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Chapter # 1

Introduction to Supply Chain Management

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Learning Objectives
 What is Supply Chain?

 Why Supply Chain Is Important?

 Supply chain entities, structure & flow

 Bullwhip Effect

 SCOR® model & its use

 Vertical versus horizontal integration

 Stages of supply chain management evolution

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What Is Supply Chain?

“Global network used to deliver products & services from raw materials
to end customers through an engineered flow of information, physical
distribution, and cash.”
APICS – 13th Edition

“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
The Supply Chain Council

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What Is Supply Chain?

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Why Supply Chain Is Important?

Supply Chain Entities

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Supply Chain Entities

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Supply Chain Entities
 Provider of goods or services
 Supplies materials, energy, services, or components for producing a product
or service

 Receives services, materials, supplies, energy and components use to create
finish products

 Receives the shipments of finish products for their own use or for the final
consumer (B2B or B2C)

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Considerations for Supply
Chain Drivers
Driver Efficiency Responsiveness

Inventory Cost of holding Availability

Transportation Consolidation Speed

Facilities Consolidation / Proximity /

Dedicated Flexibility
Information What information is best suited for
each objective
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Supply Chain Structures

There are three main supply chain strategies

• Stable Supply Chain

• Reactive Supply Chain

• Efficient Reactive

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Supply Chain Structures
Stable Supply Chain
 Significant history of stability between supply & demand
 Focuses on execution, efficiencies and cost performance
 Simple connectivity technologies & little need for real-time information.

Example: Stable commodity product (Salt)

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Supply Chain Structures
Reactive Supply Chain
 Acts for fulfill demand from trade partners’ sales & marketing strategies
 Perceived as a cost center by all involved
 Needs minimal connectivity technologies & capital assets to respond demand
 Primary goal is to ensure the throughput at any cost

Example: Sports team apparel & Fashion Industry

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Supply Chain Structures
Efficient Reactive Supply Chain
 Supports competitive positioning by serving as an efficient, low-cost &
integrated unit
 Focuses on efficiency & cost management on the total delivered cost of FG
 Places greater importance on connectivity technologies & new equipment to
automate functions to reduce labor costs & improve capacity and

Example: Supermarket chain, E-Commerce, Real Time Data, VMI

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Supply Chain Flow
Information Flow

Return of Product Return of Product

Supplier Producer Customer

Primary Product Flow Primary Product Flow

Primary Cash Flow

Supplier – Producer – Customer are connected by Product, Information & Payment Flows

1. Flow of physical materials and services from suppliers through

intermediate entities to customers
2. Flow of Cash from customer through intermediate entities to supplier
3. Flow of Information back and forth along the chain
4. Reverse flow of products returned for replacement, repairs, recycling,
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Supply Chain Management
“A River”

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Bullwhip / Whiplash Effect

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Supply Chain Operations
Reference Model (SCOR)®
 This model is developed & endorsed by nonprofit
organization, Supply Chain Council (SCC).

 This model is used as the cross-industry standard

diagnostic tool for supply chain management.

 Provides framework that links business processes,

metrics, best practices, and technology features in a
unified structure.

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Supply Chain Operations
Reference Model (SCOR)®
 Applies to All customer interactions from order entry through paid
 All product transactions (defined as physical materials and services,
including equipment, spare parts, bulk product and software etc
 All market interactions from understanding aggregate demand
through order fulfillment

SCOR® Model does not apply to

 Sales and Marketing
 Research and Technology Development
 Product Development
 Some elements of Post-Delivery customer support (But it does
include returns as fundamental process)
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Supply Chain Operations
Reference Model (SCOR)®

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Vertical versus Horizontal
Vertical Integration
 Bringing supply chain inside one organization
 Ford motors pursued this strategy for their famous model T – Car.
 Solves the problem of who will design, plan, execute, monitor, and
control supply chain activities.
Marketing / Sales

Show Room Ford Customer



Component Production

Raw material Extraction

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Vertical versus Horizontal
Horizontal (Lateral) Integration
 Achieve economies of scale
 Improve business focus & expertise
 Leverage communication and production competencies

Information Flow

Primary product flow Primary cash flows

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Evolution & History of SC
 Fragmentation  Consolidation (1960-1980): Everything was
disintegrated, but gradually consolidated

 Functional Integration (1990 – 2000): Concept of logistics

management were evolving

 Total Integration (2000 – present): Because of technological

advancement, now logistics has evolved as major part of Supply
Chain Management.

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Evolution of Supply Chain
Stage 1 – Multiple Dysfunction

Lacks clear internal definitions and goals – No external links other than
transactional ones

Purchasing Marketing / Sales Customer


Supplier Production Control Customer

Supplier Logistics Distribution Customer

Materials / Service Payments

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Evolution of Supply Chain
Stage 2 – Semi-functional Enterprise

Improving efficiency, effectiveness, quality etc within functional areas – No

overlap / consulting in decision making from one department to another –
Department wise Maximising


Supplier Customer
Production Marketing /
Purchasing Logistics Distribution
Control Sales
Supplier Customer

Materials / Payments

Reverse product flow

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Evolution of Supply Chain
Stage 3 – Integrated Enterprise
Breaks down silo walls and brings functional areas together in processes such as
Sales & Operations Planning (S&OP), CPFR (Collaborative, Planning, Forecasting
& Replenishment)– Company wide processes rather than individual functions – late
1980s to early 1990s. MRP(1950s) – MRPII(1960s) – ERP(1990s).


Supplier Customer
Production Marketing /
Purchasing Logistics Distribution
Control Sales
Supplier Customer

Materials / Service Payments

Reverse product flow

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Evolution of Supply Chain
Stage 4 – Extended Enterprise

Integration of internal network with selected SCM partners’ internal

network to improve efficiency, quality of products / services.

Networked Information Flow

Suppliers’ Internal Customers’

Suppliers Customers
Suppliers Chain Customers

Materials / Service Payments

Reverse product flow

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Value Chain & Value Stream
Value Chain
 The function within a company that add value to the
goods or services that the organization sells to customers
and for which it receives payments.

Value Stream Mapping

 Drawing the current production process/flow and then
attempting to draw the most effective production

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The Value Chain
( Product and Information flow?)


Inbound logistics Materials receiving, storing, and distribution to manufacturing

Operations Transforming inputs into finished products.
Outbound logistics Storing and distributing products
Marketing and Sales Promotions and sales force
Service Service to maintain or enhance product value
Corporate infrastructure Support of entire value chain, e.g. general management
financing, accounting, legal services, government affairs, and QM
Human resources management Recruiting, hiring, training, and development
Technology Development Improving product and manufacturing process
Procurement Purchasing input
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Accounting & Financial
Statement Basics
Cash-to-cash cycle time, “an indicator of how efficiently a
company manages its assets to improve the speed or turnover
of cash flows”

Spend Management, “managing purchases of goods and

services in a supply chain, including outsourcing and
procurement activities.”

Standard Cost, “the target costs of an operation, process, or

product, including direct material, direct labor, and overhead

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Supply Chain Management
“Manufacturing Plant”

Finished Inspection,

Receiving Parts, and

Goods Packaging,
and In-process Production
Ware- Ware- And
Housing housing Shipping

Materials Management
Production Warehousing and Shipping
Control Inventory Control and Traffic

Physical materials flow

Information flow
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Sources: Supply Chain Logistics Management – Cooper et al
APICS – CSCP 13th Edition
Supply Chain Council
By: Yahya Rasheed Surya
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