Supply Chain Management 1

Supply Chain Management 1

Teaching & Study Plan

WEEK STUDY UNIT TOPIC

Introduction to supply
Week 1 Unit 1
chain management

Week 2 Unit 2 Purchasing management

Week 3 Unit 3 Supplier Management

Week 4 Unit 4 Inbound Transport

Week 5 Unit 5 Inventory Management

Week 6 SEMESTER BREAK

Week 7 Unit 6 Warehouse Management

Week 8 Unit 7 Operations Management

Week 9 Unit 8 Distribution Management

Week 10 Unit 9 Outbound Transport

Customer service (and

Week 11 Unit 10
performance management)

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Week 1 | Unit 1: Introduction to supply chain management

1.7. Introduction to Supply Chain Management and Relevance

Supply Chain Management (SCM) Definition (CSCMP, 2016):

● Encompasses: Planning and management of activities in sourcing,
procurement, conversion, and logistics.
● Coordination and Collaboration: Involves working with channel partners like
suppliers, intermediaries, third-party service providers, and customers.
● Integration: Links business functions and processes across companies into a
high-performing model.
● Incorporates Logistics Management: Includes operations in manufacturing,
marketing, sales, finance, and IT.

Logistics Management Definition (CSCMP, 2016):

● Part of SCM: Focuses on planning, implementing, and controlling the flow of
goods, services, and information.
● Activities Include:
o Inbound/outbound transportation management
o Fleet management
o Warehousing
o Materials handling
o Order fulfilment
o Inventory management
o Supply/demand planning
o Management of third-party logistics providers
● Integration: Coordinates logistics activities with marketing, sales,
manufacturing, finance, and IT.

Importance of SCM and Logistics:

● Historical Context: Logistics has played a key role in wars and significant
events (e.g., British defeat in the American War of Independence, logistics in
WWII).
● Business Context: Effective logistics and SCM are essential for competitive
advantage, profitability, and business growth.

Top Supply Chain Companies (Gartner, 2016):

● Supply Chain Masters (Top 5 for Last 9 Years):
1. Apple
2. Procter & Gamble
● Top 10 of the Top 25 Supply Chains (2015):
1. Amazon
2. McDonald's

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3. Unilever
4. Intel
5. Inditex
6. Cisco Systems
7. H&M
8. Samsung
9. Colgate-Palmolive
10. Nike

● Key Insights:
o SCM impacts all individuals, regardless of product preference.
o Companies with top-performing supply chains also perform better in
growth and financial success.

1.9. Profit and Competitive Advantage

Profit Definition:
● Formula:
o Profit = Revenue (price x quantity sold) – Costs
o Example: If cement is sold at R60 per bag for 100 bags, and cost per bag
is R20, the monthly profit is:
▪ Profit = (R60 x 100) – (R20 x 100) = R6000 – R2000 = R4000

Operating Costs:
● Includes: Salaries, materials, transportation, utilities (electricity, water),
advertising, etc.
● Minimizing Costs: Reducing operating costs contributes to maximizing profits.
● Increasing Revenue: Businesses increase sales and market share to boost
revenue.

Competitive Advantage:
● Definition: When a business offers a product/service preferred by customers,
leading to increased sales.
● Product Differentiation: Creates competitive advantage by offering something
better or unique compared to competitors.
● Service Differentiation: Offering superior service or value can make customers
choose one product/service over another.

Sustainable Competitive Advantage:

● Definition: Achieving a lasting superior position that competitors cannot easily
replicate.
● Examples of Strategic Assets: Patents, trademarks, copyrights.
● Importance: Businesses that maintain a competitive edge over time gain a
sustainable advantage.

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Key Learning Outcomes:

● Understand business objectives, profit calculation, competitive advantage,
product/service differentiation, and sustainable competitive advantage.

1.11. The Concepts of Logistics and Supply Chain Management

● Supply Chain Management (SCM):
o Encompasses the planning and management of all activities involved in:
▪ Sourcing and procurement
▪ Conversion
▪ Logistics management
o Includes coordination and collaboration with channel partners:
▪ Suppliers
▪ Intermediaries
▪ Third-party service providers
▪ Customers
o Integrates supply and demand management within and across
organizations.

● Logistics Management:
o A part of SCM that plans, implements, and controls the efficient and
effective flow of goods and services.
o Focuses on:
▪ Forward and reverse flow of raw materials, work-in-progress,
inventory, and finished goods.
▪ Storage and movement of goods from point of origin to point of
consumption.
o Ensures customer requirements are met.

Key Learning Objectives

● Application of Success in Sport to Business:
o Strategies for success in sports (teamwork, planning, execution) can be
applied in business, particularly in SCM.
● Examples of Supply Chains:
o Wheat Products:
▪ Farm → Mill → Transport → Warehouse → Retailer → Consumer.
o Motor Vehicles:
▪ Supplier → Manufacturer → Distributor → Dealer → Customer.
● Importance of Suppliers:
o Suppliers are critical in ensuring that the raw materials or components
required for production are available in time.
● The Five Rights of Logistics:
o Right product, right quantity, right condition, right place, right time.
● Tier-1 and Tier-2 Suppliers:
o Tier-1 Suppliers: Direct suppliers of materials to manufacturers.

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o Tier-2 Suppliers: Provide materials to Tier-1 suppliers.

● Inbound vs Outbound Supply Chain:
o Inbound: Movement of materials and components to the manufacturer.
o Outbound: Movement of finished goods from the manufacturer to the
end consumer.
● Upstream vs Downstream:
o Upstream: Refers to the production and procurement processes.
o Downstream: Distribution and delivery processes to end customers.
● Supply Chain Network:
o A network involving all entities involved in the flow of goods from raw
materials to end consumers.
● Role Players in a Typical Supply Chain:
o Suppliers, manufacturers, distributors, retailers, customers.
● Distribution Channel:
o A path through which goods move from the producer to the consumer.
● Direct vs Indirect Channels:
o Direct: Manufacturer sells directly to consumers.
o Indirect: Manufacturer sells through intermediaries (wholesalers,
retailers).

1.13. The Concept of Supply Chain Management in More Detail

● Historical Focus of SCM:
o Traditionally focused on manufacturing and the private sector.
o Modern trend: Increasingly service-based, applied to sectors like:
▪ Banks
▪ Hospitals
▪ Public sector organizations.

● Key Learning Objectives:

o Public-Private Partnership:
▪ Collaboration between government and private sector to deliver
services.
o Impact of Mistakes in Supply Chain:
▪ Mistakes in one part of the supply chain (upstream) can disrupt
the entire chain (downstream).
o Supply Chain Value:
▪ The value added to products as they move through the supply
chain from raw materials to finished goods.
o Competition Between Supply Chains:
▪ Different supply chains compete by offering better prices, faster
delivery, and higher quality.

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1.15. Supply Chain Drivers

● Importance of Aligning SCM with Business Strategy:
o Alignment ensures efficiency and competitiveness.
● Supply Chain Drivers:
o Facilities: Locations where products are made, processed, stored, or
assembled.
o Inventory: Raw materials, work-in-progress, and finished goods in the
supply chain.
o Transportation: Movement of goods between locations.
o Information: Data regarding inventory, suppliers, products, and costs.
o Sourcing: Deciding who performs supply chain functions.
o Pricing: Determined by demand and supply; balances efficiency with
responsiveness.
● Balancing Performance:
o Supply chains must balance:
▪ Customer responsiveness (effectiveness)
▪ Cost efficiency (low cost)

Key Learning Objectives

● Pillars/Tools for Implementing SCM Strategy: Facilities, inventory,
transportation, information, sourcing, pricing.
● Six Supply Chain Drivers:
o Logistical Drivers:
▪ Facilities, transportation, inventory.
o Cross-Functional Drivers:
▪ Information, sourcing, pricing.
● Facilities as a Driver:
o Decisions on facility location, capacity, and technology.
o Trade-offs: Cost vs. customer proximity, scalability vs. flexibility.
● Inventory as a Driver:
o Different types: Raw materials, work-in-progress, finished goods.
o Trade-offs: Costs of holding inventory vs. stockout risks.
● Transportation as a Driver:
o Purpose: To move goods from one point to another.
o Trade-offs: Cost vs. speed, flexibility vs. consistency.
● Information as a Driver:
o Key for communication, forecasting, and decision-making.
o Acts as a cross-functional driver linking all supply chain activities.
● Sourcing as a Driver:
o Decisions about where and who will perform certain supply chain
activities.
o Impacts costs, quality, and timing.
● Pricing as a Driver: Price influences supply chain decisions related to efficiency
and responsiveness.

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1.17. Supply Chain Network Design and Configuration

● Network design and configuration involves the structural composition and
dimensions of a supply chain network, focusing on decisions about
infrastructure, capacity, and key activities (movement, storage, and
transformation).
● The design spans from supply sources to final consumer products and includes
selecting supply chain members.

● The design depends on strategic decisions concerning several key issues:

o Core product(s), services, and business strategy
o Target market
o Sources of supply
o Facility role
o Facility location
o Capacity allocation
o Market and supply allocation
o Modes of transport
o Type of information system

1.19. The Concept of Logistics

● Logistics is a subset of supply chain management, different from supply chain
itself.
o Involves channel management, production logistics, distribution
management, and materials management.
o Logistics management is a strategic tool for competing in the market,
especially due to factors like cost control, world-class competition, and
global market involvement.

Steps in the Logistics Process:

1. Customer order initiates the logistics process.
2. Drawing up the production schedule based on received orders and sales
forecasts.
3. Purchasing supplies that are out of stock.
4. Receipt, inspection, and internal management of supplies.
5. Production of products or services as per the production schedule.
6. Packaging for local and global markets.
7. Movement of finished products.
8. Managing customer payments.

Types of Utilities in Logistics:

● Time Utility: Ensuring products are available when needed.
● Form Utility: Transforming raw materials into finished products.
● Place Utility: Ensuring products are available in the right location.
● Possession Utility: Making products available for customers to acquire.

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Customer Service:
● Customer service is central to supply chains. It involves building strong
relationships with customers through:
o High service delivery
o Greater responsiveness and reliability
o Value-added services, just-in-time delivery, and reduced lead times.

Customer Feedback Indicators:

● Percentage of consignments at the correct place.
● Percentage received on time and date.
● Percentage received damage-free.
● Percentage of consignments that are complete and accurate.
● Percentage of orders billed correctly.

Wealth Creation by Logistics:

● Revenue growth
● Operating cost reduction
● Fixed capital efficiency
● Working capital efficiency

Key Business Logistics Activities:

● Demand forecasting, estimating, and planning.
● Logistics communication and order processing.
● Procurement and purchasing.
● Packaging.
● Transportation.
● Reverse logistics.

