Supply Chain Management
Intra-firm information flow
Information flows between different functions or departments inside of a firm.
Pareto Rule (80/20 rule)
80% of a specific event can be explained by 20% of the total observations. This applies for many things, including business, e.g: 80% of your profits come from 20% of your customers. 80% of your sales come from 20% of your products/services. This implies that you shouldn't try to satisfy everyone, but rather only 20% of them.
Customer drivers
= order winners
Backorder costs
A cost incurred by a business when it is unable to fill an order and must complete it later. A backorder cost can be discrete, as in the cost to replace a specific piece of inventory, or intangible, such as the effects of poor customer service. Backorder costs are usually computed and displayed on a per-unit basis. I: Backorder costs are important for companies to track, as the relationship between holding costs of inventory and backorder costs will determine whether a company should over- or under-produce. If the carrying cost of inventory is less than backorder costs (this is true in most cases), the company should over-produce and keep an inventory. i.e. when you have an order but you cannot fill it because you have no supply and thus you get a cost.
Procurement Process
A cross-functional business process that originates when a company needs to acquire goods or services from external sources, and it concludes when the company receives and pays for them.
First tier customers
A firm's direct customers i.e. immediate customers.
Market coordination
A market coordination means that you adjust your production of goods to the market, i.e. depending on supply and demand.
The Network Perspective
A network perspective, or markets-as-networks, is a perspective on markets as networks of interdependent relationships - a structure between hierarchy and markets. Instead of looking at just the market or just the hierarchy, you look in between and see relationships (networks) between people and in and outside of your organization.
Agility
A practical approach to organizing manufacturing and logistics capabilities around changing end-customer demands. The focus is thus on the end-customers and to be responsive to them. Being able to "read" the market demand like this is referred to market sensitivity. Agility is used to compete within a state of dynamic change, which involves responding to both anticipated and unanticipated changes fast and taking advantage of these changes as opportunities.
First-tier supplier
A supplier that provides products or services directly to a firm.
Second-tier supplier
A supplier that provides products or services to a firm's first-tier supplier.
What are the three main components of a SC?
Actors - Can be organizations, individuals, or even functions in a firm. Examples: Manufacturer, Supplier, Distributor, Customer, etc. Activities - Activities that add value to the product in the supply chain. Examples: Production, Procurement, Inventory, Product design, etc. Processes - Combinations of activities related to each other. Examples: Order-to-Cash - A set of business processes that involve receiving and fulfilling customer requests; time-to-market - Time from coming up with the idea for a product until it is on the market available for sale and procure-to-Pay - A process that connects procurement with accounting.
Total Cost of Ownership (TCO)
All of the costs associated with the design, development, testing, implementation, documentation, training and maintenance of a software system.
Circular economy
An economy model in which resources remain in use for as long as possible, from which maximum value is extracted while in use, and the products and materials are recovered and regenerated at the end of the product life cycle.
Different types of customer-supplier relationships
Arm's length - The relationship is conducted through the marketplace with price as its foundation. Partnership Strategic alliance Joint venture Vertical integration - The relationship is cemented through ownership.
How do you serve the end-customer in a business context (commercial sector)?
Business context (commercial sector) - The important part is to have better value for money and to be better than the competition when it comes to serving the needs of the end-customer.
Controlling (SCM)
Controlling means keeping to the planning, regardless of problems getting in the way.
Conversion
Converting the commodity to a finished product.
Name a few complexities that supply chain management face today.
Cost efficiency vs. Market responsiveness - Tradeoff between being cost efficient in activities and trying to be closer to the market and provide product variability and options for the customer to choose from (market responsiveness). Stability vs. Adaptation - Either have stable systems or constantly adapt to tech changes. Control vs. Flexibility. Long-term vs. Short-term goals. Sustainability vs. Constant growth. Conflicting goals of various stakeholders. Clashing identities and values of different actors.
D-time
D-time (demand time) - Measures the time for which customers are willing to wait to have their demand fulfilled. It is measured from when a person or a company realises that they have a need and ends when the product is received by them.
Essentialize
Do not make assumptions about how a particular demographic group will think or respond.
Why does the bullwhip effect occur?
Either because of structural causes or operational causes. The structural causes can be --> Lack of information flow - The problem may be that information is not shared, which leads to higher uncertainty and thus more variations. Frequent change in strategies Supply chain structural design - the higher the number of actors and the longer the lead times (time from starting producing a product until the customer receives it, thus long lead times = delay in delivery) the stronger is the bullwhip effect. The operational Demand forecast updating - Each upstream manager makes her own demand forecast and adds safety stock, which results in changes to safety stock. Local optimization - Order batching for better prices, less fixed ordering costs, aggravates demand forecasting. Companies can have different timing rules as to when they order their batches. Price fluctuation - Sales promotions (buy more at once) will clearly change the demand. Anticipated shortages - In times of anticipated shortages (e.g. seasons), excess ordering and cancelling afterwards which amplifies demand.
