Supply Chain Basics

• A supply chain encompasses all parties involved, directly or indirectly, in fulfilling a customer request, including manufacturers, suppliers, transporters, warehouses, retailers, and customers.
• A good supply chain creates value through quality, service, cost, and lead time.
  • Quality refers to the functionality, performance, and technical specifications of the product or service.
  • Service includes availability, support, and commitment provided to the customer.
  • Cost includes transaction costs like price and life cycle expenses.
  • Lead time is the time it takes to respond to customer requirements.
• Supply chain profitability equals the total profit shared across all supply chain stages and intermediaries.
• A supply chain network consists of information, product, and fund flows.

Flows in a Supply Chain

• Information flow impacts reactivity, flexibility, and visibility within the supply chain.
• Product flow ensures the right product is at the right place, at the right time, and at the best price, emphasizing quality, reliability, and speed.
• Fund flow focuses on cost efficiency, market share, and rate of return.
• Cross-docking accelerates goods delivery and increases supply chain efficiency by transferring goods from incoming to outgoing shipments with minimal storage time.
• Logistics service providers (LSPs) are outsourced companies offering supply chain management services like transportation, warehousing, and distribution (e.g., DHL, FM Logistics). 3PL is more operational, offering one or more of the listed services; 4PL focuses on overall supply chain management, integrating resources and technologies.

3PL and 4PL Benefits and Drawbacks

• Using 3PL and 4PLs helps expand to new markets, narrow focus, and reach more customers effectively.
• Drawbacks of using 3PL and 4PLs may include high costs, loss of internal logistics management capabilities, LSP selection challenges, data security concerns, service degradation, loss of control, collaboration with competitors, and reduced customer contact.

SCM vs Logistics

• Supply chain management (SCM) involves planning and managing all activities in sourcing, procurement, conversion, and logistics management with suppliers, intermediaries, third-party service providers, and customers.
• Logistics management, a part of SCM, plans, implements, and controls the efficient flow and storage of goods, services, and related information to meet customer requirements.
  • Tasks include: transportation, storage, packaging, inventory, order fulfillment, and facility location.
• Logistics strategy formulation is vital due to environmental pressures.

Supply Chain Risks

• Internal risks include organizational boundaries (machine breakdowns, IT failures), import or export restrictions, transportation failures, increasing customs duties, and rising raw material prices.
• External risks include politics, supplier failure, supplier quality issues, natural disasters, and accidents.
• The bullwhip effect describes how small demand fluctuations at the retail level can cause progressively larger fluctuations at the wholesale, distributor, manufacturer, and raw material supplier levels.

Causes & Consequences of the Bullwhip Effect

• Possible causes: lack of communication, misinterpretation, material shortages, non-zero lead times, batch ordering, and price variations.
• Consequences: excessive inventory investment, lost revenue, declines in customer service, delayed schedules, layoffs, or bankruptcies.

Managing Risks

• Upstream/downstream integration involves working closely with SC actors to reduce surprises, addressing operational risks.
• Gaining visibility using point-of-sale data is useful to trace customer consumption.
• Financial risk mitigation includes managing exchange rates, price fluctuations and using long-term commitments to anticipate and stop prices from rising.
• To build a resilient supply chain, speed, agility, flexibility, and visibility are needed.

Kraljic Matrix

• The Kraljic Matrix is used for procurement strategy.
• High-risk items have a limited number of suppliers, are difficult to source, or are subject to price volatility.
  • Non-critical items strategy: optimise purchasing efficiency and standardisation.
  • Leverage items strategy: take advantage of negotiation power, consolidate suppliers, and seek volume discounts.
  • Bottleneck items strategy: use long-term contracts and multiple sourcing.
  • Strategic items strategy: develop partnerships, invest in innovation, and vertically integrate supply chains to reduce dependency.

Information Systems

• TMS (transportation management systems) are platforms that assist businesses in planning, undertaking, and optimising the movement of products.
• WMS (warehousing management systems) include inventory, order management, location tracking, and reporting.

Creating an Effective Supply Chain

• Pressures include: Sales, marketing, product development, dynamic sales volumes, customer service, and service and product proliferation.
• Dynamic sales volumes require collaboration to mitigate excessive inventories, underutilized personnel, and expensive deliveries to meet consumer needs.
• Building a supply chain strategy involves deciding on resource allocation, outsourcing vs. in-house operations, facility location, production capacities, warehousing and transportation modes.

Supply Chain Planning

• SC planning aims to maximise the surplus generated given the constraints.
  • Considerations include target markets, subcontracting, and inventory policies.
• Operations involve handling incoming customer orders optimally on a weekly or daily basis.
  • Short time periods mean there is less uncertainty about demand information.