BBDS 2043 Supply Chain Management PDF

Chapter 5: Supplier Quality Management.................................................................................. 3 1. What is Supplier Quality? (Latest CS)...................................................................................3 2. Importance of Supplier Quality (Latest CS)....

Chapter 5: Supplier Quality Management.................................................................................. 3 1. What is Supplier Quality? (Latest CS)...................................................................................3 2. Importance of Supplier Quality (Latest CS).......................................................................... 3 3. Factors influencing commitment in Supplier Quality (Latest CS)........................................ 3 4. Elements of Six Sigma (Latest Essay Ques)..........................................................................3 5. Statistical Tools of Six Sigma (Latest Essay Ques)............................................................... 3 Chapter 8: Purchasing and Supply Chain Management........................................................... 4 1. Inventory | Inventory Strategy (Latest CS)............................................................................ 4 2. Transportation (Latest CS).....................................................................................................4 3. Logistical Integration (Latest CS)..........................................................................................4 4. Supply Chain Inventory (Latest CS)......................................................................................4 5. Types of Inventory (Latest Essay Ques)................................................................................ 4 6. Inventory-Related Costs (Latest Essay Ques)........................................................................5 7. Reason to invest in Inventory................................................................................................ 6 8. Wrong Reasons to invest in Inventory...................................................................................6 9. Aggregate Production Plan (Latest Essay Ques)................................................................... 6 Chapter 15: Supply Chain Information Systems........................................................................7 1. Enterprise Resource Planning (ERP) (Latest Essay)............................................................. 7 2. Internal Information System- ERP | Implementing ERP Systems (Latest Essay).................7 3. Implementing ERP Systems (Latest Essay)...........................................................................8 4. ERP Implementation Life Cycle (Latest Essay).................................................................... 9 5. Barriers to ERP Implementations (Latest Essay).................................................................10 6. Databases and Data Warehouses (Latest Essay).................................................................. 10 7. Types of file in the database (Latest Essay)......................................................................... 11 8. Importance of Centralized Database (Latest Essay | CS).................................................... 12 Chapter 16: Electronic Data Interchange..................................................................................13 1. Information Visibility in Supply Chain Management (SCM): (Latest CS)......................... 13 2. Benefits of Information Visibility: (Latest CS)................................................................... 13 Case Study.................................................................................................................................... 15 1. What is Supply Chain Resilience?.......................................................................................15 2. Inventory Management:....................................................................................................... 15 3. Supplier Relationship Management and Sourcing:..............................................................16 4. Investing in Supply Chain Technologies............................................................................. 16 Supply Chain Strategies to Mitigate Future Disruptions:....................................................... 17 1. Diversifying Supply Base:................................................................................................... 17 2. Reevaluating Just-in-Time (JIT) Production:...................................................................... 17 3. Reshoring or Nearshoring Production:................................................................................ 17  4. Outsourcing Procurement Operations:.................................................................................17 5. Supply Chain Challenges Impacted Operations.................................................................. 17 6. Technologies Implementation.............................................................................................. 20 7. Supply Chain Metrics for Resilience (Time-to-Recover).................................................... 20 8. Vulnerable vs. Resilient Supply Chains...............................................................................21 9. 5 Strategies to Build a Resilient Supply Chain....................................................................21 10. Supply Chain Resiliency Best Practices............................................................................ 22 11. Why Supply Chain Resilience Is Important.......................................................................23 Chapter 1: Introduction to Supply Chain Management.......................................................... 25 1. Importance of Supply Chain Management.......................................................................... 25 Chapter 2: Purchasing Management......................................................................................... 27 1. The role of supply management in an organization............................................................27 2. Why is purchasing important? (Importance of Purchasing)................................................ 28 Chapter 3: Sourcing Strategy..................................................................................................... 29 1. Sourcing Decisions (Insource vs Oursource | Make-or-Buy Decision)............................... 29 2. Roles of supply base; (What is the supply base?)................................................................31 3. Ethical and Sustainable Sourcing Initiatives........................................................................31 4. Longer-term Supplier Relationships (organizations can enhance their competitive position and achieve greater success in their markets.)......................................................................... 33 5. Early Supplier Design Involvement.....................................................................................34 6. Supplier Development......................................................................................................... 35 7. Total Cost of Ownership (TOS)........................................................................................... 36 Chapter 4: Supplier Evaluation..................................................................................................37 1. Potential Supply Source.......................................................................................................37 2. Determine Sourcing Strategy...............................................................................................38 3. Sourcing Alternatives...........................................................................................................39 4. Supplier Selection Criteria...................................................................................................41 5. Single Supplier or Two or More Suppliers.......................................................................... 