3. Learning Objectives
• When you complete this chapter you
should be able to:
1. Explain the strategic importance of the supply chain
2.Identify the six supply-chain strategies
3. Explain issues and opportunities in the supply chain
4. Describe the steps in vendor selection
5. Explain major issues in logistics
6. Compute the percentage of assets committed to
inventory and inventory turnover
4. THE SUPPLY CHAIN'S
STRATEGIC IMPORTANCE
Supply-chain management is the integration of
the activities that procure materials and services,
transform them into intermediate goods and final
products, and deliver them to customers.
These activities include purchasing and outsourcing
activities, plus many other functions that are
important to the relationship with suppliers and
distributors.
5. Supply chain management includes determining
Transportation vendors
Credit and cash transfers,
Suppliers,
Distributors,
Accounts payable and receivable,
Warehousing and inventory,
Order fulfillment, and
Sharing customer, forecasting, and production
information.
6. Importance of SCM
• The supply chain includes all the interaction
among suppliers, manufacturers ,distributers
and customers.
• It gives the firm a competitive advantage
which depends on a close long term
relationship.
• It also supports the operations management
strategy.
7. Supply chain and risk
• In this age companies are relying on supply chain and more
risks
• Managing the new integrated supply chain by it self is a
strategic challenge
• Having few suppliers makes the suppliers and customers
depend on each other. This increase the risk of both parties
• Vendor reliability and quality is also another challenge
• Operating across political and cultural boundaries are new
dimensions that have risk.
• There are also political and currency risks
So in order to minimize the above stated risks on the
environment we have to develop a successful supply chain
management strategy that will enable managers to react to
disruptions on the process, controls and environment.
8. Ethics and sustainability
•Ethical decisions are critical to the long term success of any
organization.
•There are tremendous opportunities for unethical behaviors
in supply chain.
•Three aspects of ethics in supply chain
•Personal ethics- i.e. may salespersons become friends with
customers, do favors for them ,invite and present gifts .when
this friendship turns to bribe it will be challenging
•Ethics within supply chain- managers may be tempted to
ignore ethical lapses by suppliers. So firms must establish
standards for their suppliers as they establish for their self.
•Ethics within the environment- doing business in a way
that support environmental conservation and renewal of
resources. This involve evaluation of the entire environmental
impact from raw material to final disposal
9. Supply chain economics
•Make or by decisions-since supply chain is an
integral part of the firms strategy companies must
properly evaluate suppliers and examine updated
and relevant data to the buy alternative.
•Outsourcing-is transferring some internal
activities and resources of a firm to outside
vendors who are experts in that particular
specialty.
10. Supply Chain Strategies
• For goods and services to be obtained from
outside sources the firm must decide on supply
chain strategy. There are several types of
strategies
1.Many Suppliers
• This is common strategy when products are
commodities
• Suppliers aggressively compete each other
• According to this approach suppliers are
responsible for managing the necessary
technology, expertise , forecasting ability, quality
and delivery competencies
11. 2.Few Suppliers
• Aims at building long term relation ship with few
suppliers
• This allows suppliers to have economies of scale that
yields lower transaction and lower production costs
3.Vertical Integration
• By vertical integration we mean developing the ability to
produce goods and services previously purchased or
actually buying a supplier or a distributor
• It is a best method if the organization has large market
share
• But its is dangerous for firms in undergoing
technological change unless their management decide to
invest and comply with the technology
12. 4.Joint venture
• Its is form of formal collaboration to secure supply and
reduce costs
5.Keiretsu Networks
• It is a Japanese term that describes suppliers who become
pert of company coalition
• Keiretsu is a business network composed of
manufacturers, supply chain partners, distributors and
financiers who remain financially independent but work
closely together to ensure each other's success. Keiretsu are
often established to share best practices and improve
risk management by lowering unknown variables.
6.Virtual companies
• Companies that rely on a variety of supplier relationships to
provide services on demand.
• Also known as hollow corporations or network companies.
13. Managing supply chain
•Integration of supply chain will bring substantial efficiencies
•Success on integrating supply chain composed of the
following:-
1.Mutual Agreement on Goal-refers to establishing a mutual
understanding of mission, strategy and goals
2.Trust- is critical to an effective and efficient supply chain
•The relation ship b/n suppliers can be successful if risk and
cost savings are shared and some activities like sales analysis ,
forecasting and production planning become joint activities
3.Compatible organizational cultures-a positive relationship
b/n purchasing and supplying organization with compatible
organizational culture have a real advantage in supply chain.
14. E-procurement
•It Is purchasing facilitated through the internet
•It speeds purchasing, reduce costs and integrate supply chain
•It reduces paper works
Techniques of Electronic Ordering
•Electronic data interchange-a standardized data transmittal
format computerized communications between organizations
•Advanced shipping notice-a shipping notice delivered directly
from vendor to purchaser
Online catalogs-provide information about the products on
electronic form
Support cost comparisons and make the process efficient
Online auctions-they have lower entry barriers and it increase
potential number of buyers
15. Vendor selection
•Vendor selection has a three stage process
Stage 1 vendor evaluation-finding potential vendors and determining the
likelihood of their becoming good supplier
In this stage we have to be careful because if we didn’t select good supplier
the whole supply chain efforts will be wasted
Stage 2 vendor development-determining how the supplier will be
integrated in to the system.
Includes everything from training to engineering and production help
Stage 3 negotiations-develop contractual relationships with suppliers
It focus on quality, delivery payment and cost
Types of Negotiation Strategy
1.Cost based price model-price is based on time and materials
2.Market base price model-price is based on a published ,auction , or index
price
3.Competitive bidding-used for purchasing infrequent items
Bidding may take place through mail , fax or internet
16. Logistics management
•It is an approach that seeks efficiency of operations
through the integration of all material acquisition,
movement and stage activities.
•Now a days firms are recognizing the distribution of
goods to and from the organization takes about 25% of
the cost of products. as a result firms constantly
evaluate their means of distribution.
The five major means of distribution
•Trucking
•Rail roads
•Aircraft
•Water ways
•Pipelines
17. Measuring Supply Chain
Performance
•Evaluation of supply chain is critical because of the
organizations money is spend on purchases
•Managers have to use effective metrics to determine how well
supply chain is performing and the assets committed to
inventory. These metrics are
1.Supply chain performance-the benchmark metrics focus on
procurement and vendor performance issues
Benchmarks are the result of well managed chains ;the drive
down costs, lead times late delivering
2.Asset committed to Inventory-there are three measures
under this metrics
•Amount of money invested in inventory
•Inventory turnover
•Weeks of supply
18. The SCOR model
• In addition to the above metrics the supply
chain council developed the five part supply
chain operation reference model(SCOR model)
• This five models are plan, source, make ,
deliver and return
• This model provide a structure of its process
metrics and best practices that will help to get
competitive advantage
