OP6203 Supply Chain Management

Dr. Mohammad Faisal Noor

Assistant Professor

Module 1
Supply Chain Structure
• Definition: A supply chain is a network of entities and processes involved
in producing and delivering a product or service, from raw materials to
final customers.
• Key Components:
• Suppliers
• Manufacturers
• Distributors/Wholesalers
• Retailers
• Customers
Supply Chain vs. Supply Chain Management

Aspect Supply Chain Supply Chain Management (SCM)

Focus Physical flow of goods Coordination and integration of flows

Scope Collection of entities Management of processes and relationships

Objective Transfer of products/services Optimization for efficiency and value

Sourcing, manufacturing,
Activities Planning, controlling, optimizing flows
distribution

Analogy: If the supply chain is the ‘road’, SCM is driving for the best route and efficiency.
Performance Dimensions of SCM

• Cost Efficiency: Minimizing total costs across the network.

• Responsiveness: Meeting customer needs promptly.
• Flexibility: Ability to adapt to changes (market, demand, disruptions).
• Quality: Ensuring defect-free products/services.
• Asset Management: Efficient use of inventory, facilities, and capacities.
• Sustainability: Environmental and social responsibility.
SCM in the Global Industry Context
•Drivers of Global SCM:
• Access to global markets and suppliers
• Cost advantages (labor, materials)
• Risk diversification
• Competitive pressures
•Challenges:
• Longer lead times, complexity
• Cross-border regulations and compliance
• Exposure to geopolitical risks
•Trends:
• Growing role of technology (AI, IoT, Blockchain)
• Rise of e-commerce and direct-to-customer models
• Emphasis on resilience post-pandemic
Decision Phases in Supply Chain Management

• Strategic: Long-term decisions (facility location, outsourcing)

• Tactical: Medium-term decisions (inventory policies, procurement)
• Operational: Daily/weekly decisions (scheduling, order fulfilment)

• Examples:
• Deciding the number and location of warehouses (Strategic)
• Setting reorder levels for inventory (Tactical)
• Scheduling deliveries and transportation (Operational)
Process View of Supply Chain
• Cycle View: Series of cycles between
successive stages:
• Customer Order Cycle
• Replenishment Cycle
• Manufacturing Cycle
• Procurement Cycle
• Push/Pull View:
• Push: Activities based on forecast
(speculative).
• Pull: Activities in response to actual
demand (reactive).
• Why Important?
• Understanding flows helps identify
opportunities for process
improvement and cost reduction.
Value Chain

• Definition: A value chain is a series of activities that businesses

perform to deliver a product or service from its initial conception to
the end customer, adding value at each stage.
• Purpose: To maximise value creation while minimising cost, resulting
in competitive advantage.
• Origin: The concept was introduced by Michael Porter in his
book, Competitive Advantage: Creating and Sustaining Superior
Performance
Components of the Value Chain (Porter’s Model)
• Primary Activities:
• Inbound Logistics: Receiving, storing, and distributing raw materials.
• Operations: Transforming inputs into final products/services.
• Outbound Logistics: Delivering finished goods to customers.
• Marketing & Sales: Activities to promote and sell the product or service.
• Service: Maintaining and enhancing product value after the sale.

• Support Activities:
• Procurement: Acquiring resources and inputs.
• Human Resource Management: Recruiting, training, and retaining employees.
• Technology Development: Research, innovation, and process improvement.
• Firm Infrastructure: Management, planning, legal, finance, quality assurance
Value Chain vs. Supply Chain

Aspect Value Chain Supply Chain

Focus Value addition at each step Flow of materials/products

Movement of goods from supplier to

Includes Activities before, during, and after sale
customer

Objective Competitive advantage, customer value Efficient movement and cost reduction

Example R&D, marketing, after-sales support Procurement, warehousing, shipping

Value chain considers both internal processes and external customer value,
while supply chain is more logistics-focused
Value Chain Mapping – Purpose and Process
• Purpose:
• Visualize the sequence of value-adding activities.
• Identify all key stakeholders, flows of information, goods, and money.
• Detect bottlenecks, redundancies, or inefficiencies in the chain.
• Process:
• Start from the end product and work backwards to suppliers.
• Group stages at similar value addition levels.
• Show main actors for each stage (suppliers, manufacturers, distributors,
retailers, customers).
• Illustrate flows (material, information, finances) using arrows or diagrams
 Value Chain Mapping – Example

