LO 10-1

SUPPLY CHAINS
- is the linked set of companies that perform or support the delivery of a
company’s goods and services to customers.
- More formally is a set of three or more companies directly linked by
one or more of the upstream and downstream flows of products,
services, finances, and information from a source to a customer.
- Supply chain delivers value to end users of goods and services
SUPPLY CHAIN FLOWS THROUGH MARKETING CHANNELS
- We have products which primarily move from suppliers to customers.
- The term upstream is the flow of financial resources that move from
the customer to the companies that were part of the supply chain.
(Think of the money that it cost to make the product is being returned
to the beginning. So upstream)
- The downstream term is the flow of goods and services involved in
getting the products to customers (think of beginning where product
starts, down to customer)
- On the way downstream products pass through distribution channels:
Distribution channels or marketing channels are intermediaries, such
as wholesalers (Alibaba), distributors, and retailers (Costco, amazon),
through which the flow of products travels.
- Wholesaler: company that sells to other businesses like retailers or
other industrial companies. They buy products in large quantities
- Distributors: like wholesalers in that they sell products to other
businesses, the main difference is distributors will have exclusive rights
to sell products from a producer to customers within a certain
geographic territory.
- Retailer: sells goods to consumers for their own use, rather than for
resale to others. Sales are in smaller quantities.
LO 10-2
SUPPLY CHAIN MANAGEMENT
- A firm that recognizes and responds to the impact supply chain flows
have on its business
- Supply chain
orientation: a
management
 philosophy that guides the actions of a company toward actively
managing the supply chain.
With this philosophy a company thinks of all the steps it takes
to make their product even though they may be performed by
other companies.
- A company will help coordinate the activities that add value to the end-
customer, a supply chain orientation is necessary to be successful at
supply chain management.
What is SUPPLY CHAIN MANAGEMENT
- Refers to the actions the firm takes to coordinate the various flows
within a supply chain.
- Ex: Walmart setting up a retail link program to enable sharing demand
information with suppliers so they can plan their manufacturing better.
- When companies have greater control over customer value they
provide and view the total system of interrelated companies as
something they can manage, they generate higher revenue for the
company.
- Usually involve trade-offs, decisions made in one area will affect other
areas. Sometimes negatively. (very important to know and their
implications)
- Inventory carrying costs are the costs required to make or buy a
product.
- Ex: tradeoffs are important because a salesperson might make a
volume sale without knowing whether the amount of product can be
produced. This could cost the company money.
- Another ex: they may be extra demand, and the company might
need to ramp up production and this will cause them to incur
production costs.
SUPPLY CHAIN INTERGRATION
- Integrated supply chains typically realize multiple benefits: reduced
costs, better customer service, efficient use of resources, and an
increased ability to respond to changes in the market.
- For it to work companies must be willing to embrace relationship-based
strategies. Such strategies involve long-term collaboration for mutual
benefit.
- One example: Walmart’s Retail Link program that allows suppliers to
see the daily sales of the products and plan for replenishment of
inventories.
LO 10-3
SUPPLY CHAIN STRATEGY
- Strategies are needed to determine how the supply chain should be
designed.
- The design will help determine how products are made and how they
will be distributed.
- Are based on firms marketing objectives:
Types and locations of markets to be served, market share and
customer service desired, speed with which new products should be
developed, cost reduction and profitability.
Three supply chain strategies:
- Push: relies on the sales force and promotion tactics to push products
to wholesalers or retailers, who then push those products to consumers
- Pull: involves heavy spending on advertising and promotion, to create
a demand that pulls products through the distribution channels.
PUSH STRATEGY
- One in which a company builds goods based on sales forecast, put
those goods into storage, and wait for a customer to order the product.
Sometimes it is called speculation strategy, because a company
speculates on the type and number of products that the market will
want.
Main advantages:
o Can achieve economies of scale. Firms can lower costs by
purchasing in bulk, reducing transportation expenses, and running
long production cycles. This is particularly beneficial in industries
like automotive, where bulk orders and production forecasts allow
companies to reduce costs and improve customer service.
Company whose objectives include cost competitiveness and
good customer service are good candidates.
o Normally positively affects customer service because the goods
are already in stock.
