Supply Chain Management - Summary
Focused Factories – Definition
Definition of Pesch:
The focused factory is a factory with a (1) limited, (2) strategically linked, and (3) internally consistent set of demands
that derive from the plant’s products, processes, customers and suppliers.
Limiting the demands placed on the plant in turn limits the number of manufacturing tasks in the plant and
establishes a clear set of priorities for both workers and managers.
There are several examples in Kassel. Which ones do you know?
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Radpanzer, Rohloff
Five Ps of Operations Strategy – Focused Factory Concept
1. Products (and Parts)
 Decision must be made on which products the company offers.
 This also determines, which parts must be used.
 One critical decision is the question, what product variety is offered, i.e., what kind of different products
would be sold and therefore must be produced.
 This decision defines the requirements for many of the four others Ps.
2. Processes
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Productions or operational processes must be set up in every company to fulfil the first P (Products and
Parts)
Typical questions are: What capacity do you plan for? How do you organize the flow of material and information?
3. People
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“plant” decisions.
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skill level do you require? And where do you find it?
What processes do you automate, and which ones do you operate by people?
4. Plants
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Plants might have to be built to produce the products.
One critical question is where to build them, so the location of the plant and of stock holding points need to be
decided.
Link to operations research:  Facility location problem  Vehicle routing problem
5. Planning and Control
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To a large extend this is determined by the processes that are used for production.
Things to be planned and controlled:
o Flows of material, information, and capital for each single product
o Quality of inputs, processes, and outputs
o Health and safety issues
o Environmental impacts
Two related theoretical developments
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Theory of Performance Frontier
Theory of Swift-even flow
The product/process matrix: Process types for manufacturing and service
Project, e.g. Building
Jobbing, e.g. craftsman
Batch, e.g. ice cream
Mass, e.g. car industry
Continuous, e.g. gas
Professional, e.g. dentist, lawyer
Service shop, e.g. subway
Mass service, e.g. call center
Product-Process- or Volume-Variety-Matrix: Implications
Product-Process- or Volume-Variety-Matrix: Examples
Performance objective in operations – QSDFC
Linking the Performance Objectives
Dealing with Trade-offs
For example, if we reduce costs by reducing product quality inspections, we might reduce product quality.
Trade off examples – Cost and Flexibility
Performance Frontier in a Supply Chain
Performance Frontier – Operating and Asset Frontier
Strategic capacity planning
Basic observation
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Within a year demand for many products is heavily changing
Two basic strategies
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Chase-Strategy: Production according to demand
Level-Strategy: Production independent of demand
Production and Demand – Example Icecream
The chase strategy
The level strategy
The effect of the level strategy
Push vs. Pull Management and the Decoupling Point
Coupling of production and marketing/demand – influence variables
Principles and examples of Push Management
Principles:
 Estimation or accumulation of future demand
 Utilization is the planning criteria for the
production process
 The use of hierarchical planning process to
„ascertain“task to specific working stations
Examples:
 Perishable commodities (e.g. Fish, ...)
 Constrains to continuously run processes (e.g.
manufacturing plastics and synthetics, ...)
 Extreme demand fluctuations (e.g. fireworks,
sparkling wine, ...)
Principles and examples of Pull Management
Principles:
Examples:
 A specific demand activates the production process.  Production in service sector (e.g. hairdresser)
 Realtime production of each individual order.
 Products made to specification (e.g. jeweller,
architect)
 Production orders reproduce itself like a domino
chain along the production chain.
Distinguishing Push and Pull Principle
Coupling of Push and Pull
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Coupling is possible and necessary
o Push-orientated pre-production (e.g. semi-finished products) and
o Pull-orientated management of completion
Examples
o Prefabricated house
o Final assembly of electronic products
o Automobile body push-, final assembly pull-management
De-Coupling points
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Nearly every production process has a connection between push- and pull management.
This changeover decouples both subsystem and therefore is called De-Coupling point.
o Often these are product stocking points.
Push/Pull view of supply chain processes
Make to stock
Warehousing
Make to order
Decoupling Points in the Supply Chain
Olhager (2003) IJPE - Factors affecting the positioning of the OPP
Olhager (2003) IJPE - Market related factors
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5.
6.
Delivery lead-time requirements; global commodities: crude oil, wheat, rice, corn, coffee
Product demand volatility; e.g. fashion brands, fireworks
Product volume
Product range and product customization requirements; how many varies do you have
Customer order size and frequency
Seasonal demand
Olhager (2003) IJPE - Product and Production related factors
- Product related factors
1. Modular product design
2. Customization opportunities
3. Material profile
4. Product structure
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- Production factors
1. Production lead time
2. Planning points
3. Flexibility
4. Bottleneck
5. Sequence-dependent setup times
- Shifting the OPP backward
Shifting the OPP forward
The Fisher-Matrix - Customer focus
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Supply chains are driven by customers:
o Product and customer characteristics must be considered when designing supply chains
Based on differentiating between
o Functional and innovative products (e.g., fashion, things change)
o Efficient and responsive supply chains can be distinguished
- Functional and innovative Products
- Efficient and Responsive Supply Chains
The Fisher-Matrix - Matching Products and Supply Chains
Leanness and Agility (bei Push Pull: Push – Lean, Pull – Agile)
Agility: using market knowledge and a virtual corporation to exploit profitable opportunities in a volatile market place
Leanness: developing a value stream to eliminate all waste, including time, and to ensure a level schedule
Comparison of Lean and Agile
SC Strategies
Mass Customization – Definition
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"a strategy that creates value by some form of company-customer interaction at the fabrication / assembly stage
of the operations level to create customized products with production cost and monetary price similar to those
of mass-produced products".
Mass Customization is the customization and personalization of products and services for individual customers
at a mass production price.
 Mass customization separates business process before and after the decoupling point
Coupling of Push-Pull
The product/process matrix - Understanding Mass
Customization
SC Postponement Strategy
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The manufacturing process starts by making a generic or family product that is later differentiated into a specific
end-product.
o Materials or products stay unspecified in the supply chain as long as possible.
Postponement
Examples
Production Postponement
 Footwear example – 3D printing
 Production starts after the customer order has
been placed
Logistical Postponement
 Example HP printers, for distribution in Europe
 Joint warehouse for distribution to Europe based in
Ireland
 Power lead and AC adaptor are placed in the
packaging just before it leaves the distribution
center
– Speculation
- Production Postponement
– Logistic Postponement
– Full Postponement Strategy
Postponement – Effects
Distribution Channel Structure
Direct versus indirect distribution
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example
Indirect sales involve (several) wholesalers and retailers
Advantages:
• Assortment offered
• Access to market / customers
Disadvantages:
• High costs (retailers often take more than 25% of the
final selling price)
• Obsolescence of inventory
Efficient Consumer Response I
 Originally process innovations within the grocery
industry
 Electronic Data Interchange
o needed when no standards for data
exchange were established
o today usually internet-based data exchange
 Category Management
o is a development of the brand management
approach to product development, and was
developed to take account of the growing
power of some retailers?
o Retail products are broken into like
groupings (categories). These groupings
managed as business units and will go
through business reviews on an ongoing
basis to determine growth, profitability,
trends and future opportunities.
Efficient Consumer Response II
 Four major components
 Efficient store assortment (ESA)
o Better use of inventory and shelf space at
retailers
 Efficient replenishment (ER) or Continuous
Replenishment (CR)
o Also, quick response
o Inventory at retailers is automatically
replenished against current sales data
 Efficient promotion (EP)
o Promotion of products planned jointly with
suppliers
 Efficient product introduction (EPI)
o Joint product development and
introduction (test sales, promotion) among
suppliers and retailers to avoid product
failure at market introduction
Vendor Managed Inventory
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is a family of business models in which
the buyer of a product provides certain information to a supplier of that product and
the supplier takes full responsibility for maintaining an agreed inventory of the material,
usually at the buyer's consumption location (usually a store).
A third-party logistics provider is involved who makes sure that the buyer has the required level of inventory by
adjusting the demand and supply gaps.
Collaborative Planning, Forecasting, and Replenishment (CPFR)
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is a concept that aims to enhance supply chain integration by supporting and assisting joint practices.
CPFR seeks cooperative management of inventory through joint visibility and replenishment of products
throughout the supply chain.
Information shared between suppliers and retailers aids in planning and satisfying customer demands through a
supportive system of shared information.
This allows for continuous updating of inventory and upcoming requirements, making the end-to-end supply
chain process more efficient.
Efficiency is created through the decrease expenditures for merchandizing, inventory, logistics, and
transportation across all trading partners.
The Product-relationship-matrix - Focused Demand Chains
DWV3-Concept Childerhouse, Aitken, Towill (2002) JOM
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Duration of life-cycle  Time to market, continuous replenishment,
Time Window for delivery  Sales at a given point in time, acceptable response time
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Volume  Production volume: lean versus agility
