BBM 344: SUPPLY CHAIN MANAGEMNT

1. Introduction to supply chain management

2. Purchasing management in supply chain management
3. Creating and managing supplier relationship
4. The value of information and Technology in supply networks
5. Operation issues in supply chain management
 Demand forecasting
 Inventory management
 Process management
6. Towards green and sustainable supply chain networks
7. The management of outsourcing
8. Integration issues in supply chain management
 Supply chain process
9. Integration and performance management along the supply chain
10. Strategic supply network management

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 1. Introduction to Supply Chain Management
The term supply management is often referred to as “material management.” Materials
management is described by Dobler (1990, p.105) as “procurement activities; inventory
management; receiving activities; stores and warehousing; in-plant materials handling;
production planning scheduling and control; traffic and transportation; surplus and salvage.”
Cavinato (2001, p.40) recognised this
and suggested that supply management is “the identification, acquisition, access, positioning,
and management of resources the organisation needs or potentially needs in the attainment of
its strategic objectives

Supply chain management is the management of the flow of goods and services. it involves
movement and storage of raw materials, of work in progress inventory and finished products from
the point of source to the point of consumption.

Supply chain draws heavily from the areas of logistics, procurement, information technology and
marketing, operations management; industrial engineering etc. it strives for an integrated approach.
A supply chain is a set of organizations directly linked by one or more upstream and downstream
flow of products, services, finances or information from a source to a customer.

Importance of supply chain management

 Enable organizations to compete actively in the global market due to modern trends in
globalization, outsourcing, and IT. All these need a collaborative supply chain networks
in which each specialized business partner focuses on only a few key strategic activities.
 Promotes organizational learning because firms with geographically more extensive
supply chains tend to become more innovative and productive.
 adds competitive advantage to the business firms in the market
 helps to develop on the core competencies of a company
 improves on the image and reputation of a company
 makes a business compliant to legislations

Supply chain business integration involves a collaborative work between buyers and suppliers,
joint product development, common systems and shared information.

1.1 According to Lambert and Cooper (2000) operating an integrated supply chain requires
continuous information flow. However in many companies, management has concluded that
optimizing product flows can’t be accomplished without implementing a process approach.

The key supply chain processes stated by Lambert (2004) include:

 customer service management: This a relationship between an organization and its

customers by providing customers with real time information, ensuring product availability
and developing smooth distribution operations
 customer relationship management: Involves building a strong customer relation by
establishing mutually satisfying goals; establishing and maintaining customer rapport;
having positive feelings between the two parties
 Demand management: When managing a demand companies should take initiatives to
reduce lead times, have internal and external collaboration, develop a feedback mechanism
from customers, and ensure customer level forecasts.

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  procurement process management: International firms can opt for global sourcing,
create strategic plans to support manufacturing flow and develop new products; Develop
rapid communication via Electronic Data Interchange (EDI) and internet linkage
 Product development and commercialization: customers and suppliers must be
integrated into product development process to reduce time to market i.e. shorten product
life cycle in order to launch the new products within a short time.
 Manufacturing flow management: this process produces products to distribution
channels based on the past forecasts. This must be flexible to respond to market changes
and accommodate mass customization.
 Outsourcing/partnership management: it involves acquiring materials and
components externally instead of in-house. it is very common in logistics where transport,
inventory control, and storage is sub contracted.
 Performance management: there is a strong relationship of suppliers and customers
integration with market share and profitability. Performance measures are both internal
and external. Internal measures include cost, customer service, productivity, and quality
and asset measurements. External measures are measured through customer perception,
best practice bench marking.
 Warehouse management: warehouse encompasses storage, reducing man power cost,
dispatching authority with on time delivery, loading and unloading facilities with proper area,
inventory management systems.

1.2 Supply Chain Management Components

Lambert and coopers (2000) identified the following components:

 planning and control

 organization structure
 product flow facility structure
 information flow facility structure
 management methods
 power and leadership structure
 risk and reward structure
 culture and attitude

Reverse supply chain is the process of managing the return of goods. it manages return of goods
from the store, which are sent back to the warehouse and after that either as scrap or send back to
suppliers for replacement on the warranty of the merchandise.

1.3 modern trends in supply chain management

Global supply chain poses challenges regarding both the quality and value. Supply and value chain
trends include:

 globalization due to advanced level of technologies

 outsourcing of goods and services across the borders
 collaboration between the supply chain networks
 increased global operations that require high level global coordination and planning
 complexity of problem that require mid sizing of companies

Benefits of modern trends on modern global supply chain management

 leads to high quality goods and services

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  enhances competition
 good business environment
 open market due to globalization
 creates reputation of firms
 lower taxes on goods and services

Challenges on modern global supply chain management by modern trends

 long lead time due to wide scope of a supply chain due multiple currencies, policies
and laws/legislations
 different currencies and valuations in different countries
 differential tax laws in different countries
 different trading protocols
 vulnerability to natural calamities and cyber crimes
 lack of transparency of costs, and profits

2.0 Purchasing Management in Supply Chain Management

Purchasing is a sub set of supply chain management that deals with managing all aspects related to
the inputs to an organization I.e. purchased products, materials or services.

Purchasing management is the management of the purchasing process and related aspects in an
organization. It is concerned with ensuring that all goods, supplies and inventory needed for the
organization are ordered and kept in stock, as well as control of inventory levels and costs
associated with purchasing the items. It is essential that goods are purchased at the best price and
quality to deliver the best profit for the company. A purchasing manager should put strong
functioning and extensive purchasing procedures in place that must be understood by every
employee.

Purchasing management is a department in an organization responsible for purchasing activities.

It ensures that all goods, supplies and inventory needed to operate the business are ordered and
kept in stock.

Purchasing is a managerial activity that goes beyond the simple act of buying e.g. it includes
research and development for the proper selection of materials and sources, follow up to ensure timely
delivery, inspection to ensure both quantity and quality, receiving, store keeping and accounting
operations to purchases.

2.1 Objectives of purchasing management

Purchasing is not about buying goods and services for the lowest price. Purchasing professionals
broadly contribute to their to their company’s success by working to make the right buy, at the
right time, for the right price and from the right source and the right quality.

