Operations Management

Andrews University
School of Business Management

BSAD 475
OPERATIONS MANAGEMENT

SESSION 7

Supply Chain Management

Instructor: Dr. Nguyen Thi Duc Nguyen, SIM-HCMUT 1

Learning Objectives (1 of 2)

When you complete this chapter you should be able

to:
• Explain the strategic importance of the supply
chain
• Identify six sourcing strategies
• Explain issues and opportunities in the supply
chain
• Explain major issues in managing the supply chain
• Describe supply chain risk

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

GENERALIZE SUPPLY CHAIN

What is the Supply Chain?

• Suppliers, manufacturers, warehouses, distribution

centers and retail outlets – “facilities”
Suppliers Manufacturers Warehouses & Customers
Distribution Centers

and the

• Raw materials
• Work-in-process (WIP) inventory
Transportation Transportation

• Finished products Material Costs

Costs Costs
Manufacturing Costs
Transportation
Inventory Costs Costs

+ that flow between the facilities

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

WHAT IS A SUPPLY CHAIN?

David Simchi-Levi et.al., 2009

Flow of products and services from:

Raw materials manufacturers
Intermediate products manufacturers
End product manufacturers
Wholesalers and distributors and
Retailers
Connected by transportation and storage activities
Integrated through information, planning, and
integration activities
Cost and service levels

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

SUPPLY CHAIN

Purchasing Manufacturing Distributing

Suppliers Raw materials Factories Warehouse/ Retailers/

storage customers

Fig. Typical Supply Chain

Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

SUPPLY CHAIN

procurement production distribution sales

long-term
Strategic Network planning

mid-term
Master Planning Demand
Planning
Purchasing Production Distribution
& Planning Planning
Material
short-term Demand
Requirements
Scheduling Transport fulfillment
Planning
Planning

Fig. Software modules covering the Supply Chain planning matrix (Meyr et al., 2002)
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EVOLUTION OF SUPPLY CHAIN MANAGEMENT

Further
Refinement of
SCM Capabilities

SCM
Formation/
Extensions

JIT, TQM, BPR,

Alliances

Inventory Management/Cost
Optimization

Traditional Mass Manufacturing

1950s 1960s 1970s 1980s 1990s 2000s Beyond

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

What Is Supply Chain Management?

Supply chain management is a set of approaches

utilized to efficiently integrate suppliers,
manufacturers, warehouses, and stores, so that
merchandise is produced and distributed at the right
quantities, to the right locations, and at the right time,
in order to minimize system wide costs while
satisfying service level requirements.

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

What Is Supply Chain Management?

A typical supply chain is a chain operation such as:

raw materials are procured, products are produced,
shipped to warehouses, and then shipped to
retailers or customers (David Simchi-Levi et al.,
2000)

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

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Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

What Is Supply Chain Management?

Felix et al. (2003) SC system integrates all operations

and departments through suppliers, inbound
logistics, core manufacturer, outbound logistics,
marketing and sales, and end customers

“SCM” ＞“Logistic”!

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

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What Is Supply Chain Management?

Stadtler (2002; 2005) built the house of SCM and

mentioned to the SC planning matrix (Meyr et al.,
2002) which related business functions:
procurement, production, transportation and
distribution, and sales

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

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Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

What Is Supply Chain Management?

Competitiveness
Customer service
Integration: Coordination:

Choice of partners Use of information

and communication
Network organization and technology
inter-organizational
collaboration Process orientation

Leadership Advanced planning

Foundation:
Logistics, marketing, operations research, organizational theory,
purchasing and supply+
Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
Fig. House of SCM (Stadtler, 2002; 2005) 13

What Is Supply Chain Management?

“Fierce competition in today’s global market, the

introduction of products with short life cycles, and
the heightened expectations of customers have
forced business enterprises to invest in, and focus
attention on, their supply chains” (David Simchi-Levi
et al., 2000). Therefore, supply chain management
(SCM), now, is very important role in business
activities!

Emphasize on the role of SCM.

