Supply Chain. Topic Gateway Series No.10. Topic Gateway Series. Supply Chain

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1 Topic Gateway Series No.10 1 Prepared by Jim Downey and Technical Information Service Revised November 2008

2 About Topic Gateways Topic Gateways are intended as a refresher or introduction to topics of interest to CIMA members. They include a basic definition, a brief overview and a fuller explanation of practical application. Finally they signpost some further resources for detailed understanding and research. Topic Gateways are available electronically to CIMA members only in the CPD Centre on the CIMA website, along with a number of electronic resources. About the Technical Information Service CIMA supports its members and students with its Technical Information Service (TIS) for their work and CPD needs. Our information specialists and accounting specialists work closely together to identify or create authoritative resources to help members resolve their work related information needs. Additionally, our accounting specialists can help CIMA members and students with the interpretation of guidance on financial reporting, financial management and performance management, as defined in the CIMA Official Terminology 2005 edition. CIMA members and students should sign into My CIMA to access these services and resources. The Chartered Institute of Management Accountants 26 Chapter Street London SW1P 4NP United Kingdom T. +44 (0) F. +44 (0) E. tis@cimaglobal.com 2

3 Definition and concept Supply chain: a sequence of interdependent tasks linking the flow of goods from the original sources of raw materials through to the final customer. Michael Porter uses the term value chain to stress that each activity in the chain can be evaluated in terms of how it adds value and incurs costs. Supply chain management: the process of optimising supply chain efficiency to create value. Context CIMA Study Paper P4 Organisational Management and Information Systems, Chapter 5, Operations Management CIMA Study Paper P6 Management Accounting Business Strategy, Chapter 8, Implementing and Controlling Plans Related concepts ERP; CRM; e-business Overview Strategic management of the supply chain can have a major impact on an organisation s performance. In the private sector, issues of cost, quality, delivery and flexibility in the supply chain can determine a company s competitiveness in the market. In the public sector, the need for more effective and efficient performance places the onus on supply chain management to add value and reduce waste. To operate at optimal efficiency, a company s supply chain needs to be integrated. This means that: Each link in the chain is driven by information received from the others. Value is created when all the links in the chain are integrated to produce an efficient flow of goods from end-to-end. The objective of supply chain management is concerned with how a product or service is delivered to the customer. It is based on the principle that the customer 3

4 requires the right goods or services to be delivered at the right time, in the right place, for the right price. Supply chain management emphasises the importance of relationships within each distribution channel to enhance long-term performance. Long-term relationships with suppliers, customers and intermediaries allow a more streamlined end-to-end operation to develop. This can create value through greater flexibility. Key features of a flexible supply chain: Customer Relationship Management (CRM) enables companies to engage in closer customer relationships. This helps them to identify and satisfy customer needs. They are also better able to forecast trends and improve the customer s experience of the company s products and services. Integrated Planning incorporates customer demand with production systems to enhance the matching of supply and demand. This helps to reduce wastage and maximise efficiencies at each stage of the supply chain. Adaptive Technology & Processes enables real-time, dynamic adjustments to the supply chain in order to respond better to changes in requirements. In Practice When developing a supply chain strategy, an organisation needs to consider the entire network in which it operates before deciding on the most appropriate strategy. This means taking an holistic view of the end-to-end process rather than seeing each supply chain operation as a separate component. Businesses should define objectives, targets and processes for all members of the supply chain. Communication structures should be in place to support sharing of information, plans, schedules and forecasts between each member. Businesses should understand any legal considerations that may affect decision making. For example, competition law might dictate who a company may or may not work with. A supply chain strategy should also involve as many functions within the supply chain organisation as possible. In this way, stakeholders understand the full impact of the strategy on the business. The strategy should include: 4

5 Inventory Management/Planning inventory management plays a key role in the movement of materials and products through the chain. Purchasing purchasing is responsible for obtaining materials, components, suppliers and services required for use in production. Distribution/Logistics distribution moves finished products from production to customers. Successful supply chain management involves creating and managing relationships with a competent network of suppliers. These relationships can take many different forms. The key is being able to integrate these arrangements within the strategic plans and direction of the company. The three main supplier arrangements to consider: Contract a formal agreement to supply goods or services at specific cost over a specific period of time. Partnership a commitment to share benefits and risk over an agreed period of time. Strategic Alliance/Joint-Venture a contractual agreement to achieve certain objectives. Performance measurement is critical in ensuring a successful supply chain model. Companies need to measure each stage of the supply chain to identify new opportunities, constraints and potential failures in the system. Measurement may vary from real-time instant feedback to daily, weekly, or monthly, as appropriate. Emerging trends in supply chain management Radio Frequency Identification (RFID) technology RFID tags are essentially barcodes what the product is, where it has been, when it expires and any other programmed technology generates data about the location of pallets, cases, and individual products in the supply chain. It can identify when and where merchandise is manufactured, picked, packed and shipped. In addition: RFID can also inform retailers about the expiry dates of perishable items because their electronic readers can read RFID tags automatically. 5

