Supply Chain Management Midterm I

Supply Chain

consists of the flow of materials, products, services, information, financials from raw material suppliers through manufacturers and distributors to the end customer

Universal Presence

any organization anywhere in the world offering a product or service has a supply chain. Products and services are created using materials, equipment, labor, time, money, and other resources.

Organizational Scope

supply chains exist in all type of organizations: public/private, large/small, for-profit/not-for-profit

quote about Supply Chain

Supply Chain is like nature, it is all around us.

Order of Supply Chain

Suppliers → Manufacturers →Wholesalers/Distributors → Retailers → Consumers

External Sources of Supply

Raw Material Suppliers → Intermediate Suppliers → Finished Material/Service Suppliers

Internal Operations

Insourced and/or Outsourced Manufacturing and Assembly

Distribution Channels

Wholesalers & Distributors → Retail Customers → End Customers

Logistics Facilitation

Inbound and outbound transportation (e.g., Rail, Water, Truck, Air, Pipeline) and Warehousing

4 Core Supply Chain Flows

Product and Service Flow, Information Flow, Returns Flow, and Payment Flow

Product and Service Flow

the forward movement of raw materials, intermediate components, and finished goods from suppliers to end customers

Information Flow

the bidirectional transmission of requirements, purchase orders, order confirmations, shipping notices, invoiced, and demand data

returns flow

the backward movement of goods (reverse logistics) for repair, reclamation, recycling, or disposal

payment flow

the backward financial flow of funds from customers to suppliers

upstream and downstream tier structure

supply chain relationships are structured into “tiers“ based on direct or indirect interaction with the focal finished product manufacturer

upstream (supply side) tier n supplier

ultimate raw material vendor/early-stage provider (indirect relationship)

upstream (supply side) tier 3 supplier

raw materials suppliers to intermediate suppliers (tier 2) (indirect relationship)

upstream (supply side) tier 2 supplier

intermediate supplier to finished material or service suppliers (tier 1) (indirect relationship)

upstream (supply side) tier 1 supplier

finished material or service suppliers; direct supplier to the manufacturer (direct relationship)

manufacturer (supply chain partners tiers)

Finished Product Manufacturer (absolute middle) to wholesaler & distributor customers (customer tier 1)

downstream (customer side) tier 1 customer

wholesaler and distributor customers to retail customers (customer tier 2)

downstream (customer side) tier 2 customer

retail customers to consumers (customer tier 3)

downstream (customer side) tier 3 customer

end w/consumers or continue to tier n

dual-tier dynamics

some entities can act as both Tier 1 and Tier 2 partners if they supply products or services both directly and indirectly

strategic priority

organizations must identify their Tier 1 suppliers and Tier 1 customers first, as these represent the direct relationships requiring active partnership management

dual role principle

every link (company) in a supply chain is simultaneously a customer to its suppliers and a supplier to its customers

Supply Chain Management

the execution process of business. it represents te active coordination of a network of otherwise independent trading partners creating a product/service and moving it through the supply chain to end customers when and where they want it

Core Foundation of Supply Chain #1

Every product reaching an end user represents the cumulative effort of multiple organizations

Core Foundation of Supply Chain #2

Organizations must look beyond their “four walls” and actively manage the entire chain of activities to maximize customer value and sustain a competitive advantage

Primary Objective of Supply Chain

Increase customer service (customer satisfaction) while simultaneously reducing inventory and operating expenses (costs)

main implementation drivers of supply chain

1. Achieve cost savings

2. Better coordinate resources across partners

Intangible Products (SCM in service industry)

services produce intangible products. customers pay primarily for the provider’s labor and intellectual property (e.g., consulting, financial advice, healthcare, education)

Partner Relationships (SCM in service industry)

service supply chain management focuses heavily on managing inter-organizational relationships rather than physical inventory chains

inseparability & production constraints (SCM in service industry)

services generally cannot be produced in advance or inventoried. they are produced and consumed simultaneously. the service process cannot start until the customer arrives and actively participates

customer-provided tangible inputs

services frequently involve performing work on a tangible item provided by the customer:

1. Auto repair requires the customer to supply their car

2. Dry cleaning requires the customer to supply their clothing

   1. Tax prep requires the customer to supply their financial data

facilitating goods

tangible items used alongside the service delivery that must be purchased, transported, received, and warehoused via an underlying physical supply chain

service setting: bank, what are the primary facilitating goods required?

cash, coins, computers, office suppliess

service setting: hospital, what are the primary facilitating goods required?

pharmaceuticals, medical supplies, diagnostic equipment, records

service setting: restaurant, what are the primary facilitating goods required?

food ingredients, kitchen equipment, tables, chairs, cutlery

The SCOR Model (what does it stand for)

Supply Chain Operations Reference Model

Supply Chain Operations Reference (SCOR) Model

describes supply chains as spanning end-to-end from a company’s suppliers’ suppliers, through internal operations, to its customers’ customers

