What is Supply Chain Management
Bin Jiang
April 2003
Origin of SCM
Two consultants: Oliver and Webber in 1982
But…they stand on Japanese shoulders
Japanese triggered a revolution in 1970s -JIT
Consider a single-product line
Because cost matters, we must consider equipment
utilization
Since the line is fed by a procurement process, we must
consider raw material inventory, vendor management and
purchasing
When we consider customers, lead time, service and finished
goods inventory become relevant measures
Since yield loss and rework are often realities, quality is a
key performance measure.
Motivation of JIT
Japanese believe:
Production environment is a control
Different perspectives
Traditional
JIT
Believe setup time is given and try to
come up with optimal lot sizes.
Try to eliminate setups and thereby
eliminate the lot-sizing problem.
Believe due dates are given and try to
optimize the production schedule
Realize that due dates are negotiated
with customers
Believe infrequent, expensive deliveries
from vendors are given and try to
optimize order sizes
Work to set up long-term agreements
with a few vendors to make frequent
deliveries feasible
Believe quality defects are given
Believe quality can be controlled by
both vendors and operators
Why did JIT come from Japan
Because of Japanese history of living with space and
resource limitations, the Japanese are inclined toward
conservation
This has made tight material control policies easier to
accept in Japan than in the “throw-away society” of
America
Japanese industry is spatially concentrated, so delivery of
materials from suppliers several times per day are simply
easier in Japan than in America with its wide-open spaces
A Single Magic Bullet
Some people imagine that Toyota has put on a smart new set
of clothes, the JIT system, so they go out and purchase the
same outfit and try it on.
They quickly discover that they are much too fat to wear it
It took about 25 years for Toyota to reduce setups from 3
hours to 3 minutes
Horrible buzzwords
IT
SQC
Logistics
Capacity
Managemen
Planning
t
MCC
Benchmarking
F
Inventory
ECR
Control
TQM
BPR
Mass
Customizatio
n ISO
9000
VMI
MRP II
SCM ERP
3PL
Flexible
Manufacturing
MRP
Lean
Manufacturing
Serious SC competition
Today’s competition is not really company vs.
company, but supply chain vs. supply chain.
Warren Hausman, Professor at Stanford University
Where should I look for?
My own production line?
My customer?
My supplier?
My counterparts?
Basic idea of SCM
SCM is concerned with the relationship between a
company and its upstream and downstream players
The relationship helps companies:
coordinate (working jointly) with their upstream
and downstream players to integrate activities
along the supply chain to effectively supply
product to customers
Conceptual formula of SCM
Objective:
max (customer satisfaction)
or max (competitive advantages)
Constraint:
SC relationship = f(C,I)
SC relationship = f(C, I)
Integration(I): how closely supply chain entities operate as
a single unit --- focus on interfaces (structure)
Coordination(C): how seamlessly information, material and
financial flows flow in SC --- focus on movement (process)
Relationship f(C, I): friendly? hostile? grasp the cake? make
the cake bigger? Long-term? Short-term? competitive? winwin?
W/o coordination and integration
Inaccurate forecasts
Low capacity utilization
Excessive inventory
Inadequate customer service
W/o C&I, there is a horrible relationship (environment)
Recall the tip of JIT
Production environment is a control
JIT: at right time, at right quantity, at perfect quality
SCM: at right time, at right product, at right place, at
competitive price.
From JIT to SCM
From flow-oriented to interfacesoriented
From plant-oriented to relationshiporiented
From production-oriented to customer
service-oriented
SCM
Competitiveness
(Customer Service)
Integration
Coordination
?
?
Foundations
OR, POM, IE, OB, Marketing, Logistics, IT…
SCM
Integration
Coordination
Leadership
Advanced Planning
Inter-org.
IT Tech
Choice of partners
Process-oriented
Don’t put your wrong hand to SCM issues!!!
Integration
Choice of partners: costs, future potential, organizational
culture, specialized know-how, taxes, exchange rates, etc.
Interorganization network: independent vs. dependent;
secret vs. information/know-how sharing; long-term vs.
short-term; win-win strategy vs. maximizing own profits,
etc.
Leadership: At least some decisions should be made fro
the SC as a whole. Aligning strategies along SC requires
some form of leadership.
Coordination
Utilization of IT: historical mass data, demand forecast,
sharing information instantaneously, EDI, B2B, B2C, etc.
Process orientation: use performance indicators to figure
out weaknesses, bottlenecks and waste within a SC.
(productivity, cycle time, safety stock, WIP, ROI, etc)
Advanced planning: incorporates long-term, mid-term and
short-term planning levels.
Foundations
You should have relevant knowledge to support your SCM:
• logistics and transportation
• marketing
• operations research and POM
• organizational behavior, industrial organization and
transaction cost economics
• purchasing and supply
•…
Takeaway
SCM is not a simple procedure or technique
More or less it is a not quiet coherent
management strategy
It is an assortment of attitudes, philosophies,
priorities, and methodologies that have been
collectively labeled “SCM”
You must have a “chain” perspective