Lecture #7

Supply Chain Management

SYED ABDULLAH HAYAT

AIOU FALL 2015
Learning Objectives
 Change Management
 Supply Chain Analysis
 Supply Chains & SCM
 Supply Chain Management (SCM)
 Issues Affecting Supply Chain Management
 Types of E-Commerce
 SCM Factors
 Supply Chain Distribution
 Integrated SCM
Definition of Change Management
Managing the process of implementing major
changes in IT, business processes, organizational
structures, and job assignments to reduce the risks
and costs of change, and to optimize its benefits.
What Does Change Management Require?

A commitment from top management and an

organizational design to plan the future of IT and
IS within the business.

Change management involves analyzing and

defining all changes facing the organization, and
developing programs to reduce the risks and costs,
and to maximize the benefits of change.
End User Resistance
 New ways of doing things creates resistance
among employees.

 Thisis the biggest obstacle to the

implementation of new information systems.
End User Implications
 Dealing with end user resistance:
 Proper education and training.
 Direct end user participation before
implementation helps insure that the end users
assume ownership of a system, and that its design
meets their needs
Supply Chain Analysis
 Supply Chain Analysis involves working across multiple enterprises or
companies (Inter-enterprise) to shorten the supply chain time in the
delivery of goods and services to the consumer or customer. The demand
uncertainty in supply chains can be addressed by faster response times. A
basic product supply chain can afford longer lead times and batch
manufacturing of large lot sizes to meet the demand. A supply chain that
produces fashion, electronic, or mass customization products must respond
quickly and be more agile. Most supply chains are moving in the direction
of supporting more rapid changing of demand by the consumer or
customer.
Supply Chain Analysis
 Value Chain Analysis is used to identify a variety of potential sources of
economic advantage. The analysis looks at a firm’s major activities as steps
or transformative stages at each of which the goods gain value. The added
value may take the form of a complex operation upon the goods or simply
moving them from one place to another. This analysis is done in order to
understand the behavior of costs and the existing and potential sources of
differentiation from others in the market. It determines how the firm's own
value chain interacts with the value chains of suppliers, customers and
competitors. Companies seek to gain competitive advantage from such
analysis by finding out how to do some or all of these activities at lower
cost, or with greater differentiation, than competitors’.
Supply Chains & SCM
 A supply chain is the network of all the activities involved in
delivering a finished product/service to the customer
 Sourcing of: raw materials, assembly, warehousing, order
entry, distribution, delivery
 Supply Chain Management is the vital business function that
coordinates all of the network links
 Coordinates movement of goods through supply chain from
suppliers to manufacturers to distributors
 Promotes information sharing along chain like forecasts,
sales data, & promotions
Components of a Supply Chain
 External Suppliers– source of raw material
 Tier one supplier supplies directly to the processor
 Tier two supplier supplies directly to tier one
 Tier three supplier supplies directly to tier two
 Internal Functions include – processing functions
 Processing, purchasing, planning, quality, shipping
 External Distributors transport finished products to
appropriate locations
 Logistics managers are responsible for traffic management
and distribution management
Components of a Supply Chain
 External Distributors transport finished products to appropriate locations
 Logistics managers are responsible for managing the movement of products
between locations. Includes;
 traffic management – arranging the method of shipment for both incoming and
outgoing products or material
 distribution management – movement of material from manufacturer to the customer
A Basic Supply Chain
 Applying the Supply Chain Management
Approach
 Supply chain management, also known as Supplier-Retailer Collaboration
(SRC) or Efficient Consumer Response (ECR), is an idea that has gained
considerable attention. In the US, supply chain management projects are
often allied with efforts to create so-called ‘virtual corporations,’ i.e., a
more opportunistic approach to collaboration. The early efforts in this area
involved the implementation of proprietary Electronic Data Interchange
(EDI) projects for large firms and industries.
 Applying the Supply Chain Management
Approach
 When considering supply chain management from a logistics perspective,
you will find two areas that have a considerable impact on the efficiency
and effectiveness of the operations being performed: product logistics and
information logistics. While product logistics is concerned with the flow of
physical goods along the supply chain, information logistics reflect the
need for handling the information flow and administrative tasks around the
products.
 Applying the Supply Chain Management
Approach

