LOG 101 Introduction to Supply Chain Management Chapter 1

1. INTRODUCTIONINTRODUCTION
TO SUPPLY CHAINTO SUPPLY CHAIN
MANAGEMENTMANAGEMENT
Chapter 1Chapter 1
Prepared by Mark A. Jacobs, PhD
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duplicated, or posted to a publicly accessible website, in whole or in part.

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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.

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3
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

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

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Supply Chain ManagementSupply Chain Management
DefinedDefined (continued)(continued)

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Supply Chain ManagementSupply Chain Management
DefinedDefined (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 Management
The 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 Society
The 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

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Supply Chain ManagementSupply Chain Management
DefinedDefined (continued)(continued)
• 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.

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Importance of Supply ChainImportance of Supply Chain
ManagementManagement
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

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Importance of SupplyImportance of Supply
Chain ManagementChain Management (continued)(continued)
Firms using Supply Chain Management:
1. Start with key suppliers
2. Move on to other suppliers, customers,
and shippers
3. Integrate second tier suppliers and
customers (second tier refers to the
customer’s customers and the supplier’s
suppliers)

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Importance of Supply ChainImportance of Supply Chain
ManagementManagement (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.

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Origins of Supply ChainOrigins of Supply Chain
ManagementManagement
1950s & 1960s
U.S. manufacturers focused on mass production
techniques as their principal cost reduction and
productivity improvement strategies
1960s-1970s
Introduction 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

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

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Origins of Supply ChainOrigins of Supply Chain
ManagementManagement (continued)(continued)
2000s and Beyond
Companies 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

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14
Origins of Supply ChainOrigins of Supply Chain
ManagementManagement (continued)(continued)

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The Foundations ofThe Foundations of
Supply ChainSupply Chain
ManagementManagement
Supply
Supply base rationalization, supplier alliances,
SRM, global sourcing, ethics and sustainability
Operations
Demand 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 ofThe Foundations of
Supply ChainSupply Chain
ManagementManagement (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
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17
Important Elements ofImportant Elements of
Supply ChainSupply Chain
ManagementManagement (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

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18
Important Elements ofImportant Elements of
Supply ChainSupply Chain
ManagementManagement (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

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Important Elements ofImportant Elements of
Supply Chain ManagementSupply Chain 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

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20
Current Trends in SupplyCurrent Trends in Supply
Chain ManagementChain Management
Expanding (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

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Current Trends in SupplyCurrent Trends in Supply
Chain ManagementChain 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

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22
Current Trends in SupplyCurrent Trends in Supply
Chain ManagementChain 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 SupplyCurrent Trends in Supply
Chain ManagementChain 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
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