Chapter 13

Supply chain planning and control

Source: Tibbett and Britten

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Supply chain planning and control

Supply chain planning Operations

and control strategy
The market requires …
specified time, quantity and Operations
quality of products and services Design management Improvement
The operation supplies …
the coordinated delivery of
products and services from the
supply chain Planning and
control

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 What is supply chain management?

‘Supply chain management is the management of the

interconnection of organizations that relate to each other
through upstream and downstream linkages between the
processes that produce value to the ultimate consumer in
the form of products and services.’

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Supply chain management is concerned with managing the flow
of materials and information between a string of operations
that form the strands or ‘chains’ of a supply network
Flow between
processes
Supply network management
Flow between
concerns flow between
processes
operations

Flow between
Flow between
processes
processes

Flow between processes

Flow between
Flow between processes
Supply chain management processes
concerns flow between a
string of operations

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Supply chain management is concerned with the flow of
information as well as the flow of products and services
•Long-term plans and requirements
‘Upstream’ flow •Market research information
of customer •Individual orders
•Payment
requirements •Potential new products and services

Flow between Flow between Flow between

processes processes processes

Consumer

•Products and services ‘Downstream’ flow

•New products and services of products and services
•Delivery information for customer
•Payment request / Credit
fulfilment

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Second-tier First-tier First-tier Second-tier End
supplier supplier customer customer customer

Supply side Demand

side
Purchasing and Physical distribution
Information supply management
flow management Logistics
Physical
flow Materials management

Supply chain management

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Taking a customer perspective of supply performance
can lead to very different conclusions
Customer Customer
requirements From the customer’s perspective – 8% satisfaction satisfaction
100 N
8
20 From the operations
perspective – 90%
Product/ Y N satisfaction
service 80 N
appropriate? 10
40 N
Product/ N Y
Y 1
service 70 50 10 N
available? Y
Y 9 1
Meets price N Y
and delivery 20 8
requirements? 10
Customer N
orders? Y
10
1

Produced as Y N
promised? 9
1

Received as Y
promised? 8

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 The purchasing function brings together
the operation and its suppliers

Suppliers Purchasing function The operation

Prepare Request
Requests
quotation for for Request for Demand
specification, quotations products and from
price, delivery, customers
services
etc. Liaison
Select between
purchasing
supplier(s) and the
Quotations operation

Produce Prepare Receive Supply to

Order
products and purchase products and customers
services order services

Deliver

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Factors for rating alternative suppliers

Short-term ability to supply Longer-term ability to supply

•Range of products or services •Potential for innovation
provided
•Quality of products or services •Ease of doing business
•Responsiveness •Willingness to share risk
•Dependability of supply •Long-term commitment to supply
•Delivery and volume flexibility •Ability to transfer knowledge as well
as products and services
•Total cost of being supplied •Technical capability
•Ability to supply in the required •Operations capability
quantity
•Financial capability
•Managerial capability

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Weighted supplier selection criteria for the hotel chain

Factor Weight Supplier A score Supplier B score

Cost performance 10 8 (8 x 10 = 80) 5 (5 x 10 = 50)
Quality record 10 7 (7 x 10 = 70) 9 (9 x 10 = 90)
Delivery speed promised 7 5 (5 x 7 = 35) 5 (5 x 7 = 35)
Delivery speed achieved 7 4 (4 x 7 = 28) 8 (8 x 7 = 56)
Dependability record 8 6 (6 x 8 = 48) 8 (8 x 8 = 64)
Range provided 5 8 (8 x 5 = 40) 5 (5 x 5 = 25)
Innovation capability 4 6 (6 x 4 = 24) 9 (9 x 4 = 36)
Total weighted score 325 356

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Supply chain relationships

Business Consumer
B2B B2C
Relationship: Relationship:
Most common, all but the Retail operations
last link in the supply chain Catalogue operations, etc.
Business
E-commerce examples: E-commerce examples:
EDI networks Internet retailers
Tesco information exchange Amazon.com, etc.

C2B C2C
Relationship: Relationship:
Consumer ‘offers’, business Trading ‘swap’ and
Consumer responds auction transactions
E-commerce examples: E-commerce examples:
Some airline ticket Specialist ‘collector’ sites
operators eBay.com, etc.
Priceline.com, etc.

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Types of supply relationship
Character of internal operations activity

everything
Vertically
Do
integrated
operation

Traditional supply
management
everything
important
Do

‘Partnership’
supply
management
Virtual Long-term
nothing

spot virtual
Do

trading operation

Transactional – many Type of inter-firm contact Close –

suppliers few suppliers

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Elements of process partnership relationships

Attitudes
Trust

Long-term Sharing
expectations success

Joint Multiple
learning points of
contact
Closeness of
relationship
Joint co- Few
ordination of relationships
activities

Joint problem Information

solving transparency
Dedicated
assets
Actions

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 The effects of supply chain compression
Supply chain time compression

