2. Learning Outcomes
To understand and critically analyse
• Supply chains/networks
• Supply chain design
• Outsourcing, offshoring and global sourcing
• Supply Network Matching Decision
3. • The design and management of flows of products, information, and
funds throughout the supply chain
Supply Chain Management (SCM)
4. SCM integrates functions
within and between
enterprises of the supply chain
through:
• Intra – Organizational
Integration
• Cross – Enterprise
Integration
The Boundary-Spanning Nature of SCM
8. Total and Immediate Supply Networks
“Second tier”
Suppliers
“First tier”
Suppliers
“Second tier”
Customers
“First tier”
Customers
The
Operation
Supply side of
the network
Demand side of
the network
The Immediate
Supply Network
The Total
Supply Network
Internal Supply Networks
9. Supply Network for a Plastic Home-Ware
Company
Plastic
homeware
manufacturer
First tier
suppliers
Packaging
supplier
Plastic
stockist
First tier
customers
Wholesaler
Second tier
suppliers
Ink
supplier
Cardboard
company
Chemical
company
Second tier
customers
Retailer
Retailer
Direct supply
Information
10. Supply Network Co-ordination
• Bullwhip effect: Fluctuation and distortion of information increases as
it moves up the supply chain
• Each stage of the chain carries progressively more inventory
• The longer the supply chain, the greater the opportunity for the Bullwhip
Effect
• Supply chain integration provides the basis for successful supply
network coordination.
• ICT such as Electronic Point of Sale (EPOS)
11. The Bullwhip Effect
0
Time
Sales from
store
Consumers
0
Time
Store’s orders to
wholesaler
Time
Wholesaler’s orders
to manufacturer
0
Manufacturer’s
orders to its
suppliers
0
Time
Retail
Store
Whole
-saler
Manuf -
acturer
Supplier
Time
12. Reducing the Impact of the Bullwhip Effect
• Reducing the number of the stages in the supply chain
• Communicating end consumer demand directly to all stages of the
supply chain
• Reducing order sizes and increasing their frequency
• Reducing delivery times
• Reducing manufacturing lead times
• Avoiding creating surges in demand due to price cutting and
promotional activities
13. Service/Product
Processes Supply Chain
Link Services/Products
with Internal Processes
Link Services/Products
with External Supply Chain
Link Services/Products with Customers,
Suppliers, and Supply Chain Processes
Creating an Effective Supply Chain
14. Supply Chain Design Decisions
• Supply network shape/configuration decisions
• Supply network rationalization
• Disintermediation
• Do or Buy/vertical integration or outsourcing decision.
• How much of the network should the operation own?
• Supply network matching decision
• How should supply chain networks be configured when operation compete in different ways in
different market?
15. Supply Network Rationalization
• Reducing the base of suppliers and customers
• Reducing the number of relationships
• Simplifying the basis of relationships
• Reducing transaction costs
• Carefully selecting customers and suppliers
16. Disintermediation: Magnitude of Supply
Chain Costs
Manufacturer Distributor Retailer Customer
Cost per Percent
Shirt Saving
$52.72 0%
$41.34 28%
$20.45 62%
Manufacturer Distributor Retailer Customer
Manufacturer Distributor Retailer Customer
Example of the Apparel Industry
17. Outsourcing
• Vertical Integration being replaced by outsourcing
Advantages of outsourcing
• Reduced cost
• Use of the expertise of the supplier
• Better inventory control
• Reduced capital employed
• Accurate operation costs
• Concentrating on core activities
Disadvantages of outsourcing
• Loss of control
• Continuity of the supply at risk
• Managing the supplier
• Underutilisation of in-house
resources
• Commercial secrecy at risk
18. Outsourcing/Do or Buy Decision Matrix
• The implications of outsourcing can be assessed in terms of strategic value and criticality
19. Global Sourcing
• Sourcing resource inputs form different countries (offshoring)
Stages of global sourcing
• Stage 1: Domestic sourcing only
• Stage 2: Reactive international sourcing
• Stage 3: Proactive international sourcing
• Stage 4: Global sourcing network
21. Supply Network Matching Decisions
• Supply chains should be designed in a way to support the competitive priorities of
their services or products.