43 6. Critical Issues in Supplier Section....................................................................................... 44 7. Limiting Suppliers in Selection Pool (Essay Ques).............................................................46 8. Method of Supplier Evaluation and Selection (Latest Essay Ques).................................... 47 9. Key Evaluation Criteria (Latest Essay Ques)...................................................................... 48 Chapter 7: Strategic Cost Management.................................................................................... 49 1. Market Structure (Latest CS)............................................................................................... 49 2. Benefits of Long-Term Contracts (Latest CS)..................................................................... 49 3. Risk of Long-Term Contracts (Latest CS)........................................................................... 49 Chapter 12: Managing Global Pipeline..................................................................................... 49 Chapter 13: Creating a World-Class Supply Base....................................................................49 Chapter 5: Supplier Quality Management 1. What is Supplier Quality? (Latest CS) 2. Importance of Supplier Quality (Latest CS) 3. Factors influencing commitment in Supplier Quality (Latest CS) 4. Elements of Six Sigma (Latest Essay Ques) DMAIC Improvement Cycle a. Define: Identify customer service or product requirements critical to achieving customer satisfaction. b. Measure: Prepare a data-collection plan. Determine what to measure for each process gap and how to measure it. c. Analyze: Perform a process analysis. Use Pareto charts and fishbone diagrams to identify the root causes of the process variations or defects. d. Improve: Design an improvement plan. Remove the causes of process variation by implementing the improvement plan. e. Control: Monitor the process to assure that performance levels are maintained. If performance gaps are identified, repeat Steps 1–5. 5. Statistical Tools of Six Sigma (Latest Essay Ques) Flow Diagrams Check Sheets Pareto Charts Cause-and-Effect Diagrams Chapter 8: Purchasing and Supply Chain Management 1. Inventory | Inventory Strategy (Latest CS) 2. Transportation (Latest CS) 3. Logistical Integration (Latest CS) 4. Supply Chain Inventory (Latest CS) Lean supply chain inventory management focuses on 3 key objectives: Flow, Pull, and Striving for Excellence. Flow Focus on continuous movement of inventory through the supply chain. Minimize queuing and eliminate non-value-added activities. Enhance efficiency and reduce delays by ensuring seamless progression through each stage. Pull Demand-driven approach where customer orders initiate the work process. Prevent overproduction and excess inventory by aligning production with actual customer needs. Promote effective communication and visibility across the supply chain for responsiveness. Striving for Excellence Commitment to perfect quality to avoid increased costs, delays, and customer dissatisfaction. Adopt rigorous quality control measures (e.g., Six Sigma, Kaizen) for continuous improvement. Engage employees at all levels to drive process enhancements. Build customer trust and loyalty through consistent high-quality delivery and cost reduction. 5. Types of Inventory (Latest Essay Ques) a. Raw Materials and Semi Finished Item Inventory: Basic inputs and partially completed products essential for manufacturing. b. Work in Process (WIP): Items currently in production but not yet finished. c. Finished Good Inventory: Completed products ready for sale to customers. d. Maintenance, Repair, and Operating (MRO) Supplies Inventory: Tools and materials needed to maintain and operate production facilities. e. Pipeline/In Transit Inventory: Inventory in transit within distribution channels (e.g., products on trucks or on grocery store shelves not owned by the store). 6. Inventory-Related Costs (Latest Essay Ques) a. Unit Costs: Costs incurred to purchase or produce a single unit, including materials, labor, and overhead. Example: A manufacturer incurs $50 per unit for materials and labor in gadget production. b. Order Costs: Expenses associated with placing and processing orders, including shipping, handling, and administrative costs. Example: A company spends $200 per order for shipping and processing. c. Carrying Costs: Expenses related to storing inventory, such as warehousing, insurance, and depreciation. Example: A retailer pays $1,000 annually in storage fees and insurance. d. Quality Costs: Costs incurred to ensure product quality, including prevention, appraisal, and failure costs. Example: A company spends $5,000 on quality control inspections to prevent defects. e. Fixed Costs; Variable Costs; Setup Costs Fixed: Expenses that remain constant regardless of production levels. Variable: Costs that vary based on production volume. Setup: Costs related to preparing equipment or facilities for production. 7. Reason to invest in Inventory To meet customer demand. To take advantage of price discounts. To protect against supplier lead-time fluctuations. 8. Wrong Reasons to invest in Inventory Fear of stockouts without data to support it. Lack of proper demand forecasting. Excessive bulk purchasing leading to high carrying costs. 9. Aggregate Production Plan (Latest Essay Ques) a. Chase Strategy Adjusts production capacity to match demand. Involves hiring and laying off workers based on demand. Effective for make-to-order firms with low-skilled labor but can be challenging in tight labor markets requiring skilled workers. b. Level Strategy Maintains constant production output. Relies on inventory and backlogs to meet fluctuating demand. Suitable for make-to-stock firms but incurs high carrying and stockout costs. c. Mixed Production Strategy: Combines elements of chase and level strategies. Maintains a stable core workforce while using overtime, subcontracting, or part-time workers. Effective for firms producing multiple products with varying demand cycles, providing flexibility. Chapter 15: Supply Chain Information Systems 1. Enterprise Resource Planning (ERP) (Latest Essay) Introduction of ERP Systems: ERP systems streamline business processes by integrating various departmental functions (accounting, finance, sales, operations) into one unified system. Before ERP, departments used separate software systems, leading to data duplication, confusion, and errors. Benefits of ERP Systems: ERP systems use a single database to manage essential business functions, reducing errors and improving data accuracy. They improve efficiency by automating routine decisions and transactions. ERP systems provide raw data necessary for higher-level planning and strategic decision-making. 2. Internal Information System- ERP | Implementing ERP Systems (Latest Essay) ERP systems track resources, people, processes, and technology, serving as the backbone of organizational decision-making. They establish clear and organized business processes, facilitating collaboration across departments. Example: Sales reps can enter orders into the ERP system and access production schedules, generating accurate delivery timelines. ERP and Business Process Flow: ERP integrates customer order management, manufacturing execution, purchasing, and financial management. It drives material requirements, creating purchase orders automatically to ensure timely supplier deliveries. 3. Implementing ERP Systems (Latest Essay) To successfully implement an ERP system, a company should follow four key steps (Define and document, Define, Develop, Work) to ensure that its business processes are effectively improved and restructured. Define and Document: The ERP implementation team must first define and document the current business processes to understand how they function before making changes. Outline Best Practices: The team should outline what the best business processes should look like after ERP implementation. Clear goals and a vision for the new system are essential to ensure alignment with business objectives. Develop the System: System development is an ongoing process where experts work closely with managers to tailor ERP functionalities to specific business processes. Switch and Resolve Issues: The final step involves resolving any outstanding issues and transitioning from the old system to the new one. The transition is a critical period that carries risks, as the business may not be fully prepared or the system may not yet handle all activities seamlessly. 