Logistics and Supply Chain for Textiles

Supply Chain Management

Course Manger: - Lec. Melkamfre Mulat

March/2022
 CHAPTER ONE

What is Supply Chain?

Supply chain is the network of organizations that are involved, through

upstream and downstream linkages, in the different processes and activities
that produce value in the form of products and services in the hands of the
ultimate consumer.
Supply chain stages/A supply chain consists of

Basic of Supply Chain

The supply chain has three main links:

1. Materials flow from suppliers and their “upstream” suppliers at all levels.
2. Transformation of materials in to semi-finished and finished products through the
organizations own production process.
3. Distribution of products to customers and their “downstream” customers at all levels.
 Flows in Supply Chain

Material

Supplier Information Customer

Funds

The flows resemble a chain reaction.

Objective of Supply Chain

 Drive Customer Value

Cost efficient fulfillment and inexpensive products are important, but supply chain managers
must also focus on value creation for their customers. Customers are the lifeblood of the
organization and create the need for a supply chain. Hence, a fundamental objective in supply
chain management must be to consistently meet or exceed customer requirements.

The goal of driving customer value begins with a market-driven customer service strategy that is
based on clearly understood customer requirements.

Note: - Sources of supply chain revenue: the customer

 Enhance Organizational Responsiveness

Another important rationale for supply chain management capabilities is responsiveness to

change. The current business environment is one of rapid change with multiple forces shaping
how businesses operate and survive. Supply chain management can help organizations adapt to
the challenges of globalization, economic upheaval, expanding consumer expectations, and
related issues.

 Facilitate Financial Success

One of the most important roles of supply chain management is to contribute to the financial
success of the organization. Leading organizations use the supply chain to enhance
differentiation, increase sales, and penetrate new markets. Their goal is to drive competitive
advantage and shareholder value.

What is Supply Chain Management (SCM)?

“Supply Chain management deals with the management and control of materials,
information, and financial flows in a network consisting of suppliers,
manufacturers, distributors, and customers”. (Stanford Supply Chain Forum
Website)

The purposes of SCM are to create value, enhance efficiency, and satisfy customers.

What is Logistics?

Logistics is the process of planning, implementing, and controlling procedures for the
efficient and effective transportation and storage of goods including services, and related
information from the point of origin to the point of consumption for conforming to
customer requirements.
 Logistics is responsible for the flow of materials through a supply chain. Some people
argue that logistics is somewhat narrower and concentrates on the movement within a
single organization, while supply chain management takes a broader view of movement
through related organizations.

Logistics involves getting:-

The right product :- in the right way
: - in the right quantity and right quality
: - in the right place at the right time
: - for the right customer at the right cost

Aims of Logistics

 The first is to move materials into, though, and out of the organization as
efficiently as possible.

 The second aim is to contribute to an efficient flow through the whole supply
chain.

Process View of Supply Chain

A supply chain is a sequence of processes and flows that take place within and between different
stages and combine to fill a customer need for a product. There are two ways to view the
processes performed in a supply chain

 Cycle view
 Push and Pull view

Cycle View
The processes in a Supply Chain are divide into series of cycles, each performed at the interface
between two successive stages of a Supply Chain. Cycle view of Supply Chain is useful in
making operational decisions as role of each member of supply chain is clearly define.

The five-stage supply chain is comprised of four cycles:

Push and Pull View

 Pull process depends on the customers demand. Whereas Push process are the
prediction/anticipation, i.e. manufacturer, produces goods/service thinking there will be
demand or requirement for the produce/service produced.

 Pull processes depend on the reaction of the customer. On the other hand, Push processes
are not actual demand.

