chapter 01 3rd ed

INTRODUCTION INTRODUCTION TO SUPPLY CHAIN TO SUPPLY CHAIN MANAGEMENTMANAGEMENT

Chapter 1Chapter 1

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.

©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 OBJECTIVESLEARNING 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.


CHAPTER OUTLINECHAPTER OUTLINE

• Introduction

• Supply Chain Management Defined

• The Importance of Supply Chain Management

• The Origins of Supply Chain Management in the U.S.

• The Foundations of Supply Chain Management

• Some Current Trends in Supply Chain Management


Supply Chain Supply Chain Management DefinedManagement Defined

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


Supply Chain Supply Chain Management Defined Management Defined (continued)(continued)



The design and management of seamless, value-added processes across organizational boundaries to meet the real needs of the end customer Institute for Supply ManagementThe 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 SocietyThe 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



• 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.


Importance of Supply Importance of Supply Chain ManagementChain 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


Importance of Supply Importance of Supply Chain Management Chain Management (continued)(continued)

Firms using Supply Chain Management:1. Start with key suppliers2. Move on to other suppliers, customers,

and shippers3. Integrate second tier suppliers and

customers (second tier refers to the customer’s customers and the supplier’s suppliers)


Importance of Supply Importance of Supply Chain Chain Management Management (continued)(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.


Origins of Supply Chain Origins of Supply Chain ManagementManagement

1950s & 1960sU.S. manufacturers focused on mass production techniques as their principal cost reduction and productivity improvement strategies

1960s-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


Origins of Supply Origins of Supply Chain Management Chain Management (continued)(continued)

1980s & 1990sIntense global competition led U.S. manufacturers to adopt: Supply Chain Management (SCM) Just-In-Time (JIT) Total Quality Management (TQM) Business Process Reengineering (BPR)


Origins of Supply Chain Origins of Supply Chain ManagementManagement (continued)(continued)

2000s and BeyondCompanies 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


Origins of Supply Chain Origins of Supply Chain ManagementManagement (continued)(continued)


The Foundations of The Foundations of Supply Chain Supply Chain ManagementManagement

Supply Supply base rationalization, supplier alliances, SRM, global sourcing, ethics and sustainability

OperationsDemand management, CPFR, MRP, ERP, inventory visibility, lean systems, Six Sigma quality systems

Logistics

Logistics management, customer relationship management, network design, RFID, global supply chains, sustainability, service response logistics

Integration Risk and security management, performance measurement, green supply chains

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The Foundations of The Foundations of Supply Chain Supply Chain Management Management (continued)(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



Important Elements Important Elements of Supply Chain of Supply Chain Management Management (continued)(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


Important Elements Important Elements of Supply Chain of Supply Chain Management Management (continued)(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


Important Elements of Important Elements of Supply Chain Supply Chain Management Management (continued)(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


Current Trends in Current Trends in Supply Chain Supply Chain ManagementManagementExpanding (and Contracting) 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


Current Trends in Current Trends in Supply Chain Supply Chain Management Management (continued)(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


Current Trends in Current Trends in Supply Chain Supply Chain Management Management (continued)(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

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Current Trends in Current Trends in Supply Chain Supply Chain Management Management (continued)(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
