Chapter 13 Reviewer (Supply Chain

Management)
Monday, 5 December 2016
8:54 PM
What is 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.

Supply Network
o All the operations that were linked together so as to provide goods and
services through to the end customers

Levels of a Supply Network

1 Organization to Organization
2 Process to Process
3 Resource to Resource

Supply Chain
o Strands of linked operations under an organization

Internal and External Supply Chains

o External Supply Chain
Organization to Organization

o Internal Supply Chain

Process to Process
Resource to Resource

Tangible and Intangible Supply Chains

'Material Transformation' Operations (Tangible Supply Chains)
Operations concerned with the creation, movement, storage or sale of
physical products

Service Operations (Intangible Supply Chains)

Supply Chain Management Objectives

"To satisfy the end customer"

Each operation in the chain should be satisfying its own customer, but
also making sure that eventually the end customer is also satisfied.
The performance of both the supply chain as a whole, and its
constituent operations, should be judged in terms of how all end
customer needs are satisfied.
 Supply Chains and the Five Operations Performance Objectives

1 Quality - the quality of a product or service when it reaches the customer

is a function of the quality performance of every operation in the chain
that supplied it.

1 Speed
Two Meanings
1 How fast customers can be served
2 The time taken for goods and services to move through
the chain

1 Dependability
Dependability of throughput time
Often measured as 'on-time, in full

1 Flexibility
The chain's ability to cope with changes and disturbances
'Supply Chain Agility'

1 Cost
The supply chain as a whole incurs costs that derive from each
operation in a chain doing business with each other
Cost of finding the appropriate suppliers, setting up
contractual agreements, monitoring supply performance,
transporting products between operations, holding
inventories, etc.

The Activities of Supply Chain Management (SPPML - Sa Puso Puso Mo Lang)

1 Supply Chain Management

o Coordinates all the operations on the supply side and the
demand side
2 Purchasing and Supply Management (aka. Procurement)
o Deals with the operation's interface with its supply markets
o Buys in materials and services from suppliers
o Can have a very significant impact on any operation's costs
o Provides a vital link between the operation itself and its
suppliers
3 Physical Distribution Management
o Supplying immediate customers
4 Materials Management
o The flow of materials and information only through the
immediate supply chain
5 Logistics
 o Refers to materials and information flow down through a
distribution channel
o The process of planning, implementing, and controlling the
cost effective flow of goods from the country of origin to the
destination

o Third Party Logistics

Outsourcing to a specialist logistics company

Supplier Selection
o Choosing appropriate suppliers should involve trading off alternative
attributes
o Choosing suppliers should involve evaluating the relative importance of all
these factors

Single and Multi Sourcing

o Single Sourcing
Source each individual product or service from a single supplier
Pros:
Strong relationships can be built
Better Communication
Encourages more commitment and effort
Better quality due to SQA possibilities
Cons:
More vulnerable to disruption if a failure to supply occurs
Individual supplier more affected by volume fluctuations
Supplier might dictate the price if they know that there are no
alternatives available

o Multi Sourcing
Source each individual product or service from more than one supplier
Pros:
Purchaser can drop the price down by competitive tendering
Can switch sources in case of supply failure
Wide sources of knowledge and expertise to tap
Cons:
Difficult to encourage commitment by supplier
Less easy to develop effective SQA
More effort needed to communicate
Suppliers are less likely to invest in new processes
More difficult to obtain scale economics

Purchasing, the Internet and e-procurement

E-Procurement
 The generic term used to describe the use of electronic methods in
every stage of the purchasing process

Benefits of E-Procurement
1 Convenient and Efficient Electronic Ordering (It's easier to
buy from them)
2 Shorter Requisition and Fulfillment Cycles (It's faster to
buy from them)
3 Centralized Spending Controls (It's easier to keep track of
what you are buying from them)
4 Standardized Global IT Catalogue (Its less confusing to buy
from them)

4 Questions to determine whether E-Procurement is appropriate

1 Is the value of the spend high or low?
High spending on purchased products and services give
more potential for savings from e-procurement
2 Is the product or commodity highly substitutable or not
When products and services are 'sustainable', e-
procurement can identify and find lower cost alternatives
3 Is there a lot of competition or a little?
When several suppliers are competing, e-procurement can
manage the process of choosing a preferred supplier more
effectively and with more transparency
4 How efficient are your internal processes?
Less efficient = e-procurement potential to reduce
processing costs can be realized

Electronic Marketplaces
Also known as Infomediaries/ Cybermediaries
An information system that allows buyers and sellers to exchange
information about prices and product/service offerings

Categories of Electronic Marketplaces

1 Private - buyers and sellers conduct business in the market
only with its partners and suppliers by previous arrangement
2 Consortium - several large businesses combine to create an e-
marketplace controlled by the consortium
3 Third-party - an independent party creates an unbiased,
market driven e-marketplace for buyers and sellers in an
industry

Global Sourcing
Global Sourcing
The process of identifying, evaluating, negotiating, and configuring
supply across multiple geographies.

