Dr. Miles Weaver,The Business School,Edinburgh Napier UniversityM.Weaver@napier.ac.uk

Sustaining Organisational Performance Unit 4: Supply Chain Management

Feedback is two ways ….

Learning Outcomes

At the end of this unit you should be able to:-• Critically analyse and evaluate the significance of modern supply

chain management practice to the delivery of customer value and the building and sustaining of organisational performance.

Unlocking the potential in a supply chain:the opportunity

"supply chains compete, not companies" “Supply chain is the new value chain”

(Christopher, 2002; 2011)

• Supply strategies significantly impact upon a firms performance (Christopher and Ryals, 1999, Keah-Choon et al., 1999)

• Companies have far too often attempted to optimise their own value chains, without considering the effect of these decisions on their suppliers or customers (Chopra and Meindl, 2004)

• Supply chain professionals are in an outstanding position to impact sustainability practices (Carter and Rodgers, 2008)

What is supply chain management?

• Supply chain management is “the management of upstream and downstream relationships with suppliers and customers in order to deliver superior customer value at less cost to the supply chain as a whole”

(Christopher, 2010)

First-tier supplier

Second-tier supplier

First-tier customer

Second-tier customer

End customer

Demand side

Supply side

Purchasing and supply

management

Physical distribution management

Logistics

Materials management

Supply chain management

Information flow

Physical flow

From cow to customer (Harrison & van Hoek, 2008)

Boeing and aerospace

Supply chains are inherently complex

Business process view of a supply chain

Procurement (or supply management)

Choosing suppliers based on price, quality & delivery (Greasley, 2013)

Approved supplier listsSystem of supplier rating based on performance criteria

Single sourcing or multi sourcing?

Outsourcing?Offshoring?

“Puts procurement at the heart of Scotland’s economic recovery“

“Procurement as an integral part of policy development and service delivery”. 

“Like all good ideas, it’s a simple concept - business friendly and socially responsible. Looking at outcomes not outputs, it uses the power of public spend to deliver genuine public value beyond simply cost and /or quality in purchasing”.

The Scottish Government (Accessed: 1/10/15)

See: http://www.gov.scot/Topics/Government/Procurement/about/spd-aims

Example: The Scottish Model of Procurement

LogisticsLogistics is the process of strategically managing the procurement, movement and storage of materials, parts and finished inventory (and the related information flows) through the organization and its marketing channels in such a way that current and future profitability are maximized through the cost-effective fulfillment of orders.

(Source: Christopher, 2010)

Components of an integrated logistics system:

External Supply: links suppliers to operations processInternal Operations: manages in-process material flowPhysical Distribution: links operations process to customers

Measuring Supply Chain Performance

Supply Chain Council, V9, (2010)

How should I design my supply chain to optimise performance?

• Where to locate facilities?• Long-term capacity planning• How to cooperate to provide

customer satisfaction?• Impact on ensuring a sustainable

future?

Variability in the supply chain• Need for cooperation in order to limit fluctuations in demand which occurs

in supply networks and affects performance (Greasley, 2013)

• Variability is affected by the time lag between ordering materials and getting them delivered to the customer (Greasley, 2013). Can be expressed as ‘lead time gap’

Lead Time Gap = Logistics Pipeline – Customer Order Cycle Time

Where:Logistics pipeline = Time to source materials, convert them into products and move them to the marketplaceCustomer order cycle time = how long the customer is prepared to wait for the product

Lead time componentsSource: Christopher (2011)

Which activity add cost and which add value?

Overcoming the lead time gap

• How best to ensure sufficient stock is available to meet customer demand?

• Avoid over ordering?

Lowson et al., (1999) noted that getting this wrong can be costly, for example loses in the apparel pipeline have been estimated at 25% of retail sales (i.e. forced markdowns 14.6%, stock-outs 4%, and the carrying cost of inventory 6.4%).

Taylor et al., (2008) ask one important sales consideration: determining how much work in process, in-transit stock, and finished goods to have on hand to support sales at a desired service level?

Overcoming the lead time gap (2)

• Order batching (placing orders when a predetermined batch size is reached) can cause a mismatch between demand and the order quantity

• Price fluctuations (i.e. price cuts, quantity discounts) leads to demand variability as companies buy products before actually needed

The Beer Game: http://supplychain.mit.edu/supply-chain-games/beer-game/http://www.beergame.lim.ethz.ch

• Effects amplified across the supply chain – the bullwhip effect (Forrester, 1961)

• Behavior is caused due to a lack of synchronisation between supply chain members

• Given appropriate conditions, eliminating the bullwhip effect can increase product profitability by 10–30% (Metters, 1997)

Sources of risk and supply chain vulnerability

Christopher & Peck (2004)

Creating the resilient supply chain

‘the ability of a system to return to its original (or desired) state after being disturbed’

• Encourages a whole system perspective

• Explicitly accepts that disturbances happen

• Implies adaptability to changing circumstances

(Peck and Christopher, 2008)

The agile supply chain

• Agility is not a single company concept, it extends from one end of the supply chain to the other.

