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Informatics in Logistics
Management
Lecture 3. Supply Chain
Management
Lecturer:
Prof. Anatoly Sachenko
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Lecture Overview
Definitions
SCM
Evolution - Six major movements
Problems and Activities/functions
SCM Operations – General and Functional
Structure
Supply Chain business process integration
Key critical supply business processes
Supply chain sustainability
Supply chain value and improving
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Definition
Harland,
1996-Supply chain management
(SCM) is the management of a network of
interconnected businesses involved in the
ultimate provision of product and service
packages required by customers
It’s includes all activities associated with the
flow and transformation of goods and services
from raw materials stage to the end user (the
customer),
as well as the associated information flows
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Definitions
 According
to the Council of Supply Chain Management
Professionals(CSCMP), SCM encompasses the planning
and management of all activities involved in sourcing,
procurement, conversion, and logistics management
 It also includes the crucial components of coordination
and collaboration with channel partners, which can be
suppliers, intermediaries, third-party service
providers, and customers
 In essence, SCM integrates supply and demand
management within and across companies
 More recently, the loosely coupled, self-organizing
network of businesses that cooperate to provide product
and service offerings has been called the Extended
Enterprise
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SCM - Structure
Information
Materials,
parts, subassemblies,
and
services
Inventory
Products
and
Services
Customers
Distributors
Producers
Suppliers
Finished
goods, end
Products
products
and
and services Services
Package
and delivery Products
and
Services
Inventory
Inventory
Cash
Total
satisfaction
with quality,
price,
delivery, and
service
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SCM Evolution – Creation and Integration
Eras
 1.
creation era
 early 1980s - a term SCM was first coined in U.S.
industry
 SCM concept was of great importance in early 20th
century, especially with the creation of assembly line
 2. integration era
 It highlighted with the development of EDI in the
1960s
 developed through the 1990s by ERP introduction
 developed into the 21st century with the expansion of
internet-based collaborative systems
 This era is characterized by both increasing valueadding and cost reductions through integration
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SCM Evolution – Globalization and
Specialization(Phase 1) Eras
 3.
globalization era
 In the late 1980s many organizations started to
integrate global sources into its core business, and
 Expand the SC over national boundaries with the goal
of increasing competitive advantage, value-adding, and
reducing costs through global sourcing
 4. specialization era— phase one: outsourced
manufacturing and distribution
 In the 1990s, industries began to focus on “core
competencies” and adopted a specialization model
 Companies abandoned vertical integration, sold off
non-core operations, and outsourced those functions to
other companies distributing management across
specialized supply chain partnerships
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SCM Evolution – Specialization and SCM 2.0
Eras
 5.
specialization era-phase2: SCM as a service
 Outsourced technology hosting for SC solutions debuted
in late 1990s and used in transportation and collaboration
 It progressed from Application Service Provider from
‘98 through ‘03 to On-Demand,2003-06 to the currently in
focus today SW as a Service (SaaS) model
 6. supply chain management 2.0 (SCM 2.0)
 It was coined to describe globalization and specialization
as well as the evolution of processes & methods
 Web 2.0 is a trend in of WWW use to increase creativity,
info sharing, and collaboration among users, and help
navigate the vast amount of info available on the Web
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Problems addressed by SCM
 Distribution
Network Configuration: number, location of
suppliers, production facilities, distribution centers,
warehouses and customers
 Distribution Strategy: questions of operating control,
delivery scheme, mode and control of transportation
 Trade-Offs in Logistical Activities: The above logistical
activities must be well planned(using a system approach)
and coordinated to achieve the lowest total logistics cost
 Information: Integration of processes through SC to share
valuable info
 Inventory Management: Quantity and location of
inventory
 Cash-Flow: Arranging the payment terms and
methodologies for exchanging funds
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Activities/functions
 Supply
chain management is a cross-function approach
including managing the movement of raw materials
into an organization, certain aspects of the internal
processing of materials into finished goods, and the
movement of finished goods out of the organization and
toward the end-consumer
 As organizations strive to focus on core competencies
and becoming more flexible, they reduce their
ownership of raw materials sources and distribution
channels
 These functions are increasingly being outsourced to
other entities that can perform the activities better or
more cost effectively
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Activities/functions (cont-d)
Several
models have been proposed for
understanding the activities required to
manage material movements across
organizational and functional boundaries
The most common is the SCM Model proposed
by the Global Supply Chain Forum (GSCF)
Supply chain activities can be grouped into
strategic, tactical, and operational levels ( see
next four slides)
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Activities/functions - Strategic level
 Strategic
network optimization
 Strategic partnerships with suppliers, distributors, and
customers, creating communication channels for
critical info and operational improvements
 Product life cycle management, so that new and
existing products can be optimally integrated into SC
 Information technology chain operations
 Where-to-make and make-buy decisions
 Aligning overall organizational strategy with supply
strategy
 It is for long term and needs resource commitment
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Activities/functions - Tactical level
 Sourcing
contracts and other purchasing decisions
 Production decisions, including contracting, scheduling,
and planning process definition
 Inventory decisions, including quantity, location, and
quality of inventory
 Transportation strategy, including frequency, routes,
and contracting
 Benchmarking of all operations against competitors
and implementation of best practices throughout the
enterprise
 Milestone payments
 Focus on customer demand and Habits
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Activities/functions - Operational level
Daily
production and distribution planning,
including all nodes in the supply chain.
