Supply Chain

Management
MGMT 30011

Introduction to Supply Chain Management

 Week 1 Agenda

• Get to know each other and why we are

here
• Administrative Issues
• Understand Subject Objectives
• Overview of Supply Chain Management
 Course Co-ordinator

Associate Professor Patrick Foley

Department of Management & Marketing
The Spot Building
Level 10, 198 Berkeley Street
Phone : 0439481399
E-mail : pfoley@unimelb.edu.au
In Email always use: MGMT30011
Consultation – By e-mail appointment
Lectures and Tutorials

Course Administration

• Lectures and Tutorials

– Students are required to attend two 2-hour
lectures and one 2-hour tutorial per week
throughout the summer semester.
– Average student should expect to send 6
hours in class and about 2.5 that out of
class - that is about 15 hours. About 21
hours in total to get an average grade of
70%
– Two summer subject is a very full work
load.
Lectures and Tutorials

Course Administration
Lecture Times

Day Time Location

Tuesday 10:00 AM – 12:00 PM PAR- Engineering C - 407 (C1 Theatre)

Wednesday 2:15PM – 4:15 PM PAR – FBE -G06 (Prest Theatre)

 Course Administration
 Tutorial preparation and consultation times
– Tutorials are designed to be participative so please read the
designated reading prior to your class
– Yanna and Srikanth are your tutors for the subject
– Please email your tutors or Patrick with any questions
– Yanna and Srikanth are available for consultation by e-mail
appointment only
– Only attend your designated tutorial!

Tutorial Day Time Location Tutor

Tutorial 1 Tuesday 01:00 PM - 3:00 PM PAR - The Spot - 2018 Srikanth Thanu
Tutorial 2 Tuesday 01:00 PM - 3:00 PM PAR – The Spot - 3012 Yanna Talpis
Tutorial 3 Tuesday 03:15 PM – 05:15 PM PAR - The Spot - 2018 Srikanth Thanu
Tutorial 4 Tuesday 03:15 PM – 05:15 PM PAR – The Spot - 3012 Yanna Talpis
Tutorial 5 Wednesday 11:00 AM – 01:00 PM PAR – The Spot - 3013 Srikanth Thanu
Tutorial 6 Wednesday 11:00 AM – 01:00 PM PAR – The Spot - 3012 Patrick Foley
 Course Administration
 Tutorial preparation
 Use spare time on Tuesday and Wednesday to
prepare for your tute.
 All groups need to schedule a one hour
meeting each week starting tis week to work
on their assignment and prepare for the exam.
 Individual marks can be reduced due to low
group involvement. A group involvement rubric
will be used for this.
 Readings

• Prescribed Text
– Simchi-Levi, D., Kaminsky, P. and Simchi-
Levi E., (2008), "Designing and Managing
the Supply Chain - Concepts, Strategies
and Case Studies", 3rd Edition, McGraw-
Hill Irwin
– Subject Readings can be accessed via the
LMS
– Details of other useful Journals and Books
are provided in the Unit Outline
 Readings
• Electronic Book Links

• Bochtis, Dionysis, et al. Supply Chain Management for

Sustainable Food Networks, John Wiley & Sons, Incorporated,
2016. ProQuest Ebook Central,
• http://cat.lib.unimelb.edu.au:80/record=b6352248~S42

• Russell, J.P., et al. ASQ Supply Chain Management Primer,

ASQ Quality Press, 2013. ProQuest Ebook Central,
https://ebookcentral.proquest.com/lib/unimelb/detail.action?docI
D=3002512#
 Course Administration
• Lecture Slides will be posted on LMS
• It is your responsibility to download the lectures
• Please note that lecture slides are only a guide – to
do well in this subject you will also need to :
– Attend lectures and tutorials
– Purchase and read the designated chapters of the course
text book
– Read the additional readings listed in the unit outline and
accessed through LMS
– Lectopia recording are not a substitute for the lectures!
 Course Administration

• Two Pieces of Assessment

– Group Assignment ( 50%) Due Thursday
8th Feb, 5 pm (Electronic Submission)
• A Comparison of Supply Chain Strategies of
Wal-Mart and Amazon OR Ikea and Toyota
(Word Limit 5000 words) Other firms can also
be chosen but must be confirmed with the tutor.

