Supply Chain Management Dr Steve Childe

What is a supply chain?

What is a supply chain? What is a supply chain? “Network of manufacturing & distribution sites that interact to procure & transform raw materials for producing finished goods to customers.” (Ballou 1999)

What is a supply chain? A Supply Chain Operations Reference (SCOR) model by the Supply-Chain Council: Return Return Enable (SCOR 2000)

What is a supply chain? A Network View (Ballou 1998) Procurement Raw Material Manufacturers Assemblers Warehouses Customers Procurement Production Distribution Stages (Ballou 1998)

What is a supply chain? A Cycle View Customer Retailer Distributor Customer Order Cycle Retailer Replenishment Cycle Distributor Manufacturing Cycle Manufacturer Procurement Cycle Supplier (Chopra & Meindl 2001)

What is a supply chain? Flows in a Supply Chain Supplier Customer

What is a supply chain? Materials Flow in a Supply Chain Producers Distributors Suppliers Consumers Recyclers Collectors Reverse Channel

What is a supply chain? Dynamic nature of the supply chain Customer demand and supplier capabilities change over time Relations in the chain evolve over time Competitors interact over time Customer and supplier interact over time

Porter’s Value Chain

Strategic Issues Fit with Strategy Responsiveness Efficiency

Changes during Life Cycle (Chopra & Meindl)

Performance Metrics How does your supply chain perform to suit your (or your customers’) Quantity / lot size? Variety (from same source)? Service level (=response time)? Price? Innovation? Other performance measures??

Relationships Adversarial - instant negotiation on price and delivery – Win-Lose Partnership – long term, sharing information and expertise – The Win-Win

Effects of Interdependence (Kumar 1996) Our Organisation’s (Buyer’s) Dependence High HOSTAGE Supply Partner relatively powerful EFFECTIVE RELATIONSHIP High level of Interdependence Low APATHY Low level of interdependence DRUNK WITH POWER Buyer Organisation relatively powerful Low High Partner’s (Supplier’s /Seller’s) Dependence

Who determines the style of relationship? Sako: companies decide whether to become partners and to trust one another; Contractual Trust keeping promises e.g. pay, keep confidential Competence Trust to do the job properly e.g. quality Goodwill Trust trusted not to exploit the other – impossible to put in contract

Outsourcing Buying things you previously would make Womack: Toyota makes 27% of its cars (by value add) while GM makes 70% (Womack et al 1990). Which is the best car? Current average 70-80% outsourced Outsourcing is about buying services as well as materials

The decision logic of outsourcing (Slack) Does company have specialized knowledge? Is significant operations performance improvement likely? Is company’s operations performance superior? Is activity of strategic importance? Explore outsourcing this activity No No No No Yes Yes Yes Yes Explore keeping this activity in-house

Forrester effect (Bullwhip effect) Fairly consistent demand leads unconnected suppliers to carry small safety stocks. An increase in customer demand might lead a supplier to increase the safety stock. This results in an amplified demand to the next supplier.

Forrester effect The effect is such that a 10% increase can rise to 40% over three stages. This is extremely difficult to forecast!

Lee H L, Padmanabhan V, Seungjin Whang Wholesaler Lee H L, Padmanabhan V, Seungjin Whang

SCM Issues Win-win relationships Integration and strategy match Power and pressure Outsourcing (or not) Co-ordination of activities by information flow Long-term collaboration Who controls the whole chain?

References Chopra S and Meindl P, 2002, Supply Chain Management: Strategy, Planning and Operation, Prentice Hall, Upper Saddle River NJ USA Kumar N, 1996, The power of trust in manufacturer-retailer relationships, Harvard Business Review, Nov-Dec pp92-106 Lee H L, Padmanabhan V and Seungjin Whang, 1997, The bullwhip effect in supply chains, Sloan Management Review, Spring, 93-102 Porter M E, 1985, Competitive Advantage, The Free Press, New York Sako M, 1992, Prices, Quality and Trust, Cambridge University Press