Supply Chain Management Sy 2021-2022 2nd Sem

E103
Supply Chain Management
Val Vincent Losaria

2nd Semester
2020-2021
Supply Chain Management in Business Industry
Lesson 1:
Learning Outcome
After reading this lesson, you should be able to describe each of the six parts of supply chain
management integration strategies and provide real world examples of each.
Supply Chain Management: Technology, Measurement, Relationship & Material

Integration
Marketing managers realize how distribution can be costly if there is not an efficient plan in
place. Supply chain management is a strategy that allows seamless integration of all pieces of
the distribution chain.
Supply Chain Integration
Getting a product from Point A to
Point B can be an extremely difficult
task. Ninja Corp has a complicated
web of distribution to get their Ninja
products to consumers. Remember
that place, or physical distribution, is
one of the four Ps of the marketing
mix: product, place, price, and
promotion.
Ninja Corp is a business that relies on supply chain integration, which is when multiple firms in
a supply chain coordinate their activities and processes to seamlessly satisfy the customer. This
provides Ninja Corp with the ability to deliver excellent quality products, manage costs, increase
productivity, and provide customer satisfaction. There are six types of integration that are needed
to achieve proficient supply chain integration:
• Relationship Integration
• Measurement Integration
• Technology/Planning Integration
• Material and Service Supplier Integration
• Internal Operations Integration
• Customer Integration
Let's take a look at how Ninja Corp has built a reputation for being a top-tier logistics expert and
how they deliver their Ninja Swords to customers.
Relationship Integration
Relationship integration is the first type of integration necessary for an effective overall systems
approach in supply chain management. This type of integration is when two or more companies
have social relationships that guide their interactions. For example, Ninja Corp is the supply chain
leader and has specific followers, such as the company that creates the packaging and the
middleman who stores the sword inventory. Ninja Corp ensures that the partners are aware of
policies and rules concerning delivery of their product as well as quality issues.
They also have communicated what the reward will be for successful logistics. Ninja Corp hands
out bonuses to their supply partners if target sales goals are reached and product is supplied
when needed. Relationship integration hinges on excellent communication and the ability to work
through any disagreements in getting the product to the customer.
E103: Supply Chain Management 2nd semester 2020-2021 BS Entrepreneurship

Measurement Integration
Measurement integration is the second type of integration that occurs to ensure that each part
of the supply chain is accountable for meeting its own goals. There must be explicit direction and
clear expectations regarding what is required to meet the overall Ninja Corp goals. The supply
chain members must have standards that can generate a report card on how each member is
performing.
For example, Ninja Corp wants to

know that their swords are making it
to the retail stores without any
damage and in a timely manner.
Detailed requirements are
communicated to the suppliers to
ensure that they are aware of Ninja
Corp's expectations.
Each member of the supply chain must be accountable
for accomplishing goals.
Technology/Planning Integration
Another piece of the supply chain plan concerns technology/planning integration. Ninja Corp
has a sophisticated computerized system that allows all members to stay informed about the
status of the Ninja Swords. This is a type of informational system that connects managers across
and through the firms in the supply chain. Important information such as inventory levels,
shipments, and customer data must be easily accessible in real time for the members to be
successful.
Ninja Corp's system works like this: A consumer shops for different swords and chooses the
product for sale. The customer takes the sword to the counter and purchases it. The UPC tag is
scanned for pricing and product information and it's placed into the information technology system
cash register. Right away, the factory in Alamo receives notification that the 11-inch sword in black
was purchased at The Self-Defense Store in Plano, Texas. The factory's next step is to make sure
to order the supplies to make another sword to replace the one in Plano.
This type of real-time information is a huge cost savings to Ninja Corp since there is no need to
stock an inventory. The product is made to replace a recently purchased product and delivered
immediately. This is called just in time inventory.
Material and Service Supplier Integration
In order for supply chain management to work, there has to be seamless integration of all of the
suppliers. Many different companies take part in the creation of a Ninja Sword. The raw material
supplier, the cloth handle supplier, the metal supplier, and the packaging supplier all must coexist
as if they are one big company. Material and service supplier integration is an alignment
between a firm and their supply chain materials and service providers.
Ninja Corp realized how important this step was and selected top-rated suppliers for their product.
The company even has a contingency plan in place to replace any supplier that does not seem
up to the task or hurts overall production.
Internal Operations Integration
Internal operations integration is based on the logic that all Ninja Corp departments should
have the same goals and understand what is expected from them. If a customer calls the
marketing department one day with a question, they should receive the exact same answer as
the engineering department provided during the same week. Ninja Corp ensures that this will
occur by training each department and providing daily updates on products and services.
Customer Integration
The last part of supply chain integration revolves around recognizing key customers. Customer
integration provides value-added offerings to certain customers who represent the largest value
to the firm. Ninja Corp embraces this integration through market segmentation. They have divided
up their customers in specific segments that reflect their purchasing power, use of the product,
etc.
Ninja Corp's best customer segment receives a higher level of customer service, Ninja Swords
with custom colors and wording, and purchase flexibility in timing so that the best customer
segments get flexibility in the timing of how they make their purchases.
Exercises: Identify what kind of supply chain integration in each scenario.
1. The Regis Grand Hotel given their vegetable supplier bonuses which is the Fresh Vegetable
Cooperative for their fresh and above standard vegetable supplies.
Answer:
2. The Regis Grand Hotel had segmented their patron base on their financial capabilities, this
strategy is used to cater the satisfaction of the customers without breaking their customers
pocket.
Answer:
3. The Regis Grand Hotel mold their staff to provide the best service as possible or beyond
standard, they are trained regularly for the purpose of giving the best satisfaction of their
customers, and the staff are regularly updated in their own performance. Answer:
4. The Regis Grand Hotel had a high-quality standard for its supplies and services, that’s why the
hotel and its supplier had an agreement contract about its quality standards that the suppliers
must provide.
Answer:
5. To provide the highest quality of service and products The Regis Grand Hotel organize a yearly
suppliers summit and selects suppliers that meets their own quality standards and select
contingency suppliers if their selected suppliers had difficulty in providing the supplies they
needed, to prevent problems that results into customer dissatisfactions. Answer:
6. The Regis Grand Hotel had the most sophisticated booking system which provide their
customer different kind of room types and service customization to cater the highest possible of
satisfaction.
Answer:
Explain: In your own opinion what is Supply Chain Integration?

Lesson 2:
Learning Outcomes
After reviewing this lesson, you should have the ability to:
• Define supply chain management and explain its purpose
• Describe different types of typical supply chain management activities
Supply Chain Management in the Business, Supplier & Customer Network

