Introduction to Supply Chain

Management

Chapter 1
Umar Farooq
Management Sciences Department
GIK Institute
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 Class Rules
• Students shouldn’t be late more than 5 minutes from class. You will
mark absent from class in case of late arrival.
• Once door is locked you are not allowed to knock the door.
• Switch off your Cell phones in class. You are not allowed to operate
cell phones in class in any condition. In case of emergency, ask your
instructor’s permission.
• In case of any misconduct or disturbance during lectures very
strict action will be taken.
• Please strictly follow you deadlines regarding class quizzes,
assignments and projects.
• There will be no re-checking of your quizzes, assignments and
papers. Only recounting will be allowed.

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 Grading Policy

Announced/Surprised Quizzes 10% or 15%

Assignment 5%

Mid Term Exam 30%

Final Exam 40% or 45%

Class Participation 5%

Class Project 10% (Subject to the COVID situation)

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 Course Outline
Text and Reference Books

Text Book:

Wisner, J. D., Tan, K.-C., & Leong, G. L. Principles of Supply Chain Management: A Balanced
Approach (3rd ed.). Mason, OH: South-Western

Reference Books:

Chopra, Sunil, and Peter Meindl. Supply chain management. Strategy, planning & operation. Gabler,
2007.
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 Denotation
• Supply Chain:
 Network of integrated activities and/or processes
used to deliver products and services, from raw
material to final product, to the final consumer.
• Management: Effectively manage back and forth
flows;
 Material flow
 Information flow
 Cash flow

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 Supply Chain Actors
• Supplier
 A provider of raw goods or services.
 e.g. Raw material, Energy, Services, Components. Farmers, Ore
mines, Spare parts manufacturers etc.
• Manufacturer
 Receives raw materials and components to convert it into
finished products
 e.g. Finished Goods manufacturer, Denim industry, Aerospace
Industry, Automobile Industry, Cement Industry, Sugar Industry etc.
• Distributor
 Receives and distribute finished products to final consumers
 e.g. Macy’s, Wall Mart, Nestle, Nike, Cash & Carry etc.
• Customer
 Consume to utilize the final product or services.
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 General Composition of Supply
Chain
• Supply Chain Flows
• Material and services flow
• From suppliers toward customer
• Information Flow
• Information flows both ways
• Cash Flow
• Payment flows from customers toward suppliers

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 Main Supply Chain Structures

• Companies require their supply chain to guarantee a steady

flow of supply while at the same time reduce their supply
chain costs.

• They can improve operating efficiency by employing the

right supply chain structure.

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 Main Supply Chain Structures
• Stable Supply Chain:
 Constant stability between demand and supply.
 Less variability in product’s demand. Produced in bulk quantities.
 A heavy focus on execution, efficiencies, and cost performance.
 Slight focus on communication technologies.
 Strong relationship with business partners.
• Reactive supply chain:
 Seasonal or on-demand manufacturing.
 Required minimal communication technologies.
• Efficient reactive supply chain:
 Acts as an efficient, low-cost provider of goods and services.
 Operate in highly competitive environment.
 Required highly efficient communication and automation systems
to reduce lead time and operational costs.
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 Origin of Supply Chain Management
• 1930-1950s (Early years of SCM)
 Mass Production age
 Women induction into industries
 Pallet, Pallet Lift and Unit Load Concepts
 Set the stage for supply chain globalization
• 1950s & 1960s (Quality Era)
 More focus on cost reduction
 Improve productivity
 Less focus on quality
 Systems innovation
• 1960s-1970s (Integration Era)
 Introduction of computer technology
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 Development of software like MRP-I & MRP-II
 Origin of Supply Chain Management
1980s & 1990s (Globalization Era)
 Personal Computers
 Intense global competition led manufacturers to adopt
 Just-In-Time (JIT),
 Total Quality Management (TQM), and
 Business Process Reengineering (BPR) practices
2000s and Beyond (SCM 2.0)
 Industrial buyers will rely more on third-party service providers
to improve purchasing and supply management.
 Wholesalers/retailers will focus on transportation and logistics
more as quick response service

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 Supply Chain Models

• Vertical integration

• Horizontal Integration

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 Supply Chain Models
• Vertical integration
• Vertical integration is where two businesses at
different stages of the supply chain join together.
• It is a strategy to gain control over its suppliers or
distributors by merging businesses from a different
domain, in order to increase the firm’s power in the
marketplace, reduce transaction costs and secure
supplies or distribution channels.
• Examples:
 Amazon, Zara, Ikea, Ford, Hyundai, Bosch, Apple,
Google, Microsoft
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 Supply Chain Models
• Horizontal integration is a strategy where a
company acquires, mergers or takes over another
company in the same industry value chain.
• Examples:
o Disney merged Pixar
o Exxon acquired Mobil
o Pfizer merged warner lambert

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 Importance of Supply Chain
Management
• Globalization and Global Competition
• Shorter Product Life Cycle
• Low Cost Distribution Channels
• More Concerned and well informed customers

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 Benefits For Effective Supply Chain
Management
• When a firm, its customers and suppliers all
know each other future plans and are willing to
coordinate,
o It can reduce cost significantly
o Much easier planning and scheduling
o Quality improvement
o More Productivity
• All leads to more profit and customer
satisfaction
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 Bullwhip Effect
• Lack of communication, coordination and
disorganization within supply chain can result one
of the most common problem of supply chain.
This common problem is known as the bullwhip
effect or whiplash effect.
• Bullwhip effect is a phenomenon in Forecast
driven distribution channels

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 Bullwhip Effect
• It occurs
o when changes in consumer demand causes the
companies in a supply chain to order more goods
to meet the new demand.
o It flows up the supply chain.
o It occurs because the demand for goods is based
on the poor demand forecasts.

