SCM: LESSON 2

INTRODUCTION
TO SUPPLY
CHAIN
MANAGEMENT
Engr . Ruel M. Tuan
MSIEM, ASEAN Eng., CPMA
CIE, PIE, CLSSG-T, S03 2nd Sem:
AY 2024-2025
 OVERVIEW
The lesson covers the second part of the basic parts of
supply chain management . Among other things, the topics to be
discussed here include the strategic , tactical and operating
issues in supply chain, the SCOR model to measure
performance, the value stream approach , Porter’s value chain
model, and the importance of each building block of total
supply chain.
 MODULES OBJECTIVES

❑ Understand and identify the types supply chain management issues

❑ Learn the concept of SCOR model to analyze supply chain processes
❑ Learn the concept of value stream approach
❑ Learn Porter’s value chain model as a strategic management tool
❑ Understand why there is a need for supply chain management .
❑ Learn the concept of total chain management and importance of each
building block of total supply chain.
 2.1 STRATEGIC , TACTICAL , AND
OPERATING ISSUES IN SUPPLY CHAIN

Strategic Issues
The key strategic issue is the design of the supply chain
and partnering . This involves determining the number , location ,
make or buy , capacity of the facilities , and building strategic
alliances.
 2.1 STRATEGIC , TACTICAL , AND
OPERATING ISSUES IN SUPPLY CHAIN
Tactical Issues
These involve policies related to such areas as inventory ,
procurement , processing( production) , logistics , and quality
Operational Issues
The key issues are quality control and production planning
and control . Primarily relates to an organization’s in house
activities.
 2.2.1 PERFORMANCE MEASURES
(SCOR – Supply Chain Operations Reference model)
• SCOR provides a framework to link processes, metric , best
practices , and technology to facilitate communications among
chain members and enhance supply chain performance .
• SCOR analyzes supply chain processes according to the three
levels of detail. Level 1 defines the scope and content by
specifying performance targets of the supply chain . In Level 2,
the supply chain is configured using the core” Process
categories”
 2.2.1 PERFORMANCE MEASURES
(SCOR – Supply Chain Operations Reference model)
• Defined in the SCOR. The process configuration thus
represents the operation strategy of the supply chain. Level 3
defines the company’s ability to compete by examining details
of the process elements ,process inputs and outputs ,
performance indicators and best practices .
 2.3 THE VALUE STREAM APPROACH

➢The delivery of goods and services of expected standards on

time at the “ best in class” cost is creating value for money for
customers and thus adding value to the business,
➢An effective supply management team can deliver value by a
value stream approach or total supply chain management
approach.
➢The value stream approach transcends the traditional manner
of departmentalizing stages of the business process. The value
stream approach highlights the importance of operations
manager being involved in all aspects of the process, from
suppliers right through the customers and if possible to the
customer’s customer.
 2.3 THE VALUE STREAM APPROACH

➢The old approach was that one department of function would

be responsible for purchasing goods and services, and
another for planning.
➢Scheduling of activities was often a separate function, as was
warehousing, and distribution , operations were just one step
in the whole process of providing services.
 2.4 PORTER’S VALUE CHAIN MODEL
• The value stream approach in supply chain aligns well with
Porter’s value chain.
• The idea of the value chain is based on the process view of the
organizations, the idea of seeing a manufacturing or service
organization as a system, made up of subsystems each with
inputs, transformation processes and outputs. How value
chain activities are carried out determines costs and affects
profits.
• With the value stream approach functional boundaries are
ignored, and in many organizations, it is now accepted that the
operations manager has to control the total process from
purchasing input goods and services to the final stage of
satisfying the customers.
 2.4 PORTER’S VALUE CHAIN MODEL
• Marketing , human resources and other support functions do
not show up on the value stream as such but operations
managers must vitally interested and involved in these internal
operations of the organizations.
• Most organizations engage in hundreds , even thousands of
activities in the process of converting inputs to outputs .These
activities can be classified as primary or support activities that
all businesses must undertake in some form.
 2.4 PORTER’S VALUE CHAIN MODEL

Primary and secondary activities ( PORTER’ s Model )

Primary activities
1. Inbound logistics – involve relationships with suppliers and include all the activities required
to receive , store and disseminate inputs .
2. Operations – all activities required to transform inputs into outputs ( products or services)
3. Outbound logistics – include all the activities required to collect , store and distribute the
output.
4. Marketing and sales activities – inform buyers about products and services, induce buyers
to purchase them and facilitate their purchases .
5. Service – includes all the activities required to keep the product or service working
effectively for the buyer after it is sold and delivered.
 2.4 PORTER’S VALUE CHAIN MODEL

Primary and secondary activities ( PORTER’ s Model )

