CBMEC 1

OPERATIONS MANAGEMENT AND TQM

MODULE 8
Monday

SUPPY CHAIN MANAGEMENT

 Supply chain management is defined as the integration-oriented skills required

for providing competitive advantage to the organization that are basis for
successful supply chains.

 A typical supply chain may involve a variety of stages. These supply chain stages
include:
o Customers
o Retailers
o Wholesalers/distributors
o Manufacturers
o Component/raw material supply

 Concept of supply chain

Source: Neha Tikko, Neha (Editor). Production and Operations Management. Excel Books Private
Limited.
https://ebooks.lpude.in/Management/Bba/Term_4/Dmgt206_Production_And_Operations_Manageme
nt.Pdf
  Supply chain management can be defined as the active management of supply
chain activities to maximize customer value and achieve a sustainable
competitive advantage.
o It represents a conscious effort by the supply chain firms to develop and
run supply chains in the most effective and efficient ways possible.

 Within each organization, such as a manufacturer, the supply chain includes all
functions involved in receiving and filling a customer request.
o The functions that are involved include but are not limited to, new product
development, marketing, operations, distribution, finance, and customer
service.
o The decisions are trade-off between price, inventory, and responsiveness.

 The objective of every supply chain is to maximize the overall value generated so
that the final price of the good covers all of the costs involved plus a profit for
each participant in the chain.
Evaluating the Make or Buy Decision
 In the build-up of a product or service, there are some parts that the organization
will create internally, some parts it may have no option but to purchase from
outside, the other remaining parts can be either made internally or purchased
from suppliers.

 To decide whether a service or good should be provided from inside the

organization or it is to be purchased from suppliers, management must ask the
following questions:
o Who has the technical capabilities to provide the good or service?
o Who can deliver a quality product?
o Who can make timely deliveries?
o What costs are associated with each alternative?

Source: Neha Tikko, Neha (Editor). Production and Operations Management. Excel Books Private
Limited.
https://ebooks.lpude.in/Management/Bba/Term_4/Dmgt206_Production_And_Operations_Manageme
nt.Pdf
Expediting and Follow-up
 Expediting is the monitoring of supplier deliveries of materials that in some way
have become critical for the customer.
o Example:
 Production schedulers may have forgotten to order floppy disk
drives and now they are needed quickly.
 Inventory records may overstate the number of hair pins available.
 The supplier may not have met the delivery date for some reason.
 Expediters phone suppliers to talk about the importance of an
order.
 They plead with and threaten suppliers to get their order
moved up in line for fast delivery.
Follow-up and Evaluation
 As part of an organization’s supplier certification program, the purchasing
department should collect and maintain information about each supplier.
o This information should be used to evaluate performance and to
determine the future acceptability of all suppliers.
o In addition, both positive and negative information should be given as
feedback to all suppliers. Suppliers who are doing a good job should be
positively reinforced.

 Suppliers who are not performing well may not fully understand the importance of
their performance to the customer’s organization.
o These poorly performing suppliers may not even be aware of the extent of
their shortcomings.

Source: Neha Tikko, Neha (Editor). Production and Operations Management. Excel Books Private
Limited.
https://ebooks.lpude.in/Management/Bba/Term_4/Dmgt206_Production_And_Operations_Manageme
nt.Pdf
 o Clear and immediate feedback may help them improve.

Forward Buying
 Purchasing retail inventory in quantities more than current demand, usually when
manufacturers, or other suppliers, offer provisional discounts.
o When the promotion period expires, the retailer can then sell the left over
inventory to consumers at regular prices, earning a bigger margin of profit.

 In several cases, an authorized dealer who receives a substantial discount might

resell the merchandise to other retailers.
o Diverted units possibly will end up at “stores” or other less than-selective
retailers to which manufacturers do not sell directly.

 Those retailers can sell to the public at a discount the authorized dealer is not
permissible to offer.
o Retailers who use aggressive forward buying and diverting practices may
make as much profit all the way through these buying practices as they
create through non-promotional sales to consumers.

 Manufacturers offer discounts to retailers presumptuous the retailer will pass the
savings on to consumers.
o The discounts also can speedily move a large amount of inventory when
the manufacturer needs to reduce stock.
o As more retailers make use of the forward buying strategy, manufacturers
such as Procter & Gamble are switching to every day low pricing (EDLP)
strategies in its place.

Source: Neha Tikko, Neha (Editor). Production and Operations Management. Excel Books Private
Limited.
https://ebooks.lpude.in/Management/Bba/Term_4/Dmgt206_Production_And_Operations_Manageme
nt.Pdf