logistics and supply chain management - e-course notes

BOTSWANA’S PREMIER PROVIDER OF VOCATIONAL TRAINING BQA (Botswana Qualifications Authority) ACCREDITED COURSES

LOGISTICS AND

SUPPLY CHAIN MANAGEMENT

E-COURSE NOTES

Level 1

Learning Together

Achieving Together

Tel: (+267) 311 48 58 • (+267) 72 309 719 • Email: [email protected] • Website: www.kti.co.bw

Logistics and Supply Chain Management - E-Course Notes

2020 Kalahari Training Institute. 1

Table of Contents Session One: Course Overview .................................................................................................................. 5

Learning Objectives ....................................................................................................................................... 5 Pre-Assignment .............................................................................................................................................. 6

Session Two: Getting Started .................................................................................................................... 7 What is Logistics? .......................................................................................................................................... 7 What is Supply Chain Management? ............................................................................................................ 7 The Six Rights ................................................................................................................................................. 7 Not Just for Products ..................................................................................................................................... 8 Regulations and Rules ................................................................................................................................... 8

Do You Know the Rules? ............................................................................................................................................ 8 Resources to Consider ............................................................................................................................................... 9

Session Three: The Evolution of the Supply Chain .................................................................................... 12 Vertical Integration Model .......................................................................................................................... 12 What’s Next? ............................................................................................................................................... 13

Session Four: The Basic Supply Chain Structure ....................................................................................... 14 The Links in the Supply Chain ....................................................................................................................... 14

Plan .......................................................................................................................................................................... 14 Source ...................................................................................................................................................................... 14 Make ........................................................................................................................................................................ 14 Deliver ...................................................................................................................................................................... 14 Return ...................................................................................................................................................................... 15

Making Connections .................................................................................................................................... 15 Phase 1: Plan ............................................................................................................................................................ 15 Phase 2: Source ........................................................................................................................................................ 15 Phase 3: Make .......................................................................................................................................................... 15 Phase 4: Deliver ....................................................................................................................................................... 15 Phase 5: Return ........................................................................................................................................................ 15

Participants in the Supply Chain .................................................................................................................. 16 Producers ................................................................................................................................................................. 16 Distributors .............................................................................................................................................................. 16 Retailers ................................................................................................................................................................... 16 Customers ................................................................................................................................................................ 16 Service Providers ...................................................................................................................................................... 16

Designing your Supply Chain ....................................................................................................................... 16 The Bullwhip Effect ...................................................................................................................................... 17

What is the Bullwhip Effect? .................................................................................................................................... 17 Case Study ................................................................................................................................................................ 17 What Causes the Bullwhip Effect? ........................................................................................................................... 17 How Do You Minimize the Bullwhip Effect? ............................................................................................................ 17

Session Five: Supply Chain Drivers ........................................................................................................... 18 Driving Success ............................................................................................................................................ 18

Production ............................................................................................................................................................... 18 Inventory .................................................................................................................................................................. 18 Location.................................................................................................................................................................... 18 Information .............................................................................................................................................................. 19 Transportation ......................................................................................................................................................... 19

Choosing the Right Transportation Methods .............................................................................................. 20 United States ............................................................................................................................................................ 20 Europe ...................................................................................................................................................................... 20 Japan ........................................................................................................................................................................ 21 Australia ................................................................................................................................................................... 21 Making Connections ................................................................................................................................................ 22



Session Six: Aligning Your Supply Chain with Business Strategy ............................................................... 23 Identifying Your Market ............................................................................................................................... 23

Introduction ............................................................................................................................................................. 23 Understanding Your Market Type ............................................................................................................... 23

Developing ............................................................................................................................................................... 23 Growth ..................................................................................................................................................................... 23 Steady ...................................................................................................................................................................... 24 Mature ..................................................................................................................................................................... 24

Identifying What Your Market Wants and Needs ....................................................................................... 24 Making Connections ................................................................................................................................................ 25

Looking at Your Role .................................................................................................................................... 26 Drawing Out the Supply Chain ................................................................................................................................. 26 Identifying Your Role in the Supply Chains .............................................................................................................. 26

Analysing the Data ...................................................................................................................................... 26 Identifying Your Strengths and Weaknesses with SWOT ......................................................................................... 26 Sample SWOT ........................................................................................................................................................... 27

Taking the Next Steps .................................................................................................................................. 27 Identifying Where You Want to Be .......................................................................................................................... 27 Leveraging Drivers to Support Your Roles ............................................................................................................... 27 Making Connections ................................................................................................................................................ 28 Case Study ................................................................................................................................................................ 28 Questions ................................................................................................................................................................. 29 Hints ......................................................................................................................................................................... 31

Session Seven: Managing Supply Chain Risks ........................................................................................... 32 Supply Chain Risks ....................................................................................................................................... 32

Severe Weather Events ............................................................................................................................................ 32 Political Unrest and Terrorism ................................................................................................................................. 32 Loss of Control through Outsourcing and Globalization .......................................................................................... 32 Increased Specialization ........................................................................................................................................... 32 The Great Shutdown: How COVID-19 disrupts supply chains .................................................................................. 32

Mitigation Strategies ................................................................................................................................... 33 Consider the Big Picture When Making Decisions ................................................................................................... 33 Transfer Responsibilities to Other Partners in the Supply Chain ............................................................................. 33 Extend Visibility through the Supply Chain .............................................................................................................. 33 Identify Your Priorities and Create a Backup Plan ................................................................................................... 33 Stay on Top of Inventory Planning ........................................................................................................................... 33

Session Eight: Tracking and Evaluating Supply Chain Data ....................................................................... 34 Ratios and Formulas .................................................................................................................................... 34 Introduction ................................................................................................................................................. 34 Business Metrics .......................................................................................................................................... 34

Net and Gross Profit Margin .................................................................................................................................... 34 Collection Ratio ........................................................................................................................................................ 34 Investment Turnover ............................................................................................................................................... 34 Return on Investment .............................................................................................................................................. 35 Revenue per Employee ............................................................................................................................................ 35 Cash to Cash Cycle ................................................................................................................................................... 35 Inventory Turnover .................................................................................................................................................. 35 Order Fill Rates ......................................................................................................................................................... 35 Backorder Information ............................................................................................................................................. 35

Sales Metrics ................................................................................................................................................ 36 Return on Sales Ratio ............................................................................................................................................... 36 Forecast Accuracy .................................................................................................................................................... 36 Return Rate .............................................................................................................................................................. 36

What is Benchmarking? ............................................................................................................................... 36 Defining Benchmarking ............................................................................................................................................ 36 What Benchmarks Should Be Measured? ................................................................................................................ 36



The SCOR Model .......................................................................................................................................... 37 The Four Categories ................................................................................................................................................. 37 SCOR as a Pyramid ................................................................................................................................................... 37

The Balanced Scorecard ............................................................................................................................... 37 What is the Balanced Scorecard? ............................................................................................................................ 37 Sample Balanced Scorecard ..................................................................................................................................... 38

Supply Chain Management Dashboards ..................................................................................................... 39 About Dashboards ................................................................................................................................................... 39

Creating a Supply Chain Dashboard System ................................................................................................ 39 Step One: Gather the Team ..................................................................................................................................... 39 Step Two: Identify the Problems .............................................................................................................................. 40 Step Three: Develop a Problem Statement ............................................................................................................. 40 Step Four: Develop a Goal Statement ...................................................................................................................... 40 Step Five: Determine What Data to Display ............................................................................................................ 40 Step Six: Look at the Options ................................................................................................................................... 41 Making Connections ................................................................................................................................................ 41 Case Study ................................................................................................................................................................ 41

Option One: Balanced Scorecard ................................................................................................................. 42 Option Two: Dashboard ............................................................................................................................... 43 Examples ...................................................................................................................................................... 43

Option One: Balanced Scorecard ............................................................................................................................. 43 Option Two: Dashboard ........................................................................................................................................... 44

Session Nine: Troubleshooting Supply Chain Problems ............................................................................ 45 Signs of Trouble in Your Supply Chain .......................................................................................................... 45 Supply Chain Best Practices ......................................................................................................................... 46

The Top Ten Supply Chains ...................................................................................................................................... 46 Best Practices from Industry Leaders .......................................................................................................... 46

Focus on Customers ................................................................................................................................................. 46 Build Long-Term Relationships ................................................................................................................................ 46 Leverage Information Management ........................................................................................................................ 46 Consider the Big Picture ........................................................................................................................................... 47 Develop Cross-Functional Teams ............................................................................................................................. 47 Use Pull Rather than Push ........................................................................................................................................ 47 Lead and Inspire ....................................................................................................................................................... 47

Session Ten: Sharing Supply Chain Activities ........................................................................................... 48 Outsourcing, Insourcing, Offshoring and Reshoring .................................................................................... 48

Primary Core Tasks ................................................................................................................................................... 48 Secondary Core Tasks .............................................................................................................................................. 48 Primary Non-Core Tasks ........................................................................................................................................... 48 Secondary Non-Core Tasks ...................................................................................................................................... 48

Insourcing .................................................................................................................................................... 48 Offshoring .................................................................................................................................................... 48 Reshoring ..................................................................................................................................................... 48 Third- and Fourth-Party Logistic Providers .................................................................................................. 49

Third-Party Logistic Providers (3PL’s) ....................................................................................................................... 49 Fourth-Party Logistic Providers (4PL’s) .................................................................................................................... 49 Advantages of 3PL’s and 4PL’s ................................................................................................................................. 49 Disadvantages of 3PL’s and 4PL’s ............................................................................................................................ 50

Building Partnerships within Your Supply Chain .......................................................................................... 50 Understand that your failure or success is intertwined. .......................................................................................... 50 Build win-win solutions and strategies. ................................................................................................................... 50 Create end-to-end visibility. ..................................................................................................................................... 50 Develop cross-functional teams. .............................................................................................................................. 50



Session Eleven: Sustainable Supply Chain Strategies ............................................................................... 51 What is Sustainability? ................................................................................................................................ 51 Defining Sustainability ................................................................................................................................. 51

What Does Sustainability Mean in the Supply Chain? ............................................................................................. 51 The Benefits of Sustainability ................................................................................................................................... 52

Reducing the Impact on the Environment ................................................................................................... 52 Plan .......................................................................................................................................................................... 52 Source ...................................................................................................................................................................... 52 Make ........................................................................................................................................................................ 52 Deliver ...................................................................................................................................................................... 52 Summary: Reduce, Reuse, Recycle .......................................................................................................................... 52

Session Twelve: Applying Lean Techniques to the Supply Chain .............................................................. 53 Lean 101 ...................................................................................................................................................... 53

What is Lean Process Improvement? ....................................................................................................................... 53 The Toyoda Precepts ................................................................................................................................................ 53

The Toyota Production System House ......................................................................................................... 54 The Roof ................................................................................................................................................................... 54 The Pillars ................................................................................................................................................................. 54 The Core ................................................................................................................................................................... 55 The Foundation ........................................................................................................................................................ 55

Applying Lean to the Supply Chain .............................................................................................................. 55 Eliminate Wastes ..................................................................................................................................................... 55 Identify the Customer in Each Step.......................................................................................................................... 55 Consider Total Cost .................................................................................................................................................. 56 Reduce Time and Variation ...................................................................................................................................... 56 Use Process Improvement Techniques .................................................................................................................... 56 Commit to Continuous Improvement ...................................................................................................................... 56

Session Thirteen: The Future of Supply Chain Management .................................................................... 57 Top Trends ................................................................................................................................................... 57

Shift in Logistics Distribution Techniques ................................................................................................................ 57 Increased Focus on Sustainability ............................................................................................................................ 57 Increased Use of RFID .............................................................................................................................................. 57 Bigger and Better Data ............................................................................................................................................. 57

Personal Action Plan ............................................................................................................................... 58 Starting Point ............................................................................................................................................... 58 Where I Want to Go ..................................................................................................................................... 58 How I Will Get There .................................................................................................................................... 58

Course Summary ..................................................................................................................................... 59

Recommended Reading List .................................................................................................................... 60



Session One: Course Overview The supply chain is a crucial part of any business’ success. Optimizing the flow of products and services as they are planned, sourced, made, delivered, and returned can give your business an extra competitive edge.

