Chapter seven

Supply chain

management

Learning objectives

• Explain what a supply chain is

• Appreciate the role and importance of the supply chain

• Define supply chain management

• Understand what management of the supply chain entails

• Understand the benefits of integrating all the functions in the supply chain

• Explain outsourcing, and discuss its advantages and disadvantages

Learning objectives (cont.)

• Determine whether products should be made or bought

• Discuss materials management

• Understand the nature and role of a purchasing or procurement department

• Explain the JIT philosophy and its impact on supply chain management

• Appreciate new trends in supply chain management, including e-commerce, online catalogues, and e-business.

7.1 Introduction

• Supply chain = series of steps between

raw material and purchase

• Supply chain management:

– Planning, design and control

– Of all the information and material

– Flowing along the supply chain

– To ensure customer needs are met

7.1 Introduction (cont.)

– Class discussion

– Wal-mart

– See Figure 7.1.

7.2 Types of chain

• Value chain

• Customer tiers

• Demand chain.

7.3 Various elements of SCM

• Class discussion – see Table 7.1 on

page 159 of the textbook.

7.4 Why is there a need to manage

supply chains? • Improvement of operations

• Increasing transport costs

• Pressure from competitors

• Influence of globalisation

• E-commerce

• Inventory management.

7.5 Ineffective management of the

supply chains • The bullwhip effect

• Causes:

– Updating of the demand forecast

– Playing the shortage and rationing game

– Batching of orders

– Fluctuating process

• Cannot be eliminated entirely.

7.6 Integrated materials

management • Class discussion – see Table 7.2 on

page 163 of the textbook.

• Centralisation vs. decentralisation.

7.7 Performance measurements of

the supply chain • Inventory turnover

• Weeks of supply

• Class discussion – LG Electronics

(applied example).

7.8 How to improve the performance of

the supply chain

• Quick orders, communications, transportation,

and re-supply

• Receive smaller, more frequent deliveries

• Simplify products

• Purchase sub-systems or complete modules

instead of components

• Postpone product configuration

• Reduce suppliers of a particular item

• Create close relationships with supplier partners.

7.9 How do relationships change

with buyer-supplier partnerships?

• Class discussion (see Table 7.5 on page

170 of the textbook).

7.10 Decisions to be made

regarding make or buy

• Retain core technologies

• Strategy

• Impact on span of process?

• Volume of product/service

• World trade and globalisation.

7.11 Realities of the make or buy

decision • History

• Cost and technology.

7.12 Configuration strategies for

the supply chain

• Backward vertical integration

• Forward vertical integration

• Benefits of integration

• Advantages and disadvantages of

outsourcing.

7.13 Procurement

• Reasons:

– High cost of raw materials

– Automated manufacturing

– Growth of online procurement

– Globalisation

7.13 Procurement (cont.)

• Duties of procurement department:

– Develop a supplier base

– Evaluate suppliers as part of supplier

selection

– Evaluation of specific capabilities

– Selection of the supplier

7.13 Procurement (cont.)

• Procurement is cyclical

• JIT and procurement.

7.14 The distribution function

• The final link in the supply chain

• Goods reach the marketplace

• Physical distribution management.

Summary

• Defined a supply chain and SCM

• Types

• Why SCM is a priority?

• Integrated materials management

• Make or buy?

• Integration and outsourcing

• Procurement

• Distribution.