Supply Chain Management:
from a “necessary evil” to a
“core organisational competency”
Dr Sinéad Roden
Senior Lecturer in Operations & Supply Management Director of Studies for MSc in Global Supply Chain Management
Marketing/sales 2 Supply Chain Management 31 Corporate strategy 17 IT strategy 17 Benefits/Actuarial 16 Organisational design 11 Financial 6
Percentage of world revenues of 40 largest consultancy firms
Agenda for this evening
Defining supply chain and supply chain
management
The challenges in managing supply chains
Supply chain risk management
What is Supply Chain
A supply chain is the flow of physical goods, information, people and finance
Suppliers/ Mfg plants Distribution centres Warehouses Retail stores Head office Physical goods Information Finance
Managing the information flow is becoming increasingly important.
Definition of SCM
Supply chain management is concerned with the efficient integration of suppliers, factories, warehouses and stores so that goods and services are produced and distributed:
• In the right quantities • To the right locations • At the right time
In order to
• Minimize total system cost
The Evolution of SCM
Old paradigm
- Firm gained synergy as a verticallyintegrated firm encompassing the ownership and coordination of several supply chain activities.
• Focus on mass production; purchasing efficiency & aggressive negotiation.
New paradigm
- Firms in a supply chain focusactivities in their area of specialization (core
competency) and enter into voluntary and trust-based relationships with supplier and customer firms
Supply Chain Disruption Map
Why are Supply Chains Increasingly
Vulnerable?
What is making supply chain management difficult:
• Global Sourcing
– Increasing number of hand-offs, not necessarily location
• Lean Operations
– Reduced inventories; JIT
• Supply Chain Complexity – Globalisation and outsourcing
• Supply Base Reduction – Prevalence of sole sourcing
Dependency on key suppliers
Intellectual property risk
Supply delays / labour disputes • East coast port Strike
Inbound quality Inventory risks • Dangers of obsolescence IT / information risks
Supply Risks
Demand Risks
Short lifecycles
Global economy
Forecasting
Drop in demand
•
Product disaster (recalls)
•
Fad Volatility
Economic Risks Environmental Risks
sks
Economic fluctuations, such as exchange rates
Commodity price shifts
Regulatory changes
Terrorism & war
Weather
Natural disasters
Source: UN Environment Programme
What is Supply Chain Risk Management
“the management of supply chain risks through coordination or collaboration among the supply chain partners so as to ensure profitability and continuity” (Tang,
2006).
……a supply chain is only as strong as its weakest link!
24%
34% 27%
15%
Assessment of SC Risks
No formal assessment Qualitatively/Intuitviely Rough Quant Estimate Detailed models
What is the state of SCRM in industry today?
Studies indicate a lack of preparation
55% 17%
28%
Tenure of SC Risk Programme
No formal programme In place < 12 months
How can we manage increasing risk
and vulnerability?
HIGH VULNERABILITY Dis rupt ion P roba bili ty High Low LOW VULNERABILITYAssessing Risk
Consequences Dis rupt ion P roba bili ty Light High Low Loss of key supplier Avian Flu IT System Failure Earthquake Transportation Link Disruption Computer Virus Employee Sabotage Product failure Avian Flu Risk Management Product Management Demand Management Information Management Supply Management
Supply Management Demand Management Product Management Information Management
Strategic plans Supply network design.
Product rollovers, and product pricing.
Product variety. Supply chain visibility.
Tactical plans Supplier selection, supplier order allocation, and supply contracts. Shift demand across time, markets, and products Postponement, process sequencing. Information sharing, Vendor Managed Inventory, Collaborative forecasting. (Tang, 2006) Risk Manageme nt Demand Management Information Management Supply Managemen t
Strategies based on Redundancy and Flexibility
Redundancy Flexibility 1. Inject safety stock
• Buffer uncertain and variable demand and supply
• Not lean
2. Add excess capacity
• Operational equivalent of safety stock
• Internal or through supply network
1. Interchangeability • Modular plants • Modular processes • Modular products 2. Visibility 3. Increase agility 4. Postponement
Establishing a pre-set course of action for an anticipated scenario. i.e. virtual buffering, because it involves securing buffers only when
needed, rather than holding them continuously in advance. Use when the risk from an event becomes more severe.
Do not hold resources, but instead develop a plan for obtaining them when needed.
E.g. flexible supply contracts, multi-sourcing, reserve shipping capacity, temporary workers.
E.g. contracts with alternative suppliers to provide backup in case of disruption. Philips Chip Factory Ericsson Mobile Phones Nokia Mobile Phones
• Shipment discrepancies noticed within 3 days.
• Philips is pushed hard. • New supply sources. • New chip design. • Global capacity grab.
• Problem undiscovered for weeks. • Slow chain of command.
• Slow response.
• Capacity already taken. • $400M revenue loss. • Exits phone manufacture.
Contingency Planning:
The Mobile Phone Supply Chain
Conclusions
Supply chains are increasingly vulnerable to
disruption due to macro trends and supply chain design
There is a lack of preparation within industry today
To be a global business, supply chain risk
management is a necessity. The key is to determine how to do it efficiently and effectively.