This course will introduce you to the basic concepts of supply chain management, including the basic flow, core models, supply chain drivers, key metrics, benchmarking techniques, and ideas for taking your supply chain to the next level.

Learning Objectives After you complete this course, you will be able to:

• Define supply chain management and logistics. • Explain the vertical integration and virtual integration models. • Understand the stages in the basic supply chain flow. • Identify participants in the supply chain. • Recognize supply chain drivers and ways to optimize them. • Align supply chain strategy with business strategy. • Determine what metrics to track and how to benchmark the related data. • Troubleshoot basic supply chain problems. • Identify ways to develop your supply chain, such as using third-party logistics providers (3PL’s),

insourcing processes, developing sustainable and eco-friendly strategies, leveraging process improvement strategies, and adopting new techniques.

Why did you take this course? Use this opportunity to consider your personal learning objectives and reasons for taking this course.



Pre-Assignment Think of a product or service that your company offers. List the activities and people involved in the phases of its development, from conception to termination.

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Session Two: Getting Started Does the phrase “supply chain management” sound scary? What about the word “logistics?” Believe it or not, the results of these processes are probably quite familiar to you.

In this session, we’ll explore what supply chain management is all about. We’ll also look at some resources that you can draw on for support after you complete this course.

What is Logistics? The idea of logistics originated with the military centuries ago. Today, the Council of Supply Chain Management Professionals says that, “Logistics management is that part of supply chain management that plans, implements, and controls the efficient, effective forward and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements. […] Logistics management is an integrating function which coordinates and optimizes all logistics activities, as well as integrates logistics activities with other functions, including marketing, sales, manufacturing, finance, and information technology.” (Source: http://cscmp.org/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms.aspx?hkey=60879588-f65f-4ab5-8c4b-6878815ef921)

What is Supply Chain Management? According to the Council of Supply Chain Management Professionals, “Supply chain management encompasses the planning and management of all activities involved in sourcing and procurement, conversion, and all logistics management activities. Importantly, it also includes coordination and collaboration with channel partners, which can be suppliers, intermediaries, third party service providers, and customers. In essence, supply chain management integrates supply and demand management within and across companies.”

(Source: http://cscmp.org/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms/CSCMP/Educate/SCM_Definitions_and_Glossary_of_Terms.aspx?hkey=60879588-f65f-4ab5-8c4b-6878815ef921)

In other words, supply chain management is about the processes and activities that take a product from its conception to termination. This involves the following processes:

• Inbound and outbound logistics (receiving, storing, and distributing goods) • Operations (how the goods are produced) • Sales and marketing • Customer service (including support, maintenance, etc.)

The goal of supply chain management is to reduce the complexity of the supply chain, increase its flexibility, and improve its efficiency and responsiveness. Supply chain management professionals focus on a holistic approach that tries to create long-term advantages that benefit all aspects of the business. Effective cost management and optimum profits are valued, as well as the supply chain’s ability to quickly adapt to ever-changing markets.

The Six Rights The goal of supply chain management can also be described using the six rights model: having the right product in the right place, at the right time, in the right quantity and condition, and at the right cost.

In some industries, these rights have been expanded to include “with the right documentation” and “using the right method.”



Not Just for Products The supply chain applies to any business or organization that you can think of, whether they are delivering a product or a service.

For example, you might not think that a hospital has a supply chain. Think again! What steps would need to be taken for a patient to have surgery?

• A building would need to be present with the necessary facilities (operating room, hospital bed, etc.)

• Staff would need to be hired to register the patient, draw blood, perform anesthesia, perform the operation, manage the patient’s recovery, and perform housekeeping tasks

• Surgical tools and supplies would need to be procured • The entire process would require support staff, such as finance and human resources

Regulations and Rules DO YOU KNOW THE RULES?

Many areas of supply chain management are highly regulated. This can include:

• Customs and duty requirements • Transportation regulations (such as how many hours per day or week that a truck driver can

drive) • Labelling and handling of hazardous goods • Tracking and traceability of products like pharmaceuticals and restricted chemicals • Food handling and refrigeration requirements • Security requirements

Be sure that you know what rules apply to you for the areas that you operate in.



RESOURCES TO CONSIDER

Here is a list of supply chain and logistical organizations around the world. Please note that this list was accurate at the time of printing. (Kalahari Training Institute assumes no liability or responsibility for the content or accuracy of websites external to the company.)

Organization Region Website

African Center for Supply Chain Management - Was launched in 2011 with the aim of building a strong continental advocacy platform for logistics & supply chain with focus on Africa. It is a research based organization aiming to build knowledge & proffer solutions within its core competence and allied areas of influence. The centre is committed to specialized programs in global business, logistics and supply chain management and related fields.

Africa https://supplychain-africa.org/about-us/

African Institute for Supply Chain Research – AISCR is a leading Pan African research institute that conducts innovative research on supply chain management to support continental wide sustainable development and inclusive growth.

Building supply chain management and leadership capability sits at the heart of AISCR. AISCR is positioned to play an important role in ensuring business executives and public sector executives who are able to develop a broader view, and constructively employ smart and well researched supply chain management instruments, both locally and internationally to enhance quality and margin management. Through this, AISCR enables the building of competitive institutions so that business can responsibly generate the growth that the continent desperately needs.

Africa https://www.aiscr.org.za/

Supply Chain Asia - Supply Chain Asia is a not-for-profit professional body that aims to bring professionals from within the logistics and supply chain industry together to share knowledge, learn from one another and create opportunities for collaborations.

The three main focuses of SCA are connecting people from various sectors of the industry, encouraging communication amongst professionals, and creating opportunities for collaborations. The four main pillars of the organisations are memberships, events, academy and publication.

Asia http://www.supplychainasia.org/




Supply Chain and Logistics Association of Australia - The Supply Chain and Logistics Association of Australia (SCLAA) is Australia’s largest association for Supply Chain and Logistics professionals and practitioners. They have over 3,300 members and industry contacts. The SCLAA has the proven history, governance framework, established representation, value for money and strategic reach to make it the right choice.

Australia https://www.sclaa.com.au/

Supply Chain Canada - The Supply Chain National Office is responsible for developing education and accreditation programs, national branding, federal government relations and international strategic alliances.

Institutional partners are responsible for communicating with their membership, recruiting new members and conferring SCMP designation.

Canada https://www.supplychaincanada.com/

Association for Supply Chain Management - ASCM is the global leader in supply chain organizational transformation, innovation and leadership. As the largest non-profit association for supply chain, ASCM is an unbiased partner, connecting companies around the world to the newest thought leadership on all aspects of supply chain. ASCM is built on a foundation of APICS certification and training spanning 60 years. Now, ASCM is driving innovation in the industry with new products, services and partnerships that enable companies to further optimize their supply chains, secure their competitive advantage and positively impact their bottom lines.

Global https://www.ascm.org

Institute for Supply Management - The Institute for Supply Management® (ISM®) is the first and largest not-for-profit professional supply management organization worldwide. Founded in 1915, ISM has over 50,000 members across 100 countries.

For more than a century, Institute for Supply Management® (ISM) has impacted supply management and the purchasing profession through best in class education, certification, leadership development and research. Thousands have received ISM's coveted certifications

Global https://www.ismworld.org/




including the Certified Professional in Supply Management (CPSM) and Certified Professional in Supplier Diversity (CPSD) designations. We continuously evolve as the profession evolves and help lead and advance the profession of supply management.

European Logistics Association - ELA, the European Logistics Association, is a federation of 30 national organisations, covering almost every country in Central and Western Europe as well as European Union's outermost regions, in the Caribbean (Martinique French West Indies).

ELA aims to provide an international forum for networking, the promotion and development of the logistics and supply chain profession.

Central

Western Europe

http://www.elalog.eu/

Logistics and Supply Chain Management Society - The Logistics & Supply Chain Management Society is the regional professional body for Logistics practitioners. Practically all areas of the Logistics spectrum are represented in the Society. Shippers, Freight Forwarders, Academics, Students, Carriers, Personal Effects Movers and other individuals and organisations form our core. With an emphasis on commercial experience and expertise the Society are the lead platform for the development of Logistics in the region and work with our members, government, organisations and professionals in raising the profile and expertise through a range of activities. Like most professional bodies, the Logistics & Supply Chain Management Society emphasises a commitment to ongoing education and encourages performance consistent with a generally agreed body of knowledge or standards. Members are recognised as members of a professional body through the work we continue to perform.

Singapore http://lscms.org/

American Production and Inventory Control Society (APICS) –

APICS Vision Statement - the world’s leading community for end-to-end supply chain excellence.APICS Mission - Fostering the advancement of end-to-end supply chain management through a body of knowledge, innovative research, systems, and methods to create value for customers, members, and organizations.

United States http://www.apics.org/



Session Three: The Evolution of the Supply Chain The field of supply chain management has come a long way since its earliest iterations during the industrial revolution of the 18th and 19th centuries. Manufacturing processes have become more sophisticated, the range of products available is increasing exponentially, and the way that consumers purchase goods has changed.

In this session, we will trace the evolution of the supply chain from Henry Ford’s car manufacturing factories, to the virtual integration model, to just-in-time processes seen today.

Vertical Integration Model One of the earliest iterations of the industrial supply chain was the process used by Ford to make cars. They owned farms, mines, and factories to make all of the different elements needed for a car. Raw materials like steel, lumber, and cloth were then turned into parts, tires, and seats, and then assembled together to make a car.

With this model, all supply chain functions are done in-house, as shown in the model below.

As the 20th century progressed, more products became available for purchase and customers began to expect more options and higher levels of service. Henry Ford’s old motto of, “Customers can have it [the Model T] in any colour, as long as it’s black,” no longer sufficed.

As products became more specialized, companies started to become more specialized as well. Instead of producing everything themselves, they leveraged partnerships so that they could focus on their core skills. This enabled companies to be more responsive and flexible, and to produce a wider variety of products.

This results in a model where different companies come together to perform different functions of the supply chain, as shown overleaf.



What’s Next? The pace of change has accelerated greatly as we enter the 21st century. Companies have taken the virtual integration model to the next level, with real-time supplier integration, online tools to manage flow and products, and improved tracking and metrics. As a result, many supply chains today are more flexible and responsive than Henry Ford could have ever imagined.



Session Four: The Basic Supply Chain Structure Depending on what industry and organization you are looking at, the supply chain can be quite complex. Having a framework that we can apply across all supply chains can help us understand the key activities that drive success.