Supply chain management is concerned with all the interconnected businesses that are part of
providing end products or services to customers. Learn how SCM can reduce costs and improve
customer service.
Supply Chains
Let's say you're the owner of a manufacturing plant that makes television sets. Your target is to
produce 10,000 TVs every month. Every TV has 75 parts - 25 of which you build in-house from
raw materials, and 50 of which you order from 10 different suppliers. So, every month you order
the raw materials to make 250,000 parts in-house, and you order 500,000 parts from suppliers.
Simple enough, right?
One day you get a phone call from one of your suppliers. 'Sorry, but one of our machines broke
down, and we won't be able to deliver the parts you ordered.' You can't finish building a single TV
without that one part. What now?
To avoid this from happening and to address such problems when they arise, what you need is to
manage your supply chain. Supply chain management, or SCM, is the management of all
interconnected businesses that are part of providing end products or services to customers. This
involves the entire supply chain from acquisition of raw material, conversion to a finished product,
transportation and supplying the final product or service to the end user.
The overall goals of SCM are to reduce costs and improve customer service. This is accomplished
by reducing the overall investment in the inventory in the supply chain and ensuring a reliable
supply of high-quality products to the customers.
SCM is widely used in the manufacturing sector where an organization acquires raw materials
and turns them into finished products. Many manufacturing organizations, however, don't
necessarily start off with raw materials.
Consider the TV manufacturer. Many of the parts that go into making each TV are manufactured
by suppliers. Some of those parts may be manufactured by putting together parts from other
suppliers. There can be quite a few manufacturers between the raw materials and the finished
product. This is why it is called a 'supply chain' - you need to look at all the organizations that are
involved in making the product, not just your immediate suppliers.
Activities of SCM
A typical SCM system consists of a number of different activities. Sales forecasting develops an
estimate of customer demand. This provides the information necessary to set overall production
targets. In the case of the TV manufacturing plant, you could use sales forecasting to estimate by
how much you need to increase production to meet the demand for the upcoming holiday
shopping season.
Sales and operations planning examines customer demand and current inventory to determine
how much product needs to be produced by when. You could use this type of planning to
determine when exactly you need to have the extra TV sets ready to get them into stores on time.
A master production schedule sets out the production plan for all finished products based on sales
and operating planning. The master production schedule for TV sets would include how many TV
sets of each type need to be produced during certain periods.
Detailed scheduling represents the implementation of the master production schedule on the work
floor and describes when and in what order different products should be produced to meet overall
production targets. For example, some TV sets may be more complicated to put together, and
therefore, you want to start their production a little earlier to get the extra units ready on time.
Materials requirement planning determines the amount and timing for placing orders for raw
materials and parts with suppliers. This needs to consider delivery times as well as economies of
scale. It may be cheaper to order a larger number of materials to cover more production runs, but
that material also needs to be stored at a cost.
Let's say you want a certain number of TV sets in stores by December, so you may need to start
scheduling the acquisition of parts six months or even a year earlier. Purchasing uses the results
of materials requirement planning to actually place the orders in a timely manner. This is when
you actually place your orders and raw materials to make the TV sets.
Production represents the implementation of scheduling to staff and run the production operation.
This stage considers the availability of employees, equipment and materials in an effort to meet
the production targets. Now it's time to implement the production schedule for the TV sets. During
production, you monitor production level to make sure you're going to meet your targets for the
holiday season.
Sales ordering captures and processes the customer orders. Orders are compared to the
inventory to determine if items are in stock. If items are not in stock, the production schedule can
be used to estimate when they are expected to become available.
While many stores have placed their orders well in advance, you may get some last-minute orders
from stores where your TV sets have been doing particularly well. This is when you will finally
learn if your sales forecasting was accurate.
In addition, SCM contains feedback mechanisms to fine tune the system and make any necessary
adjustments. For example, if shipping from an overseas supplier has been delayed in the past due
to customs inspections, this should be taken into consideration when placing orders. SCM also
includes a certain amount of contingency planning. What alternative suppliers exist in case one
supplier cannot deliver? How can I increase production of one of my products if customer demand
picks up?
In general, SCM makes it easier to ensure a continuous supply of materials and services to
produce the finished products. Without SCM, a manufacturing organization may end up not being
able to produce enough final products because of delays in the supply chain. Or, it may run into
cost overruns because of large amounts of inventory of certain materials or parts that are not
being used. Maintaining optimum inventory levels of materials needed to produce the finished
product is a key element of keeping cost down using SCM.
Exercise:
1. What is the main purpose of SCM?
2. Explain why these activities are applicable in the Business Industry? And why? Explain
in a short sentence.
• Sales forecasting
• Sales and operations planning
• Production scheduling
• Materials requirement planning
• Purchasing
• Production
• Sales ordering
Lesson 3:
Learning Outcome
After this lesson, you should be able to:
• Identify and summarize the four characteristics of a service as well as the issues to
consider with service distribution
• Understand some promotion and price strategies for services
Services Marketing: The Difference Between Services and Goods

In this lesson, you'll learn the difference between a service and a good. Discover how services
are marketed to a consumer using different techniques.
Services
Our ninja was in a massive fight last night. He has sustained some injuries and now needs to go
to a doctor. His interest is not in buying a product but in getting the best medical services.
A service is the result of applying human or mechanical efforts to people or objects. Examples of
services included medical care, landscaping, child-care, counseling and salon treatments. The
previous lectures have all discussed how to market both products and services. There are a few
unique characteristics regarding marketing services compared to marketing a good.
Marketing Services
The ninja needs medical attention and is in search for a highly recommended doctor. The ninja's
exam will be a service, and it can be categorized by being intangible, inseparable, heterogeneous
and perishable. These four characteristics are important for marketers to understand before they
create a marketing mix for a service.
Intangibility
The most basic difference between a good and a service is intangibility. This means that the
service can't be heard, felt, touched, seen or tasted. This causes services to be very difficult to
evaluate and also have good search qualities. Search Qualities are characteristics that are easily
reviewed before a purchase occurs. This also makes it a challenge for marketers to communicate
the benefits of the service. Many service-oriented companies create a tangible representation to
help their consumers understand what they are all about. For example, the doctor's office our ninja
is considering for a checkup uses a photograph of vitamins to represent that their services will
make you healthy. Another big difference is that product goods are produced, sold and then
consumed, which is not at all how a service is delivered.
Inseparability
Services are impossible to separate in the purchase process. Can you imagine buying a haircut
but not being at the salon to get your hair trimmed? Inseparability is the inability of the production
and consumption of a service to be separated. One advantage to the inseparability is that
consumers can give constant feedback. For example, our ninja can tell his barber exactly what
changes he wants as he is getting his hair cut. One challenge for service companies is that they
must be sure to have very well-trained employees who are adept at providing excellent services.
The quality must be consistent.
Heterogeneity
Services must be consistent and also reliable. Let us think about when our ninja goes for his
weekly pizza run. He expects his pizza to be delivered exactly the same way and taste just as
delicious as the previous week. Heterogeneity is also known as variability and is one challenge
facing service-oriented companies. It is when services have problems being standardized. The
barber shop that the ninja used to go to gave him an excellent buzz cut for two months. Then the
last two times he went for a cut, he ended up with a very poor result. This unintentional variability
in service has now caused him to go elsewhere.
Fast food companies spend enormous amounts of money creating quality, standardized food
across all of their stores. For example, if you order a hamburger at a McDonalds in Texas or
Maine, the burger should taste the same. The most important factor in maintaining no variability
is through excellent training and set procedures.
Perishability
The last characteristic of services is called perishability, which means that they cannot be stored,
warehoused or inventoried. It is not as if our ninja can order up six haircuts and store them in his
hideout. This is a major challenge to a service provider as any service time that is not used equals
a loss in revenue. For example, for every airline seat that sits empty the airline company is facing
a loss in profit. The same concern exists for the barber shop. The ninja barber shop must keep
their barbers busy cutting hair and not sitting idly by.
Product Strategy for Services
Since a service company has different characteristics to its overall marketing plan, there also has
to be some adjustments in the marketing mix. Many service companies offer core and
supplemental service product offerings. For example, the ninja cannot just go to the barber
shop to get his hair cut (which would be a core offering), but also to have a massage, his beard
trimmed and even enjoy free coffee while he waits (which is the supplemental product offerings).
Service companies also have to decide on whether their offerings will be standardized or
customized. For example, if our ninja wants his taxes done, he can go to a 1-800-Ninja Tax office
and have them completed for $99. Or the ninja can go to a CPA firm and more customized service,
but then of course the price tag will be higher.
Place Strategy for Services
There are a few issues service companies must consider with distribution. They must consider
the location, scheduling, convenience, number of outlets and direct versus indirect distribution.
Location is very important to service companies, such as hotels and banks. They spend
enormous amounts of time researching the best location to offer their services to the largestamount
of their target market.
Scheduling is one of the most important issues that customers are concerned about. Consumers
want their services at the best time that works for them. For example, the ninja family has decided
to visit their relatives in Texas, so they are very concerned with getting the best flight schedule.
Nobody in the ninja family wants a flight departure time of 7am. When the ninja children were sick
last week, Mother Ninja searched around to find the best medical clinic with the best hours.
Overall convenience is another huge driver of service location. Consumers want to easily access
services, such as having ATMs in supermarkets, or restaurants such as Outback Steakhouse,
which offers takeout food brought to their cars.
Service companies need to decide on the number of outlets that they will have and also if they
are using indirect/direct distribution. Ninjas prefer to get their hair cut at the exclusive barber
shop with only one location instead of a franchise with many locations. The ninja feels that the
one barber shop is more exclusive and delivers a better service and better haircuts. The ninja
family also prefers indirect distribution when purchasing concert tickets through the internet. A
direct distribution example would be if the ninja teenager bought them from a ticket box office. The
location of a service depends on so many different marketing objective variables.
Promotion Strategy for Services