6 A lorry carrying RFID-tagged merchandise can be tracked automatically when it passes an RFID sensor without ever having to slow down to be scanned. RFID has the potential to add a substantial amount of visibility into the supply chain. Web-based technologies an estimated $1 trillion of the $7 trillion spent annually on components, supplies and services worldwide can be saved by employing web-based technologies (USA Today, 7 February 2000). Increasingly, whole industries are using the internet to bring buyers and sellers together in order to decrease costs and increase efficiencies. In addition: The business-to-business (B2B) marketplace was previously categorised as vertical (i.e. connecting buyers and sellers in a specific industry) or horizontal (i.e. selling a variety of materials that a company might need to run its business). The development of new digital supply chains have blurred that distinction. Companies are now expanding the scope of their business models to gain further competitive advantages as a result of web-based technologies. Mass Customisation tailoring a product to a specific customer s needs is becoming a major source of competitive advantage. Many businesses are now reconfiguring their supply chains to allow greater flexibility while maintaining economies of mass production. For example, Dell has successfully used a strategy of pre-manufacturing computers with minimum parts. Dell then adds the processor, memory, hard-drive and peripherals according to the customer s order as it arrives. Case studies The General Motors case study Digital Do-Overs on the Forbes.com website demonstrates how they used web technology to enhance significantly their supply chain processes. Available from: The UPS Solutions website has a number of case studies, including that of Adidas who consolidated their distribution system into a single, streamlined network. Automated inventory and order fulfilment systems were 6

7 added to allow the company to scale its services rapidly to enhance the supply chain. Available from: References Lysons, K. (2000). Purchasing and supply chain management. Harlow: Pearson Education Saunders, M. (1997). Strategic purchasing and supply chain management. London: Financial Times Management Skillsoft Corporation (2004). Defining supply chain management. Skillsoft Corporation (2004). Managing the supply chain. Skillsoft Corporation (2004). An integrated supply chain. Skillsoft Corporation (2004). Characteristics of an effective supply chain. Skillsoft Corporation (2006). Flexible supply chain. Further Information Articles Full text articles available from Business Source Corporate through My CIMA Bartram, P. Cut and thrust: price wars. CIMA Financial Management, March 2001, pp Cullen, J. and Bernon, M. Many happy returns from supply chain management. CIMA Insight, September 2004 Available from: Fitzgerald, J. Six paradigms for determining whether to outsource supply chain management services. Outsourced Logistics, September 2008, Volume 1, Issue 4, pp Gammelgaard, B. Special section on European logistics and supply chain management research Journal of Business Logistics, 2008, Volume 29, Issue 1, pp

8 Gould, S. and Fahy, M. The future of finance. CIMA Financial Management, July/August 2005, pp Available from: Kane, D. A global view of supply chain management. University of Auckland Business Review, Summer 2008, Volume 10, Issue 2, pp Manuk, I. and Mentzer, J.T. Global supply chain risk management. Journal of Business Legislation, 2008, Volume 29, Issue 1, pp Teresko, J. Better energy management via supply chain optimization. Industry Week/IW, October 2008, Volume 257, Issue 10, p. 22 Old adages made new: supplier performance management s job in creating a lean supply chain. Manufacturing Business Technology, October 2008, Volume 26, Issue 10, pp Books Anklesaria, J. (2008). Supply chain cost management: the AIM and DRIVE process for achieving extraordinary results. New York: AMACOM Bozarth, C.C., Handfield, R.B. and Weiss, H.J. (2008). Introduction to operations and supply chain management. Harlow: Pearson Prentice Hall Cohen, S. and Roussel, J. (2004). Strategic supply chain: the five disciplines for top performance. New York: McGraw-Hill Emmett, S. (2004). Supply chain in 90 minutes. USA: Management Books 2000 Fawcett, S.E., Ellram, L.M. and Ogden, J.A. (2007). Supply chain management: from vision to implementation. Harlow: Prentice Hall Jonsson, P. (2008). Logistics and supply chain management. London: McGraw- Hill Higher Education Mangan. J., Lalwani, C. and Butcher, T. (2008). Global logistics and supply chain management. Hoboken, NJ: Wiley Martin, J. (2007). Lean Six Sigma for supply chain management: the 10-step solution process. New York: McGraw-Hill Waters, D. (2007). Supply chain risk management: vulnerability and resilience in logistics. London: Kogan Page Webster, S.T. (2008). Principles and tools for supply chain management. New York; London: McGraw-Hill Irwin. (McGraw-Hill Higher Education Series) 8

9 CIMA Publications Improving decision making in your organisation: the CIMA Strategic Enterprise Management (SEM) initiative. CIMA Research Report, 2003 Available from: CIMA Technical Services. (2003). Data warehousing: its role in improving organisational decision making. (PDF 269Kb). CIMA Technical Briefing. Available from: Other Publications Corporate Strategy Board. (2000). Case studies in value chain disintermediation. Available from: Niemeyer A., Pak M.H. and Ramaswamy, S. E. (2003). Smart tags for your supply chain. Available from: Websites Management Review This website offers free research, case studies, database directories and market intelligence on emerging trends and best practices in supply chain management. Available from: Council of Management Professionals (CSCMP) The CSCMP is a US-based organisation. The website has some useful articles on latest supply chain management developments and numerous case studies. Available from: Chartered Institute of Purchasing & Supply (CIPS) CIPS is an international organisation, based in the UK and serving the purchasing and supply profession. CIPS is dedicated to promoting best practice and provides a wide range of information on supply chain management. Available from: 9

10 Copyright CIMA 2006 First published in 2006 The Chartered Institute of Management Accountants 26 Chapter Street London SW1P 4NP United Kingdom Printed in Great Britain No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the authors or the publishers. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means method or device, electronic (whether now or hereafter known or developed), mechanical, photocopying, recorded or otherwise, without the prior permission of the publishers. 10 Permission requests should be submitted to CIMA at tis@cimaglobal.com