Description
Supply Chain Management (SCM) and shows that supply chains in some shape or form are required to deliver products and services that either we - or our organisation - need or think are needed. For every business transaction there is a supplier and a customer and there are activities, facilities and processes linking that supplier to the customer.
Managing Project
Supply Chains
Chapter 1
the roLe of suppLy Chain as a VaLue driVer
INTRODUCTION
This chapter explains the basic concepts of supply Chain Management (sCM) and
shows that supply chains in some shape or form are required to deliver products and
services that either we - or our organisation - need or think are needed. or every
business transaction there is a supplier and a customer and there are activities!
facilities and processes lin"ing that supplier to the customer. #n addition! for every
tas" in a pro$ect there is a customer and a supplier or a group of suppliers. The
management process of balancing these lin"s to deliver best value to the customer
at minimum cost and effort for the supplier is supply chain management. %hilst
you may be unaware of them! you will experience supply chains everywhere! e.g. in
running your home! managing a manufacturing business! in health services! hotels!
ban"s! government! utilities! non-profit organisations! universities! entertainment!
retail! professional services and managing a pro$ect.
&upply chains vary significantly in complexity and si'e but their fundamental
principles apply to all operations! whether they are large or small! manufacturing or
service! private or public sector. supply chain management is relevant to all
businesses and to all operations.
(et us loo" at some everyday scenarios to see supply chains in operation. %hen a
customer visits a hairdresser she is the customer and the hairdresser is the supplier.
The hairdresser will need to ensure the availability of materials (shampoo!
conditioner and colouring)! facilities and equipment (chairs! driers etc.). #n order to
provide the service! the hairdresser is involved with purchasing! inventory
management and facilities supervision. #n order to minimise customer queues
there is also a need for demand forecasting! capacity management! scheduling and
quality management. #n this example of a basic service operation we can identify
the "ey components of supply chain management.
Ta"e another scenario. Consider that you are chec"ing in at )agreb *irport for a
return flight to (ondon. +ou are unhappy to find that there is a long queue. +ou
have discovered that in addition to normal procedures the central computer is down
2 Managing Project SuPPly chainS
and a screening machine has been installed to ,-ray all types of luggage as an
extra security precaution. #n this case the supply chain is obviously more complex
than the example shown above for the hairdressing service. or you the customer!
the initial focal point is the chec"-in cler"! but there are many supporting lin"s
leading to this provision. The airlines have to sell tic"ets! ensure the availability of
aircraft with all the required fittings (including in-flight entertainment systems) in
an acceptable condition! provide meals and a have a stoc" of trained air crew
available. -efore you got to )agreb *irport your administration manager will
have purchased a tic"et from a travel agent! who in turn may have made an
electronic boo"ing.
#n this case! we can see that there are suppliers and suppliers of suppliers. Moreover
there exist both customers and customers of customers. .owever the basic functions
of forecasting! capacity management! inventory management! scheduling and
quality management are present $ust as they were with the hairdresser! and $ust as
they are for any supply chain.
The message is clear/ the "ey ob$ective of supply chain management is to provide
best value to the customer by measuring! planning and managing all the lin"s in the
chain.
#n a ma$or pro$ect the client may engage only the main contractor! who in turn will
select the second tier contractors. #n succession they will procure a wide range of
wor"s! services and materials from the large number of smaller contractors and
suppliers which form the 0ro$ect supply Chain of sourcing and delivery.
WhAT IS SUPPLy ChAIN MANAGEMENT?
#n a typical supply chain! raw materials are procured and items are produced at
one or more factories! shipped to warehouses for intermediate storage and then
transported to retailers or customers. #f you as"ed people involved in business to
define the term 1supply chain1 you would get many different answers. 2ach
definition would reflect the nature of the individual1s business and the inputs and
outputs produced. or some! supply chain is related to purchasing and procurement3
to others it involves warehousing! distribution and transportation. or yet others it
would be sources of capital and labour. &win" et al. (4565) provide a holistic
definition of the supply chain! vi'. the entire networ" of organisations involved in/
7 converting raw materials and information into products and services3
7 consuming the products and services3
7 disposing of the products and services.
the role of SuPPly chain aS a Value DriVer 3
They further state that 1this definition treats the supply chain as a product cradle-
to-grave concept! including all value-added activities required to plan! source!
ma"e and deliver products and services that meet customer needs.1 To this we can
add the word 1process1. %e see the supply chain not as a series of separate
operations and organisations but as a complete end-to-end procedure.
another useful definition is provided by simchi-(evi et al. (4558! p. 6)/
Supply chain management is a set of approaches utilized to efficiently integrate
suppliers, manufacturers, warehouses and stores, so that merchandise is
produced and distributed at the right quantities, to the right locations, and at
the right time, in order to minimize system-wide costs while satisfying serice
leel requirements!
%hat do these definitions suggest9 They propose that supply chain management
must consider every organisation and facility involved in ma"ing the product! and
the costs inherent in doing so. This also implies that the ob$ective is to be cost
effective across the whole supply chain! which requires a system wide approach to
optimisation.
Supply Chain in Manufacturing
supply chain management in a manufacturing and supply organisation considers
the demand! supply and inventory needs for each item of production. #n particular
it loo"s at how inventory flows through the system in order to achieve output to
the customer1s specification on time and at the least cost. %ith supply chain
management! customer service is increased through the reduction of lead times!
and the product is always exactly as specified and is always delivered on time.
Costs are reduced through the elimination of any activity that does not add value
and through the reduction of inventories of material and associated holding and
handling costs.
activities and measures based on customer requirements are very significant in
improving business performance. .owever! externally driven customer-based
measures have to be matched by gauges of what the company can do (feasibility!
capacity! "now-how and resources) to consistently meet customer expectations. a
high standard of customer performance derives from planning! processes and
actions integrated across the whole organisation.
supply chain management focuses on the critical measures of all elements of the
supply chain. 2xternally these measures include the suppliers at one end and the
customer at the other end of the supply process. These externals! the supplier and
the customer! are matched with the internal requirements of the manufacturing
4 Managing Project SuPPly chainS
process. The focus is two-fold/ to satisfy customer needs and to "eep costs down
to a minimum.
#n reality the elements of supply chain management are not new - we all have been
dealing with parts of the supply chain for years (e.g. buying! planning! scheduling!
stoc" control! warehousing! logistics! distribution etc.) without realising the
significance of the whole chain concept. (i"ewise the cost of the various elements
of supply and distribution has been long recognised. 1#n :5 years between 6;<5 and
6=45 the cost of distributing necessities and luxuries has nearly trebled! while
production costs have gone down by one fifth - what we are saving in production
we are losing in distribution1! observed >alph -arsodi in 6=4=.
#t is relatively new to view the supply chain as a process! in other words as a single
integrated flow across all the functions of a business. Traditionally activities within
a supply chain were seen as separate and specialist functions such as purchasing!
planning! scheduling! manufacturing and distribution. .owever with supply chain
management! the flow of both materials and information across traditional
functional boundaries is seen as a single process. These flows are depicted in a
simplified model in igure 6.6.
#n the past! information flow was the domain of the commercial division! while
the conversion process of materials flow constituted a manufacturing or technical
division tas". %ith an integrated supply chain approach the responsibility for all
elements of supply now lies with operations Management or supply chain
management. #n many businesses! the integrated approach is being extended to
include all suppliers (including 1upstream1 6st! 4nd and 8rd tier suppliers) through the
manufacturing process 1downstream1 to each level of customers. This includes
distributors! wholesalers and retailers through to the end user or consumer. This is
"nown as the 1extended supply chain1.
Physical Flow
Receiving Manufacture Packing Distribution
Sourcing and Supply
SUPPLIER CUSTOMER
ERP
Demand
Purchasing Scheduling MPS Management
Inforation !"o#
igur! "#" Supply chain $anag!$!nt $%&!l
the role of SuPPly chain aS a Value DriVer $
Supply Chain in S!r'ic!(
Than"s to ease of travel! the media and the %orld %ide %eb customers have never
been more informed than they are today. Customers "now what they want and are
aware of what can be done3 they understand the concept of world-class and
continuous improvement. This is especially true in service industries. as a result of
the heightened expectations of these clients! operations managers in service sectors
have been forced to focus their attention on managing the complete value- adding
system using the principles of supply chain management.
-ut $ust how can service industries apply supply chain management9 The supply
chain of a service organisation contains suppliers! products or services! customers
and their demand for products and service level agreements. service inventory can
be in the form of information databases! stoc"s of consumables (as with the
hairdresser)! stationery items (such as brochures and promotional material)! and
subcontractors (including facility managers! travel agents! caterers and advertising
agencies).
&wan" (4558) described a successful application of supply chain management and
lean production principles in a typical insurance service company in the usa!