Promoting a service can be a very big challenge to marketers because they are hard to evaluate.
Marketers can try to use a tangible cue to allow the consumer to visualize why their service is
superior. For example, Allstate Insurance uses 'you are in good hands with Allstate' and has a
pair of hands reaching out to protect. Celebrity endorsements are also very effective in
promoting a service. For example, William Shatner promotes saving hotel and airline costs by
endorsing Priceline.com.
The third way of promoting a service would be to create a consistent corporate image. Disney
offers a strong image with their Cinderella Castle and use of the color blue. The Ninja Corporation
uses a strong black color and the image of a black cape to represent protection for their martial
arts security division.
Price Strategy for Services
The biggest challenge in developing a pricing strategy for a service is to determine what the price
is dependent upon. For example, is the price based on a specific task such as the ninja getting
his hair cut or is it based on the length of time it takes to accomplish the service? Service
companies also need to determine whether the price should be for a bundled offering or priced
separately. For example, our ninja wants a wash, cut, blow dry and beard trim today. Will the
barber shop offer the ninja a total price for the bundled service of $80 or will each service be priced
out?
Lesson Summary
There are many unique differences in marketing a product than marketing a service. The main
characteristic differences are intangibility, inseparability, heterogeneity and perishability. The
marketing manager must also make adjustments in the marketing mix for a service. A marketer
must make sure the service is offered to the consumer at the correct time, place, price and
promotion. They must take into account that convenience, location and the ability to create a
tangible cue to the service are the most important aspects of service marketing.
Exercise:
Write an example of products in Business Industry under each of this category
Intangible Inseparable Perishable Heterogeneous
1. 1. 1. 1.
2. 2. 2. 2.
3. 3. 3. 3.
4. 4. 4. 4.
5. 5. 5. 5.
In those above answers write below in which category they belong

Goods Service

Lesson 4:
Learning Outcomes
After you are finished with this lesson you should be able to:
• Describe supply chain management and what it includes
• Identify the four essential elements of a supply chain
• Explain the importance of information flow in supply chain management
• Discuss the important outcomes of a supply chain management strategy
Supply Chain Management: Elements & Goals

Supply chains and their efficient management may mean the difference between success and
failure for a business. In this lesson, you'll learn about the elements of the supply chain and the
key goals businesses seek in managing their supply chains.
Supply Chain Management Defined
Meet Ingrid. She's a VP for an auto manufacturing firm and is responsible for supply chain
management, or SCM. Supply chain management involves the management and integration of
flows of goods, services and information into the company to create the goods and services that
will then flow out of the company to its customers. But what exactly is the supply chain?
Supply Chain Elements
A supply chain consists of all the activities relating to the flow of goods, services and information
that come into and out of a company from creation of goods and services through distribution to
end users. Let's look at a quick example.
The supply chain necessary for manufacturing a car is complex. We'll simplify the chain to more
easily illustrate the concept. A simple automobile supply chain may include:
• Procurement and transportation of raw materials and components to the company
• Producing the vehicle from raw materials and components
• Distribution of finished automobile to retail dealerships
• Delivery of automobile from dealership to consumer
All supply chains consist of four essential elements that we can glean from our example above.
These elements include:
1. Purchasing the resources necessary to make the company's goods and services
2. Production of the goods and services from the resources acquired
3. Managing the inventory of material necessary for product and the inventory of finished
goods and services
4. Transportation & distribution of the resources necessary for production and distribution of
goods and services to wholesalers, retailers or through direct sales to customers
It's important to note that information flows are also critical to supply chain management.
Information allows Ingrid and her partners in the supply chain to respond quickly and effectively
to changes in circumstance, because information increases the visibility of the supply chain.
For example, information about a shortage of a crucial raw material down the chain can allow
Ingrid to seek alternatives to keep production flowing. Likewise, a downward or upward trend in
sales from retailers will help manage inventory. If sales are increasing, Ingrid will know to keep
more inventory on hand and speed up production. On the other hand, if sales are decreasing,
Ingrid will want to keep inventory levels lower and even slow down production. In this manner,
Ingrid helps her company be efficient with its resources while still keeping customers satisfied.
Supply Chain Elements & Strategy
Ingrid's job of managing the supply chain is important for strategic success of her company.
Ingrid's goals in managing the supply include:
• Managing quality
• Satisfying customers
• Maintaining competitiveness
Let's take a closer look at how managing the supply chain can help achieve these goals. Managing
the quality of your product requires ensuring that all inputs and processes used to produce the
product are of first-rate quality. In other words, poor-quality steel, inefficient engines, substandard
electronic components and shoddy assembly lead to poor-quality cars. High-quality steel, energy
efficient engines and quality electronic components lead to high-quality cars.
Effectively and efficiently managing the supply chain also helps create satisfied customers. It helps
ensure quality products as we already discussed. Moreover, carefully managing distributionand
inventory levels is also crucial. Ingrid knows that in today's world, customers simply don't wantto
wait for backordered product and will often go to the next available option. Managing the supply
chain effectively means that customers will have a quality product where and when they want it.
Finally, supply chain management helps keep companies competitive. Managing the supply chain
effectively means you not only create quality products that get to customers when and where they
want it, but it's done efficiently and cost effectively. In other words, SCM helps a company manage
its bottom line through ensuring that its supplies are procured for the best price in the proper
amount at the proper time. It also means keeping inventory at optimal levels and utilization of the
most cost-effective transportation and distribution options available.
Lesson Summary
Let's review what we've learned. Supply chain management is concerned with managing the
flows of goods, services and information into the company for production of finished goods and
services and the flow of the finished goods or services out of the business for the end user.
A supply chain involves four general activities, including purchasing, production, inventory
management, and transportation and distribution. Another important aspect of supply chain
management is controlling the flow of information to make effective and efficient decisions.
Effectively managing a company's supply chain helps the company achieve strategic goals of
quality management, customer satisfaction and maintaining competitiveness.
Exercise:
1. Is supply chain management important in Business Industry? And why?
2. Make a simple supply chain flow of any product or service
(Example: Raw Materials Wheat – Manufacturer Bread – Distribution – Retailer Bakery – Consumer)
3. Why information flow is important in supply chain management?