Secondary activities
1. Procurement – is the acquisition of inputs , or resources for the firm.
2. Human resource management – consists of all activities involved in recruiting, hiring ,
training, developing, compensating and ( if necessary) dismissing or laying off personnel .
3. Technological and development – pertains to the equipment , hardware , software ,
procedures and technical knowledge brought to bear in the firm’s transformation of inputs
into output.
4. Infrastructure –serves the company’s needs and ties its various parts together . It consists of
functions or departments such as accounting , legal, finance , planning, public affairs ,
government relations , quality assurance and general management .
 2.4 PORTER’S VALUE CHAIN MODEL

Primary and secondary activities ( PORTER’ s Model )

The success of a supply chain could be synonymous to the
success of the value stream approach or the total supply chain
approach underpinned by the interaction between the key group
players, viz customers, external suppliers and the departments
involved with the primary and secondary activities of the
organizations .
 2.5 THE NEED FOR SUPPLY CHAIN
MANAGEMENT ( Stevenson)

1. The need to improve operations

2. Increasing levels of outsourcing .
3. Increasing transportation costs .
4. Competitive pressures .
5. Increasing globalization
6. Increasing importance of e -commerce
7. The complexity of supply chains
8. The need to manage inventories.
9. Green supply chain
 2.5 THE NEED FOR SUPPLY CHAIN
MANAGEMENT ( Stevenson)

The need to improve operations

▪ Lean production and TQM practices to improve quality
Increasing levels of outsourcing
▪ Buying goods or services instead of producing or providing
themselves .
Competitive pressures
▪ Increasing number of new products, shorter product
development cycles and increased demand for customization
▪ Product life cycle of Electronic products are relatively short.
▪ Adoption of quick response strategies and efforts to reduce lead
time .
 2.5 THE NEED FOR SUPPLY CHAIN
MANAGEMENT ( Stevenson)

Increasing globalization
▪ Has expanded the physical length of Supply Chain.
Increasing importance of e -commerce
▪ e-supply chain
▪ B2B
▪ B2C
The complexity of supply chains
• Supply chain are complex, dynamic , and many inherent
uncertainties that can adversely affect the supply chain, such as
inaccurate forecasts, late deliveries, substandard quality,
equipment , breakdowns and canceled or changed orders.
 2.5 THE NEED FOR SUPPLY CHAIN
MANAGEMENT ( Stevenson)

The need to manage inventories

▪ excess inventories and shortage problems.
Green supply chain
▪ Increased pressure from regulators and awareness of corporate
responsibility have made supply chain managers to undertake
green measures such as redesigning products /services and
packaging , relocating outsourcing activities to reduce
transportation and implementing end -of-life programs for
products like appliances and electronics equipment .
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS

Total Supply chain Management

• Focusing on the conventional practices of supply chain

management within the organization , such as forecasting,
capacity planning , inventory management , scheduling, and
distribution management , may achieve operational excellence
within the confines of an individual business organization but
will offer only a partial solution to optimizing customer service.
• Total supply chain management approach is a holistic value
stream approach.
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS

Total Supply chain Management

• In “ Total manufacturing Solutions” (Basu and Wright 1997) , we

defined total manufacturing to include all the interaction
between the conversion process inside a “factory” with all
other business processes including marketing, research and
development , supply chain management, financial and
information management, and human resource management-
also with external factors such as environmental concern
customer care and competition .
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS

Chopra and Meindl (2003) describes the two views

1. Cycle view : the processes in a supply chain consists of a
series of cycles , each performed at the interface between
two successive stages.
2. Push/ push view : Pull processes are initiated by a
customer order and push processes are initiated and
performed on the forecast of customer orders.
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS

Demand cycle
➢The cycle of time covering from when a customer buys or
orders from a retailer or wholesaler .
➢The demand cycle can also be based on the forecast or
demand .
➢If the retailer holds the product in stock then the demand
cycle will compromise of order request , order fulfillment
and order receiving .
➢However, if the product is not readily available then the
customer order request will form a part of demand
forecast which also includes predicted demand , market
intelligence and promotion of the product.
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
Planning and Procurement cycle
❖Covers short –term and longer- term requirements.
❖The demand of the product and its components ( Bills of
materials ) are compared with the inventory and capacity and
the replenishment requirements are planned .
❖Planners will decide what to buy and what to make .
❖This make or buy decision process also applies to a service
organization leading to either in- house or outsourced
services.
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS

Supply cycle
• Typically occurs with a production schedule if the product is
to be manufactured , or a purchase schedule if the product is to
be procured from an external supplier
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
The Processes View of supply chain
 Push Process in Supply Chain
• Conforms to a conventional supply chain management system going
through typical stages in sequence.
• Orders arrives at or after the demand cycle but always before the
planning and procurement cycle and process is activated by a
forecast or demanded plan
• Both raw and packaging materials are stored before production and
products are manufactured to stock .
• The order fulfillment is achieved from the inventory of finished
goods.
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
The Processes View of supply chain
 Push Process in Supply Chain
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
The Processes View of supply chain
✓ Pull Process in Supply Chain
• Activated in response to a confirmed order from a customer .
• This includes make-to-order or just-in-time (JIT) manufacturing
process.
• In a pull process, the supplier does not stock finished products but
holds higher quantity of semi- finished materials and often higher
supply capacity so that order fulfillment can be achieved rapidly .
• The order arrive at or after the planning cycle as if passing a few
steps of the traditional ERP process.
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
The Processes View of supply chain
✓ Pull Process in Supply Chain
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
The Processes View of supply chain
Six Buildings Block Configuration of Total Supply Chain
1. Customer focus and demand
2. Resources and Capacity management
3. Procurement and supplier focus
4. Inventory management
5. Operations management
6. Distribution management
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
The Processes View of supply chain
These building blocks are integrated by three cross-functional processes:
• Systems and procedures
• Sales and operations planning
• Performance management
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
Customer Focus and Demand