 Beyond the improvement of physical logistics, the flow of

information between the parts involved in collaboration, and
the handling of administrative issues, play an important role
for succeeding. Reducing non value-added activities by
using information technology will result in cost reduction,
improved data accuracy, and less paper work
Knowledge exchange and enabling
technology
 The exchange of knowledge and information between the
partners participating in the improvement of a supply chain
is a precondition for success. Depending on the chosen
collaborative level, this may include the free access to
analytical sales data, sales forecasts and internal logistics
figures, but even more qualitative information regarding
purchasing behavior, consumer requirements and changing
demands. This information flow improves the planning
ability throughout the entire supply chain, and allows fast
responses to changes in environmental dynamics and
variations in demand.
Knowledge exchange and enabling
technology
 For this reason, proprietary EDI first justified its cost—
among large corporations this is one of the most common
tools employed to allow information exchange at the
required pace and intensity. Several studies, conducted in
many different industries, have shown that the electronic
exchange of primarily quantitative data (but even
quantitative information) works very effectively if the
necessary preconditions are satisfied.
 The ability of retailers and suppliers to integrate effectively
within improved supply chains requires two basic elements
—Electronic Point of Sales (EPoS) data, and (EDI).
Knowledge exchange and enabling
technology
 The data scanned at the retailer’s points of sale can be used
for managing the physical flow from the retailer’s regional
distribution centers to the stores and to improve the
retailer’s warehousing at regional and store level. In this
case, the data need not necessarily be transferred to the
supplier but can be used to develop sales forecasts that
enable the supplier to better plan its own operations. When a
direct-store-delivery system is in place, the data can even be
used to improve the planning of deliveries to the retailer’s
stores. When sales forecasts are compiled and orders placed
upon the basis of gathered data from PoS, we talk about
Computed Assisted Ordering (though the existing ordering
procedures are not necessarily replaced by EDI).
Supply Chain Management (SCM)
 SCM, aims to improve coordination and competitiveness beyond the
enterprise level to include relationships between companies. We can
identify supply chains in virtually every industry linking the procurement
processes, transformation of raw materials into finished products, and
delivery of the product to customers through a distribution system. The
supply chain of a packaged consumer goods manufacturer, for instance,
comprises manufacturing, packaging, distribution, warehousing and
retailing. Managing this involves the coordination of the inventory and
production capacity availability across several organizations to produce
products that can satisfy forecasted demand in an environment with a high
level of uncertainty. While derived from and mainly studied in the
manufacturing context, SCM can equally well apply in any other service
industry and may specifically relate to the management of information
rather than materials.
Supply Chain Management (SCM)
 Recently SCM has become a ‘hot’ topic for a number of different reasons.
These include the trend towards multi-site operations with independent
entities involved in the production and delivery process, new and
increasingly competitive marketing channels, and the electronic
marketplace. The extension of extranets to efficiently enable instant
communication of activity along the chains at low cost is having far-
reaching effects.
 Issues Affecting Supply Chain Management

 Information technology – enablers include the Internet, Web, EDI,

intranets and extranets, bar code scanners, and point-of-sales demand
information
 E-commerce and e-business – uses internet and web to transact business
Types of E-Commerce
 E-commerce is defined as the use of the Internet and the Web
to transact business
 Two types of e-commerce are
 Business-to-business (B2B) and
 Business-to-consumer (B2C)
Types of E-Commerce
 Business-to-Business (B2B) Evolution:
 Automated order entry systems started in 1970’s
 Electronic Data Interchange (EDI) started in the 1970’s
 Electronic Storefronts emerged in the 1990’s
 Net Marketplaces emerged in the late 1990’s

