Republic of the Philippines

CAVITE STATE UNIVERSITY

Cavite City Campus
Pulo II, Dalahican, Cavite City, Cavite
(046) 4313570/ (046) 4313580

WRITTEN REPORT AND POWERPOINT PRESENTATION:

“SUPPLY CHAIN DESIGN AND PLANNING”

Undergraduate Requirement
Submitted to the Faculty of
the Department of Management
Cavite State University
Cavite City Campus

In partial fulfilment
of the requirement for the degree
Bachelor of Science in Business Management

IRISH DENNISSE LOSING

JUSTIN RUSSEL MIRANDA
JOSHUA B. NOCEDA
ERICA MAE PANIS
PHOEBE CATES D. PEDRAYA
ARSHELL PUGEDA
SUPPLY CHAIN DESIGN AND PLANNING
One of the important issues in supply chain management is to design and plan

out the overall architecture of the supply chain network and the value-adding flows that

go through it. This means that managers should step back and looks at the supply chain

as a whole and formulates strategies and processes that maximize the total supply chain

value-adding and minimizes the total supply chain costs.

Key Contents:

 Supply Chain Configuration

 Vertical Integration

 Outsourcing and Offshoring

 Location Decision

 Capacity Planning

 Bullwhip Effect

The key contents of such architecture design and planning include supply chain

configuration, the extent of vertical integration, strategic outsourcing and offshoring,

location decisions, capacity planning, and dealing with bullwhip effect.

SUPPLY CHAIN CONFIGURATION

Supply chain configuration represents how the participating company members of

the chain are connected with each other to deliver the product or service to the end

customer.

OEM- Original Equipment Manufacturer

This means that a company that makes a product to be sold by another company

under its own name. For example, an OEM computer manufacturer might make
computers for a brand like Dell or Lenovo, who then sell the products under their own

brand names.

To an OEM, how many suppliers it uses, how the suppliers are grouped or

categorized or tiered, where do they geographically located, the ownership and

independence of the suppliers, the choice of distribution channels are all the

configuration issues for the supply chain. The fact is that companies do have the choice

to configure their supply chains in the way they believe are most appropriate and

beneficial. However, there is no single ‘best’ configuration for all supply chains. It all

depends on the industry sectors, market environment, stages of the product cycle and so

on.

Network relationship perspective

Supply chain configuration can also be observed from the network relationship

perspective.

Stable Network- long term stability

- When the OEM forms its supply network through tiered suppliers and tiered

distributors with medium and long term stability, it can be called the ‘Stable

Network.’

Dynamic Network- short term suppliers and distributors

- When the OEM does not have many of those long terms tiered suppliers and

customers but instead uses dynamic and mostly short term suppliers and

distributors to achieve high level of operational flexibility and strategic agility, it

can be called the ‘Dynamic Network’.

Supply chain management network configuration

Which network configuration is better?

In comparison, the tiered stable network has more control over its suppliers and

distributors’ operations than the dynamic network. An unexpected misunderstanding in

the dynamic network may result in unrecoverable product defects. Along with it, there is

higher risk in operational cost control and quality standard. However, the dynamic

network is much more flexible than stable network in that it can quickly form a new

network in the supply market to cater for the changed demand both in volume and in

variety. It also has a better ability to upgrade technology and foster innovative processes.

Which network configuration is better? It all depends on the objectives and desired

characteristics of the network in the business context.

VERTICAL INTEGRATION

Is a strategy that allows a company to streamline its operations by taking direct

ownership of various stages of its production process rather than relying on external

contractors or suppliers.

How Vertical Integration Works

Vertical integration occurs when a company attempts to broaden its footprint

across the supply chain or manufacturing process. Instead of sticking to a single point

along the process, a company engages in vertical integration to become more self-reliant

on other aspects of the process.

Types of Vertical Integration

Backward integration is a form of vertical integration in which a company expands

its role to fulfill tasks formerly completed by businesses up the supply chain.

Forward integration is a business strategy that involves expanding a company's

activities to include the direct distribution of its products. Forward integration is

colloquially referred to as "cutting out the middleman."

Balanced integration is where a company aims to merge with companies both

before it and after it along the supply chain. A company must be the middleman and

manufacture a product to engage in balanced integration.

Advantages and Disadvantages

Advantages:
Resilience to supply chain disruptions; market power; and economies of scale.

Disadvantages:

High costs; less flexibility; and loss of focus.

Key Takeaways:

High costs; less flexibility; and loss of focus.

Example of Vertical Integration: Netflix

OUTSOURCING AND OFFSHORING

On the other side of spectrum, we have vertical disintegration. This time, it is the

degree a supply chain is composed of independent members. This means that the

suppliers of a business may be comprised of businesses out of control of the

manufacturer. Outsourcing is the act of 'buying' processes instead of making it. This

means that a business may contract an outside business to perform a process that they

may not be able to do or it's just cheaper to outsource. This is the same concept as

opportunity cost as businesses may choose the better alternative which is outsourcing

because of its comparative advantage. Outsourcing isn't limited to outsourcing outside

the country, it is also called outsourcing when a business outsourced domestically.

Additionally, not all external activities of a business can be called outsourcing, only those

that have strategic significance. For example, a catering business outsourcing food from

external businesses can be called outsourcing because it is relevant to the main process

of the business, however, an IT business doing the same cannot be called outsourcing

because the external process have no significance to the main process of the business.