• Case Example: Coffee

• Farmers → Exporters → Importers → Roasters → Distributors → Retailers
→ Consumer
• At each stage, note:
• Activities performed (harvesting, export, roasting, etc.)
• Value added (quality improvement, packaging, branding)
• Key actors (cooperatives, logistics providers, marketing agencies)
• Visualisation: A flowchart to map the journey of the coffee bean to the
cup, marking value addition at each step
Value Chain Mapping – Example
Value Chain Mapping – Symbols
What makes supply chain management difficult?
1. Supply chain strategies cannot be determined in isolation. They are directly
affected by another chain that most organisations have, the development chain
that includes the set of activities associated with new product introduction.
2. It is challenging to design and operate a supply chain so that total systemwide
costs are minimised, and systemwide service levels are maintained. The process of
finding the best systemwide strategy is known as Global Optimisation.
3. Uncertainty and risk are inherent in every supply chain; customer demand can never
be forecast accurately, travel times will never be certain, and machines and vehicles
will break down.
4. A one-size-fits-all strategy is not appropriate. This drives the need for supply chain
segmentation, that is, the need for multiple supply chains within the same firm, each
of which may focus on delivering a different customer value proposition.
The Development Chain

The development chain is the set of activities and processes

associated with new product introduction. It includes the product
design phase, the associated capabilities and knowledge that need to
be developed internally, sourcing decisions, and production plans.
Various Supply Chain Leaders

The following brands are considered among the top leaders in Supply
Chain:
• Amazon
• Zara
• McDonald’s
• Apple

Let’s analyse what makes them the leaders.

Amazon Supply Chain
Model: Highly automated, end-to-end supply chain servicing global sales channels.
Key Features:
• Warehousing: Hundreds of strategically located fulfilment centres (sortable, non-sortable,
sortation, receive, speciality, and delivery stations), enabling same-day/next-day delivery.
• Technology Integration: Deep use of robotics, AI, and machine learning for inventory
placement, order picking, and packing.
• Order Fulfilment: Two principal models—Fulfilment by Amazon (FBA) and Fulfilment by
Merchant (FBM).
• Inventory Management: Automated replenishment; real-time inventory tracking; multi-channel
fulfillment.
• Logistics: Extensive last-mile delivery network (including Amazon-branded delivery fleets) and
bulk international shipments; Amazon global logistics.
• Customer Focus: “Prime” membership relies on guaranteed speed and reliability; average
supply chain cycle is industry-leading.
Competitive Edge: Speed, scale, and flexibility; ability to serve both businesses and consumers
simultaneously.
Zara Supply Chain
Model: Vertical integration and “fast fashion” focused, keeping manufacturing, logistics, and design
closely linked for agility
Key Features:
• Centralised Hub: “The Cube”—a fully automated distribution centre linked to nearby garment
factories in Spain.
• Production: 50-60% manufactured in-house, close to design headquarters; allows for quick
design changes and rapid restocking of new styles, reducing excess inventory.
• Lead Time: New designs reach stores in as little as 2–3 weeks (industry standard is 6–9
months).
• Sourcing: Buys large quantities of a few fabrics to reduce lead times; most suppliers are
geographically close (Europe).
• Technology: Uses RFID tagging and real-time sales data, enabling precise demand planning
and efficient replenishment.
Competitive Edge: Rapid response to fashion trends, minimal overstock, maximized profit from
scarcity and speed, and resilience in disruption.
McDonald’s Supply Chain
Model: Integrated, “glocal” system blending global standardisation with local adaptation for
ingredient sourcing and supplier partnerships
Key Features:
• Supplier Relationships: Long-term partnerships, vertically integrated through intensive
collaboration rather than ownership—contracted suppliers process meat and produce, often
exclusively for McDonald’s.
• Quality Control: Strict supplier evaluation; centralised e-procurement (Emac Digital) and
robust food safety audits.
• Distribution & Logistics: Centralised cold chain with regional distribution centres for
temperature-controlled storage and delivery.
• Inventory & Forecasting: Dynamic management to minimise waste and maintain consistency
worldwide.
• Sustainability: Environmental initiatives for sustainable sourcing and waste reduction.
Competitive Edge: Consistency and efficiency at massive scale, cost leadership, and adaptability
across markets.
Apple Supply Chain
Model: Global, highly orchestrated network focusing on innovation, confidentiality, and operational
excellence using “design in California, manufacture globally” philosophy
Key Features:
• Supplier Base: Over 200 suppliers in 43 countries (major assembly partners: Foxconn,
Pegatron, Wistron).
• Component Sourcing: Components sourced globally (e.g., chips from Taiwan, Japan, Korea;
assembly in China and India).
• Manufacturing: Outsourced model; assembly partners close to major ports and logistics hubs.
• Logistics: Precise global coordination with express transport ("just-in-time"), regional
distribution centres, and contract logistics partners.
• Technology: Heavy use of ERP, SCM systems; predictive analytics and AI for demand
forecasting, supply risk management, and quality assurance.
• Product Launches: Secrecy and synchronised launches through airtight coordination..
• Sustainability: Environmental initiatives for sustainable sourcing and waste reduction.
Competitive Edge: Product quality, speed to market, resilience, and supply chain innovation..
Comparative Analysis