• Customers are both at the start and at the end of the supply
chain .
• The demand for a product or service is created by a customer .
• A supply chain process cannot exist without the knowledge and
planning for future .
• All push processes are executed in anticipation of customer
demand and all the pull processes are carried out in response
to customer demand .
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
Customer Focus and Demand

• It is important to note that it is not possible to produce a

perfect forecast as there are so many variables affecting a
future demand , such as past demand , promotion and
advertising of the product , market shares, state of the
economy, price discounts , competition and new products
introduction.
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
Resource and Capacity Management
• The primary objective of SCM is to optimize supply capacity and
fulfill demand in time .
• A supply chain manager must make decisions regarding capacity
levels and buffer it to meet the variation on demand either by
adjusting capacity or producing to hold output stocks .
• There are a few options of capacity optimization open to a manager
and there are proven processes to assist him .
• One such processes is aggregate planning where an organization
determines levels of capacity , production and inventory over a
planning horizon to maximize the profit .
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
Procurement and Supplier Focus
• Many companies routinely outsource certain services as
janitorial services , repair , security ,payroll, or record
management .
• For the supply chain procurement of external capacity and
resource could include packaging materials ,part built – up
assemblies, contracting out utilities and maintenance , hiring
contract or casual labor , selecting approved suppliers .
• A proper purchasing and supply management can give a
network of supplies capable of delivering service quality
beating competitors at the same time securing cost reduction
over time .
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
Four basic capabilities to make sensible trade-offs:
1. Technical capability
• The product or service knowledge to deliver sustainable quality
2. Operations Capability
• the process knowledge to ensure effective supply.
3. Financial capability
• The financial strength to fund the business
4. Managerial capability
• the management talent to develop future business
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
Inventory Management
• The purpose of inventories is to buffer against the variations in
demand and supply .
• Inventories usually reside in three stages of a process, input stocks (
raw and packaging materials ), in process stocks (semi- finished
products ),and output ( finished products ).
• Consumed items ( materials or products ) are used by the process or
customers and must be replenished in shorter cycles .
• Non- consumed items ( Capital equipment and labor ) are repeatedly
used by the process needing repair and maintenance and are
replaced in longer interval .
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
Distribution management
• Concerned with the materials flow and outbound logistics .
• Many organizations outsource distribution activities to third
parties and do not employ in-house expertise to manage
distribution which directly affects the customer service.
• If there is a failure in order fulfillment whether it is due to
quality , quantity or time or even the attitude of distributor ,
then the organization , not the distributor , bears the
consequence .
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
The Building block distribution management addresses the challenges
• Physical distribution
• Strategic alliances

Main Components of Distribution management

• 1. Distribution strategy
• 2. Warehouse operations
• 3. Stock management
• 4. Transport planning
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
Cross – Functional Integrating Process
1. systems and procedures
-are essential components to integrate the building block
configuration of total supply chain.
three major categories of systems and procedures :
a. External regulatory and internal quality standards.
b. Financial and accounting procedures
c. Information and communications ( ICT)

➢ Information technology ( IT) has now grown into ICT

The broad areas of ICT domain:
1. Information technology and systems
2. e – business
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
Cross – Functional Integrating Process
2. Sales and Operations Planning ( S & O P)
is a cross functional review process to integrate the activities of the total
supply chain.
The virtues application and training of the S & OP have been promoted by
Oliver and Wight Associates since early 1970s.
3.Performance Management
Acts both as a driving force of improvement and a fact –based integrating
agent to support the planning , operations and review processes.
The foundation of performance management is rooted to quality
management principles supported by key performance indicators .
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
Cross – Functional Integrating Process
2. Sales and Operations Planning ( S & O P)
is a cross functional review process to integrate the activities of the total
supply chain.
The virtues application and training of the S & OP have been promoted by
Oliver and Wight Associates since early 1970s.
3.Performance Management
Acts both as a driving force of improvement and a fact –based integrating
agent to support the planning , operations and review processes.
The foundation of performance management is rooted to quality
management principles supported by key performance indicators .
 2.6 UNDERSTANDING TOTAL SUPPLY
CHAIN AND ITS BUILDING BLOCKS
The Balanced Scorecards
• Is a good reference line of key performance indicators of a
supply chain.
• Retains traditional financial measures, customer services and
resource utilization and includes additional measures for
learning and growth.
Agile and Lean Supply Chain