International Islamic University Chittagong

Department of Business Administration

Course Title: Supply Chain Management
Program BBA
Course Synopsis
(Objective of providing this Synopsis is to assist students in condensing out the fundamental object of the topics
detailed in the course plan. This is not a substitute to basic text book referred in the course plan provided by the
Department.)
Chapter 1: Introduction
1.1 Define Supply Chain Management
Supply chain management (SCM) is the management of a network of interconnected
businesses involved in the provision of product and service packages required by the end
customers in a supply chain.
[2]
Supply chain management spans all movement and storage of raw
materials work!in!process inventory and finished goods from point of origin to point of
consumption.
"nother definition is provided by the "#$%S &ictionary when it defines S%' as the (design
planning e)ecution control and monitoring of supply chain activities with the ob*ective of
creating net value building a competitive infrastructure leveraging worldwide logistics
synchroni+ing supply with demand and measuring performance globally.(
S%' draws heavily from the areas of operations management logistics procurement
information technology and strives for an integrated approach.
"ccording to the %ouncil of Supply %hain 'anagement #rofessionals (%S%'#) supply chain
management encompasses the planning and management of all activities involved in sourcing
procurement conversion and logistics management. $t also includes the crucial components of
coordination and collaboration with channel partners which can be suppliers intermediaries
third!party service providers and customers. $n essence supply chain management integrates
supply and demand management within and across companies. 'ore recently the loosely
coupled self!organi+ing network of businesses that cooperate to provide product and service
offerings has been called the xtended nterprise.
" supply chain as opposed to supply chain management is a set of organi+ations directly linked
by one or more of the upstream and downstream flows of products services finances and
information from a source to a customer. 'anaging a supply chain is ,supply chain management,
('ent+er et al. 2--.).
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Supply chain management software includes tools or modules used to e)ecute supply chain
transactions manage supplier relationships and control associated business processes.
.
Graphics-1.1.a: Example of a Supply chain management module
1.2 Importance of SCM:
0rgani+ations increasingly find that they must rely on effective supply chains or networks to
compete in the global market and networked economy.
[.-]
$n #eter &rucker,s (.112) new
management paradigms this concept of business relationships e)tends beyond traditional
enterprise boundaries and seeks to organi+e entire business processes throughout a value chain of
multiple companies.
&uring the past decades globali+ation outsourcing and information technology have enabled
many organi+ations such as &ell and 3ewlett #ackard to successfully operate solid
collaborative supply networks in which each speciali+ed business partner focuses on only a few
key strategic activities (Scott .114). 5his inter!organi+ational supply network can be
acknowledged as a new form of organi+ation. 3owever with the complicated interactions among
the players the network structure fits neither (market( nor (hierarchy( categories (#owell .11-).
2
$t is not clear what kind of performance impacts different supply network structures could have
on firms and little is known about the coordination conditions and trade!offs that may e)ist
among the players. 6rom a systems perspective a comple) network structure can be decomposed
into individual component firms (7hang and &ilts 2--8). 5raditionally companies in a supply
network concentrate on the inputs and outputs of the processes with little concern for the
internal management working of other individual players. 5herefore the choice of an internal
management control structure is known to impact local firm performance ('int+berg .191).
$n the 2.st century changes in the business environment have contributed to the development of
supply chain networks. 6irst as an outcome of globali+ation and the proliferation of
multinational companies *oint ventures strategic alliances and business partnerships significant
success factors were identified complementing the earlier (:ust!$n!5ime( ;ean 'anufacturing
and "gile manufacturing practices.
[..]
Second technological changes particularly the dramatic
fall in information communication costs which are a significant component of transaction costs
have led to changes in coordination among the members of the supply chain network (%oase
.112).
'any researchers have recogni+ed these kinds of supply network structures as a new
organi+ation form using terms such as (<eiretsu( (=)tended =nterprise( (>irtual %orporation(
(?lobal #roduction @etwork( and (@e)t ?eneration 'anufacturing System(.
[.2]
$n general such
a structure can be defined as (a group of semi!independent organi+ations each with their
capabilities which collaborate in ever!changing constellations to serve one or more markets in
order to achieve some business goal specific to that collaboration( ("kkermans 2--.).
