Supply Chains

University of Rajshahi  Networks of manufacturers and service

providers that work together to move goods
Department of Marketing from the raw material stage through to the end
user
Course Title: Supply Chain Management

Course Teacher:
Md. Nuruzzaman PhD  Linked through physical, information, and
Professor of Marketing monetary flows
University of Rajshahi
1 2

Supply Chain
Cross-Functional Linkages
A supply chain is a network of facilities that procure
Finance MIS raw materials, transform them into intermediate
Budgeting.
What IT solutions Human goods and then final products, and deliver the
to make it all work
Analysis.
together? Resources products to customers through a distribution system
Funds. Skills? Training?
# of Employees? - Lee and Billington
Design The supply chain encompasses all activities
Sustainability. associated with the flow and transformation of
Quality.
Manufacturability. Marketing goods from the raw materials stage, through to the
What products?
end user, as well as the associated information
Accounting What volumes?
Performance measurement systems. Costs? Quality? flows. Material and information flow both up and
Planning and control. Delivery? down the supply chain
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 SCM Definition
Formal Definition of SCM

The design and management of seamless, value-added

process across organizational boundaries to meet the
real needs of the end customer
Institute for Supply Management( UK)
Managing supply and demand, sourcing raw materials
and parts, manufacturing and assembly, warehousing
and inventory tracking, order entry and order
management, distribution across all channels, and
delivery to the customer
The Supply Chain Council( USA) 5 6

Supply Chain Management

Active management of supply chain

activities and relationships to maximize Supply Chain Management
customer value and achieve a sustainable
competitive advantage SUPPLY CHAIN
flow of materials, information, payments, and services from raw
material suppliers, through factories and warehouses, to the end
 SCM is an organization’s willingness to customers.
align, coordinate, integrate and synchronize
the activities and flows across the supply DEMAND CHAIN
the process of taking orders.
chain. The activities are; Purchasing, Inbound
transportation, Quality control, Demand and supply
planning, Receiving, Materials handling and SUPPLY CHAIN MANAGEMENT (SCM)
storage, Materials or Inventory control, Order to plan, organize, and coordinate all the supply chain’s activities.
processing, Production planning, scheduling and
control, Warehousing/Distribution ,Shipping,
Outbound transportation, Customer service.
7
8
 Components of Supply Chain
Benefits of SCM

Contributes to
This positively affects
Reduces inventory levels, cycle overall increase in
uncertainty & risks time, business processes profitability &
in the supply chain. & customer service. competitive
advantage.

9 10

Why study Supply Chain Management(SCM)

Components of Supply Chains  A period of change in the history of the world, in terms of advances
in technology, globalisation of markets and stabilization of political
economies
Upstream Supply Chain
 Increasing number of competitors both domestically and abroad
 Organization’s first tier suppliers & their suppliers.  To stay competitive by improving internal and external process
Internal Supply Chain  Focused on creating and capturing customer loyalty
 To produce and maintain high level of quality at a reasonable cost
 Processes used by an organization to transform their inputs to
 To meet ever-changing customer needs
outputs.
 To an increased focus on sourcing strategy
Downstream Supply Chain  To ensure the availability of right product at right time in right place
 Processes involved in delivering the product to the final  To manage all upstream firms that provide inputs
customers.  To manage network of downstream firms responsible for delivery
11 products 12
 Supply Chain Management(SCM) Supply Chain Management(SCM)
The objective of SCM is to manage the flow of products In supply chains, the primary focus is on costs of
from suppliers to consumers. A whole series of related materials and efficient delivery. Effective supply chain
processes take place along the supply chain; they must management reduces costs to the consumer and
be properly controlled in order for the company to deliver increases profits for the manufacturer.
goods to end users while remaining competitive. Successful supply chain managers bring great value
Supply chain management consists of five main to their employers. They contribute to the
elements: organization’s success by fulfilling roles such as:
 Planning and designing a product to meet consumer demand
 Sourcing the materials or components needed to produce the  Choosing and managing suppliers of components or raw
goods materials.
 Manufacturing the product  Strategic planning for production and delivery to support
marketing efforts, special offers and seasonal demand.
 Delivering the product to the buyer
 Accepting returns of defective products 13
 Monitoring inventory and product flow to avoid supply 14
shortages.