1. to reduce costs: purchasers strive to save money for their business by getting the best
prices ant overall terms
2. Developing and managing suppliers: avoid spending on one supplier by expanding the
supplier base. diversification of the supply chain: embrace collaboration and integrated
supply networks
3. Fulfilling business requirements: avoid suppliers with bad reputations or business practices

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 4. Encouraging innovation and creativity: embrace IT in the supply chain management. obtain
innovative solutions to business problems and opportunities by working closely with the
vendors, sharing company’s needs
5. Spend wisely: wise expenditure on purchases can help a company to expand market share
and increase sales by producing quality products.
6. participate in development of new products
7. to develop stock out situations
8. to develop new policies and procedures
9. training and development of personnel in the department
10. keep and maintain up to date record of all transactions
11. development of good and new vendors

2.2 Purchasing Principles

The success of any manufacturing activity is largely dependent on the procurement of materials of
right quality, in the right quantities, from the right source, at right time and at right price –
popularly known as five ‘R’s of the art of efficient purchasing .They are also described as the basic
principles of purchasing as under:

1) To purchase the right quality of materials;

2) To purchase the materials in right quantities;
3) To make the materials available at right time;
4) To purchase the material at right price;
5) To purchase the materials from the right source.

2.3 Purchasing strategy

Purchasing strategies are best left to a professionally trained individual that knows the ins and outs
of the function. These need to be implemented adequately to ensure cost effective outcomes and
could include choosing valuable vendors that will deliver quality goods within deadline dates and
making sure that all purchases are done well

2.4 Purchasing cycle

A purchasing cycle shows the steps that the business goes through before making a purchase. it
involves the awareness that there is a need for a product, specifying how much of the product is
needed and the date it is needed by.

A purchasing order is made and then approved. Before the request is made, prices and quality of
different products and suppliers need to be compared, to arrive at the most suitable order. After
this is met, the business negotiates the terms of the purchase contract. Upon the receipt by the
business, the goods are inspected for quality and recorded in a log for future reference.

Procurement/purchasing management works for the advantage of the organization if handled well.
The ability to source and negotiate a hot selling product at a better price can make or break the
business.

2.5 Functions of purchasing management

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 1. to receive purchase request
2. review and evaluate requisitions
3. supplier selection
4. scrutiny of offers
5. order placement
6. market research and information: discussions and meetings with supplier representatives,
study new development in production materials and processes
7. payment authorization: Ensure all goods are delivered before payment is made

2.6 The benefits of a good purchase system should:

 be easy to use for all departments

 save time and effort in monitoring
 adequately control the vendors
 include potential long term cost savings

3.0 Creating and Managing Supplier Relationship

Supplier Relationship Management (SRM) is a systematic, enterprise-wide assessment of suppliers’

assets and capabilities in view of the organization over all the business strategy, a determination of
what activities to engage in with different suppliers, and planning and execution of all interactions
with suppliers.

The concept of Supplier Relationship Management is a systematic process of evaluating the

supplier’s contributions and influence on the success of the organization, determining the various
tactics to maximize suppliers’ performance and developing the strategic approach to work on these
determinations.

PM is the management of the purchasing process and related aspects in an organization. a

purchasing department can be formed and operated by one or more employees to ensure that all
the goods, supplies and inventory needed for an organization are ordered and kept in stock,
controls inventory levels and costs associated with purchasing items.

3.1 Factors to consider when selecting a supplier

 reliability – able to supply right goods, at the right time; all time available
 stability- suppliers who have been in business for long with adequate experience
 distance – the proximity of the supplier has much bearing on the cost of production
 competence- select a vendor who offers the latest and most advanced products
 financial stability- a supplier with adequate finance to meet rush orders
 a supplier who is ethical hence compliant to legislations
 a supplier who has the capability and capacity in terms of tools and equipment
 a suppler who observes good health and safety measures
 a supplier who embraces modern technology
 a supplier who care and conserves the environment

3.2 Goals and Objectives of Supply Relationship Management

 to streamline and align the processes between a buyer and seller

 to improve the processes between the suppliers and its customers

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  to develop a mutually beneficial relationship with the suppliers
 to enhance communication between the parties
 manage and mitigate risks to the business
 ensure sustainability across the supply chain
 improve global transparency of supply base
 enable strategic supplier partnership

3.3 Primary Tasks of Supplier Relationship Management

1. segment the supply chain by aligning business goals to that of the suppliers while
developing5 deep supplier relationships
2. measures and improve supplier performance- establish strong contract relationship and
ensuring buyer and supplier compliance to those agreements hence delivering value
3. Becoming a better customer- in order to become a supplier best customer, there is need
to have a deep understanding of the suppliers perspective, business objectives and
needs.
4. collaborate with suppliers- it involves two or more organizations working together to
realize shared objectives
5. improve supplier quality

3.4 The process of supplier relationship management

1. segment the suppliers in the various categories depending on their vital importance and
contribution to the business and its success
2. develop the governance and performance models so as to align the business processes and
define stakeholders as per the business goals and objectives
3. improve relationship with the suppliers by sharing strategic information with key suppliers
of the firm with the aim of developing better products

3.5 Types of Suppliers in Supplier Relationship Management

1. wholesalers and distributors

Wholesalers buy in bulk from the manufacturing and resell them in less quantities
demanding higher unit price. They sell at a lower price by selling in large quantities and
hesitating
2. manufacturers and vendors
Here suppliers handle goods of different companies. Prices might be higher than those of
wholesalers but they handle small orders from a wide range of manufacturers over a short
period.
3. import sources
The various types of domestic importers work like domestic wholesalers and sell foreign
goods to various companies in the domestic market.

3.6 Strategies for Supplier Relationship Management

1. Mutual partnership based on the management and loyalty. Companies need to make the suppliers
feel to be part and parcel of the company and informs them about business processes such as the
launch of new products, promotions and listening to their concerns.

2. Embrace technology because it makes SRM simple and easy. Companies should invest in SRM
software to keep the track record of all the information about the suppliers in one place. Companies

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need to install technology software that would help to create process and track the purchase orders
etc.

3. Timely payment would attract and retain suppliers and incase of delayed payment timely
information should be given to suppliers. Early payment will provoke suppliers to make timely
deliveries.

4. Create and maintain a strong, deep and reliable relationship with the suppliers. A company
should strive to maintain a clear and regular communication so that they are updated on company’s
business strategies and plans so that to make them aware of their roles.

5. Ensure that price and value are interrelated so that obtaining quality materials at the right and
valuable price. A better pay would make suppliers to provide quality materials and timely
deliveries.

6. keep a detailed agreement for the business deals with the suppliers e.g., detailed item
descriptions, price per unit, delivery terms, payment terms, etc. such documented agreement
would reduce possibility of confusion or disputes in future dealings.

7. Evaluate risks of dealing with a supplier especially incase the company has a complex supply
chain. Ask suppliers for reference, previous performance examples, duration in business, areas of
experience, expertise and knowledge, how they deal with a crisis, financial stability, their capacity
to deal with huge/rush orders.

