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Section 1 Supply Chain Management (SCM)

Section 2 Types of Supply Chain Management

Section 3 Requirements

Section 4 Relationships                                                 
 

Description:  The purpose of this unit is to enable you to analyse the functions and effects of the various types of supply chain management organisational arrangements used within the construction and building services engineering process and to evaluate the different kinds of supply chain management arrangements.

Author:  Gates MacBain Associates


Section 1 Supply Chain Management (SCM)




Aims and Objectives

At the end of this section you should be able to:
  • Explain the purpose of Supply Chain Management


Supply chain management is the oversight of materials, information, and finances as they move in a process from supplier to manufacturer to wholesaler to retailer to consumer.  

Supply chain management involves coordinating and integrating these flows both within and among companies.  Supply chain management is the integration of processes, which optimise the total supply chain performance. In order to do this it looks at the chain and traces the goods from source to consumption; consequently it will consider:
  • sourcing
  • procurement
  • manufacturing
  • distribution
  • transportation 
There are three levels which need to be considered and these relate to:
  • Business Unit Level: Looks at whether the supply chain relates to the whole of the organisation or just to parts to parts. 
  • Functional Level: This looks at the ‘integrated supply chain organization’ and determines if all functions come under the supply chain or should there be separate systems for procurement, materials etc.
  • Geographic Level: Many large companies are organised by geographical area. So having a single supply chain organisation that manages the supply chain across the whole business can be difficult to organise. 

The goal of an effective supply chain management system is to ensure that products are available when they are needed. It also aims to reduce the cost of obtaining the products as a 5% reduction in costs can have the same effect on the bottom line as a 25% increase in turnover. Consequently it aims to:
  • Reduce costs
  • Reduce lead times
  • Reduce number of transactions
  • Release of value
  • Ensure appropriate quality 
A greater understanding of Supply Management can be obtained by clicking on Supply Chain Management – an overview in the websites below and by reading the Supply Chain in 90 minutes and Logistics and Supply Chain Management books indicated.  

Additional material can be found by reading the articles that are available from the International Journal website below. 



Websites

  • Supply Chain Management – an overview  Wikipedia Link - this provides an overview and links to further study; it should not be quoted, referenced or taken as an authoritative source.



Publications

  • Emmett, S (2005) Supply Chain in 90 minutes; Management Books: Cirencester.
  • Christopher, M (2005) Logistics and Supply Chain Management, Pearson Education: Harlow



Self-Assessment Task

  • Discuss the factors which will influence supply chain management and their relevance to an organisation.




Section 2  Types of Supply Chain Management




Aims and Objectives

At the end of this section you should be able to:
  • Explain the types and characteristics of supply chain management.


There are two types of supply chain
  • External supply chain - this involves external companies. Supply chain management involves relationships with the customer through marketing and sales; and with suppliers through the procurement function.
  • Internal supply chain – this involves the functions / departments / business units within the organisation.

Flow in Supply Chain Management 

This can be divided into three main flows:
  • The product flow - this includes the movement of goods from a supplier to a customer, as well as any customer returns or service needs.
  • The information flow - involves transmitting orders and updating the status of delivery.
  • The finances flow - consists of credit terms, payment schedules, and consignment and title ownership arrangements.

The transactions in supply chains are characterised by:
  • adding value up through the chain by the inclusion of materials or services
  • incurring costs , which is the payments, down the chain.
 
These can be further broken down into:
  • Single stage which sources standard items for steady state production
  • Double stage which incorporates a tendering stage, followed by contract execution.
 
Multi-sourced Trading
  • Characterised by win-lose transactions and mutual mistrust
  • Multiple sourcing constitutes a strategy for reducing purchasing uncertainty.
  • Moving towards single sourcing partnership arrangements can be frustrated by long-term adversarial attitudes.
  • Cultural change, the absence of trust and the prevalence of opportunism are major barriers to change in buyer-supplier relationships.
 
A market economy leads to users wanting to obtain the best price possible in order to make them more competitive and to produce the maximum profit, this results in suppliers competing which in effect creates competing supply chains Many companies also focus on reducing waste in the supply chain in order to achieve these goals.  

It would be useful to read through Logistics and Supply Chain Management to gain an insight into the subject. 



