Lecture 1- Introduction

Dr Matloub Hussain

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Supply chain management: theory & practice

Cousins,P.D., Lawson,B. and Squire,B.P (2006), Supply chain

management: theory and practice – the emergence of an academic
discipline?, International Journal of Operations & Productions
Management, vol. 26, no. 7, pp. 697-702.

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Supply chain management: theory & practice

Logistics of the Macedonian Army (Engles, Donald W.,

1978)

“Amateurs talk strategy and professionals talk logistics”.

Alexander the Great based his strategies and campaigns

on his army’s unique Capabilities and these were made
possible by effective supply chain management.

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 Introduction

Manufacturing advances in the 80s (TQM, Lean

management and JIT) helped many organisations
improve their manufacturing efficiency and reduce
costs

However, competition in global markets, demanding

customers, the need to deliver value, advances in
technology are some of the factors that have led
organisations world-wide to reassess their operations

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 Introduction
The need to be flexible and efficient while minimising
costs has resulted in the focus on all operations that
impact on the flow and transformation of products

Executives realised that management of material and

service inputs from the supplier base and the
distribution of finished goods provided new
challenges and opportunities

The primary aim is to efficiently deliver higher value

products with lesser input.

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 Definition of SCM

The supply chain encompasses all activities associated

with the flow and transformation of goods as well as
the associated information flows.

Supply chains typically involve a two-way flow of

information and material and consist of a series of
stakeholders such as suppliers, manufacturers,
distributors and retailers in order to minimise cost as
well as satisfy customer or service level requirements
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 Definition of SCM
 A supply chain is network of facilities that incorporates
following main functions;

 Procurement

 Manufacturing

 Distribution

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 Multi-Echelon Supply Chains

A supply chain can be composed of many functional levels

called echelons or tiers (Retailer, Wholesaler, Distributor, and
Factory).

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 Installer

Dealer Local
distributor
network

Area
Vehicle distributor
manufacturer
Prime Distribution
Distribution distributor Chain of Parts
Chain of Manufacturer
V.M.

Supplier

Sub-supplier

Stockist
Manufacturing
Chain
Raw materials
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 Design & management of SC’s
Dell’s Supply Chain-
Chain -$2.6 billion net income on revenue of
$41 billion(2004)– How??????
 Direct selling-bypasses
selling distributors & retailers
 Better forecasting

 Centralized manufacturing & inventories-

inventories provides a large
variety in short time with minimum inventory- how many days
of inventory dell keeps??????
 Customized web page-
page information sharing with suppliers
 Effective cash flow-
flo negative cash conversion cycle of 36 days
 Running business on other guy’s money!!!!

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 Design & management of SC’s
Wall Mart versus Kmart-
 Both chains started in 1962
 In 1987, Kmart had 2,223 stores to Wal-Mart’s 1,198.
 Kmart’s sales were $25.63 billion to Wal-Mart’s $15.96 billion
 By 1991, Wal-Mart’s sales exceeded Kmarts
 Kmart still had more stores
January 1996, Wal-Mart’s sales were $93.6 billion to Kmart’s
$34.6 billion.
During this time Kmart emphasized marketing and
merchandising (such as national TV ad campaigns).
Wal-Mart was investing millions in its operations to lower cost
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 Design & management of SC’s
Wal-Mart- a leader at using supply chain design,
planning & operations.
 Annual sales $1 billion(1980)- net annual income of $9 billion
(2004) on revenue of $250 billion- How????????
 Heavy investment in transportation & information infrastructure
 Designed SC with clusters of stores around distribution centre
to facilitate frequent replenishments
 Information sharing & collaboration with suppliers

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 Design & management of SC’s
Webvan (E-Business)
 Designed a SC with large warehouses to deliver groceries at
homes.
 Traditional supermarket SCs bring product close to consumer
using full truck load- low transportation cost
 Inventory turn was relatively fast
 Webvan turned its inventory faster than supermarket but
 Incurred much higher transportation cost for home delivery
 SC could not compete at cost & company folded with in 2
years

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 Design & management of SC’s
ZARA-A chain of fashion stores

 14 billion Euros from 2200 outlets in 56 countries(2006)

 Highly responsive to changing trends with low cost

 Design-to-sale cycle time was 6 month,

mon ZARA achieved cycle
time of 5 weeks- new design every week- How????