8. Strive to make the company global though acting locally. Embrace globalization by conducting
business across the borders. Incase the supplier relocation to a different geographical setup,
consider the cultural differences, communication with such suppliers, different tax systems and
laws.

9. Inclusivity of SRM is vital. Involve all key members of the company in selecting and formulating
the SRM software and programs for the smooth flow of the work processes in order to attain
growth and success of the business

3.7 Benefits of Suppler Relationship Management

 enhances time to market because most of the transactions are digitalized and accelerated
 enhances timely deliveries of quality materials
 promotes smooth production
 enhances communication between buyers and suppliers
 leads to customer satisfaction due to timely deliveries and defect free items
 promotes improved spend control since businesses can be centralize procurement and
avoid segmented sourcing processes
 it is useful strategy for reducing supply chain costs as buyers an assess supplier
performance and best practices
 enhances collaborations between suppliers and buyers for further innovation
 it reduces risks in the supply chain
 it leads to production and supply of better quality goods and services

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4.0 The Value of Information and Technology in Supply Networks
Information technology (IT) is the study, design, creation, utilization, support and management
of computer based information systems, especially software application and computer
hardware. It goes further to include other telecommunication devices such as cell phones.
Common business models using IT are e-commerce i.e. the use of web based sales and e-
business i.e. the use of internet to make sales and is therefore holistic in the usage of IT.

4.1. Objectives of IT in Supply Chain Management

 Provide information availability and visibility

 Enable single point contact of data
 Allow decisions based on total supply chain information
 To create competitive advantage to a business
 Enable collaboration with supply chain partners

4.2. Information Technology and Supply Chain Integration

Supply chain management is concerned with the flow of products and information between the
supply chain members/organizations. Development in techniques, enable organizations to avail
information easily in their premises. These techniques help to coordinate the activities to manage
supply chain. The cost of information is decreased due to the increase rate of technologies.

IT is more than just computers. Hardware includes computers and storage media while software
includes the entire system and application program used for processing transactions, management
control and strategic planning.

4.3 Functional roles of IT in SCM

There are three functional roles of IT in SCM

 transactional execution
 collaboration and coordination
 decision support
1. IT has a role in supporting the collaboration and coordination of supply chain through
information sharing.
2. The role of IT in SCM is reducing the friction in transactions between chain partners
through cost effective information flow.
3. IT can be used for decision support. In these instances the analytical power of computers
are used to provide assistance to managerial decisions.

4.4 Impact of IT in Supply Chain Management

 creates competitive advantage

 creates new business opportunities
 help companies to create strategic advantage by enabling strategic planning and centralized
operations
 improves networking of organizations
 leads to fast communication in the supply chain networks

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  reduces inventories
 effective distribution channels
 provides a lean automated intermediary for resolving market transactions
 Reduction of costs/ cost saving by restructuring operations and integrating processes
 better coordination of supply bases
 improves customer responsiveness
 necessitates online ordering

4.5 Application of modern IT in SCM

The following are ways in which a company can integrate modern technologies into business model
to improve SCM.

1. Computerized shipping and tracking

Digitalized software helps companies to organize inventory data, monitor and manage
shipping/transport and tracking information and create electronic invoices with a lot of
easy. SCM thus reduces time spent in shipping, receiving, tracking and compiling order data.
This saves a company’s time and money.
2. Radio frequency identification (RFID)
RFID chips are placed on every product and provide a way to easily track inventory. Due to
the visibility, of the RFID chips, they to improve supply chain efficiency by detecting any
order anomalies hence help the company to make corrective measures. These devices are
computerized hence able to eliminate potential errors, reduce costs and simplify the supply
chain
3. Social Media
The use of twitter, face book and other social media provide a plat form for companies to
display their products as part of their marketing strategy in supply chain management.
Social media provides open communication, increase visibility, improve demand of
products, utilize cost effectiveness and efficiency of marketing strategies, lower operational
costs an enhance company’s productivity. Social media can be used to interact with
customers, respond to questions, report accidents or weather conditions, proved updates of
a company’s inventory.
4. electronic commerce
It is used to describe wide range of tools used to conduct business in paperless
environment. E-commerce includes electronic data interchange, electronic bulletin boards,
shared data base, and magnetically optical data capture. Companies are able to automate
the processing of documents electronically between suppliers and customers.
5. Electronic Data Interchange (EDI)
This is a computer to computer exchange of business documents in a standard format. EDI
enables information sharing between two organizations electronically instead of the
traditional form of mail, courier and fax. EDI has several benefits such as:
 quick process to information
 better customer service
 reduced paper work
 improved tracing and expediting
 cost efficiency
 competitive advantage
 Improved billing
6. Barcoding and scanning

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 Barcode scanners are most visible in the checkout counter of supermarket. This code
specifies name of product and its manufacturer. it also tracks the moving items such as
components in the PC assembly operations, automobiles in assembly plants.
7. Enterprise Resource Planning (ERP)
ERP is a tool used to aid transactions by capturing data and reduces manual activities and
tasks associated with processing financial, inventory and customer order information. ERP
help to utilize a single data model, develop a common understanding of what the shared
data represents and establishing a set of rules for accessing data.

4.6 Limitations of IT in Supply Chain Management

 Unemployment and lack of job security since to advancement in technology renders many
workers jobless; keeps on changing demanding regular updates.
 Cultural erosion and transfer, because western culture dominate the lifestyles globally in
terms of dressing language and behavior trends
 pose security challenges as thieves and hackers get access to identities and sensitive
company data/information
 hackers distribute information over the internet , sell it to rival companies or use it to
damage company image
 some hackers target retail chains by stealing customer information, distributing social
security numbers and credit card data over the internet
 it is costly to integrate IT system in terms of hard ware and soft ware
 employees need training on unfamiliar IT soft ware
5.0 Operation issues in supply chain management

5.1 Demand forecasting

5.2 Inventory management

5.3 Process management

5.1.1 Demand forecasting

This is the use of data and analytics to predict customer demand for a specific period. It is the art
and science of forecasting customer demand to optimize supply decisions

5.1.2 Objectives of demand forecasting

i. Short time objectives
 formulation of price policy
 controlling of sales
 arranging for finances
ii. Term objectives
 deciding the production capacity
 planning long term activities

5.1.3 Types of demand forecasting

Demand forecasting can be short term, mid range or long term.

i. Short term demand forecasting: this is projecting demand in the next few months or in
less than a year. it is done for operational logistics planning process

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 ii. mid range demand forecasting: it is usually done usually in a range of 1-3 years and
addresses budgeting issues and sale plans
iii. Long term demand forecasting: usually covers a period of more than 3 years. Normally
used for long range planning and strategic issues such as performance in relation to
sales by product line or division, capacity by ton per period or dollar per period.