4. ERP Implementation Life Cycle (Latest Essay) a. Discovery: Gather organizational requirements, understand processes, and define goals for the ERP system. b. Design: Outline the structure of the ERP system to meet organizational needs, including workflow and data management. c. System Build-Out: Configure and customize the ERP system based on design specifications, integrating necessary features and functionalities. d. Testing: Conduct rigorous testing to ensure the system functions correctly and meets requirements; identify and fix issues. e. Training: Train employees on how to effectively use the new system and understand its features to perform their tasks. f. Cutover Phase: Transition from the old system to the new ERP system and go live with the software. g. Post-Cutover Support: Provide ongoing support to address any issues and ensure smooth operation in the real-world environment. 5. Barriers to ERP Implementations (Latest Essay) a) Lack of Top Management Commitment: Insufficient support from leadership can demotivate employees and slow down progress. b) Lack of Adequate Resources: Insufficient financial, human, or technological resources can delay implementation and compromise project success. c) Lack of Proper Training: Inadequate training can lead to mistakes, decreased productivity, and frustration among employees. d) Lack of Communication: Poor communication can create misunderstandings and resistance, hindering the implementation process. e) Incompatible System Environment: Existing systems that do not integrate well with the new ERP can create data silos and increase complexity. 6. Databases and Data Warehouses (Latest Essay) Databases A structured collection of data designed for real-time transaction processing and operational tasks by handling transactional data related to business activities. Example, a retail company might use a database to manage its inventory, tracking items in stock, sales transactions, and customer orders. Data Warehouses A centralized repository for storing large volumes of historical data for analysis and reporting. Data warehouses aggregate and consolidate data, allowing organizations to perform complex queries and generate insights over time. Example, a manufacturing company may use a data warehouse to analyze production trends, inventory levels, and sales performance across multiple years, enabling strategic decision-making and forecasting.  Differences Between Databases and Data Warehouses Purpose: Databases: Facilitate real-time transaction processing for daily operations. Data Warehouses: Focus on analysis, reporting, and data mining of historical data. Data Structure: Databases: Contain current operational data that is frequently updated. Data Warehouses: Store historical data organized for analysis, with less frequent updates. Example Database: A company uses a database to record daily sales transactions and update inventory levels in real-time. Data Warehouse: The same company analyzes sales trends over five years in a data warehouse to inform future strategies. 7. Types of file in the database (Latest Essay) Part File: Records part numbers or SKUs to identify unique purchased entities. Used by firms to manage thousands of items. Supplier Name and Address File: Stores the names and addresses of every supplier a firm works with. Historical Usage File: Contains past usage data by part number and location. Supports inventory analysis and material forecasts. Open-order and Past-Due File: Lists current open orders, including overdue ones. Helps monitor order status and manage supplier relationships. Bill of Material (BOM) File: Outlines components needed for product manufacturing. Details quantities, part numbers, and necessary assemblies for production planning.  Engineering Requirement File: Includes product design and engineering specifications. Ensures technical aspects are documented for development. Forecasted Demand File: Stores future demand predictions based on historical data and market trends. Aids in inventory planning and resource allocation. 8. Importance of Centralized Database (Latest Essay | CS) Improve Data Accuracy and Consistency: Centralizes data access, reducing discrepancies and errors. Ensures all users access reliable, consistent information. Real-Time Data Access and Visibility: Provides updated information in real time for timely decision-making. Enhances operational responsiveness and progress tracking. Enhance Collaboration and Communication: Facilitates better team collaboration by offering a single source of truth. Allows departments to easily share and access information. Enhance Forecasting and Inventory Management: Consolidates data for more accurate historical trend analysis. Improves inventory management by aligning stock levels with demand forecasts. Increased Efficiency: Reduces time and effort on data entry and system reconciliation. Streamlines processes, leading to greater operational efficiency and productivity. Chapter 16: Electronic Data Interchange 1. Information Visibility in Supply Chain Management (SCM): (Latest CS) Definition: Information visibility involves sharing essential real-time data between suppliers and customers for effective product, service, and information management. Supply Chain Visibility: Utilizes technology to track product location and condition throughout the supply chain. Real-time data helps with analytics to improve inventory management, minimize delays, reduce costs, and increase sustainability by optimizing transport efficiency and reducing waste. Collaborative Benefits: Trading partners share forecasts, manage inventories, schedule labor, and optimize deliveries, leading to reduced costs, improved productivity, and greater customer value while lowering environmental impact. 2. Benefits of Information Visibility: (Latest CS) a. Breaks Organizational Barriers: Enables real-time sharing of critical business activity information across the supply chain, enhancing collaboration. b. Builds Visibility: Provides real-time snapshots of supply chain performance metrics, increasing transparency. c. Manages by Metrics: Aligns performance indicators with cross-organizational processes and assigns specific ownership of metrics to individuals. d. Reduces Decision-Making Cycle: Enables quicker responses to market or customer demands, shortening decision-making from weeks or months to hours or days. e. Encourages Collaborative Decision-Making: Facilitates online discussions among internal and external stakeholders, leading to more informed decisions. f. Reduces Latency in Problem Resolution: Monitors supply chain activities iteratively, enabling swift responses to events as they occur. Case Study 1. What is Supply Chain Resilience? Definition: The ability of a company to navigate and recover from unexpected supply chain disruptions without significant impact on operations or customer timelines. 2. Inventory Management: a. Just-in-Time Approach: Traditional strategy holding just enough stock (cycle stock) plus buffer stock for unexpected increases in demand or delays. Reduces excess inventory to avoid tying up capital and space. b. Need for a Conservative Strategy: Recent disruptions necessitate holding more buffer stock due to longer lead times. c. Toyota’s Strategy Shift: Increased semiconductor inventory from 3 to 5 months to mitigate MLCC shortages, maintaining efficiency without sacrificing profits or production. d. Optimized Inventory Strategies: Investing in better inventory management can enhance order flexibility and service performance. Key strategies include: Managing Long Lead Times: Planning for material delays. Inventory Positioning: Strategically placing inventory to meet demand. Safety Stock: Extra stock for unexpected demands. Dynamic, Localized Replenishment Models: Delivering materials based on actual needs rather than forecasts. 