Value Chain Management(VCM) Value Chain Management(VCM)

 Value chain management is also concerned with the flow To properly manage the value chain, companies often
of goods to consumers, but takes a different approach. split operations into primary activities, such as logistics
It’s the complementary view of the process. The and production, and support activities, such as human
difference between the two is that in supply chain resources, management and information technology.
management, the flow is down – from the source to the Creating a profitable value chain requires a connection
consumer. In value chain management, the flow is up – between what customers value, or want, and what the
from the consumer to the source. SCM originates from company produces.
operations management but VCM originates from
business management Value chains are strategic, placing heavy focus on:
 Innovation
 In value chain management, the consumer is seen as  Research and Development
the source of value. Consumers create value for  Product Testing
manufacturers when they demand products. The focus is  Marketing
not on the cost of goods, as in supply chain management,
 Social Trend Analysis
but in creating value in the consumer’s eyes.
15 16

 Economic Conditions
 Value Chain Management(VCM) Value Chain Management(VCM)
 Value chain managers are typically responsible
for analyzing issues and opportunities, and
providing insight (understanding or awareness)
in order to maximize value created for a
business.
 They may use supply modeling to explore
options and mitigate shortages. Other duties
might include preparing product plans, or
collaborating with customer service and
marketing departments on activities that add
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value to the consumer. 18
Figure 3-11

Difference between VCM and SCM Logistics Management(LM)

 A supply chain emphasize more on timing, quality, Logistics management is a part of the supply chain,
and lower costs for delivering goods or service to with a more narrow scope. It often refers to activities
customers both considering both short-term and long- involved from a product or material’s point of departure
term needs. to its final point of arrival. In between are factors to be
SCM which applies to multiple firms working managed, such as transportation, packaging, routing,
for common objectives. scheduling, preparing, distributing, delivering and
warehousing.
 A value chain is the collection of activities (production,
marketing, logistics, services) from a value-adding SCM integrates supply chain planning that is comprised of
demand planning, supply planning, factory planning,
viewpoint, which may focus on all add-value
transportation planning, and scheduling with supply chain
processes, including both the delivery of
execution that spans order management, inventory
goods/services and the improvement of
management, transportation management, warehouse
goods/services.
19
management, international trade management, and event 20
value chain is a firm based theory management.
 SCM and Operations Management(OPM) SCM and Operations Management(OPM)
SCM and OPM are closely linked and dependent upon each  SCM and OPM are closely linked and dependent
other. In SCM companies began to see the supply chain as upon each other. In most organizations, supply chain
one entity, rather than separate pieces . Effective supply management is part of operations management. But
chain management controls costs and ensures efficiency, one contrast between supply chain and operations
from the point of origin of raw materials or components, management is that operations management occurs
through the manufacturing process and delivery to the
internally.
consumer.
But OPM means the planning, scheduling, and control of the
activities that transform inputs into finished goods and  Operations managers work with various departments
services toward common goals – such as making sure the
company’s products are manufactured according to
specifications, packaged properly, sold to the right
retailers and marketed successfully.
21 22

SCM and Operations Management(OPM) SCM and Operations Management(OPM)

In SCM companies began to see the supply chain as One distinct difference between SCM and OPM: SCM is
one entity, rather than separate pieces . Effective supply focused externally but operations management occurs
chain management controls costs and ensures internally.
efficiency, from the point of origin of raw materials or SCM focus on:
components, through the manufacturing process and  Planning products that consumers will want to buy
delivery to the consumer.  Sourcing raw materials, components or parts
One distinct difference between SCM and OPM: SCM is  Transporting and warehousing products
focused externally. Its focus is on:  Delivering the goods to the point of purchase
 Planning products that consumers will want to buy  Operations managers work with various departments
 Sourcing raw materials, components or parts toward common goals – such as making sure the
 Transporting and warehousing products company’s products are manufactured according to
 Delivering the goods to the point of purchase specifications, packaged properly, sold to the right
23 retailers and marketed successfully. 24
 SCM and Operations Management(OPM)
Operations managers share many duties, including:
The Supply Chain Concept
 Forecasting sales
 Improving productivity  Key Terms  Key Terms
 Increasing responsiveness o Lean supply chain
 Agile Supply Chain
 Meeting customers’ demands o JIT production
 Bullwhip effect
 Maintaining quality standards o Lead logistics
 Contract logistics provider (LLP)
 Contributing to the bottom line
 Fourth-party logistics o Logistics outsourcing
(4PL) Partnerships
An operations manager may be responsible for determining o
 Global SC forum (GSCF)
where a manufacturing plant is located, or the structure of a
communications network. Designing the physical plant and
selecting equipment may come under their direct
supervision, along with managing inventory and monitoring
quality (must be strategic, tactical and operational) 25 26

