Supply chain management
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Supply Chain Management. Chang-Yang Lin, PhD Professor and Coordinator of CIS Eastern Kentucky University. SCM and Inaccuracy Problems. On a typical day in a U.S. supermarket, 8.2% of the items are out of stock.

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Supply Chain Management

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Supply Chain Management

Chang-Yang Lin, PhD

Professor and Coordinator of CIS

Eastern Kentucky University


SCM and Inaccuracy Problems

  • On a typical day in a U.S. supermarket, 8.2% of the items are out of stock.

  • 33% of out-of-stock items are located in the store, just not in the correct location.

  • The cost of stockouts in U.S. supermarkets are estimated at $7 to $12 billion of sales.

  • Before being stored on store shelves, items pass through several processes, including order processing, fulfillment, staging, shipment, receiving, short-term storage, and finally shelving.

EKU Business


A Typical Supply Chain

a coordinated system of entities, activities,

information and resources involved in moving

a product or service from supplier to customer


A Supply Chain

a network of organizations and facilities

that transforms raw materials into

products delivered to customers

also includes transportation companies, warehouses, & inventories and some means for transmitting messages & information


  • Dell’s own channel for

  • manufacturing and selling

  • eliminated

  • distributors and

  • retailers


Supply Chain Management

  • SCM is the process of planning, implementing, and controlling the operations of the supply chain with the purpose to satisfy customer requirements as efficiently as possible

  • SCM spans all movement and storage of raw materials, work-in-process inventory, and finished goods from point-of-origin to point-of-consumption

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SCM Problems

  • Distribution network configuration: Number and location of suppliers, production facilities, distribution centers, warehouses and customers.

  • Distribution strategy: Centralized versus decentralized, direct shipment, pull or push strategies, third party logistics.

  • Information: Integrate systems and processes through the supply chain to share valuable information, including demand signals, forecasts, inventory and transportation.

  • Inventory management: Quantity and location of inventory including raw materials, work-in-process and finished goods.

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SCM Activities/Functions

  • The purpose of SCM is to improve trust and collaboration among supply chain partners, thus improving inventory visibility and improving inventory velocity

  • SCM activities can be grouped into strategic, tactical, and operational level of activities

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The Bullwhip Effect

  • An observed phenomenon in forecast-driven distribution channels

  • Because forecast errors are a given, companies often carry "safety stock"

  • Moving up the supply chain from end-consumer to raw materials supplier, each supply chain participant has greater observed variation in demand and thus greater need for safety stock

  • The effect is that variations are amplified the farther you get from the end-consumer

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The bullwhip effect is a phenomenon in which the variability

in the size and timing of orders increase at each stage up

the supply chain, from customer to supplier


The Bullwhip Effect (continued)

  • One way to eliminate the bullwhip effect is to give all participants in the supply chain access to consumer-demand information from the retailer.

  • Each organization can thus plan its inventory or manufacturing based on true demand and not on the observed demand from the next organization up in the supply chain.

    • An interorganizational information system is necessary to share such data.

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Stabilizing the Bullwhip Effect:A Demand-Driven Supply Chain

  • Individual Wal-Mart stores transmit POS data from the cash register back to corporate headquarters several times a day

  • This demand information is used to queue shipments from the Wal-Mart distribution center to the store and from the supplier to the Wal-Mart distribution center

  • The result is near-perfect visibility of customer demand and inventory movement throughout the supply chain

  • A demand-driven supply chain which reacts to actual customer orders. In manufacturing, this concept is called Kanban (カンバン看板)

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B2B One Section of the Supply Chain


Supplier Relationship Management (SRM)

  • SRM is a business process for managing all contacts between an organizational and its suppliers.

  • SRM applications support threebasic processes: source, purchase, and settle.

  • SRM examines inventory, determines that items are required, and automatically creates the order via its connection to the supplier’s CRM

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SRM Process


Definition of Key TermsInventory

  • Inventory consists of a list of goods and materials held available in stock

  • Manufacturing organizations usually divide their "goods for sale" inventory into:

    • Materials and components (or Raw materials) scheduled for use in making a product

    • Materials and components that have begun their transformation to finished goods (or Work in Process)

    • Finished goods - goods ready for sale to customers

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