Introduction to
Supply Chain Management (Part Two)
Mateeullah Khan
BUITEMS
E-mail: mateeullahkhan@[Link]
Running a profitable business isn't
easy!
• How to make money on bottled water?
• And on selling Fried chicken/beef burger!
• If that is easy, how about fighting a war.
– Wars are won and lost by disrupting enemy
supply lines
– Deliver 4” shells with 6” guns and you’ll
surrender.
Fighting a War is not easy
• Planning and carrying out the movement and
maintenance of forces....
• Those aspects of military operations that deal
with the design and development, acquisition,
storage, movement, distribution, maintenance,
evacuation and disposition of material;
movement, evacuation, and hospitalization of
personnel; acquisition of construction,
maintenance, operation and disposition of
facilities
A Gigantic task indeed
Logistics
• The word logistics was first associated
with the military in 1905 as a branch of war
that pertains to the movement and the
supply for armies.
• Now, Logistics is not only used in military
but also by managers in almost all spheres of
activity to fine tune the process of delivery
through various supply lines with the primary
objective of being able to deliver not just 'in
time‘ but also at 'the desired place'.
Definition of Logistics
• The process of planning, implementing, and
controlling the efficient, effective flow and
storage of goods, services, and related
information from point of origin to point of
consumption for the purpose of conforming
to customer requirements." (Reference: Council of
Logistics Management)
(Note that this definition includes inbound,
outbound, internal, and external movements, and
return of materials)
Definition of Logistics (cont`d)
• It is a fallacy to assume that the best
logistics strategy is to get the product from
the supplier to the customer the fastest and
always be in stock for all organizations.
• If this were true, most organizations would
not be profitable today.
Definition of Logistics (cont`d)
• “Logistics management is the process of
strategically managing the procurement,
movement, & storage of materials, parts and
finished inventory, and the related
information flows through the organization
and its marketing channels in such a way
that the current and future profitability are
maximized through the cost effective
fulfillment of orders”
The Purpose of A Logistics System
• RIGHT QUANTITIES of the
• RIGHT GOODS to the
• RIGHT PLACES at the
• RIGHT TIME in the
• RIGHT CONDITION at the
• RIGHT COST.
Creating a logistics strategy is a balancing act
which takes many variables into account.
The Purpose of A Logistics System
• RIGHT QUANTITIES of the
• RIGHT GOODS to the
• RIGHT PLACES at the
• RIGHT TIME in the
• RIGHT CONDITION at the
• RIGHT COST.
Creating a logistics strategy is a balancing act
which takes many variables into account.
The Need for Logistics
Improvements
From Fragmentation to Integration - 1
Era of Fragmentation Evolving Integration
• Strategy • Strategy
– Design independent – Design coordinated
system for each logistics internal systems
activity • Focus
• Focus – Internal logistics costs
– Activity costs and and customer service
productivity levels
• Goal • Goal
– Minimize functional – Internal costs and
disruption service objectives
From Fragmentation to Integration – 2
Total Integration
• Strategy
– Developing cross-organizational systems and
relationships
• Focus
– Supply chain performance and value, total cost analysis
• Goal
– Maximize value and customer satisfaction
Evolution of Logistics
Why is Supply Chain Management
Important?
• Strategic Advantage – It Can Drive Strategy
– Manufacturing is becoming more efficient
– SCM offers opportunity for differentiation (Dell) or cost
reduction (Wal-Mart or Big Bazaar)
• Globalization – It Covers The World
– Requires greater coordination of production and distribution
– Increased risk of supply chain interruption
– Increases need for robust and flexible supply chains
Why is Supply Chain Management
Important? (cont`d)
• At the company level, supply chain management
impacts
– COST
• For many products, 20% to 40% of total product costs are
controllable logistics costs.
– SERVICE
• For many products, performance factors such as inventory
availability and speed of delivery are critical to customer
satisfaction.
Types of Industrial Supply Chains
The industrial supply chain consists of three key sectors;
[Link] (or extractive) sector
[Link] (or manufacturing) sector
[Link] sector industries
Types of Industrial Supply Chain (cont`d)
• Primary Sector:
– Provide raw materials such as oil and coal or food stocks like
wheat and corn.
– Some raw materials are sold immediately for consumption, such
as coal to power stations.
– Others are used further up the supply chain to be made into
finished goods.
• Secondary (or manufacturing) sector industries make, build
and assemble products. Examples include car manufacturers or
bakers who use primary products.
• Tertiary sector industries do not produce goods. They provide
services such as in banking, retailing, leisure industries or
transport.
More Advanced View of Supply Chain
Management
• Minimize number of suppliers
• Work on Just-in-time supplies
• Virtual Integration
– Control not ownership
• Adaptive & Responsive supply chains
• Risk management & mitigation
Creating a Strategic
Advantage
Creating a Strategic Advantage
• What are the strategic objectives of the
organization?
• Strategic Analysis of the Competition
• Evaluate Channel Structure
The answers to the above question will give an
organization a road map to set its customer service policy.
This policy is then translated to the channel structure to
best meet the organization’s goals in the most efficient
and effective manner for a competitive advantage
Creating a Competitive Advantage
Competitive Advantage Commercial Success
Competitive Advantage Commercial Success
Cost advantage helps in productivity advantage and successful
companies have;
• Productivity Advantage: lower cost profile
• Value Advantage: product offering
• IDEALLY A COMBINATION OF BOTH
Productivity Advantage
• Comes from experience
in efficient production,
greater sales volume,
economy of scale &
declining of all costs
with increase in volume.
• Asset Utilization
• Inventory Reduction
• Integration with
Suppliers
Value Advantage
“Customers Don't Buy Product,
They Buy Benefits
• Strategy based upon differentiated value
• Product image & reputation
• Service: Delivery service, after sales service,
technical support, financial package
• Customer/company relationship
Productivity & Value Advantage Matrix
Impact of Logistics & Customer Service
on Marketing
• For the consumer the customer service, brand value, corporate
image and availability are important considerations.
• Marketing is improved with strong ties with intermediary such
as large retail outlets creating customer franchises as well as
what the consumer is looking for.
• The consumer and customer franchises need an effective
supply chain to result in market effectiveness.
Barriers to Logistics/SC Integration
• Barriers to Logistics/SC Integration arise from inappropriate
– Organization Structure
– Measurement Systems
– Inventory Ownership
– Information Technology
– Knowledge Transfer Capability
Drivers of Supply Chain Performance
• Network Design
• Information
• Inventory
• Sourcing
• Pricing
• Transportation
• Warehousing, material handling, and Packaging
THANKS