– Final Exam (50%) The end of semester

exam is a HURDLE for passing the subject
 Course Administration

• Useful Library Recourses

• Factiva
Using Factiva for Newspaper research
https://youtu.be/8C3ZzBF8CQw

• IBIS World
A Basic Introduction to IBISworld
https://youtu.be/Yhd5sUQRgjo

• IBIS World - Example

Researching the Juice Market using the IBIS World database
https://youtu.be/UMZMXtKRFGk
 Course Administration

• Useful Library Recourses:

• Marketline
An introduction to using the Marketline Database for company research
https://youtu.be/-e4TB0tuskw
• Finding Brand Ownership
Discovering who owns a specific brand using Passport and the WIPO
site.
https://youtu.be/aeuPUEHeSFs
• WARC
An introduction to Advertising Research using the WARC database
https://youtu.be/EnqfhxFHIig
• Accessing Businesss Economics Databases Where to find our
Business Economics Databases on the University website
https://youtu.be/fQ-UdPJMGP8
 Course Administration

• Useful Library Recourses

• Google Scholar
How to search for academic articles in Google Scholar
• https://youtu.be/qkrPhYuxA6E
• Google Scholar – Advanced
Advanced Features of Google Scholar
https://youtu.be/wKes2WPVAJY
• Endnote - References
Methods for importing references into EndNote
https://youtu.be/ZTCSaKCEoTk
• Also please do not forget to look at the referencing guides to ensure
you reference correctly:
• http://library.unimelb.edu.au/recite
Introduction to Supply Chain Management
What Is a Supply Chain?
Flow of products and services from:
– Raw materials manufacturers
– Intermediate products manufacturers
– End product manufacturers
– Wholesalers and distributors and
– Retailers

• Connected by transportation and storage activities

• Integrated through information, planning, and
integration activities
• Cost and service levels
 Definition of Supply Chain Management

Definition
Supply chains are the strings that tie organisations together

Downstream flow:
• Information
• Goods

Supplier

Manufacturer

Upstream flow:
• Information Retailer
•$
 Supply-Chain
Management

The objective of supply chain

management is to structure the
supply chain to maximize its
competitive advantage and benefits
to the ultimate consumer
 Interesting Facts!
• A typical box of cereal spends more than
three months getting from factory to
supermarket.
– It is estimated that the US grocery industry
could save $30 billion (10% of operating
cost) by using effective logistics strategies
• A typical new car spends 15 days
travelling from the factory to the dealership,
although actual travel time is 5 days.
 Why bother?
• Compaq computer estimates it lost $500 million to $1
billion in sales because its laptops and desktops were
not available when and where customers were ready
to buy them.
• Boeing aircraft, was forced to announce write downs
of $2.6 billion due to “Raw material shortages,
internal and supplier parts shortages…”.
• Coles-Myer wrote off $A220 million worth of stock in
2001 across a range of business units – some of the
stock was estimated to be over 10 years old
Why bother?

• In 10 years, Wal-Mart transformed itself by changing

its logistics system. It has the highest sales per
square foot, inventory turnover and operating profit
of any discount retailer.
– Wal-Mart is now the leading retailer globally

