Supply Chain Management

Evolution of Supply Chain Management

5-2
 Successful Supply Chains

 Adopt an enterprise-to-enterprise point of view

 Adopt behaviors that haven’t traditionally been associated

with buyer–seller interactions

5-3
 Successful Supply Chains

 Maintain a systems approach across all organizations in the

supply chain
Companies recognize interdependencies of the decisions made
in major functional areas and business processes within, across,
and between firms
Goals and objectives of individual supply chain participants
should be compatible with the goals and objectives of other
participants in the supply chain

5-4
 SCM Process Frameworks

• Two prominent models

Supply Chain Operations Reference (SCOR) Model
Global Supply Chain Forum (GSCF) Model
• A primary distinction between the models is the degree of
cross-functional involvement prescribed by each:
GSCF involves all business functions
SCOR model is focused on the logistics, operations, and
procurement functions

5-5
 Six Processes in the Supply Chain Operations
Reference (SCOR) Model

5-6
 Eight Processes in the Global Supply
Chain Forum (GSCF) Model

2-7 © 2008 Prentice Hall

 Enablers of SCM Implementation

 Customer power

 Relationship structure

 Leveraging technology

 Supply chain facilitators

 Customer Power

 Information is power
Customer has gained tremendous power over buying decisions
Internet allows the consumer to become highly knowledgeable
about:
 An individual organization and its
 Competing organizations and their products
 Customer Power and SCM
Implications

 Customer needs and wants can change relatively quickly

therefore supply chains are increasingly required to be fast
and agile
Fast supply chain emphasizes a speed and time component

Agile supply chain focuses on an organization’s ability to respond

to changes in demand with respect to volume and variety
 Customer Power and SCM
Implications

 Failure to be fast and agile can result in:

 Decreased market share

 Reduced profitability

 Lower stock price

 Dissatisfied customers for supply chain members

 Need for fast and agile supply chains resulted in some e-commerce
firms to begin offering same-day delivery services in select markets
 Customer Power and SCM
Implications

 Traditional supply chains

Factory-driven, push oriented
Focused on internal cost metrics (measures) such as labor costs
and freight costs

 Customer-centric supply chains

Pull-oriented
Concerned with metrics that take a more holistic perspective
 Customer Power and SCM
Implications

 Perfect order (Example)

 Simultaneous achievement of relevant customer metrics such as on-time
delivery, damage free and correct order quantity

 Examines the total impact of an incorrect order in a single metric via a

multiplier effect

 Metric has been shown to help diagnose problems within a supply chain
and improve satisfaction

 Look at orders from the customer’s perspective

 Customer Power and SCM
Implications

 Firms must focus on both effectively and efficiently designing

their supply chains according to market needs/characteristics
Agile supply chain may be most appropriate where customer
demand is unstable, and their requirements for variety are high

Lean supply chain may be a more appropriate when customer

demand is relatively stable and the need for variety is low
 Customer Power and SCM
Implications

 Leagility
Hybrid approach that combines aspects of both lean and agile

Way to focus part of one’s supply chain on a timely response to

fluctuating customer orders and/or product variety and another
part of the supply chain on leveling out the planning requirements
to smooth production output
 Customer Power and SCM
Implications

 Lean supply chains

Focus on reducing the so-called bullwhip effect, which is
characterized by variability in demand orders among supply chain
members

One aspect of inventory control that could be influenced by a lean

approach is to move from a pattern of stops and starts to a
continuous flow
 lean supply VS. agile supply

 some comparative observations between lean and agile by

looking at some most common variables in supply chain
management.
 First, we can make observation on the volume and variety of
the product that supply chain produces.
 As shown in Figure, lean works best for high volume, low
variety and more predictable operating environment; whilst
agility is needed in less predictable environment where the
demand for variety and choice is a dominant feature.
Volume and variety observation
 lean supply VS. agile supply

 We can also make observation from some specific characteristics

of demand and supply.
 As shown in Figure the supply characteristics in lead-time can be
long or short; whilst the predictability of market demand can be
categorized into either predictable or unpredictable.
 It then become intuitive that in the case of long supply lead-time
with predictable customer demand, the plan and execution style
of lean model works the best; while in the case of short supply
lead-time with unpredictable demand, the Agile responsiveness
works the best.
Demand characteristics observation
 Relationship Structures

 Companies should consider employing a long-term as opposed

to a short-term orientation with key supply chain members:
Suppliers

Customers,

Intermediaries

Facilitators
 Relationship Structures

 Long-term orientation tends to be based on relational

exchanges
“What’s in it for us?” philosophy

 Short-term orientation tends to focus on transactional

exchanges
“What’s in it for me?” philosophy
 Relationship Structures

 Attributes of relational exchange:

 Trust
 Commitment
 Dependence
 Joint Investment
 Shared benefits
 Information sharing
 Relationship Structures

 Supply chain collaboration refers to cooperative

relationships between members of a supply chain—
formal or informal—between companies and their
suppliers or customers, established to enhance the
overall business performance of all parties
 Relationship Structures

 Supply chain collaboration

Can be classified as transactional, tactical information sharing, or
strategic in nature

Offers the best opportunity for improving supply chain

performance

 Transactional and tactical information sharing are currently the

most prevalent types of collaboration
Relationship Structures
 Relationship Structures

 Supply chain partnership

An example of a strategic collaboration
Defined as a tailored business relationship between two
supply chain members
Characteristics include:
High interdependence among the partners
Increased willingness to share information
Compatible goals and mutual trust
Buying decisions based on value as opposed to cost or price
 Leveraging Technology

 Technological advancements in computing and the internet

affect the supply chain

 Computing power
Supply chains can be complex entities consisting of multiple
organizations, processes, and requirements

