Topic 3:

Supply Chain Management

Explain the concept of Discuss the importance Explain the relationships
the supply chain, and of customer relationship among enterprise
its importance management (CRM) resources planning (ERP),
SCM and CRM

LO1 LO2 LO3 LO4 LO5

Discuss the problems Use an activity-based

of managing supply approach to analyse
chain and recommend customer profitability
some innovative
 Provide raw materials,
Logistics and
services and
component parts
Distribution

Components
of a Typical
Supply Chain

Vary by industry and

Members of several firm, but might include:
supply chains - often in processing, purchasing,
different roles: Tier one, production planning and
Tier two, Tier three control, QA, shipping
Example:
Dairy
Products
Supply
Chain
What is Supply Chain
Management (SCM)?
 SCM is the integration
of the activities that
procure materials and
services, transform
them into intermediate
goods and final
products, and deliver
them through a
distribution system

Objective of SCM: to build a chain of

suppliers that focuses on
maximizing value to the ultimate
customer
 Why is SCM Important?
Reducing Costs Improving Efficiency Satisfying Demand

● Decreases Purchasing Cost ● Right quantity and quality – ● On-time delivery – Customers
– Organizations generally Customer expects delivery of expect to receive the correct
prefer quick distributions of right quantity and quality of product mix and quantity to be
products. delivered on time.
costly products and raw
materials to avoid expensive ● With an effective SCM, ● After Sales Services – If any
inventory organizations can diagnose kind of problem occur in the
● Decrease Production Cost – problems and disruptions product, customer expects it to
be fixed quickly. A right supply
A reliable supply chain correctly. SCM plays an
delivers materials to important role in moving items chain ensures that customers
assembly plants and avoid quickly and efficiently to get the service they want.
any costs that may occur due destination.
to delays.
Problems in SCM Solutions
Unforeseen delays (i.e. ● Always have buffer stocks
1 delays in production, ● Develop efficient warehouse
distribution etc.) management system

● Improve cost control by executing

2 Costing plans efficiently through constant
monitoring

● Partnership agreement
3
Supplier or partner
relationship
● Build a strong relationship with
partners or suppliers

● Hire qualified personnel to lead the SCM roles

4 Talent or Qualified Personnel ● Offer higher than the market price
● In-house training

Changes in the market (i.e ● Risk management plan - how to

5
consumer demands, new product
overcome disruptions during day-to-
launches, political agendas, Covid
day operations
-19 pandemic)
● Being able to provide customers’
Quality of Customer
6
unique solutions
Service ● Fast respond to customer
complaints
How Supply Chain Decisions Impact Strategy

Low-Cost Strategy Response Strategy Differentiation Strategy

Supplier’s goal Supply demand at Respond quickly to Share market research;

lowest possible cost changing jointly develop
(e.g., Emerson requirements and products and options
Electric, Taco Bell) demand to minimize (e.g., Benetton)
stockouts (e.g., Dell
Computers)

Primary Select primarily for cost Select primarily for Select primarily for
selection capacity, speed, and product development
criteria flexibility skills
How Supply Chain Decisions Impact Strategy

Low-Cost Strategy Response Strategy Differentiation Strategy

Process Maintain high average Invest in excess capacity Modular processes that
charact- utilization and flexible processes lend themselves to
eristics mass customization

Inventory Minimize inventory Develop responsive Minimize inventory in

charact- throughout the chain system with buffer the chain to avoid
eristics to hold down cost stocks positioned to obsolescence
ensure supply
 How Supply Chain Decisions Impact Strategy

Low-Cost Strategy Response Strategy Differentiation Strategy

Lead-time Shorten lead time as Invest aggressively to Invest aggressively to

charact- long as it does not reduce production reduce development
eristics increase costs lead time lead time

Product-design Maximize performance Use product designs Use modular design to

charact- and minimize costs that lead to low setup postpone product
eristics time and rapid differentiation as
production ramp-up long as possible
Customer Relationship
Management (CRM)

“The approach of identifying, establishing, maintaining

and enhancing lasting relationships with customers.”

“The formation of bonds between a company and its

customers.”
Importance
of CRM
 Customer Profitability Analysis (CPA)

“Analysis of the revenue streams and service The general approach to CPA is based on
costs associated with specific customers or segmenting the customer base to determine the
customer groups” - (CIMA Official Terminology 2005) revenues and costs attributable to each segment.
This is often combined with an activity-based
“CPA is the reporting and analysis of revenues costing (ABC) approach. Once the profitable and
earned from customers and the costs incurred to non-profitable segments are identified, profitable
earn those revenues. This will enable segments are maximised while non-profitable
management to determine which customers are segments are reduced or eliminated.
the most profitable and should be receiving a
high level of attention from the company” -
(Horngren, Datar, & Rajan, 2015)
 Consider all activities that affect the
net amount received from the
customers

s i sy lanA y t i l iba tfiorP re mo t suC

Customer Revenue Analysis
Traces prices and discounts
(including sales and cash discounts)
to customers and identifies
financing costs associated with
customer revenues

Identifies activities and cost drivers to

service customers

Customer Cost Analysis

These costs are hidden in the

customer support, marketing and
sales function
 Key Steps in CPA Process
Review the Impact of the
New Strategies on the
Customer Segmentation Performance of the
●Demographic 01 06 Customer Segments
●Psychographic

Revenue Attributable to Develop strategies to

Each Segment maximise profits from
Once segments have been identified, the
annual revenue is calculated per segment, profitable customers and
how this is done will depend on the 02 05 reduce or eliminate less
products or services offered by the
company profitable or non-profitable
customers
● Eliminating
● Re-engineering
Use ABC to Determine the Cost 03
Attributable to Each Segment 04 Analyse the Profitable versus the
Less Profitable or Unprofitable
Customer Segments
 Advantages of CPA

1 Improved profitability

2 Understanding of the true costs of each customer segments

3 Identified customer groups

4 Improved strategic decision making

4: Annual profitability
may not be 1: Inaccurate
representative of estimation of
lifetime value customer segmental
revenues and costs
How to overcome the
disadvantages?
Disadvantages of 1. Advances in IT
CPA 2. Managing
customer value

3: Overlook the 2: Impractical -

combinations of challenging in calculating
products or services costs attributable to
purchased by each segment
customers
 Enterprise resource
planning (ERP) is
business process
management software
that allows an
organization to use a
system of integrated
applications to
manage the business
Objective:
and automate many
back office functions
To integrate all
departments and
related to technology,
functions across a
services and human company onto a
resources single computer
system that can
serve all of the
enterprise’s needs
Benefits of Implementing ERP Software
 SCM CRM

3 Main Upstream Operations Downstream

Phases of a
Value Chain

Product Manufacturin Linkage with

development, g or providing customers (i.e.
linkage with product/ delivery, service
suppliers service etc.)