CHAPTER 1

INTRODUCTION TO SUPPLY
CHAIN MANAGEMENT
INTRODUCTION
Supply chain management (SCM) is the oversight of
materials, information, and finances as they move in a
process from supplier to manufacturer to wholesaler to
retailer to consumer.
Supply chain management involves coordinating and
integrating these flows both within and among
companies.

“The planning and management of all activities involved

in sourcing and procurement, conversion and all
logistics management activities. It also includes
coordination and collaboration with channel partners,
which can be suppliers, intermediaries, third-party
service providers and customers. (The Council of
Supply Management Professionals (CSCMP) )
INTRODUCTION
Supply chain management means the
management of upstream and downstream
relationships with supplier and customers to
deliver superior customer value at less cost to
the supply chain as a whole.
The supply chain arrangement links a firm and
its distributive and supplier network to end
customers.
The importance of SC
The importance of SC
SCM plays vital role in organization activities and an
essential element to operational efficiency which can be
applied to customer satisfaction and company’s success.
Other benefits and importance of SCM are;
Reduces inventory costs
Provides better medium for information sharing between
partners
Improve customer satisfaction as well as service
Maintains better trust between partners
Provides efficient manufacturing strategy
Increase cash flow
Improves quality and gives higher profit margin
Origins of Supply Chain
Management
1950s & 1960s
U.S. manufacturers focused on mass
production techniques as their principal cost
reduction and productivity improvement
strategies
1960s-1970s
Introduction of new computer technology lead
to development of Materials Requirements
Planning (MRP) and Manufacturing Resource
Origins of Supply Chain
Planning (MRPII) to coordinate inventory
management and improve internal
communication
Management
1980s & 1990s
Intense global competition led U.S.
manufacturers to adopt
Supply Chain Management along with
Just-In-Time (JIT),
Total Quality Management (TQM), and
Origins of Supply Chain
Business Process Reengineering (BPR) practices
Management
2000s and Beyond
Industrial buyers will rely more on third-party
service providers (3PLs) to improve
purchasing and supply management

Wholesalers/retailers will focus on transportation

and logistics more & refer to these as quick
response, service response logistics, and
integrated logistics
Important Elements of Supply
Chain Management
A simple supply chain is made up of several elements
that are linked by the movement of products along it.
The supply chain starts and ends with the customer.

Customer: The customer starts the chain of events

when they decide to purchase a product that has
been offered for sale by a company. The customer
contacts the sales department of the company,
which enters the sales order for a specific quantity
to be delivered on a specific date. If the product has
to be manufactured, the sales order will include a
Important Elements of Supply
requirement that needs to be fulfilled by the
production facility.
Chain Management
Planning: The requirement triggered by the
customer’s sales order will be combined with other
orders. The planning department will create a
production plan to produce the products to fulfill the
customer’s orders. To manufacture the products
the company will then have to purchase the raw
materials needed.
Purchasing: The purchasing department receives
a list of raw materials and services required by the
production department to complete the customer’s
Important Elements of Supply
orders. The purchasing department sends
purchase orders to selected suppliers to deliver the
necessary raw materials to the manufacturing site
on the required date.
Chain Management
Inventory: The raw materials are received from the
suppliers, checked for quality and accuracy and
moved into the warehouse. The supplier will then
send an invoice to the company for the items they
delivered. The raw materials are stored until they
are required by the production department.
Production: Based on a production plan, the raw
materials are moved inventory to the production
Important Elements of Supply
area. The finished products ordered by the
customer are manufactured using the raw
materials purchased from suppliers. After the items
have been completed and tested, they are stored
back in the warehouse prior to delivery to the
customer.
Chain Management
Transportation: When the finished product
arrives in the warehouse, the shipping
department determines the most efficient
method to ship the products so that they are
delivered on or before the date specified by the
Important Elements of Supply
customer. When the goods are received by the
customer, the company will send an invoice for
the delivered products.
Chain Management
Purchasing- Supplier alliances, supplier
management, strategic sourcing
Operations- Demand management, MRP, ERP,
JIT, TQM
Distribution- Transportation management,
customer relationship
Important Elements of Supply
management, network design,
service response logistics
Integration- Coordination/Integration activities,
global integration problems,
performance measurement
Future trends in Supply Chain
Management
Purchasing- Trends:
Long term relationships
Supplier management- improve performance
throughSupplier evaluation (determining
supplier capabilities)
Supplier certification (third party or internal
certification to assure product quality and service
requirements)
Strategic partnerships- successful and trusting relationships
with top-performing suppliers
Future trends in Supply Chain
Management
Operations- Trends:
Demand management- match demand to
available capacity
Linking buyers & suppliers via MRP and ERP
systems
Use JIT to improve the “pull” of materials to
reduce inventory levels
Employ TQM to improve quality compliance
among suppliers
Future trends in Supply Chain
Management
Distribution- Trends:
Transportation management- tradeoff decisions
between cost & timing of delivery/customer
service via trucks, rail, water & air
Customer relationship management- strategies
to ensure deliveries, resolve complaints, improve
communications, & determine service
requirements
Future trends in Supply Chain
Network design- creating distribution networks
based on tradeoff decisions between cost &
sophistication of distribution system
Future trends in Supply Chain
Management
Integration Trends:
Supply Chain Integration- when supply chain
participants work for common goals. Requires
intrafirm functional integration. Based on efforts
to change attitudes & adversarial relationships
Global Supply Chains- advantages that accrue
from sourcing from larger global market e.g.,
lower cost & higher quality suppliers. May involve
operating exposure, which is risk found in
foreign settings
Future Trends in Supply Chain
Supply Chain Performance Measurement-
Crucial for firms to know if procedures are
working
Management
Expanding the Supply Chain
U.S. firms are expanding partnerships and
building facilities in foreign markets

The expansion involves:

Future Trends in Supply Chain
breadth- foreign manufacturing, office & retail sites,
foreign suppliers & customers
depth- second and third tier suppliers & customers

Management
Increasing Supply Chain Responsiveness

Firms will increasingly need to be more flexible

and responsive to customer needs
Future Trends in Supply Chain
Supply chains will need to benchmark industry
performance and meet and improve on a
continuous basis
Responsiveness improvement will come from
more effective and faster product & service
delivery systems
Management
The Greening of Supply Chains
Future Trends in Supply Chain
Supply chains will work harder to reduce
environmental degradation
Large majority (75%) of U.S. consumers
influenced by a firm’s environmental friendliness
reputation
Recycling and conservation are a growing
alternative in response to high cost of natural
resources
Management
Reducing Supply Chain Costs
Future Trends in Supply Chain
Cost reduction achieved through:
Reduced purchasing costs
Reducing waste
Reducing excess inventory
And reducing non-value added activities
Continuous Improvement through
Benchmarking- improve over competitors’
performance
Trial & error