view • Adopt behaviors that haven’t traditionally been associated with buyer–seller interactions Successful Supply Chains
• Maintain a systems approach across all
organizations in the supply chain – Companies recognize interdependencies of the decisions made in major functional areas and business processes within, across, and between firms – Goals and objectives of individual supply chain participants should be compatible with the goals and objectives of other participants in the supply chain SCM Process Frameworks
• Two prominent models
– Supply Chain Operations Reference (SCOR) Model – Global Supply Chain Forum (GSCF) Model • A primary distinction between the models is the degree of cross-functional involvement prescribed by each: – GSCF involves all business functions – SCOR model is focused on the logistics, operations, and procurement functions Evolution of Supply Chain Management • Relatively new concept – rarely mentioned prior to 1990 • Recognition grew when value could be found in coordinating various business functions • SCM philosophy: – Coordinate not only within organizations, but across organizations UNIVERSITY OF FINANCE AND MARKETING
TOPIC 2
The Supply Chain
Management Concept
M.A. Truong Thi Thuy Vi
Email : vitruong@ufm.edu.vn Evolution of Supply Chain Management A supply chain can be liberally viewed as a combination of processes, functions, activities, relationships, and pathways along which products, services, information, and financial transactions move in and between enterprises from original producer to ultimate end-user or consumer.1 1John Gattorna, “Supply Chains Are the Business,” Supply Chain Management Review 10, no. 6 (2006): 42–49. Evolution of Supply Chain Management Evolution of Supply Chain Management • Supply Chains - Some are more complex than others - Typically more difficult to coordinate complex supply chains - Complex supply chains may include 3PL providers - Customers are an integral component regardless of complexity level Logistics Versus Supply Chain Management • Logistics activities are part of managing one’s supply chain • Includes sourcing, procuring, and manufacturing • Need to work with multiple parties, including suppliers, 3PL providers, and end customers Logistics Versus Supply Chain Management
• SCM has a leading role for connecting
business functions and business processes internally and across companies • SCM is inclusive of logistics management activities • Logistics managers can contribute to the success and benefit from involvement in SCM Six Processes in the Supply Chain Operations Reference (SCOR) Model Logistics and SCOR Model
• Logistics has some involvement in both
sourcing and making • Logistics can be involved in delivering and returning • Logistics is also a key area of consideration within SCOR’s planning and enabling processes Eight Processes in the Global Supply Chain Forum (GSCF) Model Logistics and GSCF Model • Logistics considerations such as on-time pickup and delivery could arise within the order fulfillment process as well as being monitored by the customer service management process Logistics and GSCF Model • Logistics function can contribute to customer relationship management and supplier relationship management processes in terms of outbound or inbound material flow being part of a product and service agreement with a key customer or supplier Logistics and GSCF Model • Logistics decisions support of a new product might surface in: – Manufacturing flow (inbound flows of new raw materials) – Demand management (forecasted transportation requirements for a product rollout) – Product development and commercialization (packaging considerations) processes
• Reverse logistics is a key consideration for the returns
management process. Enablers of SCM Implementation • Customer power • Relationship structure • Leveraging technology • Supply chain facilitators Customer Power • Information is power – Customer has gained tremendous power over buying decisions – Internet allows the consumer to become highly knowledgeable about: • An individual organization and its • Competing organizations and their products Customer Power and SCM Implications • Customer needs and wants can change relatively quickly therefore supply chains are increasingly required to be fast and agile – Fast supply chain emphasizes a speed and time component – Agile supply chain focuses on an organization’s ability to respond to changes in demand with respect to volume and variety Customer Power and SCM Implications • Failure to be fast and agile can result in: – Decreased market share – Reduced profitability – Lower stock price – Dissatisfied customers for supply chain members • Need for fast and agile supply chains resulted in some e-commerce firms to begin offering same-day delivery services in select markets Customer Power and SCM Implications • Traditional supply chains – Factory-driven, push oriented – Focused on internal cost metrics (measures) such as labor costs and freight costs • Customer-centric supply chains – Pull-oriented – Concerned with metrics that take a more holistic perspective Customer Power and SCM Implications • Perfect order – Simultaneous achievement of relevant customer metrics such as on-time delivery, damage free and correct order quantity – Examines the total impact of an incorrect order in a single metric via a multiplier effect – Metric has been shown to help diagnose problems within a supply chain and improve satisfaction – Look at orders from the customer’s perspective Customer Power and SCM Implications • Firms must focus on both effectively and efficiently designing their supply chains according to market needs/characteristics – Agile supply chain may be most appropriate where customer demand is volatile, and their requirements for variety are high – Lean supply chain may be a more appropriate when customer