?efferson 0ilot inancial (?0). ?0 believed that the processing of their almost
tangible 1service product1 was comparable to a car assembly process. &wan"
explains that/ 1(i"e an automobile on the assembly line! an insurance policy goes
through a series of processes! from initial application to underwriting or ris"
assessment to policy issuance. %ith each step value is added to the wor" in
progress - $ust as a car gets doors or a coat of paint1 (p. 64@).
Supply Chain in N%t)f%r)pr%fit Organi(ati%n(
The good practices of supply chain management can be adapted to provide ma$or
practical benefit to not-for-profit organisations! such as charities! in meeting their
ob$ectives. #nternational disasters have a huge impact on the world1s population!
increasing the need for aid groups to improve their logistics capability and
capacity. 0erhaps the biggest impact of supply chain management in not-for-profit
organisations is responding to unpredictable demands through quic"-response
supply and distribution.
The world events of 455: have suggested that humanitarian organisations are yet
to fully exploit supply chain optimisation. or example! referring to the .urricane
Aatrina disaster in new orleans! %aller (455
was not surprised that %al-Mart! the
world1s largest retailer! beat the ederal 2mergency Management agency (2Ma)
and the >ed Cross to areas devastated by the hurricane. .e said the company
delivered supplies quic"ly and efficiently because that is what it does
% Managing Project SuPPly chainS
every day. %al-Mart is the master of supply chain management! and the company1s
expertise in this area wor"ed well during a natural disaster.
an example of the application of supply chain management in a not-for-profit
organisation is the national .ealth service in the united Aingdom.
Supply Chain in Pr%*!ct(
The essential success criterion of a pro$ect is the timely! accurate to quality
and cost-effective delivery of materials! systems and facilities. There are many
sta"eholders! contractors and suppliers involved in a pro$ect. #n a ma$or
infrastructure scheme such as .eathrow Terminal : there are li"ely to be more than
655 "ey contractors and consulting firms. Thus! supply chain management
methodologies and processes are crucial to ensuring that pro$ect resources are
delivered as required.
although supply chain management should be an essential process within the
0ro$ect Manager1s tool "it! its importance in 0ro$ect Management is not properly
recognised. Bue to the perception of the 1one-off1 and unique nature of a pro$ect
versus the repetitive nature of operations! the traditional approach of pro$ect
management has been consciously different from that of operations management.
&upply chain management is inextricably lin"ed with operations management (&lac"
et al. 455C! p. 45
. a primary ob$ective of both supply chain management and
operations management is to ensure optimum customer service by balancing cost!
time and quality (%ild! 4554). .owever the mindset of pro$ect managers appears to
exclude the principles and ob$ectives of supply chain management (*la->is"u and
Aar""ainen! 455C).
#n the context of a ma$or pro$ect! supply chain management can be linear or non-
linear. a supply chain is considered linear when a material! product or service is
sourced from a single supplier. This single-source linear procurement is more
common in operations management. .owever in a pro$ect supply chain a ma$or
contractor is served by several subcontractors and each subcontractor may be
served by several other subcontractors and the process becomes non-linear. .ence
the perspective of the linear supply chain includes the procurements that are well
defined from a single supplier and perform as specified. on the other hand! non-
linear supply chains occur when ris"s appear from multiple tiers of suppliers and
the intended linear process becomes unreliable. &ome supply chain ris"s in pro$ects
include lac" of supplier commitment! poor order control! unexpected variations in
lead time! critical material damaged in shipment and changes induced by suppliers
and pro$ect members. These non-linear pro$ect ris"s have the potential to generate
cumulative negative influences across the pro$ect.
the role of SuPPly chain aS a Value DriVer &
#n order to minimise such non-linear pro$ect ris"s related to the supply chain the
basic concepts! s"ills and tools of supply chain management form essential support
elements of pro$ect management. These basic concepts and tools are equally
applicable to the success of operation management whether in manufacturing or
services. There follow some examples of these concepts in supply chain
management.
#t is also evident that there is now increasing awareness among both practitioners
(www.viasysweb.com) and academics (o1-rien! 4556) of applying appropriate
supply chain principles in ma$or pro$ects. The most noticeable change in the last
three decades is the introduction of information and communication technology
with faster and more comprehensive systems to improve the efficiency of pro$ect
supply chains from procurement to suppliers.
Ca(! !+a$pl!, Air-u( A./0
The *irbus *8;5 was a double-dec"! four-engine airliner manufactured by
airbus sas. #t first flew on 4< april 455: from Toulouse in rance. after well-
publicised lengthy delays commercial flights did not seem li"ely before 455;.
airbus spent two years grappling with the design of the a8:5 and a8;5 while
archrival -oeing went ahead with producing its <;< Breamliner! winning more
than @55 orders for the plane! which was due to go into commercial service in
455;. Costly delays in the production of the a8;5 super $umbo and surging
demand for -oeing1s <;< roc"ed *irbus and its parent company! the 2uropean
aeronautic Befense and space Company (2aBs)! which had three chief
executives in the span of a single year. The 64 billion euro a8;5 super $umbo
pro$ect was overbudget! as well as being over two years behind schedule. a
decision by the us mail group ed2x to cancel its order for 65 airbus 8;5s
caused massive losses at 2aBs. a ma$or partner in the pro$ect! -a2 systems! also
sold its share in the pro$ect.
The problems facing 2aBs in the airbus 8;5 pro$ect were many and complex.
analysts highlighted two problems at the forefront which were related to funding
and supply chain management. or historical reasons manufacturing was a
transnational process! structured around "ey manufacturing units in the DA (-a2
systems)! Eermany (Baimler-Chrysler aerospace)! rance (aerospace- Matra)
and spain (Casa). 2ach country was responsible for producing a complete
section of the aircraft and then transporting it by a specially constructed roll-
onFroll-off vessel (built by a shipyard in China) to the final assembly line
' Managing Project SuPPly chainS
in Toulouse. #n addition the pro$ect had hundreds of suppliers! contractors and
subcontractors (including >olls->oyce! E2F0ratt G %hitney! &miths #ndustries!
>oc"well Collins and Horthrop Erumman).
There may not have been simple solutions to the complex and serious problems
of *irbus 8;5. .owever 2*B& recognised the lin" between pro$ect management
and supply chain management and implemented pro$ect management methods
and tools for suppliers. This allowed them to simultaneously manage resources!
time! cost! and performance in order to ensure pro$ect success. #n a structured
course! chosen representatives for suppliers learnt and practised a straightforward
and effective pro$ect management methodology that was adaptable to all types of
pro$ects.
source/ www.aerospace-technology.comFpro$ects (455C)
WhAT A1OUT LOGISTICS MANAGEMENT?
#s there a difference between 1logistics1 and 1supply chain1 management9 The
Council of (ogistics Management has recently changed its name to the Council of
supply Chain Management 0rofessionals! which indicates that it sees logistics
management as part of the supply chain process. %hen it was still the Council of
(ogistics Management! it defined logistics management as/
"he process of planning, implementing and controlling the efficient, cost
effectie flow and storage of raw materials, in-process inentory, finished
goods, and related information from point of origin to point of consumption
for the purpose of conforming to customer requirements!
#ts new definition is/
Supply chain management encompasses the planning and management of all
actiities inoled in sourcing and procurement, conersion, and all logistics
management actiities! #mportantly, it also includes coordination and
collaboration with channel partners, which can be suppliers, intermediaries,
third party serice proiders, and customers! #n essence, supply chain
management integrates supply and demand management within and across
companies!
$Council of Supply Chain Management Professionals, %&&'(
http)**cscmp!org+
t
he role of SuPPly chain aS a Value DriVer (
#f we consider these definitions we see they are very similar to the earlier
explanations we have provided (&win" et al. 4565 and &imchi-(evi et al. 4558) and
can conclude that for our purposes! at least in a manufacturing and supply
organisation! logistics and supply chain management are synonymous. #f one is
inclined to separate the physical movement of logistics in a service organisation!
we can see that there is but a fine border between logistics and supply chain
management in the service sector. Taylor (6==<) goes on to divide supply chain
management into/
6.
4.
8.
@.
:.
C.
<.
;.
(ogistics and supply Chain strategy
0urchasing and supplies Management
Manufacturing (ogistics
Bistribution 0lanning and strategy
%arehouse 0lanning and operations Management
#nventory Management
Transport Management
#nternational (ogistics and #nternational Mar"et 2ntry &trategies.
Taylor1s definition infers that 1logistics1 is a subset of 1&CM1. 2ach subtopic
contributes to the performance of the overall supply chain process and! as a
consequence! to improved sta"eholder satisfaction.