Lesson 5:
• Identify what are and causes of uncertainties in the supply chain and how to manage it
• Discuss the importance of managing the supply chain uncertainty
Managing Supply Chain Uncertainty

While supply chains may be, in theory, meant to run without any interruption, sometimes things
don't go perfectly to plan. In this lesson, we take a look at the causes for such uncertainty in the
supply chain.
A Hiccup in the Supply Chain
In a perfect world, products would flow seamlessly through your organization, from raw materials
to final customers. In fact, it would almost be like an assembly line, but one that only ended up
with you making money. Alas, it is not a perfect world, and one of the biggest concerns that
business managers have to deal with is the fact that the supply chain is far from certain. From
international incidents thousands of miles away to a supplier who is suddenly unable to meet
orders, all sorts of actions can create uncertainty in the supply chain. In this lesson, we'll look at
causes for those instabilities, as well as their effects on an organization. Moreover, we'll also look
at ways in which companies can attempt to limit their vulnerability when interruptions do occur.
What Is Uncertainty?
First things first, a good manager needs to accept the fact that uncertainty is out there, and it's
impossible to know exactly what's going to happen at all times. Therefore, when seeking to
address supply chain uncertainty, flexibility will always be the key. But first, let's make sure we
have a good definition of what I mean by uncertainty. By supply chain uncertainty, I mean
anything that could cause a slowdown or stoppage of normal business activities. Like I said earlier,
that stoppage could be the result of unstable oil supplies in the Middle East, or it could be that
your app development business has only one person who can write code, and she is on strike. In
any event, finding a way to mitigate such difficulties is one of the best signs of a promising
manager.
Causes of Uncertainty
Before we can work to manage such uncertainty, we first have to understand what causes it. The
basic causes of supply chain uncertainty can be roughly grouped into two big categories. First,
there are external causes. These are all those things that happen that are beyond the control of
anyone within the organization. If rising oil prices due to instability in the Middle East have an
impact on your supply chain, then you've just experienced uncertainty from an external cause. Of
course, external causes don't always have to be so far away. If you own a food truck, and the
factory at which you normally park your truck during the lunch hour changes its policy for letting
workers walk out to the parking lot, then you've been challenged with an external cause as well.
However, there are also internal causes, and those are the things that people within the
organization have some element of control over. If your organization doesn't have enough trucks
to move all the required shipments and thus creates a bottleneck, then you have an internal cause
of uncertainty. Likewise, the app developer who refuses to work creates a bottleneck, but if you
made her happy or hired more developers, you would mitigate the bottleneck.
How to Manage It
So now that we know what to be on the lookout for, let's look at some ways of managing this
uncertainty. As a rule, internal causes tend to be easier to manage than external causes because

we have more control over them. For example, if you think your company is going to run out of
trucks, buying or leasing new ones would allow you to deal with that bit of supply chain uncertainty.
Likewise, making your developer happy or hiring more coders would also help insure against
supply chain uncertainty.
With regards to external causes, our options are more limited. Of course, there are some things
we can do to be proactive. Insurance is available to protect against certain risks, while constant
strategic analysis can help limit the chances of the company struggling when faced with a crisis
overseas. Still, a lot of reacting to external causes is just that - reaction. It is the skill with which a
manager responds that helps to truly make the very best stand out.
Lesson Summary
In this lesson, we looked at ways that companies can seek to limit supply chain uncertainty. We
started by looking at ways that supply chain uncertainty affected companies, and then defined it
as anything that could disrupt typical business operations. From there, we broke the causes of
supply chain uncertainty into external and internal branches, seeing that internal causes were
often much easier to handle. External causes for supply chain uncertainty often required insurance
or strategic analysis, but reacting to them was equally important. This sort of reaction to external
causes for supply chain uncertainty is a primary way good manager can distinguish themselves.
Exercise:
1. Give at least 3 examples of external factors that can affect the supply chain in Business
Industry? Example (Weather)
2. Give at least 3 examples of internal factors that can affect the supply chain in Business
Industry? Example (Low skill level of workers)
3. Base on your examples above, how will you manage those factors so it won’t affect your
business?

Lesson: 6
Learning Outcomes
Once you have finished this lesson you should be able to:
• Define the bullwhip effect in supply chain management
• Explain how the bullwhip effect affects all levels of a supply chain
• Identify some causes of the bullwhip effect
• Discuss how the bullwhip effect can create significant costs for a company
Bullwhip Effect: Causes & Effects
Failure to manage a supply chain effectively can lead to inefficiencies. In this lesson, you'll learn
about the bullwhip effect, including what it is, its causes and effects, and what to do to stop it. A
quiz follows.
Bullwhip Effect Defined
If you have ever dropped a stone into a calm pond, you've probably noticed that the ripples at the
point of impact are about the size of the stone, but they quickly grow larger and larger as they
move out. A small impact can create large consequences. The same is very much true in a supply
chain, and we call it the bullwhip effect.
The bullwhip effect is a distortion in the supply chain that occurs when suppliers up the supply
chain order more goods based on forecasted consumer demand rather than actual consumer
demand. This results in an excess of inventory in the supply chain. We use the term 'bullwhip'
because the oscillation in demand builds up the chain, like the oscillations in a whip that is cracked
tends to grow larger as the force is moved down to its tip.
Example
While the bullwhip effect may sound technical and complicated, it really isn't. A quick example will
illustrate the rather simple idea.
Let's say that you are the store manager of a local supermarket chain in a large U.S. city.
Unbeknownst to you, there has been a series of block parties in the neighborhoods surrounding
your store. As a consequence, there was an unusually high demand for potato chips this weekend.
You can think of the partygoers as the person cracking the whip. You misread the situation and
forecast demand for potato chips that is actually far more than what real consumer demand will
be next weekend. In fact, you compound your overestimation as you order more than you think
you need because you don't want to run out of inventory. The whips oscillation gets bigger.
The whip's not done yet. Your potato chip distributor notices an uptick in your order and, thinking
the same way you do, orders more inventory than it forecasts as necessary to make sure it can
fill all your orders. And of course, you're not the distributor's only customer, so the distributor
aggregates all of its orders from you and the other grocery stores and places a huge order to its
suppliers. The whip's still not done yet, and the oscillations are getting bigger.
The manufacturer of the potato chips misreads the demand from your distributor and the other
distributors it services and ratchets up its production and demand for supplies from its suppliers.
And as you probably expect by now, the manufacturer's suppliers of potatoes, cooking oil and
seasonings also overproduce. Again, notice that at each link back up the supply chain, the
oversupply gets bigger than the link below it.
Finally, when you and the other retailers figure out that actual demand did not meet forecasted
demand, you reduce your orders and everyone up the supply chain is left with excess inventory.

Causes of the Bullwhip Effect
Several different things can cause the bullwhip effect. Let's take a quick look.
Errors in forecasting can cause the bullwhip effect.
Like we saw in the potato chip example, if your prediction about demand is significantly different
than actual demand, the error can create an oversupply up the chain.
Human behavior can also cause the bullwhip effect.
As our example above also showed, retailers don't want to lose out on sales by being short on
inventory so they often order more than needed 'to be safe.'
Failure to effectively communicate can cause the bullwhip effect.
Communication among each link in the supply chain is vital for efficiency. Failure to
communicate or giving the wrong signal can lead to a bullwhip effect.
Costs Related to the Bullwhip Effect
The bullwhip effect is important because it costs companies valuable time, resources and money.
If you are producing or storing too much of a particular product for your inventory, then you are
spending unnecessary money on resources, labor and storage, and those resources could be
used for more profitable activities. Moreover, costs can be even be more substantial due to
spoilage if the goods produced are perishable, such as food products.
Lesson Summary
Let's review what we've learned. The bullwhip effect occurs in the supply chain when suppliers
up the supply chain order more goods based on forecasted consumer demand rather than actual
consumer demand, resulting in excess inventory in the supply chain. The bullwhip effect may be
caused by errors in forecasting, human behavior or a failure of effective communication among
supply chain partners. The bullwhip effect can cost each supplier in the supply chain significant
time, money and resources.
Exercise:
Create an example scenario on each causes of the bullwhip effect in a Business Industry.
1. Errors in forecasting
2. Human behavior
3. Failure to effectively communicate

