Chapter 1
INTRODUCTION
TO SUPPLY CHAIN
MANAGEMENT
Supply Chain
Final Exam June 2016, Q2
Management:
Prepared by Mark A. Jacobs, PhD
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or
duplicated, or posted to a publicly accessible website, in whole or in part.
CHAPTER OUTLINE
• Supply Chain Management Definition
• The Importance of Supply Chain Management
• The Origins of Supply Chain Management in the U.S.
• Important elements of Supply Chain Management
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
2
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 local, regional, and global supply chain management
activities among services and manufacturing companies.
• Describe a brief history and some of the trends of supply chain
management.
• Understand how the bullwhip effect impacts supply chain
members.
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
3
What is a Supply Chain?
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
Retailers
Connected by transportation and storage activities, and
Integrated through information, planning, and integration
activities
Many large firms are moving away from in-house
Vertically Integrated structures to Supply Chain
Management
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
4
What is a Supply Chain? (continued)
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5
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
The coordinated set of techniques to plan and execute all steps in the
global network used to acquire raw materials from vendors, transform
them into finished goods, and deliver both goods and services to
customers
Logistics and Supply Chain Management Society
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
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6
What is Supply Chain
Management? (continued)
• Old paradigm - Firm gained synergy 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.
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7
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
How do they benefit?
Lower purchasing and inventory costs
Improved quality
Higher levels of customer service
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
8
Importance of Supply Chain
Management (continued)
Firms using 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)
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Importance of Supply Chain
Management (continued)
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.
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
10
Origins of Supply Chain
Management
1950s & 1960s
U.S. manufacturers focused on mass production
techniques as their principal cost reduction and productivity
improvement strategies
1960s-1970s
Introduction of new computer technology lead to
development of Materials Requirements Planning (MRP)
and Manufacturing Resource Planning (MRPII) to
coordinate inventory management and improve internal
communication
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Origins of Supply Chain
Management (continued)
1980s & 1990s
Intense global competition led U.S.
manufacturers to adopt:
Supply Chain Management (SCM)
Just-In-Time (JIT)
Total Quality Management (TQM)
Business Process Reengineering (BPR)
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12
Origins of Supply Chain
Management (continued)
2000s and Beyond
Companies will focus on relationships, sustainability, and
social responsibility
Companies will focus on improving supply chain
capabilities with initiatives such as:
Third-party service providers (3PLs)
Integrating logistics
Using transportation to facilitate rapid
response
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
13
Origins of Supply Chain
Management (continued)
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14
The Foundations of Supply
Chain Management
Supply base rationalization, supplier alliances,
Supply
SRM, global sourcing, ethics and sustainability
Demand management, CPFR, MRP, ERP,
Operations inventory visibility, lean systems, Six Sigma
quality systems
Logistics management, customer relationship
management, network design, RFID, global
Logistics
supply chains, sustainability, service response
logistics
Risk and security management, performance
Integration
measurement, green supply chains
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The Foundations of Supply
Chain Management (continued)
Supply Elements:
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
Ethics and sustainability – recognizing suppliers’
impact on reputation and carbon footprint
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Important Elements of Supply
Chain Management (continued)
Operations Trends:
Demand management - match demand to
available capacity
Linking buyers & suppliers via MRP and ERP
systems
Use lean systems to improve the flow of materials
to reduce inventory levels
Employ Six Sigma to improve quality compliance
among suppliers
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
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Important Elements of Supply
Chain Management (continued)
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
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
18
Important Elements of Supply
Chain Management (continued)
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 Measurement -
Crucial for firms to know if procedures are working
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
19
Current Trends in Supply Chain
Management
Expanding the Supply Chain
U.S. firms are expanding partnerships and
building facilities in foreign markets
• Right shoring for maximum flexibility and
minimum cost
The expansion involves:
• Breadth - foreign manufacturing, office & retail
sites, foreign suppliers & customers
• Depth - second and third tier suppliers &
customers
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
20
Current Trends in Supply Chain
Management (continued)
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
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
21
Current Trends in Supply Chain
Management (continued)
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
• 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
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
22
Current Trends in Supply Chain
Management (continued)
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
©2012 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part. 23