In this session, you will learn about the five key process areas in the supply chain: plan, source, make, deliver, and return. We’ll also consider the participants who perform activities in each area.

The Links in the Supply Chain The SCOR (supply chain operations reference) model, developed by 70 leading members of the manufacturing, distribution, and solutions supplier industries and in collaboration with the Supply Chain Council is a management tool. It is one of the most common representations of the flow of a typical supply chain. Its simplified version typically involves the stages described below.

PLAN

The first stage involves planning what will happen in the subsequent stages. This includes:

• Forecasting product demand • Prioritizing requirements and requests • Assessing current and required resources (people, machinery, technology, raw materials, etc.) • Planning to bridge resource gaps • Planning production and inventory levels • Establishing price points and sales strategies

SOURCE

The next stage involves procuring the items necessary to make the product. This includes:

• Ordering, receiving, and inspecting materials required • Ensuring that all necessary resources are in place • Receiving or issuing payment • Organizing materials and distributing goods to manufacturing

MAKE

Once all the pieces are in place, the product can be created. This includes:

• Requesting and receiving the materials and resources required • Manufacturing, testing, packaging, and releasing products • Managing manufacturing facilities

DELIVER

The fourth stage is all about getting the product to its destination, including:

• Customizing the product or service • Creating price quotes • Receiving, fulfilling, and invoicing customer orders • Managing data about customers and products • Managing accounts receivable, credit, and collections • Warehousing processes (such as picking and filling orders) • Shipping and transportation processes



RETURN

The final stage is handling any products that need to return to the distributor or manufacturer. This might include:

• Processing returns and defective merchandise • Managing recalls • Overseeing the process to replace merchandise • Managing warranties and guarantees • Recycling and re-use programs

Making Connections What would the supply chain for an apple look like?

PHASE 1: PLAN

• Determine how many apples will be sold • Choose locations for orchards, sorting facilities, packing facilities, and distribution centres • Determine what resources will be needed (such as planters, pickers, delivery trucks, drivers,

supervisors, and support staff such as finance and human resources) • Choose a supplier for trees • Make agreements with grocery stores • Develop brand name and bag packaging

PHASE 2: SOURCE

• Purchase land for orchard and trees • Hire staff • Lease or buy sorting facilities, packing facilities, distribution centres, and trucks • Purchase planting and picking equipment • Purchase pallets, boxes, bags, etc.

PHASE 3: MAKE

• Plant trees • Pick apples • Coordinate transfer of apples to sorting and packing facilities • Bag apples

PHASE 4: DELIVER

• Coordinate transfer of apples to distribution centres and grocery stores • Manage data about customers and products • Manage accounts receivable, credit, and collections

PHASE 5: RETURN

• Handle inquiries about decayed or inferior product • Manage replacement process • Handle issues with excess or short deliveries



Participants in the Supply Chain There are five main categories of participants in the supply chain.

PRODUCERS

This part of the supply chain is involved in the Source and/or Make phase of the supply chain. Their role is to produce raw or finished goods, or to perform a service.

Some examples of producers could include:

• A gold mine • A cattle ranch • A banana plantation • A surgeon • A software developer • A graphic designer

DISTRIBUTORS

This part of the supply chain is responsible for the Deliver and/or Return phases of the supply chain. They are the people who take the products from the producers and deliver them to retailers. They are often responsible for inventory and transportation functions.

RETAILERS

Retailers take inventory from distributors and sell it to customers. They are responsible for implementing, and in some cases designing, price and product strategies. Their role is to make sure that products are available when customers want them.

Increasingly, distributors are delivering the product directly to the customer without a retailer. Services like Amazon and Expedia eliminate the retailer and allow the customer to play a more active part in the supply chain.

CUSTOMERS

This is the end user of a product, whether it is an organization or an individual. They may be purchasing the product to use for manufacturing another product, or they may be the final user (referred to as the consumer of the product).

SERVICE PROVIDERS

This is the part of the supply chain that supports other functions. Often, they specialize in a particular area, like transportation, financial services, or warehouse management.

Designing your Supply Chain Look back at your pre-assignment. Write each activity that you identified with its related participants in the appropriate process box. Try to expand upon the information that you gathered based on what you have learned so far.

Phase 1: Plan Phase 4: Deliver

Phase 2: Source Phase 5: Return

Phase 3: Make



The Bullwhip Effect WHAT IS THE BULLWHIP EFFECT?

The bullwhip effect, also known as the Forrester effect, can disrupt flow throughout the supply chain. It describes the phenomenon where variations increase the farther that a supply chain activity occurs from the customer. It is called the bullwhip effect because that is what it looks like when represented as a graph:

CASE STUDY

Here is a simple example. A customer orders four units of an item. The retailer orders five units since that is the minimum order amount required by the distributor. The distributor then orders 10 units to save on shipping costs. The manufacturer makes 20 units since it is cheaper than making 10. We now have a supply of 20 units to meet the original demand of four.

Let’s say that 10 of these units are sent to the retailer. The retailer puts the extra six units on sale to get rid of the excess inventory. The sale causes a massive increase in demand, so the retailer orders 20 units the next time he places an order. The distributor thinks that the retailer knows something that he doesn’t about an upcoming trend, so he orders 50 units. The manufacturer may then increase production even further, perhaps to 100 units. This is the end spike shown in the graph above.

WHAT CAUSES THE BULLWHIP EFFECT?

The following factors can contribute to the bullwhip effect:

• Placing orders for goods based on incorrect data • Overreacting or underreacting to demand trends • Lack of visibility throughout the supply chain • Waiting to place a number of orders at once • Variations in price (such as increased/decreased price due to product availability or shortage) • Disruption in the supply chain (for example, shipping being delayed due to weather events)

HOW DO YOU MINIMIZE THE BULLWHIP EFFECT?

Supply chain management best practices can help minimize the bullwhip effect. This includes:

• Gathering and tracking accurate data from all levels of the supply chain • Developing visibility • Reducing complexity • Frequently evaluating product supply versus demand • Identifying risks and creating backup plans to mitigate their impact

Hint: One common industry where these wide variances occur is in oil and gas. Another example is in the high-tech industry, where manufacturers may struggle to keep up with demand at first and then over-produce.



Session Five: Supply Chain Drivers Another consistent factor within all supply chains is the drivers that impact each process area. These key elements can help supply chain professionals identify what is working and what isn’t.

In this session, you will learn about the five basic drivers: production, inventory, location, information, and transportation. You will also take an in-depth look at the different transportation methods preferred around the world.

Driving Success There are some key drivers that impact each process area’s efficiency and effectiveness. Here is a brief look at the top five drivers.

PRODUCTION

The quantity and quality of the product, manufacturing schedule, and manufacturing methods used can all impact the supply chain. Consider:

• Product and material life cycles • Where materials are going to be sourced from • Where finished products are going to be distributed to • What kind of specialization that manufacturing processes require • Whether the production of similar items can be consolidated • How manufacturing products can be optimized

Manufacturing too much product can result in waste, but manufacturing too little can result in lost revenue and inefficiencies. Determining the maximum required product quantity and building facilities to accommodate that capacity is crucial. Building flexibility into manufacturing processes is also important.

INVENTORY

How much product is stored, how it is stored, and how it is retrieved are key drivers in the Make and Deliver phases of the supply chain. Ways to improve inventory performance might include:

• Improving warehouse setup to streamline how orders are picked, packed, and loaded onto trucks

• Evaluating truckload capacity • Cross-docking (where materials are unloaded from one truck and directly onto others for

distribution) • Implementing electronic data interchange (EDI) systems, which automates inventory

procedures by electronically processing invoices and purchase orders • Switching to vendor managed inventory where appropriate

LOCATION

Choosing the right location for manufacturing, warehousing, and distribution is crucial to getting products to the right place at the right time. For example, when Wal-Mart started constructing distribution centres in the 1980’s, they revolutionized the logistics of their supply chain. Instead of having vendors distribute products to multiple stores, massive distribution centres were built in key locations and distributed products directly to stores. Many companies have adopted and improved this strategy.

To optimize your location, consider whether your organization will benefit from many locations close to your customers (like Wal-Mart) or a few central locations serving a wide area (like Costco). This will involve some of the data that we looked at for production, such as where goods are sourced from, manufactured, and delivered to (warehouses, distribution centres, or directly to stores).



INFORMATION

This driver gives you the data to make decisions about all the other drivers, impacting every phase of the supply chain. It serves as the basis for planning, forecasting, and coordinating supply chain activities.

More than ever, companies have complete, accurate, real-time data about all aspects of their supply chain. In addition to specific supply chain software programs, the following types of systems can provide key information and automate processes.

• Electronic Data Interchange (EDI) • Enterprise Resource Planning (ERP) • Transportation planning and scheduling • Logistics management • Order management (including invoicing, shipping, and receiving functions) • Inventory management • Life cycle planning • Accounting and financial management • Manufacturing Execution Systems (MES) • Warehouse Management Systems (WMS) • Product demand forecasting and planning • Employee scheduling and time management • Customer Relationship Management (CRM) • Sales Force Automation (SFA) • Enterprise-wide suites that coordinate all types of data, such as SAP • Online portals to share information within and outside the organization

However, implementing and managing these systems can be expensive, requiring costly software, specialized staff members, and time. Executive-level guidance to ensure that the right systems are in place, providing the right information to the right people, is a critical step for leveraging information to help your supply chain succeed.

TRANSPORTATION

In the United States alone, companies spent over $836 billion on transportation in 2013. It’s crucial that your transportation network is efficient and cost-effective.

There are four main modes of transporting goods: land, sea, air, and rail. There are also commodity-based delivery methods, such as oil pipelines and virtual or digital delivery methods (such as the Internet).

You can decrease your transportation costs by:

• Shipping full truckloads (FTL) rather than less-than-full truckloads (LTL) • Analysing the products that you ship, its value, and customer requirements • Understanding rules and regulations in the areas that you operate and the associated costs

(licensing, insurance, border fees, etc.) • Choosing the right transportation method(s) and carrier(s) for your needs • Analysing shipping patterns and high/low cost areas • Developing partnerships with other companies, carriers, and distributors • Developing preferred/core carrier programs • Using software programs to help gather, measure, analyse, and forecast data • Using intermodal containers, which can be easily moved from a truck to a rail car or a freight

ship



Choosing the Right Transportation Methods Transportation is arguably the biggest driver behind the success of a supply chain. The method of transportation that you choose will depend on where your supply chain activities take place, your business strategy, your market, and your product. Let’s look at some trends in transportation methods around the world.

UNITED STATES

Here is a breakdown of the transportation modes used in the United States in 2013. As you can see, the majority of shipments were transported by land (using trucks and other motor carriers).

(Source: 24th Annual State of Logistics Report, available at http://cscmp.org/member-benefits/state-of-logistics)

EUROPE

Freight movement in Europe relies much more heavily on rail, although trucking still plays a significant role. Here is the breakdown for 2013.

(Source: European Commission of Mobility and Transport, http://ec.europa.eu/transport/facts-fundings/statistics/pocketbook-2013_en.htm)



JAPAN

Japan, on the other hand, relies heavily on marine transport. Although land transportation plays a significant role, very little freight is transferred by rail. Here is the specific breakdown for 2011.