WhAT ARE IN1OUND AND OUT1OUND LOGISTICS?
The flow of information and physical goods from both customers and suppliers
to the business or the conversion centre (e.g. a factory! a warehouse or an office) is
termed 1inbound logistics1. (i"ewise the flow of information! goods or service from
the conversion centre to the customer constitutes 1outbound logistics1. To put it
more simply! inbound logistics relate to demand and procurement while outbound
logistics concern supply and service. igure 6.4 and igure 6.8 show examples of
inbound and outbound logistics in a foods factory.
Bemand and supply planning capabilities enable companies to balance inbound and
outbound logistics and thus to maximise return on assets and ensure a profitable
match of supply and demand. #nbound and outbound logistics are also described as
1upstream1 and 1downstream1 processes. or example! Christopher (6==4) defines supply
chain management as the management of upstream and downstream relationships
with suppliers and customers to deliver superior customer value at less cost to the
supply chain as a whole.
1) Managing Project SuPPly chainS
igur! "#2 In-%un& l%gi(tic(
igur! "#. Out-%un& l%gi(tic(
WhAT IS ThE E)SUPPLy ChAIN?
as shown in igure 6.6 the traditional supply chain was concerned with a
linear flow of information and products or services from customers to suppliers
through various stages of processes! while the information flow was the domain of
the commercial division and the conversion process of materials flow was a
manufacturing or technical division responsibility. Buring the 6==5s the concept of
Total supply Chain Management shifted the responsibility for all elements of
supply to operations management or supply chain management.
according to -asu (4554) the #nternet-enabled integrated supply chain! or
1e-supply chain1! has extended the linear flow of the supply chain to e-suppliers and
systems or a supply web (see igure 6.@). #t now includes all customers! right down
to the end user or consumer! suppliers1 customers! customers1 suppliers etc. The
frontrunners of the new collaborative business model! such as Bell and Toyota! are
sourcing materials and products in response to customer demand and minimising
both inventory and dealers. The collaborative culture has enabled these companies
to become adept at managing relationships between customers!
the role of SuPPly chain aS a Value DriVer 11
suppliers and multidisciplinary company functions with a sharing of transparent
information and "nowledge exchange.
Inte*ration throu*h e+,usiness
Physical Flow
Receiving M anufacture Packing Distribution
Sourcing and Supply
SUPPLIER CUSTOMER
ERP
Demand
Purchasing Scheduling MPS Management
Inforation !"o#
igur! "#3 !)(upply chain %r !)4!-
hOW DO yOU 1ALANCE ThE 5OICE O ThE CUSTOMER
65OC7 AND ThE 5OICE O 1USINESS 65O17 IN SUPPLy ChAIN
MANAGEMENT?
#n any business or operation! a manager has to find a balance between the two
conflicting ob$ectives of demand from the customer and supply from operations.
The voice of the customer (IoC) is articulated as customer service. Customer
service is the primary ob$ective of supply chain management. .owever! customer
service has to be sustainable and balanced with the efficient use of resources. The
secondary ob$ective of supply chain management is to reduce costs and to ma"e
effective use of resources.
or simplicity! three "ey parameters of customer service are considered. These
are specification! Cost (or 0rice) and Timing. The customer expects the goods or
service to be delivered according to acceptable standards! to be of an affordable
price and to arrive on time. The relative importance of specification! cost and time
could change depending on the mar"et condition! competition and the desirability
of demand. The second ob$ective! to efficiently utilise resources to meet customer
service requirements! is the voice of business (Io-). Eiven infinite resources! any
system can provide adequate customer service! but many companies have
12 Managing Project SuPPly chainS
gone out of business in spite of possessing satisfied customers (%ild! 4554). To
provide a sustained and sustainable level of customer service efficiently the use of
resources is essential. a starting point for balancing IoC and Io- is >esource
utilisation and Customer service analysis (>uFCs)! which aims to determine the
gaps between what is desired and what is actually feasible.
>DFC& analysis is a simple tool to establish the relative importance of the "ey
parameters of both resource utilisation and customer service and to identify their
conflicts. %ild (4554) suggests the starting point of the >uFCs analysis with the
operations ob$ectives Chart! as shown in Table 6.6. The relative importance of the
"ey parameters for >D (i.e. machines! materials and labour) and C& (i.e.
specification! cost and time) can be given a rating of 6! 4 or 8 (8 being the most
important).
Ta-l! "#" Op!rati%n( %-*!cti'!( chart
Resource Utilisation ustomer Service
a-hines ateria"s La,our Spe-ifi-ation Cost tie
!peration
Consider a mail order company where customers are expecting good value for
money and do not mind receiving goods from catalogues within a reasonable
delivery time. The operation Manager has focused on the utilisation of own
resources to minimise operational costs. igure 6.: shows the ratings of ob$ectives
and actual performance! and highlights the misalignment. #t is evident that further
examination is required for timing and material.
as shown in igure 6.C! there is a conflict between cost and materials and further
attention or a change of policy is required to resolve this divergence.
%hen we study the apparently contradictory ob$ectives of >u and Cs we realise
that they have one thing in common! that is cost and price. #f we can reduce the
cost of the production of goods or services by improved resource utilisation then
we are in a better position to lessen the price to the customer.
>uFCs analysis does not provide solutions to the conflicts but identifies broad
areas for attention. #t is also important to note that the relative priorities of >u and
Cs can vary within the same business depending on the product and customer. To
find solutions the supply chain manager will see" other tools! techniques and
processes of supply chain management! which we shall explain in later chapters.
one such process is 2nterprise >esources 0lanning (2>0).
the role of SuPPly chain aS a Value DriVer 13
igur! "#8 1alanc! %f %-*!cti'!(
igur! "#9 RU:CS analy(i(
WhAT IS ERP?
The business ob$ective is to convert customer demand by optimising the utilisation
of resources to deliver effective customer service. This applies to all organisations
regardless of whether they are in the manufacturing or service sectors. 2nterprise
resources planning (2>0) systems provide a single up-to-date database incorporating
manufacturing! finance and human resource applications extended to include the
trac"ing of orders and inwards goods! wor" in progress and the delivery of finished
goods. The system is accessible to all departments for the planning and execution
of supply chain activities. Thus enterprise resources planning systems integrate (or
attempt to integrate) all data and processes of an organisation into a single unified
system in order to achieve integration.
14 Managing Project SuPPly chainS
The term 2>0 originally implied systems designed to plan the utilisation of
enterprise-wide resources. although the abbreviation 2>0 originated in the
manufacturing environment as a successor to M>0## (Manufacturing >esources
0lanning)! today1s use of the term 12>0 systems1 has much broader scope. 2>0
systems typically attempt to cover all basic functions of an organisation! regardless
of that establishment1s commerce or charter. Eovernments! businesses! not-for-
profit organisations and other large entities all utilise 2>0 systems.
hOW DO yOU DELI5ER 5ALUE IN SUPPLy ChAIN
MANAGEMENT?
The delivery of goods and services of expected standards on time at the 1best in
class1 cost is creating value for money for customers and thus adding value to the
business. an effective supply chain management team can deliver value by a Ialue
stream methodology or a total supply chain management approach.
The value stream system transcends the traditional manner of departmentalising
stages of the business process. The value stream highlights the importance of the
operations manager being involved in all aspects of the process - from supplier
right through to the customer and! if possible! to the customer1s customer. The 1old1
method was that one department or function would be responsible for purchasing
goods and services! another for planning. The scheduling of activities was often a
separate tas"! as was warehousing and distribution! and operations were $ust one
step in the whole process of providing services. %ith the value stream approach!
functional boundaries are ignored and in many organisations it is now accepted that
the operations manager has to control the total process! from purchasing input
goods and services to the final stage of satisfying the customer. Mar"eting!
accounting! human resources and other support functions do not show up on the
value stream as such! but operations managers must be vitally interested and
involved in these internal operations of the organisation.
The value stream approach in supply chain aligns well with 0orter1s (6=; value
chain as shown in igure 6.<. The idea of the value chain is based on the process view
of organisations/ the concept of seeing a manufacturing (or service) organisation as
a system made up of subsystems! each with inputs! transformation processes and
outputs. .ow value chain activities are carried out determines costs and affects
profits.
the role of SuPPly chain aS a Value DriVer 1$
igur! "#; P%rt!r<( 'alu! chain 6r!pr%&uc!& fr%$ pag! 2;8= Total Operations
Solutions= R# 1a(u an& >#N# Wright= 20087
Most organisations engage in hundreds! even thousands! of activities in the process
of converting inputs to outputs. These actions can be classified generally as either
primary or support activities that all businesses must underta"e in some form.
according to 0orter (6=;! the primary activities are/
6. In-%un& l%gi(tic( - involve relationships with suppliers and include all the
activities required to receive! store! and disseminate inputs.