Production scheduling for each manufacturing
facility in the supply chain (minute by minute).
Demand planning and forecasting, coordinating
the demand forecast of all customers and sharing
the forecast with all suppliers.
Sourcing planning, including current inventory
and forecast demand, in collaboration with all
suppliers.
Inbound operations, including transportation
from suppliers and receiving inventory.
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Operational level (cont-d)
 Production
operations, including the consumption of
materials and flow of finished goods
 Outbound operations, including all fulfillment
activities, warehousing and transportation to
customers
 Order promising, accounting for all constraints in the
supply chain, including all suppliers, manufacturing
facilities, distribution centers, and other customers
 From production level to supply level accounting all
transit damage cases & arrange to settlement at
customer level by maintaining company loss through
insurance company
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SCM Operations – Inbound and Outbound
Logistics
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SCM Operations – Functional Structure
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Supply Chain business process integration
Successful
SCM requires a change from
managing individual functions to integrating
activities into key supply chain processes
Example scenario: the purchasing department
places orders as requirements become known
The marketing department, responding to
customer demand, communicates with several
distributors and retailers as it attempts to
determine ways to satisfy this demand
 Info shared between supply chain partners can
only be fully leveraged through process
integration
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Supply Chain business process integration
Supply
chain business process integration
involves collaborative work between buyers
and suppliers, joint product development,
common systems and shared information
Operating an integrated supply chain requires
a continuous information flow
However, in many companies, management
has reached the conclusion that optimizing the
product flows cannot be accomplished without
implementing a process approach to the
business
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Key Supply Chain processes
Customer
relationship management
Customer service management
Demand management style
Order fulfillment
Manufacturing flow management
Supplier relationship management
Product development and commercialization
Returns management
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Key critical supply business processes
Customer
service management
Procurement
Product development and commercialization
Manufacturing flow management/support
Physical distribution
Outsourcing/partnerships
Performance measurement
Warehousing management
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a) Customer service management process
 Customer
Relationship Management concerns the
relationship between the organization and its customers
 Customer service is the source of customer info
 It also provides the customer with real-time info on
scheduling and product availability through interfaces
with company's production and distribution operations
 Successful organizations use the following steps
 determine mutually satisfying goals for organization
and customers
 establish and maintain customer rapport
 produce positive feelings in the organization and the
customers
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b) Procurement process
 Strategic
plans are drawn up with suppliers to support the
manufacturing flow management process and the
development of new products
 In firms where operations extend globally, sourcing should
be managed on a global basis
 The desired outcome is a win-win relationship where both
parties benefit, and a reduction in time required for the
design cycle and product development
 Purchasing function develops rapid communication
systems, such as EDI and Internet linkage to convey
possible requirements more rapidly
 Activities related to obtaining products and materials from
outside suppliers involve resource planning, supply
sourcing, negotiation, order placement, inbound
transportation, storage, handling and quality assurance
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c) Product development and commercialization
 Customers
and suppliers must be integrated into the
product development process to reduce time to market
 As product life cycles shorten, the appropriate products
must be developed and successfully launched with ever
shorter time-schedules to remain competitive
 Managers of the product development and
commercialization process must:
 coordinate with customer relationship management to
identify customer-articulated needs;
 select materials and suppliers in conjunction with
procurement, and
 develop production technology in manufacturing flow to
manufacture and integrate into the best supply chain
flow for the product/market combination.
