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National Certificate: Supply Chain Management US ID 336712 Learner Guide Outline the philosophy of Supply Chain Management

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Page 1: Outline the philosophy of Supply Chain Management

N a t i o n a l C e r t i f i c a t e : S u p p l y C h a i n M a n a g e m e n t

US ID 336712 Learner Guide

Outline the philosophy of Supply Chain

Management

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Table of Contents

Table of Contents ............................................................................................ 2

Unit Standard 336712 ...................................................................................... 3

SECTION 1: INTERROGATE THE INTER-RELATIONSHIP BETWEEN THE CONCEPT OF SUPPLY CHAIN

MANAGEMENT AND DEMAND, ACQUISITIONS, DISTRIBUTION AND LOGISTICS ...................... 11

1.2 The evolution of supply chain management (SO1, AC2) .................................. 15

1.3 The concepts of demand, acquisition, distribution and disposal (SO1, AC3) .............. 18

1.4 Logistics and the change processes facing organisations (SO1, AC4) ....................... 22

1.5 Supply chain management and its impact on organisational objectives (SO1, AC5) ..... 25

SECTION 2: MAP THE SUPPLY CHAIN AND DESCRIBE THE BENEFITS OF APPLYING THE

PHILOSOPHY ................................................................................................ 28

2.1 The strategic, tactical and operational issues in supply chain management (SO2, AC1) 28

2.2 The importance of information exchange across the supply chain (SO2, AC2) ........... 30

2.3 Challenges in creating an effective supply chain (SO2, AC3) ................................ 32

2.4 The importance of the purchasing function in the supply chain (SO2, AC4) .............. 36

2.5 Value analysis (SO2, AC5) ......................................................................... 38

2.6 Supplier partnerships (SO2, AC6) ................................................................ 40

2.7 Mapping the supply chain (SO2, AC7) ........................................................... 43

2.8 Evaluating the relationships between the various processes in the supply chain (SO2,

AC8) 48

SECTION 3: IDENTIFY AREAS WITHIN A SUPPLY CHAIN THAT REQUIRE IMPROVEMENTS .......... 51

3.2 Supply chain challenges leading to improvements (SO3, AC2) .............................. 57

3.3 Process challenges are addressed (SO3, AC3) .................................................. 58

3.4 The Application of a Supply Chain Management Philosophy (SO3, AC4) ................... 59

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Unit Standard 336712

Unit Standard Title

Outline the philosophy of supply chain management

Unit Standard ID

336712

NQF Level

6

Credits

6

Purpose of The Unit Standard

This unit standard will enable learners to outline and discuss the philosophy of Supply

Chain Management. The person accredited with this unit standard will demonstrate a

clear understanding of the concepts of Supply Chain, Supply Chain Management,

Supply Management, Procurement, Operations, Distribution and Logistics. They will be

able to debate these concepts and compare the philosophy of Supply Chain

Management with traditional business models giving practical examples of the

advantages and disadvantages of adhering to a Supply Chain Philosophy. Competent

learners will also demonstrate understanding of the challenges facing organisations

when they attempt to implement a Supply Chain Based business model and give some

recommendations on a possible change process that could lead organisations towards

reaping the benefits of implementing the Supply Chain approach to work.

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A learner credited with this unit standard will be able to:

Interrogate the inter-relationship between the concept of Supply Chain Management

and Demand, Acquisitions, Distribution and Logistics.

Map the Supply Chain and describe the benefits of applying the philosophy.

Identify areas within a supply chain that require improvements.

Range:

This unit standard covers the following:

The definitions of Supply Chain, Supply Chain Management and other related

concepts.

The typical problems and challenges facing organisations when they try to improve

the effectiveness of the supply chain.

The inter-relationships of all supply chain processes.

The intention is to expose the learners to a range of thinking around the concepts of

Supply Chain Management and to enable them to freely debate these issues indicating

the inter-relationships of the various processes and clearly distinguishing between

procurement, supply management, operations, distribution and logistics.

Learning Assumed to Be In Place And Recognition Of Prior Learning

Communication at NQF Level 4.

The execution of supervisory tasks.

Mathematical Literacy at NQF Level 4.

Basic understanding of the Supply Chain Philosophy.

Unit Standard Range N/A

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Specific Outcomes and Assessment Criteria: Specific Outcome 1: Interrogate the inter-relationship between the concept of Supply

Chain Management and Demand, Acquisitions, Distribution and Logistics.

Assessment Criterion 1: The definition of Supply Chain Management is analysed in order to

demonstrate an understanding of the challenges facing organisations when they attempt to

implement a supply chain.

Assessment Criterion 2: The evolution of the concept of supply chain management is

analysed to inform recommendations on a possible change process that would benefit

organisations.

Assessment Criterion 3: The concepts of demand, acquisition, distribution and disposal are

analysed.

Assessment Criterion 4: The logistics function is analysed in order to demonstrate an understanding of change processes facing organisations.

Assessment Criterion 5: Supply chain management is evaluated to determine its impact on organisational objectives.

Specific Outcome 2: Map the Supply Chain and describe the benefits of applying the

philosophy.

Assessment Criterion 1: The strategic, tactical and operational issues in supply chain

management are identified to describe the relationship of each to the philosophy.

Assessment Criterion 2: The importance of information exchange across the supply chain is

discussed to highlight its impact on reaching strategic business imperatives.

Assessment Criterion 3: Key steps are outlined to determine potential challenges in

creating an effective supply chain.

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Assessment Criterion 4: The purchasing function in organisations is analysed to reflect its

importance for the supply chain.

Assessment Criterion 5: A value analysis is conducted to provide guidelines for ethical

behaviour in purchasing.

Assessment Criterion 6: Supplier partnerships are examined to reflect how they are

advantageous to an organisation.

Assessment Criterion 7: A map of a supply chain is produced to indicate its location within

a specific organisation.

Assessment Criterion 8: Relationships between the various processes in the supply chain

are evaluated in order to reflect ways of applying the supply chain philosophy.

Specific Outcome 3: Identify areas within a supply chain that require improvements.

Assessment Criterion 1: Improvements are measured against their benefits and possible

drawbacks to the supply chain.

Assessment Criterion 2: The typical challenges facing each of the supply chain processes

are examined to determine improvement requirements.

Assessment Criterion 3: Possible ways in which the process challenges can be addressed

are identified through the application of the supply chain philosophy.

Assessment Criterion 4: The application of a Supply Chain Management Philosophy is

assessed to determine how it contributes to addressing specific challenges faced by demand,

acquisition, distribution and disposal.

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Unit Standard Accreditation and Moderation Options

Any institution offering learning that will enable achievement of this unit standard must be

accredited by the relevant ETQA.

Moderation of assessment will be overseen by the relevant ETQA at its discretion.

Moderation should encompass achievement of competence described in both individual unit

standards as well as the integrated competence described in the qualification.

Unit Standard Essential Embedded Knowledge

• What is meant by Supply Chain.

• What is meant by inbound and outbound logistics.

• The evolution of the concept of Supply Chain Management.

• The factors impacting on the Supply Chain {Reduced number of suppliers, Increased

Competition, Shorter Product Life Cycle, Increased Supplier Managed inventories,

Increased consignment inventories, advances in technology (Quick Response and

Efficient Consumer response), shared/reduced risk}.

• The requirements of a successful supply chain.

• The role of logistics in the supply chain.

• The concept of "disinter mediation".

• The need for supply chain management.

• The benefits of effective supply chain management.

• The elements of Supply Chain Management.

• The typical issues that supply chain management must deal with.

• What it means to optimise the supply chain.

• The challenges facing the implementation of a supply chain management philosophy.

• The interface between supply chain management and purchasing.

• The impact of SCM on supplier management.

• The impact of e-business on SCM.

• The concept of (CPFR) Collaborative Planning, forecasting and Replenishment).

• The concept and importance of strategic partnering.

• The importance of the performance drivers (Quality, cost, flexibility, velocity and

customer service).

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• Who all the stakeholders are within the supply chain.

• The roles and expectations of each of these stakeholders.

• What the various supply chain processes are.

• The relationship between the various processes.

• The different interface areas and interactions of procurement with the other

processes in the supply chain.

• The different purchasing methods (tendering, quotations and e-purchasing).

• How the different purchasing processes are applicable in different situations.

• The types and use of contracts in the procurement process.

• The basic ordering processes.

• The need for expediting and how it influences the supply chain processes.

• The possible causes for schedule changes and how this impacts on the supply chain.

• What courses of action can be taken to deal with schedule changes.

• Why supplier performance evaluation is important.

• What good supplier performance evaluation criteria are.

• The difference between deal making and negotiations and how this impacts on Supply

Chain management.

• The negotiation process and the steps in ensuring successful negotiations.

Unit Standard Developmental Outcome

N/A

Unit Standard Linkages

N/A

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Critical Cross-field Outcomes (CCFO):

Unit Standard CCFO Identifying

Identifying and solving problems in which responses display that responsible decisions using

critical and creative thinking have been made when:

• Demonstrate their ability to solve problems associated with the various components of

the supply chain through the application of the Supply Chain Management philosophy.

Unit Standard CCFO Working

Working effectively with others as a member of a team, group, organisation, and community

during:

• The development of the philosophy of the Supply Chain Management Function in line

with identified market, industry and business requirements.

Unit Standard CCFO Organising

Organising and managing oneself and one's activities responsibly and effectively through:

• Identifying the typical issues that supply chain management must deal with.

Unit Standard CCFO Collecting

Collecting, analysing, Organising and critically evaluating information when:

• Collecting information on the supply chain management environment and the elements

of supply chain management.

Unit Standard CCFO Communicating

Communicating effectively using visual, mathematical and/or language skills in the modes of

oral and/or written persuasion when:

• Clarifying interrelatedness with relevant stakeholders.

Unit Standard CCFO Science

Using science, technology and indigenous knowledge effectively and critically, showing

responsibility towards the environment and health of others through:

• Presenting findings to relevant stakeholders.

