SUPPLY CHAIN MANAGEMENT
SCH4801
LONG QUESTIONS AND ANSWERS
SECTION 1 - INTRODUCTION: CONCEPTS AND DEMARCATION
LEARNING UNIT 1
SUPPLY CHAIN MANAGEMENT (SCM): CONCEPTS AND DEMARCATION
EXPLAIN THE CONCEPT OF SUPPLY CHAIN MANAGEMENT
Supply Chain Management (SCM) is a set of inter- and intra-company processes that
produces and delivers goods and service to customers. SCM can be seen as the strategic
management of all the traditional business functions that are involved in any supply chain
flow, upstream or downstream, across any aspect of the supply chain.
EXPLAIN THE BASIC PHILOSOPHIES ON WHICH THE SUPPLY CHAIN CONCEPT IS
FOUNDED
SCM is a management philosophy aimed at integrating all the linkages in the supply chain
into a seamless unit. The goals of managing the supply chain ought to reflect two levels of
interest. Firstly, there are the goals of the individual firms linked into the supply chain. The
first group of goals could be to balance customers’ demands with the need for making profit
and attaining growth objectives.
The characteristic of this philosophy is that the overall philosophy is indicated as a “vantage
point management philosophy”. Vantage point simply means that the supply chain should
be managed from an overall perspective, a holistic approach or a systems paradigm where
one entity is ultimately responsible for ensuring that all the goals of the SCM are attained. It
means the ability to view the entire supply chain processes at a glance.
DISCUSS THE EVOLUTIONARY PROCESS THAT CULMINATED IN MODERN SUPPLY
CHAIN MANAGEMENT
The SCM field has rapidly evolved. Previously, SCM focussed on internal integration but now
focuses on suppliers, customers and information integration to reach optimal level of
performance.
Poirier and Francis suggest an evolutionary model consisting of five consecutive phases or
levels aimed at adopting an SCM philosophy in logical steps, which are linked to the internal
and external business environment.
The first (internal) phase (phase I) is where the firm moves from complete functional
independence where there is no synergy or sometimes even no internal communication
between functional areas and activities in the area of supply, to a stage where there is some
degree of integration that strives for corporate alignment. Typical changes in this phase
towards the ultimate goal of supply chain integration would be to consolidate inventories,
reduce the supplier base, introduce MRP and JIT practices and establish an internal team of
cross-functional experts to address the typical problems of the functional approach.
,The second (internal) phase (phase II) in the evolutionary process of the supply chain that
organisations go through is internal integration. In this phase, an “end-to-end” planning
framework is established which represents the first holistic view of the concept of an
integrated supply chain. It also establishes the vision for supply chain integration. In reality,
a long-term business plan is developed to transform the organisation ultimately into a
supply chain-oriented firm. The support of top management for the internal integration of
supply chain activities and functional areas is vitally important during this phase, because
the full integration of functional areas will require substantial process redesign.
The development of suitable technology to support supply chain management is crucially
important for this phase. Although technology development is not limited to information
systems, it is a pivotal factor for future expansion of the supply chain concept to the
external environment, upstream and downstream. Compatibility of information systems
between the firm and its suppliers and customers is a priority and it is not uncommon for
information interchange with the supply market in particular to be established.
In the third (and first external) phase (phase III), organisations look externally to develop
partner collaboration. Moving externally with the supply chain concept requires very
exceptional leadership in the firm. It must be realised that for functional managers to think
of managing beyond the boundaries of the own organisation requires a completely new
paradigm. Firstly, the change from managing from the perspective of functional optimisation
and maximising profit to one that is entirely focused on customer value creation is a major
step.
During this phase, inter-organisation information flow is expanded and information
technology extended to include electronic commerce. The establishment of a supply chain-
wide database with access to all members is also a priority.
The fourth (also external) phase (phase IV) is reaching the full potential of the integrated
supply chain. The supply chain stakeholders work to create value chain collaboration,
among other things, improved supply chain transparency and visibility. During this phase
multifunctional and cross-organisational teams manage almost all processes and activities in
the integrated supply chain. The demand chain will be solidly integrated with the supply
chain in value networks.
