SCM 2230 A02: Introduction to Supply Chain Management Robert V. Parsons, PhD, MBA Sessional Instructor Email contacts: robert.parsons@umanitoba.ca robertvparsons@gmail.com Sept 11 - 13, 2023 - Week 2 Lectures Slide Set 1: Subject Introduction Wisner et al 2022 Chapter 1 Review Wisner et al. 2022 - Chapter 1 • Chapter provides a brief overview – – – – – – Describing what is SCM and de nitions Outlining objectives and elements of SCM Describing basic SCM activities Outlining past history and current trends Will talk too about “bull-whip” e ect [Materials and images from Cengage (textbook rm) employed in lecture notes] • First describing top SCM rms in 2016: ff fi fi fi – Outlined by Gartner ... something wrong? Top SCM Firms for 2016 • Wisner et al. report these as – – – – – Apple (consumer electronics) Proctor & Gamble (personal care) Unilever (primarily soaps) McDonald’s (convenient fast-foods) Amazon (order/delivery logistics plus) • But on-line 2016 Apple and P&G missing – News release: Gartner announces rankings of the 2016 supply chain top 25 https://www.gartner.com/en/newsroom/press-releases/2016-05-19gartner-announces-rankings-of-the-2016-supply-chain-top-25 Top SCM Firms for 2016 • Wisner et al. neglect to note that Gartner actually has two categories! • They rst has a “Master Category” recognizing sustained SCM leadership – This covered Apple and Proctor & Gamble • Gartner then has a second “Top 25 Category” covering the next best group – In 2016, the next top ve were then Unilever, McDonald’s, Amazon, Intel and H&M fi fi https://www.gartner.com/en/newsroom/press-releases/2016-05-19gartner-announces-rankings-of-the-2016-supply-chain-top-25 What is Supply Chain Management? • Wisner et al. provide lots of interesting initial descriptions, usefully: – Consistent themes involve organizing, coordinating and integrating across a number of interrelated companies and entities to ensure delivery of goods and services to customers in ways that are cost e cient, ensure required quality, and with customer services and followup as needed ffi fi • Focal Firm identi es centre of analysis but not sole important component What is Supply Chain Management? • Wisner et al. best explains complex nature of SCM by delving back through a bit of history - see later • Provides formal de nitions from three SCM-related organizations: – Council of Supply Chain Professional – Institute for Supply Chain Management – Association for Operations Management fi fi • We will focus on de nition used by I.H. Asper School of Business - next pages fi Asper De nition of SCM (1) Asper De nition of SCM (2) • Supply Chain Management (SCM) is the process of strategically managing the ow of goods, services and information, and the relationships within and among organizations, in order to deliver greater economic value and enhanced customer service fi fl https://umanitoba.ca/faculties/management/ academic_depts_centres/dept/supplychain/what-issupply-chain-management.html Asper De nition of SCM (3) • [SCM] ... includes the interaction of logistics and transport, operations, purchasing, and some elements of marketing and information technology. It focuses on serving relevant stakeholders, including customers, suppliers, shareholders, employees, communities, and policy makers fi https://umanitoba.ca/faculties/management/ academic_depts_centres/dept/supplychain/what-issupply-chain-management.html Asper De nition of SCM (4) • Several major forces have driven the development of supply chain management, including: – Increased complexity of organizations – Globalization of commerce – Evolution of information technology fi https://umanitoba.ca/faculties/management/ academic_depts_centres/dept/supplychain/what-issupply-chain-management.html Wisner et al. SCM Model (1) – Refer to Figure 1.1 in Textbook Wisner et al. SCM Model (2) • Key features of this model to note: – Products and services ow from initial raw materials and sources (left) through to ultimate end-use customers (right) • Focal Firm is at centre – It is the focus of analysis in particular case fl fl • Raw and intermediate materials ow in via various routes (channels) from the left, representing their Supply side Wisner et al. 2022 SCM Model (3) • Finished or semi- nished products and services ow out via various routes too (channels) to the right, representing their Distribution side • Are “tiers” of suppliers and customers – Direct ones are termed “Tier 1”, with further entities feeding into or out of them in turn are termed “Tier 