What is Supply Chain

9
How to tackle the uncertainty
(buffering)

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 Variability of demand means that you have to buffer with one of 3
things

Ballpoint Pens Ambulance Service Organ Transplants

▪Can’t buffer with time (who will
backorder a cheap pen?)
▪Can’t buffer with capacity (too expensive,
and slow)
▪Must buffer with inventory
▪Can’t buffer with inventory (stock of
emergency services?)
▪Can’t buffer with time (violates strategic
objectives)
▪Must buffer with capacity
▪Can’t buffer with WIP (perishable)
▪ Can’t buffer with capacity (ethically
anyway)
▪Must buffer with time

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KPIs for Supply Chain

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The primary goals of Supply Chain are: minimization of costs with
assumed optimal service level and maximization of elasticity

▪Operational costs
▪Fixed assets
Costs ▪Stock level
minimization

Optimization
Maximization
of customer
of elasticity
service level

▪Reaction speed ▪Delivery time accuracy

▪‘Time to market’ ▪Delivery flexibility
▪Service time
▪Products quality

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How much Supply Chain costs

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Supply chain cost may represent significant percentage of total costs in
many industries

100

Food industry
Engineering Motor industry

75 Airline industry

Electronics/domestic appliances

Health service
Chemical industry
50

Media

Banking
25

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Impact of Supply Chain on
ROCE

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 The course is organized into 8 sections and I will be adding new soon

Relative impact Area of impact

Costs
A High ▪ Purchasing
▪Distribution
Operating profit –

Revenue on sales B Medium ▪Distribution

▪Planning
▪Depot management

ROCE /

Fixed assets C Low ▪ Distribution

▪Planning

Capital employed +

Current assets High ▪ Distribution

D
▪Depot management
▪ Planning
▪Purchasing

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 The course is organized into 8 sections and I will be adding new soon
Hypothetical determinants

▪ Cost of materials and raw materials purchase

Materials ▪Consumption, level of waste materials (specifications)

▪ Cost of energy purchase

Energy ▪Energy consumption (production planning )

▪ Employment scale (production planning, distribution,

Production costs + Remuneration depots)

▪ Cost of spare parts purchase

Maintenance

Other

▪ Cars exploitation
Transport ▪Routes planning
▪ Cost of purchase og logistic services

A Operating costs + Distribution costs ▪ Cost of packaging purchase

Packaging ▪Level of pallets return / recovery
+
▪ Logistic assets maintenance cost f.e. depots, fork lift
Warehouses trucks, cars, etc.

▪ Cost of material purchase POS

S&M costs Other ▪ Cost of administrative materials purchase

Administrative costs

Other
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The course is organized into 8 sections and I will be adding new soon

Hypothetical determinants

▪ Availability of products on different

Sales volume distribution system stages
✓Producer’s depot
✓Distributors
✓Point s of retail sale

▪ (planning, purchasing, distribution)

B Sales x

▪ Level of customer service

Prices ▪ Operating costs

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 The course is organized into 8 sections and I will be adding new soon
Hypothetical determinants

Intangible

▪ Distribution assets (i.e. warehouses)

C Fixed assets + Tangible fixed assets ▪ Warehouse equipment

Long-term investments

Capital employed + ▪ Quote-to-cash

+ Trade receivables ▪ Accuracy of invoicing

+ Other receivables

▪ Stock level
+ Raw materials and packaging ▪ Purchasing policy / strategy

▪ Stock level
D Working capital + + Finished goods ▪ Distribution model

▪ Payment maturities / purchasing policy

- Trade liabilities

- Other liabilities

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