Supply Chain Management: Strategies and Best Practices

Posted on Dec 19, 2024 in Economy

Topic 1: Supply Chain Management Fundamentals

SCMT Processes

  • Plan: Develop a course of action that best meets sourcing, production, and delivery requirements.
  • Source: Procure raw materials, goods, and services to meet planned or actual demand.
  • Make: Transform raw materials or semi-finished products into a finished state.
  • Deliver: Distribute the finished products or services, including handling customer order fulfillment.
  • Return: Receive returned products and provide post-delivery customer support.

Objective of Supply Chain

Achieve the best mix and simultaneous improvement in both customer service levels and internal operating efficiencies.

Objective of CRM

To sustain consistently high order fill rates, high on-time delivery rates, and a very low rate of products returned by customers.

5 Main Supply Chain Drivers

Production, Inventory, Location, Transportation, and Information.

How Parties Interact in a Supply Chain

Supplier-Company-Customer or Ultimate Supplier-Supplier-Company-Customer-Ultimate Customer.

Definition of Supply Chain Management

Design, planning, execution, control, and monitoring of supply chain activities; building a competitive infrastructure; and measuring performance globally.

Definition of Logistics Management

Plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods and services to meet customer requirements.

Logistics Industry

Sea, air, land freight, third-party logistics (3PL) warehousing, railways, and customs brokerage.

Economies of Scale

Minimize total supply chain costs, achieved by expanding the scale of production. Fixed costs divided by a larger pool of units equals a lower average unit cost.

Sustainable Supply Chain

Minimize carbon footprint, reduce waste and emissions, use renewable energy and sustainable materials, ensure ethical labor practices, and achieve long-term profitability through resource optimization.

Topic 2 & 3: Supplier Management and Sourcing

Supplier Selection Process

  1. Identify specifications to be purchased (warranty, cost, price, and performance).
  2. Define criteria to evaluate suppliers.
  3. Send RFP/RFQ (Request for Proposal/Quotation) to pre-selected suppliers.
  4. Evaluate proposals.
  5. Negotiate.
  6. Monitor performance.
  7. Continuous improvement.

Supplier Evaluation Criteria

(Price, Delivery, Quality, and Service)

Examples:

  • Price of materials
  • Financing terms
  • Reliability of delivery
  • Total transit time
  • Overall supplier reputation
  • Product reliability
  • Technical specifications
  • Ease of use
  • Sales service
  • Supplier flexibility

Global Sourcing Advantages and Disadvantages

Advantages: Wider pool of suppliers, more variety of products, more price-competitive.

Disadvantages: More costs incurred in shipping and distribution, longer lead time in delivery, trust and quality issues, exposure to currency fluctuations.

Local Sourcing Advantages and Disadvantages

Advantages: Simpler logistics arrangements, meets customer environmental and ethical demands for products sourced closer to home, builds community and society ties.

Disadvantages: More expensive and may not get the best.

Sustainable Sourcing Management

  • Local Sourcing: Reduce transportation emissions, support regional communities, reduce carbon footprint.
  • Ethical Sourcing: Partner with suppliers committed to sustainable practices and use raw materials from renewable or responsibly managed sources.
  • Supplier Audits and Compliance: Conduct regular audits to ensure suppliers follow ethical and environmental standards, and encourage suppliers to adopt sustainable certifications.

Supplier Base Consolidation

Involves selecting not one but two to three suppliers, providing more bargaining power, ensuring no over-dependency on a single supplier, and minimizing the impact of unforeseen disruptions on the supply chain.

Demand Consolidation

Attain higher purchasing volume by consolidating the demands of different divisions. This can be done through an International Purchasing Office (IPO). Streamline different lines of production into a few standard types. A high volume of a small range of products makes it easier to negotiate lower prices.

Sustainable Manufacturing

Energy efficiency (optimizing energy consumption), waste reduction, and circular economy practices.

Break-Even Quantity (BEQ)

Total Make (Fixed Cost + Variable Cost x BEQ) = Total Purchase (Variable Cost x BEQ). Solve for BEQ.

Total Make Cost (Find Total Fixed Cost, Total Labor Cost, Total Material Cost, Total Variable Cost). Total Make = Total Fixed Cost + Total Variable Cost. Buy Cost = Cost x Quantity Demanded.