2” etc. fi fl • The lines between entities represent transportation or transmission activities Wisner et al. 2022 SCM Model (3a) • Bit of further depth regarding “tiers” – Use of “tiers” is particularly prevalent in automobile, aerospace and computers – Frequent use of sub-assembly systems • Key terms to de ne: fi fi – Original Equipment Manufacturer (OEM) is the nal product manufacturer/assembler – “Tier 1” mostly sub-assemblies to OEMs – “Tier 2” parts and services to Tier 1 – “Tier 3” parts and services to Tier 2 Wisner et al. 2022 SCM Model (4) • We know can change perspective by altering Focal Firm – Changing the Focal Firm shifts who are suppliers and who are customers – Indeed any individual entity can be so reviewed as the Focal Firm • One aspect of model is critical (across bottom), namely sharing of information, planning and activity integration – Key but initially unforeseen development Wisner et al. 2022 SCM Model (5) • Additional observations: fi fi ff – Each Focal Firm can have multiple distinct supply chains with di erent partners – Overall supply chain involves a very complex and dynamic interaction of independent component input/output rms – Variety of delivery and logistics rms are important as transport service providers – Final end-use customers (at the far right) represent the ultimate and only real source of income for the entire supply chain! Historical Background on SCM (1) – Refer to Figure 1.2 in textbook General progression over time Historical Background on SCM (2) • SCM can be traced through a “progression of business paradigms” • Dominant in 1950s and 1960s was clearly: – Mass production, vertical integration – Objective was to be “The New GM” • But ... there were lots of issues with this – Notable was high costs of inventories – “Make more and store” led to costly wastes – Indeed 1970s recession exacerbated by write-downs of inventory values Historical Background on SCM (3) • Genesis of SCM was in production management, but SCM has eclipsed latter • Initial focuses on: – Inventory management and cost control – Material requirements planning (MRP) and manufacturing resource planning (MRPII), both facilitated by computer technologies • Mention of SCM rst seen in 1982: fi – Keith, O. and M. Webber, “Supply-Chain Management: Logistics Catches Up with Strategy” Historical Background on SCM (4) • Next steps were still production oriented – Just-in-Time (JIT) to reduce inventories – Total Quality Management (TQM) and other quality initiatives to reduce wastage and loss – Realization vertical integration not so good, and better to focus on core competencies (i.e., stick to knitting know and do best), also leading to supplier/customer alliances – Business Process Reengineering (BPR), again to streamline and reduce extraneous Historical Background on SCM (5) • Now SCM seen as more complete whole • More recent trends involving: – Supply chain relationship formation – Environmental sustainability – Corporate Social Responsibility (CSR) • Initially focus was more upstream to suppliers, but also need to consider customers too, more marketing oriented – Customer relationship management (CRM) Historical Background on SCM (6) • Can now recognize SCM has been e ectively evolving from two directions: – Purchasing and supply management emphasis (buyers at Focal Firm); and – Distribution, logistics and customer service emphasis (logistics/marketing at Focal Firm) • Reliance on third-party logistics (3LPs) ff – In-/out-bound shipping, warehousing, and logistics services for moving, storing, documenting, customs clearing services Historical Background on SCM (7) • For wholesale and retail rms SCM focus on quickness of response and service: – – – – – – Facilitated by advancing information tech Electronic data interchange (EDI) systems Bar Coding Internet-based systems Logistics software applications Radio frequency identi cation (RFID) technologies for tracking and monitoring fi fi • Have led to more integration of SCM SCM Main Component Elements (1) • Four main components elements of SCM are identi ed - these correspond to the way textbook organized: • Supply (Ch 2, 3, 4) fi – Covers in-bound materials and processes – Important current issues include: supply management; supply-base reduction; Supplier Relationship Management (SRM) systems; ethical and sustainable sourcing of materials and inputs SCM Main Component Elements (2) • Operations (Ch 5, 6, 7, 8) fi – Covers activities to ensure the right amount of product is produced, and nished goods