Lesson 7:
• Discuss the importance of Green & Sustainable Supply Chain and how to manage it
• Discuss the effect of sustainability
Managing a Green & Sustainable Supply Chain
More and more companies are trying to move towards a green and sustainable supply chain. But
what does that mean? In this lesson, we find out what that means and how companies are
beginning to implement it.
What Is A Green Supply Chain?
More and more in the news, we are hearing about the need for greener technologies. Even while
politicians debate the need for such actions, businesses have been quick to try to adapt to new
times. For them, going green is not a choice, but instead, an imperative that could have both
economic and environmental benefits.
However, for a company to truly go green, it requires much more than simply using recycled paper
and energy efficient light bulbs. Instead, many companies find that by changing their supply
chains, they are able to exude a much greener image. Along the way, some companies find that
they are able to create a product that even appeals to more potential clients.
In this lesson, we are going to learn about how to implement a green supply chain. First, we'll
focus on why this matter, before moving on to differences in what green supply chains look like
for service firms as compared to green supply chains for manufacturers.
Why Sustainability Matters
But wait. Why should businesses even care about having a green supply chain? What do we even
mean by that? Let's back up a bit. The most important idea behind a green supply chain is to
implement a supply chain that is sustainable for future generations, especially from an
environmental perspective. Now, let's look at this through two different lenses, so we can see why
this makes sense for businesses of all types.
First, let's assume that you're on board with the scientific theory that humans can create climate
change. In that case, you'd want for your business to do well in the long run, correct? Firms that
have a sustainable and green supply chain are preparing for exactly such a long run.
Now, let's say that you don't believe in climate change. So, why should you care about having a
sustainable supply chain? Simple, because a lot of your customers do. Even if you reject climate
change science, the fact that is this that sustainability is a very popular marketing technique for
companies. Consumers are even boycotting companies that don't try to achieve sustainability.
That, coupled with the fact that some methods may help save money, make it too important to
ignore. So, now that we see why sustainable supply chains are important for all businesses, let's
look at how to set them up.
Green Supply Chains for Services
First, let's start with service-based companies, ranging from accounting firms to news
organizations to consulting companies. So, what can they do to help build a green supply chain?
After all, they're producing ideas, not stuff.
It turns out that there is actually much that they can do. Such service-based firms produce an
enormous amount of paper. If they can limit their paper output, they help to build a greener supply
chain. Likewise, cutbacks on things like plane travel or, for that matter, making fewer people drive

to work, can also lower their impact on the environment. Finally, commitments to greener
technologies in new or renovated office space can also help to show their pledge to sustainability.
Green Supply Chains for Manufacturers
All of that is fine and good for service firms, but what about manufacturers? After all, by the sheer
fact that they are creating something, they're going to create quite a bit of waste, right? Well, yes
and no. Manufacturers definitely are going to create more scrap iron than the typical accountant;
however, it is what they do with that scrap iron afterwards. Factories have incredible opportunities
to recycle, as well as to limit their consumption of electricity and water.
Meanwhile, for those processes that are not so easy to reduce the impact of, companies can seek
to create new methods that do the same thing, with a smaller impact. All of that means a smaller
impact on the supply chain, which means a more sustainable supply chain.
Lesson Summary
In this lesson, we looked at how to build green and sustainable supply chains for companies. We
learned that green and sustainable supply chains took sustainable business practices into
account when helping organizations plot their supply chains. Companies of all types should have
an eye to this sort of thing, as those that believe climate change is happening should seek to plan
for the future, and those who don't should seek to save money and attract new clients. Of course,
there are differences, depending on the type of business, on how a green supply chain can be
practically implemented.
Exercise:
1. Is Green & Sustainable Supply Chain important in the Business Industry? And why?

Lesson: 8
• Discuss the differences between Traditional and Digital supply chain processes
• Identify the steps in a traditional and digital supply chain process
Traditional vs Digital Supply Chain Processes

The rise of digital products has made getting products to consumers even simpler and quicker.
But how has the supply chain changed with digital products? In this lesson, we'll look at the
difference in traditional and digital supply chain processes.
Supply Chain Processes
Imagine for a moment that your best friend comes to you and tells you about this great new book
that she's reading. She tells you that you would love this book and that you should read it right
away. Now imagine that it's 1985 and your best friend tells you the same thing. How would you
get and read the book then, versus now? Would it be any different? The world is rapidly changing.
Thirty years ago, if you wanted to read a book, you had to get a physical copy of the book and
read it. That could involve getting in the car and going down to the store or library, getting the
book, and lugging it home again before reading it. Now if you want, you can just download a copy
of the e-book to your tablet or e-reader and be reading it in seconds.
From a business perspective, digital products like e-books are both very different and very similar
to physical products, like a paperback book. One way in which businesses think about products
is by thinking about the supply chain process, or the different steps businesses must go through
in order to get a product into the hands of consumers.
Let's take a moment to look at the traditional supply chain process for physical products and then
compare that to the supply chain process for digital products.
Traditional Supply Chain
Let's say that you want a paperback book to read. You go to the store and buy it, but where did
that book begin? What hands have touched it and what process did it go through to get to you?
The traditional supply chain process involves taking raw materials and making a physical
product that is then transferred to a consumer. There are several steps in a traditional supply
chain process. They include:
1. Gathering of raw materials
Whether it's the lumberjack's cutting down trees to make paper or the author slaving away on her
computer late at night, the first step in any supply chain process is the gathering of the raw
materials.
2. Acquiring materials
Next up in the process is for the manufacturing company to acquire the materials. Sometimes this
is straightforward, like when a publishing company buys an author's book. Other times, the raw
materials have to be made into something, like making paper from trees, before the materials can
be acquired by the manufacturer.
3. Manufacturing
After the materials have been acquired, the company now needs to assemble them into a product.
In the case of our book, that means putting the words onto the paper and binding the paper
together into a book.
4. Distributing

Next up, the manufacturer has to distribute the products to their customers. Often, the
manufacturers customers are not the end consumer but a middleman. For example, the publishing
company that has manufactured the paperback book isn't going to sell it directly to you. Instead,
their customers the bookstore, which buys the books from the publisher.
5. Selling to end user
Finally, the customer, in this case, the bookstore, can sell the product to the end user, you. This
occurs when you finally purchase the book.
Traditional vs Digital
The traditional supply chain process is pretty straightforward. But what happens if you don't want
a paperback but instead want an e-book? There are some differences in the supply chain process
for digital products as opposed to traditional products. The digital supply chain process involves
creating a digital product and delivering it to the customer.
To understand the difference in the two processes, let's look at the supply chain again but this
time, examine how it runs with digital products.
1. Gathering of raw materials
As we saw, traditionally this involves gathering physical materials and creative ones. But in the
digital supply chain, this only involves nonphysical materials, such as the author writing the book.
There's no need for trees because we don't need paper.
2. Acquiring materials
As with the gathering of raw materials, this step involves nonphysical materials only in the digital
supply chain. For example, the publishing company can buy the book but not paper. So far, even
though there are no physical materials gathered, the supply chain is pretty much the same, as far
as process. But here's where it really gets different.
3. Manufacturing
While there is still some manufacturing that gets done with digital products, it is done very
differently than the traditional manufacturing. In the case of a physical product, like a paperback,
the company has to have space to store the materials, like paper and ink that they will use in
manufacturing. Plus have a factory or plant to turn those materials into a product.
With digital products, most of the manufacturing can be done in an office and there are no physical
materials to store. For example, manufacturing of a physical book involves designing a book
cover, setting the words with the font and images that the publisher and author want, and then
sending the digital copy over to the factory. The factory, which is often near or connected to a
warehouse for supplies, then prints physical copies of the book and binds them.
But in the digital process, once the digital copy with the cover and type set is finished, that's it,
there is no factory and no warehouse with materials.
4. Distributing
Besides manufacturing, distributing is also another area that is very different for digital products
compared to physical ones. With physical products like a paperback, the manufacturer and
customer usually have to have space to store the inventory or finished product waiting to be sold.
For example, a bookstore has to have to the space to store books that are not on the shelves.
Likewise, the publisher has warehouses to store books that are ready to go as soon as the

bookstores order more. But with digital products, there's no need to store inventory in a
warehouse. Instead, it is stored on a computer server and passed on from there.
5. Selling to end user
As we've seen with traditional supply chain processes, the manufacturer generally does not sell
directly to the end user. You don't buy a physical book from a publishing company but from a
bookstore. But with digital products, manufacturers can sell directly to the end user. For example,
you could go onto the website of the publisher and buy the book, or buy it from them via an online
retailer, like Amazon. The point is, there are choices that aren't there with physical products.
Lesson Summary
The supply chain process is the different steps businesses must go through in order to get a
product into the hands of consumers. The traditional supply chain process involves taking raw
materials and making a physical product that is then transferred to a consumer. In contrast, the
digital supply chain process involves creating a digital product and delivering it to the customer.
Traditionally, the supply chain process involves fathering of raw materials, acquiring materials,
manufacturing, distributing, and selling to the end user. With digital products, these steps change.
In particular, manufacturing does not require physical materials and factories, distribution does
not require storing a physical inventory, and companies have the option of selling digital products
directly to the consumer.
Exercise:
1. Traditional or Digital? Which of these are more convenient to use in our industry?

