Supply Chain Chopra Others

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Supply chain management: strategy, planning and operation

Sunil Chopra and Peter Meindl, PHI, 2004.

A supply chain consists of all parties involved, directly or indirectly, in fulfilling a customer request.

The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses,

retailers, and customers themselves.

Within each organization, such as a manufacturer, the supply chain includes all functions involved in

receiving and filling a customer request.

A supply chain is dynamic and involves the constant flow of information, product, and funds between

different stages.

It is important to visualize information, funds, and product flows along both directions of this chain.

All flows of information, product, or funds generate costs within the supply chain. Thus, the appropriate

management of these flows is a key to supply chain success.

Supply chain management involves the management of flows between and among stages in a supply

chain to maximize total supply chain profitability.

The primary purpose for the existence of any supply chain is to satisfy customer needs, in the process

generating profits for itself.


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Supply chain activities begin with a customer order and end when a satisfied customer has paid for his

or her purchase.

The objective of supply chain is to maximize the overall value generated.

For most supply commercial supply chains, value will be strongly correlated with supply chain

profitability.

Successful supply chain management requires many decisions relating to the flow of information,

product, and funds.

The design, planning, and operation of a supply chain have a strong impact on overall profitability and

success.

The goal of supply chain operations is to handle incoming customer orders in the best possible manner.

Planning establishes parameters within which a supply chain will function over a specified period of

time.

The design, planning, and operation of a supply chain have a strong impact on overall profitability and

success.

A supply chain is a sequence of processes and flows that take place within and between different stages

and combine to fill a customer need for a product. Page 8.


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Page 387

Procurement is the process by which companies acquire raw materials, components, products, services

and other resources from suppliers to execute their operations. Sourcing is the entire set of business

processes required to purchase goods and services. Sourcing processes include the selection of

suppliers, design of supplier contracts, product design collaboration procurement of material and

evaluation of supplier performance.

Supplier scoring and assessment is the process used to rate supplier performance. For many firms, price

has traditionally been the only dimension that suppliers have been compared on. There are many other

supplier characteristics such as lead time, reliability, quality and design capability that impact the total

cost of doing business with a supplier. A good supplier scoring and assessment process must identify and

track performance along all the dimensions that affect the total cost of using a supplier.

Supplier selection uses the output from supplier scoring and assessment to identify the appropriate

suppliers.


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Given that about 80 percent of the cost of a product is determined through design, it is crucial that

suppliers be actively involved at this stage. Design collaboration allows the supplier and the

manufacturer to work together when designing components for the final product. Design collaboration

also ensures that any design changes are communicated effectively to all parties involved with designingand manufacturing the product.

The goal of procurement is to enable orders to be placed and delivered on schedule at the lowest

possible overall cost.

The role of sourcing planning and analysis is to analyse spending across various suppliers and

component categories to identify opportunities for decreasing the total cost.

Effective sourcing processes within a firm can improve profits for the firm and total supply chain surplus

in a variety of ways.

It is important that the drivers of improved profits be clearly identified when making sourcing decisions.

When designing a sourcing strategy it is important for a firm to be clear on the factors that have the

greatest influence on performance and target improvement on those areas.

When comparing suppliers, many firms make the fundamental mistake of focusing only on the quoted

price, ignoring the fact that suppliers may differ on other dimensions that impact the total cost of using

a supplier.

Supplier performance must be rated on each of the factors because they impact the total supply chain

cost.

Supplier performance should be compared based on their impact on total cost. Besides purchase price,

the total cost is influenced be replenishment lead time, on time performance, supply flexibility, delivery

frequency, supply quality, in bound transportation cost, pricing terms, the ability of the supplier to


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coordinate forecasting and planning, the design collaboration capability of the supplier, exchange rates

and taxes and supplier viability.

It is crucial for a manufacturer to collaborate with suppliers during the design stage if product costs are

to be kept low. Design collaboration can lower the cost of purchased material and also lower logistics

and manufacturing costs.

Page 406

Periodically, each firm must analyse its procurement spending and supplier performance and use this as

input for future sourcing decisions.

Supplier performance should be measured against plan on all dimensions that impact total cost such as

responsiveness, lead times, on time delivery, quality and delivery accuracy.

Supplier performance analysis should be used to decide on the portfolio of suppliers to be used and the

allocation of demand among the chosen suppliers.