and services meet quality, cost, and customer service requirements – Important current issues include: demand management; material requirements planning (MRP); collaborative planning, forecasting and replenishment (CPFR); inventory management; enterprise resource planning (ERP); lean systems; and quality (e.g., “6σ” ) SCM Main Component Elements (3) • Logistics (Ch 9, 10, 11, 12) – Covers activities primarily for outbound (i.e., downstream) movement and distribution of products and services to customers. Deals with trade-o of cost versus timeliness: • Truck vs rail vs air vs water vs pipeline modes ff – Important current issues include: third-party logistics service providers (3LP); customer relationship management (CRM) systems; distribution network design; global-oriented supply chains; service response logistics SCM Main Component Elements (4) • Integration (Ch 13, 14) fi – Covers activities to co-ordinate and integrate processes among a focal rm and key supply chain trading partners, termed “supply chain process integration” – Important current issues include: barriers to integration; risk and security management; overall system performance measurement; “green” supply chains, including monitoring and measuring sustainability and corporate social responsibility (CSR) performance Current Trends in SCM (1) • Several broader current trends in SCM can be identi ed - will focus on three: • Supply Chain Analytics fi – SCM encompasses more traditional Management Science, e.g., optimization, linear programming, networks design, queuing, forecasting models, inventory, etc. – New aspects involve “big data” and new sophisticated analytical tools given enormous rise in computer technologies Current Trends in SCM (2) • Improving Sustainability fi – While some talk about apparent linkages between pro t and improved environmental and social governance, likely overstated – I know this directly from my own work in Sustainability Economics – What ends up being legitimate and very important is reducing liabilities (and losses) from environmental or social problems, and maintaining positive image and reputation Current Trends in SCM (3) • Supply Chain Visibility fi – SCM frequently tends to be more in the background, considered a bit “specialized,” and too often taken for granted – That is ... until major disruption occurs and everyone then acutely aware (e.g., chips!) – Visibility implies making ongoing aspects of SCM more visible for rms and customers: e.g., Where are products right now?, What are inventories?, and Are we prepared for possible disruptive events? Importance of SCM: More attention! • Canadian Manufacturers and Exporters (CME) – Just looking at Assignment #1 tells a big story about the sudden recognition of how important SCM is the operation of business – Prior to the pandemic, SCM really was not a topic much discussed by CME or its member companies – Now SCM is viewed as very important Importance of SCM: More attention! • Pandemic exposed vulnerabilities too Monbiot, G. 2022. Regenesis: Feeding the World without Devouring the Planet. Penguin Random House. Importance of SCM: More attention! • Pandemic exposed vulnerabilities too – George Monbiot takes more of an environmentalist’s perspective but makes variety of highly valid observations – A bit akin to Karl Marx, who was not a very good economist, but was a stellar investigative journalist in book Das Kapital – Exposing the deeply disturbing underbelly of the industrial society of 1800s England – Child labour, unsafe conditions, etc., etc. Importance of SCM: More attention! • Monbiot (2022) … quoting pages 36-37 – [When COVID struck the UK], it exposed an unforeseen consequence of privatizing the supply of masks, gowns, gloves and protective equipment. Instead of stockpiling, the companies cut costs by minimizing storage. When demand was steady and predictable, their JIT systems looked rational. But when the emergency struck, their minimized systems could not be scaled up fast enough to meet demand. The failure was lethal: hundreds of health and care workers died as a result of inadequate protection. Consequences of SCM Systems • In the UM Learn introduction, note made: – Indigenous peoples here had dramatic in uence on supply chains in the past, with their signi cance often overlooked, but at the same time those same supply chains had direct impacts on Indigenous peoples, frequently NOT very good! fi fl • What was that important supply chain? • Important for us all to think about the consequences