COMM 225 — Production and Operations Management
CHAPTER 15: Supply Chain Managment
Comprehensive Exam Preparation Notes
1. Introduction to Supply Chain Management
A supply chain is the sequence of organizations — their facilities and activities — involved in
producing and delivering a product, beginning with suppliers of raw materials and extending all
the way to the final customer (the consumer). Facilities include factories,
warehouses/distribution centres, and retail outlets. Activities include forecasting, product
design, scheduling, purchasing, transportation, inventory management/warehousing,
production, distribution/delivery, and customer service.
There are two kinds of movement in supply chains: the physical movement of material
(generally toward the end of the chain, toward the consumer) and the exchange of
information and money (mainly toward the beginning of the chain, toward the source of
material). Supply chains are sometimes referred to as value chains, reflecting the concept
that value is added as goods progress through the chain.
KEY Supply Chain: The sequence of organizations — their facilities and activities —
TERM involved in producing and delivering a product, from initial suppliers of raw
materials to the final customer.
KEY Supply Chain Management (SCM): Collaboration of supply chain companies and
TERM coordination of their activities so that market demand is met as efficiently and
effectively as possible.
KEY Logistics: The part of a supply chain involved with the forward and reverse flow of
TERM goods, services, cash, and information. Includes inbound/outbound transportation,
material handling, warehousing, inventory, order fulfillment, third-party logistics,
and reverse logistics.
The Need for Supply Chain Management
In the past, organizations focused on their own operations (silo mentality) and did little to
manage their supply chains. Five major factors have made active supply chain management
desirable:
Factor Description
Increasing Organizations have adopted JIT and lean, cutting internal excess
Competition costs. Remaining opportunity lies largely with suppliers and
customers — requiring coordination beyond the firm's own walls.
, Factor Description
Increasing Organizations are buying goods/services instead of producing them
Outsourcing in-house, focusing on core activities and subcontracting others. This
makes supplier relationships more critical.
Increasing Globalization has extended the physical length of supply chains and
Globalization increased the quantity of materials and products being transported
internationally.
Increasing More Internet purchasing results in more and faster package delivery
Ecommerce needs, requiring tighter coordination throughout the supply chain.
Managing Orders and Inventories play a major role in supply chain success or failure.
Inventories Across Shortages can severely disrupt production/sales; excess inventories
the Chain add unnecessary holding costs. Shortages and excesses can co-
exist in different parts of the same chain simultaneously.
Trends in Supply Chain Management
Many businesses are emphasizing the following current trends in supply chain management:
Trend Description
Measuring Supply Incorporates economics into outsourcing and other decisions, giving
Chain ROI managers a rational basis for managing their supply chains.
Greening the Driven by corporate responsibility, regulations, and public pressure.
Supply Chain Includes redesigning products/services, reducing packaging, near-
sourcing (to reduce pollution from transportation), choosing green
suppliers, managing returns, and implementing end-of-life programs.
Re-evaluating Companies are taking a second look, especially at global suppliers.
Outsourcing Benefits of outsourcing: lower prices, focus on core strengths,
converting fixed to variable costs, freeing up capital, shifting risk to
suppliers, supplier expertise, and global expansion. Difficulties:
inflexibility from long lead times, increased transportation costs,
language/cultural differences, loss of jobs/control/knowledge,
knowledge transfer risks, intellectual property concerns, and increased
management effort.
Integrating IT Produces real-time data that enhances strategic planning, controls
costs, measures quality and productivity, enables quick response to
problems, and improves supply chain operations. ERP systems are
central to this.
Managing Risks Supply chains are a major source of risk. According to Deloitte, 45% of
supply chain leaders lack confidence in their risk management.
Adopting Lean Eliminating waste and non-value-added activities throughout the chain,
Principles including supplier certification programs.
Being Agile A flexible supply chain that can respond quickly to unpredictable
changes (supplier issues, weather disruptions, demand changes,
transport issues, political issues).
Establishing Buyers and consumers want to know where and how goods are made.
Transparency Traceability throughout the chain is increasingly expected.