Variety  Alternative products and therefore stock-keeping units
Variability  Spikes in demand and demand variability
Integrating the five Ps in Supply Chain Strategy (5Ps)
Conceptualizing Supply Chain Strategy in the Product-relationship-matrix
Condensing previous arguments to two dimensions
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Product dimension (product life cycle)
o Pre-phase (product design)
o Market-phase (production and logistics)
o Post-phase (product return)
Supply Chain Dimension (Relationships and Processes)
o Network design (configurational)
o Interface optimization (operational)
I – e.g. electronic cars
The Product-relationship-matrix in Supply
Relating the Product-Relationship-Matrix to the Focused
Chain Management
Factory Concept
The Product-relationship-matrix - Reaching the Performance Frontier
The Configurational Decision Fields (I, III, V)
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Law of trade-offs  see Fisher’s model
Law of cumulative capabilities  Joint supply chain improvements
Law of diminishing returns / Law of diminishing synergy  Profit and risk sharing
The Product-relationship-matrix - Ensuring Swift, Even Flow
The Operational Decision Fields (II, IV, VI)
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Laws of variability, bottlenecks, scientific methods, quality, factory focus
Different supply chain demands placed on a single business unit
Aiming for “strategic” improvements
03 - Transaction Cost Analysis, Principal Agent Theory, and Information Economics
Foundation: Micro-economics
Restrictive assumptions of perfect markets (perfect information) and individual rationality (homo oeconomicus).
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The following two questions cannot be answered: ➢Why do organizations exist? ➢Why do we have traders?
Hence, neo-classical micro economics does not consider all abundant information availability and uncertainty.
Foundations of economical Organisation analysis
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Increasing relevance since early 1970s ▪ „Organisation-lessness of Neo-classics “
Assumptions of New Institutional Economics contrast classical Micro Economics
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Methodological Individualism (Action of the individuals determine social outcomes)
Individuals maximize their own utility
Bounded rationality
Opportunistic behavior
Also: • Institutions as key constituent • Information asymmetries
Similarities of the different approaches to New Institutional Economics
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Focus on Efficiency
Evaluating the choice among different alternatives
Preference for alternative with higher revenue or lower costs
Key terminology: Institutions
A single actor, choosing to join an institution on a free will basis (voluntarily), knows that he/she would be bound
by the institution in his/her action.
The actor joins the institution and therefore its rules and objectives that have been agreed upon by others.
Basic assumptions of transaction cost economics (TCE)
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Markets cannot be used free of cost, but require resources
A transaction cost is a cost incurred in making an economic exchange.
Transaction cost economics explain how transactions are efficiently fulfilled based on certain institutional
arrangements.
The criterion for the best solution (preferability) are comparatively lower transaction costs, which the contract
partners incur for exchanging a certain good.
Transaction characteristics and institutional arrangement must match to yield efficient solutions.
The 4 main transaction costs and phases
1. Search cost: for searching for information on goods and suitable transaction partners, their conditions and
possible behavior.
2. Contract cost: for negotiating a contract.
3. Monitoring and control cost: for safeguarding delivery at right time, right quantity and at agreed price.
4. Cost of adjustment, e.g. if wrong delivery takes place and a new supplier needs to be searched for.
TCE Framework of Williamson (1975)
Three conditions:
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Behavioral assumptions (see slide 7)
Transaction atmosphere ➢ all socio-cultural and technical factors which impact the transaction
Environmental factors ➢ Uncertainty (forecast on changes in the exchange conditions or relations)
o Specificity (value of the intended resource usage and the second-best option for using the resource)
o Frequency (how often is the transaction repeated)
Organizational / market failure framework
Transaction cost and specificity determine the nature Transaction costs- Factors influencing optimal forms of
of a transaction
coordination
5 points of critique to transaction cost economics
1. Real impact of transaction costs for companies and economies still open
2. Framework is hard to evaluate empirically
3. Qualitative-explanatory Theory: Hard to devise guidance for real problems
4. Rather mechanical comprehension of Organizations
5. Theory application tends to force control
Grover and Malhotra (2003) – TCT in SCM and operations management
Research aim: „It also summarizes existing empirical work in management and other disciplines that draws from the
TCT perspective and examines relationships in manufacturing organizations”
Key assumptions of TCT:
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Bounded Rationality (TCT views bounded rationality as a problem under conditions of uncertainty)
Opportunism (indicates that human actors in the exchange relationship will be guided by considerations of selfinterest with guile)
Key constructs:
o (1) asset specificity,
o (2) uncertainty,
o (3) governance mechanisms or structures.
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(1) Refers to the transferability of assets that support a given transaction.
(2) Refers to the unanticipated changes in circumstances surrounding a transaction.
(3) Represent governance mechanisms in their purest mode.
Transaction costs can generally be represented in terms of two major components (Clemons et al., 1993):
Transaction costs = coordination costs + transactions risk
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Co-ordination cost:
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o Cost of exchanging information and incorporating that information into the decision process.
Transactions risk
o Risk that parties in the transaction will not fulfil their agreed upon responsibilities (Information asymmetry
augments this risk).
Key propositions of the model:
1) Bounded rationality and opportunism give rise to transaction costs.
2) Transaction costs are higher under conditions of high asset specificity and high uncertainty.
3) The most efficient governance mechanism needs to be chosen to organize economic activity. In general, lower
transaction costs favor markets, while higher transaction costs favor hierarchies.
Four purified scales were used:
a) Effort required in developing the relationship
(effort),
b) Monitoring the performance of Supplier (monitor),
c) Addressing problems that might arise in the
relationship with Supplier S (problem), and
d) the likelihood of Supplier taking advantage of the
relationship (advantage).
Conclusion: “TCT is relevant for studying supply chain management and other relevant issues within the OM discipline,
and therefore should be explicitly recognized in our future research and teaching endeavors to create more holistic
perspectives.”
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Future research areas:
o Outsourcing and make versus buy decisions
o Allocation of investments
o Supply chain co-ordination
o Supply chain integration
The basis: principal-agent-models
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A Principal is a person–legal or natural–who authorizes an agent to act to create one or more legal relationships
with a third party.
This branch of law is called agency and relies on the common law proposition “qui facit per alium, facit per se”
(Latin "he or she who acts through another, acts personally").
The term Agent is also commonly used in relation to principal-agent models; in this case it refers specifically to the
agent who acts on behalf of a principal.
Principal-Agent-Theory (PAT): Basic elements
Focus: Contracts for settling a transaction among principal and agent
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Based on information asymmetries
o The principal aims for bargains,
o while the agent aims at avoiding disadvantages and reduce time, effort and cost for fulfilling the contract
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Principal-Agent-Theory aims at developing incentive and control systems, which avoid or reduce divergences
among objectives
Incentive and control systems in PAT
A range of institutional arrangements can be used:
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Ideally, incentives are set so that the agent would fulfil the principals demands as well as his own objectives.
Behavioral norms are part of the contract. Agreeing on them also allows monitoring them. Sanctions might be
specified.
Improved information systems
Agency cost in PAT
1. The costs inherently associated with using an agent and
2. The costs of techniques used to mitigate the problems associated with using an agent.
 Cost of the principal for encouraging the agent to act accordingly (incentives)
 Cost of the principal for lost profits due to misconduct of the agent
 Cost of the agent for the promise not to act against the interest of the principal
Information asymmetries in PAT
Opportunistic behavior of economic actors can only occur if information asymmetries exist.
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Contract theory deals with the study of decisions in transactions where one party has more or better information
than the other.
This creates an imbalance of power in transactions which can sometimes cause the transactions to fail.
Examples of this problem are adverse selection and moral hazard. This is based on the fact whether the
information asymmetries exist before, during or after a transaction.
Most commonly, information asymmetries are studied in the context of principal-agent problems. In some cases,
the principal might never get to know the information asymmetry.
Difference among will-based and will-independent
o Will-based conduct: fairness, effort and carefulness
o Will-independent relates to the talent and abilities of the actors
Foundations of Information Economics
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Information required for transactions among individuals or institutions
Before a transaction, it is necessary to perform processes in searching for information, transforming and
exchanging information
Two assumptions of information economics
1. Information asymmetries reduce economic efficiency
 Hence, economic actors aim at reducing them
2. Sourcing information incurs costs
Central are such instruments and activities which allow reducing information asymmetries
Types of goods
Based on information asymmetries, three types of goods are distinguished:
1. Neo-classical homogeneous goods (all goods are of the same quality)
2. Search and inspection goods (properties can be evaluated)
3. Creadence and trust goods (properties can only be experienced during use)
Screening and Signalling
Comparative summary of the New Institutional
Economics approaches
New Institutional Economics – Pro und Contra
Pro
Contra
• Complete and stringent theoretical system
• Preferences are set, which are not explained by the
• Ex-post explanations of Institutions
