SC-SG FSM

SHORT COURSE
Study
Guide
STUDY RESOURCE
Fundamentals of Supply Chain Management Study Guide
SHORT COURSE PROGRAMME
COURSE: FUNDAMENTALS OF SUPPLY CHAIN

MANAGEMENT
COURSE CODE: SC-FSM
STUDY GUIDE
©iQ Academy 1
© Copyright (First edition) 2022
In terms of the Copyright Act 98 of 1978, no part of this study material may be
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Furthermore, permission to use in these ways any material in this work that derived
from other sources, must be obtained from the original sources.
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Table of Contents
Table of Contents ................................................................................................................................ 3
Course Information ............................................................................................................................. 6
Course Outline ..................................................................................................................................... 9
Unit 1: The Supply Chain ................................................................................................................... 10

1.1 Supply Chain Definitions ............................................................................................................. 12
1.1.1 Profit and competitive advantage .......................................................................................... 13
1.1.2 Effectiveness and efficiency ................................................................................................... 13
1.1.3 Operations an operations management ...............................................................................14
1.1.4 Logistics and supply chain ........................................................................................................14
1.1.5 Supply chain management and logistics management .....................................................17
1.2 The History of Supply Chain Management ............................................................................. 18
1.3 The Relationship between Logistics and Supply Chain ...................................................... 20
1.3.1 The elements of a supply chain ............................................................................................. 20
1.3.2 The relationship between logistics and supply chain management .............................. 24
Unit 2: Customer Centricity .............................................................................................................29

2.1 Customer Service, Customer Service Management and the Importance Thereof ........ 32
2.2 Essential Elements and Characteristics of Customer Service Management .................. 35
2.2.1 Customer centricity ................................................................................................................. 35
2.2.2 Social responsibility .................................................................................................................36
2.2.3 Aligning the business with the needs of the customer ...................................................39
2.2.4 Ensure the profitability of the business ..............................................................................39
2.3 Methods to Improve Customer Service .................................................................................39
2.3.1 Product/service quality .......................................................................................................... 40
2.3.2 Responsiveness ....................................................................................................................... 40
2.3.3 Efficiency .................................................................................................................................. 40
2.3.4 Flexibility .....................................................................................................................................41
Unit 3: Purchasing, Transportation, Warehousing and Inventory Management .................. 44

3.1 Purchasing Management ........................................................................................................... 46
3.1.1 Introduction to purchasing management ............................................................................ 47
3.1.2 The nature and importance of purchasing management ................................................ 47
3.1.3 Important activities of purchasing management .............................................................. 49
3.2 Transportation ............................................................................................................................ 50
3.2.1 Introduction to transportation ............................................................................................... 51
3.2.2 The importance of management of transport in the supply chain ................................ 52
3.2.3 Modes of transportation ......................................................................................................... 53
3.3 Warehousing ................................................................................................................................56
3.3.1 Objectives and principles of warehousing ..........................................................................56
3.3.2 Warehouse activities ............................................................................................................... 57
3.3.2 Types of warehousing formats..............................................................................................58
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Fundamentals of Supply Chain ManagementStudy Guide
3.4 Inventory Management ............................................................................................................. 61

3.4.1 Introduction to and importance of inventory management ........................................... 61
3.4.2 The principles of inventory management ...........................................................................63
3.4.3 Costs associated with inventory ........................................................................................... 64
3.4.4 Measures and systems that assist in managing inventory ..............................................65
Unit 4: Total Quality Management in Supply Chain Management ......................................... 69

4.1 Total Quality Management and the Origins Thereof .............................................................71
4.2 Defining Total Quality Management ....................................................................................... 74
4.3 The Total Quality Management Model ................................................................................... 77
4.3.1 The four pillars of TQM ............................................................................................................ 77
4.3.2 A model for implementing total quality management in a business ............................78
Unit 5: Supply Chain Integration ....................................................................................................82

5.1 Teamwork and Collaboration ....................................................................................................84
5.1.1 The role of teamwork and collaboration in the success of a supply chain ....................84
5.1.2 Improving teamwork and collaboration ..............................................................................84
5.1.3 Competitive advantage through teamwork and collaboration ..................................... 86
5.2 Effective Communication in the Supply Chain .................................................................... 89
5.2.1 Role and importance of effective communication in the supply chain ....................... 89
5.2.2 Methods of communication .................................................................................................. 91
5.2.3 Communicating with an audience outside of the business ............................................92
5.2.4 The impact of work choice and tone on a business message ........................................93
5.2.5 Write a business communication given a specific audience and purpose ..................95
Unit 6: Supply Chain Strategies and Future Trends..................................................................100

6.1 Supply Chain Strategies ............................................................................................................ 101
6.1.1 Understanding strategic supply chain management ....................................................... 101
6.1.2 The four elements of supply chain strategy ..................................................................... 102
6.1.3 Generic supply chain strategies........................................................................................... 103
6.2 Sourcing and Outsourcing ...................................................................................................... 106
6.2.1 Sourcing ................................................................................................................................... 106
6.2.2 Outsourcing ............................................................................................................................ 108
6.3 ERP Systems and Future Trends ............................................................................................. 110
6.3.1 Introduction to ERP systems ................................................................................................. 111
6.3.2 Characteristics of ERP systems ............................................................................................ 111
6.3.3 Advantages of ERP systems ................................................................................................. 112
6.3.4 Disadvantages of ERP systems ............................................................................................ 113
6.3.5 Future trends ........................................................................................................................... 114
Unit 7: Ethics in Supply Chain Management ............................................................................... 117

7.1 Ethics and Business Ethics ........................................................................................................ 118
7.1.1 Ethical business decisions ...................................................................................................... 119
7.1.2 Drivers of business ethics ..................................................................................................... 120
7.1.3 Benefits of business ethics ................................................................................................... 120
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7.1.4 Managing business ethics ...................................................................................................... 121

7.2 Ethics in the Context of Supply Chain Management ......................................................... 123
7.2.1 Ethical dilemmas in the supply chain ................................................................................. 124
7.2.2 Strategies for practising ethical supply chain management ........................................ 126
Integrated Case Study .................................................................................................................... 129
References ........................................................................................................................................ 138
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Course Information
Course name
Fundamentals of Supply Chain Management
Course code
SC-FSM
NQF level
N/A
Credits
N/A
Learning hours
100 hours
Course purpose The purpose of Fundamentals of Supply Chain
Management is to provide a real-world understanding of
Supply Chain Management (SCM). It provides the learner
with a firm foundation in the field of Supply Chain
Management on which a career can be built. For those
learners already working in a supply chain environment,
it provides a solid theoretical foundation with practical
examples and scenarios to help build skills and
competencies.
Learning outcomes for this
course After studying this course, you should be able to:
• Explain the concept "supply chain" and how it has
evolved over time;
• Formulate a customer-centric approach to supply
chain management;
• Outline the functions of purchasing,
transportation, warehousing and inventory
management;
• Explain the concept of Total Quality Management
(TQM) in the supply chain;
• Assess the impact of teamwork, collaboration and
communication in supply chain integration;
• Identify supply chain strategies and future trends
in supply chain management; and
• Discuss the role of ethics in the context of supply
chain management.
Prescribed study guide and iQ Academy Study Guide
other resources
Fundamentals of Supply Chain Management
Assessment You will be required to complete online continuous and

formative assessments and activities for this course. You
will also be required to complete a summative
assessment. Formative and summative assessments are
downloadable (e-book) from the iCan student portal, in
the Assignments and Other Resources section.
Feedback: Feedback will be provided online via the

student portal, iCan in various formats.
Continuous assessments:
Continuous assessments are conducted throughout this
course for each topic in a unit and do not count towards
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your final mark. These activities usually consist of short

questions.
Formative assessments:
Formative assessments are conducted after the
completion of several units and count towards your final
mark. The objective of these assessments is to enhance
your understanding and competency throughout your
learning process.
Summative assessment:
The summative assessment is conducted at the end of
the course once you have completed all the units and
activities. This consists of one summative assessment
that allows you to demonstrate your competence across
all of the units in this module.
The final marks are derived as follows for this module:

Formative assessments: 40%
Summative assessment: 60%
How long will it take me? For this course, the completion period is 24 weeks.
Unit 1: The Supply Chain [16 hours]
Unit 2: Customer Centricity [16 hours]
Unit 3: Purchasing, transportation, warehousing and
inventory management [16 hours]
Unit 4: Total Quality Management (TQM) [8 hours]
Unit 5: Supply Chain Integration [16 hours]
Unit 6: Supply Chain Strategies and Future Trends [16
hours]
Unit 7: Ethics in Supply Chain Management [12 hours]
How do I study? This is a dual mode short course programme, which
means some students selected the online version of the
course, while others selected the Internet supported
version.
• Online – all the course content, learning activities,
and assessments are only available online in the iQ
Academy student portal and completed online.
• Internet Supported – all the course content,
learning activities, and assessments are available
online in the iQ Academy student portal and
completed online. In addition, students are
provided with this printed Study Guide and
Course Guide.
iCan is the iQ Academy student portal. You can access
iCan through your PC, laptop, tablet, or smartphone.
Please go to http://ican.iqa.ac.za and enter the
username and password that was sent to you via SMS. If
you require assistance with logging onto iCan, contact iQ
Academy.
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Icons
What the icons mean
Readings
Read the sections of the prescribed text listed.
Video/Audio
Access and watch/listen to the video/audio clip listed.
Additional Resources or Readings
Find the recommended information listed.
Forum Discussion
Discuss the topic in your study group or online forum.
Example
Examples of how to perform an activity or calculation

with the solution/appropriate response.
Knowledge Check
Test the knowledge you have learnt or practice a new

skill.
Case Study
Learn from scenarios or real-life examples and apply

critical thinking.
Think Point
Reflect and think about the activities or questions in a

topic or unit.
Vocabulary
Learn and apply these terms.
End of Unit Assessment
Complete the questions at the end of each unit.
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Course Outline
The purpose of Supply Chain Management is to provide learners with a real-world
understanding of Supply Chain Management (SCM). It will assist learners to gain an
understanding of supply chains, the discipline of Supply Chain Management (SCM), and
the role SCM plays in effective and efficient operations management, business success
and customer value and satisfaction. This will provide a foundation from which to build
and develop skills in the various areas of supply chain management.
In this course, seven study units will be covered, namely:
Unit 1: The Supply Chain
Unit 2: Customer Centricity
Unit 3: Purchasing, Transportation, Warehousing and Inventory Management
Unit 4: Total Quality Management
Unit 5: Supply Chain Integration
Unit 6: Supply Chain Strategies and Future Trends
Unit 7: Ethics in Supply Chain Management
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Unit 1: The Supply Chain

Purpose
The purpose of this unit is to provide an overview of Supply Chain and Supply Chain
Management. We will commence by describing the various elements of a supply chain.
Second, we will explain the relationship between logistics and the supply chain. Lastly, the
history of supply chain management will be covered.
Learning Outcomes
By the end of this unit, you should be able to explain what the concept "supply chain" is
and how it has evolved over time.
Unit outcomes
1. Define important terms and concepts of a supply chain;

2. Outline the history of supply chain management; and
3. Explain the relationship between logistics and the supply chain.
Unit duration
16 hours
Resources and readings
Additional readings and resources:

▪ Fernando, J. 2021. “Supply Chain Management”. At:
https://www.investopedia.com/terms/s/scm.asp
▪ Handfield, R, 2020. “What is Supply Chain Management

(SCM)?” Supply Chain Resource Cooperative. At:
https://scm.ncsu.edu/scm-articles/article/what-is-supply-
chain-management-scm
▪ Hayes, A. 2021. “Operations Management” At:

https://www.investopedia.com/terms/o/operations-
management.asp
▪ LaGore, R. 2019. “What Is Supply Chain & Why is It Important?”

At: https://blog.intekfreight-logistics.com/what-is-supply-
chain-and-why-important
▪ LaMarco, N. 2020. “What Are the Four Elements of Supply

Chain Management?” At:
https://smallbusiness.chron.com/four-elements-supply-
chain-management-52355.html
Vocabulary: Important terms and definitions
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A supply chain is a network between a business and its suppliers and

Supply chain customers that includes all the transactions involved in transforming
raw goods into saleable products.
Supply chain management encompasses the planning and
Supply Chain
management of all activities involved in sourcing and procurement,
Management
conversion, and all logistics management activities.
Operations management is mainly involved with the planning,
Operations
organising, and managing of the production, manufacturing, or
Management
provision of services within the organisation.
Logistics management is that part of supply chain management that
plans, implements, and controls the efficient, effective forward and
Logistics
reverses flow and storage of goods, services, and related information
Management
between the point of origin and the point of consumption to meet
customers’ requirements.
The person purchasing the inputs to the production process.
Purchaser
Supplier A supplier is a person or business that provides a product or service to

(Seller) another entity.
In the supply chain, the organisation resells the product, or the
Customer consumer, the end customer, or the user.
See also: Council for Supply Chain Management Professionals 1

https://cscmp.org/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms.aspx
Introduction
Daily, we as customers were used to buying products and paying for services that we need
and want. We bought cars, household appliances and smartphones, which are rather
expensive. We also bought less expensive products such as food, medicine and other
pharmaceutical products. Then came the COVID-19 pandemic and, along with the United
States – China trade war, we became painfully aware of the realities of not being able to
buy what we want and what we need when we need and where we need it.
The supply shock started in China in February 2020 when Chinese factories shut down.
From China, these shutdowns spread globally, contributing to a world slipping into its first
recession since the financial crisis more than a decade ago. A demand shock followed as
the global economy shut down exposed vulnerabilities in the production strategies and
supply chains of businesses just about everywhere. Temporary trade restrictions and
shortages of pharmaceuticals, critical medical supplies, food and other products
highlighted their weaknesses. All of this led to experts believing that, when the COVID-19
pandemic subsides, the world is going to look remarkably different. Manufacturers
worldwide will become under greater political and competitive pressures to increase their
domestic production, grow employment in their home countries, reduce or even eliminate
their dependence on sources that are perceived as risky, and rethink their use of lean
manufacturing strategies that involve minimising the amount of inventory source from
global suppliers (Shih 2020).
Yet many things are not going to change. Consumers will continue to want low prices
(especially in a recession), and businesses will not be able to charge more just because
they manufacture in higher-cost home markets. The competition will ensure that. In
1
Council for Supply Chain Management Professionals. n.d.“CSCMP Supply Chain
Management Definitions and Glossary.” At
https://cscmp.org/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms.aspx
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addition, the pressure to operate efficiently and use capital and manufacturing capacity
frugally will remain unrelenting.
This is where the concepts ‘supply chain management’ and ‘logistics’ come in. Both these
concepts are part of any business. In the ‘new normal’, or as some call it the ‘next normal’,
businesses need to make their supply chains more resilient without weakening their
competitiveness. In this first study unit, we will introduce you to supply chain and logistics,
by defining important terms and concepts related to it. A thorough understanding of these
terms and concepts will form the foundation of our discussions in further units when we
address the full extent of managing the supply chain for the future and the ethical
management of the supply chain.
Start of unit reflection
How familiar are you with the content covered in this unit? Rate your current competency
against the Learning Outcomes for this unit on the following scale:
This subject matter is completely new to

1 = Novice
me.
I have a basic understanding of the subject
2 = Partial understanding or competence
matter but still, require support.
3 = Average understanding or I have a fair grasp of the subject matter and
competence its application.
I have a strong grasp of the subject matter
4 = Above average understanding or
and could easily apply it in a variety of
competence
contexts.
I have mastered this subject area, and I
5 = Expert
could teach it to others.
Unit Learning Outcomes Your rating
LO1: Define important terms and concepts of a supply chain
LO2: Outline the history of supply chain management
LO3: Explain the relationship between logistics and supply chain
Never before in the post-globalisation world have stakeholders been so worried about
supply chain complexity, with the COVID-19 pandemic making it clear that money cannot
buy anything or more specifically, it cannot buy anything instantly. The following video
illustrates this.
Watch the following video.
Video Pandemics and Complex Global Supply Chains: Supply Chain

Complexity Explained in One Minute (1.58 minutes)
At: https://www.youtube.com/watch?v=fmKgFfyi5wY
1.1 Supply Chain Definitions
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In this section, we will define a number of important concepts related to supply chain
management and logistics. We will focus on profit, competitive advantage, effectiveness,
efficiency, operations, operations management, logistics, logistic management, supply
chain and supply chain management.
Topic duration
4 hours
Supply chain management and logistics are interrelated and play a major role in making
businesses more competitive and more profitable in today’s highly competitive and global
environment. Before we explore these two concepts, let us commence with two related
background concepts, namely ‘profit’ and ‘competitive advantage’.
1.1.1 Profit and competitive advantage

Entrepreneurs and business owners start their businesses for a variety of reasons. For
example, to offer products and/or services that are in demand and to create jobs. Another
reason for starting a business is to operate and manage the business in such a manner that
the entrepreneur/business owner earn and maximise a profit. The formula for calculating
the profit of a business is:
Profit = amount earned (or revenue) - amount spent (cost)

[Formula 1.1]
where:
Amount earned = price x quantity sold
Revenue is the income that a business earns by selling its products and/or services. The
costs of a business include, among other things, salaries and wages paid to employees,
the costs to keep an inventory of raw materials, components and final products, the costs
to buy production inputs, payment for transport of materials and goods, security,
electricity, water and municipal taxes. To ensure that a business maximises its profits, it
needs to maximise its revenue and minimise its costs. One way of maximising revenue is
by providing a product or service that is more attractive or of better quality when
compared to the products offered by competitors. This is called a competitive advantage,
which can be defined as a condition that puts a business in a favourable or superior
business position. Such a position should be sustainable and provide the business with a
higher market share and cost advantages. Having a competitive advantage will mean that
a business can provide its customers with better service and value.
1.1.2 Effectiveness and efficiency

We can now ask the question ‘How does a business succeed in securing and maintaining
a competitive advantage (a differentiated product or service, maximum revenue, lower
operating costs, and therefore higher profits) when compared to its competitors?’ The
answer to this question lies in the important roles played by supply chain management
and logistics. These two aspects are regarded as vehicles for attaining two main goals of a
business, namely:
• efficiency; and
• effectiveness
Efficiency is defined as a level of business performance that uses the lowest amount of
inputs to create the greatest amount of outputs. In other words, being efficient means
reducing costs. Effectiveness refers to the degree to which something is successful in
producing the desired result. For a business, effectiveness will mean satisfying customers.
Throughout this course, the emphasis is on the contribution of supply chain management
and logistics as:
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• cost-savers;
• contributors to profit; and
• factors that enhance and maintain a business’s competitive position by improving
customer service.
Therefore, an important way of obtaining and maintaining a competitive advantage of a

business is through the proper management of the supply chain and logistics of the
business.
Discussion Main supply chain challenges

The modern supply chain needs to evolve to meet the new demands
and supply chain challenges, especially during and after the COVID-19
pandemic.
What, in your opinion, are the main supply chain challenges today?
Discussions take place on iCan.

Comments on activity
Modern supply chain managers face a number of challenges. For example, they are faced
with demanding customers, increased costs, more routes to market, and international
complexities that create challenges throughout the supply chain network. Let us explore
one of these challenges further, namely increased costs. Costs are increasing throughout
the supply chain. Profits of businesses are under pressure as costs creep up throughout
the supply chain network. These costs originate from various areas, such as the rising in
commodity prices, high labour costs and complex international logistics that lead to higher
costs related to storage, transfer and management of products.
1.1.3 Operations and operations management

Before we explain the concepts ‘logistics’ and ‘supply chain’, it is important to understand
the concept of an operation. An operation is a specific process within an organisation that
produces or delivers the products and services to a customer. This customer is external
to the operation and forms part of the supply chain of the organisation.
All the inputs in the production process that are external to the operation are also part of
the supply chain, the businesses that supply these are members of the supply chain and
need to be managed.
Operations management (OM) is concerned with converting materials and labour into
goods and services as efficiently as possible to maximise the profit of an organisation.
1.1.4 Logistics and supply chain

In any team sport, the success of the team depends to a large extent on how the players
work together as a team. In a business, the same principle applies. For example, each
section and each individual need to work together to attain the goals of the business. Let
us consider an example from the manufacturing environment. The manufacturer (for
instance a bakery supplying bread) and different suppliers who provide inputs are used in
the production process to produce bread. The manufacturer and suppliers need to work
together as a team to produce bread and are referred to as supply chain partners. The
movement of supplies from one supply chain partner to the next is called logistics
activities or functions. These concepts (the supply chain, supply chain partners and
logistics) apply to and are relevant to all businesses in all industries, such as hospitals,
schools, universities as well as service providers such as hairdressers and financial services.
Figure 1 indicates a simple supply chain for a bakery supplying bread to a supermarket.
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Vehicle transporting
Farmer supplying
bread to Supermarket
wheat
supermarket
Truck transporting Bakery baking the

wheat to miller bread
Truck transporting
Miller milled wheat to
bakery
Figure 1 A simple supply chain
In figure 1, the bakery baking bread requires the necessary supplies of wheat, yeast, and
sugar to be delivered in the right quantity, the right quality at the right time, place and
price to allow timeous baking of bread to be delivered to supermarkets. Within the field of
logistics, this is called the ‘five rights’ of logistics:
• right quality;
• right quantity;
• right time;
• right place; and
• right price.
The receipt from suppliers of inputs (wheat) that are used in production processes (baking
bread) and the distribution of the finished products (bread) by the manufacture to the
supermarket and eventually to the consumer are shown in figure 1. It represents two
important concepts in supply chain management, namely inbound and outbound flows.
Inbound flows refer to the physical movement and management of materials received and
to be used in production. Outbound flows refer to the physical movement and
management of the final products to the customer. In the case of the bakery, the inbound
flows refer to the movement and management of the wheat, yeast, sugar and water used
in the baking of the bread. The outbound flows refer to the transport of the bread to
supermarkets. Inbound and outbound flows are depicted in figure 2.
INBOUND
Focal business
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Purchase supplies
Supermarket order of wheat, yeast
and sugar
Distribute to
Bake the bread
supermarket
OUTBOUND
Figure 2 Inbound and outbound flow process in a bakery
Figure 2 also depicts two more concepts related to inbound and outbound flow processes,
namely downstream and upstream movements. Downstream movements refer to the
movement of supplies (wheat, yeast, sugar and water) and information from one supplier
to the next in the direction of the final customer or consumer of the product (bread).
Upstream movement refers to the movement of items, enquiries about products,
backwards in the supply chain. For example, if the supermarket is not satisfied with the
quality or timeous delivery of bread, an upstream investigation will be necessary.
We can now define a supply chain as the network between a business and its suppliers
and customers that includes all the transactions involved in transforming raw goods into
saleable products. The network includes all the activities, people, technology, information,
and resources involved in the operations, while the supply chain partners also include
sales, sourcing, procurement, production, logistics, and customer service. Supply chains
are comprised of many different businesses or operations, and these use the outputs, the
products, and services, of one business as inputs to their production processes. A supply
chain starts with a customer demanding goods and services (by means of a customer
order) and it includes not only the main manufacturer as the focal business and the
suppliers of the production inputs but also the transporters, warehouses, distribution
centres, financial institutions and retailers. It ends with the final consumer consuming the
demanded product.
What is logistics? Logistics can be defined as the process of strategically managing the
procurement, movement and storage of materials, parts and finished inventory and
related information through the business and its marketing channels. The management is
done in such a way that the present and future profitability of the business are maximised
through cost-effective fulfilment of customer orders. Based on this definition, we can
deduct that logistics is a far-reaching process comprising of activities that focus on
customer service and service to supply chain partners in the most effective and efficient
manner.
What is the difference between logistics and a supply chain? Logistics focuses on the
activities, processes and management of the flow of materials of one specific business. In
other words, logistics does not focus on the interrelationship of upstream and
downstream stages or entities. A supply chain, on the other hand, integrates all the
elements thereof, including those entities beyond organisational borders.
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1.1.5 Supply chain management and logistics management

In the previous section, we differentiated between the concepts of supply chain and
logistics. With this differentiation as background, we can now turn our focus to supply
chain and logistics management.
According to the Council of Supply Chain Professionals (CSCMP 2012), supply chain
management can be defined as follows:
‘Supply chain management encompasses the planning and management of all activities
involved in the sourcing and procurement, conversion and all logistics management
activities. It also includes coordination and collaboration with channel partners, which can
be suppliers, intermediaries, third-party service providers and customers. Supply Chain
Management integrates supply and demand management across an organisation.’
In the definition above, intermediaries and third-party service providers include brokers,
agents, wholesalers and retailers that buy and resell goods. There are various definitions
of the term SCM. However, the common denominator in all of these definitions is the fact
that a supply chain involves the movement of goods, information and funds between
different stages of manufacturing/production – from the raw material through to the
consumption by the final consumer – and all of these needs to be managed. In SCM,
information refers to issues such as the number and quality of supplies required, the
storage of supplies, the transport of supplies and the financing of supplies. SCM includes
all logistics management activities as well, which brings us to a formal definition of
logistics management.
The Council of Supply Chain Management Professionals, define logistics management as

follows:
‘Logistics management is that part of SCM that plans, implements and controls the
efficient and effective physical forward and reverse flow and storage of raw materials,
work-in-progress inventory, finished goods, services and related information between the
point of origin and the point of consumption in order to meet customer requirements.’
In the above definition, forward and reverse flow of materials refer to the downstream and
upstream movements that we defined in section 1.1.4. Logistics management can,
according to the definitions of SCM and logistics management, be seen as a sub-set of
SCM. Logistics management activities typically include the following:
• inbound and outbound transportation management,

• fleet management,
• warehousing,
• materials handling,
• order fulfilment,
• logistics network design,
• inventory management,
• supply and demand planning, and
• management of third-party logistics service providers
Think Point Do all businesses have a supply chain?

Can you think of an organisation that is totally self-sufficient and that
doesn’t need anything from suppliers or that doesn’t supply anything
to customers?
1. If YES, briefly describe the organisation.
2. Where does it get its raw materials?
3. Who gets the outputs that are produced?
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Almost no organisation is totally self-sufficient. Even a basic rural subsistence farm has to
get supplies to produce their food. They may not sell their products but may barter for
their supplies, or inputs. This means they are part of a supply chain in a very simple
context.
Conclusion
This topic defined a number of important concepts in SCM. These are profit, competitive
advantage, effectiveness, efficiency, operations and operations management, logistics
and logistics management, supply chain and supply chain management. This topic sets
the scene for a more in-depth discussion of the relationship between logistics and the
supply chain. Before this relationship is discussed, we will outline the history of supply
chain management in the next topic.
1.2 The History of Supply Chain Management

SCM forms the backbone of most economies and successful multinational companies
today. In this topic, we will provide a short history of SCM.
Topic duration
4 hours
The term ‘supply chain’ is attributed to the newspaper ‘The Independent’ that published
an article in 1905 that contained the word ‘supply chain’ for the first time (SupplyChainopz).
However, the concept of a network of suppliers, producers or manufacturers and
consumers had been around for a long time prior to that. ‘Supply chain management’
wasn’t coined until the 1980s, so the field is still young compared to related areas such as
procurement, logistics, and manufacturing, which all play a role in supply chain
management.
The early stages
The first example of production with a truly global supply network was most likely the
production of rum (SupplyChainopz). The supply chain in this case started with slaves who
were moved from Africa to the Caribbean to grow the sugarcane, which came from India,
and it ended in distilleries in the United States to produce rum. If we think about the early
stages of supply chain-related areas such as logistics, we have to go back far earlier.
Ancient empires across the world from Peru to Rome left their mark on the development
of logistics as a field in its own right, introducing roads, organised labour, and transport.
All of these required a massive organisation effort, considering the land, human resources,
food supplies and property. From these ancient times up until the 18th century, all parts of
a supply chain were kept mostly local due to the lack of larger transport options and the
high cost of moving goods around the world. Once shipping capabilities expanded, the
quantities of goods that could be transported along any part of the supply chain grew
exponentially.
Seismic shifts
In the late 1920s, the introduction of mass production along assembly lines laid the
foundations for supply chain management. During this time, Henry Ford in his Ford
company implemented the idea of producing consistent products on a large scale with
increased efficiency. This changed trade and supply chains irreversibly.
Mass production and the concept of interchangeable parts originated in the late 18th
century with weaponry in the United States and the production of ship pulleys in England
(Tanenbaum). However, these had not previously been combined with the division of
labour, continuous workflow and specialisation. The division of labour refers to the
assignment of different parts in a manufacturing process to different people in order to
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improve efficiency. Continuous workflow is also aimed at improving efficiency that allows
manufacturers to move a single product through every step of the manufacturing process
instead of grouping work items into batches. It is especially useful for reducing inventory
costs and wait time for work items.
Containerisation, or container shipping, not only increased the quantity of available space
for goods but also increased the speed of the freight movement while decreasing the cost.
The speed increase was a result of more effective warehousing processes as well as
transport terminal efficiency (Tanenbaum). The improvement of this transport process
including loading and unloading goods—also known as transhipment—heralded a new era
of globalised trade.
Barcoding was another game changer for the industry, finally being used in a commercial
context in the 1970s despite being patented more than twenty years before. Its adoption
was spurred forward by a standard requiring an identifying number from the United States
National Association of Food Chains. Subsequent research indicates larger increases in
profit from the point of scanning (Tanenbaum). Subsequently, the barcode was adapted
to become an internationally used standard, it could be used for monitoring the supply
chain globally and internationally (Milne 2013).
Technological advances
The innovation of the personal computer in the 1980s was the catalyst for more new
technology that impacted supply chain management immensely. Spreadsheets,
optimisation models and algorithms that could be used to predict logistical problems in a
supply chain. This ability solved problems associated with planning, resource
management and forecasting. It also made the oversight of the entire supply chain easier
to visualize, save, and share.
The innovation of the personal computer with strong and fast abilities was followed by the
development of various other systems such as Enterprise Resource Planning systems, or
ERPs, which were an extension of the Electronic Data Interchange (EDI) systems. ERPs
enabled businesses to use software to manage all their activities, which included
automating business functions, centralising information, managing finances and tracking
performance. Before ERPs, it was common for businesses to face issues such as being
unable to access information from different departments, which prevented businesses
from scaling, limited their productivity and missed errors.
Supply chain management gained prominence during the 1990s. The theory and
methodology of SCM was traditionally centred on manufacturing and the private sector,
emerging evidence indicates a new global trend – SCM has become increasingly service-
based and applied in service sectors such as banks, hospitals and the public sector (Liu
2012). This is in line with the South African government’s pursuit of improved and
increased public-private partnerships (PPPs). In this theoretical framework, the
community has become the customer (Horn 2020).
In the last 15 years, the uptake of social media and big data have shone a light on poor
practices along with parts of the supply chain that had been previously hidden from the
world. Because of global pressure to have sustainable, ethical supply chains and the
ongoing pursuit of increased efficiency, analytics now play an even more vital role in
supply chain management.
The development and widespread adoption of analytics has introduced another layer to
supply chain management—monitoring. As product life cycles have shortened and the
efficiency of business has increased, supply chain management has had to utilize
technology to meet the needs of stakeholders. This includes the push for real-time
monitoring, particularly as public pressure to remain sustainable and socially responsible
has grown. All parts of a supply chain can now fall under the scrutiny of the public or the
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law, so the scope of its management has grown to include dealing with big data and
having access to real-time visibility.
The future
In future, we are likely to see technology further alter how supply chain management
works. The Internet of Things (IoT) will enable businesses to create and implement new
systems while production occurs. This will force businesses to consider the needs of future
product life cycles alongside their distribution of existing products.
The integration of technologies like the blockchain is another area where supply chain
management might see a significant change in both operational requirements and each
process along the supply chain. Consumer demand for transparency and the worldwide
demand for secure and reliable transactions can both be met by the use of blockchain and
smart contracts.
There are already some cases of these emerging trends. Examples can be found in Hong
Kong, where a shipping company has been successfully using smart contracts and
cryptocurrency to combat unreliable deliveries, and with Walmart, which used blockchain
to trace the Chinese pork supply chain.
In unit 6, we will further investigate future trends in SCM. The next section focuses on the
relationship between logistics and the supply chain.
1.3 The Relationship between Logistics and Supply Chain