Phase V, the final phase, is close to phase IV and consists of supply chain stakeholders
achieving full network connectivity. The value network of suppliers and customers that was
established in phase III is now extended to form a virtual organisation of supply chain
linkages, and to form it into a virtual information network. The organisation will in all
probability also move into the global market with the supply chain and in turn become part
of many global supply chains of other vantage point organisations.
,EXPLAIN THE CREATION OF VALUE IN SCM
The theory of supply chain management holds that, for the eventual product or service to
be commercially advantageous to the organisations involved in its creation and provision,
value must be added to a process faster than cost.
The objective of every supply chain should be to maximise the overall value generated. The
value a supply chain generates is the difference between what the value of the final product
is to the customer and the cost that the supply chain incurs in filling the customer’s need.
Value in the supply chain is regarded as supply chain surplus.
Customers’ perception of value is determined by the entire offering not just the products
and services, but also the many intangibles that are associated with delivering customer
value. Value is also clearly based on perceptions and intangible elements, which also
emphasises the importance of the relationship-building element that is so core to the
concept of SCM.
EXPLAIN THE MANAGEMENT TASK IN SCM
SCM is often described as the planning, organising, implementing and control of the flow
and transformation of goods and services, including the essential information flows from the
raw material stage to the end user. A different perspective of the management of the supply
chain may therefore be obtained by analysing each of the traditional elements of
management.
Planning for the supply chain
Strategic planning for supply chain management is directly linked to the overall
business strategy of the firm and is therefore directly involved in and supportive of the
overall objectives of the firm. It should therefore be emphasised that supply chain
strategies should always be focused on the two overarching objectives of the firm, that
is, optimising shareholder value and creating customer value.
Processes involved in the supply chain is another major element. Supply management
is process management and therefore planning will also cross functional and
organisational boundaries. Process planning therefore also involves identifying and
including only those partners who have internal processes that are highly efficient and
compatible with the overall supply chain processes.
Planning the intricate relationships typical of the supply chain is a delicate task since
the aspirations and limitations of many participants in the chain must be taken into
consideration. Relationship planning is closely linked to the human element in the supply
chain.
Planning the resources available in the supply chain is perhaps the most difficult of the
planning tasks. If the supply chain ideal of optimising customer value (including lowest
total cost of ownership) is to be realised, then very precise planning will be required to
ensure that all resources are optimally deployed. This may, for example, mean that
some manufacturing capacity in the supply chain has to be shut down. The outsourcing
of tasks to units in the supply chain that have exceptional skills in a particular area of
expertise may also be justified.
,Organising or creating a suitable organisational structure
Cross-functional teaming. The use of effective teams may overcome significant
disadvantages in the supply chain. Teams provide better and faster decisions, reduce
cycle times, improve productivity, quality and customer satisfaction, reduce waste and
increase staff motivation. Teaming is clearly one of the most effective techniques in
creating structural substance in the supply chain.
Centralisation or decentralisation. Because value-based management focuses on
improving quality, customer satisfaction, response time and employee / customer
involvement, decentralisation of functions appears to be more in line with the accepted
supply chain philosophy. Customer service (internal and external) would therefore be on
a more personal basis and decisions may be taken in a much shorter time. However, in
the interests of the optimisation of the use of resources, and in striving for excellence,
the centralisation of tasks and processes has an equally important role to play in
structuring the supply chain.
Functional integration. Cross-functional teams contribute much to functional
integration but the optimum methodology in creating this organisational dimension is
the development of cross-functional information systems. It must be emphasised that
structural integration within the supply chain may be of a long-term nature where
partnering and alliances are the building blocks of the integration.
Organisational hierarchy. Multiple layers of functional managers are not appropriate
because of the inherent inflexibility of such a structure. A flatter organisation with fewer
levels and a wider span of control is more appropriate in SCM.
Linkages. Creation of value also depends on external and internal linkages. These
linkages have recently evolved in such a manner that they no longer resemble a supply
chain of participants but look like a network of virtual enterprises, constantly changing
shape, expanding, shrinking, multiplying, dividing, shifting and mutating.
