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Supply Chain Management Chapter 1 - Students
Supply Chain Management Chapter 1 - Students
Chapter 1
Umar Farooq
Management Sciences Department
3/5/2021 1
GIK Institute
Course Outline
Text and Reference Books
Text Book:
Wisner, J. D., Tan, K.-C., & Leong, G. L. Principles of Supply Chain Management: A Balanced
Approach (3rd ed.). Mason, OH: South-Western
Reference Books:
Chopra, Sunil, and Peter Meindl. Supply chain management. Strategy, planning & operation. Gabler,
2007.
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Course Outline
Lecture Breakdown
Week Topics Covered
1 Supply Chain Management: An Overview
Introduction to Supply Chain Management Supply Chain Management .The Importance of Supply Chain Management.
The Origins of Supply Chain Management in the U.S. The Foundations of Supply Chain Management. Current Trends
in Supply Chain Management.
2 Purchasing Management
The Purchasing Process. Sourcing Decisions: The Make-or-Buy Decision. Roles of Supply Base. Supplier Selection.
Purchasing Organization. The Transaction Management Foundation.
3 Creating and Managing Supplier Relationships
Developing Supplier Relationships. Supplier Evaluation and Certification. Supplier Development. Supplier Recognition
Programs. Supplier Relationship Management.
4 Operations Issues in Supply Chain Management.
Demand Forecasting. Demand Forecasting. Forecasting Technique. Qualitative Methods. Quantitative Methods.
Forecast Accuracy.
Quiz – 1
5&6 Inventory Management.
Inventory Types. Inventory Types Supply Chain View. Managing Inventories In Supply Chains. Categories Of Inventory
Cost. Inventory Characteristics. The Inventory Management System. The EOQ Model. The EOQ Calculation. The EOQ
Model Annual Inventory Cost Calculation. The Periodic Review Or Fixed Period System.
7&8 Resource Management.
The Resource Management Planning Framework. The Aggregate Planning. The Disaggregation Framework. Materials
Requirements Plan & Inputs. Calculations.
Quiz - 2
9 Mid Term Examination
3
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Course Outline
Lecture Breakdown
Process Management
Lean Operating Systems. The Lean Thinking. The Lean Operating Systems Principles. The Lean
10 Operating Systems Tools & Approaches. Just-in-Time Systems. TQM & Supply Chain
Management.
Grading Policy
Announced/Surprise Quizzes/ 10%
Assignment 5%
Project 10%
Class Participation (attendance) 5%
Mid Term Exam 30% -35%
Final Exam 40% -45%
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What is Supply Chain Management?
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Denotation
• What is Supply Chain Management?
Supply Chain Management
• Supply Chain:
Network of integrated activities and/or processes
used to deliver products and services, from raw
material to final product, to the final consumer.
• Management: (What should we
manage?)
Effectively manage back and forth flows;
Material flow
Information flow
Cash flow
• profit
For one common purpose reduce cost
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and increase
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10
UK’s biggest delivery company - it had stopped collecting parcels from
retailers as it struggled to deliver the vast volume of online present
shopping
11
General Composition of Supply Chain
Three Main Channel entities/Actors
• Supplier
A provider of raw goods or services.
e.g. Raw material, Energy, Services, Components. Farmers, Ore
mines, Spare parts manufacturers etc.
• Manufacturer
Receives raw materials and components to convert it into
finished products
e.g. Finished Goods manufacturer, Denim industry, Aerospace
Industry, Automobile Industry, Cement Industry, Sugar Industry etc.
• Distributor
Receives and distribute finished products to final consumers
e.g. Macy’s, Wall Mart, Nestle, Nike, Cash & Carry etc.
• Customer
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Consume to utilize the final product or services. 12
General Composition of Supply
Chain…Cont.
• Supply Chain includes four main Flows
o Reverse Flow????
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General Composition of Supply
Chain…Cont.
Information Flow
Reverse Flow
Rejected or Defected
products
Downstream flow
Upstream flow
Product Flow
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Cash Flow 14
Introduction –Supply Chain Management
• Network of integrated activities and/or processes used to deliver products and
services, from raw material to final product, to the final consumer.
Origin of Supply Chain Management
• 1930-1950s (Early years of SCM)
Mass Production age
Women induction into industries
Pallet, Pallet Lift and concepts from break-
bulk shipping concepts
Set the stage for supply chain
• globalization
1950s & 1960s (Quality Era)
More focus on cost reduction
Improve productivity
Less focus on quantity
Systems innovation
• 1960s-1970s (Integration Era)
Introduction of computer technology
Development of software like MRP-I & MRP-II
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Fredrik
Tayl1o7r
Origin of Supply Chain Management
1980s & 1990s (Globalization
Era)
Personal Computers
Intense global competition led manufacturers to
adopt
Just-In-Time (JIT),
Total Quality Management (TQM), and
Business Process Reengineering (BPR)
practices
2000s and Beyond (SCM 2.0)
Industrial buyers will rely more on third-party
service providers to improve purchasing and
supply management.
