Chapter 1: Supply chain

management
Book: Fundamentals of supply chain
management by John T. Mentzer

12/08/21 1
What is a Supply Chain?

A supply chain consists of the flow of products and services

from:
– Raw materials manufacturers
– Component and intermediate manufacturers
– Final product manufacturers
– Wholesalers and distributors and
– Retailers
Connected by transportation and storage activities, and
Integrated through information, planning, and integration
activities
What is Supply Chain Management?

• The design and management of seamless, value-

added processes 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
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• The planning and management of all activities

involved in sourcing and procurement,
conversion, and all logistics management
activities … also includes coordination with
channel partners, which can be suppliers,
intermediaries, third party service providers,
and customers.
Council of Supply Chain Management
Professionals
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 Planning
(MRPII) to coordinate inventory management and
improve internal communication
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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
Business Process Reengineering (BPR)
practices
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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
Paradigm change
• Old paradigm - Firm gained synergy as a vertically
integrated firm encompassing the ownership and
coordination of several supply chain activities.
Organizational cultures emphasized short-term,
company focused performance.
• New paradigm - Firm in a supply chain focuses
activities in its area of specialization and enters
into voluntary and trust-based relationships with
supplier and customer firms.
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– All participants in the supply chain benefit.

– Boundaries are dynamic and extend from
“the firm’s suppliers’ suppliers to its
customers’ customers (i.e., second tier
suppliers and customers).”
– Supply chains now deal with reverse
logistics to handle returned products,
warranty repairs, and recycling.
 The Foundations of Supply Chain
Management
Supply Supplier management, supplier evaluation,
Management supplier certification, strategic partnerships
Demand management, MRP, ERP,
inventory visibility, JIT (AKA lean production
Operations
& Toyota Production System), TQM (AKA
Six Sigma)
Transportation management, customer
relationship management, distribution
Distribution
network, perfect order fulfillment, global
supply chains, service response logistics
Process integration, performance
Integration
measurement
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Purchasing Trends:
– Long term relationships
– Supplier management- improve performance through
• Supplier 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
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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
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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
– Network design- creating distribution networks
based on tradeoff decisions between cost &
sophistication of distribution system
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Integration Trends:
– Supply Chain Process Integration- when supply
chain participants work for common goals.
Requires intrafirm functional integration. Based on
efforts to change attitudes & adversarial
relationships
– Supply Chain Performance Measurement-
Crucial for firms to know if procedures are
working
 SCM: A source for competitive
advantage?
• Market environment has been changed in
terms of:
• Technology
• Globalization
• Information availability and communication
• Available finance
• Competition
• Customer satisfaction
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• Time and quality based competition as a result

of mass customization to reduce cost, waste
and make product/service available.
• Government policy
Logistics and supply chain
management
• CSCMP (Council of Supply Chain
Management Professionals) definition:
“Logistics is that part of the Supply Chain
Management that plans, implements, and
controls the efficient, effective forward and
reverse flow and storage of goods, services,
and related information between the point of
origin and the point of consumption in order
to meet customers’ requirements.”
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• It is related with managing all the movement and
storage activities that are associated with product and
service flows.
• It is focused on “Focal organization” i.e managing
inbound and outbound flows of goods, service and
related information.
• Here related information means inventory quantities
and location, order status, shipment status and
location, transportation status and vehicle location.
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• This leads to another definition of supply

chain as “ a set of three or more companies
directly linked by one or more of the upstream
and downstream flows of product, service,
finance and information from a source to
customer. which intern leas to the conclusive
definition that
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• SCM is the “strategic management” of all the

traditional business functions that are involved
in any flows, upstream or downstream , across
any aspect of the supply chain system.
Fundamental conclusion about SCM

1. The global supply chain management environment:

it includes
• Different approaches and structure
• Complexity and risk
• To support the strategies
• Operating flexibility
• Culture
• Financial and legal systems
• IT and contingency planning
Output of SCM?

• Increase the competitive advantage

• Create value
• Collaboration and cooperation
• Identifying Important customer segment to
create value.
• Ultimate customer satisfaction
The role of marketing in SCM

• It’s objective should be to create exchange

with the output of customer satisfaction.
• It has three basic pillars: 1. Customer focus.2.
coordinated marketing and 3. profitability
• It should be market oriented
• It’s focus should be to have information about
market feedback, dissemination and
responsiveness to customers.
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• Also it should focus on coordinate marketing

effort, redefine the responsibilities of each
function, restructure its organizational system
and achieve superior business performance
• At the same time it must provide an
environment that encourages firm to develop,
maintain and enhance closer relationship with
other firm.
The role of sales in SCM

• Its main focus should be to maintain

relationship between the firm and its
customers.
• The sales force should be well positioned and
facilitate the coordination among the supply
chain activities.
• It should implement the cooperative behavior
and sharing information
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• Sales person must be with excellent skills,

knowledge and expertise of supply chain
activities
• Sales person should be representative of
supply chain partner’s needs and requirement.
The role of R & D in SCM

• For innovative and effective new product

development
• For that collaboration with suppliers and
customers
• Also can take advantage of global supply
chain partners
• Speed of the new product development
• Flexible NPD
The role of forecasting in SCM

• It enhances operating performance of the each

member
• Smooth operations of activities
• It can be helpful by –Functional integration,
approach, systems and performance
measurement
• collaborative planning and replenishment can
also be helpful
The role of production/purchasing in
SCM
• Purchasing requirement should be identified
• Cost and quality of the input
• Inventory management
• Collaboration with suppliers
• Product and process design
• Role of Information technology
The role of information systems in
SCM
• More variety and quicker response to the
customer
• ERP
• Effective contact between firm and supplier
• Relationship with the partner
The role of finance in SCM

• Well managed SCM reduces expenses which

increases return
• It also improves profit
• Reduces cycle time
The role of customer service in SCM

• Understanding the service level of critical

customers
• Segmentation of customers
• Capacity building for improving customer
service
• Interaction between firm and customer
• Measure of customer service outcome
• Creating customer satisfaction
Inter functional coordination in SCM

• Division or cross functional coordination

• Sharing common goal
• Cooperative arrangement and managerial
control
• Standardization of processes for efficiency
• Functional expertise and organizational
structure
Performance measurement in SCM

• SCM activities are not properly defined,

measured or improved
• SCM measure is based on single firm focused
• Internal efficiency is more important
Case study