Chapter 10

Extending the Organization –

Supply Chain Management

McGraw-Hill/Irwin © 2008 The McGraw-Hill Companies, All Rights Reserved

 Learning Outcomes
10.1 List and describe the components of a typical
supply chain

10.2 Define the relationship between decision

making and supply chain management

10.3 Describe the four changes resulting from advances in IT

that are driving supply chains

10.4 Summarize the best practices for implementing a

successful supply chain management system

10-2
Supply Chain Management
• The average company spends nearly half
of every dollar that it earns on production

• In the past, companies focused primarily

on manufacturing and quality
improvements to influence their supply
chains

10-3
 Basics of Supply Chain
• The supply chain has three main links:
1. Materials flow from suppliers and their
“upstream” suppliers at all levels
2. Transformation of materials into
semifinished and finished products through
the organization’s own production process
3. Distribution of products to customers and
their “downstream” customers at all levels

10-4
 Basics of Supply Chain
• Organizations must embrace technologies
that can effectively manage supply chains

10-5
Basics of Supply Chain

10-6
 Information Technology’s
Role in the Supply Chain
• IT’s primary role is to create integrations or tight process and
information linkages between functions within a firm

10-7
Information Technology’s
Role in the Supply Chain
Factors Driving SCM

10-8
 Visibility

• Supply chain visibility – the ability to

view all areas up and down the supply
chain

• Bullwhip effect – occurs when distorted

product demand information passes from
one entity to the next throughout the
supply chain

10-9
 Consumer Behavior
• Companies can respond faster and more
effectively to consumer demands through
supply chain enhances

• Demand planning software – generates

demand forecasts using statistical tools
and forecasting techniques

10-10
 Competition
• Supply chain planning (SCP) software–
uses advanced mathematical algorithms to
improve the flow and efficiency of the supply
chain

• Supply chain execution (SCE) software –

automates the different steps and stages of
the supply chain

10-11
 Competition
• SCP and SCE in the supply chain

10-12
 Speed

• Three factors fostering speed

10-13
Supply Chain Management
Success Factors

10-14
10-14
 Supply Chain Management
Success Factors
• SCM industry best practices include:
1. Make the sale to suppliers
2. Wean employees off traditional business
practices
3. Ensure the SCM system supports the
organizational goals
4. Deploy in incremental phases and measure
and communicate success
5. Be future oriented
10-15
 SCM Success Stories
• Top reasons why more and more executives are turning to
SCM to manage their extended enterprises

10-16
 SCM Success Stories
• Numerous decision support systems (DSSs) are
being built to assist decision makers in the design
and operation of integrated supply chains

• DSSs allow managers to examine performance

and relationships over the supply chain and
among:
– Suppliers
– Manufacturers
– Distributors
– Other factors that optimize supply chain performance 10-17
SCM Success Stories

10-18
 OPENING CASE STUDY QUESTIONS
Second Life
1. Would you need supply chain management systems in
a virtual world such as Second Life? Why or why not?

2. How could a real company augment its supply chain

management system through Second Life?

3. If you were an apparel company, such as Nike or REI,

what would your virtual SCM system look like? Create
a drawing of this system and be sure to include all
upstream and downstream participants?

10-19
 CHAPTER TEN CASE
BudNet
• Anheuser-Busch’s top-secret nationwide data
network, BudNet, knows every time a six-pack
moves off of a store shelf

• Information is entered into BudNet nightly from

several thousand Anheuser-Busch distributors
and sales representatives

• Anheuser-Busch has made a deadly accurate

science out of determining what beer lovers are
buying, as well as when, where, and why
10-20
Chapter Ten Case Questions
1. Describe how an SCM system can help a
distributor such as Anheuser-Busch make its
supply chain more effective and efficient

2. SCM is experiencing explosive growth.

Explain why this statement is true using
BudNet as an example

3. Evaluate BudNet’s effect on each of the five

factors that are driving SCM success

10-21