships and multi-firm collaboration.

The first collaboration can fail if the channel master becomes dominant and coerces the weaker partners for on-
time deliveries at low prices for example. Manufacturers and retailers can dominate the channel exerting
considerable leverage on the suppliers. This can create circumstances in which suppliers agree to difficult-to-
keep promises in exchange for access to global markets. The dominant firm in the chain may require suppliers
to hold the inventory. True partnerships requires a contract that benefits all stakeholders to the agreement.

Overall, this is a conceptual breakthrough and not a technology except for e-commerce but technology does
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enable the enterprise and is deeply embedded in stage 4.  ERP systems are synchronized between all partners.
Competition among supply chains may be revolutionary. 

In conclusion, supply chains have caused companies to mature in ways that may be revolutionary. Companies
can be gauged on their maturity through a 4 stage evolutionary process arriving at the digital profit model which
has attenuated the business-to-customer relationship removing the middle men in many cases.  Supply chain
evolution has created value which we will discuss in the next post. 

LOGISTIC
When used in a business sense, logistics is the management of the flow of things between the point of origin
and the point of consumption in order to meet requirements of customers or corporations. The resources
managed in logistics can include physical items such as food, materials, animals, equipment, and liquids, as
well as abstract items, such as time and information. The logistics of physical items usually involves the
integration of information flow, material handling, production, packaging, inventory, transportation, and
warehousing.
There is often confusion over the difference between logistics and supply chains. It is now generally accepted
that logistics refers to activities within one company/organization related to the distribution of a product,
whereas supply chain also encompasses manufacturing and procurement and therefore has a much broader
focus, as it involves multiple enterprises, including suppliers, manufacturers, and retailers, working together to
meet a customer’s need for a product or service.
One way to look at business logistics is “having the right item in the right quantity at the right time at the right
place for the right price in the right condition to the right customer.” 

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1st Sem Supply Chain Management Instructor: J.Chinyuna

ROLE OF LOGISTICS IN SUPPLY CHAIN

*Difference between Supply chain and logistics
Supply chain is the entire flow that brings a product or service to sale. Logistics is a segment of that,
focused on the transportation and storage of goods.

7 R’s of LMS
1. Right Product
A company who offers this kind of service must first know the kind of products that they are going to
handle and transport. Having the right knowledge will give you an advantage to properly and efficiently
manage both your  time and resources.
2. Right Place
The right product must be delivered to the right place. Courier services provided by an LMS company
must have knowledgeable drivers as well as a systematic delivery system and tracking. Both customer
and the provider must have a synchronized location tracking to ensure that the products are delivered to
the right place.
3. Right Price
Pricing is very essential and all products and services. They must have an appropriate price value in order
to track the company income and expenses. A good system for storing and updating the right prices
ensures success in  LMS.
4. Right Customer
Every LMS Provider must know their target market to identify the right customers. If they will offer their
services to the right market, they have more chances of gaining leads and customers that will most likely
to avail them. Some uses the traditional marketing while others use digital marketing to reach more
customers around the globe.
5. Right Condition
Every product or goods that are to be entrusted by the customers to LMS providers must be stored and
delivered with the right condition. This is where the specifications must be referred to in order to place it
on required facilities to maintain its quality.
6. Right Time
Time is very important when it comes to logistics, clients are more concern on the time of delivery. That
is why every service provider must know the right time to deliver the products and in a very efficient
way. Every system has a tracking functionality to monitor all deliveries and making sure that they arrive
on time.
7. Right Quantity
Knowing and specifying the right quantity is also one of the key in a successful LMS. Since most of the
providers are third party, companies that relies on their service must be careful in sending the right
amount or quantity of goods to be delivered. Thanks to our modern technological developments that
3PLs can now manage all quantities of goods to ship/deliver.

So there you have our 7 R’s of Logistics Management Services! Tell us what you think about this by
leaving your comments below. 

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Transport is what keeps the supply chain moving literally and figuratively and it is the single most important
component in the logistical side of supply chain management. The physical transfer of goods is the actual
supplying process and it cannot falter by any means. The transport infrastructure should be carefully
studied so as to ensure a fast delivery which is not too expensive. Determining the urgency of a supply is
also important.
The warehouse is the central nervous system in a supply chain and acts as the control room for everything
logistical. An organization’s merit is determined by its effective warehousing decisions. Factors like
location, number, size, layout and design plays a huge role in how the logistics of a supply chain will pan
out.

3PL - Third-Party Logistics

In a 3PL model, an enterprise maintains management oversight, but outsources operations of
transportation and logistics to a provider who may subcontract out some or all of the execution.
Additional services may be performed such as crating, boxing and packaging to add value to the supply
chain. In our farm-to-grocery store example, a 3PL may be responsible for packing the eggs in cartons in
addition to moving the eggs from the farm to the grocery store.

4PL - Fourth-Party Logistics

In a 4PL model, an enterprise outsources management of logistics activities as well as the execution
across the supply chain. The 4PL provider typically offers more strategic insight and management over
the enterprise's supply chain. A manufacturer will use a 4PL to essentially outsource its entire logistics
operations. In this case, the 4PL may manage the communication with the farmer to produce more eggs
as the grocery store's inventory decreases.

Reverse logistics is used when goods are moved from their final destination to another location to recapture
value or for final disposal. The product may be returned because it doesn't fit the customer's needs or it
has reached the end of its service life.

What are the types of reverse logistics?

Reverse logistics can relate to any of the following activities after the initial purchase:

 Returns
 Returns avoidance

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 Remanufacturing
 Refurbishing
 Packaging
 Unsold goods
 End-of-life
 Delivery Failure
 Rentals & leasing
 Repairs & maintenance

LOGISTICE VALUE PROPOSITION

-consists of a commitment to key customer expectations and requirements at a minimum cost.
*The elements of this value proposition are service and Cost minimization
- Firms must make appropriate trade offs between service and cost for each of their key customers
LOGISTIC GOALS AND STRATEGIES

5 TACTICS IN LOGISTIC

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Substituting Information for Inventory

- One of the tactics used to design effective logistics strategy. It requires taking a series of steps.
Step 1. Locate on the right countries
Step 2. Develop an effective import-export strategy
Step 3. Select warehouse locations
Step 4. Select transportations mode and carries
Step 5. Select the right number of partners
Step 6. Develop state of the art information systems

Reducing SC partners to an effective number

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Pooling risk

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