The Supply Chain Concept The Supply Chain Concept

 lean means to create a value stream to eliminate all waste  Just-in-time (JIT) is an inventory strategy companies employ to increase
including time, inventory or unnecessary costs and creates a efficiency and decrease waste by receiving goods only as they are needed in
production schedule. Lean Supply Chain emphasizes on the the production process, thereby reducing inventory costs. This method
requires producers to forecast demand accurately.
use of continuous improvement activities that focus on
eliminate all non-value added activities along the supply
 A good example would be a car manufacturer that operates with very low
chain.
inventory levels, relying on its supply chain to deliver the parts it needs to
build cars. The parts needed to manufacture the cars do not arrive before or
 The word agile means the ability of fast thinking with a clever after they are needed; instead, they arrive just as they are needed.
method. It is a concept of maximum flexibility. An agile
organization should be able to respond to possible changes  Just-in-time inventory control has several advantages over traditional models.
This method reduces costs by eliminating warehouse storage needs.
.Agility acts as a pillar to improve competitiveness, to produce
Companies also spend less money on raw material’s because they buy just
a broad range of low cost, high quality products with short enough to make the products and no more.
lead time. It is all about to respond rapidly. Agile supply
chain includes companies which are legally separate but
27 28
terms of operations are linked.
 The Supply Chain Concept The Supply Chain Concept
 A first-party logistics provider (1PL) is a firm or an individual that
 Just-in-time (JIT) is an inventory strategy companies employ to increase needs to have cargo, freight, goods, produce or merchandise
efficiency and decrease waste by receiving goods only as they are needed in transported from a point A to a point B.
the production process, thereby reducing inventory costs. This method
requires producers to forecast demand accurately.  A second-party logistics provider (2PL) is an asset-based carrier,
which actually owns the means of transportation. Typical 2PLs
would be shipping lines which own, lease or charter their ships
 A good example would be a car manufacturer that operates with very low
inventory levels, relying on its supply chain to deliver the parts it needs to  A third-party logistics provider (3PL) provides outsourced or
build cars. The parts needed to manufacture the cars do not arrive before or 'third party' logistics services to companies for part or sometimes
after they are needed; instead, they arrive just as they are needed. all of their supply chain management function.
 A fourth-party logistics provider (4PL) is an independent,
 Just-in-time inventory control has several advantages over traditional models. singularly accountable, non-asset based integrator who will
This method reduces costs by eliminating warehouse storage needs. assemble the resources, capabilities and technology of its own
Companies also spend less money on raw material’s because they buy just organization and other organizations
enough to make the products and no more.
 A fifth party logistics provider (5PL) will aggregate the demands
of the 3PL and others into bulk volume for negotiating more
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favourable rates with airlines and shipping companies. 30

The Supply Chain Concept

 3PL stands for third party logistics. These are essentially The Supply Chain Concept
businesses that provide a single or multiple types of logistics-
related services like warehousing, clearing and freight  Key Terms  Key Terms
forwarding, packaging, material inward outward, safety,
 Process  Supply chain
contacting
Classification collaboration
framework(PCF)  Supply chain analytics
 4PL is all about supply chain management, planning,
 SCOR model  Third-party
analysis, design and optimization. 4PL is outsourced service
 Strategic alliances arrangements
which can consist of tracking, customer support, supply chain
planning, designing and optimization, analytic, reporting. 4PL  Supply chain  Third-party
is basically an arrangement wherein a firm outsources the councils logistics(outsourcing)
abovementioned services to a 3PL firm and additionally hires  Supply chain  Transactional
another firm that specializes in managing and coordinating management exchanges
the activities of the 3PL firm.
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 Flows in a Supply Chain
The Supply Chain Concept
 Supply Chain Flow

 Key Terms  Key Terms

o Push chain verses  Channels of Distribution Material
demand(or pull  Block Chain
chain) Information
o Inbound supply Supplier Customer
chain Funds
o Outbound supply
chain
o Enterprise The flows resemble a chain reaction.
system(ERP)
o EDI
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Detergent Supply Chain The SCM Network

P&G or other Third Albertson’s Customer wants

manufacturer party DC Supermarket detergent

Chemical
Plastic cup Tenneco
manufacturer
Producer Packaging
(e.g. Oil Company)

Chemical
Paper Timber
manufacturer
Manufacturer Industry
(e.g. Oil Company)

35 36
 Magnitude of Supply Chain Costs A picture is better than 1000 words!
Example: The Apparel Industry How many words would be better than 3 pictures?
A supply chain consists of

Cost per Percent Supplier Manufacturer Distributor Retailer Customer

Shirt Saving

Upstream
Manufacturer Distributor Retailer Customer $52.72 0% Downstream

- aims to Match Supply and Demand,

Manufacturer Distributor Retailer Customer $41.34 28% profitably for products and services

SUPPLY SIDE DEMAND SIDE

- achieves
Manufacturer Distributor Retailer Customer $20.45 62%

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The right
Product
+ + + + +
The right
Price
The right
Store
The right
Quantity
The right
Customer
The right
Time
= Higher
Profits
38