Factors Promoting Global Sourcing

1 Formation of Trading Blocks
 2 More sophisticated and cheaper transportation infrastructures
3 Tougher world competition has forced companies to reduce their
total costs

Problems with Global Sourcing:

1 Risks of increased complexity and distance
2 Risks of delays and hold-ups
3 Communication is more difficult (different languages)

Factors when evaluating Global Sourcing Opportunities: (SSPITC)

1 Supply Performance
The cost of late or our-of-specification deliveries

2 Supply and Operational Risks

Geopolitical factors
Changes in country leadership, trade policy changes,
instability caused by war, natural disasters

3 Purchase Price
The total price which includes transaction and other costs
related to the product/service delivered

4 Inventory Carrying Costs

Storage, handling, insurance, depreciation, obsolescence, and
other costs associated with maintaining inventories

5 Transportation Costs
Transportation and freight costs
Costs of moving products or services from where they are
produced to where they are required

6 Cross-border taxes, Tariffs, and Duty Costs

'Landed Cost'
The sum of duties, shipping, insurance and other fees and taxes
for door-to-door delivery

Global Sourcing and Social Responsibility

The responsibility of operations to ensure that they only deal with
ethical suppliers
However, when suppliers are located all around the world, monitoring
becomes more difficult
Different nations have different views of what is regarded as ethical
practice

Logistics, Physical Distribution Management, and Distribution

6 Inter-related Activities in Logistics/Physical Distribution

Management/Distribution (STOWSM)
 1 Storage
Keeping an appropriate amount of inventory of products or
materials so that they can be delivered to the next stage in the
supply chain
2 Transportation
Physically moving products or materials between operations
3 Order Processing and Communication
Information is an important aspect of any supply chain
The location and condition of items are communicated to all
parties in the supply chain who need the information for their
own planning purposes
4 Warehousing
Providing suitable accommodation in which to store inventory
5 Security
Protecting items from damage or theft
6 Materials Handling
Ensuring that within the warehouse or distribution center, the
movement and storage of products or materials is handled
efficiently
Involves choosing a suitable layout in the warehouse, materials
handling technology, and organizing warehouse staff's job

Physical Distribution Management and the Internet

2 Major Effects of Internet Communications to Physical Distribution

Management
1 Make information available more readily along the
Distribution Chain
Entities part of the supply chain can share
knowledge of where goods are in the chain
2 Business to Consumer (B2C)
Traditional warehouse and distribution operations
were not design for e-commerce fulfillment
Distributing to individual customers requires a large
number of smaller deliveries

Relationships Between Operations in a Supply Chain

4 Types of Relationships in a Supply Chain

1 Business to Business (B2B)
Involve businesses trading products and services with each
other
1 Business to Consumer (B2C)
Businesses sell products and services to final consumers
2 Consumer to Business (C2B)
 Consumers informing businesses of their opinions, ideas, or needs, or
in some other way creating value to the business
Consumers posting their needs on the internet and companies then
decide whether to offer
Ex. Writing freelance reviews
3 Consumer to Consumer (C2C) or Peer to Peer (P2P)
Consumers post items or services for sale to other consumers

Contracting and Relationships

Whatever arrangement with the suppliers a firm chooses to take, it can be
described by the balance between contracts and relationships.
The more a supply agreement is market based with purchases based on
relatively short term arrangements, the more the agreement is likely to be
defined in a detailed contract. (Market Based Supply Relationship)
The more a supply agreement is based on long-term, usually exclusive,
agreements, the more bread, trust based partnership, are appropriate.
(Partnership Supply Relationship)
Contracts
Documents that specify the legally binding obligations and roles of
both parties in a relationship.

Market-based Supply Decisions

Purchase goods and services from outside in a pure market fashion
Seeking the 'best' supplier every time it is necessary to purchase

Advantages:
Maintain competition between alternative suppliers
Suppliers can gain natural economies of scale
Enables suppliers to offer products and services at a lower
prices (economies of scale)
Innovations can be exploited no matter where they originate
Help operations concentrate on core activities

Disadvantages
Supply Uncertainties
Choosing who to buy from takes time and effort
Strategic risks
Over reliance on outsourcing can hollow out the companies.
Leaving it with no internal capabilities

Virtual Operations
An extreme form of outsourcing
Rely on a network of suppliers who can provide products and services
on demand.
 A network may be formed only for one project and then disbanded
once the project ends

Advantages:
Virtual operations are flexible and the risks of investing are far
lower than in a conventional operation

Disadvantages
Has no solid base of resources
May find it difficult to hold onto and develop a unique core
of technical expertise
Resources will also be available to the competition

Partnership Supply Operations

Partnership Operations
Relatively enduring inter-firm cooperative agreements, involving
flows and linkages that use resources and/or governance
structure from autonomous organizations, for the joint
accomplishment of individual goals linked to the corporate
mission of each sponsoring firm.