51.4 Application/uses of demand forecasting

 production planning
 inventory management
 future capacity requirements
 making decisions on whether to enter a new market
 joining alliances or mergers

5.1.5 Methods/techniques of demand forecasting

i. qualitative demand forecasting

ii. quantitative demand forecasting
iii. time series projection method
iv. causal methods

5.1.6 Importance of demand forecasting in supply chain management

 increasing customer satisfaction i.e. providing customers with products when they need
them
 reducing inventory stock outs by sending demand forecasts to suppliers to arrange for
material supplies
 scheduling production more effectively
 lowering safety/buffer stock requirements because it necessitates planning inventory levels
 reducing product obsolescence costs as well as reducing inventory costs
 improving pricing and promotion management
 planning sales strategies
 optimize cash flows since it has an impact on efficient use of working capital
 helps in preparing budgets

5.1.7 Factors influencing demand forecasting

1. Forecasting demand depends on the type/nature of goods. it difficult to predict demand for new
goods compared to already established goods in the market

2. Competition: The demand for a product depends on the number of competitors in the market. In
a highly competitive market it becomes difficult and challenging to forecast demand.

3. Price of goods: demand forecasts depend on pricing policies hence it is difficult to estimate the
exact demand of products

4. Level of technology if there rapid changes in technology the existing products become obsolete
e.g. the decrease demand for floppy diskette with the innovations of DCs and open drives for saving
data. In such case it is difficult to forecast demand for existing products in future.

5. Economics: positive developments in economy e.g. globalization and high level investment, the
demand forecasts of organizations would be possible

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6. Time period: the accuracy of demand forecasting depends on its time period. These include short
time forecast done on a period of one year and is based on judgment of managers and are crucial
in deciding production policy, price policy, credit policy, and distribution policy. Long term
forecasts range between 5-10 years and are based on scientific analysis and statistical methods
and are helpful when deciding on introduction of a new product, expansion of the business or
requirement for extra funds. Very long period forecasts cover a period of more than 10 years and
are helpful in determining the growth of the population, development of the economy, political
situation in a country and changes in international trade in future. Short periods therefore are more
accurate to forecast than long periods.

7. Level of technology: demand forecast can be carried out in 3 levels- macro level, industrial level
and firm level. Macro level forests are undertaken for general economic conditions; industrial
level forecasts are prepared by trade associations based on statistical data and deal with products
whose sales depend on specific policy of a particular industry. While firm level forecasts are done
to estimate the demand on the specific policy of particular firm. A firm considers factors such as
changes in income, consumer tastes and preferences, technology and competitive strategies while
forecasting demand for its products.

8. Nature of forecast: a forecast can be specific or general. a general forecast provides a global
picture of business environment while a specific forecast provides an insight into business
environment in which an organization. Organizations opt for both because overgeneralization
restricts accurate estimation of demand and specific information provides an inadequate basis for
planning and execution.

5.1.8 Steps of demand forecasting

Demand forecasting involves a number of series or steps as shown in the figure below:

1. setting objectives

it involves deciding the period for forecasting (short term or long term); deciding on whether
to forecast the overall demand of a product or only for the organization’s own products;
deciding on whether to forecast the whole market or for the segment of the market; deciding on
whether to forecast the market share of the organization

2. determining the time period

It involves determining the time perspective of demand forecasting i.e. long term or short term
demand. In short term demand the determinants of demand may not change significantly or
may remain constant while in the long run determinants of demand change

3. selection of a method of demand forecasting

Demand forecasting is done by use of various methods that change from organization to
organization depending on the purpose of forecasting, time frame, and data requirements
and its availability. Selecting a suitable method saves time and cost and ensures the
reliability of the data.
4. collecting data
It requires gathering primary and secondary data. Primary data is collected by observation,
interview and use of questionnaires while secondary data is collected by use of past
published literature.

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 5. estimating results
It involves making estimates of a forecasted demand for predetermined years. Results
should be interpreted and presented in a usable form to have an easy understanding by
readers and management of the organization.

5.2 Inventory management

This is the supervision of non capitalized assets (inventory) and stock items. Inventory
management supervises the flow of goods from the manufacturers to ware houses and from these
facilities to the point of sale. Its main function is to keep a detailed record of each item or returned
products as it enters or leaves a warehouse or point of sale. Inventory includes raw materials,
finished and semi processed goods/work in progress

5.2.1. Objectives of inventory management

 to provide a desired level of customer service

 to allow cost efficient operations
 to supply the required materials continuously
 to minimize the risk of under or over stocking of material
 to maintain systematic record of inventory
 to reduce losses, damages and misappropriation of materials
 to minimize costs associated with inventory
 to make stability in price

5.2.2 Inventory management techniques

1. Economic order quantity (EOQ)

This is the quantity of inventories to be ordered in order to minimize inventory each time an
order is made. Inventory costs include ordering/set up cost, holding/carrying cost. EOQ is an
inventory management tool, that shows quantity to be ordered each time that involves
minimum cost. Normally the ordering cost and carrying cost are equal at the point of EOQ.
Therefore EOQ is the quantity that minimizes the total inventory cost.

Assumptions of EOQ

 annual or cost requirement is known and does not fluctuate

 ordering cost is fixed and known
 carrying pieces of inventory is known
 purchase price of the inventory is known
 purchase price of the inventory is known
 demand of the inventory is uniform through out the time
 Holding/carrying cost

This is the cost of holding a unit of inventory. Also called as material holding cost or possession
costs and includes:

 interest of investment in inventory or opportunity cost

 rent, insurance and tax of warehouse
 safety and supervision cost

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  loss of depreciation
 maintenance and inspection cost

Since the carrying cost per unit cost, the higher stocking inventories results in higher carrying costs
and vice versa. When the number of orders increases, then the total amounts of carrying cost
decreases and vice versa

 ordering cost

This is the cost of placing and receiving an order. It is called procurement/processing cost of
materials or set up cost. When the number of orders increases, the total amount of ordering cost
increases, and vice versa; but the ordering costs per order remains constant. Examples of ordering
costs include:

 cost of staff associated with the purchasing department

 cost of inspection for material control
 cleric and administrative costs of purchasing department
 transportation and shipping costs
 cost of making telephones when following up an order
 cost of processing orders

Ordering cost= no. of order * ordering cost per unit

2. stock review

This method is usually used by small business firms. it involves a regular analysis of stock on hand
against a projected future needs. It use manual means to review minimum stock level. It involves
regular inventory inspection and reordering of supplies to meet the minimum levels. It is however
labor intensive and prone to errors.