Main disadvantages
o If the sales forecast is not accurate, the company will have too
many products no one wants or not enough.
o Production facilities set up to manufacture one good over a period
of time will respond slowly to changing demand patterns. So, if a
manufacturer has been making SUVs for a long time and the price
 of gas goes up then it will be hard to retool an automotive plant
to produce small, fuel-efficient cars instead.
PULL STRATEGY
- Marketing strategy requires agility and product customization may
choose pull strategy
- It is one in which customer orders drive manufacturing and distribution
operations. It is also sometimes known as a responsive supply chain.
- Depends on initial level of customer demand to even initiate
manufacturing
Advantages
o Eliminates risk of producing unwanted, the order is not made until
it is received.
o Can customize products specifically to customer requirements.
o Inventory carrying cost are minimized
o The firm can respond rapidly to changing market conditions.
Disadvantage
o Doesn’t allow firms to take advantage of economies of scale.
Because companies order only what it needs to meet immediate
production requirements. Typically, small orders, such order
eliminates the possibility of quantity discounts.
o To be effective a company needs flexible production and
distribution facilities. Productions must change rapidly, likewise
the distribution system must be able to deliver the product
quickly. It is hard to achieve so few companies practice pure pull
strategy
HYBRID (PUSH-PULL) STRATEGY
- The initial stages of the supply chain operate on a push system, but
completion of the product is based on a pull system.
- A company might forecast sales, build an inventory of components
based on the forecast and hold those components in inventory until a
customer order is received.
- Then pull strategy, the company would finalize the product based on
the customer order.
- Ex: Lego, they build their minifigures and then customize it once they
receive an order.
Advantages
o It combines economies of scales of the push strategy with the
flexibility of the pull strategy
 o It produces more accurate sales forecasts
Disadvantages
o It may not be as cost competitive as push style since the firm
can’t take advantage of manufacturing and transportation
economies of scales.
o The firm will still incur the cost to store components in inventory.
o Will need to develop a system where distribution system can
deliver products quickly.
SELECTING THE APPROPRIATE STRATEGY
- Stability of demand: if the firm can’t predict demand for its product,
it can’t create an accurate forecast for a pure push strategy. Often
occurs when products are in the growth stages. So, a firm might want
to stick with the flexibility of pull strategy.
- Electric cars are an example of a product in the growth stage.
Uncertainty about future sales suggests that car companies will want
to utilize a pull strategy.
- Product in the maturity stage such as Pepsi or coke have an accurate
forecast, so push strategy makes sense
- Degree of cost competitiveness: cost reduction part of the firm
strategy then push strategy is the obvious option because of
economies of scale.
- Degree of customization: a pull or hybrid would be good choice for a
company that competes for ability to deliver customized products or
high level of customer service built on manufacturing process.
LO 10-4
WHAT IS LOGISTICS?
- Logistics is the part of the supply chain management that plans,
implements and controls the flow of goods, services, and information
between point of origin (mines, trees etc….) and the final customer.
- Logisticians do jobs such as: supervising trucking and warehousing
personnel
- Determining how much inventory should be stored in warehouses and
distribution centers
- Analyzing how much product to ship from distribution centers to stores
and when.
- Arranging for materials and products to be bought and moved from
suppliers to customers.
 - Comprise of specific functions that enable supply chains to operate
smoothly
o Managing inventories
o Purchasing, materials management, warehousing and distribution
including transportation.
- Goal is to achieve the 7 R’s, right time, right place, right quantity, right
customer, right condition, right price, right product.
IMPACT OF LOGISTIC
- The biggest impact is on the four Ps of marketing.
- Place: most obvious, delivering goods and services to the correct
location and timely manner. It is crucial for marketing because if
products are not available for purchase all the company’s efforts will be
wasted
- Price: affects through efficient purchasing, inventory warehousing,
transportation process. To keep cost down for customers.
- Product: influenced by input from logistics managers about packaging
needs for safe and efficient storage and shipment.
- Promotion: marketing promotions are expected to result in increased
sales volume. Need to be part of planning to ensure sufficient
materials, inventory, storage, etc..
- Other areas affected include manufacturing operations(receiving,
storing, retrieving), finance ( inventory being held) , customer service
(how well perform).