of our supply chains! • Synopsis: – Cyber Logic Systems is a successful U.S. rm specializing in cyber security – Want to consider aggressive expansion into South America and Europe … BUT – Supply chains identi ed as big limitation – Manager is tasked to develop plan on how to ensure supply chain structure robust enough to move forward with the expansion – Needs to consider all four major elements fi fi Chapter 1 Case: The Big Picture (1) Chapter 1 Case: The Big Picture (2) • Four questions were asked! • In this case I will call for volunteers to answer one of the questions - you do not need to be perfect but have given some thought to this, using Chapter content: fi 1.Considering SCM element of Supply, what are speci c issues for Cyber Logic Systems? Chapter 1 Case: The Big Picture (3) • My opinions for Question 1 on Supply: ff fi – Obvious issue stated is “supplier certi cation” – Other issues: “suppliers having di erent capabilities to supply varying markets” – This is separate from quality – Other issues: “supplier sourcing closer to individual markets” Chapter 1 Case: The Big Picture (4) • Remaining questions: fi 2. Considering SCM element of Operations, what are speci c issues for Cyber Logic Systems? Chapter 1 Case: The Big Picture (5) • My opinions for Question 2 on Operations: – Primarily software oriented but hardware frequently required, which suggests issue of “customization” and associated requirements – Other issues: “design cycle time” Chapter 1 Case: The Big Picture (6) • Remaining questions: fi 3.Considering SCM element of Logistics, what are speci c issues for Cyber Logic Systems? Chapter 1 Case: The Big Picture (7) • My opinions for Question 3 on Logistics: fi fi ff – Allude to “need for a more self-sustaining network” sort of jargon - will talk about what this means in later lectures – Other issues: “needs for redesign” identi ed – Other issues: “di ering market regulations, and technical speci cations” – Other issues: “highly time sensitive, so response time is important” Chapter 1 Case: The Big Picture (8) • Remaining questions: 4.Finally, in working on Integration, what type of issues must the company overcome? Chapter 1 Case: The Big Picture (9) • My opinions for Question 4 on Integration: ff – Issues “need cohesive interaction of all parts across diverse regions to meet somewhat di erent and changing customer needs” – Issues “realization that SCM is more than just supply or operations or logistics in isolation” Summary of SCM Overview (1) • Brie y summarizing Chapter 1 ff fi fi fl – SCM involves compendium of key business processes from initial raw material extraction to the nal end-use customer(s), including all intermediate processing and/or manufacturing, transportation, storage activities, along with the nal sale to the end-product customer and any eventual product returns or recycling e orts Summary of SCM Overview (2) fi – SCM involves independent component entities in supply chains working together to provide bene ts to all stakeholders. – Practice of SCM is increasingly recognized as important to reducing costs and improving quality and customer service – End objective is improving business competitiveness Summary of SCM Overview (3) • We will brie y go through all elements: Supply; Operations; Logistics; Integration • But ... we will focus on selected topics and will not go through everything • Textbook is useful detailed reference that goes into a lot more depth on topics • Appendix 1.1 outlines “The Beer Game” fl – Interesting and very useful simulation – We will to do this exercise in later lecture! More Concluding Comments • Supply chain disruption became a fact of life under COVID-19 • Excellent short article in paper on issues and responses for construction industry – Bellamy, B. “Perfect storm of construction disruption.” Winnipeg Free Press, print edition Monday December 27, 2021 page A7 https://www.winnipegfreepress.com/opinion/analysis/ perfect-storm-of-construction-disruption-575975862.html • Suggest you read this useful brief article Oh ... One More Thing • “Bull Whip E ect” (Wisner et al. page ~10) fi fi ff ff ff fi – Dynamic e ect caused by cycles of uncertain demand and inventory availability leading to excessive safety stock – In turn overly magni es supplier forecasts and haunts production planning by giving falsely optimistic forecasts – Estimated to cause increased costs of 12% to 25% for each rm through supply chain – Seeing this e ect in action is one of the signi cant points of The Beer Game