Effective sourcing decisions have a significant impact on financial performance.

Good sourcing decisions can improve supply chain performance by aggregating orders, making

procurement transactions more efficient, achieving design collaboration with suppliers, facilitating

coordinated forecasting and planning with suppliers, designing supply chain contracts that increase

profitability while minimizing information distortion, and decreasing the purchase price through

increased competition among suppliers.


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From the book

Supply Chain Management: Concepts and Cases - Rahul V.Altekar

Prentice Hall of India, New Delhi, 2005

Page 4

Supply chain management can be seen as the process of strategically managing the procurement,

movement and storage of materials, parts and finished inventory (and 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.

Supply chain is understood as a process starting from the procurement of raw materials to the ultimate

consumption of the finished product linking across supplier-user companies, or the functions inside and

outside a company that enable the value chain to make products and provide services to the customer.

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An effective supply chain strategy may be formulated to meet the needs of the market and integrate

them with technology to generate the highest level of customer satisfaction while delivering the highest

value to the shareholders.

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To optimize the benefits of lean throughout the supply chain, it is essential for the manufacturing

company to build partnerships with suppliers, as if they were departments within their own company.

The partnership must work on the basic premise that the manufacturing company will pull only what it

consumes and nothing more. The suppliers replace what the manufacturing company has consumed and

nothing more. In this way inventories are maintained at their minimum for both supplier and customer.

Achieving this level of trust and efficiency with companys supplier will require frequent communication

and extensive sharing of information. Successful partnerships result from inviting each other to strategic

planning sessions, attending each others events for process improvements and other joint activities.


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The customer and supplier share common goals such as the minimisation of waste and the maximisation

of productivity. Greater effort is required, however, to avoid a one sided approach to setting

quantitative performance targets. Response time targets for the supplier might be coupled with a

commitment by the customer for providing complete information within a reasonable lead time.

Page 209

For a company to deliver maximum value to its customers, it must receive maximum value from its

suppliers.

Through supplier partnership some firms could double their competitive resources and greatly improve

their costs, quality, cycle times, technology and customer satisfaction.

The drivers of partnership are summarized into the following three points.

Brutal competition across the globe is offering better quality, lower prices and less responsetime for the same product or service.

Smart and conscious consumers want more value, reliability, after sales service and smallerbatches.

Limitations of isolated efforts in creative product differentiation, cost cutting methods andproductivity improvement areas.

Supplier partnership is the establishment of a working relationship with supplier organization whereby

two organizations act as one. Supplier integration means developing preferred suppliers.

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Distribution refers to getting the right product to the right place at the right time. Distribution can be

defined as the channel structure used to transfer products from an organization to its customers.

Distribution organizations manage the activities associated with the movement of materials, usually

finished goods or parts, from supplier to the customer.


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P 375

The inherent complexity of supply chains is tied to the interdependency of the processes, people and

technology at each of the supply chains partners.

P 396

A benchmark is a standard of performance. Benchmarking helps organizations identify standards of

performance in other organizations and to import them successfully to their own. It allows organizations

to discover where they stand in relation to others. By identifying, understanding, comparing andadapting ones own organization with the outstanding practices and processes of others, an organization

can target problem areas, set levels of performance and identify solutions to improve results.

Organisations that accomplish a particular activity at the highest value, i.e. at the lowest cost and / or

quality or efficiency are considered best-in-class.

Benchmarking is an ongoing process that generally does not yield quick fixes or panaceas.

p 421

Traditional performance measurement systems are designed for single entities and do not readily

support supply chain perspectives.

P 430

SCOR facilitates a standard language, which is set up to help management to focus on management

issues. It is used as an industry standard to help management focus across inter company supply chains.


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It is also used to describe, measure and evaluate supply chain configurations in order to improve across

all areas of the supply chain.

However there are several critical success factors for effectively using SCOR. A companys operations

strategy must be consistent with and support the business strategy. The business must be organized to

support rapid decision making and management practices must be facilitated by appropriate systemsand information technology, not defined by them. Finally the performance metrics and targets that are

put in place must motivate behavior that produces the required outcome. When these conditions are

met, using the model allows companies to compare their own processes with those of other companies,

benchmark themselves and compare their own practices with the demonstrated best practices.

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Supply Chain Chopra Others