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Unit Standard CCFO Demonstrating

Demonstrating an understanding of the world as a set of related systems by recognising that

problem-solving contexts do not exist in isolation when:

• Demonstrate that they see the world as a set of related systems by indicating what the

cause and effect relationships are between the various components of the supply chain

and how the basic supply chain processes interact with each other.

Unit Standard Assessor Criteria

N/A

Reregistration History

As per the SAQA Board decision/s at that time, this unit standard was Reregistered in 2012;

2015.

Unit Standard Notes

N/A

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SECTION 1: INTERROGATE THE INTER-RELATIONSHIP BETWEEN THE CONCEPT OF SUPPLY CHAIN MANAGEMENT AND DEMAND, ACQUISITIONS, DISTRIBUTION AND LOGISTICS

Specific Outcome 1:

Interrogate the inter-relationship between the concept of Supply Chain Management and

Demand, Acquisitions, Distribution and Logistics.

Assessment Criteria:

1. The definition of Supply Chain Management is analysed in order to demonstrate an

understanding of the challenges facing organisations when they attempt to implement

a supply chain.

2. The evolution of the concept of supply chain management is analysed to inform

recommendations on a possible change process that would benefit organisations.

3. The concepts of demand, acquisition, distribution and disposal are analysed.

4. The logistics function is analysed in order to demonstrate an understanding of change processes facing organisations.

5. Supply chain management is evaluated to determine its impact on organisational

objectives.

1.1 The definition of Supply Chain Management and

challenges facing organisations (SO1, AC1)

✓ Supply Chain Management definition

Supply chain management (SCM) is the management of the flow of goods. It includes the

movement and storage of raw materials, work-in-process inventory, and finished goods from

point of origin to point of consumption. Interconnected or interlinked networks, channels and

node businesses are involved in the provision of products and services required by end

customers in a supply chain. Supply chain management has been defined as the "design,

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planning, execution, control, and monitoring of supply chain activities with the objective of

creating net value, building a competitive infrastructure, leveraging worldwide logistics,

synchronizing supply with demand and measuring performance globally."

SCM draws heavily from the areas of operations management, logistics, procurement, and

information technology, and strives for an integrated approach.

Supply chain management (SCM) is the combination of art and science that goes into

improving the way your company finds the raw components it needs to make a product or

service and deliver it to customers.

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✓ The five basic components of SCM

1. Plan: This is the strategic portion of SCM. Companies need a strategy for managing all the

resources that go toward meeting customer demand for their product or service. A big piece

of SCM planning is developing a set of metrics to monitor the supply chain so that it is

efficient, costs less and delivers high quality and value to customers.

2. Source: Next, companies must choose suppliers to deliver the goods and services they

need to create their product. Therefore, supply chain managers must develop a set of pricing,

delivery and payment processes with suppliers and create metrics for monitoring and

improving the relationships.

3. Make: This is the manufacturing step. Supply chain managers schedule the activities

necessary for production, testing, packaging and preparation for delivery. This is the most

metric-intensive portion of the supply chain—one where companies are able to measure

quality levels, production output and worker productivity.

4. Deliver: This is the part that many SCM insiders refer to as logistics, where companies

coordinate the receipt of orders from customers, develop a network of warehouses, pick

carriers to get products to customers and set up an invoicing system to receive payments.

5. Return: This can be a problematic part of the supply chain for many companies. Supply

chain planners have to create a responsive and flexible network for receiving defective and

excess products back from their customers and supporting customers who have problems with

delivered products.

✓ Supply chain management flows can be divided into three main flows:

• The product flow

• The information flow

• The finances flow

The product flow includes the movement of goods from a supplier to a customer, as well as

any customer returns or service needs. The information flow involves transmitting orders and

updating the status of delivery. The financial flow consists of credit terms, payment

schedules, and consignment and title ownership arrangements.

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An example of a basic supply chain is shown below:

✓ Potential Supply Chain Management Challenges

As a supply chain manager, you need to be constantly aware of the presence of

operational/process challenges in order to create and retain efficient, effective supply chain

methods.

The challenges you may have to face include:

• Customer service

• Cost control

• Planning and risk management

• Supplier/partner relationship management

• Talent sourcing

Factors impacting on the Supply Chain include:

• Reduced number of suppliers

• Increased Competition

• Shorter Product Life Cycle

• Increased Supplier Managed inventories

• Increased consignment inventories

• Advances in technology (Quick Response and Efficient Consumer response)

• Shared/reduced risk

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1.2 The evolution of supply chain management (SO1, AC2)

The evolution of Supply Chain Management

Time period Philosophy Key driver Key performance metric

Early 1980s Product driven Quality

- Inventory turns

- Production cost

Late 1980s Volume driven Cost

- Throughput

- Production capacity

Early 1990s Market driven Product

availability

- Market share

- Order fill rate

Late 1990s Customer driven Lead time

- Customer satisfaction

- Value added

- Response time

Early 21st

century Knowledge driven Information

- Real-time communication

- Business intelligence

Historically, businesses focused their attention on the effectiveness and efficiency of separate

business functions such as purchasing, production, marketing, financing, and logistics. The

lack of connectivity among these functions, however, often led to sub-optimal organizational

goals and created inefficiency by duplicating organizational efforts and resources.

Eventually, a growing number of business began realising the strategic importance of

planning, controlling, and designing a supply chain as a whole.

Understanding how the concept of Supply Chain Management has evolved over the years can

help us to see the benefits of adopting such processes within the organisational context.

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Post WW2 there was a high need to increase production. This is when the business world

entered in the Productivism era, with most manufacturers giving priority to mass production

to minimize unit production cost as the primary operations strategy. This was the first stage

of the creation of economies of scale.

Increasing production was the main objective of this period, which continued well into the

1980s, with little emphasis on cooperative and strategic buyer-supplier partnerships.

Purchasing or expertise with customers or suppliers was not considered to be sound business

practice.

By the late 1980s, managers became aware of the importance of new product development,

quality, and delivery time as well as monitoring of the manufacturing cost.

The concept of Material Requirements Planning, or MRP1, was developed around this time to

help manufacturing companies better manage their procurement of materials to support their

manufacturing operations. MRP systems translate the master production schedule into

component- and raw material-level demand by splitting the top level assembly into the

individual parts and quantities called for on the bill of materials, which reports to that

assembly, and directs the purchasing group when to buy them based on the component lead

time which is loaded in the MRP system.

The focus during this period changed to one of increasing performance.

A follow-on concept, Manufacturing Resource Planning, or MRPII, went several steps beyond

MRP. While MRP stopped at the receiving dock, MRPII incorporates the value stream all the

way through the manufacturing facility to the shipping dock where the product is packaged

and sent to the end customer. That value stream includes production planning, machine

capacity scheduling, demand forecasting and analysis modules, and quality tracking tools.

MRPII also has tools for tracking employee attendance, labor contribution and productivity.

During the 1990s, businesses also began to deal with increased demands for better, faster,

cheaper logistical service. As a result, many manufacturers outsourced logistics activities and

their focus transferred to their own core competencies. Outsourcing became an economically

viable means of achieving productivity and efficiency. Subsequently, many manufacturers

began to adopt a relationship-oriented approach with their suppliers and customers. They

understood the benefits of cooperative relationships in terms of the synergy gained through

shared expertise and resources, better planning and support, exchange of information, and

joint problem solving.

The 1990s also saw the introduction of Enterprise Resource Planning (ERP).

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ERP was the next evolution of the MRP system. While MRP helped companies plan material

purchases, and MRPII added in-plant scheduling and production controls, ERP attempted to

integrate the information flow from all departments within a company: finance, marketing,

production, shipping, even human resources. A properly set up ERP system allowed better

communication and monitoring than ever before, giving all departments access to the exact

status of a customer order at any point in time

This enabled businesses to adopt a customer driven approach. Strategic alliances with

suppliers further strengthened the relationships needed in order to deliver value to end

consumers.

Advances in technology facilitated the adoption and implementation of all these concepts.

The latest trends of evolution in the supply chain management utlise technology to gain

business intelligence and communicate in real-time with customers. There is also a

movement towards research into the concept of Global Supply Chain Management (GSCM).

Nowadays firms are much bigger than they used to be. They have achieved economies of scale

and are internationalising their businesses to find the lowest sources of inputs and growing

markets to sell their products. The concept of SCM is not enough for being efficient and

competitive in the new environment that is why new concept and management strategies

(i.e. GSCM) are emerging.

By looking at the above evolution history, we can identify some turning points in the concept

and philosophy of SCM. One needs to analyse current business practices to ensure they have

moved with the times and are optimizing and embracing the supply chain management

concept for ultimate efficiency and value.

When all SCM activities are fully integrated costs are reduced, the new product development

process is shortened, there is better flow of information, improved cash flow, faster order

fulfilment, improved shelf availability and last but not least increased customer satisfaction.

From the SCM literature it is evident that customer satisfaction is one of the key driving

factors of supply chain evolution.

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1.3 The concepts of demand, acquisition, distribution and

disposal (SO1, AC3)

✓ Concepts of Demand Management

Demand management is a planning methodology used to forecast, plan for and manage the

demand for products and services. This can be at macro-levels as in economics and at micro-

levels within individual organizations. For example, at macro-levels, a government may

influence interest rates in order to regulate financial demand. At the micro-level, a cellular

service provider may provide free night and weekend use in order to reduce demand during

peak hours. Demand Management helps company’s improves inventory levels, optimize trade

and enhance customer service.

Demand management has a defined set of processes, capabilities and recommended behaviors

for companies that produce goods and services. Consumer electronics and goods companies

often lead in the application of demand management practices to their demand chains;

demand management outcomes are a reflection of policies and programs to influence demand

as well as competition and options available to users and consumers.

Demand management for retailers today involves understanding consumers' needs and buying

habits, as well as budgeting and forecasting merchandise sales. Forecasting allows companies

to predict future requirements and involves identifying in advance what the needs are, it acts

as a proactive approach.