3. Supplier Relationship Management and Sourcing: a. Defined Sourcing Strategy: Focus on managing supply chain risks alongside costs with clear reasons for choosing specific suppliers. b. Avoid Single-Source Relationships: Expanding the supplier network helps mitigate risks. c. Interest in Reshoring and Nearshoring: Growing interest to shorten supply chains and reduce lead times. Challenges include local capacity limitations and higher vertical integration costs. 4. Investing in Supply Chain Technologies Supply Chain Strategies to Mitigate Future Disruptions: 1. Diversifying Supply Base: Source materials and components from multiple suppliers to reduce reliance on a single source and minimize risk. Example: Toyota expanded its supplier network after the 2011 earthquake in Japan to avoid production delays by sourcing parts from different manufacturers. 2. Reevaluating Just-in-Time (JIT) Production: Adjust JIT practices by maintaining higher inventory levels and buffer stocks to manage disruptions without halting production. Example: An electronics manufacturer began keeping additional stock of critical components during the COVID-19 pandemic to avoid delays. 3. Reshoring or Nearshoring Production: Bring production closer to the end market to reduce lead times and transportation risks, improving responsiveness to local demand. Example: General Motors has reshored some production to U.S. facilities to reduce dependence on global supply chains. 4. Outsourcing Procurement Operations: Outsource procurement to specialized firms to enhance efficiency and leverage expert knowledge for better risk management. Example: A retail company might outsource procurement to a third-party firm to manage demand fluctuations and supply disruptions more effectively. 5. Supply Chain Challenges Impacted Operations a. Component/Material Shortages: Shortages of key components or materials can halt production and delay product delivery, often due to supply chain disruptions or increased demand. Example: During the semiconductor shortage, Ford faced production delays, leading to reduced vehicle availability. b. Unplanned Disruptions to Supplier Operations: Unexpected events, such as natural disasters or political instability, can disrupt supplier operations, affecting the entire supply chain. Example: A factory fire at a key supplier caused Apple to experience delays in iPhone production, impacting their launch timelines. c. Long Order to Delivery Lead Times for Components/Materials: Extended lead times hinder an organization's ability to respond quickly to market demands, leading to missed sales opportunities. Example: A furniture manufacturer reliant on imported wood faced shipping delays, preventing them from fulfilling customer orders during peak seasons. d. Labor Shortage: A shortage of skilled labor can slow production processes and increase operational costs, often due to economic or demographic shifts. Example: The construction industry experienced labor shortages, causing project delays and higher costs for builders. e. Component/Materials Price Increases: Rising prices for components and materials can erode profit margins and lead to higher consumer prices, as companies struggle to absorb these costs. Example: The 2021 steel price surge led General Motors to increase vehicle prices to maintain profitability while managing rising material costs. Talent Acquisition Focus Companies should view talent acquisition as a way to prevent future supply chain disruptions. Seek employees with skills that can support the organization in navigating challenges, such as knowledgeable engineers, procurement specialists, and supply chain managers. Look for individuals with market knowledge to help the company stay ahead of trends, as manufacturing demands continuous adaptation. Organizing for Success Once the right talent is acquired, structure the organization effectively: Commodity Management Team: Focuses on short-term goals and specializes in specific commodity markets. Keeps up with new products, supply chain developments, pricing changes, and market activities to mitigate cost increases and component shortages. Supplier Relationship Team Works with a long-term technology roadmap and does not handle price negotiations like commodity managers. Aims to build strong relationships with suppliers at the executive level by understanding their core strategies and proposing mutually beneficial opportunities. Value of Supplier Relationships Companies recognize the importance of supplier relationship management for overall supply chain strategy. According to a Jabil and IndustryWeek survey, nearly 71% of respondents rated supplier relationship management a 4 or 5 on a five-point scale for its importance to supply chain resiliency. 6. Technologies Implementation 7. Supply Chain Metrics for Resilience (Time-to-Recover) Time-to-recover: Refers to the duration it takes for a business to restore its operations and clear any backlog of work after a disruption. This metric includes the time to resume normal operations and fulfill outstanding orders accumulated during the disruption. ○ Example: After the COVID-19 outbreak, many factories in China reopened in three weeks, but took an additional three to four months to recover their backlogs of orders due to reduced staffing and operational inefficiencies. 8. Vulnerable vs. Resilient Supply Chains a. Without Resilient Supply Chains: Frequent disruptions: Disruptions from natural disasters, political instability, or economic changes can halt operations and cause delays. Fractured relationships: Poor communication and strained relationships with suppliers and customers can stunt growth. Profit margin decline: Increased costs and lost sales from frequent disruptions shrink profit margins, putting financial pressure on the business. High recovery expenses: Rebuilding after disruptions involves exorbitant costs, including sourcing materials, hiring staff, and implementing new processes. b. With Resilient Supply Chains: Proactive disruption management: Incorporates proactive measures like risk assessments and contingency planning to manage disruptions effectively. Enhanced collaboration and customer service: Leads to faster growth through improved efficiency and responsiveness. Cost optimization: Resilient supply chains streamline processes and reduce waste, improving profitability. Increased flexibility: Adaptable supply chains recover faster and more cost-effectively, maintaining customer satisfaction. 9. 5 Strategies to Build a Resilient Supply Chain a) Multi-Threaded Procurement Approach: Avoid reliance on a single supplier; diversify with multiple suppliers to spread risk. Example: Contract with different suppliers for a specific metal so if one fails, others can provide the material. b) Diversity in Shipping Network: Use multiple shipping routes and transport methods to ensure goods can still be delivered even if one method faces delays. Example: Switch ports or use trucks if a port is congested to keep deliveries on track. c) Better Control Over Inventory: Balance stock levels by maintaining enough inventory to avoid shortages while minimizing excess stock costs. Example: Use technology to predict demand and adjust orders automatically, while keeping extra stock of essential items. d) Optimize Processes to Mitigate Risks: Regularly assess vulnerabilities in the supply chain and develop strategies to minimize risks. Example: If a supplier is in a natural disaster-prone area, have a backup plan to source materials elsewhere if needed. e) Leverage Supply Chain Technology for Visibility and Agility: Use technology for real-time tracking and insights into supply chain operations, enabling quicker responses to issues. Example: Implement tracking systems for real-time visibility into shipments, allowing coordination between suppliers and customers. 