Welcome to BBUS 3320:

Supply Chain Management

Instructor: Dr. Avninder Gill

Thompson Rivers University

Office: IB 2017
Phone: (250) 828-5155
Email: agill@tru.ca

Dr. A. Gill 1

1

Instructor Introduction

Class Introduction

Course Outline

Course Moodle

Dr. A. Gill 2

2
Supply Chain
Management

Module 1:
SCM: Introduction
&
Strategy
Dr. A. Gill 3

3
Learning Objectives
On completion of this module you should be able to:

Define supply chain management & know its evolution.

Identify various types of supply & demand chains.

Understand the material & information flows.

Understand the process, cyclic and push-pull view.

Recognize supply chain risks, metrics and objective

Understand hierarchy of supply chain decisions

Understand supply chain strategy, responsiveness and
efficiency and the efficiency and responsiveness balance.

Recognize the major drivers in supply chain.

Dr. A. Gill 4

4
Definition: Supply Chain Management
(SCM)
Set of approaches utilized to efficiently integrate suppliers,
manufacturers, warehouses and stores so that merchandise is
produced and distributed in the right quantities, to the right
locations, in the right condition and at the right time in order to
minimize the system wide costs while satisfying the service level
requirements.

Dr. A. Gill 5

5
Historical Background

Integration of
SCM
Capabilities

SCM
Formation/
Extensions
JIT, TQM, BPR,
Alliances

Inventory Management/Cost
Optimization

Traditional Mass Manufacturing

1950s 1960s 1970s 1980s 1990s 2000s Beyond

Dr. A. Gill 6

6
Evolution of Supply Chain Concept

Firms strive to reduce costs of goods and services.

Cost reduction attempted through Kanban, TQM, Lean
Manufacturing and Cellular Manufacturing.

Improvements occurred but the efforts were localized.

Strategic partnerships, corporate reengineering and
outsourcing (potential for cost savings).

Trade agreements (NAFTA,EU,GCC).

To make these partnerships work, these companies view
themselves as a part of global supply chain network.

Dr. A. Gill 7

7
Dr. A. Gill 8

8
Importance of SC View

Potential for cost savings (cost efficiency)
 U.S. companies spend more than $1 trillion in supply-related
activities (10-15% of GDP)

Transportation 58%; Inventory 38%; Management 4%
 The grocery industry could save $30 billion by using effective
logistics strategies

Potential for improving responsiveness

 A box of cereal spends 104 days from factory to supermarket.
 A new car spends 15 days from the factory to the dealership.

Dr. A. Gill 9

9
Supply Chain Stages & Links

Stages
 Suppliers
 Manufacturers
 Wholesale Distributors
 Retailers
 Customers

Links
 Warehouses
 Transportation

Dr. A. Gill 10

10
Transportation Transportation Retailers
Distributors

Factory Customers

Transportation

Suppliers/Comp Mfrs
Warehousing Transportation

Dr. A. Gill 11

11
 Supply Chain Stages

Manufacturer Distributor Retailer Customer

Manufacturer Distributor Retailer Customer

Manufacturer Distributor Retailer Customer

Dr. A. Gill 12

12
 Supply Chain versus Demand Chain

Distributor’s Supply & Demand Chains

Tier 2 Tier 1
Producer Distributor Customer
Suppliers Suppliers

Producer’s Supply & Demand Chains

Tier 2 Tier 1
Producer Distributor Customer
Suppliers Suppliers

Supply Demand
Chain Chain
Dr. A. Gill 13

13
 Tier 1 Supplier’s Supply & Demand Chains

Tier 2 Tier 1
Producer Distributor Customer
Suppliers Suppliers

Tier 2 Supplier’s Supply & Demand Chains

Tier 2 Tier 1
Producer Distributor Customer
Suppliers Suppliers

Supply Demand
Chain Chain
Dr. A. Gill 14

14
External versus Internal Supply Chains

Suppliers Processing Distribution Customers

Key: External Internal

Supply Chain Supply Chain

Dr. A. Gill 15

15
 Internal Supply Chain

Work centre
Work centre Work
centre

Work Storage
centre

Storage

Storage
RECEIVING

Shipping

Dr. A. Gill 16

16
Material &SCM
Information Flows
Definition
Material Flow

Converter Retailer
Supplier Distributor
Source Converter
Consumers
Distributor End-User
Supplier

