Supply Chain Management
Training Module
1
Objectives of the Session

To have an understand of what is meant by the end to end supply chain

To have an understanding of the key elements of supply chain management

To have an understanding of the benefits of being process orientated

To have an understanding of how stock could be managed and for what benefit

To have an understanding of demand management

To have an understanding about the benefits of planning

To have an understanding of Integrated business Planning
2
Surviving in a Global world
 With the increase pressures brought about by globalisation and the onset
of new markets offering low labour costs, most western businesses are
finding it difficult to compete with intense pressures to deliver quality and
service at a reduced cost.
 In response to the pressures brought about by globalisation many leading
academics believe that Supply Chain Management is the solution for
improving competitiveness and meeting the ever-increasing needs of the
customer
.
3
The importance of SCM in today’s market place is perhaps best summarised
by Christopher (1997) when he states that “Supply Chains compete not companies”
brought about by the additional costs and operational inefficiencies incurred
when organisations work independently.
4
Supply chain costs typically represents 60% to 80% of a company’s
total cost structure and just a 10% reduction can yield a 40% to
50% improvement in pre tax profits” (Wood 1997)
5
The NHS faces similar challenges, with finite resources and an ageing /
growing population how is it going to keep up with the growing demands
placed on it
One thing is for sure, a fragmented approach towards managing
supply chains will not deliver the required end product or service at the
most effective cost.
6