10. Supply Chain Resiliency Best Practices a) Know Your Options: Build a strong network of multiple suppliers to create trust and transparency, avoiding reliance on just one supplier. Use technologies like blockchain to quickly onboard and manage new suppliers, sharing information securely and efficiently. b) Make Data-Driven Decisions: Gain complete visibility into your supply chain, from suppliers to inventory and customer orders. Use AI and analytics to spot potential disruptions early and make smarter, proactive decisions. Leverage technology to improve customer satisfaction, as consumers favor businesses that minimize delays using advanced technologies. c) Manage Expectations: Plan for unavoidable disruptions and maintain clear communication with customers. Keep customers informed about decisions and actions, showing commitment to transparency and maintaining trust. Provide up-to-date information on inventory and orders to continue delivering value during challenges. 11. Why Supply Chain Resilience Is Important a) Backbone of the Global Economy: Supply chains connect producers, suppliers, and consumers globally, ensuring economies function effectively. Example: Toyota relies on a vast network of global suppliers for parts, and any delay can halt production and impact the global automotive market. b) Complexity of Supply Chains: Modern supply chains involve intricate relationships with suppliers, manufacturers, logistics providers, and retailers. Example: Smartphone production involves sourcing components from several countries, and a disruption in any region can delay production. c) Need for Resilience: Companies must develop adaptable networks that can withstand disruptions and maintain operations. Example: During COVID-19, Unilever shifted to local suppliers to avoid global shipping delays and ensure product availability. d) Inevitability of Disruptions: Disruptions can arise from natural disasters, political instability, or pandemics, and cost-efficient systems can hinder resilience. Example: Many retailers relying on just-in-time systems faced challenges during the pandemic, leading to store closures and inventory shortages. e) Limited Options During Crises: Supply chains optimized for cost reduction can become rigid, limiting flexibility during crises. Example: A food manufacturer relying on one supplier may struggle during disruptions, while a company with a diverse supplier base can pivot quickly to alternative sources. BBDS 2043 Supply Chain Management (11/10,3pm) Chapter 1: Introduction to Supply Chain Management 1. Importance of Supply Chain Management a) Reduced Bullwhip Effect Bullwhip Effect Definition: Build-up of safety stocks due to poor forecasting and communication. Causes order quantities to increase throughout the supply chain. Amplification of order increases as the product moves farther down the supply chain. Results in overstock and excess costs for firms in the supply chain. Causes: Poor communication between supply chain links. Inaccurate or non-shared demand forecasts. Solutions: Better communication between supply chain partners. Sharing of upcoming demand forecasts to improve order accuracy. Building trust and working relationships between firms and manufacturers. Reliable manufacturers with high-quality products and services lead to single-source supply. Single-source supply allows better planning and reduces over-ordering. Example: Actual demand = 20 widgets. Company A orders 25 widgets from Distributor B (adds 5 for safety stock). Distributor B orders 30 widgets from Supplier C (bulk order for cost savings). Supplier C orders 36 widgets from Manufacturer D (includes 20% safety stock). Manufacturer D produces 50 units (production runs) for a demand of 20. Excess production causes overstock and increased costs at each stage. b) Current Trends in Supply Chain Management (focus on improving sustainability): 1. Supply Chain Analytics: Helps businesses process large volumes of data across sectors (retail, healthcare, manufacturing. Benefits: Improve processes by identifying problems early. Reduce costs through optimized inventory and logistics management. Increase productivity by predicting demand and preventing bottlenecks. Drive innovation by understanding customer preferences and market trends. Enhance societal outcomes by tracking and reducing carbon footprints, waste, and improving labor conditions 2. Supply Chain Visibility: Utilizes technology to track products and their condition in real time throughout the supply chain. Benefits: Improved decision-making and responsiveness in inventory management. Minimize delays and costs from lost or mismanaged shipments. Increase sustainability by reducing waste and improving transportation efficiency. Technology enables easier inventory tracking with software applications for: a. Order tracking. b. Inventory management. c. Delivery monitoring. d. Handling returns. e. Employee attendance tracking. Chapter 2: Purchasing Management 1. The role of supply management in an organization. a. Sourcing and Procurement Supply management is responsible for identifying and acquiring the best materials and services at the lowest total cost, ensuring that production runs smoothly. b. Supplier Relationship Management Building and maintaining strong relationships with reliable suppliers helps improve quality and reliability, fostering collaboration and trust. c. Quality Assurance Supply management plays a role in setting quality standards and working with suppliers to ensure that materials meet these standards, leading to better finished products. d. Cost Control By analyzing and managing purchasing costs, supply management helps the organization reduce expenses, contributing to overall profitability. e. Collaboration in Product Development Involving suppliers in product design and development ensures that materials and processes align with product goals, leading to innovation and improved customer satisfaction. 2. Why is purchasing important? (Importance of Purchasing) a. Increasing Value and Savings: Suppliers influence total costs (unit, order, transportation). Capable suppliers reduce costs through better technology and efficiency. Savings can be reinvested in product quality and process improvements. b. Building Supplier Relationships Long-term relationships encourage better supplier performance. Trust and collaboration are key for future projects. Early supplier involvement in design brings new ideas and reduces costs. c. Impact on Material Quality Purchasing affects material quality, which influences the organization’s reputation. Specialization by suppliers on specific components enhances their skills, leading to better quality. d. Reducing Time to Market Shorter lead times enable faster product delivery. Supplier involvement in the design process eliminates unnecessary steps, improving efficiency and planning. e. Managing Supplier Risks Understanding suppliers helps manage risks like late deliveries or quality issues. Risks can be identified through supplier communication or market research. Preparation of alternative plans reduces supply chain disruptions. f. Gaining Competitive Advantage Effective purchasing of high-quality materials provides a competitive edge. Developing internal talent ensures sustained advantage. Experienced purchasers save time and resources through their expertise and relationships. Chapter 3: Sourcing Strategy 1. Sourcing Decisions (Insource vs Oursource | Make-or-Buy Decision) Reasons for BUYING or OUTSOURCING a. Cost Advantage Leverages suppliers' economies of scale to reduce costs. Suppliers may have lower labor or production costs. Eliminates overhead costs of in-house production (e.g., equipment maintenance, staffing). b. Insufficient Capacity Outsourcing helps meet demand when internal capacity is limited. Avoids costly investments in new equipment or facilities. Enables quick scaling of operations during peak periods without long lead times.. c. Lack of Expertise Access to specialized skills or knowledge that the company lacks. Eliminates the need to train staff or hire new talent. Experts from outside provide innovative solutions and improve performance in specialized areas. d. Quality Improvement: Reputable suppliers enhance product quality through advanced technologies or specialized