DEPARTMENT OF MATHEMATICAL SCIENCES

FACULTY OF SCIENCE
UNIVERSITI TEKNOLOGI MALAYSIA

MSCM 1663
SUPPLY CHAIN MODELING

ASSIGNMENT 1

Prepared by:

CHOY BEI YEE

MSC182022

SECTION 01 MSCM 2

SEMESTER 2 SESSION 2018/2019

Lecturer:

PROF DR ZUHAIMY BIN HAJI ISMAIL

Date:

23 FEBRUARY 2019
 Globalization lead the accelerating pace of change in shaping all aspect of
contemporary business from economics to technology, from the way products are
produced to the way they are bought. Companies either small business or large
enterprises have become increasingly aware that to remain competitive in an era of
intensified competition they can no longer depend solely on their own inventive and
productive strengths but must look to the core competencies of supply chain partners
to enhance and accelerate customer-winning products and services (Ross and Rogers,
1996). Thus, realizing the importance and benefits of supply chain management (SCM)
running in business management is crucial.

There are several terms need to be explained before knowing what is SCM:
logistics, inventory and prediction. Table below summarized definition of logistics
from several sources:
Table 1: Definition of logistics
Author Explanation
Jonsson and Logistics is defined as the planning, organization, and control of
Mattsson (2005) all activities in the material flow, from raw material until final
consumption and reverse flows of the manufactured product,
with the aim of satisfying the customer’s and other interest
party’s needs and wishes i.e., to provide a good customer
service, low cost, low tied-up capital and small environmental
consequences
Shapiro and Logistics is defined as those activities that relate to receiving the
Heskett (1985) right product or service in the right quantity, in the right quality,
in the right place, at the right time, delivering to the right
customer, and doing this at the right cost (The seven R’s).
Council of Supply Logistics management is that part of supply chain management
Chain that plans, implements, and controls the efficient, effective
Management forward and reverses flow and storage of goods, services and
Professionals related information between the point of origin and the point of
CSCMP (2013) consumption in order to meet customers' requirements.

In most of the cases logistics is seen from the perspective of an operative way of
transporting or moving materials from one point to another or producing service. The
credibility of this operation is based on how good is the design of the system that leads
to this kind of logistics.

Inventory or stock is considered to be the central theme in managing materials.

In the generally understood term, inventory means a physical stock of goods kept in
store to meet the anticipated demand. However, from materials management
perspective, an apt definition of inventory is “a usable but idle resource having some
economic value” (Vrat, 2014). It is necessary to have physical stock in the system to
take care of the anticipated demand because nonavailability of materials when needed
will lead to delays in production or projects or services delivered.
 Forecast is defined as an estimate of the future level of some variables (Bozarth
and Handfield, 2008). In SCM, the common variables that are forecast include demand
level, supply level and prices. A forecast of product demand is the basis for most
important planning decisions. Planning decisions regarding scheduling, inventory,
production, facility layout and design, workforce, distribution, purchasing, and so on,
are functions of customer demand. Long-range, strategic plans by top management are
based on forecasts of the type of products consumers will demand in the future and the
size and location of product markets (Hershey, 2011). Thus, forecasting has impact on
fulfillment of the customer requirements, reducing risk and in measurement of supply
chain process improvement.

Lambert (1994) defines briefly SCM is the integration of business processes

from end user through original suppliers that provides products, services, and
information that add value for customers. More detail definitions from different views
of authors are listed in the table below.

Table 2: Definition of supply chain management (SCM)

Author Explanation
Council of Supply Supply chain management encompasses the planning and
Chain management of all activities involved in sourcing and
Management procurement, conversion, and all logistics management
Professionals activities. Importantly, it also includes coordination and
CSCMP (2013) collaboration with channel partners, which can be suppliers,
intermediaries, third party service providers, and customers. In
essence, supply chain management integrates supply and
demand management within and across companies.
Mentzer et al. Supply chain management is defined as the systemic, strategic
(2001) coordination of the traditional business functions and the tactics
across these business functions within a particular company and
across businesses within the supply chain, for the purposes of
improving the long-term performance of the individual
companies and the supply chain as a whole.
Castle and Jacobs The Association for Operations Management (APICS) defines a
(2008) supply chain as “a total systems approach to designing and
managing the entire flow of information, materials, and
services—from raw material suppliers, through factories and
warehouses, and finally to the customer. The chain comprises
many links, such as links between suppliers that provide inputs,
links to manufacturing and service support operations that
transform the input into products and services, and links to the
distribution and local service providers that localized the
product”.
Indeed, SCM is not limited to the flow of goods and materials but requires a
consideration of both financial flows and information flows across the entire chain.

Figure 1: Additional flows in a supply chain.

