1. Supply Chain Management
MGT3303
Reading: Chapter 7

2. Learning Objectives
Understand the meaning and importance of supply chains
Understand the strategic issues in supply chain management
Understand the operational challenges, solutions, and techniques of supply chain operations

3. Example of a Supply Chain
Suppliers
Manufacturer
Wholesalers
Retailers, e-commerce

4. Typical Supply Chain Structure
Example
Direction of flow of demand
Direction of flow of product
Manufacturers
Tier-I Suppliers
Distribution Centers
Tier-II Suppliers
Retailers
Customers
E-tailers
Typical Supply Chain Structure

5. Supply Chain
Suppliers
Manufacturing
Warehousing
Customers

7. Supply Chain Examples
It takes a box of cereal 3+ months from factory to supermarket.
Efficient Consumer Response (ECR) initiative - estimates $30 billion opportunity by streamlining grocery supply chain
Matching supply and demand:
“Boeing lost $2.6 billion in Oct. 97 due to raw material, internal, and supplier shortages…” (W.S.J., )
Supply chain management is closely tied to strategic partnerships and logistics
Cross-docking logistics & inventory practices at Walmart helped them beat Kmart)

8. Supply Chain Management
Efficiently integrating suppliers, manufacturers, warehouses, and customers so that products are produced and distributed at the right quantities, to the right locations, and at the right time, in order to minimize system wide costs while satisfying service level requirements.
every player in the system has to be considered
minimize costs across the system
efficient integration includes all activities from strategic to operational level
information flow is upstream (from retailer to supplier), but product flow goes downstream
Notion of Demand Chain Management

9. Supply Chain Management
Supply Chain Design
Supply
Chain
Management
Supply
Chain
Performance
Supplier Selection
Purchasing
Relationship
Management
Logistical Management

10. Key Issues in Supply Chain Management
Dependence
customers depend on suppliers in terms of punctuality of delivery, quality, reliability, etc.
How can this dependence be managed?
Relationship/Trust
By opposition to a contractual relationship
What is a good approach?
Effectiveness/Productivity
Supply chain performance
Comparative advantage
Key issue of responsibility/equity

11. Key Issues in Supply Chain Management
Integration
How can one co-ordinate independent companies with:
Secretive corporate cultures
An orientation toward competition
Different perceptions of operations (i.e. inventory)
Bargaining power
System dynamics:
Bullwhip effect

12. Bullwhip Effect
Demand propagates from the lower levels of the supply chain (consumer end) to the upper levels (supplier end).
Unfortunately, variability does the same and is amplified by each echelon of the chain. Terms for this include
Information distortion
Bullwhip Effect
Modest movement at the whip handle (representing consumer demand fluctuations) leads to wild swings at the whip’s tip (demand experienced by the supplier). Bullwhip cracks are loud because of the Doppler effect (e.g. as seen visibly in a boat’s wake) which generates a small sonic boom as the whip tip breaks the sound barrier at about 800 mph. The supply chain bullwhip crack can be heard through bankruptcy filings as vulnerable suppliers and manufacturers experience deadly cash flow variability.

13. Procter & Gamble P&G Pampers disposable diapers - best selling product
sales of the product at retail stores were fluctuating, but the variabilities were not excessive. Reason & data suggest that diaper sales should be fairly constant because birth rate is constant over a year!
orders placed by the distributors to P&G exhibited a much greater variability
P&G orders to supplier, 3M, had even greater swings and variability!

14. The Bullwhip Effect

15. The Bullwhip Effect

16. Causes of the Bullwhip Effect
Demand Forecast Updating
Order Batching
Price Fluctuations & Promotions
Shortage Gaming (Inflated orders during shortages)
Others:
Long lead times (increase variability)
Ineffective IT or lack of partnerships keep everyone starved for real, consistent information

17. Current Trends in Supply Chain Management
Strategic Sourcing (Single sourcing)
Reduction of the number of suppliers
Centralisation and optimisation of data/decisions
Virtual communities
Strategic alliances
long term commitment, open book, profit sharing, exchange of workers
Integration of linkages:
Project managers
EDI, Internet
ERP with SAP

18. Supply Chain System Design
Several management decision models
Extensions of the traditional accounting make or buy decision frameworks

19. Transaction Cost Theory

20. Core Competencies Theory

21. Supply Chain System Design

22. Logistical Management
The operational management of the supply chain
Similar in most respect to standard operations management
Quality management, planning and scheduling, etc.
But increased importance of co-ordination
Role of IT systems, especially ERP
Looking for optimal solutions and practices
Unique features:
Standardisation and specifications
Purchasing management / Procurement
E-procurement
Transportation Management

23. Specifications
The task of detailing precisely the characteristics of the product/service to be purchased
Usually as an appendix to a contract
Strict legal liability – not such thing as a fuzzy specification
Use of standards reduce the cost of specifications
An example of a transaction cost

24. Procurement

26. Purchasing Management
How should problems/delays be dealt with?
Penalties
Increased communication, collaboration
Switch supplier
Multiple sourcing

27. Transportation Management
Network design
More a strategic issue
Mode selection
Which mode of transport
Rail, air, road, water, etc.
Which routes
Transportation method

28. Transportation Method
SCM – Part III
Transportation Method

29. Transportation Method
500
800
700
400
900
200 *
Belgium
Germany
Netherlands
The Hague
Amsterdam
Antwerp
Nancy
Liege
Tilburg
Leipzig
Miles
100 50
Source
Destination

30. Transportation Costs Minimize
Unit transportation costs from harbors to plants
Minimize
the transportation costs involved in moving
the motors from the harbors to the plants

31. Transportation Model

32. Building a Solver Model
Tools | Solver…
Set Target Cell: The cell holding the value you want to minimize (cost) or maximize (revenue)
Equal to:
Choose Max to maximize or Min to minimize this
By Changing Cells: The cells or variables the model is allowed to adjust
In the Transportation spreadsheet that’s G19 - the total transportation cost
In the Transportation spreadsheet we choose Min to minimize transport cost
In the Transportation spreadsheet that is C9:F11 - the Shipment volumes

33. Building a Solver Model
Subject to the Constraints:
The constraints that limit the choices of the values of the adjustable cells
Click on Add
Cell Reference is a cell that holds a value calculated from the adjustables
Constraint is a cell that holds a value that constraints the Cell Reference.
<=, =, => is the sense of the constraint. Choose one
In the Transportation spreadsheet for example, G9 is the total volume shipped out of Amsterdam
In the Transportation spreadsheet for example, H9 is the total volume we can ship out of Amsterdam
<= in this case. Don’t ship more than we have in AMS

34. What are the constraints?
Supply Constraints
Amsterdam: G9 <= H9
Antwerp: G10 <= H10
The Hague: G11 <= H11
Demand Constraints
Leipzig: C12 => C13
Nancy: D12 => D13
Liege: E12 => E13
Tilburg: F12 => F13
G9 is the total volume shipped from Amsterdam
Short cut:
G9:G11 <= H9:H11
C12 is the total volume shipped to Leipzig
Short cut:
C12:F12 => C13:F13

35. The Model

36. Solution

37. Suggested Homework
How developed are supply chain management practices in Morocco? Describe:
The extent to which outsourcing takes place
The state of the art of logistical and transportation management
The factors that hinder transportation management effectiveness
Is transaction cost theory relevant in the case of Morocco?
Problem 7-1, p. 313