Speed & Innovation/Tech Supplier Globalization &

Company Sustainability
Responsiveness Use Relationships Scale
Flexible
Highest (Prime, Automation, AI,
Amazon partnerships, Very High Improving
fast delivery) Robotics
strong with FBA
Deep
Highest (2–3-week Real-time data, Moderate, but
Zara partnerships, Industry leader
cycles) RFID focused
close proximity
High (for QSR Cold chain, e- Long-term "three- Strong focus, local
McDonald's Global leader
industry) procurement legged stool” sourcing
Deep, managed,
High (esp. for Advanced ERP, Most global, Significant
Apple geographically
launches) analytics complex progress
diverse
Inbound and Outbound Logistics—Definitions & Scope

• Inbound Logistics (Upstream Supply Chain):

• Refers to the movement and storage of materials/inputs into the
business.
• Activities: sourcing, transportation, receiving, warehousing, and
inventory control.
• Outbound Logistics (Downstream Supply Chain):
• Refers to storage, movement, and distribution of finished goods
from business to customers.
• Activities: order processing, dispatching, transportation,
distribution, and customer service.
Supply Chain Operations Reference (SCOR) MODEL

• The Supply Chain Operations Reference (SCOR) model was developed by the Supply Chain
Council. It provides a good framework for classifying analytics applications in the supply
network.
• The SCOR model outlines four domains of supply chain activities: source, make, deliver
and return.
• The fifth domain of the SCOR model, which is planning, is behind all four activity domains.

Source: https://aims.education/study-
online/supply-chain-operations-reference-
model-scor/
Activities in SCOR Model

SCOR Domains Source Make Deliver Return

Schedule and
Request,
Manufacture,
Order and Receive, approve, and
repair,
receive Schedule, Pick, determine
Activities remanufacture,
materials and Pack and Ship disposal of
or recycle
products orders products and
materials and
assets
products
Strategic Decisions in SCOR Model

▪ Different decisions (strategic, tactical, and operational) in the SCOR domains that can be
aided by analytics.

SCOR Domains Source Make Deliver Return

Location of Location of
Strategic
plants and distribution Location of
Strategic sourcing, supply
product mix at centres and return centres
chain mapping
plants. fleet planning
Tactical Decisions in SCOR Model

SCOR
Source Make Deliver Return
Domains
Product line
Development Transportation and
rationalization, Reverse
and execution of distribution planning,
Tactical sales and distribution
supply chain inventory policies at
operations planning
contracts locations
planning.
Operational Decisions in SCOR Model

SCOR
Source Make Deliver Return
Domains
Workforce Vehicle
Materials requirement
scheduling, Vehicle routing for
Operational planning and inventory
manufacturing routing returns
replenishment orders,
order tracking collections
Decisions in SCOR Model