1.21. Introduction to Supply Chain Planning

● Supply Chain Planning expands the understanding of the supply chain by
introducing a process view.
o Implements process management within and across supply chain
organizations for more effective and efficient transactions and
relationships.
o The supply chain has both strategic and operational processes, and the
scope varies from primary processes to sub-processes in fulfilling
customer demand.
o To ensure success, supply chain processes must be identified,
understood, and managed cohesively.
● The SCOR Model (Supply Chain Operations Reference Model) is a widely
accepted framework that defines key supply chain processes and their
relationships. It helps organizations understand and evaluate their supply chain
performance.

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Key Supply Chain Processes:

1. Plan: Understanding customer demand and translating it into volumes and
timing for upstream supply chains.
2. Source: Finding suppliers for products or raw materials required to manufacture
the product.
3. Make: Adding value to raw materials or components through assembly or
conversion.
4. Deliver: Activities required to physically deliver products to the customer or
store them before delivery.
5. Return: Handling returns, including products that are damaged or unused
(reverse logistics).

1.22. Different Levels of Planning

● Planning involves creating a strategy to synchronize supply with demand in
supply chains, focusing on managing resources, flows, and relationships to
optimize cost and service (Gibson, 2005).
● Process:
1. Gather customer requirements.
2. Collect information on available resources.
3. Balance requirements and resources to determine capabilities and
gaps.

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4. Identify actions to correct gaps (Gibson et al., 2014).

● Three levels of decision-making:
1. Strategic Decisions (Long-term):
▪ Align with the organization's mission and values.
▪ Start with the customer: Determine how to deliver value.
▪ Involve environmental scanning for trends that may impact
business.
▪ Include risk analysis and resource allocation for initiatives.
▪ Example: Deciding to enter a new market with different products.

2. Tactical Decisions (Medium-term):

▪ Translate strategic objectives into actionable plans.
▪ Flexible in response to changing circumstances.
▪ Involve allocating resources and identifying potential risks.
▪ Example: Planning methods for entering a new market, including
product development, marketing, and supply chain design.

3. Operational Decisions (Short-term, Day-to-day):

▪ Focus on daily tasks and activities to implement tactical plans.
▪ Example: Tasks such as meeting production requirements,
scheduling, purchasing materials, and planning transportation.
● Representation:
o Decision-making levels are often represented as a pyramid, with strategic
decisions at the top, followed by tactical and operational decisions

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1.23. An Overview of Supply Chain Planning

● Importance of Planning:
o Customers expect products to be available when ordered, necessitating
adequate planning to fulfill orders immediately.
o Regardless of the approach (build-to-forecast, build-to-order, etc.),
companies must plan ahead for parts and resources before knowing
actual demand.

● Key Considerations:
o Supply Chain Planning is about deciding which parts to procure and
which products to produce before knowing the demand.
o The challenge lies in dealing with uncertain and conflicting information
about:
▪ Future demand.
▪ Available production capacity.
▪ Sources of supply.
o Complex Decision-Making:
▪ Balancing inventory targets with customer service levels.
▪ Competing priorities (e.g., older vs. newer products, direct
customers vs. channel partners).
▪ Involves multiple departments: sales, marketing, operations,
procurement, product development, finance, suppliers, and
customers.
o Goal: Achieving the right balance between efficiency and responsiveness
(Feigen, 2011).

● Uncertainty in Planning:
o Uncertainty is central to the challenge of planning.
o Humans often misinterpret randomness, leading to biased decisions.
o Matching supply with demand becomes more complicated when:
▪ The demand is unknown.
▪ Supply is unreliable or constrained.

The Three Key Processes in Supply Chain Planning:

1. Demand Planning:
▪ Creating an unbiased forecast of future demand.
2. Sales and Operations Planning (S&OP):
▪ Uses the unbiased forecast and factors like demand variability,
supply availability, and resource constraints.
▪ Derives service-level objectives and cost estimates for the
company.
▪ Success is measured by meeting service-level and cost targets.
3. Inventory and Supply Planning:

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▪ Focuses on implementing policies for inventory, production,

procurement, and distribution.
▪ Aims to meet service-level and cost objectives set by the S&OP
process.
▪ Determines when parts/products need to be produced or ordered
to fulfill the sales and operations plan.

Supply Chain Planning Flow (Figure 1.4):

1. Demand Planning → Unbiased forecast.

2. S&OP → Set service-level objectives and cost targets.
3. Inventory and Supply Planning → Determine when and what to produce/order
to meet objectives.

● Potential Issues with Poor Planning:

o Dissatisfied customers due to stockouts or late deliveries.
o Angry suppliers due to constantly changing orders.
o Excess procurement costs from expedited orders.
o Distribution problems due to logistics budget overruns.
o Production disruptions caused by inconsistent parts availability.
o Finance complaints due to excess working capital tied up in inventory
(Feigen, 2011).

1.24. Demand Planning

● Definition:
o Demand planning involves forecasting the future demand for a product or
service to produce and deliver more efficiently to customers.
o Effective demand planning is crucial as it influences all decisions in other
business processes.

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● Importance of Demand Planning:

o Demand is the ultimate driver of all supply chain activities.
o Decisions in procurement, manufacturing, and logistics depend on
accurate demand forecasts.
o Proper demand planning ensures efficient production, procurement, and
timely delivery.

● Independent vs. Derived Demand:

o According to Mentzer (2004), the supply chain has only one point of
independent demand, which is the end-use customer’s demand.
o Independent demand: The amount of product demanded by end
customers (consumers or businesses).
o Derived demand: The demand experienced by other companies in the
supply chain, influenced by the actions of companies closer to the end
customer.

● Impact of Demand Planning on Supply Chain Processes:

o Procurement: Requires accurate demand information to obtain raw
materials in the right quantity and at the right time.
o Manufacturing: Needs accurate demand data for capacity planning,
production scheduling, and utilization.
o Logistics: Relies on demand forecasts to maintain appropriate inventory
levels and organize timely deliveries.

● Integrative Perspective:
o Effective supply chain planning should consider all parts of the supply
chain to align activities and improve efficiency.

1.26. Key Elements of the Demand Management Process

● Demand Management:
o Recognizes all demands for goods and services needed to support the
marketplace.
o Forecasting: An essential element to position inventory and other
resources.
o Forecasting provides an estimate of future demand, guiding decisions in
purchasing, production, and logistics.

● Forecasting:
o Accurate forecasting prevents stock-outs, lost sales, excess inventory,
material shortages, and other issues.
o Nintendo Wii example: Exceeded expectations, struggling to meet
demand due to inaccurate forecasts.

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● Objective of Forecasting:
o To minimize deviations between forecasted and actual demand.
o While some discrepancy is expected, the goal is to reduce the gap.

● Factors Influencing Demand:

o Factors like market trends, seasonality, promotions, and economic
conditions should be considered when forecasting.
o Supply Chain Collaboration: Sharing relevant information between
buyers and sellers helps achieve better forecasts.

● Benefits of Accurate Forecasting:

o Lower inventories.
o Reduced stock-outs.
o Smoother production plans.
o Reduced costs.
o Improved customer service.
o Reduced bullwhip effect: Larger fluctuations in inventory in response to
small changes in demand.

● Forecasting Methods:
o Qualitative: Based on judgment, intuition, and experience, often used
when data is limited or unavailable (e.g., new product forecasting).
o Quantitative: Uses historical data and mathematical models, including
time-series and cause-and-effect forecasting.

● Quantitative Forecasting:
o Time-Series Forecasting: Assumes future demand is a continuation of
past patterns.
o Cause-and-Effect Forecasting: Assumes one or more factors affect
demand and can predict future demand based on these variables.

● Challenges in Forecasting:
o Forecasting accuracy is never perfect; the key is to minimize errors.
o External factors in the marketplace may influence demand against
forecasts.

● Sales and Operations Planning (S&OP):

o Purpose: To align marketing and operations with unified goals and
strategies for more effective planning and execution.
o S&OP Process Steps:
1. Statistical Forecast: Sales forecast is developed using one or
more forecasting techniques.

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2. Demand Planning: Sales/marketing departments adjust the

forecast based on promotions, new products, or product
elimination.
3. Supply Planning: Operations departments analyze the forecast to
ensure sufficient capacity for production and delivery.
4. Pre-S&OP Meeting: Sales, marketing, operations, and finance
review forecast and capacity issues. Solutions to capacity issues
are attempted.
5. Executive S&OP Meeting: Final approval of the sales forecast,
capacity plans, and trade-offs between revenue and costs.

o Outcome of S&OP:
▪ Alignment between all relevant departments.
▪ Improved accuracy in sales and operations planning.
▪ Reduces internal conflicts from different functional forecasts.
▪ Promotes coordinated behavior across the company.

● Key Takeaway:
o The S&OP process enhances organizational coordination and ensures the
company meets demand efficiently by aligning marketing, sales,
operations, and finance.

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1.27. Understanding Customer Requirements

● Objective of Demand Management:
o Enhance collaboration across supply chains regarding product, service,
information, and financial flow.
o The ultimate goal is to create greater value for the end user or consumer.
o Demand management uses rich customer information to communicate
with supply chain members about customer needs.

● Actions for Satisfying Customers:

o Gathering and analyzing knowledge: Understand consumers, their
problems, and unmet needs.
o Sharing knowledge: Communicate insights about consumers, available
technology, logistics challenges, and opportunities with other supply
chain members.
o Identifying partners: Find suitable partners to fulfill customer
requirements.
o Assigning functions: Allocate responsibilities to supply chain members
who can perform them most effectively and efficiently.
o Developing products and services: Create solutions to address
customer problems.
o Logistics and distribution: Develop the best methods to deliver products
and services to consumers in the desired format.

● Sales and Operations Plan (S&OP):

o At the end of the S&OP process, a sales and operations plan is
established, consisting of sales targets, service-level targets, and
inventory targets.
o Planners operationalize the S&OP by determining when and where to
place orders, the size of orders, manufacturing schedules, and inventory
management.

1.28. Supply Planning

● Definition:
o Supply planning is the process of determining how to fulfill the
requirements created by demand planning.
o The first step is to align and agree on the demand plan across various
business functions.

● Time Horizons in Planning:

o Strategic: Long-term plans related to overall business goals.
o Tactical: Medium-term plans focusing on resource allocation.
o Operational: Short-term plans that address day-to-day operations.

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● Sources of Supply:
o From Stock: Fulfillment from existing inventory.
o From Manufacturing: Production of products as needed.
o From Sourcing: Procurement of products from external suppliers.

● Planning Considerations:
o Each source of supply involves specific operational aspects that must be
planned for, such as inventory management, production scheduling, and
supplier coordination.

1.30. Inventory Planning

● Definition:
o Inventory planning is the process of determining the optimal quantity and
timing of inventory to align with the business’s supply plan.

● Key Considerations in Inventory Planning:

o Sourcing from Facilities: Inventory must be sourced from specific
facilities or distribution centers.
o Distribution Center Role: Inventory planning must be managed by the
distribution center to ensure smooth delivery.
o Customer Delivery: Inventory needs to be delivered to the customer
requiring distribution.

● Integration with Supply Chain:

o Inventory planning is closely linked to distribution planning, ensuring that
products are available for customers when and where needed.