skills. Suppliers with focused expertise often have better processes and quality controls. e. Flexibility Allows organizations to respond quickly to changing market demands. Avoids fixed costs associated with in-house production. Enables adaptability to new opportunities or challenges without long-term resource commitments. Reasons for MAKING or INSOURCING a. Risk Reduction Reduces the risk of supply chain disruptions (e.g., delays, quality issues). Maintains control over critical or sensitive processes, minimizing external uncertainties. b. Better Quality Control Allows tighter control over the production process. Enables enforcement of in-house quality standards and assurance processes, leading to consistency and reliability. c. Control of Lead Time, Transportation, and Warehousing Costs: Better management of lead times, allowing faster responses to customer demands. Eliminates transportation complexities and external warehousing costs, streamlining logistics. d. Ensure Alignment with Organizational Goals and Objectives Ensures production processes align closely with strategic goals, brand values, and mission. Promotes collaboration among departments for improved innovation and product development. e. Protection of Intellectual Property Prevents exposure of sensitive company data to external suppliers, reducing the risk of data breaches. Keeps intellectual property secure by maintaining full control over internal processes and information. 2. Roles of supply base; (What is the supply base?) Definition: A supply base refers to the list of suppliers used by a firm to acquire materials, services, supplies, and equipment. Strategic Alliances: Emphasizes long-term relationships with suppliers, often consolidating volume with one or few suppliers. Preferred Suppliers: Provide product and process technology, expertise, and support. Offer insights on trends in materials, processes, designs, and the supply market. Have the capacity to meet unexpected demand, ensuring responsiveness to fluctuations. 3. Ethical and Sustainable Sourcing Initiatives a. Strategic supplier alliances Long-Term Cooperation and Trust: ○ Focus on sustained collaboration over short-term transactions. Shared Benefits and Costs: ○ Both buyer and supplier share the benefits (efficiency, quality) and the costs (innovations, improvements). Joint Problem Solving: ○ Work together to find solutions and foster innovation, rather than assigning blame. Continuous Improvement: ○ Both parties commit to regular enhancements in processes, products, and services. Information Sharing: ○ Share data (market trends, production capabilities, customer preferences) to align strategies and improve responsiveness. b. Supply Base Rationalization Focuses on reducing orders from underperforming suppliers and strengthening relationships with reliable suppliers. Results in better product quality, reduced risks, stronger teamwork, and more dependable supply chains. Encourages better deals and innovation opportunities through close collaboration. c. Outsourcing Outsourcing non-core functions to external suppliers allows companies to focus on core business activities. Enhances operational efficiency by leveraging suppliers’ specialized expertise and economies of scale. Leads to cost savings, allowing resources to be redirected to strategic initiatives and core competencies. d. Vendor Managed Inventory (VMI) Suppliers manage the buyer’s inventory levels, reducing carrying costs and preventing stockouts. Ensures smoother production processes and improved service levels. Allows buyers to focus on core activities while suppliers optimize inventory delivery schedules and order quantities. Strengthens the buyer-supplier relationship, offering opportunities for further collaboration and education on additional products/services. 4. Longer-term Supplier Relationships (organizations can enhance their competitive position and achieve greater success in their markets.) a. Selection and Continuous Involvement Involves careful selection of suppliers and sustained engagement over 3+ years. Builds trust, fosters effective communication, and aligns goals between buyer and supplier. Suppliers become familiar with the buyer's specific needs and challenges, leading to tailored solutions and enhanced performance. b. Focus on Exceptional Performance and Unique Expertise Partner with suppliers who consistently meet quality standards and bring innovative solutions. Suppliers with specialized knowledge or advanced technologies help reduce costs and improve product quality. Provides the buyer with a competitive edge through technological expertise and process improvements. c. Provision of High-Value Items and Services Focus on suppliers that provide high-value items or services critical to the buyer’s product offerings. Enhances the buyer's value proposition by ensuring cost-effective and high-quality inputs. High-value partnerships foster innovation and lead to improved product features and customer satisfaction. d. Joint Product Development Buyer and supplier collaborate on developing new products or enhancing existing ones. Joint product development reduces financial risks through shared development costs. Both parties benefit from shared intellectual property (IP) and innovations, fostering investment in mutual success. e. Sustained Commitment and Trust Long-term relationships foster a culture of commitment and trust. Suppliers become more invested in the buyer’s success, going above and beyond to meet needs. Trust promotes open communication, proactive problem-solving, and exploration of new opportunities. Leads to greater flexibility and responsiveness, allowing quick adaptation to market changes or customer demands. 5. Early Supplier Design Involvement a. Participation at the Concept Stage Involves the active participation of key suppliers during the concept or pre-design stages of new product development. Leverages suppliers' expertise and insights to shape product design and functionality. Suppliers provide valuable input on market trends and technical requirements, leading to more innovative and efficient designs. b. Beyond Basic Production Qualified suppliers offer expertise beyond meeting engineering specifications. Suppliers contribute knowledge about materials, manufacturing processes, and industry trends. Early involvement allows suppliers to suggest alternative materials or processes that improve product durability, reduce costs, and enhance sustainability. This leads to better product performance and increased marketability. c. Simultaneous Engineering Approach Encourages close collaboration between buyer and supplier throughout the design process. Both parties align goals and expectations, sharing information and insights to address design challenges early. Optimizes processes, accelerates time-to-market, and fosters innovation. Results in superior products that better meet market needs. 6. Supplier Development a. Recognizing Capability Gaps Occurs when a supplier's capabilities are insufficient to meet current or future demands. Instead of eliminating the supplier, organizations invest in improving their abilities. This strategic approach emphasizes long-term collaboration over short-term fixes. b. Facilitation of Improvement Companies work directly with suppliers to accelerate improvement through joint collaborations. Includes training, sharing best practices, or providing resources to enhance supplier operations. Buyers may help suppliers implement new technologies or quality control processes to improve efficiency and output quality. c. Long-Term Benefits Supplier improvements result in more reliable partners, better quality products, and services for the buyer. Strengthens buyer-supplier relationships, fosters loyalty, and encourages innovation. Mutual investment leads to increased efficiency, reduced costs, and potential for new product developments. 