4. Op!rati%n( - are all the activities required to transform inputs into outputs
(products and services).
8. Out-%un& l%gi(tic( - include all the activities required to collect! store!
and distribute the output.
@. Mar?!ting an& (al!( - activities inform buyers about products and services!
induce buyers to purchase them and facilitate their purchase.
:. S!r'ic! - includes all the activities required to "eep the product or service
wor"ing effectively for the buyer after it is sold and delivered.
secondary activities are/
6. Infra(tructur! - serves the company1s needs and ties its various parts
together. #t consists of functions or departments such as accounting! legal!
finance! planning! public affairs! government relations! quality assurance and
general management.
4. Pr%cur!$!nt - is the acquisition of inputs! or resources! for the firm.
8. hu$an R!(%urc!( Manag!$!nt - consists of all activities involved in
recruiting! hiring! training! developing! compensating and (if necessary)
dismissing or laying off personnel.
@. T!chn%l%gical &!'!l%p$!nt - pertains to the equipment! hardware!
software! procedures and technical "nowledge brought to bear in a firm1s
transformation of inputs into outputs.
1% Managing Project SuPPly
chainS
The success of a supply chain could be synonymous with the success of the value
stream approach or the total supply chain method underpinned by the interaction
between three "ey groups of players. These are the customers! external suppliers
and the departments involved with the primary and secondary activities of the
organisation.
The customer is the focus of any organisation. Churchill once said that war is
too important to be left to the generals! and the same can be said of mar"eting.
Mar"eting is too important to be left to the mar"eting department. 2veryone in an
organisation should be vitally interested in mar"eting that organisation.
Honetheless! it is the function of the mar"eting department to know what the
customer wants and what the competition is doing or is li"ely to do. Mar"eting
specifies the product and its attributes. These qualities may range from the
essential down to the desirable! and perhaps include extras that the customer does
not even want. *s well as defining the product or service to be offered! mar"eting
has to establish the price! forecast demand and have a say in how the product or
service will be distributed or delivered. inally they are responsible for promotion
with the aim of stimulating demand. Mar"eting also has to sell the productFservice
internally within the firm to the operations and other functions of the organisation.
#n fact! it can be said that mar"eting is the lin" between the mar"et and customers
and operations.
#n some organisations suppliers are treated with distrust! and the business strategy
adopted is to shop around and to get the best deal on each occasion. #n these types
of establishments information is not shared with suppliers. %hen orders are placed
the supplier is not told what the purpose of that order is! and thus is not in a position
to advise! even if they were so inclined! of any alternative products or new
technology. %ith this approach little loyalty is shown to any supplier - indeed! the
supplier is almost treated as an adversary.
The value stream approach is to view "ey suppliers of goods and services as part
of the team! to share information and to see" advice. Aey suppliers are those that
are important to the smooth operation of the system. #n some cases the supplier can
become involved in the day-to-day operations of the organisation! and might also
be expected to advise and to assist in product development. Cost no longer
becomes the "ey issue. #nstead of price alone! suppliers will be $udged on their
loyalty and ability to deliver goods and services to the required standard and on
time. suppliers can also become part of the information-gathering arm of the
organisation3 often they have a different perspective as to what the competition are
up to (changes in buying patterns! timetables! new pac"aging! use of new materials
etc.). suppliers are also in a good position to offer technical advice regarding new
technology and alternative materials.
the role of SuPPly chain aS a Value DriVer 1&
Communication between departments (especially mar"eting! operations and
logistics) within an organisation has to be two-way and must be aimed at helping
rather than as a means of apportioning blame or criticising. %ith traditional
hierarchical organisations a 1bun"er1 mentality can develop whereby each function is
walled off from the other! and any suggestion! no matter how helpful! is ta"en as a
threat or a challenge. %orld-class organisations are noted by the manner in which the
figurative bric" walls that separate functions have been bro"en down! and by the
teamwor" that exists between all roles to achieve the common aspiration. This
requires that everyone in the organisation "nows what the goals and ob$ectives are
and that the culture is conducive to the enthusiastic pursuit of the targets for the
common good of the whole! rather than for the specific interests of one department.
#nformation is open to all! and there are no secrets.
SUPPLIER PARTNERShIP
>eviewing the impact of new technologies on supply chain provides an interesting
development of partnering with suppliers. as indicated earlier! in the past many
manufacturers regarded their suppliers with some suspicion! almost as opponents.
(ittle loyalty was shown to the suppliers and consequently the supplier was never
certain as to their future relationship with an organisation. often the purchasing or
procurement department would see their role as screwing the best deal possible
from a supplier.
The huge growth in outsourcing and! more importantly! online access to information
via the #nternet have changed that. Companies have realised that achieving world-
class excellence in their own sites is not enough. #t is important to raise the
standards of suppliers as well as learn from them by wor"ing in partnership with
them. The tightly controlled service level agreements are being replaced by $oint
service agreements with the free exchange of data and "nowledge. The approach is
changed from coordination to cooperation .owever! the success of any benefits
will depend on mutual trust! a highly developed commercial relationship and an
efficient system of data exchange.
#n order to improve the effectiveness of data exchange! companies are sharing
with their suppliers (and customers) common systems such as 2uropean article
numbering (2an) standards! 2lectronic Bata #nterchange (2B#) and web-based
2xtranets. or example 2B# enables companies to communicate with each other.
0urchase orders to suppliers can be eliminated by using customers1 order schedules.
Moreover by 2B# and 2xtranets the supplier could be authorised to lin" directly into
the manufacturer1s M>0## or 2>0 system. The emergence of #nternet protocol has
helped the interaction between powerful supply chain systems such as i4!
Manugistics! ariba! oracle and sa0F>8.
1' Managing Project SuPPly chainS
TOTAL SUPPLy ChAIN MANAGEMENT WIThIN PRO>ECTS
Jur analysis of the "ey factors and new developments in supply chain management
clearly indicates one thing. ocusing on the conventional practices of supply chain
management within the organisation (such as forecasting! capacity planning!
inventory management! scheduling and distribution management) may achieve
operational excellence within the confines of an individual business organisation.
.owever it will offer only a partial solution to optimising customer service. #t can
be compared with sitting in a high-performance motor car in a traffic $am - the
sound system and air conditioning might be state of the art but the overall travel
experience is not great. (i"ewise! what is the point of having a perfect stainless
steel lin" within a rusty chain9 Dnless the whole process is efficient the individual
unit cannot achieve its potential.
#t is therefore vital for any organisation or a ma$or pro$ect! being more and more
dependent on both local and global outside resources and information! to wor" in
harmony with all sta"eholders of the supply chain - including customers and
suppliers. %e need a holistic value stream approach to supply chain or a total
supply chain management approach in supervising a ma$or pro$ect.
-uilding on the experience of the holistic model for total supply chain management
(-asu and %right! 455 a model for pro$ect supply chain management has been
developed comprising six building bloc"s! as follows/
7 Customer focus and sta"eholders
7 >esources and time management
7 0rocurement and supplier focus
7 supply management
7 -uilding and installation
7 .andover and closure.
These building bloc"s are integrated by three cross-functional processes as follows/
7 systems and procedures
7 >egular reviews
7 Kuality and performance management.
The building bloc"s of pro$ect supply are further explained in Chapter 4. The
importance of the total supply chain approach in a ma$or pro$ect can also be
evaluated by Ialue stream Mapping (-asu! 455=! p. 644). Ialue stream mapping
(IsM) is a visual illustration of all the activities required to bring a product
through the main flow! from raw material to the stage of reaching the customer.
*ccording to %omac" and ?ones (6==! the initial ob$ective of creating a value
stream map is to identify every action required to ma"e a specific product.
the role of SuPPly chain aS a Value DriVer 1(
SUMMARy
The primary purpose of this introductory chapter was to provide an overview of
supply chain management principles. #t aimed to indicate how an effective supply
chain management process adds value to all types of businesses! whether in the
manufacturing or service sectors! public or not-for-profit organisations and also to
pro$ects. #t also see"s to initiate the understanding of some core concepts of the
boo"! including the tenet that it is people! not processes or technology that ma"e
things happen. #t is critical to have data sharing and interaction between all
sta"eholders in the total supply chain using a value stream 1total supply chain1
approach.
&upply chain management constitutes a critical "nowledge and tool set for any
pro$ect management team. The adequate application of the "nowledge base! tools
and s"ill sets can assist the pro$ect team1s delivery of the product or service on time!
on budget and at an acceptable level of quality. .owever! it should be emphasised
that pro$ect supply chain is not $ust the procurement of goods and services. The
following chapters will illustrate $ust how to 1ma"e it happen1.
doc_758621966.docx
Supply Chain Management (SCM) and shows that supply chains in some shape or form are required to deliver products and services that either we - or our organisation - need or think are needed. For every business transaction there is a supplier and a customer and there are activities, facilities and processes linking that supplier to the customer.