6 Elements of the SCOR Model

Plan, Source, Make, Deliver, Return, Enable

Plan

established parameters within which the supply chain operates

planning activities

Developing strategic plans to manage resources required to create and deliver products/services. Determining market/distribution channels, promotions, order quantities, timing, inventory replenishment policies, and production guidelines

Source

the procurement and identification of suppliers providing raw materials and services

sourcing activities

selecting reliable suppliers, building long-term vendor relationships, negotiating pricing, setting shipping and delivery terms, establishing payment processes, and defining supplier monitoring performance metrics

Make

the manufacturing or operational transformation of raw materials into finished outputs

make key activities

manufacturing, assembly, product testing, packaging, and delivery scheduling. quality management is critical.

Make characteristics

metric-intensive stage of the SCOR model, focusing on production output, defect rates, quality levels, and worker productivity

Deliver (logistics)

overseeing the planning and execution of the forward flow of goods and information between supply chain nodes to meet customer requirementsDel

Deliver key activities

manufacturing customer orders, operating warehouse networks, picking carriers for transportation, and setting up invoicing/billing systems to collect payments

return (reverse logistics)

managing the backward flow of goods from the point of consumption to the point of origin

return activities

handling returns for repair, reclamation, remanufacture, recycling, or proper disposal. requires building a responsive, flexible network to process defective or excess items and handle customer inquiry services.

Enable

processes that facilitate and support a firm’s ability to plan, source, make, deliver, and return. these processes run concurrently across all stages rather than sequentially

Enabling processes include elements such as:

• SCM Systems and Network Operations

• Systems Configuration Control, Interfaces, and Gateways

• Database Administration & Electrical Data Interchange (EDI)

• Telecommunications Services

• Performance Measurement Framework

• Contract Management, Business Rules, Standards, and Employee Training/Education

Push Business Model (Make-to-Stock-MTS)

production is driven by long-term forecasts before customer orders are received. Finished goods are pushed through distribution channels and stored as inventory

MTS Capability Focus

Efficient Supply Chain- optimized for high-volume, standardized products with predictable demand; minimizes unit cost through mass production

Pull Business Model (Make-to-Order- MTO)

production and assembly are trigged only upon receipt of an actual customer order

MTO Capability Focus

optimized for customized, high-variety products with uncertain demand; prioritizes speed, flexibility, and short lead times

1950s & 1960s: Mass Production and Internal Focus (Focus)

Focus: Internal operational efficiency, materials management, and local logistics

1950s & 1960s: Mass Production and Internal Focus (Strategy)

Strategy: High-volume mass production focused on maximizing output to lower unit costs

1950s & 1960s: Mass Production and Internal Focus (Characteristics)

Companies held large raw materials and finished goods inventories to maintain uninterrupted production. External cross-firm collaboration was nonexistent.

1950s & 1960s: Mass Production and Internal Focus (Advantages)

Increased output/productivity, reduced cycle times during productions runs, lower in-process inventories1950s & 1960s: Mass Production and Internal Focus (Characteristics)

1950s & 1960s: Mass Production and Internal Focus (Drawbacks)

Substantial capital expenditure for facility/equipment capacity, total throughput limited by the single slowest operation, and machine breakdowns completely halted assembly lines

1970s and 1980s: Computerized Planning and Introduction of SCM (focus)

Integration of computerized inventory/production management and adoption of international quality systems

1970s and 1980s: Computerized Planning and Introduction of SCM (production planning)

calculating aggregate manufacturing output levels to satisfy sales forecasts while meeting corporate profitability targets

1970s and 1980s: Computerized Planning and Introduction of SCM (Material REQUIREMENTS Planning-MRP)

a time-phased planning method determining exact material quantities and required dates to execute production plans

1970s and 1980s: Computerized Planning and Introduction of SCM (Manufacturing RESOURCE Planning-MRP II)

an integrated system combining business planning, sales/production planning, master production scheduling (MPS), MRP, capacity requirement planning (CRP), and execution support tools

Who coined the term Supply Chain Management?

Dr. Wolfgang Partsch and his consulting team at Booz, Allen, and Hamilton

Just-In-Time (JIT)-1980s

a manufacturing approach aimed at continuously eliminating waste and improving total productivity

Total Quality Management (TQM)-1980s

a company-wide quality management approach focused on long-term customer satisfaction by involving every employee in operational continuous improvement

1990s and 2000s: Strategic Collaboration and Process Integration (focus)

cross-organizational process reengineering, joint planning, and integrated S&OP execution

1990s and 2000s: Strategic Collaboration and Process Integration (Business Process Reengineering-BPR)

the fundamental rethinking and radical redesign of business processes to achieve dramatic improvements in performance measures such as cost, quality, speed, and service