The Supply Chain Macro Processes

All supply chain processes discussed in the two process views can be classified into the
following three macro processes
1. Customer relationship management (Crm): all processes at the interface between the firm
and its customers
2. Internal Supply Chain management (ISCm): all processes that are internal to the firm
3. Supplier relationship management (Srm): all processes at the interface between the firm
and its suppliers

 The CRM macro process aims to generate customer demand and facilitate the
placement and tracking of orders. It includes processes such as marketing, pricing, sales,
order management, and call center management.
 The ISCM macro process aims to fulfill demand generated by the CRM process in a
timely manner and at the lowest possible cost. ISCM processes include the planning of
internal production and storage capacity, preparation of demand and supply plans, and
fulfillment of actual orders.
 The SRM macro process aims to arrange for and manage supply sources for various
goods and services. SRM processes include the evaluation and selection of suppliers,
negotiation of supply terms, and communication regarding new products and orders with
suppliers.
 Key Processes under CRM, ISCM & SRM

CHAPTER TWO

Drivers of Supply Chain performance

A company’s supply chain requires achieving the balance between responsiveness and efficiency
that best supports the company’s competitive strategy. A supply chain’s performance in terms of
responsiveness and efficiency is based on the interaction between the following logistical and
cross-functional drivers of supply chain performance: facilities, inventory, transportation,
information, sourcing, and pricing. The goal is to structure the drivers to achieve the desired
level of responsiveness at the lowest possible cost, thus improving the supply chain surplus and
the firm’s financial performance.

These drivers interact with each other to determine the supply chain's performance in terms of
responsiveness and efficiency.

Responsiveness: Responsiveness can be defined as the ability of the supply chain

to respond purposefully and within an appropriate timeframe to customer requests
or changes in the marketplace.
 Efficiency: In contrast, a supply chain can be consider efficient if the focus is on
cost reduction and no resources are wasted on non-value added activities.

1. Facilities are the actual physical locations in the supply chain network where product is
stored, assembled, or fabricated. The two major types of facilities are production site and
storage site. Decisions regarding the role, location, capacity and flexibility of facilities
have a significant impact on the supply chain's performance. For instance, an auto-parts
distributor striving for responsiveness could have many warehousing facilities located
close to customers even though this practice reduces efficiency. Alternatively, a high-
efficiency distributor would have fewer warehouses to increase efficiency despite the fact
that this practice will reduce responsiveness.

2. Inventory encompasses all raw materials, work in process, and finished goods within a
supply chain. Changing inventory policies can dramatically alter the supply chain's
efficiency and responsiveness.

For example, a clothing retailer can make itself more responsive by stocking large amounts of
inventory and satisfying customer demand from stock. A large inventory, however, increases the
retailer's cost, thereby making it less efficient. Reducing inventory makes the retailer more
efficient but hurts its responsiveness.

3. Transportation entails moving inventory from point to point in the supply chain.
Transportation can take the form of many combinations of modes and routes, each with
its own performance characteristics. Transportation choices have a large impact on
supply chain responsiveness and efficiency.

For example, a mail-order catalog company can use a faster mode of transportation such as
FedEx to ship products, thus making its supply chain more responsive, but also less efficient
given the high costs associated with using FedEx. Alternatively, the company can use slower but
cheaper ground transportation to ship the product, making the supply chain efficient but limiting
its responsiveness.

Note: FedEx (Federal Express) is the world’s largest express transportation company, providing
fast and reliable delivery of more than 6 million shipments and 27 million pounds of freight for each
business day. 
 4. Information consists of data and analysis concerning facilities, inventory, transportation,
costs, prices, and customers throughout the supply chain. Information is potentially the
biggest driver of performance in the supply chain because it directly affects each of the
other drivers. Information presents management with the opportunity to make supply
chains more responsive and more efficient.

For example, with information on customer demand patterns, a Textile and Garment company
can produce and stock clothes in anticipation of customer demand, which makes the supply chain
very responsive because customers will find the clothes they need when they need them. This
demand information can also make the supply chain more efficient because the Textile firm is
better able to forecast demand and produce only the required amount. Information can also make
this supply chain more efficient by providing managers with shipping options, for instance, that
allow them to choose the lowest-cost alternative while still meeting the necessary service
requirements.

5. Sourcing is business processes required to purchase goods. Sourcing is the choice of who
will perform a particular supply chain activity such as production, storage, transportation,
or the management of information. At the strategic level, these decisions determine what
functions a firm performs and what functions the firm outsources. Sourcing decisions
affect both the responsiveness and efficiency of a supply chain.