,LEARNING UNIT 2
SUPPLY CHAIN STRATEGY
DISTINGUISH BETWEEN THE TWO DIFFERENT COMPETITIVE STRATEGIES AND
PROVIDE EXAMPLES FROM THE RETAIL INDUSTRY
Low-cost strategies
When firms offer a product in the market at a price or cost lower than that of their
competitors, they follow a low-cost strategy. Firms with cost advantages can gain a
competitive advantage and they will work continuously to reduce the cost of the end
product through economies of scale gained by increased sales volume. A large capital
investment in automated equipment and significant efforts in the areas of controlling and
reducing costs, for example by standardising services and aiming marketing efforts at low-
cost consumers, is often required to successfully implement a low-cost strategy.
Massmart’s strategy is to gain the competitive advantage by continually improving its
business model of high sales volumes and low expenses to provide a wide range of products
at low prices to their customers.
Differentiation strategies
A differentiation strategy aims at providing product and service offerings that are unique
and more valuable to customers than those of competitors. Customers are willing to pay a
premium price for such products. A differentiation strategy can include customer service
excellence, brand image, variety, high quality and innovation and aims to create customer
loyalty and brand preference, which makes price less important.
Woolworths offer fashion, food, beauty and homeware products in South Africa under their
own brand name. They also offer other carefully selected, well-known brands as well as a
range of financial services in partnership with Absa Bank. Woolworths put their customers
first and strive to offer high quality and exceptional value to their customers.
WHY IS IT IMPORTANT THAT THE SUPPLY CHAIN STRATEGY SHOULD BE ALIGNED
WITH THE CORPORATE STRATEGY
The corporate strategy involves the strategy for the entire firm and communicates the
overall vision and mission of the firm. The corporate strategy fits in with the firm’s vision
and mission. All the strategies and actions of the firm should be evaluated in terms of their
compatibility with the firm’s vision. The supply chain strategy is thus a functional strategy
that indicates how all the activities in the supply chain will be developed to support the
overall business strategy.
SUPPLY CHAIN STRATEGY
Efficient supply chains
Efficient supply chains try to achieve a competitive advantage through low cost. They try to
reduce all costs across the chain and firms try to be efficient in all their own functional areas
such as supplier selection, manufacturing, product design, distribution and logistics.
Activities that do not add value should be eliminated. Therefore firms with efficient supply
,chains focus on achieving high productivity in material flows and minimising transportation
and distribution costs.
Responsive supply chains
Responsiveness indicates the extent to which a firm can handle uncertainty. Responsive
supply chains strive to use strategies aimed at being responsive and flexible to specific
customer needs. Firms use responsive supply chains to achieve a competitive advantage by
means of differentiation. The focus is not to reduce cost but to eliminate stock-outs by
competing on response time and speed to market. The focus is also on speed, order
fulfilment, service level and customer satisfaction. Responsive supply chains must be
sensitive to the market and be able to respond quickly to changes in customer demand.
,LEARNING UNIT 3
LEAN AND AGILE SUPPLY CHAINS
BRIEFLY EXPLAIN AND DISTINGUISH BETWEEN LEAN AND AGILE SUPPLY CHAINS
Lean supply chains consist of firms that are directly linked together by upstream and
downstream flows of information, products and finances that work collaboratively to reduce
cost and waste. Lean supply chains aim for more efficient flow of materials, faster a
deliveries, lower stock levels, less handling, fewer movements and lower costs. Generally,
lean supply chains aim to remove all waste from the supply chain. Lean supply chains
operate at low costs with constant use of capacity and high stock turning rates, and match
end customer demand with reliable supply sources to enable high inventory turnovers and
excellent use of supply chain resources.
Supply chain agility thus focuses on responsiveness and flexibility. It enables the entire
supply chain to rapidly align the network and its operations to the dynamic and turbulent
requirements of customers’ demands. Therefore, agile supply chains use strategies to be
more responsive and flexible to customers’ needs. The focus is on time compression and
quick response, and on eliminating all barriers to quick response. Agile supply chains enable
quick response-type solutions and are able to achieve shorter cycle times. Agile supply
chains require a network of flexible supply chain partners making up the virtual firm.