Demand management for manufacturing focuses on creating a demand forecast for both the

channel customer as well as production and suppliers. The focus is on products and their

costs. There can be several forecasts – revenue, plans for customers and channel, risk and

scenario plans used internally, and supplier forecasts. Organisations may set one-number

forecasting as a goal, but in practice, an organisation rarely has just one forecast.

✓ Acquisition

Acquisition in a supply chain involves the procurement of goods and services and all other

activities related to this, including:

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• Developing a complete and accurate supplier database

• Managing the database

• Executing a bid/quotation process, including compilation of documents and

advertisements, evaluation of bids/quotations, adjudication of bids/quotations and

conclusion of contracts

• Managing and administering supplier contracts

• Amending and cancelling supplier contracts

✓ Distribution

Distribution management refers to overseeing the movement of goods from supplier or

manufacturer to point of sale. Distribution management is an overarching term that refers to

numerous activities and processes such as packaging, inventory, warehousing, supply chain

and logistics.

Successful distribution management requires effective management of the entire distribution

process and is critical to financial success and corporate longevity. The larger a corporation,

or the greater the number of supply points a company has, the more it will need to rely on

automation to effectively manage the distribution process.

Modern distribution management encompasses more than just moving products from the point

A to point B. It also involves gathering and sharing of relevant information that can be used to

identify key opportunities for growth and competitiveness in the market. Most progressive

companies now utilize their distribution forces to obtain market intelligence that are vital in

assessing their competitive position.

✓ Disposal

At the end of the supply chain, after a consumer has extracted value from a good, there may

be a need to dispose of that good.

Considerations when examining disposal include:

• Reselling

• Repurposing

• Recycling

• Repair

• Maintenance

• Waste management

Issues to consider are environmental impact and social responsibility as the global trend

towards awareness is escalating, and forms to a large extent a company’s public image.

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✓ Challenges in Demand, Acquisition and Logistics

Proficiency in demand management is absolutely critical in developing the right relationships

with suppliers, producing the right amount of product at the right time, and forging a

mutually beneficial and profitable relationship with customers. We see demand management

as the process of assessing customer demand and matching that demand with the supply chain

capability to deliver against it in a cost- effective manner.

The last few decades have seen an increasing demand for enterprise software applications

that can streamline supply chain processes and provide lean manufacturing capabilities. At

the other end of the supply chain, companies have been moving towards outsourcing their

product distribution in order to keep sales overhead in check without sacrificing revenue.

These recent trends have resulted in a unique dilemma. While companies can produce

products more efficiently, they have little knowledge regarding what to produce, for whom

and when and they now even have improved visibility into their supply chains, yet they lack

the same kind of visibility into their often-fragmented demand chain.

Companies can begin to bridge the gap between their supply and demand chains by investing

in the following:

a. Reshaping relationships with channel partners to ensure accurate demand

forecasts

Manufacturers should implement a closed-loop process for gathering, analysing and filtering

demand forecasts from channel partners. The demand management system should be tightly

integrated with management systems for entitlement and other benefit programs for channel

partners. This would help to ensure that just-in-time manufacturing is performed for the right

products, in the right quantity, at the right time.

b. Basing inventory allocations on real-time demand forecasts that incorporate

information from all channels—both direct and indirect

This increases revenues by targeting allocations to those channels and locations that are the

most effective sellers.

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c. Ensuring that your own house is in order

Having an accurate picture of demand is irrelevant if you don’t have a supply chain that can

meet it. In addition to cooperation from other supply chain partners, in order to achieve the

benefits of a truly dynamic collaborative environment, companies need to get their internal

demand management processes in order. For example, the promotions group in a company

responsible for creating and driving demand is often disconnected from the operational group

that produces the product and as a result ends up spending money promoting a product that

operations cannot deliver. Ensuring that the different groups that have a stake in the demand

process are connected is important.

d. Ensuring the presence of accurate intelligence along with collaboration and

automation

New technological developments have enabled real time flow of information within and

across enterprises leading to better forecasts and an enhanced ability to respond rapidly to

customer requirements. The downside to these automated processes is that they could be

transferring bad information. Despite sophisticated statistical methods, it is impossible to

eliminate market uncertainty from the forecasting process. Customers’ purchasing

departments have every incentive to inflate estimates.

It is important to have people in place who can analyse the forecast to see how it fits in the

total market so that the company builds to actual end-unit demand rather than estimates

that have been distorted as they travel through intervening layers (4). Providing greater

supply chain visibility to downstream supply chain partners will eliminate their need to

overstate forecasts.

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The primary concerns of supply chain management are material costs, and effective

product delivery and proper supply chain management can reduce consumer costs and

increase profits for the manufacturer:

The VALUE CHAIN is a set of interrelated activities an organisation uses to create a

competitive advantage, namely:

• Inbound logistics

Receiving, warehousing and inventory control.

• Operations

Value-creating activities that transform inputs into products.

• Outbound logistics

Activities required to get a finished product to a customer.

• Marketing and sales

Activities associated with getting a buyer to purchase a product.

• Service

Activities that maintain and enhance a products value, such as customer support.

A profitable value chain requires connections between what consumers demand and

what a company produces. Value chains place a great amount of focus on things such as

product testing, innovation, research and development and marketing.

1.4 Logistics and the change processes facing organisations

(SO1, AC4)

Supply chain management is certainly more than just a new name for familiar functions such

as logistics, transportation or warehousing. For many companies, it has become an essential

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corporate function. Supply chain management sidesteps function-based corporate

organisation and integrates the core value creation functions into an end-to-end process.

✓ What is Logistics?

Logistics is the portion of supply chain management that encompasses distribution,

transportation and inventory management. To put it in context with the simplified description

given above regarding the supply chain management functions of plan, buy, make, store,

move, sell and return; logistics is the “store” and “move” functions.

It is not unusual for transportation costs alone to be more than 10% of revenue. For many

companies, transportation is the single largest cost element on their financial statements.

Transportation costs are often double the expense of warehousing and inventory carrying

costs (which means that warehousing and inventory costs can be 5% of revenue, which is no

small matter). Every rand saved in transportation costs goes straight to the bottom line. So,

why don’t corporations focus more attention on streamlining logistics to reduce costs?

As well as strategic decisions on manufacturing locations, the logistics function is key to the

success of the supply chain. Order fulfillment is an important part of the supply chain and

company management need to make strategic decisions on the logistics network. The design

and operation of the network has a significant influence on the performance of the supply

chain. Strategic decisions are required regarding warehouses, distribution centers, and which

transportation modes should be used. If the overall company objectives support the use of

more third-party subcontracting, the company may strategically decide to use third party

logistics companies in the supply chain.

Strategic decisions determine the overall direction of a company’s supply chain. They should

be made in conjunction with the company’s overall objectives and not biased towards any

particular product or regional location. These high-level decisions can be refined, as required,

to the specific needs of the company at the lower levels which allow for tactical and

operational supply chain decisions to be made.

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✓ Change Processes

The constant in business today is change—from customer demand to technology to new

products and services to a shifting marketplace.

As a result, managing change has become an important part of a logistics professional's job.

While it's an integral part of the job—and a very difficult task—many managers have had no

formal training in managing change.

The most important success factor is that 'the change' be the right change

The need for change stems from recognizing a problem, such as slow growth, low

productivity, or loss of key employees and customers. Analysing the Supply Chain may result

in the identification of such needs.

The first action required is to evaluate all possible courses of action, identify the optimum

strategy, and then confirm that the chosen strategy will solve the problem. It is important to

consider the viability of such solutions as some courses of action that will solve a problem are

difficult or impossible to implement. They may take too long, require too much investment,

or are too complex. Such actions usually fail.

Beware of the misalignment of goals. All areas of an organisation should be committed to

achieving the same goals and be prepared to make the necessary changes to result in

achieving them.

Identify who the right change agents are. They need to be able to recognize the need for

change and not be afraid to recommend it, regardless of the consequences. They must also be

sensitive, caring, and influential, yet not be afraid to make the hard decisions.

Having solid executive and management support for change is a critical success factor.

It is important to identify the inevitable change's negative impact, and address it head on.

Keep a decision history matrix. This document, which can be kept on an Excel spreadsheet,

tracks the life of the change process—the decisions that were made, and reasoning behind

them.

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1.5 Supply chain management and its impact on

organisational objectives (SO1, AC5)

A strong supply chain can help you achieve company objectives but first you need to have an

overall business strategy for your organisation.

When it comes to determining the best supply chain strategy for your business it’s important

to remember that no two businesses are exactly the same. That means you’ll have to do some

leg work here to figure out the specifics of your supply chain strategy.

The best way to layout a meaningful supply chain strategy is through the steps below:

1. Consider your overall business strategy

Before you can create a supply chain strategy you first need to have an overall business

strategy for your organisation. Your business strategy should describe the overall direction in

which you want to go, whereas your supply chain strategy describes the business operations

and extended supply chain needed to meet those company objectives. Your supply chain

strategy and business strategy should make sense together.

2. Map out and assess your supply chain

Once you’ve identified your business strategy, you need to take a close look at your internal

capabilities and the capabilities of your extended supply chain to make sure that you have the

capabilities to achieve your strategy. Use a tool like Gliffy to map out your internal processes

and then the processes of your extended supply chain. Next, find the benchmarks for your

industry and compare them to your own. Do the same thing for your extended supply chain.

Its best to think about the supply chain in stages. For example, first consider where you

source your material from. Then consider how you make your product or service. And lastly,

consider how you deliver that product or service to your customer.

3. Develop an implementation plan

Once you’ve identified the strengths and weaknesses of your supply chain, you then need to

create a supply chain strategy that will allow you to accomplish your company objectives. It’s

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important to have specific performance metrics and roles to know exactly how you will meet

those company objectives. If you are able to find benchmarks for your industry, you’ll be able

to use those metrics as key performance indicators.