theory
• Explanatory power for originations acting in self • Phenomena of collective action cannot be explained
interest
• Operational measures are hard to realize, such as for
transaction cost
• „Paranoid nightmare organization “: Everyone betrays
everybody (Schreyögg)
04 The Resource Based View (RBV)
The Strategic Management Process
Industry Analysis or External Analysis
Internal Analysis
Internal analysis provides a comparative look at a firm’s capabilities:
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what are the firm’s strengths and weaknesses?
how do these strengths & weaknesses compare to competitors?
Internal analysis helps a firm to:
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determine if its resources and capabilities are likely sources of competitive advantage
establish strategies that will exploit any sources of competitive advantage
The Theory Behind Internal Analysis
The Resource-Based View (RBV)
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developed to answer the question: Why do some firms achieve better economic performance than others?
used to help firms achieve competitive advantage and superior economic performance
assumes that a firm’s resources and capabilities are the primary drivers of competitive advantage and economic
performance
RBV Terminology
1. Resources A firm’s ‘fundamental’ financial, physical, indiv., and organizat. assets, both tangible and intangible
2. Capabilities Attributes of a firm that enable it to exploit those resources
3. Competencies Representative of organizational routines and processes which are enabled when firm-specific
assets are assembled in integrated clusters spanning individuals and groups
4. Knowledge-based theory Based on the idea that knowledge is ‘the’ most important resource that can be
controlled by a firm to achieve a sustained competitive advantage
5. Competitive Advantage An enterprise has a Competitive Advantage if it can create more economic value than
the marginal (break-even) competitor in its product market
RBV Framework: VRIO
The VRIO Framework gives competitive and economic implications
Limitations of the RBV
1. Static and only describe current situation
2. Tautological
3. Firms may accumulate valuable assets but insufficient to support significant competitive advantage
4. A large stock of valuable assets may not translate to useful capabilities
5. “RBV has not adequately explained how and why certain firms have competitive advantage in situations of rapid
and unpredictable change.”
Complementary theories to supply chain management
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Papers defines a frame of reference for SCM • Four non-logistics theories applied on SCM:
➢Agency Theory ➢Transaction Cost Analysis ➢Network Theory ➢Resource Based View
Showcasing their applicability on third party logistics and new product development
Comparison of PAT, TCA, RBV and NT
Theoretical frame of reference for SCM: ‘structure’ and ‘manage’
Complementary theories to SCM revisited (2015)
From borrowing theories to theorizing SCM
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Difficult to establish “distinct scientific identity”; “Hampered progression”
Advancing theory development of/in SCM
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Lack of commonality (concepts, theories, methods) → “conceptual slack”
Certain divergence in analytical perspectives and methodological approaches
Fluid boundaries relative to other disciplines and professions such as logistics, operations management,
purchasing, quality management and industrial networks are fluid.
Constantly being questioned
o Development in other disciplines
o Emerging societal challenges → One single theory as a desired state vs. “develop the ability to theorize”
Approach
Boyer’s “scholarship” as perspective on ‘theorizing SCM’:
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“Scholarship of integration” → knowledge created at intersections
This is in line with the ‘integrative nature of SCM
“Scholarship of application” → ➢ Knowledge creation goes in both directions: practice  → theory
o Sensitivity to the context; From applied field towards actionable knowledge
Complementary theories: key assumptions and
application in SCM (PAT/TCA I/II)
Complementary theories: key assumptions and
application in SCM (RBV/NT I/II)
Complementary theories: key assumptions and
application in SCM (PAT/TCA II/II)
Complementary theories: key assumptions and
application in SCM (RBV/NT II/II)
An inter-related view on the four complementary theories of SCM
Theoretical frame of reference for SCM: ‘structure’ and ‘manage’
Scholarship of application
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Challenge-driven research: “social problems themselves define an agenda for scholarly investigation?”
“Scholarship of application” →
o Knowledge creation goes in both directions: practice  → theory
o Sensitivity to the context
o From applied field towards actionable knowledge
Actionable knowledge:
Assign SCM a “transformative role”: How orgas must transform and act to reach a desired level of achievement
Not only “knowing” about the world, but also “producing” it. --> what supply chain is vs. what it can do
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Is there an SCM inside?
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“SCM offers operational terms to an
interorganizational level”
Example: VMI, supplier selection criteria
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“SCM contributes with an inter-organizational
and supply chain perspective to theories that
otherwise have the individual firms as their
level of analysis”
The Strategic Management Process
Two Generic Business Level Strategies
1. Cost Leadership:
- generate economic value by having lower costs than competitors; Example: Wal-Mart
2. Product Differentiation:
- generate economic value by offering a product that customers prefer over competitors’ product
- increase the perceived value of the focal firm’s products and/or services relative to the value of
competitor’s products and/or services; Example: Harley-Davidson
- Almost anything can be a base of differentiation:
o tangible things; intangible concept; limited only by managerial creativity
Bases of differentiation
Bases of differentiation
Cases for the group work
Competitive Dynamics
Imitation will seldom lead to competitive
advantage
• firms should use resources and capabilities to
fill unique competitive space
Similar strategies may lead to competitive advantage
• some firms can achieve competitive advantage even if they
are second movers
Proposition of Dynamic Capabilities (DCs)
Two key aspects not previously addressed in strategy
I.
II.
'dynamic' refers to the capacity to renew competences to achieve congruence with the changing business
environment; certain innovative responses are required when time-to-market and timing are critical, the rate of
technological change is rapid, and the nature of future competition and markets is difficult to determine.
The term 'capabilities' emphasizes the key role of strategic management in appropriately adapting, integrating,
and reconfiguring internal and external organizational skills, resources, and functional competences to match
the requirements of a changing environment.
Dynamic Capabilities
A Dynamic Capability (DC) can be defined as
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“the firm’s ability to integrate, build and reconfigure inter. and exter. competences to address rapidly changing
environments.”
“the capacity of an organization to purposefully create, extend, or modify its resource base.”
Teece (2007): Sensing, Seizing, Transforming
Dynamic Capabilities: A Developing Stream of Research
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“while the concept of dynamic capabilities is appealing, it is a rather vague and elusive one which has thus far
proven largely resistant to observation and measurement”
concept is “still in its infancy”
the “remarkable growth [of attention to the DCs concept] has been associated with a proliferation of definitions
of the focal construct as well as the emergence of a complex and disconnected body of research”
Extending DCs to Supply Chains
1. Capability literature previously static and firm-level focused
2. Thereby neglecting today’s evolving supply chain environment
3. How to create competitive advantage for whole supply chain through mutual application of DCs?
DCs in SCM
Dynamic Supply Chain Capabilities
1. Knowledge Accessing
a. “A dynamic capability held by two or more parties that fosters an understanding of the current
knowledge resources possessed by each party”
b. Entails comprehension of skills and capabilities possessed by the others but does not include knowledge
acquisition for developing that specific capability
2. Co-evolving
a. “The set of routines businesses use to reconnect webs of collaborations within and across companies to
generate new and synergistic capabilities”
b. Each collaboration, or each link between organizations, must have a defined goal of improving
performance through the creation of a new capability
Call for Theory in Sustainable SCM
Several researchers have called for more theory-driven research in sustainable supply chain management;
Therefore, several frameworks have been posited
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Seuring and Müller (literature review); Pagell and Wu (case study research); Resource-based view freq. adopted
Most approaches so far are rather static and describe or analyze current situation
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Link into more dynamic comprehensions; Dynamic capabilities offer one suitable approach
Sustainable Supply Chain Management
“SSCM is the management of material, information and capital flows as well as cooperation among companies along
the supply chain while taking goals from all three dimensions of sustainable development, i.e., economic, etc.”
Influential Framework: DCs in SSCM
05 – Supply Management
The Role of Purchasing in an Organization
The primary goals of purchasing are:
1. Ensure uninterrupted flows of raw materials at the lowest total cost,
2. Improve quality of the finished goods produced, and
3. Optimize customer satisfaction.
Purchasing contributes to these objectives by:
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Actively seeking better materials and reliable suppliers,
Work closely with strategic suppliers to improve quality materials, and
Involving suppliers and purchasing personnel in new product design and development efforts.
1. Supply policy
 Overall frame and conditions for supply issues → highest decision level
o Based on the corporate philosophy and strategy
 Basic rules and conditions for purchasing good or services
o Restricting supply choices to countries and corporations
 Normative judgements – binding for following levels of interventions
2. Supply Strategy
 Directions for organizations on supply issues
o Providing operational performance improvement
 Support of an overall strategic mission integrated with other corporate strategies
3. Supply management
 Planning and control
o Managing and monitoring supply activities
 Development of suppliers to be able to meet the requirements
4. Supply operations
 Decisions – day-to-day business → lowest decision level
o Which goods and services?; Which suppliers?
 Support of an overall strategic mission integrated with other corporate strategies
 The four level framework structures “interventions” in a company and their effect on the supply function
Supply Management – Kraljic matrix
Critique to the Kraljic matrix (and matrices in general)






