Introduction to

mahbub@consultant.com Supply Chain Management

Dr Md. Mahbub Alam

Dr. Md. Mahbub Alam

01753 488 788

MSc (Econ), MBA(Australia), PhD(SCM)

Contact:

Consultant, The World Bank.

Dhaka, Bangladesh
 Session’s Outline

➢ Introduction
➢ Supply Chain Management Defined
➢ The Importance of Supply Chain Management
➢ The Origins of Supply Chain Management
➢ The Foundations of Supply Chain Management
o Purchasing
o Operations
o Distribution
o Integration
➢ Some Current Trends in Supply Chain Management
o Expanding the Supply Chain
o Increasing Supply Chain Responsiveness
o The Greening of Supply Chains
o Reducing Supply Chain Costs
➢ Q&A… 2
 What is a Supply Chain?

A supply chain consists of the flow of products and

services from:
• Raw materials manufacturers
• Component/ intermediate manufacturers
• Final product manufacturers
• Wholesalers and distributors and
• Retailers
Connected by transportation and storage activities, and
integrated through information, planning, and
integration activities focusing on the customers’ needs.

Many large firms are moving away from in-house

Vertically Integrated structures to Supply Chain
Management
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What is a Supply Chain? (continued)

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RMG & Textile Supply Chain (continued)

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 What is Supply Chain Management?

Definitions of Supply Chain Management :

The design and management of seamless, value-added process
across organizational boundaries to meet the real needs of the end
customer.

Institute for Supply Management

Managing supply and demand, sourcing raw materials and parts,

manufacturing and assembly, warehousing and inventory tracking, order
entry and order management, distribution across all channels, and
delivery to the customer.
The Supply Chain Council
 What is Supply Chain Management?
(continued)

• Old paradigm - Firm gained synergy as a vertically integrated firm

encompassing the ownership and coordination of several supply chain
activities. Organizational cultures emphasized short-term, company focused
performance.

• New paradigm - Firm in a supply chain focuses activities in its area of

specialization and enters into voluntary and trust-based relationships with
supplier and customer firms.
▪ All participants in the supply chain benefit.
▪ Boundaries are dynamic and extend from
“the firm’s suppliers’ suppliers to its customers’
customers (i.e., second tier suppliers and customers).”
▪ Supply chains now deal with reverse logistics to handle returned
products, warranty repairs, and recycling.

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 Importance of Supply Chain Management

Firms have discovered value-enhancing and long term

benefits through SCM:
Who benefits most? Firms with:
▪ Large inventories
▪ Large number of suppliers
▪ Complex products
▪ Customers with large purchasing budgets

How do they benefit?

▪ Lower purchasing and inventory costs
▪ Improved quality
▪ Higher levels of customer service

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 Importance of Supply Chain Management
(continued)

The Financial Significance of Supply Management

Profit Leverage Effect

Simplified Increase Decrease
P&L Sales 10% Cost 10%
Gross Sales 1,000,000 1,100,000 1,000,000
- Cost of Goods Sold (50%) (500,000) (550,000) (450,000)
= Gross Profit 500,000 550,000 550,000
- Sales, General, & Administrative (45%) (450,000) (495,000) (450,000)
= Profit Before Tax 50,000 55,000 100,000
Change in Profit 10% 100%
Return on Assets (ROA) Effect
Return on Assets Effect
Simplified Increase Decrease
P&L Sales 10% Cost 10%
Gross Sales 1,000,000 1,100,000 1,000,000
- Cost of Goods Sold (50%) (500,000) (550,000) (450,000)
= Gross Profit 500,000 550,000 550,000
- Sales, General, & Administrative (45%) (450,000) (495,000) (450,000)
= Profit Before Tax 50,000 55,000 100,000
Assets 500,000 500,000 500,000
Return on Assets 10% 11% 20%
 Importance of Supply Chain
Management (continued)

Firms using Supply Chain

Management:
1. Start with key suppliers
2. Move on to other suppliers,
customers, and shippers
3. Integrate second tier suppliers
and customers (second tier
refers to the customer’s
customers and the supplier’s
suppliers)
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 Origins of Supply Chain Management

1950s & 1960s

U.S. manufacturers focused on
mass production techniques
as their principal cost reduction
and productivity improvement strategies