Lesson: 9
Learning Outcomes
• Define How important Measuring the Supply Chain Performance
• Describe different types of key performance indicators
Measuring Supply Chain Performance: Key Performance Indicators

A big part of supply chain management is understanding how your company is performing. In this
lesson, we'll discuss some key performance indicators for supply chain management, including
what they are and how to calculate them.
Supply Chain Management
Hiroko owns a company that makes jams, salsas, and other condiments. In order to deliver her
goods to the stores that order them from her, Hiroko has to order materials (like jars, labels, and
ingredients), put them together into products, store the finished products until the stores are ready
for them, and then deliver them to the stores. That's a lot!
Supply chain management is the administration of the process of purchasing materials,
manufacturing product, and delivering the product to the customer. In Hiroko's case, her jars,
labels, and ingredients are the materials, her products are the condiments, and her customers are
the stores.
Think of the supply chain as a pathway. At the start of the path are Hiroko's suppliers, the people
from whom she purchases materials. Then, a little further down the line is Hiroko's factory, where
she makes the condiments. Further down the path is Hiroko's warehouse, where her inventory
sits until it is time to deliver it to the customer. Finally, at the end of the pathway are the stores
where Hiroko delivers her jams.
Hiroko wants to know how her company's supply chain is doing. Are they managing the supply
chain well, or could it be more efficient? Are they spending money on the supply chain that they
don't need to be spending?
To help Hiroko out, let's look at a few key indicators of supply chain performance.
Storage
There are several key indicators that will help Hiroko measure how well her supply chain is
performing. One category of key indicator focuses on the purchasing and storage of materials and
inventory. Remember the pathway that is the supply chain? This type of key indicator looks at
either side of the factory - that is, how materials and inventory (or, completed products) are stored.
There are many different key indicators that fall into this category. One is storage space utilization.
It costs money to have storage space. Building and maintaining warehouses and other storage
spaces can mean big bucks for companies, so Hiroko (and business owners like her) will want to
make sure that they aren't paying for too much storage space. They can do this by calculating
storage space utilization, which can be viewed as the total storage space being useddivided by
the total storage space available.
For example, if Hiroko's warehouse is 10,000 square feet, but she only uses 5,000 square feet of
it, her storage space utilization is 0.5, or 50%. That's not a great number, and may indicate that
Hiroko should think about a smaller warehouse.
As we've seen, having storage space can cost lots of money. So it's really important that
companies, like Hiroko's, don't have too much inventory sitting around waiting to be bought and

shipped. If Hiroko has a million bottles of chutney that have been sitting on her shelves for six
months, that's a problem, and not just because the chutney might be getting stale!
Another key metric is inventory on hand. Hiroko can calculate the inventory on hand by dividing
the number of units available by the average number of units sold per day. This tells her how many
days of inventory she has on hand. For example, if Hiroko knows that she sells about 1,000jars of
chutney per day, and she has 1 million jars available, she has 1,000 days of inventory on hand.
That's way too much!
In general, the lower the number of days of inventory on hand, the leaner, more cost efficient an
organization is running, to a point. There is such a thing as too lean of an operation, though, so
Hiroko needs to make sure she has some inventory on hand for last-minute orders. Otherwise,
she'll end up with unhappy customers. But, she doesn't need 1,000 days' worth of any kind of
inventory!
Manufacturing & Fulfillment Measures
Remember the pathway of supply chain? As we've seen, some key indicators can help Hiroko
examine two areas on that pathway. But there are two other big areas on that pathway:
manufacturing (or, actually making the products) and fulfillment (or, delivering the products to
customers). There are many key indicators that focus on these two elements of the supply chain.
Let's look at a couple of examples.
Delivering products on time to customers is important. If Hiroko regularly ships or delivers her
condiments late, eventually her customers (the stores) will stop ordering from her. The on-time
rate can be calculated by dividing the number of on-time deliveries (or shipments) by the number
of total orders shipped. For example, if Hiroko ships out 100 boxes of condiments, and 90 of these
arrive at the stores on time, then her on-time rate is .9, or 90%. That's pretty good!
You might have noticed that the on-time rate can be calculated either by using the number of
deliveries that actually reach the customer on time, or the number of shipments that leave Hiroko's
warehouse on time. In general, it's better to use the delivery method of calculating it, as that's
what customers really care about. If Hiroko consistently ships orders on time, but they consistently
arrive at the stores late, she'll still be in hot water with her customers!
Another key metric is production time, or how long it takes to manufacture a single unit. If it takes
Hiroko 10 minutes to make a jar of salsa, that's better than if it takes an hour! Knowing production
time allows Hiroko to understand how efficient her factory is with regards to time.
Similarly, per-unit cost, or how much it costs to manufacture a single unit, tells Hiroko how
efficient her factory is with regards to money. It's better if Hiroko only has to spend $1 to make a
jar of salsa than if she has to spend $10 to make a jar of salsa!
The key indicators we've gone over are in no way an exhaustive list. To go through all supply
chain metrics would take a lot longer than we have, but these should give you a good idea of the
point of measuring supply chain performance, which is to understand how well a business is
running and look for points of improvement. Armed with the information from the above metrics,
Hiroko can figure out how to make her business even better.
Lesson Summary
Supply chain management is the administration of the process of purchasing materials,
manufacturing product, and delivering the product to the customer. There are many ways to
measure how a supply chain is performing. A few key indicators include:
• Storage space utilization, which is the total storage space being used divided by the total
storage space available

• Inventory on hand, which is calculated by dividing the number of units available by the
average number of units sold per day
• On-time rate can be calculated by dividing the number of on-time deliveries (or shipments)
by the number of total orders shipped
• Production time, or how long it takes to manufacture a single unit
• Per-unit cost, or how much it costs to manufacture a single unit
Exercise:
1. are this Key Performance Indicators necessary to our industry and why?
Storage space utilization
Inventory on hand
On-time rate
Production time

Lesson: 10
Learning Outcomes
• Define How Procurement, Transportation & Distribution Affect the Supply Chain
• Describe different types problems with procurement
How Procurement, Transportation & Distribution Affect the Supply Chain

