Supply Chain Flow

Planning and Network

Planning

ZIKRUL MCIPS; PMP

1
Supply Chain Network
design tools and
techniques

Session-05

ZIKRUL MCIPS; PMP

2
 Why needed

 
The global business environment is increasingly complex and
dynamic. The procurement and supply function needs to develop
a supply chain design that helps the organisation to effectively
deliver its strategic goals, and priorltises the strategic objectives
of the organisation.
 
Supply chain network design tools and techniques enable the
organisation to progress from a model of procurement and
supply which focuses on delivering an approach to meeting
customer demand that is suitable in all circumstances (i.e. a
'one-size-fits-all' approach).

ZIKRUL MCIPS, PMP

3
 Segmentation

Segmentation examines a group of customers or suppliers or market

and breaks down the group into a smaller subset based on specified
characteristics. Segmentation enables organisations to boost
profitability by tailoring their supply chain strategy to each customer
and product in their portfolio. This enables the procurement and
supply function to structure itself to offer supply and demand variability
while managing challenges such as cash-flow leakages and
unprofitable product portfolios.

Allocating customers to supply chain network segments provides

organizations with the basis for developing tailored supply chain offerings.
This approach results in organisations being able to fulfill customer
requirements with less effort. Cost savings can be achieved by removing
the unnecessary over servicing that occurs through operating a ‘one-size-
fits-all’ supply chain.

ZIKRUL MCIPS, PMP

4
 Segmentation

Of the five core pillars of high-performance supply chains network

(customer-centricity, segmentation, synchronisation, business
agility and optimisation), segmentation represents the most
fundamental evolution in supply chain network thinking. In a dynamic
and complex global marketplace, organisations must cater to a wide
range of customer needs as they serve increasingly diverse markets
across international economies. Understanding the needs of global
markets and crafting attractive customer value propositions to serve
them accordingly is becoming ever more critical for profitable growth
and business retention. Clearly, a one-size-fits-all supply chain network
strategy cannot adequately or profitably achieve this goal. Instead,
organisations must segment supply chain network operations to
balance the cost to serve with the value of the business for each segment.

ZIKRUL MCIPS, PMP

5
 Supplier segmentation

Supplier segmentation allows the procurement and supply function to

do the following.
 Focus on and leverage available resources, while minimising
identified supply and supplier risk factors
 Follow a standardised framework for decision-making and action
planning in regard to portfolio management of supplies and suppliers
 Justify portfolio management decisions on the basis of robust criteria
and analysis
 Increase efficiency, effectiveness and economy and thus help to
achieve sustainability.
 Identify most effective relationship for network.

ZIKRUL MCIPS, PMP

6
 Criteria for segmentation of SC Network

The criteria used for segmentation stem from two different baseline theories:
 Theory of lean-agile
 Theory of strategic alignment

Lean-agile supply chains network focus on developing flexibility in the supply

chain to ensure that the behaviours, organisational design, information
management and logistics processes use market knowledge to enable the
organisation to take advantage of profitable opportunities. Lean focuses on the
promotion of a level schedule. Agility manages fluctuating demand. Combining
these paradigms focuses the supply chain network management on controlling
and managing the material flow streams through a company supply chain at the
decoupling point. In most supply chains, Lean activities are applied upstream
and the agile principles are applied downstream.

Decoupling point:- The point where order-driven and forecast-driven activities

in the material flow stream meet the supply of the product to the customer

ZIKRUL MCIPS, PMP

7
Decoupling point

ZIKRUL MCIPS, PMP

8
 Criteria for segmentation of SC Network

Theory of strategic alignment

The theory of strategic alignment suggests that supply chain network

initiatives should be aligned to the overall business strategy and the
demands from the marketplace. Lack of alignment can fragment the
value that the supply chain network is able to deliver to the organisation.
A lack of explicit supply chain network strategy can result in confusion
and supply chain network activities failing to contribute to the
organisation's intended strategic goals,
 
Chorn(1991) proposed that the organisation should seek to create
strategic fit by aligning four logics (the production (P), administration
(A), development (D) and integration (I)) to ensure that the
organisation's strategy is appropriate given the competitive conditions
within the business environment.

ZIKRUL MCIPS, PMP

9
 Customer segmentation

Most customers should fit into three segments. These should be

as follows.
 
 Sufficiently large to allow profitable targeting
 Distinctive, with unique, identifiable needs and
characteristics that can be targeted by supply chain strategies
 Actionable, suggesting service value propositions that are
economically and technically feasible for the supply chain to
implement

ZIKRUL MCIPS, PMP

10
 Marketing mix framework

Traditionally marketing has used the marketing mix framework

to develop plans to ensure that the product serves a need. The
original marketing mix incorporates what is known as the 4Ps.
These are as follows.
 
 Product. The added value of the product, including quality,
brand, features and benefits, and customer experience.
 Price. Positioning the product's pricing model to be attractive
to the customer segment, including discounting and value-
added enhancements.
 Place. The choice of channel(s) utilised to sell the product.
 Promotion. The use of marketing communications including
promotions, public relationships and direct marketing tools.

ZIKRUL MCIPS, PMP

11
 Classifications of product
Fisher(1997) identified that to develop an appropriate supply chain
network strategy, the procurement professional will need to be able to
match the supply chain network with the products or services that the
organisation provides. Fisher identified two classifications of product,
as follows.

Functional products. Functional products are those that satisfy basic

needs and are widely available. These products have been characterized
as having a long life cycle, changing very little over time, and having little
variety in their offering. Demand is stable and predictable on speed and
flexibility.

