SESSION 7

Supply Chain Management

Source: Tibbett and Britten

Slide: 1
Global supply chain management

Slide: 2
Definition of the term „Supply Chain“ (SC)
• A Supply Chain represents
– a „... network of organizations
– that are involved, through upstream and downstream linkages,

in the different processes and activities

– that produce value in the form of products and services
– in the hands of the ultimate customer'' (Christopher, 1998).
Suppliers Assembly Warehouse 3rd Party L. Customers

„Demand driven network“

Slide: 3
New „Hype“ terminology – still „in“ or
already „out“ ?
TP
2 C A PP/D u b s
B S e- h

CRM 2 B
CPFR I I B
RP
M ECR
VMI

APS
AI
E
I
R bullwh KP
SCO ip-effec
t

Slide: 4
 Examples for improvements by Supply Chain
Management (SCM) and Advanced Planning:
I. Hewlett Packard
II. BASF AG
+ ~100 Order fillrate
Distribution costs
d els % ge
d
-25 o a
m
ry ent M an
% t o r + n g
ven onem nd
o
ry n n i
In stp + Elimination Ve ento Pla
d
Po safety stocks Inv man
at customers‘ De
sites

III. IBM, Personal Computers

Materials- and sales costs IV. Campbell Soup +
+ ast
i on Retailer Inventories
o rec
t
i za n ed f ory
- 750 p tim atio + increase of -66%
p rov vent
O ul average order im in ules
Mio. $ Sim fill rates w
ne mt. r
mg

Slide: 5
Supply chain management is concerned with the flow of
information as well as the flow of products and services
• Long-term plans and requirements
‘Upstream’ flow • Market research information
of customer • Individual orders
• Payment
requirements • Potential new products and services

Flow between Flow between Flow between

processes processes processes

Consumer

• Products and services ‘Downstream’ flow

• New products and services of products and services
• Delivery information for customer
• Payment request / Credit
fulfilment

Slide: 6
Second-tier First-tier First-tier Second-tier End
supplier supplier customer customer customer

Supply side Demand

side
Purchasing and Physical distribution
Information supply management
flow management Logistics
Physical
flow
Supply chain management

Slide: 7
Objectives of Supply Chain Management

Cost
100%
80%
Time to market Profit
60%
40%
20%
Product quality 0% Market share

Customer satisfaction Market volume

Growth

Slide: 8
 Perceived benefits from SCM
Demand planning
6
5
Production 4 Marketing
3
2
1
Procurement 0 Product development

Inventory management Warehousing

Transportation

Slide: 9
 The House of SCM

Competitiveness
Customer service
Integration: Coordination:

Choice of partners Use of

information +
Network organization communication
+ interorganizational technology
collaboration
Process orientation
Leadership Advanced Planning
Foundations: Stadtler (2002)

Logistics, marketing, OR, organizational theory, purchasing, ...

Slide: 10
 The House of SCM: Integration

- Medium term collabor.

- Win-win situation
- Capabilities
- Geographical location
Competitiveness
Customer service
Integration: Coordination:

Choice of partners - Hybrid (market/hierarchy)

Use of
information +
- Partnership
Network organization communication
- Creating bonds
+ interorganizational technology
collaboration
Process
- Focal orientation
company
Leadership - Polycentric network
Advanced Planning
Foundations:
Logistics, marketing, OR, organizational theory, purchasing, ...

Slide: 11
The House of SCM: Coordination

- Database systems (Data W.)

Competitiveness
- Powerful computers
Customer
- Computer networks (Internet) service
Integration: Coordination:

Choice of partners Use of

information +
- Cross-functional and
Network organization communication
cross-organizational technology
+ interorganizational
- Order fulfillment process
collaboration
Process orientation
- Hierarchical Planning <=
Leadership Advanced Planning <= i2,
i2, SAP
SAP APO,
APO,
- Constraint based (bottleneck) Manugistics,
Manugistics, ……
- Powerful algorithms Foundations:

Logistics, marketing, OR, organizational theory, purchasing, ...

Slide: 12
Popularity of SCM since the mid-nineties
because of ...

 increased number of mergers of companies

 development of new markets

 customers claim for better services

 techological developments (hard- and software)

 need for globalization

 high number of companies involved in generating value

(Lean Production)
 increased pressure to save costs

Slide: 13
Development of the term SCM

Slide: 14
 Postponement
"... changes in form and identity occur at the latest possible point in the marketing flow;
and changes in inventory location occur at the latest possible point in time."
(Alderson 1957, p. 424 )

Reduction of market risk

Example: Hewlett-Packard.
Printer power supplies added in distribution centers just before transport to sales region
(country)
( Lee, Billington 1995 )

