PSM 523:

Improving Supply
Chain Performance

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 Day-01
Basics of
Supply Chain

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The supply chain encompasses all organizations and activities
associated with the flow and transformation of goods from the
raw materials stage, through to the end user, as well as the
associated information flows. Material and information flows
both up and down the supply chain.
-(Robert B Handfield and Ernest L Nichols, Supply Chain Redesign)

The supply chain includes all those involved in organizing and

converting materials through the input stage(raw materials),
conversion phase(work in progress) and outputs (finished
products). The cycle is often repeated several times in the
journey from the individual producer to the ultimate customer,
as one organization’s finished good is another’s input.
-Peter Baily et al, Procurement Principles and Management

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A supply chain is ‘that network of the organizations that are
involved, through upstream and downstream linkages, in the
different processes and activities that produce value in the form
of products and service in the hands of the ultimate customer’.
- Martin Christopher, logistics and Supply chain Management

Supply chains are everywhere. From the biggest company in

the world to running your household. We all have supply chain
experience even if we don’t know it.
- EverythingSupplyChain.com

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Integration of supply chain activities

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Principal flows in a simple supply chain

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Supply Chain Management
• A supply chain is a term covering all activities associated with the flow of
goods from the raw materials stage through to the end user. Supply
chain management is the art of integrating these activities through
improved supply chain relationships in order to obtain sustainable
competitive advantage.
• Supply Chain Management is the linkage of the immediate
buyer/supplier relationships into a longer series of events.

• A supply chain may be very short. And may be very long.

• The supply chain responds to customer demand by supplying

appropriate goods and services in right quantities at the right time.

• It is the co-ordination across functional lines and organisational

boundaries.

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Dyadic supply relationships

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A simple supply network!

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Supply chain networks
An inter business supply chain is a linked sequence of
contributors of different firms. Seeing the supply chain as a
network is helpful for a number of reasons:

• It is a more strategic model for mapping and analysing supply

chain relationships
• It raises the possibility of a wider range of collaborations which
may offer mutual advantages
• It recognises the potential of ‘extended enterprises’ and virtual
organisations
• It recognises that extended enterprises may overlap, creating
complex patterns of relationship, competition and potential risk

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Clear implications for procurement roles and
operation for Inter business supply chain

• Co-ordinate activities across the supply chain

• Develop appropriate relationships with suppliers
• Structure supply chain effectively
• Select, evaluate and develop suppliers in relation to the
effectiveness of their own supply chain management
• Work collaboratively with supply chain members to
secure added value, cost and quality improvements
throughout the supply chain.

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Internal supply chains
• The internal supply chain (or value chain) describes a
similar flow of information and other resources within -
into and through – a given organization from inbound
activities to outbound activities.
• Internal customer concept suggests that any unit of a firm
whose task contributes to the task of other units can be
regarded as a supplier of goods and services to those
units.
• The procurement function is part of internal supply chain.

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Supplier Base

• ‘Supplier Base’ is all the vendors that supply a given

purchaser.

• Supplier bases are often described in terms of their

size of range (broad, narrow, single source), location
(local, national, international) and characteristics (eg
diversified or specialized).

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Multi Sourcing

Having more potential suppliers of a given

item or category of purchases, per-qualified
and approved as being able to meet the
buyer’s requirements can be defined as
Multiple Sourcing Arrangements.

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Supplier Base Optimisation

• Supplier base optimisation (or rationalisation) is concerned

with determining roughly how many suppliers the buying
firm wants to do business with.
• Optimising the range of supply base enables the firm to:
• Avoid the drawbacks and inefficiencies of multiple
sourcing.
• Leverage the potential of closer, long-term, collaborative
relationships with a few suppliers.
• Maintain the security of supply.
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Risks for a very
narrow Supplier Base
• Over-dependence on a few suppliers.
• Supply disruption.
• The loss of preferred suppliers’ goodwill and co-operation.
• Preferred suppliers growing complacent.
• Being ‘locked in’ to long-term relationship and co-
investment with suppliers.
• Missing out on seeking or utilising new or more
competitive suppliers in the wider supply market.
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Single sourcing

• When only supplier is selected for the development of closer

partnership relationship relations or an ‘exclusively supply’
contract then it is called Single Sourcing.
• Such an arrangements might be suitable for procurements for
which the buyer hopes to gain supplier commitment and co-
investment (eg for strategic or critical item) or preferential
treatment (eg on price for leverage item), by offering the
supplier exclusively.

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Dual sourcing

• An arrangement where organisations share

supply between two suppliers is called dual
sourcing.

• This approach enables the buyer to maximise the

advantage of narrow supply-while managing the
risks of over-dependency on a single supplier.

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Supply Chain Management
• The management of upstream and downstream
relationships with suppliers and customers to deliver
superior customer value at less cost to the supply chain as a
whole (Christopher)
• SCM consists primarily of building collaborative relationships
across the supply chain.
• It is the co-ordination across functional lines and
organisational boundaries.
• Business processes is another key focus of SCM. It implies
the planning and management of whole sequence of
activities.

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Drivers for supply chain management

• Cost pressures

• Time pressures

• Reliability pressures

• Response pressures

• Transparency pressures

• Globalisation pressures

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Benefits of an SCM approach
• Reduced costs, by eliminating waste activities
• Improved responsiveness to customers’ requirements
• Access to complementary resources and capabilities
• Enhanced product and service quality
• Improving supply chain communication
• Sharing demand forecasting and planning information
enables Just in time supply
• Faster lead times for product development and delivery
– ‘Agile’ supply
• Better communication allows greater transparency
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 Supply Chain Management
changes from traditional ways
From Traditional ways To new ways

Independence Integration
Independent to next link Dependency

Means uncertainty More certainty

Unresponsive to change Quicker response

High cost, low service High service, lower cost

Fragmented internally Joined up structures

Competing companies Competing supply chains

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