Innovative products. Innovative products are typically characterized as

trendy, fashionable, or high tech, and exhibit highly variable, difficult to
predict demand. Uncertainty is much more prevalent than with functional
products. New products fall into this category because the initial demand
is often unknown. Innovative products have short life cycles and larger
product variety. The profit margin for innovative products is high, which
means lost sales have a more significant effect on company performance

ZIKRUL MCIPS, PMP

12
Fisher's matching matrix

ZIKRUL MCIPS, PMP

13
 A taxonomy of supply chains network

Christopher and Towill (2002) offer a different approach to supply chain

network segmentation. They provide a taxonomy of supply chains
based on eight different fields, each of which requires a different supply
chain network strategy. Christopher and Towill argue that for global
strategic supply chain network management, procurement professionals
should consider the following three variables when considering a
segmentation strategy.
• Products - classified as either standard or special
• Demand - classified as either stable or volatile
• Lead times - either short or long

The taxonomy suggests that where customer demand is volatile, the

optimal supply chain network segmentation approach would produce
special products using an agile supply chain strategy. However, where
demand is stable, it is recommended that a Lean supply chain strategy
is adopted, which is focused on standard products and services.

ZIKRUL MCIPS, PMP

14
ZIKRUL MCIPS, PMP

15
Gattorna- customer segmentation
Gattorna (2017) recommends that organisations can utilising the idea of
design thinking. Gattorna argues that supply chain management
requires the organisation to recognise customer patterns in order to
understand customer segmentation. From this perspective, supply
chain management is not limited to a single supply chain. Instead, the
supply chain should be configured to align multi-functional
procurement and supply function teams to four or five dominant forms
of customer behaviour. This removes the issues caused by functional
silos that are common in organisations, and improves internal
communication, opportunities for integrated business planning, and
maturity in sales and operations planning.

Design thinking- A creative design methodology that focuses on solving

problems within the supply chain based on five steps: Empathise,
Define, Ideate, Prototype and Test

ZIKRUL MCIPS, PMP

16
 Four dominant forms of customer behaviour.

The four commonly observed dominant buying behaviours identified

by Gattorna (2017) are described below:

 Collaborative.  
 Efficient.
 Dynamic.  
 Innovative solutions.

ZIKRUL MCIPS, PMP

17
The most common dominant buying behaviours in your marketplace
Collaborative Efficient Dynamic Innovative
Close working Consistent low cost Rapid response to Supplier-led
relationships for response to largely unpredictable supply development and
mutual gain predictable demands and demand conditions delivery of new ideas
Mostly predictable Predictable demand Unpredictable Very unpredictable
Regular delivery within contract demand demand
Mature or Regular delivery Commodity Higher risk
augmented Efficiency low cost relationship Flexible delivery
products focus Time priority/urgency response
Primary source of Multiple sources of Opportunity focus Innovation focus
supply supply Ad hoc source of Rapid change
Trusting Little sharing of supply Individual decision
relationship information Low loyalty, making
Teamwork/partner More adversarial impersonal Solutions oriented
ship Standard processes Fewer processes Management of IT
Information Power imposed Outcome oriented Incentives/ego
sharing Transactional Commercial deals No price sensitivity
Joint development Very price sensitive based on pragmatism
Forgiving Price aware
Price not an issue

ZIKRUL MCIPS, PMP

18
 Product and service mix

The procurement and supply function is responsible for

considering the product and service mix from the perspective
of what products and services can be delivered to market that
meet the demands of the marketplace and enable the
organisation to achieve its strategic priorities.

Product and service mix

The mix of physical goods and intangible services that are offered
by the organisation to satisfy customer demands in the
marketplace. The supply chain service level can be more
important than the physical product offered

ZIKRUL MCIPS, PMP

19
 Product and service mix

From a supply chain segmentation and design perspective, the main

components of product and service mix are as follows.
 
 Developing a strategic response in terms of supply chain service
proposition to meet the needs and values of target supply chain
segments - which also involves redefining customer expectations
of products in terms of the service component that forms part of
the overall 'bundle of benefits' purchased

 Using customer (and supplier) segmentation as the basis for

generic directional strategies about what products and service mix
to offer in what markets and segments

 Managing the organisation's portfolio or mix of products and service

to optimise revenue, profitability, reinvestment and portfolio
development

ZIKRUL MCIPS, PMP

20
 The Ansoff Matrix
There are four basic growth alternatives open to a business. It can grow through
increased market penetration, through market development, through product
development or through diversification.

Ansoff's(1957) product/market growth matrix supports the procurement

professional in determining long-term strategic decisions regarding the
product portfolio, auditing the existing range of products and planning future
developments. It uses two simple dimensions: The product and The market.

The four strategies of the Ansoff Matrix are:

 Market Penetration: It focuses on increasing sales of existing products to an
existing market.
 Product Development: It focuses on introducing new products to an existing
market.
 Market Development: It strategy focuses on entering a new market using
existing products.
 Diversification: It focuses on entering a new market with the introduction of
new products.

ZIKRUL MCIPS, PMP

21
The Ansoff Matrix, the Product/Market Expansion Grid

ZIKRUL MCIPS, PMP

22
The Ansoff Matrix: Market Penetration
In a market penetration strategy, the firm uses its products in the
existing market. In other words, a firm is aiming to increase its
market share with a market penetration strategy.

The market penetration strategy can be done in a number of

ways:

 Decreasing prices to attract existing or new customers

 Increasing promotion and distribution efforts
 Acquiring a competitor in the same marketplace

For example, telecommunication companies all cater to the same

market and employ a market penetration strategy by offering
introductory prices and increasing their promotion and distribution
efforts.  

ZIKRUL MCIPS, PMP

23
The Ansoff Matrix: Product development
In a product development strategy, the firm develops a new product to
cater to the existing market. The move typically involves extensive
research and development and expansion of the product range. The
product strategy development strategy is employed when firms have a
strong understanding of their current market and are able to provide
innovative solutions to meet the needs of the existing market.

