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Supply chain management (Issues with vertical integration (Reduces market…
Supply chain management
What is a supply chain?
A sequence of events and processes
Starts from the raw material source
Ends at the customer
The supply chain council states
supply chain management is
plan, source, make, deliver and return
Goals of supply chain managment
Articulate what the supply chain is
Identify bottlenecks
Build the right processes
Empower the right people to do the points above
Deliver products at the right time
What does a good supply chain look like?
Aim for balance
Be good in all areas
Increase demand visibilty
Accurate forecasting
Isolate high costs
Focus on costs
Invest in innovation to reduce overhead
The bullwhip effect
Created by
Demand uncertainty
Lead times between tiers in supply chain
Over or under react to demand changes
Not helped by
Process characteristics prevent coordination
Limited collaboration across supply chain
Conflicts of interest with different customers
Difficulties in controlling stock through the supply chain
Can it be avoided?
No, it's never perfect
So can never be fully mitigated
Vertical integration
Direction of integration
Upstream integration
Reliability of supply
Restrict supply to competitors
Control of raw material costs
Security of supply
Downstream integration
Control of customers
Guarantee of business
Access to market data
Customer knowledge
Extent of integration
Narrow extent
Wide extent
Balance of integration
Upstream
Usually volume based
Downstream
Usually decreasing economic scale
Issues with vertical integration
Reduces market forces in supply chain
Economic scale mismatches
Product variety/complexity increases downstream
Cost competition increases upstream
Suppliers are locked in
Significant exposure if demand falls
Supply chain control can become problematic
Outsourcing
Advantages
Enables focus on core business activity
Reduce need for capital investment
Fewer direct staff required
Cost control of supply chain
Suppliers can expand overall capacity
Disadvantages
Some loss of control
Supplier management costs
Reduced economies of scale
Potential to close existing facilities
Risks of dependency on one supplier
Increased supply chain size/risks
Outsourcing decisions
Two aspects
Strategic value of the good or service
Criticality of the component or service
Products and services are categorised as
Commodity
Use proprietary technology
Not critical to performance of final product
Usually extensive number of suppliers can manufacture
Typically outsourced
Utility
Widely available technical items
Can be outsourced
Requires greater relationship with supplier
Novelty
Specialised
Can create competitive advantage
Could be made in-house or outsourced
Proprietary
Create competitive advantage
Normally made in-house
Supplier relationships
Arm's Length
No collaboration
Partnerships
3 Types
Type 1 - partners with limited coordination
Type 2 - partners with some integration
Type 3 - Significant integration
Joint ventures
Vertical integration