Supply Chain Management

Introduction
Session Agenda
1) Introduction to module
2) Assessments
3) Source of information
 Text Books
 On-line sources

 Digital Library

4) Activity on Negotiation Skills

 Text Books
 Joel D. Wisner; G.Keong Leong, “Principles Of
Supply Chain management” (A balanced
Approach). FT Prentice Hall. 7th Edition 2006
 Simchi-Levi, D and E and Kaminsky, P. (2003),
Designing and Managing the Supply Chain,
McGraw-Hill, Second Edition
 Supply Chain Management
Management of the flow of goods or services between
entities in the chain to realize delivery of end products or
services, satisfying customers at minimum cost.
OR
Set of approaches utilized to efficiently integrate suppliers,
manufacturers, warehouses and stores, so that merchandise
is produced and distributed in the right quantities, to the
right locations at the right time in order to
minimize system wide costs while
satisfying service level requirements.
 Returned Goods

Material Flow

Cash Flow

Supplier Factory Retailer Consumer

Supplier Distr. Center Retailer

Information Flow
 GOODS/SERVICES GOODS/SERVICES

EXTERNAL EXTERNAL
A BUSINESS
SUPPLIER CUSTOMER

INFORMATION INFORMATION

PAYMENT £££ PAYMENT £££

 Why is SCM difficult?
Different facilities may have different, conflicting
objectives
◦ Suppliers want manufacturers to commit themselves to
purchasing large quantities in stable volumes with flexible
delivery dates
◦ Manufacturers want large production runs
◦ Warehouses and Distribution Centers want to reduce
inventory
◦ Reduction in inventory levels increase transportation costs
 Conclusion
 Supply chains compete, not companies
 Most of the opportunities for cost reduction and
value enhancement lie at the interface between
supply chain partners
 Supply chain integration implies process
integration
Purchasing
 Purchasing

 The acquisition of goods and services needed to

support the various activities of an organization,
at the best possible cost and from reliable
suppliers.
 Purchasing professional's goal to a company
should be to provide:

 The best pricing

 Communication
 Research in finding sources
 Supplier performance Evaluation
 Service level agreements (SLA’s)
Importance of purchasing:
• Competition
• Material cost
• Lead time
• Customer Demand
• Quality
 Labour
Bought-out Labour 22%
materials,
components, etc. 45%
Bought-out
38% materials, Other costs
components, etc.
18%
60%
Other costs
17%

Cost of a manufacturing company, 1979 Costs of the same manufacturing company, 1979

Cost of manufacturing company, 1979 Cost of same manufacturing company, 2004

(Lysons (2000), pp3-4)

 Multi-sourcing
Single Sourcing
Advantages
Advantages
 Purchaser can drive price down by
 Potentially better quality because more competitive tendering.
SQA possibilities.
 Can switch sources in case of supply
 Strong relationships failure.
 Greater dependency encourages more  Wide sources of knowledge and
commitment and effort. expertise to tap.
 Better communication.
 Easier to cooperate on new
product/service development.
 More scale economies.
 Higher confidentiality.
Disadvantages
Disadvantages
 Difficult to encourage commitment by
 More vulnerable to disruption if a failure supplier.
to supply occurs.
 Less easy to develop effective SQA.
 Individual supplier more affected by
volume fluctuations.  More effort needed to communicate.
 Supplier might exert upward pressure  Suppliers less likely to invest in new
on prices if no alternative supplier is processes.
available.  More difficult to obtain scale
economies.
 Purchasing Process
• Recognize, describe and define the need
• Transmit the need (requisitions)
• Determine sources, investigate, and select
supplier/analyze bids
• Prepare and issue the PO
• Follow-up the order (including expediting and de-
expediting)
• Receive and inspect the material
• Clearance of the invoice and payment to supplier
The purchasing Suppliers Purchasing Function The internal operation
function brings
together the
operation and Suppliers
prepare quotations of Requests Prepare Requests

its suppliers
 specifications requests for for products
 price quotations and services
 delivery etc.

Quotations
Select Discuss with the
the preferred
Operation
supplier

Produce Order Prepare Liaise with the

goods/services purchase order Operation

Deliver Goods /Services Receive

goods/services

Inform Purchasing Input to the

(Slack,
(Slack. 2001,
2001. p417)
p417) Operation
Function
Negotiation
 Negotiation Definition and Comments:
 The process whereby two or more parties decide what each
will give and take in an Exchange between them.” (Lysons &
Farrinton)

 “Negotiation is the process by which we search for terms to

obtain what we want from somebody who wants something
from us.”
(Total Success Training)

 “Negotiation is discussing or bargaining in order to reach

agreement.” (Owen)
Negotiation (What it isn’t):

 Negotiation is not selling.

 Negotiation is not ‘giving in’ or conceding.
(Owen)
 Types of Negotiation
 Adversarial Negotiation
 Collaborative Negotiation

Adversarial Negotiation (distributive or

win-lose negotiation)
 Is an approach in which the focus is on ‘positions’
staked out by the participants and the assumption is
that every time one party wins, the other loses, so,
as a result the other party is regarded as an
adversary (opponent).
(Lysons & Farrington)
Collaborative Negotiation (integrative or
win -win negotiation)
 Is an approach in which the assumption is that, by
means of creative problem solving, one or both parties
can gain without the other having to lose and, as other
party is regarded as a collaborator rather than an
adversary, the participants may be more willing to share
concerns, ideas and expectations than would otherwise
be the case.
(Lysons & Farrington)
Make
OR
Buy
 Why would we buy something
(items, components, services)
when we could provide it ourselves?
Reasons to buy:
 The unit cost is cheaper,
 We don't use it enough,
 We don't have space,
 We don't understand the technology,
 We don't have the skill,
 It's not our core business/expertise,
 It's expensive to set up the process,
Reasons to provide in-house:
 The unit cost is cheaper,
 It's critical to the business,
 Retain specialist knowledge/skills,
 We have control over the supply,
 Quality issues are critical,
 No suitable supplier,
 It's part of our core business/expertise
 All Manual (I.e. Non-Clerical) Workmen in
Habib Bank Ltd. Retrenchment (cutback)

 In order to focus on core banking activities and

rationalize our staff strength, HBL had introduced
Voluntary Separation Schemes in the past.
 Currently there are over 2300 employees working in HBL
dedicated to non-core activities including Security, Driver
and other manual work.
 The administration and management of these activities is
causing a severe lack of focus on core activities like
business development and customer service etc. the
market practices amongst progressive Bank dictates an
Urgent need for outsourcing such services.
Ethics in Buying:
• Child Labor
• Company’s Environment
• Green Supply Chain
• Fair Trade
End of Topic