1.3 Functions of Supply Chain Management:
Supply chain management is a cross!function approach including in managing the movement of
raw materials into an organi+ation certain aspects of the internal processing of materials into
finished goods and the movement of finished goods out of the organi+ation and toward the end!
consumer. "s organi+ations strive to focus on core competencies and becoming more fle)ible
they reduce their ownership of raw materials sources and distribution channels. 5hese functions
are increasingly being outsourced to other entities that can perform the activities better or more
cost effectively. 5he effect is to increase the number of organi+ations involved in satisfying
customer demand while reducing management control of daily logistics operations. ;ess control
and more supply chain partners led to the creation of supply chain management concepts. 5he
purpose of supply chain management is to improve trust and collaboration among supply chain
partners thus improving inventory visibility and the velocity of inventory movement.
Several models have been proposed for understanding the activities required to manage material
movements across organi+ational and functional boundaries. S%0A is a supply chain
management model promoted by the Supply %hain %ouncil. "nother model is the S%' 'odel
proposed by the ?lobal Supply %hain 6orum (?S%6). Supply chain activities can be grouped
into strategic tactical and operational levels. 5he %S%'# has adopted 5he "merican
#roductivity B Cuality %enter ("#C%) #rocess %lassification 6ramework
S'
a high!level
industry!neutral enterprise process model that allows organi+ations to see their business
processes from a cross!industry viewpoint.
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4
Strategic:
Strategic network optimi+ation including the number location and si+e of warehousing
distribution centers and facilities.
Strategic partnerships with suppliers distributors and customers creating
communication channels for critical information and operational improvements such as
cross docking direct shipping and third!party logistics.
#roduct life cycle management so that new and e)isting products can be optimally
integrated into the supply chain and capacity management activities.
Segmentation of products and customers to guide alignment of corporate ob*ectives with
manufacturing and distribution strategy.
$nformation technology chain operations.
Dhere!to!make and make!buy decisions.
"ligning overall organi+ational strategy with supply strategy.
$t is for long term and needs resource commitment.
Tactical level:
Sourcing contracts and other purchasing decisions.
#roduction decisions including contracting scheduling and planning process definition.
$nventory decisions including quantity location and quality of inventory.
5ransportation strategy including frequency routes and contracting.
Eenchmarking of all operations against competitors and implementation of best practices
throughout the enterprise.
'ilestone payments.
6ocus on customer demand and 3abits.
Operational level:
&aily production and distribution planning including all nodes in the supply chain.
#roduction scheduling for each manufacturing facility in the supply chain (minute by
minute).
&emand planning and forecasting coordinating the demand forecast of all customers and
sharing the forecast with all suppliers.
Sourcing planning including current inventory and forecast demand in collaboration
with all suppliers.
$nbound operations including transportation from suppliers and receiving inventory.
#roduction operations including the consumption of materials and flow of finished
goods.
0utbound operations including all fulfillment activities warehousing and transportation
to customers.
0rder promising accounting for all constraints in the supply chain including all
suppliers manufacturing facilities distribution centers and other customers.
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6rom production level to supply level accounting all transit damage cases B arrange to
settlement at customer level by maintaining company loss through insurance company.
'anaging non!moving short!dated inventory and avoiding more products to go short!
dated.
1.4 ro!lems to !e addressed !y SCM:
Supply chain management must address the following problemsF
Distri!ution "et#or$ ConfigurationF number location and network missions of
suppliers production facilities distribution centers warehouses cross!docks and
customers.
Distri!ution StrategyF questions of operating control (centrali+ed decentrali+ed or
shared)G delivery scheme e.g. direct shipment pool point shipping cross docking direct
store delivery (&S&) closed loop shippingG mode of transportation e.g. motor carrier
including truckload ;ess than truckload (;5;) parcelG railroadG intermodal transport
including trailer on flatcar (506%) and container on flatcar (%06%)G ocean freightG
airfreightG replenishment strategy (e.g. pull push or hybrid)G and transportation control
(e.g. owner!operated private carrier common carrier contract carrier or third!party
logistics (4#;)).