Hence many leading academics are promoting the need for companies
to move away from the traditional buyer/supplier adversarial way of doing
business to one of collaboration, partnerships,supplier networks, (Hines 1996)
(Carlisle and Parker 1989), (Ellram 1991), (Macbeth and Ferguson 1994)
To put it another way “Everyone should be working together to ensure that the
Total Supply Chain is delivering the required goods / service at the lowest
cost . However, in many supply chains you will find that everyone is working
independently / managing their own little piece of the supply chain with little
appreciation or understanding on how their actions affect the overall
performance of the total supply chain
Remember – If the final customer in the Total supply chain is not happy
with quality, cost, delivery, responsiveness, service , then all members of
the supply chain are exposed i.e if the customer, patient / commissioning
provider goes elsewhere everyone loses out irrespective of how well your
part of the supply chain might be functioning
7
What is Supply Chain Management
8
In it’s simplistic form
 Supply Chain Management is the management of all activities
involved in Sourcing, Procurement, Manufacturing,
Warehousing & Distribution of a product or service
 The main objective being is to fulfill the demands of the
customer( products or services ) using the most efficient use
of resources ( labour , materials , time , money )
9
Supply Chain Management Definitions - Croom et al (2000)
Author
Definition
Tan et al (1998)
Supply Chain management encompasses materials / supply management from the supply of basic raw materials to final product and
possible recycling and re-use. Supply chain management focuses on how firms utilise their supplier’s processes, technology and
capability to enhance competitive advantage. It is management philosophy that extends traditional intra-enterprise activities by bringing
trading partners together with the common goal of optimisation and efficiency.
Saunders (1995)
External chain is the total chain of exchange from original source of raw material, through the various firms involved in extracting and
processing raw materials, manufacturing, assembling, distributing and retailing to ultimate end customers.
Ellram (1991)
A network of firms interacting to deliver product or service to the end customer linking flows from raw material supply to final delivery.
Christopher (1992)
Network of organisations that are involved through upstream and downstream linkages in the different processes and activities that
produce value in the form of products and services in the hands of the ultimate consumer.
Lee and Billington
(1992)
Networks of manufacturing and distribution sites that procure raw materials, transform them into intermediate and finished products and
distribute the finished products to customers.
Kopezak (1997)
The set of entities, including suppliers, logistics service providers, manufacturers, distributors and resellers through which materials,
products and information flows.
JP ( 2007)
A shared vision, a common goal across all supply chain members that encompasses the design, co-ordination and execution of all
activities associated with the supply of a service or product that meets the on-going needs of the final end consumer at the lowest total
cost.
Lee and Ng (1997)
A network of entities that starts with the suppliers’ supplier and ends with the customers’ custom the production and delivery of goods
and services.
10
Supply Chain Activities can be classified into three categories
Strategic
 Deals with decisions that have a long lasting effect. This typically includes
decisions regarding
 Number of locations, size / capacity of warehouses / distribution centers
manufacturing plants and flow of materials through the logistics network
 Strategic Partnerships with suppliers, distributors, and customers,
 Product Design – different designs are easier to produce, uses less materials,
easier to store, cheaper to distribute
 IT infrastructure, to support supply chain operations.
11
Tactical
Decisions that are typically updated between once a quarter to once a year.
Includes:
 Sourcing contracts and other purchasing decisions.
 Production decisions, including contracting, locations, scheduling
 Inventory policies, including quantity, location, and quality of inventory.
 Transportation strategy, including frequency, routes, and contracting.
 Benchmarking of all operations against competitors and implementation of
best practices
12
Operational
Refers to day to day decisions such as
 Distribution planning, truck loading
 Production scheduling
 Demand planning and forecasting,.
 Procurement
 Inbound operations,.
 Manufacturing Transformation operations
 Outbound operations, including all fulfillment activities and transportation to
customers.
13
Supply Chain Management - Process Design and Management
 Whether Strategic, Tactical or Operational, Supply Chain Management moves
away from functions or indiviidual activities and is more concerned with integrating
activities into key supply chain processes.
 A process is defined as a collection of activities designed to produce a specfic
output . All Processes have inputs such as materials, labour, energy and
outputs such as inputs to other processes or perhaps products or serivces
14
Supply Chains are the sum of many processes, people,
system. All seamlessly working together to achieve the desired
Supply Chain Objectives
When trying to understand the complexities of Supply Chains
It might be helpful to view them as “SYSTEMS”
15
Exercise
 Your customer complains that they are out of a stock i.e stock is not available
when required
What could be the reasons for stock-out?
 Breakout in teams and list possible reasons. 15 minutes only
16
Possible reasons for Stock outs ( Not an exhaustive list )
 Requisition / order not raised
 Order held waiting Senior Management Trust approval
 Order lost