In this topic, we will provide a more detailed discussion of the relationship between
logistics and the supply chain. We will commence with a discussion of the elements of the
SC.
Topic duration
8 hours
1.3.1 The elements of a supply chain

The elements of a supply chain include all the functions that start with receiving an order
to meet the customer's request. These functions include product development,
marketing, operations, distribution networks, finance, and customer service. All these
functions are reliant on one another to provide an effective and efficient path from initial
production to completion and delivery of the final product. Let us further investigate these
functions of the supply chain.
Product development
Modern businesses depend on strategic relations with their customers and suppliers to
create value for developing products and to obtain a competitive advantage. Competitive
advantage will lead to a better market share and higher profits.
Marketing
The marketing supply chain of the chain of suppliers that a business relies on to produce
marketing materials (print, promotional products and point of sale marketing) to market
their products and services. Marketing plays a vital role in keeping the supply chain
operating at peak performance. It takes a strategic and operational role in the following
manner (Knilans 2019):
• Marketing helps stakeholders to gain an understanding of their roles and the target
markets that they serve. Marketing communications such as press releases, email
messaging and newsletters help inform suppliers and others at all levels about the
brand and products they support as well as how they play a part in the delivery of
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the final product and creating value for the customer. This requires marketers to
have an understanding of how all stakeholders (partners) fit into the supply chain.
• Marketing fosters collaboration among all links in the supply chain. By
communicating regularly with partners, the business nurture a culture of
collaboration.
• Marketing gives partners the marketplace knowledge to align supply and demand
considerations. While it is every department’s job to stay on top of industry trends
and changes, the marketing department knows how to keep its pulse on the
market. It’s vital to understand the needs of the target market, its interests and
challenges in order to address them by the products or services offered to
customers.
• Marketing informs customers about the expertise of its supply chain. Content can
be utilized to inform readers, share expertise, announce the news, highlight
successes and more. A marketing team that develops content that showcases the
expertise of its supply chain takes it a step even further.
• Marketing leverages brand awareness to propel business efforts. Supply chain
partners need to be brand-aligned in order to understand and represent each other
effectively. Recognizable and successful brands can be leveraged in a business’s
outreach so prospects and customers know the quality and value of the products
or services offered.
• Marketing translates data into useful expertise for the supply chain. Using data,
information and analytics, the marketing team helps stakeholders understand the
inner workings of the company and how the pieces fit together. The marketing
team is ideally suited to identify weak links and recommend strategies to overcome
these weaknesses.
Operations
Operations require inputs to use in the production process, which includes for example
materials, people, energy, information, and finance. These inputs are then converted or
“transformed” into outputs of goods and/or services that may serve as the inputs to the
next operation within the supply network. This is illustrated in the figure below.
Output products
Resources/inputs Transformation Customers
and services
Figure 3 The basic transformation process
Finance
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Every aspect of the entire supply chain involves costs. For example, money is needed to
buy raw materials, components and equipment. Money is needed to obtain information
and transform inputs to outputs. Money is needed in the marketing aspect of the supply
chain as well as the distribution aspect. Traditional supply chain management focuses on
both materials and information flow. However, considerable cost reductions can also be
achieved through optimally designed financial flows within the supply chain. Savings due
to minimized stock levels may easily be offset by the costs to finance the remaining
inventory. Inventory carrying costs do not only comprise of financing costs but also of
costs associated with taking credit risks upon sale and taking out insurance. Therefore, we
can state that the finance function of the supply chain is a complicated issue and needs to
be carefully managed.
Customer service
Customer service is one of the most critical components of logistics and supply chain
management. It is through customer service that customers get a feel of the product and
the business that is selling it. While some organisations do not think customer service has
anything to do with supply chains, nothing could be further from the truth. The fact is, the
supply chain is only complete when the product has reached the customer. As such, it is
from customer service that the company gets to hear from the customer. Customer
service knows all the pain points and the demands of the clients, and this data can help
improve the supply chain (Burger 2021).
Example Transformation at a fast food outlet
The following figure depicts the transformation process of one product

offered at a fast food outlet, namely hamburgers.
Resources/inputs:
hamburger patties,
Transformation:
bread rolls, lettuce, Output products: Customers:
transforming the
tomatoes, sauce, cooked and ready to customers wanting
inputs into a final
equipment to cook eat hamburgers to buy hamburgers
hamburger
and build the
hamburger
Distribution networks
A distribution network consists of the partners involved in the transport, delivery, and
return of goods in the supply chain. The distribution of goods needs to be as simple as
possible while always aiming to meet the needs of the customer and minimise the costs
to the business.
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These functions of a supply chain explained above (product development, marketing,

operations, distribution networks, finance, and customer service) need to be integrated in
such a manner as to achieve effectiveness and efficiency in the supply chain, leading to
the offering of value to the customer.
Supply chain and the COVID-19 pandemic
The impact of the COVID-19 pandemic on the economy has been felt in nearly every sector
of every country. However, supply chain strategy has been one of the hardest-hit facets
of every industry. Not only were businesses’ supply chains put in flux by ever-changing
restrictions at national borders, which cut off access to key suppliers, demand for certain
products also changed.
In late 2020, Ernest and Young consulting performed a survey of 200 senior-level supply
chain executives. The study pointed to three essential findings: the deep negative effect
of the pandemic felt by most respondents (72% reported a negative impact), the shifting
priorities for the supply chain industry ("increased visibility" being the top priority for the
next 12-36 months), and the fact that the pandemic has accelerated the transition to
digitization (64% of surveyed supply chain executives say digital transformation will
accelerate due to the pandemic).
It's no doubt the pandemic has had an unprecedented impact on how businesses think
about the supply chain. However, the shock to the system may help usher in a new era of
increased communication and visibility between suppliers as well as efficient use of
technology to expedite supply chain strategies.
Before we move on to the next topic, logistics, do the following activity. It is based on a
case study.
Case Study OM in the News: Awash in Hand Sanitizer (Render 2021)

When the COVID-19 pandemic took hold in early 2020, consumers
rushed to buy hand sanitisers. The surging demand resulted
in shortages and purchase limits at retailers. Hoping to fill their shelves,
supermarkets bought inventory from overseas and turned to other
businesses—including distilleries—that switched their production to
make sanitisers for the first time. Manufacturers expanded capacity, at
times overpaying for components like pumps.
In 2021, supermarkets are sitting on pallets of them. COVID-19 cases are

declining. Health officials now say that the virus is airborne and that the
disinfectants aren’t as effective as masks and social distancing. Sales of
hand sanitisers are down 80 per cent in 2021 from a year ago. Average
unit prices are about 40% lower in 2021 than a year ago.
Among those struggling with the current glut: distilleries that jumped
into the sanitiser business when brands couldn’t keep up with demand
last year. Distilling companies that make whiskey, vodka and gin, and
jumped into the sanitiser business, now has too much stock that they
battle to sell. Some of these businesses are giving away leftovers after
producing millions of litres for hospitals and hotels in 2020.
Questions:
1. What are the OM choices when demand exceeded capacity, as
was the case at the outbreak with the COVID-19 pandemic?
2. What are the options now that capacity exceeds demand for
sanitisers?
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The operations management choices when demand exceeds capacity is simply to increase
manufacturing capacity and find new and innovative ways new ways to do so, even if it
means that a business should change its target market and product line. When capacity
exceeds demand, manufacturing needs to be decreased and again, innovative
management is a key component in overcoming this challenge. For example, by offering
free bottles of sanitiser with a purchase of a certain amount of a businesses’ products. The
answers to challenges such as the one described in this case lie in finding a balance
between supply and demand.
1.3.2 The relationship between logistics and supply chain management

The terms supply chain management and business logistics management—or simply,
logistics—are often used interchangeably. However, logistics is one link in the supply chain.
Logistics refers specifically to the part of the supply chain that deals with the planning and
control of the movement and storage of goods and services from their point of origin to
their final destination. Logistics management begins with the raw materials and ends with
the delivery of the final product.
Successful logistics management ensures that there is no delay in delivery at any point in
the chain and that products and services are delivered in good condition. Logistics
management contributes to cost reductions and greater efficiency.
So, in essence, supply chain management is an overarching concept that links together
multiple processes to achieve a competitive advantage, while logistics refers to the
movement, storage, flow of goods, services and information within the overall supply
chain. One view of supply chain management versus logistics is depicted in the figure
below.
Supply chain
management
Innovation and
Purchasing and Manufacturing Customer
product Logistics
sourcing and operations service
development
Figure 4 Supply chain management and logistics
It is important to remember that, while we differentiate between logistics and supply

chain management, they do supplement each other. One process cannot exist without the
other. In summary, the key differences between these two concepts are listed below:
• Supply chain management links major business processes within and across
businesses and organisations into a high-performance business model that drives
competitive advantage.
• Logistics refers to the movement, storage, and flow of goods, services and
information inside and outside the business.
• The main focus of the supply chain is a competitive advantage, while the main
focus of logistics is meeting customer requirements.
• Logistics is an activity within the supply chain.
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We conclude this section with an example of a supply chain for a mobile phone. The box
below provides an example of such a supply chain, followed by an explanation of each
component/process.
Example Supply chain
The supply chain

Natural Resources
Materials
Parts and Components
Distribution Finished Product Transporting and warehousing
Retail, E-Commerce and Services
Customers
Returns, Reuse and Recycling
Natural Resources
The supply of natural resources, such as water.
Materials
The production of materials such as steel.
Parts and components
The manufacturing of parts and components such as a display for a mobile

device.
Finished Product
The manufacturing of the final products, in the example a mobile device.

Hundreds of parts and components from many different countries may be
used in a single product.
Retail, E-Commerce and Services
The sale of the mobile device to the customer, online or in a physical

establishment.
Customer
Delivering the mobile device to the customer.
Returns, Reuse and Recycling
A modern supply chain is viewed in a cyclical manner where finished

products, in this case, the mobile device, not only flow to the customer but
also flow back for reuse, recycling or as returns. For example, iStores offer
customers discount when they buy a new Apple product and return an old
one.
Distribution
This refers to the providers of the inputs to the supply chain. It occurs at
multiple levels of the supply chain as each level views the next level up as the
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customer. For example, the providers of a display for a mobile device view
its buyers as the customer, where the latter assemble all the different parts
and components to deliver a finished product (the mobile device).
Transportation and warehousing
This is also known as logistics – the process of getting resources, materials,

parts, components and finished products to the right place and at the right
time, the right price in the right quantity and of the right quality.
Unit Conclusion
In this topic, various concepts and terms related to supply chain management and logistics
were defined. We also provided a brief history of logistics and supply chain management.
We concluded the topic by explaining the relationships between logistics and supply chain
management. Although we make a distinction between logistics and supply chain
management, it is important to remember that they do supplement each other. Both
contribute to the attainment of competitive advantage for a business. The next topic will
focus on a customer centric approach to supply chain management.
Knowledge Unit 1: The supply chain

Check
Question 1
Which one of the following is calculated by using the formula Amount
earned less amount spend?
A. Efficiency
B. Profit
C. Effectiveness
D. Competitive advantage
Question 2
A condition that puts a business in a favourable or superior business
position, is referred to as _____.
A. efficiency
B. profitability
C. competitive advantage
D. effectiveness
Question 3
_____ is defined as a level of business performance that uses the
lowest amount of inputs to create the greatest amount of outputs.
A. Efficiency
B. Productivity
C. Profitability
D. Effectiveness
Question 4
The right quality; right quantity; right time; right place; and the right
price is referred to as the five rights of _____.
A. logistics
B. the customer
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C. the supplier
D. the government
Question 5
_____ management encompasses the planning and management of
all activities involved in the sourcing and procurement, conversion and
all logistics management activities.
A. Logistics
B. Operations
C. Supply chain
D. Distribution
Answer: 1. B, 2. C, 3. A, 4. A, 5. C
End of unit reflection
Now that you have worked through Unit 1, rate your own competency against the Learning
Outcomes for this unit using the following scale:

1 = Novice
me.
competence
contexts.
5 = Expert
LO1: Define important terms and concepts of a supply chain
LO2: Outline the history of supply chain management
LO3: Explain the relationship between logistics and supply chain
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Unit 2: Customer Centricity

Purpose
In unit 1, two important concepts were explained in the field of SCM, namely profit and
competitive advantage. Profit was defined as the difference between the amount earned
and the amount spent in buying, operating or producing something. The amount earned
is a direct function of the sales or revenue generated by selling the offering of a business
to its customers. The second concept that we defined in unit 1, was a competitive
advantage - a condition that puts a business in a favourable or superior business position.
In unit 2, we will address one aspect of a business that contributes tremendously to its
profitability (by selling its product and/or services) and its competitive advantage, namely
customer centricity. The purpose of unit 2 is to introduce you to the concepts of customer
centricity, customer service, customer service management and how these can be used
to deliver a supply chain management approach that is delivering customer needs in the
most effective and efficient manner.
Learning Outcomes
By the end of this unit, you should be able to formulate a customer centric approach to
Unit outcomes
1. Define customer service, customer service management and explain the

importance thereof;
2. Describe the essential elements and characteristics of customer service; and
3. Identify and explain methods to improve customer service;
Unit duration
16 hours
Resources and Readings
You are required to read through the following readings for this unit:
Prescribed Prescribed reading:

Reading ▪ Gupta, C. 2021 “Customer service definition, skills, and
important principles for 2021”. At:
https://www.zendesk.com/blog/customer-service-skills/
▪ McGinn, J. & Mullen, M. 2021. “What Is customer centricity
and why is it important?”. At:
https://blogs.informatica.com/2021/03/29/what-is-
customer-centricity-and-why-is-it-important/
▪ MacDonald, S. 2021 “How to create a customer-centric
Strategy for your business”. At:
https://www.superoffice.com/blog/how-to-create-a-
customer-centric-strategy/
▪ Pedersen, M., Pitts, B., Reiss, M., & Simmons, S. “The four
characteristics of a customer-centric supply chain”. At:
https://www.supplychainquarterly.com/articles/4062-the-
four-characteristics-of-a-customer-centric-supply-chain
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▪ Yohn, DL. 2018. “6 Ways to build a customer-centric culture”

At: https://hbr.org/2018/10/6-ways-to-build-a-customer-
centric-culture
Customer service is the provision of service to customers, where they

Customer are the final customer or another business, before, during and after a
service purchase.
Customer The customer service management process revolves around the

service concept of supplier relationship management (SRM) and customer
management relationship management (CRM).
process
Customer centricity is a focus on the customer and developing a
Customer
special relationship with the customer.
centricity
Corporate social responsibility (CSR) highlights the role of big

businesses and corporations being socially accountable to
Corporate themselves, their stakeholders and the public. By practicing CSR, also
social called corporate citizenship, businesses can be conscious of the kind
responsibility of impact that they have on all aspects of society, including
economic, social and environmental.
Responsiveness can be defined as the ability of the supply chain to

Responsiveness respond purposefully and within an appropriate timeframe to
customer requests or changes in the market place.
Efficiency refers to the level of performance that uses the lowest
Efficiency amount of inputs to create the greatest amount of outputs.
Flexibility is the ability of a business in terms of three components,

Flexibility namely adaptability, alignment and agility.
Introduction
Globalisation means the increased movements and exchanges of people, products,

services, capital, technologies and cultural practices all over the planet. Globalisation is
inherent to human nature. In fact, globalisation began thousands of years ago when
human societies exchange trade. Since old times, different civilizations have developed
commercial routes and experienced cultural exchanges. In addition, migration has also
been contributing to population exchanges. Technological advances in transportation and
communication accelerated the pace of globalisation. It was particularly after the second
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half of the 20th Century that world trades accelerated in such a speed and dimension that
the term ‘globalisation’ started to be commonly used.
One of the effects of globalisation is that it promotes and increases interactions between
different regions and populations around the globe. Another important effect thereof,
specifically in the context of supply chain management, is that customers have access to
markets for products and services all over the world. For example, students in higher
education are not bound by the qualifications offered by local tertiary institutions. They
can study from home and choose the qualification they desire from top institutions world-
wide. The same applies to numerous other products and services. Businesses forming part
of a supply chain have realised that they cannot differentiate themselves based only on
the range of products and/or services that they offer. They should also focus on improving
the quality of service, especially in the logistics services domain such as delivering stock
on time and having adequate stock to deliver at the right place, quality and price. The
dominant logic behind providing excellent service to the customer or the business can be
found in the market orientation. The market orientation states that the prime focus of the
business providing a service should be the needs of the customer - or, in this case, the
partners or members that form part of the supply chain. By providing excellent service to
the customer, the business adds value for the customer and improve the relationships of
all partners in the supply chain. A business can provide excellent customer service by
developing both the back-end logistical infrastructure as well as the frontline dealings
with the customer. In this way, the business should be able to retain its customers amidst
global competition, improve its financial and operational performance and keep all the
partners in the supply chain satisfied and loyal.
Good customer service can be described as a supplier that delivers consistently high-
quality service to its customers. Good customer service enables products and raw
materials in the supply chain to move freely upstream and downstream. In the modern
supply chain, suppliers have recognised that their customers are not only a source of
revenue and profit (as was thought for decades) they, are also a resource that could help
suppliers to co-manufacturer services that are needed in the supply chain. By recognising
this customer-oriented approach, businesses have succeeded in converting their
customers into valuable assets that could help them in attaining a sustainable competitive
advantage and make members of the supply chain a cohesive entity. The entire process
of focusing on the customer means that a special relationship is developed with the
customer. This is known as customer relationship management (CRM). By focusing on the
customer and developing a special relationship with the customer, requires the business
to understand its customers’ situations, perceptions and expectations. The latter is known
as customer centricity.
On the other hand, there is also the growing realisation that the customer can add value
and be an active participant in the supply chain. Hence the term supplier relationship
management (SRM) was coined. SRM can be defined as the activities that occur to develop
a relationship between suppliers and some key customers in the supply chain. The unit will
commence with a definition of customer service, customer service management and the
importance thereof in modern business. Then, the essential elements and characteristics
of customer service will be identified and explained. The unit will conclude with the
identification and explanation of various methods to improve customer service in modern
business.

1 = Novice
me.
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competence
contexts.
5 = Expert
LO1: Define customer service, customer service management and

explain the importance thereof
LO2: Describe the essential elements and characteristics of customer
service
LO3: Identify and explain methods to improve customer service
The following video provides a humorous take on customer service. Watch the following
video to set the scene for this unit.
Video Customer Service
At: https://www.youtube.com/watch?v=2Mvx17k1T8w
2.1 Customer Service, Customer Service Management and the

Importance Thereof
In the introduction to this unit, good customer service was described as a supplier that
delivers consistently high-quality service to its customers. Let us commence this section
with a closer look at who the customer is and unpack the terms customer service and
customer service management.
Topic duration
5 hours
The customer
First, it is important to understand who the customer is. There are two types of customers
in the supply chain. First, there is the individual customer that buys a product to use it in
his or her personal capacity. In business terms, we refer to this type of customer as one
being in a business-to-consumer (B2C) relationship. Secondly, there is the organisational
or business customer. This refers to a business that uses the product, for example, to
manufacture or produce another product. This type of relationship is referred to as a
business-to-business (B2B) relationship.
Customer service
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Customer service is the provision of service to customers, where they are the final
customer or another business, before, during and after a purchase.
Customer service management
The customer service management process revolves around the concept of supplier
relationship management (SRM) and customer relationship management (CRM) as
depicted in the figure below.
Customer service management (CSM)

Customer relationship management
Supplier relationship management (SRM)
(CRM)
Figure 5 Customer service management (CSM)
Some of the most important considerations in the supply chain with regards to CSM are
product availability and lead-time performance. Product availability means having the
product available when and where partners of the supply chain need and require it.
Delivering good customer service requires the business to fulfil the requirements of the
customer by ensuring that a stock-out situation does not occur. Lead-time can be defined
as the time it takes between when stock has been ordered and when it is delivered at the
right time and place. The time taken between ordering the product and delivering the
product is of importance to all partners of the supply chain and to improve CSM. Added to
this is the fact that value is created in the supply chain when the variance in lead time is
reduced to a minimum, making the functioning of the supply chain as consistent as
possible.
The COVID-19 pandemic caused many disruptions in the supply chains of businesses
world-wide. One aspect specifically influenced by the pandemic is lead times. Consider
the following case scenario.
Case Study Lead time in the supply chain: Takealot.com
Takealot.com is a South African e-commerce company based in Cape

Town, South Africa. It is the country’s largest online retailer who has
helped grow online shopping in South Africa. Due to the COVID-19
pandemic, Takealot’s distribution centres have been overwhelmed
because of the increased demand for e-commerce. Not only has this
resulted in delays in shipping orders, but also in suppliers being able to
deliver their stock in time. Third-party sellers have also contributed to
capacity problems at Takealot’s warehouses. When you buy a product
through Takealot, it is quite likely that you are not actually buying from
Takealot, but from a third party seller. Takealot handles the buyer’s
money and talks care of delivering the products, but the actual product
comes from another business that uses Takealot as an e-commerce
platform.
On Takealot, third-party sellers can offer their goods in two ways: On a

‘lead-time’ basis or as an ‘in stock’ product. “In stock” means that the
seller ships the product to one of Takealot’s distribution centres before
listing it for sale on the platform. “Lead time” means that the seller will
send the stock to Takealot after a customer has ordered the item.
Takealot lays down strict service levels for this kind of selling. The
Takealot Seller Compliance division tracks whether a seller’s lead-time
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orders were received on time, ahead of schedule, or late. It also tracks

how many lead-time orders were cancelled.
Sellers are only allowed a certain percentage of late or cancelled lead-

time orders. For example, you might be required to deliver 98% of your
lead-time orders within five business days, and only 1% of your lead-
time orders may be cancelled.
If a seller breaches their service level agreement (SLA), they will get an
e-mail from the Seller Compliance division warning them that their
lead-time privileges will be disabled if they don’t get their numbers
right.
After a final warning, sellers who don’t get their SLA compliance up to
par will have their lead-time privileges disabled for two weeks. The
decision can be appealed, but it can take more than a week before
appeals are heard and they take up to another five business days to
process.
When everything is working as intended, Takealot’s strict enforcement

of its SLAs is not a problem. From a final customer perspective, it is a
major advantage.
However, during the COVID pandemic, sellers hit a problem where they
were simply unable to deliver stock to the Takealot distribution centre
within their SLA timeframe. Takealot has a booking system for sellers
that allows them to reserve a slot to deliver their goods. Due to the
pandemic, sellers could not book slots sooner than a week ahead. This
resulted in third-party sellers with a five-day SLA seeing their late
delivery statistics skyrocket, and ultimately receiving a warning email
from Takealot Seller Compliance. As a result of this, there are likely
hundreds of seller accounts affected. Thousands of people have been
affected, with likely over 1 million products being removed from
Takealot without warning.
Source:
Vermeulen, J. 2020. The truth behind big delivery delays at Takealot.
Questions:
Make a judgement with regards to the SLA between Takealot and third-
party sellers. Do you agree with the requirements of the SLA and how it
was implemented during the pandemic? In your answer, you need to
refer to the advantages and disadvantages of the SLA to Takealot’s final
customers. Your answer should not exceed 20 words.
The requirements of Takealot’s SLA with third-party sellers state minimum service levels
for lead-time orders. Under ‘normal’ circumstances, these minimum requirements and the
strict application thereof by Takealot, provide their final customers with certain benefits,
the most important being fast delivery of ordered products and having a large variety of
products, which promoted customer service. During a pandemic, various factors impacted
third-party sellers, causing them to breach their SLA. Hundreds of seller accounts were
affected, each of which represents a small business employing between two and 20
people. By removing so many products from Takealot, final customers were negatively
affected. In addition, the economy was also affected negatively due to businesses closing
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down and people losing their jobs. A negative effect on the economy also impacts the final
customer negatively.
Conclusion
The Takealot case above illustrates the complexity of product availability and lead times
in business. Good customer service requires effective management thereof, the topic of
discussion in the next section.
2.2 Essential Elements and Characteristics of Customer Service

Management
The concept of customer service focuses on the delivery of value to the customer. The
core of customer service can be found in the marketing concept, which states that in order
for any business to survive over the long term and to grow, it should adhere to four
elements. In this topic, we will focus on these elements from a supply-chain perspective.
These elements are depicted in the figure below.
Elements of CSM
Responsibility to Aligning the business Ensure profitability
Customer centricity
society with customer needs of the business
Figure 6 Elements of CSM
Topic duration
5 hours
2.2.1 Customer centricity

In the introduction to this unit, customer centricity was defined as a focus on the customer
and developing a special relationship with the customer. This requires the business to
understand its customers’ situations, customer needs, perceptions and expectations. In
the context of supply chain management, ‘the business’ in this definition, refers to the
partners of the supply chain. Therefore, customer centricity in the supply chain means a
focus on the needs of each partner in the supply chain, with the objective to meet these
needs in such a way that it creates value for the specific partner and eventually creates
value for the entire supply chain and realising a sustainable competitive advantage for all.
In addition, customer-centricity also includes an understanding of the logistical
requirements of the customer.
The modern consumer has a few important characteristics that businesses should be
aware of should they really want to follow a customer centric approach. The example
below indicates the most important characteristics of the modern final consumer.
Example Characteristics of modern consumers

Modern consumers share a number of characteristics.
• Modern consumers look for solutions to their problems on the
internet. This ranges from medical advice to finding a supplier
of a product or service. This is the reason why blog articles and
videos that talk about content that helps people solve their
daily problems are in demand.
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• Modern consumers prefer not to be bombarded with

advertisements. In the past, the best way to target a client was
for a business to invest in advertisements. Consumer behaviour
has changed – the one that is searching for a brand, product of
the business is the customer themselves and they prefer
searching for solutions to their problems themselves.
• Modern consumers compare different brands to find the best
value for the expenditures. Before making a purchase, the
modern consumer searches for information identifies and
evaluates their options. Purchase is not only based on cost-
effectiveness. Instead, customers want value for their money
and base their purchases on a set of factors, including quality,
durability, level of customer satisfaction and usability.
• Modern customers want to feel part of a community. Shopping
in the modern business environment is not only based on
individual needs and interests – collectivism is taken into
account. This change explains, for example, the tendency to
use eco-friendly shopping bags instead of plastic bags –
customers do not want to be seen as being responsible for
global warming, pollution and other environmental issues,
which brings us also to the following characteristics.
• Modern buyers have a high willingness to pay for sustainable
product features and they have a lower acceptance of
unsustainable products and services.
• Modern customers are concerned about the environment and
they prefer buying eco-friendly products, ethically sourced
products and avoiding waste.
• Lastly, modern customers consider the safety of products and
services. They expect to feel completely safe when buying a
product or acquiring a service, meaning the seller needs to
make all possible information regarding its offering known to
the customer.
2.2.2 Social responsibility

Before we address social responsibility in the context of supply chain management, let us
first consider what is meant by social responsibility and more specifically corporate social
responsibility. The responsibility of businesses has been a topic of interest for a very long
time. In fact, religious morality defined the baseline for business responsibility conduct,
long before there was an acknowledged field studying the responsibilities of businesses.
For example, Christianity and Judaism both favoured donations and the idea of donating
a tenth of one’s income to the church or the poor. This individual responsibility developed
from the 1960s onwards, towards corporate social responsibility (CSR) which highlights
the role of big businesses and corporations being socially accountable to themselves, their
stakeholders and the public. By practicing CSR, also called corporate citizenship,
businesses can be conscious of the kind of impact that they have on all aspects of society,
including economic, social and environmental.
Milton Friedman published an essay entitled ‘The social responsibility of business is to

increase its profits’. The essay was published in The New York Times in 1970 and became
one of the most famous pieces of work debating the notion of corporate social
responsibility (CSR), which is still referred to today. Friedman’s main argument was that
the social responsibility of a business is to use its resources and engage in activities
designed to increase its profits, as long as it engages in open and free competition and
without fraud and deception. If the business is making a profit, it would then be able to
fulfil its social responsibility of employing people in society with a decent wage and it
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would be able to pay taxes to the state, which could provide the services required by
society. Friedman’s argument is known as the narrow view of corporate social
responsibility. Friedman makes a very clear distinction between the responsibilities of
government and the responsibilities of businesses. According to Friedman, social
responsibilities belong to the state and the major goal of business is to make profits for
shareholders. Not only does CSR undermine business, but Friedman even goes further by
arguing that it is unethical because, in accepting social responsibilities and using
shareholders’ money to achieve social goals, business managers impose a tax on
shareholders. (Botha, 2020)
Although Friedman’s argument is still considered valid even today, many shareholders
believe that sound ethical business practices and responsible management are good for
business. Therefore, many contemporary business shareholders view an extended notion
of CSR as consistent with their long-term interests in businesses. Furthermore, many
would argue that business also has a moral duty (not included in Friedman’s argument) to
accept a broader view of CSR.
Proponents of the broad view of CSR argue that businesses have, at the very least, a
negative duty towards society to refrain from harming society. For example, a factory
should refrain from dumping its waste into a river. By dumping its waste into a river,
society is negatively affected. Many proponents also argue that businesses should have a
positive duty by actively, and directly, contributing to the welfare of society. For example,
businesses should engage in philanthropic activities or can even make these activities part
of their core business.
The second argument towards the broad view of CSR concerns what is called the ‘social
contract’. The social contract is an implicit agreement whereby members of society grant
businesses the license to operate through public consent, with the expectation that
businesses will address certain societal needs. The rights and duties of each are usually
stipulated in such a contract.
The third argument towards the broad view of CSR concerns the social-economic power
of businesses, especially large multinational businesses. The influence that such
businesses have should never be underestimated. With this power and influence comes
responsibility.
The fourth argument towards the broad view of CSR concerns the stakeholder theory. In
the narrow view of CSR, the focus was on shareholders and the increase of profits for the
shareholders of the business. However, the stakeholder theory accounts for multiple
constituencies impacted by organisational entities, namely employees, suppliers, the
community, creditors, the environment and others. In 1984, R. Edward Freeman originally
detailed the stakeholder theory of business management and business ethics that
addresses morals and values in managing a business. The theory argues that a business
should create value for all stakeholders, not just its shareholders. In his book Strategic
management: A stakeholder Approach, Freeman defines a stakeholder as ‘any group and
individuals that can affect or are affected by business activity’. (Freeman, 1984)
The four arguments for the broad view of CSR are summarised in the figure below.
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Argument 1 Argument 2 Argument 3 Argument 4
•Businesses have a •The social contract •Social power •Stakeholder theory

negative duty to
refrain from harming
the society
•Businesses have a
positive duty to
actively and directly
contribute to the
welfare of society
Figure 7 Arguments for the broad view of CSR
Seven years after the publication of Freeman’s book, Archie B Carroll created a pyramid of
CSR, which provided a framework for categorising business responsibilities into four
categories, namely economic, legal, ethical and philanthropic responsibilities. These are
depicted in the figure below.
Philanthropic
responsibility
Ethical responsibility
Legal responsibility
Economic responsibility
Figure 8 Carroll's CSR pyramid
In figure 8 the economic responsibilities of a business refer to its responsibility to be

profitable. This is indicated as the basis – realising a profit is the only way that a business
can survive and benefit society over the long term. The legal responsibilities refer to its
responsibility to obey the law and other regulations. Ethical responsibilities refer to its
responsibility to act morally and ethically. With this responsibility, businesses should go
beyond the narrow requirements of the law. Lastly, a businesses’ philanthropic
responsibility refers to giving back to society, which is discretionary, but still important.
With the creation of the above theoretical concepts and the increasing maturity of the
scientific framework for the development of business responsibility, many kinds of
institutions in various spheres also became involved in business responsibility
development. Corporate social responsibility, within the context of supply chain
management, means that each partner in the supply chain should be socially responsible
- not only to the individual partners of the supply chain but also towards society in general.
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2.2.3 Aligning the business with the needs of the customer

