UNIT 3

Supply Chain Management

MODULE 9
SUPPLY CHAIN STRATEGY AND DESIGN

I’m Ma. Eppie A. Antioquia, Assistant Professor IV from URS Binangonan campus
18 years in service ,from the College of Business teaching Management subjects, took
up Bachelor of Science in Commerce Major in Management in Tomas Claudio Memorial
College, with Master in Management in University of Rizal System and completed
academic requirements in Doctor in Business Administration at University of Rizal
System.

Welcome to this subject and I look forward to working with you all in the class

If you have questions email me at [email protected]

Objectives:

1. Identify the types of supply chain design and strategies and their pros and cons.
2. Explain the supply chain design and supply chain strategies
3. Understand the business strategy.
4. Describe the implementation plan
5. Recognize organization challenges
6. Analyze designing of supply chain

Introduction:

Supply Chain Management can be defined as the management of flow of products

and services, which begins from the origin of products and ends at the product’s
consumption. It also comprises movement and storage of raw materials that are involved
in work in progress, inventory and fully furnished goods.
The main objective of supply chain management is to monitor and relate
production, distribution, and shipment of products and services. This can be done by
companies with a very good and tight hold over internal inventories, production,
distribution, internal productions and sales.
Supply chain management basically merges the supply and demand
management. It uses different strategies and approaches to view the entire chain and
work efficiently at each and every step involved in the chain. Every unit that participates
in the process must aim to minimize the costs and help the companies to improve their
long term performance, while also creating value for its stakeholders and customers.
This process can also minimize the rates by eradicating the unnecessary expenses,
movements and handling.

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Contents of the module:

Supply Chain Strategy and Design

Supply chain strategy is an iterative process that evaluates the cost- benefit
trade-offs of operational components. Business strategy involves leveraging the core
competencies of the organization to achieve a defined high-level goal or objective.

Supply Chain Strategy and Design

The Supply Chain design and supply chain strategy is referred to

the operational strategy in which a business or organization moves and transforms raw
materials to finish goods. A well designed and operated supply chain is very important
in terms of being able to supply both internal and external customers on time and in
full and add value to these. The design of a supply chain must be also well planned and
structured to achieve the lowest delivered cost to key markets and lowest inventory
holding costs with a well thought inventory management system. A supply chain is
usually built around the following product and consumer/customer characteristics :

-Product Shelf life

-Product life cycle
-Product physical and usage characteristics
-Demand predictability and stability
-Current capacity and future capacity requirements -Number of product lines
and standardization of products
-Reliability on third party suppliers to deliver products or materials

Types of supply chain designs and strategies but these can be further explained

1. Lean Just in time supply chain : The lean just in time supply chain is what
automotive & component manufacturers operate. They are designed as pull
systems and respond to customer needs as efficiently as possible, with
minimal work in progress, inventory levels, flexible capacity and waste . Sharing
of production schedules, production data, quality, and consumer demand is
necessary to achieve greater efficiencies in terms of inventory holdings and prod
uction requirements across the whole supply chain .

The pros of this type of supply chain:

-Efficient low cost supply chain with high inventory turnover.
-Ability to predict and respond to consumer demand patterns better
-Low inventory levels due to efficient inventory ordering reducing the amount of
working capital required and inventory holding costs

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 The cons of this type of supply chain:
-Requires highly skilled resources and technology to plan and operate
-Requires sharing of confidential information
-Requires an initial high cost if converting an existing inefficient supply chain to this
model.
2. Flexible supply chains :this type of supply chain is the one which has a great
flexibility to adapt to changing customer demands and shorter lead times. It is
usually used where there is a vast range of products which share some basic
characteristics and can be manufactured from the same production line. This can
be achieved through mass customization. An example of this type of supply
chain is the one used by some specialized sports car manufacturers and
personal computer companies, they can also be found to be used with an ABC
Warehouse inventory system

This supply chain has the flexibility to handle large volumes of material but can
also still operate cost effectively with lower volumes and close to full capacity
utilization when demand is strong. The key to being able to achieve this
is managing costs within the supply chain and optimize the split between fixed
and variable costs of operation.

The pros of this type of supply chain :

-Ability to provide customers a wide range of products efficiently

-Can supply customers with built to order or customized products
-Ability to predict and respond to consumer demand patterns better
-Ability to handle peak load movement across the supply chain

The cons of this type of supply chain:

-May require some WIP, and larger inventory holding costs due to extra
inventory, this must be controlled carefully
-May require outsourcing of certain activities such as some manufacturing and
logistics to handle peak demand
-Business risk may difficult to quantify because of greater third party involvement.

