outline the philosophy of supply chain management
TRANSCRIPT
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