Week 1 building blocks of scm

Supply Chain Management
& its Building Blocks

International Business

Liam Fassam

Composition of the Supply Chain
The supply chain is a series of building blocks, of
which no one block can stand alone:

• What are the process views of a supply chain?
• What are the building blocks of a supply
chain?
• Are all the building blocks suited to all
organisations?
International Business - 'Supply chain
management & its building blocks' - Liam
Fassam

The process views
What are the process views of a supply chain?
Chopra and Meindl (2003) describe the two
views, viz.:
• Cycle view: The processes in a supply chain
consist of a series of cycles, each performed at
the interface between two successive stages.
• Push/pull view: Pull processes are initiated by a
customer order and push processes are initiated
and performed on the forecast of customer
orders.
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Cycle view
Cycle view
The cycle view of a supply chain consists of
several stages of process cycles and form the
components of MRPII (manufacturing resource
planning) or ERP(enterprise resource planning)
systems and are shown in a simplified form as
three process cycles.

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Cycle view cont.
• The demand cycle is the cycle of time covering from
when a customer buys or orders from a retailer or
wholesaler. The demand cycle can also be based on the
forecast of demand.
• The planning and procurement cycle covers short- and
longer-term requirements. The demand of the product
and its components (bill of materials) are compared
with the inventory and capacity and the replenishment
requirements are planned. Planners will decide what to
buy and what to make. This make or buy decision
process also applies to a service organisation leading to
either in-house or outsourced services.

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Push process
Orders arrive at or after the demand cycle but
always before the planning and procurement cycle
and process is activated by a forecast or demand
plan.

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Pull process
A pull process is activated in response to a
confirmed order from a customer. This includes
make to order or a just-in-time (JIT)
manufacturing process.

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Canadian business example

• What factors despite having a full warehouse
can cause poor order fulfilment?
• What are the cost issues with the business
case?
• Are there any risks with deploying this type of
strategy (Pull)?

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Total Supply management
• From the pull system used in the Canadian
company one might be tempted to believe that
forecasting and making to stock is inefficient and
old fashioned.
• Some products are best processed in batches and
stocked in bulk (e.g. food processing and cool
stores).
• It is therefore important that a ‘total supply chain
management approach’ is applied and all the
building blocks of the supply chain are examined.
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Pulling the building blocks together
• The synergy that results from the benefits
contributed by all elements as a whole far
exceeds the aggregate of benefits achieved for
an individual elements. The integrated
approach is truly more than the sum of its
elements. If one concentrates exclusively on
isolated areas, a false impression may be
inevitable and inappropriate action taken.

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Indian folk tail
• This ideal can be illustrated by the Indian folk tale of four blind
men who were confronted with a new phenomenon, an
elephant!
• The first man, by touching its ear, thought that the elephant
was a fan.
• The second was hit by the elephant’s tail and concluded that
it was a whip.
• The third man bumped into a leg and thought it was a
column.
• The fourth on holding the trunk decided that it was an over-
sized hose.
• Each man, on the evidence he had, came to a logical
conclusion, but all had made an -erroneous judgment by failing
International Business 'Supply chain
to deduce that the total object was an elephant.
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Porters Value chain

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Supply Chain configuration
1. Customer focus and demand
2. Resource and capacity management
3. Procurement and supplier focus
4. Inventory management
5. Operations management
6. Distribution management

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Supply Chain integration
And three cross-functional integrating
processes:

1. Systems and procedures
2. Sales and operations planning
3. Performance management

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Building blocks of the Supply chain

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Supply chain building blocks

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Customer focus & demand
• The basis of all supply chain planning and
decisions is underpinned by the forecast of future
demand.
• A supply chain process cannot exist without the
knowledge and planning for future.
• All push processes are executed in anticipation of
customer demand and all pull processes are
carried out in response to customer demand.
• It is a misconception that demand forecast is not
required in a pull or JIT process.
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Resource & Capacity Management
A primary objective of supply chain
management is to optimise supply capacity to
fulfill demand in time.
• Resources are not infinite
• Planning needs to match manufacturing
output ability
• ERP or MRP systems are utilised to create a
planning horizon, exploding orders and
calculating lead time and resource.
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Procurement & supplier focus
The optimisation of internal capacity can be
supplemented by buying in external capacity
and resources.
• Outsource of non essential functions
• 60-90% of cost of goods (CoG) are attributed
to bought in resources
• Purchasing coupled to SCM strategies such as
lean and Value chain, through sharing
information can dramatically lower this figure
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Procurement & Supplier focus
Risks?
• Technical capability: The product or service
knowledge to deliver sustainable quality.
• Operations capability: The process knowledge to
ensure effective supply.
• Financial capability: The financial strength to fund
the business.
• Managerial capability: The management talent to
develop future business.

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Inventory management
The purpose of inventories or stocks is to buffer
against the variations in demand and supply.
• It is viewed as a negative due to costs involved
with storage and obsolescence
• High inventory can increase customer
service, but adds increased SCM risk
• Optimise inventories by understanding cycle
and safety stocks (lecture 3)
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Operations Management
In a supply chain operations management is the
building block that makes things happen.

The three P’s
• People
• Process
• Place & technology

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Distribution management
Main components:
• Distribution strategy
• Warehouse operations
• Stock management
• Transport planning

Two building blocks:
• Physical distribution
• Strategic alliances

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Systems & procedures
Systems and procedures are essential components
to integrate the building block configurations of the
total supply chain. There are three major
categoriesof systems and procedures:

• External regulatory and internal quality standards
• Financial and accounting procedures
• Information and communication technology

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Sales & Operational planning
S&OP is a cross-functional management review
process to integrate the activities of the total
supply chain.
• Historically S&OP is linked to MRPII processes
• Production planning reviewed on monthly
basis
• Without cross functional communication this
is an ineffective process
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Performance management
• Performance management acts both as a
driving force of improvement and a fact-based
integrating agent to support the
planning, operations and review processes.
• The foundation of performance management
is rooted to quality management principles
supported by key performance indicators.

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Quality definition
• Basu (2004) defines quality with three
dimensions, such as design quality
(specification), process quality (conformance)
and organization quality (sustainability). When
an organization develops and defines its
quality strategy, it is important to share a
common definition of quality and each
department within a company can work
towards a common objective.
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Which company fits the profile?

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Closing thought
Many elements make up the Supply chain building blocks.

Understanding the value chain ands it interceding elements
will ensure good SCM practice is employed.

Looking at one metric is fool hardy, one must understand all
elements of the supply chain configuration to be able to
make informed decisions relating to trade offs to give overall
best cost supply chain operation.

Fassam

Week 1 building blocks of scm

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