1. Supply Chain Management
MD707 Operations Management
Professor Joy Field

2. Definitions Supply Chain Supply Chain Management
The interconnected set of linkages between suppliers of materials and services that spans the transformation of raw materials into products and services and delivers them to a firm’s customers
Supply Chain Management
Synchronizing a firm’s functions and those of its suppliers to match the flow of materials, services, and information with customer demand

3. Developing the Supply Chain Insourcing vs. Outsourcing Considerations
Pros
Cons
Insourcing
Increased control over price, quality, etc.
Economies of combined operations
Proprietary products protected
Capital costs
Capability limits
Time limits
Opportunity costs
Reduced flexibility to change partners
Reduced volume flexibility
Outsourcing
Low capital costs
Specialization
Competition
Increased flexibility
Unfavorable allocation of product
Lack of control over price, quality, etc.
Lock-in from specialized contracts and assets
Transaction (coordination) costs

4. Developing the Supply Chain Supplier Relations
Competitive Orientation
The view that negotiations between buyer and seller is a zero-sum game. Often used when a firm represents a significant share of the supplier’s sales or many substitutes are available. Example: WalMart
Cooperative Orientation
The view that the buyer and seller are partners. Includes sole sourcing. Often used with strategically important and/or high value-added components. Example: McDonald’s
Mixed strategy
Seeks to combine the advantages of the competitive orientation (e.g. low prices) with the cooperative orientation (e.g. few suppliers). Example: Toyota

5. Managing Supply Chain Relationships
Long-term relationships
Arm’s Length
Non-strategic
Strategic
Characteristics
Short-term contracts
Price sensitivity
Minimal interface between firms
Contractual safeguards are sufficient to enforce agreements
Longer-term contracts
Price sensitivity more broadly defined
Minimal to moderate interface between firms
Long-term contracts
Relation-specific investments
Supplier performance more broadly defined
Self-enforcing agreements are necessary for optimal performance
When to use
Product is necessary but non-strategic
Commodity product
Purchases account for a small percentage of supplier’s production
Switching costs are low
Low value-added
Dividing purchases across multiple suppliers reduces the ability of suppliers to achieve significant economies of scale
Vigorous competition can be achieved with few suppliers
Switching costs are relatively high
Components help to differentiate the customer’s product
Customized, non-standard products
Multiple interaction effects with other inputs
High degree of supplier/ buyer interdependence
High value inputs

6. Strategic Management of the Supply Chain
Efficient Supply Chains
The purpose of efficient supply chains is to coordinate the flow of materials and services so as to minimize inventories and maximize the efficiency of the manufacturers and service providers in the chain. Efficient supply chains work best when demand is predictable and products/services are stable. Example of competitive priorities: low cost.
Responsive Supply Chains
The purpose of responsive supply chains is to react quickly to market demands by positioning inventories and capacities in order to hedge against uncertainties in demand. Responsive supply chains work best when demand is unpredictable, new product introduction is frequent, and product variety is high. Examples of competitive priorities: development speed, fast delivery, customization, volume flexibility.
In addition …
Innovations in information technology and other practices are facilitating the integration of the supply chain for greater efficiency and responsiveness and enabling “orchestrated” networks.

7. Global Outsourcing and Offshoring
Specific considerations
Capabilities/resources
Coordination requirements
Strategic control and risks

8. Supply Chain Dynamics Bullwhip Effect
The bullwhip effect is characterized by fluctuations in inventory and order levels that tend to increase as one moves back up the channel from the final customer.
Some causes include lack of visibility/communication throughout the supply chain, delays in information flows, ordering and shipping lags.
The bullwhip effect can be alleviated by:
Reducing the number of stages in the supply chain
Communicating consumer demand directly up the supply chain
Reducing ordering and shipping delays
Reducing demand destabilizing practices
Counter consumer “gaming” during shortages