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Module 1 - Introduction to Supply Chain Management
1
Module: Supply Chain Management
Objectives
v Differentiate between logistics and supply chain management
v Summarize the various supply chain strategies and their applications
to different business models
v Identify security issues in supply chain management
v Analyze the impact of inventory using the bull-whip effect on supply
chain management
v Apply trade-offs between cost and service
v Develop simple solutions to supply chain challenges
2
Supply Chain Management: Basics
Chapter 1
3
Chapter 1- Objectives
v To differentiate between logistics management and
supply chain management
v To establish the overall understanding and appreciation of
impact of supply chain management on organisation
performance
v To introduce and understand the supply chain relationship
management model and some of the barriers to effective
supply chain relationships /collaboration
v To establish the role of intermediaries in supply chains
4
5
• Value Chain or Demand Chain
• Firms collaborating to leverage strategic positioning and to
improve operating efficiency
• Supply chain strategy is a channel arrangement based on
acknowledged dependency and relationship management
• Requires managerial processes span across functional areas of
organisation and link trading partners and customers across
organisational boundaries
6
Supply Chain Management is : Defined as the integration of activities
along the supply chain linking customer orders, distribution orders, inventory
ordering, placement of manufacturing orders, cash flows and ultimately
supplier orders
INFORMATION
SUPPLIER COMPANY CUSTOMER
MATERIALS
7
Generic Supply Chain Model
INFORMATION, PRODUCT, SERVICE, FINANCIAL & KNOWLEDGE FLOW
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MARKET
DISTRIBUTORS
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CAPACITY, INFORMATION, CORE COMPETENCIES, CAPITAL & HUMAN. RESOURCE CONSTRAINTS
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Logistic Element of Supply Chain
• Logistics is the primary conduit of product and service flow within a
supply chain arrangement
• Firm engages in a supply chain is involved in performing logistics
• Logistical integration is the main focus and desire for organisations to
achieve competitive advantage
SUPPLIER COMPANY CUSTOMER
MATERIALS
9
Logistics
• The work required to move and position inventory throughout a supply chain
• A subset of and occurs within the broader framework of a supply chain
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• cInotnengeractteivditylogistics serves to link and synchronize overall supply chain
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Logistics Management
• Refers to the process of planning, implementing and controlling the
efficient, effective flow and storage of goods, services and related
information from point of origin to the point of consumption for the
purpose of conforming to customer requirements
• Logistics is a component of supply chain
PLANNING ORGANIZING CONTROLLING DIRECTING
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Roles of SCM in organisation: Vary from firm to firm
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Organisation’s Immediate Supply Chain
• Transportation • Transportation
• Inventory Maintenance • Inventory Maintenance
• Order Processing • Order Processing
• Acquisition • Product Scheduling
• Protective Packaging • Protective Packaging
• Warehousing • Warehousing
• Materials Handling • Materials Handling
• Information & Maintenance • Information & Maintenance
13
Key Support Activities
• Customer service standards
• Transportation
• Inventory management
• Information flow and order processing
• Warehousing
• Materials handling
• Purchasing
• Protective packaging
• Cooperate with internal customers
• Information maintenance
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Strategic Importance of SCM
• Objective is to provide customer satisfaction by having the
correct product in the correct place at the correct time
• Customer satisfaction is key to retain customer or creation of
customer loyalty
Three dimensions:
1. Cost
2. Convenience
3. Confidence in services both included expected and
promised (delight)
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Strategic Supply Chain
vMarket Saturation Driven
• Focusing on generating high profit margins through strong and
ubiquitous marketing and distribution
vOperationally Agile
• Configuring assets and operations to react nimbly to emerging
consumer trends along lines of product category or geographic
region
vFreshness Oriented
• Concentrating on earning a premium by providing the consumer
with product that is fresher than competitive offerings
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Strategic Supply Chain
v Consumer Customization
• Using mass customization to build and maintain close relationships
with end customers through direct sales
v Logistics Optimizer
• Emphasizing a balance of supply chain efficiency and effectiveness
v Trade Focused
• Prioritizing “low price, best value” for the consumer
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Postponement
LABELLING PACKAGING ASSEMBLY MANUFACTURE
(Final Stage) (Initial Stage)
Low Level of High Degree of
Customization Customization
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Scope of Supply Chain and Goals
Supply chain is an initiative focusing on managing the entire process as
products are transformed from raw materials into finished goods delivered
to the ultimate customer.
Supply chain management is concerned with:
• Product / Services
• Information
• Money
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Scope of Supply Chain and Goals
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• Waste Reduction
• Time Compression
• Flexible Response
• Unit Cost Reduction
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Barriers to Effective Supply Chain Relationships
• Widespread Resistance to Change
• The Required Time Investment
• Lack of Trust
• Poor Communication
• Continued Presence of Functional Silos
PROCESS PROCESS PROCESS PROCESS
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Overcoming the Barriers
• Develop a New Breed of Manager
• Build Relationship-Management Skills
• Establish Inter-organisational Teams
• Create New Performance Measures
• Invest Information Technology
• Develop a Long-Term Focus in Boardrooms and on Wall Street
• Engage in More Practical and Applied Research
23
Supply Chain – The Future
• Collaborative Chains • Virtual Network
• Customizable
• QR Postponement
•
• CPFR
• Process-driven
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Warehousing
Chapter 2
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Chapter 2: Objectives
vTo establish the role of warehousing as a
strategic competitive advantage.
vTo understand the importance of warehouse
design for improved productivity.
vTo establish the role of material handling
equipment in warehousing.