Inventory costs
Expenses associated with materials and direct labor for production until the product is sold.
Downstream
Firms that are close to the end-customer are referred to as downstream.
Internal logistics
Internal logistics - Deals with the planning and control of material flow within the boundaries of the focal firm.
What four dimensions does value have?
Functional / instrumental - Correct attributes, features (e.g. quality) and performance. Used in product orientation. This dimension is the most important one in B2B, and thus also for supply chain management. Symbolic / expressive - Self-identify and social meaning. Used in branding (mostly in B2C). Experience / hedonic (pleasure) - Sensory, emotional and relational values. Things that can be interpreted as experiences. Used in marketing of services. Cost / sacrifice & benefits - Economic values, risks and personal investment. A product can have any number of these dimensions: a lipstick can be red (functional), have some sort of meaning (symbolic), give an experience (experience) and be cost effective (cost). In B2B, the functional and cost dimensions are the most important ones.
Hard objectives
Hard objectives are easy to measure and quite obvious for the end-customer. They include: Quality advantage - The most fundamental objective: the end-product should do what it is supposed to do. Quality at the expected level is the most visible aspect of supply chain performance, since defects or late item deliveries are symptoms of quality problems in the supply chain and are quite apparent for the customer. If these problems are present, they decrease value creation, but if they are not, value creation increases. Time advantage - Measures how long a customer has to wait in order to receive a given product (i.e. lead time). Thus, you want to have the fastest lead time to be the most competitive. Cost advantage - Low costs translate into advantages in terms of low prices for the customers.
What are the consequences of the bullwhip effect?
High safety stock - Even though you don't order, deliveries will come from earlier orders and thus you will get more than you need and thus get higher inventory costs. Could also be the opposite where you will have backorder costs, i.e. when you have an order but you cannot fill it because you have no supply and thus you get a cost. Poor customer service - If you e.g. are a wholesaler, then your customer's operations depend on that you deliver to them, and if you don't have the available stock you won't be able to. Low capacity utilization Problems with demand forecasts Ineffective production
Kraljic's matrix
In order to segment your suppliers as shown above, you can use the purchase portfolio matrix. It is based on that firms seek to maximize purchasing power when they can, and that key factors in a relationship are buyer strength (i.e. the purchasing power of the buying company), and the supply risk (such as availability and number of potential suppliers). These two dimensions create 4 categories of items: Bottleneck items - Buyer has little power and there are few alternative suppliers. Thus, you don't have any negotiation power to get better relationships. Example: Spare parts Strategy: Seek substitutes by finding more suppliers Non-critical items - Buying power is not high, but there are many suppliers out there that can provide the same offering. Thus, you can work on automating the procurement system and put in as little effort as possible. Example: Office material Strategy: Drive competition by negotiating or increase efficiency by automation. Strategic items - Buying power is high but there are few available suppliers. Here you should draw suppliers into a relationship that ensures supply in the long run. Example: Raw material for paper Strategy: Develop close relationships to ensure long-term supply Leverage items - Large number of suppliers and buyer has high spending power, then the buyer will be able to use this power to reduce prices and get good treatment. Example: Electricity Strategy: Reduce the prices, seek short and long term alternatives.
Inbound logistics
Inbound logistics - Deals with the links (and thus the activities and processes) between the focal firm and its upstream suppliers.
Information flow
Information flow of demand data from the end-customer back to purchasing and to suppliers and supply data from suppliers to the retailers, so that material flow can be planned and controlled accurately. Information flows from downstream to upstream in the supply chain.
Inter-firm Information flows
Information flows between different firms in a supply chain.
Cognitive limitations
Limits on what we are able to know at any point in time.
Material flow
Material flow of physical goods from suppliers through the distribution centers to stores and for the online business through to the end-customer. Material flows from upstream to downstream in the supply chain.
Make-to-stock
Offer products for customers to buy from available inventory. This requires replenishment to work, i.e. to know how much, when and where. Here, the CODP is at the end of the process. An important KPI here is on-shelf availability, which means that you have the needed products on the shelf.
Volatile demand
One of the big issues in inventory management is volatility: the variation in demand for a part or product. But volatile demand is more than just variable demand. It includes rapid and unpredictable demand.
