CH1: INTRODUCTION TO SUPPLY CHAIN
• DEFINING LOGISTICS
Depending on the main areas of activities, the logistics family of terms consists of:
1. Military logistics: procurement, maintenance and transportation of military material,
facilities and personnel
2. Engineering logistics: the art and science of management, engineering and technical
activities concerned with specifying the requirements, designing, supplying and
maintaining resources to support the engineering objective, plans and operations
3. Business logistics: part of supply chain management that plans, implements and
controls the efficient and effective forward and reverse flow and storage of goods,
services and related information between the point of origin and the point of
consumption in order to meet the customer’s requirements
4. Production logistics: logistics from raw materials and finished products. Focus on:
• Manufacturing resource planning a method for the effective planning of all resources
of a manufacturing
• Distribution requirements planning (DRP) -delivery of goods more efficient by
determining which goods, in what quantities, and at what location are required to
meet anticipated demand
5. Reverse logistics: Activities that reverse distribution, interface with waste
management and includes handling return loads, disposal of packaging materials,
obsolete products and materials and the return or recycling of appliances,
components and equipment
• DEFINING SUPPLY CHAIN MANAGEMENT
→ encompasses the planning and management of all activities involved in sourcing
and procurement, conversion and all logistics management activities
Supplier Organisation Customer Client
→ SCM PROCESSES INCLUDE
o Demand management o Order fulfilment
o Product development and o Returns management
commercialisation o Customer relationship
o Supplier relationship management management
o Manufacturing flow management o Customer service management
,THIRD PARTY LOGISTICS
❖ 3PL refers to the management
structure where a third party fulfils
certain roles and responsibilities
regarding the provision of logistics
services between the supplier [1st
party] and the customers [2nd party]
❖ Also called contract
logistics/outsourcing
❖ Transportation, warehousing,
packaging, freight consolidation,
information technology and
financial services
FOURTH PARTY LOGISTICS
❖ An integrator that assembles the
resources, capabilities and technology
of its own and other organisations to
design, build and run comprehensive
supply chain solutions.
o Separate entity established as a
joint venture
o Single interface between client and
service providers
o All aspects of the client’s supply
chain are managed
→ BENEFITS OF A 4PL
▪ Addresses strategic failures of a 3PL – Bigger picture – Better decisions.
▪ Addresses financial failures of a 3PL – Stronger financially
▪ Addresses operational issues of 3PL – New innovative ways
▪ Realises revenue opportunities – A lot of clients
▪ Retains supply chain knowledge
▪ Improves accountability – They are responsible for all the SC processes, know where
problems occur
PORTERS VALUE CHAIN AND COMPETITIVE ADVANTAGE
I. Value chain is based on process view of organisations, the idea of seeing a
manufacturing organisation as a system, made up of subsystems each with inputs,
transformation processes and outputs [Looking at firm as a whole]
II. How activities are carried out determines costs and affects profits
III. Competitive advantage is present when the business consistently offers the
customer something different from the competitors’ offering and this represents
something valuable to the customer
,Reflects the reward for the risks run by the firm. Total value must be more than cost of activities
1. PRIMARY ACTIVITIES
Inbound logistics – receiving, storing, listing and grouping inputs to the product, Includes
materials handling, warehousing, inventor and transport
Operations – machining, packaging, assembly, maintenance of equipment, testing
Outbound logistics – order processing, scheduling transport, distribution management
Marketing and sales –convincing customers to buy the firm’s products; pricing, selling,
advertising
Service – Maintaining the product after sale; training, servicing, installation = enhances
product value
2. SECONDARY ACTIVITIES
Procurement – Purchasing raw materials, supplies and negotiating contracts
Technology and development – Research and development, process improvements, new
products / services
Human resource management – Recruitment, retention, compensation
Infrastructure – General management, finance, quality management
→ CREATING CUSTOMER VALUE
o Differentiate products
o Lower costs – offered to customer in the form of a lower price
o Respond to needs more quickly
o The value chain framework helps analyse the contributions of individual activities
in a business to the overall level of customer value the firm produces, and
ultimately to its financial performance
, CH2: SOURCING
• OBJECTIVES OF PROCUREMENT
▪ Broader concept than purchasing, more proactive with focus on strategic matters
▪ The objectives of procurement and SCM are viewed from three levels:
1. The General managerial level
2. The Functional and operational level
3. A detailed Buying plan level
1. GENERAL MANAGERIAL
→ Procurement is the acquisition of goods and materials:
i. Right Quality
ii. Right Supplier
iii. Right Quantity five rights of procurement
iv. Right Time
v. Right Price
2. FUNCTIONAL AND OPERATIONAL
Ensure the smooth functioning of business activities by an adequate and
uninterrupted flow of goods/services
Buy lowest possible price to get max value for money
To keep inventory losses and investment losses to a minimum
3. BUYING PLAN
Developed when precise plans are made for each category of material/service since
the usage requirements/operating conditions/ procured markets are different
THE PROCUREMENT PROCESS
1st. DETERMINING THE NEEDS AND SPECIFICATIONS
user department describes what the needs are in a specification that could include:
▪ Quality specifications [describes technical and other standards to be met]
▪ Logistics specifications [indicating quantities and delivery time]
▪ Maintenance specification [how products need to be maintained]
▪ Legal and environmental specifications [determines the compliance with legis.]