The alignment of the business with the needs of the customer is also known as
organisational integration. This implies that each partner in the supply chain should adhere
to the stated mission and vision to satisfy members’ needs optimally and create value for
each member.
2.2.4 Ensure the profitability of the business

The profitability of the business refers to the entire supply chain. In other words, it refers
to ensuring the profitability of each partner in the supply chain. Without realising a profit,
members of the supply chain will not be able to survive over the long term. In addition,
they will not be able to provide the customer with needed products and services.
Conclusion
This topic focuses on four mom elements of customer service, namely customer centricity,
social responsibility, the alignment of the business to the needs of its customers and
ensuring the profitability of the business. The next topic covers various ways to improve
customer service.
2.3 Methods to Improve Customer Service

In the last topic of this unit, we will focus on methods to improve customer service.
Remember that the aim of supply chain management is to provide value for all the
partners in the supply chain – this is referred to as the value maximisation in the supply
chain. We will address four broad methods to improve customer service in the supply
chain, depicted in the figure below.
Responsiveness
Product/service Customer Flexibility

quality service
Efficiency
Figure 9 Methods to improve customer service
Topic duration
3 hours
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2.3.1 Product/service quality

The first method to improve customer service is to ensure product/service quality.
Generally, it can be said that a product or service is of satisfactory quality if it satisfies the
consumer or user thereof. The customer will buy a product or pay for a service only if it
suits the requirements. Therefore, the first method to improve customer service is to
ensure that the product/service meets the requirements of the customer or partner in the
supply chain. Over and above meeting the requirements of the customer, customer
service can also be enhanced by offering a product/service that performs as per the
commitment made by the producer to the customer, over a reasonable length of time.
Such commitment may be explicit or implicit, in other words, in terms of a written contract
or in terms of the quality management expectation of the average customer of the
product or service.
In addition to the physical criteria of product functioning, the attractiveness of the product
and its packaging contributes to its quality. Lastly, a product or service offered that fulfil
health and safety requirements and adhere to legislation if applicable, is also considered
as a quality product or service.
2.3.2 Responsiveness
Responsiveness can be defined as the ability of the supply chain to respond purposefully
and within an appropriate timeframe to customer requests or changes in the market place.
The following are indicators of a responsive supply chain (Horn 2020:217):
• Fill rate. This refers to the percentage of units that are shipped on the placed order
and ultimately the percentage of orders completed satisfactorily. The higher this
percentage, the better customer service is provided.
• Late arrival of products. This is measured by the time taken between the promised
delivery date of an order and the actual delivery date. The shorter the time
difference, the better customer service is provided.
• Customer response lead time. This refers to the time between an order being
placed and the delivery time thereof. The shorter the lead time, the better
customer service is provided.
• Cycle time. Cycle time refers to the total time that is needed to manufacture the
product or deliver the service. Shorter cycle times lead to improved customer
service.
• Shipping errors. The number of wrong orders/products dispatched, expressed as a
percentage of all orders dispatched indicates the shipping error. The smaller this
percentage, the better customer service is provided.
• Customer complaints. The number of customer complaints, expressed as a
percentage of the total number of customers indicates customer complaints. The
smaller this percentage, the better customer service is provided.
2.3.3 Efficiency
In general, efficiency refers to the level of performance that uses the lowest amount of
inputs to create the greatest amount of outputs (you may refer back to unit 1 which also
covered the term ‘efficiency’). The efficiency of partners in the supply chain can be
improved by the following (Horn, 2020):
• Cost of manufacturing. This refers to the total costs of material and labour to
manufacture products or deliver services. The lower manufacturing costs, without
compromising quality, will ensure better customer service since the product or
service can be offered at a lower cost in the supply chain.
• Cost of distribution/logistics. This refers to the total cost pertaining to transport
and handling of products, components and raw materials. By lowering these costs,
the total cost in the supply chain will be lower, rendering better customer service.
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• Transaction cost. Transaction costs are associated with market reviews, supplier
appraisal, negotiations and the costs of drawing up and managing contracts
between partners in the supply chain. The lower the transaction costs, the lower
the cost of the final product will be.
• Inventory cost. This refers to the total cost of warehousing and other storage costs,
such as insurance costs. The lower the inventory cost, the lower the final cost of
the product and the better customer service can be offered to partners in the
supply chain.
2.3.4 Flexibility
Flexibility is considered to be an important differentiator in the efficiency of the supply
chain and a contributor to the competitive advantage of the partners in a supply chain.
Lee (2004) explains the flexible ability of a business in terms of three components, namely
adaptability, alignment and agility:
• Adaptability. In the context of supply chain management, adaptability refers to the

adjustment of the supply chain’s design to meet structural shifts in markets, the
modification of supply network strategies, products and technologies.
• Alignment. This refers to the creation of incentives along with the partners within
the supply chain for better overall performance.
• Agility. This refers to the ability of the supply chain to respond to short-term
changes in demand and supply quickly and the swift and smooth handling of
external disruptions.
By using the above three components, we can define flexibility in supply chains as the
possibility to respond to short term changes in demand and supply situations of other
external disruptions together with the adjustment to strategic and structural shifts in the
environment of the supply chain.
In the past (the 1950s and 1960s), traditional supply chains were merely technology driven
and great emphasis was placed on minimizing unit production costs with little product or
process flexibility. Instead of integration, collaboration within the supply chain between
the various supply chain partners was regarded as unacceptable. From that moment in
time, intense global competition forced businesses to shift the emphasis on greater
flexibility, low cost and high quality products. Strategic partnerships between parties
arose and the shift from a technology orientation to an integrated and flexible approach
became necessary.
The following case study is an example of a flexible business.
Case Study Zara

Zara is a Spanish apparel retailer based in Spain. The company
specialises in fast fashion and its products include clothing accessories,
swimwear, beauty and perfumes.
The main objective of Zara’s marketing activities is to react swiftly: Zara

is able to design, produce and deliver the product to the customer in
just one month. The main reason for this is that Zara does not forecast
the designed clothing. Fabrics and garments are the only materials to
be purchased based on forecasts. Their main strength is to capture real-
time information on the shop floor and develop designs based on this
information: so-called ‘commercial managers’ conceptualize the type of
garments and the kind of fabric it will be made off. Based on this real-
time information, garments and their technical specifications are
prepared in strong collaboration with other departments along the
supply chain. In doing so, the final design is ‘assembled’ based on
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current customer demand. This gives Zara a strong competitive

advantage since
they integrate product development with up-to-date marketing
activities and information. In addition, Zara does not invest in expensive
commercials or campaigns. Most of Zara’s marketing budget is spent on
information technology and communications to keep ahead of day-to-
day trend information. This gives the supply chain flexibility and a
competitive advantage.
Another important differentiator is that Zara puts more emphasis on

offering different styles rather than increasing the volume per item. The
flexible supply chain can produce quickly enough, so large numbers in
stock do not add value. Their suppliers are found in Spain, India and
Morocco. This enables Zara to switch
between suppliers when performances are lacking or due to external
market conditions.
A high level of vertical integration (including independent companies)

exists in the supply chain of Zara. All product development and (final)
production facilities are kept in-house: dying and processing activities
of fabrics are fully controlled (not out-sourced). Non-strategic activities
are fully outsourced and the actual
‘assembly’ processes of pieces are fully outsourced. Since all the
necessary raw materials are present when market data is received, the
fabrics can be translated into super-fast end products.
Question:
Which components of flexibility, as identified by Lee (2004) are evident
from the Zara case? Substantiate your answer in no more than 30 words.
The Zara case indicates the agility and adaptability aspects of flexibility in their supply
chain. We defined adaptability as the adjustment of the company’s supply chain’s design
to meet structural shifts in markets, the modification of supply network strategies,
products and technologies. Zara integrates their product development with up-to-date
marketing activities and information. Zara does not invest in expensive commercials or
campaigns – most of their marketing budget is spent on information technology and
communications to keep ahead of day-to-day trend information.
Agility refers to the ability of the supply chain to respond to short-term changes in demand
and supply quickly and the swift and smooth handling of external disruptions. Zara’s
suppliers are found in Spain, India and Morocco. This enables Zara to switch between
suppliers when performances are lacking or due to external market conditions. In addition,
the fact that a high level of integration exists in the company (all product development
and final production facilities are kept in-house: dying and processing activities of fabrics
are fully controlled (not out-sourced), which adds to the company’s agility.
Unit Conclusion
In this unit, we focused on customer centricity. We commenced the unit by defining

important concepts related to customer centricity namely customer service, customer
service management and the importance thereof. Then, essential elements and
characteristics of customer service management were covered. In this regard, we
highlighted customer centricity, the responsibility of business to society, the alignment
between business and customer needs and the importance of profitability of the business.
Lastly, we investigated various methods by which a business can improve customer
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service. In this regard, we covered product/service quality, responsiveness, flexibility and

efficiency. In unit 3, we will focus on the functions of purchasing, transportation,
warehousing and inventory management.
Knowledge Unit 2: Customer centricity

Check
Question 1
_____ refers to a business focusing on the customer and developing a

special relationship with the customer, it requires the business to
understand its customers’ situations, perceptions and expectations.
A. Supply chain management
B. Customer service
C. Supplier relationship management
D. Customer centricity
Question 2
Which one of the following is an example of a B2C relationship?
A. Edgars advertises their product offerings online
B. RCS manages all customer accounts of Edgars stores
C. A supplier of woman’s clothing provides Edgars with winter stock
D. An account holder buys clothing and shoes from Edgars
Question 3
The (i) _____ process revolves around the concept of (ii) _____ and
(iii) _____.
A. (i) supplier relationship management (ii) customer service
management; (iii) customer relationship management
B. (i) customer service management; (ii) supplier relationship
management; (iii) customer relationship management
C. (i) customer relationship management; (ii) supplier relationship
management; (iii) manufacturing relationship management
D. (i) customer relationship management; (ii) marketing relationship
management; (iii) manufacturing relationship management
Question 4
Which of the following are regarded as elements of customer service
management?
A. information management; supply chain management; logistics

management
B. customer centricity; responsibility to society; aligning the business
with customers’ needs; ensuring the profitability of the business
C. customer relationship management and supplier relationship
management
D. eco-friendliness; profitability and efficiency
Question 5
Proponents of _____ argue that businesses have, at the very least, a
negative duty towards society to refrain from harming society.
A. stakeholder theory
B. the broad view of corporate social responsibility
C. responsible strategic management
D. social power
Answer: 1. D, 2. D, 3. B, 4. B, 5. B
©iQ Academy 43

1 = Novice
me.



competence
contexts.

5 = Expert
LO1: Define customer service, customer service management and

explain the importance thereof
LO2: Describe the essential elements and characteristics of customer

service
LO3: Identify and explain methods to improve customer service
Unit 3: Purchasing, Transportation, Warehousing and Inventory

Management
Purpose
In unit 2, you were introduced to customer centricity and how good customer service adds
value to all the partners in the supply chain and contribute to the sustainable competitive
advantage of all partners. In this unit, we will focus on four important elements of supply
chain management that, together, will contribute to the effectiveness and efficiency of
the supply chain, increase customer service and add value to all partners in the supply
chain. These four elements are purchasing, transportation, warehousing and inventory
management.
Learning Outcomes
By the end of this unit, you should be able to outline the functions of purchasing,
transportation, warehousing and inventory management.
Unit outcomes:
1. Explain the importance of purchasing in supply chain management;

2. Identify and explain key distribution factors and decisions;
3. Illustrate the cost benefits of distribution networks;
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4. Differentiate between the various transport modes;

5. Explain the principles of distribution;
6. Differentiate between the various types of warehousing formats;
7. Explain the principles of warehousing;
8. Differentiate between the various types of inventory; and
9. Explain the principles of inventory management.
Unit duration
16 hours
▪ Horn, G (ed). 2020. Supply chain management. 2 nd ed. Cape

Town: Oxford University Press. Chapters 2, 4, 5 and 6
Responsible for providing the right materials, services and equipment;

Purchasing ensuring that they are purchased at a reasonable price; satisfy quality
function requirements; and are received in the needed quantities at the right
place and time.
The flow of materials from suppliers to the business, which is referred
to as inbound logistics or transport; within the business between the
various processes of production, which is referred to as materials flow;
Transportation and out of the business to the next partner in the supply chain or the
final customer (if the business is a retailer), which is referred to as
outbound logistics or transport.
Involves inbound functions for storing and outbound functions of

Warehousing packing and shipping.
Inventory refers to the stock of products, materials and supplies that

are carried by a business, either for sale to satisfy the needs and wants
Inventory of customers or for providing inputs for in-house production
processes.
Introduction
Take a moment and consider your monthly purchases of food, clothing, hygiene products,
medicine, cleaning products, water and electricity, and so on. Now think of all the
producers and sellers of these products and those organisations, pharmacies, hospitals,
medical practices and municipalities offering these products and services to us when we
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need it, in the quantity that we need it, in the right place and at an acceptable price and
quality. These producers, sellers and service providers need effective and efficient
management systems to meet our demands as consumers. In this unit, we will address
four important drivers of the supply chain that provides us with everything that we need,
namely purchasing, transportation, warehousing and inventory management.

1 = Novice
me.



competence
contexts.

5 = Expert
LO1: Explain the importance of purchasing in supply chain management
LO2: Identify and explain key distribution factors and decisions
LO3: Illustrate the cost benefits of distribution networks
LO4: Differentiate between the various transport modes
LO5: Explain the principles of distribution
LO6: Differentiate between the various types of warehousing formats
LO7: Explain the principles of warehousing
LO8: Differentiate between the various types of inventory
LO9: Explain the principles of inventory management
3.1 Purchasing Management
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The purpose of this topic is to investigate the purchasing function and management in a
business. We will commence with an introduction to purchasing management, followed
by an explanation of its nature and importance. We will conclude the topic by focusing on
the important activities of the purchasing function.
Topic duration
4 hours
3.1.1 Introduction to purchasing management

To understand the role of the purchasing function and purchasing management in the
management of supply chains, it is necessary to first understand the traditional role of
purchasing in business. Let us commence by having a look at the traditional business
model. Traditionally, the focus of businesses was on profit maximisation. Due to various
reasons, such as increased competition and globalisation and other changes in the
business environment, businesses were forced to become good corporate citizens. Being
a good corporate citizen means that a business not only focuses on maximising its profits
but a business that prioritises making a positive social impact, acting ethically and
ensuring the long-term environmental sustainability of its operations. As businesses move
from focussing on profit maximisation to a focus on good corporate citizenship, they also
start to focus on improving customer service and satisfaction through cooperation with
business suppliers and customers. With this change in focus, the role of purchasing
management became more strategic in nature as it was before. In this more strategic role,
new concepts have developed such as ‘supply management’ for ‘purchasing
management’, ‘sourcing’ for ‘purchasing’ and ‘strategic sourcing’ for the purchasing of
strategic commodities such as materials or services. Modern businesses need to follow a
highly integrated approach because businesses work with suppliers and customers to be
more efficient, to the advantage of the entire supply chain and the final customer. Such
an approach can improve the sustainable competitive advantage in a highly competitive
and globalised business environment.
In the sections that follow, we will first address the nature and importance of purchasing
management. Then, we will cover purchasing activities and the important activities of
purchasing management.
3.1.2 The nature and importance of purchasing management

As consumers of a great variety of products and services, we make purchases almost on a
daily basis. This often leads to the perception that anyone can make purchases for a
business. However, purchasing in a business entail far more than merely comparing the
prices of two or more competitive suppliers and then choosing to buy from the supplier
offering the best price and service. An effective and efficient purchasing function is
responsible for far more than this. Its purpose is to:
• provide the right materials, services and equipment,

• ensure that they are purchased at a reasonable price,
• satisfy quality requirements, and
• are received in the needed quantities at the right place and time.
The purchasing (or supply) function selects suppliers, arrange transport services, ensures
the correct quantity and quality of materials or services at the right time, decides what
prices to accept, expedites materials and work closely with the warehouse. They are also
responsible for inventory holding for maximum efficiency in the supply chain.
The purchasing function has a profound influence on the performance of a business as a

whole, because it influences the income, asset utilisation, costs and turnover of the entire
supply chain. In what follows, we will address this important role of purchasing by focusing
on the expenditure of purchasing, inventory-holding, contribution to profit and marketing.
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• Purchasing is the greatest expenditure for the business. Purchasing costs are the
biggest expense in business and supply chains, especially in those businesses
where the final products are purchased. The average percentage of purchasing
spending as a percentage of business income is about 43 per cent, whereas retail
businesses can spend up to 90 per cent of each available rand on purchases (Horn
2020).
• Inventory holding. Businesses hold stock to prevent disruptions in the
transformation process that would be caused by an interruption in the flow of
materials to them. Retailers hold stock to prevent out-of-stock situations, which
will lead to dissatisfied consumers. On the other hand, keeping inventory at too
high a level involves costs, such as storage and insurance costs. Therefore, the aim
of purchasing is to keep inventory levels as low as possible without risking
interruptions in the operational process and to prevent out-of-stock situations. We
will further investigate inventory management in section 3.4.
• Contribution to profit. Effective purchasing can increase the profit of a business.
The lower the purchasing cost, the higher the profit will be.
• Contribution to marketing. Purchasing materials of the right quality and price at
the right time lead to the manufacturing of quality final products, available at the
right time and quantities at competitive prices. In the retail industry, purchasing
products of the right quality and price will add value to the customers. Therefore
we can state that purchasing contributes to marketing, especially in the retail
industry.
The figure below summarises the importance of the purchasing function in a business. In
the next section, we will have look at the most important activities of purchasing
management.
Greatest
expenditure
for the
business
Contributing to Inventory
Purchasing
marketing holding
Contributing to
profit
Figure 10 The importance of the purchasing function
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3.1.3 Important activities of purchasing management

In this section, we will use the purchasing process as a basis for discussing the most
important activities of purchasing management. The purchasing process is depicted in the
figure below.
Manage receipts,
Describe the need for Manage errors and
inspection and
a product or service discrepancies
distributions
Follow-up and
Research prices and
expedite the Pay for the order
availability
purchase
Issue the purchasing

Choose suppliers order and conclude Close the order
the contract
Figure 11 The purchasing process
Each one of the steps in the purchasing process is explained in more detail below.
Step 1: Describe the need for a product or service
The purchasing process commences with a description of the need for a product or
service. The process will vary depending on the organisation and can consist of a number
of methods from completing a paper requisition form (for example the purchase of a new
office chair), through to an email to the buying team or in many cases a signal that the
minimum stock holding has been reached. This step of the process endeavours to
establish what is needed, how much is needed, why it is needed and which cost centre
will pay for it.
Step 2: Research prices and availability
Once a need has been identified, the purchasing team need to identify where to buy it.
This may be from an established supplier with an existing agreed price or from a brand
new supplier from whom they need to agree on price and lead time. This stage may be
carried out via a competition with multiple suppliers to drive the required result (best
price/terms/quality).
Step 3: Choose a supplier
Once an initial price/lead time has been received, the procurement team may choose a
supplier or suppliers and then negotiate with them. The goals of this step are to reduce
prices, improve lead time and negotiate acceptable commercial terms.
Step 4: Issue the purchasing order and conclude the contract
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Once negotiations have taken place and an acceptable position has been reached, a
purchase order is usually raised. This represents an agreement with the supplier for the
provision of goods in exchange for an agreed price. The purchase contract will usually state
the product being purchased, the quantity being purchased, the agreed price, terms and
conditions and delivery address.
Step 5: Follow-up and expedite the purchase
The purchasing function is responsible for following up on the purchase to ensure that the
materials or services are supplied of the right quality and quantity, at the right time and
place.
Step 6: Manage receipts, inspection and distributions
The receipt process involves managing the delivery of the materials purchased. The
receipts process usually checks as a minimum that the materials are in a satisfactory
condition and meet the order placed. The materials are then sent to the users – the
functions or departments that requested the materials.
Step 7: Manage errors and discrepancies
Should defective materials be delivered by the supplier, it is the responsibility of the

purchasing function to communicate this to the supplier, keeping a good relationship with
them at all times.
Step 8: Pay the order
Once the terms of the order have been met the supplier is paid. This will typically be as a
result of the supplier sending a purchase invoice to the buyer. At this stage, it is important
to check that the invoice relates to the purchase order and that materials have been
receipted.
Step 9: Close the order
In the final step in the purchasing process, the documents pertaining to the transaction
should be filed and incorporated into the system for future use.
In this section, we have covered purchasing management. Keeping all the principles in
mind that we have covered, do the following activity.
Think Point Think Point: The purchasing process
In which ways can the purchasing function in a business contribute to

society? Explain at least three ways and substantiate your answer.
There are several ways in which the purchasing function can contribute to society. First, it
can support local suppliers and thereby support local community development. Second,
it can ensure broad-based empowerment through purchasing. Another way is to
contribute to environmental protection by purchasing environmentally friendly products
and services. They can focus on the ethical sourcing of products and materials. In general,
by acting ethically in executing the steps in the purchasing process, the purchasing
function can further contribute to society. Lastly, by ensuring safe products, safe
packaging and transportation, the purchasing function will also contribute to society.
3.2 Transportation
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The focus of this topic is transportation. We will commence our discussion with an
introduction to transportation, followed by an explanation of the importance thereof in
the supply chain. Lastly, we will address the various modes of transport.
Topic duration
4 hours
3.2.1 Introduction to transportation

In unit 1, you were alluded to the fact that materials in various stages of processing flow
through a supply chain. From a business point of view, materials flow:
• from suppliers to the business, which is referred to as inbound logistics or

transport;
• within the business between the various processes of production, which is referred
to as materials flow; and
• out of the business to the next partner in the supply chain or the final customer (if
the business is a retailer), which is referred to as outbound logistics or transport.
It is important that we distinguish between inbound and outbound transport or logistics.

Inbound transport deals with the delivery of raw materials coming into the business.
Outbound transport relates to the business and the next partner in the supply chain or the
final consumer of finished products or services.
Let us have a look at the manufacturing of paper at Sappi, a global diversified woodfibre
company focusing on dissolving pulp, packaging and speciality papers, graphic papers as
well as biochemical to direct and indirect customers. Watch the following video that
explains how paper is made at Sappi:
Video How paper is made at Sappi
https://www.youtube.com/watch?v=SDyJVr1q9kg&list=PLWKd4Dn-
TR6fn07Hobok4VU4c4J_m0Zxa
How is paper made? The following figure illustrates how paper is made at Sappi.
Figure 12 How paper is made at Sappi
Source: https://www.sappi.com/how-paper-made-sappi [Accessed 15 September 2021]
The production of paper, as figure 12 illustrates, involves the following process (Sappi):
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i. Woodfibre arrives at the paper mill as whole tree trunks.

ii. At the paper mill, the logs are debarked and put through a chipper, which
reduced the logs to wood chips.
iii. A digester cooks the wood chips in chemicals and a blow tank reduces the wood
chips to fibres.
iv. The wood fibres are then washed to remove impurities and screened to remove
any knots or splinters.
v. The wood fibre is then put through a bleaching process to whiten the pulp.
vi. The pulp is beaten, refined and additives are added.
vii. A head box stores and meters pulp onto the wire. Paper is formed on the wire
where press rollers remove excess water.
viii. The paper is then put through a drying machine to dry the paper sheets.
ix. The paper is wound onto large rolls and then a slitter cuts the rolls into smaller
rolls.
x. Finally, a sheet cutter cuts the paper rolls into sheets.
In the process explained above, the woodfibre that arrives at the paper mill as whole tree
trunks is the first example of Sappi’s need for inbound transport. Throughout the
transformation of whole tree trunks to sheets of paper, the half-finished product is also
transported internally. The final product is also transported internally to warehouses. Then,
as the paper sheets are needed and ordered by other members of the supply chain, for
example, a publisher of books that needs paper sheets, outbound transport is needed. As
this example illustrates, transport is a link between customers, suppliers, factories,
warehouses and the individual participants (businesses) in a supply chain. The next section
explains the importance of the management of transport in the supply chain.
3.2.2 The importance of management of transport in the supply chain

In this section, we will first investigate the importance of managing inbound transport,
followed by the importance of managing outbound transport.
Traditionally, inbound transport decisions have been left to suppliers, who transferred the
freight and risk costs to the purchasing business. As a result, the purchasing business had
no control over this cost element. Modern businesses are paying more attention to
inbound transport and the movement of their purchased materials. By managing inbound
transport, businesses can ensure that the products or materials are received on time at
the place where they are required and of the quality that they require. Another reason for
the importance of managing inbound transport is the high costs involved. Transport costs
represent a significant portion of the purchasing costs of businesses. Transport costs often
constitute 10 per cent or more of the total costs of a product (Horn 2020). In addition,
transport is a key component of supply chain management. It can contribute to delivering
customer value by satisfying customer needs faster and at a lower cost.
Outbound transport refers to the physical movement of materials and products to the final
consumer or to a place to which the final consumer will go to purchase the product, for
example, a retail outlet. Therefore, outbound transport adds value to the business by
creating time and place utility for the products that are transported. Outbound transport
can be local, regional or international, or a combination of these. In the case of our Sappi
example, the company transport their paper sheets within the country and abroad.
A complete supply chain strategy must focus on both the inbound transport of supplies
and the outbound transport that ships the end product to end-users. If inbound and
outbound transport is consolidated and well managed across the supply chain, economies
of scale can be leveraged that can lower transport costs, increase value to the customer
and ensure sustainable competitive advantage for the business.
In the following section, we will investigate the various modes of transportation. These
modes apply to both inbound and outbound transport.
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3.2.3 Modes of transportation

In South Africa, the following modes of transportation are available:
• rail
• road
• shipping
• air freight
• pipelines
• courier and parcel services
Various factors should be taken into consideration when deciding on the mode of
transport. The required delivery date, the cost of the transport mode, the characteristics
of the various modes, reliability and service quality, the size of the consignment, the time
in transit, the possibility of damaging the product or material, the availability of the mode
and the flexibility thereof are the most important factors to consider. Let us have a closer
look at each of the above listed transport modes.
Rail transport
Engines pull railcars and intermodal railcar chassis, which distribute products on land in
the supply chain. Although railway freight is often a distant second to sending goods by
road, rail transport still accounts for a good proportion of freighted products. Moving
goods by rail is often much cheaper, more efficient than sending goods by road. Freight
railroads are a vital supplement to trucking for moving goods through the supply chain.
Road transport
Road transport by means of trucks is the main workhorse of the supply chain. Alongside
railways, they are the main way to move goods across land in an efficient way. They are
often fitted with chassis that can hold standardised shipping containers. Trucks are, by far,
the most common way to move goods in the supply chain, since they can get to places
that other transportation methods cannot. Railways don’t travel to all destinations, and air
freight is expensive and limited by weight and available airports. This makes trucks the
default choice for moving large quantities of goods. When pulling a chassis, a truck can
move shipping containers quickly and efficiently.
Shipping
Large container ships and other ocean-going cargo vessels are the primary way to move
goods internationally. Ocean-going vessels include container ships, oil tankers, general
cargo ships and bulk carriers. Ocean-going vessels move goods between international
ports in the global supply chain. These ships are designed for rapid loading and unloading
and are well-served by transport infrastructure for the rapid onward distribution of goods.
Container ships and other cargo vessels transport vast amounts of raw materials, parts and
finished products between international suppliers, manufacturers and final destinations.
Approximately 90 per cent of South Africa's international trade is moved by sea through
Transnet ports in the form of containers, dry bulk, liquid bulk, break-bulk and automotive
(Cargo Handling, storage and warehousing in South Africa 2020).
Airfreight
Specialized commercial cargo aircraft are used to ship freight quickly and efficiently
between and within countries. Commercial cargo aircraft are typically loaded with Unit
Load Devices for moving airfreight between airports. Due to the higher cost of airfreight,
it is often used only for the most critical shipping needs, and most supply chains will use
it as a supplementary service after trucks and railroads.
Aircraft excel in two main areas for transporting goods, speed and reliability. Aircraft are
generally the fastest way to get freight from one place to another, vital when time is an
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issue. Airfreight is also more reliable than other forms of transport, as aircraft are less
affected by delays than trucks.
Pipeline transport
Pipelines mainly transport gas, crude oil, petroleum products, petrol, diesel, water and
chemicals. In South Africa, Petronet, a division of Transnet, is responsible for pipelines. The
main advantage of pipelines is their ability to transport high volumes at relatively low
speed and high levels of safety over long distances at economic rates and in a reliable
manner. Another advantage is that pipelines can be controlled and closely monitored. For
this reason, losses and damaged are extremely rare when using pipeline transport. A
disadvantage of pipelines is that users that are not close to the pipeline must make use of
other modes of transport, such as rail and road transport. These additional modes are
required when transporting products to and from the pipelines.
Courier and parcel services
Courier service refers to the fast or quick, door to door pickup and delivery service for
goods or documents. It can be local or international. A company that provides such
delivery services is called a courier company. A courier company hires people to provide
their services. The dramatic increase in online shopping by final customers and businesses
has changed the landscape for courier and parcel services. It became a quick, relatively
cheap and effortless delivery. They are particularly appropriate for small consignments by
road on a door-to-door basis.
Case Study Case Study: Transportation during a pandemic
The coronavirus pandemic has profoundly affected our world since the
end of 2019. It has caused many unexpected disruptions, accelerated
some existing trends and forced us to make some changes to how we
work and live. Some of these changes will likely last even after COVID-
19 is no longer a threat to public health. Many of these transformations
will be for the better — such as expanded delivery options for
consumers and businesses alike. Easier accessibility of goods and
services could make everyone’s lives run more smoothly.
The rising popularity of courier services is not exactly a new trend. Even
before COVID-19 started making headlines, consumers were falling in
love with the convenience of delivery services. As more people turn to
e-commerce sites, food delivery platforms, and other types of delivery
services, they are realising how easy it is to obtain their favourite
products and brands without having to leave the comfort of their home
or office. Benefits such as convenience and efficiency are what sparked
the initial rise to popularity that we have seen in delivery services.
However, the emergence of COVID-19 in 2020 has generated even
more demand for delivery services and new reasons.
As cities locked down to slow the spread of COVID-19, people turned to

delivery services as more than just a convenience. It became a means
of staying safe and healthy at home without being cut off from
necessities like food and hygiene products.
Questions:
1. What, in your opinion, were the most crucial changes that courier
services needed to make when providing their services during the
pandemic? Substantiate your answer in no more than 30 words.
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2. Explain the effect of the changes indicated in question 1, on the

businesses that form part of supply chains. Provide an answer in no
more than 20 words.
Before COVID-19, courier companies and their delivery drivers didn’t need to think twice
about things like touching their faces or how closely they interacted with customers. In
light of the global pandemic, however, leading experts on public health and work safety
have developed some basic guidelines for employees of delivery companies to follow in
order to limit transmission of the virus. Delivery drivers need to ensure their own safety in
addition to limiting the spread of COVID-19. Aside from obvious (but still important)
measures like staying home when sick, disinfecting surfaces, wearing a face covering, and
avoiding touching your face, experts emphasizes the benefits of practicing contactless
deliveries whenever possible.
In addition to contactless delivery, various other changes had to be made. For example to
establish flexible working hours, minimise interaction with customers, leave deliveries at
loading docks, doorsteps and so on, and discourage workers from sharing or exchanging
tools and equipment. All of these changes increased the cost of courier companies which,
in turn, contributed to the transportation costs of the entire supply chain of businesses.
This concludes our discussion of transportation. Before we move on to the next topic,
make sure that you have a thorough understanding of transportation by completing the
knowledge check below.
Knowledge Knowledge Check: Transportation

