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 Introduction 
Supply Chain Management
 
Introduction
 This chapter aims to give the supply chain management side of the theoretical background for the supplychain modeling efforts which are described in chapters
 
gif and
 
gif . Supply chain management is a vastarea. This chapter will emphasize the aspects of customer service and inventory management, and howthese are interrelated with flexibility. Though the notion of agent-based computer systems have not yetbeen presented, the nature of the Integrated Supply Chain Management Project has been a decisivefactor on the arrangement of the chapter.The chapter is structured as follows: Section
 
gif gives a first introduction to the term
supply chain
,Section
 
gif treats some important issues of supply chain management, and Section
 
gif deals withapproaches to meet current challenges and improve supply chain performance.
Definition
 There seems to be a universal agreement on what a supply chain is. Jayashankar et al. [25
 
] defines asupply chain to bea network of autonomous or semi-autonomous business entities collectively responsible forprocurement, manufacturing, and distribution activities associated with one or more familiesof related products.Lee and Billington [17] has a similar definition:A supply chain is a network of facilities that procure raw materials, transform them intointermediate goods and then final products, and deliver the products to customers through adistribution system.And Ganeshan and Harrison [12] has yet another analogous definition:A supply chain is a network of facilities and distribution options that performs thefunctions of procurement of materials, transformation of these materials into intermediateand finished products, and the distribution of these finished products to customers.In this paper we use the term
supply chain
as it is defined by the last of the quotes above.
 
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Figure:
An Example of a Supply Chain.Figuregif shows an example of a supply chain. Materials flow downstream, from raw material sourcesthrough a manufacturing level transforming the raw materials to intermediate products (also referred toas components or parts). These are assembled on the next level to form products. The products areshipped to distribution centers and from there on to retailers and customers.Appendix
 
gif presents some of the supply chain related terminology used in the thesis. Many of theterms used in the following will therefore not be explained further.
Issues in Supply Chain Management
 The classic objective of logistics is to be able to have
the right products in the right quantities (at theright place) at the right moment at minimal cost 
. Figure
 
gif (from NEVEM-workgroup [19
 
]) translatesthis overall objective into four main areas of concern within supply chain management.
 
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Figure:
Hierarchy of Objectives.The two middle boxes in the lower row of Fig.gif , delivery reliability, and delivery times, are bothaspects of 
customer service
, which is highly dependent on the first box,
 flexibility
, and on the last box,
inventory
. These terms and their interrelations are discussed on Section
 
gif .Some important
 pitfalls
of inventory management are described in Section
 
gif . Some effects of the
globalization
of supply chains are described in Section
 
gif . But first, in Section
 
gif supply chainmanagement is divided into three levels of decision making. And in Section
 
gif the use of 
metrics
toevaluate supply chain performance is described.
Decisions on Three Levels
 Supply chain management decisions are often said to belong to one of three levels; the
strategic
, the
tactical 
, or the
operational 
level. Since there is no well defined and unified use of these terms, thisSection describes the how they are used in this thesis. Figure
 
gif shows the three level of decisions as apyramid shaped hierarchy. The decisions on a higher level in the pyramid will set the conditions underwhich lower level decisions are made. 
Figure:
Hierarchy of Supply Chain Decisions.On the
strategic
level long term decisions are made. According to Ganeshan and Harrison [12
 
], theseare related to location, production, inventory, and transportation. Location decisions are concerned with
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