, Trend Description
Adopting New Adding to traditional shipping (trucks, trains, boats, mail, FedEx, UPS):
Delivery Modes self-driving vehicles, drones, and robots are increasingly used. Robots
deliver pizza/fast food on some campuses. Creates new options but
also new risks and liability issues.
Risk Management and Resiliency in the Supply Chain
Risk management involves identifying risks, assessing their likelihood and potential impact,
and developing strategies for addressing them. Three types of strategies: risk avoidance
(e.g., avoiding suppliers in a certain area), risk reduction (e.g., replacing unreliable suppliers),
and risk sharing (contractual arrangements with supply chain partners that spread risk).
Resiliency is the ability of a business to recover from an event that negatively impacts the
supply chain. Recovery is a function of the severity of the impact and the plans in place.
Organizations can reduce — but not eliminate — the need for resiliency by managing risks
proactively.
Categories of Supply Chain Risks:
• Disruptions: Natural disasters (fires, flooding, hurricanes), supplier issues (labour
strikes, production problems, supplier bankruptcy).
• Quality Issues: Disrupt supplies and may lead to product recalls, liability claims, and
negative publicity.
• Information Security: Suppliers divulging sensitive information to competitors,
weakening competitive advantage.
• Supply Risks: Supplier failure, sustainability issues, piracy, terrorism, increasing
commodity costs.
• Demand Risks: Decreasing demand, demand volatility, transportation issues.
Key Elements of Successful Risk Management:
• Know your suppliers: Map the supply chain to grasp its scope, identify suppliers, and
detect concentration risks (e.g., multiple suppliers from a single region). Consider
simplifying (shortening) the supply chain.
• Provide supply chain visibility: The ability to connect to any part of the supply chain
to access data in real time on inventory levels, shipment status, and other key
information. Requires data sharing.
• Develop event-response capability: The ability to detect and respond to unplanned
events. An event management system should: (1) monitor the system, (2) notify when
planned/unplanned events occur, (3) simulate potential solutions when an unplanned
event occurs, and (4) measure long-term performance of suppliers, transporters, and
other partners.
, Supply Chain Management Activities and Responsibilities
Strategic Activities and Responsibilities
Corporate management has legal, economic, and ethical responsibilities. Legal: obey
laws/regulations of countries where supply chains exist. Economic: supply products and
services to meet demand as efficiently as possible. Ethical: conduct business consistent with
moral standards of society.
Supply Chain Description
Strategy
Responsive/Agile A flexible supply chain able to quickly respond to changes in product
requirements or volume of demand, and adapt to supply chain
disruptions.
Lean Supply Chain Focus on eliminating non-value-added activities to create an
efficient, low-cost supply chain.
Near-Sourcing Using nearby suppliers shortens the supply chain, reducing
transportation time and cost, supply chain inventory, risk of
disruptions, and increasing responsiveness.
Top management strategic responsibilities:
• Supply Chain Strategy Alignment: Aligning supply/distribution strategies with
organizational strategy and deciding on the degree to which outsourcing will be
employed.
• Network Configuration: Determining the number and location of suppliers,
warehouses, production/operations facilities, and distribution centres.
• Information Technology: Integrating systems and processes throughout the supply
chain to share information (forecasts, inventory status, shipment tracking, events).
• Products and Services: Making decisions on new product/service selection and
design.
• Capacity Planning: Assessing long-term capacity needs including when and how much
will be needed and the degree of flexibility.
• Strategic Partnerships: Partnership choices, level of partnering, and degree of
formality.
• Distribution Strategy: Centralized vs. decentralized distribution; own facilities vs. third-
party logistics providers.
• Uncertainty and Risk Reduction: Identifying potential sources of risk and deciding
what amount of risk is acceptable.
Tactical/Operational Activities (Table 15-1):
Type Key Responsibilities
Tactical Forecasting; Sourcing (choosing suppliers and make-or-buy); Operations
planning (coordinating external supply chain and internal operations);
Managing inventory (deciding where in the supply chain to store raw
materials, semi-finished goods, finished goods); Transportation planning
(match capacity with demand); Collaborating with supply chain partners.
