INTRODUCTION TO SUPPLY CHAIN

BY SUNETH JAYAWARDENE
 Learning Outcomes

▪1. identify what supply chain and supply chain

management are
▪2. identify the differences between the key terms of
logistics, operations management, value chain,
transportation, and supply chain
▪3. investigate the important phases of the evolution
process of the supply chain management as a separate
discipline
What Keeps the World Moving?

Behind every product, service and event there is a

Supply Chain
Logistics keeps Supply Chains running

No Supply Chains no life!

https://www.youtube.com/watch?v=i6jOLNB7IdM

https://www.youtube.com/watch?v=XSSYXEbKVmQ
 Logistics – Misunderstood ?

Logistics = Transportation

Logistics >Transportation

https://www.youtube.com/watch?v=eSkOezRg7q0
Understand the Terminology
Value
Chain

Supply
Chain

Logistics

Transport https://www.youtu
be.com/watch?v=W
I7qhue5-us
What is SCM

• The supply chain is the network of organisations

that are involved, through upstream and
downstream linkages, in the different processes
and activities that produce value in the form of
products and services in the hands of the
ultimate consumer
• Management of the flow of goods and services.
It includes the movement and storage of raw
materials, work-in-process inventory, and
finished goods from point of origin to point of
consumption
Cargills Supply chain

The value chain includes two central processing units and a

24 hour distribution operation while continuously
maintaining the cold-chain. The dry goods warehouse is a
separate operation while selected suppliers carry out direct
store deliveries. As at 31 March 2020, 411 Cargills Food
City outlets (including Cargills Food City Express and
Cargills Food Hall) are operational across all 25 districts of
Sri Lanka

https://www.youtube.com/watch?v=9daKyZ3Pc8M
Cargills supply chain
Cargils innovations

Buy Direct from the Producer

Plastic craters
Year round cultivation
Different ecological regions
Stage cultivation
Bridging the long term relationship
Enriching Farmers
Adding less chemicals to the fresh products
Transferring goods to the customer within 24 hours
 The Objective of a Supply Chain
• The objective of every Supply Chain is to maximize
the overall value generated

Value
The difference between what the final product is worth
to the customer and the costs the supply chain incurs
in filling the customer’s request.

• Value is strongly correlated with supply chain

profitability (also known as supply chain surplus)
SC Surplus = Customer Value- SCC
Value created in Supply Chain
Creating value through SCM…

30% of value is taken by the middleman, 40% post

harvest cost. High transport damages
Farmer gets less than 30% of value.
Creating value through SCM…

Out-grower model
Eliminate middleman
Crates to reduce transport damages
Porter’s Value Chain
i-phone Supply chain

https://www.youtube.com/watc
h?v=YbM_LydRlnM

https://www.youtube.com/watc
h?v=cKvGzS8LYbY

15
 Why SCM is Difficult
• Multiple organizations work together
• Technological integration
• Revenue is often determined by the number of
retail outlets distributed to
• Continuous flow of money, goods, information
and reverse flow
• Global spread crossing international boundaries
• Most of the total cost is in the supply chain
• Majority of the supply chain cost is in the last
mile
• Heavy competitive pressure to innovate
• Increasing ethical pressure
• Competitive advantage is driven by Supply chain
Four Flows in Supply Chains
Multiple Tier Supply Chains
Global Supply Chains
 Important Elements of SCM
Purchasing- Supplier alliances, supplier management,
strategic sourcing

Operations- Demand management, MRP, ERP, JIT, TQM

Distribution- Transportation management, customer

relationship management, network design,
service response logistics

Integration- Coordination/Integration activities, global

integration problems, performance
measurement
A picture is better than 1000 words!
How many words would be better than 3
pictures?
- A supply chain consists of
Supplier Manufacturer Distributor Retailer Customer

Upstream
Downstream

- aims to Match Supply and Demand,

profitably for products and services
SUPPLY SIDE DEMAND SIDE
- achieves

Product
+ + + + +
The right The right
Price
The right The right
Store Quantity
The right
Customer
The right
Time = Higher
Profits
Manufacturing Vs. Service Supply
Chain
Manufacturing Organization SCM

Supplier

Supplier
}Storage Mfg. Storage Dist. Retailer Customer

Supplier

Service Organization SCM

Supplier

Supplier
} Storage Service Customer
 The Supply Chain and Competitive advantage

“The complexity of the business is not in the manufacturing, its in the logistics.
This is more of a logistics machine than a manufacturing plant.” Bob Beaty, IBM
“Putting cars together is a relatively straightforward exercise. Getting all the
parts together at the right place and time with minimum inventory is the real
challenge” Production Director, Nissan
“Our focus is on markets and products, but without an effective supply chain
we cannot even begin to compete” CEO, Unilever.
“The supply chain is the biggest leverage point we have” (Dell)
“The supply chain is the business model” (Zara)
“Supply Chains compete, not individual organisations” Prof. Martin Christopher

• https://www.youtube.com/watch?v=DBrl356VhqQ
Case: Dell Computers

1983 – Michael Dell, a medical student, buys out-dated IBM PCs and
upgrades them to sell at bargain prices
1987 – Dell Computers build own PCs and sell direct to customers

DELL Competitor X
Customer -focused Product-focused
Assemble-to-order Make-to-forecast
JIT-based manufacturing Traditional approach
Direct to customers, on-line sales Sell through traditional channels
11 days total inventory Several months inventory
Lean & flexible (agile) Slow to respond
Low risk of obsolescence High risk of obsolescence

https://www.youtube.com/watch?v=rM1zzPLRnJY
Apparel supply chain innovations
Traditional Apparel Business Process

Source Discount
Producer Retail
Design Raw Distribute
(famous
100% - Far Stores Sales
Material East d
designers)
(sea-freight)

Industry norm … 6 to 18 months!

Zara’s supply chain (lean AND agile strategies; design
postponement)
https://www.youtube.com/watch?v=I8_gmYNCQ1g
Postpone
design
Differentiate 2-3 weeks

Source Producer Packaging

Design Distribution Zara
Raw 80% - Europe & Labelling
(new graduates)
(Spain)
(air & road) Stores
Materials 20% - Far East

Stock Allocation

Sales reports
Market research
Birth of Supply Chain
Management
Keith Oliver is a British top logistician and consultant famous for coining the
terms Supply Chain & Supply Chain Management first using them in public in
an interview with Arnold Kransdorff of the Financial Times on June 4, 1982.

Oliver defined in 1982 the Supply Chain concept as ……..

“Supply chain management (SCM) is the process of planning,
implementing, and controlling the operations of the supply chain with the
purpose to satisfy customer requirements as efficiently as possible”.
Supply chain management spans all movement and storage of raw
materials, work-in-process inventory, and finished goods from point-of-
origin to point-of-consumption.
Evolution of Supply Chain
Management
Further Refinement
of
SCM Capabilities

SCM Formation/
Extensions

JIT, TQM, BPR,

Alliances

Inventory Management/Cost
Optimization

Traditional Mass Manufacturing

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

“Future competition will not be between
products but
between supply chains”
Prof Martin Christopher (Cranfield University UK)