OPMN01B SUPPLY CHAIN MANAGEMENT NOTES

LEGEND: YELLOW – SUBTOPIC, GREEN – CONCEPT, BLUE – DEFINITION

DEFINITION OF SUPPLY CHAIN Forrester or Bullwhip Effect

Supply chain consists of the series of activities that moves - Occurs when there is a lack of synchronization in
materials from suppliers, through operations to customers. supply chain members, when even a slight change
in customer sales will ripple backwards in the
Each product or service will have its own supply chain, form of magnified oscillations in demand
which may involve many organizations in processing, upstream.
transportation, warehousing, and retail.
Another approach to reduce variability is to use smaller
Supply network is the set of relationships between a firm batch size in order to smooth the demand pattern.
and its suppliers and customers in the supply chain.
THREE CRITICAL LEAD TIMES
STRUCTURE OF SUPPLY CHAIN
1. Time-to-market
Activities on the input side to the organization are termed - How long does it take to recognize a market
‘upstream’ or ‘supply’ side and are divided into tiers of opportunity and bring products/services to the
suppliers. market?
MATERIALS MANAGEMENT 2. Time-to-serve
- how long does it take to capture a customer’s
Movement of materials within the organization. Can also be order and to deliver the product?
used to refer to the management of upstream supply chain 3. Time-to-react
activities. - how long does it take to adjust the output of the
business in response to volatile demand?
CONCEPT OF VARIABILITY IN SUPPLY CHAIN
AND HOW TO DEAL WITH IT AGILE AND LEAN SUPPLY CHAINS

Factors that include variability in the supply chain includes: AGILE OPERATIONS aim to respond quickly to market
demand in order to retain current markets and gain new
Time lag between ordering materials and getting them market share. As a strategy agile operation can be seen to
delivered to the customer. This time lag can be expressed embrace uncertainty in markets and achieve competitive
as the ‘lead time gap’: advantage by the flexibility and speed of their response to
Lead Time Gap = Logistics Pipeline – Customer Order them.
Cycle Time LEAN SUPPLY CHAINS adopt the concept of lean
Where: operations across the supply chain. Lean supply chains
emphasize efficiency which is achieved by policies such as
Logistics Pipeline = Time to source materials, convert minimizing inventory across the supply chain and
them into products and move them to marketplace continuous improvements across the supply chain.

Customer Order Cycle Time = How long the customer is CHARACTERISTICS OF AN AGILE SUPPLY CHAIN
prepared to wait for the product
a. Market sensitive – The supply chain is able to
To overcome the lead time gap, the traditional way is to receive real-time demand change information and make a
make a forecast of inventory which may lead to over- quick response.
ordering in advance to ensure sufficient stock is available
to meet customer demand. b. Virtual – Virtual supply chains are information-
based, using IT to share between participants, rather than
Order Batching inventory based.

- when orders are not placed until they reach a c. Network based – Companies in the supply chain
predetermined batch size have a commitment to agile practices, such as compatible
- can cause a mismatch between demand and the information architecture
order quantity
d. Process aligned – A focus on the chain of events
Price fluctuations such as price cuts and quantity from a customers’ order inquiry to satisfaction of that
discounts also lead to more demand variability in the customer.
supply chain as companies buy products before they need
them. LEAGILITY
OPMN01B SUPPLY CHAIN MANAGEMENT NOTES
LEGEND: YELLOW – SUBTOPIC, GREEN – CONCEPT, BLUE – DEFINITION

Combination of agile and lean supply chain approaches. - Involves a move from functional departments to
Cristopher and Towill (2001) propose three (3) ways of flexible cells, from top-down control to the team
bringing lean and agile together: ownership, from specialized and narrowly
focused workers to a cross-trained workforce and
1. Pareto Rule (80/20) from efficiency/utilization goals to lead time
- 80% of the volume in the supply chain is reduction.
generated from 20% of the product line so use 3. System Dynamics
lean for 20% of predictable high volume product - This looks at how interaction between machines,
lines to seek economies of scale and make people, and products impact lead times. The
forecast. Use agile for the 80% of less predictable approach is to void too high utilization of
product lines and aim for quick response and resources as this can increase lead time
make to order. considerably. Also, the aim is to reduce the
2. Postponement variability in flow time (arrival time + process
- Involves the use of a decoupling point points time) to reduce lead time and choose a batch size
which holds strategic inventory in modular form that minimizes lead time.
until precise customer requirements are known. 4. Enterprise-wide application
Companies can use lean methods up to the - Apply the principle of minimizing lead times
decoupling point and then agile methods beyond across all departments, apply the principle of
it. The concept can also be used with an minimizing lead time to suppliers an apply the
information decoupling point. principles of QRM to rapid new product
3. Base and Surge development.
- Base demand can be forecast on the basis of
history and so can be met using lean to maximize ACTIVITIES IN THE SUPPLY CHAIN (not sure)
efficiency. Surge demand is met by more
flexible(agile) process. One strategy is to source - Procurement
base demand in low-cost countries and meet - Physical distribution management
surge demand in local markets (albeit at higher
cost but more effective overall). This ssstrategy is
used in the fashion industry by such companies as
Zara and Benetton.

QUICK RRESPONSE MONITORING (QRM)

An alternative approach to managing supply chains. It is a

company-wide strategy for reducing lead times throughout
the enterprise.

EXTERNAL LEAD TIMES are reduced by rapidly

designing and manufacturing products to customer’s needs;
and

INTERNAL LEAD TIMES are reduced in order to

improve quality, lower cost and provide quicker response to
the customer.

FOUR (4) CORE CONCEPTS OF QRM

1. The power of time

- The reduction of lead time should drive all
decisions. Lead time is defined as the typical
amount of calendar time from when a customer
creates an order, through the critical path until the
first piece of that order is delivered to the
customer. The approach is that reducing lead time
will lead to a quicker response.
2. Organization Structure