CHAPTER 15: Supply Chain Managment
Comprehensive Exam Preparation Notes
1. Introduction to Supply Chain Management
A supply chain is the sequence of organizations — their facilities and activities — involved in
producing and delivering a product, beginning with suppliers of raw materials and extending all
the way to the final customer (the consumer). Facilities include factories,
warehouses/distribution centres, and retail outlets. Activities include forecasting, product
design, scheduling, purchasing, transportation, inventory management/warehousing,
production, distribution/delivery, and customer service.
There are two kinds of movement in supply chains: the physical movement of material
(generally toward the end of the chain, toward the consumer) and the exchange of
information and money (mainly toward the beginning of the chain, toward the source of
material). Supply chains are sometimes referred to as value chains, reflecting the concept
that value is added as goods progress through the chain.
KEY Supply Chain: The sequence of organizations — their facilities and activities —
TERM involved in producing and delivering a product, from initial suppliers of raw
materials to the final customer.
KEY Supply Chain Management (SCM): Collaboration of supply chain companies and
TERM coordination of their activities so that market demand is met as efficiently and
effectively as possible.
KEY Logistics: The part of a supply chain involved with the forward and reverse flow of
TERM goods, services, cash, and information. Includes inbound/outbound transportation,
material handling, warehousing, inventory, order fulfillment, third-party logistics,
and reverse logistics.
The Need for Supply Chain Management
In the past, organizations focused on their own operations (silo mentality) and did little to
manage their supply chains. Five major factors have made active supply chain management
desirable:
Factor Description
Increasing Organizations have adopted JIT and lean, cutting internal excess
Competition costs. Remaining opportunity lies largely with suppliers and
customers — requiring coordination beyond the firm's own walls.
, Factor Description
Increasing Organizations are buying goods/services instead of producing them
Outsourcing in-house, focusing on core activities and subcontracting others. This
makes supplier relationships more critical.
Increasing Globalization has extended the physical length of supply chains and
Globalization increased the quantity of materials and products being transported
internationally.
Increasing More Internet purchasing results in more and faster package delivery
Ecommerce needs, requiring tighter coordination throughout the supply chain.
Managing Orders and Inventories play a major role in supply chain success or failure.
Inventories Across Shortages can severely disrupt production/sales; excess inventories
the Chain add unnecessary holding costs. Shortages and excesses can co-
exist in different parts of the same chain simultaneously.
Trends in Supply Chain Management
Many businesses are emphasizing the following current trends in supply chain management:
Trend Description
Measuring Supply Incorporates economics into outsourcing and other decisions, giving
Chain ROI managers a rational basis for managing their supply chains.
Greening the Driven by corporate responsibility, regulations, and public pressure.
Supply Chain Includes redesigning products/services, reducing packaging, near-
sourcing (to reduce pollution from transportation), choosing green
suppliers, managing returns, and implementing end-of-life programs.
Re-evaluating Companies are taking a second look, especially at global suppliers.
Outsourcing Benefits of outsourcing: lower prices, focus on core strengths,
converting fixed to variable costs, freeing up capital, shifting risk to
suppliers, supplier expertise, and global expansion. Difficulties:
inflexibility from long lead times, increased transportation costs,
language/cultural differences, loss of jobs/control/knowledge,
knowledge transfer risks, intellectual property concerns, and increased
management effort.
Integrating IT Produces real-time data that enhances strategic planning, controls
costs, measures quality and productivity, enables quick response to
problems, and improves supply chain operations. ERP systems are
central to this.
Managing Risks Supply chains are a major source of risk. According to Deloitte, 45% of
supply chain leaders lack confidence in their risk management.
Adopting Lean Eliminating waste and non-value-added activities throughout the chain,
Principles including supplier certification programs.
Being Agile A flexible supply chain that can respond quickly to unpredictable
changes (supplier issues, weather disruptions, demand changes,
transport issues, political issues).
Establishing Buyers and consumers want to know where and how goods are made.
Transparency Traceability throughout the chain is increasingly expected.