Check
Question 1
The flow of materials from suppliers to the business is referred to as
_____.
A. inbound logistics
B. outbound logistics
C. outbound transport
D. materials flow
Question 2
_____ refers to the physical movement of materials and products to
the final consumer or to a place to which the final consumer will go to
purchase the product.
A. inbound logistics
B. outbound logistics
C. outbound materials flow
D. materials flow
Question 3
(i) _____ transport is a valuable supplement to (ii) _____ for moving
goods through the supply chain.
A. (i) Air; (ii) trucking
B. (i) Pipeline; (ii) rail transport
C. (i) Rail; (ii) trucking
D. (i) Courier services; (ii) pipeline transport
Question 4
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Which one of the following modes of transports is mostly used in the

supply chain of businesses?
A. Road transport by means of trucks
B. Pipeline transport
C. Air transport
D. Shipping
Question 5
Which one of the following modes of transport is the primary way to
move goods internationally?
A. Road transport by means of trucks
B. Pipeline transport
C. Air transport
D. Shipping
Answer: 1. A, 2.B, 3.C, 4. A, 5. D
Conclusion
In this topic, we investigated transport in the supply chain. An important differentiation

was made between inbound and outbound transport and the importance of both. We also
identified and explained the various modes of transportation. The next topic focuses on
warehousing.
3.3 Warehousing
Warehousing is an integral part of logistics and a supply chain management system. For
most of the common people, warehousing involves just storing the products. However,
warehousing involves inbound functions for storing and outbound functions of packing
and shipping. We will commence this section with a discussion of the objectives and
principles of warehousing. Then, we will explain the various warehouse activities and
conclude the topic by a discussion of the types of warehousing formats.
Topic duration
4 hours
3.3.1 Objectives and principles of warehousing

Warehousing and warehouse management are part of the logistics management system,
which in itself is part of the supply chain. Warehousing plays a vital role in the supply chain
process. A warehouse is a large, spacious place that is used for the storage or accumulation
of goods and materials. Storing goods and materials throughout the year and releasing
them when they are needed creates time utility. Although this is viewed simply to store
goods, warehousing plays a fundamental role in the logistics system. Inbound functions
assist to prepare for storage as well as outbound functions pack and ship orders, resulting
in benefits for both the business and customers. Based on this, we can identify two main
objectives of warehouse management, namely to increase profits of the business or
partner in the supply chain and second, to increase customer service. To achieve these
two objectives, the following secondary objectives of warehouse management can be
identified:
• to maximise the useable space in warehouses;

• achieve high inventory turnover rates;
• minimise the operating costs of the warehouse;
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• protect the assets stored in the warehouse; and

• provide timely customer service.
Following a number of warehousing principles will contribute to the effectiveness of the

supply chain. These principles are briefly explained below:
Storage facility: A suitable storage facility will increase the revenue and eventually profit
realised by partners in the supply chain. Manufacturing or the purchasing of goods in bulk
may make sense from a business point of view.
Convenience: Distribution is an important part of any business, customers should never

experience out of stock situations. Having one central warehouse that stores a businesses’
goods feeding its distribution process will lead to full control of the stock available as well
as what is needed in the near future. This is called safety stocking, ensuring that a business
doesn’t experience unexpected problems such as faulty stock or shipment delays.
Additional revenue: Owning a storage facility could provide revenue by leasing out
warehouse space. The ability to manufacture or buy goods in bulk also allows for greater
revenue returns. These are both ways to increase profit and add value to partners in the
supply chain.
Distribution: Warehousing and the placement of the warehouse can directly impact
distribution. The further away the storage facility or warehousing is situated from suppliers
or manufacturers, the higher distribution costs will be. Strategic placement of the facility
can dramatically affect transportation costs which, in turn, affect the prices and profit of
the entire supply chain.
3.3.2 Warehouse activities

A businesses’ ability to fulfil customers’ orders without problems is a large determinant of
business success, sustainability and competitive advantage. The perfect execution of the
orders is dependent on how well activities are performed in its warehouse. Warehouse
activities are similar in all industry sectors that are characterised by product movement -
that is, products are received, stored, packed and shipped to customers. Warehouses
usually perform six activities, as depicted in the figure below.
Loading and
Receiving
dispatch
Shipping
Inspection
preparation
Storage Issuing
Figure 13 Warehouse activities
The warehouse activities indicated above are explained below.
Receiving
A typical receiving procedure consists of offloading the incoming material, counting the
items or scanning the bar codes, conducting a check on the material, comparing the
delivery note with the purchase order. The delivery note is then signed and given to the
data capturer who updates the inventory records. A business may also scan the bar code,
which automatically updates its inventory and warehouse management system. A
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business may also make use of a radio frequency system to receive shipments. In this case,
the entire shipment is read by a radio frequency tag reader and the warehouse
management system will also be updated automatically.
Inspection
Once the supplier has delivered the products, it has to be inspected for quality. The
inspection also includes checking the quantity of the shipment and the correctness of the
order.
Storage
Products are now placed in their correct storage locations. Products are stored until they
are requested by the production department of the consumer.
Issuing
This refers to the removal of products from storage to meet the demand of the production
department or a customer.
Shipping preparation
This activity involves such as pricing, labelling, bundling and packaging of products to be
delivered.
Loading and dispatch
Orders must now be assembled for loading and dispatch. Deliveries must be carefully
planned so that they arrive in the right quantity, at the right time and place.
3.3.2 Types of warehousing formats

There are numerous types of warehousing formats. In addition, the types of warehouses
in the supply chain differ in significant ways. Different types of warehouses in the supply
chain set themselves apart in their own unique ways. However, there are some general
characteristics that an efficient and safe warehouse should have. These general qualities
of different types of warehouses include the following:
• safety and security
• trained staff
• accessibility and market proximity
• appropriate storage space
• latest mechanical appliances
• properly designed interiors
• emergency protocol up to the latest standards
• organised picking and receiving processes
• quality check
• updated software
• prompt delivery and customer service
What are the different types of warehouses? The most important types of warehouses in
the supply chain are the following:
Public Warehouses
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Public warehouses are owned by governmental bodies and made available to private
sector companies. Public warehouses can be used for both business and personal
purposes. Although public warehouses typically do not have advanced technology like
different types of data warehouses, they’re generally the most affordable and accessible
option.
Private Warehouses
A private warehouse is a warehouse that is privately owned by wholesalers, distributors,

or manufacturers. Large retail and online marketplaces also have their own privately-
owned warehouses. Private warehouses are generally more expensive than public
warehouses.
Bonded Warehouses
A bonded warehouse is a type of warehouse that can store imported goods before
customs duties are required to be paid on them. Businesses storing goods in bonded
warehouses don't have to pay any duties until their items are released. Restricted items
can be stored until their proper paperwork is complete. A bonded warehouse also offers
facilities to store items for extended periods of time.
Such types of warehouses in the supply chain are perfect for importers as they can keep
their items duty-free until they find buyers. They also have reputations as secure and safe
storage spaces for goods.
Smart Warehouses
A smart warehouse is a type of warehouse where the storage, fulfilment process, and
management are automated with artificial intelligence. Automation typically includes
everything from software for management to robots and drones performing tasks like
packing, weighing, transporting, and storing goods. Corporations like Amazon and Alibaba
use huge smart types of warehouses that make order fulfilment quick and less prone to
human error.
Consolidated Warehouses
A consolidated warehouse is another type of warehouse that takes small shipments from
different suppliers and groups them together into larger shipments before distributing
them to buyers. All the shipments are intended for the same geographical location.
Consolidated warehouses are a very economical way of order fulfilment, especially for
small businesses and new startups in comparison to different types of warehouses in the
supply chain. The capital investment and volume of inventory required to use consolidated
warehouses are fairly small.
Cooperative Warehouses
A cooperative warehouse is a warehouse that is owned and run by cooperative

organisations such as a farmer or winery co-op. Both co-op members and those outside
the co-op can store goods at these facilities, though co-op members benefit from reduced
rates with these types of warehouses.
Government Warehouses
These types of warehouses in the supply chain are directly owned and controlled by the
government, such as seaport storage facilities. Typically, government warehouses charge
fairly affordable rates. However, if a business is unable to pay their rent within the due
time, the government has the authority to recover their rent by disposing of their goods.
Distribution Centers
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A distribution centre is a storage space that is usually built with specific requirements in
mind. The storage is used for temporary needs and items are shifted quickly within the
supply chain. A large inventory is received and distributed to resellers and retailers within
a short period of time. In the case of some food and perishable items, distribution centres
items are often distributed within a day. Generally, distribution centres are affordable to
rent in and can vary greatly depending on what types of products are being stored in them.
Below is an example of one of the largest warehouses in South Africa. It will give you an
indication of the complexity of managing warehouses.
Example Warehousing at Massmart
Massmart is the second-largest distributor of consumer goods in Africa,

the leading retailer of general merchandise, liquor and home
improvement equipment and supplies. Massmart is the leading
wholesaler of basic foods and is listed on the Johannesburg Stock
Exchange in the Consumer Services-Retail sector. Their brands as
familiar to the South African consumer and include Makro, Game,
Builders, Jumbo, Shield, Rhino, The Fruitspot and Cambridge food.
Massmart state their business model as follows:
Our customer-centric operating model allows us to be an efficient
business and deliver on our purpose. Through our two business units,
supported by centres of excellence, we are able to effectively manage
our supplier relationships, leverage procurement scale and drive back
office efficiency.
Massmart’s Mass Discounters division has a new regional distribution
centre in Gauteng, which services 62 South African Game stores and
eight of the chain stores in other African countries. These stores receive
their stock from this regional distribution centre (DC). Inventory at this
DC is kept to a minimum as within 48 hours of the suppliers delivering
stock at the DC, this stock will be delivered to various Game stores.
Sources:
Massmart. Available online https://www.massmart.co.za/our-brands/

[Accessed 14 September 2021]
Horn, 2020. Supply chain management. Cape Town: Oxford University

Press.
This concludes our discussion of warehousing. Before we move on to the next topic, make
sure that you have a thorough understanding of warehousing by completing the
Knowledge Knowledge Check: Warehousing

Check
Question 1
Which of the following is regarded as the main objectives of warehouse
management?
A. maximise useable space and minimise costs
B. increase profits and customer service
C. protect assets stored and provide timely customer service
D. achieve high turnover rates and high profits
Question 2
Which one of the following warehouse activities involves the packaging
of an order?
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A. receiving
B. inspection
C. dispatch
D. shipping preparation
Question 3
A _____warehouse is a warehouse that is privately owned by
wholesalers, distributors, or manufacturers.
A. government
B. public
C. bonded
D. private
Question 4
A _____ warehouse is a type of warehouse that can store imported
goods before customs duties are required to be paid on them.
A. government
B. public
C. bonded
D. private
Question 5
A _____ warehouse is a warehouse that is owned and run by
cooperative organisations such as a farmer or winery co-op.
A. cooperative
B. distribution
C. smart
D. bonded
Answer: 1. B, 2. D, 3. D, 4. C, 5. A
Conclusion
This topic introduced you to warehousing, the importance and the objectives thereof. We
focused on warehousing activities and concluded the topic by highlighting the various
types of warehouse formats. The next topic investigates a crucial aspect in supply chain
management – inventory management.
3.4 Inventory Management

In this topic, we will introduce you to one of the most important topics of supply chain
management, namely inventory management. We will cover the importance of inventory
management, various principles underlying the management of inventory, the costs of
inventory and the management of inventory in a business.
Topic duration
4 hours
3.4.1 Introduction to and importance of inventory management

Inventory refers to the stock of products, materials and supplies that are carried by a
business, either for sale to satisfy the needs and wants of customers or for providing inputs
for in-house production processes. Inventory is regarded as one of the drivers of the
supply chain as a linking theme throughout supply chains.
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The customers of a business, whether they are final customers who buy products to
consume, or retailers, wholesalers or manufacturers, expect that a business should have
sufficient inventory of the required products, parts, components or raw materials in stock
to meet their demand when required. On the other hand, keeping stock represents cost
and money – large sums of capital is spent on holding inventory. Apart from the cost of
acquiring inventory, keeping inventory in stock also has other added costs such as the cost
of the space taken up by the inventory, insurance costs, salaries of staff managing the
stock, water and electricity costs. Therefore, a fine balance is needed between keeping
too much and too little inventory. Inventory management is therefore an important part
of the efficiency of the supply chain and all the partners thereof.
The type of inventory kept by a business (or partner in the supply chain) depends on the
type of business and industry. Below are a few examples, indicating the differences in
inventory between various industries. The first example is a manufacturing business. In
previous sections, we referred to Sappi, a paper manufacturer. The inventory of Sappi is
explained below.
Example Inventory at Sappi
To make paper, Sappi first needs an inventory of wood from sustainably

managed forests. Papermaking uses a large amount of water (less than
10 per cent is consumed in the papermaking process – over 90 per cent
is treated and returned to the watershed). Papermaking also consumes
numerous chemicals, and chemical recovery is an important part of the
pulping process at Sappi. Pulp and papermaking are energy-intensive
processes. To dispatch their paper, Sappi uses their own fleet of trucks.
Source: Sappi – how paper is made. Available online

https://www.sappi.com/how-paper-made-sappi
The second example is a retailer, Massmart. The inventory of Massmart is explained

below.
Example Inventory at Massmart
Massmart has two divisions namely Massmart Retail and Massmart

Wholesale. Each division has a number of outlets. Massmart Retail
outlets are Builders, Game, Cambridge and Rhino stores; whereas
Massmart Wholesale has Makro, Jumbo, Shield and the Fruitspot stores.
If we only consider the inventory held by Makro, it includes fruit and
vegetables to meats, cheeses, computers, home appliances, clothing,
footwear, toys, stationery, canned food, hygiene products and many
more. Makro carries different inventory levels for its immense range of
products. For example, they carry lower inventory levels for expensive
products such as television sets and computers and higher levels for
cheaper products such as canned food, hygiene and cleaning products.
Source: https://www.massmart.co.za/our-business-model/
The management of inventory is of importance for manufacturers, wholesalers and

retailers. The two examples above illustrate the fact that inventory at a manufacturer such
as Sappi, differs significantly from the inventory of a company such as Massmart. However,
they have one thing in common and that is inventory needs to be carried to reconcile
supply and demand. In order to make the reconciliation, a good understanding of the
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principles of inventory management is necessary. In the next section, we focus on these

principles.
3.4.2 The principles of inventory management

Effective and efficient inventory management requires an understanding of its principles.
Before buying and carrying inventory, a business should first make sure who its customers
are, prioritise what their needs are and then decide on what inventory it will carry.
Following this decision, inventory should be carried based on the following principles:
• Inventory should satisfy anticipated customer demand and prevent stock-out and
disruptions in the manufacturing process. Retailers need to have sufficient final
products to meet the needs of customers. Suppliers of raw materials, parts and
components need to carry enough inventory to meet the demand of
manufacturers.
• Minimise the cost of stock-out situations. Stock-out situations will involve three
types of costs. First, the cost of a backorder involves the cost of getting the
backorder to the customer – once the business receives the required stock, they
need to contact the customer and deliver the product. All of these actions involve
additional costs. Second, the cost of a lost sale. In stock-out situations, customers
cannot buy the product required, resulting in revenue loss for the business. Lastly,
the cost of a lost customer will occur if the customer decides to make use of a
competitors’ products.
• Keep inventory as a hedge against uncertainties. Businesses often experience

unexpected higher demand for their products and should carry additional
inventory over and above what is normally demanded. This is called buffer
inventory and buffers the business against uncertainties and other problems that
may occur in sourcing. Buffer inventory also protects the business against future
price increases, late deliveries and poor-quality materials from suppliers, strike
action and labour unrest causing delays in supply, and lead time uncertainties.
• Balance supply and demand. In a perfect world where supply exactly meets
demand, there would be little need for carrying inventory. We do not live in a
perfect world. Hence, there should be a fine balance between supply and demand.
• Make use of the economies of scale principle. Buying raw material, components,
parts and final products in high volumes, will allow the buyer to take advantage of
lower price per unit. In addition, because of the reduced handling requires when
buying in high volumes, goods can be transported at a lower cost per unit. A lower
price per unit and lower handling costs will result in lower total cost – which is
referred to as the economies of scale principle.
• Take advantage of price discounts on buying in large quantities. In line with the
economies of scale principle, businesses buying in large volumes are often offered
a discount based on the size of the order.
The figure below summarises the principles of inventory management.
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Satisfy anticipated
Minise the cost Keep inventory as a
customer demand
associated with hedge against
and prevent stock-
stock-outs uncertainties
outs
Take advantage of
Balance supply and Make use of price discounts
demand economies of scale given on buying in
large quantities
Figure 14 Principles of inventory management
Businesses are willing to spend a lot of money on their supply chains in order to meet the
demand for their products. The example below illustrates this statement.
Example Kellogg’s investment in supply chain

The Kellogg Company, doing business as Kellogg’s, is an American
multinational food manufacturing company. Kellogg’s produces cereal
and convenience foods. In South Africa, we are familiar with products
such as Corn Flakes, and Pringles. In September 2021, the company
announced their plans to invest about US$45 million to restructure its
North American supply chain over the next three years as it seeks to
meet the demand for its ready-to-eat cereals. The company faces many
supply chain challenges. While demand has been high for their cereals,
Kellogg’s struggled to keep up with supply because of shortages of
factory line workers and truck drivers. Kellogg’s decision to restructure
its supply chain comes as the COVID-19 pandemic continues to have a
disruptive effect on food manufacturers’ ability to keep up with
escalating demand. Cereal sales boomed during the pandemic, with
home consumption growing as people spent more time eating
breakfast. However, capacity issues and factory workers shortages
have led to a low supply of a number of cereal manufacturers and
brands.
The restructuring of the supply chain of Kellogg’s will involve the shift
of production to optimal lines across its supply chain network as part of
the company’s robust new commercial strategy designed to increase
its ready-to-eat cereal production and position it for future growth.
Source:
Casey, C. 2021. Kellogg investing $45M to revamp North American
supply chain. Available online
https://www.supplychaindive.com/news/kellogg-investing-45m-to-
revamp-us-supply-chain/606246/ [Accessed 15 September 2021]
The effective and efficient management of inventory requires a good understanding of the
costs associated with inventory. In the next section, we focus on this.
3.4.3 Costs associated with inventory

The costs associated with inventory can be categorised into five classes. The figure below
depicts these five classes.
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Inventory costs
Inventory
Purchasing or Inventory Inventory Cost of surplus
carrying or
landed costs receiving costs shortage costs inventory
holding costs
Figure 15 Costs associated with inventory
The classes of inventory costs in the figure above are explained below:
• Purchasing or landing costs. This class refers to the purchasing price of an item plus
any other direct costs associated with acquiring the item, for example, customs
duties, transportation, shipping and insurance costs.
• Inventory carrying or holding costs. This relates to the costs incurred for physically
having a product in storage. The more inventory is held the higher carrying costs.
Carrying costs are further divided into opportunity costs, insurance costs,
operational costs, and risk costs.
• Opportunity costs. Funds needed to buy inventory have two basic sources, namely
own funds or borrowed funds. If a business uses its own funds to acquire inventory,
these funds could have been invested in other uses where it is more needed, for
example, to buy new technology. If a business uses borrowed funds to acquire
inventory, interest will be payable on the borrowed funds. This is referred to as the
opportunity costs of inventory.
• Insurance costs. Keeping inventory has the risk of getting damaged or stolen. For
this reason, businesses also need to insure their inventory against these possible
risks and insurance costs are incurred.
• Operational costs. Operational costs refer to the costs incurred during the time in
which the inventory is carried. This includes maintenance costs of the storage
facility, the costs of the storing facility, and the costs of handling the inventory.
• Risk costs. Carrying costs involves various risks. For example, the cost of becoming
obsolete and the costs of inventory losses due to theft.
• Inventory receiving costs. The costs associated with receiving inventory refer to
the inspection of the inventory when it arrives at the business, unloading the
delivery vehicle and moving the inventory to its designated storage area.
• Inventory shortage costs. Shortage costs occur when demand exceeds the supply
of products, as we have seen with Kellogg’s case in the previous example box.
• Costs of surplus inventory. These costs occur when the supply of products exceeds
the demand. A business in such a situation may face problems such as having too
low cash flow, inventory becoming obsolete and the costs associated with too
much storage space taken.
3.4.4 Measures and systems that assist in managing inventory

Effective and efficient inventory management delivers goods at the right time, place,
quality, quantity and price. The result of such inventory management is higher profitability,
better customer service and sustainable competitive advantage for all partners in the
supply chain. However, the systems that should be in place to attain these outcomes, are
the following:
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• Perfect calculation of the demand. Businesses need to know exactly who their
customers are, which inventory items are in demand and the extent of the demand.
• Minimum inventory levels. Keeping inventory levels to a minimum is a requirement

of effective inventory management.
• Minimise carrying cost.
Measure that a modern business can take to implement the above, are the following:
• Businesses need to have access to and use the latest computerised systems to
assist them in assessing the required inventory levels.
• Businesses need to use advanced ordering and re-ordering systems.
• Businesses need to initiate proactive purchasing of the required inventory to

ensure that no last minute rushing takes place or that stock-out situations occur.
• Businesses need to apply the appropriate inventory planning technique, such as

Just-in-Time (JIT) and Materials Requirement Planning (MRP). JIT means that
inventory or materials are ordered to arrive just in time when required - no earlier
and no later. MRP refers to a system that determines when materials and
components need to be acquired from suppliers.
This concludes our discussion of inventory management. Before we move on to the next
topic, make sure that you have a thorough understanding of inventory management by
completing the knowledge check below.
Knowledge Knowledge Check: Inventory management

Check
Question 1
A business need to carry inventory to reconcile (i) _____ and (ii)
_____.
A. (i) income; (ii) expenditure
B. (i) supply; (ii) demand
C. (i) assets; (ii) liabilities
D. (i) own funds; (ii) borrowed funds
Question 2
The _____ principle refers to a lower price per unit and lower
handling costs which result in lower total cost.
A. economies of scale
B. pareto
C. ABC
D. discounting
Question 3
The _____ costs associated with purchasing refers to the purchasing
price of an item plus any other direct costs associated with acquiring
the item, for example, customs duties, transportation, shipping and
insurance costs.
A. carrying
B. opportunity
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C. landing
D. receiving
Question 4
Opportunity, insurance, operational and risk costs are all related to the
_____ costs of inventory.
A. shortage
B. holding
C. receiving
D. shortage
Question 5
A _____ refers to a system that determines when materials and
components need to be acquired from suppliers.
A. Just-in-Time
B. demand control
C. supply planning
D. Materials Requirement System
Answer: 1.B , 2.A , 3.C , 4.B , 5.D
Conclusion
This topic focused on one of the drivers in the supply chain, namely inventory
management. We investigated the importance of inventory to all kinds of businesses. We
also covered the principles of inventory management and the various costs associated
with inventory. Lastly, the measures and systems available to assist in managing inventory
were explained.
Unit Conclusion
In unit 3, our attention was drawn to the importance of purchasing, transportation,
warehousing and inventory management in the supply chain. Effective and efficient
management of these will result in higher profits, better customer service and sustainable
competitive advantage for all partners in the supply chain. The next unit, Unit 4, will focus
on quality and total quality management.

1 = Novice
me.
I have a basic understanding of the

subject matter but still, require support.
3 = Average understanding or I have a fair grasp of the subject matter

competence and its application.
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I have a strong grasp of the subject

matter and could easily apply it in a
competence
variety of contexts.

5 = Expert
LO1: Explain the importance of purchasing in supply chain management
LO2: Identify and explain key distribution factors and decisions
LO3: Illustrate the cost benefits of distribution networks
LO4: Differentiate between the various transport modes
LO5: Explain the principles of distribution
LO6: Differentiate between the various types of warehousing formats
LO7: Explain the principles of warehousing
LO8: Differentiate between the various types of inventory
LO9: Explain the principles of inventory management
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Unit 4: Total Quality Management in Supply Chain Management

Purpose
In Unit 2 (Customer Centricity) we explained various methods to improve customer

service. The first method that we identified was product quality. To have a quality product
or deliver a quality service, a total quality approach is necessary, which is the focus of this
unit.
Learning Outcomes
By the end of this unit, you should be able to explain the concept of Total Quality
Management in supply chain management.
Unit outcomes
1. Explain the origin of Total Quality Management;

2. Provide definitions of the concept of Total Quality Management; and
3. Illustrate an understanding of the Total Quality Management theoretical model.
Unit duration
8 hours
Resources and Reading
▪ Evans, J.R. & Lindsay, W.M. Total Quality Management. South

Western.
▪ Dahlgaard, J.J.; Kristensen, K. & Kanji, G.K. Fundamentals of

Total Quality Management. Routledge.
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Quality can be defined as the total combination of features and

Quality characteristics through which a product or service, when used, will
meet or exceed the expectations of the customer by being able to
satisfy a specific need.
Total Quality Management is a management philosophy consisting
Total Quality of mutually re-enforcing principles, processes and techniques, all
Management designed to ensure that the entire organisation and all its employees
diligently strive to provide products and services aims at satisfying
and exceeding the quality requirements of its customers.
The concept of TQM seeks to improve productivity through
Four pillars of customer satisfaction and employee involvement. It is based on the
TQM four pillars of total quality management, namely a systems
approach, customer focus, people involvement and continuous
improvement.
Quality management ensures that a business, its products and
Quality services are consistent. Quality management has four components:
management quality planning, quality assurance, quality control and quality
improvement.
Introduction
Take a moment and consider yourself as a customer. What makes you a satisfied
customer? What will motivate you to return to a certain supplier or seller for a product
over and over again? The purpose of any kind of business should be to improve customer
satisfaction. Why? Satisfied customers will return to their business and will keep buying
their products and make use of their services. Retaining customers will ensure the
profitability and sustainability of the business. One of the requirements of a satisfied
customer is quality products and services. This unit will commence with an introduction
to TQM and the origins thereof, followed by a definition and a more detailed discussion of
the concept. The unit will conclude with the TQM model.

1 = Novice
me.



competence
contexts.

5 = Expert
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LO1: Total Quality Management and the origins thereof
LO2: Defining Total Quality Management
LO3: The Total Quality Management theoretical model
4.1 Total Quality Management and the Origins Thereof

The purpose of this topic is to investigate the origins of TQM. However, before we do so,
we will commence our discussion with a definition of the term quality and the initial quality
movements. We will conclude this topic with an overview of the main contributors to TQM.
Topic duration
2 hours
In the context of supply chain management, quality should always be seen in terms of the
business’ market for its final products. This is because the quality of the final product is
directly influenced by the quality of materials that the supply side provided and the quality
of the manufacturing process. The market for the business’ end products will undoubtedly
be segmented into different categories of end customers – some demanding high-quality
(and probably expensive) products, while others may not need the best quality and will
not be willing to pay the highest prices. Quality, service and price have to be combined for
an indication of the relative value of a specific product to a specific market. However, a
business must maintain the quality that its customers desire, since this will largely
determine its relative position in the market, its profitability and therefore the
sustainability of the business. There can be no doubt that quality is a critical success factor
in giving a business a competitive advantage. Quality should be managed.
What is quality? Quality can be defined as the total combination of features and
characteristics through which a product or service, when used, will meet or exceed the
expectations of the customer by being able to satisfy a specific need. Based on this
definition, let us have a look at the origins of the quality movements.
Initial quality movements began even before the First Industrial Revolution (1750 – 1900)
and focused on controlling quality through inspection, based on a set of contracted
standards. Then came the Industrial Revolution which changed jobs, businesses and the
working environment dramatically. Unskilled labourers running machines began to replace
highly paid skilled artisans. What made this possible? Steam engines and later electricity
and numerous other inventions. Divisions of labour were invented. Each worker,
interacting with the machine, performed separate, highly specialised tasks. At the same
time, workers were a small part of numerous other steps required to manufacture
products. Work shifted from families to factories; from small, self-organised groups to
large factories employing thousands of people under one roof. Mass production was born.
Controlling quality through inspection became increasingly difficult to manage after the
first industrial revolution due to mass production. The quality revolution was led by the
Japanese post-World War II (which occurred 1939 – 1945) when they adopted the teachings
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of W Edwards Deming regarding quality management. The quality revolution, started by

Deming in Japan, was followed by several quality philosophies that influenced the
development of quality management into what we now recognise in contemporary
organisations. The following discussion focuses on the main contributors to quality
management, as depicted in figure 16 (Botha & Botha 2021).
W Edwards
Joseph M Juran Philip B Crosby
Deming
Armand
Kaoru Ishikawa Genichi Taguchi
Feigenbaum
Figure 16 Contributors to the development of total quality management
W Edwards Deming
William Edwards Deming (1900–1993) was an American engineer who adopted and
championed Shewhart's plan-do-check-act cycle, as well as his statistical process control
(SPC). He was ignored by the Americans but became a quality prophet in Japan. In the
process of embracing Deming’s teachings, the Japanese developed a reputation for
delivering innovative, high-quality products at affordable prices and, by 1960, they rose to
become the second-largest world economy.
Joseph M Juran
Joseph M Juran (1905–2008) a Romanian, arrived in Japan four years after Deming. Juran
furthered the quality revolution in Japan through his quality trilogy of three basic
processes, namely:
• Quality planning, which involves the customer;

• Quality control, which focuses on defining the critical elements required for
control; and
• Quality improvement, which motivates the need to improve before establishing
improvement projects that focus on addressing the root causes.
Juran also applied Vilfredo Pareto’s 80/20 principle to quality to achieve breakthrough
improvements (identify the 20% of activities that cause 80% of the problems).
Philip B Crosby
Philip Crosby (1926–2001), an American who described quality as ‘free’, contributed to the
quality movement by arguing that improvement in prevention would have a positive
influence on the appraisal cost of quality. Crosby’s view of quality was articulated in his
four absolutes of quality management, namely:
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• Quality means conformance to requirements;
• Quality comes from prevention;
• Quality performance strives for zero-defect; and
• Quality measurement is the price of non-conformance.
Crosby’s second contribution came in the form of the quality management maturity grid,
which classifies quality in organisations in five stages of maturity, namely:
• Stage 1: Uncertainty: During the first stage, the organisation has no comprehension
or recognition of quality. The organisation is perpetually in ‘firefighting’ mode.
• Stage 2: Awakening: During the awakening stage, the organisation has awakened
to quality with an acute awareness that quality improvement is required.
• Stage 3: Enlightenment: This stage involves an understanding of quality and

support for improvement is evident. Improvement projects are underway.
• Stage 4: Wisdom: During the wisdom stage, quality is an accepted routine, with a
prime focus on prevention. Maturity in organisational management is evident.
• Stage 5: Certainty: Quality management is the norm and an essential part of

management. Prevention is routine.
Armand Feigenbaum
Armand Feigenbaum (1922–2014) an American who defined quality as excellence-driven

rather than a defect-driven concept. He conceptualised total quality control (TQC).
Feigenbaum was instrumental in getting quality promoted from a production level (with a
product focus on quality) to a management level (with a broader business focus on
quality). Total quality control encouraged total involvement from the organisation,
requiring participation not only from production but also from all the other departments.
Feigenbaum’s philosophy later influenced the conceptualisation of total quality
management (TQM).
Kaoru Ishikawa
Kaoru Ishikawa (1939–1989) is best known for the development of the Ishikawa or fishbone
diagram, used for determining cause and effect. Like Feigenbaum, Ishikawa believed in
total participation in quality management. He promoted organisational quality learning
and the application of statistical tools, of which the fishbone diagram was one. Ishikawa
developed the concept of quality control circles, a team-based approach to problem-
solving. He is also credited with conceptualising the internal customer, the next person in
line to add value to the work done by the previous person. This concept was included in
the TQM philosophy.
Genichi Taguchi
Genichi Taguchi (1924–2012) a Japanese engineer, embraced the contributions of Deming

and Crosby and shared Feigenbaum’s belief about broader participation, particularly in the
design stage of product development. Taguchi conceptualised the concepts of ‘loss
function’ (cost of deviation from target value) and ‘design characteristics and noise’ (both
as significant causes for variation from target value). Taguchi’s concepts have been
accepted as valuable contributions to the quality management body of knowledge.
Much later, in the 1980s, under pressure and in response to the Japanese quality
revolution, America (through the efforts of its Navy) finally adopted Deming’s teachings
and developed and branded what is known today as total quality management.
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Conclusion
This concludes our discussion of the quality movement and origins of total quality
management. In this topic, we focused on the origins of TQM, in which the main
contributors to the quality movement and TQM were covered. The next topic defines TQM.
Before you move on to the next topic, make sure that you have a thorough understanding
of the origins of TQM by completing the knowledge check below.
Knowledge Knowledge Check: TQM and the origins thereof

