Supply Chain Management

Topic 1
What is Supply Chain?
A supply chain is the network of all the individuals, organizations,
resources, activities and technology involved in the creation and sale
of a product.

 Customer is an integral part of the supply chain.

The Strategic Importance of the Supply Chain

Supply Chain Management is the integration of the activities that
procure materials and services, transform them into
intermediate goods and the final product, and deliver them to
the customers. It includes movement of product from supplier to
manufacturer to distributors, and importation, funds, and product
in both directions.

 Competition is no longer in companies; it is between supply chain.

5 Components of Supply Chain Management

1. PLANNING
This is the strategic portion if supply chain management. You need a strategy for managing all the
resources that go toward meeting the customer demand. A big piece of planning is developing a set
of “metrics” to monitor the supply chain so that it’s efficient, costs less, and delivers both high
quality and value to your customers.
2. SOURCING
This stage where you can choose the suppliers that will deliver the goods and services you need to
create your product or service. It requires you to develop pricing, delivery and payment scheduling
criteria, and create metrics for monitoring and improving supplier relationships.
3. MAKING
This is the manufacturing step where you schedule the activities necessary for production, testing,
packaging, and delivery. Many companies may be “outsourcing” their production to an external
manufacturer, however this doesn’t make ay less critical. You must continually interface with the
manufacturer to make sure that your work in concert with them for raw materials and tome on the lie
production line.

4. DELIVERING
 This is the part that many insiders refer to as “logistics”. It involves coordinating the receipt orders
from the customers, developing a network of warehouses, selecting carriers to get the product to
customers and setting up an invoicing system to receive payments.
5. RETURNING
This has been referred to as the “problem” part of the supply chain. However, it is vital to address
this area quickly and effectively by creating a network for receiving “defective” product back from
customer who no longer want to be part of your company.
Reason for Developing Supply Chain

 Greater competitive advantage

 Greater value to customer
 Reduces the lead time gap
 Faster and smaller deliveries to intermediate customer
 Introduces the concept of increased shareholder value.
o These reasons give rises to the notion that in future, we will supply chains competing with
supply chain rather than competition between organization.
Difficulties in Supply Chain

 Uncertainty is inherent to every supply chain

- Travel times
- Breakdowns of machines and vehicles
- Weather, natural catastrophe, war
- Local politics, labor conditions, border issues

 The complexity of the problem to globally optimize a supply chain is significant

- Minimize internal cost
- Minimize uncertainty
- Deal with remaining uncertainty

Topic 2: PORTER’S VALUE CHAIN

 Value Chain represent the internal activities a firm engages in when transforming inputs to outputs.
  Value Chain Analysis (VCA) is a strategy tool used to analyze firm’s activities by recognizing which
activities are the valuable to the firm and which ones needs to be improved.
 It involves identification of primary and supportive activities that add value to the final product.
 Michael Porter introduced Generic Value Chain Model in 1985
- known for his theories on economics, business, strategies and social causes.
- a Bishop Williams Lawrance University Professor at Harvard Business School
- one of the founders of the consulting firm The Monitor Group and FSG, a social impact
consultancy.
- he was born on May 23, 1947 (74 years old) at Ann Arbor, Michigan, United States
- Contribution: Porters Hypothesis; Porter’s five forces; Porter’s four corners model
Value Chain Analysis
Firm Infrastructure – Management, finance, legal, planning
Human Resource Management – Professional development, employee relation, performance appraisals,
recruiting, competitive wages, training programs
Technology Development – Integrated supply chain system, real time sales information
Procurement – Real time inventory, communication with suppliers, purchase supplies and materials
Value Chain Analysis
Inbound Logistics Operations Outbound Marketing and Sales Services
 Real time  Standardized Logistics  Pricing  Delivery
inbound model  Order  Communication  Installation
inventory  Access to real- processing  Promotion  Repair
plan time sales and  Full  Product based  Greeters
 Location of inventory delivery on community  Customer
distribution system trucks needs service
facilities  Low Prices focus
 Trucks
 Material
handling
 Warehouse

Primary Activities
Primary activities are directly involved in transforming inputs into outputs and in delivery and after sales
support.
▪ Inbound Logistics – Raw Material Handling and Warehousing
▪ Operations – Transforming Inputs into the Final Products
▪ Outbound Logistics – Warehousing and Distribution of Finished Goods
▪ Marketing & Sales – Communication, Pricing and Channel Management
▪ Services – Installation, Repair and After-Sales Support
Value Chain of Lloyd AC.
Support Activities
Firm Infrastructure refers to an organization’s structure and its management, functions, planning,
accounting, finance, quality control mechanism. Firms’ infrastructure can be a powerful factor for
competitive advantage.
Procurement Resources refers to the function of purchasing inputs used in the firm’s value chain. This
function adds value to the company by employing required inputs and effectively managing the firm’s cost.
Technology Development incorporates a wide range of technology-related activities to improve the product
and the process. Technology development plays a prominent role in differentiating and having competitive
advantage.
Human Resource Management consists of activities involved in recruitment, hiring, training,
development, compensation of all type of human manpower. It supports both the primary activities and the
entire value chain.
Need For Value Chain Analysis
Cost Advantage Competitive Advantage Profitability
Value Chain Competitive Advantage Higher Profitability

Topic 3; PURCHAISING ORGANIZATION

Purchase - acquisition by the payment of money or its equivalent
- Purchase is main activity in area of material management. It is the most important function in
any organization
- This is where the money is spent out in an organization
- it tells the profitability of a company whether they gain or lose
Purchasing Organization

