Level Two Supply Chain Management Supply Chain Management I

Learning Objectives To understand what is meant by the term supply chain management To understand the traditional supply chain Be able to apply the traditional supply chain

Definitions No one set definition Often seen as an umbrella term Confusion with the term ‘logistics’. The term ‘supply chain management’ began to appear in the 1980s.

SCM Definitions Slack et al (2013) define a supply chain as a "strand of linked operations". Cox et al (1995) define supply chain as the functions within and outside a company that enable the value chain to make products and provide services to the customer. Heizer and Render (2010) define SCM as the "management of activities that produce materials and services, transform them into intermediate goods and final products, and deliver them through a distribution system."

Definition Confusion Supply Chain Management is not just another term for logistics, purchasing, warehousing, manufacturing et cetera individually. It is instead about managing all of the activities required to make raw materials into useable goods or services required by the end customer.

The Value Chain

The Traditional Supply Chain Flow of Goods Suppliers Manufacturers Distributors Retailers End Customers Flow of Information

Supply Chain Objectives What are we trying to achieve? Customer requirements Quality Speed Dependability Flexibility Cost

The Traditional Supply Chain Flow of Goods Suppliers Manufacturers Distributors Retailers End Customers Flow of Information

The Traditional Supply Chain Consider the supply chains from the earlier lecture: What path do they take along the traditional supply chain? ? ?

Chair Suppliers Raw material - Wood - Forrest Manufacturers Craftsman Distributors Large company considerations Retailers E.G. IKEA End Customer

Car Much more complex Suppliers Manufacturers Distributors Retailers End Customer

Jaguar Production http://www.youtube.com/watch?v=1ZS_kmKledQ

Looks Simple? What about everything you did not see? Sub assemblies Deliveries from various suppliers Back office staff ensuring invoices and wages are paid Transportation to the customer Customers specific requirements being taken and used. And more!

Communication Key to supply chain success Without some form of communication how do you know what the customer wants? Or, when to produce something Or, have materials in stock?

The Traditional Supply Chain Flow of Goods Suppliers Manufacturers Distributors Retailers End Customers Flow of Information

The Bullwhip Effect Sometimes referred to as the Forrester Effect Small disturbances downstream Become larger disturbances, errors, volatility further up the supply chain Uncertainty caused from distorted information

Example Your company has over ordered product x. In order to reduce the stock levels of x you promote the product and offer 50% off! Sales (demand) goes up You sell out but the orders keep coming You go to your supplier and place a relatively large order to satisfy customer needs What happens next?

Example continued Your suppliers stocks get very low They become worried and go to their suppliers (the factory) and order more In order to meet the orders the factory has to increase production (supply). Lots of back orders Orders are finally fulfilled. Production levels need to change again.

Bullwhip Illustration https://www.youtube.com/watch?v=3dXCaRetzdw

Bullwhip - Problems Unnecessary capacity adjustments Excess inventory Quality issues Increased raw material costs Overtime expenses Increased shipping costs Customer service issues Longer lead times Unnecessary capacity adjustments

Bullwhip - Causes Un-forecasted sales promotion Sales incentives Lack of customer confidence Products being returned Shipping incentives

Bullwhip - Solutions Improve communication Improve quality of forecast data Work with the supply chain Share information

To Do Reading Refer to the weekly reading list on moodle Online activity

Today..... We now know: What is meant by the term supply chain management. What the traditional supply chain is and what it looks like. How the traditional supply chain is applied real world examples.

References Cox, J., Blackstone, J., Spencer, M. (1995) APICS Dictionary. Virginia: American Production and Inventory Control Society Heizer, J., and Render, B. (2010) Operations Management. 10th edn. Harrow: Pearson Porter, M. (1985) Competitive Advantage. New York: Free Press Slack, N., Brandon-Jones, A., and Johnston, R. (2013) Operations Management. 7th edn. Harrow: Pearson