Schedule Forecasts New products

Defects are
changes impact made closer to and service
detected faster
market faster demand time faster to market

so can
so fewer lost so reduced
respond to so improved so easier to
sales from risk of
market changes forecasts improve quality
delayed launch obsolescence
better

so less need for

safety stocks

so reduced so less
so revenues so reduced so revenues
stockholding discounted
are maximized wastage costs are maximized
costs sales

Improved profitability

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 The bullwhip effect
Original

d
Third-level Second-level First-level

an
d equipment
ri o

m
supplier supplier supplier manufacturer
Pe

De
Prodn. Stock Prodn. Stock Prodn. Stock Prodn. Stock

100 100 100 100

1 100 100 100 100 100 100 100 100
100
100 100 100 100
2 20 60 60 80 80 90 90 95 95
60 80 90 95
3 180 120 120 100 100 95 95 95 95
120 100 95 95
4 60 90 90 95 95 95 95 95 95
90 95 95 95
5 100 95 95 95 95 95 95 95 95
95 95 95 95
6 95 95 95 95 95 95 95 95 95
3 2 1 OEM MARKET

ALL OPERATIONS HOLD ONE PERIOD’S STOCK

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 The bullwhip effect
Original

d
Third-level Second-level First-level

an
d
equipment
ri o

m
supplier supplier supplier manufacturer
Pe

De
Prodn. Stock Prodn. Stock Prodn. Stock Prodn. Stock

100 100 100 100

1 100 100 100 100 100 100 100 100
100
100
2 95

3 105

4 95

5 105

6 95

3 2 1 OEM MARKET

ALL OPERATIONS HOLD ONE PERIOD’S STOCK

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Manufacturer’s Wholesaler’s
orders to Store’s orders Sales from
orders to its
manufacturer to wholesaler store
suppliers

Orders

Orders

Orders
Orders

0 0 0 0
Time Time Time Time

Manu- Whole- Retail

Supplier Consumers
facturer saler Store

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Supply chain dynamics

Supply chains with different end objectives

need to be managed in different ways

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Matching the supply chain with market requirements

Nature of demand
Functional products Innovative products
Predictable Unpredictable
Few changes Many changes
Low variety High variety
Price stable Price markdowns
Long lead-times Short lead-times
Low margin High margin
Low throughput times
Efficient

Deployed inventory
Flexible suppliers
Supply chain objectives

High utilization

Lean supply Mismatch

chain
management
High utilization
Low cost

Minimum inventory
Low-cost suppliers

Agile supply
Mismatch
Responsive

chain
management

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Depot

Information
Products
Supplier Manufacturer

Customer-responsive supply Depot

Outlets

Depot

Products
Information
Supplier Manufacturer

Efficient fast-throughput
supply Depot

Outlets
Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
Matching supply chain characteristics to the nature of demand
Nature of demand
Functional products Innovative products
Predictable Unpredictable
Few changes Many changes
Low variety High variety
Price stable Price markdowns
Long lead-time Short lead-time
Low margin High margin
Minimum inventory
Low-cost suppliers
High utilization
Supply chain objectives
Efficient

Match Mismatch
Low cost

Low throughput time

Flexible suppliers
Deployed inventory
Responsive

Fast response

Mismatch Match

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Key Terms Test
Supply network
The network of supplier and customer operations that have
relationships with an operation; all the operations linked together
to provide goods and services.

Supply chain
A linkage or strand of operations that provides goods and services
through to end customers; within a supply network several
supply chains will cross through an individual operation.

Supply chain risk

A study of the vulnerability of supply chains to disruption.

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Key Terms Test
Purchasing
The organizational function, often part of the operations function,
that forms contracts with suppliers to buy in materials and
services.

Single-sourcing
The practice of obtaining all of one type of input product,
component or service from a single supplier, as opposed to
multi-sourcing.

Multi-sourcing
The practice of obtaining the same type of product, component
or service from more than one supplier in order to maintain
market bargaining power or continuity of supply.

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Key Terms Test
E-procurement
The use of the Internet to organize purchasing; this may
include identifying potential suppliers and auctions as
well as the administrative tasks of issuing orders, etc.

Logistics
A term in supply chain management broadly analogous to
physical distribution management.

Physical distribution management

Organizing the integrated movement and storage of
materials.

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Key Terms Test
Order fulfilment
All the activities involved in supplying a customer’s order; often
used in e-retailing but now also used in other types of
operation.

Merchandising
A term used to describe a role in retail operations management
that often combines inventory management and purchasing
with organizing the layout of the shop floor.

Virtual operation
An operation that performs few, if any, value-adding activities
itself; rather it organizes a network of supplier operations,
seen as the ultimate in outsourcing.

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007
 Key Terms Test
Partnership relationship
A type of relationship in supply chains that encourages relatively
enduring cooperative agreements for the joint
accomplishment of business goals.

Bullwhip effect
The tendency of supply chains to amplify relatively small
changes at the demand side of a supply chain such that the
disruption at the supply end of the chain is much greater.

Slack, Chambers and Johnston, Operations Management 5th Edition © Nigel Slack, Stuart Chambers, and Robert Johnston 2007