Chapter 1

Introduction to Supply

Chain Management

1-1Copyright 2011 John Wiley & Sons, Inc.

Lecture Outline

• What is Supply Chain Management (SCM)?

• Boundary Spanning Nature of SCM

• The Rise of SCM

• Characteristics of a Competitive Supply Chain

• Trends in SCM

• Careers in SCM and Professional Organizations

• ReviewCopyright 2011 John Wiley & Sons, Inc. 1-2

What is Supply Chain Management?

Supply Chain Management (SCM) is the design and management of flows of products, information, and funds throughout the supply chain

Copyright 2011 John Wiley & Sons, Inc. 1-3

Supply Chain Stages

A typical supply chain may involve many different trading partners, called stages

Stages may include:

– Suppliers

– Producers

– Wholesalers/Distributors

– Retailers

– Customers

Copyright 2011 John Wiley & Sons, Inc. 1-4

SCM Activities

SCM activities include:

• Coordination

– coordinate the movement of goods, services, and funds through the supply chain

• Information Sharing

– share forecasts, point-of-sale data, planned promotional campaigns, and inventory levels

• Collaboration– jointly plan, operate, and execute business

decisions as one entity

1-5Copyright 2011 John Wiley & Sons, Inc.

Managing Flows Throughthe Supply Chain

Managing Flows of Products, Information, and Funds:

• Flow of Products

– from the beginning to the final customer

– Reverse Logistics

1-6Copyright 2011 John Wiley & Sons, Inc.

Managing Flows Through the Supply Chain Continued

• Flow of Information– simplified supply chains utilize data from

point-of-sale back to suppliers– real time information reduces uncertainty

and inventory levels

• Flow of Funds– funds are transferred in both directions

along the supply chain– supply chain compression

1-7Copyright 2011 John Wiley & Sons, Inc.

The Bullwhip Effect

Fluctuation and distortion of information increases as it moves up the supply chain

– each stage of the chain carries progressively more inventory

– the longer the supply chain, the greater the opportunity for the Bullwhip Effect

– sharing point-of sale information with all members of the supply chain can combat the Bullwhip Effect

Copyright 2011 John Wiley & Sons, Inc. 1-8

Customer Focus

The final customer is the driving force of the supply chain

– products are "pulled" through the supply chain

Copyright 2011 John Wiley & Sons, Inc. 1-9

The Service Supply Chain

Service Supply Chains

– focus more on the interaction between the customer and provider

– often rely on customers as the supplier of inputs

– tend to be shorter than manufacturing supply chains

– are often more like hubs than chains

– do not have inventory as a buffer

Copyright 2011 John Wiley & Sons, Inc. 1-10

The Boundary-Spanning Nature of SCM

SCM spans and integrates functions within and between enterprises of the supply chain through:

– Intra – Organizational Integration

– Cross – Enterprise Integration

Copyright 2011 John Wiley & Sons, Inc. 1-11

The Boundary-SpanningNature of SCM Continued

• Intra – Organizational Integration

– Marketing links the organization to its customers

– Operations organizes the transformation of raw materials into finished products and services

– Sourcing links the organization to its suppliers

– Logistics is responsible for moving and positioning inventory throughout the supply chain

– company-wide integration supplants “silo” mentality

Copyright 2011 John Wiley & Sons, Inc. 1-12

The Boundary-SpanningNature of SCM Continued

• Cross – Enterprise Integration– various supply chain organizations functioning

as a single entity to satisfy the final customer

• Keys:– information technology as an enabler

– relationship management

– collaborative planning

– sharing of risks and rewards

– win-win strategyCopyright 2011 John Wiley & Sons, Inc. 1-13

SCM Versus Logistics

• SCM – concerns the collaboration between supply

chain partners in a strategic effort to achieve superior competitiveness

• SCM manages different aspects of the coordination process such as:

– information

– technology

– distribution

Copyright 2011 John Wiley & Sons, Inc. 1-14

– products

– finances

– relationships

SCM Versus Logistics Continued

• Logistics

– the part of SCM that is concerned with managing the flow of inventory

Copyright 2011 John Wiley & Sons, Inc. 1-15

The Rise of SCM

SCM evolved in the 1990s and has proven to be necessary for successful global competition

Contributing to the Trend:

– companies found savings by planning and managing their supply chain more effectively

– advances in information technology

– improvement in transportation methods

– greater customer empowerment

Copyright 2011 John Wiley & Sons, Inc. 1-16

Characteristics of a Competitive Supply Chain

Key characteristics of a competitive supply chain include:

– Responsiveness

– Reliability

– Relationship Management

Copyright 2011 John Wiley & Sons, Inc. 1-17

Responsiveness

The ability to move quickly to meet customer demands

– Agility

– Short Supply Chains

– Demand-Driven rather than Forecast-Driven

1-18Copyright 2011 John Wiley & Sons, Inc.

Reliability

• Uncertainty– uncertainty is the main reason why companies

carry safety stock resulting in higher costs

• Visibility– visibility improves reliability in supply chains

• Supply Chain Coordination– sharing of real-time data and information through

information technology improves visibility and therefore supply chain reliability

1-19Copyright 2011 John Wiley & Sons, Inc.

Relationship Management

SCM is primarily about the management of relationships across networks of companies

– Traditional Adversarial Relationships

– Relationship Building and Collaboration

– “Single-Sourcing”

1-20Copyright 2011 John Wiley & Sons, Inc.