Managing Project
Supply Chains
Chapter 1
the roLe of suppLy Chain as a VaLue driVer
INTRODUCTION
This chapter explains the basic concepts of supply Chain Management (sCM) and
shows that supply chains in some shape or form are required to deliver products and
services that either we - or our organisation - need or think are needed. or every
business transaction there is a supplier and a customer and there are activities!
facilities and processes lin"ing that supplier to the customer. #n addition! for every
tas" in a pro$ect there is a customer and a supplier or a group of suppliers. The
management process of balancing these lin"s to deliver best value to the customer
at minimum cost and effort for the supplier is supply chain management. %hilst
you may be unaware of them! you will experience supply chains everywhere! e.g. in
running your home! managing a manufacturing business! in health services! hotels!
ban"s! government! utilities! non-profit organisations! universities! entertainment!
retail! professional services and managing a pro$ect.
&upply chains vary significantly in complexity and si'e but their fundamental
principles apply to all operations! whether they are large or small! manufacturing or
service! private or public sector. supply chain management is relevant to all
businesses and to all operations.
(et us loo" at some everyday scenarios to see supply chains in operation. %hen a
customer visits a hairdresser she is the customer and the hairdresser is the supplier.
The hairdresser will need to ensure the availability of materials (shampoo!
conditioner and colouring)! facilities and equipment (chairs! driers etc.). #n order to
provide the service! the hairdresser is involved with purchasing! inventory
management and facilities supervision. #n order to minimise customer queues
there is also a need for demand forecasting! capacity management! scheduling and
quality management. #n this example of a basic service operation we can identify
the "ey components of supply chain management.
Ta"e another scenario. Consider that you are chec"ing in at )agreb *irport for a
return flight to (ondon. +ou are unhappy to find that there is a long queue. +ou
have discovered that in addition to normal procedures the central computer is down
2 Managing Project SuPPly chainS
and a screening machine has been installed to ,-ray all types of luggage as an
extra security precaution. #n this case the supply chain is obviously more complex
than the example shown above for the hairdressing service. or you the customer!
the initial focal point is the chec"-in cler"! but there are many supporting lin"s
leading to this provision. The airlines have to sell tic"ets! ensure the availability of
aircraft with all the required fittings (including in-flight entertainment systems) in
an acceptable condition! provide meals and a have a stoc" of trained air crew
available. -efore you got to )agreb *irport your administration manager will
have purchased a tic"et from a travel agent! who in turn may have made an
electronic boo"ing.
#n this case! we can see that there are suppliers and suppliers of suppliers. Moreover
there exist both customers and customers of customers. .owever the basic functions
of forecasting! capacity management! inventory management! scheduling and
quality management are present $ust as they were with the hairdresser! and $ust as
they are for any supply chain.
The message is clear/ the "ey ob$ective of supply chain management is to provide
best value to the customer by measuring! planning and managing all the lin"s in the
chain.
#n a ma$or pro$ect the client may engage only the main contractor! who in turn will
select the second tier contractors. #n succession they will procure a wide range of
wor"s! services and materials from the large number of smaller contractors and
suppliers which form the 0ro$ect supply Chain of sourcing and delivery.
WhAT IS SUPPLy ChAIN MANAGEMENT?
#n a typical supply chain! raw materials are procured and items are produced at
one or more factories! shipped to warehouses for intermediate storage and then
transported to retailers or customers. #f you as"ed people involved in business to
define the term 1supply chain1 you would get many different answers. 2ach
definition would reflect the nature of the individual1s business and the inputs and
outputs produced. or some! supply chain is related to purchasing and procurement3
to others it involves warehousing! distribution and transportation. or yet others it
would be sources of capital and labour. &win" et al. (4565) provide a holistic
definition of the supply chain! vi'. the entire networ" of organisations involved in/
7 converting raw materials and information into products and services3
7 consuming the products and services3
7 disposing of the products and services.
the role of SuPPly chain aS a Value DriVer 3
They further state that 1this definition treats the supply chain as a product cradle-
to-grave concept! including all value-added activities required to plan! source!
ma"e and deliver products and services that meet customer needs.1 To this we can
add the word 1process1. %e see the supply chain not as a series of separate
operations and organisations but as a complete end-to-end procedure.
another useful definition is provided by simchi-(evi et al. (4558! p. 6)/
Supply chain management is a set of approaches utilized to efficiently integrate
suppliers, manufacturers, warehouses and stores, so that merchandise is
produced and distributed at the right quantities, to the right locations, and at
the right time, in order to minimize system-wide costs while satisfying serice
leel requirements!
%hat do these definitions suggest9 They propose that supply chain management
must consider every organisation and facility involved in ma"ing the product! and
the costs inherent in doing so. This also implies that the ob$ective is to be cost
effective across the whole supply chain! which requires a system wide approach to
optimisation.
Supply Chain in Manufacturing
supply chain management in a manufacturing and supply organisation considers
the demand! supply and inventory needs for each item of production. #n particular
it loo"s at how inventory flows through the system in order to achieve output to
the customer1s specification on time and at the least cost. %ith supply chain
management! customer service is increased through the reduction of lead times!
and the product is always exactly as specified and is always delivered on time.
Costs are reduced through the elimination of any activity that does not add value
and through the reduction of inventories of material and associated holding and
handling costs.
activities and measures based on customer requirements are very significant in
improving business performance. .owever! externally driven customer-based
measures have to be matched by gauges of what the company can do (feasibility!
capacity! "now-how and resources) to consistently meet customer expectations. a
high standard of customer performance derives from planning! processes and
actions integrated across the whole organisation.
supply chain management focuses on the critical measures of all elements of the
supply chain. 2xternally these measures include the suppliers at one end and the
customer at the other end of the supply process. These externals! the supplier and
the customer! are matched with the internal requirements of the manufacturing
4 Managing Project SuPPly chainS
process. The focus is two-fold/ to satisfy customer needs and to "eep costs down
to a minimum.
#n reality the elements of supply chain management are not new - we all have been
dealing with parts of the supply chain for years (e.g. buying! planning! scheduling!
stoc" control! warehousing! logistics! distribution etc.) without realising the
significance of the whole chain concept. (i"ewise the cost of the various elements
of supply and distribution has been long recognised. 1#n :5 years between 6;<5 and
6=45 the cost of distributing necessities and luxuries has nearly trebled! while
production costs have gone down by one fifth - what we are saving in production
we are losing in distribution1! observed >alph -arsodi in 6=4=.
#t is relatively new to view the supply chain as a process! in other words as a single
integrated flow across all the functions of a business. Traditionally activities within
a supply chain were seen as separate and specialist functions such as purchasing!
planning! scheduling! manufacturing and distribution. .owever with supply chain
management! the flow of both materials and information across traditional
functional boundaries is seen as a single process. These flows are depicted in a
simplified model in igure 6.6.
#n the past! information flow was the domain of the commercial division! while
the conversion process of materials flow constituted a manufacturing or technical
division tas". %ith an integrated supply chain approach the responsibility for all
elements of supply now lies with operations Management or supply chain
management. #n many businesses! the integrated approach is being extended to
include all suppliers (including 1upstream1 6st! 4nd and 8rd tier suppliers) through the
manufacturing process 1downstream1 to each level of customers. This includes
distributors! wholesalers and retailers through to the end user or consumer. This is
"nown as the 1extended supply chain1.
Physical Flow
Receiving Manufacture Packing Distribution
Sourcing and Supply
SUPPLIER CUSTOMER
ERP
Demand
Purchasing Scheduling MPS Management
Inforation !"o#
igur! "#" Supply chain $anag!$!nt $%&!l
the role of SuPPly chain aS a Value DriVer $
Supply Chain in S!r'ic!(
Than"s to ease of travel! the media and the %orld %ide %eb customers have never
been more informed than they are today. Customers "now what they want and are
aware of what can be done3 they understand the concept of world-class and
continuous improvement. This is especially true in service industries. as a result of
the heightened expectations of these clients! operations managers in service sectors
have been forced to focus their attention on managing the complete value- adding
system using the principles of supply chain management.
-ut $ust how can service industries apply supply chain management9 The supply
chain of a service organisation contains suppliers! products or services! customers
and their demand for products and service level agreements. service inventory can
be in the form of information databases! stoc"s of consumables (as with the
hairdresser)! stationery items (such as brochures and promotional material)! and
subcontractors (including facility managers! travel agents! caterers and advertising
agencies).
