Operations Management: Creating

Value Along the Supply Chain

Second Canadian Edition
Russell, Taylor, Bayley, Castillo

Chapter 10
Supply Chain Management:
Strategy and Design
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Learning Objectives
1. Define supply chains with respect to both manufacturing and services.
2. Explain characteristics and management strategies of the modern supply
chain.
3. Discuss sustainable supply chain practices and how they relate to quality
management.
4. Discuss information technologies currently available for supply chain
management.
5. Provide an overview of the four areas where information technology assists
with supply chain integration.
6. Discuss tools for monitoring supply chain performance and calculate key
performance indicators.

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Operations Management: Creating Value Along the Supply Chain

Section 10.1:
Supply Chains

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Supply Chains
Material Requirements Sales & Operations Forecasting,
Planning (MRP) Planning (S&OP) Demand Planning

Capacity Requirements Distribution Requirements Planning (DRP),

Planning (CRP) Inventory Planning

Enterprise Resource Planning (ERP) + Integrated Business Planning (IBP)

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Supply Chains
• All facilities, functions, and activities associated with flow
and transformation of goods and services from raw
materials to customer, as well as the associated
information flows
• An integrated group of processes to “source,” “make,” and
“deliver” products

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Supply, Demand, Value Chains (1 of 3)
• Supply Chain
o Traditionally, activities that get raw materials and
subassemblies into manufacturing operation

• Demand Chain
o Expanded focus, realizing that operations can be more
efficient if demand is “pulled” through the system, as
opposed to supply being “pushed” into the system

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Supply, Demand, Value Chains (2 of 3)
• Value Chain
o Broader focus than traditional “supply chains”
• Every step from raw materials to the eventual end user
• Ultimate goal is delivery of maximum value to the end user
• Important and visible corporate presence

• Supply Chain, Demand Chain, Value Chain

• Terms are often used interchangeably today

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Supply, Demand, Value Chains (3 of 3)
• Value Chain
o Three overlapping areas of responsibility:
• Product management – R&D, innovation, engineering,
product development
• Demand management – marketing, sales, demand planning,
service
• Supply management – manufacturing, logistics, supply
planning, sourcing

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Operations Management: Creating Value Along the Supply Chain

Section 10.2:
The Management of
Supply Chains

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Supply Chain Management (SCM)
• Managing flow of goods and information through the
supply chain in order to attain the level of integration /
synchronization that will make a business more responsive
to customer needs while lowering costs

• A major objective of SCM:

o Respond to uncertainty in customer demand without
creating costly excess inventory

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Bullwhip Effect
• Occurs when slight demand variability is magnified as
information moves back upstream

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Operations Management: Creating Value Along the Supply Chain

Section 10.3:
Supply Chain
Sustainability
** Review on your own **

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Operations Management: Creating Value Along the Supply Chain

Section 10.4:
Information Technology:
A Supply Chain Enabler
** Review on your own **

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Operations Management: Creating Value Along the Supply Chain

Section 10.5:
Supply Chain Integration

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Supply Chain Integration (1 of 2)
1. Share information among supply chain members
o Reduced bullwhip effect
o Early problem detection
o Faster response
o Builds trust and confidence
2. Collaborative Planning, Forecasting, Replenishment (CPFR)
o Reduced bullwhip effect
o Lower costs (material, logistics, operating, etc.)
o Higher capacity utilization
o Improved customer service levels

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Supply Chain Integration (2 of 2)
3. Coordinated workflow, production and operations, procurement
o Production efficiencies
o Fast response
o Improved service
o Quicker to market
4. Adopt new business models and technologies
o Penetration of new markets
o Creation of new products
o Improved efficiency Concept Review
Video: Supply
o Mass customization Chain Integration

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Operations Management: Creating Value Along the Supply Chain

Section 10.6:
Measuring Supply Chain
Performance

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Supply Chain Operations Reference (SCOR)
• Supply Chain Operations Reference (SCOR)
o A cross-industry supply chain diagnostic tool maintained by
the ASCM (Association for Supply Chain Management)

SCOR Model ([Link])

scor-ds-digital-guide_final.pdf ([Link])

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SCOR Model Processes (Prior)

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SCOR Model Processes (Current)
(PLAN)

(*NEW*) (SOURCE)

(ENABLE)

(DELIVER) (MAKE)

(RETURN)

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SCOR Performance Attributes (Current)
Resilience
1. Reliability - The ability to perform tasks as required; the
predictability of the outcome of a process.

2. Responsiveness - The speed at which customer order to delivery

tasks are performed.

3. Agility - The ability to respond to unplanned external influences,

disruptions and/or events.

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SCOR Performance Attributes (Current)
Economic:
4. Cost - The cost of operating the supply chain process, and includes
both direct and indirect expenses.

5. Profit - The financial margin realized when revenue generated

from a business activity exceeds the expenses, costs, and taxes
involved in sustaining the activity.

6. Asset Management - The ability to efficiently utilize assets as both

fixed and working. Assets strategies in supply chain include
inventory reduction and insourcing rather than outsourcing.
Example metrics include Inventory Days of Supply and Capacity
Utilization.
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SCOR Performance Attributes (Current)
Sustainability:
7. Environmental - The ability to operate the supply chain with
minimal environmental impact.

8. Social - The ability to operate the supply chain in alignment with

the organization’s social values.

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SCOR Performance Metrics (Prior)
Performance Attribute Definition Strategic Metrics Definition
Reliability The ability to perform as expected, focusing Perfect order fulfillment Percentage of orders delivered on time and in full,
on predictability of processes; on time, right with no errors
amount, quality
Responsiveness The speed at which the supply chain provides Order fulfillment cycle time Time from order receipt to customer delivery,
products to the customer sourcing time, make time, delivery time, retail
delivery time
Agility Responsiveness to external influences and Upside supply chain flexibility Days required for the supply chain to respond to an
marketplace changes unplanned 20% increase in demand without a cost
penalty
Upside supply chain adaptability The quantity of increased production that can be
achieved and sustained in 30 days
Downside supply chain adaptability The reduction in quantities ordered 30 days prior to
delivery with no cost penalties
Overall value at risk (VAR) Measures the impact of supply chain disruptions;
the sum of the probability of risk events multiplied
by the financial impact of the events for all supply
chain processes
Cost The cost of operating the supply chain, Total cost to serve The direct and indirect costs to plan, source, make,
including labor, material, transportation, and and deliver product and services, including material
management and labor
Asset management Efficiently utilizing assets, including inventory Cash-to-cash cycle time Inventory days of supply (WIP)
efficiency reduction and in-sourcing vs. outsourcing
Return on fixed assets Fixed supply chain asset value, supply chain revenue
Return on working capital Accounts payable, receivable, and
inventory

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Measuring Supply Chain Performance

• Metrics used to measure supply chain performance:

o Inventory Turnover
Costof goodssold
Inventory turns=
Average aggregatevalueofinventory

o Days of Supply
Average aggregate valueof inventory
Daysof supply=
(Costof goodssold)/(365days)

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Computing Key Performance Indicators

Office Hour Video:

Problem 10.1

Office Hour Video:

Problem 10.5

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Copyright

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