1.31. Manufacturing Planning

● Definition:
o Manufacturing planning involves planning and controlling all aspects of
manufacturing, including materials, scheduling of machines and people,
and coordinating suppliers and customers when products need to be
produced.

● Objectives of Manufacturing Planning:

o Capacity Planning: Determine the manufacturing capacity required to
meet demand.
o Material Requirements: Plan for the raw materials or parts required for
production.
o Resource Planning: Plan for other resources needed, such as labor,
maintenance, and energy services.

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● Key Components:
o Capacity: Ensure the manufacturing process has the necessary
resources and capabilities.
o Materials: Ensure the right materials are available in the right quantity.
o Labor and Support: Plan for sufficient manpower and support services to
ensure smooth production.

1.32. Source Planning

● Definition:
o Source planning involves planning for the procurement of products and
raw materials from suppliers to fulfill customer demand.
● Material Requirements Planning (MRP):
o Products and raw materials sourced from suppliers are often combined
into a single planning process known as material requirements planning.

● Responsibility for Operational Plan:

o Transforming the Sales and Operations Plan (S&OP) into an operational
plan is the responsibility of various planning personnel across the
company.
o These planners may include:
▪ Inventory Planners: Focus on managing stock levels.
▪ Production Planners: Ensure manufacturing schedules align with
demand.
▪ Supply Planners: Coordinate the supply of products and
materials.
▪ Promotion Planners: Manage product promotion activities.
▪ Distribution Planners: Plan the logistics and distribution of
products.

● Organizational Structure Variations:

o Some companies may have certain types of planners (e.g., production
and supply planners) but lack others (e.g., inventory planners or
distribution planners).
o Despite this, the essential functions like inventory planning and
distribution planning still occur, albeit under different titles or
responsibilities.

● Key Takeaway:
o The specific titles of planners are not critical, as long as all groups within
the company understand their planning responsibilities and how they fit
into the overall supply chain planning process.

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Week 2 | Unit 2: Purchasing management

1.8. Introduction to Purchasing and Relevance

● Changing Role of Purchasing:
o Purchasing has evolved from a traditional approach to a more integrated
supply chain management approach.
o New terms:
▪ Supply Management: Replaces traditional purchasing
management.
▪ Sourcing: Refers to the act of purchasing.
▪ Strategic Sourcing: Focuses on the purchasing of strategic
commodities.

1.10. Nature of Purchasing Management

● Value of the Purchasing Function:
o Often underestimated because purchasing is seen as a daily activity, but
it is far more complex than just comparing prices.
o Purchasers buy a variety of goods and must stay updated on new
products and developments.

● Key Aspects of the Purchasing Function:

o Purpose:
▪ Provide the right materials, services, and equipment at a
reasonable price.
▪ Ensure quality, quantity, and timely delivery.
o Activities:
▪ Select suppliers.
▪ Arrange transportation for materials.
▪ Expedite orders.
▪ Work with warehouse, inventory, production, or merchandising
teams for optimal efficiency.
o Integrated Supply Chain:
▪ The purchasing function is key to focusing on efficiency,
cooperation, and building relationships with suppliers in the
supply chain.

1.12. The Importance of Purchasing

● Purchasing's Impact on Business:
o Purchasing significantly influences income, asset utilization, cost
containment, and turnover within the business and the broader supply
chain.
o High Expenses:

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▪ Purchasing costs are typically the highest expense in businesses,

especially in retail where up to 90% of revenue may be spent on
purchasing.
o Opportunity for Cost Savings:
▪ Purchasing is a major area where cost savings can positively affect
both the business and the supply chain.

● Inventory Holding:
o Purpose: To prevent production disruptions by maintaining stock.
o Objective: Keep inventory levels low without risking production delays,
thus avoiding tying up too much capital in inventory.
● Contribution Towards Profit:
o Efficient purchasing can enhance profits by limiting purchasing costs.
o Especially important when material prices fluctuate frequently.
● Contributions to Marketing:
o Purchasing plays a role in ensuring products are available at the right time
and quantity, which is essential for marketing.
o Effective purchasing indirectly boosts profit through its contribution to
marketing.

1.14. Purchasing Activities

● Key Concepts and Outcomes:
o Tasks of Purchasing:
▪ Supplier selection.
▪ Managing supplier relationships.
▪ Managing the quality of purchased materials.
▪ Planning material quantities.
▪ Influencing purchasing prices.
▪ Sustainable purchasing practices.

● Learning Outcomes:
o Explain the process of purchasing, which includes the following steps:
▪ Description of a need: Identifying what is required.
▪ Research on pricing and availability: Investigating options.
▪ Choice of suppliers: Selecting the best supplier.
▪ Issuing the order: Placing the purchase order.
▪ Expediting the order: Ensuring timely delivery.
▪ Receiving the order: Confirming receipt of goods.
▪ Inspection of goods received: Ensuring quality and accuracy.
▪ Paying for the order: Settling the financial transaction.
▪ Closing the order: Completing the process after delivery and
payment.

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1.16. Developing Suppliers

● Reasons for Supplier Development:
o Black Economic Empowerment: Supplier development may be driven by
the need to empower previously disadvantaged groups.
o Improving Performance: Supplier development may focus on enhancing
the performance of suppliers through performance appraisals and
feedback.
o Absence of Materials/Services in the Local Market: Sometimes, local
suppliers may not offer the required materials or services, requiring the
development of suppliers to meet specific needs.

● Supplier Development Process:

o One-on-One Collaboration: Involves direct collaboration with selected
suppliers to improve their capabilities and performance for the benefit of
the buying organisation.
o Duration: Supplier development can be a short-term or long-term
process, depending on the complexity and goals of the development.
o Feedback Mechanism: Regular feedback is provided to suppliers
regarding their performance, including customer complaints, which
motivates improvement in areas like delivery reliability and lead times.

● Examples of Supplier Development:

o Staff Training: Providing training to supplier staff to improve capabilities.
o Facility Reconstruction/Expansion: Upgrading or expanding supplier
facilities to meet the business's needs.
o Implementation of New Facilities: Installing new infrastructure or
systems to enhance supplier performance.

1.17. Developing Long-Term Relationships with Suppliers

● Nature of Relationships with Suppliers:
o Organisations tend to form less intensive relationships with suppliers of
standard products and services.
o More involved relationships are formed with suppliers of strategic or
unique materials, as these are critical to the business's operations.

● Attributes of Strategic Supplier Alliances:

o Trust: Strong foundation of trust between supplier and buyer.
o Cooperation and Interdependence: Both parties work together closely,
relying on each other for mutual benefit.
o Joint Efforts in Quality Improvement: Both parties collaborate to
enhance product or service quality.
o Information Sharing: Sharing vital information about production,
demand, and performance.

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o Risk and Benefit Sharing: Risks and rewards are distributed between
both parties.
o Joint Problem Solving: Both sides work together to resolve issues and
improve processes.

1.19. Important Decisions in Purchasing

● Key Factors in Pricing Decisions:
o Various elements must be considered when determining pricing,
including cost, quality, demand, and market conditions.
● Timing of Purchases:
o The timing of purchases plays a critical role in managing costs, inventory
levels, and market demand.
● Managing Purchasing Quality:
o Ensuring the quality of purchased materials is essential to maintain
product integrity and customer satisfaction.
● Key Learning Outcomes:
o Explain the key factors involved in making pricing decisions.
o Understand the importance of timing in purchasing decisions.
o Identify the key aspects of managing purchasing quality.

1.21. Value-Adding Role of Purchasing in Supply Chain Management

● Evolution of the Value-Adding Role:
o Purchasing’s role has evolved from a mere procurement function to a
more strategic and value-added function in the supply chain.
● Activities in the Value-Adding Role:
o Purchasing activities now include strategic supplier selection, managing
relationships, enhancing operational efficiencies, and contributing to
cost management.

1.23. Sustainability in Purchasing

● Purchasing and Societal Contribution:
o Purchasing can contribute positively to society by considering ethical
sourcing, fair labour practices, and supporting local businesses.
● Contributing to a Sustainable Environment:
o Sustainable purchasing includes sourcing products that have a lower
environmental impact, such as reducing waste, supporting eco-friendly
products, and using renewable materials.

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Week 3 | Unit 3: Supplier Management

1.7. Introduction to Supplier Management and Relevance

● Organisations need suppliers to:
o Reduce costs where possible
o Improve efficiency
● Supply chains rely on goods and services from other businesses.
● Choosing the correct suppliers and establishing appropriate relationships is
crucial.
● Supplier selection, evaluation, and management directly impact business
success.
● Different types of relationships exist between buying organisations and
suppliers.
● The study unit focuses on the selection and management of supplier
relationships.
Key Takeaways:
● Different types of relationships exist with suppliers.
● Activities vary depending on the relationship type.

1.8. Selection of Suppliers

Factors Increasing the Importance of Purchasing Function:
● Pressure to reduce material costs due to competitive environments.
● Focus on core activities, leading to outsourcing non-core activities.
● Adoption of Just-In-Time (JIT) and pull systems requires better supplier selection
for continuous, frequent deliveries.
● Growth of e-commerce, B2B portals, search engines, and electronic auctions.
● Integration of organisations into supply chains.
● Adoption of JIT, Total Quality Management (TQM), and supply chain
management.

Supplier Selection Criteria:

● Quality
● Price, cost, and cost structure
● Delivery time
● Flexibility
● Service level
● Financial status and risk assessment
● Systems and operations planning (including e-commerce)
● Technology and process capabilities
● Supply chain management approach
● BBBEE (Black Economic Empowerment) compliance
● Environmental, ethical, and social responsibility considerations
● Supplier capabilities, responsiveness, and motivation

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Supplier Selection Process:

1. Exploratory (Pre-evaluation) Stage:
o Establish selection criteria.
o Reject unsuitable suppliers.
2. Selection (Evaluation) Stage:
o Conduct research on potential suppliers.
o Choose an evaluation method and analyze suppliers.
o Select the suppliers.
3. Post-evaluation (Supplier Management) Stage:
o Ongoing performance measurement.
o Supplier accreditation.

Types of Supplier Relationships:

1. Transactional:
o Focused on single, short-term transactions.
2. Collaborative:
o Mutual cooperation and sharing of information.
3. Alliance/Partnership-based:
o Long-term, strategic collaboration with shared goals.

Key Takeaways:
● Factors influencing supplier selection include cost reduction, focus on core
activities, and technological advancements.
● Different types of supplier relationships (Transactional, Collaborative, and
Alliance-based) require varying levels of involvement.
● Supplier selection involves multiple stages: Pre-evaluation, Evaluation, and
Post-evaluation.

1.9. Supplier Relationship Management

Importance of Supplier Relationship Management:
● Historically, little attention was paid to managing supplier relationships.
● The emergence of supply chain management brought supplier relationship
management to the forefront.
● Supplier relationship management aims to maximize the value of supplier
relationships for both parties.