DIFFERENT TYPES OF WASTE FOR THE RETAILER
Overproduction - If a firm produces more than customer demand, this results in
unnecessary inventory, handling, administration and warehouse space.
Waiting time - Sections (including customers) in the supply chain that are waiting for
suppliers or other supply chain activities.
Unnecessary transportation - There is unnecessary movement of materials and
inventory due to poor layouts, scheduling, routing, planning and so on.
Excess processing - This is due to poor design and insufficient maintenance of
processes, and in turn requires more labour time and machine time.
Too much inventory - There is excess inventory due to large lot sizes, obsolete items,
poor forecasts, or poor planning.
Unnecessary motion - There is unnecessary movement of labour, resulting in people
not being used to their full potential. Examples include unnecessary bending and
stretching of workers to perform their duties.
Defects - Materials, labour time and capacity can be wasted on defects; products with
defects will need to be scrapped, repaired, reworked or returned to earlier sections in
the supply chain.
EXPLAIN HOW THE POSITION OF THE PUSH-PULL BOUNDARY CAN DIFFER FOR
DIFFERENT PRODUCTS
Leagile supply chains make use of both push-based and pull-based strategies. Using both
strategies allows firms to choose between efficiency and responsiveness for certain sections
of the supply chain. Leagile supply chains thus make use of what can be termed “push-pull
strategies”. In a push-pull strategy, some stages of the supply chain are operated in a push-
based manner, while other stages use a pull-based strategy.
, The push-pull boundary dictates the form in which inventory is held. The position of the
push-pull boundary will vary depending on the degree and point where customisation (to
adhere to the end customers’ needs) takes place. As real demand penetrates the supply
chain closer to the original supplier, inventory, for example, is probably held in the form of
components or materials. When there is real demand, products can be customised according
to customers’ needs. At the other extreme, if demand does not penetrate the supply chain
far away from the end customer, thus only becoming visible at the end of the supply chain,
inventory will be held in the form of finished products.
DISTINGUISH BETWEEN THE THREE PRODUCTION STRATEGIES
Make-to-stock
When firms produce products in anticipation of future customer orders, they operate in a
make-to-stock environment. They expect to hold finished inventory in anticipation of future
demand. Generic or standard products are produced for immediate sale or delivery in
anticipation of demand. A make-to-stock system is thus responsive to the market because
demand is satisfied immediately from inventories. With a make-to-stock strategy,
inventories are pushed down the supply chain towards end customers so that the products
will be on hand if necessary, but are not necessarily allocated to specific locations.
Assemble-to-order
An assemble-to-order strategy involves producing standard components that can be
combined to end customers’ specifications. The product is thus partially built in advance of
demand. Final assembly is postponed until an order is received. Delivery times are longer
than with make-to-stock strategies, which means that this strategy is less responsive than
the make-to-stock strategy. It does, however, still allow for some customisation. An
example to illustrate assemble-to-order principles is a T-shirt with a customer’s name
airbrushed onto it. The T-shirt is generic and is manufactured in advance. Final
configuration only takes place when the customer’s name is known.
Make-to-order
With a make-to-order strategy, firms produce products to customer specifications after an
order has been received. The products are therefore produced on the basis of a realised
demand, rather than being made to stock in advance of demand, and the final configuration
of the components is customer specific. In this instance, raw materials and components can
be configured into a wide variety of products depending on customers’ needs.
With make-to-order production, inventory is pulled down the supply chain by orders.
Forecasts are less important with make-to-order, because there is no danger of making too
much or too little inventory. Make-to-order is used when customer demand is relatively low
and lead times are long. Delivery times are the longest (as opposed to make-to-stock and
assemble-to-order strategies), which means that make-to-order strategies are even less
responsive than assemble-to-order strategies. Make-to-order products push the decoupling
point further upstream in the supply chain. As product volumes are low, the push-pull
boundary is far from the end customer.