Topic 4: Distribution Channels

Direct Channel

Manufacturers sell goods and services directly to the final consumer without the use of intermediaries. Suitable for high product value, highly sophisticated technology, and a limited pool of customers. Zero-Echelon.

Indirect Channel

Manufacturers engage one or more intermediaries to distribute products to end-customers. One-Echelon and Two-Echelon.

Business Functions of Intermediaries

Physical possession, ownership, promotion, negotiation, financing, risk-taking, and ordering. Suitable for low-value but perishable products that customers usually buy when they shop for groceries.

Wholesaling

Involves buying or handling of inventory and its subsequent resale to industrial users, retailers, and/or wholesalers, but not selling significant volumes to final customers. Motivation: Benefits of discounts obtained by buying in large quantities and undertaking channel activities.

Retailing

Involves the sale of goods and services to consumers for personal, family, or household usage. Motivation: Capitalize on the consumer market. Characteristics: Puts significance on business location, faces low average sales per customer, handles a high proportion of impulse sales, and experiences high seasonality.

Agent

The manufacturer sells products to an agent (broker) who sells to a wholesaler, who sells to a retailer, who sells to the customer.

Online Retailing Advantages and Disadvantages

Advantages: Does not require a physical store, is more accessible to any customer through an internet connection, and offers customization of products before delivery.

Disadvantages: Lacks physical interaction with customers, faces refund and return challenges, and experiences high competition.

Topic 5A: Logistics Management

Logistics Management

The process that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customer requirements.

Stakeholders’ Roles

  1. Consignor: Moving goods from origin to destination within a prescribed time at the lowest cost.
  2. Carriers: Desire to maximize revenue associated with delivery while minimizing the cost necessary to get the activity executed.
  3. Government: Dictate rules and regulations for the other three parties; non-compliance might cause delays to shipments.
  4. Consignee: Customer of the shipper.

Freight Forwarders’ Responsibilities

Pack goods at the shipper’s site, handle insurance of goods, and manage the customer clearance process.

Modes of Transportation

  1. Pipeline: Physical products, mostly utilities, liquids, and chemicals.
  2. Rail: Capacity for large volumes, fixed routes, limited facilities and accessibility, efficient for long hauls.
  3. Sea: Capacity for very large loads, slow, geographically limited.
  4. Air: Fastest delivery over medium to long distances, expensive, and appropriate for small or expensive loads.
  5. Road: Most flexible to any land destination, good short-haul capacity, variable capacity can be tailored to different needs, and performance is somewhat more sensitive to weather conditions.

Mode Selection

Product nature, macro factors, cost, and service requirements.

Sustainable Transportation Practices

  1. Fuel Efficiency: Optimizing fuel usage (e.g., electric vehicles), eco-driving practices (maintaining steady speeds).
  2. Route Optimization: Use route optimization technology (e.g., GPS) to minimize fuel consumption, reduce delivery time, and cut down emissions.
  3. Consolidation of Shipments: Combine small shipments into larger loads to reduce the number of trips.

Topic 5B: Warehousing

Warehouse Characteristics

General Merchandise, Food and Medical, Bonded, Customs, Temperature-Controlled, and Hazardous Materials.

5 Operational Foci of Warehousing

Receiving, Main Storage, Order Picking and Packing, Staging, and Shipping.

Without Warehousing In-Between

Manufacturers would have to distribute goods directly to each and every customer. Transportation costs would be relatively high due to small shipments with minimum charges, no bulk volume discounts, and a high number of long-distance trips made to customers.

With Warehousing In-Between

Transportation costs would be relatively lower, making use of bulk freight discounts and fewer long-distance trips. Overall transportation costs would still be lower even though there might be short-distance trips from the warehouse to consumers. Manufacturers will now incur warehousing costs. Transportation and warehousing costs equal logistics costs.

Ownership Arrangements

  1. Public Warehousing: Possibility of short-term commitment of space usage, relatively lesser risks and liabilities, provision of trained staff, and predictable rates.
  2. Contract Warehousing: Partnership with a 3PL who rents space and recruits warehouse handlers, requires a long-term contract, can negotiate lesser types and lower levels of risk.

Sustainable Warehousing Operations

Energy efficiency, space optimization, and sustainable materials and packaging.