(Source: Ministry of Land, Infrastructure, Transport, and Tourism, http://www.stat.go.jp/english/data/handbook/c0117.htm#c09)

AUSTRALIA

Finally, mainland Australia (excluding Tasmania) has a more equal split between land, sea, and rail. Here is the split from 2009-2010 (the last year when data for rail freight was available).

(Source: Bureau of Infrastructure, Transport, and Regional Economics; https://www.bitre.gov.au/publications/2013/files/INFRA1886_R_BITRE_INFRASTRUCTURE_YEARBOOK_0813_web.pdf)



MAKING CONNECTIONS

Look at the supply chain diagram that you created in the last session. Consider how each of the drivers (production, inventory, location, information, and transportation) impacts each area. Then, write down some ideas for improvement in each process.



Session Six: Aligning Your Supply Chain with Business Strategy One of the main goals of supply chain management is to create a holistic approach that builds long-term advantages for all aspects of the business. It only makes sense, then, that supply chain practices be tied to the business’ strategy.

In this session, we will explore the key steps in aligning the supply chain with business strategy. This will include identifying the market, performing market analysis, identifying steps and participants in the supply chain, analyzing data, and taking action.

Identifying Your Market INTRODUCTION

Ultimately, your business is all about getting your products and/or services to customers in a responsive, efficient, effective fashion. Designing your supply chain to support your business’ strategy can help you achieve those objectives and give you a competitive edge.

Understanding Your Market Type The first step is to understand the type of market your products and services are in, and the related supply and demand. Here is a diagram outlining the four major market types and what kind of supply and demand they usually have.

Let’s take a closer look at each category.

DEVELOPING

This is the category that new, unknown products fall into. Supply is low and so is demand. For example, think of a new smartphone that has just been released, but has not attracted major attention yet.

GROWTH

As the product grows and becomes more well-known, demand will grow. However, supplies may struggle to keep up. At this stage, monitoring, growing, and supporting the supply chain are important steps for the product to succeed.

Continuing with our smartphone example, at this stage it has finally attracted attention. Manufacturing cannot keep up with the demand and customers are anxiously waiting for the product.



STEADY

This is the ideal phase for most products. Supply and demand are relatively high. A strong supply chain can ensure constant flow of the product to customers and a steady influx of revenue for the company.

In our example, at this stage the new smartphone has been around for almost a year. All orders have been fulfilled and stores are able to stock the new phone for immediate purchase.

MATURE

At this stage, the demand for the product has dropped, but supply may still be high. It’s important to pay attention to the supply chain to ensure that manufacturing stops at the right point and that inventory is sold off efficiently to prevent waste and lost revenue.

With our smartphone example, this is the time when retailers put the current smartphone on sale in anticipation of the next version soon being released.

Identifying What Your Market Wants and Needs Once you understand where your product or service fits within the market, you can analyze what the market’s requirements are. This might include questions like:

• What service time are customers looking for? Do they expect quick service or is a longer delivery time acceptable?

• What kind of service do customers expect with the product? For example, users downloading a free product on the Internet probably don’t expect much support. However, if the software is an expensive, enterprise-level system, expectations will be far higher.

• What is the value of the product and what expectations are inherent with that? For example, if customers order an expensive watch, they probably won’t be impressed with low-quality Styrofoam packaging.

• What level of customization do customers expect? For example, in the 1930’s a black Model T was one of the only cars available on the commercial market. Now, customers have a much wider variety of choices.

• How long is the life cycle of the product? Today, users often replace their cell phone every year. A purchase like a car or home, however, is a much longer-term investment.



MAKING CONNECTIONS

Considering your own product or service, answer these questions.

What service time are customers looking for?

What kind of service do customers expect with the product?

What is the value of the product?

What expectations are inherent with that?

What level of customization do customers expect?

How long is the life cycle of the product?



Looking at Your Role

DRAWING OUT THE SUPPLY CHAIN

Now, look at the supply chains that your organization is a part of. For each chain, draw out the steps and activities based on the five process areas that were covered earlier.

IDENTIFYING YOUR ROLE IN THE SUPPLY CHAINS

Next, identify your participation in each of these supply chains. Remember our discussion earlier about the five types of supply chain participants:

• Producers • Distributors • Retailers • Customers • Service Providers

You may have a different role in different supply chains. For example, let’s say that you manufacture computer chips. Your supply chains might look like this:

• Customer of parts required for computer chips • Producer and distributor of computer chips • Wholesale retailer of computer chips • Service provider for support to wholesale customers

Analysing the Data IDENTIFYING YOUR STRENGTHS AND WEAKNESSES WITH SWOT

Now that you understand what supply chains you are part of, take a close look at your role in each supply chain. One way to organize this information is using a SWOT analysis.

SWOT stands for the strengths, weaknesses, opportunities, and threats facing your supply chain. The strengths and weaknesses are usually considered to be internal, while the opportunities and threats are generally external. This analysis helps you ask yourself, “Where are you now?” This is really your situation analysis or inventory, and it gives you an opportunity to take stock of the overall health of your supply chain.

One mistake that people make in doing a SWOT analysis is that they look at the whole picture and use very general statements. Make sure that you are ready to spend a bit of time when you undertake a SWOT analysis so that you are producing an accurate description of what is going to affect your supply chain and its supporting strategy. As well, make sure that you are analysing specific areas. For example, if you have multiple roles in a supply chain, do an analysis for each role.



SAMPLE SWOT

Here is a sample SWOT analysis for Maxim Technology, a producer and distributor of computer chips.

Taking the Next Steps IDENTIFYING WHERE YOU WANT TO BE

Now that you have some solid information, you can examine your roles in the various supply chains, determine what aspects support your business strategy, and decide what aspects are not part of your business strategy. You may choose to remove yourself from certain supply chains, outsource particular functions, or change processes to take advantage of your strengths and minimize your weaknesses.

LEVERAGING DRIVERS TO SUPPORT YOUR ROLES

You can also leverage the supply chain drivers that we looked at earlier to improve your supply chain performance.

Driver Aspects to Consider

Production • Capacity • Flexibility • Level of specialization • Responsiveness

Inventory • Level of inventory • Range of items kept in stock • Processes used to manage inventory

Location • Distribution of manufacturing facilities, warehouses, and customers • Centralization or localization



Driver Aspects to Consider

Information • Collecting timely, accurate, complete data • Determining what data to share with others in the supply chain • Balancing cost of information with data requirements • Using data to automate processes

Transportation • Determining optimum method and size of shipments based on market information and requirements

• Modifying shipment method based on economic and regional factors

What other aspects would you consider for each driver?

Possible Answers:

Production:

• Amount of raw materials available • Price of raw materials • Workforce availability to undertake production

Inventory:

• Storage space for inventory

Location:

• Cheaper production/labour/energy costs

Information:

• Selling data itself as a product • Using data to refine marketing approach

Transportation:

• Possibility of delivery by drones • Changing transportation rules/regulations

MAKING CONNECTIONS

CASE STUDY

You are the CEO for Maxim Technology, a computer chip manufacturing firm. Your business’ vision is to build the most reliable, cutting-edge computer chips possible. Overall, the business is doing pretty well, although there are some gaps in your supply chain that you would like to resolve.

Your organization currently participates in four supply chains:

• Customer of parts required for computer chips • Producer and distributor of computer chips • Wholesale retailer of computer chips • Service provider for support to wholesale customers

Your main area of focus right now is the production and distribution of computer chips. Your team has prepared the following SWOT analysis for the supply chain in this area.



QUESTIONS

What aspects of the supply chain support Maxim Technology’s vision?

What aspects of the supply chain are extraneous to Maxim Technology’s vision?

How could you leverage production drivers to strengthen the supply chain?

How could you leverage inventory drivers to strengthen the supply chain?

How could you leverage location drivers to strengthen the supply chain?

How could you leverage information drivers to strengthen the supply chain?



How could you leverage transportation drivers to strengthen the supply chain?

What are your top three strategies for improving Maxim Technology’s supply chain processes?



HINTS

What aspects of the supply chain support Maxim Technology’s vision?

Maxim Technology has strong manufacturing processes in place, supporting their vision of being a top manufacturer.

What aspects of the supply chain are extraneous to Maxim Technology’s vision?

Although warehousing and distribution are important parts of the supply chain and business structure, they are not a core focus of the business.

How could you leverage production drivers to strengthen the supply chain?

Processes could be reviewed to see how the extra 20% capacity in the manufacturing system could be used.

How could you leverage inventory drivers to strengthen the supply chain?

Warehouse processes need to be reviewed and overhauled. Maxim Technology may want to consider outsourcing this area of the supply chain.

How could you leverage location drivers to strengthen the supply chain?

An additional facility is needed as a backup plan in case political unrest disrupts one of the key plants.

How could you leverage information drivers to strengthen the supply chain?

Improved electronic systems and data gathering could increase accuracy in predicting product demand. As well, a unified information management system (incorporating warehouse management and transportation planning) could improve supply chain flow.

How could you leverage transportation drivers to strengthen the supply chain?

Loading and shipping processes could be reviewed to ship full truckloads, saving money and reducing the company’s carbon footprint. Analysis of the new rail system should also be performed to see if it is a viable option for shipping.

What are your top three strategies for improving Maxim Technology’s supply chain processes? • Analyse warehouse processes to determine if they should be overhauled or outsourced • Analyse shipping processes to determine if they should be overhauled or outsourced • Implement unified information management system



Session Seven: Managing Supply Chain Risks As supply chains become longer and more complex, the associated risk increases too. It’s important to identify what risks face your supply chain, what their impact might be, and how you can mitigate their influence.

In this session, we will explore some of the most common supply chain risks, as well as mitigation strategies that can be applied to each. If you’re interested in more in-depth information, check out our Risk Management course.

Supply Chain Risks Here are some of the top risks that can negatively affect supply chains.

SEVERE WEATHER EVENTS

There is no doubt that weather events such as hurricanes and tornadoes are increasing in frequency and severity. Similar events can have a major impact on the flow of a business’ supply chain and its profits. For example, after the 2011 earthquake and tsunami in Japan (as well as the flooding in Thailand), Toyota’s profits fell by $18.6 million (138.7 million Pula) due to severe disruption in their supply chain, particularly with their manufacturing facilities.

POLITICAL UNREST AND TERRORISM

Unrest caused by disruptions in the political system of a country or terrorist activity can wreak havoc in a supply chain. Shipments can be delayed or intercepted, factories may shut down, and workers may be unavailable.

Terrorism can also impact how supply chain management activities are performed. For example, after the September 2001 terrorist attacks in the United States, customs and security procedures changed dramatically, altering the way millions of companies did business.

LOSS OF CONTROL THROUGH OUTSOURCING AND GLOBALIZATION

Many organizations outsource key processes (including product sourcing, manufacturing, and distribution). This can result in a loss of control over processes, quality, and the end product itself.

For example, in 2012 and 2013, European food safety agencies discovered that ground beef being sold in supermarkets contained undeclared horse and pork meats. The errors were traced back to slaughterhouses in Romania and Poland. The supply chains that were responsible involved multiple re-distributors, requiring lengthy and extensive investigation by several different food safety agencies.

INCREASED SPECIALIZATION

In an effort to reduce costs, many companies manufacture products at only one or two facilities. If those facilities are damaged, the supply chain may not be able to complete manufacturing activities.