ALIGNING LOGISTICS WITH SUPPLY CHAIN STRATEGIES
- Logistics have to be properly configured to meet the different
challenges presented by each type of supply chain strategy
- Push: must set up logistics that can handle large volumes of product,
modes of transportation that can inexpensively handle large amounts
of product, large warehouses equipped to efficiently store, retrieve,
and load goods
- Pull or hybrid: logistics are based on operations based on service,
quality, innovation and flexibility. Benefit from suppliers that can
deliver and produce quickly. Transportation that ensures on time
delivery. Use of advance tech like ERP systems.
LO 10-5
LOGISTICS FUNCTIONS
- Marketing relies on inventory management (one of logistics tasks)
 - Primary reason, unless the right amount of inventory is available at the
right location customer service will suffer.
- If too much inventory they more inventory carrying costs.
- Challenge is to balance inventory in a way it balances supply and
demand in accost effective manner.
INVENTORY COSTS
- Purchasing costs include cost like place and process orders materials
and finished goods, inventory carrying costs are important because
they negatively impact profits, out of stock cost (stockout) does not
have enough inventory available to fill an order, it can lead to loss of
revenue.
PURCHASING
- Involves the sourcing and procurement of raw materials, components
parts, finished goods, and services. Important:
- Materials purchased for manufacturing typically account for 40-60
percent of product costs. Any savings can add to profits.
- Major factor in quality of goods and services. Selecting suppliers that
can provide high-quality goods and services lets companies compete
with other companies.
- Help improve product design and time-to-market for new products by
involving suppliers early
- Sourcing materials from reliable suppliers ensures supply meets
demand. So superior customer service.
Purchasing activities
- Select and qualify appropriate suppliers
- Negotiate contract and place purchase orders ( legal obligation to buy
from supplier a certain amount of product at a certain price and
delivered a specified date)
- Monitor supplier performance
- Develop supplier (sometimes need extra help meeting the
expectations of the buying company, purchasing managers may visit
to better understand issues)
MATERIAL MANAGEMENT
- Involves the inbound movement and storage of material in preparation
for those materials to enter and flow through the manufacturing
process. Benefits in following ways: (normally in warehouses storage,
movement, production)
 o Reduces procurement, transportation, and production costs
through economies of scale.
o Coordinates supply and demand for materials.
o Supports manufacturing activities, ensures that stored or recently
received materials get to the production floor when they are
needed
o Supports marketing objectives by making sure that goods are
available to customers.
DISTRIBUTION
- Distribution center (DC): is a type of warehouse used specifically to
store and ship finished goods to customers. So, stores can be restored
by retailers’ own distribution centers.
- When manufacturer ships to stores it is called direct store delivery,
which helps reduce inventory in retailers’ distribution centers, but only
if the vehicle is full load or it will be higher shipping costs.
- Omnichannel: offer consumers the ability to purchase goods at retail
store or website.
- The ladder method: becoming increasingly popular because it offers
the consumer value through providing shopping convenience. Both
store and internet consumer can be serviced from the same DC.
- There are distribution centers specifically for internet orders.
- In-store pickup Are growing rapidly, especially in grocery business.
- Amazon prime program allows fast shipping.
TRANSPORTATION MANAGEMENT
- Most important logistics function. Transportation creates place and
time utilities that are essential to keeping customers satisfied. Cost
effective transportation allows companies to market goods to greater
distances while maintaining competitive pricing. Particularly important
for companies that compete globally.
- availability and reliability affect the number and location of suppliers,
production facilities, and distribution centers.
- Six transportation modes: rail, motor, water, pipeline, and cyberspace.
Railroads
o Long haul carriage of variety of products.
o Intermodal transport uses multiple types of transportation for the
same shipment (carried by train halfway and by truck the rest)
SUPPLY CHAIN AND SUSTAINABILITY
- Sustainability is a commitment to a lifestyle that meets the needs of
the present without compromising the ability of future generations to
meet their own needs.
- Sustainable sourcing is a process of purchasing goods and services
that consider the long-term impact on people, profits and planet.
Specifically, it recognized the trade off between purchase and
transportation costs and other costs to society.
- Near-shoring sourcing from countries close to organizations
own country.
- Onshoring sourcing from organizations own country.