Supply Chain Management

Supply Chain
• A supply chain is a system of organizations, people,
activities, information, and resources involved in moving a
product or service from supplier to customer.

• Supply chain activities transform natural resources, raw

materials, and components into a finished product that is
delivered to the end customer.

• In sophisticated supply chain systems, used products may re-

enter the supply chain at any point where residual value is
recyclable.

• All facilities, functions, activities, associated with flow and

transformation of goods and services from raw materials to
customer, as well as the associated information flows
 BASICS OF SUPPLY CHAIN

• Organizations must embrace technologies that

can effectively manage supply chains
Supply Chain Illustration
 Supply Chain Management
• Supply Chain Management(SCM) refers to the
coordination of production, inventory,
location, and transportation among the
participants in a supply chain to achieve the
best mix of responsiveness and efficiency for
the market being served.
 The Supply Chain Process:

• Plan
• Every company needs a strategy on how to manage the resources in order to achieve their customers
demand for their products and services. The supply chain management is developing a set of metric to
monitor the supply chain so that it can deliver high qualities and values to customers.
• Source
• To create their products, companies need to be very careful when choosing suppliers to deliver their
goods and services needed. The managers need to develop a set pricing and delivery system in the
supply chain.They can also put processes for managing their goods and goods inventory, for example;
receiving shipments.
• Make
• In manufacturing the supply chain manager should always schedule the activities that are needed for
the production, packaging, testing and preparation for delivery.The most metric-intensive portion of
the supply chain, production output and measure levels.
• Deliver
• This part is mainly referred to as logistics by the supply chain management. In this case companies
coordinate receipts of orders, pick carriers to get products to customers and develop a network of
warehouses.
• Return
• In many companies this is usually where the problem is – in the supply chain.The planners should
create a flexible and responsible network for receiving a flaw and excess products sent back to them
(from customers).
 The Drivers of the Supply Chain
• The four primary drivers of supply chain management:
1. Facilities
2. Inventory
3. Transportation
4. Information
5. The People
• Organizations use these four drivers to support either a supply chain
strategy focusing on efficiency or a supply chain strategy focusing on
effectiveness
 FACILITIES DRIVER
• Facility – The facility processes or transforms inventory into
another product, or it stores the inventory before shipping it to
the next facility. Example the manufacturing factory The location
and the capacity of the facility are important factors considered.

INVENTORY DRIVER
• The supply chain moves the inventory
• The inventory models depend on the type of firm and also the
type of production process.
• The type of the inventory management system used will affect
the supply chain design.
 INFORMATION DRIVER
• Information – an organization must decide how and what information it
wants to share with its supply chain partners

• Two primary information components

Information sharing
• Information sharing efficiency – freely share lots of information to increase
the speed and decrease the costs of supply chain processing
• Information sharing effectiveness – share only selected information with
certain individuals, which will decrease the speed and increase the costs of
supply chain processing

TRANSPORTATION DRIVER
• Transportation – moves inventories between the different stages in the supply chain
• Two primary inventory components
1. Method of transportation
2. Transportation route
This is the logistics part of the supply chain management process.
 Inventory Classification

ABC Inventory Classification:

In this classification, inventory items are divided into

three categories based on their value and
importance.
1. A items are typically high-value items that contribute
significantly to revenue. These items are closely monitored,
and inventory levels are tightly controlled to avoid stockouts.
2. B items have moderate value and importance. They are
managed with less intensity than A items but more than C
items.
3. C items are low-value items that make up a significant portion
of the inventory but contribute less to overall revenue. They
VED Inventory Classification:
This classification is often used in healthcare and
pharmaceutical industries to categorize medical
supplies or drugs based on their criticality.

1. V items are vital items, and their stockouts can lead to

critical situations. These are managed very carefully and
maintained at sufficient levels.
2. E items are essential items that are important but not as
critical as V items. They are managed with a certain
degree of attention.
3. D items are desirable items, which are not critical and
can be managed with more flexibility.
The VED classification ensures that critical medical supplies
are always available while allowing for more relaxed
FSN Inventory Classification:

This classification categorizes items based on their rate of

consumption or turnover.

1. Fast-Moving items are those that have a high rate of consumption

and require frequent replenishment.
2. Slow-Moving items have a moderate rate of consumption and are
replenished less frequently.
3. Non-Moving items are rarely consumed and are often considered
for removal or reduction in stock levels.