• Dell Computer has outperformed the competition in

terms of shareholder value growth (over one eight
year period by over 3,000%) using
– Direct business model
– Build-to-order strategy
– Dell is now the leading computer brand globally
Introduction to Supply Chain
Management
• Definitions
– “The supply chain….consists of suppliers, manufacturing
centers, warehouses, distribution centers, and retail outlets,
as well as raw materials, work-in-process inventory, and
finished products that flow between these facilities”
SIMCHI-LEVI et al
– “The supply chain encompasses all activities associated
with the flow and transformation of goods from the raw
material stage (extraction), through to the end user, as well
as the associated information flows. Material and
information flow both up and down the supply chain.
HANDFIELD & NICHOLLS
Introduction to Supply Chain
Management
• What is Supply Chain Management?
– “Supply chain management is a set of approaches to
efficiently integrate suppliers, manufacturers, warehouses,
and stores, so that merchandise is produced and distributed
in the right quantities, to the right locations, and at the right
time, in order to minimise systemwide costs while satisfying
service level requirements”
SIMCHI-LEVI et al
– “Supply chain management is the integration of these
activities through improved supply chain relationships, to
achieve a sustainable competitive advantage.”
HANDFIELD & NICHOLLS
 Terms used in SCM

Supply chain of a typical Original Equipment Manufacturer

 A Supply Chain for Beer

Figure 11.1
PC Industry Supply Chain
Cisco’s Value Network
Global Apparel Supply Chain
Globally Dispersed Manufacturing
How Li & Fung Limited Might Make a Dress

Product Design QC & Shipping

[Hong Kong] [Hong Kong]

Yarn Spinning Weaving Stitching

[Korea] [Taiwan] [Indonesia]

Zippers+…
[Japan+…]
 Introduction to Supply Chain
Management
• SCM Encompasses firm activities at many
levels
– Strategic
• Policy, structure, alliances, financing
– Tactical
• Business model, advertising, competitive
priorities
– Operational
• Location, layouts, inventory policies,
technologies

• Why?
– SCM requires Integration at multiple levels
 Why supply chain management?

Why would an organisation seek to manage it’s

supply chain when it has it’s work cut out managing
itself?

Because…
• Supply chain strategies cannot be determined in
isolation
• It is challenging to design and operate a supply chain so
that total system-wide costs are minimised, and system-
wide service levels are maintained
• Uncertainty and risk are inherent in every supply chain
 Why supply chain management?

Why would an organisation seek to manage it’s

supply chain when it has it’s work cut out managing
itself?

Objective is to find the best system-wide, globally

optimal, integrated solution. This is difficult
because…
• The supply chain is a complex network
• Different facilities in a supply chain frequently have
different, conflicting objectives
• The supply chain is a dynamic system
• System variations can be difficult to manage
Lambert & Cooper (2000) SCM Framework

What processes should be linked with each of

these key supply chain members ?

Supply Chain
Business
Process

Supply Chain Supply Chain

Management Network
Components Structure

What level of integration and Who are the key supply chain members
management should be applied for each with whom to link processes?
process link?
 SCM Today in the Emerging
Environment

• Global markets/industries
• Dynamic complex and unpredictable
environmental conditions
• “Integrated” solutions stretching the
boundaries of the traditional enterprise
• Technological change
• Virtual organizations
 Emerging Environment -
Implications
• Structures that worked in the old environment are no longer
relevant
– Functional roles / Hierarchical structures / Task centred
• Shift of power to the customer
• “Agility” becomes a source of competitive advantage
• Focus on technology as both “Enabler” and “Transformer”
• All Assumptions underpinning established business models
reviewed – continuously
• Focus moves outside the organisation to the wider supply

chain as a source of competitive advantage

• Organisations understand that they are part of larger systems
The Supply Chain’s Strategic Importance

▶ The coordination of all supply chain

activities, starting with raw materials and
ending with a satisfied customer
▶ Includes suppliers, manufacturers and/or
service providers, distributors,
wholesalers, retailers, and final customers
▶ Large portion of sales dollars spent on
purchases
▶ Supplier relationships increasingly
integrated and long term
▶ Improve innovation, speed design, reduce
costs
▶ Managing supplier relationships has added
emphasis
 TABLE 11.1
Supply Supply Chain Costs as a Percentage of Sales

