Global Supply Chain Management

Chapter 1
Basic Definitions and Decisions
The Transformation Process, Value Creation, and Operations Function

 Operations is a function or system that transforms inputs (e.g., materials and labor) into
outputs of greater value (e.g., products or services); in other words, the operations
function is responsible for matching demand and supply.
 The transformation process is the traditional way of thinking about operations
management in terms of planning activities. In practice, SC and operations managers
spend at least a half of their working time handling uncertainties and risks. That is why
the control function becomes more and more important for establishing feedback between
the planned and real processes. One of the basic elements in management is the creation
of value added. Identifying the ‘value’ of a product or service means understanding and
specifying what the customer is expecting to receive.
 The operations function, along with marketing and finance, is a part of any organization.
Operations management is concerned with managing resources to produce and deliver
products and services efficiently and effectively. Operations management deals with the
design and management of products, processes, and services, and is comprised of four
stages: sourcing, production, distribution, and after sales.

Supply Chain Management

A supply chain (SC) is a network of organizations and processes wherein a number of

various enterprises (suppliers, manufacturers, distributors and retailers) collaborate
(cooperate and coordinate) along the entire value chain to acquire raw materials, to convert
these raw materials into specified final products, and to deliver these final products to
customers.

Supply chain management (SCM) is a cross-department and cross-enterprise integration and

coordination of material, information, and financial flows to transform and use the SC
resources in the most rational way along the entire value chain, from raw material suppliers
to customers. SCM is one of the key components of any organization and is responsible for
balancing demand and supply along the entire value-adding chain.

Decisions in Supply chain operation management (SCOM)

The responsibilities of SCOM managers are multi-faceted. The decision-making areas in

SCOM range from strategic to tactical and operative levels (Ivanov 2010).

 Strategic issues include, for example, determination of the size and location of
manufacturing plants or distribution centers, decisions on the structure of service
networks, factory planning, and design of the SC.
  Tactical issues include such decisions about production, transportation, and inventory
planning. Operative issues involve production scheduling and control, inventory
control, quality control and inspection, vehicle routing, traffic and materials handling,
and equipment maintenance policies.
Chapter 2:
Cases (Two question will come from case)
 Nike: Sourcing Strategy in the Integrated Supply Chain (Page 41)
 SCOM in Restaurants: Case Study Starbucks Corporation (Page 48)
 Amazon Robots (Page 63)

Chapter 3: Processes, Systems, and Models

Business Process Management

Order fulfillment

A process is a content and logic sequence of functions or steps that are needed to create an object
in a specified state. A business process is a network of activities for accomplishing a business
function. Processes have input and output parameters and may be tied to one functional area or
be cross-functional.

As an example, consider the process “Order fulfillment” (Fig. 3.4): It can be observed that
fulfilling a customer order involves a complex set of steps that requires the close coordination of
the sales, accounting, and manufacturing functions. The basic concept for managing processes in
an organization is called business process management (BPM). BPM contains a variety of tools,
methodologies to analyze, design, and optimize processes.

BPM is comprised of the following steps (Hammer and Champy 1993):

• Identify processes for change;
• Analyze existing processes;
• Design the new process;
• Implement the new process;
• Continuous measurement.

Processes can be optimized subject to finding their best state with regard to
• costs,
• capacity,
• time,
• quality,
• service level,
• reliability,
• flexibility, and
• sustainability.

Management Information Systems

Role of Information Technology in Supply Chain and Operations Management

SCOM managers say that where information is missing, material is also missing. A universal
property of the management processes, irrespective of the problem domain, is that it has a
notably informational nature, i.e. it is connected, first of all, with the collection, processing,
analysis, and usage of data, information, and knowledge.
Management Information Systems (MIS) collect, process, store, and distribute information in
order to support decision making, coordination, and control. MIS use data, i.e. they are streams
of raw facts. Information is data shaped into meaningful form. For companies, MIS is an
instrument for creating value. Investments in the right information technology (IT) can result in
superior returns in terms of productivity,
revenue, and long-term strategic positioning. On the one hand, MIS automate steps that were
done manually before. On the other hand, MIS enable entirely new processes by changing the
flow of information, replacing sequential steps with parallel steps, eliminating delays in decision
making, and support new business models.

ERP Systems
Enterprise resource planning (ERP) systems are comprised of integrated software modules and a
common central database. ERP modules include but are not limited to:

• Production Management
• Inventory Management
• Sales
• Human resources
• Marketing
• SCM.