These inventory classifications are tools that help organizations

manage their inventory more efficiently by tailoring their approach
to different types of items. Each classification system is used to
ensure that the right inventory management strategies are applied
to items with varying characteristics, helping to optimize costs,
 Logistics
• Logistics is about getting the right product, to
the right customer, in the right quantity, in the
right condition, at the right place, at the right
time, and at the right cost.
• It is the process of planning, implementing, and
controlling procedures for the efficient and
effective transportation and storage of goods,
including services and related information, from
the point of origin to the point of consumption.
 The Objective of SCM
• The primary objective of SCM is to fulfill customer demands through the most
efficient use of resources, including distribution capacity, inventory, and labor.
• In theory, a supply chain seeks to match demand with supply and do so with
the minimal inventory.
• Various aspects of optimizing the supply chain include:

• Liaising with suppliers to eliminate bottlenecks

• Sourcing strategically to strike a balance between lowest material cost
and transportation
• Implementing just-in-time techniques to optimize manufacturing flow
• To maintain the right mix and the proper Push Pull Strategy.
• The location of factories and warehouses to serve customer markets
• To understand the proper vehicle routes, use GPS etc.
• To use ERP systems to optimize the functions.
Example 1: Apple supply chain
The Apple Component suppliers per country
 Supply Chain Issues

• One goal in SCM: • Factors that contribute to

– respond to uncertainty in uncertainty
customer demand without – inaccurate demand forecasting
creating costly excess inventory – long variable lead times
– late deliveries
– incomplete shipments
1. Supply chain Uncertainty – product changes batch ordering
2. Supply chain size – price fluctuations and discounts
3. Increase in e commerce – inflated orders
4. Quality Issues • Negative effects of uncertainty
5. Environmental Impacts – lateness
6. The Technological changes – incomplete orders
7. The changing customer – Bull whip effect
demands
 The Bull Whip Effect
• The bullwhip effect can be explained as an occurrence
detected by the supply chain where orders sent to the
manufacturer and supplier create larger variance then the
sales to the end customer.
• These irregular orders in the lower part of the supply chain
develop to be more distinct higher up in the supply chain.
• This variance can interrupt the smoothness of the supply
chain process as each link in the supply chain will over or
underestimate the product demand resulting in
exaggerated fluctuations.
• The concept first appeared in Jay Forrester's Industrial Dynamics(1961)
and thus it is also known as the Forrester effect.

10-18
 Bullwhip Effect

Occurs when slight demand variability is magnified as information moves

back upstream
 The Reasons For Bull Whip Effect
• There are many factors said to cause or contribute to the bullwhip effect in supply chains; the following
list names a few:

• Disorganization between each supply chain link; with ordering larger or smaller amounts of a product
than is needed due to an over or under reaction to the supply chain beforehand.

• Lack of communication between each link in the supply chain makes it difficult for processes to run
smoothly. Managers can perceive a product demand quite differently within different links of the
supply chain and therefore order different quantities.

• Free return policies; customers may intentionally overstate demands due to shortages and then cancel
when the supply becomes adequate again, without return forfeit retailers will continue to exaggerate
their needs and cancel orders; resulting in excess material.

• Price variations – special discounts and other cost changes can upset regular buying patterns; buyers
want to take advantage on discounts offered during a short time period, this can cause uneven
production and distorted demand information.

• Demand information – relying on past demand information to estimate current demand information
of a product does not take into account any fluctuations that may occur in demand over a period of
time.
 SCM Improvement: To Reduce The Bull whip effect
• In theory, the bullwhip effect does not occur if all orders exactly meet the demand of each
period. This is consistent with findings of supply chain experts who have recognized that
the bullwhip effect is a problem in forecast-driven supply chains, and careful management
of the effect is an important goal for supply chain managers. Therefore it is necessary to
extend the visibility of customer demand as far as possible.
• One way to achieve this is to establish a demand-driven supply chain which reacts to
actual customer orders. In manufacturing, this concept is called kanban . This model has
been successfully implemented in Wal-Mart's distribution system.
• Barriers to the implementation of a demand-driven supply chain include the necessary
investment in information technology and the creation of a corporate culture of flexibility
and focus on customer demand.

• Methods intended to reduce uncertainty, variability, and lead time:

• Vendor Managed Inventory (VMI)
• Just In Time replenishment (JIT)
• Strategic partnership
• Information sharing
• Strategic partnership :
• This involves a supplier / manufacturer partnering with a distributor or wholesale
consumer. Rather than approach the transactions between the companies as a simple link
in the product or service supply chain, the two companies form a closer relationship where
they mutually participate in advertising, marketing, branding, product development, and
other business functions.

• Vendor-managed inventory (VMI):

• This is a family of business models in which the buyer of a product (business) provides
certain information to a vendor (supply chain) supplier of that product and the supplier
takes full responsibility for maintaining an agreed inventory of the material, usually at the
buyer's consumption location (usually a store). A third-party logistics provider can also be
involved to make sure that the buyer has the required level of inventory by adjusting the
demand and supply gaps.
 SCM Improvement: Information Technology
• Bar code andlinks
Information point-of-sale
all aspects of supply chain
• – data creates an instantaneous computer record of a sale
E-business
• Radio frequencyofidentification
– replacement (RFID)
physical business processes with electronic ones
• – technology
Electronic datacan send product
interchange data from an item to a reader via radio waves
(EDI)
• Internet
– a computer-to-computer exchange of business documents
– allows companies to communicate with suppliers, customers, shippers and
other businesses around the world, instantaneously
1. Block chain
2. AI
3. ML
• Supply Chain
• https://www.youtube.com/watch?v=lSZdKK14zgg
• https://www.youtube.com/watch?v=YbM_LydRlnM