&wan" (4558) described a successful application of supply chain management and
lean production principles in a typical insurance service company in the usa!
?efferson 0ilot inancial (?0). ?0 believed that the processing of their almost
tangible 1service product1 was comparable to a car assembly process. &wan"
explains that/ 1(i"e an automobile on the assembly line! an insurance policy goes
through a series of processes! from initial application to underwriting or ris"
assessment to policy issuance. %ith each step value is added to the wor" in
progress - $ust as a car gets doors or a coat of paint1 (p. 64@).
Supply Chain in N%t)f%r)pr%fit Organi(ati%n(
The good practices of supply chain management can be adapted to provide ma$or
practical benefit to not-for-profit organisations! such as charities! in meeting their
ob$ectives. #nternational disasters have a huge impact on the world1s population!
increasing the need for aid groups to improve their logistics capability and
capacity. 0erhaps the biggest impact of supply chain management in not-for-profit
organisations is responding to unpredictable demands through quic"-response
supply and distribution.
The world events of 455: have suggested that humanitarian organisations are yet
to fully exploit supply chain optimisation. or example! referring to the .urricane
Aatrina disaster in new orleans! %aller (455
was not surprised that %al-Mart! theworld1s largest retailer! beat the ederal 2mergency Management agency (2Ma)
and the >ed Cross to areas devastated by the hurricane. .e said the company
delivered supplies quic"ly and efficiently because that is what it does
% Managing Project SuPPly chainS
every day. %al-Mart is the master of supply chain management! and the company1s
expertise in this area wor"ed well during a natural disaster.
an example of the application of supply chain management in a not-for-profit
organisation is the national .ealth service in the united Aingdom.
Supply Chain in Pr%*!ct(
The essential success criterion of a pro$ect is the timely! accurate to quality
and cost-effective delivery of materials! systems and facilities. There are many
sta"eholders! contractors and suppliers involved in a pro$ect. #n a ma$or
infrastructure scheme such as .eathrow Terminal : there are li"ely to be more than
655 "ey contractors and consulting firms. Thus! supply chain management
methodologies and processes are crucial to ensuring that pro$ect resources are
delivered as required.
although supply chain management should be an essential process within the
0ro$ect Manager1s tool "it! its importance in 0ro$ect Management is not properly
recognised. Bue to the perception of the 1one-off1 and unique nature of a pro$ect
versus the repetitive nature of operations! the traditional approach of pro$ect
management has been consciously different from that of operations management.
&upply chain management is inextricably lin"ed with operations management (&lac"
et al. 455C! p. 45
. a primary ob$ective of both supply chain management and operations management is to ensure optimum customer service by balancing cost!
time and quality (%ild! 4554). .owever the mindset of pro$ect managers appears to
exclude the principles and ob$ectives of supply chain management (*la->is"u and
Aar""ainen! 455C).
#n the context of a ma$or pro$ect! supply chain management can be linear or non-
linear. a supply chain is considered linear when a material! product or service is
sourced from a single supplier. This single-source linear procurement is more
common in operations management. .owever in a pro$ect supply chain a ma$or
contractor is served by several subcontractors and each subcontractor may be
served by several other subcontractors and the process becomes non-linear. .ence
the perspective of the linear supply chain includes the procurements that are well
defined from a single supplier and perform as specified. on the other hand! non-
linear supply chains occur when ris"s appear from multiple tiers of suppliers and
the intended linear process becomes unreliable. &ome supply chain ris"s in pro$ects
include lac" of supplier commitment! poor order control! unexpected variations in
lead time! critical material damaged in shipment and changes induced by suppliers
and pro$ect members. These non-linear pro$ect ris"s have the potential to generate
cumulative negative influences across the pro$ect.
the role of SuPPly chain aS a Value DriVer &
#n order to minimise such non-linear pro$ect ris"s related to the supply chain the
basic concepts! s"ills and tools of supply chain management form essential support
elements of pro$ect management. These basic concepts and tools are equally
applicable to the success of operation management whether in manufacturing or
services. There follow some examples of these concepts in supply chain
management.
#t is also evident that there is now increasing awareness among both practitioners
(www.viasysweb.com) and academics (o1-rien! 4556) of applying appropriate
supply chain principles in ma$or pro$ects. The most noticeable change in the last
three decades is the introduction of information and communication technology
with faster and more comprehensive systems to improve the efficiency of pro$ect
supply chains from procurement to suppliers.
Ca(! !+a$pl!, Air-u( A./0
The *irbus *8;5 was a double-dec"! four-engine airliner manufactured by
airbus sas. #t first flew on 4< april 455: from Toulouse in rance. after well-
publicised lengthy delays commercial flights did not seem li"ely before 455;.
airbus spent two years grappling with the design of the a8:5 and a8;5 while
archrival -oeing went ahead with producing its <;< Breamliner! winning more
than @55 orders for the plane! which was due to go into commercial service in
455;. Costly delays in the production of the a8;5 super $umbo and surging
demand for -oeing1s <;< roc"ed *irbus and its parent company! the 2uropean
aeronautic Befense and space Company (2aBs)! which had three chief
executives in the span of a single year. The 64 billion euro a8;5 super $umbo
pro$ect was overbudget! as well as being over two years behind schedule. a
decision by the us mail group ed2x to cancel its order for 65 airbus 8;5s
caused massive losses at 2aBs. a ma$or partner in the pro$ect! -a2 systems! also
sold its share in the pro$ect.
The problems facing 2aBs in the airbus 8;5 pro$ect were many and complex.
analysts highlighted two problems at the forefront which were related to funding
and supply chain management. or historical reasons manufacturing was a
transnational process! structured around "ey manufacturing units in the DA (-a2
systems)! Eermany (Baimler-Chrysler aerospace)! rance (aerospace- Matra)
and spain (Casa). 2ach country was responsible for producing a complete
section of the aircraft and then transporting it by a specially constructed roll-
onFroll-off vessel (built by a shipyard in China) to the final assembly line
' Managing Project SuPPly chainS
in Toulouse. #n addition the pro$ect had hundreds of suppliers! contractors and
subcontractors (including >olls->oyce! E2F0ratt G %hitney! &miths #ndustries!
>oc"well Collins and Horthrop Erumman).
There may not have been simple solutions to the complex and serious problems
of *irbus 8;5. .owever 2*B& recognised the lin" between pro$ect management
and supply chain management and implemented pro$ect management methods
and tools for suppliers. This allowed them to simultaneously manage resources!
time! cost! and performance in order to ensure pro$ect success. #n a structured
course! chosen representatives for suppliers learnt and practised a straightforward
and effective pro$ect management methodology that was adaptable to all types of
pro$ects.
source/ www.aerospace-technology.comFpro$ects (455C)
WhAT A1OUT LOGISTICS MANAGEMENT?
#s there a difference between 1logistics1 and 1supply chain1 management9 The
Council of (ogistics Management has recently changed its name to the Council of
supply Chain Management 0rofessionals! which indicates that it sees logistics
management as part of the supply chain process. %hen it was still the Council of
(ogistics Management! it defined logistics management as/
"he process of planning, implementing and controlling the efficient, cost
effectie flow and storage of raw materials, in-process inentory, finished
goods, and related information from point of origin to point of consumption
for the purpose of conforming to customer requirements!
#ts new definition is/
Supply chain management encompasses the planning and management of all
actiities inoled in sourcing and procurement, conersion, and all logistics
management actiities! #mportantly, it also includes coordination and
collaboration with channel partners, which can be suppliers, intermediaries,
third party serice proiders, and customers! #n essence, supply chain
management integrates supply and demand management within and across
companies!
$Council of Supply Chain Management Professionals, %&&'(
http)**cscmp!org+
t
he role of SuPPly chain aS a Value DriVer (
#f we consider these definitions we see they are very similar to the earlier
explanations we have provided (&win" et al. 4565 and &imchi-(evi et al. 4558) and
can conclude that for our purposes! at least in a manufacturing and supply
organisation! logistics and supply chain management are synonymous. #f one is
inclined to separate the physical movement of logistics in a service organisation!
we can see that there is but a fine border between logistics and supply chain
management in the service sector. Taylor (6==<) goes on to divide supply chain
management into/
6.
4.
8.
@.
:.
C.
<.
;.
(ogistics and supply Chain strategy
0urchasing and supplies Management
Manufacturing (ogistics
Bistribution 0lanning and strategy
%arehouse 0lanning and operations Management
#nventory Management
Transport Management
#nternational (ogistics and #nternational Mar"et 2ntry &trategies.
Taylor1s definition infers that 1logistics1 is a subset of 1&CM1. 2ach subtopic
contributes to the performance of the overall supply chain process and! as a
consequence! to improved sta"eholder satisfaction.
