INTRODUCTION TO SUPPLY CHAIN

MANAGEMENT
Flows in a Supply Chain

Information

Product
Customer
Funds
 What is Knowledge?
A collection of data is not information.
A collection of information is not knowledge.
A collection of knowledge is not wisdom.
A collection of wisdom is not truth.
 Chapter Outline
* Introduction
* What is Supply Chain Management?
* Why is Supply Chain Management important?
*Important Elements of Supply Chain Management:
- Purchasing
- Operations
- Distribution
- Integration
* Strategies for Supply Chain Management
* Future Trends in Supply Chain Management
 What is a Supply Chain?
A supply chain consists of the flow of products and
services from/to:
--Raw materials manufacturers
--Intermediate products manufacturers
--End product manufacturers
--Wholesalers and distributors
--Retailers and,
--End customers

Connected by agents, transportation and storage

activities, and
Integrated through sharing of information, planning, and
processing activities\
 Customers,
demand
Sources: Field centers
plants Regional Warehouses: sinks
vendors Warehouses: stocking
ports stocking points
points

Supply

Inventory &
warehousing
costs
Production/ Transportation
purchase Transportation
costs costs Inventory & costs
warehousing
costs
Figure 1.1 A Generic Supply Chain

Product & service flow

End
customers

End product manufacturer

Intermediate Wholesalers, Retailers

Raw material
component mfgs. distributors
suppliers

Information and planning

 Typical Supply Chains

Production Distribution
Purchasing Receiving Storage Operations Storage
 Typical Supply Chain for a Manufacturer

Supplier

Supplier }
Storage Mfg. Storage Dist. Retailer Customer

Supplier
Typical Supply Chain for a Service

Supplier

Supplier
} Storage Service Customer
 What is Supply Chain Management?

Here are two definitions:

The design and management of seamless, value-added

process across organizational boundaries to meet the real
needs of the end customer
-- Institute for Supply Management

Managing supply and demand, sourcing raw materials and

parts, manufacturing and assembly, warehousing and
inventory tracking, order entry and order management,
distribution across all channels, and delivery to the customer
-- The Supply Chain Council
 What Is the Goal of Supply Chain
Management?.
 Supply chain management is concerned with
the efficient integration of suppliers, factories,
warehouses and stores so that merchandise is
produced and distributed:
– In the right quantities
– To the right locations
– At the right time
 In order to
– Minimize total system cost
– Satisfy customer service requirements
 Importance of Supply Chain
Management
* Firms have discovered value-enhancing and long
term benefits

* Who benefits most? Firms with:

- Large inventories
- Large number of suppliers
- Complex products
- Customers with large purchasing budgets

* Benefits
- Lower purchasing/inventory costs, higher
quality/customer service
 Importance of Supply Chain Mgt. –
Cont.
Firms practicing Supply Chain
Management:

1. Start with key suppliers

2. Move on to other suppliers, customers,
and shippers
3. Integrate second tier suppliers and
customers (second tier refers to the
customer’s customers and the
supplier’s suppliers)
 Important Elements of SCM

Purchasing- Supplier alliances, supplier

management, strategic sourcing

Operations- Demand management, MRP, ERP, JIT,

TQM

Distribution- Transportation management, customer

relationship management, network
design, service response logistics

Integration- Coordination/Integration activities,

global integration problems,
performance measurement
 Important Elements of SCM-Cont.

Purchasing:
•Long term relationships
•Supplier management- improved performance
through-
-- Supplier evaluation (determining supplier
capabilities and performance)
-- Supplier certification (third party or
internal certification to assure product quality
and service compliance)
•Strategic partnerships- successful and
trusting, long-term relationships with top-performing
suppliers
 Important Elements of Supply Chain
Management-Cont.
Operations:
-- Demand management- match demand to available
capacity
-- Linking buyers & suppliers via MRP(materials
Resource planning) and ERP(Enterprise Resource
Planning) systems
-- Use JIT to improve the “pull” of materials to reduce
inventory levels
-- Employ TQM to improve quality compliance among
buyers and suppliers
 Important Elements of Supply Chain
Management-Cont.

Distribution:
-- 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
-- Network design- creating distribution
networks based on tradeoff decisions between
cost & sophistication of distribution system
 Important Elements of Supply Chain
Management-Cont.
Integration:

-- 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
-- Supply Chain Performance Measurement- Crucial for
firms to know if procedures are working
 Strategies for SCM

All of the advanced strategies, techniques,

and approaches for Supply Chain
Management focus on:
Global Optimization
Managing Uncertainty
 Optimization

* What is it?
* Why is it important?
* What tools and approaches help?
Supply Chain Optimization Meaning

aims to ensure the optimal operation of a

manufacturing and distribution supply chain.
This includes the optimal placement of
inventory within the supply chain, minimizing
operating costs including manufacturing
costs, transportation costs, and distribution
costs.
 Tools and Strategies for
Optimization

• Decision Support Systems

• Inventory Control
• Network Design
• Design for Logistics
 Uncertainty

• What is variation?
• What is randomness?
• What tools and approaches help us to
deal with these issues?
 Why Is Uncertainty Hard to Deal With?

* Matching supply and demand is difficult.

* Forecasting doesn’t solve the problem.
* Inventory and back-order levels typically fluctuate widely
across the supply chain.
* Demand is not the only source of uncertainty:
– Lead times
– Yields
– Transportation times
– Natural Disasters
– Component Availability
 Supply Chain Variability
Manufacturer
Manufacturer Forecast
Forecast
of
of Sales
Sales
Volumes

Actual
Actual
Consumer
Consumer
Retailer
RetailerWarehouse
Warehouse Demand
Demand
Retailer
Retailer Orders
Orders to
toShop
Shop

Production
ProductionPlan
Plan

Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
 What Management Gets...
Volumes

Consumer
Consumer
Demand
Demand

Production
ProductionPlan
Plan

Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
 What Management Wants…
Volumes

Production
ProductionPlan
Plan
Consumer
Consumer
Demand
Demand

Time
Source: Tom Mc Guffry, Electronic Commerce and Value Chain Management, 1998
 Dealing with Uncertainty

• Pull Systems
• Risk Pooling
• Centralization
• Postponement
• Strategic Alliances
• Collaborative Forecasting
 Supply Chain: The Magnitude

 Compaq computer estimates it lost $500 million to $1 billion

in sales in 1995 because its laptops and desktops
were not available when and where customers were
ready to buy them.

 Boeing aircraft, one of America's leading capital goods

producers, was forced to announce write downs of
$2.6 billion in October 1997, due to “Raw material
shortages, internal and supplier parts shortages…”.
 Supply Chain: The Potential
Procter & Gamble estimates that it saved retail
customers $65 million through logistics gains over the
past 18 months.

“According to P&G, the essence of its approach lies in

manufacturers and suppliers working closely together …. jointly
creating business plans to eliminate the source of wasteful
practices across the entire supply chain”.
(Journal of business strategy, Oct./Nov. 1997)
 What’s New?

• Global competition
• Shorter product life cycle
• New, low-cost distribution channels
• More powerful well-informed
customers
• Internet and E-Business strategies