lOMoAR cPSD| 6861666
Comm 225 Post-Midterm: Essential Insights on
Supply Chain & Quality Management
Comm 225 Production and Operation Management (Post-Midterm)
Lesson 5 (Ch15) Supply Chain Management:
A supply chain is a set of organizations that produce products and deliver them to the final customers.
For example, we use cereals for breakfast, so a corn farmer or producer, corn bulk buyer, corn mill, corn
flakes distributor, corn flakes retailer, etc. all form a cereal supply chain.
There is competition among supply chains. The goal of supply chain management is to produce and bring
a product to the market at a competitive price, in the right quantity, and at the right time.
A competitive price means that the customer must see value in the product.
The right quantity means matching the demand.
To do it all, organizations have to focus on their expertise and collaborate and join hands with other
expert organizations, for example, transporters, component suppliers, etc.
Outsourcing is a very common phenomenon in supply chains. Mostly, it is some common tasks, low
value tasks, or low-expertise tasks that are outsourced to firms that can handle them in much more
efficient and economical ways. Outsourcing helps firms to focus on core expertise.
The procurement process involves bringing the required material resources at the right price and at the
right quality. Given that a product supply chain extends globally, the procurement process could be very
complex and time-consuming due to processing of payments, quality, regulations, guarantees, and
logistics.
Suppliers management is very key to any supply chain. Supply chains keep multiple suppliers for
managing supply risks, maintaining competition among suppliers, and, more importantly, product
innovation and research and development. In most of the innovative products, important key features and
technology are developed or proposed by suppliers. For example, batteries and touch screens for smart
phones, security systems such as smart keys, or air bags for automobiles.
Customer relationship management programs help in understanding the customer’s need and thus are
very much required for sustaining the growth of the supply chain and its partners.
Working and coordinating with multiple organizations will always bring issues common to all supply
chains. These should be resolved in a timely manner for the betterment of the supply chain.
Why do we need cooperation when working with multiple organizations?
When we work in a team for a group project, we need coordination to complete all the parts on time for a
timely submission of the report. Similarly, organizations are also run by humans, and thus they have their
own interests, they may be part of multiple supply chains or may have their own set of rules or plans to
handle various constraints and issues. Since the completion is all about price, quality, time, and
innovation, without smooth coordination, supply chains cannot win on these fronts.
, lOMoAR cPSD| 6861666
Demand Variability:
Everyone handles variability differently, and when organizations react to variability, it propagates
disproportionally and leads to a false situation, which could be undesirable for everyone.
Example: A downstream partner is a customer to an upstream partner; warehouse-to-retailer or supplierto-
manufacturer.
• Assume I am a retailer, and I need 10 snow blowers for the month of December. If my supplier
is very close to me and can supply whatever I ask immediately, there is no issue at all. I phone
them, and the next day I receive 10 snow blowers.
• Now consider a different situation: My supplier is far, so it may take 2 to 4 weeks to receive the
quantity I need. Moreover, it is peak season, and suppose by the time I receive the product, I may
have more demand, and then it may take another 2 to 4 weeks to get more of the product. So, to
reduce the risk, I order 14 snow blowers. In other words, to reduce the supply risk, I play with the
demand.
• Assume all of the retailers do the same, then this supplier will receive a much bigger order, or
artificially known demand. Suppose the manufacturer is also very far from this supplier, and
then this supplier also increases the demand artificially to reduce his risks, and so on. Since the
manufacturer is not connected to the retailer, he believes that his product is very successful in the
market, and he may ramp up production, and then reality hits.
• This phenomenon is popularly known as the bullwhip effect. As in a bullwhip, a small impulse
given at one end becomes very big on the other end. This figure shows how the variability
amplifies as it moves from the downstream organization to the upstream organization. Demand
variations begin at the customer end of the chain and become increasingly large as they radiate
backward through the chain.
Supply Chaim Management: CPFR
CPFR (Collaborative Planning Forecasting Replenishment): A process for communicating and agreeing
on forecasts between the manufacturer and the customer (distributor).
