Chapter 15: Supply Chain Management

Supply Chain

The sequence of organizations - their facilities, functions, and activities - that are involved in producing and delivering a product or service

Logistics Management

includes management of inbound and outbound transportation, material handling, warehousing, inventory, order fulfillment and distribution, third-party logistics and reverse logistics.

Facilities

• warehouses

• factories

• processing centers

• distribution centers

• retail outlets

• officies

supply chain functions and activities

-Forecasting.

-Purchasing.

-Inventory management.

-Information management.

-Quality assurance.

-Scheduling.

-Production and delivery.

-Customer service.

Supply Chain Integration

means that all the different parts of a business—and its partners like suppliers and delivery companies—work closely together and share information to make sure everything runs smoothly.

Goal of Supply Chain Integration

is to connect supply (what the business gets and makes) with demand (what customers want) so the right products are made and delivered at the right time.

Objective of Supply Chain

to coordinate activities within the supply chain to maximize the supply chain’s competitive advantage and benefits to the ultimate consumer

The Supply Chains Strategic Importance

Businesses spend a lot of money buying things from other companies, like materials or parts. Because of that, having good, long-term relationships with suppliers is very important.

Outsourcing

is when a company hires another company to do a job or provide a service instead of doing it themselves.

Sourcing Strategies

1. Many suppliers

2. Few Suppliers

3. Vertical Integration

4. Joint Ventures

Many Suppliers

Businesses buy from the cheapest supplier, and each supplier is fully responsible for doing the job well.

Many Suppliers Example

A restaurant buys napkins from whichever supplier offers the lowest price.

Few Suppliers

The business sticks with a few trusted suppliers to build strong partnerships, improve quality, and work more efficiently—but switching suppliers later can be difficult.

Few Suppliers Example

A car company works closely with just two tire manufacturers instead of many. They’ve worked together for years, so the suppliers understand exactly what the car company needs

Vertical Integration

means a company takes over more steps of its supply chain instead of relying on others.

Forward Integration

The company takes control of selling its own products to customers.

Forward integration Example

a clothing manufacturer opens its own stores to sell directly to customers (instead of selling through another store)

Backward Integration

The company starts making the things it used to buy from suppliers.

Backward Integration Example

a bakery usually buys flour but decides to own a wheat farm and make its own flour

Joint Ventures

is when two or more companies team up to work on a project or business together. They share resources, skills, and costs, but each company keeps its own brand and independence.

It helps them learn from each other, lower costs, and secure supplies, without giving up control of their own company.

Joint Ventures Example

A fast food chain and an ice cream brand form a joint venture to create a new dessert menu. The fast food chain provides the restaurants and customers, while the ice cream brand brings its recipes and products.

Benefits of Outsourcing

• Lower prices may result from lower labor costs.

• The ability of the organization to focus on its core strengths.

• Permits the conversion of some fixed costs to variable costs.

• It can free up capital to address other needs.

• Some risks can be shifted to the supplier.

• The ability to take advantage of a supplier’s expertise.

• Makes it easier to expand outside of the home country.

Risks of Outsourcing

§Inflexibility due to longer lead times.

§Increased transportation costs.

§Language and cultural differences.

§Loss of jobs.

§Loss of control.

§Lower productivity.

§Loss of business knowledge.

§Knowledge transfer and intellectual property concerns.

§Increased effort required to manage the supply chain.

Supply Chain Risk

refers to the potential problems a business faces when it depends heavily on suppliers, especially when there are

• fewer suppliers, increasing the risk of disruptions.

• This risk is made worse by factors like

  • globalization,

  • complex logistics,

  • and external issues such as

  • vendor reliability,

  • quality issues, and political or currency changes.

  • In outsourcing, it’s important to have risk mitigation plans to address these challenges.

Examples of Ethics in the Supply Chain

§Ignoring health, safety, and environmental standards.

§Violating basic worker rights.

§Mislabeling the country of origin.

§Selling products abroad that are banned at home.

Supplier Certificiation

• qualification

• education

• certification

Cost-based price model

The price is set based on how much it costs to produce something, plus a bit more for profit.

Market-based price model

he price is determined by the market, based on what others charge and what customers are willing to pay.

• based on published, suction, or indexed prices

Competitive bidding

—- is when a company invites multiple suppliers to offer their best prices, and the business chooses the most suitable one.

• common policy for many purchases

• does not generally foster long-term relationships

Logistics Management

The goal is to make operations more efficient by managing everything related to getting materials, moving them, and storing them all together.

This process is often outsourced to other companies to save time and money. By doing this, a business can gain a competitive advantage by reducing costs and providing better service to customers.

Shipping Systems

1. Trucking

2. Railroads

3. Airfreight

4. Waterways

Trucking

moves the vats majority of manufactured goods where chief advantage is flexibility

Railroads

capable of carrying large loads with little flexibility but containers and piggybacking have helped with this. Lowest carbon footprint per pound in moving material

Piggybacking

is when a business or company uses another company’s existing resources, like transportation or distribution networks, to move their own products or services.

Airfreight

transportation of goods by airplane. Its fast and flexible for light loads but may be expensive

Waterways

Refer to the transportation of goods by ships or boats using rivers, canals, or oceans. Typically used for bulky, low-value cargo and used when shipping cost is more than speed

Pipelines

used for transporting oil, gas, and other chemical products

Multimodal Shipping

One company, multiple transport types (like truck, train, ship, or plane) to move goods

Multimodal Examples

A company ships clothes from Asia to a store in the U.S. The shipment goes by ship, then by train, and finally by truck—all arranged and managed by one shipping company.

Intermodal Shipping

multiple companies, multiple transport types.

Intermidel Example

A business sends electronics using a truck to the port, then a ship across the ocean, and another truck at the destination. Each leg is booked separately with different companies.

expensive

faster shipping is generally more —- than slower shipping

smaller

faster shipment methods tend to involve —— shipment sizes

very large

slower shipment methods involve —- shipment sizes

Warehousing

may be expensive nut the purpose is to store goods and also

Consolidation:

Break-bulk:

Cross-docking:

Consolidation

means combining small shipments into one big shipment to save money and space.

Consolidation Example

Put small loads together to ship them cheaper and easier.

Break-bulk

Take one big load and break it into smaller ones for delivery.

Break-bulk Example

A big shipment of TVs arrives at a warehouse. Some go to one store, some to another. The shipment is broken into smaller loads and sent to the right locations.

Cross-docking

Products don’t sit in storage—they’re quickly moved from one truck to another to save time and space.

Cross-docking Example

A truck brings in boxes of products to a warehouse. Instead of storing them, workers quickly sort and load the boxes onto new trucks going to stores.

Third-Party Logistics (3PL)

means a company hires another business to handle things like shipping, warehousing, and delivery instead of doing it themselves.

Third-Party Logistics (3PL) Example

An online clothing store hires a 3PL company to store their clothes, pack orders, and ship them to customers. The store focuses on selling, while the 3PL takes care of the logistics.