Supply Chain Management

Lecturer :
Ni Nyoman Ayu Diantini, S.E., M.M., Ph.D

Compiled By :

Michelle Charmaine (12) : 2307521113

MANAGEMENT MAJOR
FACULTY OF ECONOMICS AND BUSINESS
UDAYANA UNIVERSITY
2024
The Supply Chain’s Strategic Importance
Most firms, including Darden, invest heavily in purchasing. With costs tied closely to procurement,
long-term relationships with suppliers are vital. Collaborative efforts to innovate, speed design,
and reduce costs enhance competitiveness across partners. Effective supply chain management
coordinates activities from raw materials to customer satisfaction, optimizing structure for
competitive advantage and customer benefit, similar to successful team dynamics in
championships.

Sourcing Issue: Make-or-Buy and Outsourcing

 Make-or-Buy Decisions: A wholesaler or retailer buys all its products, while
manufacturers, restaurants, and assemblers purchase components and subassemblies. The
decision to produce internally or source externally is called the make-or-buy decision.
Supply chain personnel assess suppliers and provide relevant data for the buy option.
 Outsourcing: Outsourcing shifts traditional internal activities to external vendors, differing
slightly from the make-or-buy decision. This trend leverages vendor expertise, allowing
the outsourcing firm to focus on its core competencies and key success factors.

Six Sourcing Strategies

 Many Suppliers: This strategy involves suppliers competing through bidding based on cost,
quality, and delivery, without focusing on long-term partnerships.
 Few Suppliers: Emphasizing long-term relationships, this strategy aims for cost savings,
innovation, and quality, but risks dependency and issues like trade secret breaches.
 Vertical Integration Companies produce their own goods or acquire suppliers and
distributors, like Apple's backward integration into semiconductors and forward integration
into retail stores, enhancing control but requiring significant investment.
 Joint Ventures: Firms collaborate formally to reduce costs and enhance product
development, as seen with Daimler and BMW's partnership in standard automobile
components.
 Keiretsu Networks: Japanese manufacturers form coalitions where they support suppliers
financially, ensuring stable quality and technical expertise through long-term relationships.
  Virtual Companies: These firms rely on stable supplier relationships for flexible and speedy
operations, avoiding heavy capital investment by outsourcing services like manufacturing
and design.

Supply Chain Risk

Companies today rely heavily on supply chains due to increased specialization and outsourcing.
This dependence heightens risks such as logistical challenges, international complexities, and
geopolitical factors like tariffs and currency fluctuations, impacting business operations globally.
 Risks and Mitigation Tactics: Supply chain risks vary widely and cannot be entirely
outsourced. Effective supply chain management requires thorough research, risk
assessment, and strategic planning to reduce disruptions and prepare responses. Strategies
include building flexible, secure chains, securing insurance, diversifying suppliers, and
implementing contingency plans such as cross-sourcing and excess capacity to enhance
resilience.
 Security and JIT
Since 9/11, U.S. supply chains face increased complexity, but technology advancements
enhance security and inventory management. Innovations track container location, content,
condition, and internal data like temperature and shock, improving logistics reliability.

Managing the Integrated Supply Chain

 Issues in Managing the Integrated Supply Chain:
1. Local Optimization: Supply chain members often focus on maximizing local profit
or minimizing immediate costs, which can lead to overcompensation for small
demand fluctuations. For instance, a pasta distributor might over-order from the
manufacturer after a retailer's large promotion, unaware it was a one-time event.
Incentives:
2. Sales incentives, quantity discounts, quotas, and promotions drive excess inventory
into the supply chain, creating costly fluctuations for all involved.
3. Large Lots: Preferring large shipments to cut unit costs increases holding expenses
and doesn't align with actual demand, causing supply chain distortions.
 Opportunities in Managing the Integrated Supply Chain:
 1. 1. Accurate "pull" data uses POS and CAO to adjust orders and maintain inventory
efficiently.
2. Lot size reduction includes shipping smaller lots economically and using volume-
based discounts and electronic ordering.
3. Single-stage control of replenishment assigns responsibility to manage inventory
based on end-user demand, reducing the bullwhip effect.
4. Vendor-managed inventory (VMI) has local suppliers maintain and deliver
inventory directly to users.
5. Collaborative planning, forecasting, and replenishment (CPFR) shares information
to lower inventory costs.
6. Blanket orders are unfilled contracts authorized upon receipt of specified shipping
documents.
7. Standardization aims to streamline purchasing by reducing component variety.
8. Postponement delays customization until the final distribution point to minimize
inventory and risk.
9. Electronic ordering and funds transfer speed transactions and reduce paperwork,
increasingly using the Internet.
10. Drop shipping saves time and costs by shipping directly to end consumers, while
special packaging and labeling optimize efficiency.