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d) Manufacturing flow management process
 The
manufacturing process produces and supplies
products to the distributors based on past forecasts
 Manufacturing processes must be flexible to respond to
market changes and accommodate mass customization
 Orders are processes operating on a JIT basis
 Changes in manufacturing flow process lead to shorter
cycle and improved efficiency to meet customer
demand
 Activities related to planning, scheduling and
supporting manufacturing operations, such as work-inprocess storage, handling, transportation, and max
flexibility
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e) Physical distribution
This
concerns movement of a finished
product/service to customers
In physical distribution, the customer is the final
destination of a marketing channel, and
the availability of the product/service is a vital
part of each channel participant's marketing
effort
It is also through the physical distribution process
that the time and space of customer service
become an integral part of marketing,
thus it links a marketing channel with its
customers
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f) Outsourcing/partnerships
 It’s
also outsourcing of services that traditionally have been
provided in-house
 Logic of this trend is that the company will increasingly
focus on those activities in the value chain where it has a
distinctive advantage, and outsource everything else
 This movement has been particularly evident in logistics
where the provision of transport, warehousing and
inventory control is increasingly subcontracted to specialists
 Also, managing and controlling this network of partners
and suppliers requires a blend of both central and local
involvement
 Hence, strategic decisions need to be taken centrally, with
the monitoring and control of supplier performance and
day-to-day liaison with logistics partners
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g) Performance measurement
Experts
found a strong relationship from the
largest arcs of supplier and customer integration
to market share and profitability
Taking advantage of supplier capabilities and
emphasizing a long-term SC perspective in
customer relationships can both be correlated
with firm performance
As logistics competency becomes a more critical
factor in creating and maintaining competitive
advantage, logistics measurement becomes
increasingly important because the difference
between profitable and unprofitable operations
becomes more narrow
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g) Performance measurement
 According
to experts, internal measures are generally
collected and analyzed by the firm including
 Cost
 Customer Service
 Productivity measures
 Asset measurement, and
 Quality
 External performance measurement is examined
through customer perception measures and "best
practice" benchmarking, and includes:
 1) customer perception measurement, and
 2) best practice benchmarking
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h) Warehousing management
As
a case of reducing company cost & expenses,
warehousing management is carrying the
valuable role against operations
In case of perfect storing & office with all
convenient facilities in company level, reducing
manpower cost, dispatching authority, loading &
unloading facilities with proper area, area for
service station, stock management system etc.
Components of SCM are as follows:
1. Standardization
2. Postponement
 3.Customization
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Components of SCM management
integration - Management Components
The
SCM components are the third element of
the four-square circulation framework
The level of integration and management of a
business process link is a function of the
number and level, ranging from low to high, of
components added to the link
Consequently, adding more management
components or increasing the level of each
component can increase the level of integration
of the business process link
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SCM Management Components
Planning
and control
Work structure
Organization structure
Product flow facility structure
Information flow facility structure
Management methods
Power and leadership structure
Risk and reward structure
Culture and attitude
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Supply chain sustainability
SC
sustainability is a business issue affecting an
organization’s SC or logistics network and is
frequently quantified by comparison with SECH
ratings
SECH ratings are defined as social, ethical,
cultural and health footprint
Consumers have become more aware of the
environmental impact of their purchases and
companies’ SECH ratings and, along with nongovernmental organizations(NGOs), are setting
the agenda for transitions to organically-grown
foods and locally-produced goods that support
independent and small businesses
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Three Tiers of Sustainability
In
2008 a ranking system was produced for the
different levels of sustainability being achieved
by organizations
This was called the Three Tiers of
Sustainability:
Tier 1: Getting the basics right
Tier 2: Learning to think sustainably
Tier 3: The science of sustainability
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Three Tiers of Sustainability
Tier
1: Getting the basics right
This is the base level and is the stage in which the
majority of organizations are at
Companies employ simple measures such as
switching lights and PCs off when left idle,
recycling paper, and using greener forms of travel
with the purpose of reducing the day-to-day
carbon footprint
 Some companies also employ self-service
technologies such as centralized procurement and
teleconferencing
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Three Tiers of Sustainability
Tier
2: Learning to think sustainably
This is the second level, where companies
begin to realize the need to embed
sustainability into supply chain operations
Companies tend to achieve this level when they
assess their impact across a local range of
operations
In terms of SC, this could involve supplier
management, product design, manufacturing
rationalization, and distribution optimization
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Three Tiers of Sustainability
 Tier
3: The science of sustainability
 It uses auditing and benchmarks to provide a
framework for governing sustainable SC operations
 This gives clarity around the environmental impact of
adjustments to SC agility, flexibility, and cost in the SC
network
 Moving towards this level means being driven by the
current climate (in which companies recognize cost
savings through green operations as being significant)
as well as pushing emerging regulations and standards
at both an industry and governmental level
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Supply chain systems and value
Supply
chain systems configure value for those
that organize the networks
Value is the additional revenue over and above
the costs of building the network
Co-creating value and sharing the benefits
appropriately to encourage effective articipation
is a key challenge for any supply system
Tony Hines defines value as follows: “Ultimately
it is the customer who pays the price for service
delivered that confirms value and not the
producer who simply adds cost until that point”
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Improving the Supply Chain Through IT
Centralized
coordination of information flows
Integration of transportation, distribution,
ordering, and production
Direct access to domestic and global
transportation and distribution channels
Locating and tracking the movement of every
item in the supply chain
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Improving the Supply Chain Through IT
Consolidation
of purchasing from all suppliers
Intercompany and intercompany information
access
Data interchange
Data acquisition at the point of origin and
point of sale
Instantaneous updating of inventory levels
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Global supply chain management
 Global
SC pose challenges regarding quantity and
value:
 Supply and value chain trends
 Globalization
 Increased cross border sourcing
 Collaboration for parts of value chain with lowcost providers
 Shared service centers for logistical and
administrative functions
 Increasingly global operations, which require
increasingly global coordination and planning
 Complex problems involve also midsized
companies to an increasing degree
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References
Hines,
T. 2004. Supply chain strategies:
Customer driven and customer focused. Oxford:
Elsevier.