INTRODUCTION TO SUPPLY CHAIN
MANAGEMENT
TOPIC 1
MAGESA PERAZIA R.
[Link] (MU), [Link] (MU), CPSP (T)
Supply chain defined
Network of organizations that are involved, through upstream and
downstream linkages, in the different processes and activities that
produce value in the form of products and services delivered to the
consumer
A supply chain involves a series of steps involved to get a product or
service to the customer.
The steps include moving and transforming raw materials into
finished products, transporting those products, and distributing them
to the end user.
Supply Chain Management
Encompasses all activities associated with the transformation of
goods from the raw material stage to the final stage when the
goods and services reach the end customer.
Involves planning, design and control of flow of materials,
information and fund along the chain in order to deliver value to
the end customer in effective and efficient way.
Supply chains cover everything from production to product
development to the information systems needed to direct these
undertakings.
Examples of SCM can be designing, farming, manufacturing,
packaging, or transporting/ distribution etc..
Flows in Supply Chain Management
Supply chain management is the management of these
major three flows:
Material (Product) Flow
Information Flow
Financial/Fund/Cash Flow
Flows cont…
1. Material (Product) flow
This is the flow of the physical product from supplier all
the way down to the customer.
This flow is usually uni-directional, that is, it only flows one
direction from supplier to customer; however,
In certain instances, when the customer returns the
product, the flow occasionally goes in the other
direction.
A typical flow of materials usually begins with the raw
materials suppliers to manufacturers to warehouses and
distribution to the final customer.
2. Information flow
Information flow is the flow of information from supplier to customer
and from customer back to supplier.
This flow is bi-directional, that is, it goes both direction in the supply
chain.
The type of information that flows between customers and suppliers
include quotations, purchase orders, delivery status, invoices,
customer complaints etc.
For supply chain to be successful there has to be constant
interaction between supplier and Customer.
In many cases, other partners like distributors, dealers, retailers,
logistic service providers are involved in the information network.
3. Financial Flow
Financial flow involves the movement of money from the
customer to the supplier.
Usually, when the customer receives the product and
verifies it, the customer pays and the money travels
back to the supplier.
Sometimes the finances flow the other direction (from
supplier to customer) in form of debit.
Decision phase in supply chains
There are three phases: –
Supply chain strategy/design
Supply chain planning
Supply chain operations
Decision phase in supply chains
1. Supply chain strategy/ design
Need for firms to make decisions for the profitability of
the firm
These are long term decisions (years)
Decisions are made on:
• How to structure the supply chain over the next years.
• Configuration of the chain
• Resource allocation
• Make – buy matrix (produce in-house or outsource)
Decision phase cont..
• Location, capacity of production and warehouse
facilities
• Single or multi-location storage points
(centralize/decentralize)
• Modes of transport to be deployed
• Information system to be used
Decision phase cont..
2. Supply chain planning
Medium term decisions (less than a year)
Plan starts with demand forecasts Decisions about:
• Which markets to be served from which locations
• Sub-contracting of manufacturing
• Inventory policies to be followed
• Price promotions
• Policies to be used in daily operations are set
Decision phase cont..
3. Supply chain operations
Short term decisions (daily or weekly)
Decisions about:
• Individual customer orders
• Allocation of inventory or production to an individual order
• Dates of order fulfillment
• Allocation of order to a shipping mode/shipment
• Setting delivery schedules of trucks
• Placing replenishment orders
Process view of supply chain
All the process of the supply chain falls into two processes. The first
one is the cycle view for modern supply chain process and the
second is the push and pulls view of supply chain process.
1. Cycle view
It defines the process involved and the owners of each process.
A cycle view of the SC is very useful when considering operational
decisions.
It clearly specifies the roles and responsibilities of each member of
the supply chain.
Cycle view
Customer order cycle
• Retailer
Replenishment order cycle
• Distributor
Manufacturing order cycle
• Manufacturer
Procurement order cycle
• Supplier
Illustration
17
Customer
Customer
order cycle Retailer
Replenishment Distributor
cycle
Manufacturing
cycle Manufacturer
Procurement
cycle
Supplier
4/21/2023
Cycle View;
Customer order cycle
The customer order cycle starts when customer interface and this
process involves directly receiving and satisfying customers order.
Usually customer place order and his specification of the products
to the retailer site and this process revolve fulfilling the customers
demand.