 It is an organizational unit within the logistics. It carries out almost all business transactions related
to procurement.
 Purchasing department is responsible for everything that is related in ordering materials and dealing
with vendors or suppliers.
  An excellent purchasing department can minimize costs of purchased goods, screen vendors in terms
of quality, and track orders from initiation to reception.
 The quality of the purchasing department may give a significant impact to business profit’s margin

Purchasing Department

 Identify business requirements for goods, materials, and services

 Find reliable suppliers to meet these requirements
 Negotiate prices, build quality, and delivery terms
 Set up the order quantities and making bid requests on supply contracts
 Coordinate delivery and storage operations
 Run quality control and product testing
 Manage budgets based on ROIs and payments

Roles of Purchase Organization in a Business

TO PREVENT SHORTAGE- to guarantee that material shortages do not impact productivity,
purchasing departments uses multiple sourcing.
TO MINIMIZE EXPENSE- purchasing department compares prices and negotiates with suppliers to
get the best price for the business on necessary goods.
PRE-APPROVED VENDOR- to evaluate vendors in many terms; price, quality, customer feedback,
order fill rate before making a list of approved or eligible vendors.
ORDER TRACKING- order documentation through purchase request form or order form
CHECK INVOICES- for order quantity accuracy checking. Purchase order form vs. invoice
MAJOR FUNCTIONS OF PURCHASING MANAGEMENT
 Material requirement review  Price forecasting
 Make or buy analysis  Value analysis
 Material standardization  Market analysis
 Quality determination  Productivity / cost improvements
 Supplier selection  Long-range purchasing policy
7R’S (PURCHASE PARAMETERS)
1. Buying the material at the right price
2. Buying material of right quality
3. In the right quantity
4. At the right time
5. From the right source
6. At the right place
7. With the right mode of transport
Forms or Purchasing Department
  Centralized purchasing
• A procurement model where the purchasing decisions and execution is centralized to a single
team instead of each location making its own decision.
• Procurement is centrally managed by a team or an individual who is responsible for all
purchasing needs.
• A standardized purchasing process across the entire company.
• Allow you to centralize the negotiation and get volume discounts.
• Allows you to standardize parts and increase supply chain resilience.
 Decentralized purchasing
 The case where you have multiple physical locations, and each is making its own purchasing
decision
 Different purchasing processes across the company.
 There could be multiple versions of the same item, and you probably carry a lot of inventory.
 The vendor selection process is more straightforward because the decision is made only by a
limited set of people.
 Centralized-decentralized purchasing
 Many firms operating several plants whose geographical locations may not be too widely
scattered and whose products and material requirements may cover a large number of similar
parts and materials used in common and in large quantities, may adopt this purchasing
approach.
6 Core Purchasing Strategies
1. Supplier Optimization – Involve key suppliers and optimize the supplier base to simplify the
purchasing process
2. TQM Practice – TQM strategy monitors personnel management, customers and suppliers’
relationship, product design, etc.
3. Risk Management – Uncertainties and complexities causing supply chain disruption dealt with
effective risk management process
4. Global Sourcing – Provides organization with an opportunity to source skills and resources thereby
increasing their productivity
5. Vendor Development – Organization focusing on vendor development will eventually realize
efficiency gains sooner in the future.
6. Green Purchasing – Abiding the green purchasing standards help in chain risk and enhance their
brand image

Topic 4: E-Procurement
E-Procurement
• The business-to-business purchase and sale of supplies and services over the Internet.
• Also Known as: Supplier Exchange
• E-procurement websites allow qualified and registered users to look for buyers and sellers of goods and
services.
• Buyers and sellers may specify prices or invite bids.
• Ongoing purchases may qualify customers for volume discounts or special offers.

E-Tools that Replace the Traditional Procurement

 E-Sourcing – supports the specification phase; it identifies that can be used in the selection phase
 E-Tendering – supports the selection phase; it facilitates the REOI and ITB/RFP activities, usually
including support for the analysis and assessment activities
 E-Reverse Auctioning – supports the contract phase; it enables closing a deal with a supplier.
 E-Ordering and Web-based ERP – it is the process of creating and approving procurement
requisition, placing purchase orders, as well as receiving goods and services ordered, by using a
software system based on the internet.
 E-Informing – is not directly associated with the phase in procurement process; it is the process of
gathering and distributing procurement information both from and to internal and external parties
using internal technology.
E-Procurement Components

 E-Purchase o Technical Particulars

o Registration o Evaluation of Bids
o Store Coding o Award of Rate Contract
  E- Inspection/Supply o Bid Submission
o Supply Order o Bid Opening
o Inspection  E-Payment
o Dispatch Details o Bill Submission
o Receipt Details o Processing
o Payments
 E-Tendering o Debit Adjustment
o Tender Notice o Status
o Tender Enquiry o Complaints

The 5 Right of E-Procurement

• at the right price • of the right quantity
• delivered at the right time • from the right source
• are of the right quality
The 3 Main E-Procurement Model Alternatives for Buyer

E- Procurement Systems
o An e-procurement system manages tenders through a website
o This can be accessed anywhere globally and has greatly improves the accessibility of tenders
o E-procurement projects are often part of the country’s larger e-government effort to better serve
its citizen and businesses in the digital company.
General Benefits

 Streamlines the whole tendering process

 Provides improved and secure access to tender information
 Brings about innovative business processes
 Initiates greater opportunities for small and regionally based businesses
 Allows downloading of electronically submitted tenders in a form suitable for evaluation purposes
without having to a manually re-enter data
 Makes it easier for businesses to obtain tender documentation and to submit cost effective, fast and
efficient.