3. Risk adverse supply chain : A risk adverse supply chain is chosen or operated
when both demand and raw material supply is unpredictable. It may also be
combined with some of the other supply chain strategies when there is
uncertainty around suppliers and logistics networks. Large inventory levels and
work in progress are observed in this type of supply chain, and may be
commonly observed in countries which have poor infrastructure or economic and
political instability. This type of supply chain strategy can also be used when
demand is quite stable, but there are production, supply, and logistical risks
present to deliver finished goods to customers. In these cases it is difficult to
achieve full capacity utilization due to the presence of these inefficiencies. An

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 example of this type of supply chain would be oil/petrochemical industry and the
grains/agricultural industries.

The pros of this type of supply chain :

-Ability to provide products to customers without major interruptions
-Can withstand raw material supply delays without affecting customer deliveries
-Can respond to peak customer demand

The cons of this type of supply chain:

-May require large volumes of raw materials and WIP, this must be controlled
carefully
-Requires large working capital requirements, and incurs larger inventory holding
costs .
-May require outsourcing of certain activities such as some manufacturing and
logistics to handle peak demand
-Business risk may difficult to quantify because of greater third party involvement,
inefficient and unpredictable suppliers.

Developing a Supply Chain Strategy

Understand the Business Strategy. The first step is for supply chain executives
to clearly understand how the enterprise chooses to compete. This is important
not only for the obvious reason of working off the “same play book,” but also for
the reason that it forces the supply chain operation to see itself as a customer
facing entity serving the competitive goals of the enterprise—not merely an
operational department. Supply chain strategy is not simply a linear derivative of
the business strategy. At best, supply chain strategy can be the enabler of the
business strategy. If the business strategy is to be the low cost provider, the
supply chain strategy should support this. And just like when developing a
business strategy, look to your core competencies, focus, and means of
differentiation when developing a supply chain strategy. Being able to
strategically source parts at an attractive price may support both your supply
chain strategy and business strategy, but only if you have the capabilities to do
so effectively. Look to your supply chain competencies and leverage what you do
well. You may want to focus on a particular market or segment in which to gain
supply chain efficiencies. Or you may want to differentiate your organization
operationally by providing lower costs to customers or providing services that
other industry players are unable to do.

Develop an Implementation Plan. From this critical work emerges the “go
forward” supply chain strategy – directly tied to the business strategy, highly
specific as to enablers and metrics, and with a defined set of implementation
requirements and contingencies. The development of an implementation plan
should include activities and tasks, roles, responsibilities, a corresponding

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 timeline, and performance metrics. Establish a sub-team to shepherd the
execution and provide project management responsibility to resolve issues and
track status.

Executing Supply Chain Strategy

1. Performance Management. Execution involves closely following your

implementation plan and applying good project governance. You can improve
your chances for success by managing performance throughout
implementation and beyond. Tracking performance allows an organization to
measure how successful it is in realizing the goals of a strategy. It also makes
people understand their contribution and responsibilities, creating a more
cohesive, in tune, organization. Performance management works best when
people are rewarded for their performance and reporting is conducted on a
regular basis. Moreover, performance goals should be used to communicate
business expectations to outside entities as well. The more the extended
supply chain is involved, the more the supply chain strategy is supported and
reinforced.
2. Iterate the Cost – Benefit Evaluation Process On a periodic basis (e.g.,
annually) you should formally revisit your supply chain strategy. Did you meet
the goals of the business strategy? Have the needs of your supply chain
partners changed? How has the industry changed i.e., new competitors,
business practices, products, technology? At this time, you may even want to
reassess your supply chain organization, if the changes are significant
enough to warrant it. Also, use this effort to look for new opportunities to
further position your organization for success.
3. Keep Communicating with Your Partners Executing a supply chain
strategy means dealing with many different entities, both internally and
externally. Just as it is crucial to align the supply chain strategy with the
business strategy, it is equally important to execute in a manner consistent
with these different groups or stakeholders. The goals of your supply chain
components and those that you deal with must be similar and conducted at
the same speed. Your organization may be able to move at speeds other
supply chain entities are unable to maintain, resulting in misalignment and
poor efficiencies. And some of your supply chain partners may not have the
resources to commit to realizing these goals. Good communication can keep
the extended supply chain in sync.
4. Avoiding Potential Pitfalls Even before the well-publicized dot com
collapes, business failures due to poorly implemented strategy were very
frequent. Fortune Magazine reported in a study that CEO strategy failures
occurred primarily (est. 70%) because of failure in execution, not with the
vision and strategy development. “The real problem isn’t the high-concept
boners the boffins love to talk about. It’s bad execution. As simple as that: not
getting things done, being indecisive, not delivering on commitments.”1 And
supply chain strategy is no different! During the build & implement phases,
there are additional challenges including:

