Supply Chain

management

DR M. CHIBARO
• After completing this lecture, students should
be able to:
• Describe and define supply chain, scm and logistics
• Describe the objectives and elements of scm.
• Describe local, regional and global supply chain
management activities.
• Describe a brief history and current trends in supply chain
management.
• Understand the bullwhip effect and how it impacts the
supply chain.
What is supply chain?
Brainstorming

Supply Chain

Logistics

Supply Chain Management

Supply chain definitions

 A supply chain is the system of organizations,

people, activities, information and resources
involved in moving a product or service from
supplier to customer.
 An integrated group of processes to “source,”
“make,” and “deliver” products.
 Supply chain activities transform raw
materials and components into a finished
product that is delivered to the end customer.
Supply chain definitions

 All activities associated with the flow and

transformation of goods from raw materials to
end users.
 refers to the entire network of companies that
work together to design, produce, deliver,
and consume goods and services.
 A network of facilities including:
 Material flow from suppliers and their
“upstream” suppliers at all levels,
 Transformation of materials into semi-finished
and finished products (internal process)
 Distribution of products to customers and
their “downstream”customers at all levels.
Evolution of the supply chain

 The term SC was first coined by US industry

consultant in the 1990s
 The concept was there before the 20th
century
 During creation of assembly line
 In the 1970s, companies focused on internal
changes e.g reduction of inventories,
Reduction of distribution costs
Three Flows in SC

 There are three kinds of flows in a supply

chain:
1.Material
2.Information
3.capital.
The flows can be either Downstream or
Upstream
supply chain levels
understanding the supply chain

 The supply chain has various actors and

these might be:

suppliers suppliers manufacturers

Customers Retailers distributors

Reasons for sc integration
 Class discussion
Supply chain management

Supply chain management

 Concerned with the coordinated flow of

materials and services from origins through

suppliers into and through the organisation
and unto the ultimate consumer
 Also included are funds and information

(Bailey et al (2008).)
 It is the process of planning, implementing
and controlling the operations of the supply
chain with the purpose to satisfy customer
requirements as efficiently as possible.
 Scm manages all movement and storage of
raw materials, work-in-process inventory, and
finished goods from point-of origin to point-of-
consumption.
 Scm encompasses the planning and
management of all activities involved in
sourcing and procurement, conversion, and
all logistics management activities. Council of
SCM (2005),
 Importantly, it also includes coordination
and collaboration with channel partners,
which can be supplier, intermediaries, third
party service providers, and customers.
 Supply chain management involves activities
which range from movement of raw materials,
semi-processed products and finished
products from point of origin to point of
consumption
 The main idea is to cut costs so that when
companies price their products, a big profit
margin is realised
 SCM continued
 It involves a variety of firms ranging from those that
process raw materials to make component parts to
those engaged in wholesaling(Hutt and speh 2010)

 QN Scm is a customer oriented philosophy. Discuss

 it makes sure that customers are satisfied and the

products delivered reach customers in the right
quantity, quality and right price
 A set of processes and sub-processes which
attempt to implement and optimize the
functions, connected entities, and interacting
elements of a supply chain.
 Involves:
 – Organizations, procedures, people.
 – Activities: Purchasing, delivery, packaging,
checking, warehousing,
 – Establishment of long-term relationships
with suppliers (supply alliances) and
distributors
 – Effective flow of information through the
supply chain
Question

 Unpack supply chain management showing

its advocacy and development
SCM continued

 Increased fuel prices lead companies to

focus on reducing transport costs
 Introduced inventory management
 Material resource planning was introduced
 New materials management concepts were
introduced
 Increased global competition forced
organisations to lower operating costs
 JIT concept introduced
SCM cont’d

 The concept of SCM emerged as

manufacturers experimented with strategic
partnerships with suppliers
 Experts in transportation &logistics carried
the concept of materials management to
focus on physical distribution of goods
&transportation function resulting in the
logistical concept known as supply chain
management
SCM cont’d
 To improve manufacturing efficiency
 Manufacturers focused on reengineering supply
chain costs structures
 Lowering operating costs
 Improving of customer service
 Internal integration of logistics within companies
 Manufacturers realised the importance of
strategic &cooperative buyer-supplier
relationships
SCM cont’d

 Evolution of SCM continued into the 1990’s

 Organisations further extended best practices
in managing corporate resources
 Included strategic suppliers & the logistics
function in value chain
 Manufacturers purchased from qualified and
certified suppliers
 Customer service continued to be
manufacturers’ focus
SCM cont’d

 Companies entered into new agreements

with existing partners
 External partnerships were now important
 21st century saw new technologies
 Improved supply chain efficiency
 Increased global sourcing now important
 Manufacturers now exploit supplier strengths
and technology in support of new product
development
SCM cont’d

