Supply Chain Management:

LO1: INTRODUCTION

Supply Chain defined….

• “A supply chain is the alignment of firms that bring products or services to market.”—
• “A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer
request. The supply chain not only includes the manufacturer and suppliers, but also
transporters, warehouses, retailers, and customers them- selves.”
• “A supply chain is a network of facilities and distribution options that performs the
functions of procurement of materials, transformation of these materials into intermediate
and finished products, and the distribution of these finished products to customers.”

Supply chain management

• “The systemic, strategic coordination of the traditional business functions and the tactics
across these business functions within a particular company and across businesses within
the supply chain, for the purposes of improving the long-term performance of the individual
companies and the supply chain as a whole.”

 Supply chain management is a set of approaches utilized to efficiently integrate

suppliers, manufacturers, warehouses, and stores, so that merchandise is produced and
distributed at the right quantities, to the right locations, and at the right time, in order to
minimize systemwide costs while satisfying service level requirements.

• “Supply chain management is the coordination of production, inventory, location, and

transportation among the participants in a supply chain to achieve the best mix of
responsiveness and efficiency for the market being served.”

Logistics V Supply Chain Management

Refers to activities that occur within the boundaries of a single organization and supply
chains refer to networks of companies that work together and coordinate their actions to
deliver a product to market. Also traditional logistics focuses its attention on activities such
as procurement, distribution, maintenance, and inventory management.
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Supply chain management acknowledges all of traditional logistics and also includes
activities such as marketing, new product development, finance, and customer service.
Supply chain management views the supply chain and the organizations in it as a single
entity.

Characteristics of supply chains

• First, a supply chain is formed and can only be formed if there are more than one
participating companies.
• Second, the participating companies within a supply chain normally do not belong to
the same business ownership, and hence there is a legal independence in between.
• Third, those companies are inter-connected on the common commitment to add value
to the steam of material flow that run through the supply chain.
• NB: This material flow, to each company, comes in as the transformed inputs and goes
out as the value added outputs.

Basic Supply chain flow

Downstream

Push Supply Chain

Pull Supply Chain

Upstream

Four intrinsic flows of a supply chain

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 • Material Flow: All manufacturing supply chains have material flows from the raw
materials at the beginning of the supply chain to the finished products at the end of the
supply chain.
• Information Flow: All supply chains have and make use of information flows. Unlike the
material flow the information can run both directions, towards upstream and
downstream alike.
• Finance Flow: All supply chain have finance flow. It is basically the money flow or the
blood stream of a supply chain.
• Commercial flow: All supply chain represents a transactional commercial flow. This
means that the material flow that run through the supply chain changes its ownership
from one company to another, from supplier to buyer.

Drivers of Supply Chain management

1. Production—this activity includes the creation of master production schedules that take
into account plant capacities, workload balancing, quality control, and equipment
maintenance. It answers the questions What, How and When?

Production refers to the capacity of a supply chain to make and store products. The facilities
of production are factories and warehouses.

2. Inventory—what inventory should be stocked at each stage in a supply chain? How much
inventory should be held as raw materials, semi-finished, or finished goods?

Inventory is spread throughout the supply chain and includes every- thing from raw material
to work in process to finished goods that are held by the manufacturers, distributors, and
retailers in a supply chain.

There are three basic decisions to make regarding the creation and holding of inventory:

Cycle Inventory— This is the amount of inventory needed to satisfy demand for the product
in the period between purchases of the product.

Safety Inventory—inventory that is held as buffer against uncertainty. If demand forecasting

could be done with perfect accuracy, then the only inventory that would be needed would

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be cycle inventory.

Seasonal Inventory— this is inventory that is built up in anticipation of predictable increases

in demand that occur at certain times of the year.

3. Location— where should facilities for production and inventory storage be located?
Where are the most cost efficient locations for production and for storage of inventory?

Location refers to the geographical siting of supply chain facilities. It also includes the
decisions related to which activities should be per- formed in each facility.

4. Transportation— how should inventory be moved from one supply chain location to
another?

This refers to the movement of everything from raw material to finished goods between
different facilities in a supply chain.