%rade&'ffs in (ogistical )cti*itiesF 5he above activities must be well coordinated in
order to achieve the lowest total logistics cost. 5rade!offs may increase the total cost if
only one of the activities is optimi+ed. 6or e)ample full truckload (65;) rates are more
economical on a cost per pallet basis than ;5; shipments. $f however a full truckload of
a product is ordered to reduce transportation costs there will be an increase in inventory
holding costs which may increase total logistics costs. $t is therefore imperative to take a
systems approach when planning logistical activities. 5hese trade!offs are key to
developing the most efficient and effective ;ogistics and S%' strategy.
InformationF $ntegration of processes through the supply chain to share valuable
information including demand signals forecasts inventory transportation potential
collaboration etc.
In*entory ManagementF Cuantity and location of inventory including raw materials
work!in!process (D$#) and finished goods.
Cash&Flo#F "rranging the payment terms and methodologies for e)changing funds
across entities within the supply chain.
Supply chain e)ecution means managing and coordinating the movement of materials
information and funds across the supply chain. 5he flow is bi!directional. S%' applications
provide real!time analytical systems that manage the flow of product and information throughout
the enterprise supply chain network.
1.+ SCM Components:
H
Successful S%' requires a change from managing individual functions to integrating activities
into key supply chain processes. "n e)ample scenarioF the purchasing department places orders
as requirements become known. 5he marketing department responding to customer demand
communicates with several distributors and retailers as it attempts to determine ways to satisfy
this demand. $nformation shared between supply chain partners can only be fully leveraged
through process integration.
Supply chain business process integration involves collaborative work between buyers and
suppliers *oint product development common systems and shared information. "ccording to
;ambert and %ooper (2---) operating an integrated supply chain requires a continuous
information flow. 3owever in many companies management has reached the conclusion that
optimi+ing the product flows cannot be accomplished without implementing a process approach
to the business. 5he key supply chain processes stated by ;ambert (2--8)
[.8]
areF
%ustomer relationship management
%ustomer service management
&emand management style
0rder fulfillment
'anufacturing flow management
Supplier relationship management
#roduct development and commerciali+ation
Aeturns management
'uch has been written about demand management. Eest!in!%lass companies have similar
characteristics which include the followingF a) $nternal and e)ternal collaboration b) ;ead time
reduction initiatives c) 5ighter feedback from customer and market demand d) %ustomer level
forecasting
0ne could suggest other key critical supply business processes which combine these processes
stated by ;ambert such asF
a. %ustomer service management
b. #rocurement
c. #roduct development and commerciali+ation
d. 'anufacturing flow managementIsupport
e. #hysical distribution
f. 0utsourcingIpartnerships
g. #erformance measurement
h. Darehousing management
a) %ustomer service management process
%ustomer Aelationship 'anagement concerns the relationship between the organi+ation and its
customers. %ustomer service is the source of customer information. $t also provides the customer
with real!time information on scheduling and product availability through interfaces with the
/
company,s production and distribution operations. Successful organi+ations use the following
steps to build customer relationshipsF
determine mutually satisfying goals for organi+ation and customers
establish and maintain customer rapport
produce positive feelings in the organi+ation and the customers
b) #rocurement process
Strategic plans are drawn up with suppliers to support the manufacturing flow management
process and the development of new products. $n firms where operations e)tend globally
sourcing should be managed on a global basis. 5he desired outcome is a win!win relationship
where both parties benefit and a reduction in time required for the design cycle and product
development. "lso the purchasing function develops rapid communication systems such as
electronic data interchange (=&$) and $nternet linkage to convey possible requirements more
rapidly. "ctivities related to obtaining products and materials from outside suppliers involve
resource planning supply sourcing negotiation order placement inbound transportation
storage handling and quality assurance many of which include the responsibility to coordinate
with suppliers on matters of scheduling supply continuity hedging and research into new
sources or programs.
c) #roduct development and commerciali+ation
3ere customers and suppliers must be integrated into the product development process in order
to reduce time to market. "s product life cycles shorten the appropriate products must be
developed and successfully launched with ever shorter time!schedules to remain competitive.