Once you have your supply chain strategy up and running, you then need to focus on

supply chain management and meeting your goals.

Below are a few reasons why managing your supply chain is important and in line with an

organisations objectives:

✓ Reduced supply chain costs

If you have never even considered how your supply chain looks, it’s likely that your supply

chain costs are too high. By effectively managing your supply chain you can gradually bring

down your supply chain costs as well as reduce the risk of costly breakdowns in your supply

chain.

✓ More resources to spend elsewhere

If you reduce your supply chain costs, you have more money to spend elsewhere. I’ll let you

dream about where you’d like to spend that extra money.

✓ Improved operations management

A healthy supply chain is a stable supply chain. A stable supply chain means that

operations management should become more efficient and effective.

✓ Improved overall business functions

If you eat healthy, don’t you perform better? Sure, you do. The same is true for your

business; as your supply chain strengthens, so do your business functions. A healthy supply

chain doesn’t just make operations management more efficient, it has an impact on all of the

business functions throughout your organisation.

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✓ Happier customers

This should be all the motivation you need; a better supply chain makes it possible to deliver

quality products to your customers in a shorter period of time. This should literally be visible

through measuring the metrics you use within your customer service process.

Formative Assessment 1

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SECTION 2: MAP THE SUPPLY CHAIN AND DESCRIBE THE BENEFITS OF APPLYING THE PHILOSOPHY

Specific Outcome 2:

Map the Supply Chain and describe the benefits of applying the philosophy.

Assessment Criteria:

1. The strategic, tactical and operational issues in supply chain management are

identified to describe the relationship of each to the philosophy.

2. The importance of information exchange across the supply chain is discussed to

highlight its impact on reaching strategic business imperatives.

3. Key steps are outlined to determine potential challenges in creating an effective

supply chain.

4. The purchasing function in organisations is analysed to reflect its importance for the

supply chain.

5. A value analysis is conducted to provide guidelines for ethical behaviour in purchasing.

6. Supplier partnerships are examined to reflect how they are advantageous to an

organisation.

7. A map of a supply chain is produced to indicate its location within a specific

organisation.

8. Relationships between the various processes in the supply chain are evaluated in order

to reflect ways of applying the supply chain philosophy.

2.1 The strategic, tactical and operational issues in supply

chain management (SO2, AC1)

The supply chain begins with acquiring the goods or materials needed to satisfy the end

product. Businesses must choose vendors, freight carriers, and possibly warehouse solutions.

Inventory storage and the handling of goods-in-process are part of supply chain management

as well. Marketing and distributing the product to the consumer wraps up the process.

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Essentially, supply chain management includes every decision made about the products or

services a company delivers to their customers. The best way to understand the various

phases of supply chain management and how certain points influence others is to look at the 3

levels of SCM decision-making a bit closer.

✓ Strategic Planning

Every effective supply chain strategy begins with solid long-term decision-making. The

strategy level lays the groundwork for the entire supply chain process, from beginning to end,

and is an essential part of supply chain management. Strategy level supply chain decisions are

usually the first step of developing a good process.

Issues addressed at this level include:

• Choosing the site and purpose of business facilities

• Creating a network of reliable suppliers, transporters, and logistics handlers

• Long-term improvements and innovations to meet client demands

• Inventory and product management throughout its life cycle

• IT programs and systems to make the process more effective

• The effects of globalization

✓ Tactical Management

Businesses make short-term decisions involving the supply chain at the tactical level. At the

strategy level, general planning begins, but processes are actually defined at the tactical

level. Tactical decisions play a big role in controlling costs and minimizing risks. At this level,

the focus is on customer demands and achieving the best end value.

Common concerns include:

• Procurement contracts for necessary materials and services

• Production schedules and guidelines to meet quality, safety, and quantity standards

• Transportation and warehousing solutions, including outsourcing and third-party

options

• Inventory logistics, including storage and end-product distribution

• Adopting best practices in comparison to competitors

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✓ The Operational Level

The operational level of supply chain management is the most obvious. These are the day-to-

day processes, decision-making, and planning that take place to keep the supply chain active.

The mistake that many companies make is to jump straight into operational management

without focusing on the strategy and tactical levels. Effective operational level processes are

the result of strong strategical and tactical planning.

Some aspects of operational level management are:

• Daily and weekly forecasting to figure out and satisfy demand

• Production operations, including scheduling and detailed management of goods-in-

process

• Monitoring logistics activity for contract and order fulfillment

• Settling damages or losses with suppliers, vendors, and clients

• Managing incoming and outgoing materials and products, as well as on-hand

inventories

The most effective supply chain strategies are the result of a holistic management approach.

When all 3 levels of supply chain management are given proper attention, every member of

the supply chain benefits.

A supply chain (SC) is composed of different facilities and also their definite roles with the

aim of delivering goods or services to the customer in an effective way. Obviously, the

physical structure of each SC has an important role in its performance.

2.2 The importance of information exchange across the

supply chain (SO2, AC2)

✓ The role of information sharing in global supply chain operations

Information sharing can radically improve the way global companies and their partners do

business, especially in the wake of increasingly globalisation and outsourcing, which has and

will continue to have a profound effect on supply chain operations. By exchanging information

such as inventory levels, forecasting data, and sales trends, companies can reduce cycle

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times, fulfill orders more quickly, cut out millions of Rands in excess inventory, and improve

forecast accuracy and customer service.

Information sharing can be applied to almost all the core domains of corporate operational

activities. Starting from the development chain process where information sharing can

happen in the product design stages and product life cycle management activities with both

internal and external partners. In the customer chain processes information sharing can help

in formulating customer experience strategies, increase customer service effectiveness and

operations.

The psychological barriers around information sharing are real and imperative. Sometimes

there is a real and justified fear that information sharing across the corporate boundaries can

turn into a competitive disadvantage. By formulating effective business policies, agreements

and business plans that an enterprise can use to establish guidelines and rules for exchange of

information with supply chain partners can help assuage those barriers. This will ultimately

help mitigate the fear of information sharing and improve efficiency and create new

opportunities for all stakeholders.

Information sharing can be most effective and least disruptive for all concerned when done by

implementing the available technological tools, which would accomplish the process in a

controlled and secured way thereby streamlining the global supply chain operations.

Information systems and associated technologies that are collaborative, comprehensive, and

able and agile enough to capture and address all the variables that affect the supply chain

while, at the same time, insuring the security of information and of the organisation against

likely business losses and regulatory non-compliances.

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✓ Supply chain management information at two levels

Transactional:

Information about orders, inventories, deliveries, import and export declarations, bills of

entry, shipping bills, etc. are transactional data which get processed daily or even more

frequently.

Strategic:

Data on demand forecasts, sales trends, price and currency fluctuations, tariff schedules,

currency exchange rates, regulatory content and updates, etc. are of strategic type mainly

because they are likely to have already undergone some level of processing before, they are

sourced by and also because they are used for analyses and decision-making.

Not to forget master data such as items, locations, partners, customers, etc. representing

more or less established elements of an organisation and how it runs - data that is seldom

changed or processed on a daily basis.

Clearly, an information system and the technology required to manage it should be aligned to

the basic goals of an organisation. Simple enough, right?

But…when you need to obtain and analyse information within your particular supply chain you

need to be able to address the specific complexities that are related to your supply chain

situation.

2.3 Challenges in creating an effective supply chain (SO2,

AC3)

✓ The Five Most Common Supply Chain Management Challenges

1. Unable to apply the right metrics to manage supply chains effectively

By far the most common challenge, finding and implementing the right metrics

remains a problem in supply chain management. This includes disputes about the right

metrics between supply chains, product lines or departments within a company,

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agreeing on definitions and calculations, having too many metrics or too few metrics,

difficulty benchmarking and difficulty finding metrics that are supported 'off-the-shelf'

in reporting tools.

2. Difficulty prioritizing supply chain improvement efforts

Companies struggle to identify where to deploy their expert resources and in what

sequence. Problem solvers are scarce, you want them to work on those problems that

have the biggest impact on your supply chain performance. This includes lack of a

standard approach (every group has their own methods with varying results), internal

politics, lack of fact-based prioritization, capabilities/skills are limited to few key

individuals.

3. Performance is lagging

Whether you are driven by the need to reduce costs or inventory, need to improve

customer satisfaction, or want to increase the speed to respond to market changes,

performance gaps are always challenging. You need to know how to improve the

performance of a lagging metric without negatively impacting your other key metrics.

4. Complexity of supply chains

Serving many different customers with a wide variety of products and services may

result in a complex, global, network of suppliers, factories, warehouses, transporters,

customers and others. The complexity of such a network is hard to unravel and makes

it difficult to find where and why problems occur. This includes challenges like: "We

don't know what our supply chains are" or "What is the right number of supply chains?”

5. Finding and holding on to supply chain talent

Although supply chain management is now a generally accepted and understood

function in a company, it is difficult to find true supply chain talent. Supply chain

management covers multiple disciplines and it can therefore be difficult to find that

all-round supply chain person. How many people in your organisation have deep and

wide knowledge of planning, sourcing, manufacturing, distribution and order

management functions? How many can see the supply chain as a whole? This includes

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problems like finding the right people, reducing attrition and developing hiring,

training and redeployment plans.

✓ How to overcome challenges in SCM

✓ Customer Service

Customer service still remains the center of supply chain management. It is all about

providing the right quantity of the right product, to the right place and at the right time.

The Solution

Every customer has different needs. We no longer live in a world of cookie-cutter products

and services. We live in an era of consumer customization. This shift affects manufacturing

and, consequently, the logistics of getting these products to consumers.

With these advancements, good customer service depends on information. Rather, it depends

on the visibility of information. It's necessary to be able to provide as much data as possible

to the client, in order to make decisions and communicate shifts and changes in the supply

chain before they cause issues. The companies that excel in customer service are the ones

that embrace and invest in these new technologies.

✓ Cost Control

Rising energy/fuel and freight costs, a greater number of global customers, new technology,

increasing labour rates, new regulations, and rising commodity prices mean that operating

costs are under extreme pressure.

