Supply Chain Management

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The nature of the supply chain

Learning Points
 Understand what a supply chain is
 Gain an appreciation of the behaviour of supply chains  Understand some of the issues with highly dispersed supply chains

Supply Chain Management concerns…
 The relationships and flows between different operations  Links between value-adding upstream and downstream

processes  All issues concerning product / service delivery from raw materials to end user  Purchasing / Procurement

 Physical Distribution / logistics
 Materials management and inventory control  Customer fulfilment - meeting the needs of the end customer

The next time you need milk…
 Think:  All you’ve had to do is go to the local shop. The milk is there to buy every time.  But somebody must have delivered that milk to the shop:  Starting from the beginning, someone must have raised a cow, got it pregnant, looked after the calf and milked the cow.  Then, someone would have transported the milk to a dairy, pasteurised it, bottled it and distributed it to your local shop.  Essentially, an lot of work must have taken place, across a network of firms – the supply chain, to deliver you a reliable supply of milk.

Supply Side
2nd tier Suppliers 1st tier Suppliers

Demand Side
1st tier Customers 2nd tier Customers

The Operation

Purchasing

Distribution Customer Fulfilment

Materials management

Supply Chain

Supply chain management is concerned with the flow of information as well as the flow of products and services

Supply Chain Performance Benefits

Benefits of looking at the whole supply chain:
• Puts the operation into its competitive context • Helps to identify the key players • Shifts emphasis to the long term • Sensitizes the operation to macro changes

Advantages of taking a whole supply chain perspective
Vertical integration
H ow much of the network should the operation seek to own?

Location of the operation
Where should the operation be located?

Helps in making the 3 key supply network design decisions.

Balance of capacity
How should capacity be managed in the long-term?

The Bullwhip Effect
 In late 2008, a number of major car manufacturers in the UK were

left with thousands of unsold cars, due to a downturn in customer demand.  This is an example of a phenomenon known as the Bullwhip Effect.

Bullwhip Effect Example (P & G)
Lee et al., 1997, Sloan Management Review

The Bullwhip Effect – An Example

Brewer

Distributor

Wholesaler

Retailer

Prodn. Stock Prodn. Stock

Prodn. Stock Prodn. Stock 100 80
100 100 100 90 90 95

1 2 3 4 5 6

100 20

100 100 100 60 60 120

100

100 100 100 80 80 100

100 90

100 100 100 100 95 95 95 95 95 95 95 95 95

100 95 95 95 95 95

60

180
60 100 95 3

120
90 95 95 2

100
95 95 95 1

95
95 95 95
OEM

120 90
90 95 95 95

100 95
95 95 95 95

95 95
95 95 95 95

MARKET

ALL OPERATIONS HOLD ONE PERIOD’S STOCK

 What does the bullwhip effect illustrate?

 That stakeholders along the supply chain  Have different and frequently conflicting objectives.  Often operate independently.  That the supply network can oscillate in very large swings

as each organization in the supply chain seeks to solve the problem from its own perspective.

Consequences of the Bullwhip Effect
 Lower revenues.
 Stockouts and backlogs = lost

 Higher costs.
 High carrying costs  Stockout costs  Distributors need to expedite orders

customers

 Worse Quality
 Erratic production & delivery

schedules disrupt and subvert control processes, causing diverse quality problems which may prove costly to rectify.

(at higher shipping costs)

 Manufacturers need to adjust jobs (at

 Poor Service
 Irregular, unpredictable production

higher setups and changeover expenses, higher labor expenses for overtime, perhaps even higher materials expenses for scarce components.)

and delivery...
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