CHAPTER 1 INTRODUCTION TO SUPPLY CHAIN MANAGEMENTPrinciples of Supply Chain Management: A Balanced Approach

Prepared by Daniel A. Glaser-Segura, PhD

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Learning ObjectivesYou 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.

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Chapter OutlineIntroduction Supply Chain Management DefinedThe Importance of Supply Chain ManagementThe Origins of Supply Chain Management in the U.S.The Foundations of Supply Chain ManagementSome Current Trends in Supply Chain Management

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*What is a Supply Chain?A supply chain consists of the flow of products and services from:Raw materials manufacturersComponent and intermediate manufacturersFinal product manufacturersWholesalers and distributors andRetailers

Connected by transportation and storage activities, andIntegrated through information, planning, and integration activitiesMany large firms are moving away from in-house Vertically Integrated structures to Supply Chain Management

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*What is a Supply Chain? (Cont.)

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*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 customerInstitute for Supply ManagementManaging 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 customerThe Supply Chain CouncilThe 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

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*What is Supply Chain Management? (Cont.)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 firms 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.

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Importance of Supply Chain ManagementFirms have discovered value-enhancing and long term benefits

Who benefits most? Firms with: Large inventoriesLarge number of suppliersComplex productsCustomers with large purchasing budgets

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Importance of Supply Chain Management (Cont.)Firms using Supply Chain Management:Start with key suppliersMove on to other suppliers, customers, and shippersIntegrate second tier suppliers and customers (second tier refers to the customers customers and the suppliers suppliers)

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*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 informationCollaborative 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.

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Origins of Supply Chain Management1950s & 1960sU.S. manufacturers focused on mass production techniques as their principal cost reduction and productivity improvement strategies1960s-1970sIntroduction 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

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Origins of Supply Chain Management (Cont.)1980s & 1990sIntense 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

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Origins of Supply Chain Management Cont.2000s and BeyondIndustrial 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

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Origins of Supply Chain Management Cont.

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*The Foundations of Supply Chain Management

Supply ManagementSupplier management, supplier evaluation, supplier certification, strategic partnershipsOperationsDemand management, MRP, ERP, inventory visibility, JIT (AKA lean production & Toyota Production System), TQM (AKA Six Sigma)DistributionTransportation management, customer relationship management, distribution network, perfect order fulfillment, global supply chains, service response logisticsIntegrationProcess integration, performance measurement

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*The Foundations of Supply Chain Management (Cont.)Purchasing Trends:Long term relationshipsSupplier 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

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Important Elements of Supply Chain Management (Cont.)Operations Trends:

Demand management- match demand to available capacityLinking buyers & suppliers via MRP and ERP systemsUse JIT to improve the pull of materials to reduce inventory levelsEmploy TQM to improve quality compliance among suppliers

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Important Elements of Supply Chain Management (Cont.)Distribution Trends:Transportation management- tradeoff decisions between cost & timing of delivery/customer service via trucks, rail, water & airCustomer relationship management- strategies to ensure deliveries, resolve complaints, improve communications, & determine service requirementsNetwork design- creating distribution networks based on tradeoff decisions between cost & sophistication of distribution system

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Important Elements of Supply Chain Management (Cont.)Integration Trends:Supply Chain Process Integration- when supply chain participants work for common goals. Requires intrafirm functional integration. Based on efforts to change attitudes & adversarial relationshipsSupply Chain Performance Measurement- Crucial for firms to know if procedures are working

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Current Trends in Supply Chain ManagementExpanding the Supply ChainU.S. firms are expanding partnerships and building facilities in foreign marketsThe expansion involves: breadth- foreign manufacturing, office & retail sites, foreign suppliers & customersdepth- second and third tier suppliers & customers

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Current Trends in Supply Chain Management (Cont.)Increasing Supply Chain ResponsivenessFirms 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 basisResponsiveness improvement will come from more effective and faster product & service delivery systems

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*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 environmentSupply chains will work harder to reduce environmental degradationLarge majority (75%) of U.S. consumers influenced by a firms environmental friendliness reputationRecycling and conservation are a growing alternative in response to high cost of natural resources

2009 South-Western, a division of Cengage Learning

2009 South-Western, a division of Cengage Learning*Current Trends in Supply Chain Management- Cont.Reducing Supply Chain CostsCost reduction achieved through:Reduced purchasing costsReducing wasteReducing excess inventory, andReducing non-value added activitiesContinuous Improvement throughBenchmarking- improve over competitors performanceTrial & errorIncreased knowledge of supply chain processes

2009 South-Western, a division of Cengage Learning