One might easily pose the following question: How has the concept of supply
chain management taken off in the last twenty years? The proliferation of supply chain
management is a core concept for businesses that can be attributed to several major
factors, including the following:

a. The increasing importance of globalization (Milovanović et al., 2017). Global

trade has seen a spectacular increase in the last half century. It is estimated that
international trade has increased by 100 percent increase since 1955. With the
advent of globalization, managing supply chain activities has become more
complex. Today a company operating in the United States may have its
manufacturing facilities in China, Mexico or Taiwan and its customers throughout
the world. Many companies in order to manage its global operations may outsource
their supply chain activities to third-party organizations around the globe.
Outsourcing reduces the supply chain operating cost but when not managed
effectively proves otherwise. Globalization has dramatically changed how
manufacturers operate, offering an opportunity to reach new customers in new
markets while at the same time exposing firms to greater competition. Meanwhile,
raw materials and supplier relationships must now be managed on a global scale.
Just as there are benefits and costs of globalization, there are similar pros and cons
of a global supply chain. The advantages of globalized supply chain include the
following:

1. Expanded sourcing opportunities: A world market offers businesses

opportunities to secure a diverse selection of workers, materials, and
products. This larger selection of goods and services often means the
opportunity to select higher-quality or lower-cost options.
 2. The opportunity to reach new customers in new markets: Just as
globalization offers more materials and laborers, it also offers new
customers in new locations with new needs.
3. More room to grow: New technologies and a shrinking globe mean that it
is easier for companies to grow generally: to produce more, offer more,
and sell more. Expanding borders also means expanding businesses and
corporations.
4. More opportunities to save money: Globalization’s biggest benefit is that
increases options: options for source materials, options for workers, and
options for transportation. More options mean more chances to save on
spending and increase profits.

b. Changes in consumer demands. Across the world, consumers are becoming

progressively more demanding. They expect better quality products with more
options and at a lower cost. One has to look only at the global market for cell
phones for an example. Even in countries that might be classified as Third World
countries, consumers expect to be able to buy cell phones with cutting-edge
capability at reasonable prices. This results in a great need for new products, which
in turn requires a reduction in life cycle development times. Normally, increasing
the product development time would generally result in higher cost, something that
is unacceptable today. To meet increasing and often conflicting demands,
businesses find that they must work closely with members of their supply chain.

c. Organizations that have recognized the need to change. Increasingly, more and
more businesses recognize that old models may no longer function. In the past,
many businesses strove to be vertically integrated. This meant that they wanted to
control as many aspects of their operations as possible. Large oil companies exhibit
vertical, industry-wide integration. A firm such as Exxon-Mobil has the capacity
to carry out almost all the functions associated with the petroleum industry. Exxon-
Mobil has units that can explore for oil, drill for oil, transport oil, refine oil into
gasoline, and sell it directly to consumers. In this way, it has almost complete
control over the entire supply chain. This approach—total vertical integration—
may work in some industries where firms recognize that it is economically
advantageous to outsource noncore activities. Firms are making the decision
whether to make or buy, and they are finding it financially attractive to have other
businesses make components or products for them. As outsourcing became more
popular, there was immediate recognition that businesses had to pay careful
attention to all the elements of their supply chains. They had to develop working
relationships with their suppliers and their customers.
Successful supply chain management requires new approaches for dealing with
suppliers. Those businesses that have successfully made this transition can fully
exploit the benefits of supply chain management. Another area where businesses
have learned to change, which has greatly impacted the acceptance of supply chain
 management, is the change from a push philosophy to a pull philosophy. A push
philosophy means that a business produces goods and services and pushes it into
the marketplace. A push-based system will forecast demand in the market, produce
the required amount, push the product out the door, and hope that the forecast was
correct. In contrast, a pull philosophy means that the production of goods and
services is initiated only when the marketplace or the consumer demands it
(Gonçalves et al., 2005).

d. Technical innovations. Today’s approach to supply chain management would be

impossible without technological revolutions in the fields of communication and
computer software. It would be impossible to operate in a global supply chain
without the Internet. Technological advancements now enable businesses to build
end-to-end supply chain solutions that speed up processes and avoid bottlenecks in
the supply chain. Interestingly enough, real time or near real time information is
the key factor in supply chain management. Supply chain management software is
designed to manage and enhance the exchange of information of across various
key supply chain partners to attain such outcomes as just-in-time procurement,
reduction of inventory, increase of manufacturing efficiency and to meet customer
needs in a timely fashion. Oftentimes, these technology solutions enable
companies to attain some level of on-demand or mass customization in the
production cycle (Wu et al., 2006).

Henry Canitz express that all companies nowadays face a long list of difficult
supply chain challenges including increasing demand variability, inventory
proliferation, manufacturing capacity constraints, increasing risks both nature and
human based, more environmental compliance regulations, intense global competition,
increasing customer expectations and a shortage of talent. Figure 2 demonstrates the
top SCM challenges faced by companies regardless of size of company.