The customers and the retailer’s interaction begin and end with the
following processes;
Arrival of Customer
Customer order entity (placing an order)
Customers order fulfillment
Customer order receiving
Cycle view;
Replenishment cycle stage
In the replenishment cycle stage, mostly, there are many retailers
exactly reacted as a customer Distributor and retailer both are
involved in replenishment cycle in integrated form.
This cycle is made to replenish retailer’s inventory so that the future
demands could be met.
There are four processes of replenishment cycle;
Retail order trigger
Retail order receiving
Retail order fulfillment
Retail order Inventory
Cycle view;
Manufacturing order
In this process, the main parties that are involved are
distributors with the manufacturer and/or retailers with
manufacturers.
In addition, includes replenishing distributor’s inventory.
This process involves-
Order arrival
Production scheduling
Manufacturing and shipping
Orders receiving
Cycle view;
Procurement order cycle
This include all processes in which it is being insured the
mobilization of materials from the availability of
manufacturing until the scheduling perspective.
The order is placed by the manufacturer to the suppliers for the
replenishment of inventories.
Orders are initiated through uncertain customer’s demands by
the retailers- distributors
It is important that the supplier should integrate with the
manufacturing perspective
2. Push/pull view
The processes in a supply chain are dividing into two categories depending
on whether they are executed in response to a customer order or in
anticipation of customer orders
Push process
•Also known as speculative
Create a product/service before the customer order arrive.
• The order is executed according to the anticipation of the orders
of the customers).
• Operates in uncertain demand situations
• Procurement, manufacturing, and replenishment cycles
Cont..
Pull process
• Referred to as reactive process (the order is implemented
according to the demand of the customers)
You create a product/service after the arrival of order.
• The demand of the customer is known
• Customer order cycle
24 Illustration
Customer
Customer Pull
order cycle Customer
processes
order cycle
Customer
order arrives Replenishment Retailer
and
manufacturing
Procurement,
order cycle
manufacturing;
Push Manufacturer
and
processes
replenishment Procurement
cycles cycle
Supplier
4/21/2023
Objectives of supply chain
management.
To maximize overall value generated by increasing the
level of quality products' or service delivery to customers
which lead to the increase of profit.
To research the new sources of revenues ; the supply
chain management is obliged to make sure that the
customer base is increased with intention of maximizing
revenue.
Meet customers demand by offering quality products
and service which meet the expectations of the
targeted customers.
Objectives Cont…
Ensure that supply chain operations are efficient
through out the time.
Procurement, transformation and distribution process
within supply chain should be efficient as much as
possible so as to minimize overall costs.
A. Evolution of supply chain
management (Development trends)
• Supply chain and supply chain management
evolution traced since its inception in the early
1980’s.
• Supply chain transitions is largely influenced by
changes in business environment and stiff
competition in the world market.
• Transition of the supply chain could be described
clearly by referring to the development trends as
identified by Dawei, 2011.
Evolution of supply chain management
(development trend)
From functional to process perspective
– Traditionally the supply chain was organized in
a series of functions and these functions
provided a convenient mechanisms for the
allocation of resources and promotion of the
employees.
– The function is what seen to be a delivery part
of the business
– Currently the supply chain problems could be
traced from process view rather than
functional perspective
Supply chain transitions (development
trend)
From operational to strategic view point
– At early years of applying supply chain
management concept, the respective
managers tend to see it as another operational
tactic to minimize the operation costs, such as
purchasing improvements and logistics
optimization.
– But as time goes on large number of managers
realized that effective changes can only be
achieved if the operational issues can be
addressed from the supply chain wide strategic
view point
Supply chain transitions (development
trend)
From single enterprise to extended
enterprise
– Enterprise management is now displaced by
the supply chain management.
– Previously the management thinking was
centered that competition was between
enterprise and enterprise, which is becomes
obsolete.
– Now days competition is between supply chains
and supply chains which calls for integrating as
many firms as possible to outwit competitors
Supply chain transitions (development
trend)
From transactional to relationship based
engagement
– Business engagement in the past was based on
transaction and cost driven.
– Benefits of purchasing and procurement of
outsourced materials was judged by
transactional measures such as price, volume
and delivery terms.
– Now days the practice of working with external
companies is what it’s called relationship
based engagement.
Supply chain transitions (development
trend)
From local to regional and from regional
to global.
– The supply chain network over the past two
decades have grown from local to regional
and from regional to global.
