MRI 2305

INTRODUCTION TO
SUPPLY CHAIN
MANAGEMENT
Principles of Supply Chain Management:
A Balanced Approach

CHAPTER OUTLINE

Introduction
What is Supply Chain management?
Why is Supply Chain Management important?
The origins of Supply Chain Management
Important Elements of Supply Chain Management:

Purchasing
Operations
Distribution
Integration

Future Trends in Supply Chain Management

Expanding the Supply Chain

Increasing Supply Chain responsiveness
The Greening of Supply Chains
Reducing Supply Chain costs

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WHAT IS A SUPPLY
CHAIN?
A supply chain consists of the flow of products and
services from:

Raw materials manufacturers

Intermediate products manufacturers
End product manufacturers
Wholesalers and distributors and
Retailers

Connected by transportation and storage activities, and

Integrated through information, planning, and
integration activities
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SCM is all about

managing flows of
resources but it differs
from logistics
management.

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WHAT IS A SUPPLY
CHAIN?

10-5

SUPPLY CHAIN
ILLUSTRATION

Copyright 2006 John Wiley &

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SUPPL
Y
CHAIN
FOR
DENIM
JEANS

SUPPLY
CHAIN
FOR
DENIM
JEANS
(CONT.)
10-7

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SUPPLY CHAIN
PROCESSES

10-8

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SUPPLY CHAIN FOR

SERVICE PROVIDERS
More difficult than manufacturing
Does not focus on the flow of physical goods
Focuses on human resources and support
services
More compact and less extended

10-9

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Sons, Inc.

VALUE VS. SUPPLY

CHAIN
Value chain
every step from raw materials to the eventual
end user
ultimate goal is delivery of maximum value to
the end user

Supply chain
activities that get raw materials and
subassemblies into manufacturing operation

Terms are used interchangeably

10-10

Copyright 2006 John Wiley &

Sons, Inc.

SUPPLY CHAIN
MANAGEMENT (SCM)
Managing flow of information through
supply chain in order to attain the level of
synchronization that will make it more
responsive to customer needs while
lowering costs
Keys to effective SCM

10-11

information
communication
cooperation
trust
Copyright 2006 John Wiley &
Sons, Inc.

12

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
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13

WHAT IS SUPPLY CHAIN

MANAGEMENT?
Old paradigm- Firm gained synergy as a vertically
integrated firm encompassing the ownership and
coordination of several supply chain activities.

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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SUPPLY CHAIN UNCERTAINTY

One goal in SCM:
respond to uncertainty
in customer demand
without creating costly
excess inventory

Negative effects of
uncertainty
lateness
incomplete orders

Inventory
insurance against
supply chain
uncertainty
10-14

Factors that contribute

to uncertainty
inaccurate demand
forecasting
long variable lead times
late deliveries
incomplete shipments
product changes batch
ordering
price fluctuations and
discounts
inflated orders
Copyright 2006 John Wiley &
Sons, Inc.

15

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

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IMPORTANCE OF SUPPLY
CHAIN MANAGEMENT
Firms with 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
customers customers and the
suppliers suppliers)

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IMPORTANCE OF SUPPLY
CHAIN MANAGEMENT
Cost savings and better coordination of resources are
reasons to employ Supply Chain Management
Reduced Bullwhip Effect- the magnified reduction of
safety stock costs based on coordinated planning and
sharing of information
Process Integration- Interdependent activities can lead to
improved quality, reduced cycle time, better production
methods, etc.

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ORIGINS OF SUPPLY CHAIN

MANAGEMENT
1950s & 1960s
U.S. manufacturers focused on cost reduction and
productivity improvement strategies

1960s-1970s
Introduction of new computer technology lead to
development of Materials Requirements Planning (MRP) to
coordinate inventory management

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ORIGINS OF SUPPLY CHAIN

MANAGEMENT
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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ORIGINS OF SUPPLY CHAIN

MANAGEMENT
2000s and Beyond
Industrial buyers will rely more on third-party service
providers 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

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ORIGINS OF SUPPLY CHAIN

MANAGEMENT

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IMPORTANT ELEMENTS OF
SUPPLY CHAIN MANAGEMENT
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

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IMPORTANT ELEMENTS OF
SUPPLY CHAIN MANAGEMENT
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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23

IMPORTANT ELEMENTS OF
SUPPLY CHAIN MANAGEMENT
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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24

