MANAGING QUALITY IN

ORGANIZATIONS
SESSION 9

Quality in
the
Supply Chain

SUPPLY CHAIN MANAGEMENT (SCM)

Supply Chain Management is concerned with managing
the flow of materials and information between the
operations which form the strands or chains of an
operations network.

SCM
SCM is concerned with processes and techniques
brought into play to manage the flow of supplies
through whole chains from suppliers to end users
(Saunders, 1997).

SCM is the management of a network of

interconnected businesses involved in the ultimate
provision of products and service packages required
by end customers (Harland, 1996). Supply Chain
Management spans all movement and storage of raw
materials, work-in-process inventory, and finished
goods from point of origin to point of consumption .

WHY IS SCM IMPORTANT

The development of global brands, more

complicated management of costs and
increasing ease of cross-border trading are the
main reasons for stressing the competitiveness
within the supply chain (Chen, 1997).

Rise of SCM as a phenomenon could be a result

of increase of uncertainty, complexity and
competitiveness in the market place
(Struebing, 1997).

EXAMPLE OF A VEG. PET FOOD SUPPLY CHAIN

Supermarket
Home
Regional
distribution
centre

Factory
warehouse

Retailer
warehouse
Pet food
factory
Packaging
factory

Ingredients
supply

Soya Beans
Rolling mill
Johnston & Clark, Service Operations Management, 2nd edition Pearson Education Limited 2005

Cereal supply

Farm

HOW SOME SUPPLY CHAINS EVOLVED......

E.G. HOLIDAY SUPPLY CHAINS AND DISINTERMEDIATION

Hotels
Tour operator

Travel agent

Airlines

Restaurants

Tour operator

Entertainment
activities
Direct access via websites

Transportation
companies

Customer

SCM CONCERNS
SCM is concerned with the flow of information as well as the flow of
products and services

INFORMATION AND PHYSICAL FLOWS WITHIN A SUPPLY CHAIN:

Supply side
Second tier
supplier

First tier
supplier

Purchasing and
supply management
Information
flow

Demand side
First tier
customer

Second tier
customer

Physical distribution
management
Logistics (deliveries /
storage)
Materials
management

Physical
flow

Supply chain management

End
customer

SOME DEFINITIONS

PURCHASING & SUPPLY MANAGEMENT

The function that deals with the operations interface with its
supply markets
PHYSICAL DISTRIBUTION MANAGEMENT
Managing the operation that supplies immediate (first tier)
customers
LOGISTICS
An extension of physical distribution management. Usually
refers to the management of materials through a distribution
channel to the end customer

SUPPLY CHAIN MANAGEMENT

A concept developed to support an approach which covers
the total supply chain towards satisfying the end customer.

TOTAL AND IMMEDIATE SUPPLY NETWORKS

Second tier
Suppliers

First tier
Suppliers

First tier
Customers

Second tier
Customers

The
The Operation
Operation

Supply side of the

network

The Immediate
Supply Network

Demand side of the

network

The Total Supply

Network

Internal Supply Networks

EXAMPLE: REGIONAL FORENSIC SCIENCE LABORATORY

Second tier
suppliers

First tier
suppliers

Operations

First tier
customers

Second tier
customers

Third tier
customers

Victims

Hospitals and
forensic
laboratories

Toxicology
laboratory

Hospitals and
forensic
laboratories

Coroners

Suspects
(exonerated
or convicted)

Suspects

Police
investigators

Drugs
laboratory

Police
investigators

Prosecutors

Families and
sympathisers
of suspects

Crime scenes

Narcotics
officers

Physical
evidence
laboratory

Narcotics
officers

Courts

Victims

Eye witnesses

Fire
investigators

Biology
laboratory

Fire
investigators

Defence
lawyers

Families and
sympathisers
of victims

Other
witnesses

Defence
counsels

Document
examination
laboratory

Defence
counsels

Public

Private clients

Latent prints
unit

Private clients

Press and
media

Forensic
pathology
laboratory

EXPLORE THE POTENTIAL PERCEPTION MISMATCHES TO

UNDERSTAND SUPPLIER DEVELOPMENT NEEDS

EXPLORE THE POTENTIAL PERCEPTION MISMATCHES TO

UNDERSTAND CUSTOMER DEVELOPMENT NEEDS

TYPICAL SUPPLY CHAIN DYNAMICS

SUPPLY CHAIN EXERCISE

1.

Consider a company which sells yoghurt to

Keells or Cargills

2.

Draw up a supply chain showing first and

second tier suppliers and customers

3.

Be prepared to present this to the rest of

the group.

SUPPLY CHAIN RELATIONSHIPS

Business

Consumer

Business

Consumer

B2B
Relationship:
Most common, all but the last
link in the supply chain

B2C
Relationship:
Retail operations
Catalogue operations, etc.

E-commerce examples:
EDI networks : between banks
Tesco Information Exchange

E-commerce examples:
Internet retailers
Amazon.com, etc.

C2B
Relationship:
Consumer offer,
business responds

C2C
Relationship:
Trading swap and
auction transactions

E-commerce examples:
Some airline ticket
operators
Priceline.com, etc.

E-commerce examples:
Specialist collector sites
Ebay.com, etc.

THE DECISION LOGIC OF OUTSOURCING

CAPACITY

REPUTATION

MAKE OR BUY?

CAPACITY CONSTRAINTS

QUALITY

SKILL SHORTAGE

EVALUATION
AND
SELECTION

FINANCIAL
STABILITY
TEAM WORKING
PROVIDING
TRAINING

PROVIDING
SPECIALIST
TOOLS AND
EQUIPMENT

INTEGRATION
WITH
BUYER

QUALITY
OF WORK

TOOLING
REQUIREMENTS

OPERATIONS

INTERMEDIATE
SUB CONTRACTING

LEVEL OF
DECISION

PLANT AND
FACILITIES
INTEGRATION

STRATEGIC

MAKE
OR
SPECIFICATION BUY

ACQUISITION
CRITERIA

THIRD
PARTY
RESPONSIBILITY

DIVESTMENT

PURCHASING
SERVICES

QUALITY
MONITORING
PERFORMANCE

SPECIALIST
SUPPLIERS
LEVELS OF
INVOLVEMENT
OF SUPPLIERS

COMPETITIVE
TENDERING

DELIVERY
STRATEGIC
CHOICES

COST

IMPROVING PROFITABILITY THROUGH

SUPPLY CHAIN COMPRESSION

HEINZ BAKED BEANS SUPPLY SIDE

HEINZ BAKED BEANS DISTRIBUTION SIDE

THE NATURE OF THE INTERACTION BETWEEN

PLAYERS IN SUPPLY NETWORKS IS CHANGING

Price

Quality

Information Relationship

Planned

Kaizen

Transparent

Negotiated

Monitored

Shared

Integrated

Lean
relationship

Partnership
relationship

Cooperative

Traditional
relationship
Bids

Historical

Secretive

Adversarial
Time

THE PURCHASING FUNCTION BRINGS TOGETHER THE

OPERATION AND ITS SUPPLIERS

Suppliers
Prepare
quotation for
specification,
price, delivery,
etc.

Purchasing function
Requests

Request for
quotations
Select
supplier(s)

Quotations
Produce
products and
services

Order

The operation

Liaison
between
purchasing
and the
operation

Prepare
purchase
order

Request for
products and
services

Receive
products and
services
Deliver

Demand
from
customers

Supply to
customers

FROM COST DRIVING PRICES UP

TO PRICES DRIVING COST DOWN

Price
Cost

Price

Cost

Time
From

Time
To

END