Supply Chain Management

What is a Supply Chain?

 What is a Supply Chain?

A supply chain is the system of organizations,

people, activities, information and resources
involved in moving a product or service from
supplier to customer. Supply chain activities
transform raw materials and components into a
finished product that is delivered to the end
customer.
 Supply Chain

Supplier Manufacture Distributor Retailer Customers

r
A Supply Chain Example…

BBMS

AA
Coke

End customer
Nebiko AB

CG
AC

AD
Tier 1
suppliers
Distributors Local stores
Super market
chains
 Supply Chain Management
Supply Chain Management is
the design and management of processes
across organizational boundaries
with the goal of matching supply and demand
in the most cost effective way.

Supply Demand

Matching Supply and Demand

 Why so Difficult
to Match Supply and Demand?
• Uncertainty in demand and/or supply
• Changing customer requirements
• Decreasing product life cycles
• Fragmentation of supply chain ownership
• Conflicting objectives in the supply chain
• Conflicting objectives even within a single firm
– Marketing/Sales wants: more inventory, fast delivery, many package
types, special wishes/promotions
– Production wants: bigger batch size, latest ship date, decrease
changeovers, stable production plan
– Distribution wants: full truckload, low depot costs, low distribution
costs, stable distribution plan
Losing Sight of the Common Objective

I'm glad that the hole

is not on our side!
 Bullwhip Effect
Quantity and time relationship
 Supply Chain Risk

• Process (raw materials component availability,

quality)
• Controls (product design, logistic scheduling,
financial transactions)
• Environment (customs duties, security
screening, natural disaster, currency
fluctuations, terrorist attacks and political
issues)
 Supply chain strategy

• Multiple suppliers
• Few Suppliers
• Vertical integration
• Keiretsu Network (partner financial)
• Virtual Companies
 Vendor Selection

• Vendor Evaluation
• Vendor development
• Negotiations
 Logistic Management

• Logistic management is an approach that seeks

efficiency of operations through the
integration of all material acquisition,
movement, and storage activities
• Distribution system
• Third party logistics
• Cost of shipping alternatives
 Supply Chain Performance
Measures
• Cost
• Percentage invested in inventory is the amount of money invested in
inventory in a given period, generally expressed in percentage
• Inventory Turnover is the ratio of the cost of goods sold to the value
of average inventory.
• Weeks of inventory is the ratio of average inventory to the average
weekly sales

• Customer Service
• Average Response Time is the sum of delays of ordering, processing,
and transportation between the time an order is placed at a customer
zone and the time the order arrives at the customer zone
What do these measures mean?
Example
A company has total end-of-year assets of Rs 5 million. The first
year inventory was Rs 375000 with a year end inventory of Rs
325000. The annual cost of goods sold was 7 millions. The owner
wants to evaluate his supply chain performance. Help Him.
Outsourcing

Outsourcing: moving some of the firms internal activities

and decisions to outside providers

Firm

Supplier
Question: When should the
firm outsource activities?
Outsourcing

A firm may outsource … or the whole of it!

some of its activities…
Why do firms outsource?
• Organizational reasons
- Focus on service
- Focus on core capabilities
- Transform the organization
- Increase flexibility

• Operational reasons
- Improve performance (quality, productivity, etc.)
- Obtain expertise, skill, and technology
- Risk management
Why do firms outsource?
• Financial reasons
- Transfer assets to the outsourcing partner.
- Free up resources for investment in other purposes.

• Cost driven reasons

- Transform fixed costs into variable costs.
- Reduce costs through outsourcing partner
efficiencies.

• Revenue driven reasons

- Expand and grow with the help of another
organization.
- Obtain access to outsourcing partner’s network.
Type of Outsourcing

1. Purchasing
2. Logistics
3. R&D
4. Operation of facilities
5. Management of services
6. Human resources
7. Fiance/accounting
8. Customer relations
9. Sales and Marketing
10.Training
11.Leagal procedure
Advantages of Outsourcing

1. Cost Savings
2. Gaining Outside expertise
3. Improving Operation and services
4. Focusing in core competencies
5. Management of services
6. Gaining outside technology
7. Others
Disadvantages of Outsourcing

1. Increased transportation costs

2. Loss of control
3. Creating future competition
4. Negative impact on employee
5. Longer term impacts