 Uses flexible & quick sources in Europe & low cost sources in
Asia for manufacturing while other manufacturers shifted
manufacturing to Asia
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 Design & management of SC’s
Products(uncertain demand) are sourced out of Europe
while products with predictable demand are sourced from
Asia

40% finish goods purchases occur after start of sale

season

This postponement
postponemen reduces inventory and forecast error

Single distribution centre(Spain) with information sharing

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 Scope of SCM
 Supply chain management includes the following:
- Sourcing and procurement of raw materials
- Inventory management
- Site selection and facilities layout Strategy
- Mode of Transportation
- Information systems
- Demand management
- Production planning (MPS, MRP) Planning
- Warehouse/distribution centre management
- Order processing
- Retail distribution/delivery Operation
- Customer service 18
 Managing the supply chain
First tier Second tier
Second tier Second tier
suppliers customers
suppliers customers

The Operation

Purchasing & supply Physical distribution

management management

Logistics
Materials management
Supply chain management 19
 Benefits of SCM
 Cost reduction (margin improvement) through better inventory
management, asset utilisation, shorter cycle times, efficient
distribution and materials procurement.
 Improved customer satisfaction by ensuring on-time and in-full
delivery of the right products to the right location.
 Improved operational efficiency
ef through the reduction or
elimination of non-value adding activities.
 Improved organisational flexibility to cope with dynamic markets
and customer requirements.
 Development of better relationships
rel with other organisations
within the supply chain.

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 Supply chain perspectives
 The sequence of activities that make up an integrated supply chain
are designed to, ideally, add some value in an effort to realise the
benefits of SCM.
 From the perspective of an organisation within the supply chain, each
of these activities can be classified as:
 Upstream activities – these are the activities carried out by
suppliers to ensure right materials arrive when needed
 Internal activities – activities and operations carried out within the
organisation to produce an output (product or service) from the
range of inputs
 Downstream activities – activities carried out by customers
through whom the product passes on its way to the end user. These
activities may involve further transformation of the product---
How??????????
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 Supply chain issues
Make vs. buy – in addition to the traditional ‘make or buy’
decisions on products, organisations are increasingly
outsourcing services and even complete organisational
functions. Factors that influence these decisions include cost,
poor performance, technological changes, strategy and
competencies

Distribution configuration – many organisations have a

multi-plant, multi-warehouse and multi-market chain. The
configuration of these attributes to optimise transportation cost,
minimise inventory and spare capacity while maintaining
service agreements and reacting to market dynamics provides
profound challenges.
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 Supply chain issues

Information management – accurate and timely

information is a key enabler of effective supply chains.
Communication processes and methods, the use and integration
of technology, data analysis and management and ownership of
the communication processes are factors to be considered by
all organisations within the supply chain network

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 Supply chain issues
Inventory management – inventory management
approaches used by organisations are dependent on a number
of factors including customer demand, supplier and customer
locations, production patterns, product characteristics and cost.

Inter-organisational conflicts – typically within a supply

chain, organisations will have conflicting objectives e.g. long
production runs/flexibility, inventory/JIT, drop-n-drive/goods
check in. Managing these conflicts can provide challenges to
executives.

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 Supply chain issues
Bullwhip Effect- Fluctuation and amplification of
demand moving upstream in the supply chain

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 Supply chain issues

Suggested Readings--Read Dennis Towill, Steve Disney or Slack and Lewis 26

 Supply Chain Organisation
 The various functions that enable the supply chain are typically run
by a number of managers (purchasing, forecasting, warehouse,
shipping, etc) within an organisation

 In smaller companies, some of these functions may be consolidated

 The organisational structure that supports these functions will differ

from company to company. Some organisations will have separate
supply chain units/divisions while others will disperse the functions
in other departments. Some organisations (e.g. multinationals) may
adopt a hybrid approach
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 Supply Chain Organisation
S u p p ly C h a in F u n c t io n

CEO

A d m in D ir e c t o r F in a n c e D ir e c t o r S a le s a n d M a r k e t in g P r o d u c t io n D ir e c t o r S u p p ly C h a in D ir e c t o r
D ir e c t o r

L o g is t ic s M g r P u r c h a s in g M g r W a r e h o u s in g M g r

F o r e c a s t in g M g r D C M anager

C u s to m e r O rd e r In v e n to ry M a n a g e r
S u p e r v is o r

T ra n s p o rt M g r I n - c o m in g G o o d s
S u p e r v is o r

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 Global Supply Chains
 Many organisations are involved in international supply chain in one
way or another. International supply chains tend to be more complex to
manage but can offer a range of opportunities.

 Market, cost, political and technological forces all influence the

development of international supply chains

 International supply chains can be classified as:

 International distribution systems

 International supply base
 International manufacturing operations
 Integrated global supply chain

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 Global Supply Chains
 Global supply chains offer a number of potential benefits
including new markets, flexibility, cost reduction, improved
operational efficiency, access to new technology/practices and
raw materials sourcing.

 Global supply chains also have a number or risks including:

 Currency fluctuation
 Local infrastructure and bureaucracy
 Trade restrictions
 Cultural differences
 Local competition

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