The selection of variables: ‘‘How could one know whether the most appropriate variables are being used?’’
The supplier’s side: ‘‘Why is the supplier’s side disregarded in most portfolio models?’’
The operationalization of dimensions: ‘‘What is exactly meant by profit impact and supply risk?’’
The measurement of variables: ‘‘How should the weighting of factors take place?’’
The lines of demarcation: ‘‘What is the exact difference between a ‘high’ and a ‘low’ supply risk?’’
The simplicity of recommendations: ‘‘How could one deduce strategies from an analysis that is based on just two
dimensions?’’
Buyer’s and supplier’s dependence
The interrelation of power and dependence:


The relative power of an organization over another is the result of the net dependence of the one on the
other. If A depends on B more than B depends on A, then B has power over A.
Power is ‘‘the dependence of one party compared to the dependence of the other party’’.
Power and interdependence
Supplier Development
“Supplier development is defined as any effort of a buying firm with its supplier to increase the performance and/or
capabilities of the supplier and meet the buying firm's supply needs. From the buying firm's perspective, effective
two-way communication, top management involvement, teams, and purchasing a relatively large percentage of the
supplier's output are critical to the supplier development effort.”
Importance of Supplier Development

Supplier development is important from at least three perspectives:
(a) A purchasing perspective:
-
Purchasing function's basic objectives is to develop effective and reliable sources of supply.
(b) A corporate perspective:
-
Supplier development efforts can help the firm meet is strategic objectives.
Purchasing has the primary responsibility of linking suppliers' capabilities with the internal requirements
specified by corporate and manufacturing strategies.
(c) National perspective:
-
Development of the performance and capabilities of domestic suppliers by buying firms could benefit not only
suppliers and their customer firms, but the domestic country.
Critical Elements of Supplier Development
1.
2.
3.
4.
5.
6.
7.
8.
Effective two-way, multi-functional communication
Top-Management Involvement
Cross-functional buying firm teams
Price versus the total cost of ownership
Long-term perspective
Large percentage of suppliers’ annual sales
Supplier evaluation
Supplier recognition
Direct and indirect supplier development
From the Bow Tie to the Diamond
The five SCM schools of Bechtel/Jayaram (1997)
Supply Chain Integration
Dimensions: 1. Organizational relationship linkages 2. Information integration 3. Co-ordination and resource-sharing
Arcs of integration
Theoretical grounding of SC integration
Arcs of supply chain integration
Theory Relevant
Resource based
view (RBV)
Transaction cost
economics (TCE)
Themes Sample
Firms can develop a unique capability and excel in
integrating with firms in the supply chain. Supply chain
integration as a strategic resource can lead to a
sustained competitive advantage and superior firm
performance.
Supply chain integration may help firms reduce the
burden of transaction cost and implement safeguard
mechanisms to mitigate the threat of opportunism.
Asset specificity and uncertainty are important factors
to consider when selecting the most appropriate
interorganizational governance form.
Empirical Studies
Chen et al. (2009b), and Mesquita et
al. (2008)
Lee, Kwon, and Severance (2007)
Research Framework by Leuschner et al. (2013)
Supply Chain Integration



Information Integration
When management in two firms first engages in SCI, they share data and information:
 Information Integration refers to the coordination of information transfer, collaborative
communication and supporting technology among firms in the supply chain.
Operational Integration (impact on firm performance not supported)
When management integrates activities in addition to the sharing of information:
 Operational integration refers to the collaborative joint activity development, work processes
and coordinated decision making among firms in the supply chain.
Relational Integration
 Relational integration refers to the adoption of a strategic connection between firms in the
supply chain characterized by trust, commitment and long-term orientation.
Firm Performance



Business Performance
o Financial firm performance is measured using either revenue minus cost-based measures, such as
profitability and return on assets, or purely revenue-based measures, like sales and market share.
o Customer-oriented performance consists of measures related to an improvement in customer
satisfaction and customer loyalty, or closely related constructs.
Relational performance consists of measures related to among others long-term orientation.
Operational performance consists of improvements in key competitive capabilities including cost, quality,
delivery, flexibility and innovation.
Scope of Supply Chain Integration can be integration with:

Customer integration is the mirror image of supplier integration and it depends on proactively determining the
requirements of the customer and ensuring to meet those requirements.



