SUPPLY CHAIN

MANAGEMENT
By: Dr Aatma Maharajh
OUTLINE
Learning Objectives
What is a Supply Chain and What is Supply Chain Management?
Value Chain Management and Supply Chain Management
Strategies used Supply Chain Management
Managing Supply Chain Management Risk
Issues Affecting Efficient and Integrated of Supply Chains
Opportunities in Managing Integrated Supply Chains
Building Supply Base and Logistics Management
Ethics In Supply Chain Management
Benchmarking and the SCOR Model
LEARNING OBJECTIVES
Recall what is supply chain and the elements comprising a supply chain.
Explain what is supply chain management and its relationship to value chain
management.
Outline strategies used in supply chain management and the risks involved in
managing a supply chain.
Outline issues affecting efficient and integrated supply chains as well as
opportunities that arise in managing integrate supply chains.
Demonstration an appreciation for the ethic in supply chain management.
Apply benchmarks on the supply chain of a company using SCORN Model.
WHAT IS A “The facilities, functions, and activities involved in
producing and delivering a product or service from
SUPPLY suppliers (and their suppliers) to customers (and their
customers).”
CHAIN?
(Heizer, Render & Munson, 2017, p.6)
WHAT IS
SUPPLY
CHAIN
Supply Chains can be visualized as
shown in the diagram. It includes all
steps from the raw materials to the
end consumer.

Can you give the supply chain for

flour?

Source: https://whatis.techtarget.com/definition/supply-chain, cited on 9/02/2021

WHAT IS SUPPLY CHAIN
MANAGEMENT
“The coordination of all supply chain activities involved in enhancing customer value.”
(Heizer, Render & Munson, 2017, pp. 444)

“Supply Chain Management requires managing the flow of information through the
supply chain in order to attain the level of synchronization that will make it more
responsive to customer needs while lowering costs.”
(Russel & Taylor, 2011, pp. 424)
WHAT IS SUPPLY CHAIN
MANAGEMENT?
Council of Supply Chain Management Professionals defines Supply Chain
Management as follow:

“Supply chain management encompasses the planning and management of all

activities involved in sourcing and procurement, conversion, and all logistics
management activities. Importantly, it also includes coordination and collaboration
with channel partners, which can be suppliers, intermediaries, third party service
providers, and customers. In essence, supply chain management integrates supply
and demand management within and across companies.”
(Source: https://bit.ly/3jzhnGv, cited on 9/02/2021)
OBJECTIVE OF SUPPLY CHAIN
MANAGEMENT
The objective of supply chain management is to structure the supply chain to
maximize its competitive advantage and benefits to the ultimate consumer.”

(Heizer, Render & Munson, 2017, pp.444)

Competitive advantage: factors that allow a company to produce goods or services

better or more cheaply than its rivals.
(Investopedia, https://bit.ly/3tNHKNi, cited 10/02/21)
PORTER’S
VALUE
CHAIN
“The value chain disaggregates
a firm into its strategically
relevant activities in order to
understand the behavior of
costs and the existing and
potential sources of
differentiation. A firm gain
competitive advantage by
performing these strategically
important activities more
cheaply or better than its
competitors.”
(Porter, 1985, pp 33-34)
SUPPLY CHAIN MANAGEMENT
VS VALUE CHAIN
MANAGEMENT
Competitiveness and profitability of a company is linked to its ability to manage it
value chain.

 Lowering Cost on Strategically Important Activity

Success of a supply chain is dependent on the individual companies that make up the
supply chain to add value.