1960s-1970s
Introduction of new computer technology lead to
development of Materials Requirements Planning
(MRP) and Manufacturing Resource Planning
(MRPII) to coordinate inventory management and
improve internal communication 11
 Origins of Supply Chain Management
(continued)

1980s & 1990s

Intense global competition led manufacturers
to adopt:
▪ Supply Chain Management (SCM)
▪ Just-In-Time (JIT)
▪ Total Quality Management (TQM)
▪ Business Process Reengineering (BPR)

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 Origins of Supply Chain Management (continued)

2000s and Beyond

Companies started focusing on relationships,
sustainability, and social responsibility.
Companies also focus on improving supply chain
capabilities with initiatives such as:
▪ Third-party service providers (3PLs)
▪ Integrating logistics
▪ Using transportation to facilitate rapid
response

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Origins of Supply Chain Management
(continued)

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 The Foundations of Supply Chain
Management

Supply base rationalization, supplier alliances,

Supply SRM, global sourcing, ethics and sustainability
Demand management, CPFR, MRP, ERP,
Operations inventory visibility, lean systems, Six Sigma
quality systems
Logistics management, customer relationship
management, network design, RFID, global
Logistics supply chains, sustainability, service response
logistics
Risk and security management, performance
Integration measurement, green supply chains

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 The Foundations of Supply Chain
Management (continued)

Supply Elements:

▪ Supplier management - improve performance

through
• Supplier evaluation (determining supplier capabilities)
• Supplier certification (third party or internal certification to
assure product quality and service requirements)
▪ Strategic partnerships - successful and trusting
relationships with top-performing suppliers
▪ Ethics and sustainability – recognizing suppliers’
impact on reputation and carbon footprint 16
 The Foundations of Supply Chain
Management (continued)

Operations Trends:

▪ Demand management - match demand to

available capacity
▪ Linking buyers & suppliers via MRP and ERP
systems
▪ Use lean systems to improve the flow of materials
to reduce inventory levels
▪ Employ Six Sigma to improve quality compliance
among suppliers
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 The Foundations of Supply Chain
Management (continued)

Logistics Trends:

• Transportation management - tradeoff decisions

between cost & timing of delivery / customer service
via trucks, rail, water & air
• Customer relationship management - strategies to
ensure deliveries, resolve complaints, improve
communications, & determine service requirements
• Network design - creating distribution networks
based on tradeoff decisions between cost &
sophistication of distribution system 18
 The Foundations of Supply Chain
Management (continued)

Integration Trends:

▪ Supply Chain Process Integration - when supply

chain participants work for common goals. Requires
intra-firm functional integration. Based on efforts to
change attitudes & adversarial relationships
▪ Supply Chain Performance Measurement -
Crucial for firms to know if procedures are working
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 Current Trends in Supply Chain Management

Expanding the Supply Chain

• Firms are expanding partnerships and building

facilities in foreign markets
▪ Right shoring for maximum flexibility and minimum
cost
• The expansion involves:
▪ Breadth - foreign manufacturing, office & retail
sites, foreign suppliers & customers
▪ Depth - second and third tier suppliers & customers 20
 Current Trends in Supply Chain
Management (continued)

Increasing Supply Chain Responsiveness

▪ Firms will increasingly need to be more flexible and

responsive to customer needs
▪ Supply chains will need to benchmark industry
performance and meet and improve on a continuous
basis
▪ Responsiveness improvement will come from more
effective and faster product & service delivery
systems
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 Current Trends in Supply Chain
Management (continued)

The GREENING of Supply Chains

Producing, packaging, moving, storing, delivering and

other supply chain activities can be harmful to the
environment
▪ Supply chains will work harder to reduce environmental
degradation
▪ Large majority (75%) of U.S. consumers influenced by a firm’s
environmental friendliness reputation
▪ Recycling and conservation are a growing alternative in
response to high cost of natural resources 22
 Current Trends in Supply Chain
Management (continued)

Reducing Supply Chain Costs

• Cost reduction achieved through:

▪ Reduced purchasing costs
▪ Reducing waste
▪ Reducing excess inventory, and
▪ Reducing non-value added activities
• Continuous Improvement through
▪ Benchmarking - improve over competitors’ performance
▪ Trial & error
▪ Increased knowledge of supply chain processes
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 Q&A
Dr. Md. Mahbub Alam, PhD
dralam.mm@gmail.com
Cell: 01753 488 788

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