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 Causes of Bullwhip Effect
• The main causes of bullwhip effect are;
 Disorganization
 Lack of communication
 Wrong Demand Forecasting
 Longer Lead-Time
 Overstock

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 Fundamental Elements of Supply
Chain Management

• Supply/Purchasing Elements
• Operations Elements
• Logistics/Transportation Element
• Integration Elements
 Important Elements of Supply Chain
Management Cont….
Supply/Purchasing Element
 Traditional Purchasing Approach:
 Many Suppliers (Supply-Base)
 Short-term contracts
 Purchase price based seller-buyer relationship

• Over the past two decades shift towards more

strategic approach to purchasing known as supply
management.
 Important Elements of Supply Chain
Management Cont….
• Supply/Purchasing Elements
 Raw material quality, delivery timing, reliability and
purchase price are important factors….
 Supplier Management
 Supplier evaluation: Determining the capabilities of suppliers
 Supplier certification: Third party or internal certification to
assure product quality requirements.
o Long-term Relationship
 To get a reliable supplier
 Better quality of material
 Better payment terms and discounts
 Priority manufacturing status
Important Elements of Supply Chain
Management Cont….
 The Supplier can benefits from the closer
relationship by getting bulk and consistent orders
from customers.
 Such kind of long-term trading partnership is
called Strategic Partnership.
• Suppliers can have a significant impact on a
firm’s reputation.
• Ethical and Sustainable sourcing:
• Purchasing from suppliers that
are governed by environmental
sustainability and social and ethical
practices.
 Important Elements of Supply Chain
Management Cont….
• Once raw material has delivered to buyer, the internal operations
begin, to convert raw material into final product.
• Operation Element
 Demand Management
 During a calendar year, seasonal demand variations commonly
occur.
• Firms can predict these variations, using historic demand
patterns, and forecasting.
• Over-Stock and Out-of-Stock situations are costly and can
result in lose of business.
Important Elements of Supply Chain
Management Cont….

• Using Demand Forecasting to minimize these costs (Out

of stock & Over stock).
 Linking buyers & suppliers via MRP-Material
Requirement Planning (for managing inventory)
and ERP-Enterprise Resource Planning.
 Provide sales data, inventory and production
information related to all business units to supplier.
 Quality of the incoming purchased items and sub-
assemblies
 Important Elements of Supply Chain
Management Cont….
Distribution Trends:
– Transportation management- tradeoff decisions
between cost & timing of delivery/customer service
via trucks, rail, water & air
– Customer relationship management (CRM)-
strategies to ensure deliveries, resolve complaints,
improve communications, & determine after sales
service requirements
 Important Elements of Supply Chain
Management Cont….
• Network design- creating distribution networks based
on tradeoff decisions between cost & sophistication of
distribution system
– Large number of warehouses: The transportation
cost from factory to warehouse, the inventory holding
cost and the cost to build and operate warehouses
would be quite high, but the payoff would be better
customer service.
– Few Warehouses: Low transportation cost from
factory to warehouse, low construction and operating
cost but limited customer services.
 Future Trends in Supply Chain
Management
Expanding (and Contracting) the Supply Chain

 Today, firms are increasing their partnerships with foreign firms

and building foreign production facilities to accommodate their
market expansion plans.

 The expansion involves:

• breadth- foreign manufacturing, office & retail sites, foreign
suppliers & customers
• depth- second and third tier suppliers & customers
 Future Trends in Supply Chain
Management
 Increasing Supply Chain Responsiveness

 Firms will increasingly need to be more flexible and responsive

to customer needs
 Supply chains will need to benchmark industry performance
and, meet and improve on a continuous basis
 Responsiveness improvement will come from more effective
and faster product & service delivery systems
 Future Trends in Supply Chain
Management- Cont.

 The Greening of Supply Chains

 Sustainability: Based on three pillars
 Social, Economical, Environmental
 Supply chains will work harder to reduce environmental
degradation
 Recycling and conservation are a growing alternative in
response to high cost of natural resources.
 Future Trends in Supply Chain
Management
 Reducing Supply Chain Costs
• Cost reduction can be achieved throughout the supply chain by
reducing waste by reducing purchasing and product distribution
costs.
• By reducing excess inventories and non-value-adding activities
among the supply chain participants.

 Cost reduction achieved throughout the supply chain:

• Reduced purchasing costs
• Reducing waste
• Reducing excess inventory
• And reducing non-value added activities
 Continuous Improvement through
• Benchmarking- improve over competitors’ performance
• Trial & error
• Increased knowledge of supply chain processes