Building the Supply Base

 Supplier Evaluation: Assessing suppliers based on criteria like financial strength, quality,
and adherence to standards such as ISO 9000 and ISO 14000. These evaluations streamline
processes and support just-in-time production.
 Supplier Development: Integrating selected suppliers by aligning on quality standards,
schedules, and procurement policies. This involves training, engineering support, and
effective information exchange to ensure mutual success.
 Negotiations: Involves determining prices, terms, and quality standards through strategies
like cost-based pricing, market-based pricing, and competitive bidding to reach agreements
in business transactions.
  Contracting: Contracts share risks and benefits among supply chain partners, promoting
collaboration with features like quantity discounts, buybacks, and revenue sharing to
manage uncertainties.
 Centralized Purchasing: Consolidates buying power to negotiate better prices, develop
expertise, and strengthen supplier relationships while reducing duplication. A hybrid
approach balances centralized efficiency with local control.
 E-Procurement: Streamlines purchasing, reduces costs, and integrates supply chains
through online catalogs, exchanges like Avendra, and auctions that improve buying
efficiency and inventory management.

Logistics Management
 Shipping System: Transportation costs can reach 25% of product expenses, driving
ongoing method assessments. Trucking offers JIT flexibility; railroads handle bulk;
airfreight grows for light goods; waterways are cost-effective for bulk; pipelines for oil/gas;
multimodal for global. Costs vary: air for speed, water for size.
 Warehousing: Adds 8-10% to costs, varied by size/function. Stores goods, consolidates,
breaks bulk, or adds value. Channel assembly reduces finished inventory, boosts market
response.
 Third-Party Logistics: Enhances logistics, cuts inventory/delivery costs, speeds reliability.
FedEx, UPS, DHL track inventory, use hubs efficiently.

Distribution Management
Distribution management focuses on the outbound flow of products, balancing rapid response,
product choice, and service. Companies like Office Depot use multiple channels to meet customer
needs, balancing the number of facilities to minimize logistics costs and maximize profit. Effective
distribution, including packaging, logistics, and dealer management, is crucial for supply chain
success.

Ethics and Sustainable Supply Chain Management

 Supply Chain Management Ethics Ethical decisions are crucial in supply chains due to
close interactions and high spending. Companies enforce strict rules and principles to
 ensure responsibility, avoid conflicts of interest, and comply with laws. For instance, Gap's
factory evaluations highlight the importance of ethical standards among suppliers.
 Establishing Sustainability in Supply Chains: The return supply chain manages product
returns through reverse logistics for resale, repair, reuse, recycling, or disposal, aiming to
minimize waste. A closed-loop supply chain integrates forward and reverse flows from
product inception, exemplified by IBM's efficient component extraction from returns to
reduce procurement costs.

Measuring Supply Chain Performance

 Assets Committed to Inventory: Effective supply chain management reduces inventory
investment and enhances business performance. High inventory turnover and efficient
resupply, as demonstrated by companies like Walmart and Dell, provide a competitive
advantage. Efficient supply chains enable rapid response to market demands and lower
inventory costs.
 Benchmarking the Supply Chain: Metric values are meaningful on their own and useful for
historical comparison, but comparing them to benchmark firms adds value. Companies can
submit their data to organizations and websites to see how they compare within their
industry or against world-class firms.
 The SCOR Model: The Supply Chain Operations Reference (SCOR) model, maintained
by the APICS Supply Chain Council, is a well-known benchmarking system with five
parts: Plan, Source, Make, Deliver, and Return. It includes over 200 process elements, 550
metrics, and 500 best practices to help firms improve supply chain processes. While useful,
SCOR should be complemented by audits and strong relationships built on communication,
trust, and strategy alignment.