Check
Question 1
Before the First Industrial Revolution, controlling quality was mostly
done through _____.
A contracts
B standards
C inspection
D force
Question 2
Which one of the following was an American engineer that started the
quality movement in Japan?
A Joseph M Juran
B W Edwards Deming
C Phillip B Crosby
D A Feigenbaum
Question 3
In Crosby’s quality management maturity grid, five stages of maturity
are identified. Which one of the following stages involves an
understanding of quality and support for improvement?
A 1
B 2
C 3
D 4
Question 4
_____ defined quality as an excellence-driven rather than a defect-
driven concept.
A Armand Feigenbaum
B Kaoru Ishikawa
C Genichi Taguchi
D Edward Deming
Question 5
Which one of the following developed the fishbone diagram, used for
determining cause and effect?
A Armand Feigenbaum
B Kaoru Ishikawa
C Genichi Taguchi
D Edward Deming
Answer: 1. C, 2. B. 3. C, 4. A, 5. B
4.2 Defining Total Quality Management
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The purpose of this topic is to define TQM. We will have a look at various definitions of the
term and then provide one definition that we will adopt in this course.
Topic duration
2 hours
In the previous topic, we defined the term quality as the total combination of features and
characteristics through which a product or service, when used, will meet or exceed the
expectations of the customer by being able to satisfy a specific need. Quality management
ensures that a business, its products and services are consistent. Quality management has
four components: quality planning, quality assurance, quality control and quality
improvement. Quality management is not only focused on product and service quality, but
also on the means to achieve it. What is total quality management? Let us have a look at
various definitions of the concept before we define what we will adopt in this course.
Total Quality Management (TQM) is a management framework based on the belief that an
organisation can build long-term success by having its members, from low-level workers
to its highest ranking executives, focus on improving quality and, thus, delivering
customer satisfaction. TQM requires organisations to focus on continuous improvement
or kaizen. It focuses on process improvements over the long term, rather than simply
emphasising short-term financial gains. (Pratt)
Total quality management (TQM) is the continual process of detecting and reducing or
eliminating errors in manufacturing, streamlining supply chain management, improving
the customer experience, and ensuring that employees are up to speed with training. Total
quality management aims to hold all parties involved in the production process
accountable for the overall quality of the final product or service. (Barone, 2021)
Total Quality Management is defined as a customer-oriented process and aims for

continuous improvement of business operations. It ensures that all allied works
(particularly the work of employees) are toward the common goals of improving product
quality or service quality, as well as enhancing the production process or process of
rendering of services. However, the emphasis is put on fact-based decision making, with
the use of performance metrics to monitor progress. (TQM 2021)
The definitions above, all highlight a number of important aspects concerning TQM.
These can be summarised as follows:
• TQM focus on the entire organisation and inputs of all levels of employees and
management;
• TQM seeks to improve customer satisfaction
• TQM is a long-term process, focusing on long-term performance
Based on the above, we can now provide a definition of TQM for adoption in this course:
Total Quality Management is a management philosophy consisting of mutually re-

enforcing principles, processes and techniques, all designed to ensure that the entire
organisation and all its employees diligently strive to provide products and services aims
at satisfying and exceeding the quality requirements of its customers.
As implied by the definition, one of the main elements of the philosophy of TQM is that
the attitude of the organisation and every employee must be directed towards a
continuous striving for improvement across all activities of a business and across the
businesses and functions involved in the supply chain. TQM, therefore, stresses that all
individuals and teams working towards customer satisfaction should endeavour to
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provide fault-free products and services. “Customers” in this context encompasses all
departments within the business (internal customers) and the ultimate customer in the
marketplace. The successful implementation of TQM requires commitment from top
management; internal coordination should be driven by quality to the customer; all
employees should be trained and work in teams and there should be regular performance
evaluation based on quality. TQM is not possible without the buy-in from all suppliers in
the supply chain.
Example TQM example
One of the most famous examples of total quality management is

Toyota. Toyota implemented Kanban System to make its assembly line
more efficient. The company decided to keep just enough inventories
to fulfil customer orders as they were generated. Kanban means a
signboard or billboard – a scheduling system for lean manufacturing, or
just-in-time manufacturing. An industrial engineer at Toyota, Taiichi
Ohno, developed Kanban to improve manufacturing efficiency. The
system takes its names from cards that track production within a
factory. It supports running the production system as a whole and it is
an excellent way to promote improvement. Problem areas are
highlighted by measuring lead time and cycle time of the full process
and process steps. (ReQtest 2019)
Conclusion
This concludes our discussion of the definition of total quality management. This topic
focused on providing you with a definition of the concept of Total Quality Management.
We had a look at various definitions of the concept, determined the common highlights of
these definitions and established a definition that we will adopt in this course. The next
topic will investigate the TQM model.
Before we move on to the next topic, make sure that you have a thorough understanding
of the meaning of total quality management by completing the knowledge check below.
Knowledge Knowledge Check: Defining total quality management

Check
Question 1
Quality management has four components: quality planning, quality
assurance, quality control and _____.
A quality measurement
B sustainability of quality
C quality improvement
D quality assessment
Question 2
Quality management is not only focused on product and service quality
but also, on _____.
A sustainability
B means to achieve it
C productivity
D profitability
Questions 3 to 5
Answer TRUE or FALSE to the following three questions:
Question 3
TQM focus on the operations function of the business.
A True
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B False
Question 4
TQM seeks to improve customer satisfaction.
A True
B False
Question 5
One of the main elements of the philosophy of TQM is that the attitude
of the organisation and every employee must be directed towards a
continuous striving for improvement across all activities of a business
and across the businesses and functions involved in the supply chain.
A True
B False
Answer: 1. C, 2. B, 3. B, 4. A, 5. A
4.3 The Total Quality Management Model

In the previous topic, we have introduced the concept of the management philosophy
TQM. In this topic, we will first discuss the four pillars of the TQM model. Second, we will
provide a model for implementing total quality management in an organisation.
Topic duration
4 hours
4.3.1 The four pillars of TQM

The concept of TQM seeks to improve productivity through customer satisfaction and
employee involvement. It is based on the four pillars of total quality management to
ensure quality by design rather than by accident. Figure 17 depicts the four pillars of TQM.
Systems approach Customer focus
Continuous
People involvement
improvement
Figure 17 The four pillars of TQM
In the discussion that follows, we will explain each of these pillars in more detail.
Systems approach
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A systems approach requires the business to be defined as an open system that takes
input from the environment it functions in and adds value through its assets and internal
systems to produce outputs (products or services) to the environment.2 The organisational
system is best understood by identifying and defining the elements that define the
business and the inter-related functioning of these elements. With the system in balance,
these elements work seamlessly to produce a quality output that satisfies the customer.
Customer focus
A customer focus is found in Ishikawa’s philosophy that recognises internal and external
stakeholders as customers or recipients of value-adding products or services. The
philosophy requires every human resource to recognise the next person in line, who
becomes the recipient of the value-added work they performed, as a customer. This
establishes a value-adding chain that starts at the origin and culminates with the ultimate
customer receiving a product or service completed to their required satisfaction.
Adopted as a philosophy, the customer or stakeholder is seen as having a choice and is

not a victim held to ransom by the organisational system. A customer focus ensures that
each person in the value-adding chain takes responsibility for the quality of their work,
thus ensuring quality by design and not by accident.
People involvement
People involvement, also a concept developed by Ishikawa, is a tactic to engage people

specifically in the initiating and planning processes so that they take ownership and
embrace business plans, goals, structures, systems and processes. Its focus is on
teamwork and requires management to play a facilitative role in guiding, coaching and
managing team efforts.
Process of continuous improvement
The process of continuous improvement, promoted by Deming, assumes that proper

planning establishes and approves business goals. Furthermore, it assumes that business
assessments are used to establish the current business status in terms of the business
being able to fully support the work to be performed to achieve the planned strategic
goals and that the appropriate business drivers have been identified to facilitate the
process. The process of continuous improvement is then institutionalised by continuously
measuring and documenting the actual progress against the planned progress. In cases of
underperformance, remedial action will need to be implemented timeously.
4.3.2 A model for implementing total quality management in a business

The foundation of total quality management is about establishing a culture or habit to
perform daily tasks in a business correctly and to improve the quality of tasks that are
strategic in nature. Holistically, TQM focuses on all business processes, practices and
products. To establish a TQM culture, a number of essential elements are required:
• Leadership. Leadership is the most important and first element of the TQM culture.
A good and strong leader will shape the business culture and its quality of
commitment to its customers and other business partners in the supply chain.
• Policy Deployment. This is used to create a vision for the business, establish
breakthrough and new strategies and translate them into actions by aligning
resources across the business.
2
You may refer back to Figure 3 in Unit 1, which depicts the transformation process. The
inputs are received from the environment and the outputs are given back to the
environment. For this reason, the business is seen as an open system due to its interaction
with the environment.
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• Kaizen. The term ‘Kaizen’ means ‘change for the better’ and refers to a culture of
focusing on small, everyday continuous improvements at work.
• Standardisation. Without standardisation, the business will produce inconsistent

outputs. Therefore, standardisation of systems and processes and outputs are
essential to creating a TQM culture.
• Total employee involvement. This is fundamental to any business, but especially so

for a business creating a TQM culture. Such a business needs to involve employees
on all levels, including employees at the lowest levels of the business.
Following a TQM philosophy, will provide a business with a number of benefits, such as:
• Higher levels of customer satisfaction and loyalty
• Higher customer retention
• Improved product and service quality
• Higher employee engagement and participation
• Lower levels of employee turnover
• Better working relationships with business partners in the supply chain
• Increased productivity and performance
The following video summarises the discussion above. Watch the following video.
Video Total Quality Management (3.43 minutes)
At: https://www.youtube.com/watch?v=ksIKAdewTTQ
The video emphasises the foundation of TQM, namely the strategic nature of quality
improvement activities.
Conclusion
This concludes our discussion of the TQM model. Before we move on to the next topic,
make sure that you have a thorough understanding of the TQM model by completing the
Knowledge Knowledge Check: TQM model

Check
Question 1
A (i) _____ approach requires the business to be defined as a/n (ii)
_____ system that takes input from the environment it functions in
and adds value through its assets and internal systems to produce (iii)
_____ to the environment.
A (i) contingency; (ii) open; (iii) products
B (i) systems; (ii) _____;(iii) products and services
C (i) management; (ii) open; (iii) products
D (i) quality; (ii) profitable; (iii) outputs
Question 2
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A customer focus is found in _____ philosophy that recognises internal

and external stakeholders as customers or recipients of value-adding
products or services.
A Deming’s
B Juran’s
C Crosby’s
D Ishikawa’s
Question 3
_____ involvement is a tactic to engage people specifically in the
initiating and planning processes so that they take ownership and
embrace business plans, goals, structures, systems and processes.
A Customer
B People
C Supplier
D Government
Question 4
The process of continuous improvement, promoted by_____, assumes
that proper planning establishes and approves business goals.
A Deming
B Juran
C Crosby
D Ishikawa
Question 5
_____ assumes that business assessments are used to establish the
current business status in terms of the business being able to fully
support the work to be performed to achieve the planned strategic
goals and that the appropriate business drivers have been identified to
facilitate the process.
A People involvement
B The process of continuous improvement
C Customer focus
D A systems approach
Answer: 1. B, 2.D, 3. B, 4. A, 5. B
Unit conclusion
Since the quality of one of the methods of improving customer service, a thorough
understanding of quality, quality management and total quality management is vital in
supply chain management. In this unit, we focused on these issues. We commenced with
an overview of the origins of TQM, followed by defining the concept. We concluded by the
TQM model. The next unit (unit 5) will cover supply chain integration.

1 = Novice
me.
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I have a fair grasp of the subject matter

3 = Average understanding or competence
and its application.
competence
5 = Expert
LO1: Explain the origin of TQM
LO2: Provide definitions of the concept Total Quality Management

LO3: Illustrate an understanding of the Total Quality Management
theoretical model
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Unit 5: Supply Chain Integration

Purpose
In Unit 1 (The Supply Chain) we defined a supply chain as a network between a business
and its suppliers and customers that includes all the transactions involved in transforming
raw goods into saleable products. In today’s competitive and globalised business
environment, the viability and sustainability of businesses depend on integrating with
other supply chain members, so that their complementary skills and competencies and
compatible goals can help them to survive and prosper. In this unit, we will focus on supply
chain integration.
Learning Outcomes
By the end of this unit, you should be able to assess the impact of teamwork, collaboration
and communication in supply chain integration.
Unit outcomes
1. Explain the role of teamwork and collaboration in the success of a supply chain;
2. Determine ways to improve teamwork and collaboration between departments as
well as with external stakeholders;
3. Explain how teamwork and collaboration can lead to a competitive advantage;
4. Explain the role of effective communication in the supply chain;
5. Differentiate between the various methods of communication;
6. Discuss appropriate ways to communicate to an audience outside of the business;
7. Discuss the impact that word choice and tone can have on a business message;
and
8. Write a business communication given a specific audience and purpose.
Unit duration
16 hours
▪ Horn, G (ed). 2020. Supply chain management. 2 nd ed. Cape

Town: Oxford University Press. Chapter 11.
▪ https://courses.lumenlearning.com/wmopen-
businesscommunicationmgrs/chapter/word-choice-and-
tone/
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Supply chain integration (SCI) can be defined as the collaboration

among businesses and other supply chain partners to develop an
Supply chain effective and efficient movement of materials, resources, parts and
integration information, to produce products and services that are valuable to the
customer in the quickest way and at the lowest possible cost.
Internal Internal integration refers to efforts within the business to overcome

integration functional boundaries.
External integration refers to efforts to collaborate, share information

External and align processes with external supply chain partners such as
integration customers and suppliers.
Communication can be described as the process of transmitting

Communication
information and meaning.
Introduction
Let us commence this unit with an explanation of the concept ‘supply chain integration’.
Supply chain integration (SCI) can be defined as the collaboration among businesses and
other supply chain partners to develop an effective and efficient movement of materials,
resources, parts and information, to produce products and services that are valuable to
the customer in the quickest way and at the lowest possible cost. (Horn 2020) Thus, SCI
implies cooperation plans and activities between suppliers, manufacturers, warehouses,
distributors and retailers that aim to develop products by transforming raw materials into
finished goods for customers. In this unit, we will first focus on teamwork and
collaboration as a means of SCI. Second, we will focus on effective communication in the
supply chain.

1 = Novice
me.



competence
contexts.

5 = Expert
LO1: Explain the role of teamwork and collaboration in the success of a

supply chain
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LO2: Determine ways to improve teamwork and collaboration between

departments as well as with external stakeholders
LO3: Explain how teamwork and collaboration can lead to a competitive
advantage
LO4: Explain the role of effective communication in the supply chain
LO5: Differentiate between the various methods of communication
LO6: Discuss appropriate ways to communicate to an audience outside

of the business
LO7: Discuss the impact that word choice and tone can have on a
business message
LO8: Write a business communication given a specific audience and
purpose
5.1 Teamwork and Collaboration

The purpose of this topic is to introduce you to supply chain integration (SCI). We will cover
internal and external integration and focus specifically on teamwork and collaboration as
tools for SCI.
Topic duration
8 hours
5.1.1 The role of teamwork and collaboration in the success of a supply chain
In the introduction to this unit, SCI was defined as the collaboration among businesses and
other supply chain partners to develop an effective and efficient movement of materials,
resources, parts and information, to produce products and services that are valuable to
the customer in the quickest way and at the lowest possible cost. Businesses link their
internal process to external suppliers and customers, with different levels of integration.
Thus, we can differentiate between internal and external integration.
Internal integration refers to efforts within the business to overcome functional

boundaries. For example, the boundaries between the various functional departments of
a business such as marketing, finance, human resources and research and development.
The purpose of internal integration is to improve the level of cooperation between the
functional departments and to align processes within the business. With internal
integration, business-wide goals are pursued instead of functional goals. All activities of
all functions will be executed to achieve the overall goals of the business.
External integration refers to efforts to collaborate, share information and align processes
with external supply chain partners such as customers and suppliers.
In the following section, we will focus on the various ways to improve teamwork and
collaboration in a supply chain.
5.1.2 Improving teamwork and collaboration

SCI has four dimensions, when implemented, improves teamwork and collaboration.
These four dimensions are:
• Direction of integration
• Degree of integration
• Level of integration
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• Flows of integration
In what follows, we will explain each of these dimensions. In the discussion, it will become
clear how the implementation of each dimension will improve teamwork and
collaboration between departments in a business and with external stakeholders.
• The direction of integration. External supply chain integration takes place in various
directions, for example vertical (where we differentiate between forward and
backward vertical) or horizontal.
o Vertical integration is the process of integration and coordination of
businesses on different stages in the supply chain, for example
manufacturing, warehousing or retailing. This means that customers and
suppliers are integrated into the SC. With vertical integration, supply chain
businesses can integrate forward or backward.
o Forward vertical integration involves coordination and integration of the
forward physical flow of deliveries between suppliers, manufacturers and
customers. For example, a paper manufacturer may integrate with a
publishing company.
o Backward vertical integration in the SC involves the backward coordination
from customers to suppliers. For example, information technology makes it
possible for the flow of information from the customer to suppliers -
independent businesses in the SC can coordinate their activities in line with
the information received. Collaborative planning, forecasting and
replenishment can be done through the help of modern information
technologies.
o Horizontal integration is the coordination and integration of businesses at
the same stage in the supply chain, for example, two pharmaceutical
companies working together in certain areas such as research and
development, to develop a vaccine for a newly identified virus.
• Degree of integration. The second dimension of supply chain integration or

collaboration is the degree of integration. This refers to the extent of collaboration
between businesses in terms of operations and sharing information. The spectrum
of integration ranges from short term relationships, including adversarial
relationships and partnership, and full integration.
o Adversarial relationships refer to no integration. Most purchases in a
business consist of transactions of this type, where no relationship exist
between the buyer and the seller. Purchasing and selling standard types of
products and services in a highly competitive market (such as groceries,
homeware and clothing) apply to this type of relationship and transaction.
o Partnerships. With partnerships, the integrations of businesses are formed
by establishing long-term relationships or strategic alliances, based on trust,
teamwork and sharing information, risks and benefits of the relationship.
The partners will perform better by the strategic alliance than they would
by working on their own.
o Full integration. Two options are available with full integration, namely a
joint venture and vertically integrated businesses. In a joint venture
agreement, two or more businesses pool their resources and establish a
new business and new legal entity by sharing capital, risk and rewards. An
important characteristic of a joint venture is that the businesses that pool
their resources will continue to exist separately. A vertically integrated
business owns and controls every stage of the supply chain. For example,
clothing retailers acquire their most important local clothing supplier.
• Level of integration. The third dimension of SCI is the level of integration, which
refers to the various managerial levels in a business. Three levels of integration or
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collaboration can be distinguished, namely operations management level, planning

and control level and strategic management level.
o Operations management level. SCI must commence with the integration of
the operational level, which is the basis of collaboration between all the
businesses. On this level, collaboration and teamwork take place between
activities and processes on the basic level of the business and the other
businesses in the SC. This includes activities and processes such as the
ordering of materials, incoming transport, materials handling, warehouse
processes, information systems and sales.
o Planning and control level. At this level, business processes such as source
(purchasing), make (producing) order fulfilment (delivery) and inventory
replenishment (reordering) are integrated by providing information on
quantities and timelines of required final products. Databases are needed
on this level of collaboration and teamwork.
o Strategic management level. On this level, supply chain integration
management skills are needed to maintain the integration partnership
successfully.
• Flows of integration. In an SC, four kinds of flows should be coordinated and

integrated to produce value and contribute to the competitive advantage of the
business. These are product/service flow, knowledge flow, information flow, and
funds flow.
o Product/service flow. This refers to serials of value-adding activities as the
materials/product moves through the supply chain from the material
acquisition to end customers. Value is added at each partner in the SC and
physical changes to the product are made. Value is also added through
packaging, launching and customisation of the product, providing service
support and other activities until the product meets the needs of the end
customer.
o Knowledge flow. This refers to knowledge about the end customer and
takes place in the opposite direction of the materials flow. The integrated
SC should obtain knowledge about the end customer and the market, its
needs, sales, sales mode and product description.
o Information flow. This refers to the flow of information between partners in
the SC, for example forecasting information, information on promotional
plans, purchase orders, order confirmations, shipment and inventory
information, invoices, payment, and replenishing requirements.
o Funds flow. The funds in the SC flow from the customer to the supplier as
the supplier need to be remunerated for the supplied part/product or
service delivered.
The different flows in the SC as explained above (product/service flow, knowledge flow,
information flow and funds flow), will take place, even if there is no collaboration or
teamwork. However, with collaboration and teamwork, these flows will be smooth and
prevent duplication, waste, redundancies and inefficiencies in the SC. The next section
explains how teamwork and collaboration can lead to a competitive advantage.
5.1.3 Competitive advantage through teamwork and collaboration

SCI, through teamwork and collaboration of businesses and other supply chain partners,
leads to a number of advantages. These advantages are the following:
• SCI leads to performance improvements in supply chains;
• SCI improves the efficiency and flexibility of logistics processes, the quality of
outputs, the visibility and quality of information throughout the business;
• SCI improves customer satisfaction levels;
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• SCI eliminate redundancies;
• SCI reduce operational costs; and
• SCI leads to lower running costs and improve financial performance in terms of
profit margins and return on investment – thus leading to a competitive advantage
for a business.
The example box below illustrates the importance of collaboration and the management
of relationships in the supply chain in practice.
Example Teamwork and collaboration in Tourism Supply Chain to overcome

pandemic outbreaks
The COVID-19 pandemic hit all industries all over the world, but
especially the tourism industry. The cross-cutting, interdependent and
fragmented nature of tourism products forces businesses to establish
relationships with numerous stakeholders in the industry – suppliers,
distributors, competitors, governments and other businesses –
resulting in Tourism Supply Chains (TSCs). Collaboration and integration
are therefore seen as drivers of agility, flexibility and business
performance. However, being a collaboration-intensive industry
represents a risk due to the high dependency on the supply chain. Any
shock from one business partner quickly spreads to others, producing
cascading effects on the TSC. Consequently, it could be said tourism is
a very sensitive and vulnerable sector to any risk situation caused by
external factors, whether it is a natural disaster, an economic crisis, an
international conflict, terrorism or a pandemic.
The rapid spatial diffusion of the COVID-19 epidemic outbreak led the
World Health Organization (WHO) to announce the pandemic in March
2020, resulting in border closures and mandatory mass quarantine, with
the consequent total economic disruption of TSCs’ activities. The
impacts of this pandemic on the travel and tourism sector are
unprecedented and fast-changing. Airlines have had to drastically
reduce their activities, and in some cases even suspend them. Tour
operators have also decreased or stopped their operations from mid-
March 2020.
For the hospitality industry, this has meant extremely low occupancy
rates and even mass closures. In Europe, it was estimated that 76 % of
hotels were closed. In Spain, one of the countries most dependent on
tourism, as a result of restrictions during the first three weeks of June
2020, only 35.4 per cent of hotels were open and 17.6 per cent of bed-
places were offered, compared to 2019. In the same line, overnight
stays in hotel establishments fell by 95.1 per cent in June.
In this context, revenue is expected to drop 50 per cent for hotels, 70

per cent for tour operators and 90 per cent for airlines. All this has put
the tourism industry under unprecedented pressure, causing a
significant reduction in revenue and creating liquidity issues for all
operators.
General literature on supply chains has addressed two types of risks to
be faced by supply chains. On the one hand, operational risks can cause
disturbances like demand fluctuations, as happened with the S.A.R.S.
epidemic. On the other hand, disruption risks in supply chains are low-
frequency-high-impact events characterized by a long-term business
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interruption with an unpredictable scaling, as the COVID-19 pandemic.

Disruption risks in supply chains are also characterized by the
simultaneous disruption propagation in the supply chain and demand
(ripple effect).
According to recent research on crisis management in the tourism

industry, the existing interconnectivity and collaboration could be a key
aspect in the recovery of the industry by mitigating the negative effects
of the economic impact of COVID-19. This implies coordination
between the activities of the partners in the TSC, as well as
consideration of the impact of their actions on other members.
Source: Gonzalez-Torres, T.; Rodriguez, J.; & Pelechano-Barahona, E.

2021. Managing relationships in the Tourism Supply Chain to overcome
epidemic outbreaks: The case of COVID-19 and the hospitality industry
in Spain. Elsevier Public Health Emergency Collection. Jan.
Conclusion
This concludes our discussion of teamwork and collaboration. This topic focused on the
role of teamwork and collaboration in the success of a supply chain. We identified ways to
improve teamwork between departments and external stakeholders or business partners
and also explained how it can lead to competitive advantage. The next topic will
investigate the role of effective communication in the supply chain.
of teamwork and collaboration in the SC by completing the knowledge check below.
Knowledge Knowledge Check: Teamwork and collaboration

Check
Question 1
_____ was defined as the collaboration among businesses and other
supply chain partners to develop an effective and efficient movement
of materials, resources, parts and information, to produce products and
services that are valuable to the customer in the quickest way and at
the lowest possible cost.
A Supply chain development
B Supply chain management
C Supply chain leadership
D Supply chain integration
Question 2
_____ integration is the process of integration and coordination of
businesses on different stages in the supply chain.
A Horizontal
B Lateral
C Vertical
D Informal
Question 3
Which one of the following can be described as two or more businesses
that pool their resources and establish a new business and new legal
entity by sharing capital, risk and rewards?
A Joint venture
B Strategic alliance
C Merger
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D Acquisition
Question 4
At this level of integration, business processes such as source
(purchasing), make (producing) order fulfilment (delivery) and inventory
replenishment (reordering) are integrated by providing information on
quantities and timelines of required final products.
A Strategic management
B Operations management
C Planning and control
D Business process
Question 5
_____ refers to knowledge about the end customer and takes place in
the opposite direction of the materials flow.
A Product/service flow
B Knowledge flow
C Information flow
D Funds flow
Answer: 1. D, 2. C, 3. A, 4. C, 5. B
5.2 Effective Communication in the Supply Chain

From plastics to the automotive industry: Every day, manufacturing businesses receive
thousands of messages by fax, email and letter, which need to be sorted, processed,
manually entered into their systems and finally archived. With each delivery, the recipient
must reliably be provided with a delivery notification by means of email or fax. In the retail
industry, internal and external communication have a positive effect on customers and
employees.
The purpose of this topic is to introduce your effective communication in the supply chain.
We will commence with the role and importance of effective communication in the SC.
Then, we will differentiate between various methods of communication.
Topic duration
8 hours
5.2.1 Role and importance of effective communication in the supply chain

Before we explain the role and importance of communication in the SC, let us commence
our discussion with an explanation of communication and effective communication.
Communication can be described as the process of transmitting information and meaning.
This process is used when there is something that the sender wants the receiver to know,
understand, or act upon (Botha et al 2020).
The complex nature of the communication process must be understood if it is to be

effective and meaningful. We can appreciate the communication process best if we break
it down into various steps and illustrate them in a diagram as in figure 18. We must bear in
mind, however, that any attempt to illustrate the sequence of communication between
two individuals is necessarily an oversimplification — the steps in a communication episode
are interactive; they do not occur in sequential order.
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Figure 18 The communication process
Communication takes place between a sender and a receiver. The sender initiates the
communication. In an organisation, the sender will be a person with information, needs or
desires, and a reason for communicating this to one or more people. In the SC, a
manufacturing business may need to replenish its raw material stock levels. The
operations manager will need to communicate this to the purchasing manager. In this
scenario, the operations manager is the sender of the message.
Encoding takes place when the sender of the message translates the information into a
series of symbols. Encoding is necessary because information can be transferred from one
person to another only through representations or symbols. Since communication is the
object of encoding, the sender attempts to establish mutuality of meaning with the
receiver by choosing symbols, usually in the form of words and gestures, which the sender
believes will have meaning for the receiver. In the case of the manufacturing business
which needs to replenish its levels of raw material stock, the operations manager need to
translate this information into a series of symbols. For example, which raw material, what
quality and quantity and when will it be needed to get replenished.
The sender has to select a channel for transmitting the message. The best possible channel
for conveying a specific message should be chosen. In the case of the operations manager
at a manufacturing business, the best channel will probably be a purchasing request,
providing all the detail to the purchasing manager.
Noise may be described as any factor that disturbs, confuses, or otherwise interferes with
the transmission of the message. Noise may arise along the communication channel and
may either be internal or external. Examples of internal noise are discomfort, stress,
exhaustion, or any other internal factor that distorts the message. External noise, such as
a phone ringing or a noisy air conditioner, may also disturb the message. Noise may occur
at any stage of the communication process but is particularly troublesome in the encoding
or decoding stage. Since noise can interfere with understanding, managers should
attempt to restrict it to a level that permits effective communication. In the case of the
operations manager in the manufacturing business communicating replenishing raw
material stock levels to the purchasing manager, examples of noise may be providing
incorrect information, or no knowledge of new, improved raw materials available.
The receiver is the person whose senses perceive the sender’s message. There may be
only one receiver, or there may be many. In the case of the manufacturing business, the
receiver of the message will be the purchasing manager. Decoding is the process in which
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the receiver interprets the message and translates it into meaningful information. This is a
two-step process. The receiver must first perceive the message and then interpret it.
Decoding is affected by the receiver’s experience, personal assessment of the symbols and
gestures used, expectations, and so on. The more the receiver’s decoding matches the
sender’s intended message, the more effective the communication will be. In the case of
the manufacturing business, the purchasing manager will decode the purchasing request
received from the operations manager.
The receiver has to decide whether feedback to the sender is needed. Feedback is
necessary to establish the effectiveness of the communication process. In the case of the
manufacturing business, the purchasing manager will provide the operations manager
with feedback by acknowledging the receipt of the purchasing request and an indication
of the approval thereof and time of delivery.
The process described above refers to all types of communication. As students of supply
chain management, we are interested in the role of effective communication in the supply
chain.
For the supply chain manager, effective communication is crucial. Communication with
co-workers, suppliers, customers, business partners and so on needs to be managed
effectively to make the supply chain achieve success. The following are some of the
advantages of effective communication in the supply chain:
• Increasing productivity and financial performance. Effective communication in the

supply chain will reduce errors (for example the purchasing of wrong products or
the delivery of incorrect raw materials at the wrong time and wrong quality and
quantity). The reduced error will increase productivity levels, increase quality and
ultimately lead to increased financial performance.
• Improving employee morale and engagement. When the communication between

a supply chain manager is clear it will improve employee morale and engagement
and improve their performance. If the communication between the management
and employees are effective then the confidence of the employees will increase.
Expectations of the employees will be fulfilled through clear communication which
will improve the morale of the employee. As a direct consequence, employee
retention will increase.
• Developing a team approach and collaboration in the supply chain. Effective

communication in the supply chain will contribute to the effectiveness of
teamwork and collaboration in the supply chain, achieving all the benefits thereof
that we explained in the previous topic.
• Improve customer satisfaction. Effective communication has an impact on

customers and improves customer satisfaction. A direct result of improved
customer satisfaction is that brand trust is enhanced.
In the next section, we will focus on various methods of communication in a business.
5.2.2 Methods of communication