– The trend was spurred by the lowest cost of
labor and materials in many parts of the world
and the presence of global market.
– It is hardly to find that a company and supply
chains is not connected to some parts of the
world.
B. Elements of supply chain
There are four basic supply chain management
elements as follows;
1. Supply
2. Operations
3. Integration
4. logistics
Elements cont…
1. Procurement /Supply Element
Associated with obtaining supplies like parts,
components, raw materials or services
The main goal is to deliver right items on the exact
quantities at the correct location on the specified time
schedule at minimal cost.
As an important element of supply chain procurement
must determine and address who supply the items and
services
Elements cont…
While purchasing items or services at least cost there
must be consideration of what to make and what to
outsource (make or buy decisions) and Building supplier
relationship.
The key issue about this supply element is to manage
suppliers who supplies the needs to a firm. To select,
evaluate and maintaining a potential supplier.
These are some of the criteria in selecting a supplier;
Value for money, quality and reliability, price, strong
service and clear communication, financial stability,
speed and flexibility, etc.
Elements cont…
Supplier Relationship;
A commitment over an extended time to work together
to the mutual benefit of both parties, sharing relevant
information and the risks and rewards of the relationship.
These relationships require a clear understanding of
expectations, open communication and information
exchange, mutual trust and a common direction for the
future.
Elements cont…
Key Ingredients for developing successful partnerships;
Building trust
Shared objectives and vision
Personal relationship (buyer-supplier relationship)
Mutual benefits and needs (win-win situations)
Commitment
Information sharing
Capabilities for creating long term relationship
etc,.
Elements cont…
2. Operations element
These are all activities that facilitate transformation of
raw materials, parts, assemblies and components in
supply chain management.
Some of these activities include demand management
by matching demand with capacity,
Controlling or managing inventory by using different kind
of methods such as (MRP) Material requirement
planning, (JIT) Just in time programs or lean strategy by
eliminating waste from production system.
Elements cont…
3. Logistics
When products are completed, they are delivered to customers
through a number of different modes of transportation.
In order for the goods to reach customers at the right time, quality
and volume it requires planning and cooperation btn suppliers,
customers and logistics elements.
Logistics management is that part of supply chain management
that plans, implements, and controls the efficient, effective forward
and reverses flow and storage of goods, services and related
information between the point of origin and the point of
consumption in order to meet customers' requirements
Elements cont…
Logistics management activities/elements typically
include inbound and outbound transportation
management, fleet management, warehousing,
materials handling, order fulfillment, logistics network
design, inventory management, supply/demand
planning, and management of third party logistics
services providers.
Logistics decisions typically involve a trade-off between
cost and delivery timing or customer service
(responsiveness). Eg..
Motor carriers (trucks), for example, are typically more
expensive than rail carriers but offer more flexibility and
speed, particularly for short routes. Air carriers are yet
more expensive but much faster than any other
transportation mode. Water carriers are the slowest but
are also the least expensive.
3PLs
Third-party logistics services
3PLs is a firm that provides outsourced logistic services like
transportation, warehousing, inventory control, freight
forwarding and customs clearance to another firm.
Is an external supplier that performs all or part of a client
company’s logistics functions, including:
Transportation
Warehousing
Distribution
Financial services
Cont..
Third-party logistics services (3PLs), are critical to the
overall success of the supply chain in an integrated
supply chain environment where JIT deliveries are used.
Terms contract logistics and outsourcing are sometimes
used in place of 3PL.
Elements cont..
4. Integration
Processes in a supply chain are said to be integrated when
members of the supply chain work together to make
purchasing, inventory, production, quality and logistics
decisions that impact the overall profits of the supply chain.
Successful supply chain process integration occurs when the
participants realize that effective supply chain management
must become part of each member’s strategic planning
process, where by objectives and policies are aligned based
on the needs for end customers.
Elements cont..
Ultimately, firms work together to maximize total supply
chain profits by determining optimal purchase
quantities, product availabilities, service levels, lead
times, production quantities, use of technology and
product support at each stage within the supply chain.
This integration process also requires high levels of
internal functional integration of activities within each of
the participating firms, such that the supply chain acts
as one entity.
Elements cont..
Failure in integrating the SC process among firms it can
cause bullwhip effect
An enterprise resource planning (ERP) system can
successfully integrate information across the entire
supply chain.
An ERP system is an integrated set of computer
programs that brings information about a firm’s
accounting, financial, sales, and operations into a
common database.