The product development strategy can be done in a number of ways:

 Investing in R&D  to develop new products to cater to the existing
market
 Acquiring a competitor’s product and merging resources to create a
new product that better meets the need of the existing market
 Strategic partnerships with other firms to gain access to each partner’s
distribution channels or brand
 
For example, automotive companies are creating electric cars to meet the
changing needs of their existing market. Current market consumers in the
automobile market are becoming more environmentally conscious.

ZIKRUL MCIPS, PMP

24
The Ansoff Matrix: Market development
In a market development strategy, the firm enters a new market with their existing
product(s). In this context, expanding into new markets may mean expanding into
new geographies, customer segments, regions, etc. The market development
strategy is most successful if
 The firm owns proprietary technology that it can leverage into new markets,
 Consumers in the new market are profitable (i.e., they possess disposable
income), and
 Consumer behavior in the new markets does not deviate too far from the
existing markets.
The market development strategy can be done in a number of ways:
 Catering to a different customer segment
 Entering into a new domestic market (expanding regionally)
 Entering into a foreign market (expanding internationally)
For example, sporting companies such as Nike and Adidas recently entered the
Chinese market for expansion. The two firms are offering the same products to a
new demographic.

ZIKRUL MCIPS, PMP

25
The Ansoff Matrix: Diversification

In a market development strategy, the firm enters a new market with a

new product. Although such a strategy is the riskiest as market and
product development is required, the risk can be mitigated through related
diversification.
There are two types of diversification a firm can employ:

1. Related diversification: There are potential synergies to be realized

between the existing business and the new product/market.
For example, a leather shoe producer that starts a line of leather wallets
or accessories is pursuing a related diversification strategy.

2. Unrelated diversification: There are no potential synergies to be

realized between the existing business and the new product/market.
For example, a leather shoe producer that starts manufacturing phones is
pursuing an unrelated diversification strategy.

ZIKRUL MCIPS, PMP

26
 Kraljic portfolio matrix (KPM)

The KPM analyses supply risk and profit impact in order that the organisation can
manage the supply chain supplier relationships against a map, which segments
suppliers. Kraljic (1983) argued that the KPM would allow the organisation to
guard against disastrous supply interruptions and cope with the changing
economics and new opportunities brought on by new technologies.

Wagner et al.(2013) argue that the Kraljic portfolio matrix (KPM) provides the
procurement and supply function with the ability to match the product and service
mix provided by suppliers with customer demands from the marketplace that the
organisation is seeking to fulfil.

The KPM can help procurement professionals to segment the supplier base to
determine how supplier relationship management concerns may affect the
product and service mix. Product and service mixes that are subjected to
negative supply risk or profit impact as a result of expensive and resource-
intensive supplier relationships can be examined for their strategic necessity.
By mapping the product and service mix against the KPM, the procurement
professional will be able to identify areas where changes and innovation in
product or service-mix can reduce risk and increase profitability in supply chain
management.
ZIKRUL MCIPS, PMP

27
 KPM

ZIKRUL MCIPS, PMP

28
 Kraljic portfolio matrix (KPM)

Non-critical items. These are low-risk product and service mixes

due to product standardisation. They have a low impact on profitability
because the product and service mix are peripheral and do not have a
significant impact on the operations of the organisation if they are
absent, for example, office stationery. Process efficiency can be gained
by automating purchasing of such items through e-tendering and the
use of catalogues.
 
Leverage items. These items are low risk due to abundant supply,
but they do have a high impact on profitability, which provides leverage
to the organisation to drive innovation within the supply base. Usually
they are highly commoditised items, which allows the organisation to
target pricing and negotiate a fair cost, as well as build strong strategic
partnerships to achieve improvements in the supply chain.

ZIKRUL MCIPS, PMP

29
 Kraljic portfolio matrix (KPM)

Bottleneck items. Here it is the supplier who has the leverage,

which can force prices up, especially where there are few competitors in
the marketplace. Innovation in product design is needed to reduce the
reliance on materials and components from a leverage supplier.
Scarcity of products due to the lack of producers means it is necessary
for the organisation to seek substitution where possible.
 
Strategic items. These have a high risk due to specialisation or
natural scarcity and a high profit impact as the product and service mix
are critical to the business. A strong supplier relationship is key to the
sustainability of the supply chain, and the procurement profession will
need to focus on developing long-term strategic and collaborative
partnerships with suppliers in this category. This can have the benefit
of driving innovation in both the product and process design.
 

ZIKRUL MCIPS, PMP

30
 The tools and techniques

When conducting a product and service mix analysis, the organisation will need to
consider a number of different iterations of the supply chain. These will be based on the
organisation's understanding of the needs of its customer groups and how the value that
the organisation delivers for the customer is defined. In order to conduct the analysis
using some of the tools and techniques that the procurement professional will need to
consider the following:

Defining the scope of the analysis. The procurement and supply function may be
considering a complete review of the entire global supply chain network, or may be
considering the analysis of a particular channel, region, customer segment or product
portfolio. There is no 'right' level of analysis, but defining exactly the scope of the analysis
will help to determine what level of scenario planning and what-if analysis will be
examined.
 
Systems constraint. A product and service mix may appear ideal on paper. However,
transposing this to the realities of a global supply chain network may mean that proposed
changes to the product and service mix in a particular country or region are constrained
by factors over which the procurement professional has no control. Identifying
constraints at the beginning of the analysis will ensure that outcomes are realistic and the
best available given the constraints in the operational system.
ZIKRUL MCIPS, PMP

31
 The tools and techniques

Developing a business plan. The financial performance of the product and

supply mix must be calculated to determine whether the scenario versus the
current situation is going to deliver improvements in financial performance.
By establishing the financial outcomes, it is possible to understand what the
impact is of new product introductions, service optimisation strategies and
rationalisation. Consideration must also be given to the opportunity cost of
choosing a particular product and service mix over another option.
 