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 Align the Supply Chain Strategy with the Business Strategy Most
companies develop a supply chain strategy after the business strategy has
been defined. While this approach can deliver some value, it does not support
the infusion into the business strategy development of very powerful supply
chain model options, which could significantly improve the business strategy.
A supply chain strategy should always support the intent of the business
strategy and it is precisely because of these different “levels” of the enterprise
at which strategies necessarily must be developed, that companies so often
have major gaps between their highest level business strategy and their
supply chain strategy. There are some additional risks associated with
developing these separately, which include:
• Developing a supply chain strategy without a true understanding of the
business case and value propositions – the costs and benefits are not known
• Utilizing different or new resources in the operational model development
that weren’t exposed to the original business strategy thinking, thereby
diluting and weakening the supply chain strategy
• Confusing or conflicting communications to the organization where
objectives may be contradictory

Organization Challenges
The company and its organizational culture play a key role in developing
and executing a supply chain strategy. The following are some common
organizational challenges found in many companies:

Lack of ownership – many supply chain processes and value levers do not
have an owner in the traditional sense

“Tower of Babel” problem – most organizations across the enterprise do

not speak a common supply chain language

Organizational focus – some managers are functional or process oriented

and do not understand the value levers’ multiple drivers model

Extending the Supply Chain – most supply chain initiatives involve external
parties (trading partners) which makes strong collaboration a requirement.

Designing the Supply Chain

Managers face numerous alternative in in supply chain. For example, most major
airlines and trucking firms operate a “hub and spoke” system, whereas others operate
on a point to point basis. Some manufacturers use complex networks of distribution
centers, while others be distributed directly to the customers. Supply chain should
support an organization’s strategy. Mission, and competitive priorities. Thus, both
strategic and operational perspective must be included in supply chain design decision.

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 Most supply chains do contract manufacturing. A contract manufacturer is a firm
that specializes in certain types of goods producing activities ,such as customized
design, manufacturing assembly,, and packaging, and works under contract for end
users. Outsourcing to contract manufacturers can offer significant competitive
advantage, such as access to advanced manufacturing technologies, faster product
time- to-market, customization of goods in regional markets and lower total costs
resulting from economies of scale.

Supply Chains can be designed from two strategic perspective

1. Efficient Supply Chain are designed for efficiency and low cost by minimizing
inventory and maximizing efficiencies in process flow.
The focus on efficiency works best for goods and services with highly
predictable demand, stable product line with long life cycles that do not
change frequently, and low contribution margins.
2. Responsive Supply Chain focus on flexibility and responsive service and are
able to react quickly to changing market demand and requirements.
A focus on flexibility and response is best when demand is unpredictable,
product life cycles are short and change often because of product innovation, fast
response is the main competitive priority, customer require customization, and
contribution margins are high.

Video presentation: https://www.youtube.com/watch?v=lZPO5Rc

SAQ:

1. Why supply chain design and supply chain strategy called as Operational strategy?
2. What is the importance of supply chain design and supply chain strategy?
3. What is the best types of supply chain design and supply chain strategy?

Activity

Types of Supply Chain Pro’s Con’s

Design and strategies
1.Lean Just in Time Supply 1. 1.
Chain 2. 2.
3. 3.
2.Flexible Supply Chain 1. 1.
2. 2.
3. 3.
3.Risk Adverse Supply 1. 1.
Chain 2. 2.
3. 3.

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Essay:

Why there is a need to include the strategies and operational perspective in supply chain
designing decision?

Rubrics

96-100 91-95 86-90 81-85

Well-organized Well-organized Well-organized Well organized
thoughts and ideas thoughts and ideas thoughts and ideas thoughts and ideas
are very are satisfactorily are fairly evident are not evident
satisfactorily evident
evident
Grammar and Grammar and Grammar and Grammar and
format are very format are highly format are fairly format are not
highly observed observed observed observed

References:

Collier, Evans(2012)Operational Management.Ceenage Learning. Pasig,City

William Svenson, Sum Chee Chuong(2010) Operational Management.Mc Graw

Hill.NYNYs

https://www.ups-scs.com/solutions/white_papers/wp_supply_chain.pdf

https://www.tutorialspoint.com/supply_chain_management/supply_chain_management_
introduction.htm#:~:text=Supply%20Chain%20Management%20can%20be,inventory%
20and%20fully%20furnished%20goods.

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