College of Business Administration and Accountancy

Alabang–Zapote Road, Pamplona 3, Las Piñas City, 1740

SUBJECT: OPERATIONS MANAGEMENT

TOPIC/S: SUPPLY CHAIN MANAGEMENT
NO. OF HOURS: 3 HOURS
REFERENCE: Operations Management 7th Ed., William Stevenson

LECTURE NOTES

SUPPLY CHAIN – sometimes referred to as value chain, is the sequence of organizations—their facilities, functions,
and activities— that are involved in producing and delivering a product or service.
SUPPLY CHAIN MANAGEMENT - is the strategic coordination of business functions within a business organization
and throughout its supply chain for the purpose of integrating supply and demand management.
LOGISTICS - is the part of a supply chain involved with the forward and reverse flow of goods, services, cash, and
information. Logistics management includes management of inbound and outbound transportation, material
handling, warehousing, inventory, order fulfillment and distribution, third-party logistics, and reverse logistics (the
return of goods from customers).
• Supply chains are the lifeblood of any business organization. They connect suppliers, producers, and final
customers in a network that is essential to the creation and delivery of goods and services.
• Managing the supply chain is the process of planning, implementing, and controlling supply chain operations.

• Basic Components of Supply Chain:

o Strategy,
o Procurement,
o Supply Management,
o Demand Management, and
o Logistics.

• Key issues in Supply Chain Management:

o Determining the appropriate level of outsourcing.
o Managing procurement.
o Managing suppliers.
o Managing customer relationships.
o Being able to quickly identify problems and respond to them.

FLOW MANAGEMENT – An important aspect of supply chain management.

• Three Types of Flow:

o Product and service flow - involves the movement of goods or services from suppliers to customers
as well as handling customer service needs and product returns.
o Information flow - involves sharing forecast and sales data, transmitting orders, tracking shipments,
and updating order status.
o Financial flow - involves credit terms, payments, and consignment and title ownership
arrangements.
TRENDS IN SUPPLY CHAIN MANAGEMENT
• Emphasis on:
o Measuring supply chain ROI - enables managers to incorporate economics into outsourcing and
other decisions, giving them a rational basis for managing their supply chains.
o Greening the supply chain - is generating interest for a variety of reasons, including corporate
responsibility, regulations, and public pressure. This may involve redesigning products and services;
reducing packaging; near-sourcing to reduce pollution from transportation; choosing “green”
suppliers; managing returns; and implementing end-of-life programs, particularly for appliances and
electronic equipment.
o Reevaluating outsourcing - Companies are taking a second look at outsourcing, especially global
suppliers.
o Integrating IT - produces real-time data that can enhance strategic planning and help businesses to
control costs, measure quality and productivity, respond quickly to problems, and improve supply
chain operations.
o Managing risks is getting increasing attention from many companies in light of recent events. Risk
management involves identifying risks, assessing their likelihood of occurring and their potential
impacts, prioritizing the risks, and then developing strategies to manage those risks.
 • risk avoidance
• risk reduction
• risk transference

STRATEGIC RESPONSIBILITIES
o Supply chain strategy alignment: Aligning supply and distribution strategies with organizational strategy
and deciding on the degree to which outsourcing will be employed.
o Network configuration: Determining the number and location of suppliers, warehouses,
production/operations facilities, and distribution centers.
o Information technology: Integrating systems and processes throughout the supply chain to share
information, including forecasts, inventory status, tracking of shipments, and events.
o Products and services: Making decisions on new product and services selection and design.
o Capacity planning: Assessing long-term capacity needs, including when and how much will be needed and
the degree of flexibility to incorporate.
o Strategic partnerships: Partnership choices, level of partnering, and degree of formality.
o Distribution strategy: Deciding whether to use centralized or decentralized distribution, and deciding
whether to use the organization’s own facilities and equipment for distribution or to use third-party logistics
providers.
o Uncertainty and risk reduction: Identifying potential sources of risk and deciding the amount of risk that
is acceptable.

TACTICAL AND OPERATIONAL RESPONSIBILITIES

• Tactical Responsibilities
o Forecasting: Prepare and evaluate forecasts.
o Sourcing: Choose suppliers and some make-or-buy decisions.
o Operations planning: Coordinate the external supply chain and internal operations.
o Managing inventory: Decide where in the supply chain to store the various types of inventory (raw
materials, semi-finished goods, finished goods).
o Transportation planning: Match capacity with demand.
o Collaborating: Work with supply chain partners to coordinate plans.