Root-cause analysis. Examination of the product and service mix may reveal
anomalies within the system. For example, a product and service mix may
deliver lower profitability in a particular region compared to other parts of the
global supply chain. This may reveal drivers of performance that are unrelated
to the product and service mix, but still need to be investigated further to
address issues in the supply chain and optimise global supply chain
performance.

ZIKRUL MCIPS, PMP

32
 The supply chain linking processes

Lambert et al.(1998) explained that there are number of different linking processes that a
procurement professional can choose to integrate into their supply chain management
processes. These can help to determine the level of integration, interaction and
interdependency required in the relatlonship between the procurement and supply
function team and the supply partners at different tiers of the supply chain. Lysons and
Farrington (2016) described the four linking processes are as follows.

Managed process links. The procurement and supply function team manages process
links with first-tier supply chain partners and may also manage process links with lower
tiers.
Monitored process links. The procurement and supply function team monitors or
audits process links, as necessary, to ensure they are integrated and managed to quality
standards.
Not-managed process links. The supply partners are trusted to manage process links
or, as a result of limited resources, they are left unmanaged and unmonitored.
Non-member process links. Non-supply partner process tasks link the organisation
supply chain to non-supply partner supply chains. The result is that they are linked to
the organisation's supply chain structure and can affect the organisation's performance.
The procurement professional may choose to allocate resources to ensure that
developed processes are unaffected.
ZIKRUL MCIPS, PMP

33
 Supply chain tiers mismatch

Mismatch can occur if the linkages between supply chain tiers are weak and suppliers
do not understand what is required of them. The procurement professional will need to
ensure they receive information from each tier of the supply chain so that they can
effectively monitor the performance of all supply partners at every level of the supply
chain. Supply partners also need to have clarity about how they are performing against
expectations. They need to be able to make the association between the customer
demands from the marketplace and the products and services they are providing to the
organisation. Slack and Lewis (2017) identify four types of mismatch that can occur as
follows.

Operations improvement gap. The gap between the organisation's perception of what
customers want and its performance against those demands.
Supplier improvement gap. The gap between the organisation's expectations of the
supplier and the perception of the supplier's performance against those expectations.
Market perception gap. The gap between what the organisation believes it has stated
as its requirements of the suppliers and what the suppliers think the requirements are.
Operations performance gap. The gap between the organisation's perception of the
performance of its suppliers and how the suppliers rate their own performance.

ZIKRUL MCIPS, PMP

34
 Inter-tier performance management

Kotzab et al.(2015) propose that in order to manage inter-tier performance, the

procurement professional will need to proactively manage the following.
 
Harmonisation. The flow of the product and service mix throughout the supply chain
requires technical systems and material flow. The costs of transactions between upstream
and downstream partners needs to be managed, including the development of specific
norms and standards of co-operation.

Information sharing. The flow of information needs to be managed to ensure that

supply partners are sharing information beyond simple transactional data. The
greater the flow of information among tiers in the supply chain, the more opportunities
there are for reducing the cost of doing business between supply partners, improving
quality, enhancing relationships, increasing flexibility, and improving dependability and
speed.
 
Co-operation. The procurement professional has a key role in managing co-operation
between supply partners and facilitating the integration and synchronisation of supply
chain processes both within and between organisations throughout the supply chain.
 

ZIKRUL MCIPS, PMP

35
Supply chain flows element
The systematic flow of materials, finance and information among supply partners,
retailers and consumers. There are three key supply chain flews that can be identified
as follows.
Material (product) flow. The flow of physical product from supplier to the customer
is usually unidirectional (i.e. it moves in one direction), although reverse logistics may
enable a customer to return products. Material flow usually begins with the supply of
raw materials into the supply chain, followed by a transformational manufacturing
process, with products sent to warehouses before being distributed to the final
customer.
Information flow. Information within the supply chain flows from the supplier to the
customer and then from the customer back to the supplier. This bidirectional flow
(which works in two directions) includes quotations, purchase orders, delivery
information, invoices and credit notes, and customer complaints. Information flows
provide a continuous interaction between the organisation and its customers and
supply partners involved in the information network.
Financial flow. The movement of finance from the customer to the supplier usually
occurs as a result of the customer receiving delivery of the product or service and
verifying their order. The payment from the customer to the organisation for goods and
services provided flows back up the supply chain. A credit from the organisation to the
customer is an example of the finances flowing in the other direction (from supplier to
customer).
ZIKRUL MCIPS, PMP

36
 Supply chains Network optimisation

Value chain: A series of interconnected activities which are required

to bring a product or service from conception, through the different
phases of production, to delivery to final customers and final disposal
after use.

Value stream mapping: A tool to analyse information relating to supply

chain processes which can be used to identify bottlenecks, waste and
opportunities for adding value within the supply chain.

Network sourcing strategies consider how the organisation can

cultivate the best suppliers. This is based on selected performance
criteria, in conjunction with the development of strategic relationships
that contribute to decision-making and continuous improvement
initiatives throughout the supply chain.

ZIKRUL MCIPS, PMP

37
 Tiering in Supply chains and Network sourcing

Single sourcing: An organisation buys its supplies for a specific product or

service from one source
Multiple sourcing: An organisation buys its supplies for a specific product or
service from two or more sources.
Network sourcing: An organisation has two or more sources for each product
type, with only one supplier used for each individual product item.

