• A manufacturer might have a component maker as a first-tier supplier, but also the component maker’s supplier (e.g. a raw materials company) as a second-tier supplier. Together, they form the ’upstream’ or ’supply side’ end of the network. Equally, they might have a distributor as a first-tier customer, but also the distributor’s customer (e.g. a retailer) as a second-tier customer. Together, they form the ’downstream’ or ’demand side’ end of the network.
• Supply chain management includes:
  • Procurement (=sourcing and purchasing) from first-tier suppliers (AmE vendors).
  • Matierals management inside the plant. This includes inventory (=stock) management and production planning and control.
  • Logistics (=distribution) to first-tier customers.
• There are several important strategic issues:
  • Should the company directly own any parts of the supply chain? If it does, then this is vertical integration.
  • Should the company opt for a single or multi-sourcing? Having just one supplier will mean good communiation with a dependable partner, and also economie of scale (=cost savings from buying in large quantities). But disadvantages include risks associated with a failure of supply, and giving the supplier the chance to put upward pressure on prices.
  • How much of the process can migrate to the web, e.g. finding the best price, delivery time and specifications through e-procurement?

These days many organizations, e.g. film companies have a ’virtual operation’. The organization buys in the range of function it needs for a particular project, but at the end of the project this network disappears. This gives flexibility and speed, but the company is left with very few core competencies (=key areas of technical expertise) where it retains a competitive advantage.

• Procurement involves:
  • 1 Finding suppliers: you may take direct contact with potential suppliers, or you may use publis advertising in the form of a Request for Information (RIF), a Request for Quotation (RFQ), or a Request for Proposal (RFP)
  • 2 Background research: once a number of possible suppliers have been found, you need to discover more information about their product quality and also their track record for installation, maintenance and warranties. You may examine product samples and perhaps carry out some trials.
  • 3 Negotiation: you negotiate price, availability, customization possibilities, delivery schedules, etc. A contract is drawn up.
  • 4 Fulfilment: the supplier prepares, ships and delivers the product. Any installation and training is carried out.
• Procurement and corruption: Procurement is the area of business most open to corruption: either a backhander from a supplier to a manager as a thank-you for being chosen, or collusion between the two to falsify prices, quality levels, etc. The EU has a very strict system of competitive tendering (= bidding) to avoid these problems, and many companies also operate a three-way check of paperwork. This involves all invoices and deliveries being verified by a purchasing manager, the accounts payable department and the plant manager.
• E-procurement means sourcing and purchasing online. Different suppliers’ offerings are oftn brought together into a single catalog (BrE catalogue), the customer decides who to buy from, and then the whole transaction process is automated. The software is sophisticated: it allows both sides to negotiate solutions for certain foreseeable scenarios (e.g. penalties for late delivery). But the process is not straightforward.
  • First, for a modern manufacturing operation it is rarely a question of a series of one-time purchases from a small number of suppliers all offering a similar product. The supply-chain relationships are much more complex than that.
  • Second, it’s not just about price. The procurement process also needs to evaluate product availability, supplier responsiveness, service levels, delivery history, and customer-satisfaction ratings. These do not show up on the system so easily and reliably.
  • Finally, e-procurement has to work for the supplier, too. They receive a detailed RFQ (Request for Quotation), but how do they respond in a flexible way? For example:
    • Can they adjust details of the RFQ and make counter-offers?
    • Can they make a rush-order surcharge?
    • Can they offer different products that the customer may not be aware of?
    • And to build a long-term relationship, can they know the forecast requirements of this potential customer?
• The main criticism of e-procurement is related to this last point: that it focuses too much on short-term individual purchases and driving down costs. It works against the development of a long-term relationship with a supplier. Treating your supplier as a partner might bring far greater returns in the long run.
• The complextiy of logistics:
  • it involves both inbound and outbound logistics
  • it includes reverse logistics (ie, when goods are returned to the manufacturer, either because of customer returns, or overstocked inventory at the retailers, or outdated merchandise that can no longer sell)
  • it involves unloading items from one means of transport and loading onto another. This can be at a dsitribution centre or a warehouse. There are three possibilities:
    • a., hub and spoke: materials are brought in to one central location and then sorted for delivery to a variety of destinations
    • b., consolidation: a variety of smaller shipments are combined into one larger shipment for economy of transport
    • c., deconsolidation: large shipments are broken down into smaller lots for ease of delivery
  • it involves materials handling inside the factory: goods are placed on pallets and moved around on fork-lift trucks
  • it involves inventory management at every stage using IT. This includes the ability to track items in transit.
  • it involves co-ordination with related business functions such as purchasing and plant management.
  • it involves a choice of means of transport: air (using special cargo lines), sea (with containers stacked up on top of each other); road (vans, or trucks with trailers); rail (using wagons / freight cars).
  • it involves a decision whether or not to use a third-party logistics provider (3PL). These companies provide integrated pick-and-pack, warehousing and distribution. They can also act as forwarding agents to handle shipping arrangements.

 Exercise 1: Choose the best explanation for each word or phrase from the article!

 Exercise 2: Challenges in Supply Chain Management

 Video 1: What's inside your phone? 

 Video 2: Electric cars will come of age in 2018

  Video 3: Cocaine: why the cartels are winning

  Video 4: Blood Diamonds

 Video 5: Lord of War

Watch the two movies and compare the supply chains!

 Exercise 3: Logistics Interview

 Exercise 4: Outsourcing