For example, the potato chip snack Pringles™ used to be made in only two factories: one in Jackson, Tennessee and the other in Mechelen, Belgium. When severe tornadoes struck the Jackson, Tennessee facility in 2003, production (and subsequent revenues) was so severely impacted that parent company Procter & Gamble suspended North American distribution for several weeks.

THE GREAT SHUTDOWN: HOW COVID-19 DISRUPTS SUPPLY CHAINS

It is believed that the COVID-19 pandemic will reduce global exports of manufacturing inputs by at least $228 billion (2,567 trillion Pula) due to supply-chain disruptions.

To read the Full Blog, see https://www.intracen.org/covid19/Blog/The-Great-Shutdown-How-COVID19-disrupts-supply-chains/



Mitigation Strategies No matter what type of risk exists, the result is the same: possible disruption to the supply chain. Here are some strategies that you can use to minimize risks and reduce the impact of these events.

CONSIDER THE BIG PICTURE WHEN MAKING DECISIONS

Sometimes the best way to mitigate a risk is not to place the supply chain in a vulnerable position. For example, let’s say that your organization can save a million dollars a year by moving all manufacturing facilities to a region that is highly vulnerable to flooding for eight months of the year. You must also consider the possible impact to the supply chain and business revenues if manufacturing is disrupted for a significant period. Are the savings worth it?

TRANSFER RESPONSIBILITIES TO OTHER PARTNERS IN THE SUPPLY CHAIN

Transferring responsibility to the partners performing the actual activities can motivate them to reduce risks and improve the resiliency of the supply chain. For example, some organizations have a profit sharing program with their logistics provider. If the supply chain is disrupted, so are profits, and the logistics provider sees a direct reduction in their profits as well.

EXTEND VISIBILITY THROUGH THE SUPPLY CHAIN

Give all the members of the supply chain as much information as possible about what’s happening in the supply chain. As well, make sure that your organization knows what’s happening every step of the way. This can be achieved through information management systems and supply chain teams that have members from all partners involved.

IDENTIFY YOUR PRIORITIES AND CREATE A BACKUP PLAN

Your organization should have a clear picture of the critical steps in its supply chain. Then, those critical items should each have a backup plan. Here are a few examples.

Critical Path Step Risk Backup Plan

Product crosses border from country A to country B to complete manufacturing

Significant political unrest between countries A and B often leads to border closures

Increase transport time by three hours and use border crossing between countries C and D instead

All products require a widget to complete production

Widget is only manufactured in one plant

Create agreement with one manufacturing facility near each production plant to create widgets if primary widget plant is disrupted

Information is shared with suppliers through a single system (SupplyNet)

SupplyNet operates from a single office and goes down if power is lost

Create backup servers so that service is not disrupted

STAY ON TOP OF INVENTORY PLANNING

Ensure that your inventory planning reflects the risks facing your supply chain. This could include reducing the time it takes for products to get from the manufacturing facility to the end user, simplifying the supply chain so that products have fewer steps to take (and thereby face fewer risks), or building up safety stock during times of potential crisis.



Session Eight: Tracking and Evaluating Supply Chain Data There are a variety of metrics that humans use to evaluate their health, such as blood pressure, pulse rate, cholesterol level, and weight. Similarly, there are key metrics that will help you determine how healthy your supply chain is.

In this session, you will learn what benchmarking is all about. You will also learn about some benchmarking tools (including the balanced scorecard, SCOR model, and dashboards) as well as how to use ratio analysis.

Ratios and Formulas Introduction Gathering, tracking, and measuring data is an important part of measuring the success of your supply chain. Here are some common ratios and metrics that can provide you with insight into the efficiency and responsiveness of your supply chain.

Business Metrics First, let’s look at some basic metrics that can help you evaluate the overall health of the business.

NET AND GROSS PROFIT MARGIN

These two ratios measure the amount of money that the business earns as a percentage of overall revenue.

Gross profit margin takes into account only the cost of making the product or service. Therefore, its equation looks like this: 𝐺𝑟𝑜𝑠𝑠 𝑃𝑟𝑜𝑓𝑖𝑡𝐺𝑟𝑜𝑠𝑠 𝑆𝑎𝑙𝑒𝑠

The net profit margin shows what the business has earned after selling its products and paying all expenses – the true bottom line. Its equation is: 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡 (𝐴𝑓𝑡𝑒𝑟 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥𝑒𝑠)𝐺𝑟𝑜𝑠𝑠 𝑆𝑎𝑙𝑒𝑠

The results of both equations are expressed as a percentage.

COLLECTION RATIO

This ratio shows the number of days it takes for your business to get paid for sales where you are providing credit. Here is the formula: 𝐴𝑐𝑐𝑜𝑢𝑛𝑡𝑠 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝑥 365𝐺𝑟𝑜𝑠𝑠 𝑆𝑎𝑙𝑒𝑠

INVESTMENT TURNOVER

This ratio shows the ability of your business to use its assets to generate sales income. Calculate it with this formula: 𝐺𝑟𝑜𝑠𝑠 𝑆𝑎𝑙𝑒𝑠𝐹𝑖𝑥𝑒𝑑 𝐴𝑠𝑠𝑒𝑡𝑠

A good indicator of the strength of the business is its ability to generate more and more sales from a stable asset base. If the ratio is declining, it can indicate that the growth of the business is not being met with a matching growth in sales proportionate to your investment in assets. In general, the higher the ratio, the stronger the business.



RETURN ON INVESTMENT

This analysis provides a clear indication of business profitability. It shows how much profit a business is able to generate in proportion to its net worth. The formula is: 𝑁𝑒𝑡 𝑃𝑟𝑜𝑓𝑖𝑡𝑁𝑒𝑡 𝑊𝑜𝑟𝑡ℎ

This figure shows what level of actual return you are getting on the money which you have invested in your company. Unless you are actively working toward a healthy return on your business investment, your business has little chance to grow and thrive. A respectable goal is to aim for a 12% return in order to remain healthy and viable.

REVENUE PER EMPLOYEE

This ratio shows how much money is generated per employee. A high ratio typically indicates high productivity. 𝑅𝑒𝑣𝑒𝑛𝑢𝑒𝑁𝑢𝑚𝑏𝑒𝑟 𝑜𝑓 𝐸𝑚𝑝𝑙𝑜𝑦𝑒𝑒𝑠

CASH TO CASH CYCLE

This formula calculates how long cash is tied up in the inventory process (including accounts receivable, accounts payable, and current stock). It is calculated using the following formula. 𝑅𝑒𝑐𝑒𝑖𝑣𝑎𝑏𝑙𝑒 𝐷𝑎𝑦𝑠 + 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦 𝐷𝑎𝑦𝑠 − 𝑃𝑎𝑦𝑎𝑏𝑙𝑒 𝐷𝑎𝑦𝑠

INVENTORY TURNOVER

This formula calculates how often inventory sells out and is replaced over a given period. It is most often calculated using this formula: 𝑆𝑎𝑙𝑒𝑠𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

It can also be calculated using this formula: 𝐶𝑜𝑠𝑡 𝑜𝑓 𝐺𝑜𝑜𝑑𝑠 𝑆𝑜𝑙𝑑𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝐼𝑛𝑣𝑒𝑛𝑡𝑜𝑟𝑦

ORDER FILL RATES

A variety of data can be gathered on how orders are filled, shipped, and delivered, including:

• Average time for order to be filled • Percentage of early, on time, and late orders • Percentage of perfect orders • Percentage of incomplete orders • Percentage of damaged orders • Accuracy percentage

These metrics can be tracked by order and/or by order line (each item in the order).

BACKORDER INFORMATION

Backorder information is another important set of data that should be tracked. Information to gather should include:

• How many backorders occurred in a given period • When the backorders were placed • What the value of the orders was • How long it took for the orders to be filled



Sales Metrics RETURN ON SALES RATIO

This ratio allows a business to determine how much net profit was derived from its gross sales. It is very similar to the Net Profit Margin but it factors in all expenses, including interest. 𝑁𝑒𝑡 𝐼𝑛𝑐𝑜𝑚𝑒 (𝐵𝑒𝑓𝑜𝑟𝑒 𝐼𝑛𝑡𝑒𝑟𝑒𝑠𝑡 𝑎𝑛𝑑 𝑇𝑎𝑥𝑒𝑠)𝐺𝑟𝑜𝑠𝑠 𝑆𝑎𝑙𝑒𝑠

This ratio tells us whether expenses are under control and whether the business is actually generating enough revenue to pay for its costs. The higher the Return on Sales Ratio, the better it is for the business.

FORECAST ACCURACY

This metric is very important for supply chain management. It compares sales projections to actual sales (typically by product units) for any given period.

The most common formula used to evaluate forecast accuracy is Mean Forecast Error: 𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠 − 𝐹𝑜𝑟𝑒𝑐𝑎𝑠𝑡 𝑆𝑎𝑙𝑒𝑠𝐴𝑐𝑡𝑢𝑎𝑙 𝑆𝑎𝑙𝑒𝑠

Multiply the results by 100 to calculate the error rate as a percentage.

RETURN RATE

This metric calculates what percentage of products were returned. Here is the formula: 𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑠 𝑅𝑒𝑡𝑢𝑟𝑛𝑒𝑑𝑃𝑟𝑜𝑑𝑢𝑐𝑡𝑠 𝑆𝑜𝑙𝑑

Multiply the results by 100 to calculate the return rate as a percentage.

What is Benchmarking?

What is Benchmarking? DEFINING BENCHMARKING

Benchmarking allows an organization to track specific metrics in the areas that matter most to them. These metrics are typically called key performance indicators (KPI’s). Benchmarking with KPI’s allows a company to objectively, accurately compare data against themselves at past points. It also allows for equivalent comparison against competitors, industry leaders, and best practices.

WHAT BENCHMARKS SHOULD BE MEASURED?

In order to get a holistic view of the health of your supply chain, it is important to measure products, processes, and services. Here are the four key categories that will need to be evaluated in order to determine how well the supply chain is performing, as well as some sample KPI’s in each area.

Category Sample KPI’s

Customer Service • Product is available when required • Product is of the desired/expected quality • Product is delivered in expected timeframe

Business Processes • Profit margins meet or exceed targets • Inventory meets targets such as cycle time, turnover time,

etc.

Development and Manufacturing • Processes are designed to optimize capacity and flexibility • Manufacturing times meet targets for quantity and quality



Supply and Demand • Processes can handle a level of uncertainty and disruption • Manufacturing can be adapted to handle upswings and

downturns • Product scope is clearly set (e.g. level of customization,

requirements for special orders)

(Please note that we have kept each KPI quite generic in order to maximize its applicability. Each KPI will need to be customized for the specific supply chain to include objective targets, such as a maximum defect rate of 0.01% or minimum production rate of 100 units per day.)

Ultimately, it’s the customer’s perception that counts the most. They are at the end of the supply chain and represent the culmination of all the steps within the chain. Examining their level of satisfaction is an important part of benchmarking.

The SCOR Model THE FOUR CATEGORIES

One of the most comprehensive models for supply chain benchmarking is the SCOR model developed by the Supply Chain Council. Although the details of the framework itself are copyrighted by the Supply Chain Council, we can share the basic structure.