Communication in a business can take various forms, namely intrapersonal, interpersonal,
and organisational communication. These are explained in more detail below:
• Intrapersonal communication. In intrapersonal communication, an individual

receive, process, and transmit information to him/herself.
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Example The logistics manager of a company wants to analyse the movement

of inventory and materials from one location to the next. He/she
makes use of a transportation and logistics software programme to
plan multi-stop trips, consolidate shipments to maximise space and
plan for less than loading shipping.
• Interpersonal communication. In interpersonal communication, information is

transferred between two or more people.
Example The IT manager of a company is concerned about data theft, knowing

that the company can lose its position in the market as well as damage
its relationships with suppliers. The IT manager communicates with
clients to let them know what efforts have been made to safeguard
their information.
• Organisational communication. In organisational communication, information is

transferred between organisations or between different units or departments in
the same organisation.
Example A company in the manufacturing industry collaborate with other

business partners through a designated portal. Their supply chain
portal eliminates several collaboration challenges, for example,
communication barriers, bottlenecks in requisition and orders. By
using the portal, all parties have access to production progress, order
forecasts, product specifications, purchase orders, shipment history
and schedules.
5.2.3 Communicating with an audience outside of the business

Communicating with an audience outside the business can be defined as a strategy
covering the wide range of methods the businesses use to capture the attention of the
public. Unlike marketing plans, which focus on conveying value to customers and clients,
external communication is about connecting with anyone outside of the business.
Therefore, this type of communication includes social marketing and video content,
presentations to shareholders or investor campaigns. It is important to recognise that
when communicating with an audience outside the business (or external communication,
the business is sharing its marketing mix with the world, communicating its brand
purpose, developments and personality to the public. An external communication strategy
may include solutions such as the following:
• Advertising: Content marketing or more traditional forms of advertising are

options for external corporate communication. One of the most important aspects
of such a strategy will be finding a way to connect with the audience. Advertising
has many different layers depending on which part of the buyer journey the
business wants to appeal to.
• Presentations/brand information: External communication strategies don’t just
include marketing campaigns, but also the things that a business can use to reach
out to its investors, suppliers, and shareholders. This means that they can include
slides, presentations, sales material, and more.
• Networking strategies: An external communication strategy might also include a
networking campaign that allows a business to build its external connection. In
today’s digital world, a lot of networking takes place online, through connections
to public relations agencies, news outlets, and social media influencers. However,
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there’s still plenty of opportunities to grow a business’ brand through events and
seminars.
• Websites and blogging. Website creation, blogging, and content marketing aren’t
just ways to advertise a business. While they’re all effective in helping to build a
business's bottom line, they also provide plenty of important information about a
business company. After all, whenever someone in today’s marketplace considers
doing business with a brand, the first thing they do is “Google” them to see if they
have a web presence. There’s a good reason why marketers who blog are up to 13
times more likely to experience a good return on investment. Companies that blog
also generate up to 67 per cent more leads than their peers. When it comes to
building an external communications strategy, a business’ website becomes the
hub for all of its other brand-building campaigns. Every post-it creates is another
indexed page on its website, making it increasingly likely that its customers will
find it when they search online.
• Live events and conferences. When exploring internal and external
communication in business, it’s important to remember that a business needs a
wide range of strategies to appeal to a broad audience. While blogs might capture
the attention of business-to-consumer customers, the business will likely need
another way to interact with potential partners, shareholders, resellers, and
professional partners. Live events, seminars, and conferences are a great way to
boost an external corporate communication strategy.
• Email and newsletters. For the majority of today’s businesses, emails are effective
for marketing. However, email isn’t just a way to show new offers to your
customers and try to sell products. It’s also a powerful way to build relationships
with various groups in an external network. With segmentation, a business can
group its email campaigns into solutions for shareholders, customers, and
investors, and then refine each of those groups even further. Email open rates are
on the rise and the fact that it costs very little to get an email campaign going
means that it’s one of the best ways to add weight to external communication in a
business toolkit.
• Social media. Social media has emerged as one of the most important external
communication tools for many brands. It’s so effective when it comes to improving
quick and efficient communications, that it’s even become a part of the internal
communication network too. For an effective external communication strategy
using social media, a business needs to find out what kind of platforms its audience
uses to connect. Once they know where their customers are, they can begin to
build their social media strategy to serve them.
• Press release. While press releases might not be the most modern or high-tech
external communications solutions on the market today, they’re still an effective
way to get the latest news about a business out. Press releases issued through
reputable journalism pages and media outlets help to improve the reputation of a
business and its credibility as a brand. They also ensure that a business connects
with new customers or potential investors on different channels.
Regardless of which external communication solution a business make use of, the word
choice and tone of a business message have a huge impact on the effectiveness of
communication with an external audience. In the next section, we will briefly pay attention
to the impact of word choice and tone on a business message.
5.2.4 The impact of word choice and tone on a business message

When communicating with an external audience, word choice, and tone of the message
allows the communication to be received and understood while maintaining a positive
business relationship. With proper wording and phrasing, business communications can
enhance the reputation of the business.
Writing for the reader
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The audience is the receiver of the business communication. This model focuses on the
choices a writer or sender of a message can make to best convey their message to the
receiver. If all choices are related to considering the receiver’s needs over those of the
sender, the message is more likely to achieve its purpose quickly.
Language as an Obstacle
Each of us has a variety of ways of speaking and writing depending on circumstances. You
write a thank-you note to your aunt for the socks she sent much differently than you write
a thank-you note after a job interview with the vice president of the division. In business
communication, the key is to choose a language that is direct and easy for your audience
to understand.
When you’re writing, it’s important to consider your audience’s understanding compared
to your own. For example, if you’re writing a newsletter for customers, you would use
much different language than you would if you were writing a product status update to
the engineers who initially created the product.
When communicating with an audience, the following should be taken into account:
• Clichés. Clichés that we use in everyday conversation (green with envy, face the
music, add insult to injury, and so on). Merriam-Webster’s dictionary defines a
cliché as “a trite phrase or expression; a hackneyed theme, characterization, or
situation; something (such as a menu item) that has become overly familiar or
commonplace.” When communicating with external audiences, clichés should be
avoided.
• Jargon. The dictionary defines jargon as “the technical terminology or

characteristic idiom of a special activity or group.” Since these terms are used
within an activity, group, or profession, they’re typically not well understood
outside that context. Within the context of a specific group, jargon may help
members of the group refer to very specialised concepts, but those outside the
group may find the jargon incomprehensible or may misunderstand the intended
meaning. Therefore, it should be avoided.
• Slang. Slang or idiomatic expressions should also be avoided in formal business

writing or academic writing. Slang and idiomatic expressions make writing sound
informal and less credible. They can also make it harder for non-native English
speakers to understand.
• Bias free writing. Business communication should be clear and direct in meaning,
and drawing attention to details about the race, age, country of origin, disability,
and gender in the workplace might cause conscious or unconscious bias.
• Sentence length and complexity. With business writing, the main focus is on the
reader’s ability to quickly absorb and react to the communication. Concise business
writing uses a clean, straightforward sentence structure to improve understanding
and retention.
• Active and passive voice. You’ve probably heard of the passive voice—perhaps in a
comment from an English teacher or in the grammar checker of a word processor.
In both of these instances, you were (likely) guided away from the passive voice.
Why is this the case? Why is the passive voice so hated? After all, it’s been used in
this paragraph already (twice now!). When the passive voice is used too frequently,
it can make your writing seem flat and drab. However, there are some instances
where the passive voice is a better choice than the active.
So just what is the difference between these two voices? In the simplest terms, an
active voice sentence is written in the form of “A does B.” (For example, “Carmen
sings the song.”) A passive voice sentence is written in the form of “B is done by A.”
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(For example, “The song is sung by Carmen.”) Both constructions are grammatically
sound and correct. Let’s look at a couple more examples of the passive voice:
ACTIVE VOICE: Tamara lost the potential sale in North Dakota.
PASSIVE VOICE: The potential sale in North Dakota was lost.
You may have noticed something unique about the previous passive voice
example: the passive voice can be used to “hide” who performed the action.
Despite these sentences being completely grammatically sound, we don’t know
who lost the sale if we only read the passive sentence. This could be a good way to
focus on ways to improve company strategy, rather than focusing on a single
person’s performance (and avoid calling out a single employee in a potentially
public setting). If, however, it is important that Tamara lost the sale, but we want
to focus on the loss rather than who lost it, saying “The potential sale in North
Dakota was lost by Tamara,”
The passive is created using the verb to be (e.g., the song is sung; it was struck
from behind). To be conjugated irregularly. Its forms include am, are, is, was,
were, and will be, had been, is being, and was being.
Business writing is known for being direct and to the point in most situations, so
you should favour active rather than passive verb constructions. But there are
occasions when being too direct can make you sound insensitive. Consider the
following refusal of a request for a raise:
ACTIVE VOICE: You cannot have a raise at this time.
PASSIVE VOICE: A raise cannot be given at this time.
In this case, the goal of using the passive voice to soften the negativity of the
message has made the message sound more considerate. If you are trying to avoid
throwing someone under the bus, one strategy is to de-emphasize the actor or
subject in the sentence. Bring out your sensitive side by knowing how to tactfully
apply passive voice. Reserve passive verbs for the moment you need to say “no” in
a message.
• Clarity. Word selection and phrasing leads to successfully transferring meaning

from the sender to the receiver. Doing this well enhances the writer’s reputation.
The business’s reputation also grows—not in a blatant way but in a behind-the-
scenes way.
• Plain words. When trying to enhance your reputation, it is tempting to want to use
complex words to appear smart and sophisticated. Unfortunately, this tends to
obscure your ideas and potentially damage your credibility.
In the section that follows, we will practice these guidelines by providing you with various
scenarios. You will then be required to answer the questions following the scenarios.
5.2.5 Write a business communication given a specific audience and purpose

Consider the following scenarios and choose the correct answers:
Scenario 1
Mario has worked with Ali since he started at a local hardware store three years ago.
Recently, Ali was promoted to be Mario’s boss. They are scheduled to sit down next week
to establish performance objectives for the year. Mario is trying to decide how to start the
first sentence of the email asking which form to use. Which of the following statements is
the best choice?
A. Ali, could you verify which form you want me to use for our meeting next week?
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B. Ali, yo! In your new boss role did they tell you which forms to use for our meetings?
C. Ali, I’m going to use the same form as last time with a few updates. OK with you?
The correct option would be A, writing for the reader (Ali) who is now in a managerial
position.
Scenario 2
Edward, the marketing manager of a group of retail stores, sent an email to the store
managers country wide. He let them know that the recent marketing blitz was showing
positive results, and his email sounded as though Edward wanted the store managers to
do some more work. Edward had written, “We sure got a big bang for our buck out of that
newspaper special. Your share of the sweat equity on this campaign will make the final
revenue targets this quarter a breeze. Keep up the hard work.” Why should Edward’s store
managers be cautiously excited rather than thrilled with his message?
A. Edward loaded his message with jargon that was unclear to the store managers in
terms of what is expected of them.
B. Edward used several words that has a negative meaning.
C. Edward used email rather than a face-to-face meeting to share these comments,
and that is how bad news is delivered.
The correct answer is A. By ‘bang for our buck’ Edward was saying they did not spend
that money on the ad, so the results surprised them. When he said ‘sweat equity’ he was
referring to the hard work that would result in future e=results. He could avoid using this
jargon.
Scenario 3
Executives and their wives of a large company listed on the Johannesburg Stock Exchange
are invited to the company’s annual rewards weekend. Childcare for children under 5 is
available to any female employee that wants to have the afternoon off for the sailing
tournament. Be sure to meet the short, Asian award-winning coach near the diving board
of the main pier. What biased terms are in this communication?
There are a number of problems with this communication:

1) “Their wives” implies women are not executives. “Executives and their spouses”
would be a better option.
2) “Childcare … is available to any female employee ...” implies that only women manage
childcare. The omission of the word “female” to open childcare to all employees
would be a better option.
3) “Short” is a physical attribute. A better option would be to focus on skills such as
“award-winning” or what the person wears such as the “championship jacket.”
4) “Asian” further focuses on physical attributes and race. It’s best to simply omit this.
Conclusion
This concludes our discussion of effective communication in the supply chain. Before we
move on to the next topic, make sure that you have a thorough understanding of effective
communication in the supply chain SC by completing the knowledge check below.
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Unit conclusion
This unit first focused on teamwork and collaboration in the success of a supply chain. We
covered ways to improve teamwork and collaboration between departments as well as
with external stakeholders. We also explained how teamwork and collaboration can lead
to a competitive advantage. Secondly, we focused on effective communication in the
supply chain. We differentiated between the various methods of communication;
discussed appropriate ways to communicate to an audience outside of the business; and
discussed the impact that word choice and tone can have on a business message. Given
case scenarios, you were lastly expected to choose correct answers with regard to
business communication given a specific audience and purpose. The next unit will focus
on supply chain strategies and future trends.
Knowledge Knowledge Check: Effective communication in the supply chain

Check
Question 1
_____ takes place when the sender of the message translates the
information into a series of symbols.
A Decoding
B Encoding
C Feedback
D Noise
Question 2
When messages are transmitted directly between two or more people,
on a person-to-person basis it is referred to as _____communication.
A intrapersonal
B interpersonal
C organisational
D informal
Question 3
______ as an external communication strategy may include slides,
sales material and more.
A Presentations
B Websites
C Network strategies
D Conferences
Question 4
Which one of the following should be avoided when communicating
with an audience?
A clichés
B bias-free writing
C active voice
D passive voice
Question 5
Which one of the following types of communication occurs when
different departments in the same organisation communicate with one
another?
A interpersonal communication
B intrapersonal communication
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C organisational communication
D the grapevine
Answer: 1. B, 2. B, 3. A, 4. A, 5. C
Now that you have worked through Unit 5, rate your own competency against the
Learning Outcomes for this unit using the following scale:

1 = Novice
me.

3 = Average understanding or I have a fair grasp of the subject matter

competence and its application.

competence

5 = Expert
LO1: Explain the role of teamwork and collaboration in the success of a

supply chain
LO2: Determine ways to improve teamwork and collaboration between
departments as well as with external stakeholders
LO3: Explain how teamwork and collaboration can lead to a competitive
advantage
LO4: Explain the role of effective communication in the supply chain
LO5: Differentiate between the various methods of communication
LO6: Discuss appropriate ways to communicate to an audience outside

of the business
LO7: Discuss the impact that word choice and tone can have on a
business message
LO8: Write a business communication given a specific audience and
purpose
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Unit 6: Supply Chain Strategies and Future Trends

Purpose
In Unit 1 (The Supply Chain) we defined a supply chain as a network between a business
and its suppliers and customers that includes all the transactions involved in transforming
raw goods into saleable products. Supply chain management involves the management
of the flow of products and services and includes all processes that transform raw
materials into final products. Various strategies can be implemented in the management
of the supply chain. In this unit, we will focus on these strategies.
Learning Outcomes
By the end of this unit, you should be able to identify supply chain strategies and future
trends in supply chain management.
Unit outcomes
1. Describe supply chain strategies;

2. Describe the definitions of outsourcing and sourcing;
3. Explain the reasons for outsourcing and sourcing;
4. Discuss ERP systems and future trends.
Unit duration
16 hours
▪ Frohlich, M.T, 2001. Arcs of integration: an international study

of supply chain strategies. Journal of operations management.
▪ Morash, E.A. 2001. Supply chain strategies, capabilities and

performance. Transportation journal.
Supply chain strategy can be defined as a strategy for how the supply
Supply chain chain will function in its environment to meet the goals of the
strategy business.
The supply chain strategy of a business is shaped by the

interrelationship of four elements, namely the marketplace, the
Elements of
supply chain competitive position of the business, the supply chain processes of
strategy the business and the linkage among supply chain processes and
business strategy.
Sourcing Sourcing can be defined as obtaining a product or service from a

particular source.
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In the context of supply chain management, outsourcing can be

described as the process of purchasing products or services on
Outsourcing specification, from external suppliers, that were previously produced
in-house.
ERP aims to manage key business processes in an integrative way,

often with real-time information and mediated by software and
ERP
technology.
Introduction
The supply chain strategy is a complex and evolving means that organisations use to
distinguish themselves in the competitive contest to create value for their customers and
investors. In this unit, we will first clarify where supply chain strategy fits into the broad
business and organisational strategies. Second, we will focus on generic supply chain
strategies, followed by the sourcing and outsourcing decisions. We will conclude our
discussion with enterprise resource planning and future trends.
6.1 Supply Chain Strategies

The purpose of this topic is to introduce you to supply chain strategies. Supply chains
involve the flow of information, products and funds – all valuable to a business. For this
reason, the management of supply chains has an immense effect on the competitive
advantage of a business, as we have alluded you to in Unit 1. Furthermore, it is essential
that the supply chain strategy should be aligned with the overall strategy of the business,
to ensure the overall best performance of the business. In this topic, we will first clarify
where supply chain strategy fits into the business strategy and organisational strategy and
then focus on six generic supply chain strategies: efficient, fast, continuous-flow, agile,
customer-configured and flexible.
Topic duration
5 hours
6.1.1 Understanding strategic supply chain management

The direction of a business is predicated on its business strategy. Many organisations make
use of mission and vision statements to give clarity to their purpose. Corporate level
strategies can either be corporate growth strategies or corporate decline strategies. On
the business unit level, organisations can make use of generic strategies, which refer to
the commitments of the organisation and its actions to gain competitive advantage by
exploring core competencies in specific markets. Michael Porter, a well-known Harvard
professor, identified generic strategies that can be used to describe the strategy of most
organisations. Porter originally identified three generic strategies, namely cost leadership
strategy, differentiation strategy and focus strategy.
An overall cost leadership strategy attempts to maximise sales of the organisation by

minimising costs per unit and hence prices. Several things can be done to minimise costs.
First, as workers gain more experience in producing a particular product, productivity
increases and unit costs decrease. This is called a ‘learning curve’ or ‘experience curve’.
Second, an organisation can expand the size of its operations. As the size of the operations
increases, the total costs per unit decrease because the fixed costs (for example the costs
pertaining to buildings, machinery, equipment and others) are shared by a larger number
of products. This is referred to as ‘economies of scale’. An example of this is the reduction
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in the price of pocket calculators over the years as a result of economies of scale.
Differentiation is the second generic strategy that distinguishes an organisation’s products
or services from those of its competitors. The rationale for differentiation is that the
organisation can charge higher prices (and make more profit per unit) for a product that
customers perceive to be different from similar products offered by rivals. Differentiation
may be in terms of quality, production process, design, reputation or any number of other
attributes. The focus strategy is the third generic strategy, which attempts to focus on a
specific product line or a segment of the market that gives an organisation a competitive
edge. Initially, the focus strategy was anchored in focused low-cost and focused
differentiation strategies. Porter suggested that organisations had to choose either low
cost or differentiation; to attempt both would cause an organisation to achieve neither
and be ‘stuck in the middle’. The three generic strategies developed by Porter are usually
thought of as separate strategies now, in other words, an organisation needs to choose
between the following generic strategies:
• cost leadership strategy
• differentiation strategy
• focused low-cost strategy
• focused differentiation strategy.
The supply chain strategy specifies how to satisfy customers, how to grow the business,
how to compete in the business environment, how to manage the business and develop
its capabilities and how to achieve financial objectives, as derived from the corporate level
strategies and generic strategies (or business-unit level strategies) of the business as
identified by Porter. In other words, the overall corporate strategy, business strategy and
supply chain strategy of a business should all be aligned to achieve the overall goals and
objectives of the business.
6.1.2 The four elements of supply chain strategy

Supply chain strategy can be defined as a strategy for how the supply chain will function
in its environment to meet the goals of the business. The purpose of a supply chain
strategy is to define the activities and combination of activities in the supply chain that
needs to be executed to fulfil the business value proposition to its customers. That being
said, the supply chain strategy of a business is shaped by the interrelationship of four
elements, namely the marketplace, the competitive position of the business, the supply
chain processes of the business and the linkage among supply chain processes and
business strategy (the managerial focus). These elements are depicted in figure 19.
Marketplace Competitive position
Supply chain processes Managerial focus
Figure 19 The four elements of supply chain strategy
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Let us consider each of these elements in more detail (Perez 2013).
• The marketplace (or industry framework). "Industry framework" refers to the

interaction of suppliers, customers, technological developments, and economic
factors that affect competition in any industrial sector. Within this framework are
four main drivers affecting supply chain design and all of them are interrelated.
These are variations in demand, market mediation costs, the lifecycle of the
product and the relevance of the cost of assets to total cost.
• Competitive position (or unique value proposal). This requires a clear

understanding of the organisation's competitive positioning in terms of its supply
chain.
• Managerial focus (or internal processes). This focus is the most important factor in
ensuring coherence between supply chain execution and a business's unique value
proposal.
• Supply chain processes. The fourth element, internal processes, provides an

orientation that ensures a proper connection and combination within the supply
chain activities that fall under the categories of source, make and deliver.
Once a business has an understanding of the above four elements of the supply chain
strategy, it will be in a position to decide which of six generic supply chain strategies will
be the most appropriate to implement. The next section explains these generic strategies.
6.1.3 Generic supply chain strategies

Figure 20 depicts the six generic supply chain strategies.
Continuous-flow
Efficient supply chain Fast supply chain
supply chain
Customer-figured
Agile supply chain Flexible supply chain
supply chain
Figure 20 Generic supply chain strategies
Let us consider each of these generic supply chain strategies in more detail (Perez 2013).
• Efficient supply chain strategy. The efficient supply chain strategy is best suited to
industries that are characterized by intense market competition, with several
competitors fighting for the same group of customers who may not perceive major
differences in their value proposals. In effect, competition is virtually always based
almost solely on price. Because customers in these commoditized businesses (such
as cement and steel) take an opportunistic approach to purchasing to ensure that
they get the best price for each order, it results in a demand profile with recurrent
peaks. Consequently, a continuous-replenishment model is inappropriate.
Production should instead be scheduled based on sales expectations for the length
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of the production cycle, using a model based on a "make to forecast" decoupling

point. Competitive positioning, therefore, depends on offering the best price and
perfect order fulfilment.
• The fast supply chain strategy. The fast supply chain strategy is best for businesses
that produce trendy products with a short lifecycle. From the customer's
perspective, the main difference among competitors' value proposals is how well
they can update product portfolios per the latest trends, for example, fashion
stores 3 . This focuses competition in the market on manufacturers' ability to
continuously develop new products they can sell at an affordable price. As a result,
the main driver of competitiveness is the reduction of market mediation costs. In
an industry framework characterized by a short lifecycle, this might appear to be a
conundrum, but with an understanding of market trends and consumers' habits, it
is possible to maintain market mediation costs at an optimal level. When
implementing a fast supply chain strategy, management should focus on
promoting continuous portfolio renewal, which is supported by three main
capabilities: short time from idea to market, maximum levels of forecast accuracy
to reduce market mediation cost, and end-to-end efficiency to ensure affordable
costs for customers.
• The continuous-flow supply chain strategy. The main features of the continuous-
flow supply chain model are supply and demand stability, with processes
scheduled in such a way as to ensure a steady cadence and continuous flow of
information and products. This model typically is for a very mature supply chain
with a customer demand profile that has little variation. Consequently, the
production workload can match demand through a continuous-replenishment
model based on a "make to stock" decoupling point, where production is scheduled
to replenish predefined stock levels based on a specified reorder point for
inventory in the production cycle. Accordingly, competitive positioning is based on
offering a continuous-replenishment system to customers to assure high service
levels and low inventory levels at customers' facilities, thus achieving optimization
of costs associated with inventory. This supply chain model typically works well for
businesses with short-shelf-life products, such as dairy products and bread.
• The agile supply chain strategy. The agile type of supply chain is useful for
companies that manufacture products under unique specifications for each
customer. This is typically seen in industries that are characterized by
unpredictable demand. They use a "make to order" decoupling point, producing the
item after receiving the customer's purchase order to avoid manufacturing
products that have no certainty of future sales. As a result, the main driver of
competitiveness is agility—the ability to meet unpredictable demand, in quantities
exceeding the customer's forecast and/or within a shorter lead time than agreed.
The ability to be agile is proportional to the ratio between excess capacity and the
average rate of asset usage This strategy is useful for industries where the
company's value proposition is oriented toward offering products "on-demand"
and with a high service level, such as packaging, chemical specialities, and metal
machining services.
• The customer-configured supply chain strategy. The custom-configured supply

chain model is characterized by a high degree of relevance of the cost of assets to
the total cost, and multiple (potentially unlimited) configurations of the finished
product on a unique platform. Competitive positioning is founded on offering a
unique configuration of the finished product according to the end consumer's
needs. Unlike in an agile supply chain, where the product can be customized to
meet virtually any customer requirement—limited only by technical constraints—in
this supply chain, the product is configurable within a limited combination of
3
You may refer back to the Zara case explained in Unit 2.
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product specifications, usually by combining parts into a set or assembly. One

example of where this supply chain strategy makes sense is the assembly of
personalized products, such as computers and vehicles. Another example is in the
paper manufacturing industry, where the decoupling point occurs after the
manufacture of the big paper rolls, and the products are customized in the cutting
and packaging process. In the service sector, some fast-food restaurants apply this
supply chain model.
• The flexible supply chain strategy. The sixth supply chain strategy, the flexible
strategy, is suited for businesses that must meet unexpected demand and
therefore are faced with high demand peaks and long periods of low workload. This
supply chain strategy is characterized by adaptability, which is the capability to
reconfigure internal processes to meet a customer's specific need or solve a
customer's problem. This model typically is used by service businesses that focus
on handling unexpected situations, perhaps even including emergencies. Due to
the nature of such events, customers appreciate not only the speed of a supplier's
response but also its ability to tailor solutions to their needs. Consequently, the
price becomes largely irrelevant to the customer. A typical example of this type of
supply chain can be found in businesses that provide metalworking and machining
services for the manufacture of spare parts for industrial customers. This type of
business may encounter emergencies such as the need to immediately replace
broken parts. Accordingly, they must be able to provide a fast response and
sufficient capacity to develop unique parts by combining successive processes,
such as turning, reaming, and welding, in a configuration adapted to a specific
situation.
Conclusion
This concludes our discussion of supply chain strategies. In this topic, we have introduced
you to supply chain strategies. We commenced the topic with an overview of the four
elements of supply chain strategy, followed by an outline of the six generic supply chain
strategies. The next topic will focus on outsourcing and sourcing – two important concepts
in supply chain management.
of the supply chain strategies by completing the knowledge check below.
Knowledge Knowledge Check: Supply chain strategies

Check
Question 1
The four elements of a supply chain strategy are the marketplace, the
competitive position of the business, the supply chain processes of the
business and _____.
A the vision and mission
B managerial focus
C supply chain partners
D economic climate
Question 2
The _____ strategy is best suited to industries that are characterized
by intense market competition, with several competitors fighting for
the same group of customers who may not perceive major differences
in their value proposals.
A efficient supply chain
B fast supply chain
C agile
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D flexible
Question 3
The _____ strategy is best for businesses that produce trendy
products with a short lifecycle.
A efficient supply chain
B fast supply chain
C agile
D flexible
Question 4
The _____ type of supply chain is useful for companies that
manufacture products under unique specifications for each customer.
A efficient
B customer-configured
C agile
D flexible
Question 5
The _____ supply chain strategy is suited for businesses that must
meet unexpected demand and therefore are faced with high demand
peaks and long periods of low workload.
A efficient
B customer-configured
C agile
D flexible
Answer: 1. B, 2.A, 3.B, 4.C, 5.D
6.2 Sourcing and Outsourcing

