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Introduction to Supply Chain Management (SCM). Rev: Feb, 2012 Euiho (David) Suh , Ph.D. POSTECH Strategic Management of Information and Technology Laboratory (POSMIT: Dept. of Industrial & Management Engineering POSTECH. Contents. Discussion Questions.

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Introduction to

Supply Chain Management (SCM)

  • Rev: Feb, 2012
  • Euiho (David) Suh, Ph.D.
  • POSTECH Strategic Management of Information and Technology Laboratory
  • (POSMIT:
  • Dept. of Industrial & Management EngineeringPOSTECH
discussion questions
Discussion Questions
  • Why do you think implementing SCM is difficult?
  • Find a successful case of SCM and explain it.
  • EDI involves the electronic exchange business transaction documents over the Internet or other networks between supply chain trading partners.
  • What is the concept explained in the below pharagraph?
    • A cross-functional interenterprise system that uses information technology to help support and manage the links between some of the organization's key business processes and those of its suppliers, customers, and partners. The intent is to create a fast, efficient, and low-cost network of business relationships to get an organization's products and services from concept to market.
what is a supply chain



Warehouses &

Distribution Centers








Material Costs

Manufacturing Costs

Inventory Costs

What is a Supply Chain?

1. Introduction

  • Definition
    • The interrelationships with suppliers, customers, distributors, and other businesses that are needed to design, build, and sell a product make up the network of business entities, relationships, and processes
supply chain management
Supply Chain Management

1. Introduction

Customer Relationship Management

Management customer services

Satisfaction of ordering

Management production

Management demand


  • Definition
    • Applying a total systems approach to the entire flow of information, materials and service throughout the supply chain to provide the right quantitiesof right stuff, to the right locations and at the right time, and so as to minimize total system costsubject to satisfying service requirements
sales strategy vs production strategy
Sales Strategy vs. Production Strategy

2. Motivation in SCM

Percentages are % of sales

Reducing production costs is more feasible.

Increase sales 100%

Reduce production costs by 12%

  • What would sales & production costs have to be to double net income? Which is easier?
  • Solution
the importance of supply chain management 1 2
The Importance of Supply Chain Management (1/2)

2. Motivation in SCM

  • Dealing with uncertain environments – matching supply and demand
    • Boeing announced a $2.6 billion write-off in 1997 due to “raw materials shortages, internal and supplier parts shortages and productivity inefficiencies”
    • U.S Surgical Corporation announced a $22 million loss in 1993 due to “larger than anticipated inventories on the shelves of hospitals”
    • IBM sold out its supply of its new Aptiva PC in 1994 costing it millions in potential revenue
    • Hewlett-Packard and Dell found it difficult to obtain important components for its PC’s from Taiwanese suppliers in 1999 due to a massive earthquake
  • U.S. firms spent $898 billion (10% of GDP) on supply-chain related activities in 1998
the importance of supply chain management 2 2
The Importance of Supply Chain Management (2/2)

2. Motivation in SCM

  • Shorter product life cycles of high-technology products
    • Less opportunity to accumulate historical data on customer demand
    • Wide choice of competing products makes it difficult to predict demand
  • The growth of technologies such as the Internet enable greater collaboration between supply chain trading partners
    • If you don’t do it, your competitor will
    • Major buyers such as Wal-Mart demand a level of “supply chain maturity” of its suppliers
  • Availability of SCM technologies on the market
    • Firms have access to multiple products (e.g., SAP, Baan, Oracle, JD Edwards) with which to integrate internal processes
supply chain technology market

$ 9.2B

Grow 7% annually

$ 6.5B



(source : AMRresearch, 2008)

Supply Chain Technology Market

2. Motivation in SCM

 “The supply chain, and the technologies that support it, will play an important role in helping companies deal and thrive in an economy that is going to be quite unlike anything we’ve seen in the post-war era,”

- John Fontanella -

vice president of research at AMR Research

why is scm difficult
Why Is SCM Difficult?