Supplier integration moves beyond just buying and selling activities and involves close relationships that involve
suppliers in activities like product development and manufacturing support.
External integration is integration with customers and suppliers simultaneously.
Internal Integration refers to the integration between functions or departments within a single firm.
06 – Supply Chain Risk
Risk related terminology
The SC Risk Management Process
Social Capital Theory
Definition: „The sum of the actual and potential resources embedded within, available through, and derived from
the network of relationships possessed by an individual or social unit.”
→ can be used to explore how networking relationships bring value to actors such as individuals or organizations by
enabling them to access resources embedded in those relationships and by facilitating actions
→ actions such as the identification or communication of risks
The three dimensions of social capital, all of which are beneficial to risk management
Dimension
Definition
Structural capital
“properties of the social
system and of the network
of relations as a whole”
Meaning or examples
who you reach and how
you reach them
The two levels of Social Capital Theory
Cognitive capital
“those resources
providing shared
representations,
interpretations, and
systems of meaning
among parties”
shared visions and
collective goals among
partners
Relational capital
“the kind of personal
relationships people have
developed with each
other through a history of
interactions”
characteristics and
qualities of individual
relationships, and the
identity that a individual
has within a network”
Enablers and barriers of social capital at the organizational level
Enablers
Structural capital Adoption of IT
systems and
software; corporate
communication;
local sourcing;
regular meetings
and forums; Supplier
directory; supplier’s
contacts
Cognitive capital Shared codes and
language; shared
culture;
standardization;
training
Relational
Relationship
capital
history/length; firmlevel loyalty; firmlevel reciprocity
Barriers
Lack of timely
communication; lack
of top management
support; lack of
participation; long
distance; lack of
visibility; supplier’s
competitors; conflicts
among departments
Lack of standards;
miscommunication
Enablers and barriers of social
capital at the individual level
Enablers
Barriers
Interpersonal
Different
communication; points of
personal
contact;
contacts
collusion;
limited
capacity to
process
information
Lack of
absorptive
capacity;
collective
blindness
Supplier staff
Personal
Change in
turnover; lack of firm- contacts;
personnel;
level trust; exposure
Commitment;
motivation
to supplier
Goodwill
to switch
opportunism; reduced
supplier;
monitoring
lack of
purchasing
skills or
experience
Exercise: Please indentify one characteristic of each of the three institutional arrangements prescribed by TCE that
either drives or hinders the building of social capital.
Driving characteristic
Personal
contacts; Tacit
understanding
or agreement
Hindering characteristic
Market
Hybrid
Hierarchy
Findings:
A) Too much cognitive capital can lead to collective blindness in an organization or SC.
B) Moreover, too much social capital can lead to a lack of motivation to change a supplier.
- Please compare for the hybrid and the hierarchy institutional arrangements: Which one is more likely to adopt collective blindness and - lacking motivation to change a supplier
Sources of SC Risks
Summary of SCRs and risk identification strategies by Fan & Stevenson (2018)
Supply-side risk
- ISC1 Failure to supply required quantity
- ISC2 Interrupted supply or supply shortage
- ISC12 Contract breach
- ISC13 Moral hazard
- ISC22 Reputation risk
Risks internal to the organisation (ORG)
- ORG2 Corruption
- ORG3 Delayed payments to suppliers
- ORG4 Exploiting suppliers
- ORG5 Internal coordination problems
- ORG7 Lack of purchasing skills
- ORG8 Unbalanced power between departments
- ORG11 Lack of risk awareness
Four basic approaches for managing SC risks
Demand-side risks
- ISC23 Changes in customer requirements
- ISC24 Market price fluctuation
- ISC25 Seasonal demand
- ISC26 Single customer (strong power)
Risk identification strategies
- RIS1 Observed supplier’s abnormal behavior
- RIS12 Customer complaints
- RIS14 Feedback from downstream SC
- RIS16 Third-party inspection
- RIS3 Buyer performs cause-effect analysis
- RIS4 Scenario analysis
- RIS6 SWOT analysis
Risk management plans
Supply Chain Resilience Definitions:
- “The ability of the system to return to its original state or move to a new more desirable state after being disturbed.”
- “The adaptive capability of a supply chain to reduce the probability of facing sudden disturbances, resist the spread
of disturbances by maintaining control over structures and functions, and recover and respond by immediate and
effective reactive plans to transcend the disturbance and restore the supply chain to a robust state of operations.”
The CIMO framework
Context
SC Disruption
-
External sources: natural disasters and man-made disasters
Internal sources: UNCERTAIN demand, supply yields, lead times, supply capacity and supply cost
SC Risk
-
Internal to the firm: process and control risk
-
External to the firm and internal to the SC network: demand and supply risks
External to the SC: environmental risks
Interventions try to balance SC Vulnerability and SC Capabilities
SC Vulnerability
-
External: turbulence, regulatory, legal and bureaucratic, financial
Internal: resource limits, sensitivity, supplier, customer, infrastructure, deliberate threats
Structural: supply chain structure, design characteristics, complexity
SC Capabilities
-
Readiness
Responsiveness: agility - flexibility, visibility and velocity; redundancy
Recovery
Outcomes
-
Improved Performance when a SC balances capabilities and vulnerabilities
Excessive Risk when a SC has high vulnerabilities and low capabilities
Eroded Profitability when a SC has low vulnerabilities and high capabilities
Sustained Competitive Advantage
07 – Bullwhip
Summarizing PAT in SCM
Types of information asymmetries in PAT
Comparative summary of the New Institutional
Economics approaches
The problem of information distortion and the Bullwhip Effect
-
As information moves up and down a supply chain, it can be distorted
This distortion is the cause of the Bullwhip effect
Four Causes of the Bullwhip Effect
- Four major causes of the bullwhip effect can be identified:
a) Demand forecast updating
- Every company in a supply chain does product forecasting for its production scheduling, capacity
planning, inventory control, and material requirements planning.
- When a downstream operation places an order, the upstream manager processes that piece of
information as a signal about future product demand. The upstream manager readjusts his demand
forecasts and, in turn, the orders of the upstream operation.
b) Order batching
- In a supply chain, each company places orders with an upstream organization using some inventory
monitoring or control. It often batches or accumulates demands before issuing an order.
- Instead of ordering frequently, companies may order weekly, or even monthly, thus orders are more
likely to overlap.
- As a result, the variability from the bullwhip effect is very high.
c) Price fluctuation
- Manufacturers and distributors periodically have special promotions like price discounts, quantity
discounts, coupons, rebates, and so on. These promotions result in price fluctuation.
- As a result, the customer’s buying pattern does not reflect its consumption pattern, and the
variation of the buying quantities is much bigger than the variation of the consumption rate.
d) Rationing and shortage gaming
- When product demand exceeds supply, a manufacturer often rations its product to customers
- Customers place duplicate orders with multiple suppliers and buy from the first one that can deliver,
then cancel all other duplicate orders.
- Each of the four forces in concert with the chain’s infrastructure and the order managers’ decision making create
the bullwhip effect.
Counteracting the Bullwhip Effect
Four major causes of the bullwhip effect can be
identified:
1. Demand forecast updating
2. Order batching
3. Price fluctuation
4. Rationing and shortage gaming
Four major actions can be identified to counteract the
bullwhip effect:
1. Avoid multiple demand forecast
2. Break order batches
3. Stabilize prices
4. Eliminate gaming in shortage situations
Counteracting the Bullwhip Effect
Avoid Multiple Demand Forecast:
-
One remedy is to make demand data at a downstream site available to the upstream site. Hence, both sites can
update their forecasts with the same raw data.
Supply chain partners can use electronic data interchange to share data.
Another approach is to sell directly to consumer without going through the reseller and distribution channel.
Break Order Batches:
-
Companies need to devise strategies that lead to smaller batches or more frequent re-supply.
Standardized terms across all units can simplify the process of ordering
A truckload may contain different products from the same manufacturer, which leads to higher order frequency.
The use of third-party companies also helps make small batch replenishments economical
Stabilize Prices:
-
The simplest way to control the bullwhip effect caused by forward buying and diversions is to reduce both the
frequency and the level of wholesale price discounting. The manufacturer can reduce the incentives for retail
forward buying by establishing a wholesale pricing policy.
Eliminate Gaming in Shortage Situations:
-
When a supplier faces a shortage, instead of allocating products based on orders, it can allocate in proportion to
past sales records. Customers then have no incentive to exaggerate their orders.
The sharing of capacity and inventory information helps to alleviate customers’ anxiety and lessen their need to
engage in gaming.
Some companies are beginning to enforce more stringent cancellation policies.
Reflecting the Bullwhip Effect
Four major causes
1. Demand forecast updating
2. Order batching
3. Price fluctuation
4. Rationing and shortage gaming
→ Which parts of TCT and PAT do you see in the causes
of the Bullwhip Effect?
→ Mentzer et al (2001) define three levels of analysis
for a SC. Which one(s) make most sense here and why?
Four counteractions
1. Avoid multiple demand forecast
2. Break order batches
3. Stabilize prices
4. Eliminate gaming in shortage situations
→ Which counteractions of TCT and PAT do you see for
the Bullwhip Effect? → Which of the four
postponement strategies are suitable to mitigate at
least some causes of the Bullwhip Effect and why?
The Role of IT in the Supply Chain
-
-
Information Characteristics in Supply Chain Decisions:
1. Information must be accurate
2. Information must be accessible in a timely manner
3. Information must be of the right kind
Information is used for planning and running of:
1. Inventory 2. Transportation 3. Facility
The Supply Chain Macro Process
MRP: Material Requirments Planning
MRP II: Manufactering Ressource Planning
ERP: Enterprise Res. Planning
The Macro Processes and their Processes
Information Functionalities of IT systems in SCM
SC IT systems characteristics and justification
08 - SC Performance (kommt das dran?)
Notes on performance measurement
A historical one: A major cause of companies getting into trouble with manufacturing is the tendency for many
managers to accept simplistic notions in evaluating the performance of their manufacturing facilities. The general
tendency in many companies is to evaluate manufacturing primarily based on cost and efficiency. There are many
more criteria to judge performance.
A recent one: There is no evidence that meaningful measures that span the supply chain exist.
Definitions on Performance Measurement



