Supply Chain Management

Module 1 Introduction – The Big

Picture
Summer 2022 V.Wollny

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Supply Chain Management (SCM)
Definition
„The supply chain encompasses all activities
associated with the flow and transformation of
goods from raw material stage (extraction),
through to the end user, as well as the information
flows. Material and information flow both up and
down the supply chain. Supply Chain Management
(SCM) is the integration of these activities trough
improved supply chain relationships, to achieve a
sustainable competitive advantage.” (Handfield and
Nichols 1999)

HS Mainz Prof. Dr. V. Wollny Supply Chain Management

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 Example Supply Chain

Palm Oil Refinery Mineral

Industry Oil
Industry

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Folie 4 V. Wollny
 A Simplified View of Anheuser-
Busch’s Supply Chain
Terms

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 Flows in a Supply Chain

Information
Product
Supplier Customer
Funds

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 The Objectives of Supply Chain
Management
 Maximize overall value created
 Supply chain value: difference between what the final
product is worth to the customer and the effort the
supply chain expends in filling the customer’s request
 Value is correlated to supply chain profitability
(difference between revenue generated from the
customer and the overall cost across the supply chain)
 Supply chain management is the management of
flows between and among supply chain stages to
maximize total supply chain profitability
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 Business Strategy, Supply Chain
Strategy and Functional Strategies

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 Drivers of Performance
Structural Decision SC Drivers (Chopra)
Categories (Bozarth)
 Capacity  Logistical Drivers:
 Amount, Type, Timing of
capacity changes
 Facilities
 Facilities  Inventories
 Services/Manufacturing,  Transportation
Warehouses, Distribution hubs
 Size, location, degree of
specialization  Cross Functional drivers:
 Technology
 Sourcing
 Services/Manufacturing
processes, Material handling  Pricing
equipment, Transportation
equipment, Information systems
 Information

Copyright © 2010 Pearson Education, Inc. 1-9

 Examples
 Starbucks:
https://www.youtube.com/watch?v=ElYNhGbOTOQ
Ikea: https://
www.youtube.com/watch?v=NOyBX0_GtNw
Beiersdorf: https://
www.youtube.com/watch?v=XEWsgIUiHyo
Toyota:
https://www.youtube.com/watch?v=txtuL1BoL4Q

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 What happens in a SC?
 Beer game with 4 players
 https://beergame.masystem.se/game

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 3. Customer Value Dimensions
Strategy defines Value Creation and the Customer Value !
 Quality
 Performance Quality – Addresses the basic operating characteristics of a
product or service.
 Conformance Quality – Addresses whether a product was made or a service
performed to specifications.
 Reliability Quality – Addresses whether a product will work for a long time
without failing or requiring maintenance.

 Time
 Delivery Speed - How quickly the operations or supply chain function can fulfill a need
once it has been identified.
 Delivery Reliability – The ability to deliver products or services when promised.

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 Customer Value Dimensions
 Availability (Flexibility of Supplier)
 Mix Flexibility – The ability to produce a wide range of products or services.
 Changeover Flexibility – The ability to produce a new product with minimal
delay.
 Volume Flexibility – The ability to produce whatever volume the customer
needs.

 Price (Cost)
 Labor costs
 Material costs
 Engineering costs
 Quality-related costs
 ………..

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 Decision Criteria of Customers
 Order Winners
 A performance dimension that differentiates a company’s
products and services from its competitors.

 Order Qualifiers
 A performance dimension on which customers expect a
minimum level of performance.

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 Decision Criteria of Customers

Performance of
Two
Chemical Suppliers

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 Customer Value and Example
(Tablet PC)
 Value Index - A measure that uses the performance and
importance scores for various dimensions of performance for
an item or a service to calculate a score that indicates the
overall value of an item or a service to a customer.

Importance Dimensions and Scores for each

option (1 = low, 5 = high)

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 4. Achieving Strategic Fit between Business
Strategy and Supply Chain Strategy
(Chopra’s Approach)

 Understanding the Customer

– Lot size
– Response time
– Service level Implied
– Product variety Demand
– Price Uncertainty
– Innovation

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 Levels of Implied Demand
Uncertainty

Predictable Predictable supply and uncertain Highly uncertain

supply and demand or uncertain supply and supply and demand
demand predictable demand or somewhat
uncertain supply and demand

Salt at a An existing A new

supermarket automobile communication
model device

Figure 2.2: The Implied Uncertainty (Demand and Supply)

Spectrum

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 Correlation Between Implied Demand
Uncertainty and Other Attributes

Attribute Low Implied High Implied

Uncertainty Uncertainty
Product margin Low High

Avg. forecast error 10% 40%-100%

Avg. stockout rate 1%-2% 10%-40%

Avg. forced season- 0% 10%-25%

end markdown

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Understanding the Supply Chain: Cost-
Responsiveness Efficient Frontier
Responsiveness

High

Low
Cost
High Low
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 Achieving Strategic Fit Shown on the
Uncertainty/Responsiveness Map
Responsive
supply chain