The Solution

The rising cost of transportation is a problem for some companies. Supply chain globalisation

means that reduced transportation costs will be a major objective for many companies.

Again, the solution can be found in visibility and, in this case, it's the visibility of the supply

chain. Technology is the greatest weapon in a supply chain's arsenal. Investment into

platforms like TMS (Transportation Management System) and YMS (Yard Management Systems)

can give professionals the visibility that they need, allowing them to see the parts of their

supply chain that are notorious for hiding waste.

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The answer isn't just technology, of course. The key to improving cost control is business

intelligence, and it's not necessarily about data analytics. It's about using the information at

your disposal to make the soundest possible judgments.

More than anything else, improving cost control is about having a plan and executing it

properly. You carefully monitor your original plan and adjust as needed.

✓ Planning & Risk Management

Changes in the market, like new product launches, global sourcing, political agendas, credit

availability, and consumer demand, can give rise to major issues, and these changes can

come from almost any direction.

The Solution

In order to stay as efficient and effective as possible, periodic assessments and redesigns are

needed.

These risks must be identified and quantified in order to control and mitigate them. Creating

a risk management plan for how your company will handle and overcome possible major

disruptions to its supply chain will allow your operations to bounce back in no time.

There is no room for surprises. It's like Sun Tzu says: "Victorious warriors win first and then go

to war, while defeated warriors go to war first and then seek to win." Remain victorious.

✓ Supplier/Partner Relationship Management

It's important to create, understand, and follow mutually agreed-upon standards. This allows

you to better understand current performance, as well as opportunities for improvement.

The Solution

The importance of supplier/buyer relationship is growing. You should aim to build a strong

working relationship. Communication and visibility are the key to maintaining a healthy

relationship between buyer and supplier.

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✓ Talent

It's becoming increasingly difficult to find qualified, interested talent. Supply chain leaders

need an extensive understanding of the key competencies and duties needed for supply chain

management roles. They need the ability to efficiently source specific skill sets and methods

for developing future leaders.

The Solution

Locating this type of talent, as well as warehouse talent, is becoming difficult. Consequently,

the market value of these professionals is rising. We're also seeing a shift from the old

perspective, which was to simply put bodies into the warehouse to handle product as a cost

reduction tactic.

This tactic looks cost-effective on the front-end on paper, but the impact is large and

overarching, especially when it comes to costs. Quality talent wins over quantity, and you

may have to pay above market price to attract the talent that you need. It costs companies

more, but it's worth it in the long run.

2.4 The importance of the purchasing function in the supply

chain (SO2, AC4)

The purchasing department is an organisational unit of a firm whose duties include some part

or all of the purchasing function. This disconnection between function and department is not

always appreciated or understood by top management.

The purchasing function is usually performed most economically and efficiently by a

specialised, Centralised purchasing department, directed by a skilled purchasing manager.

However, the purchasing function does not have to be performed in such a manner. In theory,

it can be performed, and in practice, it sometimes is performed by any number of different

company officers or departments.

The functions of purchasing department are varied and wide which are based upon different

approaches. The purchasing activities may be divided into those that are always assigned to

the purchasing department and those that are sometimes assigned to some other department.

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✓ The following are some of the important functions which are necessary to

be performed

1. Receiving indents

2. Assessment of demand or description of need

3. Selection of sources of supply

4. Receiving of quotation

5. Placing order

6. Making delivery at the proper time by following up the orders.

7. Verification of invoices

8. Inspection of incoming materials

9. Meeting transport requirements of incoming and outgoing materials

10. Maintaining purchasing records and files

11. Reporting to top management

12. Developing coordination among other departments

13. Creating goodwill of the organisation in the eyes of the suppliers.

✓ Importance of the purchasing function in an organisation

• Reducing cost and increasing savings: Purchasing has a direct impact on two of the

most important factors that drive a company’s bottom line: cost and sales. Through

initiating process improvements, product improvements and supplier relationship

development, purchasing professionals are responsible for garnering cost savings for

their organizations without trading off quality

• Negotiating Successful Contracts: Strong negotiation skills and the ability to foresee

long-term business relationships are two aspects successful purchasing and supply

management professionals rely on. In addition to managing costs, fruitful contracts

focus on the quality of the materials in addition to how and when they will be

delivered

• Developing long-lasting supplier relationships: Companies typically require supplies

on an ongoing basis, and as a result, it’s important to develop enduring relationships

with suppliers. This aspect of purchasing and supply management can add tremendous

value to a business.

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• Mitigating risk: Understanding the potential risks and developing innovative strategies

to manage them is an important aspect of purchasing and supply management.

✓ Objectives of Purchasing:

The classical definition of objectives of purchasing is to buy materials and services of the

right quality, in the right quantity, at the right place, from the right source and at the right

time.

However, in general management parlance the objectives of purchasing are:

• To support company operations with an uninterrupted flow of materials and services.

• To buy competitively and wisely

• To help keep a minimum Inventory

• To develop reliable alternate sources of supply

• To develop good vendor relationship and a good continuing supplier relationship

• To achieve maximum integration with the other departments of the firm

• To train and develop highly competent personnel who are motivated to make the firm

as well as their department succeed

• To develop policies and procedures which permit accomplishment of the preceding

seven objectives at the lowest reasonable operating cost

2.5 Value analysis (SO2, AC5)

✓ What is a Value Analysis?

• A critical advantage to using value analysis is its potential for reducing costs. Because

value analysis breaks down a product or service into components, it enables you to

analyze each component on its own, evaluating its importance and efficiency. A value

analysis correctly implemented and applied allows you to identify components that are

not worth the cost they require and that can be eliminated or replaced with an

alternative

• The value analysis process often allows users to root out practices that have grown out

of date and can be replaced with more modern approaches. This is particularly

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beneficial when something has been done the same way for an extended period of

time

• Value analysis can uncover design flaws that not only operate inefficiently but also

create problems. In the case of a product, this could mean a high rate of

malfunctioning items, creating customer complaints and warranty claims that put a

strain on personnel and inventory. It also can lead to bad publicity and damage to the

product brand and the company producing it. Similarly, in the case of a service, value

analysis can help pinpoint design flaws in the customer support system that causes

service to fall short of customer expectations.

• Value analysis is oriented to weigh costs and the benefit to customers of a product or

service. It forces you to consider every aspect of a process in the context of how it

serves the customer, which could be a consumer or another business. This means that

each step in the process is scrutinized and questioned from the perspective of the

benefit that it provides the customer. If the benefit to the customer is small and the

step is not necessary for the product or service as a whole, it can be eliminated,

allowing you to streamline your operation and to reduce the use of resources.

✓ Value analysis in purchasing

This involves the examination of each procurement item to ascertain its total cost of

acquisition, maintenance, and usage over its useful life and, wherever feasible, to replace it

with a more cost-effective substitute. Also called value-in-use analysis.

✓ The role of Value Analysis in ethical purchasing

Purchasing and supply management professionals are increasingly required to demonstrate

that the supply chains they manage take ethical and social responsibility issues into

consideration. The main reasons for ensuring that supply chains meet these criteria should be

professionalism and moral and legal obligations, but other drivers include:

• media or consumer pressure

• the need to comply with a particular code of conduct

• social audits

• expectations of ethical investors

• supply chains that include sources in a particular country or for a particular product

which may be perceived to be high risk

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An in-depth Value Analysis should take all of these issues into consideration when weighing up

alternatives

➢ Consider the situation whereby your company purchases materials at a cheaper price from a country using child labour?

2.6 Supplier partnerships (SO2, AC6)

✓ Supplier Relationships

Definition: Affiliations with the companies that supply your business with goods and services.

A lot of growing companies focus on one trait of their suppliers: price. And price certainly is

important when you're selecting suppliers to accompany you as you grow your business. But

there's more to a supplier than an invoice, and more to the cost of doing business with a

supplier than the amount on a purchase order. Remember, too, that suppliers are in business

to make money. If you go to the mat with them on every bill, ask them to shave prices on

everything they sell to you, or fail to pay your bills promptly, don't be surprised if they stop

calling.

Firms are building collaborative relationships with their supply chain partners in order to

achieve efficiencies, flexibility, and sustainable competitive advantage. However, it is

unclear if collaborative relationships provide benefits that compensate for the additional

expense associated with such relationships. Further, it is unclear what factors promote

successful collaborations.

Understand the barriers and developing the collaborative mind set needed to overcome them

are the first steps toward achieving true integrated Supply Chain Management.

a) Lack of Trust

For the better part of the last century, most firms have maintained an arm’s length

relationship with their suppliers and customers. In addition, many firms are found to engage

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in various questionable business practices in their relationships with trading partners. Where

these negative behaviours occurred, there were significantly lower levels of trust and

commitment. Given this heritage, it’s not surprising that initiatives to establish collaborative

relationships across the supply chain will be met with skepticism and distrust.

b) Little Understanding of, or Commitment to Supply Chain Management

Principles

Most managers are somewhat comfortable dealing with relationships in their own function,

say logistics or purchasing. But they become less comfortable when the relationship involves

other functions in the company. Any they’re least comfortable when it comes to dealing with

external organisations in their supply chain. The inter-organisational comfort levels increases

as managers begin to understand the importance of integrated activity and commit to working

for the betterment of the whole supply chain as opposed to just their particular part. Firms

will never achieve true collaborative behaviour if they cannot overcome their fear of losing

autonomy and /or sharing sensitive information. This barrier to the adoption of Supply Chain

Management initiatives is especially troubling because management time is a precious

commodity. Faced with what they perceive to be a time-consuming effort, few managers will

make the effort to understand the new collaborative approach, its benefits, and its

implementation requirements.

c) Fear of Relinquishing Control

Most managers want to be evaluated on actions that are completely under their control.