The modules are like a number of USB sticks which can be purchased all together or singulary.
The working principle of ERP is based on the collection of data from different departments of a
firm for use in nearly all of the firm’s internal business activities. The advantage is that
information entered in one process is immediately available for other processes. ERP uses
• master data (data not changed frequently, e.g., bill-of-materials) and
• process data (data changed operatively, e.g., current inventory level)

Advantages of ERP are as follows:

• Provides integration of the SC, production, finance, and marketing;

• Creates a commonality of databases;
• Can incorporate improved best processes;
• Increases communication and collaboration between business units and sites;
• Has an off-the-shelf software database;
• May provide a strategic advantage and increase company assets.

The limitations of ERP are as follows:

• Can be very expensive to purchase and even more so to customize;

• Implementation may require major changes in the company and its processes;
• Can be so complex that many companies cannot adjust to it;
• Involves an ongoing, possibly never completed, process for implementation;
• Expertise is limited with ongoing staffing problems.

APS Systems

At the beginning of the twenty-first century, SCM topics became more and more important.
Some important modules such as “SC design” and “Distribution planning” were missing in ERP.
In addition, ERP provided very limited support for mathematical optimization in scheduling.
ERP also had other restrictions, such as
planning against unlimited capacities. That is why a new generation of APS systems has been
developed (Stadtler et al. 2015).

An APS extracts data from ERP and uses it for optimization. Consider this example of
scheduling in APS:
APS system:
• extracts some input data from different ERP modules,
• performs automatic calculations on the basis of scientific optimization methodology,
and
• generates reports.

APS modules are mainly dedicated to deterministic planning. However, there are uncertainties
on both the inbound (unreliable suppliers, machine breakdowns) and the outbound (unknown
customer demand) sides. In order to hedge against uncertainty, buffers have to be installed—
either in the form of safety stocks or safety times.
SCEM and RFID
ERP and APS systems support activities planning. For real-time control, other systems are used.
We consider two IT solutions for the control stage: SCEM and RFID. Supply Chain Event
Management (SCEM) aims at timely identification of deviations in SCs. The basis for disruption
alerts and disruption recovery is a tolerance area of execution parameters’ admissible deviations.
SCEM is composed of five main functions:
• monitoring of processes;
• notification about an impermissible parameter deviation;
• simulating possible adjustment actions;
• selecting a control action to eliminate the deviation;
• measuring on the basis of performance indicators.

RFID is an automatic identification technology composed of RFID tags and specialized RFID
readers. Tags are also called RFID transponders (abbreviation of transmitters-responders). Tags
are attached to or incorporated into any kind of object (product, tool, animal, goods, human
being, etc.) for the purpose of identification and tracking using radio waves. RFID readers read
the information on tags and transfer it to a processing device. When applied to SCOM, RFID
technology can provide several crucial advantages, but also has limitations.
The common target of RFID is to reduce costs created by manual operating, accelerate data
receipt and transmission, and increase the preciseness and quality of data. RFID technology
allows the tracking of products throughout the SC from supplier delivery to warehouses and
points of sale.

Chapter 4: Operations and Supply Chain Strategy

Value Added and Costs

Value added and costs are two basic, dominant factors in SCOM. Value creation can be achieved
in different ways, e.g., through innovation, unique service, or quality. Any process has value-
added steps, but these require resources which increase the costs. Of course, good processes have
to be designed with a high degree of value adding time and short periods of non-value-added
time. This increase both effectiveness and efficiency.

Operations Strategies
Since different ways exist to create value and reduce costs, different operations strategies can be
classified as follows:
• Innovation strategy
• Efficiency strategy
• Quality strategy
• Service strategy

The main driver in innovation strategy is great product or service innovation. Creating value
through unique product or service properties may significantly increase a company’s margins
while maintaining cost efficiencies. An example of this is Apple, and its transition from the
iPhone3 to the iPhone4. While the manufacturing costs were only slightly increased, the price
was almost doubled. SCM with an innovation strategy should enable fast and smooth
introductions of new products and sales increases.

In an efficiency strategy, price is the main competitive advantage. IKEA is well known for its
highly efficient logistics and manufacturing. All the steps in the value chain support the
efficiency strategy. Starting with consideration of manufacturing and logistics at the product
design stage, the operations at IKEA follow this philosophy in all other areas such as production,
sourcing, and shipments (Heizer and Render 2013).

A quality strategy ensures a competitive advantage based on superior product properties. “Made
in Germany” has been associated with high quality standards for many years. For such products,
costs may be higher since in all operational areas decisions are taken in favor of quality. Quality
control mechanisms are crucial for ensuring high quality in the SCs.

A service or responsiveness strategy means a high priority for customer preferences in operations
decisions. Zara is known for its highly responsive operations and SCs. This is possible through
sophisticated facility location planning and production in small batches. Both create additional
costs, but these are covered by higher value-added activities (Chopra and Meindl 2015).

