SUPPLY CHAIN MANAGEMENT

What is 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.

Supply chain planning and control

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

Supply network management concerns flow between operations

Flow between processes

Flow between processes

Flow between processes

Flow between processes

Flow between processes

Supply chain management concerns flow between a string of operations

Supply chains management is concerned with the flow of information and the flow of products and services
Upstream flow of customer Requirements Flow between processes

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

Flow between processes

Operation 1

Operation 2

Operation 3 Downstream flow of products and services for customer

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

Fulfilment

Supply chain planning and control

Second tier supplier First tier supplier First tier customer Second tier End customer custome r

Supply side
Information flow

Purchasing and supply management

Demand side Physical distribution management Logistics

Physical flow

Materials management Supply chain management

The purchasing function brings together the operation and its suppliers
Suppliers Purchasing function Request for quotations Select supplier(s) Liaison between purchasing and the operation The operation

Prepare Requests quotation for specification, price, delivery, etc.

Quotations Produce products and services Order

Request for products and services

Demand from customers

Prepare purchase order

Deliver

Receive products and services

Supply to customers

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 Longer-term ability to supply Potential for innovation Ease of doing business Willingness to share risk Long-term commitment to supply

Delivery and volume flexibility

Total cost of being supplied Ability to supply in the required quantity

Ability to transfer knowledge as well as products and services

Technical capability Operations capability Financial capability Managerial capability

Weighted supplier selection criteria for a hotel chain

Factor Cost performance Quality record Delivery speed promised Delivery speed achieved Dependability record Range provided Innovation capability

Weight 10 10 7 7 8 5 4

Supplier A score Supplier B score 8 (8 x 10 = 80) 7 (7 x 10 = 70) 5 (5 x 7 = 35) 4 (4 x 7 = 28) 6 (6 x 8 = 48) 8 (8 x 5 = 40) 6 (6 x 4 = 24) 5 (5 x 10 = 50) 9 (9 x 10 = 90) 5 (5 x 7 = 35) 8 (8 x 7 = 56) 8 (8 x 8 = 64) 5 (5 x 5 = 25) 9 (9 x 4 = 36)

Total weighted score

325

356

Supply chain relationships

To
Business Consumer Business to consumer (B2C) Business to business (B2B) Most common, all but the last link in the supply chain Business E-commerce examples: EDI networks Business information exchanges. Consumer to business (C2B)

Retail operations Catalogue operations, etc.

E-commerce examples: Internet retailers Amazon.com, etc. Consumer to consumer (C2C) or peer to peer (P2P) Trading swap and auction transactions E-commerce examples: Specialist collector sites Ebay.com, etc.

From

Consumer

Consumers offer, business responds

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

Types of supply relationship

The character of internal operations activity Do everything Do Do important nothing everything

Vertically integrated operation Traditional supply management Partnership supply management Virtual spot trading Transactional many suppliers Long-term virtual operation

Type of inter-firm contact

Close few suppliers

Elements of process partnership relationships

Trust
Long-term expectations Joint learning Closeness of relationship Sharing success

Attitudes

Multiple points of contact

Few relationships

Joint coordination of activities Joint problem solving

Dedicated assets

Information transparency

Actions

The effects of supply chain compression

Supply chain time compression
Schedule changes impact market faster Forecasts made closer to demand time

Defects are detected faster

New products and service faster to market

so can respond to market changes better

so improved forecasts so easier to improve quality so less need for safety stocks

so fewer lost sales from delayed launch

so reduced risk of obsolescence

so revenues are maximized

so reduced stockholding costs

so reduced wastage costs

so revenues are maximized

so less discounted sales

Improved profitability

The bullwhip effect

3rd LEVEL SUPPLIER Prodn. Stock 2nd LEVEL SUPPLIER Prodn. Stock 1st LEVEL SUPPLIER Prodn. Stock ORIGINAL EQUIPMENT MFG.

Prodn. Stock

1 2 3 4

100 20
180

60 100
95 3

5
6

100 100 100 60 60 120 120 90 90 95 95 95

100 60
120

90
95 95 2

100 100 100 80 80 100 100 95 95 95 95 95

100 80
100

95 95
95 1

100 100 100 90 90 95 95 95 95 95 95 95

100 90
95 95

95 95 OEM

100 100 100 95 95 95 95 95 95 95 95 95

100 95 95 95 95 95
MARKET

ALL OPERATIONS HOLD ONE PERIODS STOCK

The bullwhip effect (Continued)

3rd LEVEL SUPPLIER Prodn. Stock 2nd LEVEL SUPPLIER Prodn. Stock 1st LEVEL SUPPLIER Prodn. Stock ORIGINAL EQUIPMENT MFG.

Prodn. Stock

1 2 3 4

100

100 100

100

100 100

100

100 100

100

100 100

100 95 105 95 105 95

5
6
3 2 1

OEM

MARKET

ALL OPERATIONS HOLD ONE PERIODS STOCK

The bullwhip effect (Continued)

Manufacturers orders to its suppliers

Wholesalers orders to manufacturer

Stores orders to wholesaler

Sales from store

Time

Time Manuf acturer Whole saler

Time

Time

Supplier

Retail store

Consumers

Supply chain dynamics

Supply chains with different end objectives need to be managed in different ways

Matching the supply chain with market requirements

Nature of demand Functional products Innovative products
Predictable Few changes Low variety Price stable Long lead-times Low margin Low cost Low throughput times High utilization Low utilization Minimum inventory Deployed inventory Low cost suppliers Flexible suppliers Unpredictable Many changes High variety Price markdowns Short lead-times High margins

Supply chain objectives Efficient Responsive

Lean supply chain management

Mismatch

Mismatch

Agile supply chain management

Where is the inventory?

Customer responsive supply
Depot Information

Supplier

Manufacturer

Depot

Outlets

Products

Where is the inventory? (Continued)

Efficient fast throughput supply
Depot Products

Supplier

Manufacturer Information Depot

Outlets

QUESTIONS?