can be defined as the process of quantifying the efficiency and effectiveness of action.
can be defined as a metric used to quantify the efficiency and effectiveness of an action.
can be defined as a set of metrics used to quantify both the efficiency and effectiveness of actions.
The four necessary characteristics of a Performance Measurement System
1.
2.
3.
4.
Inclusiveness: measurement of all pertinent aspects
Universality: allows for comparison under various operating conditions
Measurability: the data required are measurable
Consistency: the chosen measures are consistent with organizational goals
Performance Measurement Process
Performance Measurement Systems
The Framework of the Balanced Scorecard I
Explaining the single elements of
objective setting
 Objectives: Setting a goal for
what has to be achieved
 Measures: Measuring the goal
 Targets: Setting a specific target
and when to achieve it
 Initiatives: Specific action to be
taken to reach the target
The Balanced Scorecard as a Strategic Framework for
Action
SCBSC Features
Supply Chain Performance Measurement Systems
What is a SCPMS?
Slides 09 - Digital Technologies in the Supply Chain
Conceptual Classification of Big Data challenges
Big Data opportunities for supply chain management
1. Enhanced information management
- Big Data enables enhanced discovery, access, availability, exploitation, and provisioning of information within
companies and the supply chain. It can enable the discovery of data sets that arent yet being used to drive value.
2. Increased operations efficiency and maintenance
- Better modelling enabled by Big Data analytics allows for more accurate decisions, continuous productivity
improvements through automation, leaner operations, and optimized servicing through predictive analytics.
3. Increased supply chain visibility and transparence
- Big Data can increase supply chain visibility and transparency through real-time control, and multi-tier visibility
irrespective of data location. According to the experts in the study, the impact of enhanced corporate
information availability on the visibility and transparency of the supply chain represents the second most
relevant opportunity on the corporate level.
4. Greater responsiveness
- With Big Data, companies are able to react quicker to changing market conditions, made possible through
visibility and a deeper understanding of their information-enriched ecosystem. This can increase real-time
responsiveness to customer needs and changing market conditions, reduce time-to-market, and increase the
robustness of supply chains.
5. Enhanced product and market strategy
6.
7.
8.
9.
10.
11.
12.
- Big Data analytics can enhance customer segmentation, allowing for better scalability and mass
personalization. It can improve customer service levels, enhance customer acquisition and sales strategies, as
well as enabling customization of delivery.
Improved demand management and production planning
- Big analytics can provide insights for product launch and release planning, and increased granularity of planning
levels allows for optimized, shorter planning cycles.
Innovation and product design benefits
- A wide variety of data streams can aid innovation and product design. These include utilizable product usage
data, point-of-sales data, field data from devices, customer data, and supplier suggestions to drive product
and process innovation.
Positive financial implications
- Big Data can reduce long-term costs, increase ability to invest, and improve understanding of cost drivers
and impacts.
More integration and collaboration
- Big Data can enable better integration and collaboration within supply chains. Adopting cross-functional
integration and collaboration approaches with key partners can build a culture of trust, leading to higher levels
of information sharing, and helping to optimize across the whole supply chain ecosystem.
Enhanced logistics
- Product traceability enabled by data leads to lead-time reduction, for example by in-transit processing of goods.
It can enable real-time rescheduling, route planning, re-routing and road-side service planning.
More efficient inventory management
- Vital information becomes more transparent and available at a much higher frequency as parties cooperate and
share Big Data insights across the supply chain. This allows shortening of planning cycles and the operation of
planning with higher levels of granularity, leading to more efficient inventory management practices, ultimately
resulting in optimized inventory stocks.
Improved risk management
- Big Data can enhance risk evaluation, aiding continuity management at industry and supply chain level to reduce
the impact of disruptions.
Traceability system


Traceability research involves two types of traceability:
o tracking, meaning the ability to find the locality of a product as it moves downstream through the supply
chain, and
o tracing, meaning the ability to find the origin of a product upstream in the supply chain
Four elements
o Physical lot integrity, which determines the traceability solutions
o Collection of tracing and process data
o Product identification and process linkage
o Report / systems data retrieval.
Blockchains
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


Distributed Database
Peer-to-peer-transmission
Transparency with Pseudonymity
Irreversibility of Records
Computational Logic
Blockchain applications in Green SCM


Purchasing, Materials Management, Inbound Logistics
o Trace Sustainability values in the history of materials and products
o Facilitate crowdsourcing and crowd logistics
Production and internal operations




o Track information’s related to eco-design of products and shop-floor processes
o Store life-cycle analysis information
Outbound logistics
o Verify sustainability performance of transportation
o Track transportation information and ride sharing
Energy
o Support emission trading mechanism
o Track green-house gas emissions and carbon credits
Vendor selection and Supplier Development
o Track supplier’s sustainability performance
o Remove intermediaries
o Supplier development using smart contracts
Reverse logistics
o Trace location of materials and authenticate actors for recycling purposes
o Facilitate circular economy activities and financial transactions
Some directions – Information Management in SSCM





Information management as an under researched issues in supply chain management (Kache, 2015)
Managing information in supplier integration, supplier relationship management and (product)
decommunization evident
Links into recent information technology and management development
Promising topics for future research
Intersection with Sustainable SCM hardly explored!
Blockchain applications in SC, transport and logistics



There is an inclination to adopt blockchain technology, especially in the context of supply chains
We are still in the early stages of unlocking the true potential of blockchain technology in global supply chains, and
logistics and transport operations
Blockchains and other advanced technologies are predicted to rapidly transform supply chains, transport and
logistics
Key features of blockchains





Blockchains are ledgers that record transactions in a trustless environment and are protected by cryptography
To create a valid digital signature for each user on the blockchain, each user is given a public key and a private key
Blockchains are immutable, transparent, secure, decentralized, irreversible and based on consensus
Blockchains offer unique opportunities such as the use of smart contracts and tokenization of assets
Smart contracts are protocols on blockchain that are executed automatically by machine if the terms of the
contract are met
Blockchain: Implementation, values and impact



Implementation
o Blockchains guarantee a single version of truth in a trustless environment across various entities or agents
o Envisaged to be implemented in machine-to-machine coordination through IoT or to create decentralized
electronic marketplaces
Advantages of implementation in organizations and SCs
o Increased speed of data and financial transactions. Improved security of shared data
o Digitized assets, Reduced number of intermediaries
Decision rules for consideration before implementation:
o Considering incremental changes rather than radical disruptions to operations
o Avoid use cases with large amounts of data and transactions as this will slow down the blockchain and
reduce its efficiency

o Build a sandbox for pilot implementing and understanding the risks of blockchain projects
Values and impact:
o Blockchains impede data and transaction frauds since all transactions on a block are continuously
validated
o The use of smart contracts with no centralized entity to control operations, increases the transparency of
transactions and therefore trust among agents
o Blockchains can help protect both digital and information assets from being copied, stolen or infringed
o The increased transparency and traceability enabled by implementing blockchains can help resolve
disputes
The 4 Ts of blockchain
The 4Ts of blockchain are interconnected concepts rooted blockchains. They are inherently designed for non-trusting
members doing business with each other
Technology


Relevance to SCM
o One of the most important aspects of blockchain application is their interface with the physical world,
which requires the right tools and technology such as IoT
o IOT describes interconnected sensing devices that can share information on a common platform
Relevance to logistics and transport management
o Tracking tools and blockchains can be coupled with smart contracts that can facilitate payments to
suppliers or 3PLs once they fulfil their tasks
o Better control of physical environment characteristics provided by the fleet, hence the term “cold chain”
Trust


Relevance to SCM
o Trust and trustworthiness in supply chains affect information sharing and forecasting accuracy
o Cybersecurity of supply chain members can decrease the level of trust in supply chains
Relevance to logistics and transport management
o An ideal application of blockchain technology is in complex extended transportation networks where there
are multiple modes of transportation (e.g. road, rail, air) and multiple transport intermediaries
o Such a transportation network includes multiple players that do not necessarily trust or even know each
other
Trade


Relevance to SCM
o Most P2P energy trading models are based on the notion of smart contracts
o Blockchain technology can facilitate the transfer of funds within a network
o This can be applied to supply chain networks for various payment purposes
Relevance to logistics and transport management
o Applying a trustless and immutable distributed ledger technology for streamlining logistics and transport
operations has already been considered by the Chinese Government
o In international projects there will need to be a fast and efficient way of transferring funds across borders
Traceability/Transparency
Traceability aims to answer the ‘what/when/where’ questions of inventory transfer in supply chains. Transparency
attempts to shed light on the ‘how’ aspect

Relevance to SCM
o Transparency is at the core of developing sustainable supply chains
o Early use of RFID tags and online verification codes in supply chains has been argued to help with
transparency

Relevance to logistics and transport management
o Faster processing of insurance claims in cases where cargo has been lost or damaged
Exam 2017
Question 1: Purchasing Portfolio (18 points)
a) Please explain the Kraljic (1983) Purchasing Portfolio. Please describe the dimensions as well as the 4
resulting boxes. (6 points)
high
Profit Impact
Leverage item:
exploitation of
purchase power
Noncritical item:
efficient
processing e.g.,
screw, pen, etc.
low







