Chapter 1

1. Chapter 1 Introduction To Supply Chain Management

2. Objectives • After reading the chapter and reviewing the materials presented the students will be able to: • Define supply chain management. • Identify the flow through a supply chain. • Describe the characteristics of a competitive supply chain. • Identify and explain key trends that drive today’s supply chain.

3. What is Supply Chain Management • Supply chain management (SCM) is the design and management of flows of products, information, and funds throughout the supply chain. • A supply chain is the network of all entities involved in producing and delivering a finished product to the final customer. • The supply chain includes sourcing raw materials and parts, manufacturing, producing, and assembling the products, storing goods in warehouses, order entry and tracking, distribution, and delivery to the final customer. • The supply chain stages may include: suppliers, producers, wholesale/distributors, retailers, and customers. • Supply chains are under increasing financial pressure and stages that do not add value to the supply chain are quickly bypassed or eliminated. For this reason supply chains are sometimes called value chains or value networks. • The stages of the supply chain that comprise the inbound direction towards the company are called upstream part of the supply chain. Suppliers are upstream. • The stages of the supply chain away from the firm are called downstream. Distributors, retailers, and customers are downstream.

4. SCM Activities • SCM activities include the following: • 1. Coordination: SCM involves coordinating the movement of goods and services through the supply chain, form suppliers to manufacturers to distributors to final customers. It also involves the movement of funds through the supply chain as products are purchased and sold. • 2. Information sharing: This includes sharing demand and sales forecasts, point-of-sales data, promotional campaigns planned, and inventory levels. • 3. Collaboration: SCM requires collaboration between supply chain members so that they jointly plan, operate, and execute business decisions as one entity.

5. Managing Flows Through the Supply Chain • There are many flows that move through a supply chain network: • The first is the flow of products through the supply chain, from the beginning of the chain through various stages of production to the final customer. • The second is the flow of information that is shared between members of the supply chain such as sales data used to trigger replenishments. • The third important flow through the supply chain is that of funds such as payment for products and services received. • The key to successful SCM is the management of these flows through the chain.

6. The Bull Whip Effect • It has been observed that fluctuations and distortion of information increases as it moves up the supply chain, from retailers, manufacturers, to suppliers. • This is called the bullwhip effect as inaccurate and distorted information travels up the chainlike a bullwhip uncoiling. • In response, each stage of the chain carries progressively more inventory to compensate for the lack of information. • The way to combat the bullwhip effect is to share point-of-sales information with all members of the supply chain.

7. Customer Focus • The primary purpose of the supply chain is to respond to customer demands and generate profits for companies that are members of the chain. • Therefore meeting customer demands is the primary objective. • The retailer tries to satisfy the customer needs by ensuring that the product is available. • A sale triggers the warehouse or distribution center to replenish the sold items. • This triggers the manufacturer to produce more and fill the warehouse. • This triggers the manufacturer’s suppliers to produce more raw material. • In this manner products are moved through the supply chain.

8. The Service Supply Chain • SCM is just as relevant to companies in the service industry. • Unlike manufacturing supply chains that focus on production and delivery, service supply chains focus on the interaction between customer and provider.

9. Intra-organizational Integration • SCM must ensure that the needs of the final customer are satisfied through the coordination of materials and information flows that extend from the marketplace, through the firm, and its operations to all of its suppliers. • Marketing is the function responsible for linking the organization to its customers and identifying what customers want in products and services. • Operations ensures that the exact product the customer wants are produced efficiently and in a cost effective manner. • Sourcing is the function responsible for linking the organization to its suppliers, and ensuring an efficient supply of materials. • Logistics is responsible for moving and positioning inventory throughout the supply chain and ensuring that the right products are delivered to the right place at the right time.

10. Cross-Enterprise Integration • The management of a supply chain as an extended enterprise involves coordinating two way flows of goods and services, information, and funds. • Information technology is a key enabler of this capability, without which the cross enterprise integration would not be possible. • Traditional adversarial relationships with suppliers have given way to long term partnering. • Although adversarial relationships can provide financial gain, the win-win strategy has shown to be the best strategy over the long run.

11. SCM Versus logistics • SCM is about the collaboration between the supply chain partners in a strategic effort to achieve superior competitiveness. • SCM requires managing different aspects of the coordination process, such as information, technology, distribution, products, raw materials, finances, and most of all relationships. • Logistics in contrast to SCM consists of the tasks involved in moving and positioning inventory throughout the supply chain. • The functions of logistics involves order processing and tracking, inventory management, transportation, warehousing, material handling, and packaging. • Logistics is a function that supports SCM.