Supply Positioning Model:

● The model segments the supply portfolio by risk and opportunity.
● Helps businesses rank suppliers based on:
o Money spent with the supplier.
o Susceptibility if a supplier fails.
● Prioritizes efforts and develops supply strategy based on this model.

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Supplier Implementation Process:

1. Step 1: Evaluate risks and benefits of a partnership versus traditional processes.
2. Step 2: Establish criteria for potential partners and assess candidates for
strategic alliances.
3. Step 3: Executives from both the buying organisation and supplier commit to the
partnership, sign documents, and assign responsibilities.
4. Step 4: Nurture the partnership, set common goals, and assign teams for
collaboration.
5. Step 5: Handle contract termination, either due to breach of contract or
changing needs of the buyer.

Monitoring Supplier Relationships:

● Relationships should be continuously monitored for performance.
● Performance Evaluation Criteria:
o Characteristics of performance evaluation criteria.
o Levels of assessment.
o Methods of assessment to measure supplier performance.

Key Takeaways:
● Supplier relationship management has gained significance with the rise of
supply chain management.
● The supply positioning model helps in evaluating supplier risks and benefits.
● The supplier implementation process includes evaluating risks, establishing
criteria, formalising the relationship, nurturing the partnership, and managing
termination.
● Continuous monitoring and assessment of supplier performance are essential
for effective relationship management.

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Week 4 | Unit 4: Inbound Transport

1.7. Introduction to inbound transport and relevance

● Transportation’s Role: Acts as a link between customers, suppliers, factories,
warehouses, and participants in the supply chain.
o Types of Supply Chains: Local, regional, or international supply chains,
which could involve a combination of these categories.
o Modes of Transport: Each mode plays a unique role in supporting
logistics in a supply chain.
o Value Addition: Transportation creates time and place utility, which is
essential for customer satisfaction, a core focus of Supply Chain
Management (SCM).

1.8. Importance of inbound transport

● Purpose: Ensures products/materials are received on time, at the required
location, and in usable condition.
● Cost Factor: Inbound transportation involves significant costs, making it crucial
to manage efficiently.
● Key Decisions in Managing Inbound Transport:
o Selecting appropriate transport modes.
o Managing timing and scheduling of deliveries.
o Ensuring product condition upon arrival.

1.9. Managing inbound transport

● Key Leverage Points for Managing Inbound Transport:
o Cost: Reducing transportation costs through efficient management.
o Delivery Schedule: Ensuring products arrive at the right time.
o Quality and Condition: Managing the safe transport of
products/materials.
● Transport Management System (TMS):
o A TMS is a software platform that helps manage transportation logistics.
o Key Aspects of TMS Implementation:
▪ Streamlining transportation planning and execution.
▪ Tracking shipments in real-time.
▪ Optimizing routes for cost and time efficiency.

1.10. Modes of transport

● Different Modes of Transport:
o Road: Flexible, but may face traffic and weather delays.
o Rail: Suitable for large volumes over long distances, but limited to rail
lines.
o Air: Fast, ideal for urgent deliveries, but costly.
o Sea: Ideal for international trade, low cost, but slow.

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o Pipeline: Used for transporting liquids or gases, highly efficient but

limited to specific goods.
● Challenges in South Africa:
o Poor infrastructure, such as limited rail networks and maintenance
issues.
o Traffic congestion and high costs for road transport.
● Intermodal Transport: Using a combination of different transport modes (e.g.,
road and rail) to optimize cost, speed, and efficiency.

1.11. Transport terms

● Incoterms: International Commercial Terms that define the responsibilities of
buyers and sellers for the delivery of goods under sales contracts.
● Different Incoterms:
o FOB (Free On Board): Seller delivers goods on board a ship; buyer pays
for shipping.
o CIF (Cost, Insurance, Freight): Seller covers cost, insurance, and freight
until goods reach the buyer.
o EXW (Ex Works): Seller makes goods available at their premises; buyer is
responsible for transport.
● How Incoterms are used in Transport Management:
o These terms help determine cost, risk, and legal implications of
transportation.
o Incoterms clarify who is responsible for various parts of the
transportation process and help manage costs in international trade.

1.19. What is the role of transportation in the supply chain?

● Purpose:
o Ensures that products/materials are delivered on time, to the required
place, and in usable condition.
o Helps manage large costs involved in the supply chain.
● Key Integrative Role:
o Integrates and coordinates various flows throughout the supply chain.
o Links suppliers, manufacturers, and customers.
● Achieving Competitive Advantage:
o Efficient transportation can lead to a competitive advantage by satisfying
customer needs more quickly and at lower costs.

1.20. Steps for Implementing a Management System for Inbound Transportation

● Reducing Transportation Costs:
1. Evaluate Current Processes: Assess current transport strategies for
inefficiencies.
2. Implement Optimization: Optimize routes, choose cost-effective
transport modes, and consolidate shipments.

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3. Monitor and Adjust: Continuously monitor performance and adjust for

improvements.

1.21. Which modes of transportation should be used in which circumstances?

● Benefits and Disadvantages of Transport Modes:
o Road: Flexible but susceptible to traffic congestion and high costs.
o Rail: Efficient for bulk goods but limited by infrastructure.
o Air: Best for time-sensitive, high-value goods, but expensive.
o Sea: Cost-effective for large shipments but slow.
o Pipeline: Efficient for specific goods but limited in scope.
● Choosing the Right Mode:
o Consider factors like distance, cost, time sensitivity, and type of goods
being transported.

1.22. What are the Incoterms, and which factors (or terms) do Incoterms cover?
● Factors Covered by Incoterms:
o Price: The transport terms directly affect the cost of goods.
o Risk: They determine when risk is transferred from seller to buyer.
o Legal Implications: Define the legal responsibilities of both parties for
transportation and delivery.
● Use in Transport Management:
o Incoterms help in decision-making regarding who covers costs and risks
associated with transportation, whether it’s domestic or international
trade.

1.23. What are the principles of internal movement of materials?

● Materials Handling:
o Definition: The short-distance movement of materials, usually within a
building, aiming to achieve maximum service with minimal cost.
● Key Principles:
o Distance: Minimize transport or shorten transport distances.
o Flow: Ensure continuous flow of materials without interruptions.
o Layout: Plan easy and efficient routes for material movement, eliminating
unnecessary backtracking.
o Capacity Utilization: Transport in economical quantities or use smaller
containers.
o Power Source: Use gravity or cost-effective power sources for
movement.

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Week 5 | Unit 5: Inventory Management

1.7. Introduction to Inventory Management and Relevance

● Inventory Definition: Inventory (or stock) is a crucial asset in manufacturing or
retail businesses. It requires significant investment but is vital for smooth
operations.

● Challenges in Inventory Management:

o Balancing Inventory: Companies must manage the balance between
holding too much inventory (leading to excess costs) and too little
(leading to stock-outs and customer dissatisfaction).
o Common Inventory Challenges:
▪ Stock-outs.
▪ Obsolete stock.
▪ Business failure due to mismanagement of inventory.
o Cost of Holding Inventory: The cost of holding inventory is often
underestimated and can cause major financial strain.

● Grocery Analogy:
o Frequent Use Items: Like bread and milk, which are replenished
regularly.
o Infrequent Use Items: Like spices, that may not be needed often but are
kept in stock for convenience.
o Excess Inventory: Sometimes stock is kept in excess due to anticipation
of price increases or supply disruptions.
o Space and Obsolescence: Storing more than needed can lead to wasted
space and inventory that exceeds its shelf life.

● Business Impact: Striking a balance between the need for inventory and its cost
is essential for competitiveness, efficiency, and business effectiveness.
● Key Learning Points:
o Inventory is a vital driver in the supply chain.
o Balancing inventory with carrying costs is challenging but necessary for
business sustainability.

1.9. The Functions of Stock

● Reasons for Carrying Stock:
o Buffer Against Demand Fluctuations: Stock is kept to meet sudden
changes in customer demand.
o Production Smoothing: Maintaining stock ensures smooth production
without delays.
o Supply Chain Protection: Protects against disruptions in the supply
chain (e.g., transport delays, supplier issues).

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o Economies of Scale: Bulk purchasing and holding stock can reduce unit
costs.
o Price Protection: Buying in advance to avoid future price hikes or
shortages.

● Business Impact of Carrying Stock:

o Positive:
▪ Ensures product availability, leading to customer satisfaction.
▪ Allows businesses to exploit economies of scale.
o Negative:
▪ Increased holding costs.
▪ Risk of stock becoming obsolete or perishable.
▪ Capital tied up in stock that could be used elsewhere.

1.11. The Different Types of Inventory

● Types of Inventory:
o Raw Materials: Basic materials used in the production process (e.g.,
steel for a car manufacturer).
o Work-in-Progress (WIP): Items that are in the production process but are
not yet finished (e.g., partially assembled cars).
o Finished Goods: Completed products ready for sale or distribution (e.g.,
fully assembled cars).
o MRO (Maintenance, Repair, and Overhaul): Supplies required for
maintenance of equipment and machinery (e.g., tools, lubricants).
o Transit Inventory: Inventory that is in the process of being transported
from one location to another.
o Decoupling Inventory: Inventory kept to absorb fluctuations in demand
or supply in different stages of the production process.

● Purpose of Each Type of Inventory:

o Raw Materials: Ensure uninterrupted production and supply.
o WIP: To allow production to continue without stoppages, even if some
parts are delayed.
o Finished Goods: Meet customer demand and fulfill orders promptly.
o MRO: Keep production equipment running smoothly and prevent delays
due to maintenance issues.
o Transit Inventory: To account for goods in transit, which could affect
stock levels.
o Decoupling Inventory: Absorb variances in demand/supply to prevent
disruptions.

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1.12. Costs Associated with Inventory

● Types of Inventory Carrying Costs:
o Holding Costs: Costs for storing and maintaining inventory, including
warehousing, insurance, and opportunity costs (capital tied up in stock).
o Ordering Costs: Costs associated with ordering and receiving inventory,
including transportation, ordering staff, and processing costs.
o Stockout Costs: Costs incurred when inventory is insufficient, leading to
missed sales and lost customers.
o Obsolescence Costs: Costs due to inventory becoming obsolete or
perishable before it can be sold.

● Strategies to Manage Costs:

o Reduce Holding Costs:
▪ Minimize storage requirements by improving inventory turnover.
▪ Implement just-in-time (JIT) inventory systems.
o Minimize Ordering Costs:
▪ Use bulk buying when possible to reduce frequency of orders.
▪ Consolidate orders to reduce shipping costs.
o Avoid Stockouts:
▪ Implement demand forecasting techniques.
▪ Use safety stock to buffer against uncertainty.
o Prevent Obsolescence:
▪ Regularly review inventory for expired or obsolete items.
▪ Rotate stock to ensure older items are used first (FIFO).

1.14. Signs of Proof Inventory Management

● Indicators of Good Inventory Practices:
o Accurate and up-to-date inventory records.
o Efficient inventory turnover (frequent stock movement).
o Proper forecasting and demand planning to avoid overstocking or
understocking.
o Regular stock audits and cycle counts.
o Effective use of inventory management systems (e.g., RFID, barcodes).