SCOR
Source Make Deliver Return
Domains

Plan
Demand Forecasting (Long-term, Mid-term,
and Short-term)
Trade Offs
• The trade-off relationships between competitive objectives (cost, quality, delivery, variety,
inventory, capital investment, etc.) mean that excellence in one objective usually means poor
performance in some or all others.
• The idea that trade-offs also apply to operations was first articulated by Professor Wickham
Skinner at Harvard University. He said:
• The variables of cost, time, quality, technological constraints, and customer satisfaction limit what
management can do, force compromises, and demand an explicit recognition of a multitude of trade-
offs and choices.
• Not all performance measures will be equally important to an individual operation.
• Depends on the competitive characteristics of the market, and
• The way in which the company chooses to position itself within that market
• For example, operations choose to ‘trade-off’ higher costs or high inventory to achieve fast
response and delivery.
• Operations that attempt to be good at everything finish up by being mediocre at everything.
• The key issue of operations strategy is positioning the competitive objectives of the operation to
reflect the company’s overall competitive strategy.
Logistics-Marketing Trade-Offs

• Definition: The balance between efficient logistics (cost, speed) and

effective marketing (product availability, customer satisfaction).

• Characteristics:
• Higher product availability = higher logistics cost.
• Inventory vs. service level dilemma.
• Example: Next-day delivery (higher cost, higher satisfaction).
Trade-Off Scenarios—Examples

• Low inventory = low costs, risk of lost sales.

• High inventory = high service, risk of obsolescence.

• Centralised warehousing = lower cost, slower delivery.

• Decentralised warehousing = faster delivery, higher cost.

Which is more critical for your product—a lower cost or higher

responsiveness?
Market and Operations Trade Offs: Volkswagen

Market requirements, operations resources and

strategic reconciliation at Volkswagen over 70
years

Source: Operations
Strategy (Nigel Slack,
Michael Lewis)
Are Trade-offs Real/Necessary?

• The counter-view came from academics and consultants inspired by the perceived success of
some Japanese companies in overcoming at least some trade-offs –notably that between cost and
quality.
• They claimed that both trade-offs and positioning are illusions. Trade-offs are not real, therefore
positioning is not necessary.
• Citing the success of many companies that simultaneously achieved improvements in some
performance objectives, they dismiss trade-offs as distractions to the real imperative of
operations – improvement.
• Rather than accepting the ‘either/or’ approach, they recommend the more positive ‘and/also’
approach, which works towards ‘having it all’.
• However, this approach could not fully explain away the intuitive appeal of the trade-off concept.
• ‘Trading off’ and ‘overcoming trade-offs’ are, in fact, distinct strategies, either of which may be
adopted at different times by organisations.
The Efficient Frontier

• Presumably all the operations would ideally like

to offer very high variety while still having very
high levels of cost efficiency.
• The increased complexity that a wide variety of
product or service offerings brings will generally
reduce the operation’s ability to operate
efficiently or vice versa.
• In fig (a), Operations A, B, C and D have chosen
a different balance between variety and cost
efficiency. But none necessarily has ‘superior’
performance. However, Operation X has an
inferior performance.
• The convex line on which operations A, B, C and
D lie is the ‘efficient frontier’.
To what extent do ethical and financial performance trade-offs exist?

Source: Operations Strategy

(Nigel Slack, Michael Lewis)
Introduction to Buyer-Supplier Relationships

• Transactional: Short-term, focused on price.

• Collaborative: Long-term, joint planning, shared risks/benefits.
• Vertical Integration: When the buying company owns or controls the
supplier (e.g., acquiring a key supplier). Complete alignment of
objectives.

• Trust and transparency as a foundation for collaboration.

• Benefits: Cost reduction, innovation, speed, quality.

• Risks: Overdependence, loss of bargaining power, IP risks.

 Buyer-Supplier Relationships
Relationship Characteristics When Applied? Risks/Benefits

