Supply Chain Management
 Supply chain management deals with the management of
materials, information and financial flows in a network consisting
of suppliers, manufacturers, distributors, and customers (Stanford
Supply Chain Forum, 1999)
 Supply chain management is a set of approaches utilized
efficiently to integrate suppliers, manufacturers, warehouses, and
stores so that merchandise is distributed at the right quantities, to
the right locations, and at the right time, in order to minimize
system-wide costs while satisfying service level requirements
(Simchi-Levi et al)
 A supply chain consists of all stages involved, directly and
indirectly, in fulfilling a customer request. Supply chain
management involves the management of flows between and
among stages in a supply chain to maximize total profitability
(Chopra and Meindl)
Typical supply chain
upstream
downstream
Toshiba PC supply chain
upstream
Intel,
AMD
Seagate,
IBM
Microsoft,
Red Hat
Toshiba America
Irvine, California
North America DC
Best Buy
Europe DC
Toshiba Turkey
downstream
How is SCM different?
 Builds on traditional fields such as production
management, operations management or logistics
management.
 The key differentiator is the systems approach of the
supply chain management
 SCM considers every stage and facility in the supply
chain and the interactions between them, whether they
belong to different companies or different organizations
within a company
 SCM considers the total costs in the supply chain
 Since SCM deals with all stages of the supply chain
and their integration, it encompasses the firm’s
activities at many levels: strategic, tactical and
operational
Other operational processes
Product Life-cycle Management
(PLM)
Supply Chain Management
(SCM)
Supplier Relationship Management
(SRM)
Customer Relationship Management
(CRM)
Why supply chain management?
 In 1997, American companies spent $862
billion, or about 10% of GNP on supply chain
related activities which include the cost of
movement, storage and control of products
across the supply chain.
 Most of these costs include unnecessary cost
components due to redundant stock, inefficient
transportation strategies, and other wasteful
strategies in the supply chain
Example: Wal-Mart
In 1979, Kmart was one of the leading companies in the retail industry, with 1,891
stores and average revenues per store of $7.25 million. At that time Wal-Mart was
a small niche retailer in the South with only 229 stores and average revenues
about half of those of Kmart stores. In 10 years Wal-Mart transformed itself; in
1992 it had the highest sales per square foot and the highest inventory turnover
and operating profit of any discount retailer. Today Wal-Mart is the largest and
highest profit retailer in the world. How did Wal-Mart do it? The starting point was a
relentless focus on satisfying customer needs; Wal-Mart’s goal was simply to
provide customers with access to goods when and where they want them and to
develop cost structures that enable competitive pricing. The key to achieving this
goal was to make the way the company replenishes inventory the centerpiece of its
strategy. This was done by using a logistics technique known as cross-docking. In
this strategy, goods are continuously delivered to Wal-Mart’s warehouses from
where they are dispatched to stores without ever sitting in inventory. This strategy
reduced Wal-Mart’s cost of sales significantly and made it possible to offer
everyday low prices to their customers.
Example: Home Depot
The Home Depot Inc. moves over 85 percent of its
merchandise directly from suppliers to stores, avoiding
warehouses altogether
(http://www.informationweek.com/708/08iukil6.htm)
The strategy saves money by eliminating an expensive
network of DCs. But it also carries substantial risks in
terms of customer service. A poorly managed supply
chain can result in heavy stock-outs.
(http://www.supplychainbrain.com/archives/7.02.homedepot.htm?adcode=5)
Example: Dell’s direct business model
 Selling PCs direct to customer
 Outsourcing component manufacturing
 Virtual integration with the suppliers resulting in less
inventory. The third party logistics company matches
the Sony monitors with Dell computers and deliver it to
the customer
 Direct relationship with customer enables Dell to
understand the customer needs and segment the
market to offer value added services
 Compaq, IBM and HP all move to emulate Dell
business model
 Dell carries 8 days of inventory, while Compaq, IBM
and Dell have targets to carry 4 weeks of inventory
Why is SCM difficult?
Global Optimization




Global and complex supply chains
Different, conflicting objectives
Supply chain is dynamic
System variations over time
Managing Uncertainty




Matching supply and demand
Bullwhip effect
Forecasts are inaccurate
Uncertainties in suppliers, logistics
Key (popular) issues in SCM
 Supply chain design
 Where to locate manufacturing facilities, distribution centers,
stores so as to minimize overall costs and improve service
 Supply contracts
 How to establish relationships between manufacturers and
retailers so that the whole supply chain can increase profits?
 Distribution strategies




Cross-docking
Direct shipments to customers
Pull based, push based, pull-push based systems
Vendor managed inventory
Key (popular) issues in SCM
 Supply chain integration and strategic partnership
 Coordinating different stages of the supply chain
 Value of information and information sharing
 Outsourcing and procurement strategies
 Managing product variety
 Product postponement
 Component commonality and modularity
 Information technology and decision support systems
 Managing customers
 Customer segmentation, revenue management
Product postponement – a storage devices
manufacturer example
Production Process Occurring over Time
Assembly Phase
Testing Phase
End Product
Is Completed
PCB Board that Differentiates
The Final Product is Inserted
Production Process Occurring over Time
Assembly Phase
Testing Phase
Generic PCB Board is
Inserted to Enable Testing
End Product
Is Completed
PCB Board that Differentiates
The Final Product is Inserted to Replace
the Generic Board Used to Testing