Understandably, no one wants to be held accountable for results that are partially the

responsibility of others, be they inside or outside of the organisation. Because many supply

chain initiatives demand joint efforts and close cooperation, it is easy for supply chain

managers to feel at the mercy of another company or individual as they work to achieve a

certain level of supply chain performance.

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For example, take an initiative to reduce total cycle time for processing an order. This

activity is not completely controlled by any one company of manager. For many, this is a

major barrier to embracing the collaborative approach.

d) Different Goals and Objectives

The goals of the various partners may differ significantly – not for any sinister reason but

simply because they face different competitive situations, different financial circumstances,

and different environment as defined by company size, ownership, and culture. If the overall

supply chain goals are not universally accepted, the likelihood of agreeing on joint supply

chain initiative is slim.

e) Inadequate Information Systems

Most firms do not possess the information systems to gather all of the information required to

integrate the processes and systems of all the supply chain participants. In fact, many

companies still struggle with using and comprehending all the traditional data they gather on

their own logistics performance. Imposing an entirely new set of information requirements

that spans company boundaries may be beyond the capacity of the existing systems. Efforts to

build consensus around a set of information and performance measures must be consistently

supported by the highest levels of management for any measure of supply chain collaboration

to succeed. Firms also must invest significantly financial resources in information systems to

support the new supply chain information requirements.

f) Involvement in Too Many Supply Chains

Involvement in multiple supply chains, both horizontally and vertically, poses another major

hurdle to supply chain management. The problem revolves around competition and

competitive actions. Many manufacturing companies sell their products to multiple retail

customers that compete directly with each other. The retailers, for their part, sell products

from multiple manufacturers in direct competition with each other. Firms need to be able to

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figure out how to keep their initiatives in each supply chain unique and mutually beneficially

without giving away competitive information to participants in their other supply chains. This

is a daunting task. In fact, it may mean that the only way to implement Supply Chain

Management successfully is to work with just a few supply chains and, in the remaining

situations, simply conduct transactions in an arm’s length manner. This may explain why most

success stories only involve two large trading partners. Typically, these relationships do not

extend beyond one tier, either upstream or downstream.

✓ How to Overcome the Barriers

Identifying the major barriers to supply chain management success is only the first step.

Because Supply Chain Management represents a significantly different business model and

style of management, firms need to drastically change their philosophies and strategies to

make it happen.

✓ Benefits of supplier relationship management

• Reduced costs.

• Increased efficiency.

• Minimises price volatility.

• Consolidation of the supply chain.

• Outsourcing certain activities.

• Continual improvement of operations.

2.7 Mapping the supply chain (SO2, AC7)

Members of a supply chain should use mapping in their business continuity and materials

management programmes. This enables transparency throughout the supply chain, providing

insight into vulnerabilities, potential risks and the development and implementation of risk

mitigation strategies.

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Mapping involves documenting every activity related to:

Raw Materials → Storage (warehousing) → Transportation → Distribution

It is important to ensure your Supply Chain map doesn’t become a static and quickly outdated

document, it is essential to have continuous monitoring of processes and real-time alert

notifications. The complex supply chains of today require the dedication of committed supply

chain partners who are willing to respond rapidly to changes in order to maximise

efficiencies.

✓ Why is Supply Chain Mapping important?

1. To improve supply chain visibility – it is vital that manufacturers know where their

supplies come from originally. Many scandals can be avoided ny having this kind of

transparency. The 2013 horse meat scandal was a scandal in parts of Europe in which

foods advertised as containing beef were found to contain undeclared or improperly

declared horse meat – as much as 100% of the meat content in some cases. This is an

example of what can go wrong if you don’t have full transparency across the supply

chain!

2. To keep risk to a minimum

3. To demonstrate that your company is committed to corporate social responsibility.

4. To spot potential threats - allows buyers to find out where in the world their

suppliers are located, meaning they can use this information to make better-informed

choices. For example, suppliers based in regions at a higher-than-average risk of

floods, earthquakes or other natural disasters will add extra risk to a supply chain,

while those based in areas where modern slavery is known to be an issue, could also

cause problems for the buyer in the long term.

5. To stay ahead of the game - Buying organisations need to take charge of their supply

chains to gain a competitive advantage over their rivals and reduce their risk level at

the same time.

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✓ Supply Chain Mapping Using VSM

VSM or Value Stream Mapping is a tool originated by Toyota as part of Toyota Production

System, which is primarily used to improve performance in a shop floor environment. The

concept is very practical. The supply chain management professionals then adapt VSM as a

supply chain network mapping method.

However, a major constraint for VSM is that it requires extensive data. This case study

demonstrates how to simplify the analysis, whilst still yielding valuable information.

1. Select Product:

This project is an example of the retailer in the UK who offers skin care products. The

product launch delay will cause lost sales, bad brand image and brand's switching. Then,

product included in the analysis should be strategically important because too many products

mean too many details on the map.

2. Identify Distribution Channel:

From the first step, we already know who the members are of the supply chain at the

upstream level. Then, we should know the distribution channel so we can add downstream

members in the value stream.

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3. Map Physical Location

At this stage, we should be ready to put the physical locations in a value stream. After that,

we should add the material flow into the map. Production cycle time can be added to the

map here.

From the above example, every supplier sends raw materials to a manufacturer for final

assembly.

4. Identify Information Flow

According to this map, each supplier needs to send the samples to a retailer for approval

before the commercial production run. Information flow covers the order status, product

testing and ordering info. There are 2 types of information flow (manual and electronic

information). At this stage, it's called a Current State Map.

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5. Develop Alternatives

At this point, a project team should try to identify 7 wastes based on the Lean Principle.

After that, a brainstorming session should be conducted to find a way to eliminate waste.

More info for this example is as below,

e.g. Unnecessary Inventory - the cost of storage space in urban areas is very expensive. If

retail stores reduce the ordering frequency from weekly to 2 times a week or even daily

ordering, inventory holding costs and logistics cost will be significantly reduced.

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2.8 Evaluating the relationships between the various

processes in the supply chain (SO2, AC8)

The integration of key business processes across the supply chain creates value for customers

and stakeholders. This involves collaborative work between buyers and suppliers, joint

product development, common systems and shared information.

✓ Supply Chain Operations Reference (SCOR) Model

The supply chain operations reference model (SCOR) is a management tool used to address,

improve, and communicate supply chain management decisions within a company and with

suppliers and customers of a company. The model describes the business processes required

to satisfy a customer’s demands. It also helps to explain the processes along the entire supply

chain and provides a basis for how to improve those processes.

The model integrates business concepts of process re-engineering, benchmarking, and

measurement into its framework. This framework focuses on five areas of the supply chain:

plan, source, make, deliver, and return. These areas repeat again and again along the supply

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chain. The supply chain council says this process spans from “the supplier’s supplier to the

customer’s customer.”

✓ SCOR is based on five distinct management processes: Plan, Source, Make,

Deliver, and Return.

• Plan – Processes that balance aggregate demand and supply to develop a course of action

which best meets sourcing, production, and delivery requirements. Standards must be

established to improve and measure supply chain efficiency. These rules can span

compliance, inventory, transportation, and assets, among other things.

• Source – Processes that procure goods and services to meet planned or actual demand.

Material acquisitions and sourcing infrastructure are examined to determine how to

manage the supplier network, inventory, supplier performance, and agreements. This

stage should help you plan on when to receive, verify, and transfer a product in the supply

chain.

• Make – Processes that transform product to a finished state to meet planned or actual

demand. This step is particularly important in the manufacturing and distribution

industries, and helps to answer the questions of: make-to-order, make-to-stock, or

engineer-to-order? The "make" part of the process includes production activities,

packaging, staging, and releasing the product. It also involves production networks and

managing equipment and facilities.

• Deliver – Processes that provide finished goods and services to meet planned or actual

demand, typically including order management, transportation management, and

distribution management. This step also involves customer service and overall

management of product lifecycles, finished inventories, assets, and importing/exporting

requirements.

• Return – Processes associated with returning or receiving returned products for any reason.

These processes extend into post-delivery customer support. The return process involves

the application of business rules, return inventory, assets, and regulatory requirements.

This final step directly extends to post-delivery customer support and follow-up.

✓ The focus of SCOR can also be defined and measured on 3 levels of process

detail

Level 1: Defining Scope - geographies, segments, and context

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Level 2: Configuration of the supply chain

Level 3: Process element details - identifies key business activities within the chain.

With all reference models, there is a specific scope that the model addresses. SCOR is no

different and the model focuses on the following:

• All customer interactions, from order entry through paid invoice.

• All product (physical material and service) transactions, from your supplier’s supplier

to your customer’s customer, including equipment, supplies, spare parts, bulk

product, software, etc.

• All market interactions, from the understanding of aggregate demand to the

fulfillment of each order.

✓ SCOR Process Framework

Formative Assessment 2

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SECTION 3: IDENTIFY AREAS WITHIN A SUPPLY

CHAIN THAT REQUIRE IMPROVEMENTS

Specific Outcome 3:

Identify areas within a supply chain that require improvements.

Assessment Criteria:

1. Improvements are measured against their benefits and possible drawbacks to the

supply chain.

2. The typical challenges facing each of the supply chain processes are examined to

determine improvement requirements.

3. Possible ways in which the process challenges can be addressed are identified through

the application of the supply chain philosophy.

4. The application of a Supply Chain Management Philosophy is assessed to determine

how it contributes to addressing specific challenges faced by demand, acquisition,

distribution and disposal.

3.1 Improving Supply Chain performance (SO3, AC1)

“Supply chain” refers to your suppliers and their suppliers, and your customers and their

customers. Every great manufacturer does a good job of working both directions to

understand and improve so that all can benefit. Many struggling companies buy and sell things

but don’t look outside themselves to get better.

Three ideas need to underpin the desire to improve SC performance:

1. Understand all parties need to make a profit for the supply chain to succeed.

2. Consider not just price, not just total cost of ownership, but total supply chain cost

3. As you work internally to improve your competitive capabilities, look to your suppliers

and customers to help you become better. Listen!

