Supply Chain Management

Chapter Objectives

• Introduce the concept of a firm’s supply chain and

show how it has evolved over time to its present
status.
• Identify current trends that are affecting the
characteristics of a supply chain.
• Present the requirements necessary for a successful
supply chain.
• Discuss the impact of technology on a firm’s supply
chain.
• Define in-transit inventory costs and show how they
impact the purchasing decision.
 Managerial Issues
• Concentration of resources on the firm’s core
competencies such as supply chain
management.
• Increasing proportion of purchased goods and
services as inputs into products.
• Increased pressure to reduce inventories.
• Applying advances in information technology
to strategically manage supplier relationships
and the supply chain itself.
 Definition of Supply Chain Management
• Supply Chain
–The steps and the firms that perform these steps
in the transformation of raw inputs into finished
products bought by customers.
• Inbound Logistics
–The delivery of goods and services that are
purchased from suppliers and/or their
distributors.
• Outbound Logistics
–The delivery of goods and services that are sold
to a firm’s customers and/or distributors.
Value chain
A Company’s Supply Chain
The Evolution of Supply Chain Management
The Evolution of Supply Chain Management
The Trend Toward Reducing
the Number of Suppliers
 Key Terms
• Supplier-Managed Inventories
–Inventories in a firm’s facility that are the
responsibility of the supplier to maintain and to
replenish as necessary.
• Consignment Inventories
–Inventories that are physically present in a
firm’s facility but that are still owned by the
supplier.
• EDI (electronic data exchange)
–Direct link between a manufacturer’s database
and that of the vendor.
 Key Terms (cont’d)
• Quick Response (QR) Programs
–Just-in-time replenishment system using bar-
code scanning and EDI.
• Efficient Customer Response (ECR)
–Strategy for bringing distributors, suppliers, and
grocers together using bar-code scanning and
EDI.
Factors Impacting the Supply Chain

Reduced Supplier-
Number of Managed
Suppliers Inventories

Increased Supply Contingent

Competition Chain Inventories

Shorter Shared or Advances In

Product Reduced Technology
Life Cycles Risk (e-proc & e-
fulfill)
 Requirements for Successful Supply Chain

Long-Term
Trust
Relationships

Successful
Supply Chain
Management

Information
Individual Strengths
Sharing
The Role of Logistics in The Supply Chain
• Partnering
–Establishing a strategic alliance or partnership
with a firm that specializes in transportation or
logistics.
–Using a logistics partner to store finished goods
at the logistics partner’s hub or distribution
center.
The Role of Logistics in The Supply Chain
• In-Transit Inventory Costs
–Combination of transportation and carrying
costs associated with delivery of raw materials
and components that are inbound to the plant.
Total annual (inbound) costs =
Transportation costs + In-transit inventory carrying costs + Purchase costs
TC = DM + (X/365)iDC + DC
D = Annual demand
M = Transportation cost per unit
X = Transportation time in days
i = Annual cost of capital
C = Unit cost per item
 Disintermediation
• Disintermediation
–The trend to reduce many of the steps in the
supply chain by reducing the number of
intermediaries in the chain.
• Cross-docking
• Direct-to-store shipments
–JIT II®: vendor and customer work closely
together, eliminating many of the intermediate
steps that now exist.
• Vendor representative located at facility
• Direct database linkage with vendor’s
manufacturing facility.
Major SCM Software Packages
Fundamentals of Operations Management 4e © The McGraw-Hill Companies, Inc., 2003 13–18