12. Characteristics of a Competitive Supply Chain • 3 key characteristics: • 1. Responsiveness: In rapidly changing environment agility is more important than long term strategy as there is no long term. Agility comes from short supply chains that are demand driven responding to customer demands rather than forecast driven. • 2. Reliability: The best way to reduce uncertainty is to increase reliability. Supply chain coordination and sharing real time data and information has permitted visibility to all entities in the supply chain. This improved visibility and reliability. • 3. Relationship Management: Relationship building and collaboration improves quality, product innovation, and design while reducing costs and improving overall responsiveness. Successful supply chains look for win-win relationships based upon reciprocity of trust.

13. Trends in SCM • 1. Globalization: Consumers have benefited due to greater product choice, higher quality, and lower cost. The distance factor presents special challenges to supply chain managers. • 2. Outsourcing: is hiring a third party to perform a set of tasks for a fee. An organization creates superior value for its customers by managing their core competencies better than their competitors. This has helped companies be more efficient by focusing on what they do best. • 3. Technology: Technological advances have enabled companies to produce faster with better quality, at a lower cost, and this trend will continue.

14. Trends in SCM • 4. Postponement: The challenge for a global company is to achieve the cost advantage of standardization while still catering to local taste. This is sometimes called postponement where completion of the final product is postponed to the last possible moment till local demands are known with greater certainty. Postponement is a n important strategy for companies to reach diverse geographic areas while still providing customization. • 5. The Lean Supply Chain: Waste in the supply chain is passed on to the consumer and everyone in the supply chain pays for it. In the lean supply chain all organizations work collaboratively to reduce cost and waste by analyzing processes and identifying areas of improvement. • 6. Managing Supply Chain Disruptions: Some strategies include having access to backup suppliers, building excess capacity into the system, screening and monitoring suppliers for supply chain risks, requiring suppliers of critical items to develop detailed disruption plans, and including the expected costs of disruption in the total cost of sourcing.

15. Trends in SCM • 7. Supply Chain Security: Tighter security and inspection at ports can significantly increase transit time and increase costs. Other concerns are theft and product tampering. Electronic seals can be used to prevent tampering and RFID and GPS technologies can be used to track product location. • 8. Sustainability and the Green Supply Chain: This means designing processes to use environmentally friendly inputs and create outputs that can be recycled and that do not contaminate the environment. Companies are realizing that they are good business practices. • 9. Innovation: This can include designing new products to satisfy customer demands, designing new cost cutting production processes, or coming up with more efficient product delivery mechanisms. • 10. The Financial Supply Chain: The push is to redesign the supply chain and search for less costly sources of supply. Identifying the risks and challenges of the financial supply chain will continue to be a significant trend in the future.

16. Careers in SCM and Professional Organizations • Professional organization: Council of Supply Chain Management Professional (www.cscmp.org). • Careers: Entry level management positions can include titles such as demand planner, vendor management inventory (VMI) analyst, or consultant. • Middle level management positions include titles such as sourcing management, director of SCM, or director of operations. • Senior executive positions include VP of SCM, or VP of global logistics.

17. Summary • Supply chain management (SCM) is the design and management of flows of products, information, and funds throughout the supply chain. • A supply chain is the network of all entities involved in producing and delivering a finished product to the final customer. • The supply chain stages may include: suppliers, producers, wholesale/distributors, retailers, and customers. • The stages of the supply chain that comprise the inbound direction towards the company are called upstream part of the supply chain. Suppliers are upstream. • The stages of the supply chain away from the firm are called downstream. Distributors, retailers, and customers are downstream. • SCM activities include the following: 1. Coordination: SCM involves coordinating the movement of goods and services through the supply chain, form suppliers to manufacturers to distributors to final customers. 2. Information sharing: This includes sharing demand and sales forecasts, point-of-sales data, promotional campaigns planned, and inventory levels. 3. Collaboration: SCM requires collaboration between supply chain members so that they jointly plan, operate, and execute business decisions as one entity. • There are many flows that move through a supply chain network: The first is the flow of products through the supply chain, from the beginning of the chain through various stages of production to the final customer. The second is the flow of information that is shared between members of the supply chain such as sales data used to trigger replenishments. The third important flow through the supply chain is that of funds such as payment for products and services received. The key to successful SCM is the management of these flows through the chain. • The primary purpose of the supply chain is to respond to customer demands and generate profits for companies that are members of the chain. • Marketing is the function responsible for linking the organization to its customers and identifying what customers want in products and services. • Operations ensures that the exact product the customer wants are produced efficiently and in a cost effective manner. • Sourcing is the function responsible for linking the organization to its suppliers, and ensuring an efficient supply of materials. • SCM requires managing different aspects of the coordination process, such as information, technology, distribution, products, raw materials, finances, and most of all relationships. • Logistics in contrast to SCM consists of the tasks involved in moving and positioning inventory throughout the supply chain.

18. Home Work • What is supply chain management? • Explain the 3 SCM activities. • Explain 3 flows through the supply chain? • Compare SCM to logistics.