Slide: 15
 Manufacturer’s Wholesaler’s
orders to Store’s orders Sales from
orders to its
manufacturer to wholesaler store
suppliers

Orders

Orders

Orders
Orders

0 0 0 0
Time Time Time Time

Manu- Whole- Retail

Supplier Consumers
facturer saler Store

Slide: 16
 The bullwhip effect
Original

d
Third-level Second-level First-level

an
d equipment
rio

m
supplier supplier supplier manufacturer
Pe

De
Prodn. Stock Prodn. Stock Prodn. Stock Prodn. Stock

100 100 100 100

1 100 100 100 100 100 100 100 100
100
100 100 100 100
2 20 60 60 80 80 90 90 95 95
60 80 90 95
3 180 120 120 100 100 95 95 95 95
120 100 95 95
4 60 90 90 95 95 95 95 95 95
90 95 95 95
5 100 95 95 95 95 95 95 95 95
95 95 95 95
6 95 95 95 95 95 95 95 95 95
3 2 1 OEM MARKET

ALL OPERATIONS HOLD ONE PERIOD’S STOCK

Slide: 17
Traditional Supply Chain Management versus
World Class Perspective
TRADITIONAL WORLD CLASS

Open “4-Wall mentality” – process integration

and collaboration of all involved functions

“Dynamic” – speed to market

“Holistic minded” – responsiveness vs. supply

chain cost optimization

“Target setting” – focus on global instead

of local optimization

“Segmentation” – different supply chain

solutions for different needs

Slide: 18
 Matching the supply chain with market requirements

Nature of demand
Functional products Innovative products
Predictable Unpredictable
Few changes Many changes
Low variety High variety
Price stable Price markdowns
Long lead-times Short lead-times
Low margin High margin
Low throughput times
Efficient

Deployed inventory
Flexible suppliers
Supply chain objectives

High utilization

Lean supply Mismatch

chain
management
High utilization
Low cost

Minimum inventory
Low-cost suppliers

Agile supply
Mismatch
Responsive

chain
management

Slide: 19
 Depot

Information
Products
Supplier Manufacturer

Customer-responsive supply Depot

Outlets

Depot

Products
Information
Supplier Manufacturer

Efficient fast-throughput
supply Depot

Outlets Slide: 20
 The purchasing function brings together
the operation and its suppliers

Suppliers Purchasing function The operation

Prepare Request
Requests
quotation for for Request for Demand
specification, quotations products and from
price, delivery, customers
etc. services
Liaison
Select between
purchasing
supplier(s) and the
Quotations operation

Produce Prepare Receive Supply to

Order
products and purchase products and customers
services order services

Deliver

Slide: 21
 Factors for rating alternative suppliers
Short-term ability to supply
•Range of products or services
provided
•Quality of products or services
•Responsiveness
•Dependability of supply
•Delivery and volume flexibility
•Total cost of being supplied
•Ability to supply in the required
quantity
Longer-term ability to supply
•Potential for innovation
•Ease of doing business
•Willingness to share risk
•Long-term commitment to supply
•Ability to transfer knowledge as well
as products and services
•Technical capability
•Operations capability
•Financial capability
•Managerial capability
Slide: 22
 Weighted supplier selection criteria for the hotel chain

Factor Weight Supplier A score Supplier B score

Cost performance 10 8 (8 x 10 = 80) 5 (5 x 10 = 50)
Quality record 10 7 (7 x 10 = 70) 9 (9 x 10 = 90)
Delivery speed promised 7 5 (5 x 7 = 35) 5 (5 x 7 = 35)
Delivery speed achieved 7 4 (4 x 7 = 28) 8 (8 x 7 = 56)
Dependability record 8 6 (6 x 8 = 48) 8 (8 x 8 = 64)
Range provided 5 8 (8 x 5 = 40) 5 (5 x 5 = 25)
Innovation capability 4 6 (6 x 4 = 24) 9 (9 x 4 = 36)
Total weighted score 325 356

Slide: 23
 Supply chain relationships

Business Consumer
B2B B2C
Relationship: Relationship:
Most common, all but the Retail operations
last link in the supply chain Catalogue operations, etc.
Business
E-commerce examples: E-commerce examples:
EDI networks Internet retailers
Tesco information exchange Amazon.com, etc.

C2B C2C
Relationship: Relationship:
Consumer ‘offers’, business Trading ‘swap’ and
Consumer responds auction transactions
E-commerce examples: E-commerce examples:
Some airline ticket Specialist ‘collector’ sites
operators eBay.com, etc.
Priceline.com, etc.