● Indicators of Poor Inventory Practices:

o Frequent stockouts or overstocking.
o High levels of obsolete or expired stock.
o Poorly managed inventory systems leading to inaccuracy.
o Excessive handling or storage costs due to inefficient processes.
o Poor customer satisfaction due to delays or unavailable products.

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1.16. Measures and Systems in Managing Inventory

● ABC Analysis:
o Concept: A method of classifying inventory based on value, where 'A'
items are the most valuable, 'B' are moderately valuable, and 'C' items
are the least valuable.
o Application: Focuses resources on managing 'A' items (high-value, low
quantity) while allowing for more relaxed control of 'B' and 'C' items.

● Fixed Order Point System:

o Concept: A system where inventory is ordered when it reaches a pre-set
level or order point.
o Calculation: The order point can be determined by calculating the lead
time demand (average usage rate × lead time).

● Economic Order Quantity (EOQ):

o Concept: EOQ determines the optimal order quantity that minimizes
total inventory costs (ordering + holding).
o Basic EOQ Calculation:
▪ Formula: EOQ = √(2DS / H)
▪ D = Demand rate
▪ S = Ordering cost per order
▪ H = Holding cost per unit per year

● Inventory Turnover:
o Concept: A ratio that measures how often inventory is sold and replaced
over a period.
o Calculation: Inventory Turnover = Cost of Goods Sold / Average Inventory

● Days of Supply:
o Concept: Measures the number of days that the current inventory will
last given the demand rate.
o Calculation: Days of Supply = (Average Inventory / Cost of Goods Sold) ×
365

● Order Fill Rate:

o Concept: A measure of the percentage of customer orders that can be
filled completely from available stock.
o Importance: A higher fill rate indicates better inventory management and
higher customer satisfaction.

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Practice Questions & Answers:

Practice Questions: Supply Chain Management (Week 1-5)

1. What is inventory and why is it considered the lifeblood of any manufacturing or
retail business?
2. Explain the challenges of balancing the need for inventory with the cost of
carrying inventory.
3. How does the grocery cupboard analogy help in understanding inventory
management in businesses?
4. What are the key drivers of inventory costs?
5. Identify and explain the different types of inventory a company may carry.
6. What are the reasons for carrying stock in a business, and how do they impact
business operations?
7. What is the difference between holding too much and holding too little
inventory?
8. List the different types of inventory carrying costs and explain each one.
9. What strategies can businesses implement to manage inventory holding costs
effectively?
10. What are some indicators of good inventory management practices?
11. How can poor inventory management impact a business?
12. Explain the concept of ABC analysis in inventory management.
13. What is the fixed order point system, and how is it used in inventory
management?
14. Describe the concept of Economic Order Quantity (EOQ) and explain how it is
calculated.
15. What is inventory turnover, and how is it calculated?

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Answers:
1. Inventory Definition and Importance:
o Inventory (or stock) refers to the raw materials, work-in-progress, and
finished goods that a business holds to meet customer demand and
ensure smooth production. It is considered the lifeblood of any
manufacturing or retail business because it represents a significant
investment and is vital for business operations.

2. Challenges of Balancing Inventory with Carrying Costs:

o The challenge lies in finding the right balance between having too much
inventory (which leads to high holding costs and potential obsolescence)
and too little inventory (which leads to stock-outs and lost sales). Both
extremes can impact a business's competitiveness and profitability.

3. Grocery Cupboard Analogy in Business Inventory Management:

o The grocery cupboard analogy compares the different types of inventory
businesses hold. Items like milk and bread are frequently used, while
others like spices are less frequently used. Businesses must strike a
balance between keeping enough stock to meet demand without
overstocking, which could lead to waste or high costs.

4. Key Drivers of Inventory Costs:

o Holding Costs: Storage, insurance, depreciation, and the opportunity
cost of capital tied up in inventory.
o Ordering Costs: Costs related to placing orders, including transportation
and administrative costs.
o Stockout Costs: Lost sales and customer dissatisfaction due to
insufficient inventory.
o Obsolescence Costs: The risk of inventory becoming outdated or
perishable before it can be sold.

5. Types of Inventory:
o Raw Materials: Basic materials for production.
o Work-in-Progress (WIP): Partially finished goods in the production
process.
o Finished Goods: Complete products ready for sale.
o MRO: Supplies used to maintain machinery and equipment.
o Transit Inventory: Goods in transit between locations.
o Decoupling Inventory: Stock that absorbs fluctuations in demand or
supply in production processes.

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6. Reasons for Carrying Stock and Their Impact:

o Buffer Against Demand Fluctuations: Ensures products are available
when demand spikes.
o Production Smoothing: Prevents production stoppages when supplies
are delayed.
o Supply Chain Protection: Protects against disruptions in supply.
o Economies of Scale: Reduces per-unit cost by purchasing in bulk.
o Price Protection: Enables businesses to avoid higher costs due to price
increases.

7. Difference Between Holding Too Much and Too Little Inventory:

o Too Much Inventory: Leads to high storage costs, potential waste, and
capital tied up in stock.
o Too Little Inventory: Leads to stockouts, lost sales, and customer
dissatisfaction.

8. Types of Inventory Carrying Costs:

o Holding Costs: Costs for storage, insurance, and maintenance.
o Ordering Costs: Costs of ordering and receiving inventory, including
transportation.
o Stockout Costs: The cost of lost sales and dissatisfied customers.
o Obsolescence Costs: Losses due to products becoming outdated or
perishable.

9. Strategies to Manage Holding Costs:

o Just-In-Time (JIT) Inventory: Minimizes the amount of stock held,
reducing storage and obsolescence costs.
o Improve Inventory Turnover: Ensures products are sold quickly,
reducing holding costs.
o Use of Automated Inventory Systems: Reduces manual storage costs
and improves stock accuracy.

10. Indicators of Good Inventory Management:

◦ Accurate and up-to-date inventory records.
◦ Effective forecasting and demand planning.
◦ Regular audits and cycle counts.
◦ Efficient inventory turnover and minimal stockouts.

11. Impact of Poor Inventory Management:

Poor inventory practices can lead to overstocking, stockouts, high holding costs,
obsolete stock, and customer dissatisfaction. It can result in financial losses
and operational inefficiencies.

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12. ABC Analysis in Inventory Management:

ABC Analysis classifies inventory based on its value. ‘A’ items are high-value but
low-quantity items, while ‘C’ items are low-value but high-quantity. This helps
businesses prioritize management efforts and allocate resources efficiently.

13. Fixed Order Point System:

This system involves setting a specific inventory level (order point), and when
stock reaches that level, an order is triggered. The goal is to ensure timely
restocking without over-ordering. The order point can be calculated using the
lead time demand (average demand × lead time).

14. Economic Order Quantity (EOQ):

EOQ is a formula used to determine the optimal order quantity that minimizes
total inventory costs. The calculation involves balancing ordering costs and
holding costs. The formula is:
o EOQ = √(2DS / H)
o D = Demand rate, S = Ordering cost, H = Holding cost per unit.

15. Inventory Turnover:

Inventory Turnover measures how frequently inventory is sold and replaced
over a specific period. It indicates how efficiently a company manages its
inventory. The formula is:
o Inventory Turnover = Cost of Goods Sold / Average Inventory.

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Week 7 | Unit 6: Warehouse Management

Introduction to warehouse management and relevance

● Efficient and effective warehouse management:

○ Reduces firm costs.
○ Enhances competitive advantage.
○ Increases inventory turnover.
○ Minimises obsolete/damaged stock.
○ Encourages use of first-in-first-out (FIFO).
● Warehousing is a critical component of supply chain infrastructure.

1.5. Glossary

1. Delivery Note
A document accompanying a shipment of goods that lists the items being
delivered. It is used to verify that the correct goods have been received and often
requires the receiver’s signature as proof of delivery.
2. Production Schedule
A detailed plan that outlines what products are to be manufactured, in what
quantities, and when. It aligns production activities with demand and resource
availability to ensure timely output.
3. Issue Note
A document used in a warehouse to authorise the release of inventory or
materials. It records details about the items issued, including quantities, item
codes, and destination or department.
4. Staging Area
A designated space in a warehouse where items are temporarily held before
being packed, loaded, or shipped. It helps coordinate and organise goods for
efficient order fulfilment and dispatch.
5. Travel Tour
The route a picker follows within a warehouse to collect items for an order.

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Optimising travel tours helps reduce time, improve productivity, and increase
picking accuracy.
6. Obsolete Stock
Inventory items that are no longer in demand or usable, often due to expiration,
damage, or being outdated. These items tie up storage space and capital and
often require disposal or markdown.
7. Fast-Moving Stock
Products that sell quickly and are replenished frequently. These items are
usually placed in easily accessible locations near dispatch or picking areas to
streamline operations.
8. Slow-Moving Stock
Items that are sold or used infrequently. These are often stored in less
accessible areas of the warehouse to prioritise space for faster-moving
inventory.
9. Postponement
A supply chain strategy where final production or distribution is delayed until
customer demand is known. It helps reduce inventory levels and increase
product customisation.
10. Dual Command
A type of warehouse layout or equipment configuration (e.g., in automated
storage systems) that allows access or operation from two sides, improving
flexibility and throughput.
11. Modular Parts
Components designed in standardised units or modules that can be easily
combined or replaced. This approach simplifies manufacturing, inventory
management, and product customisation.
12. Zone Picking
A warehouse picking strategy where the facility is divided into zones, and
pickers are assigned to specific zones. Each picker gathers items only within
their zone, improving speed and reducing congestion.
13. Flexibility Picking
A method that allows picking operations to adapt based on factors such as

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order priority, volume, or staff availability. It increases efficiency and

responsiveness in dynamic warehouse environments.
14. Bundling
The process of grouping multiple products into a single package for sale,
shipment, or promotion. It simplifies handling and may add value for customers.

1.8 Objectives of Warehouse Management

● Increase profits and customer service levels by:

○ Maximising usable warehouse space.
○ Maximising employee utilisation.
○ Achieving high inventory turnover rates.
○ Minimising warehouse operating costs.
○ Protecting warehouse assets.
○ Providing timely customer service.

1.10. Activities performed in a warehouse

● Receiving stock: Inspect and verify goods against documentation.

● Put-away: Move goods to designated storage locations.
● Storage: Maintain items in suitable conditions.
● Order picking: Select items for orders.
● Packing and unitising: Prepare goods for shipment.
● Dispatch: Ship goods to customers or other warehouses.
● Returns processing: Handle returned or defective items.

1.12. Warehouse layout

● Objectives:
○ Maximise space and product flow.

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○ Facilitate inventory rotation.

○ Reduce costs and improve productivity.
○ Protect stock.

● Key areas:
○ Receiving, inspection, storage zones (pallet, carton, small item).
○ Packing, sorting, staging, shipping, returns, charging stations, offices.

