The management of Supply and Demand


Supply chain refers to the network of organizations that are involved, through upstream and downstream linkages, in the different processes and activities that produce value in the form of products and services in the hands of the ultimate customer or consumer" (Lysons and Farrington, 2006, p. 91). On the other hand as a comparison

Supply chain management (SCM) is the systemic, strategic coordination of the traditional business functions and the tactics across business functions within a particular enterprise and across businesses within the supply chain, for the purposes of improving the long-term performance of the individual enterprises and the supply chain as a whole (Mentzer HYPERLINK ""et al.HYPERLINK "", 2001, p. 18).

Typically supply chain management integrates the functions of procurement, logistics, warehousing, transport and distribution within an enterprise and extends to the same functions in other entities that do business with the enterprise. The flow of information along the supply chain is critical for the coordination and integration processes to be effective. (Lysons and Farrington, 2006, p. 20)

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Supply chain structure in Supply chain management processes

Supply chain structure was noted by Defee and Stank (2005) to have two dimensions. Firstly, there is the formal definition of the organization in terms of lines of authority, roles assignments and management control systems. This dimension relates to the functional relationships between different teams within the organization and inter-organizational relationships with other organizations in the supply chain. Secondly, there is the definition of the supply chain in terms of the structural elements necessary to make it function across the enterprises: Technology integration, Communications, Standardization, Decision making authority and Rewards and compensation.

The relationship between structure and performance has been the subject of detailed research in the area of strategy. Defee and Stank premised their study on the Strategy-Structure-Performance (SSP) paradigm which predicts that a firm's strategy, created in consideration of external environmental factors, drives the development of organizational structure and processes. This strategy-structure combination will allow the firm to perform at a desired level. Mentzer et al concurred with this position, in his findings he noted that : The effective use of supply chain management for strategic leverage requires that functional and supply-chain partner activities are aligned with company strategy and harmonized with organizational structure, processes, culture, incentives and people (Mentzer HYPERLINK ""et al.HYPERLINK "", 2001, p.22).

Cooper and Ellram on the other hand associated the following characteristics with effective supply chain management, Channel-wide inventory management; supply chain cost efficiency; long-term time horizons; joint planning, mutual information sharing, and monitoring; channel coordination; shared visions and compatible corporate cultures; supplier relationships; and the sharing of risks and rewards (Cooper and Ellram 1993, pg 112)

The upstream and downstream coordination engendered by supply chain management with the goal of minimizing uncertainty and variations along the supply chain shows that businesses can no longer expect that the objective of business can be met just by becoming efficient in itself. As indicated by Hameri and Palsson, process rationalization and measurement system would need to be implemented to improve the operational efficiency inside a company by reducing lead times and by partnering with upstream and downstream players of the supply chain. The situation requires that for value to reach the customers, efficiency must be evident even in the suppliers, the distribution channel, and all associated activities and partners. Competition is no longer between individual businesses, but between groups of companies that are linked together in a chain for delivering customer value (Hameri and Palsson 2003pg 55).

As a result, performance of any entity in a supply chain depends on the performance of others, and their willingness and ability to coordinate activities within the supply chain. A global economy and increase in customer expectations regarding cost and service have influenced manufacturers to strive to improve processes within their supply chains, often referred to as supply chain re-engineering (Swaminathan, 1996 pg 61).

Evolution of supply chain management

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In the 1950s and 1960s, most manufacturers emphasized mass production to minimize unit production cost as the primary operations strategy, with little product or process flexibility. New product development was slow and relied exclusively on in-house technology and capacity. &Bottleneck' operations were cushioned with inventory to maintain a balanced line flow, resulting in huge investment in work in process (WIP) inventory (Hameri and Palsson, 2003 pg 109)

Sharing technology and expertise with customers or suppliers was considered too risky and unacceptable and little emphasis appears to have been placed on cooperative and strategic buyer supplier partnership, (Hameri and Palsson, 2003 pg 109)


Cycle Time Management

Product Life Cycle Management is the succession of strategies used by management as a product goes through its product life cycle (Levitt, 1965 p 50) The conditions in which a product is sold changes over time and must be managed as it moves through its succession of stages.