There are three types of interaction that network sourcing seeks to identify.
Purchasing networks. This is where multiple organisations work together to
achieve a price advantage that would not be achieved if the organisation were to
purchase products and services alone.
Service provider networks. Organisations that join a service provider network
are able to access industry expertise to help resolve specific challenges and
opportunities that have been identified within the supply chain or the wider
organisational environment.
Network to network. Organisations join a consortium with the purpose of
enhancing the collaborative purchasing power for particular products and
services,

ZIKRUL MCIPS, PMP

38
 Characteristics of the network sourcing model (Hines )
Characteristic Explanation
A tiered supply chain which The supply chain is a 'pyramid' in which the final
relies on supply chains that assembler is served by a small number of the first-
are small or medium tier firms, who are supplied by a larger number of
enterprises second- tier firms and so on. At each level, the
customer tier organises and supports the tier below.
Individual parts are sourced Customers typically have few suppliers, and
from single suppliers but suppliers typically have few customers. Linkages
also the organisation uses between companies in the network are minimised,
a competitive dual sourcing supporting strong relationship development at
environment through each linkage ..
working with a small
number of direct suppliers
Customers and suppliers 'Asset specificity' refers to the willingness of
share risks as a result of a suppliers to make relationship-specific investments
high degree of asset in integration, service and improvement. This
specificity exposes suppliers to risk - but the network
framework ensures risk sharing and mitigation.

ZIKRUL MCIPS, PMP

39
Characteristics of the network sourcing model (Hines )
Characteristic Explanation
The organisation adopts a Each participant in the network seeks to buy out
‘maximum buy' strategy using (rather than make) its needs, by sourcing from
a network of semi-permanent network partners. However, the network as a
suppliers whole seeks to make as much as possible,
minimising recourse to external suppliers.
Co-operative supply chain Network partners work together to develop
relationships utilize skills and competitive (high-quality, low-cost) offerings - as
knowledge resources within opposed to a more adversarial focus On simply
the supply chain for design negotiating hard with suppliers to reduce costs.
and value engineering
Supply partners are actively Suppliers are willing to suggest and develop
innovative in developing new technically innovative improvements, for mutual
products and processes benefit.

The development of close, This involves a high degree of trust, openness (data
long-term supply relationships and knowledge sharing), and profit and gain
sharing.

ZIKRUL MCIPS, PMP

40
Characteristics of the network sourcing model (Hines )

Characteristic Explanation
The organisation utilises a Mutual commitment and high levels of performance
supplier grading and self- support the devolution
certification system of responsibility for quality assurance
to suppliers .

Supply partner co- Customer companies develop and support co-

ordination at each level of ordination mechanisms, such as supplier
the tiered supply chain associatitons and cross-organisational 'co-operative
circles' (known as Kyoryoku Kai in Japanese),
allowing constant flows of
strategic information.

Cultivation of supply Co-operative circles and other. mechanisms are

partner: relationships at used for knowledge and best practice sharing.
each tier of the supply technology transfer and other tools of supplier
chain development.

ZIKRUL MCIPS, PMP

41
ZIKRUL MCIPS, PMP

42
 Porter's Value Chain

Porter suggested that the following four steps should be taken in order for
the procurement professional to identify and understand their organisation's
value chain.
Primary sub-activity identification. Identify specific sub-activities within
the supply chain which support value creation for all primary activities.
Provide support. Review sub-activities that create value within the supply
chain and determine how the supply and procurement function team can
support sub-activities through cross-functional collaboration to add value to
primary activities.
linkages identification. The interactions between different value chains
along a supply chain, which ultimately meet the demands of the final
consumer.
Examine the existence of connections between value-creating activities that
have been identified and then develop the competitive advantage from the
value chain of the organisation.
Opportunity selection. Identify opportunities for continuous improvement
through a critical review of sub-activities and linkages to generate value
creation.

ZIKRUL MCIPS, PMP

43
 Network optimisation modelling

An evaluation of the supply chain network to develop alternatives to improve

the performance of the network design. Usually supported by the use of
information technology. In order to deliver growth, Mondelez has developed
a network optimisation model, which has resulted in several key priorities.
These include the following.

 Transforming digital capabilities to increase return on investment

 Creating a more agile organisation with accelerated innovation capabilities
 Increased investment in channels such as e-commerce
 Accelerating exposure in higher-growth geographies
 Leveraging partnerships and mergers and acquisitions to expand into new
markets

ZIKRUL MCIPS, PMP

44
 The basic domains in network optimisation model (NOM)
Raw materials sourcing Manufacturing/Processing Demand Fulfilment

Suppliers and supplier Facilities, processes, Markets and market

linkages - including
definition of costs and
capacities for raw
materials and
components, and the
transportation capacity
and costs by mode to each
of the processing facilities
resources and inter- facility
linkages - covering
flows of work in progress
and finished goods; facility
cost and capacity; process
activities and 'recipes' (for
use of resources, variable
costs and capacity to
produce products and
services); and
transportation capacity and
costs by mode within
facilities
linkages - covering data
on customer segments;
demand forecasts (aiming
to meet fixed demand at
minimal total cost) or
variable (price elastic)
demand curves (aiming to
determine optimal market
demand volume); and
transportation capacity
and costs by mode to
customers

ZIKRUL MCIPS, PMP

45
 Basic stages to supply chain network optimisation modelling
 
Strategy development. Focusing on alignment to the overall business strategy, the
procurement professional will develop the overall supply chain strategy, which will be
based on an evaluation of the current state of the procurement and supply function, and
set objectives for a future state. This will also include the identification of the product
and supply mix and key customer segmentation.
Scenario modelling. Once the procurement and supply strategy is developed, a range
of potential supply chain models will be formed. The first model will provide a baseline.
This will be developed by establishing the operational and cost data relating to the current
network and creating a model of what will happen to demand, supply, capacity and costs
if no changes are made. Following the development of a baseline model, alternative
models will be created. They will examine a multitude of different approaches to the
supply chain based on facility location, loglstics and inventory. This multitude of
alternatives will lead to the selection of the most beneficial options to be examined in
more detail.
Implementation planning. Once a preferred option has been selected, the
procurement professional will begin the process of developing a detailed plan to
understand how the network optimisation model will be delivered in terms of day-to-
day operating procedures, material flow, inventory management and load plans. A
detailed analysis of all components of the supply chain will need to be conducted,
including a full evaluation of systems, facilities, staffing and processes.