 Inbound Logistics include all items from suppliers

 Outbound Logistics include all customers

MANAGING SUPPLY CHAINS:
MAKE VS BUY, OUTSOURCING
Recall from OMI, the questions asked when deciding to make, buy or
outsource include:
 Cost – Is cheaper to buy or make item/component?
 Capacity – Do we have capacity to make item/component?
 Quality – Can we provide consistent quality of all items/components?
 Speed – Is cost savings from outsourcing eaten away from shipping outsourced
item/component?
 Reliability – Is the supplier reliable in quality and timing of shipment?
 Expertise – Do we want the expertise to stay in-house?
MANAGING SUPPLY CHAINS:
MAKE VS BUY, OUTSOURCING

How does the decision to outsource affect

supply chain management?
 MANAGING SUPPLY CHAIN AS
A STRATEGY
DIFFERENTIATION
LOW-COST STRATEGY RESPONSE STRATEGY
STRATEGY
Primary Supplier • Cost • Capacity • Product development skills
Section Criteria • Speed • Willing to share information
• Flexibility • Jointly and rapidly develop
products
Supply Chain • Minimize inventory to • Use buffer stock to ensure • Minimize inventory to
Inventory hold down cost speedy supply avoid product obsolescence
Distribution Network • Inexperience • Fast Transportation • Gather and communicate
transportation • Provide premium market research data
• Sell through discount customer service • Knowledgeable sales staff
distribution/retailers
Product Design • Maximize Performance • Low setup time • Modular design to aid
Characteristics • Minimize cost • Rapid production ramp- product differentiation
up
 There are six (6) sourcing strategies:

SOURCIN 1. Many Suppliers

G 2. Few Suppliers
3. Vertical Integration
STRATEGI 4. Joint Ventures
ES 5. Keiretsu Networks
6. Virtual Companies
MANAGING SUPPLY CHAIN
RISK
Risk Risk Reduction Tactics
Supplier failure Use multiple suppliers;
to deliver effective contracts with
penalties; subcontractors on
retainer; preplanning
Supplier quality Careful supplier selection,
failures training, certification, and
monitoring
Outsourcing Take over production; provide
or perform the service yourself
Examples
McDonald’s planned its supply chain 6 years before
its opening in Russia. Every plant—bakery, meat,
chicken, fish, and lettuce—is closely monitored to
ensure strong links.
Darden Restaurants has placed extensive controls,
including third-party audits, on supplier processes and
logistics to ensure constant monitoring and reduction
of risk.
Tyson took over chicken farm production in China to
mitigate product quality and safety concerns related to
using independent farmers.
MANAGING SUPPLY CHAIN
RISK
Risk Risk Reduction Tactics Examples
Logistics delays Multiple/redundant transportation Walmart, with its own trucking fleet and numerous
or damage modes and warehouses; secure distribution centers located throughout the U.S., finds
packaging; effective contracts alternative origins and delivery routes bypassing
with penalties problem areas.
Distribution Careful selection, monitoring, and Toyota trains its dealers around the world, invoking
effective contracts with penalties principles of the Toyota Production System to help
dealers improve customer service, used-car logistics,
and body and paint operations.
Information loss Redundant databases; secure Boeing utilizes a state-of-the-art international
or distortion IT systems; training of supply communication system that transmits engineering,
chain partners on the proper scheduling, and logistics data to Boeing facilities and
interpretations and uses of suppliers worldwide.
information
MANAGING SUPPLY CHAIN
RISK
Risk Risk Reduction Tactics
Political Political risk insurance; cross-
country diversification;
franchising and licensing
Economic Hedging to combat exchange
rate risk; purchasing contracts
that address price fluctuations
Natural Insurance; alternate sourcing;
catastrophes cross-country diversification
Theft, vandalism, Insurance; patent protection;
and terrorism security measures including
RFID and GPS; diversification
Examples
Hard Rock Café reduces political risk by franchising
and licensing, rather than owning, when the political
and cultural barriers seem significant.
Honda and Nissan are moving more manufacturing
out of Japan as the exchange rate for the yen makes
Japanese-made autos more expensive.
Toyota, after its experience with fires, earthquakes,
and tsunamis, now attempts to have at least two
suppliers, each in a different geographical region, for
each component.
Domestic Port Radiation Initiative: The U.S.
government has set up radiation portal monitors that
scan nearly all imported containers for radiation.
ISSUES AFFECTING EFFICIENT
& INTEGRATED SUPPLY CHAIN
These three (3) issues contribute to distortions of information on the
supply chain:
1. Local Optimization – over responding to small fluctuations in demand (either
over or under compensating) as a result of the need to maximize profits and
minimizing costs.