Value-Added Services

Funds/Demand Flow

Information Flow

Reuse/Maintenance/After Sales Service Flow

Dr. A. Gill 17

17
Process View of a Supply Chain

Cycle view

Push-pull view

Dr. A. Gill 18

18
Cycle View of Supply Chain

Customer
Customer Order Cycle

Retailer
Replenishment Cycle

Distributor

Manufacturing Cycle

Manufacturer
Procurement Cycle
Supplier
Dr. A. Gill 19

19
Cycle View of a Supply Chain

Each cycle occurs at the interface between two
successive SC stages
 Customer order cycle (customer-retailer)
 Replenishment cycle (retailer-distributor)
 Manufacturing cycle (distributor-manufacturer)
 Procurement cycle (manufacturer-supplier)

Cycle view recognizes SC as four process cycles
and assigns ownership for each cycle; specifies the
roles and responsibilities of each; the desired
outcome and this view is useful for developing
information systems.

Dr. A. Gill 20

20
 Push-Pull View of Supply Chain

Supply chain processes fall into two categories
depending on the timing of their execution relative
to customer order

 Pull: execution is initiated in response to a customer

order (reactive)
 Push: execution is initiated in anticipation of customer
orders (speculative)

Dr. A. Gill 21

21
Push-Pull View of Supply Chain

Procurement, Customer Order

Manufacturing and Cycle
Replenishment cycles

PUSH PROCESSES PULL PROCESSES

Customer
Order Arrives

Dr. A. Gill 22

22
Push-Pull View of Supply Chain

The relative proportion of push and pull have
an impact on supply chain performance

Useful in considering strategic decisions

relating to supply chain design such as level
and direction of vertical integration

Dr. A. Gill 23

23
Supply Chain Vertical Integration

Vertical integration involves either taking on more of the supplier
activities (backward) or taking on more of the distribution activities
(forward)

 Backward vertical integration: a peanut butter manufacturer

growing peanuts rather than buying

 Forward vertical integration: a peanut butter manufacturer

marketing their peanut better directly to grocery stores

Dr. A. Gill 24

24
Supply Chain Risks

Natural versus Human-made

August 2005 – Hurricane Katrina
 P&G coffee supplies from New Orleans had six
month impact

2002 West Coast port strike
 Losses of $1B/day
 Store stock-outs, factory shutdowns

1999 Taiwan earthquake
 Supply interruptions of HP, Dell

2001 India (Gujarat state) earthquake
 Supply interruptions for apparel manufacturers

Dr. A. Gill 25

25
Supply Chain Metrics

How to assess, how well your supply chain is performing?

 SC metrics include:

On-time delivery performance

Lead time for order fulfillment

Fill rate - proportion of demand met from on-hand inventory

Supply chain management cost

Warranty cost as a percentage of revenue

Total inventory days of supply

Asset Utilization

Dr. A. Gill 26

26
The Objective of a Supply Chain

Maximize overall value created

Supply chain value: difference between what
the final product is worth to the customer and
the effort the supply chain expends in filling
the customer’s request

Value is correlated to supply chain
profitability (difference between revenue
generated from the customer and the overall
cost across the supply chain)

Dr. A. Gill 27

27
Hierarchy of Supply Chain Decisions

Strategic, Tactical and Operating Decisions
 Strategic or Design : Long term, fix the supply chain design
configuration and impose system constraints on SC.

Determining the number, location and capacity of facilities

Product mix and markets to enter

Forming strategic alliances
 Tactical or planning : Intermediate term, impose policies on SC
to govern next level of decisions

Determining inventory levels

Quality-related decisions

Logistics decisions, transportation mode choices

Sub-contracting, market allocation etc.
 Operational - near term

Allocate orders to inventory & shipment;

Schedule vehicles and machines;

Set delivery dates etc.

Dr. A. Gill 28

28
Supply Chain Strategy

Dr. A. Gill 29

29
 Strategy

Strategy: What each function tries to do
particularly well.

Competitive Strategy: A set of customer
needs a company wishes to satisfy.

Walmart: High availability, low variety, low
prices and reasonable quality.

McMaster Carr: High variety, high prices,
next day delivery.

Dell: High customization, variety,
reasonable cost but 1-2 weeks delivery

Dr. A. Gill 30

30
 Supply Chain Strategy

Supply Chain Strategy: Ensuring the consistency and fit
between customers needs that must be satisfied, and SC
capabilities that must be developed, is the essence of
supply chain strategy.