There are six basic modes of transport that a company can choose from:

a. Ship which is very cost efficient but also the slowest mode of transport. It is limited to use
between locations that are situated next to navigable waterways and facilities such as
harbors and canals.

b. Rail which is also very cost efficient but can be slow. This mode is also restricted to use
between locations that are served by rail lines.
Basic Concepts of Supply Chain Management

c. Pipelines can be very efficient but are restricted to commodities that are liquids or gases
such as water, oil, and natural gas.

d. Trucks are a relatively quick and very flexible mode of transport.

Trucks can go almost anywhere. The cost of this mode is prone to fluctuations though, as
the cost of fuel fluctuates and the condition of roads varies.

e. Airplanes are a very fast mode of transport and are very responsive. This is also the most
expensive mode and it is somewhat limited by the availability of appropriate airport
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facilities.

f. Electronic Transport is the fastest mode of transport and it is very flexible and cost
efficient. However, it can only be used for movement of certain types of products such as
electric energy, data, and products composed of data such as music, pictures, and text.

5. Information— how much data should be collected and how much information should be
shared? Timely and accurate information holds the promise of better coordination and
better decision making. With good information, people can make effective decisions about
what to produce and how much, about where to locate inventory and how best to transport
it.

Information is used for two purposes in any supply chain:

a. Coordinating daily activities related to the functioning of the other four supply chain
drivers: production; inventory; location; and transportation. The companies in a supply
chain use available data on product supply and demand to decide on weekly production
schedules, inventory levels, transportation routes, and stocking locations.

b. Forecasting and planning to anticipate and meet future demands.

Available information is used to make tactical forecasts to guide the setting of monthly and
quarterly production schedules and timetables. Information is also used for strategic
forecasts to guide decisions about whether to build new facilities, enter a new market, or
exit an existing market

SCM Development Trends

From functional to process perspective – no more isolated departments of the business,
but all viewed as a process to achieve a common goal
From operational to strategic view – SCM has evolved from operational cost cutting at
lower level to strategic view point at top management level.
From single enterprise to extended enterprise – no more internal horizontal integration,
but external vertical integration
From transactional to relationship engagements – no more engagements judged on price,
volume and delivery times only ,but engagements based on knowledge exchange, long-
term commitment, incentives and rewards

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From, local to regional to global - this has been propelled by the need for cheap labour in
other parts of the world and first move advantages in setting up global market presence

Characteristics of global supply chains

• Borderless – national borders are no longer the limits for supply chain development in
terms of sourcing, marketing, manufacturing and delivering.
• Cyber-connected – global businesses are no longer a cluster of indigenous independent
local business but rather invisible technology connected businesses across the globe.
• Deregulated – trade barriers have been demolished around the globe or significantly
lowered.
• Environmental consciousness – global supply chain are going green through
enforcements by Environmental Protection Agency
• Social responsibility – social responsibility is viewed as a tool to make the brands stay
in the minds of the customers

Global supply chains strategic challenges

• Market dimension – Demand fluctuation at consumer level is a major challenge to
assets configuration of supply chain, capacity synchronisation and lead-time
management this leads to the “bullwhip effect”.
What are the major causes of demand fluctuations in a global supply chain? (10)
What are the likely consequences of such changes to the global supply chain? (10)
• Technology dimension - it has caused lead time challenges, disruptive technology
challenge and the supply chain network challenges where it is difficult to convince
other members of new methods of value creation yet they have their own.
• Resource dimension – financial resource, workforce resource, intellectual resource,
natural material, infrastructure and asset
• Time dimension – global supply chain are challenged by how fast they respond to
unexpected and quick changes to market demand.

GSC response to challenges

• Collaboration – working together of different component parts of the supply chain to
achieve a common goal. Collaboration is important because it brings about the
following:
– Sharing resources

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 – Achieve synergy
– Risk sharing
– Innovation
• Supply chain integration – close internal and external coordination across the supply
chain operations and processes under the shared vision and value amongst the
participating members.
• Divergent product portfolio – this will satisfy the divergent demand of the world
market and if one product is not doing well, the supply chain can still be stabilised by
others doing well.
• Develop the blue ocean strategy – creating uncontested market zones rather that
competing in congested zones.
• Pursuing world class excellence - involves excelling in four dimensions, operational
excellence, strategic fit, capability to adapt and unique voice (unique practices)