The framework is based around the core process areas (plan, source, make, deliver, and return) that were covered in Session Four. For each process area, there are four levels of metrics:

• The first level sets basic performance targets that should remain the same no matter what type of supply chain is being evaluated. It focuses on the attributes that we have been discussing so far: reliability, responsiveness, agility (flexibility), cost, and assets.

• The second level sets out various process categories that can be customized depending on the supply chain. This also lets an organization customize the complexity of the model.

• The third level breaks out the various processes in more detail and allows organizations to fine-tune the processes, metrics, and best practices for each area.

• The top level focuses on taking excellence a step further with supply chain management best practices specific to the industry. The goal of this area is to give the organization a competitive advantage through their supply chain and to build flexibility even further.

SCOR AS A PYRAMID

The basic framework of SCOR is represented as a pyramid, with each level delving deeper into the supply chain processes.

More information on the SCOR model can be found at http://www.apics.org/apics-for-business/frameworks/scor

The Balanced Scorecard WHAT IS THE BALANCED SCORECARD?

The balanced scorecard is used to communicate, measure, and execute any type of strategic plan. It provides a balanced way of synthesizing the critical actions required to achieve the goals of your supply chain. It can also help you identify the supply chain’s strengths and weaknesses, provide a balanced overview of all elements, manage risks, and much more. It is particularly useful for supply chain management because of its holistic approach; it looks beyond basic financial results through to the underlying processes and non-tangible activities, and to the real drivers of the supply chain.



SAMPLE BALANCED SCORECARD

In the balanced scorecard below, you can see the four perspectives and their objectives in the yellow boxes. Then, each perspective contains specific actions and measures. We have included a few supply chain-oriented actions and measures, just to give you an idea of what it’s all about.



Supply Chain Management Dashboards ABOUT DASHBOARDS

Dashboards are an extremely useful supply chain management tool. Ideally, they should give you an at-a-glance image of how a particular aspect of how your supply chain is performing. Dashboards should also enable you to quickly gather data on key performance indicators, evaluate it against your targets, and compare it with past data.

Here is a simple dashboard created using Microsoft Excel and a set of add-ins. You can quickly see visual information and specific details about key aspects of the supply chain, including current and forecasted data. You can also see additional views and business areas accessible through the worksheet tabs at the bottom of the screen.

(Copyright for the above image belongs to Logistics Planning Associates, LLC, 2014. All rights reserved. Reprinted with permission.)

Creating a Supply Chain Dashboard System To choose the right dashboard system for your supply chain, follow these steps.

STEP ONE: GATHER THE TEAM

The first step is to create a cross-functional team with members from all supply chain functions. This should include representatives from the manufacturing, inventory management, logistics, and transportation teams, as well as members from supporting functions like information technology, finance, and human resources. Board-level members should also be on the team so that it has the authority to make and implement decisions.

Creating this type of team will ensure that all the necessary information is gathered so that a holistic solution can be created that will benefit the entire supply chain. It will also help the team create a solution that fits within the constraints of the organization (budget, resources, etc.).



STEP TWO: IDENTIFY THE PROBLEMS

As a team, identify the problems that you’re trying to solve with the dashboard. This might include:

• No easy access to real-time data • Multiple spreadsheets are being maintained in multiple locations by different people • Difficult to obtain data in a timely manner from different departments • Difficult to efficiently share correct data with outside partners (such as transport carrier, suppliers,

etc.) • Difficult to consolidate data into reports • Difficult to track key performance indicators and their impact on benchmarks

STEP THREE: DEVELOP A PROBLEM STATEMENT

Now, create one or more statements about the problems that the dashboard will solve. Make sure that each statement is specific and objective.

Here are some sample problem statements.

• We are currently unable to quickly access real-time data across the various areas of our supply chain system (particularly inventory, manufacturing, and distribution).

• On average, there is a two-day delay in delivering information to our suppliers. This information should be provided automatically in real-time via a secure supplier portal.

• It currently takes business analysts one week to compile data on key performance indicators and benchmarks. This data should be accessible real-time to the executive team.

STEP FOUR: DEVELOP A GOAL STATEMENT

Finally, bring the problem statements together to identify the goal for the dashboard system. Your goal statement should be specific, have measurable targets, and be reasonable. You may also want to include a target date for implementation.

In our working example, we might build a goal statement that looks like this: “Our ideal dashboard will give us access to real-time data across the inventory, manufacturing, and distribution areas of our supply chain system in order to easily build KPI reports and share data with our suppliers.”

STEP FIVE: DETERMINE WHAT DATA TO DISPLAY

Now you can identify what data you want the dashboard to display. Here are a few ideas for our sample goal statement.

Inventory • Number of units of each product in stock at each location • Inventory value • Order accuracy percentage

Manufacturing • Number of units waiting to be processed • Number of units being processed • Number of units processed and waiting for packaging • Number of units packaged and ready for shipment • Average wait time before unit is processed • Average wait time after unit is complete and before it is shipped

Distribution • Number of units out for delivery • Average delivery time • Map with GPS location of each truck with specific load and driver information

Once your list is created, mark each item as “nice to have” and “need to have.” Then, prioritize each list. This will help guide you when choosing a software package.



STEP SIX: LOOK AT THE OPTIONS

The final step is to look at a variety of systems and choose one that meets the supply chain’s needs and the organization’s. If the supply chain is small, then a simple Excel dashboard may suffice. For larger supply chains, a more comprehensive system may be required.

Here are some questions that you should ask about each system to help guide your decision.

• Will the dashboard reflect our goals and key performance indicators? • Can the dashboard plug into our current systems to provide real-time data? Having a dashboard

that relies on manually entered data will not usually be efficient or reliable. • Will the dashboard system meet our needs for the foreseeable future? Can modules easily be

added and removed? • Can the dashboard be customized on the fly to reflect the areas that we need information on? For

example, users should be able to easily access an overview of the entire dashboard and drill into specific data areas.

• Is dashboard security adequate? You may want to limit access to particular areas of information. However, be sure not to lock down the dashboard to the point where it reduces usability and functionality.

• Do we need to share information with people outside the company (such as transportation carriers and suppliers)? Does the dashboard provide an easy way to do that (such as through an online portal)?

• Is the dashboard accessible using all elements of our infrastructure, including desktop PC’s, tablets, and smartphones?

MAKING CONNECTIONS

CASE STUDY

ZoomFood prepares and distributes pre-packaged, frozen meals that are sold in grocery stores. Consumers can then purchase the meals and reheat them at home. Their business vision is, “To be the world leader in healthy, high-quality, pre-packaged meal solutions.”

Their business includes the following areas:

• Incoming Inventory: Raw ingredients (such as meat and vegetables) are received and stored until they are ready to be manufactured.

• Manufacturing: Raw ingredients are turned into pre-packaged meals, placed into containers, labelled, and flash frozen.

• Outgoing Inventory: Meal packages are boxed, placed on pallets, and stored in a warehouse freezer. When a grocery store places orders, boxes are picked from the appropriate pallets, re-palleted, and stored in a staging area inside the freezer.

• Distribution: Pallets are taken from the freezer, placed in freezer trucks, and taken to the appropriate stores.

Human resource and financial functions are also performed in-house.



Option One: Balanced Scorecard Identify some goals, actions, and measures for each scorecard area.



Option Two: Dashboard Identify some data areas and metrics that would be useful for the company described in the case study.

Data Area Useful Metrics

Examples OPTION ONE: BALANCED SCORECARD

Identify some goals, actions, and measures for each scorecard area.



OPTION TWO: DASHBOARD

Identify some data areas and metrics that would be useful for the company described in the case study.

Data Area Useful Metrics

Incoming Inventory • Incoming order accuracy • Waste in tons, broken down by cause • Average time to receive raw materials • Average time that materials are stored

Outgoing Inventory • Outgoing order accuracy • Waste in tons, broken down by cause • Average time to prepare products for distribution

Manufacturing • Time for each step of manufacturing (cooking, packaging, labelling, and freezing)

• Waste in tons, broken down by cause and type

Distribution • Percent of truckload capacity being utilized • Time that each delivery takes • Number of orders per day, week, and month



Session Nine: Troubleshooting Supply Chain Problems Supply chains are very complex systems, and it’s rare for everything to flow smoothly. Do you know what problems to watch for and how to handle them?

In this session, we’ll review some of the most common signs of trouble in a supply chain and techniques for resolving issues. We’ll also consider some best practices that industry leaders have used to make their supply chains successful.

Signs of Trouble in Your Supply Chain Once you start looking at your supply chain’s key performance indicators, you will probably discover some areas that aren’t performing as they should (whether in terms of processes or final output). Here are some signs of trouble that you should watch for and address.

Decision makers can’t find the data that they need when they need it.

If the supply chain management team is constantly getting requests for data that should be easily accessible, you may need to re-evaluate the information management system. Make sure that the data is accurate, complete, and easy to access. Dashboards and summary sheets may need to be re-configured to display the right information in the right context. Or staff members may need more training on how to use the software.

No one can tell you how forecasts were developed.

Some organizations still use subjective rules to forecast manufacturing and inventory demands (like, “We always order a bit less in July because business seems to be slower then.”). Forecasts should be developed based on calculations, metrics, and relevant data rather than rules of thumb.

Inventory is never present in the right amounts; either too much is being stored or customers are waiting too long for orders.

Does it feel like you can’t get on top of inventory management? That’s a clear sign that you need to evaluate your processes, gather KPI data, establish benchmarks, and optimize the system. You may also want to evaluate outsourcing options, which we will discuss in the next session.

Vital cycle times (such as transfer time between facilities, inventory storage time, and delivery times) are not consistent.

If cycle times are not consistent, then you will never be able to optimize the flow of goods in the supply chain. Reducing variables is the key to developing a reliable, efficient supply chain.

The supply chain lacks visibility.

Does this discussion sound familiar?

• “Where’s that shipment of widgets?” • “The one coming from the Commerce Park facility? I think it’s on a truck going to Lobatse.” • “I thought that was coming from Lobatse and going to the Acme Company?” • “I’m not really sure. I think our supplier MixCo was handling that whole delivery.”

The supply chain management team needs to know where all products are at all times. This can be achieved through supplier partnerships, information management systems, and clear responsibilities for all activities.



Supply Chain Best Practices THE TOP TEN SUPPLY CHAINS

According to consulting firm Gartner, here are the top 10 supply chains for 2019 and 2018:

2019 2018

Apple*

Proctor & Gamble*

Amazon.com*

McDonald’s*

Unilever*

Apple*

Proctor & Gamble*

Amazon.com*

McDonald’s*

Colgate-Palmolive

Inditex

Nestlé

PepsiCo

Cisco Systems

Intel

HP Inc.

Johnson & Johnson

Starbucks

Nike

Unilever

Inditex

Cisco System

Colgate-Palmolive

Intel

Nike

Nestlé

PepsiCo

H&M

Starbucks

*Masters Category. Highlights the accomplishments and capabilities of long-term supply chain leaders in the Top 25. Companies qualify for the Masters Category if their composite score places them in the top 5 rankings for at least 7 out of the past 10 years.

(Source: http://www.gartner.com/technology/supply-chain/top25.jsp)

Best Practices from Industry Leaders Here are some strategies that these organizations have used to overcome supply chain issues and ensure that the supply chain helps drive the organization’s success.

FOCUS ON CUSTOMERS

The supply chain should aim to deliver what customers want. For McDonald’s, that means consistent product availability and selection. For Amazon, that means fast, cheap delivery of a wide range of products. What do your customers want?