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

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Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

SUPPLY CHAIN MANAGEMENT

Supply chain management is concerned with the

efficient integration of suppliers, factories,
warehouses and stores so that merchandise is
produced and distributed:
•In the right quantities
•To the right locations
•At the right time

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Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

What is Supply Chain Management ( SCM)

‘Supply chain management is the management of the

interconnection of organizations that relate to each other
through upstream and downstream linkages between the
processes that produce value to the ultimate consumer in
the form of products and services’. (Slack et al., 2016)

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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What is Supply Chain Management ( SCM)

Supply chain management is all about relationships

◦ Management of relationships in order to enhance value

and reduce cost
◦ Collaboration is an important part of effective supply
chain management

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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THE GOAL OF SUPPLY CHAIN MANAGEMENT

=>What Is the Goal of Supply Chain

Management?

In order to
•Minimize total system cost
•Satisfy customer service requirements

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Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

The Supply Chain

Suppliers Manufacturers Warehouses & Customers
Distribution Centers

Transportation Transportation
Costs Costs Transportation
Material Costs Costs
Manufacturing Costs Inventory Costs

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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The Supply Chain

Functional Continuity Products
◦ Predictable demand
◦ Utility need

Innovative Seasonal Products

◦ Unpredictable demand
◦ Fashion content

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Instructor: Dr. Nguyen Thi Duc Nguyen

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Supply Chain Planning and Control

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Combining Lean and Agile Approaches -

Leagile

Material Decoupling Point

Lean Agile

• Forecast at generic level • Demand driven

• Economic batch quantities • Localised configuration

• Maximise efficiency • Maximise effectiveness

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Instructor: Dr. Nguyen Thi Duc Nguyen

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Supply Chain Characteristics

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Why is Supply Chain so important?

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Instructor: Dr. Nguyen Thi Duc Nguyen

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Why is Supply Chain so important?

Strategic Advantage – It Can Drive Strategy

Manufacturing becomes more efficient
SCM offers opportunity for differentiation (Dell) or
cost reduction (Wal-Mart)
Globalization – It Covers The World
Requires greater coordination of production and
distribution
Increased risk of supply chain interruption
Increases need for robust and flexible supply chains

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Why is Supply Chain so important?

• At the company level, supply chain management impacts

COST – For many products, 20% to 40% of total
product costs are controllable logistics costs.

SERVICE – For many products, performance factors

such as inventory availability and speed of delivery are
critical to customer satisfaction.

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

A cycle view of a Supply Chain

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Supply Chain Design – 3 components

1. Insourcing/Outsourcing decision
(The Make/Buy or Vertical Integration Decision)

2. Partner Selection
(Choice of suppliers and partners for the chain)

3. The Contractual Relationship

(Arm's length, joint venture, long-term contract,
strategic alliance, equity participation, etc.)

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Managing the Supply Chain

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Managing the Supply Chain

Potential pitfalls

Geographically dispersed complex network

Conflicting objectives across the supply chain

Uncertainty and risk factors

Information distortion

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Managing a Supply Chain is not easy!

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Global Supply Chain Management factors

Costs
◦ Local labor rates
◦ International freight tariffs
◦ Currency exchange rates

Customs Duty
◦ Duty rates differ by commodity and level of
assembly
◦ Impact of GATT/WTO: Changes over time

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Global Supply Chain Management factors

Export Regulations
• Denied parties list
• Export licenses

Time
• Lead time
• Cycle time
• Transit time
• Export license approval
cycle
• Customs clearance

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Global Supply Chain Management factors

• Taxes on Corporate Income

– Different markups by country
– Tax havens and not havens
– Make vs. buy effect

• Offset Trade and Local Content

– Local content requirement for government
purchases
– Content for preferential duty rates

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Managing the Supply Chain

Table 11.2 How Corporate Strategy Impacts Supply Chain
Decisions
LOW-COST RESPONSE DIFFERENTIATION
Blank
STRATEGY STRATEGY STRATEGY

Primary supplier • Cost • Capacity • Product development

selection criteria • Speed skills
• Flexibility • Willing to share
information
• Jointly and rapidly
develop products
Supply chain • Minimize inventory to • Use buffer stocks to • Minimize inventory to
inventory hold down costs ensure speedy supply avoid product
obsolescence