● Stock location considerations:

○ Group family product groups together.
○ Fast-moving near dispatch bay.
○ High-security items in secure areas.
○ Products requiring FIFO or refrigeration placed accordingly.
● Visibility of Warehouse
Shape:

1.13. Storage of material

● Pallet storage: Racking systems such as selective, drive-in, push-back racks.

● Small/carton items:
○ Bin shelving.
○ Modular drawer storage.

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○ Carousel systems.

1.15. Material handling equipment

● Manual: Hand pallet jacks.

● Mechanical:
○ Forklifts (counterbalanced, engine-powered).
○ Walkie stackers.
○ Turret reach trucks.
● Automated:
○ Conveyors, hoists, cranes.

1.16. Automatic identification systems

● Barcoding: Most common; scanned using handheld scanners.

● Magnetic strips: Used in cards and tags.
● Radio Frequency Identification (RFID): Automatic tracking without line of sight.
● Voice recognition systems: Used in order picking.
● Pick-to-light systems: Indicate picking locations visually.

1.18. Relationship between the warehouse and various departments

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● Finance: Cost control, budgeting, asset management.

● Production: Supply of raw materials, handling of finished goods.

● Distribution: Coordinating outbound logistics.

● Purchasing: Receiving and storing inbound stock.

● Quality control: Inspecting and verifying stock.

● Sales/Marketing: Managing stock availability for promotions

1.20. Different types of warehouses

● Private: Owned by a single company.

● Public: Open for use by multiple clients.

● Bonded: Store imported goods until duties are paid.

● Smart warehouses: Tech-enabled with automation and AI.

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● Distribution centres: Focused on rapid movement of goods.

● Cold storage: Temperature-controlled for perishables.

● Consolidated warehouses: Combine products from multiple suppliers.

● Fulfilment centres: Handle online order processing and returns.

1.22. Trends and challenges in warehousing

Trends:

● Automation and robotics.

● Data analytics and real-time tracking.

● Sustainability and green warehousing.

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● Use of drones and AGVs (automated guided vehicles).

Challenges:

● Rising customer expectations.

● Labour shortages.

● Cost control and efficiency.

● Space utilisation.

● Managing high product variety and returns.

Practice Questions
1. Name any three objectives of warehouse management.

2. What is the FIFO principle, and why is it important?

3. List three common activities performed in a warehouse.

4. What is the main purpose of a warehouse layout?

5. Why should fast-moving stock be placed near the dispatch area?

6. Mention two types of pallet racking systems used in warehouses.

7. Give two examples of storage systems for small items.

8. Name three types of material handling equipment.

9. What is the function of a turret reach truck?

10. List any three automatic identification systems.

11. What is the role of the warehouse in relation to the production department?

12. How does a bonded warehouse function?

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13. State two current trends in warehouse management.

14. What is one key challenge facing warehouses today?

15. Why is inventory visibility important across multiple warehouses?

Answers

1.
○ Maximise usable space
○ Minimise operating costs
○ Improve customer service

2. FIFO = First-In-First-Out. It ensures older stock is sold first to reduce

obsolescence and spoilage.
○ Receiving stock
○ Picking and packing
○ Dispatching

3. To optimise space, flow, and efficiency of operations from receiving to shipping.

4. To speed up picking and dispatch processes, reducing lead time and improving
efficiency.
○ Selective racking
○ Drive-in racking
○ Bin shelving
○ Carousel storage systems
○ Forklifts
○ Pallet jacks
○ Conveyors

5. It lifts pallets in narrow aisles and to high racking levels, improving vertical
storage.

6.
● Barcoding
● RFID
● Pick-to-light

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11. Ensures timely delivery of raw materials and transfer of finished goods.

12. Stores imported goods before customs duties are paid; enhances regulatory
control.

13.
● Warehouse automation
● Green/eco-friendly warehouse practices

14. Managing high volumes of returns or reverse logistics.

15. To prevent stockouts or overstocking, improve order fulfilment and reduce

inefficiencies.

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Week 8 | Unit 7: Operations Management

NOTE: Please be advised that while these notes may be helpful, your textbook
should be your primary study material

1.8. Introduction to Operations Management and Relevance

• Operations management involves managing processes to produce goods and
services.
• Effective operations management is crucial for businesses to avoid waste and
maintain competitiveness.
• The operations management process requires the management of resources
(inputs) such as:
o Capital (money)
o Labour
o Material
o Components
o Equipment
• These inputs are used to acquire:
o Infrastructure (buildings, warehouses, distribution centers)
o Machinery and equipment
o Raw materials and components
o Services, salaries, and wages
• Timeous availability of resources is essential for on-time production and
delivery.
• Transformation processes convert inputs into outputs (products and services).
• Operations managers are responsible for planning, organizing, staffing, leading,
and controlling these transformation processes.
• Effective operations management enhances business competitiveness.
• Key outcomes of well-managed operations include:
o Higher productivity
o Improved product/service quality

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o Lower total costs

• Positive impacts of good operations management:
o Employment creation
o Improved living standards

1.9. Characteristics of Successful Operations Managers

• Key topics include:
o Definition of operations management
o Role of operations management in the supply chain
o Impact of operations on business performance
o Characteristics of effective operations managers

1.11. The Operations Management Process

• Key topics:
o Description of the operations process
o The eight M’s of operations (inputs)

1.13. Activities of Operations Management

• Key topics:

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o Identification of activities in operations management

o Major decisions in operations management
o Comparison of operations activities in different industries (e.g., vehicle
plant vs. hotel)

1.15. Operations Performance Measurement

• Key topics:
o Role of performance management
o Role of operations in business strategy
o Key performance indicators (KPIs)

1.17. Operations Process Design

• Key topics:
o Characteristics of a well-designed operations process
o Consequences of poorly-designed processes
o Types of operational processes

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1.19. Operational Planning and Control

• Key topics:
o Role of operations policy
o Factors in location and layout decisions
o Types of operations layout
o Steps in product and service design
o Importance of demand forecasting
o Requirements for good forecasting
o Concept of capacity planning
o Impact areas of capacity planning
o Capacity planning process
o Factors affecting capacity
o Demand and capacity balancing
o Methods for demand and capacity balancing

1.21. Operations Improvement

• Key topics:
o Role of performance improvement
o Reasons for performance improvement
o Basic techniques for performance improvement

1.34. Discuss how operations can provide strategic advantage

• Strategic advantage is gained through:
o Better quality
o Faster delivery
o More reliable products
o Lower cost

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1.36. Performance evaluation

• Quality: Focus on improvement leads to high performance.
• Flexibility: Wide product range and delivery options.
• Dependability: Reliable products and on-time delivery.
• Costs: Achieved through focus on value and design.

1.37. Business process re-engineering (BPR)

• BPR is the transformation of an existing system to improve quality, capability,
and performance.
• BPR techniques include:
o Combining jobs
o Empowering workers
o Optimizing work placement
o Reducing checks and controls

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o Streamlining reconciliation processes

• Advantages of BPR:
o Customer focus
o Cost advantages
o Long-term strategic view
o Overcoming functional boundaries
o Streamlining activities
o Reducing complexity

Practice Questions and Answers

1. Define operations management and explain its relevance to a business.
2. List and briefly describe the key inputs (8M's) to the operations process.
3. Explain the role of operations management in the supply chain.
4. What are the main activities of operations management?
5. Why is performance measurement important in operations management?
6. What are the key performance indicators for operations management?
7. Describe the characteristics of a well-designed operations process.
8. Explain the potential consequences of a poorly designed operations process.
9. List the four different types of operational processes.
10. What factors should be considered when deciding on the location and layout of
operations?
11. Briefly describe the steps in the product and service design process.
12. Explain the importance of demand forecasting for operations management.
13. Define capacity planning and identify its areas of impact.
14. What are some basic techniques for performance improvement in operations?
15. How can operations management provide a strategic advantage to a company?

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Answers

1. Operations management involves managing the processes through which goods

and services are produced. It is relevant because proper management of these
processes helps businesses to minimize waste, control costs, and enhance
competitiveness, all of which impact the business's ability to achieve its goals.
2. The eight M’s are:
▪ Manpower
▪ Machinery
▪ Materials
▪ Methods
▪ Management
▪ Money
▪ Markets
▪ Mounting
3. Operations management plays a crucial role in the supply chain by overseeing
the transformation of inputs into final products or services. The efficiency and
effectiveness of operations directly impact the quality, cost, and delivery of
these outputs, thereby influencing the overall performance and competitiveness
of the supply chain.
4. The main activities of operations management include:
▪ Designing and selecting processes
▪ Arranging layouts
▪ Locating facilities
▪ Designing jobs
▪ Measuring performance
▪ Controlling quality
▪ Scheduling production
▪ Managing inventory
▪ Planning production
5. Performance measurement is important because it allows businesses to assess
the success of individual activities within the operations system. By comparing
results against targets, companies can identify areas for improvement and
ensure that operations contribute effectively to overall business goals.

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6. The key areas for measurement are:

▪ Quality
▪ Flexibility
▪ Dependability
▪ Cost
7. The document does not explicitly list the characteristics of a well-designed
operations process.
8. Poorly designed operations processes can lead to various forms of waste,
negatively impacting overall costs and competitiveness.
9. The four types of operational processes are:
▪ Job processes
▪ Batch processes
▪ Repetitive processes
▪ Continuous flow processes
10. The document mentions layout options:
▪ Fixed position layout
▪ Process layout
▪ Product layout
▪ Cell layout
11. The steps in the product design process are:
▪ Planning
▪ Concept development
▪ System/process design
▪ Detailed design
▪ Testing and improvement
▪ Start of production
12. The document explicitly mentions the importance of demand forecasting for
operations management, highlighting that it is one of the key topics in
operational planning and control.
13. The document defines capacity planning as a key concept in operational
planning and control. Its areas of impact are also discussed within the context of
operational planning.

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14. The techniques include:

▪ Flow charts
▪ Scatter diagrams
▪ Cause of effect diagrams
▪ Pareto analysis
▪ Input-output analysis
15. Operations management can provide a strategic advantage by focusing on:
▪ Better quality
▪ Faster delivery
▪ More reliable products
▪ Lower costs

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Week 9 | Unit 8: Distribution Management

NOTE: Please be advised that while these notes may be helpful, your textbook
should be your primary study material

1.1. Distribution Management

• Involves decisions on how products are delivered to customers.
• Ensures customers receive products at the right place and time.
• Includes managing the distribution route from manufacturing to sale.
• Uses planning, organising, leading, and controlling activities.
• Forms part of marketing management and focuses on satisfying consumer
demand.
• Consists of downstream supply chain activities.

1.5. Study Unit 8 Key Terms/Glossary

• Distribution management: Management of the flow of goods to the consumer.
• Distribution channel: Path a product takes from producer to consumer.
• Upstream activities: Processes before product reaches the distribution
channel.
• Downstream activities: Processes after product enters the distribution
channel.
• Channel leadership: Ability to influence other channel members.
• Channel conflict: Disagreements between channel members.
• Sales intermediaries: Agents or brokers who assist in sales.
• Resellers: Businesses that buy products to sell again.
• Intensity of distribution: Number of intermediaries used per channel level.

