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Supply Chain Management:

From Vision to Implementation
Chapter 1: Supply Chain Management and Competitive Strategy

Chapter 1: Learning Objectives

1. Define supply chain management and identify how supply chain collaboration can improve performance. 2. Discuss the extent to which supply chain strategies are being implemented.

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Chapter 1: Learning Objectives

3. Define strategic management and discuss how supply chain management supports the development and execution of a winning competitive strategy. 4. Identify the four process steps involved in designing and implementing a supply chain strategy.
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Objective 1: Define supply chain management and identify how supply chain collaboration can improve performance.

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Theory of Supply Chain Management

Companies seek to design business models that meet customer needs better than competitors. Success depends on the ability to Design, Make, and Deliver innovative, high quality, low cost products and services that customers demand.
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Theory of Supply Chain Management

Supply chain management allows companies to focus on their unique skill sets. Other activities are outsourced to suppliers or customers that possess the needed skills.

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Theory of Supply Chain Management

Supply chain management requires a common understanding of supply chain objectives and individual roles, an ability to work together, and a willingness to adapt in order to create and deliver the best products and services possible.

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Supply Chain: Service Example

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Supply Chain: Manufacturing Example

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Your Perspective on Supply Chain Management?

SCM is managing the flow of information and materials from the suppliers supplier to the customers customer

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A supply chain manager..

tries to find opportunities to work with customers and suppliers to reduce costs while improving service. tries to use technology and teamwork to build efficient and effective processes that create value for the end customer.

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Supply Chain Management Defined

Supply chain management is 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

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The Internal Value Chain

But before processes can be managed effectively up and down the supply chain, they MUST BE MANAGED WELL inside the focal firm. Value Chain Michael Porter A variety of functions have responsibility for making decisions that will determine how much value is created.
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Internal Value Chain Elements

Executive Management defines company strategy and allocates resources to achieve it. Supply Management coordinates the upstream supply base, finding the right suppliers and building the right relationships with them. Operations transforms the inputs acquired from suppliers into more highly valued products. Logistics moves and stores materials so they are available when and where they are needed. Marketing manages the downstream relationships with customers, identifying their needs and communicating to them how the company can meet those needs.
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Internal Value Chain Elements

Human Resources designs the systems used to hire, train, and develop the companys employees. Accounting maintains business records that provide information needed to control operations. Finance acquires and controls the capital required to operate the business. Information Technology builds and maintains the systems needed to capture and communicate information among decision makers. Research and Development (R&D) is responsible for new product design.

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Internal Value Chain: Local Focus

Executive Management R&D Information Technology

Operations

Supply Management

Logistics

Finance

Marketing

Accounting

Human Resource Management

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Internal Value Chain: Company Focus

Executive Management R&D

Information Technology

Operations

Upstream Suppliers

Supply Management

Logistics

Downstream Customers

Finance

Marketing

Accounting

Human Resource Management

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SCM: Linked Value Chains

Executive Management R&D Information Technology
Executive Management R&D Executive Management R&D

Operations
Executive Management R&D Executive Management R&D

Information Technology

Information Operations Technology

Operations

Information Technology

Information Operations Technology

Operations

Supply Management

Supply Management

Supply Logistics Management

Logistics

Supply Management

Logistics Management

Supply

Logistics

Logistics

Finance

Finance

Marketing

Marketing

Finance

Finance Marketing

Marketing

Accounting

Human Resource Management

Accounting

Human Resource Management

Accounting

Human Resource Management

Accounting

Human Resource Management

Finance

Marketing

Suppliers Supplier

Supplier

Accounting

Focal Human Customer Resource Firm Management

Customers Customer
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What happens when supply chain members fail to communicate and cooperate?!?!?!
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The Bullwhip Effect

Variation in demand is exaggerated as information moves upstream away from the point of use. Variation in demand is exaggerated due to infrequent demand and/or inventory level information exchange and order batching.
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The Bullwhip Effect

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The Bullwhip Effect

Bullwhip effect costs can be as high as 12 to 25% Bullwhip can be effectively mitigated by:
Sharing point of sale data Collaborative forecasting Collaborative future product promotion planning

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Objective 2: Discuss the extent to which supply chain strategies are being implemented.

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Supply Chain Management in Practice

Companies have always been members of a chain HOWEVER most companies still view themselves as separate entities. They do not effectively work together to reduce inventory levels and costs up and down the supply chain. Nor do they coordinate decisions to improve customer service. And why should they???
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Supply Chain Integration

Internal Process Integration: increase collaboration among the companys functional groups. Backward Process Integration: collaboration with 1st-tier and 2nd-tier (leading companies) suppliers. Forward Process Integration: collaboration with 1sttier customers. Complete Integration: collaboration from the suppliers supplier to the customers customer.

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Supply Chain Integration

Common

Theoretical Ideal
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Objective 3: Define strategic management and discuss how supply chain management supports the development and execution of a winning competitive strategy.
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Strategy
The Greek verb stratego means to plan the destruction of ones enemies through the effective use of resources (Bracker, 1980)
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Strategy
Winning strategies should help the company do more than just beat the competition; they should help the company meet the real needs of customers.

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Strategy
Sun Tzu observed that the smartest strategy in war is the one that achieves key objectives without having to go to battle.
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Strategy
The visible clashing between companies in the marketplace is a small fragment of the strategic whole. Like an iceberg, most of strategy is submerged, hiddenbeneath the surface where value gets created, where competition gets avoided.
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Integrating SCM and Strategy

What makes Dell successful? Its the business model, and supply chain is an enabler. Thats why youre seeing this growing importance of supply chains. People realize this is the weapon of the future.

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Contingency Theory
Contingency theory recognizes the need for managers to consider the relationship between a changing environment, managerial decisionmaking, and performance. Situational awareness is key to effectively aligning company resources in a changing competitive environment.
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Resource-Based Theory
Resource-based theory emphasizes management of internal sources to establish a unique skill set. Unique skills/processes (core competence) lead to competitive advantage, the ability to deliver distinctive products/services in a way that adds value in the eyes of the customer.
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Supply Chain Strategy

Seeks to leverage the resources and skills of diverse companies in the supply chain to deliver exceptional value to the end customer. Addresses:
How the capabilities of other chain members can be used to create value for the end customer How their own strategy and actions impact the ability of the supply chain to create value for the end customer
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Objective 4: Identify the four process steps involved in designing and implementing a supply chain strategy.

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Four Decision Areas for Strategy

1. Environment
Internal company culture, functional relationships, reward and measurement system External competitive, economic, legal, and political environments

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Four Decision Areas for Strategy

2. Resources all assets a firm can bring to bear, including: people, technology, infrastructure, materials, and money.
Success requires investment in knowledge and processes
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Four Decision Areas for Strategy

3. Objectives unifies decision-making throughout a company. Focusing on the right objectives is the key to a winning business strategy.

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Four Decision Areas for Strategy

4. Feedback input to the control mechanism, insuring the company strategy adapts to a changing competitive environment. - Wal-Mart uses Retail Link to share historic and forecast demand information with its supply partners. Suppliers can monitor sales at every store on a real-time basis. They can also see who well they are performing in terms of delivery and inventory.
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