In terms of a business outsourcing outside the country, we have something

called offshoring. It is the process of delegating work to an offshore location. To add, not

all offshoring is outsourcing and not all outsourcing is offshoring. If the business that

owns the offshore process is still the same, that is not outsourcing but offshore

manufacturing. And if a business outsourced in a domestic setting, that is obviously not

offshoring. Offshoring may be done because of benefits of another location such as

resources.

Why exactly do business outsource? Just with what was stated, sometimes,

outsourcing can have a comparative advantage than not. And since it is vertical

disintegration, it will give a business responsiveness and flexibility. However, this doesn't

come without its risks. A business may encounter IP right risks as some trade secrets

may leak during outsourcing. The business they outsource from may also bloom into a

competitor as they get experience doing the processes significant to your business.

Lastly, loss of control can happen as your process is dependent on an independent

member.

Businesses may outsource for different reasons. A business could outsource a

business process such as hiring. They could also outsource IT services and that would

be outsourcing a business function. Lastly, they could also outsource facilities and

machines.

In summary, vertical disintegration is the degree of which a supply chain has

independent members. This can be by the means of outsourcing which is 'buying'

processes instead of making them. Another is offshoring which is delegating work

outside the country.

LOCATION DECISION

The choice of geographical locations for supply chain operations is crucial for

effective planning and design. It involves positioning functions like assembly and

distribution to better serve customers and reduce operational costs. However, not all

locations are suitable, and location changes can impact labor, material, taxation,

currency exposure, financial, legal regulations, and environmental consequences.

Operational considerations for location decisions are not sufficient for supply chain

location design, as they only measure operations costs from various dimensions.
Therefore, location decisions are a powerful management tool for business outcomes,

supply chain performance, and environmental consequences.

Factors influence operational location decisions

Supply- side factors:

 Labor cost/skill

 Land cost

 Energy cost

 Logistics convenience

 Community factors

Demand- side factors:

 Demand seasoning

 General affordability

 Brand image

 Convenience for customers

Supply chain total cost

Physical cost

Measures supply chain operational efficiency, including production, logistics,

material, labor, taxation, and energy costs.

Market cost

Refers to losses incurred by inappropriate supply chain market mediation. If a supply

chain fails to produce the right quantity, quality, and price for the market, it may result in

unsold products or unsatisfied customers.

Weighted scoring method

Step 1: Identifying the criteria which will be used to evaluate the various locations. The

selection of criteria for evaluating locations should align with the strategic intention of the

decision-maker and the specific circumstances of the location.

Step 2: Discuss and brainstorm each criterion's importance, assign weighting factors,

and total weighting scores to 100, representing proportion of weight in percentage.

Step 3: Rate alternative locations on a scale from 1 to 100, with subjective scoring.

Reliable when a group of people joins the scoring together.

Step 4: Multiply the weighting allocated to each criterion by the score in each location.

The most appropriate location is determined by multiplying the weighting assigned to

each criterion by the score in each location, resulting in an overall score.

CAPACITY PLANNING

The process of ensuring that a business has enough resources to meet customer

demand. This includes forecasting demand, identifying current capacity, and developing

strategies to bridge any gaps between the two.

Why is capacity planning important?

Capacity planning is important for supply chains because it helps to:

Avoid bottlenecks and disruptions: When a supply chain has too much or too little

capacity, it can lead to bottlenecks and disruptions. This can result in delayed deliveries,

stockouts, and lost sales.

Optimize costs: By carefully planning capacity, supply chains can avoid over-investing

in resources that they don't need, while also ensuring that they have enough capacity to

meet demand.

Improve responsiveness to customer needs: When a supply chain has the right

capacity in place, it can quickly adapt to changes in customer demand. This can help

supply chains to stay competitive and win new customers.

What are the three levels of capacity planning?

The three levels of supply chain capacity planning are:

Level 1: Internal Capacity Planning

Internal capacity planning is the process of managing the resources that a supply chain

has direct control over, such as its own warehouses, transportation fleet, and

manufacturing facilities.

Level 2: External Capacity Coordination

External capacity coordination is the process of working with suppliers and other

partners to ensure that everyone has the capacity they need to meet demand.

Level 3: Market Demand Responsiveness

Market demand responsiveness is the ability of a supply chain to quickly adapt to

changes in customer demand.

BULLWHIP EFFECT

It is also known as Forrester Effect as Jay Forrester (1961) by modeling supply

chain mathematically and he called it industrial dynamics. - It's called the "bullwhip"

effect because these fluctuations resemble the way a cracking whip travels along its

length, with increasing intensity - refers to a supply chain-wide phenomenon that modest

change of customer demand is distorted and amplified toward the upstream end of the

supply chain resulting in large variations of orders placed upstream.

The Bullwhip Effect has Three Key Characteristics:

• Oscillation - The demand, orders or inventories move up and down in an alternative

pattern.

• Amplification - The magnitude of the alteration and fluctuation increases as it travels to

the upstream end of the supply chain.

• Phase Lag - The cycle of peaks and troughs of one stage also tends to lag behind the

one in the previous stage.

KEY TAKEAWAYS: Bullwhip Effect (Forrester Effect)

Three Key Characteristics:

1.Oscillation

2. Amplification
3. Phase Lag