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Module 1: Supply Chain Management Fundamentals

Module 1 Contents
Section A: Overview of Supply Chain Management Section B: Supply Chain Management Strategy Section C: Managing the Supply Chain Section D: Improving the Supply Chain

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1A: Overview of Supply Chain Management

Learning Objectives
Define and illustrate the supply chain as a concept.

Define supply chain management as a concept and provide examples.


Describe the evolution of supply chain management globally and within companies. Identify and describe key supply chain processes. Identify ways in which supply chain management creates value.
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Identifying Supply Chains


Basic supply chain
Three entities and four flows
Information flow Reverse product flow

Supplier
Primary product flow

Producer

Customer
Primary product flow

Primary cash flow


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Identifying Supply Chains


Basic supply chain: three entities
Supplier
Raw materials Components Services

Producer
Products Power Professional services

Customer
Retailer Wholesaler Distributor

Energy

Government services
Educational services

End user

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Identifying Supply Chains


Basic supply chain: four flows
Information flow Invoices, sales lit., specs, blueprints, receipts, orders, rules and regs, etc. Primary cash flow Payments for products, supplies, etc.

Primary product flow


Material, components, supplies, services, energy, finished products Reverse product flow Returns for repair, replacement, recycling, disposal, etc.
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Identifying Supply Chains


Supply chain example: lemonade stand
Suppliers suppliers
Growers Miners Utilities Manufacturers

Suppliers

Producer
Mom

Retailer
Kids

Customer
Consumers

Corner grocery Utilities

Builders
Other merchants
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Identifying Supply Chains


Manufacturing supply chain model
Tier 2 materials supplier

Information flow
Tier 1 materials supplier

Customer Distributor Customer

Tier 2 materials supplier

Tier 2 service supplier

Tier 1 materials supplier

Manufacturer

Customer
Tier 2 materials supplier

Distributor
Tier 1 service supplier

Customer

Tier 2 service supplier

Primary product flow

Primary cash flow


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1A: Overview of Supply Chain Management

Identifying Supply Chains


Services also have supply chains
Fuel supplies Other utilities Electric backup power

Electric
transformers Facility

Electric Power Utility

Home
customers

maintenance
Programming services Janitorial

Commercial customers

services

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Identifying Supply Chains


Summing up
Supply chains Stretch from raw materials to consumers Include various entities and processes Run in reverse as well as toward end user Contain cash, product, and information flows Connect to outside stakeholders.
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Identifying Supply Chains


Discussion question
An auto manufacturer that buys directly from a utility company, carburetor builder, textile company, and sheet metal producer would have how many tiers of suppliers? a. One b. Two c. Three d. Four Answer: a
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1A: Overview of Supply Chain Management

Key Supply Chain Management Processes


Supply chain processes
P1
Raw Materials P2 P3 P4 P5 Pn

Suppliers

Producers

Distributors

Retailers

End Users

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Key Supply Chain Management Processes


Beware of conflicting definitions
Suppliers

Supply chain =

Logistics Purchasing Operations Operations + Purchasing

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Key Supply Chain Management Processes


Value chain primary activities and the supply chain

Suppliers

Inbound logistics

Operations

Outbound logistics

Marketing and sales

Customer Customers service

Value Chain Support Activities


Infrastructure Human resources Technology Procurement
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Key Supply Chain Management Processes


APICS definition of supply chain management
The design, planning, execution, control, and monitoring of supply chain activities with the objective of Creating net value Building a competitive infrastructure Leveraging worldwide logistics Synchronizing supply with demand Measuring performance globally.
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Key Supply Chain Management Processes


SCOR SC reference model
Goes to 2 tiers in both directions. Your company is at the centre. Main focus is on chains 5 management processes- which are not traditional functional areas or departments
Plan Plan

Plan

Plan

Plan

Deliver Return

Source

Make

Deliver Return

Source

Make

Deliver Return

Source Return

Return

Source Return

Make

Deliver Return

Return

Suppliers Supplier

Supplier Internal or External

Customer Internal or External

Customers Customer

Your Company
Source: Supply-Chain Council (SCC)

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Key Supply Chain Management Processes


SCORs limits
Does apply to all customer interactions, product transactions, and market interactions Does not (yet) apply to sales and marketing, R&D, product development, post delivery customer support
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1A: Overview of Supply Chain Management

Key Supply Chain Management Processes


Five SCOR processes
Plan Source Make Deliver Demand/Supply Planning and Management Sourcing Stocked, Make-to-Order, and Engineer-to-Order Product Make-to-Stock, Make-to-Order, and Engineer-to-Order Product Execution Order, Warehouse, Transportation, and Installation Management for Stocked, Make-to-Order, and Engineerto-Order Product Return of Raw Materials and Receipt of Returns of Finished Goods
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Return