7. Total Cost of Ownership (TOS) TOS is the financial estimate that helps organizations understand the complete costs of acquiring and using a product over its lifecycle. Goes beyond the initial purchase price and includes several cost components: Purchase Costs: Initial cost of buying the product, including shipping and handling. Operational Costs: Ongoing expenses for operating and maintaining the product (e.g., energy consumption, labor costs). Maintenance Costs: Costs for repairs, servicing, and necessary upgrades over time. Training Costs: Expenses for training employees to use the product effectively. Disposal Costs: Costs for disposing of or recycling the product at the end of its lifecycle. By considering all these factors, organizations can make more informed purchasing decisions and choose options that offer the best overall value, rather than just the lowest upfront cost. Chapter 4: Supplier Evaluation 1. Potential Supply Source a. Current Supplier: Organizations have established relationships and trust with current suppliers, which makes collaboration smoother. Advantages: ➔ Familiarity with capabilities allows for quick problem resolution and service adjustments. ➔ Reduced resources spent on finding new suppliers, leading to cost savings. ➔ Quick response to immediate needs, ensuring continuity in operations. Disadvantages: ➔ Potential complacency in sourcing practices may prevent exploration of new opportunities. ➔ May overlook better options, leading to missed innovations or improved pricing. ➔ Risk of dependency on a single supplier, creating vulnerabilities if issues arise. b. Internet Searches and Social Media: Online platforms provide vast amounts of data about suppliers, which can be accessed easily. E.g, a tech company uses LinkedIn to find new software vendors and compare services. Advantages: ➔ Easy access to supplier information and market trends, allowing for informed decisions. ➔ Can reach a global audience, increasing options and flexibility in sourcing. ➔ Facilitates networking opportunities, leading to valuable partnerships and collaborations. Disadvantages: ➔ Information overload can cause confusion, making it difficult to identify relevant or credible sources. ➔ Quality of information may vary, complicating decision-making. ➔ Time-consuming to sift through irrelevant data. c. Second Party or Indirect Information. Gaining knowledge from non-competitors or other buyers can reveal useful market dynamics and supplier performance metrics. Advantages: ➔ Provides insights from external sources, enhancing decision-making and strategy development. ➔ Can reveal market trends and competitive insights, allowing organizations to stay ahead. ➔ Expands knowledge beyond internal sources, providing fresh perspectives on suppliers. Disadvantages: ➔ Reliability of information may vary, requiring verification of credibility. ➔ May need validation to ensure accuracy and relevance. ➔ Information may not be directly relevant, wasting time and resources during the sourcing process. 2. Determine Sourcing Strategy a. Influences on Purchasing Strategy: Market conditions User preferences Corporate objectives Quality of supplier search process b. Single vs. Multiple Suppliers: Single Suppliers Multiple Suppliers Simplifies relationships and transactions Increases flexibility and competition May reduce costs with bulk purchases Spreads risk across several suppliers Risk: Greater dependency on one source Risk: More complex to manage c. Key Considerations: Evaluate pros and cons of single vs. multiple suppliers for risk management, flexibility, and pricing Continually assess sourcing alternatives to stay competitive Address critical sourcing issues proactively to adapt to market or operational changes 3. Sourcing Alternatives Direct vs. Distributor Purchases: a. Size of the Purchase: ➔ Large orders may favor direct purchase from manufacturers ➔ Small, frequent orders often benefit from distributor arrangements. b. Manufacturer’s Policies: ➔ Some manufacturers limit direct sales; distributors may be required c. Storage Space: ➔ Direct purchases often require more storage than distributor deliveries d. Service Required: ➔ Distributors may offer additional services ➔ E.g. Supplier-managed inventory or integrated supply arrangements Pricing: OEMs typically offer the lowest unit prices Distributors incur transaction costs but provide added services Many OEMs prefer to avoid handling large volumes of direct sales  International vs. National Suppliers International Suppliers National Suppliers Offer competitive pricing and technical More responsive to changing needs and can services. accommodate smaller deliveries. May lead to significant cost savings. Suited for Just-In-Time (JIT) systems, offering quicker replenishments. Challenges: Higher costs for inventory, Build community goodwill and support the communication, and logistics. local economy. Supplier Size Considerations Large Suppliers Small Suppliers Often preferred for capability and stability. Can enhance flexibility and resilience in the supply chain. Buyers avoid over-reliance by limiting May not always meet capacity needs but expenditure with any single supplier. contribute to a diversified supply base. 4. Supplier Selection Criteria a. Capacity ➔ Evaluate current and future production capabilities. ➔ Assess ability to scale operations for fluctuating order volumes. ➔ Consider flexibility in adjusting production schedules. ➔ Review equipment, technology, and workforce capacity. ➔ Ensures consistent order fulfillment and prevents delays. b. Product and Process Technologies ➔ Assess use of advanced manufacturing techniques and innovative processes. ➔ Evaluate materials used and level of automation. ➔ Alignment of supplier technologies with organizational needs enhances product performance. ➔ Cutting-edge technologies contribute to high-quality products and competitiveness. ➔ Potential for collaboration on future innovations. c. Willingness to Share Technologies and Information - Early Supplier Involvement (ESI) ➔ Suppliers’ openness to collaborate early in product development. ➔ Early Supplier Involvement leads to optimized designs, better manufacturability, and cost savings. ➔ Sharing insights fosters trust, joint problem-solving, and innovative solutions. ➔ Enhances product outcomes and strengthens supply chain resilience. d. Quality, Reliability, and Capability ➔ Robust quality assurance processes to ensure consistent product quality. ➔ Assess reliability in meeting timelines and fulfilling orders accurately. ➔ Evaluate technical expertise, certifications, and ability to meet specific requirements. ➔ Reduces risks of product defects and supply chain disruptions. e. Location ➔ Impact on logistics, costs, and communication. ➔ Closer suppliers reduce transportation costs and lead times, enhancing efficiency. ➔ Proximity allows for more responsive service and faster demand adjustments. ➔ Consider logistical challenges (e.g., shipping delays, customs) when sourcing internationally. ➔ Assess risks related to local regulatory and political environments. ➔ Key for optimizing the supply chain and ensuring timely product availability. f. Cost - Total Cost of Ownership or Acquisition (TCO) Beyond Initial Purchase Price: ➔ Consider acquisition costs as well as ongoing operational expenses. Factors to Evaluate: ➔ Energy consumption: Costs related to the product's energy use over time. ➔ Maintenance requirements: Regular upkeep, repairs, and service needs. ➔ Hidden costs: Potential costs from delays, quality issues, or inefficiencies caused by the supplier.  Benefits of TCO: ➔ Ensures informed decision-making that goes beyond upfront costs. ➔ Aligns with budgetary constraints while considering long-term value. ➔ Supports a more effective procurement strategy. ➔ Enhances overall financial performance by focusing on total, long-term cost impacts. 5. Single Supplier or Two or More Suppliers Reasons Favoring a Single Supplier: a. Establish a Good Relationship Stronger, trusting relationship fosters better communication and collaboration. Supplier becomes more attuned to the organization's specific needs. b. Less Quality Variability Reduced risk of quality fluctuations. Supplier is familiar with the organization's standards, ensuring consistent quality. c. Lower Cost Bulk purchasing leads to lower costs and economies of scale. Better pricing through long-term partnerships and larger order commitments. Potential for discounts or favorable payment terms. d. Transportation Economies Fewer shipments reduce transportation and freight costs. Streamlined logistics improve delivery efficiency and minimize complexity. e. Proprietary Product or Process Purchases Specialized products or processes often require specific supplier expertise. Single suppliers ensure access to the necessary knowledge and technologies.  