BUILD LONG-TERM RELATIONSHIPS

Successful organizations build partnerships with everyone who is involved in the supply chain. This improves decision making, widens visibility, and offers the opportunity for more creative solutions.

LEVERAGE INFORMATION MANAGEMENT

Organizations have more information at their disposal than ever, and more ways to manage and share that data. Making information management a key part of your supply chain strategy will improve accuracy and efficiency throughout the chain.



CONSIDER THE BIG PICTURE

Cross-functional teams and practices that serve the best interests of multiple areas of the business are crucial for supply chain success. Remember, supply chain management is about building long-term solutions that create positive results for everyone involved.

DEVELOP CROSS-FUNCTIONAL TEAMS

The importance of cross-functional teams to the supply chain cannot be overstated. Having perspectives from different areas of the business (such as sales, marketing, distribution, and information technology) can help build holistic solutions and avoid gaps in the supply chain.

USE PULL RATHER THAN PUSH

Build what the supply chain is demanding rather than trying to push out products that aren’t needed. Close attention to key metrics, supply chain benchmarks, and what’s happening in the industry can help the supply chain adapt and evolve with changing requirements.

In Lean process improvement, this is called Kanban.

“Kanban is like the milkman. Mom didn’t give the milkman a schedule. Mom didn’t use MRP [manufacturing resource planning]. She simply put the empties on the front steps and the milkman replenished them. That is the essence of a pull system.” (Ernie Smith, Lean Process Improvement facilitator at the University of Tennessee)

For Further reading on Kanban visit https://aktiasolutions.com/kanban-kanban-method/

LEAD AND INSPIRE

In order for the supply chain to be successful, strong leadership from the executive level is required. The leaders of top supply chains show their employees how the supply chain affects the world that they work, live, and play in, and what their role is in making that supply chain a success.



Session Ten: Sharing Supply Chain Activities The practice of sharing and outsourcing supply chain activities is becoming more common. Leveraging partnerships allows companies to focus on their core business and strengthen the supply chain with expert resources.

In this session, you will learn about outsourcing, insourcing, offshoring, and reshoring. You will also learn about third- and fourth-party logistics providers, as well as how to build relationships within the supply chain.

Outsourcing, Insourcing, Offshoring and Reshoring Increasingly, “manufacturing” companies are in fact becoming supply chain management companies. Companies like Dell and Nike no longer make their own products. Many of their manufacturing and distribution activities are outsourced, meaning provided by third-party companies.

In order to outsource the right activities, the organization must identify its core competencies. To do this, supply chain expert Jim Tompkins suggests defining the organization’s tasks using four categories.

PRIMARY CORE TASKS

These are activities that provide the business with a competitive advantage, such as scheduling, product design, etc. Typically, the organization’s core competencies lie in one or more of these areas and will not be outsourced.

SECONDARY CORE TASKS

These activities are crucial for business operation but not customer-facing, such as human resources and facility maintenance. These activities may be outsourced but are tightly controlled.

PRIMARY NON-CORE TASKS

This category represents activities that are not crucial for business operation but can have a negative impact on business partnerships, such as financial services and information technology. These activities may be outsourced but are tightly controlled.

SECONDARY NON-CORE TASKS

These activities are not crucial for business operation and are not customer-facing, such as janitorial or landscaping services at the head office. These activities are almost always outsourced.

Insourcing In recent years, some organizations have found that they took outsourcing too far, resulting in an excessively lengthy, complex supply chain. This has led to insourcing, where parts of the supply chain are moved back in-house to be performed by internal employees or by contractors who are working inside the facility. This gives the organization better control over key tasks that impact their supply chain.

Offshoring Offshoring is a specific type of outsourcing that refers to moving parts of a business’ operations outside its native country. For example, in the early 2000’s Dell moved most of its customer support operations from the United States to call centres in India. Similarly, after the Pringles debacle in 2003, Procter and Gamble constructed additional manufacturing facilities in China and Thailand.

Reshoring However, some companies have found that the disadvantages of outsourcing outweigh the financial benefits, leading to a trend of reshoring (bringing operations back to the business’ home country). Continuing with the Dell example, customer satisfaction dropped significantly after call centres were moved offshore. Executives realized that customer service was, in fact, a key activity for their technology sales business and chose to move most of the support operations back to the United States by 2004.



Third- and Fourth-Party Logistic Providers THIRD-PARTY LOGISTIC PROVIDERS (3PL’S)

A third-party logistics provider is a company that manages the logistical or operational aspects of a supply chain for another organization.

According to the 2020 Third Party Logistics Study – The State of Logistics Outsourcing: Result and Findings of the 24th Annual Study by John C. Langley, Jr., Ph.D., and Infosys; the most commonly outsourced 3PL activities are:

(Source: 2020 Third Party Logistics Study – The State of Logistics Outsourcing: Result and Findings of the 24th Annual Study by John C. Langley, Jr., Ph.D., and Infosys)

FOURTH-PARTY LOGISTIC PROVIDERS (4PL’S)

Also known as Lead Logistic Providers (LLP’s), fourth-party logistic providers oversee the activities of 3PL’s and the entire supply chain. If you look at 3PL’s like the various contractors that might work on a construction project, 4PL’s are like the general contractor.

ADVANTAGES OF 3PL’S AND 4PL’S

In today’s highly complex world, outsourcing distribution and logistics functions can provide companies with significant advantages. Specialized 3PL’s can help optimize warehousing processes, inventory management, and transportation methods to reduce costs. They may also be more in touch with regulations, trends, and new ideas, making your supply chain more efficient, adaptable, and in tune with current best practices. As well, 3PL’s may have a better understanding of what data to track, what the numbers mean, and what processes to change as a result.

4PL’s can take these advantages a step further, extending their expertise to the entire supply chain and providing a more comprehensive approach. Instead of dealing with just a small part of the supply chain, they can oversee and coordinate all partners to ensure the best flow possible.



DISADVANTAGES OF 3PL’S AND 4PL’S

Of course, there is always some risk of outsourcing any activity, particularly crucial activities that the supply chain relies on. It can be difficult for different companies to get on the same page, and for your organization to effectively monitor what is happening in the supply chain. However, as the number of 3PL’s and 4PL’s grows, so does their understanding of what it takes to make the process work. The 2014 3PL study cited earlier found that 93% of shippers and 99% of 3PL’s are satisfied with their relationships with each other.

Be aware that outsourcing can be an expensive activity, and 3PL’s and 4PL’s often require a lengthy contract. Your organization may find itself stuck with a partner who isn’t contributing to the supply chain as expected. To avoid this, it’s important to do extensive research and be clear about expectations and results. Your job is to understand the needs of your supply chain, choose the right partners, and stay involved in the process to ensure that results continue to be delivered.

Building Partnerships within Your Supply Chain As supply chains grow to include more partners and elements, companies have realized that a new approach is needed in order to be successful. Here are some of the strategies that top supply chains have used to build long-term relationships with their network.

UNDERSTAND THAT YOUR FAILURE OR SUCCESS IS INTERTWINED.

The success of each member of the supply chain depends on the other members. For example, let’s say that you know that the way Supplier A is manufacturing their product results in re-work and waste when Supplier B packages and pallets it. You decide that it’s their problem, not yours… until revenues are 20% less due to the extra costs.

BUILD WIN-WIN SOLUTIONS AND STRATEGIES.

It therefore makes sense to develop top-level strategies and solutions that benefit all members in the supply chain, as well as the consumer. This might include partnerships between organizations, rewards based on performance for all partners, and developing an overarching mission statement for the supply chain.

CREATE END-TO-END VISIBILITY.

All partners in the supply chain should be able to see all activities, especially those that are directly related to their own processes. Information sharing is a major support to supply chain visibility. Ensure that all partners have access to appropriate, up-to-date information. Communication processes and information sharing policies can help ensure everyone is kept in the loop.

DEVELOP CROSS-FUNCTIONAL TEAMS.

Where possible, create teams with involvement from different supply chain partners. These teams can be used to manage day-to-day issues, drive operational strategy, develop ideas for improvement, and ensure continued collaboration.



Session Eleven: Sustainable Supply Chain Strategies As natural resources decrease and the toll on our planet increases, supply chain management professionals are looking for ways to reduce the impact on the environment.

In this session, you’ll learn what sustainability means in general and for supply chain management. You will also learn some sustainable strategies for each of the five key process areas (plan, source, make, deliver, and return).

What is Sustainability? Defining Sustainability The United Nations defines sustainability as, “A decent standard of living for everyone today without compromising the needs of future generations.”

In business, we can help promote and support sustainability by looking at profit as having three different elements. This is referred to as the triple bottom line.

WHAT DOES SUSTAINABILITY MEAN IN THE SUPPLY CHAIN?

For supply chain management, that means ensuring the long-term success of the business as well as the communities that it serves. This often includes strategies like:

• Reducing the carbon footprint (greenhouse gas emissions) • Paying a fair price for products • Ensuring that workers at home and abroad are treated fairly, with good working conditions and

compensation • Reducing the amount of natural resources consumed where possible • Optimizing transportation of goods (for example, consolidating truckloads or switching to low-

emission vehicles)



Currently, many sustainability measures are voluntary and considered best practice. However, many areas of the world are beginning to implement regulatory measures and fees, such as carbon taxes (a charge that a business would pay based on its greenhouse gas emissions). It is certainly beneficial for companies to be ahead of the changes and to establish their best practices before regulations are implemented.

THE BENEFITS OF SUSTAINABILITY

Switching to more sustainable options can save the supply chain money in several different ways. Clearly, using fewer resources (such as packaging, water, or power) will reduce costs. Optimizing transportation methods can also save significant amounts of money. Organizations like the U.S. Voluntary Inter-Industry Commerce Solutions Association (VICS) and the U.K.’s Institute of Grocery Distribution (IGD) have enabled and facilitated cross-company transport sharing, saving companies billions of dollars, reducing the amount of fuel consumed, and decreasing vehicle pollution.

Sustainability measures also have an impact on the reputation of a business and their public image, particularly with the rise of the Internet and social media. Many consumers are becoming more conscious of their purchasing decisions and prefer companies that clearly indicate how they support sustainability. This can include carbon footprint information on product packaging, information about sustainable farming practices, fair-trade certification, and more.

Reducing the Impact on the Environment PLAN

Sustainability measures should start at the planning stage. Consider what materials are being used for the product and its packaging. Look at how they can be reduced, reused, and/or recycled at various stages in the supply chain.

SOURCE

When sourcing products, consider the sustainability of different suppliers. For example, if you are manufacturing a product that requires large amounts of water, remember that it is much scarcer in certain parts of the world than others.

Consideration should also be given to how far the materials and the product have to travel. For example, in 2006 U.K.-based Young’s Seafood came under fire for adding 12,000 transportation miles to a seafood production process in order to improve product quality and reduce wage costs.

MAKE

Improving the energy efficiency, waste disposal methods, and resource usage of manufacturing facilities is a critical part of fostering sustainability in the supply chain. Where possible, consider using renewable resources for energy and production. Reducing waste and pollution is another important part of sustainability that should be addressed in this process area.

