International

Logistics
Lecture 5: Supply Chain
Management and Procurement

Dr Bryan Usrey
Learning Objectives (Part 1)
To explain the concept of supply chains and how the network of interorganizational relationships
is managed

To summarize supply chain process frameworks

To illustrate potential enablers of supply chain management implementation

To illustrate potential barriers to supply chain management implementation

To compare optional approaches for supply chain integration

What is the Difference?
+ What is the difference between a supply chain and SCM?
What is Supply Chain Management
+ A supply chain can be liberally viewed as a combination of
processes, functions, activities, relationships, and pathways
along which products, services, information, and financial
transactions move in and between enterprises from original
producer to ultimate end-user or consumer.
What is Supply Chain Management
What is Supply Chain Management
Council of Supply Chain Management Professionals
(CSCMP) view of logistics versus supply chain
management

• Logistics activities are part of managing one’s supply chain

• Includes sourcing, procuring, and manufacturing
• Need to work with multiple parties, including suppliers, 3PL
providers, and end customers
• Logistics managers can contribute to the success and
benefit from involvement in SCM
What is Supply Chain Management
Successful supply chains
• Adopt an enterprise-to-enterprise point of view
• Adopt behaviors that haven’t traditionally been associated with buyer–
seller interactions
• Companies recognize interdependencies of the decisions made in
major functional areas and business processes within, across, and
between firms
• Goals and objectives of individual supply chain participants should be
compatible with the goals and objectives of other participants in the
supply chain
Supply Chain Management Process
Two prominent models
• Global Supply Chain Forum (GSCF) model
• Supply Chain Operations Reference (SCOR) model
Supply Chain Management Process
Supply Chain Management Process
Supply Chain Management Process
Supply Chain Management Process
• Both frameworks establish a common language to communicate ideas,
concepts and methodologies, and to discuss and document supply
chain activities.

• They build a structure to model supply chains and communicate with

participants while supporting benchmarking and best practices.

• They also create a process framework linked to performance

measurement (metrics) that informs the relevance of the SCM strategy
to everyone in the organization.
SCM Implementation
Customer power

Relationship structure

Leveraging technology

Supply chain facilitators

SCM Implementation
Understanding the implications of increased customer power

• Customer has gained tremendous power over buying

decisions
• The Internet
• Increased Knowledge
 SCM Implementation
Understanding the implications of increased customer
power

Traditional supply chains

• Factory-driven, push-oriented
• Focused on internal cost metrics (measures) such as
labor costs and freight costs

Customer-centric supply chains

• Pull-oriented
• Concerned with metrics that take a more holistic
perspective
SCM Implementation
SCM Implementation
Understanding the implications of increased customer power

Agile supply chains focus on balancing up-to-date data with

short-term forecasted projections.

Focuses On
• Flexibility
• Market Demand
• Strong Partnerships

Important in our next-day world.

SCM Implementation
Understanding the implications of increased customer power

Lean supply chains can reduce the amount of inventory in the

supply chain using:
• Smaller, more frequent orders
• Premium transportation
• Demand–pull versus supply–push replenishment

Reduced inventory may increase susceptibility to natural

disasters
SCM Implementation
Qualities Lean Agile

Trending or
Product Type Functional; Lasting
Variable

Predictable; Market-based;
Product Demand
Consistent Changing

Product Life Cycle Long Short

Consumer Drivers Low-cost Popular assortment

Why not both?
Leagility: combines aspects of both lean and agile to focus part
of one’s supply chain on a timely response to fluctuating
customer orders and/or product variety and another part of the
supply chain on leveling out the planning requirements to
smooth production output.
SCM Implementation
Establishing Appropriate Relationship Structures

Companies should consider employing a long-term as

opposed to a short-term orientation with key supply chain
members:
• Suppliers
• Customers
• Intermediaries
• Facilitators
SCM Implementation
 SCM Implementation

https://www.mckinsey.com/business-functions/operations/our-insights/six-steps-to-successful-supply-
chain-collaboration
SCM Implementation
Leveraging technology for enhanced visibility and communication

Technological advancements in computing power and the Internet

affect the supply chain.

This has led to a proactive supply chain!

SCM Implementation
Leveraging technology for enhanced visibility and communication

• Supply chains depend on huge quantities of real-time

information

• Retail point-of-sale information can be transmitted directly to

suppliers and translated into orders for replenishment of
product

• Vendors may allow customers to query vendor inventory records

to determine what products are in stock and where the stocks
are located
SCM Implementation
Third-party logistics (3PL), also known as logistics outsourcing or
contract logistics

• Any logistics activity not performed in-house is representative of

third-party logistics
• Common 3PL activities involve inbound and outbound
transportation, carrier negotiation and contracting, and freight
consolidation
• Well-known 3PL providers include DHL Supply Chain, Kuehne
and Nagle, DB Schenker, and UPS Supply Chain Solutions
SCM Implementation
Fourth-party logistics (4PL) or Third-party logistics (3PL)
Part 2: Procurement
Procurement Learning Objectives (Part 2)

To establish issues associated with global procurement

To identify social and environmental aspects of sustainable

procurement

To describe the concept of supply chain finance and how it

can be used in procurement relationships
Procurement Learning Objectives (Part 2)

To establish issues associated with global procurement

To identify social and environmental aspects of sustainable

procurement

To describe the concept of supply chain finance and how it

can be used in procurement relationships
What is Procurement
+ Refers to the raw materials, component parts, and supplies
bought from outside organizations to support a company’s
operations
+ Procurement costs often range between 60 and 80 percent of an
organization’s revenues
What is Procurement
+ Currently has a more strategic orientation in many organizations
+ Procurement manager may have responsibility for:
Reducing cycle times
Playing an integral role in product development
Generating additional revenues through collaboration with the
marketing department
 What is Procurement
+ “Procurement” and “purchasing” are sometimes viewed as
synonymous terms
+ Supply management is viewed as a relational exchange approach
involving a limited number of suppliers

