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LECTURE 2
WHAT IS SUPPLY CHAIN MANAGEMENT?
Rationale and Logic:
In a hypercompetitive environment consumers have access to different suppliers of products and services.
Also these consumers have access to product service review which can ideally influence them about the
product or service in a positive or negative way. The highly aware consumer is also not that loyal to the
product or service offering from an enterprise in fact low switching costs allow the consumer to switch to a
new product or service being offered by the competitor of the first enterprise. Ideally the supply chain
discussion should entail both manufacturing and services side. Consumers have occupied a centric position
in the business models being pursued by businesses of today. These consumers would be interested in having
access to the best product at a minimum cost and with least or no waiting time. In other words, the message
from the consumer to the enterprise delivering product or service is to have an effective and efficient supply
chain. If an enterprise fails to do so the customer is free to accept the more reliable, economical and readily
available product or service of the competitor. This is an important rationale as businesses in Pakistan have
learnt it the hard way in the last 15 years or so and have lost out to businesses in other parts of the world.
Pakistani businesses could not come up with an effective and efficient supply chain and could not accomplish
the customer requirements which these businesses had originally committed to fulfill. The customers cannot
be loyal to businesses that are unable to fulfill their business preposition. This phenomenon is visible in even
countries like USA. Virtual University Students should take it upon themselves to improve their business or
workplace to develop product or services in line of the customer requirements and ensure an effective and
efficient supply chain for earliest delivery to the customer, in order to win customers loyalty. This loyalty
translates into repeat business and long term supply chain surplus (profits).
LEARNING OBJECTIVES: The Virtual University student should be able to learn the characteristics,
inputs, outputs, boundaries and framework of a Generic Supply Chain. After the completion of this lecture,
the VU student should ideally be able to
1. Describe a supply chain and define supply chain management.
2. Describe the objectives and elements of supply chain management.
3. Describe local, regional, and global supply chain management activities among services and
manufacturing companies.
4. Describe a brief history and some of the trends of supply chain management.
5. Understand how the bullwhip effect impacts supply chain members.
Construction
School Restaurants
s Banks
Hospitality
Military
Agriculture Transportation
Sport Teams
Health Municipalities
Care
Gov’t
Manufacturers Service Entertainment
Retail s Not-for-Profit
Organizations
It is obvious that the student can identify the global network of organizations and activities involved in
1. Designing a set of goods and services and their related processes.
2. Transforming inputs into goods and services
3. Consuming goods and services
4. Disposing of these goods and services
Now we are in a position to define supply chain management, which is “the design and execution of
relationship and product (service), information and cash flows that connect the parties and processes across
supply chain”.
Virtual University students are already aware of the supply chain in services and are well aware of the process
they employ to obtain the course DVD and write up of their registered class. The process involves online
data input, printing of bank challan, submission or fee deposit at designated bank branches and then receiving
their DVDs and write up in mail from the 3rd to the 5th day.
The coordinated set of techniques to plan and execute all steps in the global network used to acquire raw
materials from vendors, transform them into finished goods, and deliver both goods and services to
customers
Logistics and Supply Chain Management Society
The planning and management of all activities involved in sourcing and procurement, conversion, and all
logistics management activities … also includes coordination with channel partners, which can be suppliers,
intermediaries, third party service providers, and customers.
Council of Supply Chain Management Professionals
These definitions may be changed and modified by the same council and society of experts periodically to
address the latest trends and business requirements. We have now covered some examples of Supply chain
and have focused on some definitions of supply chain.
OLD VS NEW PARADIGM DEBATE
Sometimes there is criticism that Supply Chain is an old paradigm. Now what is a paradigm? Virtual University
students are encouraged to revisit the basic definition or concepts associated with the term “paradigm”. The
word paradigm means example or exemplar, model, Pattern, Standard, Prototype and archetype.
© Copyright Virtual University of Pakistan 15
Supply Chain Management –MGMT614 VU
Old paradigm -Enterprise XYZ gained synergy as a vertically integrated Enterprise encompassing the
ownership and coordination of several supply chain activities. Organizational cultures emphasized short-term,
company focused performance. But this old paradigm can be made a part and parcel of the new paradigm as
well by shifting from enterprise focus to supply chain focus.
New paradigm- Enterprise XYZ, say for example is in the field of electronics and looks for a better raw
material or a fast processor. Now, XYZ is in supply chain focus activities in its area of specialization and
enters into voluntary and trust-based relationships with supplier and customer Enterprises.
1. All participants in the supply chain must benefit from the supply chain.
2. Boundaries are dynamic and extend from “the Enterprise’s suppliers’ suppliers to its customers’
customers (i.e., second tier suppliers and customers).”
3. Supply chains now focus on reverse logistics to handle returned products, warranty repairs, and
recycling with additional advantage of increase in cost saving, possible generation of revenue, increase
in customer service, customer satisfaction and customer loyalty. This would mean the enterprise is in
a position to handle both forward and reverse supply chains and thus ensuring an improved packaged
product for the customer.
So if the integration was only present in the enterprise in the old paradigm it is not extended beyond the
enterprise boundaries to suppliers and distributors. If the enterprise XYZ does not fulfill the three above
mentioned conditions, then the enterprise may fall back and end up below the old paradigm level of
competence.
IMPORTANCE OF SUPPLY CHAIN MANAGEMENT
Enterprises have discovered value-enhancing and long term benefits. It has been observed that Enterprises
with large inventories, large number of suppliers, Complex products and Customers with large purchasing
budgets all benefit with the supply chain. A never ending debate amongst the devil’s advocate is who benefits
most? The intellectually correct answer is all entities sooner or later enjoy the benefits of Supply Chain.
A logical question that follows is how do these Enterprises benefit? The logical answer being that by lowering
purchasing and inventory costs, improved quality, higher levels of customer service more or less any big or
small enterprise can benefit from Supply Chain.
Enterprises using Supply Chain Management more or less follow the same sequence of steps. If the Virtual
University student is interested in initiating the supply chain management process at his or her work place,
the following steps are recommended.
1. Start with key suppliers or pool of suppliers so you can conduct sourcing with them.
2. Move on or switch on to other suppliers, customers, and shippers. This requires pre-qualification of
suppliers.
3. Integrate second tier suppliers and customers (second tier refers to the customer’s customers and the
supplier’s suppliers)
a. Cost savings and better coordination of resources are reasons to employ Supply Chain
Management.
b. Reduced Bullwhip Effect - the magnified reduction of safety stock costs based on coordinated
planning and sharing of information
Bullwhip Effect corresponds to the increase in inventory as you move up the supply chain. Avoid padding
and convenient cushion and ensure proper information with corresponding planning effort to reduce
bullwhip effect.
Cost savings and better coordination of resources are reasons to employ Supply Chain Management
a. Collaborative planning, forecasting, and replenishment activities reduce the Bullwhip Effect
and
b. Lead to better customer service, lower inventory costs, improved quality, reduced cycle time,
better production methods, and other benefits.