1.7–1.9. Introduction & Description of Distribution Management

• Distribution aims to bring products closer to the consumer.
• Includes a flow of goods through various participants.
• Involves both upstream (suppliers) and downstream (customers) processes.
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1.11. Overview of Distribution

Channels
• Value Added:
o Place utility
o Time utility
o Possession utility
• Participants:
o Facilitators (e.g., logistics companies)
o Supply chain members (e.g., wholesalers, retailers)
o Sales intermediaries and resellers

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1.13. Designing a Distribution Channel

Steps to design a distribution channel:

1. Determine channel objectives.
2. Specify distribution activities.
3. Develop alternative channel structures.
4. Evaluate factors influencing channel selection.
5. Select the best channel.
6. Select specific intermediaries.
Factors to consider:
• Market factors: Customer needs, size, geographic location.
• Product factors: Complexity, perishability, price.
• Availability of intermediaries.
• Organisational factors: Company size, experience.
Intensity levels:
• Intensive: Many intermediaries (e.g., for convenience goods).
• Selective: Few selected intermediaries.
• Exclusive: One intermediary per region (e.g., luxury goods).

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1.15. Channel Leadership and Control

Sources of channel power:
• Reward power: Offering benefits for
compliance.
• Coercive power: Punishment for non-
compliance.
• Legitimate power: Contractual
obligations.
• Referent power: Influence through
association.
• Expert power: Influence through
specialised knowledge.
Methods to resolve conflict:
• Problem-solving: Consultation or mediation.
• Persuasion: Influencing through leadership.
• Negotiation: New agreements through compromise.
Control performance measures:
• Turnover and market share
• Number of complaints
• Cash flow
• Inventory holding levels

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Practice Questions
1. What is the main aim of distribution management?
2. What are the four main management activities in distribution management?
3. What are upstream activities?
4. What are downstream activities?
5. Name two types of participants in the distribution channel.
6. What is the first step in designing a distribution channel?
7. What does intensity of distribution refer to?
8. Which power source involves rewarding channel members?
9. How can a company use negotiation to resolve channel conflict?
10. What performance measure relates to how well a channel manages its inventory?
11. Why is the availability of intermediaries important in designing a distribution
channel?.
12. Give an example of a product likely to use intensive distribution.
13. What is referent power in channel leadership?
14. Name two factors to consider when evaluating channel alternatives.
15. What utility does distribution provide besides place and time?

Answers
1. To deliver products to customers in a way that provides place and time utility.
2. Planning, organising, leading, and controlling.
3. Activities related to sourcing and production before entering the distribution channel.
4. Activities related to delivering the product to the final customer.
5. Sales intermediaries and resellers.
6. Determine the channel objectives.
7. The number of intermediaries used at each level of the distribution channel.
8. Reward power.
9. By developing a new agreement that compromises between the parties involved.
10. Inventory holding.
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11. Because it influences the feasibility of different distribution alternatives.

12. Soft drinks or snacks (convenience goods).
13. Influence based on association or shared identity between channel members.
14. Market factors and product factors.
15. Possession utility

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Week 10 | Unit 9: Outbound Transport

NOTE: Please be advised that while these notes may be helpful, your textbook
should be your primary study material

1.2. Unit 9 Relevance

• Outbound transport refers to the transport of final products to customers and is
often called secondary transport.
• Applies the same principles as inbound transport, but focuses on delivering final
products to customers.

1.5. Study Unit 9 Key Terms/Glossary

• Outbound Distribution: Refers to the transportation and delivery of final products
from an organization to its customers or the next partner in the supply chain, such
as retailers. It involves creating time and place utility for the products delivered.
• Indirect Carriers: These are organizations or entities that do not directly operate the
transportation vehicles but assist in coordinating and managing the transportation
process. Examples include transport brokers and freight forwarders.
• Freight Forwarders: These are entities that specialize in providing logistics and
transportation services on behalf of shippers. They offer services such as
documentation, customs clearance, consolidation of smaller consignments into
larger ones, and coordinating with various transport operators like airlines and
shipping companies.
• Outsourcing: The practice of delegating certain business activities or functions,
such as transportation or logistics, to third-party service providers to focus on core
competencies and improve efficiency.
• Third-Party Logistics (3PL) Service Providers: Companies that provide outsourced
logistics services, including transportation, warehousing, and inventory

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management, on behalf of a client organization. They handle specific supply chain

operations for a profit.
• Fourth-Party Logistics (4PL) Service Providers: Entities that manage and oversee
the operations of multiple 3PL providers on behalf of a client organization. They act
as a single interface for the client and are responsible for all aspects of logistics and
supply chain management.
• Reverse Logistics: The process of managing the return flow of goods from
customers back to the organization for purposes such as repairs, recycling, or
disposal. This includes stages like collection, inspection, sorting, recovery, and final
disposition.

1.8. Introduction to Outbound Transport and Relevance

• Materials flow:
o From suppliers to the organization (inbound transport).
o Within the organization (materials flow between processes).
o Out of the organization (outbound transport) to the next supply chain
partner or final customer (e.g., retailer).
• Decisions include:
o Physical movement and timing of products to the final consumer or
purchase locations (e.g., retail outlets).
• Outbound transport adds value through:
o Time and place utility for transported products.

1.9. Transportation Decisions

• Define outbound transport.
• Identify key decisions in outbound transport.

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1.11. Selecting a Road Transport Operator and Transport Participants

• Factors for selecting a road transport provider:
o Economic considerations (e.g., cost of services, pricing policy, financial
stability).
o Management capabilities (e.g., administrative proficiency, maintenance,
and IT systems).
o Technical factors (e.g., fleet age and condition, intermodal
arrangements).
o Legal aspects (e.g., contractual requirements, penalty clauses).
o Operational considerations (e.g., flexibility, reliability, references).
• Direct carriers vs. Indirect carriers:
o Direct carriers perform transportation services directly.
o Indirect carriers, such as transport brokers and freight forwarders, assist
in coordinating and documenting transport services.

1.13. Outsourcing Transport and Fourth-Party Logistics (4PL)

• Transport Outsourcing:
o Refers to delegating transport activities to a third-party (3PL).
o Typical outsourced activities:
▪ Transportation services.
▪ Warehouse management.
▪ Shipment consolidation.
▪ Fleet management.
▪ Logistics systems and IT operations.
• Fourth-Party Logistics:
o 4PLs manage networks of 3PLs and oversee all supply chain logistics on
behalf of the organization.

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1.15. Reverse Logistics

• Key Components:
o Managing product returns for reasons such as:
▪ Repairs, defects, recalls, shelf-life expiry, or incorrect deliveries.
o Return stages:
1. Collection: Physically retrieving returned goods.
2. Inspection & Sorting: Assessing quality and determining next steps.
3. Recovery & Disposition: Repackaging, refurbishment, or recycling.

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o Possible outcomes for returned products:

▪ Resell, redistribute, salvage, remanufacture, recycle, donate, or
dispose of.

Questions
1. What is outbound transport?
2. Why is outbound transportation important?
3. What are the five key decisions that need to be made with regard to
transportation according to the practical exercise?
4. Name three factors to be considered when selecting a road transport provider.
5. What is the difference between direct and indirect carriers?
6. Give two examples of indirect carriers mentioned in the text.
7. What is transport outsourcing?
8. Give three reasons why a company might choose to outsource transport.
9. Give three reasons why a company might choose to use its own transport.
10. What is fourth-party logistics (4PL)?
11. What is reverse logistics?
12. List three examples of products that would be relevant in reverse logistics.
13. Name three options available for products that need to be returned, as part of
reverse logistics.
14. What are the roles of transport brokers?
15. What services do freight forwarders offer?

Answers
1. Outbound transport involves the flow of materials from the organization to the
next supply chain partner or the final customer.
2. Outbound transportation adds value to the company by creating time and place
utility for the products that are transported.
3. The five key decisions are:
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o Geographical coverage (volume, value, mass and distance)

o Sourcing decisions
o Customer service
o Location decisions
o Transport cost and mode decisions
4. While the document provides a table summarizing criteria for selecting a
transport company, it doesn't explicitly list three factors in a sentence. You
would need to refer to that table for the specific criteria.
5. The document mentions the difference between direct and indirect carriers, but
it does not elaborate on what the difference is.
6. The document mentions transport brokers and freight forwarders as parties
involved in the transport process, implying they are indirect carriers.
7. Transport outsourcing is when a company hires a third-party logistics (3PL)
provider to handle its transport and other logistics activities.
8. Reasons to outsource transport include:
o Concentrating on core business activities
o Freeing up capital
o Lack of staff knowledge, commitment and low morale of own personnel
9. Reasons to use own transport include:
o Complete control over distribution activities
o Continuity of flow of products between plants
o Quick decisions can be taken to remedy the situation in a time of crisis
10. Fourth-party logistics (4PL) involves a separate entity that manages the network
of 3PL providers on behalf of the client.
11. Reverse logistics includes product returns for repair and/or credit,
damaged/malfunctioning items, excess or wrongly delivered items, product
recalls, and products that have reached the end of their shelf life.
12. Products relevant in reverse logistics include:
o Damaged, malfunctioning or defective items
o Excess or wrongly delivered items
o Product recalls
13. Options available for returned products include:

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o Return to seller
o Resell
o Redistribute
14. Transport brokers arrange and coordinate the transportation of products
between shippers and carriers, negotiate rates, and oversee shipments.
15. Freight forwarders offer documentation and customs clearance services,
consolidation services, and collection and delivery services.

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Week 11 | Unit 10: Customer service and performance

management

NOTE: Please be advised that while these notes may be helpful, your textbook
should be your primary study material

1.5. Study Unit 10 Key Terms/Glossary

• Key Terms Include:
o Customer service management, customer relationship management,
supplier relationship management.
o Lead time, customer service, demand management.
o Customer value creation, information flow.
o Capacity management, cash flow management.
o Performance management, performance measures, and key
performance measures.

1.8. Introduction to customer service and performance management

and relevance
• Globalization Impact:
o Due to global competition, organizations must differentiate themselves
not just by their product range but by the quality of their service.
• Market Orientation:
o The theory emphasizes focusing on the customers’ needs.
o Providing operational and service excellence creates added value and
enhances relationships throughout the supply chain.

1.10. Practical exercise

• Scenario Overview:

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o A customer (you) experiences a delay during an IPhone upgrade and

encounters a stock shortage.
• Tasks:
o Explain the importance of customer service based on your experience.
o Describe how the supplier’s performance impacts the customer service
received.

1.11. Practical exercise

• Scenario for Supply Chain Manager:
o As a supply chain manager for a major cell phone manufacturer, use the
supplier segmentation matrix (referenced in Chapter 10 of the textbook).
• Task:
o Consider the supply risk of various cell phone components and group the
suppliers according to the matrix criteria.