ZIKRUL MCIPS, PMP

46
 Reverse logistics

The process of recapturing value from the salvage and/ or

remanufacture of inventory from the point of consumption.

Uncertainty in the quality and quantity of returns is a major concern in

product recovery... the decision to introduce a remanufactured product
depends more on market (demand) or supply (quantity and quality)
constraints than on technical operating constraints ... volume uncertainty
is of lesser concern since managers can leverage historical data to
reduce such uncertainty.

ZIKRUL MCIPS, PMP

47
 Considerations for the use of reverse logistics in supply chain
networks

Control. In-house approaches to reverse logistics are attractive to maintain

control over the process.
Power. Where the third party has greater power in a particular channel than
the supplier, then outsourcing is a preferred option for reverse logistics.
Quality. Where good-as-new quality cannot be restored through
remanufacturing, higher quality levels can be achieved through in-house
strategies.
Customer experience. Outsourcing reverse logistics strategies affect end
customers' experiences of the product in terms of both price and performance
Profitability. Retailer's profits increase when the salvage value is higher than
the value of remanufacture.
Strategic choice. Reverse logistics strategic choices will be affected by
salvage values and channel power

ZIKRUL MCIPS, PMP

48
 Channel design

When choosing distribution channels, companies need to rely on design

principles that are aligned with their overall competitive strategy. Accelerating
technological change, heightened marketplace demands, more aggressive
global competition and shifts in the workforce and population demographics are
affecting distribution channels forcing companies to reconsider fundamental
assumptions about how they reach their markets. The magnitude of change
demands a strategic perspective that views channel decisions as choices from
a continually changing Array of alternatives for achieving market coverage and
competitive advantage - subject, of course, to the constraints of cost,
investment, and flexibility
Channel design will be affected by various things, including the following,
 The characteristic of the product and service mix that the organisation
provides
 The customer segment that the organisation is trying to target
 The value proposition
 The opportunities for adding value
 The capabilities of potential intermediary partners
 The optimal channel structure to deliver the organisation's value proposition
profitability
ZIKRUL MCIPS, PMP

49
 Channel design options
Direct sales channel. The supply chain is linked directly to a smaII number
of customers by a field sales team. The sales representatives will take
responsibility for a territory or category. They will visit customers and prospects,
and discuss their needs and take orders. A direct sales strategy gives the
organization control over relationships with its customers. However,
opportunities for growth are limited by the size of the sales force.
Retail channel. The supply chain can extend its market reach by appointing a
network of retailers to sell the organisation's products and services. A retail
network gives the supply chain access to a wider customer base and reduces
the cost of dealing with large numbers of small customers. However, there is
no control over the relationship between retailer and customer, and incentives,
such as discounts and rewards, are used to ensure retailers promote the
organisation's products and services rather than those of their competitors.
E-commerce channels. The Internet provides an alternative channel for
reaching small and large customers. Websites incorporate product catalogues
and e-commerce services facilitating the orders and payment processes,
reducing direct sales costs and giving the organisation access to a broad, global
market.

ZIKRUL MCIPS, PMP

50
 Channel design options
Distribution channel. Authorised distributors manage
relationships with smaller customers, allowing the organisation to
retain greater control over the customer relationships. Authorised
distributors have a closer supply partnership than independent
retailers. In some industries distributors act as agents, branding their
outlets with the organisation's corporate identity and providing services
such as installation and maintenance on behalf of the manufacturer. To
strengthen relationships and improve the performance of their
distributor networks, manufacturers provide sales and product training
and collaborate in joint marketing programmes.

Wholesale channel. Wholesalers provide an important tier in the

supply chain, buying products, holding stock in warehouses or
distribution hubs, and reselling products to support a network of
retailers. This enables the procurement and supply function to avoid
incurring the costs of warehousing, logistics and regional stockholding.

ZIKRUL MCIPS, PMP

51
 The impact of e-commerce on distribution networks

 Information exchange. E-commerce facilities with supply chain digital systems, e.g.,
electronic data interchange, need to be compatible.
 Cannibalisation. Refers to a reduction in sales volume, sales revenue, or market share
of one product as a result of the introduction of a new product by the same producer.
 Selling at a distance. Taxes, legal frameworks, labelling and marketing can have an
impact when embarking on distance selling.
 Customer satisfaction. It will be necessary to determine how to manage the liability
of service providers, such as parcel delivery firms, and the ability of the organisation to
resolve customer complaints if it is not directly responsible for distribution.
 Data security. Managing online security, especially in respect of data protection and
secure online payments, requires costly investment in security resources.
 New entrants. The cost of entry is lower, making the retail landscape more
competitive, especially for smaller organisations that can be more agile and have
lower fixed costs.
 Product returns. Refund and return policies can result in significant logistics and
shipping costs, which may be costly for organisations offering free deliveries.
  Manufacturer or retailer. Many manufacturers are now developing their own e-
commerce solutions, selling products to customers directly. This can cause an
imbalance with retailer relationships .