Responsiveness e of i t
n F
spectrum Zo e g i c
t
t ra
S

Efficient
supply chain

Certain Implied Uncertain

demand uncertainty demand
spectrum
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 Comparison of Efficient and
Responsive Supply Chains
Efficient
Primary goal Lowest cost
Product design strategy Minimal product cost
Pricing strategy Lower margins
Manufacturing strategy High utilization
Inventory strategy Minimize inventory
Lead time strategy Reduce but not at expense
of greater cost
Supplier selection strategy Cost and low quality
Transportation strategy Greater reliance on low cost
modes
Responsive
Quick response
Modularity to allow
postponement
Higher margins
Capacity flexibility
Buffer inventory
Aggressively reduce even if
costs are significant
Speed, flexibility, quality
Greater reliance on
responsive (fast) modes
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 Classroom Exercises II
 Find examples for efficient and responsive companies
and supply chains
 At home: Read the article on ZARA/Inditex
(Literature in OLAT) and find out, how this company
achieves high responsiveness while keeping overall
costs on a low level
 At home: A second example is Seven Eleven in Japan
(Literature in OLAT). Would you describe it‘s supply
chain as responsive or efficient? In which terms? How
do they achieve responsiveness and efficiency?

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 5. Method: Supply Chain Operating
Reference Modell (SCOR)
 Developed by the Supply Chain Council (USA)
(since 2014 APICS-SCC)
 www.supply-chain.org
 definition of 17 core process categories
 key performance indicators
 software
 benchmarks
 best-practices

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Overview: Supply-Chain Operation
Reference-model
Scope:
 All customer interactions, from order entry through paid invoice
 All product (physical material and service) transactions, from your
supplier’s supplier to your
 customer’s customer, including equipment, supplies, spare parts, bulk
product, software, etc.
 All market interactions, from the understanding of aggregate demand
to the fulfillment of each order
Out of Scope:
 Sales and marketing (demand generation)
 Research and technology development
 Product development
 Some elements of post-delivery customer support

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 Supply-Chain Operations Reference-model
(SCOR) 6.1 - Processes
Plan P1 Plan Supply Chain

P2 Plan Source P3 Plan Make P4 Plan Deliver P5 Plan Returns

Source Make Deliver

Suppliers

S1 Source Stocked Products M1 Make-to-Stock D1 Deliver Stocked Products

Customers
S2 Source MTO Products M2 Make-to-Order D2 Deliver MTO Products

S3 Source ETO Products M3 Engineer-to-Order D3 Deliver ETO Products

D4 Deliver Retail Products

Return Return
Source Deliver

Enable

Copyright © 2010 Pearson Education, Inc. 26

 Level 1 Process Definition
Plan Processes that balance aggregate demand and supply to develop a course of action
which best meets sourcing, production and delivery requirements

Source Processes that procure goods and services to meet planned or actual demand

Make Processes that transform product to a finished state to meet planned or actual demand

Deliver Processes that provide finished goods and services to meet planned or actual demand,
typically including order management, transportation management, and distribution
management

Return Processes associated with returning or receiving returned products for any reason.
These processes extend into post-delivery customer support

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 Level 2 Process Types
Planning processes align expected resources to meet expected demand requirements.
Planning processes:
- Balance aggregated demand and supply - Consider consistent planning horizon -
(Generally) occur at regular, periodic intervals
They can contribute to supply-chain response time
Execution processes triggered by planned or actual demand change the state of material
goods. They generally involve
 1. Scheduling/sequencing
 2. Transforming product, and/or
 3. Moving product to the next process
Enabling Processes contribute to the order fulfillment cycle time
 A process that prepares, maintains, or manages information or relationships on which
planning and execution processes rely

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 Level 2: Three Different
Capabilities
Stocked Product (S1, M1, D1) Example: A retail air conditioner which is pulled off the
shelf, and restocked based on SKU.
 Inventory Driven (Plan)
 Standard Material Orders
 High Fill-rate, short turnaround
Make-to-Order (S2, M2, D2) Example: A car is built with a particular combination of
colors and features and ordered from a distributor.
 Customer Order Driven
 Configurable Materials
 Longer turn-around times
Engineer-to-Order (S3, M3, D3, D4) Example: An architect and engineer creates a new
kitchen for you, with some custom-build and custom-sourced materials.
 Customer Requirements Driven
 Sourcing New Materials
 Longest long lead-times, low fill rates

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Best practice Example: Product
Delivery Scheduling

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Business Scope Model

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Steps to Create a Business Scope
Diagram
1. Create the business scope diagram template
2. Identify customers of your organization or project and enter these in the
customers column in the scope diagram.
3. Identify and enter the key nodes within your organization or project. A node
represents a logical or geographic entity in the supply chain. Consider:
Warehouse, Factory, Store, HQ etc.
4. Identify and enter the suppliers of your organization or project
5. Optionally link the nodes to reflect material and/or information flows. Use a
different color and/or stroke differentiate material and information flows.

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Geographical mapping

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 Classroom Exercise IV
 Read the case study leap frog (in OLAT) and answer
the questions
 Drawing maps of the SC will help you to answer the
questions

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 Key Terms
 Operations Management
 Supply Chain Management
 Tiers, Upstream, Downstream
 Customer Value: Quality, Time, Flexibility, Cost
 Order Winners and Qualifiers
 Uncertainty and Strategic Fit
 Responsiveness and Efficiency
 Plan, Source, Make, Deliver, Return

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 Classroom Exercise
 Leapfrog

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