SCH4801
LONG QUESTIONS AND ANSWERS
SECTION 1 - INTRODUCTION: CONCEPTS AND DEMARCATION
LEARNING UNIT 1
SUPPLY CHAIN MANAGEMENT (SCM): CONCEPTS AND DEMARCATION
EXPLAIN THE CONCEPT OF SUPPLY CHAIN MANAGEMENT
Supply Chain Management (SCM) is a set of inter- and intra-company processes that
produces and delivers goods and service to customers. SCM can be seen as the strategic
management of all the traditional business functions that are involved in any supply chain
flow, upstream or downstream, across any aspect of the supply chain.
EXPLAIN THE BASIC PHILOSOPHIES ON WHICH THE SUPPLY CHAIN CONCEPT IS
FOUNDED
SCM is a management philosophy aimed at integrating all the linkages in the supply chain
into a seamless unit. The goals of managing the supply chain ought to reflect two levels of
interest. Firstly, there are the goals of the individual firms linked into the supply chain. The
first group of goals could be to balance customers’ demands with the need for making profit
and attaining growth objectives.
The characteristic of this philosophy is that the overall philosophy is indicated as a “vantage
point management philosophy”. Vantage point simply means that the supply chain should
be managed from an overall perspective, a holistic approach or a systems paradigm where
one entity is ultimately responsible for ensuring that all the goals of the SCM are attained. It
means the ability to view the entire supply chain processes at a glance.
DISCUSS THE EVOLUTIONARY PROCESS THAT CULMINATED IN MODERN SUPPLY
CHAIN MANAGEMENT
The SCM field has rapidly evolved. Previously, SCM focussed on internal integration but now
focuses on suppliers, customers and information integration to reach optimal level of
performance.
Poirier and Francis suggest an evolutionary model consisting of five consecutive phases or
levels aimed at adopting an SCM philosophy in logical steps, which are linked to the internal
and external business environment.
The first (internal) phase (phase I) is where the firm moves from complete functional
independence where there is no synergy or sometimes even no internal communication
between functional areas and activities in the area of supply, to a stage where there is some
degree of integration that strives for corporate alignment. Typical changes in this phase
towards the ultimate goal of supply chain integration would be to consolidate inventories,
reduce the supplier base, introduce MRP and JIT practices and establish an internal team of
cross-functional experts to address the typical problems of the functional approach.
,The second (internal) phase (phase II) in the evolutionary process of the supply chain that
organisations go through is internal integration. In this phase, an “end-to-end” planning
framework is established which represents the first holistic view of the concept of an
integrated supply chain. It also establishes the vision for supply chain integration. In reality,
a long-term business plan is developed to transform the organisation ultimately into a
supply chain-oriented firm. The support of top management for the internal integration of
supply chain activities and functional areas is vitally important during this phase, because
the full integration of functional areas will require substantial process redesign.
The development of suitable technology to support supply chain management is crucially
important for this phase. Although technology development is not limited to information
systems, it is a pivotal factor for future expansion of the supply chain concept to the
external environment, upstream and downstream. Compatibility of information systems
between the firm and its suppliers and customers is a priority and it is not uncommon for
information interchange with the supply market in particular to be established.
In the third (and first external) phase (phase III), organisations look externally to develop
partner collaboration. Moving externally with the supply chain concept requires very
exceptional leadership in the firm. It must be realised that for functional managers to think
of managing beyond the boundaries of the own organisation requires a completely new
paradigm. Firstly, the change from managing from the perspective of functional optimisation
and maximising profit to one that is entirely focused on customer value creation is a major
step.
During this phase, inter-organisation information flow is expanded and information
technology extended to include electronic commerce. The establishment of a supply chain-
wide database with access to all members is also a priority.
The fourth (also external) phase (phase IV) is reaching the full potential of the integrated
supply chain. The supply chain stakeholders work to create value chain collaboration,
among other things, improved supply chain transparency and visibility. During this phase
multifunctional and cross-organisational teams manage almost all processes and activities in
the integrated supply chain. The demand chain will be solidly integrated with the supply
chain in value networks.