ZIKRUL MCIPS, PMP

52
 Configurations of logistics flow path designs
Differentiated service
levels
Differentiated service
levels to be offered
to meet the needs of
Different customer
segments cost effectively
- rather than a one-size-
fits- all approach, which
may underserve some
customers and over-
serve others
The division of product Optimisation and
portfolios location
The division of the product The optimisation of the
portfolio into groups, on number and location of
the basis of a shared plants and distribution
logistics service centres, based on related
proposition, which can be decisions about inventory
managed in a distinctive policy, to
manner. Logistics-based meet service levels and
product groups or performance objectives
categories may require
different processing,
transport modes or routes;
inventory policy, e.g.,
make-for-stock or make-
to-order; safety stock
levels; and consolidation
or break-bulk strategies
ZIKRUL MCIPS, PMP
53
 Four key steps to developing a logistics flow path design

Data collection. The procurement professional will need to investigate

the current logistics flow path, including locations, transport modes,
warehousing costs, service level requirements, shipment sizes, order
processing costs, product and service mix, and customer demand
forecasting. Key calculations include the following.
 Transportation costs = transportation rate x distance
 Warehousing costs = handling costs + fixed costs (proportional
to warehouse capacity)
 Inventory turnover ratio = annual flow + average inventory level
 Warehouse capacity = annual flow /average inventory ratio
Data aggregation. Analysing the data collected requires an ability to
process and manage it in order to accurately forecast demand. The data
has to be used in a form that is compatible with optimisation modelling.
This includes the following.
 Customer-based clustering
 Product-type based clustering

ZIKRUL MCIPS, PMP

54
 Four key steps to developing a logistics flow path design

Optimisation modelling. Once the data is aggregated, it can be used

to model the logistics network flow. Alternatives can be modelled and
compared against the current network design. Design alternatives can
be developed using simulation models.
 
Implementation. Once the preferred alternative model has been
determined, a plan needs to be developed to implement the logistics
network design to effectively and efficiently manage the flow of products
through warehouses to customers while managing production
capacity constraints and meeting customer demands at the optimal
level of logistics costs.

ZIKRUL MCIPS, PMP

55
 Physical network
The network of physical facilities, such as manufacturing facilities,
warehouses and distribution centres within an organisation's supply
network.
Linkages within the physical network will be dependent on delivering
a consistent and coherent network model, now and in the future.
Considerations include the following.
 
• Physical network structure, co-ordination and alignment
• Vertical and horizontal integration based on geographical spread
and supply chain network tier structure
• Key manufacturing processes including material and product flows
• Costs, complexity and optimal model network flow design
• Interdependencies between supply partners
• Product and supply mix
 

ZIKRUL MCIPS, PMP

56
 key challenges in transportation
Fuel prices. The complexity of the demand and supply of crude oil has led to the increased
volatility of fuel pricing and difficulties in determining the cost of transportation within the logistics
flow design. This in turn has implications for the costs associated with a particular physical network
configuration.
Driver shortages. The cost of licensing and changes in rules regarding driving times are leading
to shortages in the availability of drivers within the truck industry. There is also a shortage of pilots
available in the airline industry for the carriage of freight over international borders. Low wages,
poor labour conditions and dangerous working conditions are leading to many drivers opting out of
transportation as a career.
Logistics companies. The rise of e-commerce has resulted in the development " of outsourced
organisations in terms of third-party (3PL) and fourth-party (4PL) logistics companies that compete
to manage the consumer-facing elements of the supply chain distribution network. Competition in
the marketplace is based on price, but this can often come at the cost of high levels of customer
service. Damaged products, late deliveries and poor customer service can be detrimental to the
organisation's product brand, and these things are often in the hands of a single individual who is
responsible for the geographic area.
Commoditisation. The price sensitivity of transportation services is increasing the
commoditisation of the marketplace, and emphasis on cost is leading to impacts on the opportunity
for value creation.
Political uncertainty. Increasing levels of political and economic uncertainty are creating
concerns regarding the ability of transportation solutions to be executed over the long term. For
example, there are concerns about certainty over customs and border control. Tariffs and increased
regulation are also affecting the ability for transportation to balance legal compliance with meeting
delivery targets.

ZIKRUL MCIPS, PMP

57
 Key considerations for choosing the location of
distribution centres

Purpose. Clarity regarding the reason for opening a new distribution centre as a part
of the global strategic supply chain will depend on the organisation type, and what it is
seeking to achieve by increasing its distribution network.
Balancing supply and demand. The product and service mix will determine
whether the products going through the distribution centre are fast moving, stable or
cyclical, or whether demand fluctuates with seasonal changes or other environmental
factors, such as the weather. Preparing distribution centres to manage patterns of
demand will determine how flexible the distribution centre needs to be in terms of
inventory levels, materials handling and the ability to expand in order to respond
appropriately to peak demand periods.
Service level expectations. The length of response times will determine the
requirement for product availability as a key parameter for managing delivery times
to meet customer demands. Strong competition will also determine the importance of
availability to help the organisation maintain competitive advantage in the marketplace.
Reducing costs and adding value. Distribution centres are an essential
element in the value chain. It is necessary to understand the non-value adding
activities that can be removed from the value chain, while choices about where to locate
the distribution centre will determine what opportunities for added value can
supplement the supply chain.
ZIKRUL MCIPS, PMP

58
 Key considerations for choosing the location of
distribution centres

Product and service mix. The distribution centre location may be determined by
the speciality of the product and service mix concerned. For example, distribution
centres for fish products tend to be located near to ports and fishing harbours. Short
shelf-life products, packing and labelling requirements (such as the 'made in' country)
or the transportation of fragile cargo may determine the suitability of particular
locations.
Optimising return on investment. The location of a distribution centre may
be determined by the investment potential from governments keen to encourage
businesses to invest in certain areas. Taxes, interest rates and the cost of adhering to
statutory regulations will also have an impact on decisions relating to the return on
investment for a distribution location decision.
Strategic alignment. The distribution centre location may also be considered in
the context of the overall business strategy, including commitments to corporate
social responsibility and greening transportation.
Environmental impact. This includes impact on air quality, water quality, natural
habitat that might be destroyed by the location choice, visual intrusion and any noise
or vibrations emanating from the distribution.

ZIKRUL MCIPS, PMP

59
key forces that considered when positioning the organisation in
local, regional and global supply chains.

Political, legal and regulatory factors.