DELIVER

For decades, between one-third and one-quarter of all transport trucks travelled with empty loads. Collaboration programs like VICS and the IGD (which were discussed earlier) have greatly improved the usage of full truckloads. Companies are also switching from traditional gas-powered vehicles to hybrid or electric models to reduce pollution and gasoline consumption.

SUMMARY: REDUCE, REUSE, RECYCLE

All of these activities can be summarized by the three R’s: reduce, reuse, and recycle. Applying these basic principles throughout the organization can help improve sustainability throughout the supply chain.



Session Twelve: Applying Lean Techniques to the Supply Chain Lean techniques focus on eliminating waste and improving workflow in order to provide maximum value for minimum cost. Its concepts are a great way to make the supply chain even more efficient and responsive.

In this session, you will learn the basics of Lean, as well as some ways that it can be applied to the supply chain. As you work through the material, consider how these concepts could be applied to your organization.

Lean 101 WHAT IS LEAN PROCESS IMPROVEMENT?

Lean process improvement is a culture of ideas, tools, and processes that are designed to eliminate waste and improve workflow to provide maximum value for minimum cost. The Lean philosophy was primarily developed by Toyota manufacturing experts Taiichi Ohno, Shigeo Shingo, and Eiji Toyoda. Although it has only emerged as a popular business idea in the past few decades, its basic concepts have existed for over 300 years.

It is important to note that Lean should not be viewed as a quick fix or something that just a particular department does. The companies that have success with Lean efforts are those that incorporate it as part of their culture. Ideally, all employees should have some form of Lean training, whether it is a quick seminar or a complete certification.

THE TOYODA PRECEPTS

Toyota’s way of doing business is known as the Toyoda Precepts. These concepts are a key part of Lean methodology:

(Based on http://www.toyota-myanmar.com/about-toyota/toyota-traditions/company/toyoda-precepts-the-base-of-the-global-vision)



The Toyota Production System House The concepts of Lean and the Toyoda precepts are often drawn as a house to help us understand how all the elements come together:

THE ROOF

The goals and objectives of the Toyota Production System make up the roof of the house. The system aims to achieve:

• Top quality • Minimal cost • Proper delivery time • Good safety and morale

THE PILLARS

Just-In-Time and Jidoka are the two pillars of the system.

• Just-In-Time means that you have what you need when and where you need it. It means no shortages, no waste, no bottlenecks, and no waiting. This can be accomplished with continuous flow, pull systems, quick changeovers, and attention paid to takt time (the rate at which customers are demanding product).

• Jidoka means error-free production. This means getting it right the first time, every time. This means stopping production if a defect is found, performing root-cause analysis to fix the true nature of problems, error-proofing processes, assigning appropriate work to people and machines, and using visual signals (andon) to signal progress or issues.



THE CORE

The core of the system relates back to the basic Lean principles: people, problem solving, and the process of waste reduction. We can look at these three things as the core of the TPS philosophy.

THE FOUNDATION

A strong system must have four basic elements:

• Leveled production, so that resources are not overworked or idle (heijunka) • Standardized, stable, non-varying, documented processes • Visual management tools (signs, lights, etc.) • Commitment to the Toyota philosophy of long-term learning, problem solving, and the

involvement of people

The seven wastes that the Lean practitioners identified are:

• Overproduction of product • Wasted time (workers waiting for parts, machines to be fixed, and other forms of being idle) • Unnecessary transportation of product between manufacturing operations • Process inefficiency • Unnecessary materials on hand • Unnecessary motion of workers or product • Defective goods

By eliminating unnecessary waste and striving to work intelligently, Toyota reinvented their manufacturing process. Their focus on maximizing results at every stage of manufacturing resulted in drastic reductions in cycle times. Additionally, their no-waste philosophy helped to engineer a better product. These combined factors have had an enormous impact on Toyota’s bottom line.

Applying Lean to the Supply Chain Over the past several decades, Lean processes have been customized and merged with supply chain ideas to create a new discipline: Lean supply chain management. Here are some of the fundamental concepts in this merged discipline.

ELIMINATE WASTES

One of the key principles of Lean is to reduce waste, thereby creating value. Earlier, we talked about the seven wastes of the core Lean philosophy. Here is a customized version of that list which focuses on critical supply chain management areas.

• System complexity • Defective goods • Too much inventory at any point in the supply chain • Inefficient inventory management (e.g. inaccurate orders, damaged goods) • Wasted space (e.g. empty warehouses or truckloads) • Wasted time (workers waiting for parts, machines to be fixed, and other forms of being idle) • Unnecessary transportation of product between supply chain points • Process inefficiency • Unnecessary motion of workers (e.g. people at different points in the supply chain performing

counteractive activities)

IDENTIFY THE CUSTOMER IN EACH STEP

If each person in the supply chain knows how they impact the customer, it is easier for them to fulfil customer demands in terms of what they are producing and how they are producing it.



CONSIDER TOTAL COST

Throughout the course, we’ve discussed the importance of a holistic supply chain that considers the costs and benefits to each aspect of the organization. Lean emphasizes this holistic approach in order to fulfil customer demands at the lowest possible total cost.

REDUCE TIME AND VARIATION

Having consistent, reliable processes to minimize variation in the time that it takes for goods to move through the supply chain will maximize resources and minimize problems. The concept of creating a constant flow of goods is known as leveling the flow and is a key part of Lean process improvement.

USE PROCESS IMPROVEMENT TECHNIQUES

Lean process improvement offers a wide variety of process mapping, analysis, and improvement techniques. Documenting and standardizing procedures can help achieve the supply chain management goals of flexibility, accuracy, and responsiveness that we have been discussing throughout this course. It can also improve decision making by helping to identify where the biggest pain points are in the supply chain and where the greatest gains can be made.

COMMIT TO CONTINUOUS IMPROVEMENT

Lean process improvement is a culture of theories and ideas that is continuously evolving and growing. In order to make the most of Lean, users must also commit to continuous improvement and constantly working towards a better supply chain.



Session Thirteen: The Future of Supply Chain Management Supply chain management has changed a lot over the past decade, and the next ten years should be just as eventful. Improved tracking with RFID, futuristic vehicles that reduce emissions, and better access to data are just a few of the current trends in the supply chain field.

In this session, we’ll share a few of the top trends that will shape the future of supply chain management. You’ll also have an opportunity to identify how these trends might affect your organization’s supply chain and its management practices.

Top Trends Like all other areas of business, supply chain management is constantly changing and evolving. Here are some trends that have been developing in recent years and are continuing to grow.

SHIFT IN LOGISTICS DISTRIBUTION TECHNIQUES

The world’s demographics are changing, with more people moving to urban areas from rural areas. Wealth and population are also increasing in developing markets like Brazil and India. As a result, there is more demand for products and a greater need for the supply chain to extend into these markets.

As urban areas become more crowded, logistics providers are looking for ways to optimize the movement of goods within those areas. One solution that more logistics providers are using is building massive hubs on the edge of large cities. These hubs offer easy access to a variety of transport modes, as well as facilities where shipments can be consolidated onto trains or smaller trucks to be moved into congested cities.

There is also a trend of collaboration, where multiple partners will share these massive hubs to make better use of storage, distribution, and transportation facilities.

INCREASED FOCUS ON SUSTAINABILITY

As natural resources diminish, many companies are looking for ways to reduce their carbon footprint and use of natural resources, including water. Increasingly, companies and consumers are also looking at ways to reduce product and food mileage by using local sources.

INCREASED USE OF RFID

Large retailers like Wal-Mart and Tesco, as well as many government agencies, are beginning to require the use of radio frequency identification (RFID) tags on materials and products used throughout the supply chain. RFID provides much more information than a typical bar code, such as product origin, manufacturer, and history of movement through the supply chain. This improves visibility throughout the chain, facilitates recalls, gives all supply chain partners access to an incredible amount of data, and improves inventory management by making product tracking and locating more precise.

Although some privacy watchdogs have expressed concern over the security of RFID technology, there is no doubt that its use is becoming more widespread within supply chain management.

BIGGER AND BETTER DATA

Information is everywhere, and the supply chain is no different. Companies have more information than ever about the elements of their supply chain. Conversely, customers have more access to information about the products that they are purchasing and the organizations that they are purchasing from. Supply chain managers must be able to tap into this information in order to ensure that the supply chain remains responsive and flexible, and delivers what the customer is asking for with the results that the business demands.



Personal Action Plan Now that you have completed this course on Logistics and Supply Chain Management, how will you use the things you have learned? Creating a personal action plan can help you to stay on track, and on target. When you take responsibility for yourself and your results, you get things done.

In this session, you will be asked questions to help you plan your short-term and long-term goals. This final exercise is a way for you to synthesize the learning that you have done, and to put it into practice.

Starting Point I am already doing these things well:

Where I Want to Go I want to improve these areas:

I have these resources to help me:

How I Will Get There

As a result of what I have learned in this workshop, I am going to…

My target date is… I will know I have succeeded when…

I will follow up with myself on…

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Course Summary

Congratulations! You have completed the course "Logistics and Supply Chain Management."

We began this course with a look at what the terms “logistics” and “supply chain management” are all about. We also quickly looked at regulated areas and shared some resources that you can get support from after the course.

Next, we looked at the vertical integration model of the supply chain as well as the newer virtual integration model. Then, we considered how the virtual integration model continues to evolve.

We then got into the basics of supply chain theory, with an exploration of the basic supply chain process areas (plan, source, make, deliver, and return); participants in the supply chain; and key drivers for success.

Then we considered some ways to align supply chain practices to support the business’ strategy. This included identifying the market, performing market analysis, identifying steps and participants in the supply chain, analysing data, and taking action. We also looked at some common risk areas and how they can be mitigated.

The next part of the course focused on ratio analysis; key performance indicators; benchmarking techniques; and tools such as the SCOR model, balanced scorecard, and dashboards. We capped things off with an exercise that let you design a benchmarking tool of your own for a fictitious company.

Next, we looked at identifying and addressing problems in the supply chain. We also shared some best practices from industry leaders and looked at some of the top supply chains in the world. One of these practices was about building relationships, so we looked at the advantages and disadvantages of outsourcing supply chain functions. This included a brief look at third and fourth party logistics providers as well as some tips for building partnerships.

After that, we talked about some practices that are crucial for long-term supply chain success and growth, including sustainability, process improvement, and developing trends.

You should now feel ready to perform basic tasks to support your organization’s supply chain.



Recommended Reading List If you are looking for further information on this topic, we have included a recommended reading list below.

Blanchard, David. Supply Chain Management Best Practices (2nd Edition). Wiley, 2010.

Bolstorff, Peter, and Robert Rosenbaum. Supply Chain Excellence: A Handbook for Dramatic Improvement Using the SCOR Model (3rd Edition). AMACOM, 2011.

Chopra, Sunil, and Peter Meindl. Supply Chain Management (5th Edition). Prentice Hall, 2012.

Christopher, Martin. Logistics and Supply Chain Management (4th Edition). FT Press, 2010.

Cox, Jeff, and Eliyahu Goldratt. The Goal: A Process of Ongoing Improvement (3rd Edition). North River Press, 2012.

Franz, James K., and Jeffery Liker. The Toyota Way to Continuous Improvement: Linking Strategy and Operational Excellence to Achieve Superior Performance. McGraw-Hill, 2011.

Hugos, Michael. Essentials of Supply Chain Management (3rd Edition). Wiley, 2011.

logistics and supply chain management - e-course notes

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