The Concept of Supply Chain

Management
EIN5346 Logistics Management
Mendez Lynch
Donovan Richards
Maurice Robinson
Vaughn Mignott

The Concept of Supply Chain Management

where it came from?
The concept of Supply Chain Management is a
relatively new concept, prior to the 1990s in relation
to both:
- Academic Literature, and
- Practitioner Literature

Recognition:
The early to mid-1990s witnessed a growing
recognition that there could be value in coordinating
the various business functions, both:
- Within Organizations, and
- Across Organizations

Recognition (contd):

With this recognition, came into being the

Philosophy of Supply Chain Management."

What is the Supply Chain Management

concept?
The Supply Chain Management Concept is that
concept that encompasses all activities
associated with:
i.

Flow and transformation of Goods From the

raw material stage (extraction) through to the
end user
ii. Information flows to and from the end user

What does the Supply Chain Concept

consist of?
The Supply Chain Concept consists of all parties
involved (directly and/or indirectly), in fulfilling
customers requests. The parties involved are:
- Manufacturers
- Suppliers
- Transporters
- Warehouses
- Retailers
- Customers

Supply Chain Concept (contd)

The Supply Chain Concept may also include:
- New product development
- Marketing
- Operations
- Distribution
- Finance
- Customer service

Types of Supply Chain Configurations

Three types of supply chain configurations are
looked at. These are:
Direct Supply Chain
Extended Supply Chain
Ultimate supply chain

Direct Supply Chain

Supplier

Organization

Source Prof. Dr. Ted Lees Class Presentation - 2010

Customer

Extended Supply Chain

2

Supplier

Organization

Customer
Customers
customers

Suppliers

suppliers
Source Prof. Dr. Ted Lees Class Presentation - 2010

Ultimate Supply Chain

3rd Party Logistic Supplier

Supplier

Customer

Organization

Ultimate
customer

Ultimate

supplier

Financial Provider

Market Research

Source Prof. Dr. Ted Lees Class Presentation - 2010

The management of the Supply Chain

What is it?
Supply chain management, according to the
Council of Supply Chain Management
Professionals, is the:
Planning and Management of all activities
involved in the following:
- Sourcing and procurement
- Conversion
- Logistics management

Management of the Supply Chain (contd)

This involves coordination, and collaboration with
channel partners such as:
-

Suppliers
Intermediaries
Third party service providers, and
Customers

In general, Supply Chain Management integrates

supply and demand management within and across
organization(s)

Why Manage the Supply Chain?

Companies that excel in supply chain management
perform BETTER in every financial measure of
success
Supply-chain excellence improves demand-forecast
accuracy, which results in approximately:

5% higher profit margin

15% less inventory
up to 17% stronger perfect order ratings
35% shorter cash-to-cash cycle times than the competition
Source: BusinessWeek (2004)

FIVE BASIC COMPONENT OF SUPPLY CHAIN

MANAGEMENT
1. Planning:

The strategic portion of supply chain management.

A strategy for managing all the resources that goes toward meeting customer
demand for your product or service.

Balances aggregate demand and supply to develop a course of action which

best meets the requirements for:
Sourcing
Production, and
Delivery

BASIC COMPONENT OF SUPPLY CHAIN MANAGEMENT

(contd)
2. Sourcing:
Choose the suppliers that will deliver the goods and services you need to create
your product or service.
Develop a set of pricing, delivery and payment processes with suppliers and
create metrics for monitoring and improving the relationships.
Put together processes for managing the inventory of goods and services you
receive from suppliers.

BASIC COMPONENT OF SUPPLY CHAIN MANAGEMENT

(contd)
3. Making: (The manufacturing step. )

Schedule the activities necessary for production, testing, packaging and

preparation for delivery.
Is the most metric-intensive portion of the supply chain, it measures
- Quality levels
- Production output, and
- Worker productivity
4.Delivering: ( The "logistics portion of SCM. )

It Involves:
- Coordinating the receipt of orders from customers
- Developing network of warehouses
- Picking carriers to get products to customers, and
- Set up an invoicing system to receive payments.

BASIC COMPONENT OF SUPPLY CHAIN

MANAGEMENT (contd)
5.Return: (The problem part of the supply chain. )

Create a network for receiving defective and excess

products back from customers
Supporting customers who have problems with
delivered products.

Key Attributes of Supply Chain

Management
Customer Power Customer has become highly
knowledgeable about individual organization and its
product as well as about competing organizations
and products
Long-term Orientation Seeks relational
exchanges rather than transaction exchanges
Leveraging Technology Supply chains can be
very complex entities which require appropriate
technology to maximize shareholder wealth and
reduce costs. This as opposed to what obtained
historically.