Key functions in a supply chain

 Operations- anyplace a process is performed to transform something
 machining and other traditional factory tasks

 calculation of credit risk in a venture capital supply chain

 Purchasing - anytime we buy a good, service, or information from

another organization
 Logistics - moving goods and or information from step to step in a
supply chain -and to the end customer

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 SCM in Clothing Industry Objectives of supply chain
 To maximize the overall value
generated. (Supply chain value: difference between
what the final product is worth to the customer and the effort
the supply chain expends in filling the customer’s request)

 To look for sources(flows) of revenue

and cost.(The appropriate management of these flows is
a key to success)

 To achieve a sustainable competitive

advantages.(By managing the flows between and
among supply chain stages to maximize total supply chain
profitability)
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SCM to the forefront (important or leading position of )

Cont.……………
Management’s attention
 Revenue generate ,example: Dell receives $2000  Information system and SCM
from a customer for a computer (revenue) With the emergence of the PC, Optical fibre networks, explosion
 Supply chain incurs costs (information, storage, of the Internet and the WWW…….Organisations are moving
transportation, components, assembly, etc.) toward the concept E-Commerce and EC completed via EDI, EFT,
 Difference between $2000 and the sum of all of bar codes, fax, automated voice , CD-ROM and variety of
these costs is the supply chain profit others……
 Supply chain profitability is total profit to be shared Make it possible on-line communications throughout the entire
across all stages of the supply chain supply chain regardless of location………….
Internet, the WWW and the company “Intranets” systems possess
 Supply chain success should be measured by total
(keep/enjoy) Centralized coordination of information flows, Total
supply chain profitability, not profits at an individual
logistics management, Global visibility into transportation, Global
stage
inventory management……….
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 SCM to the forefront (important or leading position of
) SCM to the forefront (important or leading position of )

Management’s attention Management’s attention

 Inventory Management across the SC
Organisations are facing for ever-greater levels of  SC relationships
responsiveness and shorter cycle time for deliveries of  Challenges facing SC managers
high quality of goods
A number of buzzwords have emerged….. throughput
time reduction, delivery speed, fast cycle capabilities,
quick response or resupply time, lead time reduction and
time compression

45 46

Integrated SCM

The Information revolution, customer demands by increased global

47 competition and the emergence of new forms of interorganizational
48
relationship fostered the emergence of an Integrated SCM
 Integrated supply chain
SCM and Integration

 Long-term, mutually beneficial agreements

 Partnerships
 Strategic alliances
 Third-party arrangements
 Contract logistics
 Methods used to integrate
 Vertical integration
 Formal contracts
 Informal agreements
49 50

Supply Chain Management and

Vertical Integration Integration
Vertical Integration Examples of Vertical Integration
Raw material
(suppliers)
Iron ore Silicon Farming
 Third-Party Logistics (3PL)
Backward
Steel
 Logistics outsourcing
integration
 Contract logistics
Current
transformation
Automobiles
Integrated
circuits
Flour milling  Fourth-party logistics (4PL) primarily used in global
Distribution
companies
Forward integration Circuit boards
systems
 Lead logistics provider (LLP)
Finished goods
(customers) Dealers
Computers
Watches Baked goods
 Supply chain software
Calculators
51 52
Supply Chain Management and
Integration
 3PL is all about physical distribution and logistics.
Warehousing, clearing and freight forwarding,
packaging, material inward outward, safety,
contacting transporter etc.

 4PL is all about supply chain management, planning,

analysis, design and optimization. 4PL is outsourced
service which can consist of tracking, customer
support, supply chain planning, designing and
optimization, analytic, reporting. It's generally
corporate job with less field work. 53 54

Vertical Integration
 Developing the ability to produce goods or
service previously purchased
 Integration may be forward, towards the
customer, or backward, towards suppliers
 Can improve cost, quality, and inventory but
requires capital, managerial skills, and
demand
 Risky in industries with rapid technological
change

55 56
 Global Apparel Value Chain and SCM

57 58

What is six Sigma

In statistics, the Greek letter sigma is used to denote standard deviation from the
mean. In the 1920s, statistical quality control pioneer Walter Shewhart proposed that
in manufacturing, three sigma from the mean is the tipping point that indicates a
process has too many defects and requires correction. This was the accepted norm
for many years, until Bill Smith proposed gathering and analyzing data at a more
granular level and making six sigma the point at which a process has to be corrected.
Because it is almost impossible to achieve zero defects, a concept known as infinity
sigma, six sigma allows for 3.4 defects per million opportunities for a defect to occur.
In contrast, three sigma allows for 66,807 defects per million opportunities.