Trends in SCM

• Globalization

• Outsourcing

• Technology

• Postponement

• The Lean Supply Chain

1-21

• Managing Supply Chain Disruptions

• Supply Chain Security

• Sustainability and the “Green” Supply Chain

• Innovation

• The Financial Supply Chain

Copyright 2011 John Wiley & Sons, Inc.

Globalization

The concept of the “Global Marketplace” became possible due to changes in:

– Information Technology

– Transportation

– Government Policies

1-22Copyright 2011 John Wiley & Sons, Inc.

Outsourcing

• Outsourcing– hiring a third party to perform a set of tasks for

a fee

• Increased Competitive Pressure– forces companies to focus on what they do

best and outsource other activities

• Core Competencies– create superior value by managing core

competencies better than competitors

1-23Copyright 2011 John Wiley & Sons, Inc.

Technology

Information Technology can be viewed as an enabler of SCM

– Internet

– Enterprise Resource Planning (ERP) Software

– Wireless and Satellite Communication

– Global Positioning Systems (GPS)

– Radio Frequency Identification (RFID)

1-24Copyright 2011 John Wiley & Sons, Inc.

Postponement

Postponement– completion of the final product is

postponed to the last possible moment till local demands are known

– strategy for companies to reach diverse geographic areas while still providing local customization

1-25Copyright 2011 John Wiley & Sons, Inc.

The Lean Supply Chain

Lean Supply Chain– the set of all organizations directly linked by

upstream and downstream flows of products, services, finances, and information that collaboratively work to reduce cost and waste

1-26Copyright 2011 John Wiley & Sons, Inc.

Managing Supply Chain Disruptions

• Increased Risk– Global Sourcing

– Lean Operations

• Supply Chain Disruptions– Transportation Delays

– Industrial Plant Fires

– Work Stoppages

– Natural Disasters

– Terrorist Attacks

1-27Copyright 2011 John Wiley & Sons, Inc.

Managing Supply Chain Disruptions Continued

• Strategies

– Backup Suppliers

– Excess System Capacity

– Screening Suppliers for Risk

– Developing Disruption Plans

– Anticipating Disruption Costs

1-28Copyright 2011 John Wiley & Sons, Inc.

Supply Chain Security

The study of ways to protect security while maintaining efficiency is now a key issue

• Government Regulations– Customs-Trade Partnership Against

Terrorism (CTAT)– Container Security Initiative (CSI)

• Supply Chain Security– Theft and Product Tampering– Electronic Seals– RFID and GPS

1-29Copyright 2011 John Wiley & Sons, Inc.

Sustainability and the "Green" Supply Chain

• Environmental Concerns– climate change, energy use, environmental

contamination, resource depletion

• Sustainable Supply Chains– design processes to use environmentally friendly

inputs and create outputs that can be recycled and that do not contaminate the environment

• Examples– “Smart Packages”

– Filling Trucks as full as Possible

1-30Copyright 2011 John Wiley & Sons, Inc.

Innovation

• Designing– new products

– new cost-cutting production processes

– more efficient product delivery mechanisms

• Competing on Innovation– typically shorter supply chains

– involve suppliers early in design process

– utilize supplier product and process improvement ideas

1-31Copyright 2011 John Wiley & Sons, Inc.

The Financial Supply Chain

There is a trend to redesign entire supply chains and search for less costly sources of supply

• Strategies– Global Sourcing

– Production Outsourcing

– Outsourcing Noncore Activities

• “Cash-to-Cash Cycle”– the time it takes to convert an order into cash

1-32Copyright 2011 John Wiley & Sons, Inc.

Careers in SCM and Professional Organizations

Examples of SCM job duties:

• Entry-Level Management Positions– conduct product evaluations, generate forecast

reports, perform online replenishment

• Middle Level Management Positions– responsible for accurate and timely product

movement throughout the supply chain

• Senior Executive Positions– document and execute a global SCM plan

1-33Copyright 2011 John Wiley & Sons, Inc.

Review

1. SCM is the design and management of flows of products, information, and funds throughout the supply chain. A supply chain is the network of all entities involved in producing and delivering a finished product to the final customer.

2. The bullwhip effect is the fluctuation and distortion of information as it moves up the supply chain, from retailer, manufacturer, to supplier.

1-34Copyright 2011 John Wiley & Sons, Inc.

Review Continued

3. SCM activities involve coordination, information sharing, and collaboration.

4. Intra-organizational integration is participation and coordination of activities between different organizational functions within the organization.

5. Cross-enterprise integration is the participation and coordination of activities between different organizations that comprise the supply chain.

1-35Copyright 2011 John Wiley & Sons, Inc.

Review Continued

6. Logistics, in contrast to SCM, consists of the tasks involved in moving and positioning inventory throughout the supply chain.

7. Competitive supply chains are responsive, reliable, and engage in relationship management with members of the supply chain.

8. Trends that impact today’s supply chain include globalization, outsourcing, technology, postponement, lean, supply chain disruptions, security, sustainability or “green,” innovation, and the financial supply chain.

1-36Copyright 2011 John Wiley & Sons, Inc.

Copyright 2011 John Wiley & Sons, Inc. 1-37

Copyright 2011 John Wiley & Sons, Inc.All rights reserved. Reproduction or translation of this work beyond that permitted in section 117 of the 1976 United States Copyright Act without express permission of the copyright owner is unlawful. Request for further information should be addressed to the Permission Department, John Wiley & Sons, Inc. The purchaser may make back-up copies for his/her own use only and not for distribution or resale. The Publisher assumes no responsibility for errors, omissions, or damages caused by the use of these programs or from the use of the information herein.