Strategic item:
diversity,
balance, or
exploit
Bottle neck item:
volume assurance
search for
alternatives
supply risk
high
The aim: maximize profit while reducing risk.
Supply risk: number of supplier alternative or substitute
Profit/ cost impact: the importance of the items/ services related to the profit/ cot of the business
Noncritical item: low impact and low risk. A lot of supplier and alternative supplier. Can also be
outsourced to spend as little time as possible
Leverage: high impact and low risk. Example: Marketing packaging supplier. A lot of supplier
alternative or substitution. Buyer usually has high power
Bottleneck: low impact and high risk. Example: pigment, low value inventory. Substitution is limited,
power as buyer is low. Contract agreement is recommended
Strategic item: high impact, high risk: relationship and collaboration with supplier are very important.
Independency is very high. Agreement usually profitable for both parties. Contract is needed to have
strategic alignment and control.
b) What are three key points criticized about this portfolio? Please explain each point briefly. (6 points)






1. The selection of variables: how could one know whether the most appropriate variables are being
used?
2. The supplier side: why is the supplier side disregarded in most portfolio model?
3. Operationalization of dimension: what is meant by profit impact and supply risk?
4. Measurements of variable: how should the weighting factors take place?
5. The line of demarcation: what is the exact difference between high and low?
6. The simplicity of recommendation: how could one reduce strategies from an analysis that is based in
two dimensions?
c) Which advancements of the portfolio have been introduced? Please explain two aspects, how the original
portfolio by Kraljic can be amended to overcome some of the criticism! (6 points)







The main objective of which is to identify the strategic significance of the different item
categories, both internally and externally, in order to adapt purchasing strategies
An organization can professionalize and improve its purchasing performance which may
produce considerable cost savings
To avoid unnecessary risks, it is important to spread the goods across the four
quadrants
The purchasing strategy can be prepared for each part of the Kraljic portfolio
purchasing model
It can be concluded whether a product is in the right quadrant or whether it would be
better to move it to another quadrant
In that case, discussions must be had with the supplier and new supply terms and
conditions should be drawn up
1. The classification of the purchasing portfolio

Here, the author suggests producing a matrix according to two new criteria that are
broadly similar to the previous ones:
 The "profit impact", which is the volume of purchase, the percentage of total
purchase cost, the impact on product quality or the growth of the company.
 The "supply risk", which concerns the availability of products, the number of
suppliers or the competitiveness of the demand.
 Based on this analysis, these purchases can be classified into one of the four main
purchasing categories mentioned above: noncritical, bottlenecks, leveraged or
strategic purchases.

2. Market analysis


3. Positioning of strategic products



Following this classification, the company, and more particularly the purchasing
department, must consider these elements in the light of the current market situation.
To do this, the company must assess its purchasing power, in other words, the balance
of power between it and the supplier market, based on some twenty criteria. These
criteria are, for example, the size of the market in relation to the supplier's capacity,
the market shares held by the company compared to its competitors, etc.
It is then time to position the strategic purchases (as identified in the first step) within
the final matrix, according to the market analysis carried out beforehand.
4. Action plan
From this final Kraljic matrix, three main strategic directions emerge:Exploit;

Balance;

Diversify.
These pillars will serve to secure long-term purchases while taking advantage of short-term
opportunities.
In conclusion, the matrix Kraljic is an effective analytical tool, which makes it possible to
identify areas for improvement in one's procurement strategy, but also, and above all, to better
manage resources according to priorities.

Question 2: Performance objectives (13 points)
a) Please explain briefly the product-process-matrix (Hayes and Wheelwright, 1979) (5 points)
A product-process-matrix (ppm) is a tool for analyzing the relationship between the product life cycle and
technology life cycle and to estimate the process of a product and its related processes.
Manufacture operation process
type
Increase variety
Service operation process
type
Increase volume
e.g., building house utilization of fixed Professional service
capital is too high
e.g., wood working
e.g., shampoo/ beer
Service shop
e.g., cars
e.g., water/ energy supply
Mass service
utilization of fixed
capital is too low
Agile
Lean
1. project
2. jobbing
3. batch
4. mass
5. continuous
d) Please explain the term mass customization (2 points)
Mass customization is a strategy that creates value by some form of company customer integration at the
fabrication/ assembly stage of the operation level to create customized products with production cost and
monetary price like those of mass-produced products (Kaplan, 2006).
e) Mass customization can be a source of competitive advantage. Please name and outline the VRIO
criteria used in the Resource Based View (RBV) first and then explain how mass-customization can be
characterized in these four criteria as a source of competitive advantage compared to a traditional supply
chain. (10 points)
Criteria
Explanation oft the criteria
Characterization of mass customization in the
criteria
Value
Does one offer a resource that adds
value for customers? Is one able to
exploit an opportunity or neutralize
competition with an internal
capability?
No: One is at a competitive disadvantage and
need to reassess one’s resources and capabilities
to uncover value.
Does one control scarce resources or
capabilities? Does one own
something that’s hard to find yet in
demand?
No: One has value but lack rarity, putting one’s
company in a position of competitive
parity. One‘s resources are valuable but common,
which makes competing in the marketplace more
challenging (but not impossible). It’s
recommended to go back one step and reassess.
Rarity
Yes: If value is established, move on in your VRIO
analysis to rarity.
Yes: With value and rarity identified, one’s next
hurdle is imitability.
Imitabillity
Is it expensive to duplicate one’s
organization’s resource or capability?
Is it difficult to find an equivalent
substitute to compete with your
offerings?
No: If one’s resource has value and rarity, but is
affordable or easy to copy, one has a temporary
competitive advantage. It will require
considerable effort to stay ahead of competitors
and differentiate your services—go back one step
and reassess.
Yes: One‘s offer something that’s valuable, rare,
and hard to imitate—now the focus is on one’s
organization.
Organization
Does one company have organized
management systems, processes,
structures, and culture to capitalize
on resources and capabilities?
No: Without the internal organization and
support, it will be difficult to fully realize the
potential of one’s valuable, rare, and costly-toimitate resources. One’s company will have
an unused competitive advantage and will need
to reassess how to attain the needed
organization.
Yes: One‘s company has achieved the ultimate
goal of sustained competitive advantage when
it has successfully identified all four components
of the VRIO framework.
f) How is the concept of mass customization related to the product-process-matrix? Please make sure that
both aspects of this relationship among mass customization and the product-process-matrix are
explained! Please use an example for illustrating your argument. (6 points)
� Mass customization separates business process before and after the decoupling point
Question 3: Decoupling point and focusing supply chains (18 points)
a) Please explain the concept of the decoupling point. (4 Points)
The decoupling point is coupling of production and marketing/ demand – influence variables. It is a standard
term given to the position in the material pipeline where the product flow changes from “push” (market to
stock) into “pull” (make to order).
b) Your company applies a make-to-order strategy. Please explain the location of the decoupling point in
such a strategy. Then relate your explanation to the four product related factors that Olhager (2003) used
to structure the decision for the decoupling or order-penetration-point. (8 points)








The decoupling point in such a strategy is right after the supplier (make to order) at the manufacturer
(customized product) with the distributor and then the customer following.
Product related factors include modular product design, customization opportunities, material profile,
and product structure.
Reasons to push order-penetration-point backward:
1. Increase degree of customization
2. Reduce reliance on forecast
3. Reduce and eliminate work in progress
4. Reduce risk of inventory
Advantages: increase product range, product mix flexibility and quality
c) Would such product related factors rather go hand in hand with production or logistics postponement?
Please make at least 2 related arguments (6 points)


It would rather go hand in hand with the production postponement, because we follow the postponement
strategy on the production side, which means that the products stay unspecified in the SC as long as
possible
Then the decoupling point is located:
 On the logistic side we follow the speculation strategy which means we have a decentralized
stock keeping
 After that the product becomes more customized
Question 4: Supply chain risk management (17 points)
A manufacturing company is exposed to three different supply chain risks:



Minor injury of a blue-collar worker at the assembly line of the company. (a)
A severe bottleneck in the supply with out-of-stock of a key component due to a long- lasting
unforeseen capacity breakdown at a single supplier. (b)
Delayed product delivery to customers in urban areas due to traffic congestion. (c)
1. a) Assign each risk to the respective box in the risk management matrix illustrated below. (3 points)
b) Describe briefly counter measures to mitigate the three risks (one per risk). For each measure, do also
describe its effect, i.e. if it eases the financial impact of the risk or if it reduces the occurrence probability of
the risk (or both). (6 points)
Risk
Description
Counter measure
Effect
A
B
C
Question 5: Supply Chain Relationships and Integration (12 points)
a) Why should the relationships in supply chains change from bow tie to diamond? (4 points)
To increase integration between processes involved in supply chain from only two department (Sales and
Purchasing) talking to each other, into whole process involved (Production, Marketing, Logistic, Finance),
hence the diamond form.
By flipping the triangles from bow tie (points facing in) to a diamond (points facing out) – the
person in charge of the overall business relationships from each side can get different people
throughout the organization to mingle and strengthen the overall business commitment from
both sides. Ideally, the Relationship Manager (or similar) takes point to encourage this –
using client calls, email, com calls to ensure people from other areas of their own business
have skin in the game. From the c-suite down we work with our opposite numbers to talk,
network, help, enable, add value, and develop relationships.
b) How does this idea affect the arcs of integration put forward by Frohlich and Westbrook (2001) and
elaborated further by Childerhouse and Towill (2011)? Please explain the arcs of integration first and
then relate the two concepts to each other! (8 points)
Question 6: Sustainable SCM (10 points)
a) The framework of sustainable supply chain management by Beske and Seuring (2014) contains elements
of supply chain risk management. Please explain them. (6 points)
 Individual monitoring made easier through standards, while changing business environments impact
on this positive aspect.
 Standards and certification (codes of conduct) as a source of competitive advantage.
 Social certification standards are underrepresented, while environmental management systems are
well implemented.
 Pressure groups: NGOs address corporate vulnerability on environmental and social issues and put
pressure on companies
 Can be valuable partner integrated into the chain, e.g., to provide their knowledge of possible risks
and add legitimacy
b) How is this approach conceptually different from the one by Tang (2006)? Please explain! (4 points)
Question 7: Resource based view and Sustainable SCM (12 points)
a) The resource-based view explains how differentiation is achieved. The three core factors are product
attributes, customer linkages and supplier linkages. Please explain these three terms briefly. (6 points)
 Product attributes generate economic value by adding value to product attributes:
 Product features
 Product complexity (e.g., multifunction)
 Timing of introduction (e.g., being first) and
 Location (e.g., located next to the highway exit)
 Customer linkage generates economic value by adding value through increase of customer
relationship:
 Customization (e.g., create unique products)
 Customer Marketing (e.g., creating brand loyalty)
 Reputation (e.g., CSR to increase brand image)
 Supplier linkage generates economic value by adding value through increasing in supplier relation:
 Relation with supplier
 Distribution channel
 Service and support
 Product mix
b) The resource-based-view argues that competitiveness can be derived from supplier linkages. Take this as
a starting point and argue how focal companies would act in implementing (supplier) risk related
measures in sustainable supply chain management. Please formulate at least two respective arguments.
(6 points)
 To implement (supplier) risk related measures in sustainable SCM it is recommended to:
 1. Increase communication regarding RBV on supplier linkages, collaboration can be used to gain
access to critical information and knowledge. Therefore, reducing social and economic risk, also
could lead to supplier development (lean and green).
 2. Communication of criteria supplier related to RBV, through communication and a good supplier
relation, supplier could provide knowledge that can be used by focal firm to build dynamic
capabilities. Therefore, generate a trade-off and set standard of minimum criteria requirement.
Exam 2019
Question 3: Transaction Cost Theory in SCM and the bullwhip effect (27 points)
a) Please name and outline the three important variables to determine the most suitable institutional
arrangement as well as the three institutional arrangements in Transaction Cost Theory (9 points)
Supply chain integration may help firms reduce the burden of transaction cost and implement
safeguard mechanisms to mitigate the threat of opportunism. Asset specificity and uncertainty are
important factors to consider when selecting the most appropriate interorganizational governance
form.
b) A supply manager claims: “We source material X, which is quite important for us, from one big supplier
only in order to have the most efficient logistics. Moreover, we do not have a fixed contract, but buy
whenever prices are low. So in the end, we have lowest costs.”
Does this buyer-supplier relationship conform to the implications given by Williamson (2008) in his
frameworks for Transaction Cost Theory in SCM? Please outline which institutional arrangement is
currently chosen and use one of the three variables in Transaction Cost Theory to explain which institutional
arrangement(s) might be more beneficial. (6 points)
c) How does the buyer-supplier relationship explained in part b) of this question relate to the bullwhip
effect? Please name and outline two causes of the bullwhip effect that can be related to the described
relationship. Moreover, please outline how a change of the institutional arrangement as prescribed by
Transaction Cost Theory could reduce two of the causes of the bullwhip effect. (8 points)
d) Information Technology (IT) has been found useful to reduce the bullwhip effect in supply chains. Please
outline two applications of IT in supply chain management and how these could reduce the bullwhip effect.
(4 points)
Question 4: Supply chain risk management (20 points)
a) Please outline the supply chain risk concept by Tang (2006). Please explain each of the 4 risk
components briefly and give an example each! (8 points)
 Product management:
strategic = product variety
tactical = postponement and process sequencing
o New Technologies used in the product; for example a new DB server, a new programming
language, a new integration, etc.
 Supply management:
strategic = supply network design
tactical = supplier selection, supplier order allocation, supply contract
o Global trade wars and Brexit.
 Demand management: strategic = product rollover and product pricing
tactical = shift demand across time, markets, and products
o A business may produce too much or too little product to meet demand, resulting in
lost profits and wasted sales opportunities

Information management: strategic = supply chain visibility
tactical = information sharing, vendor managed inventory, collaborative
planning, forecasting and replenishment
o Organisations must regularly check for vulnerabilities that could be exploited by criminal
hackers to avoid unauthorized access to the network
b) The visible horizon of a focal firm can hinder supply chain risk management. Please outline the meaning
of the visible horizon and briefly name and explain on which three factors the visible horizon is
dependent on (6 points).
 Visible horizon: what focal firm may see in the supply chain. This is bound to what they can manage.
 3 Factors of visible horizon: physical distance, cultural distance, and closeness centrality
c) Turning again to the visible horizon of a focal firm as a barrier to supply chain risk management. Please
explain for two of the four supply chain risks management approaches by Tang (2006) how they are
affected by the visible horizon. (6 points)
Question 6: Terminology and aims of Supply Chain Management (16 points)
a) Please outline three main characteristics of supply chain management according to Mentzer et al. (2001).
(3 points)
1. A system approach: view SCM, to manage total flow of goods inventory from supplier to ultimate
customer.
2. A strategic orientation: cooperative effort to synchronize converge intra-firm and inter-firm
operational and strategic capabilities into a unified whole.
3. A customer focus: to create unique and individualized source of customer value, leading to customer
satisfaction.
b) Please name and outline the two levels of Social Capital that can be investigated. Moreover, please name
and explain the three sub-dimensions of social capital (7 points)



Internal social capital – resides in the relationship among the members of the group or
organization
External social capital – exist in the shape of relationship with the external actors that may be
individuals or other social groups.
3 dimensions:
 Structural: network ties, network configurations, appropriable organization
 Relation: respect, trust, norms, obligation, identification with groups

Cognitive: shared codes and language, shared narratives
c) Please explain how three main characteristics of SCM according to Mentzer et al. (2001) are supported by
Social Capital. (6 points)
Question 7: Sustainable SCM (16 points)
c) Pagell and Wu (2009) argue that “New Behaviors” can be a source of performance. Please name and
outline the two behaviors they propose (6 points)
 1. Re-conceptualizing: Who is who in the Supply Chain with NGO, competitors, and trade groups
 2. Focus on supply base continuity with transparency, traceability, supplier certification and
decommodization
d) Information asymmetries and bounded rationality are two core causes of inefficiency in a supply chain.
Please outline the two concepts. (3 points)
1. Based on information asymmetries the principal aims for bargains, while the agent aims at
avoiding disadvantages and reduce time, effort and cost for fulfilling the contract. Most commonly,
information asymmetries are studied in the context of principal-agent problems. In some cases,
the principal might never get to know the information asymmetry.
2. Bounded rationality is a human decision-making process in which we attempt to satisfice,
rather than optimize. In other words, we seek a decision that will be good enough, rather than the
best possible decision.TCT views bounded rationality as a problem under conditions of
uncertainty.
f) Please outline how the two new behaviors proposed by Pagell and Wu (2009) can reduce information
asymmetry and bounded rationality in a sustainable supply chain. (7 points)