▪ A target budget [giving constraints where supplier offers solution]
2nd. FINDING EVALUATING AND SELECTING SUPLIERS
buying organization should:
▪ Develop and maintain a viable supplier base
▪ Address appropriate strategic/tactical issues [supplier development/
partnerships/BEE]
▪ Potential suppliers are carefully evaluated [ability to be satisfactory suppliers]
▪ Decide whether to use competitive bidding or negotiation for source selection
▪ Select appropriate team leader for the task
• DEFINING LOGISTICS
Depending on the main areas of activities, the logistics family of terms consists of:
1. Military logistics: procurement, maintenance and transportation of military material,
facilities and personnel
2. Engineering logistics: the art and science of management, engineering and technical
activities concerned with specifying the requirements, designing, supplying and
maintaining resources to support the engineering objective, plans and operations
3. Business logistics: part of supply chain management that plans, implements and
controls the efficient and effective forward and reverse flow and storage of goods,
services and related information between the point of origin and the point of
consumption in order to meet the customer’s requirements
4. Production logistics: logistics from raw materials and finished products. Focus on:
• Manufacturing resource planning a method for the effective planning of all resources
of a manufacturing
• Distribution requirements planning (DRP) -delivery of goods more efficient by
determining which goods, in what quantities, and at what location are required to
meet anticipated demand
5. Reverse logistics: Activities that reverse distribution, interface with waste
management and includes handling return loads, disposal of packaging materials,
obsolete products and materials and the return or recycling of appliances,
components and equipment
• DEFINING SUPPLY CHAIN MANAGEMENT
→ encompasses the planning and management of all activities involved in sourcing
and procurement, conversion and all logistics management activities
Supplier Organisation Customer Client
→ SCM PROCESSES INCLUDE
o Demand management o Order fulfilment
o Product development and o Returns management
commercialisation o Customer relationship
o Supplier relationship management management
o Manufacturing flow management o Customer service management
,THIRD PARTY LOGISTICS
❖ 3PL refers to the management
structure where a third party fulfils
certain roles and responsibilities
regarding the provision of logistics
services between the supplier [1st
party] and the customers [2nd party]
❖ Also called contract
logistics/outsourcing
❖ Transportation, warehousing,
packaging, freight consolidation,
information technology and
financial services
FOURTH PARTY LOGISTICS
❖ An integrator that assembles the
resources, capabilities and technology
of its own and other organisations to
design, build and run comprehensive
supply chain solutions.
o Separate entity established as a
joint venture
o Single interface between client and
service providers
o All aspects of the client’s supply
chain are managed
→ BENEFITS OF A 4PL
▪ Addresses strategic failures of a 3PL – Bigger picture – Better decisions.
▪ Addresses financial failures of a 3PL – Stronger financially
▪ Addresses operational issues of 3PL – New innovative ways
▪ Realises revenue opportunities – A lot of clients
▪ Retains supply chain knowledge
▪ Improves accountability – They are responsible for all the SC processes, know where
problems occur
PORTERS VALUE CHAIN AND COMPETITIVE ADVANTAGE
I. Value chain is based on process view of organisations, the idea of seeing a
manufacturing organisation as a system, made up of subsystems each with inputs,
transformation processes and outputs [Looking at firm as a whole]
II. How activities are carried out determines costs and affects profits
III. Competitive advantage is present when the business consistently offers the
customer something different from the competitors’ offering and this represents
something valuable to the customer
,Reflects the reward for the risks run by the firm. Total value must be more than cost of activities
1. PRIMARY ACTIVITIES
Inbound logistics – receiving, storing, listing and grouping inputs to the product, Includes
materials handling, warehousing, inventor and transport
Operations – machining, packaging, assembly, maintenance of equipment, testing
Outbound logistics – order processing, scheduling transport, distribution management
Marketing and sales –convincing customers to buy the firm’s products; pricing, selling,
advertising
Service – Maintaining the product after sale; training, servicing, installation = enhances
product value
2. SECONDARY ACTIVITIES
Procurement – Purchasing raw materials, supplies and negotiating contracts
Technology and development – Research and development, process improvements, new
products / services
Human resource management – Recruitment, retention, compensation
Infrastructure – General management, finance, quality management
→ CREATING CUSTOMER VALUE
o Differentiate products
o Lower costs – offered to customer in the form of a lower price
o Respond to needs more quickly
o The value chain framework helps analyse the contributions of individual activities
in a business to the overall level of customer value the firm produces, and
ultimately to its financial performance
, CH2: SOURCING
• OBJECTIVES OF PROCUREMENT
▪ Broader concept than purchasing, more proactive with focus on strategic matters
▪ The objectives of procurement and SCM are viewed from three levels:
1. The General managerial level
2. The Functional and operational level
3. A detailed Buying plan level
1. GENERAL MANAGERIAL
→ Procurement is the acquisition of goods and materials:
i. Right Quality
ii. Right Supplier
iii. Right Quantity five rights of procurement
iv. Right Time
v. Right Price
2. FUNCTIONAL AND OPERATIONAL
Ensure the smooth functioning of business activities by an adequate and
uninterrupted flow of goods/services
Buy lowest possible price to get max value for money
To keep inventory losses and investment losses to a minimum
3. BUYING PLAN
Developed when precise plans are made for each category of material/service since
the usage requirements/operating conditions/ procured markets are different
THE PROCUREMENT PROCESS
1st. DETERMINING THE NEEDS AND SPECIFICATIONS
user department describes what the needs are in a specification that could include:
▪ Quality specifications [describes technical and other standards to be met]
▪ Logistics specifications [indicating quantities and delivery time]
▪ Maintenance specification [how products need to be maintained]
▪ Legal and environmental specifications [determines the compliance with legis.]
▪ A target budget [giving constraints where supplier offers solution]
2nd. FINDING EVALUATING AND SELECTING SUPLIERS
buying organization should:
▪ Develop and maintain a viable supplier base
▪ Address appropriate strategic/tactical issues [supplier development/
partnerships/BEE]
▪ Potential suppliers are carefully evaluated [ability to be satisfactory suppliers]
▪ Decide whether to use competitive bidding or negotiation for source selection
▪ Select appropriate team leader for the task
