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Lecture 15 Supply Chain Management

Introduction

Introduction

Supply chain management and logistics play a critical role in producing and delivering products or services. The supply chain is a sequence of organizations, facilities, functions, and activities involved in this process, while logistics focuses on the forward and reverse flow of goods, services, cash, and information.

Typical Supply Chains

Goods Supply Chain

  • Multiple suppliers
  • Storage
  • Manufacturing
  • Storage
  • Distributor
  • Retailer
  • Customer

Services Supply Chain

  • Few suppliers
  • Storage
  • Service provided
  • Customer

Flow of Cash and Goods

Forward and Reverse Flow

  • Goods/Services flow from suppliers to customers
  • Cash flows from customers to suppliers
  • Reverse logistics handles returns

Facilities in a Supply Chain

Facilities include warehouses, factories, processing centers, distribution centers, retail outlets, and offices that manage logistics.

Functions and Activities

Supply chain functions include forecasting, purchasing, inventory management, information management, quality assurance, scheduling, production and delivery, and customer service.

Supply Chain Management (SCM)

SCM is the strategic coordination of business functions to integrate supply and demand management within and across businesses.

Key Aspects of SCM

  • Matching supply to demand effectively and efficiently
  • Appropriate level of outsourcing
  • Managing procurement and suppliers
  • Customer relationship management
  • Quick problem identification and response
  • Flow management

Product and Service Flow

Types of Flows

  • Product and Service Flow: Movement from suppliers to customers.
  • Information Flow: Sharing forecast and sales data, tracking shipments, updating order status.
  • Financial Flow: Managing credit terms, payments, consignment, and title ownership.
  1. Measuring return on investment for the supply chain
  2. Greening the supply chain to be environmentally friendly
  3. Reevaluating outsourcing decisions
  4. Integrating information technology across the supply chain
  5. Adopting lean principles
  6. Managing risk

Benefits and Risks of Outsourcing

Benefits

  • Lower labor costs
  • Focus on core strengths
  • Converting fixed costs to variable costs
  • Freeing up capital
  • Shifting risks to suppliers
  • Access to supplier expertise
  • Easier expansion outside the home country

Risks

  • Inflexibility due to longer lead times
  • Increased transportation costs
  • Language and cultural barriers
  • Potential job losses
  • Loss of control and productivity
  • Loss of business knowledge and intellectual property
  • Increased effort to manage the supply chain

Supply Chain Risks

Types of Risks

  • Supply chain disruptions
  • Supplier problems
  • Quality issues
  • Sensitive information loss

Risk Management Strategies

  1. Risk avoidance
  2. Risk reduction
  3. Risk sharing

Global Supply Chains

Challenges

  • Language and culture differences
  • Currency fluctuations
  • Political instability
  • Transportation costs
  • Lead times
  • Trust among supply chain partners

Ethical Issues

Examples include bribing officials, exporting pollution, misleading green claims, violating worker rights, mislabeling products, and selling banned products abroad.

Dealing with Ethical Issues

  1. Develop a supply chain code of behavior
  2. Monitor supply chain activities
  3. Choose suppliers with good reputations
  4. Incorporate labor standards into supplier contracts
  5. Address issues swiftly

Small Business Concerns

Key Concerns

  • Inventory management
  • Having backup suppliers
  • Reducing risks by using reliable suppliers
  • Managing international trade

Management Responsibilities

  • Knowing and obeying laws and regulations

Economic Responsibilities

  • Meeting demand efficiently

Ethical Responsibilities

  • Conducting business consistently with moral standards

Strategic Management Responsibilities

  • Aligning supply chain strategy
  • Network configuration
  • Information technology integration
  • Product and service strategy
  • Capacity planning
  • Strategic partnerships
  • Distribution strategy
  • Managing uncertainty and risk

Tactical and Operational Responsibilities

Tactical

  • Forecasting
  • Sourcing
  • Operations planning
  • Inventory management
  • Transportation planning

Operational

  • Scheduling
  • Receiving
  • Transforming
  • Order fulfilling
  • Shipping
  • Information sharing

Procurement

Purchasing Department Duties

  • Identifying sources of supply
  • Negotiating contracts
  • Managing suppliers
  • Handling orders

Purchasing Cycle

  • Receiving requisitions
  • Selecting suppliers
  • Placing orders
  • Monitoring orders
  • Receiving orders

Supplier Management

Supplier Partnerships

  • Developing long-term relationships
  • Engaging in strategic partnering

Logistics

Types of Logistics

  • Movement within facilities
  • Incoming shipments
  • Outgoing shipments

Tracking Goods

  • Radio Frequency Identification (RFID)
  • Enhancing supply chain visibility

Third-Party Logistics (3PL)

  • Outsourcing logistics management
  • Warehousing and distribution capabilities

Managing Returns

Elements of Reverse Logistics

  • Gatekeeping
  • Avoidance

Creating an Effective Supply Chain

Key Components

  • Strategic sourcing
  • Trust
  • Effective communication
  • Information velocity
  • Supply chain visibility
  • Event management capability
  • Performance metrics

Challenges

Trade-offs

  • Lot size vs. inventory
  • Inventory vs. transportation costs
  • Lead time vs. transportation costs
  • Product variety vs. inventory
  • Delayed differentiation

Summary

This lecture covered:

  • Trends in supply chain management
  • Global supply chains
  • Management responsibilities
  • Procurement and supplier management
  • Inventory management and order fulfillment
  • Logistics
  • Creating an effective supply chain

Keywords

  • Supply Chain Management
  • Logistics
  • Outsourcing
  • Risk Management
  • Global Supply Chains
  • Ethical Issues
  • Procurement
  • Supplier Management
  • Inventory Management
  • Reverse Logistics

FAQ

Q: What is the difference between supply chain and logistics?

A: The supply chain encompasses the entire sequence of organizations, facilities, functions, and activities needed to produce and deliver a product or service, while logistics specifically focuses on the movement and management of goods, services, cash, and information within that chain.

Q: What are the benefits of outsourcing in supply chain management?

A: Outsourcing can lead to lower labor costs, allow a company to focus on its core strengths, convert fixed costs to variable costs, free up capital, shift risks to suppliers, benefit from supplier expertise, and facilitate easier expansion outside the home country.

Q: How can companies manage risks in their supply chains?

A: Risk management strategies include risk avoidance (avoiding the risky activity altogether), risk reduction (taking steps to minimize the risks), and risk sharing (partnering with others to share the risks).

Q: What are some ethical issues in supply chain management?

A: Ethical issues may include bribing officials, exporting pollution to other countries, misleading green claims, violating worker rights, mislabeling the country of origin, and selling products abroad that are banned at home.

Q: What are the functions and activities involved in supply chain management?

A: Key functions and activities include forecasting, purchasing, inventory management, information assurance, quality assurance, scheduling, production and delivery, and customer service.

Q: How can small businesses handle inventory management and supplier relationships effectively?

A: Small businesses can manage inventory by maintaining extra stock to avoid shortages, nurturing relationships with reliable suppliers, and having backup plans for potential disruptions in supply chains.

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