Product life cycle

The product life cycle goes through many phases, involves many professional disciplines, and requires many skills, tools and processes. Product life cycle has to do with the life of a product in the market with respect to business/commercial costs and sales measures; whereas product lifecycle management (PLM) has more to do with managing descriptions and properties of a product through its development and useful life, mainly from a business/engineering point of view. To say that a product has a life cycle is to assert four things: 1) that products have a limited life, 2) product sales pass through distinct stages, each posing different challenges, opportunities, and problems to the seller, 3) profits rise and fall at different stages of product life cycle, and 4) products require different marketing, financial, manufacturing, purchasing, and human resource strategies in each life cycle stage, (Levitt, 1965 p 55).

Six Sigma (Quality) Management

Sigma is a letter in the Greek alphabet that has become the statistical symbol and metric of process variation. The sigma scale of measure is perfectly correlated to such characteristics as defects-per-unit, parts-per million defective, and the probability of a failure. Six is the number of sigma measured in a process, when the variation around the target is such that only 3.4 outputs out of one million are defects under the assumption that the process average may drift over the long term by as much as 1.5 standard deviations. Six Sigma may be defined in several ways. Harry defines that Six Sigma as a programme aimed at the near-elimination of defects from every product, process and transaction, while Harry defined Six Sigma as a strategic initiative to boost profitability, increase market share and improve customer satisfaction through statistical tools that can lead to breakthrough quantum gains in quality". Six Sigma was launched by Motorola in 1987. It was the result of a series of changes in the quality area starting in the late 1970s, with ambitious ten-fold improvement drives. The top management with CEO Robert Galvin developed a concept named Six Sigma (Harry, M.1998 pp 60-64).


After some internal pilot implementations, Galvin, in 1987, formulated the goal of "achieving Six-Sigma capability by 1992" in a memo to all Motorola employees (Bhote, 1989). The results in terms of reduction in process variation were on-track and cost savings totalled US$13 billion and improvement of labor productivity became 204% increase during 1987-1997 (Losianowycz, 1999 pg 66).

According to Wikipedia (version 1.2, 2000) .The Six Sigma process was originally defined as a methodology to reduce defect. At its core, Six Sigma revolves around a few key concepts, which are the following:

Critical to Quality: Attributes most important to the customer

Defect: Failing to deliver what the customer wants

Process Capability: What your process can deliver

Variation: What the customer sees and feels

Stable Operations: Ensuring consistent, predictable processes to improve what the customer sees and feels

Design for Six Sigma: Designing utilizing tools, training and measurements to enable a company to design products and processes that meet customer expectations and can be produced at Six Sigma Quality.

Logistics Management

Logistics Management is that part of Supply HYPERLINK ""and demand Chain Management that plans, implements, and controls the efficient, effective, forward, and reverse flow and storage of goods, services, and related information between the point of origin and the point of consumption in order to meet customers' requirements (Levitt, 1965 p 80).

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Just In Time Management

Just-in-time (JIT) is an inventory strategy implemented to improve the return on investment of a business by reducing in-process inventory and its associated carrying costs. In order to achieve JIT the process must have signals of what is going on elsewhere within the process. This means that the process is often driven by a series of signals. When implemented correctly, JIT can lead to dramatic improvements in a manufacturing organization's return on investment, quality, and efficiency. Some have suggested that "Just on Time" would be a more appropriate name since it emphasizes that production should create items that arrive when needed and neither earlier nor later (Box J, 1983 pp 55)

Quick communication of the consumption of old stock which triggers new stock to be ordered is key to JIT and inventory reduction. This saves warehouse space and costs. However since stock levels are determined by historical demand any sudden demand rises above the historical average demand, the firm will deplete inventory faster than usual and cause customer service issues. In short, the just-in-time inventory system is all about having "the right material, at the right time, at the right place, and in the exact amount", without the safety net of inventory (Box J, 1983

pp 34-49)

JIT emphasizes inventory as one of the seven wastes (overproduction, waiting time, transportation, inventory, processing, motion and product defect), and as such its practice involves the philosophical aim of reducing input buffer inventory to zero. Zero buffer inventory means that production is not protected from exogenous (external) shocks. As a result, exogenous shocks reducing the supply and demand of input can easily slow or stop production with significant negative consequences. For example, Toyota suffered a major supplier failure as a result of the 1997 Aisin fire which rendered one of its suppliers incapable of fulfilling Toyota's orders. In the U.S. the 1992 railway strikes resulted in General Motors having to idle a 75,000-worker plant because they had no supplies coming in (Box J, 1983

pp 72)

Benefits of just in time management method

As most companies use an inventory system best suited for their company, the Just-In-Time Inventory System (JIT) can have many benefits resulting from it. The main benefits of JIT are;

Set up times are significantly reduced in the factory. Cutting down the set up time to be more productive will allow the company to improve their bottom line to look more efficient and focus time spent on other areas that may need improvement. This allows the reduction or elimination of the inventory held to cover the "changeover" time, (Hirano and Makota, 2006 pg 56).