Six Sigma is a system of statistical tools and techniques focused on eliminating

defects and reducing process variability. The Six Sigma process includes
measurement, improvement and validation activities. The designation, or title, Six
Sigma, relates to the connection between the number of defects per million
opportunities and the number of standard deviations found within a process
59 specification. 60
 Decision Phases of a Supply Chain

 Supply chain strategy or design

 Supply chain planning
 Supply chain operation

61 62

[Link] Chain Strategy or Design

[Link] Chain Planning
 Definition of a set of policies that govern
 Decisions about the structure of the supply chain short-term operations to implement long term
and what processes each stage will perform strategy like;
 Strategic supply chain decisions • Forecast for the year of demand in different markets
 Locations and capacities of production and warehousing facilities • Which market from which locations?
 Products to be made or stored at various locations • Planned build up of inventories
 Modes of transportation to be used at each strategy • Make /Buy
 Types of Information systems to be employed • Exchange rate of fluctuation
 Supply chain design must support strategic • Expected competition
objectives  Fixed by the supply configuration from
 Supply chain design decisions are long-term and previous phase
expensive to reverse – must take into account
market uncertainty  Starts with a forecast of demand in the
63
coming year 64
 Supply Chain Planning 3. Supply Chain Operation
 Time horizon is weekly or daily
 Planning decisions:  Decisions regarding individual customer orders
 Which markets will be supplied from which  Supply chain configuration is fixed and operating
locations policies are determined
 Planned buildup of inventories  Goal is to implement the operating policies as
 Subcontracting, backup locations effectively as possible
 Inventory policies  Allocate orders to inventory or production, set
order due dates, generate pick lists at a
 Timing and size of market promotions
warehouse, allocate an order to a particular
 Must consider in planning decisions shipment, set delivery schedules, place
demand uncertainty, exchange rates, replenishment orders
competition over the time horizon
1-65
 Much less uncertainty (short time horizon)
1-66

Supply chain Operation ?

Governs operation daily or weekly in the
best possible manner as per planning
• Allocate shipping orders
• Set delivery schedule of trucks
• Place replenishment orders
• allocate individual orders for inventory or
production
• Generate pick list at ware houses
• set a date when order is to be fulfilled

67 68
 Process View of a Supply Chain Cycle View of a Supply Chain
A SC is a sequence of processes and flows that take place within
different stages. There are two different ways to view the
processes performed in SC; Five stages of supply chain can be broken down
 Cycle view: processes in a supply chain are divided into four processes cycles:
into a series of cycles, each performed at the
interfaces between two successive supply chain  Customer order cycle (customer-retailer)
stages  Replenishment(Renewal) cycle (retailer-
 Push/pull view: processes in a supply chain are distributor)
divided into two categories depending on whether  Manufacturing cycle (distributor-manufacturer)
they are executed in response to a customer order  Procurement cycle (manufacturer-supplier)
(pull) or in anticipation of a customer order (push).Pull
processes are initiated by a customer order, whereas push
processes are initiated and performed in anticipation of
customer
1-69
order 70

Cycle View of Supply Chains

Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier
71
72
 Push/Pull View of
Push vs Pull System Supply Chain Processes
 What instigates (start) the movement of the work in the
system?  Supply chain processes fall into one of two categories
 In Push systems, work release is based on downstream
demand forecasts
depending on the timing of their execution relative to
 Keeps inventory to meet actual demand customer demand
 Acts proactively  Pull: execution is initiated in response to a customer order
 e.g. Making generic job application resumes today (e.g.: exempli gratia)
(reactive)
 In Pull systems, work release is based on actual demand or  Push: execution is initiated in anticipation of customer orders
the actual status of the downstream customers (speculative)
 May cause long delivery lead times
 Acts reactively  Push/pull boundary separates push processes from pull
 e.g. Making a specific resume for a company after talking to the recruiter processes
73 74

Push/Pull View of
Supply Chain Processes Push/Pull View of Supply Chains
 Useful in considering strategic decisions relating to supply chain Procurement, Initiated by Customer Order
Manufacturing and Cycle
design – more global view of how supply chain processes relate Replenishment cycles
to customer orders
 Can combine the push/pull and cycle views
 The relative proportion of push and pull processes can have an Initiated in anticipation of customer order
PULL PROCESSES
impact on supply chain performance PUSH PROCESSES

Customer
Order Arrives
1-76

1-75
 Push/Pull View of Different Supply Chain Configurations
Supply Chain Processes
 Useful in considering strategic decisions relating to supply chain
GWG1
design – more global view of how supply chain processes relate
to customer orders
 Can combine the push/pull and cycle views
 The relative proportion of push and pull processes can have an
impact on supply chain performance

2-78
1-77

Attributes Affecting SCM Implementation Attributes Affecting SCM Implementation

• Customer power • Inventory control

• Long-term orientation – Reduction of the bullwhip effect
– Relational exchanges – Reduction of inventory in the supply chain
– Transactional exchanges • Interorganizational collaboration
• Leveraging technology - Supply chain council
• Enhanced communication across organizations • Use of supply chain facilitators

2-79 2-80
Slide 78

GWG1 This covers the globe...

