SUPPLY CHAIN MANAGEMENT

Supply chain management is the management of the

interconnection of organizations that relate to each

other through upstream and downstream linkages

between the processes that produce value to the

ultimate consumer in the form of products and

services.

What is supply chain management?

is concerned with managing the flow of materials and information between a string of operations, that form the strands or chains of a

supply network

Flow between processes

Flow between processes Flow between processes

Supply chain

management

concerns flow

between a string of

operations

Supply network

management concerns

flow between operations

Flow between processes Flow between processes

Flow between processes

Flow between processes

Supply chain planning and control

Supply chains management is concerned with the flow of

information and the flow of products and services

Products and services New products and services Delivery information Payment request/Credit.

Downstream flow of products and services for

customer

Fulfilment

Upstream flow of customer

Requirements

Long-term plans and requirements Market research information Individual orders Payment Potential new products and services.

Flow between

processes

Consumer

Flow between

processes

Flow between

processes

Operation 1 Operation 2 Operation 3

First tier

supplier

Second tier

supplier

First tier

customer

Second tier

customer

End

custome

r

Demand

side

Supply

sidePurchasing and

supply management

Physical distribution management

Logistics

Materials management

Supply chain management

Information

flow

Physical

flow

Supply chain planning and control

The operationPurchasing functionSuppliers

Request for products

and services

Demand from

customers

Supply to customers

Request for

quotations

Prepare purchase

order

Prepare quotation for specification,price, delivery,

etc.

Requests

Select supplier(s)

Quotations

Produce products

and services

Order Receive products

and services

Deliver

Liaison between

purchasing and the

operation

The purchasing function brings together

the operation and its suppliers

Short-term ability to supply Longer-term ability to supply

Range of products or services provided

Potential for innovation

Quality of products or services Ease of doing business

Responsiveness Willingness to share risk

Dependability of supply Long-term commitment to supply

Delivery and volume flexibility Ability to transfer knowledge as well as products and services

Total cost of being supplied Technical capability

Ability to supply in the required quantity

Operations capability

Financial capability

Managerial capability

Factors for rating alternative suppliers

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

Weighted supplier selection criteria for a hotel chain

Business to business (B2B)

Most common, all but the last link in the supply chain

E-commerce examples: EDI networks Business information

exchanges.

Business to consumer (B2C)

Retail operations Catalogue operations, etc.

E-commerce examples: Internet retailers Amazon.com, etc.

Consumer to business (C2B)

Consumers offer, business responds

E-commerce examples: Some airline ticket operators Priceline.com, etc.

Supply chain relationships

Trading swap and auction transactions

E-commerce examples: Specialist collector sites Ebay.com, etc.

Consumer to consumer (C2C)

or peer to peer (P2P)

Business ConsumerTo

Business

Consumer

From

Partnership supply

management

Th

e c

hara

cte

r of in

tern

al opera

tions a

ctivity

Do

noth

ing

Do

every

thin

g

import

ant

Do

every

thin

g

Transactional many suppliers

Close few suppliers

Type of inter-firm contact

Virtual

spot

trading

Long-term

virtual

operation

Vertically

integrated

operation

Traditional

supply

management

Types of supply relationship

Attitudes

Actions

Closeness of relationship

Elements of process partnership relationships

Joint problem solving

Joint co-ordination of

activities

Joint learning

Long-term expectations

Sharing success

Multiple points of contact

Few relationships

Information transparency

Dedicated assets

Trust

Improved profitability

Supply chain time compression

Schedule changes impact market

faster

so can respond to market

changes better

so revenues are maximized

so improved forecasts

so reduced stockholding costs

Forecasts made closer to

demand time

so less need for safety stocks

Defects are detected faster

so easier to improve quality

so reduced wastage costs

New products and service faster to

market

so fewer lost sales from delayed

launch

so reduced risk of obsolescence

so revenues are maximized

so less discounted

sales

The effects of supply chain compression

MARKET

6

5

4

3

2

1

3rd LEVEL SUPPLIER

2nd LEVEL SUPPLIER

1st LEVEL SUPPLIER

ORIGINAL EQUIPMENT

MFG.

Prodn. Stock Prodn. Stock Prodn. Stock Prodn. Stock

100 100 100 100100100

100100

100100

100100

100

3 2 1

ALL OPERATIONS HOLD ONE PERIODS STOCK

20 10060

60 10080

80 10090

1009590

10095

180 60120

120 80100

100 9095 95

95 9595

60 12090

90 10095

95 9595

100 9095

95959595

95959595

95959595

95 9595

95 9595

95 9595

95 9595

95 9595

The bullwhip effect

OEM

MARKET

6

5

4

3

2

1

3rd LEVEL SUPPLIER

2nd LEVEL SUPPLIER

1st LEVEL SUPPLIER

ORIGINAL EQUIPMENT

MFG.

Prodn. Stock Prodn. Stock Prodn. Stock Prodn. Stock

100 100 100 100100100

100100

100100

100100

100

3 2 1

ALL OPERATIONS HOLD ONE PERIODS STOCK

The bullwhip effect (Continued)

OEM

95

105

105

95

95

0Time

Sales from store

Consumers

0Time

Stores orders to wholesaler

Time

Wholesalers orders to

manufacturer

0

Manufacturers orders to its

suppliers

0Time

Retail store

Whole saler

Manufacturer

Supplier

The bullwhip effect (Continued)

Supply chains with different end objectives need to be managed in

different ways

Supply chain dynamics

Matching the supply chain with market requirements

Nature of demand

Functional products Innovative products

Predictable UnpredictableFew changes Many changesLow variety High varietyPrice stable Price markdowns

Long lead-times Short lead-timesLow margin High margins

Sup

ply

ch

ain

ob

ject

ives

Res

po

nsi

veEf

fici

ent

Low

co

st

Low

th

rou

ghp

ut

tim

es

Hig

h u

tiliz

atio

n

Low

uti

lizat

ion

Min

imu

m in

ven

tory

D

eplo

yed

inve

nto

ry

Low

co

st s

up

plie

rs

Flex

ible

su

pp

liers

Mismatch

MismatchAgile supply

chain management

Lean supply chain

management

Supplier Manufacturer

Depot

Outlets

Depot

Customer responsive supply

Pro

du

cts

Info

rmat

ion

Where is the inventory?

Supplier Manufacturer

Depot

Outlets

Depot

Efficient fast throughput supply

Products

Where is the inventory? (Continued)

Information

QUESTIONS?