A firm may fail because of a lack of fit leads to conflicts

during execution. Therefore, consistency and support
between supply chain strategy, competitive strategy, and
other functional strategies is important.

Dr. A. Gill 31

31
SC Responsiveness

Supply chain responsiveness -- ability to
 respond to wide ranges of quantities demanded
 meet short lead times
 handle a large variety of products
 build innovative products
 meet a high service level

Responsiveness comes at a cost because
the capacity needed to respond, has to be
increased.

Dr. A. Gill 32

32
Efficiency (Cost Efficiency)

Supply chain efficiency: cost of making and

delivering the product to the customer

Increasing responsiveness results in higher

costs that lower the efficiency

Dr. A. Gill 33

33
Comparison of Efficient and
Responsive Supply Chains
Primary goal
Product design strategy
Pricing strategy
Mfg strategy
Inventory strategy
Lead time
Supplier selection strategy
Transportation strategy
Efficient
Lowest cost
Min product cost
Lower margins
High utilization
Minimize inventory
Reduce but not at expense
of greater cost
Cost and low quality
Greater reliance on low cost
modes
Responsive
Quick response
Modularity
Higher margins
Capacity flexibility
Buffer some inventory
Aggressively reduce even if
costs are significant
Speed, flexibility, quality
Greater reliance on
responsive (fast) modes
Dr. A. Gill 34
34
Cost-Responsiveness Efficient Frontier
Responsiveness

High

A B

Low
Cost
High Low
Dr. A. Gill 35

35
Functional versus Innovative Products

Functional Innovative
(Predictable) (unpredictable)
Product life cycle More than 2 years 3 months to 1 years
Contribution margin 5% to 20% 20% to 60%
Product variety Low (10 to 20 High (often millions of
variants per category) variants per category
Forecast accuracy 10% 40% to 100%
(margin of error)
Average stockout rate 1% to 2% 10% to 40%
Average forced Close to 0% 10% to 25%
markdown
Delivery Lead time 6 months to 1 year 1 day to 2 week

Dr. A. Gill 36

36
Efficiency-Responsiveness Framework

Functional Product Innovative Products

Supply Chain
Efficient

Match Mismatch
Supply Chain
Responsive

Mismatch Match

Dr. A. Gill 37

37
Drivers of Supply Chain Performance

Facilities
 Places where inventory is stored, assembled, or fabricated

 Production sites and storage sites

Inventory
 Stock of goods, raw materials, WIP etc.

Transportation
 Means to move inventory from point to point in a supply chain

 Combinations of transportation modes and routes

Information
 Data and analysis regarding demand, inventory, customer preferences,
available capacities throughout the supply chain

Sourcing
 Places to source materials and services

Dr. A. Gill 38

38
Why Facilities are Drivers of SC ?

Facilities
 Decisions regarding location and capacity of facilities affect the
efficiency-responsiveness of SC.

Centralization versus de-centralization.

Flow shop versus job-shops.

Why Inventory is Driver of SC ?

Inventory
 Changing inventory policy and levels can dramatically affect the
efficiency-responsiveness of SC.

Dr. A. Gill 39

39
Why Transportation is Driver of SC ?

Transportation
 Transportation mode choice and route selection has a large impact
on the efficiency-responsiveness of SC.

Air versus Ground Transportation.

Best route normally makes it both efficient and responsive.

Why Information is Driver of SC ?

Information
 Provides opportunities to make SC more efficient & responsive .

Why Sourcing is Driver of SC ?

Sourcing
 Location and pricing of suppliers affects efficiency-responsiveness
of SC.

Dr. A. Gill 40

40
 Summary of Supply Chain Drivers

Driver Efficiency Responsiveness

Inventory Cost of holding Availability

Transportation Consolidation Speed

Facilities Centralization De-centralization

Sourcing Pricing Lead-times

Information Information sharing benefits both

Dr. A. Gill 41

41
 Drivers of Supply Chain Performance
Competitive Strategy

SC Strategy
Efficiency Responsiveness

Supply chain structure

Inventory Transportation Facilities Information

Drivers

Dr. A. Gill 42

42
Supply Chain Management Course Map

Information
 Module 2: Demand Management & Information sharing
(Forecasting & Bull-whip Effect)

Inventory
 Module 3: Inventory Management

Facilities
 Module 4: Facility Location
 Module 5: Warehouse Management

Transportation
 Module 6: Transportation Management
(Modes, Best Routes etc.)

Dr. A. Gill 43

43