"ccording to ;ambert and %ooper (2---) managers of the product development and
commerciali+ation process mustF
.. coordinate with customer relationship management to identify customer!articulated
needsG
2. select materials and suppliers in con*unction with procurement and
4. develop production technology in manufacturing flow to manufacture and integrate into
the best supply chain flow for the productImarket combination.
d) 'anufacturing flow management process
5he manufacturing process produces and supplies products to the distribution channels based on
past forecasts. 'anufacturing processes must be fle)ible to respond to market changes and must
accommodate mass customi+ation. 0rders are processes operating on a *ust!in!time (:$5) basis in
minimum lot si+es. "lso changes in the manufacturing flow process lead to shorter cycle times
meaning improved responsiveness and efficiency in meeting customer demand. "ctivities related
to planning scheduling and supporting manufacturing operations such as work!in!process
storage handling transportation and time phasing of components inventory at manufacturing
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sites and ma)imum fle)ibility in the coordination of geographic and final assemblies
postponement of physical distribution operations.
e) #hysical distribution
5his concerns movement of a finished productIservice to customers. $n physical distribution the
customer is the final destination of a marketing channel and the availability of the
productIservice is a vital part of each channel participant,s marketing effort. $t is also through the
physical distribution process that the time and space of customer service become an integral part
of marketing thus it links a marketing channel with its customers (e.g. links manufacturers
wholesalers retailers).
f) 0utsourcingIpartnerships
5his is not *ust outsourcing the procurement of materials and components but also outsourcing
of services that traditionally have been provided in!house. 5he logic of this trend is that the
company will increasingly focus on those activities in the value chain where it has a distinctive
advantage and outsource everything else. 5his movement has been particularly evident in
logistics where the provision of transport warehousing and inventory control is increasingly
subcontracted to specialists or logistics partners. "lso managing and controlling this network of
partners and suppliers requires a blend of both central and local involvement. 3ence strategic
decisions need to be taken centrally with the monitoring and control of supplier performance and
day!to!day liaison with logistics partners being best managed at a local level.
g) #erformance measurement
=)perts found a strong relationship from the largest arcs of supplier and customer integration to
market share and profitability. 5aking advantage of supplier capabilities and emphasi+ing a long!
term supply chain perspective in customer relationships can both be correlated with firm
performance. "s logistics competency becomes a more critical factor in creating and maintaining
competitive advantage logistics measurement becomes increasingly important because the
difference between profitable and unprofitable operations becomes more narrow. ".5. <earney
%onsultants (.12H) noted that firms engaging in comprehensive performance measurement
reali+ed improvements in overall productivity. "ccording to e)perts internal measures are
generally collected and analy+ed by the firm including
.. %ost
2. %ustomer Service
4. #roductivity measures
8. "sset measurement and
H. Cuality.
=)ternal performance measurement is e)amined through customer perception measures and
(best practice( benchmarking and includes .) customer perception measurement and 2) best
practice benchmarking.
2
h) Darehousing management
"s a case of reducing company cost B e)penses warehousing management is carrying the
valuable role against operations. $n case of perfect storing B office with all convenient facilities
in company level reducing manpower cost dispatching authority with on time delivery loading
B unloading facilities with proper area area for service station stock management system etc.
1., Define (ogistics Management:
!ogistics is the process of strategically managing the procurement" movement and storage of materials" parts
and finished inventory (and the related information flo#s) through the organi$ation and its marketing channels
in such a #ay that current and future profitability are maximi$ed through the cost%effective fulfilment of orders
;ogistics management is the governance of supply chain functions. ;ogistics management
activities typically include inbound and outbound transportation management fleet management
warehousing materials handling order fulfillment logistics network design inventory
management supplyIdemand planning and management of third party logistics services
providers. 5o varying degrees the logistics function also includes customer service sourcing and
procurement production planning and scheduling packaging and assembly. ;ogistics
management is part of all levels of planning and e)ecution !! strategic operational and tactical. $t
is an integrating function which coordinates all logistics activities as well as integrates logistics
activities with other functions including marketing sales manufacturing finance and
information technology.
../.. !ogistics &ersus Supply 'hain (anagement
De describe below four unique perspectives on the relationship between logistics and S%'.
5hese four perspectives areF traditionalist relabelling unionist inter!sectionist
6our unique perspectives Jdefined
5raditionalistF
S%' is one small part of logistics.