The purpose of this topic is to introduce you to sourcing and outsourcing in the supply
chain. We will first discuss sourcing, after which outsourcing will be explained.
Topic duration
5 hours
6.2.1 Sourcing
Sourcing can be defined as obtaining a product or service from a particular source. Supply
chain sourcing revolves around building strategic partnerships and leveraging the supply
chain to extract value and create a competitive advantage for a business. At its core,
sourcing is finding high-quality, low-cost products and services at the right time and place
and in the right quantity.
Finding the right balance between the choice of products or services and affordability is
an evolving, ongoing endeavour. Deciding how much value to place on those criteria — the
cost versus quality —takes time, effort and experience in the field of supply chain
management. In the discussion that follows, we will explain the supply chain sourcing
process, as depicted in figure 21.
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Determine business standards and quality

criteria
Choosing a supplier
Negotiating with a supplier
Time to purchase
Figure 21 The sourcing process
Step 1: Determine business standards and quality criteria
This step will involve finding answers to questions such as the following:
• To what extent does the product need to hold up over time?
• Are we making a repeat order, or is it a once-off buy? Will we maintain a

relationship with the supplier over time?
• What kind of time constraints are we under? How much lead time do we need for
the order?
• What are the ethical or moral considerations, such as the environmental impact or
work conditions for labourers?
The list of questions above is certainly not exhaustive – many other factors should also be
considered depending on the industry of the business and its unique circumstances.
However, this list should get the source (or buyer) started and pinpoint the products and
services that will complement the business’ supply chain strategy.
The next step will be the selection of a suitable supplier to deliver the goods.
Step 2: Choosing a supplier
To find the most suitable supplier, the buyer will move beyond the basics of buying into
the more advanced aspects of strategic sourcing. Before choosing a supplier, the following
needs to be considered:
• Risk. Risk in the supply chain can have a negative effect on the product and the
business in general. Ultimately, it can have an adverse effect on the competitive
advantage of the business and affect customer satisfaction. Therefore, careful risk
management is of the utmost importance when choosing a supplier.
• Finances. The buyer should determine the optimal amount that the business wants
to pay for a product or service. The optimal amount is not necessarily the minimum
amount – again it is finding a balance between cost and quality.
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• Performance. The buyer should also set key performance indicators that suppliers
must meet in order to win a contract with the business. These indicators should be
evaluated throughout the supplier relationship to ensure suppliers meet their
requirements.
• Competitive environmental analysis. The buyer also needs to analyse the

competitive environment. It is important to have an understanding of the
strategies of main competitors and whether new competitors are entering the
marketplace. Furthermore, an analysis of the best suppliers is also a part of the
competitive environmental analysis.
The execution of all the steps above will allow the buyer to eventually choose a supplier
that will be able to meet all the expectations of the business. That will bring the buyer to
the next step, namely negotiating with the chosen supplier.
Step 3: Negotiating with the supplier(s)
Negotiating refers to a discussion aimed at reaching an agreement. In supply chain

management, negotiation is a process of compromise by which the needs of the different
parties (the business and its supplier(s)) are managed, with the aim of a win-win
agreement for the business and the supplier(s).
Step 4: Time to purchase
Once the negotiation between the business and supplier(s) have been concluded, it is time
to purchase and the buyer will be switching from negotiations to logistics: juggling
purchase orders and shipment notices, managing inventory, and handling storage. The
buyer will also track and compare vendor information and evaluate the cost and quality of
the products received. Such documentation is invaluable because there is no such thing
as permanence in supply chain sourcing and buying. Even if a supplier checks all the boxes,
the buyer has to have a backup—and maybe a backup for the backup. Suppliers move, go
out of business, raise their prices, lose their edge. The needs of the business might also
change. For these and many other reasons, the buyer will need to start back at square
quite often. All the more reason to have a sound sourcing strategy.
6.2.2 Outsourcing
Outsourcing can be defined as obtaining products or services by contract from an outside
supplier. In the context of supply chain management, outsourcing can be described as the
process of purchasing products or services on specification, from external suppliers, that
were previously produced in-house. There are a number of reasons for outsourcing, which
includes the following:
• Reducing operating costs. The biggest motivating reason for a business to

outsource is to reduce costs. There are many reasons a business may want to
reduce operating costs. There might be a problem with a supplier or a cost increase
in materials and the business needs to reduce costs to stay competitive with its
products. Another reason may be the need to downsize due to a merger or
acquisition.
• Reducing training costs. A business will save in terms of training costs due to
outsourcing. Over and above training, it will also save wages, salaries, and benefits
paid to employees.
• Opportunity cost. A business may need to outsource a department in order to free

up experts needed on other projects. Business expansions often require additional
duties for existing personnel and outsourcing is a good solution for having too few
personnel to fill the new demands. Some businesses use outsourcing as a way to
free up capital so that it can be invested in other areas resulting in a higher return
on investment.
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• Restructuring. The business model may need to be restructured. The duties of

existing personnel may have changed in order to fulfil important positions. Instead
of hiring more experts to backfill those jobs, some businesses view outsourcing as
a better option. Outsourcing provides businesses with more options for experts
and other talent.
• Improved effectiveness and efficiency. A business may be seeking ways to improve

its efficiency and effectiveness. This might be in production where there is greater
expertise outside the company. For example, a laptop company might find it more
profitable to outsource the manufacturing of electronic components to an
equipment manufacturer instead of attempting to produce in-house.
• Reduce business risk. There are times when businesses may not wish to take the
burden of a specific function and find by outsourcing it, they can reduce the
business risks. This is especially true when a business turns to outsource highly
experienced in a specific service.
• Meet compliance requirements. Business-facing compliance requirements may

decide to outsource the compliance team instead of adding stress to their existing
workers.
• Lower wage requirements. Many outsourcing businesses, as well as individuals, can

provide the same in-house services for a lower cost. This saves businesses from
needing to hire personnel at higher pay rates.
• Specialised functions and services. Some businesses may find that outsourcing
specialized functions and services are more cost-effective. For example, a business
wishing to provide a cafeteria for employees most likely would outsource to a
professional catering service. By the same token, businesses may choose to
outsource their information technology needs.
A business can even outsource the management of its entire supply chain. Modern supply
chains have evolved from simple, linear connections between businesses and suppliers to
an interconnected network spanning continents, departments and functions. Modern
supply chains consist of various elements and functions ranging from product
development, operations and marketing to finance, distribution networks and customer
service. Managing and optimizing these different elements and functions requires skill,
expertise and access to best-in-class resources. Since supply chains are so critical to the
success and continuity of all businesses, optimizing them will result in faster production
cycles and reduced costs. An effective way to achieve such optimization is by outsourcing
SCM to the right experts.
Conclusion
This concludes our discussion of sourcing and outsourcing. In this topic, we have
introduced you to sourcing and outsourcing in the context of supply chain management.
The next topic will focus on enterprise requirements planning systems and future trends
in supply chain management.
of sourcing and outsourcing by completing the knowledge check below.
Knowledge Knowledge Check: Sourcing and outsourcing

Check
Question 1
_____ can be defined as obtaining a product or service from a
particular source.
A Outsourcing
B Sourcing
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C Buying
D Supplying
Question 2
_____ can be described as the process of purchasing products or
services on specification, from external suppliers, that were previously
produced in-house.
A Outsourcing
B Sourcing
C Buying
D Supplying
Question 3
_____ in supply chain management is a process of compromise by
which the needs of the different parties (the business and its supplier(s))
are managed, with the aim to a win-win agreement for the business and
the supplier(s).
A Contracting
B Risk mitigation
C Outsourcing
D Negotiation
Question 4
Which one of the following is an advantage of outsourcing?
A Increased operating costs
B Increased training abilities
C Restructuring
D Reduced business risks
Question 5
The biggest reason for a business to outsource is to _____.
A satisfy customers
B reduce costs
C increase market share
D maintain its position in a competitive environment
Answer: 1. B, 2. A, 3. D, 4. D, 5. B
6.3 ERP Systems and Future Trends

In this topic, you will be introduced to enterprise resource planning (ERP) and future
trends. We will commence our discussion with ERP, the characteristics thereof,
advantages and disadvantages. We will conclude with future trends concerning ERP
systems.
Topic duration
6 hours
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6.3.1 Introduction to ERP systems

In unit 5, we have explained the importance of supply chain integration. Information
technology is an important enabler for supply chain integration. Businesses use
information technology to manage the integration of business, people and processes
within the enterprise but also across extended enterprises. A technology-based supply
chain management system facilitates inter-enterprise cooperation and collaboration with
suppliers, customers and business partners. Enterprise resource planning (ERP) is such a
system. ERP aims to manage key business processes in an integrative way, often with real-
time information and mediated by software and technology. (Horn 2021)
ERP systems can be local-based or Cloud-based. Cloud-based applications have grown in

recent years due to information being readily available from any location with internet
access. ERP provides an integrated and continuously updated view of core business
processes using common databases maintained by a database management system. ERP
systems track business resources, for example, funds, raw materials and production
capacity, and the status of business commitments, for example, purchase orders and
payroll. The applications that make up the system share data across various departments
(such as operations, manufacturing, purchasing, sales, finance and so on) that provide the
data. ERP facilitates information flow between all business functions and manages
connections to outside stakeholders, such as suppliers and other business partners in the
supply chain.
Enterprise system software is an enormous industry that produces components

supporting a variety of business functions. Though early ERP systems focused on large
enterprises, smaller enterprises increasingly use ERP systems as well. The ERP system
integrates varied business systems and facilitates error-free transactions and production,
thereby enhancing the business’ efficiency. However, developing an ERP system differs
from traditional system development. ERP systems run on a variety of computer hardware
and network configurations, typically using a database as an information repository.
6.3.2 Characteristics of ERP systems

ERP systems typically include the following characteristics:
• ERP systems are integrated systems;
• ERP systems operate in (or near) real-time;
• ERP systems make use of a common database that supports all the applications;
• ERP systems have a consistent look and feel across modules (in ERP systems,
functional areas grouped together are called modules);
• Deployment options of ERP systems are on-premises or Cloud-hosted.
An ERP system covers the following common functional areas (in many ERP systems,
these are called and grouped together as ERP modules)
• Financial accounting: In financial accounting, the general ledger, fixed assets,

payables, receivables, cash management and financial consolidation will be found
• Management accounting: Management accounting hosts budgeting, costing, cost

management and activity-based costing.
• Human resources: Human resources cover recruiting, training, rostering, payroll,

benefits, retirement and pension plans, diversity management, and separation.
• Manufacturing: Manufacturing includes a bill of materials, work orders, scheduling,

capacity, workflow management, quality control, manufacturing processes,
manufacturing flow, product life cycle management and engineering.
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• Order processing: Order processing includes an order to cash, order entry, credit
checking, pricing, inventory, shipping, sales analysis and sales commissions.
• Supply chain management: SCM includes supply chain planning, supplier

scheduling, product configuration, purchasing, inventory, claim processing, and
warehousing.
• Project management: This includes project planning, resource planning, costing,

work breakdown structure, time and expense and activity management.
• Customer relationship management (CRM): sales and marketing, commissions,

service, and customer contact.
• Data services: various "self–service" interfaces for customers, suppliers and/or

employees.
• Management of schools and educational institutes.
Government resource planning (GRP) is the equivalent of an ERP for the public sector and
an integrated office automation system for government bodies. The software structure,
modularisation, core algorithms and main interfaces do not differ from other ERPs, and
ERP software suppliers manage to adapt their systems to government agencies. Both
system implementations, in private and public organisations, are adopted to improve
productivity and overall business performance in organisations, but comparisons (private
versus public) of implementations show that the main factors influencing ERP
implementation success in the public sector are cultural.
6.3.3 Advantages of ERP systems

The most fundamental advantage of ERP is that the integration of a myriad of business
processes saves time and expense. Management can make decisions faster and with
fewer errors. Data becomes visible across the organisation. Tasks that benefit from this
integration include the following:
• Improved sales forecasting, which allows inventory optimization;
• The chronological history of every transaction through relevant data compilation in

every area of operation;
• Error-free order tracking, from acceptance through fulfilment;
• Revenue tracking, from invoice through cash receipt; and
• Matching purchase orders (what was ordered), inventory receipts (what arrived),
and costing (what the vendor invoiced)
Another advantage of ERP systems is the centralisation of business data, which:
• Eliminates the need to synchronise changes between multiple systems—

consolidation of finance, marketing, sales, human resource, and manufacturing
applications;
• Brings legitimacy and transparency to each bit of statistical data;
• Facilitates standard product naming or coding;
• Provides a comprehensive enterprise view (no "islands of information"), making

real-time information available to management anywhere, anytime to make proper
decisions; and
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• Protects sensitive data by consolidating multiple security systems into a single

structure.
Other advantages of ERP systems include the following:
• ERP creates a more agile business that adapts better to change. It also makes a
business more flexible and less rigidly structured so business components operate
more cohesively, enhancing the business—internally and externally.
• ERP can improve data security in a closed environment. A common control system,
such as the kind offered by ERP systems, allows businesses the ability to more
easily ensure key company data is not compromised. This changes, however, with
a more open environment, requiring further scrutiny of ERP security features and
internal business policies regarding security.
• ERP provides increased opportunities for collaboration. Data takes many forms in
modern business, including documents, files, forms, audio and video, and emails.
Often, each data medium has its own mechanism for allowing collaboration. ERP
provides a collaborative platform that lets employees spend more time
collaborating on content rather than mastering the learning curve of
communicating in various formats across distributed systems.
• ERP offers many benefits such as standardization of common processes, one

integrated system, standardized reporting, improved key performance indicators
(KPI), and access to common data. One of the key benefits of ERP; the concept of
an integrated system, is often misinterpreted by the business. ERP is a centralized
system that provides tight integration with all major enterprise functions be it HR,
planning, procurement, sales, customer relations, finance or analytics, as well as
other connected application functions.
6.3.4 Disadvantages of ERP systems

There are also a number of disadvantages associated with ERP systems:
• Customisation can be problematic. ERP can be seen as meeting an organisation's

lowest common denominator needs, forcing the organisation to find workarounds
to meet unique demands.
• Re-engineering business processes to fit the ERP system may damage

competitiveness or divert focus from other critical activities.
• ERP can cost more than less integrated or less comprehensive solutions.
• High ERP switching costs can increase the ERP vendor's negotiating power, which
can increase support, maintenance, and upgrade expenses.
• Overcoming resistance to sharing sensitive information between departments can

divert management attention.
• Integration of truly independent businesses can create unnecessary dependencies.
• Extensive training requirements take resources from daily operations.
• Harmonization of ERP systems can be an immense task (especially for big

companies) and requires a lot of time, planning, and money.
• Critical challenges include disbanding the project team very quickly after
implementation, interface issues, lack of proper testing, time zone limitations,
stress, offshoring, people's resistance to change, a short hyper-care period, and
data cleansing.
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6.3.5 Future trends

The term "postmodern ERP" was coined by Gartner in 2013 when it first appeared in the
paper series "Predicts 2014". According to Gartner's definition of the postmodern ERP
strategy, highly customized ERP suites, in which all parts are heavily reliant on each other,
should sooner or later be replaced by a mixture of both cloud-based and on-premises
applications, which are more loosely coupled and can be easily exchanged if needed.
The basic idea is that there should still be a core ERP solution that would cover the most
important business functions, while other functions will be covered by specialist software
solutions that merely extend the core ERP. This concept is similar to the so-called best-
of-breed approach to software execution, but it shouldn't be confused with it. While in
both cases, applications that make up the whole are relatively loosely connected and quite
easily interchangeable, in the case of the latter there is no ERP solution whatsoever.
Instead, every business function is covered by a separate software solution.]
There is, however, no golden rule as to what business functions should be part of the core
ERP, and what should be covered by supplementary solutions. According to Gartner, every
company must define their own postmodern ERP strategy, based on its internal and
external needs, operations and processes. For example, a company may define that the
core ERP solution should cover those business processes that must stay behind the
firewall, and therefore, choose to leave its core ERP on its premises. At the same time,
another company may decide to host the core ERP solution in the cloud and move only a
few ERP modules as supplementary solutions to on-premises.
The main benefits that companies will gain from implementing postmodern ERP strategy
are speed and flexibility when reacting to unexpected changes in business processes or
on the organisational level. With the majority of applications having a relatively loose
connection, it is fairly easy to replace or upgrade them whenever necessary. In addition to
that, following the examples above, companies can select and combine cloud-based and
on-premises solutions that are most suited for their ERP needs. The downside of
postmodern ERP is that it will most likely lead to an increased number of software vendors
that companies will have to manage, as well as pose additional integration challenges for
central IT.
Conclusion
This concludes our discussion of ERP systems and future trends. Before you move on to
the next topic, make sure that you have a thorough understanding of ERP systems and
future trends by completing the knowledge check below.
Knowledge Knowledge Check: ERP systems and future trends

Check
Question 1
_____ systems aim to manage key business processes in an integrative
way, often with real-time information and mediated by software and
technology.
A Information technology
B Enterprise resource planning
C Inter-enterprise collaboration
D Cloud-based
Question 2
Which one of the following are characteristics of an ERP system?
A ERP systems operate in silos
B ERP systems make use of separate databases
C ERP systems are deployment on organisational premises
D ERP systems operate in (or near) real-time
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Question 3
The bill of materials, work orders, scheduling, capacity, workflow
management, quality control, manufacturing processes, manufacturing
flow, product life cycle management and engineering will be grouped
under the _____ ERP module.
A financial accounting
B management accounting
C human resources
D manufacturing
Question 4
The order to cash, order entry, credit checking, pricing, inventory,
shipping, sales analysis and sales commissions will be grouped under
the _____ ERP module.
A financial accounting
B management accounting
C human resources
D order processing
Question 5
Which one of the following is the most fundamental advantage of an
ERP system?
A Revenue tracking, from invoice through cash receipt
B The integration of a myriad of business processes saves time and
expense.
C Customisation of processes
D Re-engineering business processes to fit the ERP system
Answer: 1. B, 2.D, 3.D 4. D, 5. B
Unit conclusion
We commenced our discussion of this unit with a strategic supply chain in which we
clarified the position of the supply chain strategy in the overall strategy of a business. Then,
we moved on to the concepts ‘sourcing’ and ‘outsourcing’, and we concluded the unit with
a discussion of ERP and future trends. The last unit of this course will focus on one of the
most important aspects of supply chain management namely ethics.
Now that you have worked through Unit 6, rate your own competency against the
Learning Outcomes for this unit using the following scale:

1 = Novice
me.
competence
5 = Expert
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LO1: Describe supply chain strategies
LO2: Define outsourcing and sourcing
LO3: Explain the reasons for outsourcing and sourcing
LO4: Discuss ERP systems and future trends
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Unit 7: Ethics in Supply Chain Management

Purpose
In this last unit of the course, we address a burning issue, not only in supply chain
management but in all spheres of life, namely ethics. Daily, the media bombards us with
examples of unethical practices of business managers, politicians, educators, sports
heroes and even spiritual leaders. How can we prevent unethical practices, especially in
supply chain management? Let is investigate ethics, business ethics and ethics in the
context of supply chain management.
Learning Outcomes
By the end of this unit, you should be able to discuss the role of ethics in the context of
Unit outcomes
1. Outline the basic concepts of ethics and business ethics; and

2. Point out the ethical dilemmas in a supply chain management context.
Unit duration
12 hours
▪ Rathbone, M. 2020. Understanding business and ethics in the

South African context. Van Schaik.
Ethics deals with the character of an individual and the moral rules
that govern and limit our conduct. Ethics investigates questions of
Ethics what is right and what is wrong, what is a duty and what is an
obligation, and what is a moral responsibility.
Business ethics is the study of what constitutes right and wrong, or

Business ethics good and bad, duty, obligation and moral responsibility in a business
context.
Introduction
Supporting an ethical supply chain means that businesses will incorporate social and
human rights and environmental considerations into how they do business across the
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world. In this unit, we will first explain ethics in general and then move on to business
ethics. We will then focus on ethics in the context of supply chain management.
7.1 Ethics and Business Ethics

Daily, we read and hear the news headlines about yet another large organisation, manager,
political leader or government being exposed for unethical practices or for breaking the
law. Unethical practices lead to harsh consequences.
Topic duration
6 hours
Before we can understand ethical and unethical business practices, and ethics in the
context of supply chain management specifically, we first need to have a basic
understanding of the term ‘ethics’. Ethics deals with the character of an individual and the
moral rules that govern and limit our conduct. Ethics investigates questions of what is right
and what is wrong, what is a duty and what is an obligation, and what is a moral
responsibility. The examples below illustrate these concepts.
Example Ethics
• What is right and what is wrong? It is right to complete your

assignment as a student, it is wrong to copy the work of another
student and submit it as your own work.
• What is duty? It is the duty of students to complete homework

assignments.
• What is obligation? It is the obligation of students to complete

and submit their assignments on time every day.
• What is responsibility? Students have a legal responsibility to

pay their study fees.
• What is a moral responsibility? A business has a moral

responsibility to treat their customer in a fair manner. Students
have a moral responsibility to treat their lecturers and students
in their study groups in a fair manner.
Business ethics is the study of what constitutes right and wrong, or good and bad, duty,
obligation and moral responsibility in a business context. The examples below illustrate
these concepts in a business context.
Example Business ethics
• What is right and what is wrong? It is right to use the corporate

resources for official purposes, it is wrong to use corporate
resources for private purposes.
• What is duty? It is an employees’ duty to perform his/her job as
indicated in his/her job description.
• What is obligation? It is an employees’ obligation to perform his/her
job, on time, within the required specifications.
• What is responsibility? A business owner has a legal responsibility to
pay taxes. Students have a legal responsibility to pay their study
fees.
• What is a moral responsibility? A business has a moral responsibility
to treat its customers in a fair manner.
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Individual employees and managers experience ethical issues in a variety of settings and
at different levels, namely the individual, organisational, industry or professional, and
societal or international level. These levels are explained in more detail below.
• Individual-level. On the individual level, people experience ethical issues in their

personal lives, outside the context of their working life. For example, ethical issues may
arise when an individual completes his or her tax returns or pays a bribe to a
government official when he or she exceeded a speed limit to avoid paying a fine.
• Organisational level. People often experience ethical issues in their working life and
should first consult their employer’s policies, procedures and code of ethics to clarify
their employer’s position on the issue. This level is of particular importance for the
supply chain and all involved in the supply chain.
• Industry or professional level. People also experience ethical issues in their industry or
profession such as education, accounting, medicine or law. For example, some
accountants may advise clients on ways to avoid personal taxes or lawyers send their
agents to the trauma centres of hospitals to advertise their services to claim from the
Road Accident Funds to the families who lost loved ones in car accidents.
• Societal or international level. People also experience these ethical issues on an

international level. For instance, people may realise that they buy clothes that are
manufactured in a country making use of child labour, or that they buy food that is not
sourced responsibly.
7.1.1 Ethical business decisions

Managers, as an individual, are often faced with ethical dilemmas. The video below
illustrates business ethical dilemmas. Watch the video listed here:
Video Business ethical dilemmas and stakeholders
https://www.youtube.com/watch?v=ahH_P_5yVSo
The video above illustrates, as we have discussed in the previous section, that ethics
revolves around what is good and bad, right and wrong. Ethical dilemmas come from
everywhere in the business organisation, and managers and workers will be faced with it
and need to deal with it numerous times during their careers. Ethical decision-making
skills lie in the way that managers and workers (i) deliver service or respond to crises; (ii)
react to the policies and practices of the organisation; (iii) make choices personally and in
team situations; (iv) fulfil their obligations to co-workers and customers; (v) present their
organisation and its products to customers; and (vi) deal with outside agencies,
contractors and vendors. Ethical dilemmas come in all shapes and sizes. Some ethical
dilemmas are issues of conscience, while others come from outside your sphere of
influence. Ethical dilemmas that are issues of conscience usually have right and wrong
answers and you will have the freedom of choice to make the right or wrong decision. In
these decisions, you are obliged as a functioning member of society to make the honest
choice or suffer the consequences. Examples of ethical dilemmas that come from outside
your sphere of influence, are the following: ‘Our top management is corrupt and arrogant’.
‘My boss is making unwanted advances.’ ‘A customer is always asking for special favours.’
In these instances, you will need a clear strategy and a system to support you. First, you
need to consider the stakeholders involved in the dilemma. Second, you need to consider
the workplace environment and culture. Lastly, you need to consider your own personal
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factors such as your physical, emotional and spiritual state, your career, reputation, family
and safety and security, before you take any action to the dilemma.
To ensure that decisions are made ethically, it is a good practice to develop an approach
to decision making that will ensure that business decisions are ethically sound. One way
of achieving this is to develop a decision-making process that attends specifically to the
ethical side of business decisions. Although there is a host of processes available in this
regard, Rossouw and Van Vuuren (2017) recommend that the following questions should
be asked to judge the moral soundness of a business decision:
 Is it legal?
 Does it meet the business’s standards?
 Is it fair towards all stakeholders?
 Can it be disclosed?
7.1.2 Drivers of business ethics

The drivers of business ethics in modern businesses are the forces or variables in the
management environment that influence, affect and/or direct organisational activities
and decisions towards ethical business practices. The following can be considered some
of the most important drivers of business ethics:
• Ethically conducting business is the right thing to do.
• Ethical business practices are necessary to protect the reputation of the business.
• Ethical business practices are necessary to maintain the trust of all stakeholders.
• Ethical business practices are necessary to gain and maintain the acceptance of the
public, which is imperative for business success and survival.
• Ethical business practices are necessary in order to maintain the confidence of

current and potential investors.
• Ethical business practices are necessary to protect the business’s brand.
• Ethical business practices are necessary to minimise possible costs associated with
lawsuits, theft, loss of productivity, absenteeism, monitoring untrustworthy
employees, a business’s damaged or destroyed reputation, and some of the costs
associated with high staff turnover rates due to dismissing unethical employees
and hiring new employees.
• The use of ethics in unlocking human potential in businesses can be a remedy for
ethical neglect.
Apart from the variables that influence, affect and/or direct business activities and
decisions towards ethical business practices, there are also various benefits of business
ethics. In the next section, we will address the most important benefits.
7.1.3 Benefits of business ethics

The benefits of business ethics refer to the positive impacts or consequences associated
with ethical behaviour and ethical decisions for organisations. The following benefits are
associated with ethically conducting business:
• Attract and retain high-quality employees.
• Attract more customers, suppliers and investors and contribute to the

sustainability of the organisation.
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• Ethically conducting business will result in less employee misconduct such as theft
and fraud, will need less employee supervision and will eventually also have a lower
employee turnover rate.
In the next section, we focus on the management of business ethics and how business
managers and leaders can improve ethical conduct in their organisations.
7.1.4 Managing business ethics

The management of business ethics can be described as the direct effort to manage
ethical issues in an organisation – formally and informally – through policies, practices and
programmes.
Formal management of business ethics
The formal management of business ethics in an organisation consists of various

components. These include the following:
• the vision, mission, value statements
• code of ethics/conduct
• training in ethical matters
• reporting, advice, communication channels and a climate of trust
• training in ethical officers and/or committees
• use of external ethical consultants
• reporting
Informal management of business ethics
The corporate and ethical culture of an organisation plays a vital role in the informal
management of business ethics. It affects the way that employees think and act, especially
in situations where ethics are applicable.
Example Ethical behaviours in the workplace
The following are examples of general workplace ethics that do not

need to be defined by the employer, but are common ethical
behaviours that employees need to exhibit:
• Obeying organisational rules and regulations. Employees should

avoid tardiness, inappropriate dressing, and poor language.
• Communicate effectively. Effective communication is very

important to avoid misunderstandings when dealing with issues
in the workplace.
• Develop professional relationships. Good professional

relationships are not only a thing that fosters teamwork among
employees, but also help with individual career development for
employees. Developing professional relationships with
coworkers or other professionals outside the workplace will also
directly or indirectly improve productivity.
• Take responsibility. It is important for employees to always take

responsibility for decisions made both individually and in a team.
This is, in fact, a leadership trait that every employee who is
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looking to take up a managerial position in the future should

exhibit.
• Professionalism and adhering to standards. There are

professional standards that everything an employee does in the
workplace. The use of informal words in a formal workplace is
highly unprofessional.
• Be accountable. Accountability is also a very good trait of an

employee. One of the things that may short change a talented
and responsible employee is the lack of accountability.
• Be trustworthy. An employee should not do anything that may

make his or her employer withdraw trust.
• Show initiative without being told.
• Respect your colleagues.
• Work smarter.
The following are examples of unethical behaviour in the workplace:
• Lies. Lying is a trait that is detested in and outside the workplace.

It kills trust, affects relationships and may even put people in
trouble.
• Taking credit for others hard work. It is very common for

managers to take credit for their team member's hard work
when reporting to the management. This is unethical and
unacceptable.
• Harassment and abuse. Employees should refrain from using

foul language on coworkers in and out of the workplace.
• Violence. Similar to verbal harassment, employees should not be

violent when dealing with coworkers and customers.
• Non-office related work. A lot of employees have side hustles

which they use to supplement salaries. This is very good and only
very few companies are against employees working to make
money outside work hours. However, some employees still do
non-office related work during office hours which is unethical.
• Extended breaks. Companies give lunch breaks to employees

and people take advantage of these breaks to do other things
outside office work like, go for interviews, meet with friends or
even work on their side hustles. They are free to do whatever
they want in these lunch breaks.
Employees, however, take advantage of these lunch breaks and extend

them beyond time.
• Theft. Some employees are known for diverting company funds

into their bank accounts—padding project quotations, invoices,
etc. to deceive the company on how much was spent on
particular projects. This act is detrimental to the company
because employees who steal sometimes replace quality
products with counterfeits that are cheaper but causes damage
in the future.
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• Sexual harassment. Sexual harassment is an offence that is not

limited to the workplace alone. An employee accused of sexual
harassment will not only face consequences in the workplace
but also be tried in a court of law.
• Corrupt practices. Some common causes of corruption can be

seen during the employment process of an organization. They
invite so many people to send their CVs and come for interviews
but only people with the same political affiliation with them get
the job. This is also common with companies that ask for
contractors to bid for a project but the employees will only give
them to their friends who may not even bid at all.
The following are examples of management/employers unethical

behaviours:
• Sex for job/promotion. It is common for managers, employers

and major decision-makers to use their position in the
workplace to influence the hiring decision in exchange for sex.
• Unpaid overtime. Some employers take advantage of desperate

job seekers and the competitive job market to use employees'
leisure time as they wish. They do so with the mentality that they
are doing employees a favour by employing them, not knowing
that the favour is mutual. Employees who are scared of queries
or job loss are not able to protest the infringement into their
private time by the employer.
• Verbal harassment. It is common among employers to verbally

harass employees when they make little mistakes. This will
reduce employee morale and productivity.
• Undue pressure and unrealistic expectations. Employees are

placed under undue pressure by employers to improve
productivity and profitability.
• Nepotism. Employers tend to employ or promote a family

member or friend.
• Unfriendly working environment. This may realise due to abusive

managers, nepotism and so on.
Source: 23 Ethical and unethical behaviour examples in the workplace.

