CHAPTER 1 –

INTRODUCTION TO SUPPLY CHAIN

MANAGEMENT
WHAT IS SUPPLY CHAIN MANAGEMENT?
A supply chain consists of the flow of products and services from raw
material manufacturers till its availability to the retailers

Connected by transportation and storage activities, and

Integrated through information, planning, and integration activities

WHAT IS SUPPLY CHAIN MANAGEMENT?
(CONT)
WHAT IS SUPPLY CHAIN 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
IMPORTANCE OF SUPPLY CHAIN
MANAGEMENT?
Firms have discovered value-enhancing and long term benefits

According to US Census Bureau’s Annual Survey of Manufacturers, cost

of inventories was over USD 2.2 trillion and transportation and
inventory carrying costs was USD434 billion in 2000.
Integration has eventually become more important in SCM for the
better understanding of the internal and external supply chain
partners
Lack of integration may lead to bullwhip effect which results in
increasing of cost around 12 – 25 percent of each firm
IMPORTANCE OF SUPPLY CHAIN
MANAGEMENT? –CONT.
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
customer’s customers and the supplier’s suppliers)
IMPORTANCE OF SUPPLY CHAIN
MANAGEMENT? –CONT.
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. For Example; Vendor Management
Inventory (VMI) between Walmart and P&G
ORIGINS OF SUPPLY CHAIN
MANAGEMENT
1950s & 1960s

U.S. manufacturers focused on cost reduction and productivity

improvement strategies through mass production
Lack of importance on supplier relationship
New production development and design was slow

1960s-1970s

Introduction of new computer technology lead to development of

Materials Requirement Planning (MRP) to coordinate inventory
management
Companies found importance of material management for the cost
reduction
ORIGINS OF SUPPLY CHAIN
MANAGEMENT –CONT.
1980s & 1990s
Supply chain management was first introduced in 1982 in a published
paper
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

To Reduce costs and Improvement in Quality and Process

In 1990s with the increase in competition, companies started working
with few but certified suppliers for the sake of quality management.
ORIGINS OF SUPPLY CHAIN
MANAGEMENT –CONT.
2000s and Beyond
Certified Suppliers
Buyer-Supplier Relationship
Third-Party Logistics (3PL) Service Providers
Advancement of Information Systems
Focusing more on the better coordination among the SC partner
Focus on core competence and areas of expertise
ORIGINS OF SUPPLY CHAIN
MANAGEMENT –CONT.
IMPORTANT ELEMENTS OF SUPPLY CHAIN
MANAGEMENT
Purchasing- Supplier alliances, supplier management,
strategic sourcing
Operations- Demand management, Material Requirement
Planning (MRP), ERP, JIT, TQM
Distribution- Transportation management, customer
relationship management, 3PL
Integration- Coordination/Integration activities,
FUTURE TRENDS OF SCM
Organizations are supposed to make their supply chain operations
more flexible
Greening of supply chains – 75% of US consumers have reported
their purchasing of a product is based upon firm’s CSR activities.
Strategic partnership with the other firms and departments
QUESTIONS TO BE DISCUSSED
Why is SCM more popular today than previous decades?

Do you think larger firms can succeed more easily than smaller firms in
SCM? Why or why not?

What is the role of TRUST in the practice of supply chain

management?