Supply Chain Management

Learning Objectives
 Explain what a supply chain is.
 Explain the need to manage a supply chain and
the potential benefits of doing so.
 State the objective of supply chain management.
 List the elements of supply chain management.
 Major challenges and issues faced by
organizations in developing and implementing
supply chain strategies.
 The contributions of a supply chain approach to
organizational efficiency and effectiveness.

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 The Supply chain
 Supply Chain: The sequence of organizations -
their facilities, functions, and activities - that are
involved in producing and delivering a product or
service.
 A supply chain is a system of organizations,
people, activities, information, and resources
involved in moving a product or service from a
supplier to a customer.
 A supply chain is actually a complex and dynamic
supply and demand network.
Sometimes referred to as value chains
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 Examples of Supply chains
 Industrial Supply Chain
 Agricultural Supply Chain
 Health Care Supply Chain
 Educational Supply Chain
 Transportation Supply Chain
 Military Supply Chain
 Humanitarian Supply Chain
 Disaster Management Supply Chain
 Waste Management Supply Chain, etc.

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 Industrial Supply Chain
 Production of products or services and delivering
them to customers

 It includes collection of raw materials, conversion

of inputs into output, and delivering them to
customers

 It requires demand planning and fulfillment

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 Typical Supply Chains
Production Distribution
Purchasing Receiving Storage Operations Storage

Supplier

Supplier

Supplier
}
Storage Mfg. Storage Dist. Retailer Customer

}
Supplier
Storage Service Customer
Supplier
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 Integrated supply chain
 Integrated supply chain: The supply chain can
be viewed as a series of integrated enterprises
that must share information and coordinate
physical execution to ensure a smooth,
integrated flow of goods, services, information
and cash through the pipeline. The scenario can
be shown as follows:
Retailers/
 Suppliers Wholesalers Manufacturers Wholesalers
Customers

 Product/Services
 Information
 Finances

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 Supply Chain Management
 Supply chain management (SCM) is the
management of a flow of goods and services in
order to satisfy customers’ demand with a better
quality and price.
 It includes the movement and storage of raw
materials, semi-finished goods, finished goods and
inventory of work-in-process, during transportation
and finished goods.
 Thus it includes all the activities starting from the
point of origin to the point of consumption in
supplying a product or a service.

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 Change in organizations
Change

Time

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 Change in organizations
 Leading Retailers from 1930

 Montgomery Ward – lost the market because of

the failure to deliver its products to suburbs after
World War II.

 Sears and Roeback succeed in that respect in

1950 by opening multiple, smaller stores in the
suburbs providing locational convenience and
parking.

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 Change in organizations
 Kmart replaced Sears in 1970 providing discount
on its products.

 In 1990 Wal-Mart replaced kmart by providing

multi-faceted strategy such as
1) Discount pricing on brand name products
2) locating its store in smaller communities
3) Providing more customer service, etc.
Continual focus of Wal-Mart on improving supply
chain process provided the ability to discount brand
name product.
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 Change in organizations
 Change is inevitable, but growth and improvement
are optional.

 An organization either changes and gets better or

gets worse without any change.

 When the rate of change outside an organization is

faster than inside, the end is near.

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 Change in organizations
 The dynamics of the global environment today
requires new thinking and perspectives.

 So, an examination of the major external forces or

change drivers shaping the economic and political
environment is essential.

 Here we have the intention to understand the impact of

these forces of change on business and other
organizations and hence the requirement of supply
chain management.
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 Globalization
 Globalization is the tendency of businesses,
technologies, or philosophies to spread
throughout the world, or the process of making
this happen.

 The global economy is characterized as a totally

interconnected marketplace, unhampered by time
zones or national boundaries (time and distance
are compressed).

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 Globalization
 Thus companies seeking to rationalize their global
networks ask questions as follows:
Where in the world
1)Should we source our materials and/or services?
2)Should we manufacture or produce our products
and/or services?
3)Should we market and sell our products and/or
services?
4)Should we store and/or distribute our products?

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 Globalization
 What global transportation alternatives should we
consider?
 Some important issues or challenges for supply
chains of the global economy are

1)More volatility (instability) of supply and

demand created by acts of terrorism,
contamination of food products, Natural
catastrophes, global competition of sources of
supply and markets, etc.

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 Globalization
 2) Shorter product life cycles
i) Leads to duplication of products and services
quickly, and hence imposes challenges for
inventory management.

ii) Technology companies are particularly

vulnerable to the threat of their new products
being reengineered.

iii)The risk of obsolescence in certain sectors

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 Globalization
 The blurring (vague impression) of traditional
organizational boundaries.

 It is the result of companies necessity to adjust or

transform their business model or the way that
they do business in a competitive global economy.

 Outsourcing to another domestic or global

company that can provide what they need more
efficiently.

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 Technology
 Vast stores of data and information at our
fingertips via internet which can be used to
create unbelievable set of opportunities for
collaboration in supply chain.

 Outsourcing to less-developed countries has

been enhanced by technology.

 Collaboration opportunities with individuals and

companies throughout the globe have been
enhanced.
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 Technology
 Organizational managers have been taking
advantage of opportunities presented by technology
on warehousing operations, order fulfillment,
transportation carrier collaboration, procurement
(action of obtaining something) and in customer
service.