Order qualifiers
Order qualifiers - Factors that are regarded by the market as an entry ticket ➡ factors that decide whether or the customer will even consider the product to begin with. These are therefore factors that you have to do in order to keep your business going.
Order winners
Order winners - Factors that help products to win orders in the market. Customers see these as key reasons to purchase something. Increasing performance on an order winner will increase chances of more business, so if a product has price as its order winner, then you should work towards more price reductions.
Give three examples of SC processes.
Order-to-Cash - A set of business processes that involve receiving and fulfilling customer requests. Time-to-market - Time from coming up with the idea for a product until it is on the market available for sale. Procure-to-Pay - A process that connects procurement with accounting.
Upstream
Organizations dealing with the first steps of this process (i.e. near the source) are referred to as upstream.
What effects value?
Other available offerings - Depending on the other alternatives, the value can increase or decrease. Your resources (and skills) - A guitar is not as valuable for someone who is bad at playing it as for someone who is good. Your preferences - A hamburger is not as valuable for a vegetarian as for a person who is not. The situation - People are more aware of some things today, such as their sugar intake. This means that e.g. Pepsi had to adapt to decreasing perceived value in sugar from customers
Outbound logistics
Outbound logistics - Deals with the links between the focal firm and its downstream customers.
P-time
P-time (production time, logistics lead time) - Measures how long it takes to source, make and deliver a product. The measure thus starts the moment a new order is raised (when there is a need to produce more, not necessarily when the customer has ordered something), and it includes all the time needed to take a product through all the processes necessary to make and deliver that product, even including the time it is in storage. The end of the measure is when the customer (either a company or the end-customer) receives the product.
Planning (SCM)
Planning refers to making a plan that defines how much of each product should be bought, made, distributed and sold each day/week/month.
Power in a Network Perspective
Power - Different actors have different levels of power to influence how other actors act. Thus, the power is distributed unequally.
Describe primary and supporting activities
Primary activities - Transforming raw materials into finished products, then distributing , marketing and servicing them. Primary activities are push orientated. Support activities - Activities needed to support the primary activities, such as designing products.
How do you serve the end-customer in a public service (not-for-profit sector)?
Public service (not-for-profit sector) - The important part is to continuously improve. In either case, the end-customer is the most important part of the supply chain, since the point is to serve their needs. Thus, you could say that the end-customer starts the whole process of a supply chain. Due to this, the degree to which a customer is satisfied with the product is important, and a large factor in this is deliveries happening on time.
Push and Pull systems
Push - You forecast and anticipate the demand and produce/signal for delivery accordingly. Advantages of a push supply chain is that it is more responsive and implies higher inventory levels and thus higher safety stock than a pull supply chain. Pull - The product is pulled through the supply chain in response to demand from the end-customer. Advantages of a pull supply chain is that it is more cost effective, since you don't need safety stock if you only produce what is necessary.
Reverse logistics
Reverse logistics deals with the flow of goods that go back up the supply chain (returns) for a number of reasons, including: product returns, repairs, maintenance and end-of-life returns for recycling. Reverse logistics is more complex and expensive than normal logistics, since you need to find actors that can collect the returned items, etc.
Segmentation in SCM from a marketing perspective
Segmentation describes how a market can be broken up into different groups of customers with similar needs. There are three ways of looking at segmentation to cope with these tradeoffs: Product profile - The level of product standardization or customisation . Customers - Segmentation that is behavioral, demographic, geographic, etc. Demand profiling - Is the demand volatile or stable?
Strategic partnerships
Strategic partnerships are long term relationships based on for instance sharing of information, trust and coordination. Advantages of having strategic partnerships are savings and increased productivity. Disadvantages are that it takes a lot of resources from the firm to deal with a relationship on such a requiring level.
Supply risk
Such as availability and number of potential suppliers.
Supportive capabilities
Supportive capabilities are goals that are less important than the hard objectives, but can still be key to creating an advantage and thus value for the customer. These include: Controlling variability - Variability means that you vary in whether or not you deliver what you promise. Thus, controlling variability is key to establish dependability, i.e. that the customer trusts that you will actually deliver what you have promised. Hence: Get rid of variability ➡ get dependability. However, this implies that you need to fulfil the hard objectives above first, since in order to control your variance in performance, you first need to actually be able to perform. Dealing with uncertainty - Responding fast to unexpected changes that affect the processes in the supply chain. You have to be able to adapt the supply chain in order to survive, which of course is important for your operations. Acting responsibly - Sustainability is defined as: Development that meets the needs of the present without compromising the ability of future generations to meet their needs. If you have a more sustainable business, you will create value for your customers. Thus, you should work on having better relationships with your suppliers and invest in them to make them be more sustainable.