, Trend Description
Adopting New Adding to traditional shipping (trucks, trains, boats, mail, FedEx, UPS):
Delivery Modes self-driving vehicles, drones, and robots are increasingly used. Robots
deliver pizza/fast food on some campuses. Creates new options but
also new risks and liability issues.
Risk Management and Resiliency in the Supply Chain
Risk management involves identifying risks, assessing their likelihood and potential impact,
and developing strategies for addressing them. Three types of strategies: risk avoidance
(e.g., avoiding suppliers in a certain area), risk reduction (e.g., replacing unreliable suppliers),
and risk sharing (contractual arrangements with supply chain partners that spread risk).
Resiliency is the ability of a business to recover from an event that negatively impacts the
supply chain. Recovery is a function of the severity of the impact and the plans in place.
Organizations can reduce — but not eliminate — the need for resiliency by managing risks
proactively.
Categories of Supply Chain Risks:
• Disruptions: Natural disasters (fires, flooding, hurricanes), supplier issues (labour
strikes, production problems, supplier bankruptcy).
• Quality Issues: Disrupt supplies and may lead to product recalls, liability claims, and
negative publicity.
• Information Security: Suppliers divulging sensitive information to competitors,
weakening competitive advantage.
• Supply Risks: Supplier failure, sustainability issues, piracy, terrorism, increasing
commodity costs.
• Demand Risks: Decreasing demand, demand volatility, transportation issues.
Key Elements of Successful Risk Management:
• Know your suppliers: Map the supply chain to grasp its scope, identify suppliers, and
detect concentration risks (e.g., multiple suppliers from a single region). Consider
simplifying (shortening) the supply chain.
• Provide supply chain visibility: The ability to connect to any part of the supply chain
to access data in real time on inventory levels, shipment status, and other key
information. Requires data sharing.
• Develop event-response capability: The ability to detect and respond to unplanned
events. An event management system should: (1) monitor the system, (2) notify when
planned/unplanned events occur, (3) simulate potential solutions when an unplanned
event occurs, and (4) measure long-term performance of suppliers, transporters, and
other partners.
, Supply Chain Management Activities and Responsibilities
Strategic Activities and Responsibilities
Corporate management has legal, economic, and ethical responsibilities. Legal: obey
laws/regulations of countries where supply chains exist. Economic: supply products and
services to meet demand as efficiently as possible. Ethical: conduct business consistent with
moral standards of society.
Supply Chain Description
Strategy
Responsive/Agile A flexible supply chain able to quickly respond to changes in product
requirements or volume of demand, and adapt to supply chain
disruptions.
Lean Supply Chain Focus on eliminating non-value-added activities to create an
efficient, low-cost supply chain.
Near-Sourcing Using nearby suppliers shortens the supply chain, reducing
transportation time and cost, supply chain inventory, risk of
disruptions, and increasing responsiveness.
Top management strategic responsibilities:
• Supply Chain Strategy Alignment: Aligning supply/distribution strategies with
organizational strategy and deciding on the degree to which outsourcing will be
employed.
• Network Configuration: Determining the number and location of suppliers,
warehouses, production/operations facilities, and distribution centres.
• Information Technology: Integrating systems and processes throughout the supply
chain to share information (forecasts, inventory status, shipment tracking, events).
• Products and Services: Making decisions on new product/service selection and
design.
• Capacity Planning: Assessing long-term capacity needs including when and how much
will be needed and the degree of flexibility.
• Strategic Partnerships: Partnership choices, level of partnering, and degree of
formality.
• Distribution Strategy: Centralized vs. decentralized distribution; own facilities vs. third-
party logistics providers.
• Uncertainty and Risk Reduction: Identifying potential sources of risk and deciding
what amount of risk is acceptable.
Tactical/Operational Activities (Table 15-1):
Type Key Responsibilities
Tactical Forecasting; Sourcing (choosing suppliers and make-or-buy); Operations
planning (coordinating external supply chain and internal operations);
Managing inventory (deciding where in the supply chain to store raw
materials, semi-finished goods, finished goods); Transportation planning
(match capacity with demand); Collaborating with supply chain partners.