2. Motivation in SCM






  • Uncertainty is inherent to every supply chain
    • Travel times
    • Breakdowns of machines and vehicles
    • Weather, natural catastrophe, war
    • Local politics, labor conditions, border issues
  • The complexity of the problem to globally optimize a supply chain is significant
    • Minimize internal costs
    • Minimize uncertainty
    • Deal with remaining uncertainty
electronic data interchange edi
Electronic Data Interchange (EDI)

3. Strategic approaches of SCM

The electronic exchange of business transaction documents between supply chain trading partners

One of the earliest uses of information technology for supply chain management

The almost complete automation of an e-commerce supply chain process

Many transactions occur over the Internet, using secure virtual private networks

A communications standard for sharing business documents and settlement information among firms

today s marketplace requires
Today’s Marketplace Requires:

3. Strategic approaches of SCM

Shared visibility for

trading partners

Personalized content and services for their customers

Collaborative planning with design partners, distributors, and suppliers

Real-time commitments for design, production, inventory, and transportation capacity

Flexible logistics options to ensure timely fulfillment

Order tracking& reporting across multiple vendors and carriers

supply chain management key issues 1 3
Supply Chain Management – Key Issues (1/3)

3. Strategic approaches of SCM

  • Forecasts are never right
    • Very unlikely that actual demand will exactly equal forecast demand
  • The longer the forecast horizon, the worse the forecast
    • A forecast for a year from now will never be as accurate as a forecast for 3 months from now
  • Aggregate forecasts are more accurate
    • A demand forecast for all CV therapeutics will be more accurate than a forecast for a specific CV-related product
  • Nevertheless, forecasts (or plans, if you prefer) are important management tools when some methods are applied to reduce uncertainty
supply chain management key issues 2 3




Customer Service/


Few change- overs

Stable schedules

Long run lengths

High inventories

High service levels

Regional stocks

Low pur-chase price

Multiple vendors

Low invent-ories

Low trans-portation





Supply Chain Management – Key Issues (2/3)

3. Strategic approaches of SCM

Overcoming functional silos with conflicting goals

supply chain management key issues 3 3
Supply Chain Management – Key Issues (3/3)

3. Strategic approaches of SCM

supply chain management operations strategies
Supply Chain Management Operations Strategies

3. Strategic approaches of SCM

role and goals of scm
Role and Goals of SCM

4. Roles of SCM

  • Role of SCM
    • SCM management helps a company get the right products to the right place at the right time, in the proper quantity and at an acceptable cost.
  • Goals of SCM
    • To manage a process efficiently by forecasting demand
    • Controlling inventory
    • Enhancing the network of business relationships with customers, suppliers, distributors, and others
    • Receiving feedback on the status of every link in the supply chain
supply chain management benefits
Supply Chain Management – Benefits

4. Roles of SCM

Source: Cohen & Roussel

A 1997 PRTM Integrated Supply Chain Benchmarking Survey of 331 firms found significant benefits to integrating the supply chain

benefits and challenges of scm
Benefits and Challenges of SCM

4. Roles of SCM

  • Key Benefits
    • Faster, more accurate order processing
    • Strategic relationships with supplier
    • Lower transaction and materials cost
    • Quicker times to market
    • Reductions in inventory levels
  • Key Challenges
    • Lack of demand planning knowledge, tools, and guidelines
    • Inaccurate data provided by other information systems
    • Lack of collaboration among marketing, production, and inventory management
    • SCM tools are immature, incomplete, and hard to implement
case study
Case Study
  • In the Text book
    • Real World Case 3 : Perdue Farms and Others: Supply Chain Management Meets the Holiday Season
  • Domestic Case

Click Here


O’Brien & Marakas, “Introduction to Information Systems – Fifteenth Edition”, McGraw – Hill, Chapter 7, pp. 276~281

KeebomKang, “Global Logistics and Information Technology(PPTSlide)”, Graduate School of Business Naval Postgraduate School

KeebomKang, “B2B: Applications for Improving Supplier Selection(PPTSlide)”, Graduate School of Business Naval Postgraduate School

“Basics of Supply Chain Management(PPTSlide)”, Stevens Institute of Technology