Reasons Favoring Two or More Suppliers: a. Need Capacity Multiple suppliers provide additional production capacity. Helps meet larger or fluctuating demand more effectively. b. Spread Risk of Supply Interruption Diversifies risk, reducing impact of supplier issues (e.g., delays, disasters). Alternative suppliers ensure continuity of supply. c. Create Competition for Effective Performance Competition encourages suppliers to improve pricing, service, and innovation. Drives suppliers to perform better to maintain contracts. d. Access to Information Multiple suppliers provide diverse insights into market trends and technology. Broader knowledge base helps organizations make informed decisions. e. Supplier Diversity Enhances supply chain resilience and flexibility. Promotes innovation and supports corporate social responsibility (e.g., small businesses, minority-owned, or geographically diverse suppliers). 6. Critical Issues in Supplier Section a. Size Relationship Larger buyers (≥40% of supplier’s business) can negotiate better terms and gain more attention. Smaller buyers may receive less focus and service due to limited influence on the supplier's revenue. Buyer size impacts leverage and ability to negotiate favorable terms. b. Risk/Reward Purchasers will partner with stable, profitable, and growing suppliers for reliable performance. Small suppliers may offer competitive prices but lack scalability and depend on a few large customers. Balancing risk management with cost savings and long-term partnerships is key to modern procurement. c. Sustainability and Diversity Objectives Seek suppliers that reflect diversity (e.g., minority-owned, women-owned, veteran-owned, or employing individuals with disabilities). Promotes social equity, enhances corporate reputation, and boosts community engagement. Preference for suppliers committed to sustainable practices (e.g., ISO 14000 certification) aligns with corporate social responsibility goals. d. Competitors as Suppliers Provides access to specialized products/services but limits information sharing. Little mutual commitment; straightforward transactions with minimal collaboration. Sensitive information (e.g., proprietary technology) must be carefully guarded to avoid conflicts of interest. e. International Suppliers and Countertrade Longer lead times, higher inventory levels, and logistics challenges (shipping, customs, etc.). Requires navigation of different regulatory environments and cultural differences. Countertrade arrangements may require sourcing within the supplier’s country, impacting procurement strategy. Understanding local market conditions and supplier capabilities is essential for successful international sourcing. 7. Limiting Suppliers in Selection Pool (Essay Ques) a. Supplier Risk Management Identify potential risks (e.g., financial instability, operational disruptions) that could affect supplier performance. Mitigate risks by developing strategies to prevent negative events and establishing contingency plans. Financial risk management: Assess supplier’s financial health using credit ratings and financial reports. Operational risk management: Evaluate supplier’s capacity to adapt to demand fluctuations, introduce new products, and improve quality/service. b. Evaluation of Supplier Performance Analyze historical performance data (e.g., on-time delivery rates, quality consistency, responsiveness). Use past performance to assess the reliability and suitability of potential suppliers. Focus on suppliers with proven track records to meet future needs. c. Evaluation of Supplier-Provided Information Send surveys to gather specific information from potential suppliers (e.g., cost structure, process technology, market share, quality performance). Assess suppliers’ approach to innovation, sustainability, and other practices. Use this information to filter suppliers based on strategic alignment with the organization. d. Entry Qualifiers Financial strength: Suppliers must demonstrate stability and ability to meet long-term commitments. Proven manufacturing/service capability: Supplier should have a track record of delivering quality products/services. Capable management: Ensure management is supportive, customer-focused, and committed to continuous improvement.  Adequate facilities/infrastructure: Suppliers should have necessary resources to meet production/service demands. Skilled professional and technical staff: Suppliers must have expertise to meet technical requirements and handle challenges. 8. Method of Supplier Evaluation and Selection (Latest Essay Ques) a. Comprehensive Supplier Information Gathering Collect detailed data on supplier capabilities, financial stability, quality standards, and past performance. Utilize third-party sources (e.g., industry reports, customer feedback) to verify claims and gain additional insights into supplier reputation and reliability. b. Establishing Preferred, Certified, and Partnered Suppliers Identify suppliers with proven reliability and quality, categorizing them as preferred or certified based on performance. Develop strategic partnerships with key suppliers to foster collaboration, drive innovation, and realize cost savings. c. Supplier Visits Schedule visits to assess suppliers' operations, manufacturing capabilities, and quality control processes firsthand. Notify suppliers in advance to ensure a productive site visit with relevant documentation prepared. d. Data Compilation and Documentation Maintain an organized repository of collected supplier information for easy access in future decision-making. Include performance metrics, historical data, and communication records for ongoing supplier evaluations. e. Evaluation Criteria Assess key aspects such as product quality, cost structures, delivery capabilities, flexibility, and sustainability practices. Use a weighted scoring model to objectively evaluate suppliers based on established criteria. 9. Key Evaluation Criteria (Latest Essay Ques) a. Management Capability Evaluate the supplier's leadership and organizational effectiveness in driving performance. E.g: Low employee turnover rates may indicate strong management practices and a motivated workforce. b. Total Quality Management (TQM) Ensure the supplier is committed to continuous improvement and customer satisfaction through systematic quality processes. E.g: Regular employee training on quality control and gathering customer feedback show strong TQM principles. c. Technical Capability Assess the supplier’s ability to meet technical specifications and industry standards. E.g: A supplier employing certified engineers is more reliable for delivering technically complex products. d. Operational and Scheduling Capability Evaluate the supplier’s ability to manage production schedules and meet delivery deadlines. E.g: A proven track record of on-time delivery over the past year indicates strong operational capabilities. e. Financial Strength Analyze the supplier’s financial stability to ensure sustained operations and risk management. E.g: A supplier with strong cash flow and low debt levels is more likely to weather economic fluctuations. Chapter 7: Strategic Cost Management 1. Market Structure (Latest CS) 2. Benefits of Long-Term Contracts (Latest CS) 3. Risk of Long-Term Contracts (Latest CS) Chapter 12: Managing Global Pipeline 1. Dynamic of Globalization 2. Why Source Worldwide? 3. Barriers to Worldwide Sourcing | Overcoming Barriers 4. Factors driving successful Global Sourcing Chapter 13: Creating a World-Class Supply Base 1. Use of Measurement Data 2. Rationalization and Optimization 3. Advantages of Optimized Supply Base 4. Possible Risk of Maintaining Fewer Suppliers 5. Supply Base Risk