Distribution network • Inexpensive • Fast transportation • Gather and

transportation • Provide premium communicate market
• Sell through discount customer service research data
distributors/retailers • Knowledgeable sales
staff
Product design • Maximize • Low setup time • Modular design to aid
characteristics performance • Rapid production ramp-up product differentiation
• Minimize cost

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Managing the Integrated

Supply Chain

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Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Managing the Integrated Supply Chain (1/5)

• Issues
• Local optimization can magnify fluctuations
• Incentives push merchandise into the supply
chain for sales that have not occurred
• Large lots reduce shipping and production costs
but increase inventory holding and do not reflect
actual sales

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Managing the Integrated Supply Chain (2/5)

• Issues
• Local optimization can magnify fluctuations
• Incentives push merchandise into the supply
chain for sales that have not occurred
• Large lots reduce shipping and production costs
but increase inventory holding and do not reflect
actual sales

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Managing the Integrated Supply Chain (3/5)

• Opportunities
• Accurate “pull” data, shared information
• Lot size reduction, shipping, discounts, reduced
ordering costs
• Single stage control of replenishment
• Single supply chain member responsible for ordering
• Vendor managed inventory (V M I)

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Managing the Integrated Supply Chain (4/5)

• Opportunities
• Collaborative planning, forecasting, and
replenishment (C P F R) throughout the supply
chain
• Blanket orders against which actual orders are
released
• Standardization

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Managing the Integrated Supply Chain (5/5)

• Opportunities
• Postponement withholds modification as long as
possible
• Electronic ordering and funds transfer speed
transactions and reduce paperwork
• Drop shipping and special packaging bypass the
seller and reduce costs
• Blockchain aids tracking and verification

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Sourcing strategies

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Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Sourcing Issues

• Make-or-buy decisions
• Choosing between obtaining products and
services externally as opposed to producing them
internally
• Outsourcing
• Transfer traditional internal activities and
resources to outside vendors
• Efficiency in specialization
• Focus on core competencies

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Outsourcing

• ‘A contractual relationship between an external vendor

and an enterprise in which the vendor assumes
responsibility for one or more business functions of the
enterprise’ White & James 1993

• Outsource ‘non-core’ activities

• Focus on ‘distinctive or core competences’

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Operations Management

Make in house

• Internal capacity:
– Is spare capacity available ?
• Cost:
– Is it cheaper to make internally?
• Quality:
– Will internal manufacture allow closer quality
control?
• Timescale:
– Is continuous supply available as required?
• Confidentiality:
– Is it necessary to keep data and info secret?

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Six Sourcing Strategies

• Many suppliers

• Few suppliers

• Vertical integration

• Joint ventures

• Keiretsu networks

• Virtual companies

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Many Suppliers

• Commonly used for commodity products

• Purchasing is typically based on price
• Suppliers compete with one another
• Supplier is responsible for technology, expertise,
forecasting, cost, quality, and delivery

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Few Suppliers

• Buyer forms long-term relationships with fewer

suppliers
• Create value through economies of scale and
learning curve improvements
• Suppliers more willing to participate in J I T
programs and contribute design and technological
expertise
• Cost of changing suppliers is huge
• Trade secrets and other alliances may be at risk

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Vertical Integration (1 of 2)

Figure 11.2

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Vertical Integration (2 of 2)

• Developing the ability to produce goods or services

previously purchased
• Integration may be forward, towards the customer,
or backward, towards suppliers
• Can improve cost, quality, delivery, and inventory
but requires capital, managerial skills, and demand
• Risky in industries with rapid technological change

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Joint Ventures

• Formal collaboration
• Enhance skills
• Secure supply
• Reduce costs
• The challenge is to cooperate without
diluting brand or conceding competitive
advantage

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Keiretsu Networks
• A middle ground between few suppliers and vertical
integration
• Supplier becomes part of the company coalition
• Often provide financial support for suppliers through
ownership or loans
• Members expect long-term relationships and provide
technical expertise and stable deliveries
• May extend through several levels of the supply
chain

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Virtual Companies

• Rely on a variety of supplier relationships to provide

services on demand
• Fluid organizational boundaries that allow the
creation of unique enterprises to meet changing
market demands
• Relationships may be short- or long-term
• Exceptionally lean performance, low capital
investment, flexibility, and speed