1
(ogistics
SCM
=ducators can easily accomplish this by adding a S%' lecture to the logistics management
course or by inserting a S%' chapter into a logistics te)tbook. S%' analysts would broaden the
scope of logistics analysis
AelabellingF
5he relabelling perspective simply renames logisticsG what was logistics is now S%'.
'ore recently Simchi!;evi et al. (2---) confessed that they KKdo not distinguish between
logistics and supply chain managementLL.
Aelabelling narrows the scope of S%' since S%' equals logistics.
MnionistF
5his perspective treats logistics as a part of S%'G S%' completely subsumes logistics.
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(ogistics
SCM
SCM
(ogistics
SCM
Stock B ;ambert (2--.) suggest KKsupply chain management is the management of eight key
business processesF(.) customer relationship management (2) customer service management (4)
demand management (8) order fulfillment(H)manufacturing flow management (/)procurement
(9) product development and commerciali+ation and (2) returnsLL.
5hese processes subsume or include much of logistics purchasing marketing and operations
management.
$nter!sectionistF
5he intersection concept suggests S%' is not the union of logistics marketing operations
management purchasing and other functional areas.
5he supply chain manager would be involved in the negotiations but not the purchase order
transmission. "t the intersection S%' co!ordinates crossfunctional efforts across multiple firms.
S%' is strategic not tactical. counterparts.
Summari+e in to a conclusions
$mplications for ;ogistics =ducators
AelabellersF
under a new nameF KKS%'LL.
MnionistsF
remove logistics management cover the essentials of logistics
$nter!sectionistsF
champion an interdisciplinary S%' ma*or
5raditionalistsF
add a S%' lecture to the logistics management course.
..
(ogistics
1.- Define .ertical Integration:
$n microeconomics and management the term *ertical integration describes a style of
management control. >ertically integrated companies in a supply chain are united through a
common owner. Msually each member of the supply chain produces a different product or
(market!specific) service and the products combine to satisfy a common need. $t is contrasted
with hori+ontal integration. >ertical integration has also described management styles that bring
large portions of the supply chain not only under a common ownership but also into one
corporation (as in the .12-s when the 6ord Aiver Aouge %omple) began making much of its
own steel rather than buy it from suppliers).
>ertical integration is one method of avoiding the hold!up problem. " monopoly produced
through vertical integration is called a vertical monopoly.
@ineteenth!century steel tycoon "ndrew %arnegie,s e)ample in the use of vertical integration
[.]

led others to use the system to promote financial growth and efficiency in their businesses.
.2
).*.a(+ diagram illustrating vertical integration and contrasting it #ith hori$ontal integration)
1.7.1 Types:
>ertical integration is the degree to which a firm owns its upstream suppliers and its downstream
buyers. %ontrary to hori+ontal integration which is a consolidation of many firms that handle the
same part of the production process vertical integration is typified by one firm engaged in
different parts of production (e.g. growing raw materials manufacturing transporting
marketing andIor retailing).
5here are three varietiesF backward (upstream) vertical integration forward (downstream)
vertical integration and balanced (both upstream and downstream) vertical integration.
" company e)hibits !ac$#ard *ertical integration when it controls subsidiaries that
produce some of the inputs used in the production of its products. 6or e)ample an
automobile company may own a tire company a glass company and a metal company.
%ontrol of these three subsidiaries is intended to create a stable supply of inputs and
ensure a consistent quality in their final product. $t was the main business approach of
6ord and other car companies in the .12-s who sought to minimi+e costs by integrating
the production of cars and car parts as e)emplified in the 6ord Aiver Aouge %omple).
.4
" company tends toward for#ard *ertical integration when it controls distribution
centers and retailers where its products are sold.
Examples:
0ne of the earliest largest and most famous e)amples of vertical integration was the %arnegie
Steel company. 5he company controlled not only the mills where the steel was made but also the
mines where the iron ore was e)tracted the coal mines that supplied the coal the ships that
transported the iron ore and the railroads that transported the coal to the factory the coke ovens
where the coal was cooked etc. 5he company also focused heavily on developing talent
internally from the bottom up rather than importing it from other companies.
[2]
;ater on
%arnegie even established an institute of higher learning to teach the steel processes to the ne)t
generation.
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