To avoid such incidents happening frequently, supply chain partners collaborate on forecasting and
replenishment. Each downstream partner produces its own forecast, and then each upstream partner has to
agree on those forecasts. The whole supply chain works with the agreed forecast and replenishes
accordingly. Each change in demand has to be communicated accordingly, i.e., all the upstream partners
have access to sales and planning data/information associated with downstream partners. Such an
approach helps in reducing or eliminating variability that arises due to asymmetric information.
Strategic Supply Chain Planning:
Strategic planning is done for long term goals such as future growth, new markets, new products, or new
technology. It may involve adding new long-term partnerships such as new suppliers, new production
plants, overhauling the transportation system, purchasing or upgrading of enterprise IT systems.
- The goal is to add a competitive edge to the current supply chain in terms of quality, cost, variety
(or flexibility), timeliness (or speed), customer service, and fill rate.
- Tactical and operational planning are done to reach strategic planning goals. Most of the
shortterm planning, from seasonal to day-to-day, is part of tactical and operational planning. This
may involve forecasting, purchasing, production planning, transportation planning, and
management.
Product Supply Chain:
Warehousing:
, lOMoAR cPSD| 6861666
Warehouses are an integral part of supply chains and are used to store inventory for better distribution
and to provide better services. Warehouses can also be used for partial assembly or manufacturing.
The primary use of a warehouse is to provide temporary storage. However, this short-term storage plays
a vital role in improving service and reducing logistics-related costs in supply chains.
In transportation, the cost depends on the size of the consignment. Typically, per-unit cost decreases as
the shipping quantity increases for a given distance. Warehouses are used to consolidate shipment to take
advantage of shipping costs. Shipments are consolidated or deconsolidated at warehouses to reduce
transportation costs.
Cross-docking is a technique used to deconsolidate goods or exchange goods between trailers without
storing them at a warehouse. Typically, these are done at warehouses in order to use a safer environment
and use suitable loading and unloading equipment. Several cross-docking yards are available throughout
North America.
Risk pooling: We need inventory at every store to provide good services. However, demand is always
random at each store. So, one option is to keep the safety stock (extra inventory to manage randomness in
demand) at each store or at a central location and give it to the stores when they see the demand. Keeping
the safety stock at the central location or warehouse is as effective as keeping it at the stores, but we may
need less. In other words, the safety stock at central locations is smaller than the total safety stock at the
stores.
Delayed differentiation: As mentioned earlier, a warehouse can be used for partial assembly or
manufacturing. In the beginning, only aggregate demand or forecast is known, and with time,
productspecific demand is revealed. In such cases, a warehouse can be used to convert or customize the
product with respect to demand. For example, in the context of North America, we can source a product,
say unpacked toys, from China, and depending upon the demand, we can pack these toys either in English
and Spanish packaging or English and French packaging very close to the selling season.
Logistics:
Logistics is mostly associated with inbound and outbound distribution and storage. So, warehousing is
considered part of logistics. Used mainly for transportation, storage, and packaging. It may involve the
movement of goods within a facility.
In fact, it is logistics and information systems that connect two partners in any supply chain. Logistics
helps in moving the material between partners and the information system helps in moving the
information.
Reverse Logistics:
Reverse logistics is the logistics associated with the return of products in any form: used, unused,
defective, etc. Used for the return of original, used, or partially used items in the supply chain. It may
involve the returning of unsold merchandise, defective merchandise, or partially used merchandise. For
example, oxygen cylinders for refilling, aircraft parts for repair, or dangerous goods for proper disposal,
such as used batteries, etc.
Reverse logistics are costly affairs and very complex to manage due to multiple partners, and demand
variability. Most organizations outsource these operations and handle them locally, which means they
decouple these operations from the main supply chains. For example, disclosing the recipe of
disassembling the battery so that multiple organization can participate locally. Partially defective
damaged products can be repaired locally and then can be sold through discount stores.