George, 6/5/2007
 Supply Chain Facilitators Barriers to Supply Chain Management
• Third-Party Logistics (3PL) • Regulatory and political considerations
– Logistics outsourcing • Lack of top management commitment
– Contract logistics • Reluctance to share, or use, relevant data
• Fourth-party logistics (4PL) primarily used in global companies • Incompatible information systems
– Lead logistics provider (LLP)
• Incompatible corporate cultures
• Supply chain software
• Globalization

2-81 2-82

Supply Chain Strategies

Globalization of Supply Chains

• Increasing globalization  Negotiating with many suppliers

– Lower priced materials and labor  Long-term partnering with few
– Global perspective of companies suppliers
– Development of global competition  Vertical integration
• Extremely difficult to execute due to differences  Joint ventures
– Cultural, economic, and technological
 Keiretsu
– Political, spatial, and logistical
 Virtual companies that use
suppliers on an as needed basis
2-83 11 - 84
 Keiretsu
Keiretsu is a business network composed of
Keiretsu Networks
manufacturers, supply chain partners, distributors and  A middle ground between few suppliers
financiers who remain financially independent but work and vertical integration
closely together to ensure each other’s success. In  Supplier becomes part of the company
Japanese, the word keiretsu means “group.” In coalition
business, the word is often used as a synonym for  Often provide financial support for
partnership, alliance or extended enterprise. suppliers through ownership or loans
 Members expect long-term relationships
The formation of a keiretsu allows a manufacturer to establish and provide technical expertise and
stable, long-term partnerships, which in turn helps them to stay stable deliveries
lean and focus on core business requirements. This allows each
major keiretsu to be capable of controlling nearly every step of the  May extend through several levels of the
economic chain in a variety of industrial, resource and service supply chain
sectors. 11 - 85 11 - 86

Why/when Many Suppliers in SC Why/When Few Suppliers in SC

 Commonly used for commodity  Buyer forms longer term

products relationships with fewer suppliers
 Purchasing is typically based on  Create value through economies of
price scale and learning curve
improvements
 Suppliers compete with one
another  Suppliers more willing to participate
in JIT programs and contribute
 Supplier is responsible for
design and technological expertise
technology, expertise, forecasting,
cost, quality, and delivery  Cost of changing suppliers is huge
11 - 87 11 - 88
 Vertical Integration Vertical Integration
Vertical Integration Examples of Vertical Integration  Developing the ability to produce goods
Raw material
(suppliers)
Iron ore Silicon Farming or service previously purchased
 Integration may be forward, towards the
Backward
integration
Steel customer, or backward, towards
suppliers
Current Integrated
transformation
Automobiles
circuits
Flour milling
 Can improve cost, quality, and inventory
but requires capital, managerial skills,
Distribution
Forward integration
systems
Circuit boards and demand
Finished goods Computers
 Risky in industries with rapid
(customers) Dealers Watches Baked goods technological change
Calculators

11 - 89 11 - 90

Joint Ventures

 Formal collaboration
 Enhance skills
 Secure supply
 Reduce costs
 Cooperation without diluting brand or conceding
competitive advantage

91
11 - 92
 Virtual Companies SCM and Integration
• Long-term, mutually beneficial agreements
 Rely on a variety of supplier – Partnerships
relationships to provide services on
– Strategic alliances
demand
– Third-party arrangements
 Fluid organizational boundaries that
– Contract logistics
allow the creation of unique enterprises
to meet changing market demands • Methods used to integrate
 Exceptionally lean performance, low – Vertical integration
capital investment, flexibility, and speed – Formal contracts
– Informal agreements

11 - 93 2-94

Supply Chain Management and Integration Supply Chain Management and Integration
• Third-Party Logistics (3PL) • 3PL is all about physical distribution and logistics.
– Logistics outsourcing Warehousing, clearing and freight forwarding, packaging,
material inward outward, safety, contacting transporter etc.
– Contract logistics
• Fourth-party logistics (4PL) primarily used in global companies
• 4PL is all about supply chain management, planning,
– Lead logistics provider (LLP) analysis, design and optimization. 4PL is outsourced service
• Supply chain software which can consist of tracking, customer support, supply
chain planning, designing and optimization, analytic,
reporting. It's generally corporate job with less field work.