3. Just-In-Time Methodology (JIT)

This is a technique in which products arrive as they are ordered by customers and is a good
basis of analyzing customer behavior. It involves researching buying patterns, seasonal
demand, and location based factors that provide accurate picture of what goods are needed
at certain times and places. Customer demand can be met without necessarily having to
keep quantities of products on hand. Its risks include misreading the market demand or
having distribution problems with suppliers hence leading to stock outs.
4. ABC Analysis Method
This technique classifies inventory into 3 categories that represent values and cost
significance of goods.
Category A includes high value products with low frequency of sales; Category B includes
moderate value products that have moderate frequency of sale; Category C includes low
value products with high frequency of sales. This method provides better control over high
value goods but it requires a considerable amount of resources to continually analyze the
inventory of all categories.
5. First in First Out(FIFO)

It means selling the oldest stock and not the new stock/goods. it is useful for perishable goods
and other items that are prone to breakages and obsolesce.

6. Contingency Planning

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 An organization need to plan its stock levels to avoid unexpected events that can lead to
stock outs. unexpected events may arise from unexpected high sales, inadequate ware
house space due to seasonal sales, slow moving product take up, suppliers running out of
stock hence hard to supply, supplier discontinues supplies without prior notice. all these
events demand proper planning on stock.
7. Regular Auditing
It is important to reconcile stock regularly. This can be done by use of several methods such
as:
 Physical inventory i.e. counting all stock once especially by the end of the year,
though can be disruptive to business and is somehow tedious.
 Spot checking: this involves choosing a product, counting it and comparing the
number to what it is and what is supposed to be. it is normally done to supplement
physical inventory and is not scheduled. it is done on fast moving or problematic
products to confirm the physical inventory.
 Cycle counting: it is done throughout the year and not at the end of the year e.g.
daily, weekly, and monthly. Products are checked on a rotational schedule.
8. Accurate forecasting
Inventory management depends on accurate forecasting of demand but the process needs
proper judgment. The following should be considered when carrying accurate forecasting:
 trends in the market
 previous year sales during the same week/period
 this years growth rate
 guaranteed sales from contracts and subscriptions
 seasonality and the overall economy
 upcoming sales promotions
9. Drop shopping
This is a strategy of managing stock whereby carrying and shipping products is done by the
wholesaler or manufacturer. Inventory management is none of the company’s business or
responsibility. In most cases manufacturers, wholesalers provide this service. The process
may be costly but it relieves a trader of expenses related to holding inventory, storage and
fulfillment.

5.3.2 Inventory Control Systems

There are many types of inventory control systems i.e. perpetual inventory system, periodic
inventory system, barcode inventory systems, and RFID inventory

1. Perpetual inventory system continuously updates inventory records and counts for additions
and subtractions when inventory are received, sold from stock, picked from inventory and
scrapped. This type of inventory system provides updated inventory information and help to track
inventory because it delivers accurate results on a continuous basis when properly managed.

Challenges

 cant be maintained manually but requires specialized equipments and software

 needs periodic maintained and upgrades which may become costly
 Recorded inventory may not reflect actual inventory as time goes by because they do not
use regular physical counts.

2. Periodic Inventory System

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They don’t track inventory on a daily basis but rather allow organizations to know the beginning
and ending inventory levels during a certain period.

Challenges

3. Barcode Inventory Systems

Barcodes system update inventory levels automatically by use of a scanner.

Benefits

 provides accurate records of all inventory transactions

 eliminating time consuming data errors that are common in manual or paper work systems
 eliminates manual data entry mistakes
 updates on hand inventory automatically
 record transactions and easily determine minimum levels and reorder quantities
 streamline documentation and reporting
 rapid return on investment
 facilitate the movement of inventory within warehouse and between multiple locations and
from receiving too picking, packing and shipping
4. RFID inventory control system

This system uses technology to manage inventory movement. Active RFID technology uses fixed tag
readers in the warehouse while a passive RFID uses hand held readers to monitor inventory
movement.

Challenges

 RFID tags are expensive compared to barcodes labels

 RFID tags have interference issues especially when tags are used

5.4.2 How to Manage Inventory Efficiently (strategies)

1. Assess the type of inventory to be kept e.g. Manufacturer needs to have on hand raw materials

2. Track the market trend. Keep record of saleable no saleable goods.

3. Determine the quantity of goods that should be kept. Consider space and cost of goods received.
Opt to keep small inventory if suppliers are available. Keep large inventory if reordering and
delivery takes time or if you might run out of merchandise de. Consider when you receive
volume/shipping discounts for large orders.

4. Identify minimum stock level. Reorder goods when it reaches a level where you run out of
inventory. Note the lead time and identify factors that affect reordering goods.

5. Keep goods shelved so that you implement FIFO inventory management technique especially for
r perishable products.

6. Track the inventory efficiently, by use of manual or computerized means. Track each item
description, value, quantity, location and suppliers. Keep note how much it takes to re order each
item.

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 7. Secure the company’s inventory by watching signs of theft, set RFIDs tags to sound alarm if
unauthorized person moves the goods. Only authorized people should access the inventory.

8. Install point of sale (POS) programs on the company’s cash register to automatically track sales of
finished goods

Impact of holding too much stock/inventory

 Needs the company to have more space for storage

 Too much stock ties capital/ idle capital
 Some stock can break or loss weight
 Some goods may become obsolete
 Stored stock attracts more cost e.g. insurance
 Keeping stock needs extra security measures
Obsolescence

Impact of holding too little stock/inventory

 unable to meet customer demand especially during festive seasons

 lose of customer loyalty to business rivals
 low sales hence low returns
 paying for idle services like labor and rent etc
 poor public image/reputation to a company

5.3. Process management

Supply chain management is a process used by companies to ensure that their supply chain is
efficient and cost effective. A supply chain is the collection of steps that a company takes to
transform raw materials to final/finished products.

Supply chain process can be effectively modeled by breaking it down into various strategic areas.
The most common and effective model is the Supply Chain Operations Reference (SCOR)
developed by the supply chain council to enable managers to address, improve and communicate
supply chain practices effectively.

