Supply Chain Fundementals

SUPPLY CHAIN MANAGEMENT
(SCM)

COURSE OVERVIEW
Duration: 2 Days (12hrs)

Main Topics:
Introduction to Supply Chain Management
Logistics and Demand Forecast
Purchasing Process & Supplier Evaluation
Inventory Management

Trainer: Heba Farouk,
M. Phil, Bergen University, Norway
Certified Supply Chain Management Trainer, Grenoble School of Management, France
Business Development and Marketing Manager, ITI
hibahf@iti.net.eg

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INTRODUCTION TO

Lecture 1
PLAN
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PLAN
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The various options available:

Have the milk home delivered.

The father buys the item while coming from work.

The mother buys the item while coming from work.

The son or the daughter buys the item while coming
from school.

Who?
Supply Chain Drivers
SUPPLYING MILK AT HOME
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Buy the Milk from the corner store

Buy the Milk from the supermarket in bulk, once or
twice a week.

Have the milk home delivered

From
where?
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Decision making:
The selection of the appropriate option has to be
done by considering many factors like:

Convenience
Cost
Freshness of the product
Reliability of Supply
Product diversity
Capacity to combine this task with other functions
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Father
Mother
Son
Daughter
Corner store
Supermarket
Home delivered
Convenience
Cost
Product freshness
Supply reliability
Product diversity
C.to C. Functions
And it is JUST supplying milk to the household
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A bigger picture !
retailer
household
The example:
It is the last link in the milk Supply Chain (SC)
To see how complex is the milk SC lets take a

picture of the whole SC
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Farmer
Milk industry Packaging Distributors
retailer
consumer
Lumber Industry
Paper manufacturer
Label manufacturer
A bigger picture !
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A bigger picture !!
Source: Goodwin, Graebe, Salgado, Prentice Hall 2000

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AN INTEGRATED SC ?
Relationship Management

Strategic Business Units
Customers .
Retailers .
Distribution centers .
Mfg .
1st Tier Suppliers . 1st Tier Suppliers .
2nd Tier Suppliers .
2nd Tier Suppliers .
2nd Tier suppliers .
Material flows
Information
& Financial flows
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FORD SUPPLY CHAIN
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INTRODUCTION
Competition, globalization of markets, and
technology developments make that each
organization has to provide their products
and services to customers faster, cheaper,
and better than the competitor.

Organizations need continuously to
improve their internal and external activities
continuously in order to be and to stay
competitive.
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DEFINITIONS.
The Supply Chain: ( SC)

Encompasses all activities associated with the flow
and transformation of goods from raw material stage
(extraction), through to the end user, as well as the
associated information flows. Material and
information flow both up and down the supply Chain.
Robert B. HANDFIELD
Introduction to Supply Chain Management

The same definition can be applied in the case of services.
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DEFINITIONS.
Another Definition for the SC:

It consists of all parties involved, directly or
indirectly, in fulfilling a customer request.

It includes all functions involved in receiving and
filling a customer request, within an organization

Sunil Chopra
Supply Chain Management
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DEFINITIONS: SCM
SCM:
Is the integration of these activities through improved
supply chain relationships, to achieve a sustainable
competitive advantage.

And:
SCM is primarily concerned with the efficient
integration of suppliers, factories, warehouses and
stores so that merchandise is produced and
distributed in the right quantities to the right locations
and at the right time, and so as to minimize total
system cost subject to satisfying service requirement.
Simchi-Levi of IMT
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SUPPLY CHAIN
sales processing,
production,
inventory
management,
material supply,
Distribution
procurement,
forecasting,
customer service,
and several other
areas
A Supply Chain (SC) include all aspects of a
business:
MEDFORIST-PSUT-JORDAN-04
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SUPPLY CHAIN
The main facilities in the SC are:
Warehouses
Factories
Processing centers
Distribution centers
Retail outlets
Offices
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SUPPLY CHAIN
In addition to the organization itself, the main
players (or members) in a supply Chain are:
- the suppliers,
- customers,
- distributors,
- retailers,
- the intermediaries
- the suppliers suppliers
- customers customers.
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SUPPLY CHAIN
We can distinguish three layers in a
supply chain:
Layer 1: The upstream supply Chain
This part includes the suppliers and their
suppliers, and it can be extended to include
the origin of the row material (mining ores,
growing crops, oil).
Ensure that the right material arrive at
the right location at the right time.
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SUPPLY CHAIN
Layer 2: the internal supply chain
This part includes all the process used to
transform the input received from the
upstream SC into outputs.
Layer 3: the downstream supply chain
This part includes all the activities involved
in delivering the products to their final
customers. This includes the distributors
and customers.
SUPPLY CHAIN COMPLEXITY
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SUPPLY CHAINS FLOWS.
Manufacturer Wholesaler Retailer
Funds
Funds
Funds Funds
Product Product Product Product
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Information
A SC is dynamic and involves the constant flow of
information, product and funds between different stages
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SUPPLY CHAIN FLOWS
Four main types of flows are then to
consider in a supply chain:
Material flow
Financial flow
Information flow

FROM COW TO CUSTOMER...
Dairy
co-operative
Cheese
factory
National
DC
Retailer Retailer
DC
Material Flow
Information Flow
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SUPPLY CHAIN FLOWS
We need to take into account the suppliers
suppliers and the customers customers
because they generally have an impact on the
overall Supply Chain performance.
Material Flow
Information Flow
Financial Flow
SUPPLY CHAIN SUCCESS STORIES
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SC'S PROCESS VIEW.