Globalisation has
delivered larger areas of frictionless trade. However, regulations
regarding foreign ownerships, trade barriers and tariffs on imports and
exports represent a nation's approach to economic and business
development and will affect decisions regarding where an organisation
will operate and how the supply chain will operate. Organisations may
choose to operate through a local distributor or set up a manufacturing
base in the country based on the most efficient way to access a
potential market for its product and service mix.

Infrastructure. This is one of the key drivers that determines how an

organisation will choose to position its supply chain in a particular
country. Poor infrastructure will restrict the ability of the organisation to
transpose existing supply chain practices, and the organisation will need
to balance the need for investment with the market potential for its
products and services.

ZIKRUL MCIPS, PMP

60
key forces that considered when positioning the organisation in
local, regional and global supply chains.

Industry developments. Development in different industries will be perceived as

being an indication of changes that may occur for other industries that follow into a
particular region. At the same time, developments in he same industry can provide a
test bed for what the organisation can expect from the supply chain and how best to
position itself to benefit from the changes that are occurring. This could include the
introduction of new technology developments in customer expectations, stability in the
market place and changes in supply chain structure that may benefit the organisation.
 
Business culture. Understanding the business culture within the local. regional or
global supply chain will enable the organisation to navigate the 'values and beliefs that
can lead to supportive supply partnerships. Consideration must be given to practices
(such as bribes) that may be expected in some cultures but are not deemed acceptable
by multi-national organisations. Business culture will determine negotiating styles,
positioning of the organisation within the local or regional supply chain, and the
leadership style adopted when managing the supply chain at different levels.

ZIKRUL MCIPS, PMP

61
 Lean
0 and agile supply chains

In general, Lean production is best in situations where volumes are high,

variety law and demand predictable. Conversely, agile production is suited
to volatile demand and where products are customised. Leanness and
agility are complementary rather competing terms and Ieanness should
often regarded as an enabler of agility

ZIKRUL MCIPS, PMP

62
ZIKRUL MCIPS, PMP

63
ZIKRUL MCIPS, PMP

64
Promotions and causal events affect demand

Promotions are a key component of attracting customers to buy the

products sold by the organisation. It is essential that organisations
forecast for demand increases and maximise the availability to
customers, while minimising the risk of spoilage, warehousing and
inventory costs if the promotion does not have the impact the
organisation was hoping for.

The procurement professional will need to satisfy the demand of

different customer segments, managing a complex mix of product
categories, pricing and different location forecasts to meet customer
demand levels. To fully integrate Lean and agile supply chain practices,
forecasting must account for the demand differences. As a result, the
procurement and supply function needs to implement sophisticated
forecasting capabilities which can reconcile demand forecasts

ZIKRUL MCIPS, PMP

65
 Demand planning and forecasting

Key components of demand planning and forecast accuracy include

ensuring the following.
 That data is cleansed and has passed a sanity check, including correct
data entry mistakes or transmission problems

 That the data repository utilises appropriate data categories,

dimensions and hierarchies for storing forecasted results

 That the technological platform used is able to facilitate statistical

methods to analyse the data effectively

ZIKRUL MCIPS, PMP

66
Improve demand forecasting

Chase (2009) proposes three steps to improve demand forecasting

sophistication, as follows.
 
Pilot statistical techniques, such as intermittent demand models,
collecting data from order history rather than replenishment history to
provide insight into the accuracy of the forecasting process
 
Integrate customer pricing information into statistical forecasting to
develop a demand planning process which aligns financial revenue
forecasts with financial planning processes in the organisation.

Identify causal events to plan for sales and marketing components of

the forecasting model used

ZIKRUL MCIPS, PMP

67
 System integration tools
Tightly outplayed systems integration. An application
prograrmming interface (API) requests data from the various systems
used by the organisation, such as customer relationships management
(CRM),supply chain management (SCM), human resource information
systems (HRIS),accounting software and enterprise resource planning
(ERP).The API makes the request, transports the response and
translates it so it can be utilised for reporting purposes.  
Service-orientated architecture (SOA). This promotes loose
coupling and greater flexibility as a result of separation of concerns,
which means that changes in one function's systems do not directly
affect another function's systems. SOA uses canonical messages, which
is an intermediate format that is translated from the original format.
This is communicated using an enterprise integration framework (EIF).
SOA has the advantage of not requiring a compatible format between
different systems within the organisation, and ensuring that if any
functional system requires upgrading, it is easier and more cost
effective to make the changes.

ZIKRUL MCIPS, PMP

68
 System integration tools

Enterprise service bus (ESB). This enables the organisation to

manage large integration tasks, through the use of a customised
central hub that helps to connect distinct systems and applications to
enable them to communicate with each other. This middleware
application can help to integrate legacy systems and configure the
routing of data from different components regardless of location or the
complexity that might occur as a result of legacy systems.
 
Integrated platform as a service (iPaaS). This is a cloud-
based tool that uses web service protocols to manage the integration of
ad hoc applications using lightweight connectors and business-to-
business (B2B) connectors to integrate data flows. This can be used to
complement ESB integration tools. iPaaS has been developed to
overcome the challenges of connecting the increasing number of cloud-
based solutions with existing APls.

ZIKRUL MCIPS, PMP

69
 Q. Discuss with example the criteria for segmentation of SC Network.
Q. Compare the four commonly observed dominant buying
behaviours identified by Gattorna (2017).
Q. Define the four strategies of the Ansoff Matrix.
Q. Define different Tiering in Supply chains and Network
sourcing with example.
Q. Define with examples of value creating activities associated
with the differentiation strategy with Porter value chain model.

Q. Define Network optimisation modelling and basic stages to

supply chain network optimisation modelling.

Q. Define E-commerce channels and discuss the impact of e-

commerce on distribution networks with example.
Q. Explain the key considerations for choosing the location of
distribution centres.

ZIKRUL MCIPS, PMP

70