CHAPTER 2 Supply Chain Management

1. CHAPTER 2 Supply Chain Management

2. SCM vs Logistics • Logistics • deals with the management of material, service and information flow across the SC • SCM • formerly, integrating logistics across the SC • integrating and managing key business processes across the SC

3. SCM vs Logistics • The integration of key business processes from end user through original suppliers, that provides products, services, and information that add value for customers and other stakeholders. • Logistics is a part of supply chain process that plans, implements and controls the efficient, cost-effective flow and storage of goods, services, and related information from point of origin to point of consumption in order to meet customers’ requirements.

4. SUPPLY CHAIN MANAGEMENT CUSTOMER RELATIONSHIP MANAGEMENT CUSTOMER SERVICE MANAGEMENT DEMAND MANAGEMENT ORDER FULFILLMENT MANUFACTURING FLOW MANAGEMENT PROCUREMENT PRODUCT DEVELOPMENT AND COMMERCIALIZATION RETURNS Integrating and Managing Processes Across the Supply Chain Information Flow Manufacturer Tier 2 Supplier Tier 1 Supplier Consumer/End-user Logistics Customer Marketing & Sales Purchasing PRODUCT FLOW Production Finance R&D Supply Chain Business Processes Source: Douglas M. Lambert, Martha C. Cooper, Janus D. Pagh, “Supply Chain Management: Implementation Issues and Research Opportunities”, The International Journal of Logistics Management, Vol. 9, No. 2, 1998, p. 2. Figure 2-1

5. Typical Functions Silos Business Processes Sales & Manufac- Finance & Technical Logistics Purchasing Marketing turing Accounting C S Customer Account Requirements Requirements Manufacturing Sourcing Customer Relationship Management Definition Definition Strategy Strategy Profitability Management U U Account Technical Performance Coordinated Priority Cost Customer Service Management Administration Service Specifications Execution Assessment To Serve S P Demand Process Network Capability Tradeoff Demand T P Sourcing Management Planning Requirements Planning Planning Analysis O L Special Environmental Distribution Plant Selected Distribution Fulfillment Orders Requirements Management Direct Supplier(s) Cost M I Packaging Process Prioritization Production Integrated Manufacturing Manufacturing Flow Management Specifications Stability Criteria Planning Supply Cost E E Order Material Inbound Integrated Supplier Materials Procurement Booking Specifications Flow Planning Management Cost R R Product Business Product Movement Process Material S S Development and R & D Cost Plan Design Requirements Specifications Specifications Commercialization Information Architecture, Data Base Strategy, Information Visibility Note: Process sponsorship and ownership must be established to drive the attainment of the supply chain vision and eliminate the functional barriers that artificially separate the process flows. IMPLEMENTATION OF SUPPLY CHAIN MANAGEMENT

6. Customer Relationship Management • Customer service teams develop and implement customer partnering programs. • New customer interfaces lead to improved communication and better predictions of customer demand and improve the way customers are serviced. • Teams identify and eliminate sources of production variability. • Key performance evaluation criteria (both level of service and customer profitability) are used to measure results.

7. Customer Service Management • Provides a single source of customer information, a point of contact for administration of the product/service agreement. • Conveys real-time information through interface with product and distribution operations. • Requires an on-line/real-time product and pricing information to assist customers with inquiries, order placement, and after-sales service. • Includes front line technical service that assists customers with product applications and recommendations.

8. Supply Chain Network Structure Tier 3 to Initial suppliers Tier 3 to Consumers/ End-Customers Tier 2 Suppliers Tier 1 Suppliers Tier 1 Customers Tier 2 Customers 1 1 2 2 n n 1 1 1 Tier 3 to n suppliers 1 2 2 n n 1 Consumers / End-Customers Initial Suppliers 3 2 n 1 Tier 3 to n customers 3 2 n n n 1 n Focal Company Members of the Focal Company’s Supply Chain Figure 2-2

9. 2. What processes should be linked with each of these key supply chain members? Supply chain business processes Supply chain management components Supply chain network structure 3. What level of integration and management should be applied or each process link? 1. Who are the key supply chain members with whom to link processes? The SCM FrameworkElements and Key Decisions Figure 2-3

10. Members of SC Primary members: retailers,… Supporting members: banks,… Distinction may not be obvious Supply Chain Network Structure

11. Three structural dimensions Horizontal structure: number of tiers across the SC Long with many tiers (or short...) Vertical structure: number of firms in a tier Narrow if there are only a few firms Horizontal position: Position of focal company-can be positioned at or near initial source of supply or the end users Supply Chain Network Structure

12. Issues Affecting Channel Structure • Make versus buy: outsourcing • Postponement: shifting the risk • Postponing changes in the form and identity of the product to the last possible point in the marketing process • Postponing inventory location to the last possible point in time

13. Issues Affecting Channel Structure • Risk -economies of large scale production -reduction in logistics costs -reduction of stockouts -reduction of uncertainty • Local laws • Social and behavioral variables • Physical factors: geography, size of market, concentration of markets • Technological factors

14. Issues Affecting Channel Structure • Type of distribution -Intensive distribution: chewing gum… -Selective distribution -Exclusive distribution • Seasonality

15. Product characteristics Issues Affecting Channel Structure • Value • Technicality • Market acceptance • Substitutability • Bulk • Perishability

16. Customer service objectives • Availability • Order cycle • Communication

17. Types of business process links Managed Process Links Monitored Process Links Not-Managed Process Links Nonmember Process Links Types of Business Process Links

18. Tier 3 to Initial suppliers Tier 3 to Consumers/ End-Customers Tier 2 Suppliers Tier 1 Suppliers Tier 1 Customers Tier 2 Customers 1 1 2 2 n n 1 1 1 Tier 3 to n suppliers 1 2 2 n Consumers / End-Customers n 1 Initial Suppliers 3 2 Tier 3 to n customers 1 n 1 3 2 n n n n 1 1 n n Focal Company Managed Process Links Monitor Process Links Members of the Focal Company’s Supply Chain Not-Managed Process Links Non-Members of the Focal Company’s Supply Chain Non-Member Process Links Types of Inter-company Business Process Links Source: Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, "Supply Chain Management: Implementation Issues and Research Opportunities,” The International Journal of Logistics Management, Vol. 9, No. 2 (1998), p.7.

19. Customer Relationship Management Customer Service Management Fulfillment Customer Demand Management Procurement Manufacturing Flow Management Underlying Process Vision Supply Chain Management Vision The key to achieving an integrated flow of product and information throughout the supply chain is to create a focused customer interface, a focused supplier interface, and an integrated, process-oriented, supply chain which is driven by the customer. Source: 3M