Key Concepts of Supply Chain Management Chapter – 1
Objectives • Appreciate what a supply chain is and what it does • Understand where your company fits in the supply chain it participates in and the role it plays in those supply chains • Discuss ways to align your supply chain with your business strategy • Start an intelligent conversation about the supply chain management issues in your company
Definitions… • A supply chain is the alignment of firms that bring products or services to market – Lambert, Stock, and Ellram.
Definitions… • A supply chain consists of all stages involved, directly or indirectly, in fulfilling a customer request. The supply chain not only includes the manufacturer and suppliers, but also transporters, warehouses, retailers, and customers themselves – Chopra and Meindl
Definitions… • A supply chain is a network of facilities and distribution options that performs the functions of procurement of materials, transformation of these materials into intermediate and finished products, and the distribution of these finished products to customers – Ganeshan and Harrison.
…Supply Chain Management • The systematic, strategic coordination of the traditional business functions and the tactics across theses business functions within a particular company and across businesses within the supply chain, for the purposes of improving the long-term performance of individual companies and the supply chain as a whole – Mentzer, Dewitt, et al.
…Supply Chain Management • Supply chain management is the coordination of production, inventory, location, and transportation among the participants in a supply chain to achieve the best mix of responsiveness and efficiency for the market being served – author.
Logistics vs SCM • Logistics refers to activities that occur within the boundaries of a single organization and supply chains refer to networks of companies that work together and coordinate their actions to deliver a product to market. • SCM acknowledges all of traditional logistics and also includes activities such as marketing, new product development, finance, and customer service.
Company Actions in SC Companies in any SC must take decisions individually and collectively regarding their actions in five areas: • Production • Inventory • Location • Transportation • Information
Goal of SCM • The goal or mission of supply chain management can be defined as increasing throughput while simultaneously reducing both inventory and operating expense. (here throughput means sales to the end customer). • In some markets customers value and will pay for high levels of service while in others customers simply seek the lowest prices.
Production • The fundamental managerial decision is how to resolve trade-off between responsiveness and efficiency. • Factories can be built to accommodate one of two approaches to manufacturing; product focus or functional focus. • Warehousing can also be done using any of three approaches; stock keeping unit, job lot storage, or cross-docking.
Inventory • Inventory is spread throughout the supply chain and includes everything from raw material to work in progress to finished goods. • There are three basic decisions to make regarding the creation and holding of inventory; cycle inventory, safety inventory, and seasonal inventory.
Location • Location refers to the geographical sitting of supply chain facilities. • It also includes the decision related to which activities should be performed in each facility. • The responsiveness versus efficiency trade-off here is the decision whether to centralize activities in fewer locations to gain economies of scale and efficiency, or to decentralize activities in many locations close to customers and suppliers. • Location decisions have strong impacts on the cost and performance of supply chain.
Transportation • Transportation refers to the movement of everything from raw material to finished goods between different facilities in a supply chain. • Different modes of transportation are: ship, rail, pipelines, trucks, airplanes, and electronic transportation.
Information • All decisions are based on timely availability of information regarding other four supply chain drivers. • Information is used for two purposes in supply chain; coordinating daily activities and forecasting and planning to anticipate and meet future demands.
Evolving Structure of Supply Chains - 21 • Vertical Integration: slow moving mass markets of the industrial age, it was common for successful companies to own much of their supply chain. • Virtual Integration: companies now focus on their core competencies, and partner with other companies to create supply chains for fast moving markets.
Participants of Supply Chain • Producers • Distributors • Retailers • Customers • Service Providers
Aligning Supply Chain with Business Strategy • Understand the market your company serves • Define core competencies of your company • Develop needed supply chain capabilities 37
Understand Markets Your Company Serves • The quantity of the product needed in each lot • The response time that customers are willing to tolerate • The variety of products needed • The service level required • The price of the product • The desired rate of innovation in the product.