Even the best-planned supply chains are vulnerable to changes in procurement, transportation,
and distribution. In this lesson, we look at how each of those can wreak havoc on your supply
chain.
Affecting the Supply Chain
In a perfect world, your supply chain would have absolutely no friction or stops. Raw materials
would magically appear exactly where and when they are needed, transportation would be free
and instantaneous between locations, and waiting customers would always pick them up exactly
when you wanted them to. Alas, such is not the case.
It turns out that there are plenty of points along the supply chain that issues can come up that slow
down the entire process. In this lesson, we're going to take a look at some of the most common
problems that plague a supply chain from procurement to transportation to distribution.
Problems with Procurement
Of course, plenty of problems can affect your supply chain before you even get your hands on the
goods you need to do business. This is known as the procurement phase, when you are trying
to get the raw materials necessary for your business to do its work. Every company has to go
through procurement. For service companies, it may be making sure that consultants and
accountants have the necessary equipment to do their jobs. However, it's easiest to demonstrate
when we use a manufacturing company, so we'll focus on a widget manufacturing firm for this
example.
Let's say that you've used the same raw materials supplier for your widget firm for several
decades. Suddenly, they decide to cease operations. That means you're without a raw material
supplier. Now, you've got to scramble to find one that is willing to sell you the same or similar
materials at a cost that is agreeable.
It's not just when a supply is cut off that a hit to the supply chain can occur. What would happen
if instead of going out of business that your supplier decides to raise prices? Suddenly, you've got
a choice to make. If your company decides to stay with the supplier, you've got to make sure that
the resources are there to make sure that payments go through. Otherwise, you've got to be ready
to transition your supply chain to a different supplier.
Troubles with Transportation
In any event, let's say that you finally got access to the goods that you need. However, your
struggle isn't over yet. You've still got to move the goods between your locations. Chances are,
you have a transportation network that stretches over quite a bit of geography. That means that
there's plenty of geography over which mishaps can happen to your supply chain.
Most supply chains in the United States are based on trucks, which means that storms, traffic
jams, and industrial action can create backups for your supply chain. However, it's not the
stoppages that are particularly troublesome. In no small part, those can be predicted. However,
you probably don't want your transportation to be so fragile that one truck caught in traffic brings

your entire supply chain to a halt. Instead, being flexible helps the supply chain adjust to these
unexpected mishaps.
Disruptions with Distribution
Even once you've got the goods produced, you still face problems with distribution, or the act of
getting your widgets to the stores that sell your goods. In a perfect world, your customers will
simply pick up their orders when they are ready. However, many of your clients may not have
transportation networks of their own. That means that you've got to take the products to them.
And, you'll want to get those products to them quick, as having huge inventories of undelivered
goods can lead to miscounts that will further mess up your supply chain. This could result in trucks
waiting to be unloaded by people who work for the other company. In short, that means that they
are under pressure to meet their supply needs, not yours. As a result, you could have a truck
waiting longer than it should be.
Even if a client agrees to pick up their own goods, they may choose to do so on their schedule.
That could mean that pallets of widgets are left in your warehouse for weeks on end. After all, if
the client doesn't need them yet, they may not want them taking up space in their warehouse. This
is inefficient and could lead to errors in inventory.
Lesson Summary
In this lesson, we looked at how problems of procurement, transportation, and distribution can
affect the supply chain. We start by looking at how changes in suppliers, whether it is a supplier
changing prices or simply going out of business, can result in a company needing to make agile
changes to its supply chain. We then see how incidental delays in transportation can cause
backups elsewhere in the supply chain. Finally, we learn that even distribution is rarely flawless
because clients may not have your supply chain's interests in mind when offloading trucks, or
clients may choose to keep their bought goods in your warehouse for weeks on end.
Exercise:
1. The Business Industry is an industry who is service related, what do you think the effect if
this problem occurs in our industry?
Problems with Procurement
Troubles with Transportation
Disruptions with Distribution

Lesson: 11
Learning Outcomes
• Define the principles, process & strategy in procurement
• Discuss the importance of procurement
Procurement: Principles, Process & Strategy

Ever wonder how companies get what they need to make their products? In this lesson, we look
at procurement, or the process by which companies buy what they need to do business.
Spending Money for a Living
As the head of procurement for a widget factory, you have a job that many would find enviable.
You get to spend money for a living. However, it's not all it's cracked up to be. In reality, it's not
like you're getting to spend money on you. Instead, you have to spend money to make sure your
company is able to continue producing widgets. Namely, you're in charge of making sure there is
a supply of raw materials to turn into widgets, as well as machines and tools to get them there.
Then, there's all the needs of the office staff, janitorial, landscaping. In short, it's not just about
spending money for a living; you've got to be smart about it.
Luckily, this lesson will help you do just that. By the end of this lesson, you'll better understand
that procurement, the practice of acquiring what is necessary to do business, is more than just
buying on a whim.
Why Procurement Is Important
Like I said, you're the head of a widget firm; now while you sit there, watching this lesson, I want
you to make a widget, solely by what you have in your hands. You can't do it, can you? In fact,
you need a variety of raw materials in order to make a widget. This is why procurement is so
important. Without procurement, no goods can be made because there are no raw materials.
However, it is about more than just raw materials. Try taking a pile of paperclips and making a
widget; again, it can't be done because you don't have the tools to do it.
Procurement also provides us with the tools we need to perform the tasks at hand in an
economical manner. That economic manner is important; you may be able to turn paperclips into
a widget but it would take longer than just getting a machine to do it.
How It Is Done
Contrary to what you may think, procurement isn't just about running around with the company
credit card, buying everything at once. Instead, there is a process. Very often, when a company
needs to procure something, it will take one of two approaches. If it is a relatively minor
procurement, like a few hundred pens, the procurement officer will simply go to a store or order
them. They may not always get the best price, but the amount of time saved by having a standard
procedure and supplier, more than makes up for the extra expense of a few dollars.
For larger products, a procurement officer may ask for suppliers to submit bids, which are
proposals to do the work at a certain price. Companies then have a chance to review what their
options are at different price points. Procurement officers should be careful not to just consider
the lowest price, as there are often issues of quality and reliability to be had. After all, a bargain
on supplies that are always late is no bargain at all when your factory isn't productive.
Managing Procurement
Even beyond taking the bids, there are still other aspects of the job that are important to
procurement management. As you are the point person on dealing with suppliers, you have to
make sure that the bills are paid. This involves coordinating with the accounting department. Also,
you'll want to be sure that the bill is paid in the right amount. You may like your suppliers but
chances are, you don't want to send them extra money.
Speaking of extra money, you'll want to review your contracts from time to time to make sure that
you are getting the best deal possible. While you shouldn't do this too often, so as not to alienate
suppliers, you should make sure that your company isn't getting ripped off.
Finally, while price is important, your company should also be on the lookout for higher quality
goods. The advantages of this are apparent in the supply of raw materials but it is perhaps even
more important when it comes to making sure that you have the right manufacturing equipment.
Technology will help keep your costs low and as head of procurement, its part of your job to make
sure that your firm is on the cutting edge.
Lesson Summary
Let's review! Procurement is the practice of acquiring what is necessary to do business. It helps
makes sure that companies are able to do their work with a supply of raw materials and other
tools. While price is important, it is also vital to make sure that goods are reliably delivered and of
sufficient quality.
Finally, procurement management involves making sure that suppliers are paid the right amount,
that goods are a fair price, and that the firm is up to date with relevant technologies that increase
efficiency.
Exercise:
1. is procurement necessary for our industry? What are its benefits?