Attributes of Supply Chain Management (contd)

Enhanced communication across Organization
Accurate, real time, seamless information flow within
and across organizations is necessary as Supply chain
relies on high volumes of information
Inventory Stock Better control flow of inventory
with fewer inventory lumps and also reduction in the
amount of physical inventory
Inter-organizational Collaboration Supply
chain as a whole has the objective of optimizing the
performance of the entire supply chain rather than
individual organization

Typical Supply Chain

With all that have been said

previously, What does this Mean?
Supply chain management
means more than just low
costs and high efficiency and
effectiveness

It requires a superior ability

to shape and respond to
shifts in demand with
innovative products and
services

Supply Chain Management Trends

Demand Driven Supply Network (DDSN)
Lean Manufacturing
Radio Frequency Identification (RFID)
Transportation & logistics

Demand Driven Excellence

A system of technologies and processes that
senses and responds to real time demand signals
across a network of customers, suppliers and
employees

Demand Driven Overlapping Principles

Supply management
Manufacturing,
logistics and sourcing

Demand management
Marketing, sales
and service

Product management
R&D, engineering and
product development

Defining characteristics of supply chains built to

demand driven principles results in the ability to
manage demand rather than just respond to it

Operational and Innovation Excellence

Two basic dimensions of measurement capture the
totality of the best-in-class, demand-driven, global
supply chain:
Operational excellence
Innovation excellence

Operational excellence
This involves:
Reaching the ultmate in the execution of business processes
When practiced, business is conducted in a manner that:
- Satisfies customer demand

Improves quality
Generates higher yields
Faster throughput &
Eliminate waste

Innovational Excellence
Innovation is the key and critical factor toward better
results.
In today's competitive world an organization desiring
different outcomes, without innovation the likelihood of
achieving extraordinary results is greatly diminished
Innovation is rooted in the PDCA principle
PLAN
DO
CHECK
ADJUST

Also referred to as the cycle of continual improvement.

Operational and Innovation Excellence

The Hierarchy of Supply Chain Metrics:

Operational Excellence

The Hierarchy of Supply Chain Metrics:

Innovation Excellence

Lean Manufacturing
Most companies have peacefully reconciled the
mandate to work lean while employing the latest
software to streamline processes and gain new
visibility over the supply chain
Remove waste
Reduce inefficiencies

Lean Manufacturing

Radio Frequency Identification

RFID technology uses radio waves to read data
put on a chip embedded within a tag.
Primarily used for identification and tracking
Monitor product location at all time, updating
both planning and execution systems

RFID in Practice

Transportation & Logistics

Transportation & Logistics

Physical movement of goods and services
Companies need to adopt a strategic
transportation sourcing (STS) approach
Strategic sourcing considers costs within the
total manufacturing and distribution supply and
demand environment
Companies sometimes outsource the
transportation activities

Supply Chain Top 10 Companies

Source: Gartner (2010)

Financial Metrics Used to Rank SCM

Top 10
ROA Net income/total assets
Inventory turns Cost of goods sold/inventory
Revenue growth Change in revenue from prior
year

Supply Chain Management - Challenges

A number of impediments may affect the effective implementation
of Supply Chain Management systems, despite the optimistic
attractive futuristic perspective of such chain. These impediments
include:
Regulatory and Political Considerations Regulations may prevent
some chains from entering certain markets. Also, events such as war
may affect supply chain management systems
Lack of top management commitment Top management might be
uncomfortable with one or more of the underpinnings of the supply
chain management
Reluctance to share and/or use relevant information Might not be
willing to share data that is propriety in nature

Challenges (contd)
Incompatible information systems Eg. Computer softwares
Incompatible corporate cultures Must be comfortable with
how organizations in the supply chain do business
Globalization Supply chains have increasingly become
global in nature, due to, amongst other reasons, lower price of
material and labor.
However, with globalization, there come cultural, economic,
technological, political , spatial, and logistical challenges.
Which may affect the fulfillment of customer demands.

Recommendations
Apply demand-driven principles in order to sense, shape and
respond to changes in market demand.
Take a cue from the leaders when designing your own supply
chain strategy. Define how many supply chain types you have
and design a customized response for each.
Balance operational excellence with innovation excellence for
superior overall performance.
Focus on acquiring, mentoring, growing and retaining supply
chain talent.
Measure your supply chain as your customer experiences it.
This will ensure continuous improvement

Recommendations (contd.)
Make individual and collective decision regarding action in the following areas:
Production:
What product does the market wants, how much and by when.
Inventory:
What inventory should be stocked at each stage of the supply chain and how
much of each type.
Location:
Where should facilities for production and inventory storage be located to be
most cost effective
Transportation:
How should inventory be moved from one supply chain location to another
Information:
How much data should be collected and how much information should be
shared.

Bibliography

http://www.gartner.com/technology/supply-chain/top25.jsp

http://www.businessweek.com/adsections/2004/pdf/0416_supplychain.pdf

http://www.pwc.com/gx/en/transportation-logistics

http://www.amrresearch.com

http://www.ariba.com

http://www.ifsna.com

http://www.ipsmartpackaging.com

http://www.matrics.com

http://www.peoplesoft.com

http://www.sap.com

http://www.myyellow.com

http://www.zebra.com
Contemporary Logistics 9th Edition - by Paul R. Murphy, JR. & Donald F. Wood