WhAT ARE IN1OUND AND OUT1OUND LOGISTICS?
The flow of information and physical goods from both customers and suppliers
to the business or the conversion centre (e.g. a factory! a warehouse or an office) is
termed 1inbound logistics1. (i"ewise the flow of information! goods or service from
the conversion centre to the customer constitutes 1outbound logistics1. To put it
more simply! inbound logistics relate to demand and procurement while outbound
logistics concern supply and service. igure 6.4 and igure 6.8 show examples of
inbound and outbound logistics in a foods factory.
Bemand and supply planning capabilities enable companies to balance inbound and
outbound logistics and thus to maximise return on assets and ensure a profitable
match of supply and demand. #nbound and outbound logistics are also described as
1upstream1 and 1downstream1 processes. or example! Christopher (6==4) defines supply
chain management as the management of upstream and downstream relationships
with suppliers and customers to deliver superior customer value at less cost to the
supply chain as a whole.
1) Managing Project SuPPly chainS
igur! "#2 In-%un& l%gi(tic(
igur! "#. Out-%un& l%gi(tic(
WhAT IS ThE E)SUPPLy ChAIN?
as shown in igure 6.6 the traditional supply chain was concerned with a
linear flow of information and products or services from customers to suppliers
through various stages of processes! while the information flow was the domain of
the commercial division and the conversion process of materials flow was a
manufacturing or technical division responsibility. Buring the 6==5s the concept of
Total supply Chain Management shifted the responsibility for all elements of
supply to operations management or supply chain management.
according to -asu (4554) the #nternet-enabled integrated supply chain! or
1e-supply chain1! has extended the linear flow of the supply chain to e-suppliers and
systems or a supply web (see igure 6.@). #t now includes all customers! right down
to the end user or consumer! suppliers1 customers! customers1 suppliers etc. The
frontrunners of the new collaborative business model! such as Bell and Toyota! are
sourcing materials and products in response to customer demand and minimising
both inventory and dealers. The collaborative culture has enabled these companies
to become adept at managing relationships between customers!
the role of SuPPly chain aS a Value DriVer 11
suppliers and multidisciplinary company functions with a sharing of transparent
information and "nowledge exchange.
Inte*ration throu*h e+,usiness
Physical Flow
Receiving M anufacture Packing Distribution
Sourcing and Supply
SUPPLIER CUSTOMER
ERP
Demand
Purchasing Scheduling MPS Management
Inforation !"o#
igur! "#3 !)(upply chain %r !)4!-
hOW DO yOU 1ALANCE ThE 5OICE O ThE CUSTOMER
65OC7 AND ThE 5OICE O 1USINESS 65O17 IN SUPPLy ChAIN
MANAGEMENT?
#n any business or operation! a manager has to find a balance between the two
conflicting ob$ectives of demand from the customer and supply from operations.
The voice of the customer (IoC) is articulated as customer service. Customer
service is the primary ob$ective of supply chain management. .owever! customer
service has to be sustainable and balanced with the efficient use of resources. The
secondary ob$ective of supply chain management is to reduce costs and to ma"e
effective use of resources.
or simplicity! three "ey parameters of customer service are considered. These
are specification! Cost (or 0rice) and Timing. The customer expects the goods or
service to be delivered according to acceptable standards! to be of an affordable
price and to arrive on time. The relative importance of specification! cost and time
could change depending on the mar"et condition! competition and the desirability
of demand. The second ob$ective! to efficiently utilise resources to meet customer
service requirements! is the voice of business (Io-). Eiven infinite resources! any
system can provide adequate customer service! but many companies have
12 Managing Project SuPPly chainS
gone out of business in spite of possessing satisfied customers (%ild! 4554). To
provide a sustained and sustainable level of customer service efficiently the use of
resources is essential. a starting point for balancing IoC and Io- is >esource
utilisation and Customer service analysis (>uFCs)! which aims to determine the
gaps between what is desired and what is actually feasible.
>DFC& analysis is a simple tool to establish the relative importance of the "ey
parameters of both resource utilisation and customer service and to identify their
conflicts. %ild (4554) suggests the starting point of the >uFCs analysis with the
operations ob$ectives Chart! as shown in Table 6.6. The relative importance of the
"ey parameters for >D (i.e. machines! materials and labour) and C& (i.e.
specification! cost and time) can be given a rating of 6! 4 or 8 (8 being the most
important).
Ta-l! "#" Op!rati%n( %-*!cti'!( chart
Resource Utilisation ustomer Service
a-hines ateria"s La,our Spe-ifi-ation Cost tie
!peration
Consider a mail order company where customers are expecting good value for
money and do not mind receiving goods from catalogues within a reasonable
delivery time. The operation Manager has focused on the utilisation of own
resources to minimise operational costs. igure 6.: shows the ratings of ob$ectives
and actual performance! and highlights the misalignment. #t is evident that further
examination is required for timing and material.
as shown in igure 6.C! there is a conflict between cost and materials and further
attention or a change of policy is required to resolve this divergence.
%hen we study the apparently contradictory ob$ectives of >u and Cs we realise
that they have one thing in common! that is cost and price. #f we can reduce the
cost of the production of goods or services by improved resource utilisation then
we are in a better position to lessen the price to the customer.
>uFCs analysis does not provide solutions to the conflicts but identifies broad
areas for attention. #t is also important to note that the relative priorities of >u and
Cs can vary within the same business depending on the product and customer. To
find solutions the supply chain manager will see" other tools! techniques and
processes of supply chain management! which we shall explain in later chapters.
one such process is 2nterprise >esources 0lanning (2>0).
the role of SuPPly chain aS a Value DriVer 13
igur! "#8 1alanc! %f %-*!cti'!(
igur! "#9 RU:CS analy(i(
WhAT IS ERP?
The business ob$ective is to convert customer demand by optimising the utilisation
of resources to deliver effective customer service. This applies to all organisations
regardless of whether they are in the manufacturing or service sectors. 2nterprise
resources planning (2>0) systems provide a single up-to-date database incorporating
manufacturing! finance and human resource applications extended to include the
trac"ing of orders and inwards goods! wor" in progress and the delivery of finished
goods. The system is accessible to all departments for the planning and execution
of supply chain activities. Thus enterprise resources planning systems integrate (or
attempt to integrate) all data and processes of an organisation into a single unified
system in order to achieve integration.
14 Managing Project SuPPly chainS
The term 2>0 originally implied systems designed to plan the utilisation of
enterprise-wide resources. although the abbreviation 2>0 originated in the
manufacturing environment as a successor to M>0## (Manufacturing >esources
0lanning)! today1s use of the term 12>0 systems1 has much broader scope. 2>0
systems typically attempt to cover all basic functions of an organisation! regardless
of that establishment1s commerce or charter. Eovernments! businesses! not-for-
profit organisations and other large entities all utilise 2>0 systems.
hOW DO yOU DELI5ER 5ALUE IN SUPPLy ChAIN
MANAGEMENT?
The delivery of goods and services of expected standards on time at the 1best in
class1 cost is creating value for money for customers and thus adding value to the
business. an effective supply chain management team can deliver value by a Ialue
stream methodology or a total supply chain management approach.
The value stream system transcends the traditional manner of departmentalising
stages of the business process. The value stream highlights the importance of the
operations manager being involved in all aspects of the process - from supplier
right through to the customer and! if possible! to the customer1s customer. The 1old1
method was that one department or function would be responsible for purchasing
goods and services! another for planning. The scheduling of activities was often a
separate tas"! as was warehousing and distribution! and operations were $ust one
step in the whole process of providing services. %ith the value stream approach!
functional boundaries are ignored and in many organisations it is now accepted that
the operations manager has to control the total process! from purchasing input
goods and services to the final stage of satisfying the customer. Mar"eting!
accounting! human resources and other support functions do not show up on the
value stream as such! but operations managers must be vitally interested and
involved in these internal operations of the organisation.
The value stream approach in supply chain aligns well with 0orter1s (6=;
value chain as shown in igure 6.<. The idea of the value chain is based on the process view
of organisations/ the concept of seeing a manufacturing (or service) organisation as
a system made up of subsystems! each with inputs! transformation processes and
outputs. .ow value chain activities are carried out determines costs and affects
profits.
the role of SuPPly chain aS a Value DriVer 1$
igur! "#; P%rt!r<( 'alu! chain 6r!pr%&uc!& fr%$ pag! 2;8= Total Operations
Solutions= R# 1a(u an& >#N# Wright= 20087
Most organisations engage in hundreds! even thousands! of activities in the process
of converting inputs to outputs. These actions can be classified generally as either
primary or support activities that all businesses must underta"e in some form.
according to 0orter (6=;
! the primary activities are/ 6. In-%un& l%gi(tic( - involve relationships with suppliers and include all the
activities required to receive! store! and disseminate inputs.