+ The Internet has changed Procurement

Electronic Procurement
Procurement Cards
 Procurement Objectives
+ Supporting organizational goals and objectives
+ Managing the purchasing process effectively and efficiently
+ Managing the supply base
+ Developing strong relationships with other functional groups
+ Supporting operational requirements
Supplier
Selection
 Procurement Objectives
+ Evaluate decision
Process-based approach
+ Is an assessment of the supplier’s service and/or production process
(supplier audit)
Performance-based approach
+ Is focused on the supplier’s actual performance on a variety of
criteria including cost and quality
+ Many companies use supplier scorecards to report performance
information
Procurement Portfolio Approach
+ Within the “situation analysis” step for supplier selection and
evaluation, procurement managers must be continually aware
of the supply and demand characteristics of the:
Raw materials
Component parts
Purchased supplies
Procurement Portfolio Approach
 Procurement Portfolio Approach
+ Supplier development (reverse marketing)
Refers to aggressive procurement involvement not typically
part of supplier selection
Can include:
+ Purchaser initiating contact with supplier
+ Purchaser establishing prices, terms and conditions, and
other behaviors
 Procurement Portfolio Approach
+ Supplier development (reverse marketing)
Motivation to adopt supplier development includes:
+ Numerous inefficiencies associated with suppliers initiating
marketing efforts toward purchasers
+ Purchaser may be aware of important benefits which are
unknown to the supplier
+ Compel suppliers to meet necessary requirements to achieve
competitive advantage in the supply chain
Global Procurement
+ Refers to buying components and inputs anywhere in the world
+ Driven by:
Factor-input strategy (organization is seeking low-cost or high-
quality sources of supply)
Market access strategy (organization is sourcing in markets where
it plans to do significant business)
Global Procurement
+ Components of global sourcing development model:
Planning
Specification
Evaluation
Relationship management
Transportation and holding costs
Implementation
Monitoring and improving
Sustainable Procurement
+ Social responsibility
Socially responsible procurement consists of five dimensions:
+ Diversity
+ The environment
+ Human rights
+ Philanthropy
+ Safety
 Sustainable Procurement
+ Social responsibility
Areas of ethical concern in procurement:
+ Gift giving and receiving
+ Bribes and kickbacks
+ Misuse of information
+ Improper methods of knowledge acquisition
+ Lying or misrepresentation of the truth
+ Product quality (lack of)
+ Misuse of company assets
+ Conflicts of interest
 Sustainable Procurement
+ Investment recovery
the practice of recovering the highest value of assets considered as
surplus or no longer supporting the company’s operations.

Often the responsibility of the procurement manager

 Sustainable Procurement
+ Investment recovery
A Firm Can:
• Redeploy
• Sell
• Scrap
• Donate
• Waste Management
Sustainable Procurement
 Supply Chain Finance
+ Refers to a set of technology and financed-based processes that
strives to optimize cash flow by:
Allowing businesses to extend their payment terms to their suppliers
While simultaneously allowing suppliers to get paid early

+ Transactions between buyers and sellers are facilitated by financial

technology firms (FinTech)
Quiz Time!

+ Date: From Now

+ Exam Length: 45 Minutes
+ Exam Type: 35 MCQ
+ Venue: Online via Manaba
+ Due: Thursday (12 PM)
End of Lecture (Reading)
Chapter 5 and 6 in Contemporary Logistics
 End of Lecture (Additional Reading)
Centobelli, P., Cerchione, R., & Ertz, M. (2020). Agile supply chain management: where did it
come from and where will it go in the era of digital transformation?. Industrial Marketing
Management, 90, 324-345.

Duffy, R., & Fearne, A. (2004). The impact of supply chain partnerships on supplier
performance. The international journal of logistics management, 15(1), 57-72

Mentzer, J. T., DeWitt, W., Keebler, J. S., Min, S., Nix, N. W., Smith, C. D., & Zacharia, Z. G. (2001).
Defining supply chain management. Journal of Business logistics, 22(2), 1-25.

Naylor, J. B., Naim, M. M., & Berry, D. (1999). Leagility: Integrating the lean and agile
manufacturing paradigms in the total supply chain. International Journal of production
economics, 62(1-2), 107-118.

Ta, Ha & Esper, Terry & Rossiter Hofer, Adriana. (2015). Business-to-Consumer (B2C)
Collaboration: Rethinking the Role of Consumers in Supply Chain Management. Journal of
Business Logistics. 36. 10.1111/jbl.12083.
 End of Lecture (Additional Reading)
Christensen, John, Christopher Park, Earl Sun, Max Gorainick, and Jayanth Iyengar. “A Practical
Guide to Green Sourcing.” Supply Chain Management Review 12, no. 8 (2008): 14–21.

Handfield, Robert B. and David L. Baumer. “Managing Conflict of Interest Issues in Purchasing,”
Journal of Supply Chain Management 42, no. 3 (2006): 41–50.

Ho, William, Xiaowei Xu, and Prasanta K. Dey, “Multi-criteria Decision-Making Approaches for
Supplier Evaluation and Selection: A Literature Review.” European Journal of Operational
Research 202, no. 1 (2010): 16–24.

Minahan, Tim A. “Strategies for High-Performance Procurement.” Supply Chain Management

Review 9, no. 6 (2005): 46–54.

Spray, Gregory. “The Art of Procurement Mastery.” Supply Chain Management Review 13, no. 1
(2009): 36–43.

Turner, Martha and Pat Houston. “Going Green? Start with Sourcing.” Supply Chain Management
Review 13, no. 2 (2009): 14–21.