 Order placed within suppliers lead-time
 Order placed within total lead-time
 Order placed for wrong code or pack factor
 Safety stock levels not correct
 Stock lost
 Stock misplaced
 High surge in demand that was known not communicated
 Unplanned High surge in demand
 Seasonal demand not forecasted
 Incorrect goods received against order
 Goods received / damaged – waiting to be returned
 Account on hold due to outstanding payment
The above reasons can apply to every member of the total supply chain
17
Suppliers
Central
Store
Main R&D
Primary
Distribution
Department
Buffer Stock
Intermediate
Distribution
End User
Safety Stock
Departmental
Channels
R
Pathology
D
R
Stores
Supplier Base
Hotel
Services
R
D
I
Top-up
I
Ad Hoc orders
Ad Hoc orders
R
D
I
D
Pharmacy
R
D
R
Pathology
I
Top-up
Hotel
Services
I
Ad Hoc requests
HSDU
Others
D
R
Catering
R
R
Estates
HSDU
Others
D
Wards
Replenishment / Top-up
D
Direct Delivery
Ad Hoc orders/ VMI/ Consignment stock
R
D
Catering
Estates
I
Point of Use
End Users
Pharmacy
Direct Delivery
VMI /Consignment stock
Final
Distribution
R
Clinics
R
Theatres
Source: NHS Logistics
18
As with any system, effective supply chain management is about the management
of the total supply chain through effective feedback loops and controls being in
place so that the supply chain can be monitored and adjusted to achieve the
desired common business goals
19
Performance Metrics
 If You don’t measure it you can’t manage it ?
 Performance Metric Measurements can be one means of ensuring
that effective feed-back loops / controls are in place to ensure that
the Supply Chain is performing in line with business needs. To
achieve this aim performance metrics have to be in place throughout
the entire supply chain
 When benchmarking, care should be taken to ensure that data
definitions / formula’s, time frames are the same otherwise risk of
measuring different things
Remember - Supply Chain Management is not about direct ownership and
control, it’s more concerned about the integration of activities/ processes
across conventional boundaries i.e dept, functions, organizations
20
Typical Attributes of Performance Metrics
 Service Management
 Supply Chain Cost Structure
 Efficiency
 Responsive / Flexibility
 Quality
21
Key Product
Stages
Number of weeks
Stock
£
S C Cost Build –Up
Raw
Material
Producti
on
Local
W/H
2
1
12
Production
Inte’al
W/H
3
Distr
Centre
2
Distribution
Local
Depot
Hospital
store
2
5
Ward
Store
2
Patient
4
Acute
NHS Internal Cost
PCT
Material Flow
Information Flow –
Current
Information Flow –
Desired
22
Team Learning
What potential benefits would there be if all members of the supply chain
worked together across the extended enterprise ( no boundaries )
Tip – look at strategic, tactical and operational slides to guide you
23
Examples of potentials benefits of Supply Chain Collaboration
 Share technical skills and competencies along the supply chain
 Shared information, e.g demand , eliminate surprises
 Process Management - Decide where and who is best to perform each task.
Ensure is process is designed to perform the desired objective with minimal
Cost , waste , time lags
 Agree / jointly decide where to position safety stock ( no need to work blindly )
 Utilize supply chain infra-structures i.e. warehousing, vehicles,
 Jointly agree IT strategy platform to improve cost structure, communications
/ flow of information decision making process. Is a shared platform viable?
 Collaborate on strategy sourcing options, consider joint ventures
 How can all member of the supply chain work together on new product development
24
Initiatives ?
Traditional Supply Chain
Figure
D. Walters, P Jones
25
The Constituents of an Integrated Supply Chain
Patient Care
Efficiency/Effectiveness
Integration
Co-ordination
Choice of Partners
Use of information and
communication
technology
Network organisation &
inter-organisational
collaboration
Process orientation
Leadership
Advanced planning
Foundations
Logistics, commissioning, purchasing and supply
26
Demand
27
Alignment of demand and capacity to meet Patient needs
Demand
- Demand is the future needs of the patient
Capacity - Is the products or resources available to meet patient demand
If Demand and Capacity are not balanced, this will ultimately lead to
- Excess Capacity
- Backlog - Inability to keep up with demand leading to waiting lists,
supply shortages
28
How do we predict future demand ?
29
Business Plan
 Understand Business Plan
 Build a Supply Chain Strategy that will support the achievement of
Business Plan. This include understanding current levels of
demand and what needs to be done to support expected future
volumes ( demand ). Any significant changes / investment in the supply
chain needs to be identified, approved and planned for
30
Demand
Two types of Demand
 Dependant
 Independent
Independent Demand
Describes the type of demand for a product or service which is independent of
demand for other items
Dependent Demand
Where demand for one item is linked to demand for another item
31
Demand
Can be either Historical or Planned ( i.e Forecasted )
Main potential problems using Historical demand to predict Future
demand
- Extrapolation of historical demand may not be a true representation
of future demand
- Different levels of demand variability
- Possible Seasonal
- New Products ( limited demand history )
- Products being phased out
- Integrity of demand data ?
32
Other attributes to predict Future demand
- Backlog
- Forward Patient Schedules / Standard procedural packs
- Incidences per population % growth levels
Known problems
- Lack of forward patient schedules
- Stability / accuracy of patient schedules
- Lack of standard procedural packs
33
If forecasts using historical demand or patient forward schedules
are not aligned to business plan this needs to be identified so that
differences can be identified and management can agree the final
numbers driving the supply chain
34
Demand Management Example
Parcel b4 12am