Slide: 24
 Types of supply relationship
Character of internal operations activity

everything
Vertically
Do
integrated
operation

Traditional supply
management
everything
important
Do

‘Partnership’
supply
management
Virtual Long-term
nothing

spot virtual
Do

trading operation

Transactional – many Type of inter-firm contact Close –

suppliers few suppliers

Slide: 25
Elements of process partnership relationships

Attitudes
Trust

Long-term Sharing
expectations success

Joint Multiple
learning points of
contact
Closeness of
relationship
Joint co- Few
ordination of relationships
activities

Joint problem Information

solving transparency
Dedicated
assets
Actions

Slide: 26
 The decision logic of outsourcing

Does Is company’s Is significant

Is activity of No company have No No operations No Explore
strategic operations outsourcing
specialized performance performance
importance? knowledge? improvement this activity
superior?
likely?

Yes Yes Yes Yes

Explore keeping this activity in-house

Slide: 27
 Supply-side and demand-side factors
in location decisions

Examples of supply-side Examples of demand-side

factors that vary with factors that vary with
location, influencing costs location, influencing
customer service/revenue
labour costs The
land costs operation labour skills
energy costs suitability of site
transportation costs image
community factors convenience for customers

Slide: 28
 Cost breakdown of a shirt made in various countries
and sold in France

France €15.55

Portugal €14.33

Turkey €11.43

Thailand €11.43
Labour
Morocco €11.13
Transport
Romania €10.82
Fabric
China €10.37 Supplies

Vietnam €9.60 Customs duties

0 2 4 6 8 10 12 14 16
Cost in euros

Slide: 29
 Location – Where is the market?

Population
density

Low High

Slide: 30
 The balance of capacity

Capacity can either lead or lag demand

Inventory can be used to smooth out the peaks

Spare capacity can be used to supply other

operations

The danger of this is that the original operation

may receive a lower level of service

Slide: 31
 Capacity leading demand and capacity lagging demand

Capacity leads demand Capacity lags demand

Capacity
Volume

Volume
Demand Demand
Capacity

Time Time

Slide: 32
 Smoothing with inventory

Capacity
Volume

Demand

Time

Slide: 33
 Scope of Logistics
Inbound
Transportation

Warehousing of
Materials
Warehousing &
Export transportation

Domestic
Warehousing &
Strategy,
Distribution
Network Design
& Optimization
Supplier Selection
& Innovation
Supplier Consolidation
& Outsourcing
Lead Logistics
Service
Provider

Slide: 34
 Modes of Transportation

Rail
mass movement of goods
large capabilities
low unit cost

Truck
point-to-point service
flexible
fast

Slide: 35
 Supply Chain targets and controlling
Supply Chain Controlling

Cost indicators Service indicators Asset indicators

Key performance • Transport costs
indicators • Warehouse costs
• Order processing costs
• Obsolescence costs
• Overtime / rescheduling
• Sales forecasting accuracy • Working capital
• Shipment forecast accuracy - inventory
• Ship-to-request • Capacity utilization
- By date
- by quantity
• Ship-to-confirm
- by date
- by quantity
• Replenishment lead time

Standard for • in Volume / Currency • Per order line • in days sale

Comparison / • Order value of late delivery • in %
Reference base

Integrated KPI’s are the key enabler for SC business decisions and
holistic optimization of the supply chain network

Slide: 36
 SCM Systems: mySAP
mySAP Business Suite

mySAP PLM

Maintenance & Quality

Distribution Management
mySAP ERP
Purchase Order

Sales Order &

mySAP Management mySAP
Financials
SRM Human Resources CRM
Corporate Services
Operations
Inventory & Production

mySAP SCM

SAP NetWeaver

Slide: 37
Slide: 38
Key Terms Test

Slide: 39
 Key Terms Test
Purchasing
The organizational function, often part of the operations function,
that forms contracts with suppliers to buy in materials and
services.

Single-sourcing
The practice of obtaining all of one type of input product,
component or service from a single supplier, as opposed to
multi-sourcing.

Multi-sourcing
The practice of obtaining the same type of product, component
or service from more than one supplier in order to maintain
market bargaining power or continuity of supply.

Slide: 40
Key Terms Test

Slide: 41
 Key Terms Test
Order fulfilment
All the activities involved in supplying a customer’s order; often
used in e-retailing but now also used in other types of
operation.

Merchandising
A term used to describe a role in retail operations management
that often combines inventory management and purchasing
with organizing the layout of the shop floor.

Virtual operation
An operation that performs few, if any, value-adding activities
itself; rather it organizes a network of supplier operations,
seen as the ultimate in outsourcing.

Slide: 42
 Key Terms Test
Partnership relationship
A type of relationship in supply chains that encourages relatively
enduring cooperative agreements for the joint
accomplishment of business goals.

Bullwhip effect
The tendency of supply chains to amplify relatively small
changes at the demand side of a supply chain such that the
disruption at the supply end of the chain is much greater.

Slide: 43