Can apply mathematical models that maximize shareholder wealth

or minimize costs
 Leveraging Technology

 Internet
Allows a supply chain party to have virtually instantaneous
visibility to the same data as other parties in the supply chain
 Offers the opportunity for supply chains to become more proactive
and less reactive

 Can translate into lower inventories and improved profitability

throughout the supply chain
 Leveraging Technology

 Supply chains depend on huge quantities of real-time information

 Retail point-of-sale information can be transmitted directly to suppliers

and translated into orders for replenishment of product

 Vendors may allow customers to query vendor inventory records to

determine what products are in stock and where the stocks are located
Leveraging Technology
 Supply Chain Facilitators

 Third-Party Logistics (3PL), also known as outsourcing or

contract logistics
Any logistics activity not performed in-house is representative of
third-party logistics
Common 3PL activities involve inbound and outbound
transportation, carrier negotiation and contracting, and freight
consolidation
Well-known 3PL providers include Exel Logistics , Kuehne and
Nagle, Schenker Logistics, and UPS Supply Chain Solutions
 Supply Chain Facilitators

 Outsourcing has the potential to improve both the

effectiveness and efficiency of supply chains but can easily
result in failure due to:
Unreasonable and unrealistic expectations
lack of flexibility in the relationship

 Need to structure 3PL relationships so that unexpected

occurrences can be dealt with in a timely and satisfactory
manner
 Supply Chain Facilitators

 Fourth-party logistics (4PL) or lead logistics provider (LLP)

 Refers to a company whose primary purpose is to ensure that various
3PLs are working toward the relevant supply chain goals and objectives

 Need to have the expertise to consider:

 Supply chain solutions and potential trade-offs

 Make constant objective decisions across a broad set of value-adding

activities

 Must be viewed as neutral

 Barriers to Supply Chain
Management

 Regulatory and political considerations

 Lack of top management commitment

 Reluctance to share, or use, relevant data

 Incompatible information systems

 Incompatible corporate cultures

 Globalization challenges

 Supply Chain Integration

 Globalization of Supply Chains

 Increasing globalization
Lower priced materials and labor
Global perspective of companies
Development of global competition

 Extremely difficult to execute due to differences

Cultural, economic, and technological
Political, spatial, and logistical
 Supply Chain Integration

 Long-term, mutually beneficial agreements

 Partnerships

 Strategic alliances

 Third-party arrangements

 Contract

 Methods used to integrate

 Vertical integration

 Formal contracts

 Informal agreements
Demand Management, Order
Management
 Demand Management

• Demand management can be defined as “the

creation across the supply chain and its markets
of a coordinated flow of demand.”

Source: John T. Mentzer, “A Telling Fortune”, Industrial Engineer, April 2006, 42-47.
 Demand Management

 Demand (sales) forecasting

Refers to an effort to project future demand

Is a key component in demand management

Is helpful in make-to-stock situations

Is helpful in make-to-order situations

 Demand Management

 Three basic types of demand forecasting

models:
Judgmental

Time series

Cause and effect (associative)

 Demand Management

 Judgmental demand forecasting model:

Involves using judgment or intuition
Preferred in situations where there is limited or no historical data
(new product)
Techniques include surveys, the analog technique, and others
 Surveys used to learn about customer preferences and intentions
 An analog (similar item to that being forecasted) is used as the basis
for demand history
 Demand Management

 Time series forecasting model:

Underlying assumption is that future demand is solely dependent
on past demand

Some techniques include:

 Simple moving averages

 Weighted moving averages

Demand Management
 Demand Management

 Cause-and-effect forecasting model:

Also referred to as associative forecasting
Assumes that one or more factors are related to demand and
that the relationship between cause and effect can be used to
estimate future demand
Some techniques include:
 Simple regression
 Multiple regression
 Demand Management

 Demand forecasting issues:

 Selection of forecasting technique(s) depends on many factors
(judgmental)
 Selecting an inappropriate technique will reduce forecast accuracy
(analog)
 Forecast accuracy can have important implications (SKU’s)

 Computer forecasting software unable to completely eliminate

forecast errors (ERP)
 Order Management

• Order management refers to management of the

various activities associated with the order cycle

• Order cycle (replenishment cycle or lead time)

refers to the time from when a customer places an
order to when goods are received

• Some organizations include order to cash cycle in

their order management model
 Order Management

 Four stages of the order cycle include:

Order transmittal

Order processing

Order picking and assembly

Order delivery
 Order Management

 Order transmittal refers to the time from when the customer

places an order until the seller receives the order
 Methods of order transmittal
In person
Mail
Telephone
FAX
Electronically
 Order Management

 Order processing refers to the time from when the seller

receives an order until an appropriate location (i.e. warehouse) is

authorized to fill the order

 Order Management

 Order processing includes:

Checking for completeness and accuracy
A customer credit check
Order entry into the computer system
Crediting salesperson with the sale
Recording the transaction
Determining inventory location
Arranging for outbound transportation
 Order Management

 Order picking and assembly includes all activities from when

an appropriate location is authorized to fill the order until

goods are loaded aboard an outbound carrier

 Order Management

• Order picking and assembly

Often represents the best opportunity to improve the

effectiveness and efficiency of an order cycle

Can account for up to 2/3 of a facility’s operating cost and time

 Order Management

 Examples of Order Picking and Assembly technology:

Handheld scanners
Radio-frequency identification (RFID)
Voice-based order picking
Pick-to-light
 Order Management

 Order delivery is the time from when a transportation carrier

picks up the shipment until it is received by the customer.

 The Transit Time (TT) is the planned travelling time from port

to port.