Publications

  • Christopher, M (2005) Logistics and Supply Chain Management, Pearson Education: Harlow



Self-Assessment Task

  • Discuss the characteristics of the types of supply chain management.





Section 3 Requirements




Aims and Objectives

At the end of this section you should be able to:
  • State the factors which the development of a supply chain management system should focus on.


Companies expect supply chain management to focus on the following value adding outputs: 
  • Quality – purchased materials and services should be virtually defect free. Many defects can be traced back to bought in items.
  • Cost – minimisation of total cost of acquiring, transporting, holding, converting items as well as quality costs.
  • Time – need to minimise time to market for new products as well as minimising lead-times to increase flexibility.
  • Technology - ensuring that the firm’s supply base provides appropriate technology in a timely manner; ensuring that technology associated with core competence is carefully controlled.
  • Continuity of supply - need to reduce risk of supply disruptions. These may have impact on other functions (aluminium v carbon fibre reinforced plastics in the aerospace industry). May involve the development of alliances.
 
Traditional Purchasing 

Traditionally the purchasing function was evaluated in terms:
  • The purchase price of materials.
  • The ability to “keep production running”
  • The cost of the Purchasing Department’s operation

It was often a reactive clerical function that responded to requests from other business functions such as engineering or production.  


Strategic Focus 

Any supply chain needs to be focused in ensuring it maximizes the positive factors for the company. To this end it will need to consider: 
  • Integration - the firm’s supply chain strategy should be integrated with marketing, production and financial strategies.
  • Business environment - supply chain must address the identification of threats and opportunities (with particular reference to suppliers and customers).
  • Technology - access and control, avoid turning suppliers into competitors.
  • Information systems - need timely, accurate and cost effective transfer of information with buyers and suppliers (e.g. electronic data interchange).
  • Value chain - need to ensure that the value chain of which the company is a part is competitive (e.g. careful management of margins through the supply chain)
  • ABC analysis - concentrate on high value items - decentralise decision making for low value items.



Websites

  • Supply Chain Managementan overview  Wikipedia Link - this provides an overview and links to further study; it should not be quoted, referenced or taken as an authoritative source.



Publications

  • Emmett, S (2005) Supply Chain in 90 minutes; Management Books: Cirencester
  • Christopher, M (2005) Logistics and Supply Chain Management, Pearson Education: Harlow



Self-Assessment Task

  • State the factors which the development of a supply chain management system should focus on.





Section 4  Relationships



Aims and Objectives


At the end of this section you should be able to:
  • Discuss the aspects of relationships within a supply chain.


Evolution of Partnership Models

Up the 1980’s most purchasing was done using an adversarial relationships though this created conflict and tended to prove counter-productive to both parties. By 1980’s a partnership model was being adopted to reduce costs, resolve scheduling problems and other technical difficulties. This resulted in changes being introduced which implement total quality principles which resulted in the Partnership or obligational model which is characterised by close operational and strategic links between buyer and supplier; the provision of technical and managed assistance to suppliers and the establishment of preferred supplier status or single sourcing agreements.   


Outsourcing Opportunities 

The development of outsourcing presented a number of opportunities which included: 
  • Strategic benefits of using best-in-class suppliers
  • Greater flexibility in the purchase of rapidly developing new technologies
  • A reduction in design cycle times
  • Higher quality
  • Cost advantages due to higher volume production
  • Risk is transferred to the supplier
  • Less capital is required as the requirement for investment is transferred to the supplier.
It should be borne in mind however, that technology critical to success should not be outsourced.     


Power Relationships 

A factor which is relevant to the supply chain is the power relationships which can emerge: These are: 
  • “Collaborative” relationships are underpinned by strong buyer control, enforced through vetting and monitoring
  • Powerful buyers impose terms on weaker dependent suppliers (e.g. supermarkets)
  • Research has concentrated upon focal producers able to exert a significant degree of control over smaller suppliers (e.g. automotive companies)
  • Other sectors such as engineer-to-order, low volume manufacture may have different power relationships.



Publications

  • Christopher, M (2005) Logistics and Supply Chain Management, Pearson Education: Harlow


Self-Assessment Task


  • Explain the factors which are pertinent to relationships between parties in a supply chain and the influence that they have in the relationship.



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