Chapter 1 INTRODUCTION TO SUPPLY CHAIN MANAGEMENT

Supply Chain Management: • Estimated that the grocery industry could save $30 billion 10% of operating cost by using effective logistics and supply chain strategies – A typical box of ce

Supply Chain Management:

• Estimated that the grocery industry could save $30 billion (10% of operating cost) by using effective logistics and supply chain strategies

– A typical box of cereal spends 104 days from factory to sale

– A typical car spends 15 days from factory to

dealership

• Compaq estimates it lost $0.5 billion to $1 billion in sales in 1995 because laptops were not available when and where needed

• P&G estimates it saved retail customers $65

million by collaboration resulting in a better match

of supply and demand

Recommended books

1 Principles of Supply Chain Management: A Balanced Approach 3 rd E

( Author: Wisner, Leong and Tan,2012)

2 Essentials of Supply Chain Management

( Author: Michael Hugos)

3 Strategic Supply Chain Management

( Author: Cohen and Roussel)

4 Supply Chain Management: Best Practices

( Author: David Blanchard)

5 Operation & Supply Chain Management

( Author: Jacobs & Chase)

6 Supply Chain Excellence

( Author: Bolstorff and Rosenbaun)

Methods to learn this SCM

subject.

There are 14 chapters in Wisner’s SCM book

1 Introduction to SCM

2 Purchasing Management

3 Supplier relationship Management

4 Strategic sourcing for successful SCM

5 Collaborative, Planning, Forecasting & Replenishing

6 Enterprise Resource Planning System

Learning Objectives

You should be able to:

• Describe a supply chain and define supply chain management

• Describe the objectives and elements of

supply chain management

• Describe a brief history and some of the

trends of supply chain management

• A supply chain consists of all stages involved, directly

or indirectly, in fulfilling a customer request The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves – Chopra and Meindl

• A supply chain is the alignment of firms that bring products or services to market – Lambert, Stock, and Ellram.

• A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution

of these finished products to customers – Ganeshan and Harrison.

What is a Supply Chain?

What is a Supply Chain?(Cont.)

A supply chain consists of the flow of

products and services from:

– Raw materials manufacturers

– Component and intermediate manufacturers

– Final product manufacturers

– Wholesalers and distributors and

What is a Supply Chain? (Cont.)

Some more supply chain models

Some more supply chain models

What is Supply Chain Management?

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

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

The planning and management of all activities involved in sourcing and procurement, conversion, and all logistics

management activities … also includes coordination with channel partners, which can be suppliers, intermediaries, third party service providers, and customers.

Council of Supply Chain Management Professionals

What is Supply Chain Management?

(Cont.)

• Old paradigm - Firm gained synergy (strength

competitiveness) as a vertically integrated firm

encompassing the ownership and coordination of several supply chain activities Organizational cultures emphasized short-term, company focused performance.

• 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 – All participants in the supply chain benefit

– Boundaries are dynamic and extend from “the firm’s suppliers’ suppliers to its customers’ customers (i.e., second tier suppliers and customers).”

– Supply chains now deal with reverse logistics to handle returned products, warranty repairs, and recycling.

The Objectives of a Supply Chain

• Ensure the uninterrupted flow of goods,

services and information throughout the

supply chain

• Lower supply chain cost

• Differentiate in satisfy customer’s needs

• Allocate and maintain logically the profits for all stages of the supply chain

Supply chain management is the management of flows between and

among supply chain stages to maximize total supply chain profitability

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

– Collaborative planning, forecasting, and

replenishment activities reduce the Bullwhip Effect and lead to better customer service, lower inventory costs, improved quality,

reduced cycle time, better production

methods, and other benefits

Importance of Supply Chain

- Cost of purchased materials in 2008 : $3.2 trillion

- Cost of inventory among manufacturers : $2.2 trillion

- Transportation and inventory carrying cost : $434 Billion

Origins of Supply Chain

Management

1950s & 1960s

U.S manufacturers focused on mass production techniques as their principal cost reduction and productivity improvement strategies

Origins of Supply Chain

Origins of Supply Chain

Management –Cont.

2000s and Beyond

Industrial buyers will rely more on

third-party service providers (3PLs)

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

Origins of Supply Chain

Management –Cont.

The Foundations of Supply

Operations Demand management, CPFR, Inventory Management, MRP, ERP, JIT , lean

production, Six Sigma

Logistics

Logistics management, CRM, RFID, distribution network, perfect order fulfillment, global supply chains, service response logistics

Integration Barrier to integration, risk & security management, green supply chain

The Foundations of Supply

Chain Management (Cont.)

Supply or Purchasing Trends:

– Long term relationships

– Supplier management- improve

– Strategic partnerships- successful and

trusting relationships with top-performing suppliers

Important Elements of Supply

Chain Management

Operations Trends:

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

Important Elements of Supply

Chain Management (Cont.)

Logistics Trends:

– Transportation management- tradeoff

decisions between cost & timing of

delivery/customer service via trucks, rail, water & air

– Customer relationship

management-strategies 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

Important Elements of Supply

Chain Management (Cont.)

Integration Trends:

– Supply Chain Process

Integration-when supply chain participants work for common goals Requires intra-firm

functional integration Based on efforts to change attitudes & adversarial

relationships

– Supply Chain Performance

if procedures are working

Current Trends in Supply Chain Management

Expanding the Supply Chain

The expansion involves:

• breadth- foreign manufacturing, office

& retail sites, foreign suppliers &

customers

• depth- second and third tier suppliers

& customers

Current Trends in Supply Chain Management (Cont.)

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

Current Trends in Supply Chain Management (Cont.)

The Greening of Supply Chains

- Producing, packaging, moving, storing,

delivering and other supply chain activities

can be harmful to the environment

– Supply chains will work harder to reduce

environmental degradation(downgrade)

– Large majority (75%) of U.S consumers

influenced by a firm’s environmental

friendliness reputation

– Recycling and conservation are a growing

alternative in response to high cost of natural resources

Current Trends in Supply Chain Management- Cont.

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