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Chapter 1:

Supply chain management

Takes into consideration every facility that has an impact on cost and plays a role
SCM is to be efficient and cost effective across the entire system. (Total sys wide
Intergration of supplies, manufacturers, warehouses and stores.
Challenges of SCM:
1: SC cannot be determined in isolation, every single unit affects the other in the
chain. Needs to align strategic goals of increasing market share and profits.
2: Difficult to design and operate a supply chain so that the total systemwide
costs are minimised. Finding the best systemwide strategy is known as global
3: There is always going to be uncertainity and risk involved. Customer demand
cannot be forecasted always, travel times cant be exact and breakdowns do
The Development Chain:
A set of activites and processes associated with new product introduction.
Internal KSA needed, sourcing decisions and production plans.
Decisions are:
What to make internally
What to buy externally
Supplier selection/involvement
Strategic partnerships
Characteristics of the supply chain have an effect on the product design strategy
and development chain.
Global Optimization
Variables leading to challenges of finding the best systemwide solution
1: Supply chain is a complex network. Facilities can be everywhere, global even.
2: Different facilities in the SC frequently have different, conflicting objectives.
Different goals and wants of opposite sides, production are made without precise
info of customer demand. Manufacturers want to produce a mass quantity but
warehouses want to minimise inventory.
3: Supply chain is a dynamic system that evolves over time. Customers want
better so manufacturers and suppliers have to produce HQ items.
4: Systems variations over time. Need to include demand and cost parameters
due to impact of seasonal flucuations, trends, ads and promos.
Factors contributing to managing uncertainity and risk
1: Matching supply and demand is a major challenge.
Demand falls and inventory cost rise as a result
2: Inventory and back-order levels fluctuate across the SC.
3: Forecasting does not solve the problem. Impossible to predict exact demand.
4: Demand is not the only source of uncertainty. Uncertainity can be the result of
lead times, manuf yields, transport times and the component availability.
5: Cost cutting activities such as lean manuf, offshoring and outsourcing can
increase risks.
Successful firms: 3 key abilities
A: Ability to match SC strategies with product characteristics. Intersection of the
development chain and the SC has an impact on product design and strategy.
B: Ability to replace traditional SC strategies, facilities make independent
C: Ability to manage uncertainity and risk.
Key Issues in SCM:
The strategic level have a long lasting effect on the firm. Decisions of product
design, what to make internally and what to outsource, supplier selection and
strategic partnering, location and capacity of w/h, flow of material.
The tactical level are decisions that update frequently. Purchasing and
production decisions, inventory policies and transport strategies.
The operational level is the day to day decisions such as scheduling, lead time
quotes and truck loading.

Distrubtion Network Configuration: Plants that product for different
geographically located retailers. Evaluate and redesigning the network happens.
Due to changing demand patterns or termination of a w/h contract. Solution
requires adv technology and approaches.
Inventory control: What to re order and how much to minisime holding costs.
Depends on customer demand and supplier processing.
Production sourcing: Need to balance transportation and manufacturing cost.
Large batch producing means lower costs but higher transport costs.
Supply contracts: SCS (traditional) each party worry about their own profits with
disregard to other parties. Contracts is the relationship between buyers and
suppliers, with the price and volume discounts, lead times, quality and returns.
Distrubution Strategies: Important questions if how much to centralize or
decentralize their distrubution system. Impact of strategies on transport costs
and inventory levels. Impact on service levels?
Supply chain integration and strategic partnering. Customers and supply chain
partners force companies into strategic partnering. Successful intergration
depends on info sharing and operational planning.
Outsourcing and offshoring strategies: Need to think what to make internally and
buy externally. Risks involved?
Product design: Several critical roles in the SC. Could be increasing inventory
holding or transportation costs, some may include shorter lead times. But there
is a cost involved.
IT and Support systems.
Customer values is the measurement of a companys contribution to its