Transactional (Arm’s Length) Short-term, single or infrequent purchases. Commodities or easily Little incentive for supplier
Focused primarily on price, basic quality, and order fulfillment. available, non-critical items innovation or investment.
Minimal information sharing and limited communication. where price is the main
Suppliers are easily interchangeable. concern. Low responsiveness in situations
Little investment in long-term collaboration. requiring customization or problem-
solving.
Collaborative (Strategic) Long-term, close ties with structured communication and For strategic or high-risk items Improved mutual performance,
information sharing. where performance, innovation, innovation, and resilience.
Joint development efforts (e.g., co-design, process quality, or supply assurance are
improvement). critical (e.g., just-in-time Greater agility in responding to
Shared goals, risks, benefits, and performance metrics. manufacturing, unique market changes or disruptions.
Investments in joint capabilities (e.g., technology, logistics). components).
High switching costs; mutual trust essential.
Partnership Falls between transactional and fully collaborative. Key supplies requiring reliability
Multiple, repeat transactions over time; some sharing of and possibly some
information. customization, but not mission
May involve joint forecast/planning, process alignment, and critical.
agreed service levels.
Periodic reviews and continuous improvement efforts.
Vertical Integration buying company owns or controls the supplier (e.g., acquiring a Reduces supply risk and aligns
key supplier). incentives, but limits flexibility and
Complete alignment of objectives. could increase capital
requirements.
Five-Step Vendor Selection Process

• Analyze Business Requirements (to know performance indices)

• Vendor Search
• Request for Proposal (RFP) and Request for Quotation (RFQ)
• Proposal Evaluation and Vendor Selection
• Contract Negotiation
Example for Analysis of Business Requirements

Requirement: for an after-working hours answering machine/server

Performance Indices:
1. Available 24x7x365
2. Ability to change greeting per our request
3. Caller rings through successfully 99.5% of the time
4. Ability to communicate with service technicians
5. Ability to escalate calls to the supervisor on duty
Supplier selection factors

• Supplier Capacity
• Product Life Cycle/Product Type
• Supplier Location
• Supplier Risk/Reliability
• Supplier Relationship
• Supplier Selection Criteria
Kraljic’s Purchasing Portfolio Matrix
• Strategic tool to classify procurement into four categories:
• Non-Critical Items (low value, low risk)
• Leverage Items (high value, low risk)
• Bottleneck Items (low value, high risk)
• Strategic Items (high value, high risk)
Using Kraljic’s Matrix in Practice
• Step-by-step approach:
• Classification of products.
• Market analysis of suppliers.
• Strategic positioning.
• Action plans (e.g., partnerships, dual sourcing).

Potato supply and cold chain management—where does it fit?

• Where do you think fries/raw potatoes fall on McDonald’s matrix for their
India supply chain, and why?
Using Kraljic’s Matrix in Practice

Kraljic Example in
Why?
Category McDonald’s
Non-Critical Paper napkins Low cost, easily replaced, many suppliers

Leverage Cooking oil High spend item, many alternate suppliers

Specialized sauce
Bottleneck Hard to source, few suppliers, but low value
packet

Strategic Potatoes (for fries) High spend and sales impact, complex risk
Methods of Supplier Selection

• Linear Point Method

• Rating Method
• Ranking Method
• Borda Count
• Goal Programming for Selection
• Other MCDM Techniques
Linear Point (Lp Metric) Method

A company wants to buy a component part and has decided to float

a tender. 7 suppliers have bid. The company has identified 3 criteria
for shortlisting the suppliers and has asked the suppliers
themselves to give a score on each of the criteria. The scores given
by the suppliers to themselves for each of the criteria are given:
Supplier Price (Rs) Cpk (index) Defects (PPM)
A 50 .95 105650
B 80 2 3.4
C 45 .83 158650
D 60 1 66800
E 40 1.17 22750
F 60 1.5 1350
G 65 1.33 6200
Linear Point (Lp Metric) Method

Steps:
1. Normalization:

2. Deduct each value from the ideal value of 1.

3. Square the values (to calculate the Euclidean Distance from the
ideal value of 1)
4. Add all the values of each supplier.
5. The supplier with the lowest value of the score is the top-ranked
supplier, and so forth and so on.
Rating Method

• Under the Rating Method, some key personnel are asked to rate
the supplier selection criteria on a scale of 1 to 10 in terms of
importance.
• Two criteria can have the same rating.
• In the previous example, we had 3 selection criteria: Price, Cpk,
and Defects. Let the rating of these criteria be 9, 7, and 7,
respectively.
• The criteria rating values are to be normalised by dividing by the
sum of the ratings.
• The normalised value of the weights (ratings) becomes: 9/23
(0.4), 7/23 (0.3), and 7/23 (0.3).
• Normalise the supplier scores as done in the LP method.
Rating Method