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Supply Chain Risk

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Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Supply Chain Risk

• More reliance on supply

chains means more risk
• Fewer suppliers
increase dependence
• Compounded by
globalization and
logistical complexity
• Vendor reliability and
quality risks
• Political and currency
risks

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Risks and Challenges

Frequent Supply shortages Low order fill rates

Inefficient
logistics

High stockouts
Tier 1 Manufacturer Distributor Retailer Customer
Supplier

Glitch-Wrong Material, Machine

is Down – effect snowballs Ineffective
High inventories through the promotions High landed costs to the
chain shelf

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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Operations Management

Risk and Mitigation Tactics (1 of 6)

• Research and assess possible risks

• Innovative planning
• Reduce potential disruptions
• Prepare responses to negative events
• Flexible, secure supply chains
• Diversified supplier base

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Risk and Mitigation Tactics (2 of 6)

Table 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Supplier Use multiple suppliers; McDonald's planned its
failure to effective contracts with supply chain 6 years before
deliver penalties; subcontractors on its opening in Russia. Every
retainer; preplanning plant—bakery, meat, chicken,
fish, and lettuce—is closely
monitored to ensure strong
links.
Supplier Careful supplier selection, Darden Restaurants has
quality training, certification, and placed extensive controls,
failures monitoring including third-party audits, on
supplier processes and
logistics to ensure constant
monitoring and reduction of
risk.

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Risk and Mitigation Tactics (3 of 6)

Table 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Outsourcing Take over production; provide Tyson took over chicken farm
or perform the service yourself production in China to
mitigate product quality and
safety concerns related to
using independent farmers.

Logistics Multiple/redundant Walmart, with its own trucking

delays or transportation modes and fleet and numerous
damage warehouses; secure distribution centers located
packaging; effective contracts throughout the U.S., finds
with penalties alternative origins and
delivery routes bypassing
problem areas.

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Risk and Mitigation Tactics (4 of 6)

Table 11.3 Supply Chain Risks and Tactics
RISK RISK REDUCTION TACTICS EXAMPLE
Distribution Careful selection, monitoring, Toyota trains its dealers
and effective contracts with around the world, invoking
penalties principles of the Toyota
Production System to help
dealers improve customer
service, used-car logistics,
and body and paint
operations.
Information Redundant databases; secure Boeing utilizes a state-of-the-
loss or IT systems; training of supply art international
distortion chain partners on the proper communication system that
interpretations and uses of transmits engineering,
information scheduling, and logistics data
to Boeing facilities and
suppliers worldwide.
Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Instructor: Dr. Nguyen Thi Duc Nguyen

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Operations Management

Risk and Mitigation Tactics (5 of 6)

Table 11.3 Supply Chain Risks and Tactics

RISK RISK REDUCTION TACTICS EXAMPLE

Political Political risk insurance; cross- Hard Rock Café reduces
country diversification; political risk by franchising
franchising and licensing and licensing, rather than
owning, when the political and
cultural barriers seem
significant.

Economic Hedging to combat exchange Honda and Nissan are

rate risk; purchasing contracts moving more manufacturing
that address price fluctuations out of Japan as the exchange
rate for the yen makes
Japanese-made autos more
expensive.

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Risk and Mitigation Tactics (6 of 6)

Table 11.3 Supply Chain Risks and Tactics

RISK RISK REDUCTION TACTICS EXAMPLE

Natural Insurance; alternate sourcing; Toyota, after its experience
catastrophes cross-country diversification with fires, earthquakes, and
tsunamis, now attempts to
have at least two suppliers,
each in a different
geographical region, for each
component.

Theft, Insurance; patent protection; Domestic Port Radiation

vandalism, security measures including Initiative: The U.S.
and terrorism RFID and GPS; diversification government has set up
radiation portal monitors that
scan nearly all imported
containers for radiation.

Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology

Instructor: Dr. Nguyen Thi Duc Nguyen

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Course instructor: Dr. Nguyen Thi Duc Nguyen, School of Industrial Management, Ho Chi Minh city University of Technology
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