2. Incentive - propensity for companies to offer various incentives, increasing

merchandize in the into the chain for sale that have not occurred resulting in
fluctuations and overall increases to all member of the chain

3. Excessively Large Lots – results in increased costs due holding costs. Also
results in a distortion of information about supply chain as it fails to reflect
actual sales.
OPPORTUNITIES IN
MANAGING INTEGRATED
SUPPLY CHAIN
1. Accurate Pull Data
2. Lot Size Reduction
3. Single-stage Control of Replenishments
4. Vendor-Managed Inventory Control
5. Collaborative Planning, Forecasting and Replacements
OPPORTUNITIES IN
MANAGING INTEGRATED
SUPPLY CHAIN
6. Blanket Orders
7. Standardization
8. Postponement
9. Electronic Ordering and Funds Transfer
10. Drop Shipping and Special Packaging
BUILDING SUPPLY BASE

Supplier Supplier Negotiations Contracting Centralized E-

Evaluations Development • Cost-Base Price • Set out terms of Purchasing Procurement
• Choosing the • Working with Model vs the relationship • Applies to • Movement
best supplier supplier to Market-Based including sharing companies with towards a more
integrate and Price Model vs risks incentive multiple outlets, integrated
meet your needs Competitive structures decides procurement
Bidding purchasing approach
arrangement
LOGISTICS MANAGEMENT –
SHIPPING SYSTEMS
As will be seen in transportation module, there are number of methods that items are
shipped. These include:
1. Trucking
2. Railroads
3. Airfreight
4. Waterways
5. Pipelines
6. Multimodal
LOGISTICS MANAGEMENT –
WAREHOUSING
Warehousing can function in several ways. These include:

 Storage of Goods

 Consolidation points for shipment from multiple sources to one outbound source

 Break-Bulk Function (one source to multiple sources) e.g. Panama Canal

 Cross-Docking Facility (many sources to many sources)

 Channel Assembly - Postpones final assembly of a product so the distribution channel can
assemble it.
LOGISTICS MANAGEMENT –
THIRD-PARTY LOGISTICS (3PL)
Method of Outsourcing Logistics

Done to meet three (3) goals:

1. Drive down inventory investment
2. Lower delivery cost
3. Improve delivery reliability and speed

Amazon heavily uses 3PL.

ETHICS IN Ethics can be viewed in three (3) areas:
SUPPLY 1. Personal Ethics

CHAIN 2. Ethics within the Supply Chain

MANAGE 3. Ethical Behavior Regarding the Environment

MENT
CLASS DISCUSSION

Why is ethics in supply chain management important?

BENCHMARKING
SUPPLY CHAIN – SCOR
MODEL
Supply Chain Operations Reference (SCOR) model
- A set of processes, metrics, and best practices
developed by the APICS Supply Chain Council.
1. Plan – Planning Activities for Supply and
Demand
2. Source – Purchasing Activities
3. Make – Production Activities
4. Deliver – Distribution Activities
5. Return – Closed Loop Supply Chain Activities
BENCHMARKING SUPPLY
CHAIN – SCOR MODEL
PERFORMANCE SAMPLE METRIC CALCULATION
ATTRIBUTE
Supply chain reliability Perfect order (Total perfect orders)/(Total number of orders)
fulfilment
Supply chain Average order (Sum of actual cycle times for all orders
responsiveness fulfilment cycle time delivered)/(Total number of orders delivered)
Supply chain agility Upside supply chain Time required to achieve an unplanned 20%
flexibility increase in delivered quantities
Supply chain costs Supply chain Cost to plan + Cost to source + Cost to deliver
management cost + Cost to return
Supply chain asset Cash-to-cash cycle Inventory days of supply + Days of
management time receivables outstanding - Days of payables
outstanding
THANK YOU,
ANY
QUESTIONS