Chain INDUSTRY
Automobiles
% PURCHASED
67
Costs Beverages 52
Chemical 62
Food 60
Lumber 61
Metals 65
Paper 55
Petroleum 79
Restaurants 35
Transportation 62
 Hau Lee Furniture
60% of sales $ in supply chain
Current gross profit = $10,000
Increase profits to $15,000 (50%)
CURRENT SUPPLY CHAIN SALES
SITUATION STRATEGY STRATEGY
Sales $100,000 $100,000 $125,000
Cost of materials $60,000 (60%) $55,000 (55%) $75,000 (60%)
Production costs $20,000 (20%) $20,000 (20%) $25,000 (20%)
Fixed costs $10,000 (10%) $10,000 (10%) $10,000 (8%)
Profit $10,000 (10%) $15,000 (15%) $15,000 (12%)
 Supply Chain Management

TABLE 11.2 How Corporate Strategy Impacts Supply Chain Decisions

LOW COST RESPONSE DIFFERENTIATION
STRATEGY STRATEGY STRATEGY
Primary supplier • Cost • Capacity • Product development skills
selection criteria • Speed • Willing to share information
• Flexibility • Jointly and rapidly develop
products
Supply chain • Minimize • Use buffer stocks • Minimize inventory to avoid
inventory inventory to hold to ensure speedy product obsolescence
down costs supply
Distribution • Inexpensive • Fast transportation • Gather and communicate
network transportation • Provide premium market research data
• Sell through customer service • Knowledgeable sales staff
discount
distributors/
retailers
Product design • Maximize • Low setup time • Modular design to aid product
characteristics performance • Rapid production differentiation
• Minimize cost ramp-up
 Sourcing Issues

▶ Make-or-buy decisions
▶ Choosing between obtaining products and
services externally as opposed to producing
them internally
▶ Outsourcing
▶ Transfer traditional internal activities and
resources to outside vendors
▶ Efficiency in specialization
▶ Focus on core competencies
 Six Sourcing Strategies

▶ Many suppliers
▶ Few suppliers
▶ Vertical integration
▶ Joint ventures
▶ Keiretsu networks
▶ Virtual companies
 Many Suppliers

▶ Commonly used for commodity products

▶ Purchasing is typically based on price
▶ Suppliers compete with one another
▶ Supplier is responsible for technology,
expertise, forecasting, cost, quality, and
delivery
Few Suppliers
▶ Buyer forms longer term relationships with
fewer suppliers
▶ Create value through economies of scale and
learning curve improvements
▶ Suppliers more willing to participate in JIT
programs and contribute design and
technological expertise
▶ Cost of changing suppliers is huge
▶ Trade secrets and other alliances may be at
risk
 Vertical Integration

Vertical Integration Examples of Vertical Integration

Raw material
Tree Harvesting
(suppliers)

Backward integration Chipmakers Pulpmaking

Current International
Pepsi Apple
transformation Paper

End-User Paper
Forward integration Bottling Retail stores
Conversion

Finished goods
(customers)
Figure 11.2
 Vertical Integration

▶ Developing the ability to produce goods or

services previously purchased
▶ Integration may be forward, towards the
customer, or backward, towards suppliers
▶ Can improve cost, quality, delivery, and
inventory but requires capital, managerial
skills, and demand
▶ Risky in industries with rapid technological
change
 Joint Ventures

▶ Formal collaboration
▶ Enhance skills
▶ Secure supply
▶ Reduce costs
▶ The challenge is to cooperation without
diluting brand or conceding competitive
advantage
 Keiretsu Networks
▶ A middle ground between few suppliers and
vertical integration
▶ Supplier becomes part of the company
coalition
▶ Often provide financial support for suppliers
through ownership or loans
▶ Members expect long-term relationships and
provide technical expertise and stable
deliveries
▶ May extend through several levels of the
supply chain
 Virtual Companies

▶ Rely on a variety of supplier relationships to

provide services on demand
▶ Fluid organizational boundaries that allow the
creation of unique enterprises to meet
changing market demands
▶ Relationships may be short- or long-term
▶ Exceptionally lean performance, low capital
investment, flexibility, and speed