Phase V, the final phase, is close to phase IV and consists of supply chain stakeholders
achieving full network connectivity. The value network of suppliers and customers that was
established in phase III is now extended to form a virtual organisation of supply chain
linkages, and to form it into a virtual information network. The organisation will in all
probability also move into the global market with the supply chain and in turn become part
of many global supply chains of other vantage point organisations.
,EXPLAIN THE CREATION OF VALUE IN SCM
The theory of supply chain management holds that, for the eventual product or service to
be commercially advantageous to the organisations involved in its creation and provision,
value must be added to a process faster than cost.
The objective of every supply chain should be to maximise the overall value generated. The
value a supply chain generates is the difference between what the value of the final product
is to the customer and the cost that the supply chain incurs in filling the customer’s need.
Value in the supply chain is regarded as supply chain surplus.
Customers’ perception of value is determined by the entire offering not just the products
and services, but also the many intangibles that are associated with delivering customer
value. Value is also clearly based on perceptions and intangible elements, which also
emphasises the importance of the relationship-building element that is so core to the
concept of SCM.
EXPLAIN THE MANAGEMENT TASK IN SCM
SCM is often described as the planning, organising, implementing and control of the flow
and transformation of goods and services, including the essential information flows from the
raw material stage to the end user. A different perspective of the management of the supply
chain may therefore be obtained by analysing each of the traditional elements of
management.
Planning for the supply chain
Strategic planning for supply chain management is directly linked to the overall
business strategy of the firm and is therefore directly involved in and supportive of the
overall objectives of the firm. It should therefore be emphasised that supply chain
strategies should always be focused on the two overarching objectives of the firm, that
is, optimising shareholder value and creating customer value.
Processes involved in the supply chain is another major element. Supply management
is process management and therefore planning will also cross functional and
organisational boundaries. Process planning therefore also involves identifying and
including only those partners who have internal processes that are highly efficient and
compatible with the overall supply chain processes.
Planning the intricate relationships typical of the supply chain is a delicate task since
the aspirations and limitations of many participants in the chain must be taken into
consideration. Relationship planning is closely linked to the human element in the supply
chain.
Planning the resources available in the supply chain is perhaps the most difficult of the
planning tasks. If the supply chain ideal of optimising customer value (including lowest
total cost of ownership) is to be realised, then very precise planning will be required to
ensure that all resources are optimally deployed. This may, for example, mean that
some manufacturing capacity in the supply chain has to be shut down. The outsourcing
of tasks to units in the supply chain that have exceptional skills in a particular area of
expertise may also be justified.
,Organising or creating a suitable organisational structure
Cross-functional teaming. The use of effective teams may overcome significant
disadvantages in the supply chain. Teams provide better and faster decisions, reduce
cycle times, improve productivity, quality and customer satisfaction, reduce waste and
increase staff motivation. Teaming is clearly one of the most effective techniques in
creating structural substance in the supply chain.
Centralisation or decentralisation. Because value-based management focuses on
improving quality, customer satisfaction, response time and employee / customer
involvement, decentralisation of functions appears to be more in line with the accepted
supply chain philosophy. Customer service (internal and external) would therefore be on
a more personal basis and decisions may be taken in a much shorter time. However, in
the interests of the optimisation of the use of resources, and in striving for excellence,
the centralisation of tasks and processes has an equally important role to play in
structuring the supply chain.
Functional integration. Cross-functional teams contribute much to functional
integration but the optimum methodology in creating this organisational dimension is
the development of cross-functional information systems. It must be emphasised that
structural integration within the supply chain may be of a long-term nature where
partnering and alliances are the building blocks of the integration.
Organisational hierarchy. Multiple layers of functional managers are not appropriate
because of the inherent inflexibility of such a structure. A flatter organisation with fewer
levels and a wider span of control is more appropriate in SCM.
Linkages. Creation of value also depends on external and internal linkages. These
linkages have recently evolved in such a manner that they no longer resemble a supply
chain of participants but look like a network of virtual enterprises, constantly changing
shape, expanding, shrinking, multiplying, dividing, shifting and mutating.