Factors that determine the degree of partnership (ISLTMFJJJ - Imelda

Sanay Tayo'y Laging Maging Friends Joke Joke Joke)
Information Transparency
Open and efficient information exchange
Sharing Success
Both partners work together in order to increase the total
amount of joint benefit they receive
Trust
The willingness of one party to relate to the other on the
understanding that the relationship will be beneficial to
both
Long Term Expectations
Partnerships imply relatively long-terms commitment
Multiple Points of Contact
Communication may take place between many individuals
in both organizations
Few Relationships
Commitment on both partners to limit the number of
customers/suppliers they do business
Joint Learning
Partners are committed to learn from each other's expertise
and perceptions of the operations in the chain
Joint Problem Solving
 Jointly approaching problems can increase closeness over
time
Joint Co-ordination of activities
Joint coordination of activities such as the flow of
materials/service, payment, etc

Customer Relationship Management (CRM)

It is a method of learning more about customers' needs and
behaviors in order to develop stronger relationships with them.
Tries to help organizations understand who their customers are and
what their value is over a lifetime

Helps sell products and services by:

Providing services and products that are exactly what your
customers want
Retaining existing customers and discovering new ones
Offering better customer service
Cross-selling products more effectively

How do supply chains behave in practice?

Efficient Supply Chain Policies

Appropriate for functional products
Focus includes keeping inventories low

Responsive Supply Chain Policies

Appropriate for innovative products
Stress high service levels and responsive supply to the end customer

The Bullwhip Effect - Supply Chain Dynamics

Bullwhip Effect
Used to describe how a small disturbance at the downstream and of a
supply chain causes increasingly large disturbances, errors,
inaccuracies and volatility as it works its way upstream.
Bullwhip Effect can be reduced by information sharing, aligning
planning and control decisions. Improving flow efficiency and allowing
better forecasting

Miscommunication in the Supply Chain

Whenever two operations in a supply chain arrange for one to provide
products or services to the other, there is a the potential for
misunderstanding and miscommunication.
How Can Supply Chains be Improved?
The SCOR Model
Is a broad but highly structured and systematic framework to supply
chain improvement that has been developed by the Supply Chain
council
Allows its users to improve, and communicate supply chain
management practices within and between operations by using
standard terminology and definitions

3 Techniques used by the SCOR Model

1 Business Process Modelling
Each link in the supply chain is made up of five types of
processes (SMDPR)
1. Source
The procurement, delivery, receipt and transfer of
raw material items, sub assemblies, product
and/or services
2. Make
Is the transformation process of adding value to
products and services through mixing production
operations processes
3. Deliver
Perform all customer facing order management
and fulfillment activities, including outbound
logistincs
4. Plan
Manage each of these customer-supplier links and
balance the activity of the supply chain
5. Return
Look after the reverse logistics flow of moving
material back from end customers upstream in
the supply chain because of product defects or
post-delivery customer support

1 Benchmarking Performance
Performance metrics in the SCOR model are also structured
by level, as is process analysis.
Level 1 Metrics
Yardsticks by which an organization can measure how
successful it is in achieving its desired positioning
within the competitive environment, as measured bu
the performance of a particular supply chain

1 Best Practice Analysis

Definition of Best Practice in the SCOR Model:
1. Is Current
2. Is Structured
 3. Is Proven
4. Is Repeatable
5. Has an ambiguous method
6. Has a positive impact on results

Benefits of the SCOR model

Improved process understanding and performance
Improved supply chain performance
Increased customer satisfaction and retention
Decrease in required capital
Better profitability and return on investment
Increased productivity

The effects of e-business on supply chain management practice

Provide better and faster information to all stages in the supply chain
Accurate and real-time information

Channel Alignment
The adjustment of scheduling, material movements, stock levels, pricing
and other sales strategies so as to bring all the operations in the chain
into line with each other.

Vendor Managed Inventory (VMI)

The upstream supplier manages the inventories of its downstream
consumer

Operational Efficiency
The efforts that each operation in the chain can make to
1. Reduce its own complexity
2. Reduce the cost of doing business with other operations in the supply
chain
3. Increase throughput time

Supply Chain Vulnerability

The result on too much focus on supply chain efficiency at the expense of
effectiveness has increased the potential risk of disruption
Ex. Tsunami in Japan has caused major disruption in supply chains across
the world for specialty resin for use in microchips because 90% of supply
came from Mitsubishi Gas Chemical and Hitachi Chemical.