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.
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a coordinated system of entities, activities,
information and resources involved in moving
a product or service from supplier to customer
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 endconsumer 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 three basic
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 Terms
Inventory
 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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