Rating 9 7 7
1. Multiply the Normalised
Normalised 0.4 0.3 0.3 Weights with the Normalised
Weight Supplier Score.
Normalised Price (Rs) Cpk (index) Defects (PPM) 2. Add all values for each
supplier.
Supplier Score
3. Higher the sum, the higher
A 0.75 0.10 0.33 the ranking of the supplier.
B 0.11 1.00 1.00
C 0.89 0.00 0.00
D 0.56 0.15 0.58
E 1.00 0.29 0.86
F 0.56 0.57 0.99
G 0.44 0.43 0.96
Ranking MeThod (Borda Count Method)

• Under the Ranking Method (also known as Borda Count Method),

some key personnel are asked to rank the supplier selection criteria
in terms of importance.
• Two criteria can have the same ranking.
• In the previous example, we had 3 selection criteria: Price, Cpk, and
Defects. Let the ranking of these criteria be 3 (most important), 2,
and 1, respectively.
• The criteria ranking values are to be normalised by dividing by the
sum of the rating.
• The normalised value of the weights (ratings) becomes 3/6 (0.5), 2/6
(0.33), and 1/6 (0.17).
• Normalise the supplier scores as done in the LP and Rating method.
Ranking Method

Ranking 3 2 1
1. Multiply the Normalised
Normalised 0.50 0.33 0.17 Weights with the Normalised
Weight Supplier Score.
Normalised Price (Rs) Cpk (index) Defects (PPM) 2. Add all values for each
supplier.
Supplier Score
3. Higher the sum, the higher
A 0.75 0.10 0.33 the ranking of the supplier.
B 0.11 1.00 1.00
C 0.89 0.00 0.00
D 0.56 0.15 0.58
E 1.00 0.29 0.86
F 0.56 0.57 0.99
G 0.44 0.43 0.96
Selection of Group of Suppliers (Cluster)

1. Based on the normalised data, we do a Cluster Analysis.

2. K-Means Cluster is used.
3. Specify the number of clusters. (E.g.: 3 in the previous
example)
4. Use software for this purpose.
5. Cluster membership needs to be specified.
6. Once the Clusters are formed, the group/cluster with the
highest average score is ranked highest, and so on and so
forth.
Allocation of requirement to suppliers

• Assume your annual requirement for a component part

is 100,000 pieces.
• You have shortlisted 3 suppliers to supply the product.
• How will you decide on how much quantity to purchase
from whom?
• This can be obtained through Goal Programming
Problem (GPP)
Example Goal Programming
• Consider a situation when there are 3 suppliers, and given the nature of the supply chain,
you will have to buy a certain quantity from all of them. Obviously, you will buy more from
the best supplier, a little less from the better supplier and a little less from the good
supplier. The company has 3 criteria for prioritising the suppliers. These are price, defects
PPM and latter these are two, these two are from the earlier ones these are price, defects
PPM and distance from the supplier base. The company has set the following priorities:
• Priority 1: Price
• Priority 2: Defects (PPM)
• Priority 3: Distance from Base (km)
• How will the distribution among these suppliers be when you have a requirement of
10,000 units and you have to give a minimum order of 2000 to each supplier?

Supplier Name Price Defects (PPM) Distance from base (km)

A 40 22750 9500
B 60 1350 7250
C 60 66800 5000
Ideal Value 400,000 3.4 5
LPP Model for Goal Programming

• Minimize: Pi – Ni
• With subject to constraints:
• 40x1 + 60x2 + 60x3 = 400000 + P1 – N1
• 0.022750x1 + 0.001350x2 + 0.066800x3 = 0.0000034 + P2 – N2
• 9500x1 + 7250x2 + 5000x3 = 5 + P3 – N3
• x1 + x2 +x3 = 10,000
• x1 >=2000
• x2 >=2000
• x3 >=2000
Obstacles and Drivers of Close Supply Partnerships

• Obstacles:
• Asymmetric information
• Cultural/organizational misalignment
• Power imbalances
• Trust/communication gaps
• Drivers:
• Mutual benefit
• Joint problem-solving
• Consistent quality/standards
• Innovation
Building Successful Partnerships

• Steps:
• Clear goals, roles, and responsibilities.
• Performance measurement and feedback.
• Sharing risks and rewards.
• Continuous improvement focus.
THANK YOU!