• Embraces uncertainty in markets and achieve competitive advantage by the flexibility and speed of their responses to them (Greasley, 2013)

The ability to respond rapidly to unpredictable changes in demand

The concept of Agility (Harrison, 1999)

• Market sensitive– Supply chain is capable of reading and responding

to real demand

• Virtual – Information-based supply chain, rather than

inventory-based

• Network based– EDI and internet enable partners in the supply

chain to act upon the real demand• Process integration

– Collaborative working between buyers and suppliers, joint product development, common systems and shared information

Lean Supply ChainThe “Lean supply chain” identifies all types of waste in the value stream chain and seeks to eliminate them (Rother and Shook, 1999; Abdulmalek and Rajgopal, 2007)

In Lean supply, the entire flow from raw materials to consumer is considered as an integrated whole.

“Lean” means a series of activities or solutions to eliminate waste, reduce non-value added (NVA) operations, and improve the value added (VA)

Lean Supply (Lamming, 1996)

• Genuine equality in Partnership• Perfect quality focus: defined by

mutual adjustment and continuous improvement

• Synchronisation of capacity• Just-in time delivery• Supplier/ customer transparency

and information exchange• Ongoing price reduction based on

cost reductions from joint efforts

Mass customisation through postponement

• Regional customisation - regional distribution until products have reached regional distribution centres

• Customer-specific customisation - Postponing differentiation until orders have been received

• Lean, agile or leagile? (see Mason-Jones et al., 2000)

Material flow decoupling points and strategic inventory

See: Towill (2000)

Integration in the Supply Chain

the degree to which the firm can strategically collaborate with their supply chain partners and collaboratively manage the intra- and inter-organisation processes to achieve the effective and efficient flows of:-

Product and servicesInformation MoneyDecisions

With the objective of providing the maximum value to the customer at low cost and high speed

Relationships, Strategic Partnerships & Alliances• Market relationships – lasts as long as transaction takes.

– Use electronic data interchange (EDI) to share information

• Strategic partnerships & alliances - long-term relationship, work together & share information

Successful partnerships (Lambert et al., 1996):• Drivers – e.g. cost reduction, better customer service or security• Facilitators – e.g. compatibility of operations, similar management

styles, common aims• Components – to build & sustain relationship e.g. communication

channels, joint planning, shared risk and reward & investments

Outsourcing & Offshoring• Outsourcing: transfer to a third party of the management & delivery

of a process previously performed by the company itself (Greasley, 2013)– Supplier development to monitor & manage the relationship; improvement efforts

(rather than squeeze based on price?)

• Offshoring: transfer of specific processes to lower cost locations in other countries (Greasley, 2013)– To reduce costs– May still own & control the process itself in lower cost location

• Lure of cost saving due in part to fewer regulations & low cost wages …. Mass Migration of manufacturing from the developed world to emergent economies in other regions (Christopher, Peck & Towill, 2006)

Sustainable SCMCarter and Rodgers (2008)

“strategic, transparent integration and achievement of an organisation’s social, environmental, and economic goals in the systemic coordination of key interorganisational business processes for improving the long-term economic performance of the individual company and its supply chains”.

Sustainability: the triple bottom line

SSCM: Win-Win situations• Carter and Rodgers (2008) offer a variety of environmental and social

issues that a firm can undertake which can improve as well as harm the economic bottom line

Can Harm?Little help?Some social/environmental initiatives can fail? (as do others). Need to understand why (i.e. link between quality and sustainability, price premium)

Sustainable SCM Practices

Carter and Rodgers (2008) suggest this area is large!

True sustainability intersects at all three areas

A WIN-WIN?“It’s waste reduction stupid!”

• Banerjee (2001) survey on managerial attitudes to environmentalism showed most actions focused around manufacturing (especially where cost advantage possible)

• As usually cost reductions follow

• Lean production techniques– Toyota production system

• Rely heavily on and gain many of their returns from waste reduction (Cannon, 2012)

Prescribed reading & tutorial case• Prescribed Reading

– Chapter 15 [6 – SCM] (Greasley, 2013)– Chapter 3 [SC Relationships] (Greasley,

2013)

• Recommended reading of selected key articles related to unit on Moodle

• Next weeks tutorial– Discuss in small groups the characteristics &

traits of an effective project manager and the London Olympics

– Case Study: Orbit Case (Greasley, 2013)