Supply Chain Management

Introduction to Supply Chain Management

Development of Supply Chain Concept

Operations Management

Logistics

Distributions

Supply Chain

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What is Supply Chain?

 A Supply Chain is the alignment of firms

that bring products or services to market
(Lambert, Stock, and Ellram)

 A Supply Chain consists of all stages

involved, directly or indirectly, in fulfilling
a customer request. This includes
manufacturers, suppliers, transporters,
warehouses, retailers, and customers
(Chopra and Meindle )
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 What is Supply Chain?

Supply Chain encompasses “all activities associated with

the flow and transformation of goods from raw material
stage (extraction) through to the end user, as well as the
associated information flow.”
What is Supply Chain
Management (SCM)?
 Integration of these activities through
improved supply chain relationships, to
achieve a sustainable competitive advantage.
(Handfield and Nichols)
 Coordination of production, inventory,
location, and transportation among the
participants in a supply chain to achieve the
best mix of responsiveness and efficiency for
the market being served. (Hugos)
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What is Supply Chain
Management?
 The systematic and strategic coordination
of the traditional business functions and
the tactics across these business functions
within a particular company and across
business within the supply chain, for
purposes of improving the long-term
performance of the individual companies
and the supply chain as a whole (Mentzer,
DeWitt, Deebler, Min, Nix, Smith, and
Zacharia)
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Management of Business Logistics, 7th Ed. 9
Why Supply Chain?

 Supply chain management is now an

important part of a business.
 Globalization drastically changed how
business is conducted.
 Change has been rapid and continuous in the
1990s.

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 Five Driving Forces of Change
 The Empowered Consumer
 Power Shift that favors large
retailers
 Deregulation in many sectors
 Globalization
 Technological advancement

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The Changing Business Landscape:
Five Driving Forces
 The Empowered Consumer
 Informed consumers have low tolerance for

poor quality in products and services.

 Customers demand longer service times.

 Increased customer service increases the

importance of logistics and supply chains.

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The Changing Business Landscape:
Five Driving Forces
 Power Shift in the Supply Chain
 Large retailers more demanding and

commanding.
 Focus upon distribution costs and their

impact on “everyday low prices”.

 Changing logistics and supply chain

strategies resulted from shifts in the

balance of economic power.

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 The Changing Business Landscape:
Five Driving Forces
 Deregulation
 Lose economic controls empowered creativity and
competition among companies.
 Change in financial institutions blurred traditional
differences and increased competition.
 Change in the communications industry also resulted
in more competition.
 Changes in the utility industry allows more
competition.

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The Changing Business Landscape:
Five Driving Forces
 Globalization
 Global marketplace concept

 Global network sourcing, manufacturing,

marketing and distribution

 No geography --- access available to the

world

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The Changing Business Landscape:
Five Driving Forces

 Technology
 Information Age provides new and unrestricted
access to the place aspect of business.
 My time, my place
 Warehouse technology has changed dramatically
with computer devices in use from the office
space to the forklifts.

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 Evolution of Supply Chain Management

Further
Refinement of
SCM Capabilities

SCM
Formation/
Extensions

JIT, TQM, BPR,

Alliances

Inventory Management/Cost
Optimization

Traditional Mass Manufacturing

1950s 1960s 1970s 1980s 1990s 2000s Beyond

 Evolution of Supply Chain Management

 Mass production era (1900s – 1970s)

 In the early 1900s, Henry Ford created the first moving
assembly line reducing the time to build a Model T from 728
hours to 1.5 hours
 Lean manufacturing era (1970s –1995)
 In the early 1970s, Japanese manufacturers like Toyota changed
the rules of production from mass to lean. Lean manufacturing
focuses on flexibility and quality more than on efficiency and
quantity.
 Mass customization era (1995 – 2010?)
 Beginning around 1995 and coinciding with the commercial
application of the Internet, manufacturers started to mass-
produce customized products. Henry Ford’s famous statement
“You can have any color Model T as long as it’s black” no longer
applies.
The Changing Business Landscape:
The Supply Chain Concept
 Development of the Concept
 Total systems cost - remains an important element
of logistics analysis.
 Outbound logistics - was the initial focus with
higher value finished goods.
 Inbound logistics – deregulation allowed new
focus on coordination of inbound and outbound
movements.
 Value chain analysis integrated logistics activities.

 Terminology growing as supply chain concept

matures.

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A View of Business Logistics in a Firm

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Integrated Logistics Management

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Generic Value Chain

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Logistics Supply Chain

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Why do we need to understand Supply Chain Management?
 Good supply management can decrease cost of the product

 Management of the supply chain can be complex task

 The company extends to suppliers and customers

 Inventory levels need to be optimized because of its costly

nature
 Two way flow (product, information, 25
cash)
 Managing a Supply Chain is Not Easy

 Geographically dispersed complex network

 Conflicting objectives across the supply chain
 Uncertainty and risk factors
 Information distortion
 Managing a Supply Chain is Not Easy

 Geographically dispersed complex network

 Managing a Supply Chain is Not Easy

 Conflicting objectives across the supply chain

Manufacturer Distributor Retailer Customer

• Large production • Low inventory • Few stores • Convenience

batches • Few DCs • Low inventory • Short lead time
• Little variety • Large variety of
• Close to DCs products
• Large shipments
 Managing a Supply Chain is Not Easy

 Uncertainty and risk factors

 2005 Hurricane Katrina

 P&G coffee supplies from sites around New Orleans

 Six month impact
 2002 West Coast port strike
 Losses of $1B/day
 Store stock-outs, factory shutdowns
 2001 India earthquake
 Supply interruptions for apparel manufacturers
 1999 Taiwan earthquake
 Supply interruptions for HP and Dell
Managing a Supply Chain is Not Easy

 Information distortion
Supplier Manufacturer Distributor Retailer Customer

Bullwhip effect
The Supply Chain Concept
 Inventory optimization
 Pull systems
 Consideration of total landed cost
 Coordination of supply chain activities

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The Supply Chain Concept
 Real-time two way information flows
 Customer service
 levels must be tailored to each

customer
 not all customers require the same

service
 Collaborative planning
 Share risks and rewards
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 Decision Phases in a Supply Chain

 Supply chain strategy or design

 Supply chain planning
 Supply chain operation
Successful supply chain management requires
decisions on the flow of information, product,
and funds that fall into three decision phases!

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 Decision Phases in a Supply Chain
TIME FRAME TYPE TYPICAL DECISIONS
•Supply chain network design (How many plants?
Location and capacities of plants and warehouses?)
years
Strategic •Supply chain strategies (Sell direct or through
retailers? Outsource or in-house? Focus on cost or
customer service?)
•Product mix at each plant

•Workforce & Production planning

Tactical •Inventory policies (safety stock level)
3 mo.- 1year •Which locations supply which markets
•Transportation strategies

•Production scheduling
daily Operational •Decisions regarding individual orders
•Place replenishment orders
Major Goals of the Supply Chain
 Efficiency
 Responsiveness

Efficiency Responsiveness

These two directions are mutually conflicting

goals and it is important to determine where
your strategy lies within these conflicting
goals