Another way of reducing the costs related to reverse logistic is either by gatekeeping or avoidance:
Comm 225 Post-Midterm: Essential Insights on
Supply Chain & Quality Management
Comm 225 Production and Operation Management (Post-Midterm)
Lesson 5 (Ch15) Supply Chain Management:
A supply chain is a set of organizations that produce products and deliver them to the final customers.
For example, we use cereals for breakfast, so a corn farmer or producer, corn bulk buyer, corn mill, corn
flakes distributor, corn flakes retailer, etc. all form a cereal supply chain.
There is competition among supply chains. The goal of supply chain management is to produce and bring
a product to the market at a competitive price, in the right quantity, and at the right time.
A competitive price means that the customer must see value in the product.
The right quantity means matching the demand.
To do it all, organizations have to focus on their expertise and collaborate and join hands with other
expert organizations, for example, transporters, component suppliers, etc.
Outsourcing is a very common phenomenon in supply chains. Mostly, it is some common tasks, low
value tasks, or low-expertise tasks that are outsourced to firms that can handle them in much more
efficient and economical ways. Outsourcing helps firms to focus on core expertise.
The procurement process involves bringing the required material resources at the right price and at the
right quality. Given that a product supply chain extends globally, the procurement process could be very
complex and time-consuming due to processing of payments, quality, regulations, guarantees, and
logistics.
Suppliers management is very key to any supply chain. Supply chains keep multiple suppliers for
managing supply risks, maintaining competition among suppliers, and, more importantly, product
innovation and research and development. In most of the innovative products, important key features and
technology are developed or proposed by suppliers. For example, batteries and touch screens for smart
phones, security systems such as smart keys, or air bags for automobiles.
Customer relationship management programs help in understanding the customer’s need and thus are
very much required for sustaining the growth of the supply chain and its partners.
Working and coordinating with multiple organizations will always bring issues common to all supply
chains. These should be resolved in a timely manner for the betterment of the supply chain.
Why do we need cooperation when working with multiple organizations?
When we work in a team for a group project, we need coordination to complete all the parts on time for a
timely submission of the report. Similarly, organizations are also run by humans, and thus they have their
own interests, they may be part of multiple supply chains or may have their own set of rules or plans to
handle various constraints and issues. Since the completion is all about price, quality, time, and
innovation, without smooth coordination, supply chains cannot win on these fronts.
, lOMoAR cPSD| 6861666
Demand Variability:
Everyone handles variability differently, and when organizations react to variability, it propagates
disproportionally and leads to a false situation, which could be undesirable for everyone.
Example: A downstream partner is a customer to an upstream partner; warehouse-to-retailer or supplierto-
manufacturer.
• Assume I am a retailer, and I need 10 snow blowers for the month of December. If my supplier
is very close to me and can supply whatever I ask immediately, there is no issue at all. I phone
them, and the next day I receive 10 snow blowers.
• Now consider a different situation: My supplier is far, so it may take 2 to 4 weeks to receive the
quantity I need. Moreover, it is peak season, and suppose by the time I receive the product, I may
have more demand, and then it may take another 2 to 4 weeks to get more of the product. So, to
reduce the risk, I order 14 snow blowers. In other words, to reduce the supply risk, I play with the
demand.
• Assume all of the retailers do the same, then this supplier will receive a much bigger order, or
artificially known demand. Suppose the manufacturer is also very far from this supplier, and
then this supplier also increases the demand artificially to reduce his risks, and so on. Since the
manufacturer is not connected to the retailer, he believes that his product is very successful in the
market, and he may ramp up production, and then reality hits.
• This phenomenon is popularly known as the bullwhip effect. As in a bullwhip, a small impulse
given at one end becomes very big on the other end. This figure shows how the variability
amplifies as it moves from the downstream organization to the upstream organization. Demand
variations begin at the customer end of the chain and become increasingly large as they radiate
backward through the chain.
Supply Chaim Management: CPFR
CPFR (Collaborative Planning Forecasting Replenishment): A process for communicating and agreeing
on forecasts between the manufacturer and the customer (distributor).