1990s and 2000s: Strategic Collaboration and Process Integration (Collaborative Planning, Forecasting, and Replenishment-CPFR)

a collaborative process where trading partners jointly estimate demand, plan production, and align delivery schedules across the supply chain

1990s and 2000s: Strategic Collaboration and Process Integration (Sales and Operations Planning-S&OP)

a person that aligns customer marketing and sales plans directly with operational supply chain capacity to maintain strategic business balanace

2010s & Beyond: Core Competencies and Ecosystem SCM strategic paradigm shift (old paradigm)

high vertical integration (owning and operating every step of the supply chain internally) with a short-term, single-company focus

2010s & Beyond: Core Competencies and Ecosystem SCM strategic paradigm shift (new paradigm)

focusing strictly on internal core competencies while outsourcing non-core tasks to specialized third-party experts via trust-based, collaborative relationships

2010s & Beyond: Core Competencies and Ecosystem SCM (Modern Operational Priorities)

rapid growth of e-commerce, adoption of Third-Party Logistics (3PL) providers, Corporate Social Responsibility (CSR), supply chain sustainability, risk mitigation and resiliency, and integration of new transportation modes for rapid market response

Third-Party Logistics (3PL)

external service providers hired to perform outsourced logistics, warehousing, or distribution functions

Independent Demand

demand for FINISHED PRODUCT or end items that is external to the company and independent of the production schedules of other items. MUST BE FORECASTED using qualitative/quantitative techniques. (e.g, bike)

Dependent Demand

Demand for component parts, raw materials, subassemblies, or packaging items that depend directly on the production plan for higher-level end items. Calculated via Material Requirements Planning (MRP) based on the Bill of Materials (BOM). (e.g, handlebars, seat, tires)

Qualitative Methods of Calculating

rely on management intuition, expert opinions, judgement, or subjective survey data. They are utilized when historical data is scarce or non-existent (e.g., new product launches)

Personal Insight (Qualitative)

forecast based on the insight or judgement of a single experienced individual.

Advantages: fast, inexpensive, simple to execute

Disadvantages: Highly subjective; prone to individual bias or single-point failure

Jury of Executive Opinion (Qualitative)

key executives from finance, sales, marketing, and ops jointly debate and establish a consensus forecast

Advantages: aggregates high-level management expertise and accountability

Disadvantages: subject to groupthink, political bias, and dominance by powerful personalities

Delphi Method (Qualitative)

panel or internal/external experts iteratively complete independent questionnaires administered by a facilitator

Advantages: prevents groupthink and dominant personality bias; maintains anonymity

Disadvantages: time-consuming, costly, and requires careful survey administration

Historical Analogy (Qualitative)

uses demand history of a similar existing or past product to predict sales for a new product

Advantages: provides a logical baseline when no direct data exists

Disadvantages: assumes past market conditions will repeat; can fail if market dynamics differ

Customer Survey (Qualitative)

direct feedback collected from current or potential customers regarding future purchase intentions

Advantages: direct input from actual market demand drivers

Disadvantages: customers may misjudge their future spending or fail to execute intentions

short-term

less than 3 months, used mainly for tactical decisions

medium-term

3 months to 2 years, used to develop a strategy over the next 6-18 months

long-term

more than 2 years ahead, used to detect general trends and identify major turning points

naive (quantitative)

assuming the demand for the following period is the same as the previous period

time series (quantitative)

based on the assumption that the future is an extension of the past. historical data is used to predict future demand

cause and effect (quantitative)

assumes that one or more factors (independent variables) predict future demand (e.g., seasonality in retail markets)

linear trend forecasting (qualitative)

is imposing a best fit line across the demand data of an entire time series. used as the basis for forecasting future values by extending the line past the existing data and out into the future while maintaining the slope of the line

fundamentals of forecasting

1. your forecast is most likely wrong

2. the more granular the forecast, the less accurate it is

3. it is easier to forecast next month more accurately that it is to forecast next year

4. simple forecasting methods trump complex ones

5. a correct forecast does not prove your forecast method is correct (happened by chance)

6. if you don’t use the data regularly, trust it less when forecasting

7. all trends will eventually end

8. it is hard to eliminate bias, so most forecasts are biased

9. technology is not the solution to better forecasting

10. forecasting is really a blend of art and science

Tracking Signal and Control Limits

RSFE/MAD

the bullwhip effect

phenomenon where small fluctuations in retail customer demand become progressively amplified as demand signals travel upstream through wholesalers, distributors, manufacturers, and raw ma

causes for the bullwhip effect

demand forecast updating, order batching, price fluctuations & value promotions, rationing & shortage gaming

Information Sharing via Electronic Data Interchange (EDI) (remedy for bullwhip effect)

real-time integration of downstream order metrics

Point-of-Sale (POS) Data Sharing (remedy for bullwhip effect)

transmitting actual retail checkout data directly to all upstream tiers