1.12. The linkages between CRM and SRM

• Linkage Areas:
o Demand Management:
▪ Understanding and distinguishing between dependent and
independent demand.
o Customer Value:
▪ Define and recognize different perceptions of value from a
customer perspective.
o Information Flow:
▪ Explain its impact on customer service management.
o Operational Management:
▪ Describe how capacity and cash flow management affect
customer service.

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1.14. Service delivery management

• Measurement Aspects:
o Explain how to measure customer service management.
• The Four Quadrants:
o Identify and explain the quadrants (e.g., aspects such as responsiveness,
efficiency, and flexibility) used to evaluate performance.
• Key Concepts:
o Emphasize responsiveness, efficiency, and flexibility as essential
elements.

1.16. Introduction to performance management

• Strategic Link:
o Metrics connect the strategy with implementation.
• Performance Monitoring:
o A system is required to monitor performance versus targets.
• Key Maxim:
o “What gets measured gets attention.”
• Process Orientation:
o Emphasizes the need for a systematic approach in creating and deploying
a performance measurement system.

1.17. The importance of performance measures

• Three Primary Reasons:
o Control:
▪ Allow evaluation and control of resources.
▪ Focus on maintaining competitive advantage.
o Communication:

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▪ Serve to communicate performance to internal and external

stakeholders.
o Improvement:
▪ Identify discrepancies between actual and expected performance
to drive corrective actions.
• Levels of Application:
o Relevant from the executive level to individual employee performance.

1.18. Measures, metrics and KPI's

• Definitions:
o Measure:
▪ A single numerical value (e.g., number of invoices, inventory count).
o Metric:
▪ A computed or comparative value that provides deeper information (e.g.,
inventory turnover calculated from several measures).
o KPIs (Key Performance Indicators):
▪ Critical metrics that are tied directly to strategic goals.
• Example Provided:
o Description of inventory turnover computation.
• Note:
o While metrics provide performance insight, KPIs are the most critical metrics
used for performance management.

1.19. Key performance indicators (KPIs)

• Distinguishing Features:
o Not every metric qualifies as a KPI.
o KPIs are linked to strategic goals at both the executive and functional
levels.
• Flexibility:
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o While KPIs should remain stable, they must adapt as strategic goals
change.
• Comparison Example:
o A table (Table 10.1) contrasts KPIs for a production manager with those
for a retail executive.

• Performance indicators:

1.20. Performance targets

• Purpose:
o Establish a comparison
benchmark to judge
performance.
• Basis for Targets:
o Goals & Objectives:
▪ Derived from the
organization’s strategic
plan.
o Benchmarks:
▪ Comparisons against
external organizations.
o Historical Performance:
▪ Utilizing past performance data as a guide.

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• Target Establishment:
o Clearly defined targets ensure that performance gaps can be identified
and addressed.

1.22. Characteristics of a good metric

• SMART Criteria:
o Specific: Clearly defined
and focused.
o Measurable: Quantifiable in
numerical terms.
o Achievable: Stretch goals
that are realistic.
o Realistic: Reflective of both
external and internal
constraints.
o Timely: Defined within an
appropriate time frame.

1.23. Supply chain metrics

• Scope:
o Numerous metrics exist; the SCOR model itself lists around 200 KPIs.
• Focus Areas:
o Time Metrics:
▪ Example: Order cycle time variability.
o Quality Metrics:
▪ Example: Customer satisfaction and perfect order fulfillment.
o Cost Metrics:
▪ Examples include total delivered cost, finished goods inventory
turns, cash-to-cash cycle time.

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o Other Supporting Metrics:

▪ Includes aspects such as IT and administration costs, and costs
involved in handling exceptions.
• Insight:
o The best metrics focus on the factors most critical to realizing supply
chain strategy and overall business vision.

1.24. Essential characteristics of supply chain metrics

• Reinforcement:
o Aligns closely with the SMART model and emphasizes strategic focus.

1.26. Impediments to supply chain metrics

• Common Obstacles:
o Incompatible goals and objectives among supply chain members.
o Distrust between partners.
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o Unequal sharing of implementation costs.

o Different internal strategies leading to varied metrics.
o Lack of standardization throughout the supply chain.
o A predominant focus on internal metrics.
o Insufficient or incompatible information technology.
• Additional Concern:
o Metrics are mainly retrospective, showing past performance and not
predicting future trends.
• Best Practice:
o Develop forward-looking metrics to monitor emerging risks and
opportunities.

1.34. Practical Exercise

• Customer Service Delivery Matrix:
o Take the IPhone purchase example and use the textbook matrix to
identify various elements of your customer service experience.
• Matrix Elements Include:
o Product/service quality.
o Responsiveness.
o Efficiency.
o Flexibility.
• Sub-Elements:
o Sensory capabilities, fill
rate, shelf life, lead time, shipping errors, customer complaint handling,
etc.

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Practice Questions

1. Relevance of Customer Service: What is the relevance of customer service in

supply chain management as presented in Study Unit 10?
2. Definitions and Linkages: Define Customer Relationship Management (CRM)
and Supplier Relationship Management (SRM) and explain how they are linked.
3. Supplier Impact: In the IPhone upgrade scenario, explain how supplier
performance impacts customer service.
4. Service Delivery Management Elements: What are the key elements used in
measuring service delivery management?
5. Measure vs. Metric vs. KPI: Differentiate between a measure, a metric, and a
Key Performance Indicator (KPI) by providing examples.
6. Linking to Strategy: Why is it important to link performance measures to
strategic goals?
7. SMART Criteria: What does the SMART criteria stand for and how does it ensure
a metric is “good”?
8. Categories of Supply Chain Metrics: List and briefly explain the four main
categories of supply chain metrics mentioned in the unit content.
9. Impediments to Effective Metrics: Identify some common impediments to the
effective implementation of supply chain performance metrics.
10. Role of Capacity Management: Describe the role of capacity management in
enhancing customer service and overall supply chain performance.
11. Supplier Segmentation: In the supplier segmentation matrix exercise for a cell
phone manufacturer, which cell phone components might be categorized as
strategic suppliers, and why?
12. Dependent vs. Independent Demand: What is the difference between
dependent demand and independent demand? Provide an example from the
study unit.
13. HP’s Supplier Performance Techniques: What techniques were used by HP to
manage the performance of their suppliers?
14. Wal-Mart’s Supply Chain Strategies: How did Wal-Mart’s supply chain
strategies contribute to improved customer service according to the study
notes?
15. Internal and External Focus of Metrics: Explain why it is important for supply
chain metrics to incorporate both internal process measures and external
factors.

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Answers
1. Relevance of Customer Service: Customer service is essential in supply chain
management since customers are the key drivers of the entire supply chain.
Delivering on customer requirements determines overall success, and excellence in
service adds value while enhancing relationships throughout the supply chain.
2. Definitions and Linkages:
o CRM (Customer Relationship Management): The process of collecting and
analysing customer information to build strategic, long-term relationships.
3. SRM (Supplier Relationship Management): Focuses on developing better
relationships with strategic suppliers, ensuring mutual benefit. Their linkages
appear through managing demand, creating customer value, facilitating efficient
information flow, and balancing capacity and cash flow management across the
supply chain.
4. Supplier Impact: In the iPhone scenario, supplier performance (such as timely
stock delivery) directly affects the customer’s experience. A failure on the supplier’s
part (e.g., stock not arriving, long wait times) undermines customer service, leading
to dissatisfaction and a breakdown in the supply chain’s reliability.
5. Service Delivery Management Elements: The key elements include
responsiveness (speed and agility in service), efficiency (cost-effectiveness and
resource utilization), and flexibility (ability to adapt to change). These are measured
using a service delivery matrix that evaluates aspects such as product quality, lead
times, fill rates, and error rates.
6. Measure vs. Metric vs. KPI:
o Measure: A simple numerical value (e.g., the number of invoices or
deliveries).
o Metric: A calculated value that provides insight (e.g., inventory turnover
calculated from beginning and ending inventory and purchase expense).

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o KPI: A critical metric that is directly linked to strategic business goals, used
to monitor essential performance outcomes (e.g., on-time delivery
percentage compared against a target).
7. Linking to Strategy: Linking performance measures to strategic goals is important
because it ensures that every performance indicator directly supports the
organization’s long-term objectives. This alignment channels focus, optimizes
resource allocation, and guides corrective action when performance deviates from
expectations.
8. SMART Criteria: SMART stands for Specific, Measurable, Achievable, Realistic, and
Timely. These criteria ensure that metrics are clearly defined, quantitatively
evaluable, reachable under current conditions, practical in light of available
resources, and monitorable within a set time frame.
9. Categories of Supply Chain Metrics:
o Time Metrics: Focus on measuring the speed of various processes (e.g.,
order cycle time).
o Quality Metrics: Assess the overall quality of service and product delivery
(e.g., perfect order fulfilment).
o Cost Metrics: Evaluate costs incurred across the supply chain (e.g., total
delivered cost).
o Other Supporting Metrics: Cover additional aspects like IT systems,
administrative costs, and exception handling costs.
o Impediments to Effective Metrics: Impediments include incompatible
goals among supply chain partners, distrust, unshared implementation
costs, very different internal strategies requiring varied metrics, lack of
standardization, an overemphasis on internal metrics, insufficient IT
infrastructure, and the retrospective nature of most metrics.
10. Role of Capacity Management: Capacity management involves matching
production capabilities with fluctuating demand to ensure product availability,
reduce stock-outs, and optimize costs. It contributes to improved customer service
by ensuring that the supply chain operates efficiently, keeping pace with market
demand.

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11. Supplier Segmentation: In a cell phone manufacturer scenario, components like

the casing, screen, and software might be classified as strategic suppliers because
these parts are critical to the product’s quality and there are few high-quality
sources available, representing higher supply risks.
12. Dependent vs. Independent Demand:
o Dependent Demand: Demand derived from the need for components of a
final product, such as the packaging material for a cell phone.
o Independent Demand: Direct demand for the final product itself, like the
customer purchasing the cell phone.
13. HP’s Supplier Performance Techniques: HP used comprehensive performance
measures including performance scorecards, regular physical and management
system audits, performance benchmarking, and continuous performance feedback
with collaboration for improvement.
14. Wal-Mart’s Supply Chain Strategies: Wal-Mart enhanced customer service by
using a combination of expanded distribution centers, electronic data interchange
(EDI) with suppliers, the big box store format that integrates warehousing and retail,
and the concept of everyday low prices. These strategies ensured operational
efficiency, reduced costs, stabilized demand, and improved overall service delivery.
15. Internal and External Focus of Metrics: It is important for supply chain metrics to
include both internal and external factors because internal measures (such as
efficiency and process control) must align with external pressures (like regulatory
compliance and market standards) to provide a comprehensive view of
performance. This balanced approach ensures that the company remains
competitive and responsive to both its own strategic requirements and broader
market expectations.

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