• Operational Responsibilities
o Scheduling: Short-term scheduling of operations and distribution.
o Receiving: Management of inbound deliveries from suppliers.
o Transforming: Conversion of inputs into outputs.
o Order fulfilling: Linking production resources and/or inventory to specific customer orders.
o Managing inventory: Maintenance and replenishment activities.
o Shipping: Management of outbound deliveries to distribution centers and/or customers.
o Information sharing: Exchange of information with supply chain partners.
o Controlling: Control of quality, inventory, and other key variables and implementing corrective
action, including variation reduction, when necessary.

PROCUREMENT - The act of obtaining or buying goods and services.

• Purchasing and other areas:

o Operations - constitute the main source of requests for purchased materials, and close cooperation
between these units and the purchasing department is vital if quality, quantity, and delivery goals are
to be met.
o Accounting - responsible for handling payments to suppliers and must be notified promptly when
goods are received in order to take advantage of possible discounts.
o Design and engineering - usually prepare material specifications, which must be communicated to
purchasing. Because of its contacts with suppliers, purchasing is often in a position to pass
information about new products and materials improvements on to design personnel.
o Receiving - checks incoming shipments of purchased items to determine whether quality, quantity,
and timing objectives have been met, and it moves the goods to temporary storage.
o Suppliers or vendors - work closely with purchasing to learn what materials will be purchased and
what kinds of specifications will be required in terms of quality, quantity, and deliveries.
PURCHASING CYCLE
1. Purchasing receives the requisition. The requisition includes ( a ) a description of the item or material
desired, ( b ) the quantity and quality necessary, ( c ) desired delivery dates, and ( d ) who is requesting the
purchase.
2. Purchasing selects a supplier. The purchasing department must identify suppliers who have the capability
of supplying the desired goods.
3. Purchasing places the order with a vendor. If the order involves a large expenditure, particularly for a
one-time purchase of equipment.
4. Monitoring orders. Routine follow-up on orders, especially large orders or those with lengthy lead times,
allows the purchasing department to project potential delays and relay that information to the operating
units.
5. Receiving orders. Receiving must check incoming shipments for quality and quantity.

KINDS OF PURCHASING:
• Centralized purchasing - means that purchasing is handled by one special department.
• Decentralized purchasing - means that individual departments or separate locations handle their own
purchasing requirements.

SUPPLIER MANAGEMENT
• Choosing suppliers – consider price, quality, the supplier’s reputation, past experience with the supplier,
and service after the sale.
• Supplier audit - Periodic audits of suppliers are a means of keeping current on suppliers’ production (or
service) capabilities, quality and delivery problems and resolutions, and suppliers’ performance on other
criteria.
• Supplier certification - This is generally important in supplier relationships, but it is particularly important
when buyers are seeking to establish a long-term relationship with suppliers.

CREATING AN EFFECTIVE SUPPLY CHAIN

1. Plan. Develop a strategy for managing all the resources that go into meeting expected customer demand for
a product or service, including a set of metrics to monitor the supply chain.
2. Source. Select suppliers that will provide the goods and services needed to create products or support
services. Also, develop a system for delivery, receiving, and verifying shipments or services. Structure
payment along with metrics for monitoring and, if necessary, improving relationships.
3. Make. Design the processes necessary for providing services or producing, testing, and packaging goods.
Monitor quality, service levels or production output, and worker productivity.
4. Deliver. Establish systems for coordinating receipt of shipments from vendors; develop a network of
warehouses; select carriers to transport goods to customers; set up an invoicing system to receive payments;
and devise a communication system for two-way flow of information among supply chain partners.
5. Manage returns. Create a responsive and flexible network for receiving defective and excess products from
customers.

REQUIREMENTS FOR A COOPERATIVE RELATIONSHIP:

1. Trust
2. Effective communication
3. Information velocity
4. Supply chain visibility
5. Event management capability
6. Performance metrics

REASONS FOR PRODUCT RETURNS

• Defective products.
• Recalled products.
• Obsolete products.
• Unsold products returned from retailers.
• Parts replaced in the field.
• Items for recycling.
• Waste.