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✓ Top 10 Supply Chain Improvement Strategies

1. Educate. All departments within your link and all links in your supply chain must have a

common understanding of the supply chain.

2. Benchmark. Understand how your performance compares to your competitors, to other

industries, and to best in class.

3. Assessment. Understand the status of all departments within your link and all links in your

supply chain. Compare them to the Six Levels of Supply Chain Excellence:

• Level I, Business as Usual

• Level II, Link Excellence

• Level III, Visibility

• Level IV, Collaboration

• Level V, Synthesis

• Level VI, Velocity

4. Prioritise. Use the information from your benchmark and assessment efforts to identify

specific targets for supply chain enhancements.

5. Weakest Link. Be aware that the weakest department within your link and the weakest

link in your supply chain will drive performance.

6. Communicate. Even over-communicate with all involved in your supply chain so that

everyone understands what, why, when, who and when. Let there be no surprises.

7. Partnerships. Only join with supply chain partners who are ready to partner. Partnering

with a link that has not achieved Level II Link Excellence will not net positive results.

8. Leadership. On each supply chain initiative, identify the proper skill sets required to lead

the effort. Assure clarity of roles and responsibilities and cultural compatibility.

9. Core Competencies. Identify these, focus on them and outsource the rest. Determine the

unique business processes that make you successful, then use a robust process to

outsource other functions.

10. Continuous Improvement. An ongoing process is required for you to pursue Supply Chain

Excellence. Never stop pushing for the next level of excellence.

Many companies initially focus on supply chain management to improve customer

satisfaction and reduce operational inefficiencies. While doing this, the company

improves visibility and control over its supply chain, which also leads to better financial

performance.

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Improving supply chain management will improve your company’s operational efficiencies

and increase productivity. Access to information will allow you to plan more effectively

and be prepared for the unexpected. And increased customer satisfaction will help you

achieve your revenue and growth projections. Quite simply, better supply chain

management can have a direct impact on revenue growth, profitability and capital

utilization and ultimately help your company create a competitive advantage in the

marketplace.

✓ The best-practices pillar

Once the performance of the supply chain operations has been measured and performance

gaps identified, it becomes important to identify what activities should be performed to close

those gaps.

The SCOR model defines a best practice as a current, structured, proven and repeatable

method for making a positive impact on desired operational results.

• Current - Must not be emerging (bleeding edge) and must not be antiquated

• Structured - Has clearly stated Goal, Scope, Process, and Procedure

• Proven - Success has been demonstrated in a working environment.

• Repeatable - The practice has been proven in multiple environments.

• Method - Used in a very broad sense to indicate: business process, practice,

organizational strategy, enabling technology, business relationship, business model, as

well as information or knowledge management.

Positive impact on desired operational results: The practice shows operational improvement

related to the stated goal and could be linked to Key Metric(s). The impact should show either

as gain (increase in speed, revenues, quality) or reduction (resource utilizations, costs, loss,

returns, etc.).

✓ Performance measurement and benchmarking

The identification of the key performance metrics is a major aim of the benchmarking

process. Organisational performance metrics are compared with those that are perceived as

best and from the best performing organisations. Performance measurement and the

selection of suitable metrics and measurement dimensions are key stages in the benchmarking

process sand the first step in supply chain benchmarking, along with the search for the

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companies or processes that can be classified as the ‘best practices’. Performance

measurement gives an opportunity to identify key areas of a supply chain, while

benchmarking helps to assess performance based on selected metrics.

To show improvement in operations, many supply chain management specialists consider

implementing supply chain performance indicators or metrics as one of the simplest, least

expensive, and least time-consuming activities. It is a well-known fact that, “people

behave based on the way they are measured”

Supply chain performance measurement has become a popular topic. However, the existing

performance measure model still lacks providing interaction aspects of key performance

indicators (KPIs) and measuring. KPI’s can be categorized into the five dimensions which are

represented in term of Cost, Flexibility, Responsiveness, Quality, and Innovativeness. After

the data collection process, researchers will calculate and analyze data by using the fuzzy

design structure matrix (FDSM) method for grouping KPIs in term of the interaction among

KPIs.

✓ Key Performance Indicators in the Supply Chain

All around the globe, different organisations have a different emphasis on what they want to

measure in their Supply Chain. On the other hand, there are common KPI's and common

industry practices that span all businesses.

Typically, companies have a bias or orientation towards a certain few or group of KPIs that

are used to measure their supply chain performance, falling into the following categories:

a) For some, their KPIs are focused on how the supply chain performs in delivering

service excellence and this is the priority.

This may come about as a result of competitive pressure; for example, where service is

offered as a competitive advantage. Typically, KPIs with a higher priority in such an

environment might include DIFOT (Delivery in Full and On Time), or LIFR (Line Item Fill

Rate) or a Perfect or Error Free measurement. Products that are high value will usually

have this kind of KPI focus.

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b) For others, the emphasis is on measuring and monitoring costs throughout the

supply chain.

This will be the case when the business has a determination to lower supply chain costs

and to align with a ‘low cost provider’ strategy. For products deemed to be a ‘commodity’

this is not an unusual orientation and supply chain cost KPIs take precedence over, for

example, service related KPIs. In this category are such KPIs as overall supply chain cost as

a percentage of sales, total supply chain cost per unit sold (e.g. case, or kg or tonne etc.),

warehousing cost and transport cost per unit, labour productivity rates etc.

c) Yet, for others, their KPIs are oriented towards determining where value is

delivered and how successfully.

KPIs are therefore focused on measuring performance of those areas that specifically are

deemed to be ‘value adding’ The definition of value adding may vary from company to

company but traditionally involves only those activities or processes in a supply chain that

a customer is prepared to pay for. For example, moving product from one location to

another in a warehouse, while incurring a cost, is not an activity that a business can

charge for usually, whereas special packaging, product design or additional services at the

point of delivery (installing or removing packaging etc.) a customer might be prepared to

pay for. In these situations, KPIs are geared to measure and monitor these activities with

a view to better understanding which activities and processes add value, and, equally,

which do not, which is a natural way into the last KPI focused group.

d) Lastly, some organisations have KPIs oriented to measuring and analysing where

waste exists.

These concepts evolved from the Toyota manufacturing system and are common measures

in lean manufacturing businesses. Of the classical 7 categories of waste in a

manufacturing process, all can be applied to measuring the ‘leanness’ of a supply chain as

well. In these organisations, typically lean manufacturing businesses, the 7 (and recently

an eighth waste was added) wastes form the basis of the KPI measurement system in the

business.

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✓ What are the purposes of creating KPIs

1. To measure performance

2. As a measurement system designed to change behaviour

3. To create and ensure alignment with overall business goals and strategy

4. As a driver of future improvement

✓ Benefits of external benchmarking

a. Being independent and without conflicts of interest

b. Being quick to start and complete

c. Being able to properly compare ‘apples to apples’ so that the comparison data integrity is

sound

d. Greater access to best-in-class data because of the size of the comparative database

available

e. Is more cost effective since building relationships with other organisations requires time

and resources to support the benchmarking process

Benchmarking appropriate KPIs can provide visibility into current performance as well as

providing a target range for the future. Without such data how else is a business going to

know how well their supply Chain is performing other than from customer feedback surveys?

‘Ignorance is not bliss’. In fact, it is a dangerous business practice – not knowing how your

Supply Chain is performing compared to your competitors. Is your Supply Chain providing the

best service at the best cost, or is someone else's? Without some form of benchmarking, how

are you going to know other than from anecdotal information? That is why of all the

management reporting reports and tools available, Benchmarking was ranked number one in

the latest Bain & Company annual report and global survey. The 2010 report demonstrated

that the most popular management tool was benchmarking.

In summary, there is a need for most businesses to review the area of supply chain metrics

or KPIs. Firstly, to review these in the context of understanding which KPIs are used by the

organisation to evaluate its success or the success of a particular activity in which it is

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engaged. Secondly, choosing the right KPIs – this is reliant upon having a good understanding

of what is important to the organisation. Thirdly adopting a comprehensive and balanced

approach or framework to measuring KPIs, and, lastly, having established all the above,

obtaining a sound understanding of where one’s performance stands in relation to one’s

competitors and even companies from different industries but with a similar supply chain

profile. In this way, one can learn how well the comparative supply chains perform and, more

importantly, the business processes that explain why these firms are successful and achieving

industry best practice.

3.2 Supply chain challenges leading to improvements (SO3,

AC2)

✓ Supply Chain Challenges That Exist Today

The implementation of supply chain management (SCM) can be both beneficial and

challenging to your business. Determining supply chain challenges before they happen is

critical to SCM success, as the failures and successes are extremely visible to your trading

partners. In order to achieve successful implementation of SCM, take note of the following

supply chain challenges:

• Don’t Assume SCM Technology Fixes Everything: SCM technology does many things,

but it cannot do it all. One of the most unrealistic assumptions is that SCM technology

will help you control your supply chain and vendor resources. Before you rely too

heavily on SCM technology, you must first have a specific level of organised control

within your supply chain relationships. Supply chain management technology is most

effective when you have the ability to control your logistic providers and trading

partners.

• Don’t Use the Past to Predict the Future: Relying on past performance to predict

future sales can cause big problems. Instead, track actual sales as they happen; the

supply chain network will react quickly to any changes in consumer trends. This tactic

is particularly beneficial in a retail supply chain, when the item being sold is

unremarkable and can be purchased from a variety of retailers.

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• Don’t Rely on Sale Data: Never rely solely on sale data when making critical decisions.

It’s important to understand and utilise real- time inventory levels, cash flow and

financial ratings when making critical supply chain decisions. If you maintain your

supply chain metrics, you’ll avoid making partnership errors with both suppliers and

customers.

• Don’t Forget to Communicate: Another common supply chain challenge is lack of

communication. Both suppliers and customers need continuous monitoring, as well as

collaboration to ensure supply meets demand. Nothing can replace face-to-face

communication; by fostering personal relationships with both customers and suppliers,

the entire supply chain process will be embraced by all.