 Thus technology has had more impact on supply

chain as a facilitator of change as companies have
transformed their processes.

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Organizational Consolidation (the action
or process of making something stronger or more solid)
 After world War II, product manufacturer became the
driving force in the supply chain.

 During the 1980 and especially the 1990, retail giants

such as Wal-Mart, Sears, Kmart, Home Depot, Target,
Krogner, McDonald’s etc. became the powerful
market leaders.

 The importance of consolidation and power shift is

that the large retailers are accorded special
consideration from consumer companies.
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 Organizational Consolidation
 The retailers may be provided value-added
services such as vendor-managed inventory.

 More collaboration is being practiced between

organizations in the supply chains to gain mutual
cost savings and improved customer service.

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 The empowered customer
 Understanding customer behavior.

 Educated enlightened (progressive) economically

viable consumers are empowered by updated
information.

 Consumers want and demand quality products

within a time frame and more convenient offerings
according to their schedules.
 Thus the ‘power’ of the consumer has caused
much change in how supply chains function.
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 Government Policy and regulation
 The impacts of government policy and
regulations on individual businesses and their
supply chains.
 Impact on transportation

 Impact on financial sector

 Impact on communication industry

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 Facilities
 Warehouses

 Factories

 Processing centers

 Distribution centers

 Retail outlets

 Offices
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 Functions and Activities
 Forecasting
 Purchasing
 Transportation management
 Warehousing management
 Inventory management
 Information management
 Quality assurance
 Scheduling
 Production and delivery
 Customer service

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 Major Supply chain Issues
 The challenge to develop efficient and effective supply
chain(s) requires organizations to address a number of
issues as follows:
 Supply Chain Networks
 Complexity
 Inventory Deployment
 Information
 Cost/Value
 Organizational Relationships
 Performance Measurement
 Technology
 Transportation Management
 Supply Chain Security
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Benefits of Supply Chain Management
 Lower inventories
 Higher productivity
 Greater agility (alertness, liveliness, quickness)
 Shorter lead times
 Higher profits
 Greater customer loyalty
 Integrates separate organizations into a cohesive
operating system

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 Global Supply Chains
 Increasingly more complex
 Language
 Culture
 Currency fluctuations
 Political
 Transportation costs
 Local capabilities
 Finance and economics
 Environmental

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 Elements of Supply Chain Management
Element Typical Issues
Customers Determining what customers want
Forecasting Predicting quantity and timing of demand
Design Incorporating customer wants, mfg., and time
Processing Controlling quality, scheduling work
Inventory Meeting demand while managing inventory costs
Purchasing Evaluating suppliers and supporting operations
Suppliers Monitoring supplier quality, delivery, and relations
Location Determining location of facilities
Logistics Deciding how to best move and store materials

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 Logistics
 Logistics
 Refers to the movement of materials and
information within a facility and to incoming
and outgoing shipments of goods and
materials in a supply chain

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 Logistics
• Movement within the facility
• Incoming and outgoing shipments
• Bar coding
• EDI (Electronic Data Interchange )

• Distribution
• JIT Deliveries

214800 232087768

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 Materials Movement
Work center
Work center Work
center

Work Storage
center

Storage

Storage
RECEIVING

Shipping

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 E-Business
 E-Business: the use of electronic technology
to facilitate business transactions
 Applications include
 Internet buying and selling
 E-mail
 Order and shipment tracking
 EDI (Electronic Data Interchange)

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 Advantages of E-Business
 Companies can:
 Have a global presence
 Improve competitiveness and quality
 Analyze customer interests
 Collect detailed information
 Shorten supply chain response times
 Realize substantial cost savings
 Create virtual companies
 Level the playing field for small companies

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 Effective Supply Chain
 Requires linking the market, distribution channels
processes, and suppliers
 Supply chain should enable members to:
 Share forecasts
 Determine the status of orders in real time
 Access inventory data of partners

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 Successful Supply Chain
 Trust among trading partners
 Effective communications
 Supply chain visibility
 Event-management capability
 The ability to detect and respond to
unplanned events
 Performance metrics

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Supply Chain Operations Reference 
(SCOR) Metrics
Perspective Metrics
Reliability On-time delivery
Order fulfillment lead time
Fill rate (fraction of demand met from stock)
Perfect order fulfillment
Flexibility Supply chain response time
Upside (Positive aspects of) production flexibility

Expenses Supply chain management costs

Warranty cost as a percent of revenue
Value added per employee
Assets/utilization Total inventory days of supply
Cash-to-cash cycle time
Net asset turns

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 CPFR
 Collaborative Planning, Forecasting, and
Replenishment
 Focuses on information sharing among trading
partners
 Forecasts can be frozen and then converted
into a shipping plan
 Eliminates typical order processing

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Creating an Effective Supply Chain
1. Develop strategic objectives and tactics
2. Integrate and coordinate activities in the
internal supply chain
3. Coordinate activities with suppliers and with
customers
4. Coordinate planning and execution across the
supply chain
5. Form strategic partnerships

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Supply Chain Performance Drivers
1.Quality
2.Cost
3.Flexibility
4.Velocity
5.Customer service

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 Bullwhip Effect

Demand

Initial Final Customer

Supplier

Inventory oscillations become progressively

larger looking backward through the supply chain

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