An Introduction to Supply Chain

Management
Dr K K Morya
Monday, April 16, 2001, Cisco shocked business
experts and investors, when it warned that it is
going to scrap around $2.5 billion of surplus raw
materials.

It was one of the largest inventory write-offs in U.S.

Business History.
In May Company reported a net loss of $2.69
billion for the quarter.

The same day its share price tumbled by

approximately 6% on the day it made that
announcement.

How could this paragon of supply chain

management misread demand by $2.5 billion,
almost half as much as its sales in the quarter?
By the end of 1990s, Kmart Corporation’s supply
chain was crippling its ability to match the prices
offered by Wal-Mart and Target.

When the company did manage to lure back

customers with its Blue Light specials, the
products were not in the stores; the supply chain
couldn’t deliver them in time for the sale, even
with plenty of advance warning.
Nike, the virtual enterprise that became the
world’s largest shoe company, has also managed
to get itself into trouble with its supply chain.

In February of 2001, the company announced that

it had lost $100 million in sales the previous
quarter because of snafus in its supply chain.
What is a Supply Chain?
Definition 1
A supply chain is a network of facilities and distribution
options that performs the functions of procurement of
materials, transformation of these materials into
intermediate and finished products, and the distribution of
these finished products to customers.
 Cont…

Definition 2
A network of autonomous or semi-autonomous business
entities collectively responsible for procurement,
manufacturing, and distribution activities associated with
one or more families of related products.
 Cont…

Definition 3
A supply chain is a network of facilities that procure raw
materials, transform them into intermediate goods and then
final products, and deliver the products to customers through a
distribution system.
 Cont…
Supply chains exist in both service and manufacturing
organizations, although the complexity of the chain may
vary greatly from industry to industry and firm to firm.
 Cont..

SCM is new battle ground for the organizations

Now, competition is not between one company to its

individual competitors, but it is the competition between
supply chain system of one company versus supply chain
system of another competitive company or companies.
 Cont…

Building an optimal supply chain system is a

Herculean task. Why?
Because you are not managing single organization, but a
number of business entities which have different
organizational culture, different systems, and different
human resources.
Figure 2
Figure 3
 Cont…

Above is an example of a very simple supply chain for a

single product, where raw material is procured from
vendors, transformed into finished goods in a single step,
and then transported to distribution centers, and ultimately,
customers.
 Issues in SCM

The Right In the Right At the Right At the

Products quantities time Minimal cost

Delivery Delivery time/ Inventory

Flexibility
Reliability Lead time Level

Two middle boxes in lower row, delivery reliability and delivery time, are
Both aspects of customers service, which is highly dependent on first and
last box

Figure 4: Hierarchy of Objectives

 Issues Cont…
The primary objective of the supply chain system is to make
available the right product in the right quantities(at the
right place) at the right time at minimal cost. Figure 4
translates this overall objective into four main areas of
concern within supply chain management
 Long term Decisions
Strategic
level
Medium term
Tactical level Decisions

Operational level Day to Day Decisions

Fig. 5: Hierarchy of Supply Chain Decisions