The SCOR model runs through five supply chain stages: Plan, Source, Make, Deliver and Return

1. PLAN

Planning involves a wide range of activities. Companies must firs decide on their operation strategy:
whether to manufacture a product or component or buy it from a supplier. Companies must weigh
benefits and disadvantages of different options presented by international supply chains. Options
available include: manufacturing a product component domestically, manufacturing a component in
a foreign market, buying a component from a foreign supplier, buying a component from a domestic
supplier

2. SOURCING/DEVELOPING

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This stage involves developing or sourcing i.e. building a strong relationship with suppliers of raw
materials required for production. It involves procurement of raw materials and components from
the suppliers. The stage goes beyond identifying suppliers to include planning methods for
shipping, delivery and payment of the product. This is the stage of identifying and selecting
suppliers for the company needs. Supplier performance must be keenly evaluated.

3. MAKE

This is the stage at goods are manufactured to meet customer demands. it is concerned with
scheduling of production activities, testing of products and packing and release. Companies must
manage rules of performance, data that must be stored and performance. Products are designed,
produced, tested, packaged, and synchronized for delivery. All activities required for
manufacturing, testing, packaging, are preparation for delivery are scheduled at this stage.

4. DELIVERY

At this stage products are delivered to the customers at the destined location by the supplier. This
is the logistics phase where customers are orders are accepted and delivery of the goods is planned.
The delivery stage is called logistics where firms collaborate for the receipt of orders from
customers, establish a network of warehouses, pick carries to deliver products to customers and set
up an invoicing system to receive payments. This stage covers all steps from processing customer
inquiries to selecting distribution strategies and transporting options; warehouse as well as
inventory management.

5. RETURN

This is the terminal stage of a supply chain defective or damaged goods are returned to the supplier
by the customer. Here companies deal with customer queries and respond to their complaints. The
stage includes identifying the product condition, authorizing returns, scheduling product shipment,
replacing defective products and providing refunds. Companies must establish rules for the product
returns, monitoring performance and costs and managing inventory of returned product.

6.0 Towards Green and Sustainable Supply Chain Networks

Green supply chain management is the integration of environmental concerns in supply chain
management including product design, material sourcing and selection, manufacturing processes,
delivery of the final product and the end life of management of products after use.

Green procurement/purchasing, means buying products and services that do not cause adverse
environmental impact. Green products are those that have no harm to the environment.

6.1.1 Characteristics of green products

Green products are:

 energy efficient, durable and have low maintenance of requirements

 free of ozone deleting chemical, toxic substances and don’t produce toxic byproducts
 often made of recycled materials hence can be reprocessed after use
 obtained from local manufacturers or sources
 biodegradable or early reused either in part or as a whole
 have improved sustainability/renewable and makes good use of available resources

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6.1.2 Ways of Building Green Supply Chain

1. Product Selection

Design products such that they are safe for use, create least pollution and consume less energy.
They should not be hazardous during storage, transportation and disposing. Design products that
have no side effects on human and environment, cost effective and are environmental friendly.

2. Process and Production

Process should be designed so that it conforms to green supply chain management initiates to
reduce environmental impact. All possibilities should be checked for recycling of the scrap
materials. Efficient and effective production strategy should be adopted to reduce energy
consumption i.e. reducing waste materials, air and water emissions.

3. Business Partner Selection

Selecting suppliers who have proven record on practicing lean manufacturing and using
environmentally friendly material; involving vendors during product conception and design to
share in best customer strategy.

4. Logistics Design

Make effort to reduce fuel consumption by including logistic partners in product designs to improve
fleet management. Backhauling should done so that empty vehicles can be used to collect goods
from other sources after delivering finished goods.

5. Packaging Materials

Make use of packaging materials that are economically friendly. They should be reusable and
recycled so that any hazardous materials inside do not spill over to harm the environment.

6. Reverse Logistics

Materials should be used after consumption for reuse, recycle, manufacture, and redistribution.
This calls for the reuse of containers, pallets and other packaging materials. Reducing pollution
during transportation are important activities of reverse logistics.

7. Information Technology

Adopt automatic processes too avoid carbon foot print. Practice automation in invoice processing,
use electronic data interchange to transmit orders instead of papers. IT is the only to avoid a lot of
paper work hence conserving the environment.

8. Green Building

Ensure green practices in designing construction and maintaining building especially by using
energy efficient bulbs, natural lighting hence saving energy. Install renewable sources of energy like
solar, wind for green sustainable practices.

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6.1.3 Benefits of Green Supply Chain Management

 helps to gain competitive advantage hence customer attraction

 increased use of resources, improved efficiency and reduced production cost
 it contributes to greater towards improved financial performance
 reduces risk by avoiding hazardous materials that might lead to environmental affect
 improved quality of products and services
 leads to customer satisfaction
 improves the image and reputation of the organization

6.1.4 Challenges Facing Green Supply Chain Management

 cost and budget in terms of time and money to launch and implement green procurement
 prioritization is a problem when implementing green supply chain
 lack of appropriate technology
 lack of organization encouragement
 lack of government support system
 poor quality of human resources
 unawareness of customers
 resistance to technological advancement
 lack of top management commitment
 lack of policies to implement green practices
 market competition and uncertainty

7.0 The Management of Outsourcing

Outsourcing is the strategic use of outside/external resources to perform activities previously done
by the internal staff. This strategy enables a company to contract major functions to specialized
service provider. In supply chain management, outsourcing involves buying goods and services
from he external market and not locally. Outsourcing refers to an organization contracting work out
to a 3rd party company

7.1 Requirements for Successful Outsourcing

 The critical areas for a successful outsourcing program include:

 Clarity concerning company goals and objectives
 Strategic vision and plan
 Vender selection
 Relationship management
 Properly structured subcontracts and vendor agreement
 Open communication with stakeholders
 Senior leadership support and involvement
7.2. Reasons for Outsourcing
 reduce costs like high taxes, excessive government regulations, and production costs or
labor costs
 improves the company focus
 gaining access to world class capabilities
 freeing internal resources for other purposes
 streamlining or increasing efficiency
 maximizing use of external resources
 lack of expertise or technology

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  to obtain quality goods and services
 Insufficient capacity to produce whole/components.

7.3 Disadvantages of Outsourcing

 loss of managerial control or increased efficiency because the company hands the control
and management over to another company
 outsourcing may attract hidden costs like those involved in signing a contract across
borders
 it is a threat to security or contractual safeguards hence can compromise the confidentiality
of information by sharing data knowledge, especially product drawing or formulas
 lack of customer focus because the vendor may lack complete focus on the company’s tasks
 lack of flexibility because the contract could be too rigid to accommodate change
 instability since the outsourcing company could get out of business
 service delivery may fall behind time or below expectations

7.4 Benefits of Outsourcing

 it is a cost advantage to a company because contracting work to a 3rd party is cheaper

 a company is able to focus on core competence of activities is good at doing
 Labor flexibility by allowing a company to be flexible
 Cost saving since companies outsource services where wages are low hence cost saving
 Outsourcing enables a company to acquire skills from the developed regions
 a company is able to obtain quality products and services that are not locally available

7.5 Types of Outsourcing

1. Turkey outsourcing

This is when the responsibility for execution of the entire function/activities lies within external
supplier. It includes both execution and coordination.

