PGBM03 Operations Management

Session 08Supply Chain Management

Module Leader: Peter Coleman

Design

Planning and

control

Operations

strategy

Improvement

Supply chain planning and control

The operation supplies…

the coordinated delivery of

products and services

The market requires…specified time, quantity and

quality of products and services

Supply chain

planning and control

Key operations questions

• What is supply chain management?

• What are the activities of supply chain management?

• What are the types of relationship between operations in

supply chains?

• How do supply chains behave in practice?

• How can supply chains be improved?

‘Supply chain management is the management of

the interconnection of organizations that relate to

each other through upstream and downstream

linkages between the processes that produce

value to the ultimate consumer in the form of

products and services’.

What is supply chain management?

…is concerned with managing the flow of materials and information between a

string of operations, that form the strands or ‘chains’ of a supply network

Flow between processes

Flow between processes Flow between processes

Supply chain

management concerns

flow between a string of

operations

Supply network

management concerns

flow between operations

Flow between processes Flow between processes

Flow between processes

Flow between processes

Supply chain planning and control

Supply chains management is concerned with the flow of

information and the flow of products and services

• Products and services

• New products and services

• Delivery information

• Payment request/Credit.

‘Downstream’ flow of

products and services for

customer

Fulfilment

‘Upstream’ flow of

customer

Requirements

• Long-term plans and requirements

• Market research information

• Individual orders

• Payment

• Potential new products and services.

Flow between

processes

Consumer

Flow between

processes

Flow between

processes

Operation 1 Operation 2 Operation 3

First tier

supplier

Second tier

supplier

First tier

customer

Second tier

customer

End

customer

Demand

side

Supply side

Purchasing and supply

management

Physical distribution management

Logistics

Materials management

Supply chain management

Information

flow

Physical

flow

Supply chain planning and control

The operationPurchasing functionSuppliers

Request for

products

and services

Demand from

customers

Supply to customers

Request

for

quotations

Prepare

purchase

order

Prepare quotation for specification,price, delivery,

etc.

Requests

Select

supplier(s)Quotations

Produce

products

and services

Order Receive

products

and services

Deliver

Liaison between

purchasing and the

operation

The purchasing function brings together the operation

and its suppliers

Short-term ability to supply Longer-term ability to supply

•Range of products or services

provided

•Potential for innovation

•Quality of products or services •Ease of doing business

•Responsiveness •Willingness to share risk

•Dependability of supply •Long-term commitment to supply

•Delivery and volume flexibility •Ability to transfer knowledge as

well as products and services

•Total cost of being supplied •Technical capability

•Ability to supply in the required

quantity

•Operations capability

•Financial capability

•Managerial capability

Factors for rating alternative suppliers

Factor Weight Supplier A score Supplier B score

Cost performance 10 8 (8 x 10 = 80) 5 (5 x 10 = 50)

Quality record 10 7 (7 x 10 = 70) 9 (9 x 10 = 90)

Delivery speed

promised

7 5 (5 x 7 = 35) 5 (5 x 7 = 35)

Delivery speed

achieved

7 4 (4 x 7 = 28) 8 (8 x 7 = 56)

Dependability record 8 6 (6 x 8 = 48) 8 (8 x 8 = 64)

Range provided 5 8 (8 x 5 = 40) 5 (5 x 5 = 25)

Innovation capability 4 6 (6 x 4 = 24) 9 (9 x 4 = 36)

Total weighted score 325 356

Weighted supplier selection criteria for a hotel chain

Business to business (B2B)

• Most common, all but the last

link in the supply chain

• E-commerce examples:– EDI networks

– Business information

exchanges.

Business to consumer (B2C)

• Retail operations

• Catalogue operations, etc.

• E-commerce examples:– Internet retailers

– Amazon.com, etc.

Consumer to consumer (C2B)

or ‘peer to peer (P2P)

• Consumers ‘offer’,

business responds

• E-commerce examples:

– Some airline ticket operators

– Priceline.com, etc.

Supply chain relationships

• Trading ‘swap’ and auction

transactions

• E-commerce examples:– Specialist ‘collector’ sites

– Ebay.com, etc.

Consumer to business (C2B)

Business ConsumerTo…

Business

Consumer

From…

Attitudes

Actions

Closeness of

relationship

Elements of process partnership relationships

Joint problem

solving

Joint co-

ordination of

activities

Joint

learning

Long-term

expectations

Sharing

success

Multiple

points of

contact

Few

relationships

Information

transparency

Dedicated

assets

Trust

Improved profitability

Supply chain time compression

Schedule

changes impact

market faster

so can

respond to

market changes

better

so revenues

are maximized

so improved

forecasts

so reduced

stockholding

costs

Forecasts

made closer to

demand time

so less need for

safety stocks

Defects are

detected faster

so easier to

improve quality

so reduced

wastage costs

New products

and service

faster to market

so fewer lost

sales from

delayed launch

so reduced

risk of

obsolescence

so revenues

are maximized

so less

discounted

sales

The effects of supply chain compression

MARKET

6

5

4

3

2

1

3rd LEVEL

SUPPLIER

2nd LEVEL

SUPPLIER

1st LEVEL

SUPPLIER

ORIGINAL

EQUIPMENT

MFG.

Prodn. Stock Prodn. Stock Prodn. Stock Prodn. Stock

100 100 100 100100

100

100

100

100

100

100

100100

3 2 1

ALL OPERATIONS HOLD ONE PERIODS STOCK

20100

60 60100

80 80100

90100

9590100

95

18060

120 12080

100 10090

95 959595

95

60120

90 90100

95 9595

95

10090

95

959595

95

959595

95

959595

95

9595

95

9595

95

9595

95

9595

959595

95

The bullwhip effect

OEM

MARKET

6

5

4

3

2

1

3rd LEVEL

SUPPLIER

2nd LEVEL

SUPPLIER

1st LEVEL

SUPPLIER

ORIGINAL

EQUIPMENT

MFG.

Prodn. Stock Prodn. Stock Prodn. Stock Prodn. Stock

100 100 100 100100

100

100

100

100

100

100

100100

3 2 1

ALL OPERATIONS HOLD ONE PERIODS STOCK

The bullwhip effect (Continued)

OEM

95

105

105

95

95

0Time

Sales from

store

Consumers

0Time

Store’s orders to

wholesaler

Time

Wholesaler’s

orders to

manufacturer

0

Manufacturer’s

orders to its

suppliers

0Time

Retail

store

Whole

saler

Manuf

acturerSupplier

The bullwhip effect (Continued)

Supply chains with different end

objectives need to be managed in

different ways

Supply chain dynamics

Matching the supply chain with market requirements

Nature of demand

Functional products Innovative products

Predictable – Unpredictable

Few changes – Many changesLow variety – High varietyPrice stable – Price markdowns

Long lead-times – Short lead-timesLow margin – High margins

Supply

chain

obje

ctives

Resp

onsiv

eE

ffic

ient

Lo

w co

st –

Lo

w

thro

ug

hp

ut tim

es

Hig

h u

tiliz

atio

n –

Lo

w

utiliz

atio

n

Min

imu

m in

ve

nto

ry –

De

plo

ye

d in

ve

nto

ry

Lo

w c

ost su

pp

liers

–F

lexib

le s

up

plie

rs

Mismatch

MismatchAgile supply

chain

management

Lean supply

chain

management