Available online https://www.formpl.us/blog/workplace-ethics
Conclusion
This concludes our discussion of ethics and business ethics. In the next section, we will
focus on ethics in the context of supply chain management.
7.2 Ethics in the Context of Supply Chain Management

In this topic, we will continue our discussion of ethics. However, we will narrow our
discussion down by focusing on ethics in the context of supply chain management. We
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will commence by looking at examples of ethical dilemmas in the supply chain, followed
by strategies to practice ethical supply chain management.
Topic duration
6 hours
7.2.1 Ethical dilemmas in the supply chain

A brand’s commitment to ethical and social responsibility is an increasingly important
selling point for customers. Ethical business practices extend far beyond the final
exchange with a customer or social media presence. The entire supply chain includes
opportunities for both ethical and unethical decision making. However, it can be difficult
for business managers and consumers to be fully aware of and navigate some of those
upstream practices.
For example, raw materials like cocoa, palm oil and soy are key ingredients for many
Hershey products. But the company also admits that this part of their supply chain has the
“greatest risk of contributing to deforestation. Other companies encounter hurdles trying
to manage the decision making of suppliers and manufacturers. A review of the U.K.-
based fashion company Boohoo found that the company knowingly worked with suppliers
who underpaid their employees and had unsafe working conditions.
What is an ethical supply chain? Companies with an ethical supply chain treat employees
fairly, pay them a fair wage and strive to improve and upgrade the social, economic and
environmental conditions within the communities where they operate while still
controlling or reducing costs.
Supply chains that expand their global footprint, experience even bigger ethical
challenges. Why? There are more language and cultural differences so that these
businesses have to work through difficult situations and still ensure that their specific
ethics goals are met.
Ethical dilemmas exist throughout the supply chain, from working conditions in
manufacturing to the environmental effects of using raw materials. While some unethical
practices are also illegal, it may not be the case in every country that encompasses a piece
of the supply chain. Additionally, many practices are not explicitly against the law. Let us
have a look at a few examples of such ethical dilemmas in the supply chain.
1. Forced labour. This refers to work done involuntarily and under threat. As of 2018,
almost 25 million people worldwide are in forced labour, according to the Global
Slavery Index. The index also cites electronics such as laptops, phones and
computers as the products imported into the G20 that are most at risk of modern
slavery. Clothing garments and fish are also high-risk industries for forced labour.
2. Child labour. This refers to work that deprives a child of the essential components
of childhood, such as school, which is detrimental to their physical and mental
development and well-being. According to UNICEF, one in 10 children around the
world are victims of child labour and also working in horrible conditions.
3. Unsafe labour conditions. This refers to safety hazards like frayed wires or
unguarded machinery, as well as biological or chemical hazards such as mould and
pesticides. Dangers in the workplace can extend beyond the physical
characteristics of the space; violence and harassment also count as unsafe labour
conditions.
4. Discriminatory work environment. This is a work environment where an employee
is treated unfairly, harassed, punished or denied certain privileges because of their
race, gender, sexual orientation, religion, disability or age.
5. Environmental harm. The collection of scarce natural raw materials is a significant
contributor to the overall global environmental impact. The extraction and
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processing of resources like fossil fuels, metals and biomass account for about 50%
of the climate change impact, according to the EU Science Hub.
6. Corruption and bribery. This example refers to the misallocation of funds or paying
millions of dollars to secure contracts. The risk for bribery in the supply chain is
particularly high during times of crisis as resources become scarcer and demand
increases. Additionally, the urgency of an emergency can incentivize leaders to be
more lenient in their anti-corruption practices. The following case for discussion
illustrates.
Discussion COVID-19 corruption in South Africa

With the outbreak of the Coronavirus pandemic, the South African
government has put various measures in place in its response to the
pandemic. Such measures include, among others, an R500-billion relief
package to provide food parcels for the needy, a temporary social grant
increase for over 16 million beneficiaries and the Temporary
Employer/Employee Relief Scheme (TERS) for those whose salaries
were affected. To implement these and other measures, the
government also put in place emergency procurement regulations. All
of these have proved too irresistible to those with thieving tendencies.
In March 2020, when these measures were announced, various parties

including Corruption Watch, warned of the vulnerabilities in the
emergency procurement measures, noting that the R500-billion
stimulus package presented a fine opportunity for greedy public
officials to dip their hands into the CODID-19 cookie jar. Sadly, they
were right.
While a ruthless pandemic spreads death, pain, grief, poverty, hunger

and joblessness in South Africa, a small clique of politically connected
tenderpreneurs (a tenderpreneur is a person who uses his/her political
connections to secure government contracts for personal advantage)
has become fabulously wealthy. These instant ‘COVID-19 millionaires’
have brought shame to South Africa with shameful and unethical
behaviour. Also, abuse of TERS was enabled in part by private
businesses who claimed benefits on behalf of unknowing employees or
deceased people and then pocketed the cash or used the benefits paid
out for their own purposes. The Special Investigating Unit is probing 75
of these businesses for Unemployment Insurance Fund fraud.
In the same way, the complicity of the private sector in abusing

procurement of personal protective equipment (PPE) has resulted in
the looting of billions of Rands which should have been directed to the
vital response plan.
It is unlawful for public servants in South Africa to do business with the

state, but they have shamelessly manipulated the TERS and stole food
parcels to sway public favour. The government suddenly procure PPE
goods from companies normally operating as IT service providers,
building contractors or engineering firms. As for the much needed
social relief grants meant for the unemployed and the informal business
sector, less than half of those eligible have received them, while others
have fraudulently tried to claim.
The South African public rightfully expressed outrage and disgust over
the scale of the exposed corruption and pushed the government to act.
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Sources:
Transparency International: the global coalition against corruption.
Available online https://www.transparency.org/en/blog/in-south-
africa-covid-19-has-exposed-greed-and-spurred-long-needed-
action-against-corruption# [Accessed 15 September 2020]
Lediga, S. 2020. The second liberation: COVID-19 corruption triggers

UDF moment in South Africa. Daily Maverick. Available online
https://www.dailymaverick.co.za/opinionista/2020-08-21-the-
second-liberation-covid-19-corruption-triggers-udf-moment-in-
south-africa/ [Accessed 15 September 2020]
Question:
Based on what you have learned in this lesson with regards to managing
business ethics, what in your opinion, are the reasons for the large scale
corruption taking place in such a pandemic? Substantiate your answer
in no more than 50 words.
Discussions take place on iCan.
Comments on Discussion
The case described ethical misconduct on various levels. On an organisational level,

various corporates acted unethically by claiming benefits on behalf of unknowing
employees or deceased people and then pocketing the cash or using the benefits paid out
for their own purposes. On a societal level, government officials and public servants acted
unethically – social grants and food packages meant for the poorest in society were
shamelessly stolen and TERS was manipulated for their own benefit. Business ethics needs
to be managed formally and informally.
7.2.2 Strategies for practising ethical supply chain management

So, how can business managers practice ethical supply chain management? Business
owners and supply chain managers who want to take a proactive role in raising and
maintaining the ethical standards of their network can implement the following strategies:
1. Establish a code of ethics. A code of ethics outlines an organisation’s values and

principles. It provides employees and customers with a framework for how they can
expect a business to approach decision making, as well as what kind of behaviour is or
is not tolerated.
2. Practice due diligence. The supplier selection process takes a lot of work and involves
seeking contacts at trade shows and through recommendations and networking.
Business leaders who want to create an ethical supply chain should treat potential
suppliers as they would potential employees by seeking references and a record of
their history. They should research suppliers’ compliance records and complete on-site
visits, if possible, in advance of the partnership.
3. Engage in digital management. Digital supply chain management can help streamline
some of the processes to monitor suppliers. From basic video surveillance to the
Internet of Things (IoT) sensors that track movement on the floor, investing in digital
tools can help supply chain managers keep a pulse on how their supply chain is
operating.
4. Provide supplier development. For businesses with the resources, supplier

development can be an effective way to implement strong ethical standards
throughout the supply chain. When strong partnerships are formed and suppliers are
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given the resources and training they need to increase their competencies, the
resulting chain is stronger and more competitive.
Conclusion
This concludes our discussion of ethics in the context of supply chain management. Make
sure that you have a thorough understanding of ethics in the context of supply chain
management by completing the knowledge check below.
Knowledge Knowledge Check: Ethics in the context of supply chain management

Check
Question 1
Which one of the following is an example of informal management of
business ethics?
A corporate culture
B code of ethics
C training in ethical matters
D use external ethical consultants
Question 2
Which one of the following is a description of practising due diligence?
A Outlining an organisation’s values and principles
B Research suppliers’ compliance records and complete on-site
visits, if possible, in advance of the partnership
C Develop suppliers in ethical matters
D Use the Internet of Things
Question 3
A code of ethics _____.
A describes an organisation’s rules and policies
B indicates supplier and customer values
C provides contractual details
D outlines an organisation’s values and principles
Question 4
Which of the following is an example of an ethical dilemma in the supply
chain?
A environmental harm
B organisational mission and vision
C business level strategies
D code of conduct
Question 5
The management of _____ can be described as the direct effort to
manage ethical issues in an organisation – formally and informally –
through policies, practices and programmes.
A ethics
B marketing ethics
C business ethics
D supply chain ethics
Answer: 1. A, 2. B, 3. D, 4. A, 5. C
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1 = Novice
me.
competence
5 = Expert
LO1: Outline the basic concepts of ethics and business ethics

LO2: Point out the ethical dilemmas in a supply chain management
context
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Integrated Case Study

The following case study integrates all seven units of the course. Read the information
provided with regards to Sappi Limited and answer the questions based on the case.
Sappi Limited
Sappi is a global diversified woodfibre company focusing on providing dissolving pulp,
packaging and speciality papers, graphic papers as well as biomaterials and biochemicals
to their direct and indirect customer base across more than 150 countries. Sappi’s vision is
‘Intentional evolution’, we will be a diversified woodfibre group targeting a substantial
increase in our earnings through an expanded product portfolio with increased margins,
providing enhanced rewards to all our stakeholders. Sappi’s mission is ‘Through the power
of One Sappi – committed to collaborating and partnering with stakeholders – we aim to
be a trusted and sustainable organisation with an exciting future in woodfibre.’ The
company’s values can be summarised as acting with integrity, being courageous, making
smart decisions and executing decisions with speed.
Background
Sappi was founded in 1936 in South Africa to serve South African consumers with locally
produced paper. They have a tradition of innovating and developing new products to meet
local demand for newsprint, graphic papers (paper used for communication purposes that
includes printing and writing papers), packaging papers used to protect their customers’
products (especially in the agricultural sector) and speciality papers used in the
convenience food, confectionery, cosmetic and luxury markets, and tissue paper for
household, medical and industrial use in the Southern Africa region.
Sappi is also the world's largest manufacturer of dissolving pulp (DP). DP is bleached wood
pulp or cotton linter that has a high cellulose content. DP is so named since it is not made
into paper, but dissolved either in a solvent or by derivatization into a homogeneous
solution, which makes it completely chemically accessible and removes any remaining
fibrous structure. Once dissolved, it can be spun into textile fibres (such as viscose, rayon
or Lyocell), or chemically reacted to produce derivatized celluloses, such as cellulose
triacetate, a plastic-like material formed into fibres or films, or cellulose ethers such as
methylcellulose, used as a thickener. DP is used worldwide by converters to create viscose
fibre for fashionable clothing and textiles, acetate tow, (which is used, for example, to keep
the quality and aroma of cigarettes) pharmaceutical products as well as a wide range of
consumer and household products. Almost all of the production of their mills in South
Africa is exported.
Sappi Southern Africa operates five mills and has a combined production capacity of
102,000 m3 of structural lumber, 690,000 tons of paper, 633,000 tons of paper pulp and
over a million tons of dissolving pulp per annum. The pulp purchased by their European
business is effectively hedged by Sappi Southern Africa being a net seller of pulp. Sappi’s
corporate structure in figure 22. Each unit indicated (Sappi North America, Sappi Europe,
Sappi South Africa and Sappi Trading) also has functional departments such as finance,
human resources and procurement.
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Sappi Limited
Johannesburg
Sappi North
Sappi Europe Sappi South Africa Sappi Trading
America
Paper, paper and Paper and Paper, paper and

Casting and release packaging
packaging and Dissolving pulp packaging and Biomaterials Forests Dissolving pulp International sales
papers
market pulp Biomaterials structural lumber
Figure 22 Sappi's corporate structure
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Strategic Vision for Dissolving Pulp
In 2013, Sappi shifted its South African timber resources into the production of dissolving
wood pulp to meet the growing demand for viscose fibre in the Far East, as traditional
paper markets decline. With the recent completion of major expansion and conversion
projects at its Ngodwana and Cloquet mills and the ramp-up of production of dissolving
wood pulp, Sappi has re-positioned itself to take advantage of growing markets for this
versatile product.
This strategy is a response to weakening demand around the world for fine paper, which
has resulted in the closure of production lines at Sappi operations in North America,
Europe and South Africa. In Europe alone, demand for fine paper declined by 30 per cent.
"The group has invested substantial money in South Africa and North America into the
production of specialised cellulose," said Alex Thiel, Sappi SA's CEO at the time. "We need
to move Sappi's traditional paper business into areas of more long term, sustainable
growth." He pointed out that this does not mean that Sappi is walking away from its
traditional business of producing paper pulp and fine paper. "There's the limited growth
potential for graphics paper, so we are adjusting our capacity," said Alex. "We supply
according to the market demand but there is no huge growth. We will optimise our
production and sustain our market share." Alex also sees a bright future for the packaging
business and Sappi is ramping up production for packaging grades, which are
manufactured at the Tugela and Ngodwana mills, utilising softwood fibre. "We're the only
virgin containerboard producer in South Africa, and this business has a great future," said
Alex. Sappi is fully committed to this market.
Sappi is the world's biggest producer of dissolving wood pulp, which is marketed under
the name 'Specialised Cellulose' and enjoys a number of competitive advantages in this
market. The Saiccor mill has been manufacturing dissolving wood pulp since 1955 – it was
bought by Sappi in 1989 – so there is a wealth of expertise and experience at the individual
level, both in terms of production and marketing. Sappi owns extensive plantations in
South Africa that are well suited to growing the hardwood fibre required to supply the
mills. Sappi plantations in KwaZulu-Natal and Mpumalanga are already being converted
from softwood to hardwood to meet the growing demand. The company does not own
plantations in North America but has access to sufficient hardwood timber resources to
supply the Cloquet mill with its raw material requirements.
Sappi's specialised cellulose product is marketed mainly in the East, where it is used to
produce viscose fibre used in the clothing and textile industries. Alex says that Sappi SA
has a competitive advantage through technical expertise as well as economies of scale in
that Saiccor is the biggest single-site producer in the world and the timber supply is close
to both the Saiccor and Ngodwana Mills. There is also a logistical advantage in exporting
to the East from South Africa, he said. This re-positioning has implications for Sappi's
South African forestry operations.
Once it has reached full production, Ngodwana will require two million tons of timber a
year, 900 000 tons of which will be hardwoods. Sappi- Saiccor requires 2,8 million tons a
year, all hardwood. Wattle makes up 10% of this raw material, with Eucalyptus making up
the rest. Sappi's total timber requirements in South Africa are 5.5 million tons a year, 70%
of which comes from its own plantations and the balance from private timber growers,
small growers and community forestry projects. Alex said Sappi had sufficient resources
in the ground in KwaZulu-Natal to provide for the Saiccor expansion and a surplus of
hardwoods for Ngodwana. Softwood plantations in both regions are being converted to
hardwoods to ensure a sustainable supply of raw material to the mills.
Sappi is also investing significant resources in research and development to improve

planting stock. The company is significantly expanding its clonal programme with the
development of the Clan nursery, so that they can get more of the right trees in the
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ground, improving productivity and providing an opportunity to bring costs down. Thus,
there will be a big shift in planting stock over the next few years.
Sappi has strong links with numerous small growers through its Project Grow programme,
which supplies some 2% of its overall fibre requirements. Sappi has also engaged with
several community forestry projects in the Eastern Cape, located within the Saiccor
catchment, where they have established themselves as strategic partners and play a
developmental role. They are already involved with communities with access to 14 000 to
16 000ha, and are targeting 30 000ha in this region over the next 10-15 years.
Around 20% of Sappi's plantation land in South Africa is subject to land claims, which is a
potential threat to the company's access to fibre. However, the MD of Sappi Forests at the
time, Hendrik de Jongh, says that they have made a lot of progress with land claims,
especially in KwaZulu-Natal, where 38 out of 40 claims have been settled. Hendrik says
Sappi is strategic and technical partners with the claimant communities but stressed that
ownership of the land stays with the communities, with whom they have timber supply
agreements. However, Mpumalanga remains problematic and progress in settling claims
has been slow, admits Hendrik.
The 56% minimum wage increase for forestry workers that came into effect in April 2013
has inevitably had a big impact on the cost of fibre delivered to the mills. Hendrik said that
Sappi has mechanised 70-75% of its harvesting operations over the past decade, so there
are no big changes in employment anticipated here. But he said that there will be a lot of
mechanisation taking place in silviculture (the growing and cultivation of trees) operations
over the next 12-18 months, which will inevitably mean reduced employment
opportunities. "A line has been crossed and it is now imperative to mechanise. There are a
lot of jobs that should never have been done by hand anyway, like de-barking with an axe,"
said Hendrik. "The only way to survive in this business is to improve productivity,"
commented Alex. "The reality is that we need to deliver value for money, otherwise it won't
work."
Alex explained that increasing the production of specialised cellulose is the first step into
the development of exciting new markets for Sappi. "There's growing value in timber
resources for packaging materials, while its chemical properties can be used in many
different applications. Cellulose is a sustainable, renewable raw material alternative for a
wide range of products. Plus there's the potential to produce byproducts for energy. We're
looking for ways to get more value from the trees," he concluded.
Sappi's timber resource is already making a huge impact on the company's energy
efficiency. Ngodwana is energy self-sufficient and is selling energy back into the grid,
while Saiccor is 55% self-sufficient.
The shift in Strategy Paying Off
In 2017, Sappi’s shift to place more emphasis on dissolving pulp and speciality packaging
was starting to pay off. They managed to improve their European and US businesses. In
South Africa, the paper business experienced a strong recovery in sales volumes. In a move
to reposition the business, CEO at the time Steve Binnie said Sappi would undertake some
measures to keep the business going in a rapidly changing global market. He said the
traditional glossy-paper business represented only one-third of the company while two-
thirds consisted of dissolving wood pulp and speciality packaging. In South Africa, Sappi
has set itself growth ambitions in an economy set to grow no more than 0.8 percent in
2017.
“The short-term goal is to produce 60000 tons in dissolving wood pulp over the next year
in South Africa. We expect to grow that to 300000 tons in the next three years and we are
hoping to increase it to a million tons by 2025,” said Binnie. Sappi reported a marginal rise
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in sales to $2.6bn, up from $2.5bn, while headline earnings per share were higher at 33 US
cents a share, up from 31 US cents reported in 2016. The profit came in a $178m, up from
$175m a year earlier.
Sustainability and Impact
Sappi is unlocking the power of renewable resources to meet the needs of the planet and
people while seeding prosperity for all. That’s why they have made the United Nations
Sustainable Development Goals (SDGs) an integral part of their business. The goals define
17 global priorities that challenge all at Sappi to lean in and apply their creativity and
innovation to contribute solutions to challenges – from climate change to poverty.
Globally, Sappi has identified seven priority SDGs where they believe we can make the
biggest impact. These are the following:
1. Clean water and sanitation. Water is vital to all life, and especially to Sappi’s
business. Water not only nourishes trees but is used to make pulp and paper,
generate steam power and so much more in their mills. That’s why Sappi takes their
role as responsible water stewards in the regions where they live and work so
seriously. Sappi’s water reduction target (to reduce specific water use in water-
stressed locations by 18 per cent) focuses especially on their mills in South Africa
where they have some of their largest operations.
2. Affordable and clean energy. As an energy-intensive industry, Sappi’s fuel choices

have a major impact on air emissions. They focus on increasing the share of
renewable and clean energy within their energy consumption, while also
continually improving their energy efficiency. Their target is to increase their share
of renewable and clean energy by 9 percentage points and decrease specific total
energy by 5 per cent.
3. Decent work and economic growth. As a responsible business operating in many

locations around the world, this broad goal aligns with their focus on being a
responsible corporate citizen and providing a safe working environment in which
their employees can reach their full potential. Sappi’s targets are, inter alia, to
achieve zero injuries and to increase the proportion of women in management
roles by 3.7 percentage points.
4. Responsible consumption and production. Manufacturing products from

renewable resources is the core of Sappi’s business and central to its commitment
to the circular economy. Through Research &Development, practical innovation
and new product development, they continually create new products, solutions
and value from natural resources. Their target is to launch 25 products with defined
sustainability benefits and to reduce specific landfilled solid waste by 14 per cent.
5. Climate action. Taking urgent and appropriate actions to combat climate change
and its impacts is a shared responsibility. Sappi is focused on the continued
reduction of its greenhouse gas emissions. Their target is to reduce specific GHG
emissions by 17 per cent.
6. Life on land. With Sappi’s excellence in sustainable forest management and

commitment to stewardship, they want to continue to increase their positive
contribution to healthy landscapes. They practise and promote sustainable forestry
because it ensures clean air and water, protects biodiversity, and defends against
climate change, amongst many other critical benefits. Forest certification validates
their forest management practices and those of their suppliers in the well-
managed forests and plantations from which they source woodfibre. They strive to
continually increase the share of certified woodfibre supplied to their mills. Their
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target is to have a share of certified fibre of more than 75 per cent and to increase
the enhancement of biodiversity in conservation areas by 10 per cent.
7. Partnership for goals. While Sappi is already engaged in and has been contributing
to many partnerships and collaborations, they are looking forward to working more
deeply with others to scale their ambition in pursuit of achieving the Sustainable
Development Goals by 2030.
In South Africa, home to Sappi’s global headquarters, they have selected additional
priority SDGs that reflect the socio-economic development priorities that reinforce their
unique and longstanding investments in people and local communities in the
country. Their target is to advance their Broad-based Black Economic Empowerment to
Level 1.
Sappi is registered at various independent certification schemes. For example, EMAS (the
European Eco-Management and Audit Scheme) that recognises Sappi as an organisation
that goes beyond minimum legal compliance, continuously improves its environmental
performance and is fully transparent in its actions. Another example is FSC ® The Forest
Stewardship Council® is a non-profit entity that supports environmentally appropriate,
socially beneficial and economically viable management of the world’s forest. FSC®
independently tracks traces and identifies wood fibres from the forest through every step
of the procurement, manufacturing and printing process, confirming that each supplier in
the chain follows rigorous controls, management and reporting practices. The last
example is ISO 9001, which sets out the criteria for a quality management system. This
standard is based on a number of quality management principles including customer
focus, the motivation and implication of top management, a process approach and
continual improvement. Using ISO 9001:2015 helps ensure that customers get consistent,
good quality products and services, which in turn brings many business benefits.
Research and development
Sappi is the largest South African Research & Development (R&D) performer in pulp and
paper and the biggest producer of fine paper in the world. Sappi is part of the Gauteng
Province Innovation Hub, where it has a pulp R&D laboratory. Its research centre in
Kwazulu-Natal specializes in genetically improved planting stock. Sappi sponsors chairs in
forest genomics and tree pathology at the University of Pretoria. The Tree Protection
Cooperative Programme brings together all forestry companies, Forestry South Africa and
the Ministry of Agriculture, Forestry, and Fisheries. Sappi collaborates on genetically
modified breeding with the Forest Molecular Genetics Programme of the University of
Pretoria. The independent, “quasi-public” Institute for Commercial Forestry Research is
supported by contributions from its members and hosts its own forty-five-person R&D lab.
Sources:
• Corporate structure Sappi Group. Available online https://cdn-s3.sappi.com/s3fs-

public/Diagram-Sappi-corporate-structure-Landscape-Standalone.pdf [Accessed 28
September 2021]
• Harnessing Public Research for Innovation in the 21 st Century. Available online

https://www.cambridge.org/core/books/harnessing-public-research-for-innovation-in-the-
21st-century/south-africa/F85853E0EE44C6D2A8CAEF1148E42498/core-reader [Accessed 29
September 2021]
• More hardwood is required as Sappi shifts to dissolving pulp. Available online

https://saforestryonline.co.za/articles/business_profiles/more_hardwood_required_as_sapp
i_shifts_to_dissolving_pulp/ [Accessed 27 September 2021]
• New sustainability targets for a thriving world. Available online https://www.sappi.com/new-

sustainability-targets-for-a-thriving-world [Accessed 27 September 2021]
©iQ Academy 134

• Sappi 2015 sustainability report. Available online https://cdn-s3.sappi.com/s3fs-public/2015-

Sappi-Southern-Africa-Sustainability-Report.pdf [Accessed 28 September 2021]
• Sappi’s shift in strategy is paying off. Available online https://www.iol.co.za/business-

report/companies/sappis-shift-in-strategy-is-paying-off-9159533 [Accessed 27 September
2021]
Questions:
1. Differentiate between the supply chain and logistics activities at Sappi. In your answer,
you need to include examples from the case. [UNIT 1]
For Sappi, logistics is an activity within the supply chain. Their supply chain includes the
following processes: innovation and new product development (for example dissolving
pulp); purchasing and sourcing of raw material (for example hardwood and softwood,
water); manufacturing and operations (for example the manufacturing of their various
products such as dissolving pulp and paper), logistics and customer service. At Sappi,
logistics will include the movement, storage and flow of their products (such as
dissolving pulp and other textile products and paper) and information (for example
information on the expanding market for dissolving pulp in the Far East) inside and
outside the company.
2. Customer service management is based on four essential elements. Identify these

elements and then apply these elements to Sappi. In your answer, you need to make a
judgement whether Sappi implement each of these identified elements of customer
service management. [UNIT 2]
Customer service management has the following four essential elements:

• Customer centricity. Sappi displays customer centricity – they understand the
needs of their customer and acknowledge the changes in customer needs. Due
to digitization, the demand for traditional paper is decreasing and will decrease
even further in future. Therefore, Sappi changed its strategic vision to focus on
dissolving pulp, which has an increase in demand, especially in the Far East.
• Social responsibility. There are numerous examples of Sappi being socially
responsible – for example their commitment to the Sustainable Development
Goals
• Aligning business to customer needs. Sappi changed its strategic vision to the
manufacturing of dissolving pulp to meet the needs of its customers better.
• Ensure profitability of the business. Due to the change in their strategic vision,
the profitability of the company increased.
3. Explain the inbound transport, materials flow and outbound transport in the
production of dissolving pulp at Sappi. In your answer, you first need to explain the
concepts of inbound logistics, materials flow, and outbound logistics (or transport) and
then apply them to Sappi. [UNIT 3]
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Inbound logistics is the transport of materials from suppliers to the business, whereas
outbound logistics is the flow of materials from the business to the next partner in the
supply chain or the customer. Materials flow refers to materials that flow within the
business between various processes of production. In the case of Sappi, inbound
logistics is the arrival of woodfibre at the paper mill as whole tree trunks. As tree trunks
are transformed into dissolving pulp, materials flow will take place to move the material
from one process to the next. Finally, when dissolving pulp is moved from Sappi to
customers or the next partner in the supply chain, outbound logistics will take place.
4. Identify the pillars of TQM visible in one of the certifications applicable by Sappi.
[UNIT 4]
ISO 9001, which sets out the criteria for a quality management system. This standard is
based on a number of quality management principles including customer focus, the
motivation and implication of top management, a process approach and continual
improvement. Using ISO 9001:2015 helps ensure that customers get consistent, good
quality products and services, which in turn brings many business benefits.
5. Identify examples of direct integration evident from the case. [UNIT 5]
Direct integration takes place in various directions namely vertical, forward vertical,
backward vertical and forward vertical. An example of backward integration is if Sappi
plants its own stock.
6. Consider the focus of Sappi on the market for dissolving pulp and the six generic supply
chain strategies. In your opinion, which supply chain strategy will be best suitable for
Sappi? Substantiate your answer in no more than 20 words. (UNIT 6]
The continuous-flow supply chain strategy. The main features of the continuous-flow
supply chain model are supply and demand stability, with processes scheduled in such
a way as to ensure a steady cadence and continuous flow of information and products.
This model typically is for a very mature supply chain with a customer demand profile
that has little variation. Consequently, the production workload can match demand
through a continuous-replenishment model based on a "make to stock" decoupling
point, where production is scheduled to replenish predefined stock levels based on a
specified reorder point for inventory in the production cycle. Accordingly, competitive
positioning is based on offering a continuous-replenishment system to customers to
assure high service levels and low inventory levels at customers' facilities, thus achieving
optimization of costs associated with inventory. This supply chain model typically works
well for businesses with short-shelf-life products, such as dairy products and bread.
7. In your opinion, would you consider Sappi as an ethical business? Substantiate your
answer in 50 words.
The company’s values can be summarised as acting with integrity, being courageous,
making smart decisions and executing decisions with speed. Sappi is unlocking the
power of renewable resources to meet the needs of the planet and people while seeding
prosperity for all. That’s why they have made the United Nations Sustainable
Development Goals (SDGs) an integral part of their business. The goals define 17 global
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priorities that challenge all at Sappi to lean in and apply their creativity and innovation
to contribute solutions to challenges – from climate change to poverty.
Globally, Sappi has identified seven priority SDGs where they believe we can make the
biggest impact. In South Africa, home to Sappi’s global headquarters, they have
selected additional priority SDGs that reflect the socio-economic development
priorities that reinforce their unique and longstanding investments in people and local
communities in the country. Their target is to advance their Broad-based Black
Economic Empowerment to Level 1.
©iQ Academy 137

References
Barone, A. 2021. Total Quality Management. Available online
https://www.investopedia.com/terms/t/total-quality-management-tqm.asp [Accessed
24 October 2021]
Botha, T. 2020. Principles of General Management: a responsible approach for southern

Africa. Cape Town: Juta.
Botha, L.J. & Botha, T. 2021. Business Management by Portfolio. Cape Town: Juta.
Botha, T.; Smit, P.J. & Vrba, M.J. 2020. Management principles. 7 th ed. Cape Town: Juta.
Burger, W. 2021. The role of customer service in improving supply chain management.
Available online https://www.sdcexec.com/professional-
development/article/21319340/cloudtask-the-role-of-customer-service-in-improving-
supply-chain-management [Accessed 6 September 2021]
Cargo handling, storage and warehousing in South Africa 2020. Available online
https://www.researchandmarkets.com/reports/5013042/cargo-handling-storage-and-
warehousing-in-
south?w=4&utm_source=BW&utm_medium=PressRelease&utm_code=8g3l2d
Council of Supply Chain Management Professionals, 2012:1
Freeman RE. 1984. Strategic Management: A Stakeholder Approach. London: Pitman

Publishing.
Horn, G. 2020. Supply chain management. 2 nd ed. Cape Town: Oxford University Press.
Knilans, G. 2019. The role of marketing in supply chain management. Available online
https://www.tradepressservices.com/supply-chain-management/ [Accessed 6
September 2021)
Lui, J.J. 2012. Supply chain management and transport logistics. London:Routledge.
Milne, A. 2013. The rise and success of the barcode: some lessons for financial services.
Available online https://swiftinstitute.org/wp-content/uploads/2013/03/2013-02-The-
Rise-and-Success-of-the-BarCode-v4-1-Milne.pdf [Accessed 6 September 2021]
Perez, H.D. 2013. Supply chain strategies: Which one hits the mark? Available online
https://www.supplychainquarterly.com/articles/720-supply-chain-strategies-which-
one-hits-the-mark [Accessed 20 October 2021]
Pratt, M.K. 2021. Total Quality Management. Available online

https://searchcio.techtarget.com/definition/Total-Quality-Management [Accessed 24
October 2021]
Predicts 2014: The rise of the postmodern ERP and enterprise application world. Gartner
Group.
Render, B. 2021. OM in the news: Awash in hand sanitizer. Available online

https://heizerrenderom.wpcomstaging.com/2021/05/24/om-in-the-news-awash-in-
hand-sanitizer/ [Accessed 6 September 2021]
ReQtest. 2019. Total Quality Management – Why Test Management Is Not Good Enough?
Available online https://reqtest.com/testing-blog/total-quality-management/
[Accessed 25 October 2021]
Rossouw, D. & Van Vuuren, L. (2017) Business ethics. Cape Town: Oxford University Press.
©iQ Academy 138

Sappi. How paper is made. Available online https://www.sappi.com/how-paper-made-

sappi [Accessed 14 September 2021]
Shih, W.C. 2020. Global supply chains in a post-pandemic world. Harvard Business Review,
Sep-Oct. Available online https://hbr.org/2020/09/global-supply-chains-in-a-post-
pandemic-world [Accessed 7 September 2021
SupplyChainopz. History of Logistics and Supply Chain. Available online

https://www.supplychainopz.com/2013/05/history-of-logistics.html [Accessed 6
September 2021]
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https://www.britannica.com/technology/mass-production [Accessed 6 September
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management [Accessed 24 October 2021]
©iQ Academy 139

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SHORT COURSE

SHORT COURSE PROGRAMME

COURSE: FUNDAMENTALS OF SUPPLY CHAIN

COURSE CODE: SC-FSM

© Copyright (First edition) 2022

Course Information ............................................................................................................................. 6

Course Outline ..................................................................................................................................... 9

Unit 1: The Supply Chain ................................................................................................................... 10

Unit 2: Customer Centricity .............................................................................................................29

Unit 3: Purchasing, Transportation, Warehousing and Inventory Management .................. 44

3.4 Inventory Management ............................................................................................................. 61

Unit 4: Total Quality Management in Supply Chain Management ......................................... 69

Unit 5: Supply Chain Integration ....................................................................................................82

Unit 6: Supply Chain Strategies and Future Trends..................................................................100

Unit 7: Ethics in Supply Chain Management ............................................................................... 117

7.1.4 Managing business ethics ...................................................................................................... 121

Integrated Case Study .................................................................................................................... 129

References ........................................................................................................................................ 138

Assessment You will be required to complete online continuous and

Feedback: Feedback will be provided online via the

your final mark. These activities usually consist of short

The final marks are derived as follows for this module:

What the icons mean

Read the sections of the prescribed text listed.

Access and watch/listen to the video/audio clip listed.

Additional Resources or Readings

Find the recommended information listed.

Discuss the topic in your study group or online forum.

Examples of how to perform an activity or calculation

Test the knowledge you have learnt or practice a new

Learn from scenarios or real-life examples and apply

Reflect and think about the activities or questions in a

Learn and apply these terms.

End of Unit Assessment

Complete the questions at the end of each unit.

In this course, seven study units will be covered, namely:

Unit 1: The Supply Chain

Unit 2: Customer Centricity

Unit 3: Purchasing, Transportation, Warehousing and Inventory Management

Unit 4: Total Quality Management

Unit 5: Supply Chain Integration

Unit 6: Supply Chain Strategies and Future Trends

Unit 7: Ethics in Supply Chain Management

Unit 1: The Supply Chain

1. Define important terms and concepts of a supply chain;

Resources and readings

Additional readings and resources:

▪ Handfield, R, 2020. “What is Supply Chain Management

▪ Hayes, A. 2021. “Operations Management” At:

▪ LaGore, R. 2019. “What Is Supply Chain & Why is It Important?”

▪ LaMarco, N. 2020. “What Are the Four Elements of Supply

A supply chain is a network between a business and its suppliers and

Supplier A supplier is a person or business that provides a product or service to

See also: Council for Supply Chain Management Professionals 1

Start of unit reflection

This subject matter is completely new to

Unit Learning Outcomes Your rating

LO1: Define important terms and concepts of a supply chain

LO2: Outline the history of supply chain management