To avoid such incidents happening frequently, supply chain partners collaborate on forecasting and
replenishment. Each downstream partner produces its own forecast, and then each upstream partner has to
agree on those forecasts. The whole supply chain works with the agreed forecast and replenishes
accordingly. Each change in demand has to be communicated accordingly, i.e., all the upstream partners
have access to sales and planning data/information associated with downstream partners. Such an
approach helps in reducing or eliminating variability that arises due to asymmetric information.
Strategic Supply Chain Planning:
Strategic planning is done for long term goals such as future growth, new markets, new products, or new
technology. It may involve adding new long-term partnerships such as new suppliers, new production
plants, overhauling the transportation system, purchasing or upgrading of enterprise IT systems.
- The goal is to add a competitive edge to the current supply chain in terms of quality, cost, variety
(or flexibility), timeliness (or speed), customer service, and fill rate.
- Tactical and operational planning are done to reach strategic planning goals. Most of the
shortterm planning, from seasonal to day-to-day, is part of tactical and operational planning. This
may involve forecasting, purchasing, production planning, transportation planning, and
management.
Product Supply Chain:
Warehousing:
, lOMoAR cPSD| 6861666
Warehouses are an integral part of supply chains and are used to store inventory for better distribution
and to provide better services. Warehouses can also be used for partial assembly or manufacturing.
The primary use of a warehouse is to provide temporary storage. However, this short-term storage plays
a vital role in improving service and reducing logistics-related costs in supply chains.
In transportation, the cost depends on the size of the consignment. Typically, per-unit cost decreases as
the shipping quantity increases for a given distance. Warehouses are used to consolidate shipment to take
advantage of shipping costs. Shipments are consolidated or deconsolidated at warehouses to reduce
transportation costs.
Cross-docking is a technique used to deconsolidate goods or exchange goods between trailers without
storing them at a warehouse. Typically, these are done at warehouses in order to use a safer environment
and use suitable loading and unloading equipment. Several cross-docking yards are available throughout
North America.
Risk pooling: We need inventory at every store to provide good services. However, demand is always
random at each store. So, one option is to keep the safety stock (extra inventory to manage randomness in
demand) at each store or at a central location and give it to the stores when they see the demand. Keeping
the safety stock at the central location or warehouse is as effective as keeping it at the stores, but we may
need less. In other words, the safety stock at central locations is smaller than the total safety stock at the
stores.
Delayed differentiation: As mentioned earlier, a warehouse can be used for partial assembly or
manufacturing. In the beginning, only aggregate demand or forecast is known, and with time,
productspecific demand is revealed. In such cases, a warehouse can be used to convert or customize the
product with respect to demand. For example, in the context of North America, we can source a product,
say unpacked toys, from China, and depending upon the demand, we can pack these toys either in English
and Spanish packaging or English and French packaging very close to the selling season.
Logistics:
Logistics is mostly associated with inbound and outbound distribution and storage. So, warehousing is
considered part of logistics. Used mainly for transportation, storage, and packaging. It may involve the
movement of goods within a facility.
In fact, it is logistics and information systems that connect two partners in any supply chain. Logistics
helps in moving the material between partners and the information system helps in moving the
information.
Reverse Logistics:
Reverse logistics is the logistics associated with the return of products in any form: used, unused,
defective, etc. Used for the return of original, used, or partially used items in the supply chain. It may
involve the returning of unsold merchandise, defective merchandise, or partially used merchandise. For
example, oxygen cylinders for refilling, aircraft parts for repair, or dangerous goods for proper disposal,
such as used batteries, etc.
Reverse logistics are costly affairs and very complex to manage due to multiple partners, and demand
variability. Most organizations outsource these operations and handle them locally, which means they
decouple these operations from the main supply chains. For example, disclosing the recipe of
disassembling the battery so that multiple organization can participate locally. Partially defective
damaged products can be repaired locally and then can be sold through discount stores.
Another way of reducing the costs related to reverse logistic is either by gatekeeping or avoidance:
