Topic 4 – Introduction to Supply Chain
Management (SCM)
Outline
1.1
SCM – Definition & Scope
1.2
SCM versus Logistics
1.3
SCM Processes
1.4
SCM Framework
1.5
Distribution Channel Structure
1.6
Channel Strategies
1.7
Supply Chain Network Structure
1.1 SCM – Definition & Scope

Definition
“The process for designing, developing, optimizing, and
managing the internal and external components of the
supply system, including material supply, transforming
materials and distributing finished products or services to
customers, that is consistent with overall objectives and
strategies.”
Robert E. Speckman, John W. Kamauff Jr. and Niklas Myhr,
“An
Empirical
Investigation
into
Supply
Chain
Management”, International Journal of Physical Distribution
and Logistics Management 28, no. 8 (1998), p. 631.
1.1 SCM – Definition & Scope

Definition
“Managing a set of three of more organizations directly
linked by one or more of the upstream and downstream
flows of products, services, finances, and information from a
source to a customer.”
J.T. Mentzer, W. DeWitt, J.S.Keebler, S. Min, N.W. Nix, C.D. Smith
and Z.G. Zacharia, “A Unified Definition of Supply Chain
Management,” working paper, University of Tennessee, 1999.
1.1 SCM – Definition & Scope

Definition
“Supply chain management is the integration of key
business processes from end user through original
suppliers that provides products, services, and information
that add value for customers and other stakeholders.
Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, “Supply
Chain Management Implementation Issues and Research
Opportunities”, The International Journal of Logistics Management
9, no. 2 (1998), p.1. Website: <http://www.ijlm.org>
1.1 SCM – Definition & Scope
 Scope:
a. SCM is all about bringing products and services to the
market.
b. Many parties are involved in this process - from raw
material suppliers and manufacturers to warehouse
operators, transportation carriers, distributors and
retailers.
c. Managing all these supply chain members, aligning their
logistics & business processes, and coordinating the
sharing of related information to facilitate the
accomplishment of these processes, comes under the
scope of SCM.
1.2 SCM versus Logistics

Logistics management is a part of SCM as illustrated in *CLM’s
modified definition of logistics in 1998:
“Logistics is that part of the supply chain process that plans,
implements, and controls the efficient, effective flow and storage of
goods, services, and related information from the point-of-origin to
the point-of-consumption in order to meet customers’
requirements.”

SCM has been re-conceptualized from integrating logistics across
the supply chain to integrating and managing key business
processes across the supply chain.
*CLM = Council of Logistics Management. Website: <http://www.clm1.org>
1.3 SCM Processes

Customer Relationship Management

Customer Service Management

Demand Management

Order Fulfillment

Manufacturing Flow Management

Procurement

Product Development & Commercialization

Returns
1.3 SCM Processes

SCM must also manage information flows.

Information is a key enabler of supply chain integration.

Product flows take place only after information flows are
initiated.
Figure 1 : SCM - Integrating and managing business processes across the supply chain
Information flow
Tier 2
supplier
Tier 1
supplier
Manufacturer
Supply Chain Business Processes
Purchasing
Production
Customer
Consumer/
Endcustomer
Logistics Marketing & sales
Product Flow
R&D
Finance
Customer relationship management
Customer service management
Demand management
Order fulfillment
Manufacturing flow management
Procurement
Product development & commercialization
Returns
Source :
Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, “Supply Chain Management: Implementation
Issues and Research Opportunities”, The International Journal of Logistics Management 9, no. 2 (1998), p.2.
1.4 SCM Framework
Figure 2 : SCM Framework – Elements & key decisions
Supply chain
business processes
Supply chain
management
components
3. What level of integration
and management should be
applied for each process
link?
Source :
2. What processes
should be linked with
each of these key supply
chain members?
Supply chain
network structure
1. Who are the key supply
chain members with whom
to link processes?
Douglas M. Lambert, Martha C. Cooper and Janus D. Pagh, “Supply Chain Management: Implementation Issues
and Research Opportunities”, The International Journal of Logistics Management 9, no. 2 (1998), p.4.
1.5 Distribution Channel Structure

Purpose of a distribution channel is to provide consumers
with the desired combination of its outputs – lot size,
delivery time, etc. - at minimal cost.

Consumers determine channel structure by purchasing
combinations of service outputs.

The best channel is formed when no other group of
institutions (members) generates more profit or more
consumer satisfaction per dollar of product cost.
1.5 Distribution Channel Structure (con’t)

Given a desired level of output by the consumer and
competitive conditions, channel institutions (members) will
arrange their functional tasks in such a way as to minimize
total channel costs.

Shifting of specific functions may lead to addition or deletion
of channel members.
Source :
Bucklin, Louis P., (1966), A Theory of Distribution Channel
Structure, Berkeley, C.A.:Institute of Business and Economic
Research, University of California.
1.6 Channel Strategies

Outsourcing
a. An organization can choose to perform all logistics
activities itself or use channel intermediaries, or a mix of
both.
b. “Make or buy” or outsourcing decisions need to address
the question:
Does the organization need to develop the required skills
and capabilities internally, or can it be done faster and
more efficiently by using a third party?
1.6 Channel Strategies

Postponement
a. Forms of postponement
i.
Postponing changes in the form and identity of a
product to the last possible point in the marketing
process
ii. Postponing inventory location to the last possible
point in time
1.6 Channel Strategies

Postponement
b. Postponement achieves the following:
i.
Reduces risk & uncertainty costs by moving product
differentiation nearer to the time of purchase, when
demand is more easily forecasted.
ii. Reduces logistics costs by sorting products in large
lots, in relatively undifferentiated states
iii. Reduce inventory costs by shifting ownership of
goods from one channel member to another
1.6 Channel Strategies

Speculation
a.
By keeping speculative inventory, an organization assumes risk
instead of shifting it – opposite of postponement.
b.
Speculation can reduce marketing costs through the following:
i.
Economies of large-scale production
ii.
Placement of large orders – reduces order processing and
transportation costs
iii. Reduction of stock-outs and their associated costs
iv. Reduction of uncertainty
c.
To reduce level of speculative inventory, organizations explore
time-based competitive strategies, e.g. reducing production
lead-time.
1.6 Channel Strategies
 Time-to-Market
a. Speed can be used as a competitive weapon.
b. Using
technology
to
share
information
among
manufacturers, suppliers, customers, carriers, etc, is key to
achieving speed to market
 Information concerning lead times, sales forecasts,
production schedules, material requirements, shipping
schedules, new product plans, payment, etc.
1.6 Channel Strategies

Time-to-Market
c. Benefits of effective time-based management:
i.
Enhanced customer value through better
responsiveness
ii.
Reduced inventories due to shorter lead times
iii. Reduced “cost-added” or duplicate functions
iv. Improved
product
freshness
or
quality
reduced handling and lower inventories
v.
through
Improved competitive position
vi. Increasing responsiveness to changing market needs
vii. Improved productivity
1.7 Supply Chain Network Structure
 3 primary structural aspects of a network structure:
a. Members of the supply chain
b. Structural elements of the network
c. Different types of process links across the supply chain
1.7 Supply Chain Network Structure

Identifying Supply Chain Members
a. Members include all companies or organizations with whom the
focal company interacts directly or indirectly through its
suppliers or customers, from point-of-origin to point-ofconsumption.
b. Can be categorized into primary and supporting members.
i. Primary members actually perform operational and/or
managerial activities in the business processes
designed to produce a specific output for a particular
customer or market.
ii. Supporting members provide resources,
utility or assets for the primary members.
knowledge,
c. Same company can perform both primary and supporting
activities.
1.7 Supply Chain Network Structure

Structural Dimensions of the Network
a. Three structural elements are used to describe, analyze and
manage a supply chain:
i. Horizontal structure – refers to the number of tiers
across the supply chain
 Long horizontal structure has many tiers
ii. Vertical structure – refers to the number of
suppliers/customers represented within each tier
 Narrow vertical structure has few
each tier level
companies at
iii. Horizontal position of the focal company within the end
points of the supply chain
1.7 Supply Chain Network Structure

Business Process Links within the Network
a. Four types of business process links can be identified between
supply chain members:
i. Managed process links – These are links that the focal
company finds important to integrate and manage, e.g.
tier 1 customers and suppliers.
ii. Monitored process links – These are links that are not as
critical to the focal company, e.g. process links
between other members of the supply chain.
However, it is important to the focal company that these are
integrated and managed appropriately.
Therefore, focal company monitors these.
1.7 Supply Chain Network Structure

Business Process Links within the Network
iii. Non-Managed process links – These are links in which the
focal company is not actively involved, nor are they critical
enough to use resources for monitoring.
Focal company either fully trusts other members to manage
the process appropriately or, because of limited resources,
leaves it up to them.
iv. Non-Member process links – These are process links
between members of the focal company’s supply chain
and non-members of the supply chain.
Non-member links are not considered as links of the focal
company’s supply chain structure, but they can and often will
affect the performance of the focal company and its supply
chain.
Topic 4
Summary
and
Conclusion
1. Supply chain management is different from managing
logistics within a supply chain.
2. Supply chain management is a process-oriented
approach to managing relationships among supply
chain members.
3. Managing information flows is a key element of the
whole process.
4. In analyzing and making decisions on supply chain
management, it is important to identify the members
of the supply chain, understand the structural
dimensions of the network and recognize the various
business process links that exist within the network.