Lesson: 12
Learning Outcomes
• Define how important procurement & supplier selection process.
• Describe different criteria use in selection process
Procurement & Supplier Selection Process

Deciding from whom to purchase goods is one of the most important decisions that a business
owner will make. In this lesson, we go over many basic guidelines for the procurement and
supplier selection process.
Finding a Supplier
Finding a supplier for your company's needs is a problem common to all companies. Even if you
are a service company, your firm will need computers, phone service, stationery, and any other
number of needs. However, while consumers may just shop for the lowest price or go to a trusted
name, companies need to be able to back up their choice in the budget. After all, their goal is to
maximize profits - if they are going to spend more money, they should have a good reason for
doing so. In this lesson, we're going to look at different reasons to choose a supplier. We'll start
by looking at the three most important factors that a company should consider before hiring a
supplier, but then we'll look at the X factor of smaller criteria that could sway a decision.
Reliability
You might have expected me to say that the most important aspect that a firm should consider
before hiring a supplier is cost. However, the most important consideration is actually reliability,
meaning that the supplier is available with shipments and services when needed. After all, you
can only conduct your business if you can rely on your supplier to provide you with the goods or
services that you requested. Depending on the type of good or service involved, this can take
different approaches. For example, a service firm may require any interruption to their IT
processes be remedied as quickly as possible. Meanwhile, an auto shop may put less of an
emphasis on if the wireless internet is working. However, making sure that a supplier is reliable is
a crucial step. It is for this reason that many consultants recommend testing the customer service
and support capabilities of a company before hiring them.
Quality
Next, you will want to make sure that whatever you're paying for meets certain quality
requirements, meaning that goods and services have to meet expectations. The reason for this is
simple: you don't want to throw money away on something you're going to have to replace. If you
buy goods or services of low quality, then chances are, you're either going to have to replace them
or have plenty of disgruntled customers.
Again, quality applies to firms of all types. A service firm may want to make sure that its internet
connection is of a high enough quality to be able to handle plenty of bandwidth while large files
are being moved. Meanwhile, an auto shop is going to want to make sure that the parts that it is
using on its customer's vehicles are of the highest quality. If they aren't, then people are going to
be coming back complaining.
Value
After needs of quality and reliability are met, then we can begin to look at the value of a firm. By
this, I mean that you get something from a product or service that is worth the amount you paid
for it. Note that I did not call it the cost. Instead, we want to see what we get as a result of paying.
Note that after you consider quality and reliability that you may have eliminated a number of the
cheapest options. That's okay. After all, you're looking for the best option. However, there is still
likely to be plenty of difference between the various options. After the aforementioned minimums
have been met, then you should check to see the lowest price that you can get the good or service
for.
The X Factor
Finally, many suppliers may have an X-Factor that sets them apart. This could be just about
anything. It could be that a close friend or business contact runs the firm. That goes towards
reliability, but also companies like to know that they are a priority. If a supplier only has so much
of a given good, you want to make sure that you are first in line to get it. Or, it could be location.
Many customers want to know that their goods are coming from a given geographical area. In that
case, the X-factor could be that a company is located in the desired state or country.
Lesson Summary
In this lesson, we looked at considerations to make in considering a supplier while trying to procure
goods. We see that cost shouldn't be the first criterion. Instead, the most important thing that we
should look at is reliability. After all, goods or services are only worth buying if they are actually
delivered. Next the quality of the goods or services must meet a certain minimum level, or we'll
have to replace everything later. Only after those two requirements are met should we consider
price to make our decision. Of course, there is always the chance that an X-factor, such as the
location of the supplier or the relationship between the supplier and the customer, could further
sway a decision.
Exercise:
1. does these criteria necessary in searching for a supplier in our industry? And why?
Reliability
Quality
Value
The X Factor

Lesson: 13
Learning Outcome
After this lesson, you should be able to:
• Describe globalization and understand how it affects businesses
• Define downsizing
• Explain outsourcing and insourcing as well as their advantages and disadvantages
Globalization, Outsourcing & Insourcing: Impact of Technology on Careers

This lesson discusses the impact information technology has on careers. Globalization has been
driven by advances in technology and has impacted job security and wages. We will specifically
look at downsizing, insourcing and outsourcing.
Globalization
Everyone, I have gathered you here today because I have an important announcement. As your
CEO, I have to make tough decisions at times. These decisions are made in the best interest of
the organization and consider the effects to all parties involved.
We live in an increasingly integrated society, one in which globalization continues to increase.
Globalization is the increasing movement of goods, services and capital across national borders.
Information technology has been a driving force of globalization. Advances in software, hardware,
Internet and telecommunications have made it easier and faster for companies to communicate
with employees, partners and suppliers from all over the globe in realtime. Information technology
facilitates greater efficiency and productivity and enables new innovations to spread quickly.
One of the costs of globalization is job security. Increasingly, jobs are moved across borders
where there is cheaper labor, few environmental and labor laws and weak regulations regarding
health and safety. Many jobs in the domestic economy are lost or wages are lowered to stay
competitive with foreign rivals.
Downsizing
Unfortunately, we have been affected by globalization. Our company has to remain competitive,
which requires some tough decisions and changes be made. We will experience downsizing in a
number of departments. Downsizing means we have to reduce the number of employees that
work for our organization. We will downsize our sales department, marketing department and
finance department. We anticipate cutting 20 to 30 jobs over the next several months. This
measure will help us cut costs by reducing redundancies, reorganizing jobs and streamlining our
processes to be more efficient.
Outsourcing
Additionally, our organization has decided to outsource its IT department in an effort to save
money. What does this mean? Well, outsourcing is taking a workplace activity once performed
inside the organization and moving it outside of the organization.
Deciding whether or not to outsource was a difficult strategic decision that the company had to
make. There are various advantages and disadvantages of outsourcing. IT outsourcing can
provide a number of benefits including cost savings, increased technical competence and a
competitive advantage. Outsourcing IT can lessen the burden of routine tasks and allow the
organization to focus on key IT activities. It can increase flexibility while reducing the costs
associated with staying up-to-date on technological advancements. Service providers often
encounter more problems and obstacles and will be able to better address issues given their wide
array of knowledge and skills. We feel that outsourcing will reduce costs such as operating

expenses, increase flexibility, improve management focus and quality of service and provide
access to the latest technology.
A main risk of outsourcing is security of information. Information security centers around three
parts: integrity, availability and confidentiality. Information should be accurate and safeguarded.
Only authorized personnel should have access to the information when the situation warrants it,
and only those authorized to access the information should be able to get to it. Once an
organization outsources to a vendor, they have little control, if any, on how that vendor handles
their information and keeps it secure.
Additional risks could center on quality and consistency. When the organization outsources the IT
function, they will lose the level of control they have had with in-house IT. The organization must
be sure to oversee outsourced functions and ensure they are getting the quality of service they
are paying for. After weighing the pros and cons, we felt it was in our best interest to outsource
the IT department.
Insourcing
We have decided to insource our accounting function including tax returns, financial statement
preparations and bookkeeping. Insourcing is the opposite of outsourcing. Insourcing involves
moving a business function in-house rather than having an external vendor complete the task.
Insourcing may involve bringing in specialists or consultants to provide expertise or training.
Currently, our accounting function is outsourced to a local accounting firm. We have been unhappy
with their service and responsiveness to our needs. Therefore, we have decided to maximize the
potential of our current employees and hire additional talent to bring our accountingfunction in-
house. We anticipate the need to hire ten new employees over the next several monthsas we make
the transition from an outsourced to an insourced accounting function.
We hope that by insourcing the accounting function, we will reduce cost over the long-term,
improve consistency and accuracy, secure our financial information and, ultimately, contribute to
improving the overall competitiveness of the organization.
Lesson Summary
Remaining competitive in an increasingly integrated global economy requires us to be flexible and
adapt to changing circumstances. Sometimes, we may need to make tough choices. As you
learned today, we will be downsizing, outsourcing and insourcing as a way to increase productivity
and profits and decrease costs and overhead.
Globalization, or the increasing movement of goods, services and capital across national
borders, has been driven by advances in information technology. It has changed the competitive
environment and the way in which we must compete. Unfortunately, that requires downsizing, or
reducing the number of employees that work for our organization. Additionally, we will outsource,
or take our IT function that we currently perform inside the organization and move it outside the
organization through a vendor. On a positive note, we are insourcing, or moving our accounting
function in-house rather than having an external vendor complete the task.
Exercise:
1. What are examples of services/products/job that can be outsource in your career? 6
examples.
2. What are the disadvantages of outsourcing services/products/job?
3. what is downsizing and what are the reasons that causes it?


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E103

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