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Warehouse Operations
• Storage • Information transfer • Movement
Analysis
Information
Storage
Data Base
Receiving Putaway Packing Shipping
Data Stock
Maintenance Tacking
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Role of Warehouse
Interrelated functional areas and process and procedures integration to
create capabilities needed to achieve logistical value to the
organisation and to customers
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Role of Warehouse
• Order processing, inventory, and transportation can be
engineered into a variety of different operational
arrangement to achieve specific level of customer
satisfaction
• Warehousing, materials handling, and packaging are an
integral part of other logistics areas
• Transportation requires materials handling
• Products need to be packaged for efficient handling and
shipping
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Distribution Facilities
• Firm can choose between services of a warehouse specialist
or operating own facility
• Activities include sorting, sequencing, order selection,
transportation consolidation, product modification, etc..
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Materials Handling
• Direct labour and capital investment contribute
significantly to total supply chain cost
• May result in product damage and supply chain
inefficiency if inappropriately operated and used
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Distribution Facilities
32
Integrated Warehouse
Warehousing, materials handling, and packaging when effectively
integrated facilitates the speed and overall ease of product flow
throughout the logistics system
• e.g. moving warehousing of finished products into customer premises
i.e. VMI
• e.g. automated packaging to increase product throughput and reduce
cycle time
• e.g. product handling via conveyor to packaging to warehousing
minimize product damage and improve manufacturing cycle time
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• Warehouse Strategy and Functionality
a. Warehouse: Time & Place utility
b. Store inventory in the supply chain pipeline, serving to
coordinate product supply and consumer demand
• Strategic Warehousing
a. Strategically locate warehousing facilities to support ever
demanding customers for variety of product offerings e.g., x-
dock
b. Support JIT implementation e.g. warehouse centralization
to reduce overall inventory /stocking points for the
organisation
c. To achieve transport consolidation
34
Strategic Warehousing…Outbound
• Create product assortments
• Assortment of product becomes possible and improved
customer satisfaction, and transport consolidation helps
to reduce cost
• Capable to reduce slow-moving products and therefore
reduce organisation risk
35
A Source of Competitive Advantage
• X-dock / JIT
• Improve customer satisfaction by being able to respond
quicker than competitors
• Reduce organisation risk and supply chain costs
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Strategic Warehousing
Suppliers
Cross Dock Assembly Plants
Operator
Receives parts from multiple Holds no parts inventory
suppleirs
Short to moderate
distance Assembles parts for a
production run
Holds little or no inventory
Consolidated parts delivered
within hours of scheduled
production run
37
Economic Benefits
Overall logistics cost reduced e g adding additional warehouse reduces
overall transportation cost by an amount greater than required
investment and operational cost.
Four basic economic benefits:
1. Consolidation and break-bulk
2. Assortment
3. Postponement
4. Stockpiling
38
Consolidation and Break-bulk
Reduce transportation cost by using warehouse capability to increase economies
of scale
39
Assortment
Cross-docking
• Combine inventory from multiple origins into an assortment for a specific customer;
Used extensively by retailers
Mixing
• Activity performed at an intermediate location between shipment origin and
destination
Assembly
• To support manufacturing – products and components are assembled from a variety
of second-tier suppliers by a warehouse located in close proximity to the
manufacturing plant
40
Processing /Postponement
Postpone commitment to final product configurations by completing final
packaging, labeling, and light manufacturing
Economic benefits
• Risk minimized
• Total inventory reduced
Overall reduction of warehousing cost and therefore per unit product cost
reduced
LABELLING PACKAGING ASSEMBLY MANUFACTURE
(Final (Initial Stage)
Stage) High Degree of
Customization
Low Level of
Customization 41
Stockpiling
• Accommodates seasonal production or demand
• Requires to support marketing efforts
• Provides an inventory buffer which allows production
efficiencies within constraints (e.g. material sources and
consumers)
• Safety stock
• In-transit stocks
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• Consider product weight and special characteristics
• Heavy items should be assigned to storage locations low to the ground to minimize
lifting
44
• Active Storage
• Regardless of inventory velocity, most goods must be
stored for at least a short time
• Storage for basic inventory replenishment is referred to as
active storage
• Extended Storage
• Inventory in excess of requirement for normal
replenishment of customer stocks
• Season items, erratic demand items, product conditioning,
speculative purchases, and discounts
45
Warehouse Ownership Classification
Private
• Operated by firm owning the product.
• Decision to own or lease is essentially financial, or constrains by
physical nature of an available building.
• Benefits include control, flexibility, cost, and a range of intangibles.
• Requires substantial investment and depreciation increases product
unit cost (increased logistics cost), available increased capability of
public warehousing (lower logistics cost due to economies of scale).
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Warehouse Ownership Classification
Public (general merchandise, refrigerated, special
commodity, bonded, and household goods and furniture)
• Extensively used in logistical systems
• Able to achieve lower operating cost than private facilities
• Do not require capital investment by the buyers
• Offers flexibility concerning size and number of warehouses
• Able to leverage transportation by providing combined delivery
consolidation
47
Warehouse Ownership Classification
Contract
• Long-term contractual relationship results in lower total
cost
• Offers services such as transportation, inventory control,
order processing, customer service, and return
merchandise processing
48
Warehouse Mix
• Organisations may use a combination of private, public,
and contract facilities
• Typical warehouse will be fully utilized between 75 and
85% of the time
• 15 to 25% of the time, space needed to satisfy peak
requirements will not be used
• Private or contract warehouse to cover 75% requirement
while public facilities to accommodate peak demand
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