Arcs of Integration
The Arcs of Integration shows ➡ The direction of integration: upstream with suppliers and/or downstream with customers The degree of integration: the extent to which the integration practices are evident across either the supplier or customer base.
Make-to-order
The CODP is at the early stages of the supply chain. Thus, you instead offer the opportunity to order products with specifications.
Lead time
The amount of time between the recognition that an order needs to be placed and the arrival of the needed merchandise at the seller's store, ready for sale.
The Bullwhip Effect
The bullwhip effect is a phenomenon where variations in end-customer demand are amplified as you move upstream. This means that the higher up you go in the supply chain (i.e. the closer to the production end), the more fluctuations in demand. This can be illustrated using this graph -->
Driver matrix
The driver matrix describes how specific elements of the competitive profile (lead time and delivery frequency ➡ long or short and/or frequent deliveries) and demand profile (demand variability ➡ volatile or stable demand) can be used to segment SKUs and determine the appropriate segmented strategies.
Focal firm
The initiator of an international business transaction, which conceives, designs, and produces offerings intended for consumption by customers worldwide. Focal firms are primarily MNEs and SMEs.
Exchange values
The price after a margin on top of the cost has been added, since there is a contradiction between the price and what the customer values.
Lean thinking
The principles of lean thinking is to minimize waste while ensuring customer value is delivered. You simply try to cut out waste from all processes. Any activity that does not add value, but rather consumes resources, is waste. Waste includes the waste of: Overproduction - Making and delivering too much, too early or "just in case". The aim should instead be to make "just in time". Overproduction leads to poor productivity. Waiting - Time not being used effectively. Transporting - Moving things from one process to another adds no value. Thus, processes should be closer to each other. Inappropriate processing - For instance having a process that is incapable of meeting quality standards. Unnecessary inventory - Having inventory means that flow has been disrupted. Unnecessary motions - Such as having to walk between processes. Defects - Having defects in products costs time and money.
Buyer strength
The purchasing power of the buying company.
Tripple bottom line (SCM)
The value creation for stakeholders is connected to the idea of sustainability and the triple bottom line, i.e. that you should focus on the planet, people and the company's own profit when creating value.
Soft objectives
These are harder to measure than the hard objectives, and they have to be measured in different ways than hard objectives by for instance using customer surveys. These include: Confidence - answering questions fast, nicely and efficiently. This creates value for the customer. Security - Customer's information and data is treated in a confidential and secure manner.
Tiering
To arrange or organize something in tiers.
Replenishment
To know how much, when and where.
Trust in a Network Perspective
Trust - This means that you know that the other actor will do what it should. Usually it starts with having a contract agreement, but over time you will establish mutual trust and thus begin business development. Most importantly, however, is that trust can be an entry barrier, i.e. it can block new actors from entering into a network.
B2C vs. B2B
We can see that the behavior of consumers as customers is not as regulated and organized as the behavior of firms as customers. The values are more individual for consumers and are therefore harder to measure. For businesses, we can see that they are more organized, using more calculations and more control by monitoring. The point of this is to illustrate that the buying behavior is not the same for consumers and businesses, and thus you can't bring the same offer to the two.
Consequences when P-time is greater than D-time
When P-time is greater than D-time, the process of producing and delivering the product is longer than the customer is willing to wait. As can seen in the image below, where the P-time is greater than the D-time, you have a customer order decoupling point (CODP). Downstream from this point, the firm carries out processes to known customer orders, whereas upstream from this point in the processes are carried out speculatively. This implies that at this point, we have the exact information about the customer's order. When saying that the orders are done "speculatively", that means that you are working with a push supply chain up to the CODP, and then after it you have a pull supply chain.
How can you minimize the bullwhip effect?
You can minimize the bullwhip effect by coordinating better, including: Improving information sharing. Electronic Point of Sale (EPOS) at retailer - EPOS is an automatized way of handling checkout in stores. Continuous replenishment programs (maintain agreed upon inventory level at the customer) Vendor managed inventory (VMI) - Supplier, not the customer, is responsible for replenishing inventory. Improving channel alignment Higher order frequency, reduced size of orders, with (EDI) electronic data interchange or 3rd party logistics aligning shipments for optimal transport. Improving operational efficiency Everyday low prices instead of promotions, limiting free return policies
Supplier segment and policy considerations
You can segment your suppliers to see which ones you should focus more resources (or our procurement strategy, see below) on. The levels of which you do so can be referred to as strategic relationships, preferred relationships and commercial relationships.