APICS Certified Supply Chain Professional

1A: Overview of Supply Chain Management

Key Supply Chain Management Processes


Discussion question
In which SCOR process would payments move in the opposite direction of primary supply chain cash flows? a. Source b. Make c. Return d. Deliver Answer: c
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1A: Overview of Supply Chain Management

Evolution of Supply Chain Management


Two types of supply chain management
Vertical Integration
Degree to which a firm directly controls multiple links in the supply chain from raw material extraction to retail sales
Retail sales Distribution Production components/ products/services Raw materials extraction
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Lateral (Horizontal) Integration


Coordinated management of separately owned links in the supply chain; outsourcing
Raw materials extraction Production Components Distribution Products Services Retail sales

APICS Certified Supply Chain Professional

1A: Overview of Supply Chain Management

Evolution of Supply Chain Management


Vertical integration
Henry Fords integrated company: Ownership, management, marketing/sales, finance
Showroom Distribution Control Plant Components Raw materials
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Benefits of vertical integration


No dealing with competitors for supplies, etc. Enhanced visibility into operations Same ownership and management for all activities in supply chain

Customer

Primary materials/ product flow

APICS Certified Supply Chain Professional

1A: Overview of Supply Chain Management

Evolution of Supply Chain Management


Lateral integration
Information flows

Raw materials

Components

Plant

Distribution

Showroom

Customers

Primary product flows

Primary cash flows

Benefits of lateral integration


Economies of scale and scope Improved business focus

Improved expertise

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1A: Overview of Supply Chain Management

Evolution of Supply Chain Management


Stages of SCM evolution
1: Multiple Dysfunction
Impulsive activity Pep talks, threats No teamwork Little information exchange

2: Semifunctional Enterprise
Mostly manual ops Inventory reduction in owned facilities New low-price purchasing strategies Some hard-skills training, job enhancement Enhanced marketing and forecasting No coordination of initiatives

3: Integrated Enterprise
New focus on process Internal process integration MRP/ERP Intranets, etc., across functions Design teams Enhanced warehousing, logistics, forecasting, etc.

4: Extended Enterprise
Process integration across entity boundaries Eventual electronic information connections among multiple partners ERP-to-ERP links E-commerce Supply chain vs. supply chain competition
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1A: Overview of Supply Chain Management

Evolution of Supply Chain Management


Stage 3: integrated enterprise
ERP
Suppliers Suppliers Suppliers Purchasing Logistics Production control R&D Marketing/ Distribution sales Customers Customers Customers

Materials/products/ services

Payments

Supplier and customers are out of ERP umbrella

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Evolution of Supply Chain Management


Stage 4: extended enterprise
Networked information flow

Suppliers suppliers

Suppliers

Internal chain

Customers

Customers customers

Materials/products/ services
Supplier and customers are included in information network

Payments

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1A: Overview of Supply Chain Management

Evolution of Supply Chain Management


Discussion question
If a firm uses a logistics supplier to integrate with external members and internally combines warehousing and transportation to optimize costs, it has evolved to at least a. Stage 1: dysfunctional enterprise. b. Stage 2: semifunctional enterprise. c. Stage 3: integrated enterprise. d. Stage 4: extended enterprise. Answer: c
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Creating Value through SC Management


Supply chain values
Financial value Customer value Social value (for community, environment, etc.)

You cant satisfy all the stakeholders all the time.


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1A: Overview of Supply Chain Management

Creating Value through SC Management


Financial value Potentially self-defeating tradeoffs (e.g., cost cutting without net gain) It takes money to make money (such as investments in upgrades) Distribution of net gains (with all stakeholders in mind)
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1A: Overview of Supply Chain Management

Creating Value through SC Management


Customer value
Quality, affordability, availability, service:
As one goes up, others tend to go down.
Availability
Quality Affordability Service

Service
Quality Availability Affordability

Quality Availability

Affordability
Availability Quality Service

Quality

Service
Affordability Availability
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Affordability
Service

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1A: Overview of Supply Chain Management

Creating Value through SC Management


Social value
Making positive contributions Avoiding negative effects

Social/cultural implications Public and military impact Effects on jobs, taxes, economy

Environmental impacts of extraction, logistics, distribution, etc. Impact of laws and regulations Reduce, reuse, recycle (reverse supply chain)
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1A: Overview of Supply Chain Management

Creating Value through SC Management


Discussion question
Which of the following is most likely to increase longterm net financial value for a supply chain firm? a. Reinvesting profits in research and infrastructure upgrades b. Channeling SC cost savings into end-user discounts c. Use of market leverage to force down supplier costs d. Large-scale layoffs and plant closings

Answer: a
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1A: Overview of Supply Chain Management

Topic Review
Identifying supply chains Key supply chain management processes Evolution of supply chain management Creating value through supply chain management
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