Key Concepts of Supply

Chain Management

Chapter 1

Objectives

Appreciate what a supply chain is and

what it does
Understand where your company fits in
the supply chain it participates in and
the role it plays in those supply chains
Discuss ways to align your supply chain
with your business strategy
Start an intelligent conversation about
the supply chain management issues in
your company

Definitions

A supply chain is the alignment of

firms that bring products or
services to market Lambert,
Stock, and Ellram.

Definitions

A supply chain consists of all stages

involved, directly or indirectly, in
fulfilling a customer request. The
supply chain not only includes the
manufacturer and suppliers, but
also transporters, warehouses,
retailers, and customers
themselves Chopra and Meindl

Definitions

A supply chain is a network of

facilities and distribution options that
performs the functions of
procurement of materials,
transformation of these materials into
intermediate and finished products,
and the distribution of these finished
products to customers Ganeshan
and Harrison.

Supply Chain
Management

The systematic, strategic coordination

of the traditional business functions and
the tactics across theses business
functions within a particular company
and across businesses within the supply
chain, for the purposes of improving the
long-term performance of individual
companies and the supply chain as a
whole Mentzer, Dewitt, et al.

Supply Chain
Management

Supply chain management is the

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 author.

Logistics vs SCM

Logistics refers to activities that occur

within the boundaries of a single
organization and supply chains refer to
networks of companies that work
together and coordinate their actions to
deliver a product to market.
SCM acknowledges all of traditional
logistics and also includes activities such
as marketing, new product development,
finance, and customer service.

Company Actions in SC

Companies in any SC must take

decisions individually and collectively
regarding their actions in five areas:
Production
Inventory
Location
Transportation
Information

Goal of SCM

The goal or mission of supply chain

management can be defined as increasing
throughput while simultaneously reducing
both inventory and operating expense.
(here throughput means sales to the end
customer).

In some markets customers value and will

pay for high levels of service while in
others customers simply seek the lowest
prices.

Production

The fundamental managerial decision is

how to resolve trade-off between
responsiveness and efficiency.
Factories can be built to accommodate
one of two approaches to manufacturing;
product focus or functional focus.
Warehousing can also be done using any
of three approaches; stock keeping unit,
job lot storage, or cross-docking.

Inventory

Inventory is spread throughout the

supply chain and includes everything
from raw material to work in progress
to finished goods.
There are three basic decisions to
make regarding the creation and
holding of inventory; cycle inventory,
safety inventory, and seasonal
inventory.

Location

Location refers to the geographical sitting of

supply chain facilities.
It also includes the decision related to which
activities should be performed in each facility.
The responsiveness versus efficiency trade-off
here is the decision whether to centralize
activities in fewer locations to gain economies
of scale and efficiency, or to decentralize
activities in many locations close to customers
and suppliers.
Location decisions have strong impacts on the
cost and performance of supply chain.

Transportation

Transportation refers to the

movement of everything from raw
material to finished goods between
different facilities in a supply chain.
Different modes of transportation
are: ship, rail, pipelines, trucks,
airplanes, and electronic
transportation.

Information

All decisions are based on timely

availability of information regarding
other four supply chain drivers.
Information is used for two purposes
in supply chain; coordinating daily
activities and forecasting and
planning to anticipate and meet
future demands.

Evolving Structure of
Supply Chains - 21

Vertical Integration: slow moving mass

markets of the industrial age, it was
common for successful companies to
own much of their supply chain.
Virtual Integration: companies now
focus on their core competencies, and
partner with other companies to create
supply chains for fast moving markets.

Participants of Supply
Chain

Producers
Distributors
Retailers
Customers
Service
Providers

Aligning Supply Chain

with Business Strategy

Understand the market your

company serves
Define core competencies of your
company
Develop needed supply chain
capabilities 37

Understand Markets
Your Company Serves

The quantity of the product needed in

each lot
The response time that customers are
willing to tolerate
The variety of products needed
The service level required
The price of the product
The desired rate of innovation in the
product.