Module 1 · Theory + SAP overview

Supply Chain Management Fundamentals

End-to-end supply chain flow, strategic sourcing, make-vs-buy, distribution networks and how SAP supports each process from procurement to delivery.

Course reading

Understand the process

Part 1

How the whole chain works

A supply chain is the journey from a customer's need to a product delivered and, when necessary, returned. Planning estimates what will be needed; sourcing secures materials; operations make or prepare the product; logistics moves it; and returns resolve defects or unwanted goods. Each team depends on the previous team passing along accurate quantities, dates and specifications.

Imagine a factory promising 1,000 pumps next month. Sales supplies the demand, planners translate it into component needs, buyers order parts, the warehouse receives them, production assembles the pumps and dispatch delivers them. A late supplier confirmation can affect every later promise, even if the assembly line itself is efficient.

Part 2

The decisions behind the flow

A low purchase price is not necessarily a low cost. Add transport, import duty, rejected units, inspection, storage and emergency purchases to understand total cost of ownership. Likewise, deciding whether to make a part internally or buy it depends on available skills, machine capacity, quality and continuity, not just the unit quote.

Where you place warehouses affects both delivery speed and stock: more local warehouses can shorten delivery but divide inventory across sites. In SAP, material master settings, approved sources and stock movements record the rules and transactions that keep these choices visible. The lesson is to follow both the physical item and its information from start to finish.

What you must take away

Total cost of ownership is price plus freight, duty, quality cost, inventory holding and risk.
Make-vs-buy is a capacity and capability decision before it is a price decision.
The network design (how many warehouses, how far from customers) sets the service level ceiling.

In the SAP process

Material master — purchasing and MRP views define how the item behaves.
Purchasing info record and source list define who may supply it.
Movement types record every physical change of stock status.

Case study

Cheapest quotation, most expensive part

Setting. A sourcing review for a machined component with three qualified suppliers.

Problem. The lowest unit price supplier was chosen for two consecutive years, but the line reported repeated rework and expedited freight for the same part.

How it was investigated

Collected rejection quantities and rework hours per supplier from the quality records.
Added inbound freight, expedite charges and inspection time to the unit price.
Compared delivered, accepted cost per good piece instead of quoted price.

What was changed

Rebuilt the bid comparison on a total cost of ownership basis.
Split the volume: the reliable supplier took the majority share, the cheap supplier kept a trial share with a quality gate.
Added a rejection-cost clause to the next contract.

Outcome. The accepted cost per good piece fell even though the quoted unit price rose.

Lesson: Compare cost per accepted piece delivered on time, never the quotation line alone.

Illustrative composite of common shop-floor situations — no client names or confidential figures.

Practical template

Total cost of ownership comparison

Score suppliers on delivered, accepted cost instead of quoted price.

Supplier	Unit price	Freight/unit	Duty/unit	Reject %	Lead time (days)	TCO/good unit
Supplier A	100.00	6.00	3.00	2%	21	111.40

How to use it

TCO/good unit = (price + freight + duty) ÷ (1 − reject %), then add any expedite cost you actually paid.
Keep lead time in the table — a cheaper part with double lead time buys you inventory.
Re-run the sheet every time a contract is renewed.

Download workbook & KPI template (PDF)

Quick quiz — check your understanding

1. Procurement is the process of:
2. Total cost of ownership includes:
3. A vendor master in SAP stores:
4. Single sourcing means:
5. A good supplier relationship mainly improves:

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