Wholesalers/retailers will focus on transportation
and logistics more as quick response service
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Main Supply Chain Structures
Question: Can we apply same supply chain management concepts to
all types of industries?
• You can improve operating efficiency by employing the right
supply chain structure.
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Journey of Main Supply Chain Strategies
• Stable Supply Chain:
Less variability and innovation in product’s demand and design.
Produced in bulk quantities.
A heavy focus on execution, efficiencies, and cost performance.
Slight focus on communication technologies.
Strong relationship with business partners.
Examples: ????? Cement Industry, Pharmaceuticals, Fertilizers
• Reactive supply chain:
• Seasonal or on-demand manufacturing.
• Required good communication technologies in order to react quickly.
• Example: ?????? Ice cream, Clothing industry, Sugar industry, Agriculture industry
• Efficient reactive supply chain:
• Acts as an efficient, low-cost provider of goods and services.
• Operate in highly competitive environment.
• Required highly efficient communication systems to reduce lead time and
operational costs.
Supply Chain Models
• Vertical integration
• Horizontal Integration
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Supply Chain Models
• Vertical integration
• It is a strategy to gain
control over its suppliers or
distributors, retailers in order
to increase the firm’s power
in the marketplace, reduce
transaction costs and secure
supplies or distribution
channels.
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Supply Chain Models
• Examples(Vertica
l Integration):
Amazon, Ford, Hyundai,
Apple, Google,
Microsoft
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AMAZON Case
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Supply Chain Models
• Examples: Apple
• They are completely vertically
integrated. They own the OS, the
hardware and the ecosystem. The
result of this vertical integration is that
they have complete control of their
future.
• Samsung
• They do their own design, their own
chips, and in their case they even
do their own screens and
manufacture their own products.
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Supply Chain Models
• Horizontal integration
is a strategy where a
company acquires, or
mergers or takes over
another company in
the same industry
value chain.
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Supply Chain Models
• Examples (Horizontal
Integration):
• Marriott's 2016 acquisition of
Sheraton (hotels)
• AstraZeneca's 2015
acquisition of ZS Pharma
(biotech)
• Volkswagen’s 2012
acquisition of Porsche
(automobiles),
• Facebook's 2012 acquisition
of Instagram (social
media),
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Disney's 2006 acquisition of 27
Pixar (entertainment
media)
Supply Chain Models
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Importance of Supply Chain
Management
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Importance of Supply Chain
Management Profit
Supply Chain
• Supply Chain Cost 20% Cost
Marketin
• Marketing Cost 25% g Cost
activities. 30
What can Supply Chain
Management do?
• If you cannot bring big change, Start doing small changes.
• The need for Cost savings and better coordination of resources are
reasons to employ Supply Chain Management.
• Some Examples:
• The grocery industry could save $30 billion (10% of operating cost)
by using effective logistics and supply chain strategies.
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Bullwhip Effect
• Lack of communication, coordination and
disorganization within supply chain can result one of
the most common problem of supply chain.
• This common problem is known as the bullwhip
effect or whiplash effect.
o Increasing fluctuations in inventory in response to shifts in
customer demand as one moves further up the supply
chain.
• Bullwhip effect is a phenomenon in Forecast driven
distribution channels
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Bullwhip Effect
• The bullwhip effect in the supply chain occurs when
changes in consumer demand causes the companies
in a supply chain to order more/less goods from
their suppliers to meet the new demand.
• The bullwhip effect usually flows up the supply
chain, starting with the retailer, wholesaler,
distributor, manufacturer and then the raw
materials supplier.
• It occurs because the demand for goods is based
on the poor demand forecasts from companies,
rather than actual consumer demand.
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Causes of Bullwhip Effect
• The main causes of bullwhip effect
are;
Disorganization
Lack of communication
Wrong Demand Forecasting
Longer Lead-Time
Price Fluctuation (Discounts)
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Example: Bullwhip Effect
• Lets say;
• Actual demand from a customer = 8 units
• The retailer order from distributer = 10 units
– (Extra 2 units are to ensure they don’t run out of stock)
• Distributer orders to manufacturer = 20 units
– (To ensure that they should have enough stock to
guarantee timely shipment of goods to the retailer)
• Manufacturer order raw material for = 40
units
– (In order to balance the economy of scale in
production)
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Foundation Elements of Supply Chain
Management
• Supply/Purchasing Elements
• Operations Elements
• Logistics/Transportation Elements
• Integration Elements