,LEARNING UNIT 2
SUPPLY CHAIN STRATEGY
DISTINGUISH BETWEEN THE TWO DIFFERENT COMPETITIVE STRATEGIES AND
PROVIDE EXAMPLES FROM THE RETAIL INDUSTRY
Low-cost strategies
When firms offer a product in the market at a price or cost lower than that of their
competitors, they follow a low-cost strategy. Firms with cost advantages can gain a
competitive advantage and they will work continuously to reduce the cost of the end
product through economies of scale gained by increased sales volume. A large capital
investment in automated equipment and significant efforts in the areas of controlling and
reducing costs, for example by standardising services and aiming marketing efforts at low-
cost consumers, is often required to successfully implement a low-cost strategy.
Massmart’s strategy is to gain the competitive advantage by continually improving its
business model of high sales volumes and low expenses to provide a wide range of products
at low prices to their customers.
Differentiation strategies
A differentiation strategy aims at providing product and service offerings that are unique
and more valuable to customers than those of competitors. Customers are willing to pay a
premium price for such products. A differentiation strategy can include customer service
excellence, brand image, variety, high quality and innovation and aims to create customer
loyalty and brand preference, which makes price less important.
Woolworths offer fashion, food, beauty and homeware products in South Africa under their
own brand name. They also offer other carefully selected, well-known brands as well as a
range of financial services in partnership with Absa Bank. Woolworths put their customers
first and strive to offer high quality and exceptional value to their customers.
WHY IS IT IMPORTANT THAT THE SUPPLY CHAIN STRATEGY SHOULD BE ALIGNED
WITH THE CORPORATE STRATEGY
The corporate strategy involves the strategy for the entire firm and communicates the
overall vision and mission of the firm. The corporate strategy fits in with the firm’s vision
and mission. All the strategies and actions of the firm should be evaluated in terms of their
compatibility with the firm’s vision. The supply chain strategy is thus a functional strategy
that indicates how all the activities in the supply chain will be developed to support the
overall business strategy.
SUPPLY CHAIN STRATEGY
Efficient supply chains
Efficient supply chains try to achieve a competitive advantage through low cost. They try to
reduce all costs across the chain and firms try to be efficient in all their own functional areas
such as supplier selection, manufacturing, product design, distribution and logistics.
Activities that do not add value should be eliminated. Therefore firms with efficient supply
,chains focus on achieving high productivity in material flows and minimising transportation
and distribution costs.
Responsive supply chains
Responsiveness indicates the extent to which a firm can handle uncertainty. Responsive
supply chains strive to use strategies aimed at being responsive and flexible to specific
customer needs. Firms use responsive supply chains to achieve a competitive advantage by
means of differentiation. The focus is not to reduce cost but to eliminate stock-outs by
competing on response time and speed to market. The focus is also on speed, order
fulfilment, service level and customer satisfaction. Responsive supply chains must be
sensitive to the market and be able to respond quickly to changes in customer demand.
,LEARNING UNIT 3
LEAN AND AGILE SUPPLY CHAINS
BRIEFLY EXPLAIN AND DISTINGUISH BETWEEN LEAN AND AGILE SUPPLY CHAINS
Lean supply chains consist of firms that are directly linked together by upstream and
downstream flows of information, products and finances that work collaboratively to reduce
cost and waste. Lean supply chains aim for more efficient flow of materials, faster a
deliveries, lower stock levels, less handling, fewer movements and lower costs. Generally,
lean supply chains aim to remove all waste from the supply chain. Lean supply chains
operate at low costs with constant use of capacity and high stock turning rates, and match
end customer demand with reliable supply sources to enable high inventory turnovers and
excellent use of supply chain resources.
Supply chain agility thus focuses on responsiveness and flexibility. It enables the entire
supply chain to rapidly align the network and its operations to the dynamic and turbulent
requirements of customers’ demands. Therefore, agile supply chains use strategies to be
more responsive and flexible to customers’ needs. The focus is on time compression and
quick response, and on eliminating all barriers to quick response. Agile supply chains enable
quick response-type solutions and are able to achieve shorter cycle times. Agile supply
chains require a network of flexible supply chain partners making up the virtual firm.