Parcel 2 days
DHL
PARCELINE
PARCELFORCE
PARCELINE
PARCELFORCE
£1.75
£0.75
£0.74
£0.71
Price per Kg
Price per Kg
£0.70
£1.50
£1.50
£1.25
£1.15
£1.14
£1.09
£1.08
£1.07
£1.05
£0.65
£0.65
£0.62
£0.60
£0.59
£1.07
£1.00
£0.88
£0.56
£0.55
£0.93
£0.53
£0.87
£0.53
£0.81
£0.50
£0.75
20kg
40kg
60kg
Weight
100kg
20kg
40kg
60kg
Weight
100kg
Inventory
Why hold stock - Customer not prepared to wait
If customers are prepared to wait consider classifying item as
non stocked
If supply is reliable, demand is constant ( no variability ) and lead-times
are frozen with no variability, do we need to hold safety stock ?
Safety stock is required to compensate for
 Fluctuations in customer demand patterns, noise, trends, seasonality
 Fluctuations in supplier lead-times
 Manufacturing supply problems
 Desired service levels
36
Inventory
One of the objectives of those who work in Supply Chain is to make sure
that Inventory is available at the right time and quantity to meet the needs
of the patient. This is paramount if the NHS are going to achieve the
shared NHS objectives which have been outlined.
The level of Inventory required will depend on the following factors
 Demand during lead-time ( replenishment frequency + lead-time from
identifying need to availability of product )
 Safety stock to cover demand and lead-time fluctuation during lead-time.
This includes transport / manufacturing delays etc
 Desired Service Levels - Implications of being out of stock
37
Review level
Review level Formula = ( usage rate x lead-time ) + safety stock
If the stock falls below the re-order level more stock needs to be ordered
Included in stock should be all open orders that are due for delivery
Within the supplier’s lead-time
38
Target Stock Levels
The target stock level is the maximum stock level which can be used
To calculate order quantities
It differs from the review level approach as review levels fix the order quantity
And vary the order frequency. TSL’s fix the order frequency and vary the order
quantity
TSL = {(Usage rate x ( lead-time + review period)} + safety stock
Safety stock is slightly modified to compensate for review period. It now
becomes
z factor x std dev x
√ Lead-time + review period
39
Target Stock Levels
Order qty = TSL – free stock – supply order outstanding
If using TSL’s , make sure that they are continually updated in
line with usage rates and lead-times
40
EOQ
 Typically EOQ stock levels are on the high side
 Ordering and stock holding costs are assumed to be fixed
 Demand is assumed to be regular and ignores batching and timing
 EOQ ignores balancing of stocks which is a important factor in
some manufacturing operations
41
EOQ
Lowest Total cost ( EOQ )
Total carrying cost
Costs
Total Order costs
42
Order Size
Potential Benefit of Introducing Economic Order
Quantity Concept
Parcel b4 9am
DHL
Order Weight
Number of
deliveries
Cost per
Delivery
Total Cost
18.89
39499
£41.74
1,648,696
40.00
18653
£67.20
1,253,515
60.00
12435
£88.16
1,096,328
100.00
7461
£137.34
1.024.748
PARCELFORCE
£2.25
£2.18
£2.00
£1.89
Price per Kg
£1.75
£1.52
£1.50
£1.41
£1.40
£1.30
£1.25
£1.15
£1.00
£0.95
£0.75
20kg
40kg
60kg
100kg
Weight
Delivery rates based upon carrier information
Case Study - Theatres
44
Disadvantages of holding stock
 Storage costs, space , heating , lighting, rent etc
 Money tied up in Inventory
 Interest charges if money has to be borrowed
 Obsolescence
 Product Expiry
 Pilferage
 Money tied up in Inventory could be used elsewhere
 Materials Handling / storage equipment
 Insurance
It is estimated that the above costs can be equivalent to up to 20% of the cost
of the Inventory held
45
How can we reduce the need to hold Inventory Levels
46
Pareto Analysis Curve
Cum % Turnover
120.00
100.00
80.00
60.00
A
B
C
40.00
20.00
0.00
1
2
3
4
5
6
7
8
9
10
Items
47
Classification of Inventory using Pareto Analysis
Characteristics
Policy
Methods
A items
Tight control, close supervision
Frequent monitoring
Few Items
JIT approach
Accurate records
High Percentage of Turnover
Sophisticated forecasting
Service level policy
B items
Lean stock policy
Rely on sophisticated system
Important items
Use classic stock control
Calculated safety stock
Significant Turnover
Manage by exception
Limit order value
Management and exception
reporting
C items
Minimal supervision
Simple system
Many items
Supply to order where possible
Avoid stock outs
Low turnover value
Zero or high safety stock policy
Infrequent ordering
48
J.I.T Just in Time
JIT is an inventory strategy designed to have product only when it
is needed and NOT just in case
JIT is a pull system, as soon as one product is used it
automatically triggers the replenishment of that item
Must be a joint strategy with key suppliers, one member of the
supply chain will find the risks associated with JIT to be very high
The advances of technology such as EDI makes JIT possible
49
Supply Chain Leadership
50
Supply Chain Management – Skills Required
Supply Chain Management is about Process Management. Ideally Supply
Chain Leaders need to have an in-depth knowledge / high level of technical
pro-efficiency within their own profession as well as having a good understanding
of other business disciplines to fully appreciation the effects of Supply chain
interconnectivity
Main constituents
 In-depth Knowledge / technical competencies in Supply Chain Management
 Basic Management Skills ( Including communication skills)
 Broad understanding of business disciplines
51
STRATEGY
DELIVERY
MANAGEMENT
CLINICAL
CAPABILITY
CLINICAL
ACTIVITY
MANAGEMENT
CLINICAL
PROCEDURE
MANAGEMENT
COMMISSIONING &
MARKETING
INNOVATION /
TECHNOLOGY
LDP PLANNING
PROCESS
OPPORTUNITY
ANALYSIS &
SELECTION
CLINICAL ACTIVITY
PLANNING
TRIALLING &
EVALUATION &
APPROVAL
IMPLEMENTATION
IMPLEMENTATION
CAPACITY
MANAGEMENT
(INT. & EXT.)
MATERIALS
MANAGEMENT
SERVICE POINT
MANAGEMENT
IMPLEMENTATION
52
Supply Chain Skills Profile
Supply Chain Management
In-depth knowledge of
Broad Knowledge of Business disciplines
53