1. Cycle View:

The processes are viewed as a series of cycles
each performed at the interface between two of
successive stages of the SC.

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Procurement
Cycle
Manufacturing
Cycle
Customer
order
Cycle
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SC'S PROCESS VIEW.
2. Push/Pull view:
Categorizes processes based on whether they are:

In response to a customer order ( Pull )

In anticipation of a customer order ( Push )
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Pull (reactive process)
Push
SC'S PROCESS VIEW.
The push model is illustrated by a manufacturer who develops an
innovative product and then identifies a suitable target market. A
distribution channel is then created to push the product to the
market.
The typical motivation is to optimize the production process for cost
and efficiency.

At the execution time of the Push process, the customer
demand is not known and the work is done based on
downstream forecasts.
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At the execution time of the Pull process, the customer
demand is known with certainty and the performed is
done based on the actual status of the downstream
customer.

SC'S PROCESS VIEW.
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The pull model (market driven) is focused on the customers
needs and it starts with analysis of their requirements
through market research and close cooperation with
customers and suppliers in new product development.
The customers in this model are actively involved in product
and service specification.
The typical motivations are to deliver value to the
customers, and increasing service quality.
SCM help organizations to:
Improve their internal processes (inside the
organization)
Improve their external processes (with their
business partners)
Make the SC flexible and responsive
Meet customer needs and markets requirements

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SCM help organizations to: (cont.)
Provide their products or/and services faster and
cheaper to customers.
Reducing the operating costs
Increasing customer satisfaction and so loyalty
Increasing revenue

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MANAGING THE SUPPLY CHAIN
SCM Main objectives
Minimize supply chain costs.
Match supply and demand
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MINIMIZE SUPPLY CHAIN COSTS
By an appropriate management of the SC flows
(generating costs within the SC different stages)
while keeping:
Customer satisfaction
Service level
Product quality
Delivery time
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By keeping the following equation true:

The right
Supplier
The right
Product
The right
Warehouse
The right
Quantities
The right
Time
The right
Customer
+ + + + +
=
High Supply Chain
Profitability
MATCH SUPPLY AND DEMAND
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SCM ISSUES
Strategic Issues
Design of the supply chain
Finding partners: strategic supplier
Minimize the SC

Operating Issues
Quality control
Production planning and control

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SCM ISSUES
Tactical Issues
Inventory policies
Purchasing policies
Production policies
Transportation policies
Quality policies

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INFORMATION SYSTEMS FOR SCM
Information and communication technologies are
vital to SCM since managing relationships with
customers, suppliers and intermediaries is based
on the flow of information and the transactions
between these parties.
All organization are part of more than one supply
chains Supply Chain Network
increase the need for e-communication
technologies
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INFORMATION SYSTEMS FOR SCM
By applying information systems, companies can
enhance or radically improve many aspects of the
supply chain.

Conclusion:
ICT is needed to improve product quality, service
quality, to reduce prices and to fulfillment times.
GLOBAL VIEW SUPPLY CHAIN
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Goal:

Identify the major drivers of SC performance.

Define the role of each driver in implementing
the strategic fit between the SC strategy and
the competitive strategy.

Obstacles to cope with to successfully manage a SC.
SUPPLY CHAINS PERFORMANCE DRIVERS
Introduction to Supply Chain
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Supply Chain Management
F
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SUPPLY CHAINS DRIVERS
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Competitive strategy
Supply Chain strategy
EFFICIENCY RESPONSIVENES
I nventory Transportation Facilities I nformation
Supply chain structure
Drivers
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To improve the S.C. performance, the company has to:

To balance responsiveness against efficiency

meet the competitive and SC strategies

Make a trade-off between efficiency and responsiveness
for each SCs drivers.

The combined impact of the four drivers determines the
responsiveness and the efficiency of the entire SC.
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An Example:
Wal-Mart
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Competitive strategy:

To be a reliable low cost retailer for a very wide variety of
mass consumption goods

The ideal SC will emphasize efficiency
but also,
maintain an adequate level of responsiveness
To achieve this performance, Wal-Mart uses the four drivers as
follows:
AN EXAMPLE: WAL-MART

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1. Inventory:

The DCs pioneered cross-docking

Products are only stocked at stores

Low inventory
Wall-Mart maintains an efficient SC
Favors efficiency over responsiveness
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2. Transportation:

To keep a high level of responsiveness, Wal-Mart runs its
own fleet.
transportation & investment costs increase

3. Facilities:

Central DCs within the networked stores.
New warehouses are built only where the demand
justifies having them
Low facilities number & high efficiency
Efficiency is favored over responsiveness
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4. Information:

Wall-Mart uses the information driver to improve
responsiveness and decrease inventory investment.