4. Op!rati%n( - are all the activities required to transform inputs into outputs
(products and services).
8. Out-%un& l%gi(tic( - include all the activities required to collect! store!
and distribute the output.
@. Mar?!ting an& (al!( - activities inform buyers about products and services!
induce buyers to purchase them and facilitate their purchase.
:. S!r'ic! - includes all the activities required to "eep the product or service
wor"ing effectively for the buyer after it is sold and delivered.
secondary activities are/
6. Infra(tructur! - serves the company1s needs and ties its various parts
together. #t consists of functions or departments such as accounting! legal!
finance! planning! public affairs! government relations! quality assurance and
general management.
4. Pr%cur!$!nt - is the acquisition of inputs! or resources! for the firm.
8. hu$an R!(%urc!( Manag!$!nt - consists of all activities involved in
recruiting! hiring! training! developing! compensating and (if necessary)
dismissing or laying off personnel.
@. T!chn%l%gical &!'!l%p$!nt - pertains to the equipment! hardware!
software! procedures and technical "nowledge brought to bear in a firm1s
transformation of inputs into outputs.
1% Managing Project SuPPly
chainS
The success of a supply chain could be synonymous with the success of the value
stream approach or the total supply chain method underpinned by the interaction
between three "ey groups of players. These are the customers! external suppliers
and the departments involved with the primary and secondary activities of the
organisation.
The customer is the focus of any organisation. Churchill once said that war is
too important to be left to the generals! and the same can be said of mar"eting.
Mar"eting is too important to be left to the mar"eting department. 2veryone in an
organisation should be vitally interested in mar"eting that organisation.
Honetheless! it is the function of the mar"eting department to know what the
customer wants and what the competition is doing or is li"ely to do. Mar"eting
specifies the product and its attributes. These qualities may range from the
essential down to the desirable! and perhaps include extras that the customer does
not even want. *s well as defining the product or service to be offered! mar"eting
has to establish the price! forecast demand and have a say in how the product or
service will be distributed or delivered. inally they are responsible for promotion
with the aim of stimulating demand. Mar"eting also has to sell the productFservice
internally within the firm to the operations and other functions of the organisation.
#n fact! it can be said that mar"eting is the lin" between the mar"et and customers
and operations.
#n some organisations suppliers are treated with distrust! and the business strategy
adopted is to shop around and to get the best deal on each occasion. #n these types
of establishments information is not shared with suppliers. %hen orders are placed
the supplier is not told what the purpose of that order is! and thus is not in a position
to advise! even if they were so inclined! of any alternative products or new
technology. %ith this approach little loyalty is shown to any supplier - indeed! the
supplier is almost treated as an adversary.
The value stream approach is to view "ey suppliers of goods and services as part
of the team! to share information and to see" advice. Aey suppliers are those that
are important to the smooth operation of the system. #n some cases the supplier can
become involved in the day-to-day operations of the organisation! and might also
be expected to advise and to assist in product development. Cost no longer
becomes the "ey issue. #nstead of price alone! suppliers will be $udged on their
loyalty and ability to deliver goods and services to the required standard and on
time. suppliers can also become part of the information-gathering arm of the
organisation3 often they have a different perspective as to what the competition are
up to (changes in buying patterns! timetables! new pac"aging! use of new materials
etc.). suppliers are also in a good position to offer technical advice regarding new
technology and alternative materials.
the role of SuPPly chain aS a Value DriVer 1&
Communication between departments (especially mar"eting! operations and
logistics) within an organisation has to be two-way and must be aimed at helping
rather than as a means of apportioning blame or criticising. %ith traditional
hierarchical organisations a 1bun"er1 mentality can develop whereby each function is
walled off from the other! and any suggestion! no matter how helpful! is ta"en as a
threat or a challenge. %orld-class organisations are noted by the manner in which the
figurative bric" walls that separate functions have been bro"en down! and by the
teamwor" that exists between all roles to achieve the common aspiration. This
requires that everyone in the organisation "nows what the goals and ob$ectives are
and that the culture is conducive to the enthusiastic pursuit of the targets for the
common good of the whole! rather than for the specific interests of one department.
#nformation is open to all! and there are no secrets.
SUPPLIER PARTNERShIP
>eviewing the impact of new technologies on supply chain provides an interesting
development of partnering with suppliers. as indicated earlier! in the past many
manufacturers regarded their suppliers with some suspicion! almost as opponents.
(ittle loyalty was shown to the suppliers and consequently the supplier was never
certain as to their future relationship with an organisation. often the purchasing or
procurement department would see their role as screwing the best deal possible
from a supplier.
The huge growth in outsourcing and! more importantly! online access to information
via the #nternet have changed that. Companies have realised that achieving world-
class excellence in their own sites is not enough. #t is important to raise the
standards of suppliers as well as learn from them by wor"ing in partnership with
them. The tightly controlled service level agreements are being replaced by $oint
service agreements with the free exchange of data and "nowledge. The approach is
changed from coordination to cooperation .owever! the success of any benefits
will depend on mutual trust! a highly developed commercial relationship and an
efficient system of data exchange.
#n order to improve the effectiveness of data exchange! companies are sharing
with their suppliers (and customers) common systems such as 2uropean article
numbering (2an) standards! 2lectronic Bata #nterchange (2B#) and web-based
2xtranets. or example 2B# enables companies to communicate with each other.
0urchase orders to suppliers can be eliminated by using customers1 order schedules.
Moreover by 2B# and 2xtranets the supplier could be authorised to lin" directly into
the manufacturer1s M>0## or 2>0 system. The emergence of #nternet protocol has
helped the interaction between powerful supply chain systems such as i4!
Manugistics! ariba! oracle and sa0F>8.
1' Managing Project SuPPly chainS
TOTAL SUPPLy ChAIN MANAGEMENT WIThIN PRO>ECTS
Jur analysis of the "ey factors and new developments in supply chain management
clearly indicates one thing. ocusing on the conventional practices of supply chain
management within the organisation (such as forecasting! capacity planning!
inventory management! scheduling and distribution management) may achieve
operational excellence within the confines of an individual business organisation.
.owever it will offer only a partial solution to optimising customer service. #t can
be compared with sitting in a high-performance motor car in a traffic $am - the
sound system and air conditioning might be state of the art but the overall travel
experience is not great. (i"ewise! what is the point of having a perfect stainless
steel lin" within a rusty chain9 Dnless the whole process is efficient the individual
unit cannot achieve its potential.
#t is therefore vital for any organisation or a ma$or pro$ect! being more and more
dependent on both local and global outside resources and information! to wor" in
harmony with all sta"eholders of the supply chain - including customers and
suppliers. %e need a holistic value stream approach to supply chain or a total
supply chain management approach in supervising a ma$or pro$ect.
-uilding on the experience of the holistic model for total supply chain management
(-asu and %right! 455
a model for pro$ect supply chain management has been developed comprising six building bloc"s! as follows/
7 Customer focus and sta"eholders
7 >esources and time management
7 0rocurement and supplier focus
7 supply management
7 -uilding and installation
7 .andover and closure.
These building bloc"s are integrated by three cross-functional processes as follows/
7 systems and procedures
7 >egular reviews
7 Kuality and performance management.
The building bloc"s of pro$ect supply are further explained in Chapter 4. The
importance of the total supply chain approach in a ma$or pro$ect can also be
evaluated by Ialue stream Mapping (-asu! 455=! p. 644). Ialue stream mapping
(IsM) is a visual illustration of all the activities required to bring a product
through the main flow! from raw material to the stage of reaching the customer.
*ccording to %omac" and ?ones (6==
! the initial ob$ective of creating a value stream map is to identify every action required to ma"e a specific product.
the role of SuPPly chain aS a Value DriVer 1(
SUMMARy
The primary purpose of this introductory chapter was to provide an overview of
supply chain management principles. #t aimed to indicate how an effective supply
chain management process adds value to all types of businesses! whether in the
manufacturing or service sectors! public or not-for-profit organisations and also to
pro$ects. #t also see"s to initiate the understanding of some core concepts of the
boo"! including the tenet that it is people! not processes or technology that ma"e
things happen. #t is critical to have data sharing and interaction between all
sta"eholders in the total supply chain using a value stream 1total supply chain1
approach.
&upply chain management constitutes a critical "nowledge and tool set for any
pro$ect management team. The adequate application of the "nowledge base! tools
and s"ill sets can assist the pro$ect team1s delivery of the product or service on time!
on budget and at an acceptable level of quality. .owever! it should be emphasised
that pro$ect supply chain is not $ust the procurement of goods and services. The
following chapters will illustrate $ust how to 1ma"e it happen1.
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