• The nature of demand for the firm’s services or products determines the best choice
of supply chain strategy/design.
• Two distinct designs: efficient supply chains and responsive supply chains
• Responsive supply chains are designed to react quickly to customer demand.
• Efficient supply chains are aimed at reducing operational costs.
22. Efficient Vs Responsive Supply Chains (1)
Factor Efficient Supply Chains Responsive Supply Chains
Demand Predictable, low forecast errors Unpredictable, high forecast
errors
Competitive priorities Low cost, consistent quality, on-
time delivery
Development speed, fast delivery
times, customization, volume
flexibility, variety, top quality
New-service/product
introduction
Infrequent Frequent
Contribution margins Low High
Product variety Low High
23. Efficient Vs Responsive Supply Chains (2)
Factor Efficient Supply Chains Responsive Supply Chains
Operation strategy Make-to-stock or standardized
services or products; emphasize
high volumes
Assemble-to-order, make-to-
order, or customized service or
products; emphasize variety
Capacity cushion Low High
Inventory investment Low; enable high inventory
turns
As needed to enable fast
delivery time
Lead time Shorten, but do not increase
costs
Shorten aggressively
Supplier selection Emphasize low prices,
consistent quality, on-time
delivery
Emphasize fast delivery time,
customization, variety, volume
flexibility, top quality
24. Matching supply chains with products
Nature of Demand
Functional products Innovative products
Predictable Unpredictable
Few changes Many changes
Low variety High variety
Price stable Price markdowns
Long lead-times Short lead-times
Low margin High margins
Supply
Chain
Policy
Efficient
Responsive
Low
throughput
times
low
cost
Low
utilization
High
utilization
Deployed
inventory
Minimum
inventory
Flexible
suppliers
Low
cost
suppliers
-
Mismatch
Mismatch
Lean SCM
Agile SCM
25. Job Small Batch Large Batch Line Continuous Flow
Process
Service/Product
Characteristics
Standardized
Customized
Supply Chain Design Link to Processes
26. Business to business (B2B)
Most common, all but the last link
in the supply chain
E-commerce examples:
EDI networks
Business information exchanges
Business to consumer (B2C)
Retail operations
Catalogue operations, etc.
E-commerce examples:
Internet retailers
Amazon.com, etc.
Consumer to Business (C2B)
Consumer ‘offer’, business
responds
E-commerce examples:
Some airline ticket operators
Priceline.com, etc.
Supply Chain Relationships
Trading ‘swap’ and auction
transactions
E-commerce examples:
Specialist ‘collector’ sites
Gumtree
Ebay.com, etc.
Consumer to Consumer (C2C)
Business Consumer
To......
Business
Consumer
From....
27. Traditional approach Partnership approach
Adversarial relationship Co-operative relationship
Arm’s length formal relationship Close relationship
Many suppliers Few suppliers (single sourcing for some items)
Price the main purchasing criterion Multiple purchasing criteria
Short term contracts Long term contracts
Evaluation on bid by bid basis Evaluation of supplier capability
Purchaser sets the detailed specification and design of
the products and services
Purchaser sets performance specification, suppliers
designs products and services
Purchaser responsible for quality inspection Supplier responsible for quality inspection
Problems are the suppliers responsibility to solve Problems are jointly solved
Improvements when demanded by buyer Continuous improvements mutually sought
Improvement benefits shared by negotiation Improvement benefits shared equitably
Information is Proprietary Information is shared
Relationship with Suppliers
28. References
• Barnes, D. (2008). Operations Management: An International
Perspective. Cengage Learning EMEA.
• Krajewski, L. J., Malhotra, M. K., and Ritzman, L. P. (2015). Operations
Management: Processes and Supply Chains. Pearson Higher Ed.
• Slack, N., Brandon-Jones, A. and Johnston, R. (2011). Essentials of
operations management. Financial Times Prentice Hall.