The flows of goods from warehouse to shelves are improved. Having employees focused on specific areas of the system will allow them to process goods faster instead of having them vulnerable to fatigue from doing too many jobs at once and simplifies the tasks at hand. Small or individual piece lot sizes reduce lot delay inventories which simplifies inventory flow and its management (Hirano and Makota, 2006 pg 56).

Employees who possess multiple skills are utilized more efficiently. Having employees trained to work on different parts of the inventory cycle system will allow companies to use workers in situations where they are needed when there is a shortage of workers and a high demand for a particular product (Hirano and Makota, 2006 pg 56).

Better consistency of scheduling and consistency of employee work hours. If there is no demand for a product at the time, workers don't have to be working. This can save the company money by not having to pay workers for a job not completed or could have them focus on other jobs around the warehouse that would not necessarily be done on a normal day (Hirano and Makota, 2006 pg 56).

Increased emphasis on supplier relationships. No company wants a break in their inventory system that would create a shortage of supplies while not having inventory sit on shelves. Having a trusting supplier relationship means that you can rely on goods being there when you need them in order to satisfy the company and keep the company name in good standing with the public (Hirano and Makota, 2006 pg 56).

Supplies continue around the clock keeping workers productive and businesses focused on turnover. Having management focused on meeting deadlines will make employees work hard to meet the company goals to see benefits in terms of job satisfaction, promotion or even higher pay (Hirano and Makota, 2006 pg 56).

As noted by Liker (2003) and Womack and Jones (2003), it would ultimately be desirable to introduce synchronised flow and linked JIT all the way back through the supply stream. However, none followed this in detail all the way back through the processes to the raw materials. With present technology, for example, an ear of corn cannot be grown and delivered to order. The same is true of most raw materials, which must be discovered and/or grown through natural processes that require time and must account for natural variability in weather and discovery. The part of this currently viewed as impossible is the synchronized part of flow and the linked part of JIT. It is for the reasons stated raw materials companies decouple their supply chain from their clients' demand by carrying large 'finished goods' stocks. Both flow and JIT can be implemented in isolated process islands within the raw materials stream. The challenge then becomes to achieve that isolation by some means other than the huge stocks they carry to achieve it today.

It is because of this almost all value chains are split into a part which makes-to-forecast and a part which could, by using JIT, become make-to-order. Often, historically, the make-to-order part has been within the retailer portion of the value chain. Toyota's revolutionary step has been to take Piggly WigglyHYPERLINK ""'HYPERLINK ""s supermarket replenishment system and drive it back to at least half way through their automobile factories. Their challenge today is to drive it all the way back to their goods-inwards dock. Of course, the mining of iron and making of steel is still not done specifically because somebody orders a particular car. Recognizing JIT could be driven back up the supply chain has reaped Toyota huge benefits and a world dominating position in the auto industry.

It should be noted that the advent of the mini mill steelmaking facility is starting to challenge how far back JIT can be implemented, as the electric arc furnaces at the heart of many mini-mills can be started and stopped quickly, and steel grades changed rapidly (Goldratt and Fox1986 pp 166).

Total Quality Management

Total quality management deals with the product in its totality. It has been recognized that quality is determined by the combined efforts of various departments such as design, engineering, procurement, production and Inspection. Total quality management is across the company, management function which co-ordinates and controls wide spread quality activities with a view to achieving the desired quality of the end-product (Levitt, 1965 p 155).

Supply, demand and the equilibrium price: S1


Suppliers Buyers market


S1 P1

Demand P1

The quality cycle begins and ends with the user. It starts when the user's needs are analyzed to design a product for its fulfillment. During development and manufacturing of a product, various departments and sections of the company make their contribution in building quality into it. The cycle ends with the user because the final proof of product quality comes during its services with the user, whose satisfaction is the ultimate aim. In this concept, quality is no longer the exclusive domain of the inspectors. Designers, process planners, production engineers and even sales personnel have their role to play in the achievement of the primary quality objective, which is maximum user satisfaction at minimum cost. All in all, quality is never an accident; it is always the result of an intelligent effort. So there must be the will to produce a superior thing (Levitt, 1965 p 135).