Advantages

 buyer has minimum responsibility for outsourced projects

 buyer does not need to have experience with similar projects
 the project generally goes smoothly for the buyer

Disadvantages

 buyer has limited influence on the determination of the price and has little insight into cost
structure of the provider
 buyer has limited influence on staff, technology and material used and their quality
 buyer depends depend on the provider hence higher risks in performance

2. Partial outsourcing

In this case only part of an integrated system is outsourced.

Advantages

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  buyer has more influence on prices, rates and costs
 buyer has more influence on staff, technology and material used plus their quality
 optimal use of knowledge, equipments and experiences of 3rd party
 increased flexibility hence fluctuation in workload can easily be observed
 outsourcing leads to easy and more focused primary processes in the organization

Disadvantages

 risk of losing essential strategic knowledge

 risk of leakage of confidential information
 risk of communication and organizational problems during the transfer of activities to 3 rd
party
 continuous follow up and monitoring of the supplier relationship is necessary
 communication and coordination of problems between parties involved hence may cause
delay and disappointments
 buyer needs to have organizational capacity to coordinate and integrate outsourced
functions/activities
 buyer required having knowledge of separate parts of the outsourced functions/activities

3. Low Cost Country Sourcing

It focuses on benefiting from the competitive advantage of other countries which are able to offer
lower labor costs and production costs. Its aim is to reduce overall operating expenses for a firm
and is a procurement strategy in itself. Countries moving towards China are following this strategy.

4. Global Sourcing

It does not aim to benefit from cheap production but to get a taste of international market and the
way to carryout business there or tapping new business skills or resources that are unavailable
domestically.

5. Prime/Sub arrangement Sourcing

In this case a client works directly with an established outsourcing provider to arrange
procurement; the outsourcing provider contracts out the work to a smaller company. This may
reduce the burden of dealing with import and export restrictions of the company and make the
process smoother.

6. Captive Service Operations Sourcing

In this case the outsourced services are performed by a company the customer owns or are from
within the same group. It creates greater level of control and confidentiality of information.

7. Convectional Agreement Sourcing

In this type of sourcing, two companies create a simplified agreement to allow for maximum cost
reduction through economies of scale and expertise. However this leads to loss of control and needs
a high degree of trust since data may be at risk.

7.6 Common Outsourced Services

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  operational services like manufacturing industry
 professional services like legal services especially for small companies with inadequate
resources
 process specific services like unique sourcing or specific internal procedure especially in the
service industry e.g. where a news paper may outsource delivery to professional courier
companies
 manufacturing process services especially for small companies with inadequate resources

8.0 Integration Issues in Supply Chain Management

 Supply Chain Process Integration

8.1 Supply Chain Integration

This is the process by which many business firms in a supply chain coordinate their
activities/processes for customer satisfaction.

Goals of Supply Chain Integration

 to create more profits

 to reduce risks
 to coordinate resources
 to create customer satisfaction
 to strengthen business partnership

8.1.2 Types of Supply Chain Integration

1. Relationship integration

This is two or more firms have social relations that guide their interactions e.g., a relationship
between a company that creates packaging and middlemen who store the inventory. Such
companies ensure they are aware of polices and rules concerning the products and quality issues.

2. Measurement Integration

This type ensures that each part of the supply chain is accountable for meeting its own goals. There
are explicit directions and expectations on what is required to meet overall organizational goals

3. Technology integration

It involves the use of computerized systems that allows all members to stay informed about the
products. It connects managers across and through the firms in the supply chain. There is
accessibility to important information such as inventory levels, customer data, and shipment

8.1.3 Concept of Integration in Supply Chain Management

An integrated supply chain is an association of customers and the suppliers who work together to
optimize their collective performance in the creation, distribution and support of an end product
using management techniques.

The interdependent companies in the chain are bound together by mutual trust, shared objectives
and contracts shared into a voluntary basis. The main objective of supply chain integration is to

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focus and coordinate the relevant resources of each participant to optimize performance of the
chain

8.1.4 Characteristics of Unintegrated Supply Chains

 adversarial relationship between customers and suppliers

 little regard for sharing benefits and risks
 short term focus with little concern for mutual long term success
 primary emphasis on cost and delivery with little concern for added value
 limited communication
 little interaction between the networks

8.1.5 Trends Driving Supply Chain towards Increased Integration

 increased costs due to competitiveness of improving efficiency and synergy within supply
chains
 short product cycles hence less time to develop and market products
 faster product development cycles hence need to reduce development cycle of products to
make companies competitive
 Globalization and customization of product offering hence the demand by customers for a
greater variety of products to address their customer specific needs
 high quality expectations and tough competition to supply quality products

8.1.6 Costs of Supply Chain Integration

 time devoted to managing, training and support supply chain integration

 effort devoted to becoming a better customer
 investment in supply chain integration in regards to software and compatibility of
information system throughout the chain
 opportunity costs since investment in supply chain integration may necessitate forgoing
other business opportunities

8.1.7 Benefits of Supply Chain Integration

 cost saving resulting from reductions in inventory by way of reducing speed at which
materials move through the supply chain and reducing safety stocks
 reduction in transaction costs by enhancing information sharing hence reduction in the
number of transactions most through electronic systems
 reduced friction, fewer barriers and less wastage of resources on procedures that do not
add value
 increased functional and procedural synergy between participants
 faster response to changing market demands
 lower capital investment in excess manufacturing capacity
 shorter product development cycles and lower product development costs
 increased competitiveness and profitability

9.0 Performance Measurement along Supply Chain

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Supply chain performance is the extended supply chains activities in meeting end customers
requirement including product availability, onetime delivery and all the necessary inventory and
capacity in the supply chain deliver performance in a responsive manner

Supply chain performance crosses company boundaries since it includes basic materials,
components, subassemblies and finished products and distribution through various channels to the
end customers. It also crosses traditional functional organizational lines such as procurement,
manufacturing, distribution, marketing, sales, research and development. All these require
continuous improvements. To achieve all these there need to have performance measures/metrics
which support performance improvements

Supply chain performance is an approach used to judge the performance of a supply chain system.