Figure 2: Top supply chain management challenges

 Those challenges in SCM faced by larger enterprises are similar to small and
medium enterprises (SMEs), but what are the unique challenges that make SMEs less
likely to succeed in SCM? Apparently, this is largely due to lack of investment power
which lead to limited administrative resources to manage the implementation, and
limitations in the number and scope of personnel that impact the time and expertise
available for SCM activities.

Smaller companies often find themselves at a disadvantage when it comes to

supplier relationships, unless suppliers or partners are also small businesses, the buyer
does not have the scale to create leverage.

SMEs with limited technology content suffer from lack of funding and expertise, thus
reducing their ability to exploit technology available beyond the initial web page design
(Wagner et al., 2003). SMEs often lack the capital or organizational infrastructure
needed to develop sophisticated tools and processes needed to optimize their supply
chains. The disproportionate growth of third-party logistics service providers (3PLs) –
particularly those who are technology enabled – continues to increase because of
demand from small to medium companies who must find new ways remain competitive
with the massive big box players that continue to disrupt the rules of commerce.

Human resource availability is one of the most important challenges affecting

SMEs, and one that is typically less of an issue for their larger counterparts. More
specifically, from the supply chain perspective, SMEs may be less able to afford a team
of supply chain managers and specialists.

In today’s increasingly globalized economy, even though the SCM challenges

faced by SMEs is continuous and competitive, SMEs are now considered to be the
major source of dynamism, innovation and flexibility in emerging and developing
countries, as well as to the economies of most industrialized nations. They contribute
substantially to economic development and employment generation (Lenny Koh et al.,
2007). SMEs form as a potential economic back-bone of many regions and make a large
contribution to employment than large firms (Peng et al., 2010). However, most large
companies are well recognized the benefits of SCM, but small and medium enterprises
(SMEs) are lagging behind in appreciating how integrated supply chain drives
remarkable changes in business processes and work with positive results in better
quality services, cost reduction and efficiency (Chin et al., 2012). Thus, how do SMEs
like bicycle shops and kopitiam benefit from SCM? There are several SCM practices
(Smith and Buddress, 2006) that support SMEs as follow:

 Forecast and plan requirements for longer time periods. A planning horizon that
extends for a year or more would support a much more proactive managerial
stance.
 Develop a market understanding that includes suppliers outside the local area
or region. Enlarging the field from which potential suppliers might be cultivated
increases leverage.
 Differentiate between smaller and larger requirements. By scaling sourcing
strategies to the magnitude of the requirements, SMEs could better manage the
most important activities.
 Develop long term agreements spanning a year or more for the largest
requirements. Such longer-term agreements can serve to reduce uncertainty and
create leverage with critical suppliers.
 Develop the capacity to share important information with contract suppliers.
Such information can promote proactive SCM activities among critical
suppliers, including management of capacity and supplier relationships.
 Measure supplier performance, at least in the case of key suppliers. At a
minimum, performance indicators should include on-time delivery, quality, and
lead times. With experience, firms should develop means for allocating
sourcing requirements in a manner that minimizes managerial activity directed
to supplier-based disruptions. Requirements should be directed toward the best
performers.
 Comprehensively using supply chain software, internet network and e-
commercialize products. SMEs do not have huge fund outlays towards latest
technologies which they can use to improve the supply chain management
process. They do not have deep pockets thus they cannot effectively use some
of the tools like ERP (Enterprise Resource Planning) or CRM (Customer
Relationship Management) for an effective SCM process. One trend worth
mentioning here would be Internet business like Amazon, Taobao, Shopee and
Lazada. Internet buying and selling have been on the rise since the 2000s. SMEs
have to leverage this trend, otherwise, they might carry the risk of sinking.
Customers are increasingly preferring this method over traditional purchasing.
Since this model does not need heavy brick and mortar infrastructure, this may
be ideal for SMEs.
 Focus on just-in-time sourcing and lean manufacturing practices tends to drive
a focus on improved sourcing that was not generally reported for service
organizations. This focus seems often to include attention to forecasting and
sharing information with suppliers. Among service-based firms, some
franchises in the apparel and restaurant industries were reported to have systems
that provided reliable forecasts, and to utilize the forecasts to avoid ordering
more than could be sold. One respondent noted that experience suggested that
the less sophisticated retailers often ended up with too much cash tied up in
unsold inventory. Thus, borrowing successful practices from others, either
through utilizing well documented approaches or by buying “success packages”
incorporating sound practices appears to be one path that SMEs can pursue in
finding useful SCM practices.
 Supply chain management is a progressive learning knowledge and adapted to
the change of globalization. Recognizing the importance value of SCM and
implementation of it is necessary for all companies so they are always interconnected
with their supply chain partners. Well-defined SCM process will ensure that the supply
chain works seamlessly from the producer to the consumer.

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