2-95 2-96
 Third-Party Logistics Vertical Integration
Vertical Integration Examples of Vertical Integration
 Outsourcing logistics can reduce costs Raw material
(suppliers)
Iron ore Silicon Farming
and improve delivery reliability and
speed Backward
Steel
integration
 Coordinate supplier inventory with
delivery services Current
transformation
Automobiles
Integrated
circuits
Flour milling

 May provide Distribution

warehousing, Forward integration
systems
Circuit boards

assembly, testing,
Finished goods
shipping, customs (customers) Dealers
Computers
Watches Baked goods
Calculators

11 - 97 2-98

Vertical Integration What is model?

• Developing the ability to produce goods or service

A model is a representation of something on a
previously purchased
smaller scale i.e. it is an attempt to diagram
• Integration may be forward, towards the the elements and relationships among
customer, or backward, towards suppliers elements.
• Can improve cost, quality, and inventory but
Usually a model connects several components
requires capital, managerial skills, and demand
in such a way that there is a final whole,
• Risky in industries with rapid technological which represents the ‘something’.
change
The SCM model represents the decision
regarding distribution process.
100
2-99
 SCM MODEL
SCM Models
The SCOR (Supply Chain Operations
• Supply Chain Operations Reference (SCOR) - Supply Chain
Council Reference Model), GSCF (Global Supply
• Global Supply Chain Forum (GSCF) - Supply Chain
Chain Framework) reference models and
Management Institute The CPFR (Collaborative Planning,
• CPFR (Collaborative planning, Forecasting and Replenishment) Forecasting and Replenishment) model,
along with other modeling efforts, is also
• Process Classification Framework (PCF) -
mentioned, still it is not considered a pure
APQC
reference model.
102
2-101

SCM MODEL
SCOR Model
 SCOR was developed by the Supply Chain Council
in 1996. It aims to support communication The supply chain operations reference model (SCOR) is
between supply chain partners and to make a management tool used to address, improve, and
supply chain management more effective. SCOR communicate supply chain management decisions
describes five basic processes (Plan, Source, within a company and with suppliers and customers of
Make, Deliver, and Return), implemented in four the company. The model describes the business
distinct levels. The three first levels describe processes required to satisfy a customer’s demands. It
standardized elements of the model that can be also helps to explain the processes along the entire
applied according to organizational needs (generic supply chain and provides a basis for how to improve
processes), whereas level four describes the those processes.
implementation of specific supply chain management
practices. 103
104
 Figure 2-2: The Supply Chain Supply Chain Operations Reference Model
Operations Reference (SCOR) Model (SCOR)
GWG4 SCOR:
Integrates Business Process Reengineering, Benchmarking, and
Process Measurement into a cross-functional framework.

Capture the “as-is” state

Capture the “as-is” of a process and derive
state of a process the desired “to-be”
and derive the future state
desired “to-be” Quantify the
future state operational
performance of Quantify the operational
similar companies performance of similar
and establish companies and establish
internal targets internal targets based on
based on “best-in- “best-in-class” results
class” results Characterize the
management Characterize the
practices and management
software solutions practices and
that result in “best- software solutions
in-class” that result in “best-in-
performance class” performance

Business Process Benchmarking Best Practices Process Reference

Reengineering Analysis Model
2-105
106

Supply Chain Operations Reference Model Supply Chain Operations Reference Model
(SCOR):Basic Management Processes (SCOR)
The Primary Use of SCOR:
Plan-Source-Make-Deliver-Return To describe, measure and evaluate supply chain configurations.
SCOR contains:
Plan
Standard descriptions of management processes
A framework of relationships among the standard processes
Standard metrics to measure process performance
Source Make Deliver
Management practices that produce best-in-class performance
Deliver Source Make Deliver Source Make Deliver Source

Return Return Return Return

Return Return
Supplier’s Customer’s Enables the companies to:
Supplier
Supplier Customer Customer Evaluate and compare their performances with other companies
(Internal or (Internal or effectively
Your Company External)
External) Identify and pursue specific competitive advantages
Identify software tools best suited to their specific process
Plan-Source-Make-Deliver-Return provide the organizational structure of the SCOR-model requirements

107 108
Slide 105

GWG4 Again, covering the globe.