demand is relatively stable and the need for variety is low Customer Power and SCM Implications • Leagility – Hybrid approach that combines aspects of both lean and agile – Way to focus part of one’s supply chain on a timely response to fluctuating customer orders and/or product variety and another part of the supply chain on leveling out the planning requirements to smooth production output Customer Power and SCM Implications • Lean supply chains – Focus on reducing the so-called bullwhip effect, which is characterized by variability in demand orders among supply chain members – One aspect of inventory control that could be influenced by a lean approach is to move from a pattern of stops and starts to a continuous flow – Achieve a better-controlled flow of inventory with lower levels of expensive inventory “lumps” Customer Power and SCM Implications • Can reduce the amount of inventory in the supply chain through the use of: – Smaller, more frequent orders – Premium transportation – Demand-pull versus supply-push replenishment – Elimination or consolidation of slower-moving product • Reduced inventory may increase susceptibility to natural disasters Relationship Structures • Companies should consider employing a long- term as opposed to a short-term orientation with key supply chain members: – Suppliers – Customers, – Intermediaries – Facilitators Relationship Structures • Long-term orientation tends to be predicated on relational exchanges – “What’s in it for us?” philosophy • Short-term orientation tends to focus on transactional exchanges – “What’s in it for me?” philosophy Relationship Structures • Attributes of relational exchange: – Trust – Commitment – Dependence – Joint Investment – Shared benefits – Information sharing Relationship Structures • Supply chain collaboration refers to cooperative relationships between members of a supply chain— formal or informal—between companies and their suppliers or customers, established to enhance the overall business performance of all parties Relationship Structures • Supply chain collaboration – Can be classified as transactional, tactical information sharing, or strategic in nature – Offers the best opportunity for improving supply chain performance • Transactional and tactical information sharing are currently the most prevalent types of collaboration Relationship Structures Relationship Structures
• Supply chain partnership
– An example of a strategic collaboration – Defined as a tailored business relationship between two supply chain members – Characteristics include: • High interdependence among the partners • Increased willingness to share information • Compatible goals and mutual trust • Buying decisions based on value as opposed to cost or price Leveraging Technology • Technological advancements in computing and the internet affect the supply chain • Computing power – Supply chains can be complex entities consisting of multiple organizations, processes, and requirements – Can apply mathematical models that maximize shareholder wealth or minimize costs Leveraging Technology • Internet – Commoditizes both goods and services – Allows a supply chain party to have virtually instantaneous visibility to the same data as other parties in the supply chain • Offers the opportunity for supply chains to become more proactive and less reactive • Can translate into lower inventories and improved profitability throughout the supply chain Leveraging Technology
• Supply chains depend on huge quantities of
real-time information • Retail point-of-sale information can be transmitted directly to suppliers and translated into orders for replenishment of product • Vendors may allow customers to query vendor inventory records to determine what products are in stock and where the stocks are located Leveraging Technology Supply Chain Facilitators
• Third-Party Logistics (3PL), also known as
logistics outsourcing or contract logistics – Any logistics activity not performed in-house is representative of third-party logistics – Common 3PL activities involve inbound and outbound transportation, carrier negotiation and contracting, and freight consolidation – Well-known 3PL providers include Exel Logistics , Kuehne and Nagle, Schenker Logistics, and UPS Supply Chain Solutions Supply Chain Facilitators
• Logistics outsourcing has the potential to
improve both the effectiveness and efficiency of supply chains but can easily result in failure due to: – Unreasonable and unrealistic expectations – lack of flexibility in the relationship • Need to structure 3PL relationships so that unexpected occurrences can be dealt with in a timely and satisfactory manner Supply Chain Facilitators • Fourth-party logistics (4PL) or lead logistics provider (LLP) – Refers to a company whose primary purpose is to ensure that various 3PLs are working toward the relevant supply chain goals and objectives – Need to have the expertise to consider: • Supply chain solutions and potential trade-offs • Make constant objective decisions across a broad set of • value-adding activities – Must be viewed as neutral Barriers to Supply Chain Management • Regulatory and political considerations • Lack of top management commitment • Reluctance to share, or use, relevant data • Incompatible information systems • Incompatible corporate cultures • Globalization Globalization of Supply Chains • Increasing globalization – Lower priced materials and labor – Global perspective of companies – Development of global competition • Extremely difficult to execute due to differences – Cultural, economic, and technological – Political, spatial, and logistical Supply Chain Integration • Long-term, mutually beneficial agreements – Partnerships – Strategic alliances – Third-party arrangements – Contract logistics • Methods used to integrate – Vertical integration – Formal contracts – Informal agreements