IMPORTANT ELEMENTS OF
SUPPLY CHAIN MANAGEMENT
Distribution- Trends:
Transportation management- tradeoff
decisions between cost & timing of
delivery/customer service via trucks, rail,
water & air
Customer relationship managementstrategies 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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IMPORTANT ELEMENTS OF
SUPPLY CHAIN MANAGEMENT
Integration Trends:
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

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FUTURE TRENDS IN SUPPLY

CHAIN MANAGEMENT
Expanding the Supply Chain
U.S. firms are expanding partnerships and building
facilities in foreign markets
The expansion involves:
breadth- foreign manufacturing, office & retail sites,
foreign suppliers & customers
depth- second and third tier suppliers & customers

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FUTURE TRENDS IN SUPPLY

CHAIN MANAGEMENT
Increasing Supply Chain Responsiveness
Firms will increasingly need to be more flexible and
responsive to customer needs
Supply chains will need to benchmark industry
performance and meet and improve on a continuous
basis
Responsiveness improvement will come from more
effective and faster product & service delivery systems

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FUTURE TRENDS IN SUPPLY

CHAIN MANAGEMENT
The Greening of Supply Chains
Supply chains will work harder to
reduce environmental degradation
Large majority (75%) of U.S. consumers
influenced by a firms environmental
friendliness reputation
Recycling and conservation are a
growing alternative in response to high
cost of natural resources

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FUTURE TRENDS IN SUPPLY

CHAIN MANAGEMENT
Reducing Supply Chain Costs
Cost reduction achieved through:

Reduced purchasing costs

Reducing waste
Reducing excess inventory
And reducing non-value added activities

Continuous Improvement through

Benchmarking- improve over competitors performance
Trial & error
Increased knowledge of supply chain processes

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INFORMATION TECHNOLOGY:
A SUPPLY CHAIN ENABLER
Information links all
aspects of supply chain
E-business
replacement of physical
business processes with
electronic ones

Electronic data
interchange (EDI)
a computer-to-computer
exchange of business
documents

10-31

Bar code and point-of-sale

data creates an
instantaneous computer
record of a sale

Radio frequency
identification (RFID)
technology can send
product data from an item
to a reader via radio waves

Internet
allows companies to
communicate with
suppliers, customers,
shippers and other
businesses around the
world, instantaneously
Copyright 2006 John Wiley &
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E-BUSINESS AND SUPPLY

CHAIN
Cost savings and price reductions
Reduction or elimination of the role of
intermediaries
Shortening supply chain response and
transaction times
Gaining a wider presence and increased
visibility for companies
Greater choices and more information for
customers
10-32

Copyright 2006 John Wiley &

Sons, Inc.

E-BUSINESS AND
SUPPLY CHAIN (CONT.)
Improved service as a result of instant
accessibility to services
Collection and analysis of voluminous
amounts of customer data and
preferences
Creation of virtual companies
Leveling playing field for small companies
Gaining global access to markets,
suppliers, and distribution channels
10-33

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SUPPLY CHAIN INTEGRATION

Information sharing among supply chain
members

Reduced bullwhip effect

Early problem detection
Faster response
Builds trust and confidence

Collaborative planning, forecasting,

replenishment, and design

10-34

Reduced bullwhip effect

Lower Costs (material, logistics, operating, etc.)
Higher capacity utilization
Improved customer service levels
Copyright 2006 John Wiley &
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SUPPLY CHAIN INTEGRATION

(CONT.)
Coordinated workflow, production and
operations, procurement

Production efficiencies
Fast response
Improved service
Quicker to market

Adopt new business models and

technologies

10-35

Penetration of new markets

Creation of new products
Improved efficiency
Mass customization
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COLLABORATIVE PLANNING,
FORECASTING, AND
REPLENISHMENT
Process for two or more companies
in a supply chain to synchronize
their demand forecasts into a single
plan to meet customer demand
Parties electronically exchange

10-36

past sales trends

point-of-sale data
on-hand inventory
scheduled promotions
forecasts

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Sons, Inc.

10-37

SUPPLIERS
Procurement
purchase of goods and services from suppliers

On-demand (direct response) delivery

requires supplier to deliver goods when demanded by
customer

Continuous replenishment
supplying orders in a short period of time according to
a predetermined schedule

Cross-enterprise teams coordinate processes

between company and supplier
Copyright 2006 John Wiley & Sons, Inc.

38

SUMMARY

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39

ACTIVITIES
Create a wonder product:
Bring sample of the product
Explain the use/functions of the product
Advertise your product
Questions to answer
Are you influencing your business strategy?
Is your supply chain really connected?

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