 Retailers seamlessly integrate their physical

distribution function with transportation
partners to improve their competitive
advantage.
Objectives of a supply chain
management
 To maximize overall value generated
 To minimize costs
 Better asset utilisation
 Revenue growth
Problems faced by SCM
Bullwhip effect

 The Bullwhip effect or Whiplash effect is an

observed phenomenon in forecast-driven
distribution channels.
 Because customer demand is rarely
perfectly stable, businesses must forecast
demand in order to properly position
inventory and other resources.
 Forecast are based on rarely perfectly
accurate statistics.
Factors contributing to bullwhip
effect
 Forecast Errors
 Lead Time Variability
 Batch Ordering
 Price Fluctuations
 Product Promotions
 Inflated Orders
Logistics

 Component of the supply chain Council of

SCM (2005), defines logistics as :
 Part of the supply chain that:
 Plans, implements &controls the efficient,
effective forward &reverse flow and storage
of goods &services related information
between point of origin & point of
consumption.
 Originated in the military
Logistics cont’d

 Because of the need to supply arms,

ammunition, &rations
 Moved from one base to the other
 In ancient Greek & Roman empires, officers
with the title Logistikas were responsible for
financial and supply distribution matters
 Oxford dictionary defines logistics as the
branch of military sciences relating to procuring,
maintaining & transporting materials.
Logistics cont’d

 Logistics view points

• Inbound logistics
 Primary processes which concentrate on
purchasing & inbound movement of materials,
parts or finished products from suppliers to
manufacturing or assembly plants.
 Operations
 Activities taking place between inbound &
outbound
Logistics cont’d

 Outbound logistics
 Processes related to storage & movement of

final product and related information flows

From end of the production line to end –user eg
Porter’s value chain.
 Logistics
 The logistics function involves how activities are
coordinated or organised in such a way that there
is value creation. This is a component of the
supply chain.
• Logistics involves the following activities:
1. Transportation
2. Demand forecasting
3. Waste management
4. Inventory planning and control
5. Warehousing and storage
Logistics -continued
 Customer service
 Packaging and shipping
 Order processing
 Information
 Logistics has a customer oriented philosophy
which ensures that goods reach customers at
shortest possible time.
Logistical functions-Transportation
 Transportation is a major logistical function
 Directly impacts on the success of business
people
 if fuel prices go up, it means prices of products
automatically go up which has a negative impact
on business performance
 Bowesox(1996) mentioned that transportation
function provides place and time utility
LF-continuation
Businesses should use appropriate modes of
transport when transporting goods,
air transport for transporting perishables so as to

achieve place and time utility

Correct documentation should be done in order to

avoid confiscation of goods by revenue authorities

This is very costly to most busineses which end

up seeking service of freight forwarding agents

LF-continued

 Most businesses in Zimbabwe are importing

goods without knowing the documentation
required for one to be able to import goods
without facing any logistical challenges
 This has caused them to face problems with
revenue authorities manning our border posts
 Some have ended up paying fines or losing
some of their goods which are then auctioned at
very low prices
 Demand forecasting
 Businesses which have been successful in their
business have been considering the principle of
supply and demand
 Demanding patterns should be observed for one
to be successful in business
 Time series analysis can be used to determine
future demand for goods and services hence
avoiding procuring gods which will become
obsolete in warehouses
DF-continued

 These goods kept in the warehouse for a

long period may be destroyed by rodents and
some may be lost through pilferage causing
the entepreneur to go out of business
Waste management(reverse
logistics)
 This is a very important activity
 Wrong placement of orders result in reverse
logistics
 Cut off material eg pieces of cloth or wood
 Used tyres etc
 Management of this material is required
 To cut costs along the supply chain
Procurement

 Involves placing of orders

 Renting
 Leasing
 Acquiring supplies &services
 Delivery
 Handling
 Make or buy decisions
Procurement cont’d

 Procurement steps
 Information gathering
 Searching for suppliers who can satisfy the
requirements
 Supplier contact
 One or more suppliers contacted
 Requests for quotation
 Proposals
 Tenders may be advertised
Procurement cont’d

 Direct contact may be made with suppliers

 Background review
 References for the product /service quality
are consulted
 Follow-up services including installation,
maintenance warranty are investigated
 Samples may be examined
 Negotiations are undertaken on price
&availability
Procurement cont’d

 Delivery schedules are negotiated

 Supplier preparation
 Expediting shipment
 Delivery
 Installation & training
 Consumption
 Maintenance &disposal
 Company evaluates performance
Procurement cont’d

 Contract renewal
 If satisfied by the supplier’s service.
Class Group discussion

 Unpack the difference between SCM and

logistics.