Wall-mart feeds demand information to its suppliers to
manufacture only whats being requested.

The achieved results in terms of responsiveness and
efficiency justify the large investments to share the
information all over the SC

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The four drivers are used intelligently by Wal-Mart to achieve
the right balance between responsiveness and efficiency
so that
Their competitive strategy and SC strategy are in harmony.

Driver Efficiency responsiveness
Inventory favored
Transportation favored
Facilities favored
Information boosted boosted
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DRIVERS: FACILITIES

They are the locations to or from which inventory is
transported.

Within a facility inventory is either.

Processed or transformed into another state.

Or it is stored before being shipped to the next stage.
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Role in achieving competitive strategy:
Centralization Increases Decreases
Decentralization Decreases Increases
Efficiency Responsiveness
DRIVERS: FACILITIES
DRIVERS: FACILITIES

Facilities related decisions:

1. Locations:
Decentralization or Centralization : The Trade-off!

2. Capacity:

Excess Capacity
High cost High flexibility
Efficiency
decreases
Ability to cope
with swings in
demand
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DRIVERS: FACILITIES
3. Operations Methodology:

Product focus

Functional Focus
Trade-off
Flexible
capacity

Dedicated
capacity

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DRIVERS: INVENTORY
Why ?
To avoid mismatch between supply and demand
To have the shortest possible lead time
To reduce cost by exploiting economies of scale in
production or/and distribution
Material cost
Fixed ordering cost
Holding cost

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DRIVERS: INVENTORY
Plays significant role in a supply chains ability to support

the firms competitive strategy:

Total cost reduction

Efficiency improvement

Responsiveness improvement
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DRIVERS: INVENTORY
Inventory related decisions:

The major decisions that must be made to create
more efficiency & responsiveness are related to:

Cycle Inventory

Safety Inventory

Seasonal Inventory
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DRIVERS: INVENTORY
The Trade-off ?
Trade-off
Efficiency

Responsiveness
Low inventory level
High Inventory level
Holding cost
Transportation cost
Fixed order cost
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DRIVERS: TRANSPORTATION
Transportation has a great impact on the supply chains

efficiency & responsiveness

1. Transportation related decisions:

Transportation mode

Network design

In-house or out source

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DRIVERS: TRANSPORTATION
2. Trade-off ?

Trade-off
Efficiency

Responsiveness
High transportation cost High inventory level
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DRIVERS: INFORMATION
Information is the key decision driver:
without reliable information decisions are made blindly.

It is the connection tool between the SCs stages.

It enables the SC to become both more efficient & more
responsive.

Data is not information.
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Information related decisions:

What is the right information to be used? (e.g. Push vs
Pull)

Which information are confidential?

Coordination

Forecasting information

DRIVERS: INFORMATION
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Driver Efficiency Responsiveness
Facilities consolidation/
flexibility
proximity/
flexibility
Inventory holding cost availability
Transportation consolidation speed
Information low cost/ slow high cost/ fast/reliable
SUPPLY CHAIN TRADE-OFFS
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OBSTACLES FACING A SUCCESSFUL SC
Major challenges facing SCM are:

Strategic fit achievement.

SCs ability to find the balance between
responsiveness & efficiency that matches best the
customer needs.

Major obstacles facing strategic fit achievement are:

Local optimization & lack of extended coordination.

Increase of products variety resulting in a high
implied uncertainty.

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Shrinking products life cycles:

Continuous adaptation of the S.C. to cope with
products demand uncertainty

Strategic fit achievement is more difficult

reducing time interval for expanding strategic fit scope

Globalization:

A borderless aggressive competition
.

OBSTACLES FACING A SUCCESSFUL S.C.
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SUPPLY CHAIN CASE STUDY
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REFERENCES & SOURCES

Sunil Chopra, Peter Meindl, SUPPLY CHAIN MANAGEMENT Strategy,
Planning, and Operation , Pearson Education International.

Olivier ABA, Set of Slides, Grenoble Ecole de Management

Robert B. HANDFIELD, Ernest L. NICHOLS, J R. , INTRODUCTION TO
SUPPLY CHAIN MANAGEMENT , Pearson Education, PRENTICE HALL,
Upper SaddleRiver, New Jersey 07458.

Malcolm Saunders, Strategic Purchasing & Supply Chain Management
Prentice Hall 1997

Robert B. HANDFIELD, Ernest L. NICHOLS, J R. , INTRODUCTION TO
SUPPLY CHAIN MANAGEMENT , Pearson Education, PRENTICE HALL,
Upper SaddleRiver, New Jersey 07458.

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