• Don’t forget about a supplier’s capability: One of the more difficult aspects of supply

chain management is trying to understand the full capabilities of your suppliers. By

understanding what a supplier can do during critical times can greatly increase your

response time to changes in demand. Skilled supply chain managers will often review

lead times, burst capacity, standard capacity and quick turn capabilities with their

suppliers to ensure the supplier’s capabilities meet the needs of the company.

It is critical that you are proactive about any issues that may derail your SCM efforts. If you

focus on impending issues and supply chain management best practices, you’ll have the

ability to deliver solid results, substantial benefits and concrete financial savings.

3.3 Process challenges are addressed (SO3, AC3)

Making decisions using outdated information is another of the more common supply chain

problems facing supply chain operations. Understanding real time inventory levels, financial

ratings, and cash flow are imperative for making sound supply chain decisions. Maintaining

supply chain metrics for all these categories should prevent companies from making

significant errors in who they partner with both as suppliers and customers. If the company

does not use a significant enterprise resource planning (ERP) system, the supply chain

manager can still get much of this information by reviewing financial data such as customer

and supplier credit ratings, outstanding accounts receivable (AR), and outstanding accounts

payable (AP).

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Understanding a supplier's capabilities is one of the supply chain problems that is the

hardest to manage. Not knowing what a supplier can do severely limits a company's ability to

quickly respond to changes in demand. Effective supply chain managers will periodically

review lead times, standard capacity, upside or burst capacity, and prototype and quick turn

capabilities with their suppliers to determine if the supplier's capabilities are sufficient for

the company's needs. By knowing if a supplier has the ability to support upsides in demand

during a very short time frame, the supply chain manager will be able to better predict when

products can ship to the end customer.

Lack of communication also ranks high as one of the common supply chain problems.

Suppliers and customers alike require constant monitoring and at least some level of

collaboration to ensure supply meets demand. Though in today's environment of highly

automated information flow there tends to be almost an overload of information, successful

supply chain managers have learned that nothing replaces face to face communication. By

developing personal relationships with both suppliers and customers, the entire supply chain

process becomes a group effort. When things do not go as smoothly as planned, it is much

easier to discuss opportunities for improvement if a relationship already exists.

3.4 The Application of a Supply Chain Management Philosophy

(SO3, AC4)

✓ Addressing demands in the supply chain

A Demand-driven Supply Chain (DDSC) is defined as a supply chain

management method focused on building supply chains in response to demand signals.

The main force of DDSC is that it is driven by customer demand. In comparison with the

traditional supply chain, DDSC uses the pull (Demand pull) technique. It gives the market

opportunities to share more information and to collaborate with others in the supply chain.

A Demand-Driven Supply Chain is dependent on aligning all entities across the supply chain

through information flows. A true DDSC can always adapt to the changing market

conditions thereby maintaining or reducing inventory levels and reduce the invasive problem

of expedited orders.

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✓ 7 Key Supply Chain Approaches for Meeting Big Demand

1. Predicting launch and early stage demand.

The company could use data analytics around sales performance of similar products in

previous years or look for geographic/retailer ‘bell-weather’ locations to point to

demand take-up at the very early stages of launch—and use that information to decide

the level of follow-up orders and production. Ultimately, the company could use

heuristics that combine information from multiple sources—consumer demographics,

consumer segments, channel segments, retailer shelf space, competing launches,

weather trends—to predict demand and channel behavior.

2. Multi-strand manufacturing.

The company could estimate its baseload supply—the initial and follow-up production

quantities that will be needed—and place a corresponding order for components with

upstream suppliers around the world. These would most likely be preferred suppliers.

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If the observed consumer take-up is good, the company may need to call upon a

larger number of alternative manufacturers/suppliers in its supply-side network to

achieve quick replenishment by taking advantage of available capacity.

3. Hold back and optimise positioning.

The company should closely monitor the off-take pattern of the initial production batch

and hold off fully committing stock. It could, for example, only commit 60% of the

initial production run to certain markets/channels, then use the balance to quickly

respond where the uptake is strongest.

4. Prioritise allocation.

By deciding to commit a certain percentage—say 80% of the initial 60% produced—

to trusted outlets where the relationship is truly collaborative, the sales pattern data is

more likely to be transferred back to the company on a close to real-time basis, and

those customers with long-standing, loyal relationships are rewarded.

5. Leverage multi-channel fulfillment.

Looking downstream on the distribution side, the company could use its chosen omni-

channel structure to reach consumers as quickly as possible when sales exceed

expectations—like emphasizing eCommerce channels to minimize pipeline time, taking

orders online and fulfilling direct through a global air express delivery company—or by

support wholesalers and retailers via drop-shipments designed to be distributed to their

consumers, separating the physical and the commercial fulfillment.

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6. Minimise pipeline time.

The key for all parties in multi-distribution channels is to keep the supply pipeline as

short (in time) as possible, thereby defraying the risk of being caught with excess stock

if/when sales tail off.

For example, Zara does this very well by monitoring its sales on an hourly basis at its

retail outlets, coupled with its 3-weekly cycle to launch a new range of products,

leading to much less inventory at risk of mark-downs.

7. Organise strategically.

The other aspect to this problem of launching new and potentially volatile products is

the internal organisation design. Companies like Zara, Li & Fung and Adidas use multi-

disciplinary teams or clusters, co-located, and focused on customer segments. In this

way, the loss of communications time internally is minimised, and is a big factor in

improving responsiveness in the face of volatile demand patterns.

✓ Addressing the challenges related to acquisition in the supply chain

A day in the procurement or acquisition management department is never slow. Managing

organizational spend while enforcing proper procurement policies is always a constant

concern for procurement leaders. What’s worse is that these problems just scratch the tip of

the procurement challenge iceberg.

The procurement landscape is inundated with a number of activities like purchase requisition

management, purchase order process, contract management, supplier lifecycle management,

and a lot more. Amid the chaos, procurement leaders don’t often have enough time to tackle

common challenges in procurement.

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Here are six common procurement challenges that haunt businesses of all sizes:

1. Risk mitigation

Supply risk is always a major challenge in the procurement process. Market risks, potential

frauds, cost, quality, and delivery risks constitute the most common type of risks.

Additionally, compliance risks like anti-corruption, policy adherence, and more keep your

procurement leaders up all night.

2. Dark purchasing

Purchases that are made outside the defined procurement process fall under dark purchasing.

Such uncontrolled spending can ultimately be expensive for businesses. When items purchased

cannot be justified using capital outlay or material inventory, the resulting loss of revenue

and control is a significant challenge for organizations of all sizes to tackle.

3. Long process cycle

Most often, products and services are procured with a sense of urgency in the last minute. As

a result, the actual lead times and the procurement cycle tends to be considerably longer

than that anticipated or scheduled. Listed below are the common reasons for delays in the

procurement process:

• Delays in preparing technical specifications

• Overlooking the procurement schedule

• Extending the timeline to submit bids/proposals

• Failure to start the evaluation process on time

• Setbacks in contract negotiation

4. Inaccurate data

In order to make sound procurement decisions, organizations need accurate and reliable data.

Making purchases based on inaccurate procurement data can lead to inventory shortages,

excess inventory, and other additional procurement challenges that have the potential to

impact an organization’s bottom line directly.

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5. Strategic procurement

As the procurement process continues to become more strategic and collaborative,

organizations are starting to realize the benefits of having a solid procurement strategy in

place. However, understanding the strategic implications of every step and figuring out a way

to implement it across all functional units of business is a distinct challenge.

6. Supplier-related issues

One of the greatest challenges in procurement is supplier management. From identifying the

right supplier to keeping track of vendor performance and ensuring a stable supply of quality

products, the whole process is filled with complications

✓ Addressing distribution in the supply chain

There are basically two types of distribution: commercial distribution (commonly known as

sales distribution) and physical distribution, better known as logistics. Distribution involves

such diverse functions as customer service, shipping, warehousing, inventory control, private

trucking-fleet operations, packaging, receiving, materials handling, and plant, warehouse,

store location planning, and the integration of information. The goal is to achieve ultimate

efficiency in delivering raw materials, parts, partially and completely finished products to the

right place and time, in the proper condition.

Physical distribution planning should align with overall channel strategy.

Effective distribution management involves selling your product while assuring sufficient

stocks in channels while managing promotions to identify any of the following in those

channels and their varying requirements. It also involves making sure that a supply chain is

efficient enough that distribution costs are low enough to allow a product to be sold at the

right price, thus supporting your marketing strategy and maximizing profit.

✓ Addressing disposal in the supply chain

The management of waste in general should involve some sort of system or process that

comprehensively accounts for all wastes generated by an organisation. Manufacturing

operations typically produce different types of waste, in different proportions. Fundamental

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management should address waste minimization, generation, storage, handling, transport,

and disposal. However, good waste management goes beyond fundamentals with initiatives

like waste prevention, recycling, reuse, treatment, and composting. Environmental staff

should have an input on the operational changes of the facility to minimize wastes generated

and to factor environmental concerns into management decisions.

The production activities of an organization should be designed and operated in a way that

minimizes or prevents wastes from being generated as well as their related EHS risks. Some

waste prevention actions include:

• Substitute input materials and substances with less or non-hazardous alternatives.

• Substitute input materials and substances with more efficient alternatives to reduce

wastes generated.

• Modify production processes to fabricate products more efficiently with higher output

yields and with less EHS risks. Modifications may involve the design, operating

conditions, operator procedures, and engineering controls of processes.

• Establish good housekeeping, operating, and maintenance routines to maintain optimal

process conditions and material quality, such as operation controls, inventory controls,

material conservation, efficiency monitoring, and quality inspection.

• Enable managers and operators to recognize and report improvement opportunities

through training, awareness and reporting/suggestion mechanisms.

• Implement waste segregation and contamination controls to reduce hazardous waste

generation by preventing the commingling of hazardous and nonhazardous waste.

Formative Assessment 3