Efficient vs Responsive supply chain

Supply Chain Coordination
Bullwhip Effect
The bullwhip effect is not a new phenomenon in the industrial world (Forrester 1961). The effect
can be explained as the magnification of variability in orders in the SC. In other words, irregular
orders in the downstream part of the SC become more distinct upstream in the SC. This variance
can interrupt the smoothness of SC processes as each link in the SC will over- or under-estimate
product demand, resulting in exaggerated fluctuations.

Elimination of bullwhip-effect

Vendor-Managed Inventory
Inventory typically exists to manage uncertainty of supply and demand (safety stock) and to take
advantage of economy of scale (cycle inventory). At the same time, modern markets require
more flexibility from SCs. Customer orders and demand change frequently. In building up high
inventory, companies can increase their flexibility on the one hand. On the other hand, if demand
changes, these inventory mountains will lead to losses. Consider a short example: HP and Canon
worked jointly on the Laserjet printer production. Canon produced engines for different types of
printers. However, HP was able to indicate changes in demand only 3 months in advance. Canon
needed 6 months to change its production plans. As
demand for Laserjet III drastically decreased, a huge number of engines for this printer type was
in inventory and had to be written off (the Laserjet-mountain).

In order to face this challenge, SC coordination strategies extensively use the Internet and new
IT. The ideas of these concepts are as follows (Heizer and Render 2013):
• Coordination instead of uncertainty
• “Replace inventory with information”
• Integrated SC
• Transparency of demand and inventory.
At the plant level, inventory is insurance against the unknown; in the SC, this “unknown”
became “known” through collaboration. Inventories in SCM are leverage for SC reliability and
flexibility rather than buffers against a blind uncertainty. One of the strategies for SC
coordination is vendor-managed inventory (VMI).
With VMI, the vendor controls inventory on the buyer side. The buyer provides information on
inventory and sales.

VMI is a special concept of restocking and replenishing inventory that originated in retail
business, the line of business where stock availability is a significant if not a crucial factor of
company’s success. The buyer provides certain information to a supplier, and the supplier takes
full responsibility for maintaining an agreed upon inventory level, usually at the buyer’s
consumption location (usually a store). A third party logistics provider (3PL) might be involved
to control the required level of inventory by adjusting the demand and supply gaps.

The main advantage of this concept is that the real-time inventory information is made available
to the supplier (manufacturer of a wholesaler) and a customer (distributor or retailer) relinquishes
control of inventory to them. The vendor reviews every item that a customer carries and is
responsible for the inventory plan. Efficiency increases in process activities are based on
Electronic Data Interchange (EDI) and collaborative SC organization.

Advantages of VMI are as follows:

For the Vendor

• Early recognition of fluctuation in demand
• Optimization of production planning; increased volume
• Enforcement of discipline: measurements and communication
• Better planning and resource use via visibility
• Improved market analysis and elimination of non-value-added activities
• Closer customer ties and preferred status
For the Buyer
• Increase of inventory availability
• Reduction of procurement activities
• Fewer stock-outs with higher inventory turnover
• Optimal product mix
• Lower operating, purchasing, and administrative costs
• SC relationship strategic strength
• Greater customer satisfaction and increased sales

For Overall SC
• Optimization of inventory management and cost reduction
• Decrease of fixed capital (stocks)
• Improvement of financial planning
• Supports long-term collaboration
• Increased service level and reduced stock outs

Collaborative Planning, Forecasting and Replenishment

Collaborative Planning, Forecasting, and Replenishment (CPFR) aims to integrate and

coordinate actors and processes in the SC regarding the planning and fulfillment of customer
demand, production, and inventory (see Fig. below). CPFR is the cooperative management of
demand and supply through joint visibility and replenishment of products in the SC. CPFR is
based on information exchange between suppliers and retailers, which helps in planning and
satisfying customer demands through a joint system of shared information. CPFR includes three
basic stages:
  In the planning phase, the definition of collaboration areas, responsibilities, and a
description of the collaboration mission, objectives, and framework takes place. Trading
partners share the business plans and organizational information. Category information,
such as definition of roles, strategies, and tactics, needs to be explored. Seasonal events
and frameworks for all events should be shared at this stage.
 In the forecasting phase, sales and order forecasts need to be performed and shared.
Moreover, exceptions for these forecasts should be classified. Events, promotion plans
for products, new product information, individual forecast, and forecast constraints
related to the sales should be shared.
 In the replenishment area, lead time, logistics data, location changes, current inventory
levels, inventory in transit, and POS (point-of-sale) data should be shared. In the last
phase, a committed order from order forecasts should be generated.

QUESTION PATTERN

Total marks 30, Time 1 hour

 Students have to answer 5 questions all together (3 short questions and 2 broad
questions).
 In the short question section, you will be given 5 questions and must answer any 3 and
each containing 5 marks.
 In the broad question section, 2 questions need to be answered out of 4 and each
containing 7.5 marks.