DIFFERENT TYPES OF WASTE FOR THE RETAILER
Overproduction - If a firm produces more than customer demand, this results in
unnecessary inventory, handling, administration and warehouse space.
Waiting time - Sections (including customers) in the supply chain that are waiting for
suppliers or other supply chain activities.
Unnecessary transportation - There is unnecessary movement of materials and
inventory due to poor layouts, scheduling, routing, planning and so on.
Excess processing - This is due to poor design and insufficient maintenance of
processes, and in turn requires more labour time and machine time.
Too much inventory - There is excess inventory due to large lot sizes, obsolete items,
poor forecasts, or poor planning.
Unnecessary motion - There is unnecessary movement of labour, resulting in people
not being used to their full potential. Examples include unnecessary bending and
stretching of workers to perform their duties.
Defects - Materials, labour time and capacity can be wasted on defects; products with
defects will need to be scrapped, repaired, reworked or returned to earlier sections in
the supply chain.
EXPLAIN HOW THE POSITION OF THE PUSH-PULL BOUNDARY CAN DIFFER FOR
DIFFERENT PRODUCTS
Leagile supply chains make use of both push-based and pull-based strategies. Using both
strategies allows firms to choose between efficiency and responsiveness for certain sections
of the supply chain. Leagile supply chains thus make use of what can be termed “push-pull
strategies”. In a push-pull strategy, some stages of the supply chain are operated in a push-
based manner, while other stages use a pull-based strategy.
, The push-pull boundary dictates the form in which inventory is held. The position of the
push-pull boundary will vary depending on the degree and point where customisation (to
adhere to the end customers’ needs) takes place. As real demand penetrates the supply
chain closer to the original supplier, inventory, for example, is probably held in the form of
components or materials. When there is real demand, products can be customised according
to customers’ needs. At the other extreme, if demand does not penetrate the supply chain
far away from the end customer, thus only becoming visible at the end of the supply chain,
inventory will be held in the form of finished products.
DISTINGUISH BETWEEN THE THREE PRODUCTION STRATEGIES
Make-to-stock
When firms produce products in anticipation of future customer orders, they operate in a
make-to-stock environment. They expect to hold finished inventory in anticipation of future
demand. Generic or standard products are produced for immediate sale or delivery in
anticipation of demand. A make-to-stock system is thus responsive to the market because
demand is satisfied immediately from inventories. With a make-to-stock strategy,
inventories are pushed down the supply chain towards end customers so that the products
will be on hand if necessary, but are not necessarily allocated to specific locations.
Assemble-to-order
An assemble-to-order strategy involves producing standard components that can be
combined to end customers’ specifications. The product is thus partially built in advance of
demand. Final assembly is postponed until an order is received. Delivery times are longer
than with make-to-stock strategies, which means that this strategy is less responsive than
the make-to-stock strategy. It does, however, still allow for some customisation. An
example to illustrate assemble-to-order principles is a T-shirt with a customer’s name
airbrushed onto it. The T-shirt is generic and is manufactured in advance. Final
configuration only takes place when the customer’s name is known.
Make-to-order
With a make-to-order strategy, firms produce products to customer specifications after an
order has been received. The products are therefore produced on the basis of a realised
demand, rather than being made to stock in advance of demand, and the final configuration
of the components is customer specific. In this instance, raw materials and components can
be configured into a wide variety of products depending on customers’ needs.
With make-to-order production, inventory is pulled down the supply chain by orders.
Forecasts are less important with make-to-order, because there is no danger of making too
much or too little inventory. Make-to-order is used when customer demand is relatively low
and lead times are long. Delivery times are the longest (as opposed to make-to-stock and
assemble-to-order strategies), which means that make-to-order strategies are even less
responsive than assemble-to-order strategies. Make-to-order products push the decoupling
point further upstream in the supply chain. As product volumes are low, the push-pull
boundary is far from the end customer.