 Benefits of B2B E-Commerce

 Lower procurement administrative costs,
 Low-cost access to global suppliers
 Lower inventory investment due to price transparency/reduced response time
 Better product quality because of increased cooperation between buyers and
sellers, especially during the product design and development
 Types of E-Commerce
 Business-to-Consumer (B2C):
 On-line businesses try to reach individual consumers
 B2C revenue model sources
 Advertising – Web site offers providers and opportunity to
advertise
 Subscription –Web site charges a subscription fee for access to
the site
 Transaction – company receives a fee for executing a transaction
 Sales – a means of selling goods, information, or service directly
to customers
 Affiliate – companies receive a referral fee for directing business
to an affiliate
SCM Factors
 SCM must consider the following trends,
improved capabilities, & realities:
 Consumer Expectations and Competition power has
shifted to the consumer
 Globalization – capitalize on emerging markets
 Government Regulations and E-Commerce issues of
Internet government regulations
 Environment Implications of E-Commerce recycling,
sustainable eco-efficiency, and waste minimization
Global SCM Factors
 Managing
extensive global supply chains introduces
many complications
 Geographically dispersed members - increase
replenishment transit times and inventory investment
 Forecasting accuracy complicated by longer lead times and
different operating practices
 Exchange rates fluctuate, inflation can be high
 Infrastructure issues like transportation, communication,
lack of skilled labor, & scarce local material supplies
 Product proliferation created by the need to customize
products for each market
Supply Chain Distribution
 Warehouses involved in supply chain distributions
and include
 Plant warehouses
 Regional warehouses
 Local warehouses
 Warehouses can either be
 General – used for long-term storage
 Distribution– used for short-term storage, consolidation,
and product mixing
Supply Chain Distribution
 Radio Frequency Identification Technology (RFID) –
automated data collection technology which relies on
radio waves to transfer data between reader and RFID
tag
 Third-party Service Providers – ease of developing an
electronic storefront has allowed the discovery of
suppliers from around the world
 Integrated SCM
 Implementing integrated SCM requires:
 Analyzing the whole supply chain
 Starting by integrating internal functions first
 Integrating external suppliers through partnerships
 Manufacturer’s Goals  Supplier’s Goals
 Reduce costs  Increase sales volume
 Reduce duplication of effort
 Increase customer loyalty
 Reduce cost
 Improve quality
 Improve demand data
 Reduce lead time
 Improve profitability
 Implement cost reduction program
 Involve suppliers early
 Reduce time to market
Supply Chain Measurements
 Measuring supply chain performance
 Traditional measures include;
 Return on investment
 Profitability
 Market share
 Revenue growth
 Additional measures
 Customer service levels
 Inventory turns
 Weeks of supply
 Inventory obsolescence
 Supply Chain Performance Measurement
 Customer demands for better-quality requires company’s to develop
ways to measure improvements
 Some measurements include
 Warranty costs
 Products returned
 Cost reductions allowed because of product defects
 Company response times
 Transaction costs
Current Trends in SCM
 Increased use of electronic marketplace such as
 E-distributors – independently owned net marketplaces having catalogs
representing thousands of suppliers and designed for spot purchases
 E-purchasing – companies that connect on-line MRO suppliers to business
who pay fees to join the market, usually for long-term contractual purchasing
Current Trends in SCM
 Increased use of electronic marketplace such as
 Value chain management – automation of a firm’s
purchasing or selling processes
 Exchanges – marketplace that focuses on spot
requirements of large firms in a single industry
 Industry consortia – industry-owned markets that enable
buyers to purchase direct inputs from a limited set of
invited suppliers
SCM Across the Organization

 SCM changes the way companies do business.

 Accounting shares SCM benefits due to inventory
level decreases
 Marketing benefits by improved customer service
levels
 Information systems are critical for information
sharing through POS data, EDI, RFID, the Internet,
intranet, and extranets
 Purchasing is responsible for sourcing materials
 Operations use timely demand information to more
effectively plan production schedules
E-business Opportunities:
 Reduce Facility Costs
 Eliminate retail/distributor sites
 Reduce Inventory Costs
 Apply the risk-pooling concept
 Centralized stocking
 Postponement of product differentiation
 Use Dynamic Pricing Strategies to Improve Supply Chain Performance
E-business Opportunities:

 Supply Chain Visibility

 Reduction in the Bullwhip Effect
 Reduction in Inventory
 Improved service level
 Better utilization of Resources
 Improve supply chain performance
 Provide key performance measures
 Identify and alert when violations occur
 Allow planning based on global supply chain data
Review of Lecture
 Change Management
 Supply Chain Analysis
 Supply Chains & SCM
 Supply Chain Management (SCM)
 Issues Affecting Supply Chain Management
 Types of E-Commerce
 SCM Factors
 Supply Chain Distribution
 Integrated SCM
The End