9.1 Categories of performance measures

1. Qualitative measures

This includes performance measures that are non quantitative e.g. customer satisfaction and
product quality.

2. Quantitative measures

These are figurative measures used to measures performance e.g. lead time, supply chain response,
flexibility, resource utilization, delivery performance.

Types of Quantitative Performance Measures

a) Non financial measures

These comprise cycle time, customer service level, inventory levels, resource utilization, flexibility,
and quality:

 Cycle time/lead time. It is the end to end delay in a business process for supply chain.
Cycle time is the business of interest, supply chain process and order to delivery process.
Lead times can either be supply lead time or order to delivery lead time.
 Customer service level. This includes unique performance indices i.e. order fill rate, stock
out rate, back order, probability of on time delivery. Order fill rate is the position of a
customer demands that can be easily satisfied from the stock available; stock out rate is
the portion of orders by customers lost due to stock out. Hence there is stock available to
meet the customer demand. Back order level is the number of orders waiting to be filled;
probability of on time delivery is the potion of customer orders that are completed on
time i.e. within the agreed upon due date.
 Inventory levels. It is essential to carry sufficient inventory to meet the customer demands.
In supply chain systems, inventories can either be raw materials, finished goods, semi
processed/work in progress or spare parts. Every inventory is held for different reason and
is a must to maintain optimal levels of each time of inventory.
 Resource utilization
In a supply chain network huge variety of resources is used like manufacturing resource e.g.
machines, materials handlers, tools.
Storage resources like warehouses, automated storage and retrieval system. Logistics
resources like tracks, railway transport, air cargo carriers; human resources like labor,
scientific and technical personnel. All these resources need efficient utilization in order to

26
 maximize customer service levels, reduction of lead times and optimization of inventory
levels
 Quality: quality materials are essential in producing quality products to meet customer
satisfaction.

b. Financial Performance Measures

It used to gauge different fixed and operational costs related to a supply chain. The key
objective of supply chain process is to maximize revenue by maintaining low supply chain costs.
Hikes in prices occur as a result of inventories, transport, operation, technology, material and
labor costs.

Financial performance measures metrics include cost of raw materials, revenue from goods
sold, activity based costs like material handling, manufacturing, assembling rates etc.; inventory
holding costs, transportation costs, cost of expired perishable goods, penalties for incorrectly
filled or late orders delivered to a customer, credits for incorrectly filled or late deliveries from
suppliers, cost of goods returned by customers, credits for goods returned to suppliers.

9.2 Importance of Performance Measurement Systems (PMS)

 PMS drives actions since monitored measures get high visibility within an organization and
people to achieve high performance. PMS identify areas of improvement and the corrective
actions needed to address the issues identified.
 PMS provides a basis to evaluate alternatives and set decision criteria at strategic, tactical
and operational levels
 PMS targets to optimize the performance across multiple objectives
 PMs provides necessary feedback information to reveal progress, diagnose problems,
identify inter understanding and communication among supply chain members and sets the
effects of different strategies
 provides a unified frame work for aggregating performance metrics across a company
 helps a company to organize its key performance measures/metrics into a structure that
leads to relatively high level strategic measures that monitors performance
 it allows both large and small functional areas within a company to develop and maintain
their own measures and contribute to and be part of an overall measurement system
 helps to align the collective activities of a company to meet a designed mission and set of
objectives

9.4 Characteristics of Performance Measurement System (PMS)

 inclusivity: covers all aspects and process of a supply chain

 universality: allows for compassion under different operating conditions
 measurability: its output is quantitative and can be measured
 consistency: metrics are compatible with supply chain goals

9.5 Common Supply Chain Performance Management Framework

a) Financial performance measurement

 Activity based costing (ABC)

 economic value added (EVA)

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 b) Non Financial Performance Measurement System

 Supply Chain Balanced Score Board (SCBS)

 Supply Chain Operations Reference Model (SCOR)
 Dimensions Based Measurement System (DBMS)
 Interface Based Measurement System (IBMS)
 Perspective Based Measurement System (PBMS)
 Hierarchical Based Measurement System (HBMS)
 Functional Based Measurement System (FBMS)
 Efficient Based Measurement System (EBMS)
 Generic Performance Measurement System (GPMS)

10. Strategic Supply Network Management

Supply chain management operates at 3 levels i.e. strategic, tactical and operational levels. at the
strategic level, a company management makes high level strategic supply chain decisions that are
relevant to the whole organizations.

10.1 Strategic Supply Chain Decisions

The strategic supply chain processes that management decides upon covers the breadth of the
supply chain, e.g. product development, customers, manufacturing, vendors and logistics

1. product development

Senior management has to define a strategic direction when considering the products that the
company should manufacture and offer to their customers. as the product matures or product sales
decline, management has to make strategic decisions to develop new versions of existing products
into the market place, rationalize the current product offering or decide whether to develop a new
product or service. The strategic decision may include the need to acquire another company or sell
existing business. When making these strategic decisions the overall objectives of the firm should
be the determining factor.

2. customers

At the strategic level, a company has to identify the customers for its products and services. The
company needs to identify key customer segments where company marketing and advertising will
b e targeted

3. manufacturing

At the strategic level, the management decisions must focus on the manufacturing infrastructure
and technology. Based on high level forecasting and sales estimates, the company management has
to make strategic decisions on how products will be manufactured. The decisions can require new
manufacturing facilities to be built, or to increase production using existing facilities. Strategic
decision must be made in regards to environmental concern as manufacturing has a bearing on this.

4. vendors/suppliers

The company management has to decide on the strategic supply chain policies. Reducing the
purchasing spends for a company can relate to an increase in profit and strategically there are

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several decisions to be made. If a company has adopted on quality the strategic decisions on
suppliers will fall within the overall company objectives e.g. select supplies who offer greatest
discounts

5. logistics

Logistics is a key function in the success of the supply chain. Order fulfillment is important part of
the supply chain and company management needs to make strategic decisions on the logistic
network. The design and operation of the network have a significant influence on the performance
of the supply chain. Strategic decisions may done based on warehousing, distribution, transport
modes etc

10.2 crafting supply chain strategy

The following are essential elements that should be considered when crafting supply chain strategy

1. strong leadership: to oversees processes involved and maintain a sense of perspective on

the company’s larger goals
2. widespread flexibility : adjust to the needs of the customers to ensure consumer satisfaction
3. horizontal processes: cross analysis of the revenue management, supplier development,
sales and operations planning, corporate social responsibility
4. Focus on customization: let the business processes meet customer requirement. Produce
many products so that you can capture your customer niche available to customer base.
5. focus on improvement
6. maintain an effective cross functional teams/team work

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