George, 6/5/2007
 The SCOR Model
• Processes, metrics and best practices

Plan: Demand/Supply planning and Management

Source: Identify, Make: Manage Deliver: Invoice,

select, manage, and production execution, warehouse, transport
assess sources testing and packaging and install

Return: Raw material Return: Finished goods

2-109 110

Other Performance measures (Process) A Process orientation

Reliability Responsiveness flexibility Cost Asset
Delivery Performance *
Fill rate *
Order fulfillment *
Order fulfillment Lead time * PLAN SOURCE MAKE DELIVER RETURN
Supply chain response time *
In –House In –Bound In –House Out –Bound In –Bound
Production flexibility * •Supplier
•Facilities and
•Demand development
SCM cost * Management • Supply
layout •Logistics
management •Ware housing •Logistics
• MPS management
Cost of goods sold * • MRP •Joint cost
• Materials •Distribution • Warehousing
handng •Channel • Remanufacture
• Capacity reduction
Value added productivity * Planning •Target costing
• Quality Management • Segregation
Management • Customer •Scrap disposal
• Distribution •Value Engg
Warranty cost * planning • Import
• Maintenance Interface
management
substitution
Returns Processing cost *
Cash to cash cycle time *
Inventory days of supply *
Asst turns *
111 112
Customer facing Internal Facing
 SCM MODEL Eight Management
GSCF was developed by the Global Supply Chain Forum in
1994. GSCF model, same as SCOR, focuses on processes that
link the supply chain and on depicting (showing/describing) the
physical flow of goods among members of a supply chain
(Ellram et al., 2004). It is implemented through three primary
elements, the supply chain network structure, the supply
chain business processes and the management components.
GSCF prescribes eight management cross-functional and cross-
firm processes, i.e.
Customer Relationship Management, Customer Service Management,
Demand Management, Order Fulfilment, Manufacturing Flow
Management, Supplier Relationship Management, Product
113
Development and Commercialization, and Returns Management. 114

SCM MODEL SCM MODEL

CPFR began as a 1995 initiative co-led by Wal-Mart's Vice President of CPFR originally was presented by VICS (Voluntary Interindustry
Supply Chain, Chief Information Officer, Vice President of Application Commerce Standards Committee) in their VICS CPFR Guidelines in
Development, and the Cambridge, Massachusetts software and strategy 1998 as a 9 step (or data flow) process, starting with the collaborating
firm, Benchmarking Partners. Collaborative Planning, Forecasting businesses developing the agreement for collaboration.
and Replenishment (CPFR, a trademark of GS1 US, is a concept that The 9 steps were:
aims to enhance supply chain integration by supporting and assisting  Develop Front End Agreement
joint practices. CPFR seeks cooperative management of inventory
 Create the Joint Business Plan
through joint visibility and replenishment of products throughout the
supply chain. Information shared between suppliers and retailers aids in  Create the Sales Forecast

planning and satisfying customer demands through a supportive system  Identify Exceptions for Sales Forecast
of shared information. This allows for continuous updating of inventory  Resolve/Collaborate on Exception Items
and upcoming requirements, making the end-to-end supply chain  Create Order Forecast
process more efficient. Efficiency is created through the decrease
 Identify Exceptions for Order Forecast
expenditures for merchandising, inventory, logistics, and transportation
across all trading partners.  Resolve/Collaborate on Exception Items
115 116

 Order Generation
 SCM MODEL SCM MODEL
The American Productivity and Quality Center (APQC) The PCF model focused on the following steps;
Process Classification Framework (PCF) model is a high-
level, industry-neutral enterprise process model that allows
organizations to see their business processes from a cross-  Supply chain planning,
industry viewpoint. APQC and its members developed the  Procurement of materials and services,
Process Classification Frameworks (PCF), which is updated
 Production/manufacturing and delivery of product,
by a global advisory council of industry leaders. The PCF was
developed by APQC and its member organizations as an open  Delivery of product service to customer, and
standard to facilitate improvement through process  Management of logistics and warehousing.
management and benchmarking, regardless of industry, size,
or geography.

117 118

Supply chain macro processes in a firm ……

Cont.
All supply chain processes can be
classified into three macro processes
All supply chain processes discussed in
the two process views, but in Macro  Customer Relationship Management (CRM)
process we can classified it into three  Internal Supply Chain Management (ISCM)
Macro processes. These three (CRM,
 Supplier Relationship Management (SRM)
ISCM, SRM) Macro processes are aimed
to serve the same customer.

119 120
 SRM ISCM CRM Cont.
 Customer Relationship Management (CRM):
Source Strategic Planning Marketing
The CRM Macro process consists of those
Negotiation Demand Planning Price processes that take place between an
Buy Supply Planning Sales
enterprise and its customers.
 Internal Supply Chain Management (ISCM):
Design Collaboration Fulfillment Call Center
All processes focused on operations that are
Supply Collaboration Field Service Order Management internal to the enterprise
 Supplier Relationship Management (SRM):
All Processes that focus on the interface between
TRANSACTION MANAGEMENT FOUNDATION the enterprise and its suppliers
121 122