For example, After Motorola outsourced much of its production to contract manufacturers in
China, it saw its efficiency improve but its responsiveness suffer because of the long distances.
To make up for the drop in responsiveness, Motorola started flying in some of its cell phones
from China even though this choice increased transportation cost.

6. Pricing determines how much a firm will charge for goods and services that it makes
available in the supply chain. Pricing affects the behavior of the buyer of the good or
service, thus affecting supply chain performance.

For example, if a transportation company varies its charges based on the lead-time provided by
the customers, it is very likely that customers who value efficiency will order early, customers
who value responsiveness will be willing to wait, and order just before they need a product
transported.
 Decision Phase in Supply Chain

Successful supply chain management requires many decisions relating to the flow of
information, product, and funds. Each decision should be made to raise the supply chain surplus.
These decisions fall into three categories or phases, depending on the frequency of each decision
and the time frame during which a decision phase has an impact. As a result, each category of
decisions must consider uncertainty over the decision horizon.

1. Supply chain strategy or design:

During this phase, a company decides how to structure the supply chain over the next several
years. It decides what the chain’s configuration will be, how resources will be allocated, and
what processes each stage will perform. Strategic decisions made by companies include whether
to outsource or perform a supply chain function in-house, the location and capacities of
production and warehousing facilities, the products to be manufactured or stored at various
locations, the modes of transportation to be made available along different shipping legs, and the
type of information system to be used. PepsiCo Inc.’s decision in 2009 to purchase two of its
largest bottlers is a supply chain design or strategic decision. A firm must ensure that the supply
chain configuration supports its strategic objectives and increases the supply chain surplus during
this phase. As the PepsiCo CEO announced in a news release on August 4, “while the existing
model has served the system very well, the fully integrated beverage business will enable us to
bring innovative products and packages to market faster, streamline our manufacturing and
distribution systems and react more quickly to changes in the marketplace.” Supply chain design
decisions are typically made for the long term (a matter of years) and are expensive to alter on
short notice. Consequently, when companies make these decisions, they must take into account
uncertainty in anticipated market conditions over the following few years.

2. Supply chain planning:

For decisions made during this phase, the time frame considered is a quarter to a year. Therefore,
the supply chain’s configuration determined in the strategic phase is fixed. This configuration
establishes constraints within which planning must be done. The goal of planning is to maximize
the supply chain surplus that can be generated over the planning horizon given the constraints
established during the strategic or design phase.

Companies start the planning phase with a forecast for the coming year (or a comparable time
frame) of demand and other factors, such as costs and prices in different markets. Planning
includes making decisions regarding which markets will be supplied from which locations, the
subcontracting of manufacturing, the inventory policies to be followed, and the timing and size
of marketing and price promotions. For example, steel giant ArcelorMittal’s decisions regarding
markets supplied by a production facility and target production quantities at each location are
classified as planning decisions. In the planning phase, companies must include uncertainty in
demand, exchange rates, and competition over this time horizon in their decisions. Given a
shorter time frame and better forecasts than in the design phase, companies in the planning phase
try to incorporate any flexibility built into the supply chain in the design phase and exploit it to
optimize performance. As a result of the planning phase, companies define a set of operating
policies that govern short-term operations.

3. Supply chain operation:

The time horizon here is weekly or daily. During this phase, companies make decisions
regarding individual customer orders. At the operational level, supply chain configuration is
considered fixed and planning policies are already defined. The goal of supply chain operations
is to handle incoming customer orders in the best possible manner. During this phase, firms
allocate inventory or production to individual orders, set a date by which an order is to be filled,
generate pick lists at a warehouse, allocate an order to a particular shipping mode and shipment,
set delivery schedules of trucks, and place replenishment orders. Because operational decisions
are being made in the short term (minutes, hours, or days), there is less uncertainty about demand
information. Given the constraints established by the configuration and planning policies, the
goal during the operation phase is to exploit the reduction of uncertainty and optimize
performance.

The design, planning, and operation of a supply chain have a strong impact on overall
profitability and success. It is fair to state that a large part of the success of firms such as
Walmart and Seven-Eleven Japan can be attributed to their effective supply chain design,
planning, and operation.